Scottish Mortgage Investment Trust Final Results

RNS Number : 0294M

Scottish Mortgage Inv Tst PLC

19 May 2022

 

RNS Announcement: Preliminary Results

 

Scottish Mortgage Investment Trust PLC

Regulated Information Classification: Additional regulated information required to be disclosed under applicable laws

Legal Entity Identifier: 213800G37DCS3Q9IJM38

Results for the year to 31 March 2022

 

NAV(borrowings at fair value) *	(13.1%)
NAV(borrowings at book value) *	(14.3%)
Share Price*	(9.5%)
Benchmark†	12.8%

Source: Refinitiv / Baillie Gifford. All figures are total return^*. See disclaimer at the end of this announcement.

* Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

†Benchmark: FTSE All-World index (in sterling terms)

The following is the Preliminary Results Announcement for the year to 31 March 2022 which was approved by the Board on18May 2022.

Statement from the Chair

For many, the twelve months to 31 March 2022 marked the second year of living with the Covid-19 pandemic. There was cause for optimism as the global economy reopened following the initial period of lockdown. However, it did so in a stuttering fashion that brought with it the spectre of higher inflation and rising interest rates. These factors, together with concerns about Chinese regulation and Russia's assault on Ukraine, spread fear amongst markets and significantly reduced the valuations of many growth companies.

After the past few years of relatively benign market conditions, it is easy to forget how bumpy the ride can become when storms roll in. Scottish Mortgage has weathered more than most: the Great Depression; two World Wars; the Global Financial Crisis, to name but a few. Over time, experience has shown that it is not the ferocity of any market storm that matters, it is what one does during it that will most influence outcomes for shareholders. In such times, one must not let the stress induced by such volatility shorten time horizons or prompt decisions taken to reduce discomfort, to the potential detriment of maximising long term shareholder value.

In recent months, your Managers have remained calm and focused on what they have been entrusted to do - to invest patiently in outstanding growth businesses from across the globe. They have not been blind to market gyrations but claim no insight over short-term reactions. They have continued to explore central assumptions on the multiple drivers of change including the continuing digitisation of our economy, the intersection of information technology and biology and the much-needed energy transition. Market weakness and fresh borrowings have been utilised to add to higher conviction holdings. And as travel restrictions eased, the Managers took the opportunity to make research trips, visiting companies to gain insights and build stronger relationships with management teams. Supportive ownership during difficult times is important, as it is when the skies are their darkest that companies discover which investors will stay the course.

For Scottish Mortgage, our time horizons reach far beyond most others but a sunny long-term forecast is of little value if companies themselves cannot navigate the current storms. It has been pleasing, therefore, to note that, whilst many portfolio companies possess the potential to shape the future, they have also continued to deliver strong operational performance and maintained a robust financial position. As such, competition for capital within the portfolio has remained strong.

Performance

 

Total Return*(%)	12 Months to 31 March 2022
NAV	(13.1)
Share price	(9.5)
FTSE All-World Index	12.8
Global Sector Average - NAV	(2.3)
Global Sector Average - share price	(2.5)

Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair value^*.

*  Alternative Performance Measure - see Alternative Performance Measures and Glossary of Terms at the end of this announcement.

Following the strongest ever return produced by the Company in the previous year, the Company posted a negative return in the year to 31 March 2022. However, these last couple of years have been extraordinary and do not offer a suitable timeframe over which to judge investment returns.

Some shareholders' minds may have been focussed on the drop in the share price that occurred during the year. I would reiterate my annual caution against drawing any meaningful conclusions from this datapoint, other than this time round to see it as an expected shorter-term cost when the longer-term rewards on offer are potentially so high. Over five and ten years, respectively, the share price has increased on an annualised, total return basis by 23.5% and 23.1%.

Total Return*(%)	Five Years to 31 March 2022	Ten Years to 31 March 2022
NAV	198.4	633.9
Share price	187.5	697.3
FTSE All-World Index	68.1	231.7
Global Sector Average - NAV	123.8	400.3
Global Sector Average - share price	120.1	445.8

Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair value^*.

*  Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Low Cost

Put simply, lower charges directly translate into shareholders keeping more of the returns generated from their investment. Ensuring that Scottish Mortgage has one of the lowest cost ratios available amongst active strategies remains central to the proposition for shareholders.

It is difficult to draw fair comparison with other investment funds, as so few provide access to both public and private companies in one portfolio, but the Company's ongoing charges of 0.32% are less than most actively managed funds and significantly less than private equity funds. As such, the Board and the Managers believe Scottish Mortgage offers shareholders excellent value for money.

Financial Position

 

The Board remains committed to the strategic use of borrowings for the Company, in the belief that gearing the portfolio in this way will enhance the long term returns for shareholders. The Board views this as a significant advantage of the investment trust structure.

As previously announced, the Company has raised, in aggregate, a further £504 million in long-term, fixed rate, senior, unsecured private placement notes, denominated in a combination of sterling and US Dollars. These transactions provided further long-term financing at very attractive rates. Two sterling denominated notes of £100 million each were issued in August 2021: a 15 year note with a fixed coupon of 2.03% and a 25 year note with a fixed coupon of 2.30%. In January 2022, three US Dollar notes were issued: one 30 year note for US$175 million with a fixed coupon of 2.99%, one 35 year note for US$110 million with a fixed coupon of 3.04% and a 40 year note for US$115 million with a fixed coupon of 3.09%. Additionally, further short-term bank borrowing was secured at competitive rates, full details of which are provided at the end of this document.

At the end of the year the overall value of the borrowing represented approximately 14% of the Company's net asset value. That marked a higher level than has been reported in recent years and was largely borne out of share price volatility, rather than a change in approach with regards to the level of gearing employed.

Earnings and Dividends

For several years the Board has encouraged the Managers to pursue a total return policy, without regard to the split between dividends and capital gains, believing this to be the best way of delivering value to shareholders. The Managers have created a portfolio of some of the best growth companies from around the world, both public and private. One common characteristic of these businesses is the retention and investment of most of their earnings to support R&D and future growth. This tends to result in a relatively low level of dividend income for the Company.

While we believe that Scottish Mortgage is held by investors for what it can offer in terms of capital growth, the Board acknowledges the importance to some shareholders of providing a predictable and growing level of dividend income to help plan their income needs.

After careful discussion, taking into consideration several factors such as the income generated from the portfolio, capital appreciation in recent years and the recent increase in inflation, we are recommending that this year the total dividend be increased by 5% to 3.59 pence.

The Company's revenue earnings for the year are insufficient to cover the dividend and the majority will be paid from realised capital reserves. Collectively, we believe this to be appropriate, given the relatively immaterial size of the element paid from capital compared with the scale of the distributable capital gains achieved over the long term.

Liquidity

Over the period, the Company continued to operate its liquidity policy to meet, in normal market conditions, imbalances in supply and demand of its own shares over the short term. In total, the Company issued 35.0 million shares and bought back 12.4 million, resulting in a net issuance totalling around £361 million.

Portfolio Manager Transition

In March last year we announced that James Anderson would stand down as joint manager on 30 April 2022. It is difficult to find words to adequately thank James on behalf of shareholders. The investment returns during his tenure as manager, then joint manager, speak for themselves: from 30 April 2000 to 31 March 2022, the Company produced returns of 1,155% in NAV terms and 1,483% in share price terms against a FTSE All-World Index return of 354%.

