Final Results
RNS Announcement: Preliminary Results
Scottish Mortgage Investment Trust PLC
Regulated Information Classification: Additional regulated information required to be disclosed under applicable laws
Legal Entity Identifier: 213800G37DCS3Q9IJM38
Results for the year to 31 March 2020
|
NAV (borrowings at fair value ) * |
13.7% |
|
NAV (borrowings at book value ) * |
13.3% |
|
Share Price* |
12.7% |
|
Benchmark † |
(6.2%) |
Source: Refinitiv / Baillie Gifford. All figures are total return*. See disclaimer at the end of this announcement.
* Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
† Benchmark: FTSE All-World index (in sterling terms)
The following is the Preliminary Results Announcement for the year to 31 March 2020 which was approved by the Board on 14 May 2020.
Chairman's Statement
Memories of the twelve months ending 31 March 2020 will almost certainly be dominated by the start of the spread of COVID-19. The resulting global pandemic is creating testing times for everyone and I wish to acknowledge the immediate challenges many face, far beyond the world of investment. I hope all of Scottish Mortgage's shareholders and their families are managing through this difficult period and I recognise that the immediate focus of many may well not be on investment matters.
Corporate Strategy
Scottish Mortgage is in a very fortunate and stable position. Its scale, low cost base and corporate structure are all important long run competitive advantages, and never more so than in the current environment. As it is an externally managed investment trust, it has no employees or offices of its own and is therefore not facing the same responsibilities and immediate difficulties that many other companies are having to address. Its Managers, Baillie Gifford, and other services providers have all navigated the challenges of recent months admirably and have continued with business as 'unusual' but very much fully functioning. In each case, their operational resilience has proven to be robust and flexible, in particular in moving to homeworking and video conference calls, many facilitated by a Scottish Mortgage investment - Zoom.
The portfolio Managers, James Anderson and Tom Slater, have remained focused on their task of patient investment on behalf of Scottish Mortgage shareholders. They continue to concentrate on the long term prospects for the companies they hold but are also mindful that these businesses must also be able to endure to reach that point. Those that do will likely emerge stronger. Consistent with a long term approach, there have been no significant changes to the portfolio in recent months in response to the current pandemic.
It is important for the Board to support the Managers amidst the current tumult and for them in turn to offer that same constructive support as responsible owners to those running the companies in the portfolio. This may be strikingly different to the behaviour of many in markets who feel entitled to pass comment from afar, but remembering the importance of relationships through times like these matters. This approach has enabled the Managers to develop mature long term relationships with those at some of the world's most innovative companies, providing valuable insights. The Managers' reputation for doing so has underpinned Scottish Mortgage's access to a number of great investment opportunities, particularly in private companies. Both of these have been to the clear benefit of Scottish Mortgage shareholders.
Performance
For the financial year to 31 March 2020, shareholders once again saw a strong return, particularly when compared with the FTSE All-World Index. Following on from the year end, Scottish Mortgage's share price increased by 23 per cent. from the end of March to close of day on 12 May 2020, driven by the strength of the portfolio's performance. As a result, the Company reached a new milestone of over £10 billion in market capitalisation.
|
Total Return * ( %) |
12 Months to 31 March 2020 |
|
NAV |
13.7 |
|
Share Price |
12.7 |
|
FTSE All-World Index |
(6.2) |
|
Global Sector Average - NAV |
0.1 |
|
Global Sector Average - share price |
(4.5) |
Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair value*.
* Alternative Performance Measure - see Alternative Performance Measures and Glossary of Terms at the end of this announcement.
Despite that, I would urge all investors to focus on the long term returns, over rolling five and ten year periods, when judging Scottish Mortgage. I am delighted to say that these continue to provide compelling support for the Managers' straightforward investment philosophy and discipline in patiently investing in outstanding growth businesses across the globe.
|
Total Return * ( %) |
Five Years to 31 March 2020 |
Ten Years to 31 March 2020 |
|
NAV |
124.6 |
360.8 |
|
Share Price |
123.5 |
434.2 |
|
FTSE All-World Index |
41.5 |
128.1 |
|
Global Sector Average - NAV |
69.1 |
203.6 |
|
Global Sector Average - share price |
68.4 |
237.9 |
Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair value*.
* Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Ongoing Costs
I am also pleased to report that this continued growth in Scottish Mortgage's assets has meant that costs have also continued to fall for shareholders. This was in large part due to the tiered fee scale for the annual management charge (AMC). There is only a very tiny level of fixed costs for the Company, relative to its size. The ongoing charges for the year were a market leading 0.36%. This is particularly exceptional given the access to unlisted investments in the portfolio.
The long run compounding benefit from this uniquely low cost level for an actively managed portfolio can often be overlooked, specially when compared for example with the impact that charges of, say, 1.5% per annum would have had on the long run returns achieved for Scottish Mortgage shareholders.
Financial Position
Scottish Mortgage is in a robust financial position. It has a modest amount of borrowings in place, supported by a much larger pool of liquid assets. There is considerable flexibility to adjust the level of indebtedness at relatively minimal cost, if that were to become appropriate.
The level of the gearing during the year remained well within an appropriate range around the long run strategic level set by the Board, notwithstanding the impact of the pandemic elsewhere, and the overall value of the borrowings of the Company represented approximately 11% of its total assets at the year end. This included the £188 million in new long term borrowings raised in the private placement debt market in January 2020, at highly attractive rates of interest. All covenants remain well covered.
The absolute level of the borrowings has risen in recent years to keep pace with the rise in the value of the assets. The Board remains committed to the strategic use of borrowings for the Company, in the belief that this will enhance returns to shareholders over the long term, especially given the funding rates achieved in the private placement market over the last few years.
Earnings and dividend
The portfolio continues to yield a very modest level of earnings, consistent with the investment approach focused on growth companies. The earnings per share for Scottish Mortgage over the period were 1.55p, slightly down on the previous year (1.64p in 2019). As is to be expected, income only forms a very minor part of the total return generated.
While no shareholder could reasonably invest in Scottish Mortgage for the prospect of its dividend yield alone, one of the benefits of its investment trust structure is the ability to distribute a portion of the Company's overall returns as income in a predictable manner year on year. This allows shareholders to plan for their own overall portfolio's income needs accordingly. The Board also recognises that at the current time many other UK companies are having to cut or postpone their dividends to retain more cash to help support their businesses and so the income upon which many UK investors rely from other FTSE100 companies may not be available in the coming months. Fortunately, Scottish Mortgage does not face the same challenges. In such difficult times, the small income yielded by holding the shares of this Company may therefore be of greater importance for many individuals than might ordinarily be expected to be the case.
The Board believes that the level of the long run total return generated for Scottish Mortgage continues to justify supporting those of its shareholders who do value the Company's modest but progressive distribution policy. The Board is therefore recommending that this year, the total dividend be increased by 4% on the level of the previous year to a total of 3.25p (3.13p in 2019). Just under half of the dividend will be funded from the portfolio's earnings, with the rest to be paid from the Company's significant distributable capital reserves which have built up as a result of realised gains achieved over the long term in the portfolio. The Board encourages all those who do not require the income to consider reinvesting it in the Company.
Liquidity
Over the period, the Company has continued to operate its liquidity policy of meeting imbalances in supply and demand in its shares over short run periods in normal market conditions. In total, the Company issued 10.5 million shares and bought back 31.5 million, resulting in a net buyback of around £112 million, or just over 1% of the total assets of the Company at the start of the period. As such share issuance is conducted at a premium to the prevailing NAV and share buy backs at a discount, these operations are of incremental benefit to the NAV for ongoing shareholders.
The liquidity policy is designed for the benefit of long term shareholders. It is not intended to smooth short term returns or facilitate other market factors. The Board does not believe it to be in the interests of long term shareholders to step into the market when all share prices, including the Company's own, are moving rapidly intraday, or when short term factors are disproportionately weighing on the markets.
Board Update
Professor John Kay has decided not to stand for re-election at this year's AGM and will retire from the Board in June after twelve years' service as a Director. John's career has spanned academic work, think tanks, business schools and consultancies. Scottish Mortgage has been extremely fortunate to have had the benefit of his input over the past twelve years. He joined the Board just before the start of the Global Financial Crisis and served the Company through the subsequent fall out, as he has done over the course of the current Global crisis and all the intervening years. His great intellect and wit are known and appreciated by many, through his writing as well as his presence at Scottish Mortgage events. I know I speak for all of my colleagues when I say it has been a real privilege to sit alongside John, to benefit from his great expertise always delivered with a quiet, unassuming style that never fails to hit the mark. He will be sorely missed and we wish him well in all future endeavours.
I am delighted to announce the appointment of a new Non-Executive Director, Professor Amar Bhidé who is standing for election at the forthcoming AGM. Amar is a distinguished professor of business, and is currently professor at Tufts University, Massachusetts. A particular focus in his work over the past thirty years has been economic innovation and entrepreneurship, areas I am sure you will agree resonate strongly with Scottish Mortgage. We very much look forward to his contribution on a wide range of topics in the Board.
Maintaining the knowledge base and diversity of thought on the Board is critical towards helping to guide the Company's future. The Company's policy on this and Board tenure is set out in the Annual Report on page (41).
Shareholder Engagement
This year, the Annual General Meeting (AGM) of Scottish Mortgage is scheduled for 25 June 2020. As ever I encourage shareholders to participate, raising any questions they may have and exercising their votes. Unfortunately, this year it is looking most unlikely that this will be allowed in person as we must of course ensure that everyone involved is kept safe by abiding by the UK and Scottish Governments' COVID-19 prevailing guidance on social distancing and other applicable measures, such as restrictions on public gatherings.
I would remind shareholders that they are able to submit proxy voting forms before the applicable deadline and also to direct any questions or comments for the Board in advance of the meeting through the Company's Managers, Baillie Gifford. Alternatively, they may also get in touch via either of the Corporate Brokers, Jefferies International and Numis Securities. Contact details for all three firms are included in the Annual Report and are available on their respective websites.
As the Governments' guidelines are necessarily continually evolving, the Board will keep the position under review and any changes will be advised to shareholders by post and details will be updated on the Company's website. As always the details of the conclusions of the AGM's business, together with films of the reports on the portfolio from the two Managers, will also subsequently be available on the website.
Further, I would encourage shareholders to engage with Scottish Mortgage throughout the year, not solely via the AGM. Investors have a number of options for this. The primary means is through the Company's Managers, who hold multiple shareholder meetings and events around the country throughout the year (circumstances permitting), as well as providing a wealth of information and 'Insight' pieces on the portfolio on the Company's website www.scottishmortgageit.com. Now more than ever these digital resources allow shareholders to stay well informed, by hearing directly from those managing their money. The Managers are currently considering digital alternatives for the Scottish Mortgage events that have had to be postponed or cancelled. Details will be put on the website.
It is hoped that the Managers will be able to proceed with the various Scottish Mortgage Forums planned for later in the year. If such events are able to take place, Board members will look to attend a number of these to provide opportunities for face to face engagement with shareholders.
