REG - Edinburgh Worldwide - Edinburgh Worldwide Investment Trust Final Results
18/01/2024 07:00
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RNS Number : 0867A Edinburgh Worldwide Inv Trust PLC 18 January 2024
RNS Announcement
Edinburgh Worldwide Investment Trust plc
Legal Entity Identifier: 213800JUA8RKIDDLH380
Results for the year to 31 October 2023
Commenting on the performance and outlook, Chair Henry Strutt, said:
"Current market conditions, which have been characterised by extreme
volatility, short-termism and risk aversion have meant these are seriously
testing times for long-term, conviction-based investors. However, while we
should not dismiss the impact on our shareholders of the recent setbacks in
performance, we are reassured by the fact that the underlying operational
performance of our portfolio has been strong. There are increasing signs that
we are at the top of the interest rate cycle and the reduction in risk
appetite we have seen recently is starting to unwind. While we cannot be
complacent or assume that recovery in valuations will be a straightforward or
immediate process, we see early signs of improvement and genuine prospects for
robust returns as conditions normalise over time."
Overview
· The Company exists to provide shareholders with an opportunity to
access the outsized returns that will accrue to businesses able to exploit
innovation across foundational technologies such as biotechnology and gene
sequencing, aeronautics and space technology, automation and artificial
intelligence to semi-conductors, data processing and energy transformation and
storage, that are transforming our society and economy.
· To access these strong returns requires a minimum five-year
investment horizon, and in many cases up to 10 years, and therefore success or
otherwise of the strategy cannot be appropriately evaluated on a quarterly or
annual basis.
· The return to more normal inflationary and interest rate
conditions after the "cheap money" environment of the past decade has
adversely impacted valuations in the short-term but from a longer-term
perspective creates a highly attractive foundation for thoughtful long-term
growth investing which is EWIT's specialty, with the prospect for robust
returns as attractive as at any time in recent memory.
Performance Summary
· In difficult markets characterised by extreme volatility,
short-termism and risk aversion, the Company's net asset value ('NAV') per
share, cum income with debt at fair value, decreased by 23.6% and the share
price by 27.7% over the year to 31 October 2023.
· The Company's comparative index, the S&P Global Small Cap
Index total return, which covers a wide spectrum of different companies,
decreased by 4.3% in sterling terms.
· However, underlying operational performance within the portfolio
has been strong, and the Board has been reassured by the fact that the
majority of companies in the portfolio have robust balance sheets and good
cash positions and are expected to perform strongly irrespective of
macro-conditions.
· Despite the fall in NAV, a number of investments delivered
positive performances over the period. Stand-outs included: Exact Sciences, a
provider of non-invasive molecular tests for early cancer detection; Axon
Enterprises, a law enforcement equipment and software provider; and, Space
Exploration Technologies (SpaceX), which designs, manufactures and launches
advanced rockets and spacecraft.
· Among those investments which contributed to the overall decline
in NAV were: Novocure, a manufacturer of medical devices for cancer treatment;
Alnylam Pharmaceuticals, a drug developer focused on harnessing gene silencing
technology; and, Staar Surgical, which offers ophthalmic implants for vision
correction.
· Given its growth company focus, the Company aims to generate
significant returns over the long term primarily through capital appreciation
rather than dividends. The net revenue return per share was a negative 0.65p
per share and therefore no final dividend is being recommended. Should the
level of underlying income increase in future years, the Board will seek to
distribute the minimum permissible to maintain investment trust status.
· Over the course of the financial year, the Company undertook 76
buybacks, buying back 5,190,382 shares for treasury. A further 1,710,933
shares have been bought back for treasury since the period end.
· As an Investment Trust, the Company is able to deploy leverage
where it sees opportunities to enhance returns, as was the case in the course
of the past financial year. As a result, invested equity gearing stood at
+14.1% of shareholders' funds at the financial year end (2022 - +12.3%) and is
currently +12.6%.
· One of the unique features of EWIT's strategy, compared with
other growth investment vehicles, is its ability to spot and invest in private
companies many of which are, in the view of the Manager, better equipped,
culturally and structurally to exploit new innovations at scale. As at the
year end, the Company held fourteen private companies accounting for 26.0% of
total assets (2022 - 20.1% of total assets in fourteen companies). No new
private company investments were made during the year although follow-on
investments were made in SHINE Technologies and Astranis Space Technologies,
companies, which in the view of the Managers show strong potential. There are
currently still fourteen private companies held accounting for 25.8% of total
assets.
* Source: LSEG and relevant underlying index providers. See disclaimer at the
end of this announcement.
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Past performance is not a guide to future performance.
Baillie Gifford & Co Limited
17 January 2024
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. Investment in investment trusts should be
regarded as medium to long-term. You can find up to date performance
information about Edinburgh Worldwide on the Edinburgh Worldwide page of the
Managers' website at edinburghworldwide.co.uk(‡)
(‡) Neither the contents of the Managers' website nor the contents of any
website accessible from hyperlinks on the Managers' website (or any other
website) is incorporated into, or forms part of, this announcement.
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
Andrew Garfield, Garfield Advisory Ltd
Tel: 07974982337
Jason Nisse, Garfield Advisory Ltd
Tel: 07769688618
Chair's statement
Our Mission
The Company's mission is to invest in innovative businesses that are
developing next generation products and services. We are living through a
period of unprecedented scientific innovation and technological change.
Edinburgh Worldwide ('EWIT') is designed to provide investors, who are
otherwise unable to access this dynamic asset class, a way to participate in
the exciting developments we are seeing across a whole range of foundational
technologies from biotechnology and gene sequencing, through aeronautics and
space technology, automation and artificial intelligence to semi-conductors,
data processing and energy transformation and storage. The flexibility of the
investment trust structure allows us to hold for the long-term and where
necessary make follow-on investment in these growing companies as they look
for additional finance to achieve their potential, without having to raise
additional funds from our investors.
We have always believed that in order to take full advantage of these
opportunities and access the potential for the outsized returns these could
generate, requires a five year investment horizon, and in many cases up to 10
years. To judge performance on anything less than that, risks undermining the
long-term potential that the Company has been established to access on behalf
of its shareholders.
This however has presented us with a significant challenge over the last two
years in a world where investors are under pressure to focus on quarterly or
even daily fluctuations in valuation. Inevitably, even in the most
favourable of market conditions, short-term or even medium-term volatility
will often be at variance with the realisation of the long-term potential of
the portfolio.
Market conditions of late have been anything but favourable - to put it
mildly. The confluence of the pandemic and its overhang, geopolitical tension,
the resurgence of inflation after decades of dormancy, and consequently
aggressive central bank responses have all conspired to drastically shorten
investors' time horizons and increase risk aversive behaviour. These have in
turn hit valuations of growth companies particularly hard, with a consequent
knock-on effect on performances across the piece, with portfolios such as
EWIT's being badly affected.
Performance Review. In the year to 31 October 2023, the Company's net asset
value ('NAV') per share, when calculated by deducting borrowings at fair
value, decreased by 23% and the share price by 27.7%. The comparative index,
the S&P Global Small Cap Index* (( i (#_edn1) ))total return, decreased
by 4.3% in sterling terms during this period. The Company's share price
discount to NAV ranged between 6% and 23.6%, averaging 17%, and ended the
period at a 17.4% discount.
While this is not significantly out of line with the investment trust sector
as a whole, where weighted average discounts of the AIC Global and AIC Global
Smaller Companies sectors ended the period at 13.1% and 17.3% respectively, we
recognise that is little comfort to our investors, when one takes into account
the fact that the negative absolute returns of the past two financial years
have erased the positive relative and much of the absolute returns that had
been achieved since the broadening of the Company's investment remit approved
by shareholders at the 27 January 2014 Annual General Meeting ('AGM').
Portfolio turnover over the year was 7.1% compared to 10.8% for the Company's
financial year to 31 October 2022. Management fees and other expenses were
down 14.9% in absolute terms compared with a year earlier, although as a
percentage of average shareholders' funds, the ongoing charges represented
0.70% for the year versus 0.63% a year earlier, reflecting the fall in NAV
over the year.
http://www.rns-pdf.londonstockexchange.com/rns/0867A_1-2024-1-18.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0867A_1-2024-1-18.pdf)
*9 months to 31 October 2014. The current broadened mandate was approved by
shareholders at the 27 January 2014 AGM, so the table above shows the current
portfolio managers' track record managing Edinburgh Worldwide's portfolio.
The Board's Response
Faced with this exceedingly difficult situation, as an independent Board, we
have undertaken a thorough review challenging the Manager on the approach,
philosophy and processes. One option would have been to recast the Company's
objectives and portfolio in order to bring performance closer to that of the
Index. However, we feel that would be doing a disservice to the long-term
objectives of our investors and risk replicating many other readily available
portfolios with greater short-term certainty but lacking the outstanding
long-term potential of the current portfolio. It would eliminate that which is
unique and irreplicable in the Company's approach, and at a time when the
current sources of market dislocation have yet to fully wash through.