Fortunately, James has said that there is a John Maynard Keynes quote for every situation, so in this case I will opt for, "words ought to be a little wild, for they are the assaults of thoughts on the unthinking". As manager, James has been both a devoted investor for shareholders and a visionary who has challenged convention, revolutionised the investment approach and entertained shareholders along the way. The current high conviction style with its large stakes in global private companies is a far cry from the trust he inherited. He invested in what are now household names years before peers and held on long after other investors had headed for the exit. As manager of one the UK's most widely held investment funds, his approach has also attracted its fair share of critics. James has never been shy of meeting his critics head on, often in illuminating fashion. In fact, I believe he secretly rather enjoyed it.

In his final Manager's Review last year, he invited Tom Slater and Lawrence Burns to, "please help Scottish Mortgage become more unreasonable and more distinctive as the pressures of the investment world continue to pull at us". A hallmark of James and Tom's tenure was the constant drive to observe, learn, and improve which resulted in an investment philosophy that continued to evolve. The Board has full confidence that it will continue to do so under the excellent partnership that has already been established between Tom and Lawrence. Meantime, the Board would like to wish James the very best for the future and thank him for his 22 years of loyal service.

Environmental and Social Governance (ESG)

The Board recognises the importance of considering ESG factors when making investments. We believe it is the Board's responsibility to monitor activity and progress in areas such as voting and engagement. Please note that the Company's voting record is displayed on the website.

The Managers' approach to sustainable investing is underpinned by five core beliefs that are detailed in 'Our Approach to Governance'. We recommend this as valuable reading to all shareholders and it can be accessed on the Company's website at: scottishmortgageit.com.

Climate change is rising up the agenda for many shareholders and its importance was highlighted by the COP 26 summit in November 2021. One hopes that we may reflect on this year as one in which momentum shifted and the need for significant action to limit global warming was widely recognised.

Over the next few years, the climate-related regulatory and policy environment will be turbulent. Against this backdrop, the Managers' purpose and philosophy will remain clear. They are resolutely long term and look for companies that will grow for many years to come. Just as they believe that only a small number of companies deliver outstanding returns, so they suspect a small group of innovators and industry leaders will prove to have an outsized influence on a timely energy transition. With this in mind, they continue to deploy capital in companies that can deliver returns for shareholders and have a meaningful impact in tackling the climate crisis. Further details of these companies can be found in 'Our Approach to Governance' noted above.

Board Update

I am delighted to report the appointment of a new Non-Executive Director, Mark FitzPatrick, who joined the Board on 5 October 2021 and became Chair of the Audit Committee from 1 April 2022. Mark brings with him a wealth of knowledge having held a range of executive leadership roles. He is currently interim group chief executive & chief operating officer of Prudential plc, a provider of life and health insurance and asset management exclusively focused on Asia and Africa. His fellow Board members and attendees have already benefited from his contribution on a wide range of topics in the Board. Mark's appointment is subject to shareholder ratification at the forthcoming AGM.

Maintaining the knowledge base and diversity of thought on the Board is critical towards helping to guide the Company's future. The Company's policy on this and Board tenure is set out in the Annual Report and Financial Statements.

Shareholder Engagement

Following two years in which we have not been able to meet in person, I hope to see as many shareholders as possible at the Scottish Mortgage Annual General Meeting on 30 June 2022. Please note that this year the meeting will be held at a new venue: The Waldorf Astoria Edinburgh - The Caledonian, Princes Street, Edinburgh, EH1 2AB. In the event that circumstances change and shareholders are not permitted to attend the AGM, further information will be made available through the Company's website at scottishmortgageit.com and the London Stock Exchange regulatory news service.

As always, the details of the outcomes of the AGM business will subsequently be available on the website. These will be accompanied by filmed Managers' updates. More generally, I would encourage shareholders to engage with the Company throughout the year, not solely via the AGM. Now more than ever, digital resources are important in allowing shareholders to stay well informed. I am pleased to report that in the Autumn of 2022 a new Scottish Mortgage website will be launched that will host more information to provide you with even better insights.

Outlook

Coming off the back of a challenging year it is perhaps worth remembering that investing in growing companies that help to shape the future has been a successful strategy for as long as there have been stock markets. There is no reason to think that this will change. In the long run, growth is both essential and valuable, often more so than the stock market is prepared to believe in the short term. Investors' confidence in companies' growth prospects will rise and fall, which creates opportunities for patient long-term investors, such as your Managers.

We remain confident that Scottish Mortgage merits a place in all portfolios and shareholders benefit from a high-quality management team, with a clearly defined investment philosophy and process.

Finally, I would like to thank everyone who has continued to work on and support this Company throughout this year and look forward to the future.

Fiona McBain

Chair

18 May 2022

Past performance is not a guide to future performance.

See disclaimer at the end of this announcement.

Managers' Report

It has been a tough year. Markets have been driven by macroeconomic concerns, geopolitics and the ongoing shockwaves from Covid-19. Investing in this environment requires resilience and clarity of purpose. Our purpose is to provide long-term funding and support for Growth companies and the entrepreneurs building the future of our economy. This approach will sometimes be popular and sometimes, as now, be out of favour. Because of such swings, we discourage those with a time horizon under five years from investing in our shares. While we do not enjoy discomfiting our fellow shareholders, we believe resilience during drawdowns is necessary for generating long-term returns. We can do most to support our investee companies at times of stress.

It is more useful to observe and analyse geopolitical and macroeconomic developments than to engage in futile attempts at prediction. A standout lesson from the past two years is that our world is, in Sir John Kay's terms, radically uncertain. We must be wary of those making confident assertions about the future. Instead, our job is to acknowledge the limits of prediction, build a portfolio that is robust to changing conditions and focus on answering the question, 'What is going on here?' .

We think many of the challenges the world faces today are the negative consequences of two contentions that have driven our portfolio construction over the last decade. Firstly, China's economic development is disrupting the established world order. Secondly, technological progress has created companies of increasing geopolitical importance and a complex network of global interconnection. China's rise has brought a vast swathe of humanity out of poverty and created opportunities for workers and investors alike. However, this success has fuelled greater geopolitical ambition and a challenge to US hegemony. Online network companies have built an infrastructure that creates economic opportunity for millions, but the scale of their impact raises questions of governance and trade-offs to limit the influence of bad actors. It will not be possible to resolve these issues quickly or easily.

China

China's economy is now approximately three-quarters of the size of the United States (larger when measured using purchasing power parity) and a multiple of any other country. Its technology companies are world-leading in some important areas. The Made in China 2025 plan aims to make good its shortcomings in others. Indeed, by denying access to American technology, the US government forces previously ambivalent Chinese corporates to develop domestic supply chains. China's rise has been predictable, and it telegraphs its intentions using five-year plans. The change in recent times has been the deterioration in the China-US relationship. Worsening trade relations have been matched by an increasingly hostile attitude from the US cross-party defence and foreign policy establishment, which events in Ukraine have intensified.

