Annual Financial Report
Edinburgh Worldwide Investment Trust plc
Legal Entity Identifier: 213800JUA8RKIDDLH380
Regulated Information Classification: Annual Financial and Audit Reports
Annual Financial Report
This is the Annual Financial Report of Edinburgh Worldwide 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 31 October 2017 or 31 October 2018 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2017 and 2018; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under sections 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 October 2017 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 October 2018 will be delivered to the Registrar in due course.
The Annual Report and Financial Statements for the year ended 31 October 2018, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection http://www.morningstar.co.uk/uk/NSM and is also available on Edinburgh Worldwide's page of the Baillie Gifford website at: www.edinburghworldwide.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
18 December 2018
Chairman's Statement
Performance
In the year to 31 October 2018, the Company's net asset value ('NAV') per share, when calculated by deducting borrowings at fair value, increased by 14.9% and the share price by 19.0%, both in total return terms. The comparative index, the S&P Global Small Cap Index* total return, increased by 0.1% in sterling terms during this period. Over the course of the financial year the share price averaged a 1.2% premium to net assets, with borrowings deducted at fair value. Portfolio turnover was 12.6% compared to 13.2% in 2017 and the ongoing charges have reduced to 0.81% from 0.87%.
The good relative and absolute performance was driven by a number of holdings, most notably Ocado, an online grocery company, Wayfair, a US online furniture and homeware retailer, and STAAR Surgical, a US developer and manufacturer of visual implants. On balance, the fundamental performance of the holdings in the portfolio continues to progress as hoped. Greater detail on this can be found within the Managers' Review below.
Share Buybacks, Treasury and Issuance
The Company will once again be seeking to renew its share buyback, issuance and treasury share authorities. The buyback facility is sought to allow the Company to buy back its own shares when the discount is substantial in absolute terms and relative to its peers. Issuance, either from treasury or of new shares, will only be undertaken at a premium to the prevailing cum income NAV, with debt calculated at par, in order to satisfy natural market demand. This would enhance the NAV per share for existing shareholders as well as dilute ongoing costs and help with the trading liquidity of the shares of the Company.
Over the course of the last financial year, the Company has been able to issue over 8.2 million new shares at a premium to its NAV, raising net proceeds of £71.3 million and increasing the NAV per share by 0.34%. This equates to 16.8% of the issued share capital at the start of the year. This, along with good investment performance and the benefits of a tiered management fee, has contributed to the reduction in the Company's ongoing charges for the year.
Unlisted Investments and Investment Policy
At present, the Company is permitted to invest up to 5% of total assets in unlisted equity investments, in aggregate, at time of acquisition. As part of the business of the Company's Annual General Meeting, the Board is seeking shareholder approval to increase the permissible limit to 15% of total assets at the time of initial investment.
As at the Company's year end, the portfolio weighting in unlisted investments stood at 3.2% of total assets, invested in five holdings (2017 - 2.1% of total assets in three holdings). There were three new unlisted purchases during the year: Reaction Engines, a UK company that designs and manufactures very advanced heat exchangers; Akili Interactive Labs, a US company utilising technology for healthcare; and KSQ Therapeutics, a US preclinical-stage biotechnology company focusing on oncology and immuno-oncology product development. Unity Biotechnology, which was bought in October 2016, listed on Nasdaq in May this year.
Your portfolio managers remain alert to further special and high potential opportunities not widely accessible through public markets. Although they still have 1.8 percentage points of headroom to invest in unlisted investments, at points over 2018 they have had concerns that the 5% limit could curtail investments in potentially very exciting opportunities.
In 2014, the Company broadened its investment policy to allow a greater level of investment in companies at a much earlier point in their growth cycle. As part of this, the amount permissible to be invested in unlisted investments was increased from 1% to 5% of total assets, at time of initial investment. Since then, Baillie Gifford has established a dedicated investment team focused on analysing and investing in unlisted investments and currently has £1.5 billion invested in 48 private holdings across 10 countries to varying extents. In addition, Luke Ward, one of Edinburgh Worldwide's two deputy portfolio managers has been spending an increasing amount of time analysing unlisted opportunities alongside other colleagues at Baillie Gifford, specifically those companies that fit Edinburgh Worldwide's policy and objective.
Considering the increasing quantum of interesting unlisted investment opportunities emerging that fit the portfolio managers' criteria for investment, namely investing in immature but innovative businesses that are best positioned and able to prosper in a rapidly technologically evolving world and that will typically, although not necessarily, have a market valuation of less than US$5 billion at time of initial investment, the Board is seeking shareholder approval to increase the permissible limit in unlisted investments to 15% of total assets at the time of initial investment.
Sub Division of Ordinary Shares of 5p Nominal Value ('share split')
Over the 12 months to 31 October 2018, the Company's share price has risen from 690.50p to 822.00p and at points to over 1000.00p. Over recent years, the Board has observed a marked shift in the composition of the Company's share register; the majority of investors now represent, or are, individuals investing on an advised or direct basis, particularly through investment platforms, on a regular basis. One of the disadvantages of a high share price is that regular savers, who often make small monthly share purchases, may find that a considerable proportion of their monthly payment remains uninvested. In addition, a higher share price results in a wider bid/offer spread at which shares can be bought and sold. Reducing the share price, through increasing the number of shares in issue by way of a share split, and reducing the amount of uninvested cash from regular savers, should help improve trading liquidity to the benefit of all. Consequently, the Board is seeking shareholder approval to subdivide each existing ordinary share of 5p nominal value into five ordinary shares (of 1p nominal value). If approved, the number of shares held by each investor will increase five fold and the share price will reduce to one fifth of its prior amount, resulting in no change to the aggregate value of the holding. For shareholders who hold their shares in certificated form, new share certificates will be issued and the old certificates will become invalid. Further details of the proposed share split are set out on page 22 of the Annual Report and Financial Statements.
Borrowings
The extent and range of equity gearing is discussed by the Board and Managers at each Board meeting. Both parties agree that the Company should typically be geared to equities to maximise potential returns, with the current aspirational parameters set at +5% to +15%. Over the year, the invested equity gearing ranged between 1.3% and 8.9%, and stood at 5.3% at the financial year end (2017 - 8.6%). Despite undertaking a new £25 million borrowing facility during the year, the level of equity gearing has tended to be at the lower end of the spectrum due largely to the rate of asset appreciation and amount of stock issuance.
Currently, the Company has a five year fixed rate multi-currency loan from National Australia Bank Limited, expiring in September 2019, with drawings of €9.4 million, US$25.6 million and £7.5 million, with a weighted average interest rate of 2.8%. In addition, the Company has a further £25 million five year revolving multi-currency facility with National Australia Bank Limited, expiring in June 2023. At present, drawings under this facility are €2.1 million, US$9.9 million and £3.1 million, with an average interest rate of 3.4%.
Earnings and Dividend
The Company's objective is to generate capital growth and investors should not expect any income from this investment. This year the net revenue return per share was a negative 0.95p (2017 - positive 0.30p due largely to a one-off refund of French withholding tax and associated interest). As the revenue account for 2018 is running at a deficit, the Board is recommending that no final dividend be paid. Should the level of underlying income increase in future years, the Board will seek to distribute the minimum permissible to maintain investment trust status by way of a final dividend.
Increase in Ceiling on Directors' Fees
The Company's Articles of Association provides that the aggregate remuneration paid to the Directors shall not exceed £150,000 per annum, or such larger amount agreed by the Company by ordinary resolution. Based on the level of aggregate remuneration expected to be paid for the financial year ending 31 October 2019 (£130,500 - being £34,500 for the Chairman, £23,000 for each Director and an additional £4,000 for the Chairman of the Audit and Management Engagement Committee), should the Board wish to appoint a new Director the aggregate fees would likely exceed the current authorised limit. Accordingly, it is proposed that, pursuant to Resolution 6, as set out in the Notice of Annual General Meeting, the maximum aggregate amount of fees payable to the Directors be increased to £200,000 per annum in aggregate.
Investment Outlook
As stated last year, the ability to identify the companies that value innovation and have the capability to develop commercial opportunities around it, is key to unearthing the market leaders of the future and is a key focus for the managers. Such companies can be expected to thrive regardless of the underlying economic conditions. Nonetheless, the actions of investors often exhibit indiscriminate tendencies and immature growth companies can undergo notable price volatility. The structure of investment trusts permits their managers and discerning long term investors to take positions for the long term when the tide of money or sentiment depresses valuations. Rather than focus on macro economic developments, your managers will therefore continue to focus their efforts on picking growth companies that create and exploit investment opportunities and which exhibit excellent long term growth prospects and the potential for positive long term returns.
An overview of the portfolio is provided by the Managers below.