The portfolio is invested for the most part in companies with solid finances
and good economics as well as outstanding future potential. The majority have
been performing well operationally and have strong cash positions which means
that they are able to self-fund without recourse to outside sources of
additional capital. We continue to encourage the portfolio managers to focus
on smaller entrepreneurial companies, as we believe these are better able to
deploy the best in human ingenuity and imagination to embrace disruptive
technologies and processes at scale than larger companies who are inevitably
hidebound by legacy practices and business models and layers of bureaucracy
and hierarchy.
Nevertheless, the portfolio managers, under close scrutiny of the Board, have
identified potential improvements to both processes and tactics which should
improve the balance of the portfolio. These include being more rigorous in
recognising stocks that have had a good run and taking profits where
appropriate, and being more ruthless in addressing issues in the tail of the
portfolio where the portfolio managers may have tended in the past to err on
the side of patience.
Unlisted investments
Many promising businesses that we wish the portfolio managers to invest in are
at a relatively early stage in their development and, while already able to
access external funding, have not yet seen the need to access public markets.
As at the Company's year end, the portfolio weighting in private companies
stood at 26.2% of total assets, invested in fourteen companies (2022 - 14.1%
of total assets in fourteen companies) including companies such as SpaceX and
PsiQuantum. This percentage is currently now at 25.8%. The Company currently
has shareholder authority to make investments into unlisted investments of up
to 25% of total assets, measured at the time of investment. When above this
figure, the investments continue to be held, but new positions or additions
cannot be made. No new private company investments were made during the year
although follow-on investments were made in SHINE Technologies and Astranis
Space Technologies.
Understandably, following the extreme volatility in public market valuations,
the valuation of private companies has been under particular scrutiny by the
broader investor community and the Board of EWIT. Whilst not surprising, it
should be noted that Baillie Gifford, supported by the Board, has always taken
a pro-active approach to private company valuations. Whilst there is always
going to be an unavoidable element of subjectivity, the Board is firmly of the
view that Baillie Gifford's approach to valuing private companies is proactive
and timely, ensuring that the Company's daily published NAV is a genuine
reflection of the current value of the full portfolio - listed and unlisted.
For example, over the year to 31 October 2023, for the fourteen private
companies held in the portfolio, their ongoing monitoring led to 130
revaluations in the period and resulted in a 1.1% average decrease in share
price across the private companies held. As noted in the Directors'
biographies in the Annual Report, the Board and Company also benefit from the
expertise of the Directors when scrutinising and valuing private company
investments. Additional scrutiny is also undertaken by Ernst & Young LLP,
the Company's auditors.
The Board and Managers remain of the view that private companies continue to
be a fundamental element in achieving the Company's objective and, as
highlighted in prior years, the Board will keep the matter of the weighting to
unlisted investments under review. Details on the valuation process and
quantum of valuations of the portfolio's private company holdings undertaken,
over the course of the financial year, can be found immediately after the
Managers' Review; I encourage readers to note this.
Issuance, Share Buybacks and Treasury
Despite strong demand for EWIT shares in recent years, no shares were issued
in the last financial year. Given the discount to NAV and the Board's
continued conviction in its portfolio and approach, the Company undertook 76
buybacks, buying back 5,190,382 shares to be held in treasury at a cost of
£8.17 million. This resulted in the Company's issued share capital reducing
by 1.3%. Buybacks were undertaken over the course of the year but paused for a
period following the collapse of Silicon Valley Bank in the United States.
Since the Company's year-end, a further 1,710,933 shares have been bought back
for Treasury at a cost of £2.49 million.
The Company will once again be seeking to renew its share issuance, buyback
and treasury share authorities. Issuance, either from treasury or of new
shares, will only be undertaken at a premium to the prevailing NAV, with debt
calculated at either par or fair (depending on which results in the higher
hurdle), in order to satisfy natural market demand. The buyback facility is
sought to allow the Company to buy back its own shares when the discount is
substantial in absolute terms and relative to its peers. The Board is also
mindful of the interests of longer-term ongoing shareholders as well as market
liquidity and sentiment. Whilst not determining or prohibiting factors, the
Board is also mindful of and continuously monitors the level of private
company exposure and invested gearing.
Borrowings
At present, the Company has a five-year £100 million multi-currency revolving
credit facility which expires in June 2026. In addition, a five-year £36
million multi-currency revolving credit facility which expires in September
2024. A £25 million multi-currency revolving credit facility expired during
the year and was not replaced.
The extent and range of equity gearing is discussed by the Board and Managers
at each Board meeting. Both parties agree that the Company should typically be
geared to equities to maximise potential returns, with the current
aspirational parameters set at +5% to +15% of shareholders' funds. Over the
year, the invested equity gearing ranged between +9.7% and +16.1%,and stood at
+14.1% of shareholders' funds at the financial year end (2022 - +12.3%).
Invested equity gearing is currently 12.6% of shareholders' funds.
Earnings and Dividend
The Company's objective is to achieve long term capital growth and investors
should not expect income from this investment. This year the net revenue
return per share was a negative 0.65p per share (2022 - negative 0.49p per
share) and therefore no final dividend is being recommended by the Board.
Should the level of underlying income increase in future years, the Board will
seek to distribute to shareholders the minimum permissible to maintain
investment trust status by way of a final dividend.
Board Composition
Following a period of notable Board refreshment that has resulted in the
appointment of four new Directors with relevant skills, since the start of
2020, I will be standing down from the Board at the conclusion of this year's
AGM taking place on 5 March 2024. Mr Jonathan Simpson-Dent, a seasoned private
equity investor with extensive experience of chairing company boards, and who
has been a member of the Board for 4 years, will assume the Chair at this
point. Ongoing Board refreshment is a healthy exercise and will be one of the
areas of focus under the direction of the new Chair.
Ms Helen James will be standing down as the Company's Senior Independent
Director at the conclusion of the forthcoming Annual General Meeting and will
not be standing for re-election to the Board in 2025. It is intended that Ms
Jane McCracken, who has enjoyed a successful career as an entrepreneur,
advisor and investor in venture capital backed high growth technology and
healthcare businesses in the UK and US, will replace her as Senior Independent
Director.
The timeline below shows the date of appointment of the current Board.
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Annual General Meeting
The Company's next Annual General Meeting ('AGM') will be held in person at
Baillie Gifford's offices in Edinburgh at 12 noon on Tuesday 5 March 2024. The
portfolio managers will be presenting, and I and the Board look forward to
seeing as many of those of you as possible who are able to attend either in
person or by remote video link. Details of how shareholders can watch this
year's AGM online can be found in the Notice of Annual General Meeting on page
118 of the Annual Report and Financial Statements.
Further information, including the proposed resolutions and information on the
deadlines for submitting votes by proxy should you not be able to attend, can
be found on pages 188 to 122 of the Annual Report and Financial Statements.
Shareholders who hold shares in their own name on the main register will be
provided with a Form of Proxy. For shareholders who held shares through the
former abrdn Investment Trust Share Plans, Individual Savings Account and
Investment Plan for Children, and whose accounts have moved to Interactive
Investor, voting should now be undertaken in line with the terms and
conditions of your new account provider.
If you hold shares through a share platform or other nominee, the Board would
encourage you to contact these organisations directly as soon as possible to
arrange for you to submit votes in advance of the AGM. Alternatively, The
Association of Investment Companies' ('AIC') website
www.theaic.co.uk/how-to-vote-your-shares
(http://www.theaic.co.uk/how-to-vote-your-shares) has information on how to
vote your shares if you hold them via one of the major platforms. The
following link will also take you through to the AIC website where there is
information on how your platform can help you attend the AGM in person
www.theaic.co.uk/aic/ready-to-invest/shareholder-voting/attending-an-agm
(http://www.theaic.co.uk/aic/ready-to-invest/shareholder-voting/attending-an-agm)
.
Outlook
Our mission is to provide our investors with the opportunity to participate in
an extraordinary wave of scientific and technological innovation and identify
businesses that are not only at the forefront of that wave but have the
entrepreneurial skills and scalability to translate innovation into outsized
financial returns. We recognise that this requires a patient conviction and a
readiness to accept short-term volatility in return for exceptional reward in
the long term.
The Board and Managers continue to believe that the EWIT portfolio consists of
companies with good economic foundations as well as excellent future
potential. Moreover, there are increasing signs that we are at the top of the
interest rate cycle and the reduction in risk appetite that we have seen
recently is starting to unwind. While we cannot be complacent or assume that
recovery in valuations will be a straightforward or immediate process, we see
early signs of improvement.
