REG - Scot.Mort Inv Tst - Half-year Report
06/11/2023 07:00
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RNS Number : 4126S Scottish Mortgage Inv Tst PLC 06 November 2023
RNS Announcement
Scottish Mortgage Investment Trust PLC
Legal Entity Identifier: 213800G37DCS3Q9IJM38
Results for the six months to 30 September 2023
The following is the unaudited Interim Financial Report for the six months to
30 September 2023 which was approved by the Board on 3 November 2023.
Interim Management Report
Our portfolio of growth investments is in robust health. Financial conditions
have pushed companies to focus and prioritise profitable growth. Declines in
stock prices have made valuations more attractive. This combination provides a
strong underpinning for the long-term outlook.
We will have periods when we underperform the market, and the six months in
question was one. Since the end of March, our net asset value per share, with
debt at fair value ('NAV'), fell by 2.7% compared with a rise of 4.3% for the
FTSE All-World Index (both in total return terms). The longer-term performance
record remains good. Over five years, the NAV has gained 59.6% versus 49.6%,
and over 10 years it has increased by 358.1% against 189.5% (both against the
index).
Although our focus remains on long-term capital appreciation, we know that a
small and consistent dividend is of value to many shareholders. The Board is
therefore recommending an interim dividend of 1.60p per share, no increase
over last year's payment.
Our objective is to find companies with the potential for exceptional growth
and then own them patiently as they deliver. There are times when stock
markets reward this approach and times, as now, when they do not. We
constantly revisit the case for our investments and expect that we will
sometimes find our optimism misplaced. However, we do not revisit the
underlying investment philosophy that has served us well for many years. The
value created by the innovation and dedication of exceptional companies will
deliver returns for our fellow shareholders. In turn, Scottish Mortgage's
patient ownership and support can increase the likelihood of entrepreneurial
success.
Not all large companies capable of outsized growth are listed on public stock
markets. Accessing such opportunities at a reasonable cost is a distinctive
part of our role for shareholders. The operational performance of our major
private businesses has been strong despite the difficult prevailing
conditions. The average revenue growth rate of the top ten private holdings
was 38% in 2022. Market scepticism around the performance and valuation of our
private assets is misplaced, and we believe they will be a significant source
of value creation for the Trust in the coming years. We deployed approximately
£74m into 6 private companies in the half year, and one of our private
holdings, the beauty company Oddity, went public.
Divining much that is useful from stock markets over a six-month period is
challenging. The market's positive return has been driven by a handful of
large technology companies that would seem to be the early beneficiaries of
developments in Artificial Intelligence ('AI'). The capabilities of today's AI
systems are sufficient for widespread commercial deployment. Their ability to
communicate in natural language based on an 'understanding' of the relevant
concepts lends itself to many different use cases. Building a foundational AI
model can cost billions of dollars, so only those with the deepest pockets can
compete. Giant consumer technology companies have those resources and vast
user bases to whom they can deploy the resulting applications.
Chipmaker NVIDIA, whose shares we bought in 2016, has been the key provider of
the necessary computing infrastructure for AI, or as CEO Jensen Huang put it,
'if you don't build it, they won't show up'. The acceleration in its business
has been breathtaking. Revenue guidance for the third quarter is $16bn, which
compares to less than $6bn a year ago. The step change that we have seen in
AI's capabilities would have been impossible without NVIDIA's silicon. The
pace of progress has exceeded our expectations and has been well ahead of what
Moore's Law would have dictated for traditional computing. Instead of seeing
the end of an aberrant growth era, we may be entering a period of even faster
development. If so, the consequences will be yet more profound.
We are mindful that the pioneers may be the easiest to identify when seismic
shifts occur in the technology landscape, but they are not always the biggest
beneficiaries. Often, nimble new entrants emerge and arrogate opportunities
before a dominant incumbent can react. This creates dramatic and long-lasting
investment opportunities, as we saw in the PC, Internet and Mobile
transformations.