Investors in Chinese companies have suffered from President Xi's regulatory crackdowns in the name of 'common prosperity'. In retrospect, it has been a mistake to reduce our holdings in western online platform companies rather than their Chinese counterparts. The censure of Ant Group at the time of its proposed stock market listing turned out to be the first in a slew of actions that included severe constraints on the online tutoring sector, restrictions on video games, anti-monopoly activities against internet platforms and new policies on data and privacy. Many of the actions in isolation are similar to reforms that have been considered but less successfully implemented elsewhere. In aggregate, they add up to a substantial reinforcement of government control of the private sector. They have discouraged the supply of western capital.

The deteriorating geopolitical situation and significant job losses in the technology and education sectors have made the Chinese government's aggressive regulatory stance less tenable. Vice Premier Liu He's statement in March that the authorities should deliver 'policies favourable to markets and be cautious in introducing contractionary measures' may signal that the worst of the crackdown is behind us. The challenge now for western investors is twofold: incorporating the low but increased chances of future US sanctions into their evaluation of Chinese investments and considering how the Chinese state may limit the upside in stock prices for the breakthrough winners. Our Chinese holdings have remained largely unchanged through this period of turbulence.

Technology

Technology and capital have been critical enablers of globalisation. Start-up culture has spread from its homeland on the west coast of America to the east coasts of both the US and China and then, in the mobile era, to anywhere with an internet connection. However, the providers of the capital and skills required to scale a start-up have remained relatively geographically concentrated. US venture capital companies provided financing and reaped the associated rewards from several of China's most successful start-ups. China's softened stance on the common prosperity policy would suggest some acknowledgement that western capital remains important. Before the war in Ukraine, globalisation was already giving way to a world of three separate economic zones (the Americas, Europe and Asia). It will be increasingly challenging for investee companies to navigate these divides .

We have little to add on the central preoccupation of markets with inflation and interest rates. Supply chains were already tight, and the combination of war in Ukraine and a substantial Covid-19 outbreak in China has exacerbated this situation. Capitalism, combined with the technical brilliance of companies like ASML in the critical semiconductor area, will solve these supply bottlenecks over time. We believe that technological progress is not captured well in aggregate statistics and will be the primary determinant of both growth and inflation in the long term. For example, on the supply side, the production of batteries and solar panels continues to increase exponentially. While the impact on energy markets takes time to accumulate, manufacturing learning curves and ongoing technical improvements will eventually drive down energy costs. From a demand perspective, the companies we speak with that have embraced the modern tools of remote working report that their new recruits are lower cost and higher quality than previously.

Portfolio

Diverse processes of significant change underpin the growth of our companies. We believe that a greater understanding of disease's genomic and molecular causes will result in targeted and personalised healthcare. People's attention is shifting from traditional forms of media to online. The retail business is going mobile and payments companies are becoming aggregators of information and services. Enterprises are increasingly turning to the cloud for the provision of IT services. We are moving away from a world of carbon-based energy generation and transport. It is helpful to measure recent events and stock prices against these contentions. Has healthcare become less likely to personalise? Will people go back to offline forms of media and commerce? Are we more likely to be using fossil fuels ten years from now?

For us, the answer to these questions is 'No!'. Indeed, recent events are likely to have accelerated some of these processes. Consequently, we have not made meaningful changes to the portfolio. We still own all the top 30 stocks we owned a year ago (a relevant measure as approximately three-quarters of the portfolio by weight is in the top 30 holdings). Moderna, the mRNA company responsible for one of the key Covid vaccines, is now our largest holding, partly because of additions. It is the only company in our top ten held for less than five years. We think the approach that led to its Covid vaccine will offer critical medical breakthroughs in the years to come. Tesla, the electric car producer, is our second-largest holding despite further reductions. Demand for its products far outstrips supply, and its operational execution has been remarkable.

The most significant reduction has been Amazon, our largest holding for many years. We still have enormous respect for the company and believe it has a substantial opportunity ahead of it, particularly in providing cloud infrastructure through Amazon Web Services. However, founder Jeff Bezos stepping back from the CEO role is a source of concern given how central he has been to the corporate culture. At the same time, the maths of future growth is more challenging. E-commerce has grown from 5 per cent. to 15 per cent. of the US retail market over the past ten years, tripling the market for online retailers. Suppose e-commerce takes another ten percentage points of market share over the next decade. In that case, the opportunity will only have grown by two thirds. Given our focus on Growth, it now makes sense for us to redeploy capital in other areas.

Private Companies

The contribution of venture investments to our portfolio and our thinking continues to grow. As in previous years, most of our new ideas come through private company investments. This year these included Solugen, a synthetic biology company seeking to produce chemicals through low-carbon processes, Redwood Materials, a battery recycling company and Capsule, an online pharmacist. Successful private investments are growing into our top holdings. We originally purchased over half of the top 30 as private investments. At times of stress, our role in supporting younger loss-making companies becomes ever more critical. We pay careful attention to those that can deal with challenging conditions and use our capital to increase their chances of success.

As a result of our reputation as patient owners, we get the opportunity to invest in a diverse range of growth businesses. Hitherto, many of the most exciting investments have had digital business models. We are now considering more companies with physical products, which have a greater capital requirement if they are to achieve scale. Scottish Mortgage is well suited to investing in such companies, given its resources and time horizon. Our society will not transition away from carbon-based energy and transportation without substantial investment. Companies such as European battery manufacturer Northvolt will be critical to progress, and we think the returns on capital deployment can be very attractive. We are considering how we can help drive progress in this and other essential areas, including taking a more significant role in company formation .

Outlook

Most companies in the portfolio have delivered exceptional levels of growth over the past two years in a challenging operating environment. Despite geopolitical uncertainty, significant increases in the cost of living and rapidly rising interest rate expectations in many parts of the world, we are still expecting most to deliver high levels of growth this year. These firms are well capitalised, led by exceptional leaders and have already demonstrated high levels of adaptability and resilience. A small number of companies create the majority of stock market returns regardless of the prevailing economic conditions. We aim to identify companies with that potential and, where we find them, to support them for as long as possible.

Tom Slater

Managers' Report

Long-Term Endurance

We believe that the long time horizon with which we approach investing is the source of much of our distinctiveness and edge .

There are a great many investors and commentators focused on the short-term. Consequently, our ability to derive an edge from such matters is limited. An inordinate number of very smart people are already committed to that task. Part of the challenge with trying to add value over short time horizons is that you are competing against so many people in the same crowded pursuit. However, if you are able to withstand the behavioural and institutional pressures that come with operating over far longer time horizons then you can dramatically reduce the number of people you are competing with. This in turn makes the possibility of edge and genuine difference to the market far greater.

We make our investment decisions by considering a company's prospects over a decade and certainly no less than five years. We believe this is radically different to the average market participant. In doing so it aligns us with the fundamental progress of companies rather than the fashions of markets. After all, it takes many years for large market opportunities to be seized, for formidable competitive advantage to be recognised and for the vision of founders to come to fruition.