While we cannot predict how long the current market conditions will prevail,
we remain convinced that focusing on the fundamental strengths and potential
of the portfolio will ultimately prevail, and that a return to more normalised
monetary conditions after decades of cheap money will, with time, reward those
who focus on genuine value rather than chasing the latest short-term trends.
Henry CT Strutt
Chair
17 January 2024
Managers' review
When we conceived the investment philosophy that sits behind Edinburgh
Worldwide Investment Trust ('EWIT'), we knew that our distinct growth style
wouldn't succeed in all market conditions. Nevertheless, the past three years
have been especially unpredictable and disappointing.
EWIT strives to understand how the world is evolving, and which companies are
best positioned to benefit. That demands we look forward, remain obsessed with
the drivers of change and seek ideas that can convert the possible into
tangible long-term commercial success. Bruising though recent years have been,
we believe that the lowering of growth equity valuations for smaller
capitalised firms is a highly attractive foundation for thoughtful long-term
growth investing.
To us, the prospect of robust returns is more attractive than at any time in
recent memory.
The case for looking forward.
Stock markets rise and fall but the benefits of innovation accrue all around
us. The opportunity for innovation and tech-led progress is stronger than
ever. On many frontiers, entrepreneurs and innovative companies are creating
products and services that will transform societal expectations. These
frontiers stretch from healthcare to communications to computing and
automation.
Much of this change is unaffected by the negative influence of equity markets
and the tighter funding environment. It's driven instead by structural shifts
and new combinations of technologies already underway. We expect many of these
advances to appear within 5-10 years, but we're equally excited about
possibilities beyond this timeframe.
Many of the companies with the greatest potential to deliver change are ones
the market is shunning. They're seen as reckless pre-profitable companies,
early in their lifecycle with the temerity to believe that things can be
different from how they've always been. With the market reflexively punishing
such companies and aggressively discounting their potential, those of us who
believe in progress, long-term relevance and human ingenuity have become the
contrarians.
Nevertheless, observing markets over many decades suggests that such myopia
risks missing out on where the long-term returns will ultimately come from.
Be assured that the steady progress of human ingenuity is very much alive and
well. Stock markets might not reflect this, but there are good reasons to be
bullish about how underlying change will coalesce with future equity returns.
We have every confidence that the portfolio can meaningfully outperform over
the coming five years. In recognition of this, we have been increasing our
personal holdings in the Trust.
Portfolio update
We remain confident about the portfolio's current positioning, our long-term
philosophy and our companies' ability to weather challenging times.
Nevertheless, tough periods such as the last few years demand reflection: What
could we have done better? What have we missed? What parts of our process and
decision-making could be more robust?
Working with colleagues in Baillie Gifford's in-house Investment Risk team
we've analysed the long-run performance of the portfolio and examined whether
the relative sizes of groups of holdings have impeded overall results. This
process suggested two areas we could improve:
· Reassessment of the risk-reward balance in larger holdings that
have already made good returns
· Better management of smaller positioned holdings that demands we
balance patience against the need for capital for ideas already executing
well
Making such tweaks won't perfect the portfolio but should increase the
robustness of our process and better protect against future
underperformance.
In the last EWIT Interim Report, we suggested that the era of abundance and
'free money' was making way for an era that rewarded better productivity and
business efficiency, taking account of the pressures on businesses and the
potential of high-quality automation enabled by AI and developments in
software. Six months on, we are even more convinced about the effect of these
tools on the portfolio in the coming years.
We're already seeing benefits in companies that have used the recent downturn
to get leaner and fitter while still staying true to their long-term growth
potential. We now have a better sense of how AI might influence our holdings
and open a new world of efficiency. From generating new content to creating
more engaging and human-like customer interfaces, the technology will make
many tasks quicker and easier. As these tools are so widely available, we
increasingly think of them as essential to a business's fundamental ability to
compete.
In several portfolio companies, new AI capabilities are driving opportunity.
For example:
· CyberArk: the increased ability for AI to impersonate humans is
driving up corporate spending on cybersecurity around user identification
· Axon: can now use AI to generate transcripts and police case
reports based on bodycam data
· Upwork: the freelance marketplace has become the go-to venue for
accessing AI talent and sees significant scope to package AI tools for its
base of freelancers across numerous areas
· Chegg: the online tutoring company has pivoted to AI, offering
much higher personalisation and content efficiency savings
Our most challenging investment over the year has been in Novocure, and in
aggregate the portfolio's exposure to healthcare related names has impacted
performance. We have long seen a role for Novocure's novel tumour-treating
technology to expand beyond glioblastoma, a rare aggressive form of brain
cancer. While its attempts to prove this technology in the treatment of
late-stage ovarian cancer patients were unsuccessful, the clinical data in its
pivotal trial in lung cancer was very encouraging.
As detailed in the Interim Report, the data suggests that the treatment works
well when used with cancer-fighting antibodies that have become the backbone
therapy in many types of cancer. Further evidence is needed to establish the
significance of this development, but we remain enthused about Novocure's
long-term opportunity. The recent derating of its shares was driven by the
setback in the path to commercialising its lung cancer therapy, without the
market appreciating the long-term importance of the technology.
Despite the challenging market environment, several of our smaller holdings
performed well both commercially and in share price performance. Demand for
American Superconductor's resilient power systems grew strongly throughout
2023 as its industrial and utility customers continue to grapple with
stabilising grid connections at greater scale and an increasing mix of
renewable generation sources.
Another anti-cancer pioneer, Nanobiotix, the developer of radio-enhancing
products to boost radiotherapy, announced a partnership and licensing deal
with J&J for its main therapy, for head and neck cancers, currently in
late-stage clinical development. We added to the Nanobiotix holding as it
raised equity to accelerate development.
With a streamlined product portfolio and a revamped go-to-market approach,
Digimarc has seen growing success in the adoption of its product digitisation
technology. There has been particularly strong demand for its products in the
retail sector as well as in recycling, where it holds the promise of
disrupting how sorting and recycling of plastic waste is done.
We acquired a new position in MP Materials, an American miner of the rare
earths neodymium and praseodymium, which are used in high-strength magnets for
electric vehicles and wind turbines, as well as a range of consumer,
industrial and military applications. These minerals could become much more
valuable as green technologies are rolled out at scale, and the concentration
of supply in China means that customers could pay a premium for those from a
more geopolitically secure part of the world. We're also encouraged by MP's
efforts to refine the minerals and make magnets itself. This should allow it
to capture substantially more value than as raw material miners.
Most of the activity in the portfolio involved exiting companies where the
investment case was not progressing as hoped, and 'top-slicing' or partly
selling off holdings in companies where we felt the market was catching up on
our view. We deployed the resulting funds into other holdings where we felt
the market was not yet reflecting improvements in growth and profitability.
Companies we've sold include Everbridge, LendingTree, Splunk, Ceva, Adicet,
PhenomeX, Wayfair and Q2. We also sold Chinook Therapeutics and Tabula Rasa as
both received takeover approaches (from Novartis and private equity
respectively). Notable reductions included Exact Sciences, Blackline, Axon,
Shockwave and CyberArk. Notable additions were made to our holdings in Oxford
Nanopore, Sprout Social, LiveRamp, Beam Therapeutics and Kingdee.
Some wider reflections on recent performance
We have previously referred to the Company's portfolio of holdings as being in
the eye of the storm regarding recent stock market angst. Our bias towards
smaller, earlier-stage problem-solving companies is deliberate but has proven
to be deeply counter to the market sentiment that has persisted in the
aftermath of the COVID-19 pandemic. Where we believe our holdings offer
long-term relevance and transformational potential, the market has demanded
near-term predictability. Where we expect our holdings to invest in and build
their scale and edge, the market has craved companies that are delivering cash
returns now. Where we feel optimistic about innovation and future
technological change, the market seems skittish and skewed to a cynical
"believe it when I see it" mentality.
At the centre of this storm is the topic of time horizons, the key variable
that all investors must factor in, but also the one where the differences in
approach are the widest. We view EWIT's stock investing time horizon as being
one that dovetails with its investments. We seek to identify special
innovative companies early and retain them as they grow and thrive. It's a
strategy that at its core is about special companies being built with the
implicit belief that this should translate into special investment
opportunities given time. To us, a 5-10 year time frame is the minimum over
which we base our decisions, and in many cases, we think the rewards of
business building accrue over decades.
The dominant narrative in equity markets in the post-COVID era has been the
headwind of inflation and the efforts of Central Banks to control it through
higher interest rates. As company-focused investors who observe long term
change across many industries, we are often perplexed by the broader financial
market's obsession with interest rates and their flow through into discount
rates used to value equity cashflows. While central bank rates impact the
discount rates used in valuation models, these moves have been within
historical norms and need some added context. Moreover, history shows that
small companies can still perform well in rising interest rate environments.