Annual General Meeting
The Annual General Meeting of the Company will be held at Baillie Gifford's offices in Edinburgh at 12 noon on Wednesday 23 January 2019. Further information on this and all the resolutions can be found on pages 53 and 54 of the Annual Report and Financial Statements. The Directors consider that all resolutions put to shareholders are in their and the Company's best interests as a whole and recommend that shareholders vote in their favour.
Douglas Brodie, the portfolio's lead manager, and Svetlana Viteva and Luke Ward, joint deputy portfolio managers, will give a presentation and take questions. The Board will also be available to respond to any questions that you may have. I hope that you will be able to attend.
Henry CT Strutt
Chairman
13 December 2018
* See disclaimer at the end of this announcement.
For a definition of terms see Glossary of Terms at the end of this announcement.
Past performance is not a guide to future performance.
Managers' Review
For most of the Company's financial year to end of October 2018, equity markets were in robust form. As highlighted in the Interim Report, our sense was that investors were behaving broadly rationally, driven largely by fundamentals and with a reasonable ability to tolerate the inevitable 'noise' of macro events. It is the nature of modern equity markets that such periods will only ever be transient, hence the return of volatility and pangs of cyclically driven anxiety in more recent months have not overly surprised us. Against this changing backdrop, the portfolio continued to perform well over the past year and, in aggregate, we continue to be very pleased with the operational performance of the holdings in the portfolio and in many cases we sense that it will continue to build at a very significant rate. Given the network effects and platform-based nature of many of these businesses, we believe that this positions them very well for the future. Our long-term growth-led investment style means we feel comparatively, yet comfortably, disconnected from the plethora of shorter-term factors that are currently combining to rebase markets downwards. Moreover, periodic market angst and the indiscriminate way in which this often manifests itself can frequently yield interesting investment opportunities for patient stock-picking investors.
We had previously flagged the heightened level of corporate activity across the portfolio. Over the course of the past year four of the Company's holdings were acquired: the online fashion retailer YOOX Net-a-Porter was bought by Richemont; software company MuleSoft was taken over by Salesforce; genetic testing company Foundation Medicine was sold to Roche; and investment advisor Financial Engines was an acquisition for a private equity company. While the contribution from these acquired businesses was positive, it was comparatively modest for overall relative performance over the year; most of the performance can be attributed to stocks which we continue to own and are increasingly enthused by. In seeking to identify up-and-coming, innovative companies we recognise that some will inevitably carve out a commercial proposition and uniqueness that make them attractive to potential acquirers. It is typically an outcome that we do not actively favour. Rather, we prefer our most innovative holdings to remain independent as we believe this often maximises the likelihood of a business really succeeding and ultimately increasing the long-term returns that can be achieved.
The most significant contribution to performance over the year was Ocado, the online grocery company, where the announcement of several licensing deals with large incumbents around the world endorsed our view that it has the most compelling solution for selling online grocery at scale. The most notable of these licensing deals is with Kroger, the second largest grocer in the US. This could see up to 20 Ocado-powered warehouses built in the US over the coming years. It is a transformational event for Ocado and a clear endorsement of how forward-thinking supermarkets are approaching the changes in consumer habits. Another of our e-commerce companies, Wayfair, also produced strong returns over the 12 months. Wayfair's expertise in merchandising furniture and home furnishings presents challenges that are different to the grocery offering of Ocado, yet both companies are pioneers of a digital offering into their respective end markets. Whilst pleased with their progress thus far, what strikes us most is just how early these vast end markets are in their transition to online, and how their offerings are rapidly evolving to be ultimately better for consumers, not merely an alternative. STAAR Surgical and Teladoc, both relatively recent purchases in the healthcare area, yielded very strong returns. STAAR Surgical, a developer of vision correcting implantable lenses, benefited from strong growth of its offering in Asia plus the removal of regulatory hurdles. This now opens the vast potential within the US market. We see a great opportunity for the business both to take share from laser-based vision correction and to expand the market for vision correction to those with more pronounced short-sightedness. Teladoc is emerging as the dominant company in the nascent telemedicine industry. The use of digital technologies to guide both patients and doctors outside of conventional GP and hospital settings is an area that offers huge cost and efficiency gains for consumers, employers and payers. We think that, in broadening its offering
from simple GP consultations towards chronic conditions, mental health and expert consultations, Teladoc is building a compellingly deep and sophisticated offering that could evolve to become the initial point of contact through which an individual will engage with the health system.
Negative contributors to performance over the past year included several long-standing holdings. In many cases, this follows the stocks having been exceptionally strong performers in the previous year. We would highlight the drug development company Alnylam Pharmaceuticals, the financial market place LendingTree and fibre-laser manufacturer IPG Photonics. In all cases the weakness has been prompted by near-term, largely cyclical concerns which we believe ignore the longer-term potential of these businesses. With regard to Alnylam and LendingTree, we used the weakness to add to the positions.
Portfolio Update
We acquired a number of new holdings over the year. The purchases of BlackLine, Jianpu Technology, resTORbio and Reaction Engines were discussed in the Interim Report. New purchases in the second half of the year included the following:
Evolent Health is a US-based company which aims to change the way healthcare in the US is delivered. Hospitals and physician groups in the US are facing structural challenges driven by the growing pressure on the budgets for federal programmes such as Medicare and Medicaid. Other factors include an ongoing reduction in reimbursement rates and a push towards payment based on patients' outcomes rather than the number of procedures performed by the hospital. Evolent Health consults with hospitals and physician groups and sells them software to help them move away from a fee-for-service reimbursement model. The transition to value-based healthcare is still in its early days and the opportunity for Evolent Health ought to be very large. With a growing number of hospitals using its software, the company is developing a valuable data advantage and helping hospitals improve their productivity further as well as enabling them to take on insurance-style risk.
CyberArk Software is an Israeli cybersecurity company focused on protection for privileged accounts (powerful internal accounts that are managed by IT administrators or senior employees). These accounts are critical because they are the gate to sensitive information within an organisation, such as customers' credit cards, patients' medical records or employees' personal details. In layman's terms, what CyberArk does is to put the passwords associated with those accounts into a safe, monitor them and block the access if it suspects malicious behaviour. This is referred to as privileged account management (PAM), an area where CyberArk is recognised as the pioneer and market leader. As approximately 80% of security breaches involve compromised privileged accounts, we see significant scope for the company to grow industry penetration from its current low base.
Rubius Therapeutics is a biotechnology company that is seeking to use edited red blood cells to deliver therapeutic proteins. This is achieved by harvesting progenitor blood cells which are edited using techniques similar to gene therapy. Red blood cells have a number of advantages as delivery mechanisms; they have a long (but not indefinite) lifespan, are not attacked by the immune system, can be easily delivered through transfusion and offer the ability to create an 'off the shelf' product using Type 'O' cells. Rubius will shortly be entering clinical trials but has compelling pre-clinical data showing the approach could work in a wide range of disease settings ranging from genetic enzyme deficiency to autoimmunity.
Yext is a New York based software company. It helps businesses manage and synchronise digital information (from basics like opening hours to more frequently updated features like menus, in-store sale campaigns and special events) across a large and growing network of services such as Facebook, Siri, Google Maps, WeChat and others. Yext began through building a rational, up-to-date database focused on local content for small businesses. The value proposition of this was simple; small businesses could be in charge of their own information and therefore they could ensure consistency of that information across multiple different search or aggregation sites. Ongoing changes in how people search (i.e. more Alexa/Siri interfaces, more natural query and some dominant content aggregators) has pushed the topic of corporate 'knowledge management' much higher up the agenda. No longer is this simply about helping small businesses. Rather, the real growth is in helping bigger companies present an up-to-date view of their business, both internally and externally. The changing emphasis of the Yext offering from 'local' to 'fundamental' massively increases the addressable market and ultimately broadens the relevance of what it offers.
We increased the portfolio's unlisted exposure through initiating holdings in two private US companies, Akili Interactive Labs and KSQ Therapeutics. Akili Interactive Labs designs video games incorporating embedded therapeutic algorithms to both treat and monitor a range of neurological conditions. It is a business we have followed for several years and owned indirectly on account of it being one of the larger healthcare businesses within PureTech Health, the London-listed healthcare incubator, which is an existing holding for Edinburgh Worldwide. Akili recently demonstrated the clinical significance of its iPad-based therapeutic game, EVO, in a pivotal trial for ADHD, an achievement which we think makes it a real stand out in the emerging area of digital medicine. With growing evidence that game-based stimuli can drive long-term cognitive benefit, we are intrigued by the possibility of Akili taking its technology into many additional areas of neurological therapy. KSQ Therapeutics has found a way to identify and validate novel drug targets at scale using a rational platform-based approach. Initially their efforts are focused on cancer, but over the longer term the powerful platform could be pointed towards several other diseases. The company uses CRISPR technology to selectively cut (and hence destroy) specific genes within cells. Once the library of knocked-out cells has been produced, the individual clones can be extensively studied in a variety of in vitro and in vivo experiments with the goal of finding cells in which the destruction of a particular gene has yielded a profound impact on a disease. KSQ already has a range of targets which seem to show enhanced migration to, and significant reductions in, tumour volume relative to existing leading-edge immuno-oncology drugs.
