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 2018 or 30 April 2019 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2018 and 2019; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 30 April 2018 have been filed with the Registrar of Companies and the statutory accounts for the year ended 30 April 2019 will be delivered to the Registrar in due course.
The Annual Report and Financial Statements for the year ended 30 April 2019, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection http://www.morningstar.co.uk/uk/NSM and is also available on 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 2019
Chairman's Statement
In the year to 30 April 2019 Monks produced a satisfactory return after a weak first half and a second half recovery, with the net asset value (NAV) and share price reaching an all-time high shortly before the year end. This supported the Board's view that short-term volatility, while inevitable, is of little relevance to long-term returns.
The managers continue to build a strong track record, based on a consistent investment approach and a clear exposition of their investment beliefs. This approach is founded on long-term perspectives which result in low stock turnover and a differentiated actively managed portfolio, with exposure to a range of companies with above average growth. The Managers' Report highlights that fundamental revenue and profit growth by the underlying holdings has again been the main determinant of returns.
The consistency of investment approach combined with an increase in marketing efforts has contributed to a material change in the Monks share register over recent years. Intermediaries such as discretionary wealth managers and individuals have increased their combined shareholding from 61.7% in April 2015 to 83% currently. This is gratifying, as the Board believes that Monks represents a sound long-term savings vehicle for such investors, who benefit from high quality professional portfolio management together with independent board oversight at a competitive cost.
Performance
The Board believes that performance should only be assessed over longer term periods, ideally of five years or more but is encouraged to note that in the year to 30 April 2019 the NAV total return, with borrowings calculated at fair value, was 12.0% and the share price total return was 12.7%, while the FTSE World Index returned 11.7%. Since the change in investment approach implemented in March 2015 the NAV total return at fair value has been 76.8% against the comparative index at 56.7%*. Over the same period the share price total return was 107.8%, benefiting from the closing of the discount to NAV at which the shares had previously traded.
Share Issuance
Share issuance is only undertaken at a premium to the NAV so as to benefit existing investors. As a result of our shares consistently trading close to NAV during the year the Company was able to issue 1,450,000 new shares at a premium to NAV, being 0.7% of Monks share capital and raising £12m of new funds for investment. The premium to NAV with borrowings calculated at fair value stood at 4.0% at 30 April 2019, up from 3.4% at the start of the year.
Borrowings and Gearing
Among the advantages of investment trusts over other forms of collective investment is the ability to invest borrowed funds to enhance shareholder returns over the long term. At the financial year end, the invested gearing was 6.4% which remains below the 10% level that the Board and managers believe should be the long-term neutral position. The managers stand ready to take advantage of attractive investment opportunities with flexible short-term bank facilities in place (see Borrowings section further below for details).
Management Expenses
Monks aims to be competitive on fees and expenses, which helps to enhance returns to shareholders. Having agreed two reductions in the management fee in recent years the total ongoing charges ratio for the year to 30 April 2019 was 0.50%, down from 0.52% in the prior year and 0.58% at April 2015. The current tiered management fee scale (see the Management Fee Arrangements section below) should ensure that shareholders will benefit from economies of scale should Monks continue to grow.
Unquoted Investments
The managers believe that a growing part of Monks investment opportunities consist of companies which are not yet listed and that investment in such private companies has the potential to enhance future returns, especially as more successful growth companies are remaining private for longer. The Board has increased the limit on private company exposure to 5% of the portfolio (from 2%) and has approved an investment of 2% of assets in The Schiehallion Fund, a listed Baillie Gifford managed vehicle dedicated to investing in late-stage high-growth private businesses. This will give Monks exposure to a wider range of investment opportunities in such businesses than would otherwise be the case. Schiehallion will not charge any fee on uninvested funds and the value of our investment will be excluded from calculation of Monks own fee.
Earnings and Dividend
Monks invests with the aim of maximising capital growth rather than income and all costs are charged to the Revenue Account. The Board is recommending that a single final dividend of 1.85p should be paid, compared to 1.40p last year. This is the minimum required to maintain investment trust status. Retained earnings are reinvested in the portfolio to benefit future capital returns.
The Board
Douglas McDougall is retiring from the Board at the AGM. He has been a Director since 1999 and was the manager of Monks from 1984 to 1999. In both capacities he has made a major contribution to the development and success of Monks. We are very grateful to him for many years of wise investment advice. It is our intention to recruit a new Director in the near future.
Outlook
Recent years have been characterised by a plethora of economic anxieties, especially relating to the possible impact of rising interest rates on asset prices around the world. A decade on from the depths of the financial crisis, these rates remain close to trough levels and inflation is subdued, reflecting weak economic momentum. Yet at the same time the growth opportunity for many companies is expanding dramatically, as new technologies totally transform the way that business is conducted. This is creating new corporate champions across a widening swathe of markets and industries, at a pace and to a scale which may be unprecedented. Monks is well placed to benefit from such opportunities whilst also holding a balanced and diversified portfolio of growth stocks which should prosper, whatever the prevailing macro-economic backdrop.
Annual General Meeting
I would encourage shareholders to attend the Annual General Meeting, which will be held on 3 September 2019 at 11.00am 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
19 June 2019
* Total returns from 31 March 2015 to 30 April 2019.
Past performance is not a guide to future performance.
Total return information is sourced from Baillie Gifford /Refinitiv. See disclaimer at the end of this announcement.
For a definition of terms used see Glossary of Terms and Alternative Performance Measures 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 holdings fall into one of four growth categories - as set out in the Investment 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 Investments are held in three broad holding sizes - as set out in the Investment 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 and Alternative Performance Measures at the end of this announcement.
Managers' Report
Background
The financial year to end April 2019 saw global markets agitated by fears over trade wars, the mis-use of technology and data and the possible stalling of a ten-year bull market. Such fears calmed during the early months of 2019 and markets recovered somewhat. In truth, the economic background has remained largely unchanged from a year ago, with a familiar list of concerns juxtaposed with continuing good progress from companies around the world. As previously, the headlines are dominated by the macro concerns, whereas we believe the progress of the corporate sector is far more important to long-term value creation.
Performance
During the year the Company's net asset value (NAV), with borrowings at fair value, returned 12.0%, in line with the FTSE World Index at 11.7%. The market's behaviour was typical of any short-run 'random walk'. Indeed, as any dog owner will know, the distance travelled and directions taken by a dog during its daily meanderings are of little consequence to the result, which is that both dog and owner arrive at the same destination at the same time. The dog has been distracted by many sights and smells along the way while the owner has stuck to the path and expended far less energy.
As investment managers, we identify with the dog's owner and we stick to the path of a tried and tested investment philosophy and process which seeks to identify outstanding growth businesses, defined by long-term progress in profit and cashflows. The stock market is represented by the dog - it gets distracted by Mr Trump's tweets, Brexit deliberations, economic statistics, commodity prices and all manner of other influences. When markets are choppy, as they have been, we remain firmly focused on company fundamentals. In our view the return earned by Monks over the year was fully justified by the underlying growth delivered by the portfolio holdings.
Examples of strong performers included several well-known online technology companies. On average Facebook, Amazon, Netflix, Alphabet (Google), Baidu, Alibaba and Tencent (which we own through the South African media company, Naspers) grew revenues by 34% despite significant investment in the future. These stocks accounted for 13.9% of total assets at the year end.
Over the past two years we have tended to reinvest some of the gains from these technology leaders towards newer, more specialist online operators. Many of these are also growing very rapidly, such as LendingTree (US financials services aggregator), MercadoLibre (Latin American e-commerce), Chegg (US online education) and Shopify. Headquartered in Ottawa and founded by a German, Tobias Lütke, Shopify offers a platform for small businesses to sell their goods and services online. A sole trader can buy a domain name, create a website, take orders, arrange delivery and use Shopify's back office accounting and inventory software to create an impressive online presence. Shopify is also increasingly attracting mid and large sized customers as it expands its capabilities with businesses such as Budweiser, Penguin Books and The Lady Gaga Official Shop using its platform.