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The key skill in high-growth, long-term investing is understanding how a
company's cash flow is likely to evolve over time, rather than precisely
estimating discount rates used in valuation models. For earlier-stage
companies, this means considering a range of possible cash flow scenarios and
the probabilities of each.
The discount rate is just one input among many in the process of valuation.
Its importance tends to be dwarfed by assumptions about long-term cash flow
growth rates. For Alnylam, it's about assessing the total market for gene
silencing therapies. For SpaceX, it's appreciating potential demand curves for
lower cost space cargo and global satellite internet through Starlink.
Put plainly, where our top performers are concerned, huge commercial success
over decades matters far more than academic valuation debates at any single
moment. Our lived experience with our most successful investments shows most
returns come from business growth rather than from a re-rating of valuation
multiples. Even drastic compression of multiples is unlikely to outweigh
growth on the scale we envisage.
So EWIT remains focused on long-term opportunities, not short-term market
obsessions. We believe the problem-solvers we invest in can transform
industries over five-to-ten-year-plus time horizons. Their immense commercial
potential is far more important than how we react to passing panics over
interest rates.
The key question is whether higher interest rates fundamentally change the
long-term growth trajectories and cash flow potential for our holdings. To
answer that, we have thoroughly analysed the portfolio's resilience
considering both financial strength and stage of business development.
Overall, we believe the portfolio is well-positioned across the spectrum: from
profitable companies generating cash flows today to earlier-stage innovators
with strong balance sheets that can fund a path to profitability over the next
two to three years. The market is ignoring this financial sustainability
factor, indiscriminately punishing any company that's not profitable now,
regardless of capital resources or future prospects.
Our job at EWIT is to focus on secular technological shifts where growth
opportunities seem undiminished or even accelerating - despite macro
conditions. Conversely, we limit cyclical exposures tied closely to commodity
industries or big-ticket capital spending. While interest rates directly
impact some holdings like Zillow or IPG Photonics, their structural advantages
provide resilience.
So if rates alone don't explain recent headwinds, what does? We believe the
extreme confluence of pandemic, war, inflation and resulting policy responses
has taken its toll on investor psychology and time horizons. The ability to
earn reasonable cash yields with less risk has pulled focus to the near term.
This manifests in a bifurcated view of growth stocks. Linear, predictable
growth stories such as Axon and CyberArk are rewarded. But longer-term
opportunities dependent on strategic progress such as Ocado, Novocure and
Oxford Nanopore get little credit despite their huge potential.
While we recognise it's highly subjective, we sense that the tipping point
between willing-to-extrapolation and unwilling-to-postulate is around 18-24
months. We take comfort from the observation that holdings that have made
material progress and boosted their near-term commercial traction have been
rewarded. The price appreciation of Digimarc, and Exact Sciences over the past
year are strong examples of this. Although an exaggerated focus on the
short-term currently blinkers the market, it's far from blind to progress, as
evidenced.
Healing from the barrage of exogenous shocks rather than rate changes per se
will likely restore longer-term thinking and risk appetites. Encouragingly,
some clouds over financial markets already appear to be clearing.
Valuing private companies
We aim to hold our private company investments at 'fair value' i.e. the price
that would be paid in an open-market transaction. Valuations are adjusted both
during regular valuation cycles and on an ad hoc basis in response to 'trigger
events'. Our valuation process ensures that private companies are valued in
both a fair and timely manner.
The valuation process is overseen by a valuations group at Baillie Gifford,
which takes advice from an independent third party (S&P Global). The
valuations group is independent from the investment team with all voting
members being from different operational areas of the firm, and the investment
managers only receive final notifications once they have been applied.
We revalue the private holdings on a three-month rolling cycle, with one third
of the holdings reassessed each month. During stable market conditions, and
assuming all else is equal, each investment would be valued four times in a
twelve-month period. For investment trusts, the prices are also reviewed twice
per year by the respective investment trust boards and are subject to the
scrutiny of external auditors in the annual audit process.
Beyond the regular cycle, the valuations team also monitors the portfolio for
certain 'trigger events'. These may include: changes in fundamentals; a
takeover approach; an intention to carry out an Initial Public Offering
('IPO'); company news which is identified by the valuation team or by the
portfolio managers, or meaningful changes to the valuation of comparable
public companies. Any ad hoc change to the fair valuation of any holding is
implemented swiftly and reflected in the next published net asset value. There
is no delay.
The valuations team also monitors relevant market indices on a weekly basis
and updates valuations in a manner consistent with our external valuer's
(S&P Global) most recent valuation report where appropriate. Continued
market volatility has meant
that recent pricing has moved much more frequently than would have been the
case with the quarterly valuations cycle.
Edinburgh Worldwide Investment Trust* %
Percentage of portfolio valued up to 5 times 35
Percentage of portfolio valued up to 6 times 73
Percentage of portfolio revalued 6+ times 27
*Data reflecting period 1 November 2022 to 31 October 2023 to align with the
Company's reporting period end.
In the year to 31 October 2023, the performance of the private company
portfolio has been relatively flat on average, with a number of companies
capitalising on their successes and issuing new equity. The average movement
in both company valuations and share price movements have been shown below.
Valuation movement £'000
Value of private company investments as at 31 October 2022 176,669
Additions to existing holdings in the period 4,095
Investment revaluation gains in the period 16,286
Investment revaluation losses in the period (16,993)
Value of private company investments as at 31 October 2023 180,057
Valuation movement %
Average movement in investee company securities price (1.1)
Average movement in investee company valuation (1.5)
Baillie Gifford Statement on stewardship
Baillie Gifford's overarching ethos is that we are 'Actual' investors. That
means we seek to invest for the long term. Our role as an engaged owner is
core to our mission to be effective stewards for our clients. As an active
manager, we invest in companies at different stages of their evolution across
many industries and geographies, and focus on their unique circumstances and
opportunities. Our approach favours a small number of simple principles rather
than overly prescriptive policies. This helps shape our interactions with
holdings and ensures our investment teams have the freedom and retain the
responsibility to act in clients' best interests.
Long-term value creation
We believe that companies that are run for the long term are more likely to be
better investments over our clients' time horizons. We encourage our holdings
to be ambitious, focusing on long-term value creation and capital deployment
for growth. We know events will not always run according to plan. In these
instances we expect management to act deliberately and to provide appropriate
transparency. We think helping management to resist short-term demands from
shareholders often protects returns. We regard it as our responsibility to
encourage holdings away from destructive financial engineering towards
activities that create genuine value over the long run. Our value will often
be in supporting management when others don't.
Governance fit for purpose
Corporate governance is a combination of structures and behaviours; a careful
balance between systems, processes and people. Good governance is the
essential foundation for long-term company success. We firmly believe that
there is no single governance model that delivers the best long-term outcomes.
We therefore strive to push back against one-dimensional global governance
principles in favour of a deep understanding of each company we invest in. We
look, very simply, for structures, people and processes which we think can
maximise the likelihood of long-term success. We expect to trust the boards
and management teams of the companies we select, but demand accountability if
that trust is broken.
Alignment in vision and practice
Alignment is at the heart of our stewardship approach. We seek the fair and
equitable treatment of all shareholders alongside the interests of management.
While assessing alignment with management often comes down to intangible
factors and an understanding built over time, we look for clear evidence of
alignment in everything from capital allocation decisions in moments of stress
to the details of executive remuneration plans and committed share ownership.
We expect companies to deepen alignment with us, rather than weaken it, where
the opportunity presents itself.
Sustainable business practices
A company's ability to grow and generate value for our clients relies on a
network of interdependencies between the company and the economy, society and
environment in which it operates. We expect holdings to consider how their
actions impact and rely on these relationships. We believe long-term success
depends on maintaining a social licence to operate and look for holdings to
work within the spirit and not just the letter of the laws and regulations
that govern them. Material factors should be addressed at the board level as
appropriate.
Income statement
Notes 2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - (174,925) (174,925) - (528,279) (528,279)
Currency gains/(losses) - 2,802 2,802 - (6,070) (6,070)
Income 2 1,077 - 1,077 986 - 986
Investment management fee (1,060) (3,181) (4,241) (1,277) (3,830) (5,107)
Other administrative expenses (915) - (915) (953) - (953)
Net return before finance costs (898) (175,304) (176,202) (1,244) (538,179) (539,423)
and taxation
Finance costs of borrowings (1,578) (4,735) (6,313) (675) (2,026) (2,701)
Net return before taxation (2,476) (180,039) (182,515) (1,919) (540,205) (542,124)
Tax on ordinary activities (51) - (51) (57) - (57)
Net return after taxation (2,527) (180,039) (182,566) (1,976) (540,205) (542,181)
Net return per ordinary share (0.65p) (46.21p) (46.86p) (0.49p) (134.82p) (135.31p)
The total column of this Statement represents the profit and loss account of
the Company. The supplementary revenue and capital columns are prepared under
guidance issued by the Association of Investment Companies.