Long and Winding Roads

What makes long-term investing difficult is that progress is rarely a straight-line. Genuine long-term investing requires not just patience but the ability to endure periods of intense discomfort. We have experienced such discomfort often with our holdings. Tesla was first purchased by Scottish Mortgage in January 2013. It experienced a fall of 40% that first year alone. During the course of our ownership, it has now fallen by 30% or more on seven occasions. Yet more extreme was NIO, the Chinese electric car maker. It endured a near 90% drawdown in the year following its IPO before experiencing its tremendous rise. Our other significant contributors to long-term performance such as Amazon, Illumina and Tencent have all been subjected to discomforting drawdowns during their time in the portfolio. The returns generated by these companies could easily have been forgone if the endurance of steep share price declines had not been weathered. Giving up on Tesla, on any one of those seven occasions, would have been catastrophic to the returns of Scottish Mortgage shareholders.

The work of Professor Hendrik Bessembinder, examining the last seven decades of US equity returns, shows us our own examples are not unusual but representative. He notes " even those investments that are the most successful at long horizons involve painful losses over shorter horizons " with drawdowns of 40% or more shown to be common and often lasting around a year.

We therefore know that significant drawdowns are a normal part of long-term investing. Nevertheless, that does not dispel the uncertainty that inevitably accompanies each occasion. We must always consider the possibility that the world has changed and that our investment case is no longer valid. We have never made a single investment we were certain would be successful. This is why endurance in investing is so difficult. It is endurance not with the certainty that we are right but with the acceptance that we could in the fullness of time turn out to be wrong.

We must therefore engage in honest reflection during periods such as this. The primary mechanism through which we do so is by returning to our scenario analysis and updating as appropriate. For each holding we sketch out a range of possible scenarios as to how a company might look in five to ten years. Usually, those scenarios will range from zero to a very high figure. It is the likelihood adjusted returns from those different scenarios that determines whether we add, hold or redeploy our shareholders' capital elsewhere. As you would expect we have revisited our holdings' future scenarios as they have come under pressure.

http://www.rns-pdf.londonstockexchange.com/rns/0294M_3-2022-5-18.pdf

The Drawdowns of Today

Moderna has experienced a 70 per cent. fall from the highs of last year. While the market focus has been on the longevity of Covid vaccine revenues we have felt this overlooks the progress being made to apply its mRNA technology to a broader range of healthcare problems such as flu, Zika, HIV and even cancer. It is hard to argue significant value is being placed upon that broader potential platform when the company is valued by the market on a mere five-times earnings and has nearly one-third of its market cap in cash. We have therefore used the falls in the share price to add. This has in large part been funded by reductions to Amazon and Tesla.

Delivery Hero, is a local delivery company headquartered in Berlin but operating across 50 countries around the world from Argentina to Singapore. It suffered a particularly precipitous fall in its share price. Nonetheless, when re-visiting our investment case and accompanying scenario analysis we assessed that, if anything, the likelihoods of success may have actually increased. Our biggest concern had been competition in the key market of South Korea. Nonetheless, the most recent evidence is that it is growing rapidly and continuing to hold its near 80 per cent. market share in the country. Looking across all the markets it operates in revenues grew over 50% annually in the first three months of this year with a significant long-term growth opportunity still remaining. Continued progress does not appear to be recognised by the market. Indeed, over the last two years revenues have increased nearly four-fold and yet the share price has fallen over 50 per cent. during that same period.

We would far rather endure painful drawdowns such as these than too readily abandon the companies and founders that have the potential to deliver the rare outlier returns we seek. We remain deeply enthused by some of the long-term changes we are seeing in the world and the companies bringing those changes to life. The continuing digitisation of our society, the intersection of biology and information technology and the much needed energy transition, each offer tremendous long-term structural opportunities.

Of course, our reaction to some drawdowns will still be to conclude that the investment case is not developing as hoped. This was the case with CureVac, the German biotechnology company which we held for six years starting as a private company. The lack of progress in multiple clinical trials compounded with several disconcerting management changes led us to ascribe a substantially lower likelihood of success and we therefore divested last summer.

A Continued Commitment to Being Long-Term

Long-term endurance in turbulent times such as those of the last few months can be challenging. In periods of stress people's time horizons contract, and the pressure to sacrifice long-term gains for immediate respite grows by the day. Should our own time horizon ever meaningfully shorten we would be destroying our greatest advantage. We have no intention of ever doing this but if we did our shareholders should sell. For it is precisely at such difficult times that the distinctiveness, and importance, of taking a long-term perspective is greatest - for us as investors, for the companies in which we invest, and for our shareholders. We are deeply appreciative of the trust our shareholders place in us, and of their support in our task.

Lawrence Burns

Income statement

The following is the preliminary statement for the year to 31 March 2022 which was approved by the Board on 18 May 2022.

For the year ended 31 March

Notes		2022 Revenue £'000	2022 Capital £'000	2022 Total £'000	2021 Revenue £'000	2021 Capital £'000	2021 Total £'000
(Losses)/gains on investments		-	(2,421,025)	(2,421,025)	-	9,265,424	9,265,424
Currency (losses)/gains on investments		-	(41,559)	(41,559)	-	14,093	14,093
Income	2	23,262	-	23,262	16,347	-	16,347
Investment management fee		-	(51,647)	(51,647)	-	(42,197)	(42,197)
Other administrative expenses		(6,818)	-	(6,818)	(6,302)	-	(6,302)
Net return before finance costs and taxation		16,444	(2,514,231)	(2,497,787)	10,045	9,237,320	9,247,365
Finance costs of borrowings		-	(44,651)	(44,651)	-	(30,270)	(30,270)
Net return before taxation		16,444	(2,558,882)	(2,542,438)	10,045	9,207,050	9,217,095
Tax		137	(2,048)	(1,911)	(976)	(2,459)	(3,435)
Net return after taxation		16,581	(2,560,930)	(2,544,349)	9,069	9,204,591	9,213,660
Net return per ordinary share	4	1.16p	(179.48p)	(178.32p)	0.62p	632.22p	632.84p

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return 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 all gains and losses of the Company have been reflected in the above statement.

Balance sheet

As at 31 March

Notes		2022 £'000	2022 £'000	2021 £'000	2021 £'000
Fixed assets Investments held at fair value through profit or loss   6		16,669,469		18,042,688
Current assets Debtors   Cash and cash equivalents		13,142 229,962		20,883 212,128
		243,104		233,011
Creditors Amounts falling due within one year:   7 Bank loans Other creditors and accruals		(502,032) (23,814)		(264,550) (46,438)
		(525,846)		(310,988)
Net current liabilities		(282,742)		(77,977)
Total assets less current liabilities		16,386,727		17,964,711
Creditors Amounts falling due after more than one year: Bank loans Loan notes Debenture stock Provision for deferred tax liability	7	(516,384) (985,613) (127,559) (1,172)		(362,289) (482,629) (127,864) (2,459)
		(1,630,728)		(975,241)
		14,755,999		16,989,470
Capital and reserves Called up share capital Share premium account Capital redemption reserve Capital reserve Revenue reserve	9	74,239 928,400 19,094 13,717,685 16,581		74,239 781,771 19,094 16,105,297 9,069
Total shareholders' funds		14,755,999		16,989,470
Net asset value per ordinary share (after deducting borrowings at book) *		1,021.8p		1,195.1p

* See Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Statement of changes in equity

 