A key attribute of the Monks portfolio is 'balance and diversification'. Whilst online technology is exciting, we also value proven business models which we think won't get disrupted by online revolutionaries. In Emerging Markets, we have seen impressive progress from Banco Bradesco (Brazil) and ICICI Bank (India). In the US, Visa and Mastercard are the rails on which so many financial transactions rest, and continue to prosper with both seeing 2018 earnings rise by more than 30%. Moody's also fared well despite cyclical headwinds in its traditional bond ratings business, as Moody's Analytics continued to grow steadily and is now incorporating data analytics to help companies understand and mitigate risks.
As always there were inevitably some holdings that produced less pleasing performance. Apache was hit by lower oil and gas prices and has not yet developed the infrastructure to get its large reserves from its Texan oil fields to market. Ryanair has made several gaffes, notably the piloting rota errors, which forced a strategic re-think of its decision not to employ unionised workers. Ryanair's success in disrupting the European airline industry has been based on an unconventional approach with a relentless focus on low costs. Success brings responsibility to employees, customers and other stakeholders and we have engaged with the board on how best to get through the current growing pains. A new chairman will arrive in 2020 and we believe the company is already demonstrating a more mature attitude.
To demonstrate that online technology companies do not all grow consistently in a straight line, Grubhub, CyberAgent and Zillow each had a more difficult year. Zillow has immense promise as a disruptor in the inefficient and expensive US real estate market but it continues to evolve as it seeks to find the optimal business model. CyberAgent is also attempting to grow in new directions, through developing a totally new and original mobile TV service in Japan, whose route to profitability is as yet unproven. Grubhub, which was among our very strongest investments in the previous year, suffered from an increase in competitive heat.
Over the last five years the share price of Prudential has been somewhat disappointing despite strong operational performance and we have used periods of weakness to build our position to a point where it is now one of our very largest holdings. Our rationale is simple: at least half of its value comes from its under-appreciated yet fast growing Asian operations; it trades on a significant discount to fair value; it is hard to disrupt with many years of growth potential ahead and it is well run. Prudential's new business profits in Asia have compounded at 18% and 19% respectively over the last 5 and 10 years. It is interesting to note that Ping An and AIA, both of which are pure Asian insurance companies, were among our top contributors to performance over the past twelve months.
Portfolio Changes
During the year we purchased eighteen new holdings and sold eighteen. These transactions are summarised below. Portfolio turnover fell modestly from 20% to 16%. This equates to a holding period of six 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 way we expect our holdings to grow over the long term. The year end weights in each category and the individual holdings can be seen below. Over the past three years there has been a notable reduction in the exposure to Cyclical Growth stocks (from 29.3% to 17.9%) and a similar increase in Rapid Growth companies (from 32.8% to 41.5%).
The Interim Report mentioned a number of new buys, so here we focus on some of the holdings bought since then. In the Stalwart category we purchased Microsoft. This company is still early in a period of rejuvenation under the current CEO, Satya Nadella, who has brought a new dynamism to what was always a famously strong business. Cloud computing and the shift to a subscription model are opening up many new growth opportunities which should help Microsoft to accelerate revenue growth and more than double its earnings over the next five years.
Three new Rapid Growth holdings are worthy of mention. We have re-purchased Abiomed which makes the world's smallest heart pump. We held it briefly in 2017 and 2018 during which time the shares rose 350%, so we sold on valuation grounds. The fundamentals remain excellent for this company which has a strong competitive advantage but the shares declined significantly in late 2018 and we have, once again, taken a holding. Illumina is the leading manufacturer of gene sequencing technology and the key enabler of the revolution in better understanding of human biology, improved diagnosis and personalised medicine. The company has executed admirably as it has scaled up its activities and we have bought a holding. We also took a position in Reliance Industries. This Indian company is best known for its giant, modern and highly efficient oil refineries which account for 80%+ of the firm's profits today. However, the cash flows from this division are now being re-directed into two businesses with huge potential in India. First, Reliance has become the country's largest formal retailer by revenue (grocery, fashion and consumer electronics), having grown at high rates over the last four years. Second, it has built up the world's largest mobile data network, Reliance Jio, which offers free voice calls and has added a remarkable 250 million subscribers in just two years, disrupting the incumbent industry. The future should see Reliance combine these two activities to form India's leading e-commerce and data infrastructure company.
A noteworthy addition to the portfolio is a holding in The Schiehallion Fund, a Baillie Gifford managed vehicle dedicated to investing in late-stage high-growth private businesses. Companies are staying private for longer given lower capital and regulatory requirements and the fund seeks to generate attractive returns from this growing and exciting opportunity set. This complements three directly held unquoted investments, including, GRAIL Inc, the gene sequencing business, and Ant Financial, the Chinese payment and savings platform.
Recent sales include some investments which had disappointed relative to our expectations and where we lost confidence in their ability to deliver the quantum of growth necessary to support strong returns to investors. These included Line, IP Group, NetEase, HTC, MTN and Rohm which are all in the broad area of technology. Technology companies tend to be subject to myriad challengers and often rapidly shifting industry dynamics, so it is not surprising that many struggle to realise their full potential. We also sold some more traditional businesses that had generally fared better including US industrial cyclical companies Lincoln Electric and CH Robinson. We follow a disciplined process through monitoring each investment's progress against our long-term expectations; when this breaks down over a meaningful time period we re-evaluate and sell if the prospects are not seen to be improving.
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New Purchases |
Complete Sales |
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Abiomed |
Abiomed |
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Albemarle |
Advanced Micro Devices |
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Ant International |
CH Robinson Worldwide |
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Axon Enterprise |
China Biologic Products |
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BHP Billiton |
Dia |
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Chipotle Mexican Grill |
HTC |
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ICICI Prudential Life Insurance |
IP Group |
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Illumina |
Kansai Paint |
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Istyle |
Lincoln Electric |
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Just East |
Line |
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Meituan Dianping |
MTN |
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Microsoft |
NetEase |
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Novocure |
NVIDIA |
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Ping An Insurance |
OC Oerlikon |
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Reliance Industries |
Rohm |
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Service Corporation International |
Samsung Electronics |
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Shopify |
Svenska Handelsbanken |
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The Schiehallion Fund |
Yandex |
Outlook
The Monks Investment Trust is managed in accordance with four overriding themes. As mentioned, we believe in the benefits of 'balance and diversification'. We are also 'reward seeking'; we invest for long-term upside potential and look to own companies where there is a strong chance that we can double your money in five years. We also seek to 'embrace asymmetry'; stock market returns are not normally distributed but are heavily skewed towards a small minority of companies that produce disproportionate gains, such as Amazon and Microsoft in the current era. We are ambitious in our approach. Last but not least, an increasingly important factor which we have always focused on is being 'long-term stewards of capital'. We see our role as helping companies to realise their full potential, by encouraging good governance, growth-focused capital allocation and consideration of broader sustainability factors. Exceptional investments tend to be ambitious, bold, flexible and long term in focus; we believe successful investors need similar qualities.
We continue to focus on individual companies which have strong competitive advantages in growth markets and the skills to capitalise on those opportunities. Politicians, economists, Tweeters and headline writers will no doubt frequently throw markets off the scent of the steady path to success. We intend to stick to our tried and tested philosophy and process to keep the Monks portfolio on track and we remain excited by the opportunities that continue to present themselves to help us in that endeavour.
Charles Plowden
Spencer Adair
Malcolm MacColl
19 June 2019
Past performance is not a guide to future performance.
Total return information is sourced from Baillie Gifford/Refinitive. See disclaimer at the end of this announcement.