All revenue and capital items in this Statement derive from continuing
operations.
A Statement of Comprehensive Income is not required as the Company does not
have any other comprehensive income and the net return after taxation is both
the (loss)/profit and total comprehensive (expense)/income for the year.
Balance sheet
Notes 2023 2023 2022 2022
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 6 671,300 872,804
Current assets
Debtors 324 4,882
Cash and cash equivalents 19,146 11,131
19,470 16,013
Creditors
Amounts falling due within one year 7 (106,033) (113,251)
Net current liabilities (86,563) (97,238)
Net assets 584,737 775,566
Capital and reserves
Share capital 4,058 4,058
Share premium account 499,723 499,723
Special reserve 35,220 35,220
Capital reserve 54,352 242,654
Revenue reserve (8,616) (6,089)
Total shareholders' funds 584,737 775,566
Net asset value per ordinary share 8 151.06p 197.70p
Statement of changes in equity
For the year ended 31 October 2023
Notes Share Share Special Capital Revenue Shareholders'
capital premium reserve Reserve* reserve funds
£'000 account £'000 £'000 £'000 £'000
£'000
Shareholders' funds at 1 November 2022 4,058 499,723 35,220 242,654 (6,089) 775,566
Ordinary shares bought back into treasury 8 - - - (8,263) - (8,263)
Net return after taxation - - - (180,039) (2,527) (182,566)
Shareholders' funds at 31 October 2023 4,058 499,723 35,220 54,352 (8,616) 584,737
For the year ended 31 October 2022
Notes Share Share Special Capital Revenue Shareholders'
capital premium reserve Reserve* reserve funds
£'000 account £'000 £'000 £'000 £'000
£'000
Shareholders' funds at 1 November 2021 4,052 497,999 35,220 808,197 (4,113) 1,341,355
Ordinary shares issued 8 6 1,724 - - - 1,730
Ordinary shares bought back into treasury 8 - - - (25,338) - (25,338)
Net return after taxation - - - (540,205) (1,976) (542,181)
Shareholders' funds at 31 October 2022 4,058 499,723 35,220 242,654 (6,089) 775,566
* The capital reserve includes investment holding losses on fixed asset
investments of £149,279,000 (2022 - losses of £3,223,000).
Cash flow statement
Notes 2023 2023 2022 2022
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return before taxation (182,515) (542,124)
Net losses on investments 174,925 528,279
Currency (gains)/losses (2,802) 6,070
Finance costs of borrowings 6,313 2,701
Overseas withholding tax incurred (51) (57)
Changes in debtors and creditors (282) (754)
Cash from operations* (4,412) (5,885)
Interest paid (5,686) (1,942)
Net cash outflow from operating activities (10,098) (7,827)
Cash flows from investing activities
Acquisitions of investments (73,803) (138,189)
Disposals of investments 98,261 115,592
Net cash inflow/(outflow) from investing activities 24,458 (22,597)
Cash flows from financing activities
Ordinary shares issued 8 - 1,730
Ordinary shares bought back into treasury 8 (8,567) (24,906)
and stamp duty thereon
Bank loans drawn down 402,717 335,346
Bank loans repaid (400,000) (306,862)
Net cash (outflow)/inflow from financing activities (5,850) 5,308
Increase/(decrease) in cash and cash equivalents 8,510 (25,116)
Exchange movements (495) 3,120
Cash and cash equivalents at 1 November 11,131 33,127
Cash and cash equivalents at 31 October 19,146 11,131
* Cash from operations includes dividends received of £718,000 (2022 -
£956,000) and interest received of £288,000 (2022 - £100,000).
Twenty largest holdings and twelve month performance at 31 October 2023
Name Business Country Fair value % of Absolute† performance Relative† performance
2023 total % %
£'000 assets*
Space Exploration Technologies# (U) Designs, manufactures and launches advanced rockets and spacecraft USA 69,018 10.0 9.8 14.7
Alnylam Pharmaceuticals Drug developer focussed on harnessing USA 41,793 6.1 (30.5) (27.4)
gene silencing technology
PsiQuantum# (U) Developer of commercial quantum computing USA 30,802 4.5 11.8 16.8
Ocado Online grocery retailer and technology provider UK 20,598 3.0 (1.5) 2.9
Exact Sciences Non-invasive molecular tests for early USA 19,935 2.9 68.2 75.7
cancer detection
AeroVironment Small unmanned aircraft and tactical USA 19,460 2.8 18.9 24.2
missile systems
Oxford Nanopore Technologies Novel DNA sequencing technology UK 18,801 2.7 (21.6) (18.2)
Zillow# US online real estate portal USA 18,771 2.7 11.3 16.2
STAAR Surgical Ophthalmic implants for vision correction USA 17,348 2.5 (44.0) (41.5)
MarketAxess Electronic bond trading platform USA 17,239 2.5 (16.2) (12.5)
Axon Enterprise Law enforcement equipment and software provider USA 17,223 2.5 33.5 39.4
Kingdee International Software Enterprise management software China 14,309 2.1 (23.4) (20.0)
provider
Shine Technologies (Illuminated Holdings)# (U) Medical radioisotope production USA 14,029 2.0 (10.2) (6.2)
Appian Enterprise software developer USA 14,004 2.0 (23.7) (20.3)
Relativity Space# (U) 3D printing and aerospace launch USA 12,858 1.9 56.0 62.9
company
Schrödinger Drug discovery and simulation software USA 12,656 1.8 (14.4) (10.6)
Sprout Social Cloud based software for social media management USA 11,692 1.7 (32.1) (29.1)
Upwork Online freelancing and recruitment USA 11,241 1.7 (26.3) (23.0)
services platform
Astranis Space Technologies# (U) Communication satellite manufacturing USA 10,713 1.5 2.7 7.2
and operation
LiveRamp Marketing technology company USA 9,722 1.4 42.8 49.1
402,212 58.3
* Total assets comprises all assets held less all liabilities other than
liabilities in the form of borrowings.
† Absolute and relative performance has been calculated on a total return
basis over the period 1 November 2022 to 31 October 2023. Absolute
performance is in sterling terms; relative performance is against S&P
Global Small Cap Index (in sterling terms).
# More than one line of stock held. Holding information represents the
aggregate of both lines of stock.
(U) Denotes private company investment.