For the year ended 31 March 2022

Notes		Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve * £'000	Revenue reserve * £'000	Total shareholders' funds £'000
Shareholders' funds at 1 April 2021		74,239	781,771	19,094	16,105,297	9,069	16,989,470
Net return after taxation		-	-	-	(2,560,930)	16,581	(2,544,349)
Ordinary shares bought back into treasury		-	-	-	(157,597)	-	(157,597)
Ordinary shares sold from treasury		-	146,629	-	371,617	-	518,246
Dividends paid during the year	5	-	-	-	(40,702)	(9,069)	(49,771)
Shareholders' funds at 31 March 2022		74,239	928,400	19,094	13,717,685	16,581	14,755,999

For the year ended 31 March 2021

	Notes	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve * £'000	Revenue reserve * £'000	Total shareholders' funds £'000
Shareholders' funds at 1 April 2020		74,239	764,521	19,094	7,363,915	22,865	8,244,634
Net return after taxation		-	-	-	9,204,591	9,069	9,213,660
Ordinary shares bought back into treasury		-	-	-	(613,920)	-	(613,920)
Ordinary shares sold from treasury		-	17,250	-	176,309	-	193,559
Dividends paid during the year	5	-	-	-	(25,598)	(22,865)	(48,463)
Shareholders' funds at 31 March 2021		74,239	781,771	19,094	16,105,297	9,069	16,989,470

The Capital Reserve balance at 31 March 2022 includes investment holding gains of £6,560,689,000(31 March 2021 - gains of £10,259,431,000).

* The Revenue Reserve and Capital Reserve (to the extent it constitutes realised profits) are distributable.

Cash flow statement

For the year ended 31 March

Notes		2022   2022 £'000   £'000	2021   2021 £'000   £'000
Cash flows from operating activities
Net return before taxation		(2,542,438)	9,217,095
Losses/(gains) on investments		2,421,025	(9,265,424)
Currency losses/(gains)		41,559	(14,093)
Finance costs of borrowings		44,651	30,270
Overseas withholding tax incurred		(5,104)	(976)
Changes in debtors and creditors		(4,054)	5,485
Cash used in operations		(44,361)	(27,643)
Interest paid		(41,545)	(30,316)
Net cash outflow from operating activities		(85,906)	(57,959)
Cash flows from investing activities
Acquisitions of investments		(2,687,415)	(4,168,249)
Disposals of investments		1,652,769	4,498,167
Net cash (outflow)/inflow from investing activities		(1,034,646)	329,918
Equity dividends paid   5		(49,771)	(48,463)
Ordinary shares bought back into treasury and stamp duty thereon		(183,015)	(588,502)
Ordinary shares sold from treasury		518,246	193,559
Debenture repaid		-	(20,000)
Bank loans repaid		(265,727)	-
Bank loans drawn down and loan notes issued		1,109,394	384,519
Net cash inflow/(outflow) from financing activities		1,129,127	(78,887)
Increase in cash and cash equivalents		8,575	193,072
Exchange movements		9,259	(19,470)
Cash and cash equivalents at start of period		212,128	38,526
Cash and cash equivalents at end of period *		229,962	212,128

*  Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.

Thirty largest holdings and twelve month performance at 31 March 2022

http://www.rns-pdf.londonstockexchange.com/rns/0294M_1-2022-5-18.pdf

Long Term Investment

Portfolio Holding Periods as at 31 March 2022

More Than 5 Years		2-5 Years		Less Than 2 Years
Name	% of total assets	Name	% of total assets	Name	% of total assets
Tesla Inc	6.6	NIO Inc P	2.1	Moderna	7.1
Illumina 10	6.4	Space Exploration		Northvolt AB u	2.3
ASML	6.4	Technologies u	2.0	Blockchain.com u	1.5
Tencent Holdings 10	4.2	MercadoLibre	2.0	Adyen	1.3
NVIDIA	3.4	ByteDance Ltd u	1.9	Epic Games Inc u	0.9
Amazon.com 10	3.0	Stripe Inc u	1.4	10x Genomics	0.6
Alibaba Group P	2.5	Delivery Hero	1.4	Ocado	0.6
Kering 10	2.4	Tempus Labs Inc u	1.2	Nuro Inc u	0.5
Meituan Dianping P	2.3	Snowflake Inc P	1.0	Carvana	0.5
The Brandtech Group u	1.9	Zipline International Inc u	0.9	DoorDash	0.5
Ginkgo BioWorks Inc P	1.6	Affirm Holdings Inc P	0.9	Redwood Materials Inc u	0.4
Netflix	1.6	Pinduoduo Inc	0.8	Blockstream Corporation Inc u	0.4
Ferrari	1.4	Ant International Ltd u	0.8	ChargePoint Holdings Inc	0.4
Zalando	1.3	Shopify	0.8	Solugen Inc u	0.4
Spotify Technology SA P	1.1	Wayfair	0.7	Relativity Space Inc u	0.4
Wise Plc P	1.1	The Production Board u	0.7	Honor Technology Inc u	0.3
HelloFresh P	1.0	Tanium Inc u	0.6	Salt Pay Co Ltd u	0.3
Denali Therapeutics P	0.9	Zoom	0.5	Databricks Inc u	0.3
Warby Parker Inc P	0.6	Aurora Innovation Inc P	0.5	Rappi Inc u	0.3
Housing Development Finance   Corporation 10	0.6	Carbon Inc u	0.5	Jiangxiaobai Holdings Ltd u	0.3
		Recursion Pharmaceuticals Inc P	0.4	GoPuff Inc u	0.3
Atlas Copco 10	0.5	Vir Biotechnology Inc P	0.4	Lilium NV P	0.3
Kinnevik	0.5	Indigo Agriculture Inc u	0.4	Workrise Technologies Inc u	0.3
Airbnb Inc P	0.4	Uptake Technologies Inc u	0.4	Capsule u	0.3
Thumbtack Inc u	0.3	Bolt Threads Inc u	0.3	Horizon Robotics u	0.3
Essence Healthcare u	0.3	JRSK Inc (Away) u	0.3	Clover Health Investments P	0.1
Innovation Works		Convoy Inc u	0.3	Clear Secure Inc	0.1
Development Fund u 10	0.1	HeartFlow Inc u	0.3	PsiQuantum u	0.1
WI Harper Fund VII u 10	0.1	Joby Aviation Inc P	0.2	KE Holdings	0.1
Zocdoc Inc u	0.1	Sana Biotechnology Inc P	0.2	Zymergen Inc P	<0.1
ARCH Ventures Fund IX u	0.1	Full Truck Alliance Ltd P	0.2	ARCH Ventures Fund XI u	<0.1
JD.com	0.1	KSQ Therapeutics Inc u	0.2	Beam Therapeutics	<0.1
Sinovation Fund III u	0.1	Rubius Therapeutics Inc P	0.1	Antler Est Africa Fund u	<0.1
WI Harper Fund VIII u	0.1	ARCH Ventures Fund X   Overage u	<0.1
Udacity Inc u	0.1	ARCH Ventures Fund X u	<0.1
Global AI Opportunities Fund	<0.1
Intarcia Therapeutics Inc u	-
Total	53.1	Total	24.4	Total	21.2

^u   Denotes unlisted (private company) security.