Update to the Investment Policy
The Notice of the AGM will include a shareholder resolution proposing an update to the Company's Investment Policy. There is only one proposed change, which is to raise the current limit on all assets not listed on a public exchange by 5 per cent. to 30 per cent. at time of purchase of the next such asset.
This flexibility to invest in the best companies which the Managers find, regardless of the capital structure, has been an important driver of the returns generated for shareholders over the last decade. As an increasing number of the best growth companies have remained private until much later in their development, it has enabled the Managers to maintain the quality and depth of their opportunity set and to invest simply in any company which met their investment philosophy and criteria. This capacity utilises the benefits of Scottish Mortgage's closed-end structure and low-cost proposition to its shareholders' advantage.
The updated policy retains not only a limit on the ability of the Managers to invest in unlisted assets to provide shareholders with clarity, but also crucially the pragmatic "at time of purchase" caveat. The latter ensures that the Company would not become a forced seller of such assets due to rises in the fair valuations of the private businesses or falls in the share prices of individual public companies in the portfolio alone, as this would clearly not be in the interests of shareholders. The Managers recently reminded shareholders of the fair valuation process for the unlisted assets, as part of their wider Insight piece "Staying the Course for Scottish Mortgage" available on the website. It is also summarised in every Annual Report. The policy was consistently applied throughout the year and, as a result, additional valuation meetings were held in relation to a significant number of these holdings in March, in swift response to the large swings in public markets' prices. The policy therefore helps to ensure that the published NAVs for Scottish Mortgage remain reflective of the prices one might expect to achieve for all the assets in the portfolio at that point.
The forthcoming Annual Report includes a paper from the Managers focused on this area of the portfolio which I encourage all to read when considering their vote. The proposed change will give the Managers more capacity to invest simply in the best opportunities which they find, without changing the core investment proposition for shareholders. The Board accordingly will be urging all shareholders to vote in favour of this resolution.
Brexit
This year the Company is once again required to provide guidance on any potential material impacts on it from 'Brexit'. Little has changed in this regard over the period. The largest potential related exposure remains to significant changes in the relative value of sterling around the exit process. Scottish Mortgage holds a global portfolio of companies, the vast majority of which are denominated in foreign currencies, particularly the US dollar. If sterling were to strengthen relative to these other currencies, it would have a negative impact on the sterling value of such assets, while the converse would be true. There is a natural long term structural hedge in place for the largest such exposure, as the Company has both US dollar denominated assets and liabilities and changes in this exchange rate have opposing impacts on these, thereby reducing the net impact. There is also now a similar but more modest hedge in place related to the euro denominated assets, as the Company raised EUR45 million in long term borrowings in January 2020. I would remind investors that the long-run impact of currency fluctuations is further diversified by the nature of this portfolio, including as it does many global companies, listed in a wide range of countries.
Outlook
In the current difficult environment, I wish to conclude with the positive reminder that, 'this too will pass'. While humans are generally poor at understanding and dealing with sudden change in the moment, as a group we excel at innovation and adaptation over the longer term. Collectively, we will find ways to move forward.
This is not a halcyon view. At this early stage I would also observe that no one can predict with any reasonable confidence when that will be. It will take time and the road is likely to be bumpy. I highlighted last year that the ability to accept and deal with such radical uncertainty is a vital skill. That seems even more apposite today, and is considered in Professor Kay's recent book with Mervyn King, 'Radical Uncertainty: Decision-making for an unknowable future'. Scottish Mortgage represents the attempt to do that in terms of investment. The Managers' investment philosophy and processes have evolved in this area over the last two decades and I would direct shareholders to read the Managers' Statement of Core Beliefs in the Annual Report.
Together, the members of the Board and the Managers have many decades of experience. The combined lesson from all would be the importance of enduring through difficult periods. In long term investment, often the best course is to remain steadfast. Scottish Mortgage remains best suited to those who share its long term and patient approach.
I thank everyone who has continued to work on and support this Company throughout this year and look forward to the future.
Fiona McBain
Chair
14 May 2020
Past performance is not a guide to future performance.
See disclaimer at the end of this announcement.
Managers' Report
We cannot know the consequences of COVID-19 beyond human tragedy. It is presumptuous to make predictions about complex and inherently uncertain matters at any time. Under conditions of stress in society and markets it is even more dangerous. We are better observing rather than concluding prematurely. When faced with the extraordinary it's far too easy to retreat to preconceptions. As investors we would like to see the current crisis provoke a further acceleration in digitalisation and healthcare innovation. As observers we would hope that the current crisis will prompt increased concern over the threat driven by other extreme outcomes in inequality or climate decay. But it isn't at all clear that these are more than pious hopes.
It is far harder to identify how and why the pandemic has changed our views. Generally it's perilously early to do so. It's also dangerous to focus solely on one event however terrible. Two years ago this report quoted the late, great Hans Rosling. He frequently cited a global pandemic as his greatest fear. But he also warned that unusual and negative events warp our minds: 'If we are not extremely careful, we come to believe that the unusual is usual: that this is what the world looks like.' At some point he emphasised that we need to return to 'the secret, silent miracle of human progress'.
The End of Carbon
One such miracle may already have occurred. It may eventually be seen as equally historic and as beneficial as the pandemic has been malign. The age of carbon may have ended before the virus spread. For all the drama of the Saudi-Russian clash or of negative oil prices this was a transformation long foretold but finally turning unstoppable in the first quarter of 2020. The remorseless fall in the prices of renewable energy has at last translated into savage competition against traditional fuels.
In the first three months of 2020, 52% of German electricity came from renewables. In the UK that figure was 45%. No wonder the share prices of Exxon, BP and Schlumberger were already falling sharply in January and February. Sad though it is to say pandemics are far more common than energy transitions in the history of the world. The rise of renewables and the electrification of transportation will be central to the investing world of the next twenty years at least. It matters.
Geography
COVID-19 has already exacerbated the name calling between America and China. It could hardly be otherwise given the characteristics of leadership in both countries. But it seems clear to us that the geographical centre of the global economy continues to move to Asia, generally at an accelerated pace. This is an observation not an endorsement of one country or a political system. It's likely at the simplest level that Asian GDP can grow in 2020. That's improbable in the USA and impossible in Europe. Before and beyond the virus we have been disconcerted by the extent to which business model leadership and systemic dynamism appear to be fading in America, even on the West coast. This too appears to be in contrast to Asia and, in the world of corporate giants, particularly relative to China. I will leave the specific examples to Tom Slater to discuss in the next section of this Report to our shareholders.
Risk and the index
Scottish Mortgage has long believed in the energy revolution. But we cannot become unduly confident. It's critically important to test all our beliefs. This applies more strongly to our general contentions than to our individual stock decisions. The latter are necessarily subject to specific uncertainties that we cannot wish or diversify away. But if our underlying beliefs are structurally wrong and we are therefore unable to make sense of the investing world for a prolonged period, then we need to reassess. We need to ask ourselves if our philosophy is adapted to the world as it will be rather than as we hope it is. This applies at all times. It applies at least as much when we have been successful as in times of disappointment. It applies even more when the shape of the investing world is changing dramatically.
Two years ago in this report we wrote that 'We do not share the presumption that Scottish Mortgage is doomed to suffer unduly in a bear market. To us the underlying cause of the next market retreat is most likely to be the dawning realisation that broad swathes of the stock market that are assumed to be strong and stable in difficult market conditions are instead acutely vulnerable to severe setbacks'. Three years ago we said that 'We do not accept that risk resides in owning a portfolio that is different from the index' and suggested that this definition of risk owed more to the self-interest of the investment industry than to economic reality. We did not predict the current pandemic although the possibility of such a disaster was always present as experts in healthcare and fragility have repeatedly observed. So we did not suspect that the trigger for the collapse in the businesses and share prices of so many major index constituents would lie in COVID-19. But they were indeed vulnerable to severe setbacks even if we expected this to unwind over a decade not a year.
There's not much evidence that capital market ideology will take much notice of the crass failings of its prescriptions. Managers and consultants will continue to talk to themselves of tracking errors and Sharpe ratios as risk controls (the reader is fortunate if they are unexposed to such terms) whilst their clients suffer. The curriculum of the ever more dominant Chartered Financial Analyst (CFA) will not change although its teachings bear little resemblance to market outcomes.
These comments are meant to convey meaning beyond irritation. The opportunity for us in the last decade has come about because stock markets did not learn. This is unusual. Normally investors, speculators and traders leap restlessly onto new paradigms however questionable their underpinnings. But that hasn't happened despite, for example, the clear evidence of the power of the internet, the increasing returns to scale it tends towards and the consequent deep competitive moats it offers. Instead of embracing exponential growth, investors and asset allocators have fled. Performance chasing has its own evils but replacing it with endless rebalancing towards 'value' strategies backed by a blind conviction that reversion to the mean is inevitable has been an investment tragedy. It's largely been prompted by misguided theorising. But the theory has been reinforced by the extraordinary grip that Warren Buffett has exercised over the investment world. Of course the very long term record of Berkshire Hathaway is brilliant, of course Buffett has a splendid way with words and the public, of course he doesn't believe in the silliness of risk as divergence from the index. But Buffett's success has sanctified a freezing of the investment narrative. Or as Buffett's brilliant partner, Charlie Munger, puts it with the clarity of a 96 year old, too many investors are 'like a bunch of cod fishermen after all the cod's been overfished...that's what happened to all these value investors. Maybe they should move to where the fish are'. So where will the fish be in the future?
Whilst the collective investment world has shown little enthusiasm for shifting to new hunting grounds the market has adapted, as it does, without most participants. This carries potential problems. The universe of great growth whales is swallowing the minnows. At one point in April the US Nasdaq index, dominated by technology companies, enjoyed a market capitalisation greater than all the developed markets outside America. Or on a plaintive local note Amazon and Alphabet combined are more highly capitalised than all quoted British companies. It's not clear that this is unjustified. Moreover the perception of relative vulnerability has changed. Most investors craving safety now see Amazon and its kin as far less exposed to economic angst. In general our quoted portfolio has therefore become more conventional and gradually, then suddenly, less differentiated from the index than in the past. This does not unduly concern us at present as the world adapts to wrenching changes but it may become an issue in the future. We must continue to evolve.
James Anderson
Managers' Report
Through the patient provision of capital, we aim to support the people and companies that are building the future of our economy. So the absence of dramatic change in the portfolio over the past twelve months should come as little surprise. We still own 29 of our top 30 holdings from a year ago. We believe that having long-term, committed owners can increase the chance of success for companies. Moreover, long-term ownership is the key to capturing the value created by the small number of exceptional companies that drive long-term wealth creation. Our objective is to find such companies and own them long enough to earn that return.
Studying the output of our investment process (a portfolio with modest turnover and long holding-periods) risks confusing low turnover with no turnover. Amazon does not remain our largest holding because we are contented owners. It remains our largest holding because our constant search for the world's most exciting and innovative Growth companies has not turned up another opportunity which we think offers greater risk-adjusted upside.