For a definition of terms used see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
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Investment Portfolio by Growth Category as at 30 April 2019* |
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Holding Size |
Growth Stalwarts |
% |
Rapid Growth |
% |
Cyclical Growth |
% |
Latent Growth |
% |
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(c.10% p.a. earnings growth)
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(c.15% to 25% p.a. earnings growth) |
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(c.10% to 15% p.a. earnings growth through a cycle)
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(earnings growth to accelerate over time)
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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
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Company Characteristics ¾ Early stage businesses with vast growth opportunity ¾ Innovators attacking existing profit pools or creating new markets |
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Company Characteristics ¾ Subject to macroeconomic and capital cycles with significant structural growth prospects ¾ Strong management teams highly skilled at capital allocation |
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Company Characteristics ¾ Company specific catalyst will drive above average earnings in future ¾ Unspectacular recent operational performance and therefore out of favour |
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Highest conviction holdings c.2.0% each
Total: 30.2% |
Prudential |
3.3 |
Naspers |
3.6 |
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AIA |
2.3 |
Amazon.com |
3.3 |
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Anthem |
2.1 |
Alibaba |
2.8 |
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MasterCard |
1.9 |
The Schiehallion Fund |
2.1 |
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Moody's |
1.9 |
Alphabet |
2.0 |
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Visa |
1.7 |
Ping An Insurance |
1.6 |
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SAP |
1.6 |
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Average sized holdings c.1.0% each
Total: 43.2% |
Pernod Ricard |
1.4 |
ICICI Bank |
1.5 |
CRH |
1.4 |
Apache |
1.4 |
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Thermo Fisher Scientific |
1.3 |
HDFC |
1.3 |
Martin Marietta Materials |
1.2 |
MS&AD Insurance |
1.2 |
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Microsoft |
1.2 |
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1.1 |
Banco Bradesco |
1.1 |
Kirby |
1.1 |
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Schindler |
1.0 |
MarketAxess |
1.0 |
Royal Caribbean Cruises |
1.1 |
BHP Billiton |
0.9 |
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Arthur J. Gallagher |
1.0 |
Reliance Industries |
1.0 |
Markel |
0.9 |
Fairfax Financial |
0.8 |
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Resmed |
1.0 |
Seattle Genetics |
0.9 |
TSMC |
0.9 |
Sberbank of Russia |
0.8 |
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Verisk Analytics |
0.9 |
Ryanair |
0.8 |
SMC |
0.8 |
Sumitomo Mitsui Trust Hldgs |
0.7 |
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Service Corporation International |
0.9 |
LendingTree |
0.8 |
Richemont |
0.7 |
Signify |
0.7 |
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MercadoLibre |
0.8 |
EOG Resources |
0.7 |
Lindblad Expeditions Holdings |
0.7 |
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Olympus |
0.9 |
Autohome |
0.8 |
TD Ameritrade |
0.7 |
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Bureau Veritas |
0.8 |
Trupanion |
0.7 |
First Republic Bank |
0.7 |
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Waters |
0.8 |
Ctrip.com International |
0.7 |
Advantest |
0.7 |
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Netflix |
0.7 |
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iRobot |
0.7 |
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Incubator Holdings c.0.5% each
Total: 26.6% |
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Shopify |
0.6 |
Atlas Copco |
0.6 |
Stericycle |
0.6 |
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Chegg |
0.6 |
Teradyne |
0.6 |
Tsingtao Brewery |
0.6 |
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Baidu |
0.6 |
Deutsche Boerse |
0.6 |
Bank of Ireland |
0.6 |
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Renishaw |
0.6 |
Jefferies Financial Group |
0.6 |
DistributionNOW |
0.6 |
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58.com |
0.6 |
Wabtec |
0.5 |
AP Moller-Maersk |
0.5 |
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Zillow |
0.6 |
Epiroc |
0.5 |
ICICI Prudential Life Insurance |
0.5 |
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B3 Group |
0.6 |
Hays |
0.5 |
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CyberAgent |
0.6 |
Jardine Strategic Holdings |
0.5 |
Toyota Tsusho |
0.5 |
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Chipotle Mexican Grill |
0.6 |
Ritchie Bros Auctioneers |
0.4 |
MRC Global |
0.4 |
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Grubhub |
0.5 |
PageGroup |
0.4 |
Howard Hughes |
0.4 |
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Schibsted |
0.5 |
Sands China |
0.4 |
Iida Group Holdings |
0.4 |
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Tesla |
0.5 |
Orica |
0.4 |
Fiat Chrysler Autos |
0.4 |
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M3 |
0.5 |
Persol Holdings |
0.4 |
Veeco Instruments |
0.4 |
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Spotify |
0.5 |
Albemarle |
0.3 |
Silk Invest Africa Food Fund |
0.2 |
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Myriad Genetics |
0.5 |
SiteOne Landscape Supply |
0.3 |
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Istyle |
0.5 |
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Multi Choice Group |
0.1 |
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Ant International |
0.5 |
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Ferro Alloy Resources |
0.1 |
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Infineon Technologies |
0.5 |
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Alnylam Pharmaceuticals |
0.4 |
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Interactive Brokers Group |
0.4 |
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Just Eat |
0.4 |
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GRAIL |
0.4 |
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Genmab |
0.4 |
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Meituan Dianping |
0.3 |
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Illumina |
0.3 |
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Mail.ru Group |
0.3 |
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Novocure |
0.2 |
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Adevinta Asa |
0.2 |
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Abiomed |
0.1 |
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Axon Enterprise |
- |
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Total |
26.0 |
Total |
41.5 |
Total |
17.9 |
Total |
14.6 |
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* Excludes net liquid assets
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Portfolio Positioning as at 30 April 2019 |
Thematic Exposure
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At 30 April 2019 |
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Category |
% |
% |
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Developed Market Growth |
|
24.2 |
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Industrial |
|
7.8 |
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Consumer |
|
5.0 |
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Capital Markets/Asset Inflation |
|
3.7 |
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Japanese Reflation |
|
2.7 |
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Interest Rate Normalisation |
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2.6 |