Source: Baillie Gifford/StatPro and relevant underlying index providers. See
disclaimer at the end of this announcement
Past performance is not a guide to future performance
List of investments at 31 October 2023
Name Business Country Fair value % of Fair value
2023 total 2022
£'000 assets £'000
Space Exploration Technologies Series N Preferred (U) Designs, manufactures and launches advanced rockets and spacecraft USA 39,556 5.7 36,028
Space Exploration Technologies Series J Preferred(U) Designs, manufactures and launches advanced rockets and spacecraft USA 17,944 2.6 16,343
Space Exploration Technologies Series K Preferred (U) Designs, manufactures and launches advanced rockets and spacecraft USA 8,180 1.2 7,450
Space Exploration Technologies Class A Common (U) Designs, manufactures and launches advanced rockets and spacecraft USA 2,551 0.4 2,323
Space Exploration Technologies Class C Common (U) Designs, manufactures and launches advanced rockets and spacecraft USA 787 0.1 717
69,018 10.0 62,861
Alnylam Pharmaceuticals Drug developer focussed on harnessing gene silencing technology USA 41,793 6.1 67,286
PsiQuantum Series C Preferred (U) Developer of commercial quantum computing USA 17,618 2.6 14,860
PsiQuantum Series D Preferred (U) Developer of commercial quantum computing USA 13,184 1.9 12,822
30,802 4.5 27,682
Ocado Online grocery retailer and technology provider UK 20,598 3.0 20,917
Exact Sciences Non-invasive molecular tests for early cancer detection USA 19,935 2.9 15,663
AeroVironment Small unmanned aircraft and tactical missile systems USA 19,460 2.8 17,521
Oxford Nanopore Technologies Novel DNA sequencing technology UK 18,801 2.7 17,295
Zillow Class C US online real estate portal USA 17,429 2.5 15,632
Zillow Class A US online real estate portal USA 1,342 0.2 2,438
18,771 2.7 18,070
STAAR Surgical Ophthalmic implants for vision correction USA 17,348 2.5 30,984
MarketAxess Electronic bond trading platform USA 17,239 2.5 23,688
Axon Enterprise Law enforcement equipment and software provider USA 17,223 2.5 16,712
Kingdee International Software Enterprise management software provider China 14,309 2.1 14,450
Shine Technologies (Illuminated Holdings) Series Convertible Loan Note (U) Medical radioisotope production USA 824 0.1 -
Shine Technologies (Illuminated Holdings) Series Convertible Promissory Note Medical radioisotope production USA 3,295 0.5 -
(U)
Shine Technologies (Illuminated Holdings) Series C-5 Preferred (U) Medical radioisotope production USA 9,910 1.4 11,581
Shine Technologies (Illuminated Holdings) Series D-1 Preferred (U) Medical radioisotope production USA 0 0.0 869
14,030 2.0 12,450
Appian Enterprise software developer USA 14,004 2.0 12,247
Relativity Space Series D Preferred (U) 3D printing and aerospace launch company USA 8,753 1.3 5,193
Relativity Space Series E Preferred (U) 3D printing and aerospace launch company USA 4,105 0.6 3,178
Schrödinger Drug discovery and simulation software USA 12,656 1.8 8,793
Sprout Social Cloud based software for social media management USA 11,692 1.7 12,883
Upwork Online freelancing and recruitment services platform USA 11,241 1.7 15,249
Astranis Space Technologies Series C Preferred (U) Communication satellite manufacturing and operation USA 9,889 1.4 9,638
Astranis Space Technologies Series C Prime Preferred (U) Communication satellite manufacturing and operation USA 824 0.1 -
10,713 1.5 9,638
LiveRamp Marketing technology company USA 9,722 1.4 4,706
Genmab Antibody based drug development Denmark 9,197 1.3 18,474
PureTech Health IP commercialisation focused on healthcare UK 8,758 1.3 11,601
Progyny Fertility benefits management company USA 7,914 1.2 8,418
Snyk Series F Preferred (U) Security software UK 4,892 0.7 4,394
Snyk Ordinary Shares (U) Security software UK 2,919 0.5 1,989
7,811 1.2 6,383
Reaction Engines (U) Advanced heat exchange company UK 7,737 1.1 7,000
JFrog Software development tools and management Israel 7,664 1.2 9,128
BlackLine Enterprise financial software provider USA 6,957 1.0 13,625
Xero Cloud based accounting software for small and medium-sized enterprises New Zealand 6,837 1.0 9,080
Pacira BioSciences Opioid free analgesics developer USA 6,759 1.0 14,419
Novocure Manufacturer of medical devices for cancer treatment USA 6,575 1.0 26,862
Zai Lab HK Line Chinese bio-pharmaceutical development and distribution company China 6,448 0.9 6,131
IPG Photonics High-power fibre lasers USA 6,384 0.9 6,719
Avacta Group Affinity based diagnostic reagents and therapeutics UK 6,290 0.9 7,100
Lightning Labs Series B Preferred (U) Lightning software that enables users to send and receive money USA 5,803 0.8 5,972
Fiverr Freelance services marketplace for businesses Israel 5,646 0.8 8,693
Doximity Online healthcare resource and interactive platform developer USA 5,624 0.8 5,534
ShockWave Medical Medical devices manufacturer USA 5,491 0.8 13,638
Epic Games (U) Video game platform and software developer USA 5,456 0.8 10,427
Echodyne Corp. Series C-1 Preferred (U) Metamaterial radar sensors and software USA 5,303 0.8 6,676
CyberArk Software Cyber security solutions provider Israel 5,152 0.7 9,242
Chegg Online educational company USA 5,151 0.7 15,587
Genus Livestock breeding and technology services UK 4,960 0.7 5,931
Zuora Enterprise sales management software USA 4,765 0.7 5,219
Renishaw Measurement and calibration equipment UK 4,324 0.6 4,926
QuantumScape Solid-state batteries for electric vehicles USA 4,310 0.6 6,608
BillionToOne Series C Preferred (U) Pre-natal diagnostics USA 3,788 0.6 3,706
BillionToOne Promissory Note (U) Pre-natal diagnostics USA 412 0.1 434,273
4,200 0.7 437,979
Nanobiotix ADR Nanomedicine company focused on cancer radiotherapy France 4,182 0.6 1,846
Teladoc Telemedicine services provider USA 4,054 0.6 7,647
HashiCorp Cloud-computing infrastructure provider USA 4,008 0.6 -
American Superconductor Designs and manufactures power systems and superconducting wire USA 3,962 0.6 3,002
Beam Therapeutics Biotechnology company USA 3,849 0.6 4,459
Quanterix Ultra-sensitive protein analysers USA 3,751 0.5 2,014
Ceres Power Holding Developer of fuel cells UK 3,740 0.5 6,192
Ambarella Video compression and image processing semiconductors USA 3,618 0.5 4,637
Twist Bioscience Biotechnology company USA 3,543 0.5 7,770
Digimarc Digital watermarking technology provider USA 3,307 0.5 2,186
TransMedics Medical device company USA 3,293 0.5 2,438
MP Materials Rare earth materials company USA 3,236 0.5 -
Trupanion Pet health insurance provider USA 3,136 0.5 8,102
New Horizon Health Cancer screening company China 3,123 0.5 1,365
AbCellera Biologics Antibody design and development company Canada 3,101 0.5 9,438
KSQ Therapeutics Series C Preferred (U) Biotechnology target identification company USA 3,072 0.5 4,151
InfoMart Online platform for restaurant supplies Japan 3,020 0.5 4,387
Adaptimmune Therapeutics Cell therapies for cancer treatment UK 2,835 0.4 5,770
Sensirion Holding Manufacturer of gas and flow sensors Switzerland 2,768 0.4 4,463
Cardlytics Digital advertising platform USA 2,699 0.4 2,167
IP Group Intellectual property commercialisation UK 2,395 0.3 3,229
ITM Power Hydrogen energy solutions manufacturer UK 2,248 0.3 2,880
M3 Online medical database Japan 2,212 0.3 7,274
Tandem Diabetes Care Manufacturer of insulin pumps for diabetic patients USA 2,112 0.4 7,236
MonotaRO Online business supplies Japan 2,055 0.3 4,169
PeptiDream Peptide based drug discovery platform Japan 2,052 0.4 1,829
Rightmove UK online property portal UK 2,032 0.3 3,393
DNA Script Series C Preferred (U) Synthetic DNA fabricator France 2,031 0.3 5,536
freee K.K. Cloud based accounting software for small and medium-sized enterprises Japan 1,778 0.3 2,231
Victrex High-performance thermo-plastics UK 1,751 0.3 2,101
Sutro Biopharma Biotechnology company focused on next generation protein therapeutics USA 1,701 0.2 4,779
EverQuote Commerce platform for small and medium-sized enterprises USA 1,632 0.2 1,221
C4X Discovery Holdings Rational drug design and optimisation UK 1,607 0.2 2,273
C4X Discovery Warrants Rational drug design and optimisation UK 0 0.0 -
1,607 0.2 2,273
Huya ADR A live game streaming platform China 1,592 0.2 993
Codexis Industrial and pharmaceutical enzyme developer USA 1,415 0.2 7,820
Ilika Discovery and development of novel materials for mass market applications UK 1,391 0.2 2,318
Graphcore Series D2 Preferred (U) Specialised processor chips for machine learning applications UK 930 0.1 3,945
Graphcore Series E Preferred (U) Specialised processor chips for machine learning applications UK 296 0.0 1,437
1,226 0.1 5,382
Stratasys 3D printer manufacturer USA 1,211 0.2 1,817
Cosmo Pharmaceuticals Therapies for gastrointestinal diseases Italy 1,044 0.2 1,688
Akili Interactive Digital medicine company USA 1,012 0.1 6,561
BASE Commerce platform for small and medium-sized enterprises Japan 889 0.1 1,087
Catapult Group International Analytics and data collection technology for sports teams and athletes Australia 848 0.1 823
Expensify Expense management software USA 787 0.1 4,077
Agora ADR Voice and video platform technology provider China 618 0.1 616
LivePerson Messaging tools for business and customer interactions USA 539 0.1 2,274
NuCana SPN ADR Next generation chemotherapy developer UK 470 0.1 1,065
Spire Global Satellite powered data collection and analysis company USA 320 0.0 1,083
Cellectis Genetic engineering for cell based therapies France 189 0.0 523
Cellectis ADR Genetic engineering for cell based therapies France 68 ≤0.1 0
257 0.0 523
Angelalign Technology Medical devices manufacturer China 50 ≤0.1 67
Chinook Therapeutics (formerly Aduro Biotechnology) CVR Line Immunotherapy drug development USA 0 0.0 0
4D Pharma Microbiome biology therapeutics UK 0 0.0 0
4D Pharma Warrants Microbiome biology therapeutics UK 0 0.0 0
0 0.0 0
China Lumena New Materials - Suspended Mines, processes and manufactures natural thenardite products China 0 0.0 0
Total equities 671,300 97.6 872,804
Net liquid assets 16,686 2.4 6,589
Total assets* 687,986 100.0 879,393
* Total assets comprises all assets held less all liabilities other than
liabilities in the form of borrowings.