This fierce competition for our capital goes part way to explaining the sale of Chinese internet search company, Baidu, once Scottish Mortgage's largest holding. Baidu has struggled to use its enduring dominance in Search as a base to build new services for consumers. Failing to evolve means being left behind. China's online companies have built the backbone of its consumer economy and their pace of development and innovation has been ferocious. Alibaba and Tencent have become dominant platforms through which much economic activity flows and recent events have further cemented their centrality. Whilst these companies started out in the retail and entertainment business, they now drive financial inclusion and provide access to credit. In a country where advanced software has been scarce, they are beginning to digitise and upgrade a huge swathe of China's economy and public sector through the provision of systems and data on an unprecedented scale.
It is encouraging to see new innovative companies emerging from China's internet ecosystem. Bytedance is a media company focused on short-form video. It was founded by several former Baidu engineers and may be the first Chinese media company to build a big presence internationally. Younger audiences have flocked to its social media platform, TikTok, which has transcended cultural and geographic boundaries. Bytedance's core skill is in deploying artificial intelligence to predict the content that each member of its vast audience will be interested in. This skill-set should extend the opportunity well beyond current products. The addition of Bytedance to our portfolio has helped to ensure that we retain a significant exposure to Chinese companies despite the sale of Baidu. The creative ferment, intensive competition and relentless execution that exist in this vast market are a powerful combination for shaping great companies and it remains an important hunting ground for new ideas.
Chinese food delivery and local service company, Meituan, narrowly missed out on joining its geographic complement, Delivery Hero, in our top ten holdings. These businesses are driving change in the food industry and their focus on the fastest-moving countries has allowed them to achieve massive scale. Meituan delivers more than 20 million meals per day compared to a mere 500 thousand for US-based peer Grubhub (which we sold during the year). Scale is driving it forward towards profitability and dominance.
The current food industry paradigm of driving to a grocery store, pushing a shopping trolley around the aisles, queuing at a check-out, driving home, putting groceries into cupboards, retrieving them, preparing and cooking a meal then cleaning the dishes is inefficient. Amazon is attacking a number of the steps in the process as it broadens its online offerings and integrates the Whole Foods brand to provide click and collect and home delivery services. Competition in grocery is likely to be intense and capital-consumptive but that is exactly the type of environment Amazon thrives in. The scale of the opportunity is big enough to make a difference even to a company of Amazon's size. Berlin-based HelloFresh's subscription model of delivering locally-sourced, fresh ingredients for home-cooked recipes is seeing burgeoning demand across many markets including the US where, notably, it has outcompeted the domestic alternatives.
Bytedance's innovation and audience creation have happened in a time of limited progress in the Western advertising industry from either a product or business model perspective. Facebook and Alphabet are smaller holdings than they once were. Whilst Alphabet continues to make good progress in Search, Facebook's product focus has for some time been predominantly on firefighting. Thankfully we have been fortunate to benefit from the wisdom of others in navigating this evolving media landscape. We bought a holding in You and Mr Jones, an unlisted advertising agency founded by the eponymous former CEO of Havas, back in 2015. His underlying insight was that the corporate sector needed specialist help in harnessing the increasingly complex online and mobile advertising environment. That foresight has proved correct with big brands moving their business away from large agencies to You and Mr Jones.
With consumer internet development muted, it has been left to Tesla to uphold the reputation of West Coast America for bringing disruptive innovation to the world. It has made remarkable progress. The vision and ambition at Tesla have always been clear but at times the company has struggled with execution. That has changed. Steadily increasing and profitable production of the Model 3 sedan has been accompanied by the successful (and earlier-than-planned) production ramp of a new SUV, the Model Y. At the same time the company has completed a second production facility in Shanghai and launched a pickup truck which has already amassed hundreds of thousands of pre-orders. This progress has come amidst delays, cancellations and false starts in electric vehicle production for the established auto manufacturing industry. We wish we could find other big companies that were making such progress in the move to a sustainable energy economy.
We believe software is going to bring profound changes to the transport industry over the next decade. Tesla's autonomous driving functionality continues to improve as it gathers data from the sensors attached to its large and growing fleet of customer vehicles. The traditional industry will be unable to compete with this technology and we expect it will increasingly turn to companies like our holding, Aurora, which is building a virtual driver for car manufacturers to integrate into their vehicles. If the task of producing autonomous terrestrial vehicles proves too complex then it may be left to companies like Joby Aero to bring the once fanciful idea of flying cars into reality.
Healthcare has dominated the headlines of recent months but at the corporate level there have been relatively few noteworthy developments. We are encouraged by the progress of companies working at the intersection of information technology and medicine such as Grail, Zipline and Tempus Labs. Thus far their growth rates reflect their software inheritance rather than the institutional inertia of their chosen market. However, it has been the companies deploying the tools of modern biology in an industrial setting that have been making the most progress. Ginkgo Bioworks is automating the jobs performed by human scientists in order to industrialise the development of new materials. It is harnessing the power of micro-organisms to produce products across industries as diverse as food ingredients, agriculture and speciality chemicals. Without the understandable safety constraints and (less understandable) bureaucratic challenges of working within a healthcare environment, the pace of improvement and related cost declines are remarkable.
Whilst the newspapers focus on the gloom associated with the impact of COVID-19 it is important not to lose sight of the fact that we live in a time of great progress. The opportunities for Growth investors are plentiful.
Tom Slater
Breaking Down Artificial Boundaries
Over the last decade, a significant and growing number of companies around the world have been staying private for much longer in their development before listing on a public stock exchange. The value created while a company remains private is out of reach of most investors, or at least extremely expensive to access.
In order to maintain the same quality of opportunity set for Scottish Mortgage, we have simply continued to invest directly in any company, public or private, which meets our investment philosophy and criteria. This was achieved with the support of the Board and shareholders. It utilises the benefits of the Company's closed-end structure and low-cost proposition. There are no additional fees hidden here.
Equity investing is all about capturing long run compounding returns
One of the important advantages that Scottish Mortgage has when investing in established private companies is the ability to continue owning such businesses as and when they become public companies. This means that it is possible to capture the benefits from the long run compounding of returns as they grow from a lower starting value.
In 2012, Alibaba became the first private business Scottish Mortgage invested in directly. It became a public company in 2014. Scottish Mortgage still holds every single share in Alibaba that it bought in 2012 as well as many more besides and it has been a top ten holding for years now.
Since then, a number of the other private businesses in the portfolio have also subsequently become public companies, most of which continue to be held today. A handful of the unlisted businesses have been taken over while we have held them. Most importantly though, a wide variety of new private companies have continued to enter the portfolio and the overall number and weight of these have continued to rise over time as this has simply been where the best new investment opportunities were found.
We have included a graph in the Annual Report showing the growth of the importance of this flexibility over the last decade (to view, please click on this link)
http://www.rns-pdf.londonstockexchange.com/rns/9845M_2-2020-5-14.pdf
.
The graph shows the growth in the total assets of Scottish Mortgage, the growth in the percentage of the portfolio invested in those companies that we initially bought when still private, regardless of their status today and, starting in 2014 at Alibaba's initial public offering (IPO), the level of the assets which are not listed on a public market. The companies which started out as unlisted holdings, whether public or private today, now account for well over a third of the total portfolio. As shareholders will have gathered from the Company's Interim Reports, the flexibility to invest in this way has been an important driver of returns over the last decade.
The importance of reputation and relationships
Not only does our reputation open doors when we seek out opportunities, but we have also seen an increasing number of private companies approach us in recent years. Further, as key individuals work with multiple companies, we see a network effect from these relationships. We go on to select only a very few of the opportunities available. Over this financial year, we considered several hundred private companies but invested in only seven.
We have found that it is often possible to have more open discussions with the management teams at private companies, precisely because both sides have made a long term commitment. This helps to build a solid foundation for our relationship, improving the quality of the insights we gain from those running these businesses. The relationship created during the first couple of years of investment while Alibaba was still private, helped us to understand the development not only of the company but also of China better. Such relationships can also be valuable in another way. Scottish Mortgage's initial investment in Alibaba enabled us to invest in Ant Financial, the financial services giant that Alibaba created directly.
Putting the private companies in the portfolio into context
We seek companies where the likelihood of them succeeding in their extraordinary ambitions combined with the potential returns from doing so far outweigh the likely risk to the capital invested from failure. Though size alone is also not a definitive indication of where this balance of risk and potential return might be in a company, it is somewhat more reflective of this than the public/private distinction used as a proxy by many.
Today, Ant is the largest unlisted holding (2.3% of the total) and also the largest such company by market value in the portfolio. Its payments platform alone already handles a multiple of the transactions each day that Visa's does across the globe, yet payments only represents one of the five broad areas of financial services it offers. Were Ant to be listed on the London Stock Exchange (LSE), it would be the largest company in the FTSE 100 based on its size.
Ant is far from the only private company held already of a scale equivalent to those in the FTSE 100 Index. At the end of March 2020, just under half of the weight of the assets invested in individual private businesses was in companies which would have been already within or very close to joining this group based on their scale, if they were UK listed public companies. Nor is this a new phenomenon. In 2015, when we first invested in Meituan Dianping, it was already of a similar scale to Amazon when we first invested in that company in 2005 and would also have come within the FTSE100 cohort by valuation. By the time it became a public company in 2018, it was almost three times that size. Similarly, Spotify was already a global company when we first invested in 2015 and would have come within this group on the same basis. Again, it was almost three times that size when it became public. These are not the only examples.
We have included a graph in the Annual Report which places the scale of the private companies held against a familiar frame of reference for shareholders (to view, please click on this link)
http://www.rns-pdf.londonstockexchange.com/rns/9845M_3-2020-5-14.pdf
. The graph plots the market capitalisations of the companies in the FTSE 100 and FTSE 250 against their rank in those indices. The bubbles on the line indicate approximate equivalent ranking in these indices of the private companies held based on their market value, along with their portfolio weights, (to view the table listing the companies held ranked by their size with a short description of their main area of business and their overall portfolio weight, please click on this link)
http://www.rns-pdf.londonstockexchange.com/rns/9845M_4-2020-5-14.pdf
This is a diverse group of businesses, operating across a wide range of industries, but they must also be considered within the context of the whole portfolio for Scottish Mortgage.
The fair valuation pricing policy for these assets is detailed elsewhere in this report and on the Company's website. The disciplined application of our valuation policy means that the prices of these assets will also be impacted during turbulent times in public markets. We saw this most clearly towards the end of the Company's financial year in March. However, this policy does also ensure that the published net asset values for Scottish Mortgage remain reflective of the prices we would likely be paid at that point for all of the assets in the portfolio, allowing shareholders to make informed investment choices.