The investments in Akili and KSQ are indicative of the interesting dynamic opportunities we are seeing in the unlisted area. Their addition to the portfolio results in there now being five unlisted holdings, 3.2% of total assets at the year end, each representing an exciting investment opportunity that is innovating in areas that are difficult to access through listed businesses alone. As detailed in the Chairman's Statement, we see increasing opportunities in the unlisted area and we are building up resource accordingly.
Investment Philosophy
Most small businesses are destined to stay small given their limited scope for both structural growth and meaningful differentiation. Such businesses constitute the bulk of the smaller companies' universe yet are of no appeal to us. However, what is intriguing about the smaller companies' universe is that it contains a subset of immature but potentially high growth companies. By identifying attractive growth companies earlier we seek to benefit from growth at an earlier stage in a company's lifecycle and retain ownership of successful companies as they grow and thrive; we see our role as investing in what are potentially the larger companies of the future as opposed to the smaller companies of today.
We are looking to concentrate on the part of the market where we believe our analytical effort and the pursuit of genuinely transformational growth can be better exploited. The focus at time of initial investment is on younger, more immature companies that are global and exhibiting strong growth.
It is important to remember that big successful ideas typically start out as small, tentative and unproven. Early iterations are easy to dismiss as unworkable but experimentation with, and evolution of, an initially raw concept can, over time, yield huge commercial relevance. Our philosophy involves weighing up what is proven and tangible alongside what has promise and long term potential. Integral to this approach is recognising the role of innovation in business development; it provides the fuel for business creation, growth and long term competitive differentiation. Consequently, identifying companies that value innovation, having both a cultural acceptance of it and a means to develop commercial opportunities around it, is fundamental to our investment approach.
Growth companies, especially those which are young and hard to model, are difficult businesses to value. The wide range of potential outcomes and profitability that is heavily skewed to future years is a combination of uncertainties that many investors struggle with. We do not have all the answers but by approaching the challenge with a genuine long term perspective, accepting a degree of uncertainty, backing robust innovation and entrepreneurial management, we believe we are well positioned to identify the smaller businesses most likely to shape the world in which we live. As technological advancements encroach into an increasing pool of opportunity, the rate and extent of growth that a small business can achieve, in a relatively short period of time, is almost unrecognisable to that of a few years ago. Innovative smaller businesses that are unburdened by the legacy of historic business practices, or those willing to adapt to change, are best positioned to harness this opportunity.
|
Twenty Largest Holdings and Twelve Month Performance at 31 October 2018
|
|
Name |
Business |
Country |
Fair Value 2018 £'000 |
% of total assets* |
Absolute† performance % |
Relative† performance % |
|
Ocado |
Online grocery company |
UK |
18,588 |
3.5 |
197.7 |
197.2 |
|
MarketAxess |
Electronic bond trading platform |
USA |
18,355 |
3.5 |
26.2 |
26.0 |
|
Wayfair |
Online furniture and homeware retailer |
USA |
17,989 |
3.4 |
64.1 |
63.9 |
|
Alnylam Pharmaceuticals |
Therapeutic gene silencing |
USA |
17,909 |
3.4 |
(31.5) |
(31.6) |
|
LendingTree |
Online loan marketplace |
USA |
15,991 |
3.1 |
(21.9) |
(22.0) |
|
AeroVironment |
Small unmanned aircraft systems |
USA |
15,529 |
3.0 |
83.0 |
82.7 |
|
Chegg |
Online educational company |
USA |
12,383 |
2.4 |
83.3 |
83.0 |
|
Tesla, Inc |
Electric cars, autonomous driving and solar energy |
USA |
11,853 |
2.3 |
5.7 |
5.6 |
|
STAAR Surgical |
Develops and manufactures high margin visual implants |
USA |
11,303 |
2.2 |
214.3 |
213.8 |
|
Exact Sciences |
Provides non-invasive molecular tests for early cancer detection |
USA |
10,767 |
2.1 |
33.8 |
33.6 |
|
Novocure |
Manufacturer of medical devices for cancer treatment |
USA |
10,179 |
2.0 |
60.1 |
59.8 |
|
Grubhub |
Online and mobile platform for restaurant pick-up and delivery orders |
USA |
10,163 |
2.0 |
58.0 |
57.7 |
|
Temenos Group |
Banking software |
Switzerland |
9,850 |
1.9 |
24.4 |
24.2 |
|
Zillow Class C |
US online real estate portal |
USA |
9,709 |
1.9 |
1.1 |
1.0 |
|
Teladoc |
Telemedicine services provider |
USA |
9,391 |
1.8 |
117.1 |
116.8 |
|
iRobot |
Domestic and military robots |
USA |
8,854 |
1.7 |
36.5 |
36.3 |
|
Puretech Health |
IP commercialisation focused on health care |
UK |
8,401 |
1.6 |
34.3 |
34.1 |
|
Pacira Pharmaceuticals |
Development, commercialisation and manufacturing of proprietary pharmaceutical products |
USA |
7,890 |
1.5 |
58.2 |
58.0 |
|
IPG Photonics |
High-power fibre lasers |
USA |
7,696 |
1.5 |
(34.9) |
(35.0) |
|
Dexcom |
Real time blood glucose monitoring |
USA |
7,576 |
1.5 |
206.8 |
206.4 |
|
|
|
|
240,376 |
46.3 |
|
|
* Total assets less current liabilities before the deduction of borrowings.
† Absolute and relative performance has been calculated on a total return basis over the period 1 November 2017 to 31 October 2018. Absolute performance is in sterling terms; relative performance is against S&P Global Small Cap Index (in sterling terms).
Source: Baillie Gifford/StatPro and relevant underlying index providers. See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
List of Investments as at 31 October 2018
|
Name |
Business |
Country |
Fair Value 2018 £'000 |
% of total assets |
Fair Value 2017 £'000 |
||||
|
Ocado |
Online grocery company |
UK |
18,588 |
3.5 |
5,676 |
||||
|
MarketAxess |
Electronic bond trading platform |
USA |
18,355 |
3.5 |
21,640 |
||||
|
Wayfair |
Online furniture and homeware retailer |
USA |
17,989 |
3.4 |
8,964 |
||||
|
Alnylam Pharmaceuticals |
Therapeutic gene silencing |
USA |
17,909 |
3.4 |
22,449 |
||||
|
LendingTree |
Online loan marketplace |
USA |
15,991 |
3.1 |
17,178 |
||||
|
AeroVironment |
Small unmanned aircraft systems |
USA |
15,529 |
3.0 |
6,774 |
||||
|
Chegg |
Online educational company |
USA |
12,383 |
2.4 |
3,899 |
||||
|
Tesla, Inc |
Electric cars, autonomous driving and solar energy |
USA |
11,853 |
2.3 |
11,209 |
||||
|
STAAR Surgical |
Develops and manufactures high margin visual implants |
USA |
11,303 |
2.2 |
3,142 |
||||
|
Exact Sciences |
Provides non-invasive molecular tests for early cancer detection |
USA |
10,767 |
2.1 |
4,552 |
||||
|
Novocure |
Manufacturer of medical devices for cancer treatment |
USA |
10,179 |
2.0 |
4,136 |
||||
|
Grubhub |
Online and mobile platform for restaurant pick-up and delivery orders |
USA |
10,163 |
2.0 |
6,432 |
||||
|
Temenos Group |
Banking software |
Switzerland |
9,850 |
1.9 |
7,955 |
||||
|
Zillow Class C |
US online real estate portal |
USA |
9,709 |
1.9 |
5,646 |
||||
|
Teladoc |
Telemedicine services provider |
USA |
9,391 |
1.8 |
2,912 |
||||
|
iRobot |
Domestic and military robots |
USA |
8,854 |
1.7 |
9,244 |
||||
|
Puretech Health |
IP commercialisation focused on health care |
UK |
8,401 |
1.6 |
4,154 |
||||
|
Pacira Pharmaceuticals |
Development, commercialisation and manufacturing of proprietary pharmaceutical products |
USA |
7,890 |
1.5 |
2,414 |
||||
|
IPG Photonics |
High-power fibre lasers |
USA |
7,696 |
1.5 |
14,208 |
||||
|
Dexcom |
Real time blood glucose monitoring |
USA |
7,576 |
1.5 |
2,470 |
||||
|
Baozun SPN ADR |
Chinese e-commerce solution provider |
China |
7,568 |
1.5 |
4,569 |
||||
|
Codexis |
Manufacturer of custom industrial enzymes |
USA |
7,302 |
1.4 |
2,295 |
||||
|
InfoMart Corp |
Internet platform for restaurant supplies |
Japan |
6,306 |
1.2 |
4,388 |
||||
|
Benefitfocus |