(U) Denotes private company investment.
Listed equities Unlisted securities# Net liquid Total assets
% % assets %
%
31 October 2023 71.4 26.2 2.4 100.0
31 October 2022 79.2 20.1 0.7 100.0
Figures represent percentage of total assets.
# includes holdings in preference shares, ordinary shares and convertible
promissory notes.
Distribution of total assets
Geographical Analysis
2023 2022
% %
North America 71.2 71.7
USA 70.7 70.6
Canada 0.5 1.1
Europe 19.7 21.5
United Kingdom 14.2 13.5
Eurozone 2.4 1.8
Developed Europe (non-euro) 3.1 6.2
Asia 5.6 5.0
China 3.8 2.3
Japan 1.8 2.7
Australasia 1.1 1.1
New Zealand 1.0 0.1
Australia 0.1 1.0
Total equities 97.6 99.3
Net liquid assets 2.4 0.7
Total assets* 100.0 100.0
Sectoral Analysis
2023 2022
% %
Healthcare 36.2 43.2
Industrials 24.7 17.7
Information technology 24.5 24.7
Consumer discretionary 4.3 6.3
Communication services 3.8 2.9
Financials 3.3 4.3
Materials 0.8 0.2
Net liquid assets 2.4 0.7
Total assets* 100.0 100.0
* Total assets comprises all assets held less all liabilities other than
liabilities in the form of borrowings.
Distribution of total assets* by industry
Industry Analysis Portfolio Weightings
31 October 2023 relative to comparative index†)
% of total assets* at 31 October 2023
% %
Aerospace and defence 18.4 16.9
Biotechnology 17.7 14.6
Software 16.3 16.6
Healthcare equipment and supplies 5.2 3.3
Technology hardware, storage and peripherals 4.8 (0.4)
Life sciences tools and services 4.1 3.3
Healthcare technology 3.6 3.4
Pharmaceuticals 3.6 0.7
Electrical equipment 3.1 1.4
Food and staples retailing 3.0 (2.3)
Professional services 2.9 0.6
Capital markets 2.8 (0.1)
Electronic equipment, instruments and components 2.8 0.1
Real estate management and development 2.7 1.0
Healthcare providers and services 2.4 0.3
Diversified consumer services 0.7 0.0
Auto components 0.6 (0.9)
Insurance 0.5 2.5
Interactive media and services 0.5 (0.2)
Metals and mining 0.5 (2.8)
Semiconductors and semiconductor equipment 0.5 (2.0)
Media 0.4 (1.0)
Chemicals 0.3 (3.0)
Trading companies and distributors 0.3 (1.2)
Entertainment 0.2 (0.5)
IT services 0.1 (1.4)
Net liquid assets 2.4
Total assets* 100.0
* Total assets comprises all assets held less all liabilities other than
liabilities in the form of borrowings.
† S&P Global Small Cap Index (in sterling terms). Weightings exclude
industries where the Company has no exposure. See disclaimer at the end of
this announcement.
Notes to the condensed Financial Statements (unaudited)
1. Basis of accounting
The Financial Statements for the year to 31 October 2023 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
below which are consistent with those applied for the year ended 31 October
2022.
2. Income
2023 2022
£'000 £'000
Income from investments
UK dividends 379 410
Overseas dividends 340 472
Overseas interest 70 4
Other income 789 886
Deposit interest 288 100
Total income 1,077 986
Total income comprises:
Dividends from financial assets designated at fair value through profit or 719 882
loss
Interest from financial assets designated at fair value through profit or loss 70 4
Interest from financial assets not at fair value through profit or loss 288 100
1,077 986
3. Investment Manager
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 have been further sub-delegated
to Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong)
Limited. The Management Agreement can be terminated on three moths' notice.
The annual management fee is 0.75% on the first £50 million of net assets,
0.65% on the next £200 million of net assets and 0.55% on the remaining net
assets. Management fees are calculated and payable quarterly.
4. Net Return per Ordinary Share
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Net return per ordinary share (0.65p) (46.21p) (48.86p) (0.49p) (134.82p) (135.31p)
Revenue return per ordinary share is based on the net revenue loss after
taxation of £2,527,000 (2022 - net revenue loss of £1,976,000) and on
389,617,177 (2022 - 400,679,723) ordinary shares, being the weighted average
number of ordinary shares in issue (excluding treasury shares) during the
year.
Capital return per ordinary share is based on the net capital loss for the
financial year of £180,039,000 (2022 - net capital loss of £540,205,000) and
on 389,617,177 (2022 - 400,679,723) ordinary shares, being the weighted
average number of ordinary shares in issue (excluding treasury shares) during
the year.
There are no dilutive or potentially dilutive shares in issue.
5. Dividends
This year the net revenue return per share was a negative 0.65p per share
(2022 - negative 0.49p per share) and therefore no final dividend is being
recommended by the Board. Should the level of underlying income increase in
future years, the Board will seek to distribute to shareholders the minimum
permissible to maintain investment trust status by way of a final dividend.
6. Fair Value Hierarchy
As at 31 October 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 491,243 - - 491,243
Unlisted ordinary shares - - 19,450 19,450
Unlisted preference shares* - - 156,900 156,900
Unlisted convertible promissory note - - 3,707 3,707
Total financial asset investments 491,243 - 180,057 671,300
As at 31 October 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 696,135 - - 696,135
Unlisted ordinary shares - - 22,456 22,456
Unlisted preference shares* - - 153,779 153,779
Unlisted convertible promissory note - - 434 434
Total financial asset investments 696,135 - 176,669 872,804
* The investments in preference shares are not classified as equity holdings
as they include liquidation preference rights that determine the repayment (or
multiple there) of the original investment in the event of a liquidation event
such as a take-over.
Fair value hierarchy
The fair value hierarchy used to analyse the fair values of financial assets
is described below. The levels are determined by the lowest (that is the least
reliable or least independently observable) level of input that is significant
to the fair value measurement for the individual investment in its entirety as
follows:
Level 1 - using unadjusted quoted prices for identical instruments in an
active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that
are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
The valuation techniques used by the Company are explained in the accounting
policies on page 100 of the Annual Report and Financial Statements. A
sensitivity analysis by valuation technique of the unlisted securities is
given on pages 113 to 115 of the Annual Report and Financial Statements.
7. Borrowings
The Company has a five-year £100 million multi-currency revolving credit
facility with The Royal Bank of Scotland with an expiry date of 9 June 2026
and a five-year £36 million multi-currency revolving credit facility with
National Australia Bank Limited with an expiry date of 30 September 2024. As
at 31 October 2023, the Company had drawings of €10,600,000, US$77,150,000
and £30,437,000 (2022 - €10,600,000, US$77,150,000 and £27,720,000) under
the £100 million multi- currency revolving credit facility, with The Royal
Bank of Scotland International Limited. At 31 October 2023 and 2022 there were
no drawings under the £36 million multi-currency revolving credit facility
with National Australia Bank Limited.
All short term floating rate borrowings are stated at book cost which is
considered to be equal to their fair value given the facilities are revolving
credit facilities and as at 31 October 2023 amounted to £103,249,000 (2022 -
£103,827,000).
8. Share capital
The Company has authority to allot shares under section 551 of the Companies
Act 2006. The Board has authorised use of this authority to issue new shares
at a premium to net asset value in order to enhance the net asset value per
share for existing shareholders and improve the liquidity of the Company's
shares. In the year to 31 October 2023 the Company issued no shares (in the
year to 31 October 2022 - 550,000 shares with a nominal value of £6,000,
representing 0.1% of the issued share capital at 31 October 2021 raising net
proceeds of £1,730,000).
Over the period from 31 October 2023 to 16 January 2024 the Company has issued
no further shares.
The Company also has authority to buy back shares. In the year to 31 October
2023, 5,190,382 shares with a nominal value of £52,000 were bought back at a
total cost of £8,263,000 and held in treasury (2022 - 13,468,672 shares with
a nominal value of £135,000 were bought back at a total cost of £25,338,000
and held in treasury). At 31 October 2023 the Company had authority to buy
back a further 56,303,524 ordinary shares.
Over the period from 31 October 2023 to 16 January 2024 the Company has bought
back a further 1,710,933 shares at a total cost of £2,489,000.