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Resources |
|
2.4 |
|
|
Developing Economies |
|
24.4 |
||
|
|
Emerging Markets Middle Classes |
|
20.0 |
|
|
|
|
EM Financial Development |
11.6 |
|
|
|
|
EM Consumer Catch-up |
8.4 |
|
|
|
Resources |
|
2.9 |
|
|
|
Industrial |
|
1.5 |
|
|
New Economy |
|
31.7 |
||
|
|
Internet Winners |
|
19.6 |
|
|
|
|
Developed World |
13.8 |
|
|
|
|
Emerging World |
5.8 |
|
|
|
Innovation |
|
12.1 |
|
|
|
|
Other Innovation |
5.9 |
|
|
|
|
Disruptive Health |
3.6 |
|
|
|
|
Semi-Conductor Chips |
2.6 |
|
|
Economically Agnostic |
|
18.6 |
||
|
|
Stalwarts |
|
15.9 |
|
|
|
Insurance Cycle |
|
2.7 |
|
|
Net Liquid Assets |
|
1.1 |
||
|
Total Assets |
|
100.0 |
||
Geographical Analysis
|
|
At 30 April 2019 % |
At 30 April 2018 % |
|
North America |
45.8 |
44.7 |
|
Continental Europe |
13.6 |
17.0 |
|
Emerging Markets |
21.0 |
19.4 |
|
United Kingdom |
8.1 |
5.3 |
|
Japan |
7.0 |
8.5 |
|
Developed Asia |
3.4 |
3.5 |
|
Net Liquid Assets |
1.1 |
1.6 |
|
Total Assets |
100.0 |
100.0 |
Sectoral Analysis
|
|
|
At 30 April 2019 % |
At 30 April 2018 % |
|
Oil and Gas |
4.1 |
3.8 |
|
|
Basic Materials |
1.7 |
1.1 |
|
|
Industrials |
15.5 |
15.3 |
|
|
Consumer Goods |
4.6 |
6.7 |
|
|
Health Care |
8.3 |
9.0 |
|
|
Consumer Services |
18.6 |
19.9 |
|
|
Financials |
32.0 |
28.6 |
|
|
Technology |
14.1 |
13.8 |
|
|
Telecommunications |
- |
0.2 |
|
|
Total Investments |
98.9 |
98.4 |
|
|
Net Liquid Assets |
1.1 |
1.6 |
|
|
Total Assets |
100.0 |
100.0 |
|
|
List of Investments at 30 April 2019 |
|
Name |
Business |
Growth category |
Fair value £'000 |
% of total assets |
Cumulative % of total assets |
|
Naspers |
Media and e-commerce company |
Rapid |
71,043 |
3.5 |
|
|
Amazon.com |
Online retailer |
Rapid |
66,143 |
3.3 |
|
|
Prudential |
International life insurance |
Stalwart |
65,190 |
3.3 |
|
|
Alibaba |
Online commerce company |
Rapid |
54,687 |
2.7 |
|
|
AIA |
Asian life insurer |
Stalwart |
44,826 |
2.2 |
|
|
Anthem |
Healthcare insurer |
Stalwart |
41,388 |
2.1 |
|
|
The Schiehallion Fund |
Global unlisted growth equity investment company |
Rapid |
41,002 |
2.0 |
|
|
Alphabet |
Online search engine |
Rapid |
39,115 |
2.0 |
|
|
MasterCard |
Electronic payments network and related services |
Stalwart |
38,711 |
1.9 |
|
|
Moody's |
Credit rating agency |
Stalwart |
38,373 |
1.9 |
24.9 |
|
Visa |
Electronic payments network and related services |
Stalwart |
33,858 |
1.7 |
|
|
SAP |
Enterprise software provider |
Stalwart |
31,573 |
1.6 |
|
|
Ping An Insurance |
Life insurance services |
Rapid |
31,089 |
1.6 |
|
|
ICICI Bank |
Indian retail and corporate bank |
Rapid |
29,191 |
1.5 |
|
|
Apache |
Oil and gas exploration and production |
Latent |
27,771 |
1.4 |
|
|
CRH |
Diversified building materials company |
Cyclical |
27,363 |
1.4 |
|
|
Pernod Ricard |
Global spirits manufacturer |
Stalwart |
27,314 |
1.4 |
|
|
Thermo Fisher Scientific |
Scientific instruments, consumables and chemicals |
Stalwart |
25,619 |
1.3 |
|
|
HDFC |
Indian mortgage provider |
Rapid |
25,299 |
1.3 |
|
|
Microsoft |
Software and cloud computing enterprise |
Stalwart |
23,782 |
1.2 |
39.3 |
|
Martin Marietta Materials |
Cement and aggregates manufacturer |
Cyclical |
23,753 |
1.2 |
|
|
MS&AD Insurance |
Japanese insurer |
Latent |
23,432 |
1.2 |
|
|
Kirby |
US barge operator |
Latent |
22,580 |
1.1 |
|
|
Banco Bradesco |
Brazilian commercial bank |
Cyclical |
22,308 |
1.1 |
|
|
Royal Caribbean Cruises |
Global cruise company |
Cyclical |
21,295 |
1.1 |
|
|
|
Social networking website |
Rapid |
21,102 |
1.1 |
|
|
MarketAxess |
Electronic bond trading platform |
Rapid |
20,048 |
1.0 |
|
|
Reliance Industries |
Indian energy conglomerate |
Rapid |
19,733 |
1.0 |
|
|
Schindler |
Elevator and escalator company |
Stalwart |
19,405 |
1.0 |
|
|
Arthur J. Gallagher |
Insurance broker |
Stalwart |
19,119 |
1.0 |
50.1 |
|
Resmed |
Develops and manufactures medical equipment |
Stalwart |
18,986 |
0.9 |
|
|
Verisk Analytics |
Risk assessment services and decision analytics |
Stalwart |
18,796 |
0.9 |
|
|
Markel |
Markets and underwrites speciality insurance products |
Cyclical |
18,710 |
0.9 |
|
|
BHP Billiton |
Mineral exploration and production |
Latent |
18,075 |
0.9 |
|
|
Service Corporation International |
Death care services |
Stalwart |
17,991 |
0.9 |
|
|
Olympus |
Optoelectronic products |
Stalwart |
17,804 |
0.9 |
|
|
TSMC |
Semiconductor manufacturer |
Cyclical |
17,494 |
0.9 |
|
|
Seattle Genetics |
Antibody based therapies |
Rapid |
17,253 |
0.9 |
|
|
Ryanair |
Low cost European airline |
Rapid |
16,841 |
0.8 |
|
|
LendingTree |
US online loan marketplace |
Rapid |
16,711 |
0.8 |
58.9 |
|
MercadoLibre |
Latin American e-commerce platform |
Rapid |
16,364 |
0.8 |
|
|
Bureau Veritas |
Global testing services company |
Stalwart |
16,294 |
0.8 |
|
|
Fairfax Financial |
Commercial insurance |
Latent |
16,044 |
0.8 |
|
|
Waters |
Liquid chromatography products and services |
Stalwart |
15,596 |
0.8 |
|
|
Autohome |
Chinese online automobile website |
Rapid |
15,442 |
0.8 |
|
|
SMC |
Producer of factory automation equipment |
Cyclical |
15,100 |
0.8 |
|
|
Richemont |
Luxury goods company |
Cyclical |
15,021 |
0.7 |
|
|
Sberbank of Russia |
Russian commercial bank |
Latent |
14,920 |
0.7 |
|
|
EOG Resources |
Natural gas explorer and producer |
Cyclical |
14,614 |
0.7 |
|
|
TD Ameritrade |
Online brokerage firm |
Cyclical |
14,558 |
0.7 |
66.5 |
|
Sumitomo Mitsui Trust Holdings |
Japanese trust bank and investment manager |
Latent |
14,549 |
0.7 |
|
|
Signify |
Lighting products, systems and services |
Latent |
13,895 |
0.7 |
|
|
Trupanion |
Pet health insurance provider |
Rapid |
13,838 |
0.7 |
|
|
Ctrip.com International |
Online travel agency |
Rapid |
13,836 |
0.7 |
|
|
First Republic Bank |
US retail bank |
Cyclical |
13,681 |
0.7 |
|
|
Advantest |
Semiconductor testing services |
Cyclical |
13,516 |
0.7 |
|
|
Lindblad Expeditions Holdings |
Specialist vacation operator |
Latent |
13,322 |
0.7 |
|
|
Netflix |
Subscription service for TV shows and movies |
Rapid |
13,241 |
0.7 |
|
|
iRobot |
Domestic and military robot manufacturer |
Rapid |
13,168 |
0.7 |
|
|
Shopify |
Online commerce platform |
Rapid |
12,838 |
0.6 |
73.4 |
|
Chegg |
Online educational platform |
Rapid |
12,743 |
0.6 |
|
|
Baidu |
Chinese online search engine |
Rapid |
12,684 |
0.6 |
|
|
Atlas Copco |
Industrial equipment |
Cyclical |
12,523 |
0.6 |
|
|
Renishaw |
World leading metrology company |
Rapid |
12,433 |
0.6 |
|
|
58.com |
Chinese online marketplace |
Rapid |
12,043 |
0.6 |
|
|
Teradyne |
Semiconductor testing equipment manufacturer |
Cyclical |
12,028 |
0.6 |
|
|
Zillow |
US online real estate services |
Rapid |
11,982 |
0.6 |
|
|
Deutsche Boerse |
Stock exchange operator |
Cyclical |
11,932 |
0.6 |
|
|
Stericycle |
Regulated medical waste management services |
Latent |
11,809 |
0.6 |
|
|
Tsingtao Brewery |
Chinese brewer |
Latent |
11,709 |
0.6 |
79.4 |
|
B3 Group |
Brazilian stock exchange operator |
Rapid |
11,418 |
0.6 |
|
|
Bank of Ireland |
Irish bank |
Latent |
11,393 |
0.6 |
|
|
CyberAgent |
Japanese internet advertising and content |
Rapid |
11,344 |
0.6 |
|
|
Chipotle Mexican Grill |
Fast casual Tex-Mex restaurants |
Rapid |
11,117 |
0.6 |
|
|
DistributionNOW |
Oilfield drilling equipment distributor |
Latent |
11,049 |
0.5 |
|
|
Jefferies Financial Group |
Investment bank |
Cyclical |
10,981 |
0.5 |
|
|
AP Moller-Maersk |
Transport and logistics company |
Latent |
10,730 |
0.5 |
|
|
Grubhub |
US online food service |
Rapid |
10,311 |
0.5 |
|
|
Schibsted |
Media and classified advertising platforms |
Rapid |
10,248 |
0.5 |
|
|
ICICI Prudential Life Insurance |
Life insurance services |
Latent |
10,182 |
0.5 |
84.8 |
|
Wabtec |
Rail and transit products and services |
Cyclical |
10,110 |
0.5 |
|
|
Tesla |
Electric cars and renewable energy solutions |
Rapid |
9,953 |
0.5 |
|
|
M3 |
Online medical services |
Rapid |
9,813 |
0.5 |
|
|
Spotify |
Online music streaming service |
Rapid |
9,802 |
0.5 |
|
|
Myriad Genetics |