Investment Policy Update
Initially, the level of the private companies in the portfolio remained very modest and was monitored by the Board. By 31 March 2016, the unlisted assets represented 11.8% of the total portfolio and it was agreed that it was an appropriate moment to provide further clarity in this area. Shareholders approved a resolution at the Company's Annual General Meeting (AGM) in June 2016 to update the investment policy. This included the following new provision: "the maximum amount which may be invested in companies not listed on a public market shall not exceed 25 per cent. of the total assets of the Company, measured at the time of purchase." Although this construction meant that, if this level were to be exceeded, no further unlisted investments may be made while this remained the case, it also protected Scottish Mortgage from becoming a forced seller of these private companies based purely on relative and/or absolute changes in the values of the assets.
As at 31 March 2020, the unlisted assets represented 20.1% of the total. Though the level has previously been higher than this, it has consistently remained under one quarter of the whole portfolio. While we have not yet been formally prevented from simply investing in the best companies available, in practice as the level draws near to the limit considerations over the best use of the remaining capacity do weigh on the investment decisions taken.
It is just as important to ensure that further investments may be made in those private companies showing real progress, as it is to ensure that all new opportunities may be judged equally on their fundamental merits. Accordingly, we are seeking shareholder approval to raise the current limit by 5 per cent. to 30 per cent. The scale of Scottish Mortgage ensures that this will be a material amount of additional flexibility in absolute, but not relative, terms. It will enable us to continue to invest simply in the best opportunities available, be they public or private companies, without changing the nature of the investment proposition. Without this change, this valuable flexibility will become severely constrained and largely dependent on the timings of the IPOs of our existing unlisted companies, which we believe would be to the clear detriment of shareholders.
Catharine Flood
Corporate Strategy Director for Scottish Mortgage
(to view the performance of the companies held, which were initially private at time of investment, please click on this link).
http://www.rns-pdf.londonstockexchange.com/rns/9845M_1-2020-5-14.pdf
Income statement
The following is the preliminary statement for the year to 31 March 2020 which was approved by the Board on 14 May 2020.
|
|
For the year ended 31 March 2020 |
For the year ended 31 March 2019 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Gains on investments |
- |
1,018,400 |
1,018,400 |
- |
923,535 |
923,535 |
|
Currency losses |
- |
(12,949) |
(12,949) |
- |
(12,180) |
(12,180) |
|
Income (note 2) |
28,914 |
- |
28,914 |
28,187 |
- |
28,187 |
|
Investment management fee |
- |
(23,922) |
(23,922) |
- |
(21,879) |
(21,879) |
|
Other administrative expenses |
(4,835) |
- |
(4,835) |
(4,342) |
- |
(4,342) |
|
Net return before finance costs and taxation |
24,079 |
981,529 |
1,005,608 |
23,845 |
889,476 |
913,321 |
|
Finance costs of borrowings |
- |
(31,338) |
(31,338) |
- |
(29,866) |
(29,866) |
|
Net return before taxation |
24,079 |
950,191 |
974,270 |
23,845 |
859,610 |
883,455 |
|
Tax |
(1,214) |
- |
(1,214) |
(176) |
- |
(176) |
|
Net return after taxation |
22,865 |
950,191 |
973,056 |
23,669 |
859,610 |
883,279 |
|
Net return per ordinary share (note 4) |
1.55p |
64.55p |
66.10p |
1.64p |
59.58p |
61.22p |
The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.
Balance sheet
| At 31 March 2020 £'000 £'000 | At 31 March 2019 £'000 £'000 | ||
Fixed assets |
|
|
|
|
Investments held at fair value through profit or loss |
| 9,079,650 |
| 8,098,819 |
Current assets |
|
|
|
|
Debtors | 48,420 |
| 27,892 |
|
Cash and cash equivalents | 38,526 |
| 35,587 |
|
| 86,946 |
| 63,479 |
|
Creditors |
|
|
|
|
Amounts falling due within one year (note 7) | (329,715) |
| (309,019) |
|
Net current liabilities |
| (242,769) |
| (245,540) |
Total assets less current liabilities |
| 8,836,881 |
| 7,853,279 |
Creditors |
|
|
|
|
Amounts falling due after more than one year (note 7) |
| (592,247) |
| (423,349) |
|
| 8,244,634 |
| 7,429,930 |
Capital and reserves |
|
|
|
|
Called up share capital |
| 74,239 |
| 73,713 |
Share premium account |
| 764,521 |
| 710,569 |
Capital redemption reserve |
| 19,094 |
| 19,094 |
Capital reserve |
| 7,363,915 |
| 6,602,885 |
Revenue reserve |
| 22,865 |
| 23,669 |
Total shareholders' funds |
| 8,244,634 |
| 7,429,930 |
Net asset value per ordinary share (after deducting borrowings at book)* |
| 567.3p |
| 504.0p |
Ordinary shares in issue† (note 9) |
| 1,484,780,880 |
| 1,474,255,880 |
† Excluding treasury shares.
* See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Statement of changes in equity
For the year ended 31 March 2020
| Called up share £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Capital Reserve# £'000 | Revenue reserve# £'000 | Shareholders' £'000 |
Shareholders' funds at 1 April 2019 | 73,713 | 710,569 | 19,094 | 6,602,885 | 23,669 | 7,429,930 |
Net return after taxation | - | - | - | 950,191 | 22,865 | 973,056 |
Ordinary shares bought back into treasury (note 9) | - | - | - | (166,738) | - | (166,738) |
Ordinary shares issued (note 9) | 526 | 53,952 | - | - | - | 54,478 |
Dividends paid during the year (note 5) | - | - | - | (22,423) | (23,669) | (46,092) |
Shareholders' funds at 31 March 2020 | 74,239 | 764,521 | 19,094 | 7,363,915 | 22,865 | 8,244,634 |
For the year ended 31 March 2019
| Called up share £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Capital Reserve# £'000 | Revenue reserve# £'000 | Shareholders' £'000 |
Shareholders' funds at 1 April 2018 | 71,086 | 352,375 | 19,094 | 5,741,352 | 3,849 | 6,187,756 |
Net return after taxation | - | - | - | 859,610 | 23,669 | 883,279 |
Ordinary shares sold from treasury (note 9) | - | 91,044 | - | 42,069 | - | 133,113 |
Ordinary shares issued (note 9) | 2,627 | 267,150 | - | - | - | 269,777 |
Dividends paid during the year (note 5) | - | - | - | (40,146) | (3,849) | (43,995) |
Shareholders' funds at 31 March 2019 | 73,713 | 710,569 | 19,094 | 6,602,885 | 23,669 | 7,429,930 |
The Capital Reserve balance at 31 March 2020 includes investment holding gains of £4,708,280,000 (31 March 2019 - gains of £3,964,387,000).
# The Revenue Reserve and Capital Reserve (to the extent it constitutes realised profits) are distributable.
Cash flow statement
| Year to 31 March 2020 £'000 £'000 | Year to 31 March 2019 £'000 £'000 | ||
Cash flows from operating activities |
|
|
|
|
Net return before taxation | 974,270 |
| 883,455 |
|
Gains on investments | (1,018,400) |
| (923,535) |
|
Currency losses | 12,949 |
| 12,180 |
|
Finance costs of borrowings | 31,338 |
| 29,866 |
|
Overseas withholding tax refunded | 144 |
| 2,978 |
|
Overseas withholding tax incurred | (1,358) |
| (1,488) |
|
Changes in debtors and creditors | 596 |
| 1,448 |
|
Cash (used in)/generated from operations |
| (461) |
| 4,904 |
Interest paid |
| (31,252) |
| (28,162) |
Net cash outflow from operating activities |
| (31,713) |
| (23,258) |
Cash flows from investing activities |
|
|
|
|
Acquisitions of investments | (634,686) |
| (1,248,097) |
|
Disposals of investments | 636,818 |
| 707,123 |
|
Net cash inflow/(outflow) from investing activities |
| 2,132 |
| (540,974) |
Equity dividends paid (note 5) | (46,092) |
| (43,995) |
|
Ordinary shares bought back into treasury and stamp duty thereon | (166,738) |
| (67) |
|
Ordinary shares sold from treasury | - |
| 133,113 |
|
Ordinary shares issued | 54,478 |
| 269,776 |
|
Bank loans repaid | - |
| (28,221) |
|
Bank loans drawn down and loan notes issued | 188,218 |
| 226,207 |
|
Net cash inflow from financing activities |
| 29,866 |
| 556,813 |
Increase/(decrease) in cash and cash equivalents |
| 285 |
| (7,419) |
Exchange movements |
| 2,654 |
| 8,032 |
Cash and cash equivalents at start of period |
| 35,587 |
| 34,974 |
Cash and cash equivalents at end of period* |
| 38,526 |
| 35,587 |
* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.
Thirty largest holdings and twelve month performance at 31 March 2020
Name | Business | Fair value 31 March 2020 £'000 | % of | Absolute performance† % | Contribution to absolute performance# % | Fair value 31 March 2019 £'000 |
Amazon.com | Online retailer and cloud computing | 849,809 | 9.3 | 15.1 | 1.7 | 778,843 |
Tesla Inc | Electric cars, autonomous driving and solar energy | 790,650 | 8.6 | 96.6 | 4.5 | 428,304 |
Tencent Holdings | Internet services | 596,292 | 6.5 | 12.4 | 0.7 | 531,946 |
Alibaba Group P | Online retailing and financial services | 595,818 | 6.5 | 12.0 | 0.9 | 532,441 |
Illumina | Biotechnology equipment | 565,677 | 6.2 | (7.6) | (0.1) | 613,045 |
ASML | Lithography | 347,067 | 3.8 | 51.0 | 1.6 | 233,003 |
Kering | Luxury goods producer and retailer | 286,032 | 3.1 | (2.5) | 0.1 | 299,236 |
Netflix | Subscription service for TV shows and movies | 281,127 | 3.1 | 10.7 | 0.3 | 254,115 |
Delivery Hero | Online food delivery service | 278,012 | 3.0 | 116.7 | 2.0 | 124,960 |
Ferrari | Luxury automobiles | 250,807 | 2.7 | 22.7 | 0.8 | 246,825 |
Meituan Dianping P | Local services aggregator | 225,547 | 2.5 | 88.2 | 0.8 | 67,254 |
Ant International Limited u | Operates an online financial services platform | 209,168 | 2.3 | 9.0 | 0.2 | 191,858 |
Nvidia | Visual computing | 184,024 | 2.0 | 54.7 | 0.8 | 119,284 |
Ginkgo Bioworks Inc u* | Bio-engineering company | 163,032 | 1.8 | 190.7 | 1.4 | 44,663 |
Spotify Technology SA P | Online music streaming service | 161,695 | 1.8 | (8.1) | (0.1) | 176,293 |
Inditex | Global clothing retailer | 149,757 | 1.6 | (4.6) | - | 178,783 |
Alphabet | Holding company for Google and associated ventures | 137,517 | 1.5 | 4.1 | 0.1 | 132,109 |
Tempus Labs Inc u* | Offers molecular diagnostics tests for cancer and aggregates clinical oncology records | 136,442 | 1.5 | 82.0 | 0.6 | 40,849 |
You & Mr Jones u* | Digital advertising | 130,300 | 1.4 | 97.5 | 0. 6 | 50,650 |
HelloFresh P | Grocery retailer | 125,253 | 1.4 | 275.0 | 1.2 | 33,661 |
Transferwise Ltd u* | Online money transfer services | 97,915 | 1.1 | 5.1 | - | 93,173 |
Intuitive Surgical | Surgical robots | 97,625 | 1.1 | (8.8) | (0.1) | 106,974 |
Vir Biotechnology Inc P | Biotechnology company developing anti-infective therapies | 95,187 | 1.0 | 86.2 | 0.5 | 46,046 |
Atlas Copco | Engineering | 94,603 | 1.0 | 34.1 | 0.4 | 71,839 |
Workday | Enterprise information technology | 88,318 | 1.0 | (29.0) | (0.4) | 124,657 |
Shopify | Cloud-based commerce platform provider | 87,895 | 1.0 | 112.1 | 0.6 | 41,338 |
Zalando | International online clothing retailer | 87,796 | 1.0 | 3.5 | 0.2 | 116,867 |
Zoom‡ | Remote conferencing service provider | 82,451 | 0.9 | 326.0 | 0.7 | - |
Trip.com | Travel agent | 78,099 | 0.8 | (43.6) | (0.8) | 138,253 |
Grail Inc u | Clinical stage biotechnology company | 77,077 | 0.8 | 15.4 | 0.2 | 66,768 |
|
| 7,350,992 | 80.3 |
|
|
|
† Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 April 2019 to 31 March 2020. For a definition of the total return see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
# Contribution to absolute performance (in sterling terms) has been calculated to illustrate how an individual stock has contributed to the
overall return. It is influenced by both share price performance and the weighting of the stock in the portfolio, taking account of any
purchases or sales over the period.