Cloud-based benefits software provider |
USA |
6,280 |
1.2 |
1,947 |
||||
|
Galapagos |
Clinical stage biotechnology company |
Belgium |
6,208 |
1.2 |
5,640 |
||||
|
Tandem Diabetes Care |
Manufacturer of pumps for diabetic patients |
USA |
6,165 |
1.2 |
- |
||||
|
MonotaRO |
Online business supplies |
Japan |
6,012 |
1.2 |
3,586 |
||||
|
Renishaw |
Measurement and calibration equipment |
UK |
5,905 |
1.1 |
6,963 |
||||
|
IP Group |
Intellectual property commercialisation |
UK |
5,846 |
1.1 |
8,079 |
||||
|
Xero |
Could-based accounting software |
New Zealand |
5,801 |
1.1 |
4,255 |
||||
|
Splunk |
Data diagnostics |
USA |
5,773 |
1.1 |
2,913 |
||||
|
Genmab |
Therapeutic antibody company |
Denmark |
5,274 |
1.0 |
3,636 |
||||
|
Evolent Health |
Healthcare company which helps hospitals move to value-based healthcare |
USA |
5,097 |
1.0 |
- |
||||
|
BlackLine |
Enterprise software developer |
USA |
5,046 |
1.0 |
- |
||||
|
Oxford Nanopore Technologies‡ |
Novel DNA sequencing technology |
UK |
4,982 |
0.9 |
4,176 |
||||
|
Axogen Inc |
A regenerative medicine company for peripheral nerve repair |
USA |
4,944 |
0.9 |
- |
||||
|
Peptidream |
Drug discovery platform |
Japan |
4,925 |
0.9 |
2,998 |
||||
|
Genus |
Animal breeding services |
UK |
4,874 |
0.9 |
5,180 |
||||
|
Kingdee International Software |
Enterprise management software |
China |
4,871 |
0.9 |
3,081 |
||||
|
Cellectis |
Biotech focused on genetic engineering |
France |
4,723 |
0.9 |
4,942 |
||||
|
Morphosys |
Therapeutic antibodies |
Germany |
4,656 |
0.9 |
4,180 |
||||
|
NuCana SPN ADR |
An oncology-focused biotechnology company |
UK |
4,603 |
0.9 |
2,156 |
||||
|
ASOS |
Online fashion retailer |
UK |
4,522 |
0.9 |
3,874 |
||||
|
CyberArk Software |
Cyber security solutions provider |
Israel |
4,299 |
0.8 |
- |
||||
|
|
|
|
|
|
|
||||
|
List of Investments as at 31 October 2018
|
|
||||||||
|
Name |
Business |
Country |
Fair Value 2018 £'000 |
% of total assets |
Fair Value 2017 £'000 |
||||
|
Penumbra |
Manufacturer of novel blood clot extraction technology |
USA |
4,290 |
0.8 |
2,130 |
||||
|
Faro Technologies |
Designs and develops measurement devices |
USA |
4,263 |
0.8 |
4,204 |
||||
|
National Instruments Corp |
Instrumentation equipment used in research and testing |
USA |
4,192 |
0.8 |
3,706 |
||||
|
ResTORbio |
Clinical stage biopharmaceutical company |
USA |
4,132 |
0.8 |
- |
||||
|
Yext |
Digital knowledge manager |
USA |
4,024 |
0.8 |
- |
||||
|
Akili Interactive Labs‡ |
Digital medicine company |
USA |
3,913 |
0.8 |
- |
||||
|
KSQ Therapeutics‡ |
Biotechnology target identification company |
USA |
3,913 |
0.7 |
- |
||||
|
Digital Garage |
Internet business incubator |
Japan |
3,851 |
0.7 |
2,902 |
||||
|
Jianpu Technology ADR |
Chinese consumer finance marketplace |
China |
3,757 |
0.7 |
- |
||||
|
Seattle Genetics |
Antibody conjugates based biotechnology |
USA |
3,756 |
0.7 |
3,947 |
||||
|
Trupanion |
Pet health insurance provider |
USA |
3,656 |
0.7 |
3,923 |
||||
|
ZOZO (formerly Start Today) |
Internet fashion retailer |
Japan |
3,630 |
0.7 |
5,083 |
||||
|
M3 |
Online medical database |
Japan |
3,530 |
0.7 |
3,131 |
||||
|
Adatimmune Therapeutics ADR |
Clinical stage biopharmaceutical company |
UK |
3,400 |
0.7 |
2,186 |
||||
|
Victrex |
High-performance thermo-plastics |
UK |
3,370 |
0.6 |
3,048 |
||||
|
Cosmo Pharmaceuticals |
Therapies for gastrointestinal diseases |
Italy |
3,289 |
0.6 |
3,643 |
||||
|
SEEK |
Online recruitment portal |
Australia |
3,232 |
0.6 |
3,461 |
||||
|
Rightmove |
UK online property portal |
UK |
3,119 |
0.6 |
2,865 |
||||
|
Mindbody CL |
Business management software for the wellness sector |
USA |
3,031 |
0.6 |
2,308 |
||||
|
Unity Biotechnology Inc |
Biotechnology company seeking to develop anti ageing therapies |
USA |
2,950 |
0.6 |
1,506 |
||||
|
Zillow Class A |
US online real estate portal |
USA |
2,869 |
0.6 |
2,825 |
||||
|
Ceres Power Holding |
Developer of fuel cells |
UK |
2,729 |
0.5 |
1,995 |
||||
|
Ambarella |
Video compression and image processing semiconductors |
USA |
2,654 |
0.5 |
3,124 |
||||
|
Uxin ADR |
E-commerce services provider |
China |
2,404 |
0.5 |
- |
||||
|
Spire Global‡ |
Manufacturer and operator of nanosatellites for data collection |
USA |
2,241 |
0.4 |
2,259 |
||||
|
Dialog Semiconductor |
Analogue chips for mobile phones |
Germany |
2,204 |
0.4 |
3,992 |
||||
|
SDL |
Language translation services |
UK |
2,196 |
0.4 |
2,591 |
||||
|
Stratasys |
3D printer manufacturer |
USA |
2,156 |
0.4 |
2,451 |
||||
|
Sensirion Holding AG |
Manufacturer of gas and flow sensors |
Switzerland |
2,154 |
0.4 |
- |
||||
|
Oxford Instruments |
Produces advanced instrumentation equipment |
UK |
2,098 |
0.4 |
2,121 |
||||
|
Horizon Discovery |
Customised cell lines to aid drug discovery |
UK |
1,975 |
0.4 |
2,596 |
||||
|
Suess Microtec |
Fabrication and inspection equipment |
Germany |
1,960 |
0.4 |
2,875 |
||||
|
Aduro Biotechnology |
Immunotherapy services provider |
USA |
1,938 |
0.3 |
1,302 |
||||
|
Digimarc |
Digital watermarking technology |
USA |
1,597 |
0.3 |
2,188 |
||||
|
CEVA |
Licenses DSP-based platforms applications to the semiconductor industry |
USA |
1,591 |
0.3 |
2,998 |
||||
|
Ellie Mae |
Provides technology solutions to automate mortgage origination process |
USA |
1,555 |
0.3 |
2,032 |
||||
|
4D Pharma |
Bacteria derived novel therapeutics |
UK |
1,526 |
0.3 |
3,748 |
||||
|
Reaction Engines Limited‡ |
Advanced heat exchange company |
UK |
1,500 |
0.3 |
- |
||||
|
Rubius Therapeutics |
Developer of novel therapies using engineered red blood cells |
USA |
1,406 |
0.3 |
- |
||||
|
List of Investments as at 31 October 2018
|
|
||||||||
|
Name |
Business |
Country |
Fair Value 2018 £'000 |
% of total assets |
Fair Value 2017 £'000 |
||||
|
|
|
|
|
|
|
||||
|
Tissue Regenix |
Regenerative medical devices |
UK |
1,344 |
0.2 |
1,430 |
||||
|
Basware |
Software solutions for financial transactions |
Finland |
1,203 |
0.2 |
2,477 |
||||
|
Nanoco |
Quantum dot manufacturer |
UK |
1,194 |
0.2 |
732 |
||||
|
C4X Discovery Holdings |
Rational drug design and optimisation |
UK |
1,144 |
0.2 |
851 |
||||
|
Catapult Group International |
Sports analytics focused on optimising athlete performance |
Australia |
1,027 |
0.2 |
1,961 |
||||
|
Ricardo |
Automotive engineer |
UK |
969 |
0.2 |
1,123 |
||||
|
China Financial Services |
Small and medium-sized enterprises lending in China |
China |
955 |
0.2 |
1,276 |
||||
|
Avacta Group |
Analytical reagents and instrumentation |
UK |
892 |
0.2 |
1,087 |
||||
|
Xeros Technology Group |
Polymer technology company with laundry and textile applications |
UK |
860 |
0.2 |
3,733 |
||||
|
Xaar |
Ink jet printing technology |
UK |
838 |
0.2 |
2,794 |
||||
|
Zumtobel |
Commercial lighting |
Austria |
738 |
0.1 |
1,350 |
||||
|
Acacia Research |
Patent licenser |
USA |
569 |
0.1 |
745 |
||||
|
Ilika |
Discovery and development of materials for mass market applications |
UK |
500 |
0.1 |
466 |
||||
|
Foamix Pharmaceuticals |
Drug reformulation technology |
Israel |
379 |
0.1 |
510 |
||||
|
hVIVO (formerly Retroscreen Virology) |
Outsourced pre-clinical analytical services |
UK |
300 |
0.1 |
400 |
||||
|
Applied Graphene Materials |
Manufactures graphene nanoplatelets |
UK |
261 |
0.1 |
242 |
||||
|
Sarine Technologies |
Systems for diamond grading and cutting |
Singapore |
257 |
0.0 |
462 |
||||
|
Summit Therapeutics |
Drug discovery and development |
UK |
255 |
0.0 |
1,065 |
||||
|
Thin Film Electronics |
Develops printed, rewritable memory media |
Norway |
200 |
0.0 |
519 |
||||
|
Velocycs |
Gas to liquid technology |
UK |
18 |
0.0 |
162 |
||||
|
GI Dynamics |
Develops and markets medical devices |
Australia |
14 |
0.0 |
34 |
||||
|
China Lumena New Materials |
Mines, processes and manufactures natural thenardite products |
China |
0 |
0.0 |
0 |
||||
|
Ensogo |
South East Asian e-commerce |
Australia |
0 |
0.0 |
0 |
||||
|
Total equities |
|
|
498,326 |
95.6 |
|
||||
|
Net current assets |
|
|
22,776 |
4.4 |
|
||||
|
Total assets at fair value* |
|
|
521,102 |
100.0 |
|
||||
|
|
|
|
|
|
|
|
|||
* Total assets less current liabilities before deduction of borrowings.