^P   Denotes listed security previously held in the portfolio as an unlisted (private company) security.

¹⁰  Denotes security held for more than 10 years.

Net liquid assets represent 1.3% of total assets. See Glossary of Terms and Alternative Performance Measures at the end of this announcement.

List of Investments as at 31 March 2022

http://www.rns-pdf.londonstockexchange.com/rns/0294M_2-2022-5-18.pdf

Absolute Performance to 31 March 2022

	Total return * (%) for five years	Total return * (%) for ten years	Total return * (%) since inception † (2 June 2010)
Overall investment portfolio	194.7	620.7	777.5
Private and previously private companies	123.3	907.0	744.2
FTSE All-World Index (in sterling terms)	68.1	231.7	287.7

* For the definition of total return please see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

† Date of investment in first private company security. Source: StatPro/Baillie Gifford and underlying index providers.

Past performance is not a guide to future performance

Distribution of total assets†

		At 31 March 2022 %	At 31 March 2021 %
North America		59.7	50.0
	United States	58.5	48.9
	Canada	1.2	1.1
Europe		21.9	24.0
	United Kingdom	2.0	1.6
	Eurozone	15.5	17.7
	Developed Europe (non euro)	4.4	4.7
Asia		16.4	24.3
	China	15.8	23.7
	India	0.6	0.6
South America		2.0	1.7
	Brazil	2.0	1.7
		100.0	100.0

^† Total assets represent total net assets before deduction of all borrowings

Notes to the financial statements

1.	The Financial Statements for the year to 31 March 2022 have been prepared in accordance with FRS 102, 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently.
2.	Income			Year to 31 March 2022 £'000		Year to 31 March 2021 £'000
	Income from investments			23,239		16,347
	Other income			23		-
				23,262		16,347
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 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 and Baillie Gifford Asia (Hong Kong) Limited. The Investment Management Agreement is terminable on not less than six months' notice. The annual management fee for the year to 31 March 2022 was 0.30% on the first £4 billion of total assets less current liabilities (excluding short term borrowings for investment purposes) and 0.25% on the remaining assets.
4.	Net Return per Ordinary Share			Year to 31 March 2022 £'000		Year to 31 March 2021 £'000
	Revenue return on ordinary activities after taxation			16,581		9,069
	Capital return on ordinary activities after taxation			(2,560,930)		9,204,591
				(2,544,349)		9,213,660
	Weighted average number of ordinary shares in issue			1,426,897,806		1,455,916,335
	Net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares (excluding treasury shares) in issue during the year. There are no dilutive or potentially dilutive shares in issue.
5.	Ordinary Dividends	2022	2021		2022 £'000		2021 £'000
	Amounts recognised as distributions in the year:
	Previous year's final (paid 1 July 2021)	1.97p	1.86p		27,984		27,306
	Interim (paid 3 December 2021)	1.52p	1.45p		21,787		21,157
		3.49p	3.31p		49,771		48,463
	Also set out below are 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 £16,581,000 (2021 - £9,069,000).

Notes to the financial statements (ctd)

5.		Ordinary Dividends (Ctd)
					2022	2021		2022 £'000		2021 £'000
		Dividends paid and payable in respect of the year:
		Interim dividend per ordinary share (paid 3 December 2021)			1.52p	1.45p		21,787		21,157
		Proposed final dividend per ordinary share (payable 1 July 2022)			2.07p	1.97p		29,894		28,006
					3.59p	3.42p		51,681		49,163
		If approved the final dividend will be paid on 1 July 2022 to all shareholders on the register at the close of business on 6 June 2022. The ex-dividend date is 1 June 2022. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 10 June 2022.
6.	As at 31 March 2022		Level 1 £'000	Level 2 £'000			Level 3 £'000		Total £'000
	Equities/funds		12,473,650	-			-		12,473,650
	Private Company ordinary shares		-	-			609,779		609,779
	Private Company preference shares †		-	-			3,470,105		3,470,105
	Private Company convertible notes		-	-			38,853		38,853
	Limited Partnership Investments		-	-			77,082		77,082
	Total financial asset investments		12,473,650	-			4,195,819		16,669,469
	As at 31 March 2021		Level 1 £'000	Level 2 £'000			Level 3 £'000		Total £'000
	Equities/funds		14,345,430	-			-		14,345,430
	Private Company ordinary shares		-	-			597,839		597,839
	Private Company preference shares †		-	-			3,004,792		3,004,792
	Private Company convertible notes		-	-			15,949		15,949
	Warrants		-	-			6,764		6,764
	Limited Partnership Investments		-	-			71,914		71,914
	Total financial asset investments		14,345,430	-			3,697,258		18,042,688
	† The investments in preference shares are not classified as equity holdings as they include liquidation preference rights that determine the repayment (or multiple thereof) of the original investment in the event of a liquidation event such as a take-over.
	Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with Financial Reporting Standard 102, the preceding tables provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

6. (Ctd)	Fair Value Hierarchy The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows: Level 1 - using unadjusted quoted prices for identical instruments in an active market; Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and Level 3 - using inputs that are unobservable (for which market data is unavailable). Private Company Investments Private company investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' private company investment policy applies techniques consistent with the International Private Equity and Venture Capital Valuation Guidelines 2018 ('IPEV'). The techniques applied are predominantly market- based approaches. The market-based approaches available under IPEV are set out below and are followed by an explanation of how they are applied to the Company's private company portfolio: - Multiples; - Industry Valuation Benchmarks; and - Available Market Prices. The nature of the private company portfolio currently will influence the valuation technique applied. The valuation approach recognises that, as stated in the IPEV Guidelines, the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis is used where appropriate to incorporate the operational progress of the investee company into the valuation. Additionally, the background to the transaction must be considered. As a result, various multiples-based techniques are employed to assess the valuations particularly in those companies with established revenues. Discounted cashflows are used where appropriate. An absence of relevant industry peers may preclude the application of the Industry Valuation Benchmarks technique and an absence of observable prices may preclude the Available Market Prices approach. All valuations are cross-checked for reasonableness by employing relevant alternative techniques. The private company investments are valued according to a three monthly cycle of measurement dates. The fair value of the private company investments will be reviewed before the next scheduled three monthly measurement date on the following occasions: -  at the year end and half year end of the Company; and -  where there is an indication of a change in fair value as defined in the IPEV guidelines (commonly referred to as 'trigger' events).
7.	Creditors falling due within one year include drawings under the following borrowing facilities: Borrowing facilities at 31 March 2022 A 5 year US$50 million revolving loan facility has been arranged with The Royal Bank of Scotland International Limited. A 3 year US$391 million revolving loan facility has been arranged with National Australia Bank. A 3 year US$100 million revolving loan facility has been arranged with Scotiabank. A 3 year US$120 million revolving loan facility has been arranged with Industrial and Commercial Bank of China. The revolving loan facilities are classified as due within one year due to the revolving nature of the facilities and the short draw down periods. The facilities are available until their termination dates which are in more than one year. The maturity table on page 74 of the Annual Report and Financial Statements reflects the termination dates of the revolving facilities. At 31 March 2022 drawings were as follows: The Royal Bank of Scotland International Limited  US$50 million (revolving facility expiring 27 August 2026) at an interest   rate (at 31 March 2022) of 2.108% per annum National Australia Bank Limited    US$391 million (revolving facility expiring 20 September 2024) at an   interest rate (at 31 March 2022) of 2.184% per annum Scotiabank    US$100 million (revolving facility expiring 17 December 2024) at an   interest rate (at 31 March 2022) of 1.401% per annum Industrial and Commercial Bank of China    US$120 million loan (revolving facility expiring 12 October 2024) at an     interest rate (at 31 March 2022) of 1.588% per annum At 31 March 2021 drawings were as follows: The Royal Bank of Scotland International Limited  US$80 million at an interest rate of 1.050% per annum   US$85 million at an interest rate of 0.990% per annum National Australia Bank Limited    US$200 million at an interest rate of 1.75% per annum During the period, the US$200 million revolving 3 year loan with National Australia Bank Limited ('NAB') was refinanced with a US$391 million revolving 3 year loan with NAB, the US$80 million revolving 3 year loan with Royal Bank of Scotland International Limited ('RBSI') was refinanced on expiry with a US$180 million 5 year fixed rate credit facility with RBSI and the US$85 million revolving 2 year loan with RBSI was part refinanced with a US$50 million revolving 5 year loan with RBSI. Additionally, a US$120 million revolving 3 year loan was drawn down from Industrial and Commercial Bank of China Limited ('ICBC') and a US$100 million revolving 3 year loan was drawn down from Scotiabank. The main covenants which are tested monthly are: (i)  Total borrowings shall not exceed 35% of the Company's adjusted net asset value. (ii)  Total borrowings shall not exceed 35% of the Company's adjusted total assets. (iii)  The Company's minimum net asset value shall be £2,500 million. (iv)  The Company shall not change the investment manager without prior written consent of the lenders. Following the year end, on 1 April 2022 the US$391 million revolving loan facility with NAB was reduced to a facility of US$350 million under the terms of the facility agreement and the drawings were reduced accordingly by US$41 million.