‡ Figures relate to part period returns where the investment has been purchased in the period.
* Multiple lines of stock held. Holding information represents the aggregate of all lines of stock.
u Denotes unlisted investment.
P Denotes listed security previously held in the portfolio as an unlisted security.
Source: Baillie Gifford/StatPro and underlying data providers. See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
|
Long Term Investment |
|
|
|
Portfolio Holding Periods as at 31 March 2020 |
|
More Than 5 Years |
2-5 Years |
Less Than 2 Years |
|||
|
Name |
% of total assets |
Name |
% of total assets |
Name |
% of total assets |
|
Amazon.com10 |
9.3 |
Netflix |
3.1 |
Ant International u |
2.3 |
|
Tesla Inc |
8.6 |
Delivery Hero |
3.0 |
Tempus Labs Inc u |
1.5 |
|
Tencent Holdings10 |
6.5 |
Meituan Dianping P |
2.5 |
Shopify |
1.0 |
|
Alibaba Group P |
6.5 |
NVIDIA |
2.0 |
Zoom |
0.9 |
|
Illumina |
6.2 |
Ginkgo Bioworks u |
1.8 |
Pinduoduo |
0.7 |
|
ASML |
3.8 |
Spotify Technology SA P |
1.8 |
ByteDance u |
0.7 |
|
Kering10 |
3.1 |
You & Mr Jones u |
1.4 |
Space Exploration Technologies u |
0.6 |
|
Ferrari |
2.7 |
HelloFresh P |
1.4 |
MercadoLibre |
0.6 |
|
Inditex |
1.6 |
TransferWise u |
1.1 |
Zipline u |
0.5 |
|
Alphabet10 |
1.5 |
Vir Biotechnology P |
1.0 |
Tanium u |
0.5 |
|
Intuitive Surgical10 |
1.1 |
GRAIL u |
0.8 |
Wayfair |
0.5 |
|
Atlas Copco10 |
1.0 |
Indigo Agriculture u |
0.8 |
Recursion Pharmaceuticals u |
0.4 |
|
Workday |
1.0 |
Denali Therapeutics P |
0.6 |
Away Inc (JRSK) u |
0.4 |
|
Zalando |
1.0 |
NIO P |
0.6 |
The Production Board u |
0.4 |
|
Trip.com10 |
0.8 |
Carbon u |
0.5 |
Stripe u |
0.3 |
|
Housing Development Finance Corporation10 |
0.8
|
Anaplan P |
0.5 |
Full Truck Alliance u |
0.3 |
|
JAND Inc (Warby Parker) u |
0.5 |
Affirm u |
0.3 |
||
|
Kinnevik |
0.6 |
HeartFlow u |
0.4 |
Convoy u |
0.2 |
|
|
0.5 |
Thumbtack u |
0.4 |
Aurora u |
0.2 |
|
Rocket Internet |
0.5 |
Lyft P |
0.4 |
Slack Technologies P |
0.2 |
|
Essence Healthcare u |
0.5 |
Bolt Threads u |
0.3 |
KSQ Therapeutics u |
0.2 |
|
Alnylam Pharmaceuticals |
0.3 |
Uptake Technologies u |
0.3 |
Joby Aero u |
0.1 |
|
Palantir Technologies u |
0.3 |
Clover Health u |
0.3 |
Snowflake u |
0.1 |
|
Bluebird Bio Inc |
0.3 |
AUTO1 u |
0.2 |
Sana Biotechnology u |
0.1 |
|
Innovation Works Development Fund u |
0.2 |
Airbnb u |
0.2 |
ARCH Ventures Fund X u |
- |
|
ZocDoc u |
0.2 |
ARCH Ventures Fund X Overage u |
- |
||
|
WI Harper Fund VIII u |
0.1 |
Orchard Therapeutics P |
0.2 |
|
|
|
WI Harper Fund VII u |
0.1 |
UNITY Biotechnology P |
0.2 |
|
|
|
Global AI Opportunities Fund |
- |
ARCH Ventures Fund IX u |
0.2 |
|
|
|
|
|
CureVac u |
0.1 |
|
|
|
|
|
Rubius Therapeutics P |
0.1 |
|
|
|
|
|
Udacity u |
0.1 |
|
|
|
|
|
Eventbrite P |
0.1 |
|
|
|
|
|
Sinovation Fund III u |
0.1 |
|
|
|
|
|
Intarcia Therapeutics u |
0.1 |
|
|
|
Total |
58.9 |
Total |
27.3 |
Total |
13.0 |
u Denotes unlisted security.
P Denotes listed security previously held in the portfolio as an unlisted security.
10 Denotes security held for more than 10 years.
* Previously known as Internet Plus Holdings.
Net liquid assets represent 0.8% of total assets. See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
|
List of investments as at 31 March 2020 |
|
Name |
Business |
Fair Value at 31 March 2020 £'000 |
% of |
Contribution to absolute performance# % |
Notes |
Fair value at 31 March 2019 £'000 |
|
Amazon.com |
Online retailer and cloud computing |
849,809 |
9.3 |
1.7 |
|
778,843 |
|
Tesla Inc |
Electric cars, autonomous driving and solar energy |
790,650 |
8.6 |
4.5 |
|
428,304 |
|
Tencent Holdings |
Internet services |
596,292 |
6.5 |
0.7 |
|
531,946 |
|
Alibaba Group P |
Online retailing and financial services |
595,818 |
6.5 |
0.9 |
|
532,441 |
|
Illumina |
Biotechnology equipment |
565,677 |
6.2 |
(0.1) |
|
613,045 |
|
ASML |
Lithography |
347,067 |
3.8 |
1.6 |
|
233,003 |
|
Kering |
Luxury goods producer and retailer |
286,032 |
3.1 |
0.1 |
|
299,236 |
|
Netflix |
Subscription service for TV shows and movies |
281,127 |
3.1 |
0.3 |
|
254,115 |
|
Delivery Hero |
Online food delivery service |
278,012 |
3.0 |
2.0 |
|
124,960 |
|
Ferrari |
Luxury automobiles |
250,807 |
2.7 |
0.8 |
|
246,825 |
|
Meituan Dianping P |
Local services aggregator |
225,547 |
2.5 |
0.8 |
Significant addition |
67,254 |
|
Ant International Limited Class C Ord. u |
Operates an online financial services platform |
209,168 |
2.3 |
0.2 |
|
191,858 |
|
NVIDIA |
Visual computing |
184,024 |
2.0 |
0.8 |
|
119,284 |
|
Ginkgo Bioworks Inc Series D Pref. u |
Bio-engineering company |
76,164 |
0.8 |
0.7 |
|
22,796 |
|
Ginkgo Bioworks Inc Series C Pref. u |
Bio-engineering company |
74,064 |
0.8 |
0.7 |
|
21,867 |
|
Ginkgo Bioworks Inc Series E Pref. u |
Bio-engineering company |
12,804 |
0.2 |
0.7 |
New purchase
|
- |
|
|
|
163,032 |
1.8 |
1.4 |
|
44,663 |
|
Spotify Technology SA P |
Online music streaming service |
161,695 |
1.8 |
(0.1) |
|
176,293 |
|
Inditex |
Global clothing retailer |
149,757 |
1.6 |
- |
|
178,783 |
|
Alphabet |
Holding company for Google and associated ventures |
137,517 |
1.5 |
0.1 |
|
132,109 |
|
Tempus Labs Inc Series E Pref. u |
Offers molecular diagnostics tests for cancer and aggregates clinical oncology records |
95,821 |
1.0 |
0.5 |
Significant addition |
40,849 |
|
Tempus Labs Inc Series F Pref. u |
Offers molecular diagnostics tests for cancer and aggregates clinical oncology records |
34,976 |
0.4 |
0.1 |
New purchase |
- |
|
Tempus Labs Inc Series G Pref. u |
Offers molecular diagnostics tests for cancer and aggregates clinical oncology records |
5,645 |
0.1 |
- |
New purchase |
- |
|
|
|
136,442 |
1.5 |
0.6 |
|
40,849 |
|
You & Mr Jones Class A Units u |
Digital advertising |
100,004 |
1.1 |
0.7 |
|
50,650 |
|
You & Mr Jones Class C Units u |
Digital advertising |
30,296 |
0.3 |
(0.1) |
New purchase
|
- |
|
|
|
130,300 |
1.4 |
0.6 |
|
50,650 |
|
HelloFresh P |
Grocery retailer |
125,253 |
1.4 |
1.2 |
|
33,661 |
|
Transferwise Ltd Series D Pref. u |
Online money transfer services |
47,633 |
0.5 |
- |
|
45,327 |
|
Transferwise Ltd Series Ord. u |
Online money transfer services |
20,247 |
0.2 |
- |
|
19,266 |
|
Transferwise Ltd Series A Pref. u |
Online money transfer services |
11,078 |
0.1 |
- |
|
10,542 |
|
Transferwise Ltd Series B Pref. u |
Online money transfer services |
10,076 |
0.1 |
- |
|
9,588
|
|
Name |
Business |
Fair Value 31 March 2020 £'000 |
% of |
Contribution to absolute performance# % |
Notes |
Fair value 31 March 2019 £'000 |
|
Transferwise Ltd Series E Pref. u |
Online money transfer services |
5,761 |
0.1 |
- |
|
5,482 |
|
Transferwise Ltd Series Seed Pref. u |
Online money transfer services |
2,696 |
0.1 |
- |
|
2,565 |
|
Transferwise Ltd Series C Pref. u |
Online money transfer services |
424 |
<0.1 |
- |
|
403 |
|
|
|
97,915 |
1.1 |
- |
|
93,173 |
|
Intuitive Surgical |
Surgical robots |
97,625 |
1.1 |
(0.1) |
|
106,974 |
|
Vir Biotechnology Inc P |
Biotechnology company developing anti-infective therapies |
95,187 |
1.0 |
0.5 |
|
46,046 |
|
Atlas Copco |
Engineering |
94,603 |
1.0 |
0.4 |
|
71,839 |
|
Workday |
Enterprise information technology |
88,318 |
1.0 |
(0.4) |
|
124,657 |
|
Shopify |
Cloud-based commerce platform provider |
87,895 |
1.0 |
0.6 |
|
41,338 |
|
Zalando |
International online clothing retailer |
87,796 |
1.0 |
0.2 |
Significant reduction |
116,867 |
|
Zoom |
Remote conferencing service provider |
82,451 |
0.9 |
0.7 |
New purchase |
- |
|
Trip.com |
Travel agent |
78,099 |
0.8 |
(0.8) |
|
138,253 |
|
Grail Inc Series B Pref. u |
Clinical stage biotechnology company |
77,077 |
0.8 |
0.2 |
|
66,768 |
|
Housing Development Finance Corporation |
Indian mortgage provider |
73,911 |
0.8 |
(0.2) |
|
92,568 |
|
Indigo Agriculture Inc Series D Pref. u |
Analyses plant microbiomes to increase crop yields |
37,834 |
0.4 |
(0.2) |
|
55,273 |
|
Indigo Agriculture Inc Series E Pref. u |
Analyses plant microbiomes to increase crop yields |
19,531 |
0.2 |
0.2 |
|
22,152 |
|
Indigo Agriculture Inc Sub Promissory Note u |
Analyses plant microbiomes to increase crop yields |
10,126 |
0.1 |
- |
New purchase |
- |
|
Indigo Agriculture Inc Common u |
Analyses plant microbiomes to increase crop yields |
2,120 |
0.1 |
- |
New purchase |
- |
|
|
|
69,611 |
0.8 |
0.2 |
|
77,425 |
|
Pinduoduo Inc |
Chinese e-commerce |
60,602 |
0.7 |
0.3 |
|
39,711 |
|
Bytedance Ltd Series E Pref. u |
Social media |
60,486 |
0.7 |
- |
New purchase |