‡ Denotes unlisted security.
Distribution of Total Assets* by Industry
|
|
|
Industry Analysis 31 October 2018 % of total assets* |
|
Portfolio Weightings (relative to comparative index†) at 31 October 2018 % points overweight/(underweight) |
|
Equities: |
Biotechnology |
15.2 |
|
12.1 |
|
|
Software |
12.2 |
|
8.5 |
|
|
Internet and Direct Marketing Retail |
11.1 |
|
10.4 |
|
|
Health Care Equipment and Supplies |
8.8 |
|
6.2 |
|
|
Electronic Equipment, Instruments and Components |
5.2 |
|
2.5 |
|
|
Capital Markets |
4.6 |
|
2.1 |
|
|
Health Care Technology |
4.5 |
|
4.0 |
|
|
Life Sciences Tools and Services |
4.4 |
|
3.4 |
|
|
Pharmaceuticals |
3.9 |
|
2.0 |
|
|
Aerospace and Defence |
3.3 |
|
2.0 |
|
|
Interactive Media and Services |
3.1 |
|
2.2 |
|
|
Thrifts and Mortgage Finance |
3.1 |
|
2.3 |
|
|
Diversified Consumer Services |
2.4 |
|
1.4 |
|
|
Automobiles |
2.3 |
|
2.2 |
|
|
Semiconductors and Semiconductor Equipment |
1.8 |
|
(0.2) |
|
|
Household Durables |
1.7 |
|
0.2 |
|
|
Trading Companies and Distributors |
1.2 |
|
(0.4) |
|
|
Professional Services |
1.0 |
|
(0.5) |
|
|
Internet and Catalogue Retail |
0.9 |
|
0.9 |
|
|
Consumer Finance |
0.9 |
|
0.2 |
|
|
Chemicals |
0.7 |
|
(2.3) |
|
|
Insurance |
0.7 |
|
(2.4) |
|
|
IT Services |
0.7 |
|
(1.7) |
|
|
Technology Hardware, Storage and Peripherals |
0.6 |
|
0.1 |
|
|
Electrical Equipment |
0.6 |
|
(0.3) |
|
|
Internet Software and Services |
0.5 |
|
0.5 |
|
|
Machinery |
0.2 |
|
(4.5) |
|
|
Energy Equipment and Services |
0.0 |
|
(1.4) |
|
|
Net Current Assets |
4.4 |
|
|
|
Total assets* |
100.0 |
|
|
|
|
* Total assets before deduction of bank loan. |
|
|
|
|
† S&P Global Small Cap Index (in sterling terms). Weightings exclude industries where the Company has no exposure. See disclaimer at the end of this announcement.
|
Distribution of Total Assets |
Geographical Analysis
|
|
31 October 2018 % |
31 October 2017 % |
|
|
North America |
|
58.7 |
54.9 |
|
|
USA |
58.7 |
54.9 |
|
Europe |
|
25.8 |
32.6 |
|
|
United Kingdom |
16.9 |
20.3 |
|
|
Eurozone |
4.7 |
9.1 |
|
|
Developed Europe (non euro) |
4.2 |
3.2 |
|
Asia |
|
9.2 |
9.0 |
|
|
Japan |
5.4 |
6.6 |
|
|
China |
3.8 |
2.3 |
|
|
Singapore |
0.0 |
0.1 |
|
Australasia |
|
1.9 |
2.5 |
|
|
Australia |
0.8 |
1.4 |
|
|
New Zealand |
1.1 |
1.1 |
|
Total equities |
95.6 |
99.0 |
|
|
Net current assets |
4.4 |
1.0 |
|
|
Total assets* |
100.0 |
100.0 |
|
Sectoral Analysis
|
|
31 October 2018 % |
|
31 October 2017 % |
|
|
Consumer Discretionary |
|
18.4 |
|
17.2 |
|
Financials |
|
9.3 |
|
14.7 |
|
Health Care |
|
36.8 |
|
29.6 |
|
Industrials |
|
6.3 |
|
6.0 |
|
Information Technology |
|
21.0 |
|
29.9 |
|
Materials |
|
0.7 |
|
0.9 |
|
Telecommunication Services |
|
3.1 |
|
0.7 |
|
Net Current Assets |
|
4.4 |
|
1.0 |
|
Total assets* |
|
100.0 |
|
100.0 |
* Total assets before deduction of loans
|
Investment Changes |
|
|
Valuation at 31 October 2017 £'000 |
Net acquisition/ (disposals) £'000 |
Appreciation/ (depreciation) £'000 |
Valuation at 31 October 2018 £'000 |
|
Equities: |
|
|
|
|
|
North America |
|
|
|
|
|
USA |
212,702 |
41,479 |
50,659 |
304,840 |
|
Europe |
|
|
|
|
|
United Kingdom |
78,236 |
10,955 |
(982) |
88,209 |
|
Eurozone |
35,663 |
(6,651) |
(4,031) |
24,981 |
|
Developed Europe (non euro) |
12,620 |
9,490 |
46 |
22,156 |
|
Asia |
|
|
|
|
|
Japan |
25,526 |
(1,764) |
4,492 |
28,254 |
|
China |
8,926 |
8,735 |
1,894 |
19,555 |
|
Singapore |
462 |
- |
(205) |
257 |
|
Australasia |
|
|
|
|
|
Australia |
5,456 |
- |
(1,183) |
4,273 |
|
New Zealand |
4,255 |
606 |
940 |
5,801 |
|
Total equities |
383,846 |
62,850 |
51,630 |
498,326 |
|
Net current assets |
4,017 |
17,474 |
1,285 |
22,776 |
|
Total assets |
387,863 |
80,324 |
52,915 |
521,102 |
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 (after deducing borrowings at fair value);
¾ the movement in the share price;
¾ the movement of the net asset value and share price compared to the comparative index;
¾ the premium/discount of the share price to the net asset value per share; and
¾ the ongoing charges ratio.
An explanation of these measures can be found in the Glossary of Terms, at the end of this announcement.
The one, five and ten year records for the KPIs can be found on pages 4, 5 and 6 of the Annual Report and Financial Statements respectively.
Future Developments of the Company
The outlook for the Company for the next 12 months is set out in the Chairman's Statement and the Managers' Report and Investment Philosophy above.
Capital Structure
At the year end the Company's share capital consisted of 57,214,739 fully paid ordinary shares of 5p each. The Company currently has powers to buy back shares at a discount to net asset value per share (NAV) for cancellation or retention as treasury shares as well as to issue shares/sell treasury shares at a premium to NAV. As part of the business to be proposed at the Annual General Meeting the Board are proposing a sub-division of the share capital. Further details can be found on page 22 of the Annual Report and Financial Statements.
Transactions with Related Parties and the Managers and Secretaries
The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 30 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.