We do not claim to be able to predict macroeconomic developments and are often
bemused by the level of coverage given to the future course of interest rates.
We can, though, observe the changes we have seen at the companies we own.
Unable to assume that markets will provide capital, they are generating their
own supply. They are trimming costs and focusing on the most promising
projects. We are encouraged that they continue to spend heavily on research
and development but believe a higher cost of capital introduces a healthy dose
of prioritisation. The free cash flow from our listed portfolio more than
doubled in the twelve months to the end of June.
Rising rates have little impact on our company. During the years of
exceptionally low interest rates we proactively extended the term of our debt.
The majority of our borrowings do not come due until after 2036 and our
interest cost is below 3%.
Progress is being made across a broad swathe of technologies. What makes this
so exciting for growth investors is that the number of ways companies can
combine these technologies grows exponentially. Accelerated computing drives
artificial intelligence, which can be applied to vast datasets in the Cloud,
enabling breakthroughs in healthcare and so on. Our companies are fitter for
the future, and the opportunity they address grows at an accelerating pace.
Economic news is usually dreary, and geopolitics rarely reassuring, but
entrepreneurs' collective creativity and productivity are a source of great
confidence and optimism.
The principal risks and uncertainties facing the Company are set out at the
end of this document.
Tom Slater
Baillie Gifford & Co Limited
Managers and Secretaries
3 November 2023
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this document
Total return information sourced from Refinitiv/Baillie Gifford.
See disclaimer at end of this document.
Past performance is not a guide to future performance.
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared in
accordance with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the information
required by Disclosure and Transparency Rule 4.2.7R (indication of important
events during the first six months, their impact on the condensed set of
Financial Statements and a description of the principal risks and
uncertainties for the remaining six months of the year); and
c) the Interim Financial Report includes a fair review of the information
required by Disclosure and Transparency Rule 4.2.8R (disclosure of related
party transactions and changes therein).
By order of the Board
Justin Dowley
Chair
3 November 2023
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 valuation 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 twice in a
six-month period. For Scottish Mortgage, as well as all other investment
trusts, the prices are also reviewed twice per year by the respective 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
('NAV'). 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 asset pricing has moved much
more frequently than during stable market conditions. The data below
quantifies the revaluations carried out during the six months to 30 September
2023, however doesn't reflect the ongoing monitoring of the private investment
portfolio that hasn't resulted in a change in valuation.
Year to date, most revaluations have been decreases, with a small number of
companies successfully raising capital, and in some cases easing short-term
liquidity pressures. The average movement in company valuations and share
prices for those are shown below.
Scottish Mortgage Investment Trust*
Percentage of portfolio revalued up to 2 times 71%
Percentage of portfolio revalued up to 4 times 27%
Percentage of portfolio revalued 5+ times 3%
*Each private holding valuation is assessed at least once in a six-month
period, in accordance with the Baillie Gifford valuation policy.
During the six-month period ended 30 September 2023 we have written down some
of the valuations as a result of company specific circumstances which have
challenged the economic reality of the liquidation preferences. This has
contributed to the divergence in the average movement in valuation at
instrument level in comparison to the underlying company value.
Valuation movements %
Average movement in investee company securities price (2.4)
Average movement in investee company valuation (0.5)
Performance, Portfolio executive summary, and List of Investments at 30
September 2023
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(http://www.rns-pdf.londonstockexchange.com/rns/4126S_1-2023-11-5.pdf)
Income Statement (unaudited)
For the six months ended 30 September
Notes 2023 Revenue 2023 2023 2022 Revenue 2022 2022
£'000 Capital Total £'000 Capital Total
£'000 £'000 £'000 £'000
Losses on investments - (339,923) (339,923) - (2,368,395) (2,368,395)
Currency losses - (10,526) (10,526) - (176,320) (176,320)
Income 26,311 - 26,311 25,904 - 25,904
Investment management fee 3 - (17,224) (17,224) - (18,557) (18,557)
Other administrative expenses (2,351) - (2,351) (3,135) - (3,135)
Net return before finance costs 23,960 (367,673) (343,713) 22,769 (2,563,272) (2,540,503)
and taxation
Finance costs of borrowings - (27,423) (27,423) - (32,405) (32,405)
Net return before taxation 23,960 (395,096) (371,136) 22,769 (2,595,677) (2,572,908)
Tax (1,238) (4,966) (6,204) (2,050) (471) (2,521)
Net return after taxation 22,722 (400,062) (377,340) 20,719 (2,596,148) (2,575,429)
Net return per ordinary share 4 1.62p (28.44p) (26.82p) 1.44p (180.36p) (178.92p)
Dividends proposed per ordinary share 5 1.60p 1.60p
The accompanying notes on the following pages are an integral part of the
Financial Statements.