Genetic testing company |
Rapid |
9,712 |
0.5 |
|
|
Istyle |
Japanese cosmetics business |
Rapid |
9,595 |
0.5 |
|
|
Toyota Tsusho |
African auto distributor |
Latent |
9,246 |
0.5 |
|
|
Ant Internationalu |
Chinese online payments and financial services business |
Rapid |
9,205 |
0.5 |
|
|
Epiroc |
Construction and mining machinery |
Cyclical |
9,137 |
0.5 |
|
|
Infineon Technologies |
German semiconductor manufacturer |
Rapid |
9,050 |
0.5 |
89.8 |
|
Hays |
Recruitment consultancy |
Cyclical |
9,017 |
0.4 |
|
|
Jardine Strategic Holdings |
Asian retail/auto dealerships and property |
Cyclical |
8,918 |
0.4 |
|
|
Alnylam Pharmaceuticals |
RNA interference based biotechnology |
Rapid |
8,694 |
0.4 |
|
|
MRC Global |
Oilfield drilling equipment distributor |
Latent |
8,636 |
0.4 |
|
|
Interactive Brokers Group |
Global electronic trading platform |
Rapid |
8,622 |
0.4 |
|
|
Howard Hughes |
US real estate developer |
Latent |
8,389 |
0.4 |
|
|
Just Eat |
Online takeaway ordering service |
Rapid |
8,230 |
0.4 |
|
|
Ritchie Bros Auctioneers |
Industrial equipment auctioneer |
Cyclical |
8,135 |
0.4 |
|
|
Iida Group Holdings |
Japanese house builder |
Latent |
8,118 |
0.4 |
|
|
PageGroup |
Recruitment consultancy |
Cyclical |
7,855 |
0.4 |
93.8 |
|
Sands China |
Macau casino operator |
Cyclical |
7,659 |
0.4 |
|
|
Fiat Chrysler Autos |
Automobile manufacturer |
Latent |
7,615 |
0.4 |
|
|
Orica |
Australian industrial explosives company |
Cyclical |
7,614 |
0.4 |
|
|
Persol Holdings |
Employment and outsourcing services |
Cyclical |
7,409 |
0.4 |
|
|
Veeco Instruments |
Semiconductor equipment company |
Latent |
7,205 |
0.4 |
|
|
GRAILu |
Blood testing for early cancer detection |
Rapid |
7,119 |
0.4 |
|
|
Genmab |
Biotechnology company |
Rapid |
6,991 |
0.3 |
|
|
Meituan Dianping |
Online commerce platform |
Rapid |
6,986 |
0.3 |
|
|
Albemarle |
Speciality chemicals |
Cyclical |
6,939 |
0.3 |
|
|
Illumina |
Gene sequencing business |
Rapid |
6,823 |
0.3 |
97.4 |
|
SiteOne Landscape Supply |
US distributor of landscaping supplies |
Cyclical |
6,714 |
0.3 |
|
|
Mail.ru Group |
Russian internet and communication services |
Rapid |
5,640 |
0.3 |
|
|
Novocure |
Biotechnology company focusing on solid tumour treatment |
Rapid |
4,919 |
0.2 |
|
|
Silk Invest Africa Food Fundu |
Africa focused private equity fund |
Latent |
4,137 |
0.2 |
|
|
Adevinta Asa |
Media and classified advertising platforms |
Rapid |
4,084 |
0.2 |
|
|
Multichoice Group |
African pay-TV business |
Latent |
2,480 |
0.1 |
|
|
Ferro Alloy Resources |
Vanadium mining |
Latent |
2,140 |
0.1 |
|
|
Abiomed |
Medical implant manufacturer |
Rapid |
1,240 |
0.1 |
|
|
Axon Enterprise |
Manufacturer of law enforcement devices |
Rapid |
560 |
- |
|
|
Total Investments |
|
|
1,979,780 |
98.9 |
98.9 |
|
Net Liquid Assets* |
|
|
22,197 |
1.1 |
|
|
Total Assets* |
|
|
2,001,977 |
100.0 |
100.0 |
u Denotes unlisted security.
* For a definition of terms used see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Key Performance Indicators
The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:
¾ the movement in net asset value per ordinary share on a total return basis;
¾ the movement in the share price on a total return basis;
¾ the premium/discount; and
¾ ongoing charges.
An explanation of these measures can be found in the Glossary of Terms and Alternative Performance Measures at the end of this announcement. The one, five and ten year records 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 at 30 April 2019 comprised a £40 million 63/8% debenture stock repayable in 2023 (30 April 2018 - £40 million) and short-term bank loans of US$129.4 million (30 April 2018 - US$87.0 million) with National Australia Bank Limited, drawn under a £100 million floating rate facility. The Company also has a short-term loan facility with Scotiabank (Ireland), initially for £5 million but with the ability to increase it to £50 million, which has not been utilised. Further details of the Company's borrowings are set out in the Liquidity Risk section below 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. The Board has considered the uncertainties surrounding Brexit and does not believe that these are likely to have a material impact on the long-term performance of the Company. Currently, a modest proportion of the Company's assets (around 8% of total assets) is invested in UK-listed securities, most of which are global rather than domestically-focused businesses. As the vast majority of the Company's net assets are denominated in foreign currencies, the Company's main Brexit-related exposure is to fluctuations in the exchange rates at which these assets are converted into sterling (the Company's functional currency and that in which it reports its results). The portfolio consists of a diverse range of companies operating around the world which serves to mitigate pronounced currency effects. Further depreciation of the sterling currency would be beneficial for Monks given its global exposure. Conversely, a strengthening sterling currency is likely to reflect an improving outlook for companies, which may offset the resulting currency headwinds. Further details on the Company's exposure to currency risk and how this risk is managed are set out below. 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 32,564,854 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 2019. 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, the fees during the year and the balances outstanding at the year end are shown below.
Management Fee Arrangements
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas Limited.
The Investment Management Agreement sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. Compensation fees would only be payable in respect of the notice period if termination were to occur sooner.
With effect from 1 May 2018, the annual management fee payable to Baillie Gifford & Co Limited 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. In the year to 30 April 2018 the annual management fee was 0.45% on the first £750 million of total assets and 0.33% on the remaining total assets. For fee purposes, 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) and excludes the value of the Company's holding in The Schiehallion Fund, a closed-ended investment company managed by Baillie Gifford & Co. The Company does not currently hold any other collective investment vehicles managed by Baillie Gifford & Co. Where the Company holds investments in open-ended collective investment vehicles managed by Baillie Gifford, such as OEICs, Monks' share of any fees charged within that vehicle will be rebated to the Company. All debt drawn down during the periods under review is intended for investment purposes.
|
|
2019 £'000 |
|
2018 £'000 |
|
|
|
|
|
|
Investment management fee |
6,992 |
|
6,568 |
Investment management fees outstanding at 30 April 2019 amounted to £1,827,000 (2018 - £1,677,000).
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 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 continues to monitor developments as they occur regarding the UK Government's intention that the UK should leave the European Union and to assess the potential consequences for the Company's future activities. Whilst there remains considerable uncertainty, the Board does not consider this would have a material impact on the Company as only around 8% 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 (see Glossary of Terms and Alternative Performance Measures at the end of this announcement), in accordance with the Alternative Investment Fund Managers Directive, at 30 April 2019 are shown below:
Leverage
|
|
|
|
Gross method |
Commitment method |
|
Maximum limit |
|
|
2.50:1 |
2.00:1 |
|
Actual |
|
|
1.07:1 |
1.07:1 |
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. The Board has considered the uncertainties regarding the UK Government's continuing negotiations to leave the European Union and does not consider that any of the possible outcomes would affect the going concern status or viability of the Company.