Details of the management contract are set out in the Directors' Report on page 21 of the Annual Report and Financial Statement. The management fee payable to the Managers by the Company for the year, as disclosed in note 3 in the Annual Report and Financial Statements, was £2,776,000 (2017 - £2,141,000) of which £750,000 (2017 - £585,000) was outstanding at the year end, as disclosed in note 11 in the Annual Report and Financial Statements.
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.
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 three months' notice. Compensation fees would only be payable in respect of the notice period if termination by the Company were to occur within a shorter notice period.
The annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable quarterly.
The details of the management fee are as follows:
|
|
2018 £'000 |
|
2017 £'000 |
|
|
|
|
|
|
Investment management fee |
2,776 |
|
2,141 |
Principal Risks
As explained on pages 26 and 27 of the Annual Report and Financial Statements there is a process for identifying, evaluating and managing the risks faced by the Company on a regular basis. 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 charges to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below.
Financial Risk - the Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 17 to the Financial Statements below. As oversight of this risk, the Board considers at each meeting various metrics including the composition and diversification of the portfolio by geographies, sectors and capitalisation along with sales and purchases of investments. Individual investments are discussed with the portfolio 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.
Discount Risk - the discount/premium 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. The Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares or issue shares (including authority to sell shares
held in treasury), when deemed by the Board to be in the best interests of the Company and its shareholders.
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 suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit and Management Engagement 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 monitor potential risk, the Audit and Management Engagement Committee 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. In addition, the existence of assets is subject to annual external audit and 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 and Management Engagement Committee and any concerns investigated.
Small Company Risk - the Company has investments in smaller, immature companies which are generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller, immature companies may do less well in periods of unfavourable economic conditions. To mitigate this risk, the Board reviews the investment portfolio at each meeting and discusses the merits and characteristics of individual investments with the Managers. A spread of risk is achieved by holding stocks classified across at least fifteen industries and six countries.
Unlisted Investments - the Company's risk could be increased by its investment in unlisted investments. These assets may be more difficult to buy or sell, so changes in their prices may be greater. To mitigate this risk, the Board considers the unlisted investments in the context of the overall investment strategy and provides guidance to the Managers on the maximum exposure to
unlisted investments.
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 Audit and Management Engagement Committee reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board.
Leverage Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the impact of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. 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 in note 18 on page 52 of the Annual Report and Financial Statements and the Glossary of Terms at the end of this announcement.
Political and Associated Economic Risk - the Board is of the view that political change in areas in which the Company invests or may invest may have practical consequences for the Company. Political developments are closely monitored and considered by the Board. The Board has noted the UK Government's intention that the UK should leave the European Union on 29 March 2019. Whilst there is considerable uncertainty at present, the Board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code the Directors have assessed the prospects of the Company over a minimum period of five years. The Directors continue to believe this period to be appropriate as it is reflective of the longer term investment strategy of the Company, and over which, in the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing the Company nor to the adequacy of the mitigating controls in place. Also 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 considering the viability of the Company, the Directors have conducted a robust assessment of each of the Company's principal risks and uncertainties detailed above and in particular the impact of a significant fall in the global equity markets on the value of the Company's investment portfolio. All of the key operations required by the Company are outsourced to third party providers and alternative providers could be engaged at relatively short notice if necessary. The Directors have also considered the Company's leverage and liquidity in the context of the fixed rate loan which is due to expire in September 2019, its floating rate loan which is due to expire in June 2023, the income and expenditure projections and the fact that the Company's investments comprise mainly readily realisable quoted equity securities which can be sold to meet funding requirements if necessary.
Based on the Company's processes for monitoring operating costs, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years as a minimum.
Going Concern
In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. An explanation of the Company's principal risks and how they are managed is set out above contained in note 17 to the Financial Statements which are noted below.
The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis.
Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for 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 meet its investment objective of achieving long term capital growth. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.
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 loss of capital 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 of Directors 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.
(i) 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 Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Managers assess 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 country in which a company is listed is not necessarily where 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 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 31 October 2018 |
Investments £'000 |
|
Cash and deposits £'000 |
|
Bank Loan £'000 |
|
Other debtors and creditors* £'000 |
|
Net exposure £'000 |
|
US dollar |
331,250 |
|
23,011 |
|
(27,780) |
|
(85) |
|
326,396 |
|
Yen |
28,254 |
|
- |
|
- |
|
34 |
|
28,288 |
|
Euro |
21,692 |
|
- |
|
(10,223) |
|
18 |
|
11,487 |
|
Swiss franc |
15,293 |
|
- |
|
- |
|
- |
|
15,293 |
|
Australian dollar |
10,074 |
|
- |
|
- |
|
- |
|
10,074 |
|
Hong Kong dollar |
5,826 |
|
- |
|
- |
|
- |
|
5,826 |
|
Danish krone |
5,274 |
|
- |
|
- |
|
- |
|
5,274 |
|
Singapore dollar |
257 |
|
- |
|
- |
|
- |
|
257 |
|
Norwegian krone |
200 |
|
- |
|
- |
|
- |
|
200 |
|
New Zealand dollar |
- |
|
- |
|
- |
|
- |
|
- |
|
Total exposure to currency risk |
418,120 |
|
23,011 |
|
(38,003) |
|
(33) |
|
403,095 |
|
Sterling |
80,206 |
|
596 |
|
(10,625) |
|
(798) |
|
69,379 |
|
|
498,326 |
|
23,607 |
|
(48,628) |
|
(831) |
|
472,474 |
* Includes net non-monetary assets of £38,000.
|
At 31 October 2017 |
Investments £'000 |
|
Cash and deposits £'000 |
|
Bank Loan £'000 |
|
Other debtors and creditors* £'000 |
|
Net exposure £'000 |
|
US dollar |
222,123 |
|
4,667 |
|
(19,278) |
|
(54) |
|
207,458 |
|
Yen |
25,526 |
|
- |
|
- |
|
17 |
|
25,543 |
|
Euro |
32,020 |
|
- |
|
(8,246) |
|
19 |
|
23,793 |
|
Swiss franc |
11,598 |
|
- |
|
- |
|
- |
|
11,598 |
|
Australian dollar |
5,456 |
|
- |
|
- |
|
- |
|
5,456 |
|
Hong Kong dollar |
4,357 |
|
- |
|
- |
|
- |
|
4,357 |
|
Danish krone |
3,636 |
|
- |
|
- |
|
- |
|
3,636 |
|
Singapore dollar |
462 |
|
- |
|
|
|
|
|
462 |
|
Norwegian krone |
519 |
|
- |
|
- |
|
- |
|
519 |
|
New Zealand dollar |
4,255 |
|
- |
|
- |
|
- |
|
4,255 |
|
Total exposure to currency risk |
309,952 |
|
4,667 |
|
(27,524) |
|
(18) |
|
287,077 |
|
Sterling |
73,894 |
|
19 |
|
(7,500) |
|
(651) |
|
65,762 |
|
|
383,846 |
|
4,686 |
|
(35,024) |
|
(669) |
|
352,839 |
* Includes net non-monetary assets of £16,000.
Currency Risk Sensitivity
At 31 October 2018, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the Financial Statement amounts. The analysis is performed on the same basis for 2017.
|
|
2018 £'000 |
|
2017 £'000 |
|
|
|
US dollar |
16,320 |
|
10,373 |
|
|
|
Yen |
1,414 |
|
1,277 |
|
|
|
Euro |
574 |
|
1,189 |
|
|
|
Swiss franc |
765 |
|
580 |
|
|
|
Australian dollar |
504 |
|
273 |
|
|
|
Hong Kong dollar |
291 |
|
218 |
|
|
|
Danish krone |
264 |
|
182 |
|
|
|
Singapore dollar |
13 |
|
23 |
|
|
|
Norwegian Krone |
10 |
|
26 |
|
|
|
New Zealand dollar |
- |
|
213 |
|
|
|
|
20,155 |
|
14,354 |
|
|
(ii) Interest Rate Risk
Interest rate movements may affect directly:
¾ the fair value of investments in fixed interest rate securities;
¾ the level of income receivable on cash deposits;
¾ the fair value of fixed-rate borrowings; and
¾ the interest payable on any variable rate borrowings.
Interest rate movements may also impact upon the market value of the Company's investments outwith 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 market value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value (assuming that the Company's share price is unaffected by movements in interest rates).
The interest rate risk profile of the Company's financial assets and liabilities at 31 October is shown below:
Financial Assets
The Company's interest rate risk exposure on its financial assets at 31 October 2018 amounted to £23,607,000 (2017 - £4,686,000), comprising of its cash and short term deposits.
The cash deposits generally comprise overnight 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 risk profile of the Company's financial liabilities and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 31October are shown below.