- |
|
Space Exploration Technologies Corp Series J Pref. u |
Designs, manufactures and launches rockets and spacecraft |
57,234 |
0.6 |
0.1 |
|
50,502 |
|
Kinnevik |
Investment company |
56,880 |
0.6 |
- |
Significant reduction |
84,359 |
|
MercadoLibre |
Latin American e-commerce platform |
56,182 |
0.6 |
0.3 |
New purchase |
- |
|
Denali Therapeutics P |
Biotechnology |
52,834 |
0.6 |
(0.2) |
Significant addition |
51,851 |
|
NIO Inc P |
Designs and manufactures electric and autonomous vehicles |
50,171 |
0.5 |
0.6 |
|
87,726 |
|
|
Social networking site |
48,543 |
0.5 |
0.2 |
Significant reduction |
105,764 |
|
Zipline International Inc Series D Pref. u |
Logistics company that designs, manufactures and operates drones to deliver medical supplies |
28,204 |
0.3 |
- |
|
30,697 |
|
Zipline International Inc Series C Pref. u |
Logistics company that designs, manufactures and operates drones to deliver medical supplies |
20,258 |
0.2 |
0.1 |
|
26,209 |
|
|
|
48,462 |
0.5 |
0.1 |
|
56,906 |
|
Name |
Business |
Fair Value 31 March 2020 £'000 |
% of |
Contribution to absolute performance# % |
Notes |
Fair value 31 March 2019 £'000 |
||
|
Carbon Inc Series D Pref. u |
Manufactures and develops 3D printers |
28,031 |
0.3 |
(0.1) |
|
36,796 |
||
|
Carbon Inc Series E Pref. u |
Manufactures and develops 3D printers |
19,394 |
0.2 |
- |
|
23,023 |
||
|
|
|
47,425 |
0.5 |
(0.1) |
|
59,819 |
||
|
Tanium Inc Class B Common u |
Provides security and systems management solutions |
46,629 |
0.5 |
- |
|
46,813 |
||
|
Rocket Internet |
Internet start-up factory |
45,777 |
0.5 |
(0.1) |
|
54,691 |
||
|
Anaplan Inc Common P |
Enterprise planning software |
45,661 |
0.5 |
(0.1) |
|
56,535 |
||
|
Essence Healthcare Series 3 Pref. u |
Cloud-based health provider |
45,391 |
0.5 |
- |
|
46,105 |
||
|
Wayfair |
Online household goods retailer |
45,049 |
0.5 |
(0.2) |
New purchase |
- |
||
|
JAND Inc (Warby Parker) Series D Pref. u |
Online and physical glasses retailer |
23,631 |
0.2 |
0.1 |
|
17,087 |
||
|
JAND Inc (Warby Parker) Series A Common u |
Online and physical glasses retailer |
15,239 |
0.2 |
0.1 |
|
11,019 |
||
|
JAND Inc (Warby Parker) Series E Pref. u |
Online and physical glasses retailer |
5,744 |
0.1 |
- |
|
4,220 |
||
|
|
|
44,614 |
0.5 |
0.2 |
|
32,326 |
||
|
Heartflow Inc Series E Pref. u |
Develops software for cardiovascular disease diagnosis and treatment |
38,009 |
0.4 |
- |
|
40,065 |
||
|
Recursion Pharmaceuticals Inc Series C Pref. u |
Uses image recognition/machine learning and automation to improve drug discovery |
37,136 |
0.4 |
- |
|
38,372 |
||
|
Thumbtack Inc Series G Pref. u |
Online directory service for local businesses |
30,942 |
0.3 |
0.1 |
|
25,791 |
||
|
Thumbtack Inc Series H Pref. u |
Online directory service for local businesses |
6,188 |
0.1 |
0.1 |
New purchase |
- |
||
|
|
|
37,130 |
0.4 |
0.1 |
|
25,791 |
||
|
JRSK Inc (Away) Series D Pref. u |
Manufactures luggage |
21,388 |
0.2 |
- |
New purchase |
- |
||
|
JRSK Inc (Away) Series Seed Pref. u |
Manufactures luggage |
14,804 |
0.2 |
- |
New purchase |
- |
||
|
|
|
36,192 |
0.4 |
- |
|
- |
||
|
The Production Board Series A-2 Pref. u |
Holding company for food technology companies |
36,130 |
0.4 |
0.1 |
|
31,925 |
||
|
Lyft Inc P |
Ridesharing services |
33,372 |
0.4 |
(0.8) |
|
92,448 |
||
|
Bolt Threads Inc Series D Pref. u |
Natural fibres and fabrics manufacturer |
24,181 |
0.2 |
(0.1) |
|
31,182 |
||
|
Bolt Threads Inc Convertible Promissory Note* |
Natural fibres and fabrics manufacturer |
7,236 |
0.1 |
- |
New purchase |
- |
||
|
|
|
31,417 |
0.3 |
(0.1) |
|
31,182 |
||
|
Stripe Inc Series G Pref. u |
Online payment platform |
29,597 |
0.3 |
- |
New purchase |
- |
||
|
Full Truck Alliance Ltd Series A-15 Pref. u |
Freight-truck matching platform |
28,976 |
0.3 |
0.1 |
|
23,023 |
||
|
Alnylam Pharmaceuticals |
Biotechnology |
28,682 |
0.3 |
0.1 |
|
23,459 |
||
|
|
|
|
|
|
|
|
||
|
Name |
Business |
Fair Value 31 March 2020 £'000 |
% of |
Contribution to absolute performance# % |
Notes† |
Fair value 31 March 2019 £'000 |
||
|
Palantir Technologies Inc Series J Pref. u |
Data integration software and service provider |
26,535 |
0.3 |
- |
|
23,394 |
||
|
Uptake Technologies Inc Series D Pref. u |
Designs and develops enterprise software |
26,375 |
0.3 |
(0.3) |
|
47,427 |
||
|
Bluebird Bio Inc |
Provider of biotechnological products and services |
25,755 |
0.3 |
(0.9) |
Significant reduction |
123,604 |
||
|
Clover Health Investments Series D Pref. u |
Healthcare insurance provider |
25,499 |
0.3 |
0.1 |
|
19,190 |
||
|
Affirm Inc Series F Pref. u |
Online platform which provides lending and consumer credit services |
22,979 |
0.3 |
- |
|
21,872 |
||
|
Convoy Inc Series D Pref. u |
Marketplace for truckers and shippers |
22,408 |
0.2 |
- |
New purchase |
- |
||
|
AUTO1 Group GmbH Series E Pref. u |
Online retailer of used cars |
22,277 |
0.2 |
(0.1) |
|
31,269 |
||
|
Airbnb Inc Series E Pref. u |
Online market place for travel accommodation |
20,625 |
0.2 |
- |
|
20,648 |
||
|
Aurora Innovation Inc Series B Pref. u |
Developer of driverless vehicle technology |
20,161 |
0.2 |
- |
New purchase |
- |
||
|
Slack Technologies Inc P |
Enterprise messaging platform |
20,030 |
0.2 |
0.1 |
|
10,338 |
||
|
Innovation Works Development Fund u |
Venture capital fund |
19,329 |
0.2 |
- |
|
22,300 |
||
|
KSQ Therapeutics Inc Series C Pref. u |
Biotechnology company |
17,887 |
0.2 |
- |
|
19,186 |
||
|
Zocdoc Inc Series D-2 Pref. u |
Online platform for searching for doctors and booking appointments |
16,862 |
0.2 |
- |
|
17,492 |
||
|
Orchard Therapeutics P |
Gene therapy for rare diseases |
16,551 |
0.2 |
(0.4) |
Significant reduction |
64,778 |
||
|
Unity Biotechnology P |
Clinical stage biotechnology company |
14,878 |
0.2 |
(0.1) |
|
20,003 |
||
|
ARCH Ventures Fund IX u |
Venture capital fund to invest in biotech start-ups |
14,028 |
0.2 |
0.1 |
|
8,242 |
||
|
CureVac AG Series B Pref. u |
Biotechnology |
12,680 |
0.1 |
(0.1) |
|
21,542 |
||
|
Rubius Therapeutics Inc P |
Biotechnology |
12,156 |
0.1 |
(0.4) |
|
47,558 |
||
|
Joby Aero Inc Series C Pref. u |
Electric aircraft |
10,704 |
0.1 |
- |
New purchase |
- |
||
|
Udacity Inc Series D Pref. u |
Online education |
9,774 |
0.1 |
- |
|
9,606 |
||
|
Eventbrite Inc P |
Online ticketing service |
9,599 |
0.1 |
(0.2) |
|
23,924 |
||
|
Snowflake Inc Class B Common u |
Developer of a SaaS-based cloud data warehousing platform |
8,584 |
0.1 |
- |
New purchase |
- |
||
|
Sana Biotechnology Inc Series A-2 Pref. u |
Biotechnology company creating and delivering engineered cells as medicine |
8,011 |
0.1 |
- |
|
6,395 |
||
|
Sinovation Fund III u |
Venture capital fund |
7,694 |
0.1 |
- |
|
8,256 |
||
|
WI Harper Fund VIII u |
Venture capital fund |
7,540 |
0.1 |
- |
|
6,970 |
||
|
Intarcia Therapeutics Inc Convertible Bond u |
Implantable drug delivery system |
3,370 |
0.1 |
(0.1) |
|
11,511 |
||
|
Intarcia Therapeutics Inc Series EE Pref. u |
Implantable drug delivery system |
2,671 |
<0.1 |
(0.1) |
|
8,039 |
||
|
Intarcia Therapeutics Inc Common u |
Implantable drug delivery system |
62 |
<0.1 |
- |
New purchase |
- |
||
|
|
|
6,103 |
0.1 |
(0.2) |
|
19,550 |
||
|
WI Harper Fund VII u |
Venture capital fund |
5,515 |
0.1 |
- |
Return of capital |
9,885 |
||
|
Name |
Business |
Fair Value 31 March 2020 £'000 |
% of |
Contribution to absolute performance# % |
Notes† |
Fair value 31 March 2019 £'000 |
|
Global AI Opportunities |
Artificial intelligence based algorithmic trading |
4,358 |
<0.1 |
- |
|
4,846 |
|
ARCH Ventures Fund X u |
Venture capital fund to invest in biotech start-ups |
845 |
<0.1 |
- |
Additional investment |
413 |
|
ARCH Ventures Fund X Overage u |
Venture capital fund to invest in biotech start-ups |
813 |
<0.1 |
- |
Additional investment |
397 |
|
Total Investments |
|
9,079,650
|
99.2 |
|
|
|
|
Net Liquid Assets |
|
71,759 |
0.8 |
|
|
|
|
Total Assets |
|
9,151,409 |
100.0 |
|
|
|
# Contribution to absolute performance has been calculated on a total return basis over the period 1 April 2019 to 31 March 2020. For a definition of total return see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
† Significant additions and reductions to investments have been noted where the transaction value is at least a 20% movement from the value of the holding at 31 March 2019. The change in value over the year also reflects the share price performance and the movement in exchange rates.