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 below.
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 2019 |
Investments £'000 |
Cash and cash equivalents £'000 |
Loans and debentures £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
US dollar |
1,165,217 |
19,222 |
(99,287) |
(5,855) |
1,079,297 |
|
Euro |
150,044 |
385 |
- |
490 |
150,919 |
|
Japanese yen |
139,926 |
- |
- |
1,299 |
141,225 |
|
Other overseas currencies |
374,290 |
2,978 |
- |
818 |
378,086 |
|
Total exposure to currency risk |
1,829,477 |
22,585 |
(99,287) |
(3,248) |
1,749,527 |
|
Sterling |
150,303 |
3,334 |
(39,875) |
(474) |
113,288 |
|
|
1,979,780 |
25,919 |
(139,162) |
(3,722) |
1,862,815 |
* Includes non-monetary assets of £29,000.
|
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.
Currency Risk Sensitivity
At 30 April 2019, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the Financial Statement amounts. The analysis is performed on the same basis for 2018.
|
|
2019 £'000 |
|
2018 £'000 |
|
US dollar |
53,965 |
|
45,101 |
|
Euro |
7,546 |
|
8,378 |
|
Japanese yen |
7,061 |
|
7,479 |
|
Other overseas currencies |
18,904 |
|
17,738 |
|
|
87,476 |
|
78,696 |
Interest Rate Risk
Interest rate movements may affect directly:
¾ the fair value of any investments in fixed interest rate securities;
¾ the level of income receivable on cash deposits;
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 any 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.
Financial Assets
The Company's interest rate risk exposure on its financial assets at 30 April 2019 amounted to £25,919,000 (2018 - £22,974,000), comprising of its cash and short term deposits.
The cash deposits generally comprise call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.
Financial Liabilities
The interest 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
|
|
2019 £'000 |
2018 £'000 |
|
Floating rate - US dollar |
99,287 |
63,165 |
|
Fixed rate - sterling |
39,875 |
39,842 |
|
|
139,162 |
103,007 |
Maturity Profile
|
|
2019 Within 1 year £'000 |
2019 Between 1 And 5 years £'000 |
2019 More than 5 years £'000 |
2018 Within 1 Year £'000 |
2018 Between 1 And 5 years £'000 |
2018 More than 5 years £'000 |
|
Repayment of loans and debentures |
99,287 |
40,000 |
- |
63,165 |
40,000 |
- |
|
Interest on loans and debentures |
3,586 |
7,650 |
- |
3,124 |
10,200 |
- |
|
|
102,873 |
47,650 |
- |
66,289 |
50,200 |
- |
Interest Rate Risk Sensitivity
An increase of 100 basis points in bond yields applied to the Company's financial liabilities as at 30 April 2019 would have had no effect on total net assets and total return on ordinary activities (2018 - nil) and would have increased the net asset value per share (with borrowings at fair value) by 0.7p (2018 - 0.9p). A decrease of 100 basis points would have had no effect on total net assets and total return on ordinary activities (2018 - nil) and would have decreased net asset value per share (with borrowings at fair value) by 0.7p (2018 - 0.9p).
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 contained in the Strategic Report. 105.2% of the Company's net assets are invested in quoted equities (2018 - 103.6%). A 5% increase in quoted equity valuations at 30 April 2019 would have increased total assets and total return on ordinary activities by £97,966,000 (2018 - £85,813,000). A decrease of 5% would have had an equal but opposite effect.
Liquidity Risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board also sets parameters for the degree to which the Company's net assets are invested in quoted equities. The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's current borrowing facilities are detailed below and the maturity profile of its borrowings is set out above.
Borrowings Falling Due Within One Year:
|
|
2019 £'000 |
2018 £'000 |
|
National Australia Bank Limited loan |
99,287 |
63,165 |
Borrowing Facilities
At 30 April 2019 the Company had a 5 year £100 million unsecured floating rate loan facility with National Australia Bank Limited, which expires on 30 November 2020, and a 4 year £5 million unsecured floating rate facility with Scotiabank (Ireland), with the ability to increase it to £50 million, which expires on 13 March 2022.
At 30 April 2019 drawings were as follows:
¾ National Australia Bank Limited: US$99 million at an interest rate of 3.80088% and US$30.4 million at an interest rate of 3.83038% (2018 - US$87 million at an interest rate of 3.55539%), both maturing in July 2019.
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 £650 million.
There were no breaches of loan covenants during the year.
Borrowings Falling Due After More Than One Year:
|
|
Repayment date |
Nominal rate |
Effective rate |
2019 £'000 |
2018 £'000 |
|
£40 million 6 3/8% debenture stock 2023 |
1/3/2023 |
6.375% |
6.5% |
39,875 |
39,842 |
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 £125,000 (2018 - £158,000). 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:
|
|
2019 £'000 |
2018 £'000 |
|
Cash and cash equivalents |
25,919 |
22,974 |
|
Debtors and prepayments* |
7,617 |
9,009 |
|
|
33,536 |
31,983 |
* Includes non-monetary assets of £29,000 (2018 - £17,000).
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 63/8% debenture stock 2023 is based on the closing market offer price on the London Stock Exchange.
|
|
2019 |
2018 |
||||
|
|
Par value £'000 |
Book value £'000 |
Fair value £'000 |
Par value £'000 |
Book value £'000 |
Fair value £'000 |
|
Bank loans due within one year |
99,287 |
99,287 |
99,287 |
63,165 |
63,165 |
63,165 |
|
6 3/8% debenture stock 2023 |
40,000 |
39,875 |
47,000 |
40,000 |
39,842 |
48,200 |
|
|
139,287 |
139,162 |
146,287 |
103,165 |
103,007 |
111,365 |
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 the Liquidity Risk section above).
The objective of the Company is to invest globally to achieve capital growth, which takes priority over income and dividends.
The Company's investment policy is set out on page 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.
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 the Liquidity Risk section above.
Investments
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 2019 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
1,959,319 |
- |
- |
1,959,319 |
|
Unlisted equities |
- |
- |
20,461 |
20,461 |
|
Total financial asset investments |
1,959,319 |
- |
20,461 |
1,979,780 |
|
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 |
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 2019 were valued using a variety of techniques. These include using comparable company multiples, net asset values, assessment of comparable company performance and assessment of milestone achievement at the investee companies. The determinations of fair value included assumptions that the trading multiples and comparable companies chosen for the multiples approach provide a reasonable basis for the determination of fair value. Valuations are cross-checked for reasonableness to alternative multiples-based approaches or benchmark index movements as appropriate. In some cases the latest dealing price is considered to be the most appropriate valuation basis, but only following assessment using the techniques described above.
Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'.
Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to:
¾ select suitable accounting policies and then apply them consistently;
¾ make judgements and accounting estimates that are reasonable and prudent;
¾ state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
¾ prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements 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 United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and net return of the Company;
¾ the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
On behalf of the Board
JGD Ferguson
Chairman
19 June 2019
Income Statement
|
|
For the year ended 30 April 2019 |
For the year ended 30 April 2018 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Gains on investments (note 2) |
- |
194,084 |
194,084 |
- |
211,299 |
211,299 |
|
Currency (losses)/gains |
- |
(4,049) |
(4,049) |
- |
3,216 |
3,216 |
|
Income |
23,268 |
- |
23,268 |
19,759 |
- |
19,759 |
|
Investment management fee (note 3) |
(6,992) |
- |
(6,992) |
(6,568) |
- |
(6,568) |
|
Other administrative expenses |
(1,673) |
- |
(1,673) |
(1,598) |
- |
(1,598) |
|
Net return before finance costs and taxation |
14,603 |
190,035 |
204,638 |
11,593 |
214,515 |
226,108 |
|
Finance costs of borrowings |
(5,518) |
- |
(5,518) |
(4,410) |
- |
(4,410) |
|
Net return on ordinary activities before taxation |
9,085 |
190,035 |
199,120 |
7,183 |
214,515 |
221,698 |
|
Tax on ordinary activities |
(1,899) |
- |
(1,899) |
(1,595) |
- |
(1,595) |
|
Net return on ordinary activities after taxation |
7,186 |
190,035 |
197,221 |
5,588 |
214,515 |
220,103 |
|
Net return per ordinary share (note 4) |
3.30p |
87.23p |
90.53p |
2.61p |
100.08p |
102.69p |
|
Note: Dividends per share paid and payable in respect of the year (note 5) |
1.85p |
|
|
1.40p |
|
|
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 total comprehensive income for the year.
|
Balance Sheet |
|
|
At 30 April 2019 £'000 |
At 30 April 2018 £'000 |
|
Fixed assets |
|
|
|
Investments held at fair value through profit or loss |
1,979,780 |
1,730,513 |
|
Current assets |
|
|
|
Debtors |
7,617 |
9,009 |
|
Cash and cash equivalents |
25,919 |
22,974 |
|
|
33,536 |
31,983 |
|
Creditors |
|
|
|
Amounts falling due within one year (note 6) |
(110,626) |
(66,120) |
|
Net current liabilities |
(77,090) |
(34,137) |
|
Total assets less current liabilities |
1,902,690 |
1,696,376 |
|
Creditors |
|
|
|
Amounts falling due after more than one year (note 6) |
(39,875) |
(39,842) |
|
|
1,862,815 |
1,656,534 |
|
Capital and reserves |
|
|
|
Share capital |
10,930 |
10,857 |
|
Share premium account |
48,007 |
35,973 |
|
Capital redemption reserve |
8,700 |
8,700 |
|
Capital reserve |
1,739,586 |
1,549,551 |
|
Revenue reserve |
55,592 |
51,453 |
|
Shareholders' funds |
1,862,815 |
1,656,534 |
|
Shareholders' funds per ordinary share (note 7) (after deducting borrowings at book value) |
852.2p |
762.9p |
|
Net asset value per ordinary share (note 8) (after deducting borrowings at par) |
852.1p |
762.8p |
|
Net asset value per ordinary share (note 8) (after deducting borrowings at fair value) |
848.9p |
759.0p |
|
Ordinary shares in issue (note 9) |
218,593,859 |
217,143,859 |
|
Statement of Changes in Equity |
For the year ended 30 April 2019
|
|
Share £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 May 2018 |
10,857 |
35,973 |
8,700 |
1,549,551 |
51,453 |
1,656,534 |
|
Net return on ordinary activities after taxation |
- |
- |
- |
190,035 |
7,186 |
197,221 |
|
Ordinary shares issued (note 9) |
73 |
12,034 |
- |
- |
- |
12,107 |
|
Dividends paid during the year (note 5) |
- |
- |
- |
- |
(3,047) |
(3,047) |
|
Shareholders' funds at 30 April 2019 |
10,930 |
48,007 |
8,700 |
1,739,586 |
55,592 |
1,862,815 |
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 9) |
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 |
* The Capital Reserve balance at 30 April 2019 includes holding gains on investments of £653,406,000 (2018 - gains of £567,547,000).
|
Cash Flow Statement |
|
|
Year ended 30 April 2019 |
Year ended 30 April 2018 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Net return on ordinary activities before taxation |
|
199,120 |
|
221,698 |
|
Net (gains) on investments |
|
(194,084) |
|
(211,299) |
|
Currency losses/(gains) |
|
4,049 |
|
(3,216) |
|
Amortisation of income from fixed interest investments |
|
- |
|
(170) |
|
Finance costs of borrowings |
|
5,518 |
|
4,410 |
|
Overseas tax incurred |
|
(1,905) |
|
(1,536) |
|
Changes in debtors and creditors |
|
40 |
|
(1,069) |
|
Cash from operations* |
|
12,738 |
|
8,818 |
|
Interest paid |
|
(5,372) |
|
(4,347) |
|
Net cash inflow from operating activities |
|
7,366 |
|
4,471 |
|
Cash flows from investing activities |
|
|
|
|
|
Acquisitions of investments |
(320,097) |
|
(331,951) |
|
|
Disposals of investments |
273,472 |
|
315,713 |
|
|
Net cash outflow from investing activities |
|
(46,625) |
|
(16,238) |
|
Cash flows from financing activities |
|
|
|
|
|
Equity dividends paid |
(3,047) |
|
(2,675) |
|
|
Ordinary shares issued |
13,177 |
|
23,074 |
|
|
Borrowings drawn down |
32,133 |
|
- |
|
|
Net cash inflow from financing activities |
|
42,263 |
|
20,399 |
|
Increase in cash and cash equivalents |
|
3,004 |
|
8,632 |
|
Exchange movements |
|
(59) |
|
(866) |
|
Cash and cash equivalents at 1 May |
|
22,974 |
|
15,208 |
|
Cash and cash equivalents at 30 April |
|
25,919 |
|
22,974 |
* Cash from operations includes dividends received of £23,153,000 (2018 - £18,613,000) and interest received of £196,000 (2018 - £78,000).
|
Notes to the Financial Statements |
|
1. |
The Financial Statements for the year to 30 April 2019 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The accounting policies adopted are consistent with those of the previous financial year. |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||
|
2.
|
Gains on investments |
2019 £'000 |
|
2018 £'000 |
|
||||||||||||||||||||||
|
Realised gains on sales |
108,225 |
|
96,901 |
|
|||||||||||||||||||||||
|
Changes in investment holding gains |
85,859 |
|
114,398 |
|
|||||||||||||||||||||||
|
Total gains on investments |
194,084 |
|
211,299 |
|
|||||||||||||||||||||||
|
3. |
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager (AIFM) and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. With effect from 1 May 2018, the annual management fee payable to Baillie Gifford & Co Limited 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. In the year to 30 April 2018 the annual management fee was 0.45% on the first £750 million of total assets and 0.33% on the remaining total assets. For fee purposes, 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) and excludes the value of the Company's holding in The Schiehallion Fund, a closed-ended investment company managed by Baillie Gifford & Co. The Company does not currently hold any other collective investment vehicles managed by Baillie Gifford & Co. Where the Company holds investments in open-ended collective investment vehicles managed by Baillie Gifford, such as OEICs, Monks' share of any fees charged within that vehicle will be rebated to the Company. All debt drawn down during the periods under review is intended for investment purposes. |
|
|||||||||||||||||||||||||
|
4. |
Net Return per Ordinary Share |
2019 |
|
2018 |
|
||||||||||||||||||||||
|
Revenue return |
3.30p |
|
2.61p |
|
|||||||||||||||||||||||
|
Capital return |
87.23p |
|
100.08p |
|
|||||||||||||||||||||||
|
Total return |
90.53p |
|
102.69p |
|
|||||||||||||||||||||||
|
Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £7,186,000 (2018 - £5,588,000) and on 217,844,955 (2018 - 214,344,215) 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 £190,035,000 (2018 - gain of £214,515,000) and on 217,844,955 (2018 - 214,344,215) ordinary shares, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue. |
|
||||||||||||||||||||||||||
|
5. |
Ordinary Dividends
|
2019 |
2018 |
2019 £'000 |
2018 £'000 |
|
|||||||||||||||||||||
|
Amounts recognised as distributions in the year: |
|
|
|
|
|
||||||||||||||||||||||
|
Previous year's final (paid 7 September 2018) |
1.40p |
1.25p |
3,047 |
2,675 |
|
||||||||||||||||||||||
|
|
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 £7,186,000 (2018 - £5,588,000). |
|
|||||||||||||||||||||||||
|
|
|
2019 |
2018 |
2019 £'000 |
2018 £'000 |
||||||||||||||||||||||
|
Amounts paid and payable in respect of the financial year: |
|
|
|
|
|||||||||||||||||||||||
|
Proposed final (payable 6 September 2019) |
1.85p |
1.40p |
4,044 |
3,047 |
|||||||||||||||||||||||
|
|
If approved, the recommended final dividend on ordinary shares will be paid on 6 September 2019 to shareholders on the register at the close of business on 2 August 2019. The ex-dividend date is 1 August 2019. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for this dividend is 15 August 2019. |