Interest Rate Risk Profile
|
|
2018 £'000 |
2017 £'000 |
|
The interest rate risk profile of the Company's financial liabilities at 31 October was: |
||
|
Floating rate - Sterling denominated |
3,125 |
- |
|
- US$ denominated |
7,745 |
- |
|
- Euro denominated |
1,887 |
- |
|
Fixed rate - Sterling denominated |
7,500 |
7,500 |
|
- US$ denominated |
20,035 |
19,278 |
|
- Euro denominated |
8,336 |
8,246 |
|
|
48,628 |
35,024 |
Maturity Profile
|
The maturity profile of the Company's financial liabilities at 31 October was: |
||
|
|
2018 £'000 |
2017 £'000 |
|
In less than one year |
|
|
|
- repayment of loans - accumulated interest
|
48,628 990 |
- 981 |
|
In more than one year, but not more than five years |
|
|
|
- repayment of loan |
- |
35,024 |
|
- accumulated interest |
- |
897 |
|
|
49,618 |
36,902 |
Interest Rate Risk Sensitivity
An increase of 100 basis points in interest rates, with all other variables held constant, would have decreased the Company's total net assets and total return on ordinary activities for the year ended 31 October 2018 by £46,000 due to the Company's exposure to interest rates on its revolving floating rate bank loans (2017 - Nil, as the Company only had exposure to fixed rate loans). A decrease of 100 basis points would have had an equal but opposite effect. The Company does not hold bonds.
(iii) 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 Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 9 of the Annual Report and Financial Statements.
The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Managers. 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 objectives and investment policies. The portfolio does not seek to reproduce the comparative index: investments are selected based upon the merit of individual companies and therefore performance may well diverge from the short term fluctuations of the comparative index.
Other Price Risk Sensitivity
A full list of the Company's investments is given above. In addition, a geographical analysis of the portfolio and an analysis of the investment portfolio by broad industrial or commercial sector is above.
102.0% (2017 - 106.5%) of the Company's net assets are invested in quoted equities. A 10% increase in quoted equity valuations at 31 October 2018 would have increased total assets and total return on ordinary activities by £48,178,000 (2017 - £37,590,000). A decrease of 10% would have had an equal but opposite effect.
3.5% (2017 - 2.3%) of the Company's net assets are invested in unlisted securities. The fair valuation of the unlisted investments is influenced by the estimates, assumptions and judgements made in the fair valuation process (see 1 (c) on page 42 of the Annual Report and Financial Statements). The unlisted securities sensitivity analysis recognises that the valuation methodologies employed involve different levels of subjectivity in their inputs. The sensitivity analysis would apply a wider range of input variable sensitivity to the multiples methodology as it would involve more significant subjective estimation than the recent transaction method (the risk of over or under estimation is higher due to the greater subjectivity involved, for example, in selecting the most relevant measure of sustainable revenues and identifying appropriate comparable companies). All the unlisted securities held at 31 October 2018 and 2017 have been valued on a recent transaction basis. A 10% increase in unlisted investment valuations at 31 October 2018 would have increased total assets and total return on ordinary activities by £1,655,000 (2017 - £794,000). A decrease of 10% 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 monitors the exposure to any one holding.
The Company has the power to take out borrowings, which gives it access to additional funding when required. The Company's borrowing facilities are detailed in notes 11 and 12 in the Annual Report and Financial Statements and the maturity profile of its borrowings are set out on page 50 of the Annual Report and Financial Statements.
Borrowings falling due after more than year:
|
|
2018 £'000 |
2017 £'000 |
|
National Australia Bank Limited revolving credit facility |
12,757 |
- |
|
National Australia Bank Limited fixed rate facility |
35,871 |
- |
|
Investment management fee |
750 |
585 |
|
Other creditors and accruals |
228 |
186 |
|
|
49,606 |
771 |
Borrowing facilities
The five year £25 million revolving credit facility with National Australia Bank Limited expires on 29 June 2023.
The drawings were as follows:
At 31 October 2018
- €2,128,263 at an interest rate of 0.90100% per annum.
- US$9,895,500 at an interest rate of 3.79613% per annum.
- £3,125,000 at an interest rate of 2.17025% per annum.
The five year fixed rate facility with National Australia Bank Limited of €9.4 million, US$25.6 million and £7.5 million, expires on 30 September 2019. The drawings were as follows:
At 31 October 2018 and 31 October 2017
- €9,400,000 at an interest rate of 1.59% per annum.
- US$25,600,000 at an interest rate of 3.14% per annum.
- £7,500,000 at an interest rate of 3.12% per annum.
The main covenants relating to both loan facilities with National Australia Bank Limited are: total borrowings shall not exceed 35% of the Company's adjusted gross assets and the minimum adjusted gross assets shall be £110 million.
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 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;
- 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 Custodian's internal control reports and reporting its findings to the Board;
- investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Managers. Transactions are ordinarily undertaken 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;
- the creditworthiness of the counterparty to transactions involving derivatives, and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Managers of the creditworthiness of that counterparty; and
- cash is only held at banks that are regularly reviewed by the Managers.
Credit Risk Exposure
The exposure to credit risk at 31 October was:
|
|
2018 £'000 |
2017 £'000 |
|
Cash and short term deposits |
23,607 |
4,686 |
|
Debtors and prepayments |
147 |
102 |
|
|
23,754 |
4,788 |
None of the Company's financial assets are past due or impaired (2017 - none).
Fair value of financial assets and financial liabilities
The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the Balance Sheet with the exception of long term borrowings. The fair values of the Company's borrowings are shown below.
|
|
2018 |
2018 |
|
2017 |
2017 |
|
|
Book £'000 |
Fair* £'000 |
|
Book £'000 |
Fair* £'000 |
|
Floating rate loan |
12,757 |
12,757 |
|
- |
- |
|
Fixed rate loan |
35,871 |
35,912 |
|
35,024 |
35,574 |
|
Total borrowings |
48,628 |
48,669 |
|
35,024 |
35,574 |
* The fair value of the fixed rate bank loan is calculated with reference to government bonds of comparable yield and maturity.
Capital Management
The capital of the Company is its share capital and reserves as set out in note 14 of the Annual Report and Financial Statements together with its borrowings (see notes 11 and 12 of the Annual Report and Financial Statements). The objective of the Company is the achievement of long term capital growth by investing primarily in listed companies throughout the world. The
Company's investment policy is set out on page 7 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 authority to issue and to buy back its shares (see page 23 of the Annual Report and Financial Statements) and 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 loan which are detailed in note 11 of the Annual Report and Financial Statements.
Fixed Assets - Investments
|
As at 31 October 2018 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
481,777 |
- |
- |
481,777 |
|
Unlisted equities |
- |
- |
16,549 |
16,549 |
|
Total financial asset investments |
481,777 |
- |
16,549 |
498,326 |
|
As at 31 October 2017 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
375,905 |
- |
- |
375,905 |
|
Unlisted equities |
- |
- |
7,941 |
7,941 |
|
Total financial asset investments |
375,905 |
- |
7,941 |
383,846 |
Investments in securities are financial assets designated at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables above provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.
Fair Value Hierarchy
The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:
Level 1 - using unadjusted quoted prices for identical instruments in an active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
The valuation techniques used by the Company are explained in the accounting policies on page 42 of the Annual Report and Financial Statements.
Alternative Investment Fund Managers (AIFM) Directive
In accordance with the Alternative Investment Fund Managers Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM's remuneration policy is available at www.bailliegifford.com or on request and the numerical remuneration disclosures in respect of the AIFM's relevant reporting period (year ended 31 March 2018) are also available at www.bailliegifford.com. The Company's maximum and actual leverage levels (see Glossary of Terms at the end of this announcement) at 31 October 2018 are shown below:
Leverage
|
|
Gross Method |
Commitment Method |
|
Maximum limit |
2.50:1 |
2.00:1 |
|
Actual |
1.10:1 |
1.10:1 |
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 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
Henry CT Strutt
Chairman
13 December 2018
Income Statement
|
|
For the year ended 31 October 2018 |
For the year ended 31 October 2017 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Gains on investments |
- |
51,630 |
51,630 |
- |
85,581 |
85,581 |
|
Currency gains |
- |
175 |
175 |
- |
824 |
824 |
|
Income (note 2) |
1,270 |
- |
1,270 |
1,268 |
- |
1,268 |
|
Investment management fee |
(694) |
(2,082) |
(2,776) |
(535) |
(1,606) |
(2,141) |
|
Other administrative expenses |
(737) |
- |
(737) |
(513) |
- |
(513) |
|
Net return before finance costs and taxation |
(161) |
49,723 |
49,562 |
220 |
84,799 |
85,019 |
|
Finance costs of borrowings |
(282) |
(846) |
(1,128) |
(250) |
(749) |
(999) |
|
Net return on ordinary activities before taxation |
(443) |
48,877 |
48,434 |
(30) |
84,050 |
84,020 |
|
Tax on ordinary activities |
(54) |
- |
(54) |
179 |
28 |
207 |
|
Net return on ordinary activities after taxation |
(497) |
48,877 |
48,380 |
149 |
84,078 |
84,227 |
|
Net return per ordinary share (note 3) |
(0.95p) |
93.39p |
92.44p |
0.30p |
171.58p |
171.88p |
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 there is no other comprehensive income and the net return on ordinary activities after taxation is both the profit and comprehensive income for the year.