u Denotes unlisted security
P Denotes listed security previously held in the portfolio as an unlisted security.
The following investments were completely sold during the period: Baidu, Funding Circle, Grubhub, Home24, Renishaw, SurveyMonkey and Tableau Software.
Source: Baillie Gifford/Statpro
|
|
Listed equities % |
Unlisted Securities* % |
Unlisted bonds % |
Net liquid assets % |
Total % |
|
31 March 2020 |
79.1 |
19.9 |
0.2 |
0.8 |
100.0 |
|
31 March 2019 |
82.2 |
17.3 |
0.1 |
0.4 |
100.0 |
* Includes holdings in preference shares and ordinary shares.
Distribution of total assets †
|
|
At 31 March 2020 % |
At 31 March 2019 % |
|
|
North America |
54.9 |
52.8 |
|
|
Europe |
22.5 |
24.2 |
|
|
|
United Kingdom |
1.7 |
3.5 |
|
|
Eurozone |
17.4 |
16.6 |
|
|
Developed Europe (non euro) |
3.4 |
4.1 |
|
Asia |
22.0 |
23.0 |
|
|
|
China |
21.2 |
21.9 |
|
|
India |
0.8 |
1.1 |
|
South America |
0.6 |
- |
|
|
|
Brazil |
0.6 |
- |
|
|
100.0 |
100.0 |
|
† Total assets represents total net assets before deduction of all borrowings.
|
Notes to the financial statements |
|
1. |
The Financial Statements for the year to 31 March 2020 have been prepared in accordance with FRS 102, 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently. |
||||||
|
2. |
Income |
Year to 31 March 2020 £'000 |
Year to 31 March 2019 £'000 |
||||
|
|
Income from investments |
27,707 |
27,252 |
||||
|
|
Other income |
1,207 |
935 |
||||
|
|
|
28,914 |
28,187 |
||||
|
3. |
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited. The Investment Management Agreement is terminable on not less than six months' notice. The annual management fee for the year to 31 March 2020 was 0.30% on the first £4 billion of total assets less current liabilities (excluding short term borrowings for investment purposes) and 0.25% on the remaining assets.
|
||||||
|
4. |
Net Return per Ordinary Share |
|
Year to 31 March 2020 £'000 |
Year to 31 March 2019 £'000 |
|||
| Revenue return on ordinary activities after taxation |
|
22,865 |
23,669 |
||||
| Capital return on ordinary activities after taxation |
|
950,191 |
859,610 |
||||
|
|
973,056 |
883,279 |
|||||
| Weighted average number of ordinary shares in issue |
|
1,472,047,860 |
1,442,733,808 |
||||
| Net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares (excluding treasury shares) in issue during the year. There are no dilutive or potentially dilutive shares in issue. | |||||||
|
5. |
Ordinary Dividends |
2020 |
2019
|
2020 £'000 |
2019 £'000 |
||
| Amounts recognised as distributions in the year: |
|
|
|
|
|||
| Previous year's final (paid 2 July 2019) |
1.74p |
1.68p |
25,797 |
23,766 |
|||
| Interim (paid 6 December 2019) |
1.39p |
1.39p |
20,295 |
20,229 |
|||
|
3.13p |
3.07p |
46,092 |
43,995 |
||||
| Also set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £22,865,000 (2019 - £23,669,000). | |||||||
|
Notes to the financial statements (ctd) |
|
5. |
Ordinary Dividends (Ctd) |
|||||||||
|
|
|
2020 |
2019
|
2020 £'000 |
2019 £'000 |
|||||
|
Dividends paid and payable in respect of the year: |
|
|
|
|
||||||
|
Interim dividend per ordinary share (paid 6 December 2019) |
1.39p |
1.39p |
20,295 |
20,229 |
||||||
|
Proposed final dividend per ordinary share (payable 1 July 2020) |
1.86p |
1.74p |
27,031 |
25,652 |
||||||
|
|
3.25p |
3.13p |
47,326 |
45,881 |
||||||
|
|
If approved the final dividend will be paid on 1 July 2020 to all shareholders on the register at the close of business on 5 June 2020. The ex-dividend date is 4 June 2020. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 8 June 2020. |
|||||||||
|
6. |
As at 31 March 2020 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|||||
| Equities/funds |
7,238,048 |
- |
- |
7,238,048 |
||||||
| Unlisted ordinary shares |
- |
- |
302 |
302 |
||||||
| Unlisted preference shares † |
- |
- |
1,820,568 |
1,820,568 |
||||||
| Unlisted convertible notes |
- |
- |
20,732 |
20,732 |
||||||
| Total financial asset investments |
7,238,048 |
- |
1,841,602 |
9,079,650 |
||||||
|
|
|
|
|
|||||||
|
As at 31 March 2019 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
||||||
| Equities/funds |
6,680,183 |
- |
- |
6,680,183 |
||||||
| Unlisted ordinary shares |
- |
- |
268,956 |
268,956 |
||||||
| Unlisted preference shares† |
- |
- |
1,138,169 |
1,138,169 |
||||||
| Unlisted convertible notes |
- |
- |
11,511 |
11,511 |
||||||
| Total financial asset investments |
6,680,183 |
- |
1,418,636 |
8,098,819 |
||||||
|
|
† The investments in preference shares are not classified as equity holdings as they include liquidation preference rights that determine the repayment (or multiple thereof) of the original investment in the event of a liquidation event such as a take-over. |
|||||||||
|
|
Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with Financial Reporting Standard 102, the preceding tables provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value. 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). |
|||||||||
|
|
Unlisted Investments Unlisted investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' unlisted investment policy applies techniques consistent with the International Private Equity and Venture Capital Valuation Guidelines 2018 ('IPEV'). The techniques applied are predominantly market-based approaches. The market-based approaches available under IPEV are set out below and are followed by an explanation of how they are applied to the Company's unlisted portfolio: - Multiples; - Industry Valuation Benchmarks; and - Available Market Prices. The nature of the unlisted portfolio currently will influence the valuation technique applied. The valuation approach recognises that, as stated in the IPEV Guidelines, the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis is used where appropriate to incorporate the operational progress of the investee company into the valuation. Additionally, the background to the transaction must be considered. As a result, various multiples-based techniques are employed to assess the valuations particularly in those companies with established revenues. Discounted cashflows are used where appropriate. An absence of relevant industry peers may preclude the application of the Industry Valuation Benchmarks technique and an absence of observable prices may preclude the Available Market Prices approach. All valuations are cross-checked for reasonableness by employing relevant alternative techniques. The unlisted investments are valued according to a three monthly cycle of measurement dates. The fair value of the unlisted investments will be reviewed before the next scheduled three monthly measurement date on the following occasions: - at the year end and half year end of the Company; and - where there is an indication of a change in fair value as defined in the IPEV guidelines (commonly referred to as 'trigger' events).
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7. |
Creditors falling due within one year include drawings under the following borrowing facilities: Borrowing facilities at 31 March 2020 A 2 year US$85 million revolving loan facility has been arranged with The Royal Bank of Scotland International Limited. A 2 year US$200 million revolving loan facility has been arranged with National Australia Bank Limited. A 3 year US$80 million revolving loan facility has been arranged with The Royal Bank of Scotland International Limited.
At 31 March 2020 drawings were as follows: The Royal Bank of Scotland International Limited US$80 million (revolving facility) at an interest rate (at 31 March 2020) of 2.664% per annum. US$85 million (revolving facility) at an interest rate (at 31 March 2020) of 2.438% per annum. National Australia Bank Limited US$200 million (revolving facility) at an interest rate (at 31 March 2020) of 2.375% per annum.
At 31 March 2019 drawings were as follows: The Royal Bank of Scotland plc US$80 million (revolving facility) at an interest rate (at 31 March 2019) of 3.629% per annum. US$85 million (revolving facility) at an interest rate (at 31 March 2019) of 3.410% per annum. National Australia Bank Limited US$200 million (revolving facility) at an interest rate (at 31 March 2019) of 3.324% per annum.