|
|||||||||||||||||||||||||
|
6. |
At 30 April 2019 the book value of the Company's borrowings amounted to £139m (2018 - £103m), comprising a £40m 6 3/8% debenture stock repayable in 2023 (2018 - £40m) and a short-term bank loan of US$128m (2018 - US$87m). The fair value of borrowings at 30 April 2019 was £146m (2018 - £111m). |
|
|||||||||||||||||||||||||
|
7. |
Shareholders' Funds per ordinary share |
|
|
2019 |
2018 |
|
|||||||||||||||||||||
|
|
Shareholders' funds |
|
|
£1,862,815,000 |
£1,656,534,000 |
|
|||||||||||||||||||||
|
|
Number of ordinary shares in issue at the year end |
|
|
218,593,859 |
217,143,859 |
|
|||||||||||||||||||||
|
|
Shareholders' funds per ordinary share |
|
|
852.2p |
762.9p |
|
|||||||||||||||||||||
|
|
The shareholders' funds figures above have been calculated after deducting borrowings at book value, in accordance with the provisions of FRS 102. The net asset value figures in note 8 have been calculated after deducting borrowing at either par value or fair value. Reconciliations between shareholders' funds and both NAV measures are shown in the Glossary of Terms and Alternative Performance Measures at the end of this announcement. |
|
|||||||||||||||||||||||||
|
8. |
Net Asset Value per Ordinary Share |
|
|||||||||||||||||||||||||
|
|
The net asset value figures with borrowings deducted at par value and fair value at the year end are set out in the table below. Reconciliations between both NAV measures and shareholders' funds, which is calculated after deducting borrowings at book value in accordance with the provisions of FRS 102, are shown in the Glossary of Terms and Alternative Performance Measures at the end of this announcement. |
|
|||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
|
|
The per share figures above are based on 218,593,859 (2018 - 217,143,859) 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 852.1p to 848.9p. Taking the market price of the ordinary shares at 30 April 2019 of 883.0p, this would have given a premium to net asset value of 4.0% as against 3.6% on a par basis. At 30 April 2018 the effect would have been to reduce net asset value per ordinary share from 762.8p to 759.0p. Taking the market price of the ordinary shares at 30 April 2018 of 785.0p, this would have given a discount to net asset value of 3.4% as against 2.9% on a par basis. |
|
|||||||||||||||||||||||||
|
9. |
In the year to 30 April 2019, the Company issued 1,450,000 ordinary shares (nominal value of £73,000) at a premium to net asset value, raising net proceeds of £12,107,000 (2018 - £25,032,000). No shares were bought back during the year and no shares are held in treasury. At 30 April 2019 the Company had authority to buy back 32,564,854 ordinary shares and to allot or sell from treasury 16,766,380 ordinary shares without application of pre-emption rights. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve. |
|
|||||||||||||||||||||||||
|
10. |
The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 April 2019. The financial information for 2018 is derived from the financial statements for 2018 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2018 accounts; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498 (2) or 498(3) of the Companies Act 2006. The statutory accounts for 2019 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have advised the Company that they do not expect their report on the 2019 statutory accounts to include any modification or emphasis of matter statements. |
|
|||||||||||||||||||||||||
None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
Glossary of Terms and Alternative Performance Measures (APM)
Total Assets
The total value of all assets held less all liabilities (other than liabilities in the form of borrowings).
Shareholders' Funds
Shareholders' Funds is the value of all assets held less all liabilities, with borrowings deducted at book cost.
Net Asset Value (APM)
Net Asset Value (NAV) is the value of all assets held less all liabilities, with borrowings deducted at either par value or fair value as described below. Per share amounts are calculated by dividing the relevant figure by the number of ordinary shares in issue.
Net Asset Value (Borrowings at Par Value) (APM)
Borrowings are valued at nominal par value.
A reconciliation from shareholders' funds (borrowings at book value) to net asset value after deducting borrowings at par value is provided below:
|
|
2019 £'000 |
2019 per share |
2018 £'000 |
2018 per share |
|
Shareholders' funds (borrowings at book value) |
1,862,815 |
852.2p |
1,656,534 |
762.9p |
|
Add: book value of borrowings |
139,162 |
63.6p |
103,007 |
47.4p |
|
Less: par value of borrowings |
(139,287) |
(63.7p) |
(103,165) |
(47.5p) |
|
Net asset value (borrowings at par value) |
1,862,690 |
852.1p |
1,656,376 |
762.8p |
The per share figures above are based on 218,593,859 (2018 - 217,143,859) ordinary shares of 5p, being the number of ordinary shares in issue at the year end.
Net Asset Value (Borrowings at Fair Value) (APM)
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.
A reconciliation from shareholders' funds (borrowings at book value) to net asset value after deducting borrowings at fair value is provided below:
|
|
2019 £'000 |
2019 per share |
2018 £'000 |
2018 per share |
|
Shareholders' funds (borrowings at book value) |
1,862,815 |
852.2p |
1,656,534 |
762.9p |
|
Add: book value of borrowings |
139,162 |
63.6p |
103,007 |
47.4p |
|
Less: fair value of borrowings |
(146,287) |
(66.9p) |
(111,365) |
(51.3p) |
|
Net asset value (borrowings at fair value) |
1,855,690 |
848.9p |
1,648,176 |
759.0p |
The per share figures above are based on 218,593,859 (2018 - 217,143,859) ordinary shares of 5p, being the number of ordinary shares in issue at the year end.
Discount/Premium (APM)
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).
Active Share (APM)
Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.
Total Return (APM)
The total return is the return to shareholders after reinvesting the dividend on the date that the share price goes ex-dividend, as detailed below.
|
|
|
2019 NAV (par) |
2019 NAV (fair) |
2019 Share Price |
2018 NAV (par) |
2018 NAV (fair) |
2018 Share Price |
|
Closing NAV per share/share price |
(a) |
852.1p |
848.9p |
883.0p |
762.8p |
759.0p |
785.0p |
|
Dividend adjustment factor* |
(b) |
1.0017 |
1.0017 |
1.0016 |
1.0018 |
1.0018 |
1.0018 |
|
Adjusted closing NAV per share/share price |
(c = a x b) |
853.5p |
850.3p |
884.4p |
764.2p |
760.4p |
786.4p |
|
Opening NAV per share/share price |
(d) |
762.8p |
759.0p |
785.0p |
660.8p |
656.8p |
653.0p |
|
Total return |
(c ÷ d) - 1 |
11.9% |
12.0% |
12.7% |
15.6% |
15.8% |
20.4% |
* The dividend adjustment factor is calculated on the assumption that the dividend of 1.40p (2018 - 1.25p) paid by the Company during the year was reinvested into shares of the Company at the cum income NAV/share price, as appropriate, at the ex-dividend date.
Ongoing Charges (APM)
The total expenses (excluding dealing and borrowing costs) incurred by the Company as a percentage of the daily average net asset value (with borrowings at fair value), as detailed below.
|
|
|
2019 |
2018 |
|
Investment management fee |
|
£6,992,000 |
£6,568,000 |
|
Other administrative expenses |
|
£1,673,000 |
£1,598,000 |
|
Total expenses |
(a) |
£8,665,000 |
£8,166,000 |
|
Average net asset value (with borrowings deducted at fair value) |
(b) |
£1,727,928,000 |
£1,570,354,000 |
|
Ongoing Charges |
(a) ÷ (b) |
0.50% |
0.52% |
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. 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. The gearing ratios described below are included in the Ten Year Summary on page 15 of the Annual Report and Financial Services.
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 brokers' 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*.
*As adjusted to take into account the gearing impact of any derivative holdings.
Leverage (APM)
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. The leverage figures at 30 April 2019 are detailed in the Principal Risks section above.
Compound Annual Return (APM)
The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compounded value at the start of each year.
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No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom. No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.
FTSE Index Data
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Regulated Information Classification: Annual financial and audit reports.
- ends -
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