Balance Sheet
|
|
At 31 October 2018 £'000 |
At 31 October 2017 £'000 |
|
Fixed assets |
|
|
|
Investments held at fair value through profit or loss |
498,326 |
383,846 |
|
|
|
|
|
Current assets |
|
|
|
Debtors |
147 |
102 |
|
Cash and cash equivalents |
23,607 |
4,686 |
|
|
23,754 |
4,788 |
|
Creditors |
|
|
|
Amounts falling due within one year |
(49,606) |
(771) |
|
Net current (liabilities)/assets |
(25,852) |
4,017 |
|
Total assets less current liabilities |
472,474 |
387,863 |
|
|
|
|
|
Creditors |
|
|
|
Amounts falling due after more than one year |
- |
(35,024) |
|
Net assets |
472,474 |
352,839 |
|
|
|
|
|
Capital and reserves |
|
|
|
Share capital |
2,861 |
2,450 |
|
Share premium account |
153,024 |
82,180 |
|
Special reserve |
35,220 |
35,220 |
|
Capital reserve |
280,897 |
232,020 |
|
Revenue reserve |
472 |
969 |
|
Shareholders' funds |
472,474 |
352,839 |
|
Net asset value per ordinary share (after deducting borrowings at fair value) (note 5) |
825.72p |
718.89p |
|
Net asset value per ordinary share (after deducting borrowings at par) |
825.79p |
720.02p |
|
Ordinary shares in issue |
57,214,739 |
49,004,319 |
Statement of Changes in Equity
For the year ended 31 October 2018
|
|
Share capital £'000 |
Share premium account £'000 |
Special reserve £'000 |
Capital* reserve £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 November 2017 |
2,450 |
82,180 |
35,220 |
232,020 |
969 |
352,839 |
|
Ordinary shares issued (note 7) |
411 |
70,844 |
- |
- |
- |
71,255 |
|
Net return on ordinary activities after taxation |
- |
- |
- |
48,877 |
(497) |
48,380 |
|
Shareholders' funds at 31 October 2018 |
2,861 |
153,024 |
35,220 |
280,897 |
472 |
472,474 |
For the year ended 31 October 2017
|
|
Share capital £'000 |
Share premium account £'000 |
Special reserve £'000 |
Capital* reserve £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 November 2016 |
2,450 |
82,180 |
35,220 |
147,942 |
820 |
268,612 |
|
Ordinary shares issued |
- |
- |
- |
- |
- |
- |
|
Net return on ordinary activities after taxation |
- |
- |
- |
84,078 |
149 |
84,227 |
|
Shareholders' funds at 31 October 2017 |
2,450 |
82,180 |
35,220 |
232,020 |
969 |
352,839 |
* The capital reserve balance as at 31 October 2018 includes investment holdings gains on fixed asset investments of £21,569,000 (2017 - gains of £71,923,000).
Cash Flow Statement
|
|
For the year ended 31 October 2018 |
For the year ended 31 October 2017 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Net return on ordinary activities before taxation |
|
48,434 |
|
84,020 |
|
Net gains on investments |
|
(51,630) |
|
(85,581) |
|
Currency gains |
|
(175) |
|
(824) |
|
Finance costs of borrowings |
|
1,128 |
|
999 |
|
Overseas tax (incurred)/repaid |
|
(52) |
|
207 |
|
Changes in debtors and creditors |
|
116 |
|
148 |
|
Cash from operations* |
|
(2,179) |
|
(1,031) |
|
Interest paid |
|
(1,083) |
|
(1,001) |
|
Net cash outflow from operating activities |
|
(3,262) |
|
(2,032) |
|
Cash flows from investing activities |
|
|
|
|
|
Acquisitions of investments |
(118,338) |
|
(50,072) |
|
|
Disposal of investments |
55,488 |
|
44,606 |
|
|
Net cash outflow from investing activities |
|
(62,850) |
|
(5,466) |
|
Cash flows from financing activities |
|
|
|
|
|
Shares issued |
71,255 |
|
- |
|
|
Borrowings drawn down |
25,057 |
|
- |
|
|
Borrowings repaid |
(12,564) |
|
- |
|
|
Net cash inflow from financing activities |
|
83,748 |
|
- |
|
Increase/(decrease) in cash and cash equivalents |
|
17,636 |
|
(7,498) |
|
Exchange movements |
|
1,285 |
|
(1,060) |
|
Cash and cash equivalents at 1 November |
|
4,686 |
|
13,244 |
|
Cash and cash equivalents at 31 October |
|
23,607 |
|
4,686 |
|
|
|
|
|
|
* Cash from operations includes dividends received of £1,086,000 (2017 - £1,159,000) and interest received of £184,000 (2017 - £102,000)
Notes
|
1. |
The Financial Statements for the year to 31 October 2018 have been prepared in accordance with FRS102 '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. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment. |
||||||||||||||||
|
2. |
Income |
2018 £'000 |
2017 £'000 |
||||||||||||||
|
Income from investments |
1,086 |
1,166 |
|||||||||||||||
|
Deposit interest |
184 |
102 |
|||||||||||||||
|
|
1,270 |
1,268 |
|||||||||||||||
|
|
|
||||||||||||||||
|
3. |
|
||||||||||||||||
|
|
Revenue return per ordinary share is based on the net revenue loss on ordinary activities after taxation of £497,000 (2017 - net revenue profit of £149,000) and on 52,335,270 (2017 - 49,004,319) ordinary shares, being the weighted average number of ordinary shares in issue during each year.
Capital return per ordinary share is based on the net capital gain for the financial year of £48,877,000 (2017 - net capital gain of £84,078,000) and on 52,335,270 (2017 - 49,004,319) ordinary shares, being the weighted average number of ordinary shares in issue during each year.
There are no dilutive or potentially dilutive shares in issue.
|
||||||||||||||||
4. There are no dividends paid and proposed in respect of the financial year. There is no revenue available for distribution by way of dividend for the year (2018 - revenue loss of £497,000; 2017 - revenue profit of £149,000) which is the basis on which the requirements of section 1158 of the Corporation Tax Act are considered.
|
5. |
The fair value of the bank loans at 31 October 2018 was £48,669,000 (31 October 2017 - £35,574,000). |
|
6. |
The Company incurred transaction costs on purchases of £44,000 |
|
7. |
At the Annual General Meeting on 24 January 2018 the Company renewed its authority to purchase shares in the market, in respect of 7,345,747 ordinary shares (equivalent to approximately 14.99% of its issued share capital at that date). No shares were bought back during the years to 31 October 2018 or 2017. At 31 October 2018 the Company had authority to buy back 7,345,747 ordinary shares. The Company also has authority to allot shares under section 551 of the Companies Act 2006. The Board has authorised use of this authority to issue new shares at a premium to net asset value in order to enhance the net asset value per share for existing shareholders and improve the liquidity of the Company's shares. In the year to 31 October 2018 the Company issued a total of 8,210,420 shares on a non pre-emptive basis (nominal value £411,000, representing 16.8% of the issued share capital at 31 October 2017) at a premium to net asset value (on the basis of debt valued at par value) raising net proceeds of £71,255,000 (2017 - Nil). |
|
8. |
Glossary of Terms |
|
|
Total Assets |
|
|
The total value of assets held less all liabilities other than liabilities in the form of borrowings. |
|
|
Net Asset Value |
|
|
Also described as shareholders' funds, Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue. |
|
|
Net Asset Value (Borrowings at Fair Value)# |
|
|
Borrowings are valued at an estimate of their market worth. The value of the borrowings at book and fair value are set out on page 52 of the Annual Report and Financial Statements. |
|
|
Net Asset Value (Borrowings at Par Value)# |
|
|
Borrowings are valued at their nominal par value. The value of the borrowings at book and fair value are set out on page 52 of the Annual Report and Financial Statements. |
|
|
Net Liquid Assets Net liquid assets comprise current assets less current liabilities, excluding borrowings. |
|
|
Discount/Premium# |
|
|
As stock markets 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. |
|
|
Total Return |
|
|
The |
|
|
Ongoing Charges |
|
|
The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). |
|
|
Gearing |
|
|
At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. |
|
|
Gearing is the Company's borrowings at par less cash and cash equivalents expressed as a percentage of shareholders' funds. |
|
|
Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. |
|
|
Leverage |
|
|
For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. |
|
|
Active Share# |
|
|
Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index. |
|
|
Compound Annual Return |
|
|
The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compound value at the start of each year. |
|
|
Unlisted Company |
|
|
An unlisted company means a company whose shares are not available to the general public for trading and not listed on a stock exchange.
# Alternative performance measure which is considered to be a known industry metric.
|
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