During the year the US$85 million 2 year revolving loan with The Royal Bank of Scotland plc was refinanced with a US$85 million 3 year revolving loan with The Royal Bank of Scotland International Limited. An unsecured loan note has been agreed for issuance on 30 September 2020 to refinance the £20 million 8-14% stepped interest debenture stock that matures on 30 September 2020. Following the year end on 21 April 2020, the US$200 million 2 year revolving credit facility with National Australia Bank Limited ('NAB') that was due to expire on 21 May 2020 was refinanced with a US$200 million 3 year revolving credit facility with NAB. The main covenants which are tested monthly are: i) The total borrowings shall not exceed 35% of the Company's adjusted net asset value. ii) Total borrowings shall not exceed 35% of the Company's adjusted total assets. iii) The Company's minimum net asset value shall be £1,000 million. iv) The Company shall not change the investment manager without prior written consent of the lenders.
Unsecured Loan Notes During the year the Company issued the following private placement unsecured loan notes: - £150 million at a coupon of 2.30% maturing on 15 January 2040 - €18 million at a coupon of 1.65% maturing on 15 January 2045 - €27 million at a coupon of 1.77% maturing on 15 January 2050 The unsecured loan notes are stated at the cumulative amount of net proceeds after issue. The cumulative effect is to reduce the carrying amount of borrowing by £704,661 (2019 - £474,000).
|
|
Notes to the financial statements (ctd) |
|
8. |
The fair value of borrowings at 31 March 2020 was £930,473,000 (2019 - £750,745,000). Net asset value per share (after deducting borrowings at fair value) was 565.7p (2019 - 500.8p). |
|||
|
9. |
|
|
2020 Number of Shares |
2019 Number of shares |
| Called up share capital: Ordinary shares of 5p each |
|
|
|
|
| Allotted, called up and fully paid |
|
1,453,259,808 |
1,474,255,880 |
|
| Treasury shares |
|
31,521,072 |
- |
|
| Total |
|
1,484,780,880 |
1,474,255,880 |
|
|
|
The Company's authority permits it to hold shares bought back 'in treasury'. Such treasury shares may be subsequently either sold for cash (at, or at a premium to, net asset value per ordinary share) or cancelled. In the year to 31 March 2020 31,521,072 shares with a nominal value of £1,576,000 were bought back at a total cost of £166,738,000 and held in treasury (2019 - no shares were bought back). At 31 March 2020 the Company had authority to buy back 190,136,939 ordinary shares. Under the provisions of the Company's Articles the share buy-backs are funded from the capital reserve. In the year to 31 March 2020, the Company issued 10,525,000 ordinary shares at a premium to net asset value, with a nominal value of £526,000 raising net proceeds of £54,478,000 (31 March 2019 - 26,367,671 ordinary shares sold from treasury with a nominal value of £1,318,000 raising net proceeds of £133,113,000 and issued 52,525,000 ordinary shares, with a nominal value of £2,627,000, at a premium to net asset value raising proceeds of £269,777,000). At 31 March 2020 the Company had authority to issue or sell from treasury a further 147,870,588 ordinary shares (31,521,702 shares were held in treasury at 31 March 2020). |
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|
10. |
Transaction costs on purchases amounted to £181,000 (2019 - £531,000) and transaction costs on sales amounted to £259,000 (2019 - £100,000). |
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|
11. |
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2020 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered in due course. The auditor has reported on those accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report other than the emphasis of matter - revision of disclosure note, included within the unqualified audit opinion for the year ended 31 March 2019, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. |
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|
12. |
Related Parties and Transaction with the Manager No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006. The management fee payable for the year end and details of the management fee arrangements are included on note 3 above. |
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|
13. |
The Annual Report and Financial Statements will be available on the Managers' websitewww.scottishmortgageit.com‡ on or around 26 May 2020. |
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|
Notes to the financial statements (ctd) |
|
|
Glossary of Terms and Alternative Performance Measures (APM) An Alternative Performance Measure ('APM') is a financial measure of historical or future financial performance, financial position or cashflows, other than a financial measured defined or specified in the applicable financial reporting framework. The APMs noted below are commonly used measures within the investment trust industry and served to improve comparability between investment trusts.
Total Assets Total assets less current liabilities, before deduction of all borrowings. Net Asset Value Also described as shareholders' funds. Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The Net Asset Value can be calculated on the basis of borrowings stated at book value, fair value and par value. An explanation of each basis is provided below. The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue (excluding treasury shares). Net Asset Value (Borrowings at Book)/Shareholders' Funds Borrowings are valued at adjusted net issue proceeds. Net Asset Value (Borrowings at Fair Value) (APM) Borrowings are valued at an estimate of their market worth. A reconciliation to Net Asset Value with borrowings at book value is provided below. |
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|
|
|
31 March 2020 |
31 March 2019 |
|
|
|
Net Asset Value per ordinary share (borrowings at book value) |
567.3p |
504.0p |
|
|
|
Shareholders' funds (borrowings at book value) |
£8,244,634k |
£7,429,930k |
|
|
|
Add: Book value of borrowings |
£906,775k |
£703,461k |
|
|
|
Less: fair value of borrowings |
(£930,473k) |
(£750,745k) |
|
|
|
Net Asset Value (borrowings at fair value) |
£8,220,936k |
£7,382,646k |
|
|
|
Shares in issue at year end (excluding treasury shares) |
1,453,259,808 |
1,474,255,880 |
|
|
|
Net Asset Value per ordinary share (borrowings at fair value) |
567.7p |
500.8p |
|
|
|
Net Asset Value (Borrowings at Par) (APM) Borrowings are valued at their nominal par value. A reconciliation to Net Asset Value with borrowings at book value is provided below. |
|||
|
|
|
31 March 2020 |
31 March 2019 |
|
|
|
Net Asset Value per ordinary share (borrowings at book value) |
567.3p |
504.0p |
|
|
|
Shareholders' funds (borrowings at book value) |
£8,244,634k |
£7,429,930k |
|
|
|
Add: allocation of interest on borrowings |
£3,160k |
£3,805k |
|
|
|
Less: expenses of debenture issue |
(£1,245k) |
(£1,131k) |
|
|
|
Net asset Value (borrowings at par value) |
£8,246,549k |
£7,432,604k |
|
|
|
Shares in issue at year end (excluding treasury shares) |
1,453,259,808 |
1,474,255,880 |
|
|
|
Net Asset Value per ordinary share (borrowings at par value) |
567.7p |
504.2p |
|
|
Notes to the financial statements (ctd) |
|
|
Net Liquid Assets Net liquid assets comprise current assets less current liabilities, excluding borrowings. Discount/Premium (APM) As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, it is said to be trading at a premium.
|
|||||||
|
|
|
2020 NAV (book) |
2020 NAV (fair) |
2019 NAV (book) |
2019 NAV (fair) |
|||
|
|
Closing NAV per share |
567.3p |
565.7p |
504.0p |
500.8p |
|||
|
|
Closing share price |
573.5p |
573.5p |
512.0p |
512.0p |
|||
|
|
Premium |
1.1% |
1.4% |
1.6% |
2.2% |
|||
|
|
Ongoing Charges Ratio (APM) The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies. A reconciliation from the expenses detailed in the Income Statement is provided below. |
|||||||
|
|
|
2020 |
2019 |
|||||
|
|
Investment management fee |
|
£23,922k |
£21,879k |
||||
|
|
Other administrative expenses |
|
£4,835k |
£4,342k |
||||
|
|
Total expenses |
(a) |
£28,757k |
£26,221k |
||||
|
|
Average net asset value (with borrowings deducted at fair value) |
(b) |
£7,942,625k |
£7,051,629k |
||||
|
|
Ongoing charges ((a) ÷(b) expressed as a percentage) |
|
0.36% |
0.37% |
||||
|
|
Gearing (APM) At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. Gearing represents borrowings at book value less cash and cash equivalents (including any outstanding trade settlements) expressed as a percentage of shareholders' funds. |
|||||||
|
Notes to the financial statements (ctd) |
|
|
|
|
31 March 2020 |
31 March 2019 |
||
|
|
Borrowings (at book value) |
|
£906,775k |
£703,461k |
||
|
|
Less: cash and cash equivalents |
|
(£38,526k) |
(£35,587k) |
||
|
|
Less: sales for subsequent settlement |
|
(£47,142k) |
(£27,388k) |
||
|
|
Add: purchases for subsequent settlement |
|
- |
£15,683k |
||
|
|
Adjusted borrowings |
(a) |
£821,107k |
£656,169k |
||
|
|
Shareholders' funds |
(b) |
£8,244,634k |
£7,429,930k |
||
|
|
Gearing: (a) as a percentage of (b) |
|
10% |
9% |
||
|
|
Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. |
|||||
|
|
|
|
31 March 2020 |
31 March 2019 |
|
|
|
|
Borrowings (at book value) |
(a) |
£906,775k |
£703,461k |
|
|
|
|
Shareholders' funds |
(b) |
£8,244,634k |
£7,429,930k |
|
|
|
|
Potential gearing: (a) as a percentage of (b) |
|
11% |
9% |
|
|
|
|
Leverage (APM) For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. Turnover (APM) Annual turnover is calculated by dividing the lower of purchases and sales by the average of opening and closing assets. Active Share (APM) Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index. |
|
||||
|
|
Total Return (APM) The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. |
|
||||
|
Notes to the financial statements (ctd) |
|
|
|
|
2020 NAV (book) |
2020 NAV (fair) |
2020 Share Price |
2019 NAV (book) |
2019 NAV (fair) |
2019 Share Price |
|
|
Closing NAV per share/share price |
(a) |
567.3p |
565.7p |
573.5p |
504.0p |
500.8p |
512.0p |
|
|
Dividend adjustment factor* |
(b) |
1.0065 |
1.0065 |
1.0061 |
1.0067 |
1.0066 |
1.0063 |
|
|
Adjusted closing NAV per share/share price |
(c = a x b) |
571.0p |
569.4p |
577.0p |
507.4p |
504.1p |
515.2p |
|
|
Opening NAV per share/share price |
(d) |
504.0p |
500.8p |
512.0p |
443.5p |
439.9p |
442.2p |
|
|
Total return |
(c ÷ d) - 1 |
13.3% |
13.7% |
12.7% |
14.4% |
14.6% |
16.5% |
* The dividend adjustment factor is calculated on the assumption that the dividends of 3.13p (2019 - 3.07p) paid by the Company during the year were reinvested into shares of the Company at the cum income NAV/share price, as appropriate, at the ex-dividend date.
The re is no information required to be disclosed under section 9.6.13 of the Listing Rules with regard to the appointment of Professor Amar Bhidé.
None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
Scottish Mortgage is a low cost investment trust that aims to maximise total return over the long term from a high conviction and actively managed portfolio. It invests globally, looking for strong businesses with above-average returns.
You can find up to date performance information about Scottish Mortgage on the Scottish Mortgage page of the Managers' website at www.scottishmortgageit.com ‡
Scottish Mortgage is managed by Baillie Gifford, the Edinburgh based fund management group with around £227 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 12 May 2020).
Investment Trusts are UK public limited companies and are not authorised or regulated by the Financial Conduct Authority.
‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares.
14 May 2020
For further information please contact:
Catharine Flood, Baillie Gifford & Co
Tel: 0131 275 2718
Mark Knight, Four Communications
Tel: 0203 697 4200 or 07803 758810
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