9. Analysis of change in debt
At 31 October Cash Exchange movement At 31 October
2022 flows £'000 2023
£'000 £'000 £'000
Cash and cash equivalents 11,131 8,510 (495) 19,146
Loans due within one year (103,827) (2,717) 3,295 (103,249)
(92,696) 5,793 2,800 (84,103)
10. Financial information
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 October 2023 or the year ended 31
October 2022 but is derived from those accounts. Statutory accounts for the
period to 31 October 2022 have been delivered to the Registrar of Companies,
and those for the year to 31 October 2023 will be delivered in due course. The
auditor has reported on those accounts; the reports were (i) unqualified, (ii)
did not include a reference to any matters to which the auditor drew attention
by way of emphasis without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
Glossary of Terms and Alternative Performance Measures ('APM')
An alternative performance measure is a financial measure of historical or
future financial performance, financial position, or cash flows, other than a
financial measure defined or specified in the applicable financial reporting
framework.
Total assets
This is the Company's definition of Adjusted Total Assets, being the total
value of all assets held less all liabilities (other than liabilities in the
form of borrowings).
Net Asset Value ('NAV')
Also described as shareholders' funds, net asset value is the value of total
assets less liabilities (including borrowings). Net asset value can be
calculated on the basis of borrowings stated at book value and fair value. An
explanation of each basis is provided below. The net asset value per share is
calculated by dividing this amount by the number of ordinary shares in issue
excluding any shares held in treasury.
Net Asset Value (borrowings at book value)
Borrowings are valued at their nominal book value. The value of the borrowings
at book and fair value are set out on page 116 of the Annual Report and
Financial Statements.
Net Asset Value (borrowings at fair value) (APM)
Borrowings are valued at an estimate of their market worth. The value of the
borrowings at book and fair value are set out on page 116 of the Annual Report
and Financial Statements
.
Net Asset Value (reconciliation of NAV at book value to NAV at fair value)
2023 2022
£'000 £'000
Net Asset Value per ordinary share (borrowings at book value) 151.06p 197.70p
Shareholders' funds (borrowings at book value) £584,737 £775,566
Add: book value of borrowings £103,249 £103,827
Less: fair value of borrowings (£103,249) (£103,827)
Shareholders' funds (borrowings at fair value) £584,737 £775,566
Number of shares in issue 387,094,641 392,285,023
Net Asset Value per ordinary share (borrowings at fair value) 151.06p 197.70p
At 31 October 2023 and 31 October 2022 all borrowings are in the form of short
term floating rate borrowings and their fair value is considered equal to
their book value, hence there is no difference in the net asset value at book
value and fair value.
Net liquid assets
Net liquid assets comprise current assets less current liabilities, excluding
borrowings.
Discount/premium (APM)
As stock markets and share prices vary, an investment trust's share price is
rarely the same as its net asset value. When the share price is lower than the
net asset value 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 net asset
value per share and is usually expressed as a percentage of the net asset
value per share. If the share price is higher than the net asset value per
share, this situation is called a premium.
2023 2022
Net asset value per ordinary share (a) 151.06p 197.70p
Share price (b) 124.80p 172.60p
(Discount)/premium ((b)-(a)) ÷ (a) (17.4%) (12.7%)
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.
Compound annual return (APM)
The compound annual return converts the return over a period of longer than
one year to a constant annual rate of return applied to the compound value at
the start of each year.
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers ('AIFM')
Regulations, leverage is any method which increases the Company's exposure,
including the borrowing of cash and the use of derivatives. It is expressed as
a ratio between the Company's exposure and its net asset value and can be
calculated on a gross and a commitment method. Under the gross method,
exposure represents the sum of the Company's positions after the deduction of
sterling cash balances, without taking into account any hedging and netting
arrangements. Under the commitment method, exposure is calculated without the
deduction of sterling cash balances and after certain hedging and netting
positions are offset against each other. The leverage figures at 31 October
2023 are detailed on page 116 of the Annual Report and Financial Statements.
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.
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 is the Company's borrowings at book value less cash and cash
equivalents (including any outstanding trade settlements) expressed as a
percentage of shareholders' funds.
2023 2022
£'000 £'000
Borrowings (at book value) £103,249 £103,827
Less: cash and cash equivalents (£19,146) (£11,131)
Less: sales for subsequent settlement - (£4,598)
Add: purchases for subsequent settlement - £6,719
Add: buy-backs awaiting settlement £128 £433
Adjusted borrowings (a) £84,231 £95,250
Shareholders' funds (b) £584,737 £775,566
Gross gearing: (a) as a percentage of (b) 14% 12%
Potential gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
2023 2022
£'000 £'000
Borrowings (at book value) (a) £103,249 £103,827
Shareholders' funds (b) £584,737 £775,566
Potential gearing (a) as a percentage of (b) 18% 13%
Ongoing charges (APM)
The total expenses (excluding dealing and borrowing costs) incurred by the
Company as a percentage of the daily average net asset value (with borrowings
at market value), as detailed below.
2023 2022
£'000 £'000
Investment management fee £4,241 £5,107
Other administrative expenses £915 £953
Total expenses (a) £5,156 £6,060
Average daily cum-income net asset value (with debt at fair value) (b) £731,407 £959,272
Ongoing charges (a) as a percentage of (b) 0.70% 0.63%
Share split
A share split (or stock split) is the process by which a company divides its
existing shares into multiple shares. Although the number of shares
outstanding increases, the total value of the shares remains the same with
respect to the pre-split value.
Unlisted (private) company
An unlisted company means a company whose shares are not available to the
general public for trading and not listed on a stock exchange.
Third party data provider disclaimer
No third party data provider ('Provider') makes any warranty, express or
implied, as to the accuracy, completeness or timeliness of the data contained
herewith nor as to the results to be obtained by recipients of the data. No
Provider shall in any way be liable to any recipient of the data for any
inaccuracies, errors or omissions in the index data included in this document,
regardless of cause, or for any damages (whether direct or indirect) resulting
therefrom.
No Provider has any obligation to update, modify or amend the data or to
otherwise notify a recipient thereof in the event that any matter stated
herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability
whatsoever to you, whether in contract (including under an indemnity), in tort
(including negligence), under a warranty, under statute or otherwise, in
respect of any loss or damage suffered by you as a result of or in connection
with any opinions, recommendations, forecasts, judgements, or any other
conclusions, or any course of action determined, by you or any third party,
whether or not based on the content, information or materials contained
herein.
S&P index data
The S&P Global Small Cap Index ('Index') is a product of S&P Dow Jones
Indices LLC, a division of S&P Global, or its affiliates ('SPDJI').
Standard & Poor's® and S&P® are registered trademarks of Standard
& Poor's Financial Services LLC, a division of S&P Global ('S&P');
Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC
('Dow Jones'). Neither S&P Dow Jones Indices LLC, Dow Jones Trademark
Holdings LLC, their affiliates nor their third party licensors make any
representation or warranty, express or implied, as to the ability of any index
to accurately represent the asset class or market sector that it purports to
represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark
Holdings LLC, their affiliates nor their third party licensors shall have any
liability for any errors, omissions, or interruptions of any index or the data
included therein.
Sustainable finance disclosure regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a
direct impact in the UK due to Brexit, however, it applies to third-country
products marketed in the EU. As Baillie Gifford Japan is marketed in the EU by
the AIFM, Baillie Gifford & Co Limited, via the National Private Placement
Regime ('NPPR') the following disclosures have been provided to comply with
the high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's ESG Principles and Guidelines
as its policy on integration of sustainability risks in investment decisions.
Baillie Gifford & Co believes that a company cannot be financially
sustainable in the long run if its approach to business is fundamentally out
of line with changing societal expectations. It defines 'sustainability' as a
deliberately broad concept which encapsulates a company's purpose, values,
business model, culture, and operating practices.
Baillie Gifford & Co's approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their marketplace. To do this it looks beyond current financial
performance, undertaking proprietary research to build up an in-depth
knowledge of an individual company and a view on its long-term prospects. This
includes the consideration of sustainability factors (environmental, social
and/or governance matters) which it believes will positively or negatively
influence the financial returns of an investment. The likely impact on the
return of the portfolio from a potential or actual material decline in the
value of investment due to the occurrence of an environmental, social or
governance event or condition will vary and will depend on several factors
including but not limited to the type, extent, complexity and duration of an
event or condition, prevailing market conditions and existence of any
mitigating factors.
Whilst consideration is given to sustainability matters, there are no
restrictions on the investment universe of the Company, unless otherwise
stated within in its Investment Objective & Policy. Baillie Gifford &
Co can invest in any companies it believes could create beneficial long-term
returns for investors. However, this might result in investments being made in
companies that ultimately cause a negative outcome for the environment or
society.
More detail on the Investment Manager's approach to sustainability can be
found in the ESG Principles and Guidelines document, available publicly on the
Baillie Gifford website bailliegifford.com and by scanning the QR code below.
The underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities established under the EU
Taxonomy Regulation.
Regulated Information Classification: Additional regulated information
required to be disclosed under applicable law.
- ends -
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