7. (Ctd) Creditors falling due after more than one year:

	Nominal rate %		Effective rate%	2022 £'000	2021 £'000
	Debenture stocks:
	£75 million 6.875% debenture stock 2023	6.875	6.9	74,969	74,932
	£50 million 6-12% stepped interest debenture stock 2026	12.0	10.8	51,915	52,257
	£675,000 4½% irredeemable debenture stock			675	675
	Unsecured loan notes:
	£30 million 2.91% 2038	2.91	2.91	29,967	29,964
	£150 million 2.30% 2040	2.30	2.30	149,821	149,811
	£50 million 2.94% 2041	2.94	2.94	49,942	49,939
	£45 million 3.05% 2042	3.05	3.05	44,908	44,904
	£30 million 3.30% 2044	3.30	3.30	29,938	29,935
	£20 million 3.65% 2044	3.65	3.65	19,970	19,969
	€18 million 1.65% 2045	1.65	1.65	15,192	15,314
	£30 million 3.12% 2047	3.12	3.12	29,936	29,934
	£90 million 2.96% 2048	2.96	2.96	89,892	89,888
	€27 million 1.77% 2050	1.77	1.77	22,788	22,971
	£100 million 2.03% 2036	2.03	2.03	99,922	-
	£100 million 2.30% 2046	2.30	2.30	99,920	-
	US$175 million 2.99% 2052	2.99	2.99	132,745	-
	US$110 million 3.04% 2057	3.04	3.04	83,440	-
	US$115 million 3.09% 2062	3.09	3.09	87,232	-
	Long term bank loans:
	US$180 million RBSI fixed rate loan 2026			136,712	-
	US$200 million RBSI fixed rate loan 2024			151,901	144,959
	US$300 million Scotiabank fixed rate loan 2026			227,771	217,330
	Provision for deferred tax liability (see note below)			1,172	2,459
				1,630,728	975,241
	Debenture Stocks The debenture stocks are stated at the cumulative amount of net proceeds after issue, plus accrued finance costs attributable to the stepped interest debentures. The cumulative effect is to increase the carrying amount of borrowings by £1,884,000 (2021 - £2,189,000) over nominal value. The debenture stocks are secured by a floating charge over the assets of the Company. Unsecured Loan Notes During the period the Company arranged the following private placement unsecured loan notes: -  £100 million at a coupon of 2.03% maturing on 10 August 2036 -  £100 million at a coupon of 2.30% maturing on 10 August 2046 -  US$175 million at a coupon of 2.99% maturing on 19 January 2052 -  US$110 million at a coupon of 3.04% maturing on 19 January in 2057 -  US$115 million at a coupon of 3.09% maturing on 19 January 2062. The unsecured loan notes are stated at the cumulative amount of net proceeds after issue. The cumulative effect is to reduce the carrying amount of borrowing by £829,000 (2021 - £705,000). Long Term Bank Loans During the year, the Company arranged the following loan facilities: -  US$180 million loan with The Royal Bank of Scotland International Limited at a rate of 2.601% maturing on 9 April 2026; The long term bank loans are stated at the cumulative amount of net proceeds after issue. The cumulative effect is to reduce the carrying amount of borrowing by £76,000 (2021 - nil). Provision for Deferred Tax Liability The deferred tax liability provision at 31 March 2022 of £1,172,000 (31 March 2021 - £2,459,000) relates to a potential liability for Indian capital gains tax that may arise on the Company's Indian investment should it be sold in the future, based on the net unrealised taxable capital gain at the period end and on enacted Indian tax rates. The amount of any future tax amounts payable may differ from this provision, depending on the value and timing of any future sales of such investments and future Indian tax rates.
8.	The fair value of borrowings at 31 March 2022 was £2,001,685,000 (2021 - £1,309,443,000). Net asset value per share (after deducting borrowings at fair value) was 1,030.8p (2021 - 1,190.0p).

9.		2022 Number	2022 £'000	2021 Number	2021 £'000
	Called up share capital: Ordinary shares of 5p each
	Allotted, called up and fully paid	1,444,131,650	72,207	1,421,618,969	71,081
	Treasury shares of 5p each	40,649,230	2,032	63,161,911	3,158
	Total	1,484,780,880	74,239	1,484,780,880	74,239
	The Company's authority permits it to hold shares bought back 'in treasury'. Such treasury shares may be subsequently either sold for cash (at, or at a premium to, net asset value per ordinary share) or cancelled. In the year to 31 March 2022, 12,437,319 shares with a nominal value of £621,000 were bought back at a total cost of £157,597,000 and held in treasury (2021 - 56,365,839 shares with a nominal value of £2,818,000 were bought back at a total cost of £613,920,000 and held in treasury). At 31 March 2022 the Company had authority to buy back 206,818,922 ordinary shares. Under the provisions of the Company's Articles, the share buy-backs are funded from the capital reserve. In the year to 31 March 2022, the Company sold from treasury 34,950,000 ordinary shares at a premium to net asset value, with a nominal value of £1,747,500 raising net proceeds of £518,246,000 (31 March 2021 - 24,725,000 ordinary shares at a premium to net asset value, with a nominal value of £1,236,250 raising net proceeds of £193,559,000). At 31 March 2022 the Company had authority to issue or sell from treasury a further 107,211,896 ordinary shares (40,649,230 shares were held in treasury at 31 March 2022).
10.	Transaction costs on purchases amounted to £576,00 (2021 - £2,661,000) and transaction costs on sales amounted to £209,000 (2021 - £430,000).
11.	The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2022 or 2021 but is derived from those accounts. Statutory accounts for 2021 have been delivered to the Registrar of Companies, and those for 2022 will be delivered in due course. The auditor has reported on those accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
12.	Related Parties and Transaction with the Manager 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. The management fee payable for the year end and details of the management fee arrangements are included on note 3 above.
13.	The Annual Report and Financial Statements will be available on the Managers' website www.scottishmortgageit.com‡ on or around 26 May 2022.

Glossary of Terms and Alternative Performance Measures (APM) An Alternative Performance Measure ('APM') is a financial measure of historical or future financial performance, financial position, or cashflows, other than a financial measured defined or specified in the applicable financial reporting framework. The APMs noted below are commonly used measures within the investment trust industry and served to improve comparability between investment trusts. Total Assets Total assets less current liabilities, before deduction of all borrowings. Net Asset Value Also described as shareholders' funds. Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The Net Asset Value can be calculated on the basis of borrowings stated at book value, fair value and par value. An explanation of each basis is provided below. The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue (excluding treasury shares). Net Asset Value (Borrowings at Book)/Shareholders' Funds Borrowings are valued at adjusted net issue proceeds. Net Asset Value (Borrowings at Fair Value) (APM) Borrowings are valued at an estimate of their market worth. A reconciliation to Net Asset Value with borrowings at book value is provided below.

31 March 2022

31 March 2021

Net Asset Value per ordinary share (borrowings at book value)

1,021.8p

1,195.1p

Shareholders' funds (borrowings at book value)

£14,755,999k

£16,989,470k

Add: book value of borrowings

£2,131,588k

£1,237,332k

Less: fair value of borrowings

(£2,001,885k)

(£1,309,443k)

Net Asset Value (borrowings at fair value)

£14,885,702k

£16,917,359k

Shares in issue at year end (excluding treasury shares)

1,444,131,650

1,421,618,969

Net Asset Value per ordinary share (borrowings at fair value)

1,030.8p

1,190.0p

Net Asset Value (Borrowings at Par) (APM) Borrowings are valued at their nominal par value. A reconciliation to Net Asset Value with borrowings at book value is provided below.

31 March 2022

31 March 2021

Net Asset Value per ordinary share (borrowings at book value)

1,021.8p

1,195.1p

Shareholders' funds (borrowings at book value)

£14,755,999k

£16,989,470k

Add: allocation of interest on borrowings

£2,207k

£2,618k

Less: expenses of debenture issue

(£1,228k)

(£1,135k)

Net Asset Value (borrowings at par value)

£14,756,978k

£16,990,953k

Shares in issue at year end (excluding treasury shares)

1,444,131,650

1,421,618,969

Net Asset Value per ordinary share (borrowings at par value)

1,021.9p

1,195.2p

Net Liquid Assets Net liquid assets comprise current assets less current liabilities, excluding borrowings.

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, it is said to be trading at a premium.

2022 NAV (book)

2022 NAV (fair)

2021 NAV (book)

2021 NAV (fair)

Closing NAV per share

1,021.8p

1,030.8p

1,195.1p

1,190.0p

Closing share price

1,026p

1,026p

1,137.0p

1,137.0p

(Discount)/premium

0.4%

(0.5%)

(4.9%)

(4.5%)

Ongoing Charges Ratio (APM) The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies. A reconciliation from the expenses detailed in the Income Statement is provided below.

2022

2021

Investment management fee

£51,647k

£42,197k

Other administrative expenses

£6,818k

£6,302k

Total expenses

(a)

£58,465k

£48,499k

Average net asset value (with borrowings deducted at fair value)

(b)

£18,094,508k

£14,224,915k

Ongoing charges ((a) ÷(b) expressed as a percentage)

0.32%

0.34%

Gearing (APM) At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. Gearing represents borrowings at book value less cash and cash equivalents (including any outstanding trade settlements) expressed as a percentage of shareholders' funds.

31 March 2022

31 March 2021

Borrowings (at book value)

£2,131,588k

£1,237,332k

Less: cash and cash equivalents

(£229,962k)

(£212,128k)

Less: sales for subsequent settlement

(£6,450k)

(£19,610k)

Add: purchases for subsequent settlement

-

-

Adjusted borrowings

(a)

£1,895,176k

£1,005,594k

Shareholders' funds

(b)

£14,755,999k

£16,989,470k

Gearing: (a) as a percentage of (b)

13%

6%

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

31 March 2022

31 March 2021

Borrowings (at book value)

(a)

£2,131,588k

£1,237,332k

Shareholders' funds

(b)

£14,755,999k

£16,989,470k

Potential gearing: (a) as a percentage of (b)

14%

7%

Leverage (APM) For the purposes of the UK Alternative Investment Fund Managers (AIFM) Regulations, 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. Turnover (APM) Annual turnover is calculated on a rolling 12 month basis. The lower of purchases and sales for the 12 months is divided by the average assets, with average assets being calculated on assets as at each month's end. 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 net dividend on the date that the share price goes ex-dividend.

2022 NAV (book)

2022 NAV (fair)

2022 Share Price

2021 NAV (book)

2021 NAV (fair)

2021 Share Price

Closing NAV per share/share price

(a)

1,021.8p

1,030.8p

1,026.0p

1,195.1p

1,190.0p

1,137.0p

Dividend adjustment factor*

(b)

1.0026

1.0026

1.0039

1.0039

1.0040

1.0038

Adjusted closing NAV per share/share price

(c = a x b)

1,024.2p

1,033.5p

1,030.0p

1,199.8p

1,194.8p

1,141.3p

Opening NAV per share/share price

(d)

1,195.1p

1,190.0p

1,137.0p

567.3p

565.7p

573.5p

Total return

(c ÷ d) - 1

(14.3%)

(13.1%)

(9.5%)

111.5%

111.2%

99%

*  The dividend adjustment factor is calculated on the assumption that the dividends of 3.49p (2021 - 3.31p) paid by the Company during the year were reinvested into shares of the Company at the cum income NAV per share/share price, as appropriate, at the ex-dividend date.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Scottish Mortgage is a low cost investment trust that aims to maximise total return over the long term from a high conviction and actively managed portfolio. It invests globally, looking for strong businesses with above-average returns.

You can find up to date performance information about Scottish Mortgage on the Scottish Mortgage page of the Managers' website at www.scottishmortgageit.com ^‡

Scottish Mortgage is managed by Baillie Gifford, the Edinburgh based fund management group with around £239 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 16 May 2022).

Investment Trusts are UK public limited companies and are not authorised or regulated by the Financial Conduct Authority.

‡ 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.

Past performance is not a guide to future performance.  The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested.  This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares.

18 May 2022

For further information please contact:

Stewart Heggie, Baillie Gifford & Co

Tel: [phone]

Jonathan Atkins, Four Communications

Tel: [phone] or 07872 495396

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