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 (unaudited)
Notes At 30 September At 30 September At 31 March 2023 At 31 March 2023
2023 2023 (audited) (audited)
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 6 12,762,223 13,149,592
Current assets
Debtors 10,428 12,037
Cash and cash equivalents 31,396 184,945
41,824 196,982
Creditors
Amounts falling due within one year:
Bank loans 7 (245,791) (376,076)
Other creditors and accruals (20,305) (22,055)
(266,096) (398,131)
Net current liabilities (224,272) (201,149)
Total assets less current liabilities 12,537,951 12,948,443
Creditors
Amounts falling due after more than one year:
Bank loans 7 (393,216) (388,149)
Loan notes 7 (1,010,590) (1,006,857)
Debenture stocks 7 (52,003) (52,212)
Provision for deferred tax liability (8,192) (3,225)
(1,464,001) (1,450,443)
Net assets 11,073,950 11,498,000
Capital and reserves
Share capital 74,239 74,239
Share premium account 928,400 928,400
Capital redemption reserve 19,094 19,094
Capital reserve 10,023,314 10,434,896
Revenue reserve 28,903 41,371
Shareholders' funds 11,073,950 11,498,000
Net asset value per ordinary share
(after deducting borrowings at book)* 787.7p 816.8p
Ordinary shares in issue 9 1,405,929,902 1,407,618,528
* See Glossary of Terms and Alternative Performance Measures at the
end of this announcement.
The accompanying notes on the following pages are an integral part of the
Financial Statements
Statement of Changes in Equity (unaudited)
For the six months ended 30 September 2023
Notes Called-up share capital Share premium account Capital redemption reserve Capital reserve* Revenue reserve Shareholders' funds
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at 1 April 2023 74,239 928,400 19,094 10,434,896 41,371 11,498,000
Net return after taxation - - - (400,062) 22,722 (377,340)
Ordinary shares bought back into treasury 9 - - - (11,520) - (11,520)
Dividends paid during the period 5 - - - - (35,190) (35,190)
Shareholders' funds at 30 September 2023 74,239 928,400 19,094 10,023,314 28,903 11,073,950
For the six months ended 30 September 2022
Notes Called up share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve* reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 April 2022 74,239 928,400 19,094 13,717,685 16,581 14,755,999
Net return on ordinary activities - - - (2,596,148) 20,719 (2,575,429)
after taxation
Shares bought back 9 - - - (131,171) - (131,171)
Dividends paid during the period 5 - - - (13,283) (16,581) (29,864)
Shareholders' funds at 30 September 2022 74,239 928,400 19,094 10,977,083 20,719 12,019,535
* The capital reserve balance at 30 September 2023 includes
investment holding gains on fixed asset investments of £2,933,324,000 (30
September 2022 - gains of £3,838,304,000).
The accompanying notes on the following pages are an integral part of the
Financial Statements
Cash Flow Statement (unaudited)
For the six months ended 30 September
Notes 2023 2022
£'000 £'000
Cash flows from operating activities
Net return before taxation (371,136) (2,572,908)
Losses on investments 339,923 2,368,395
Currency losses 10,526 176,320
Finance costs of borrowings 27,423 32,405
Overseas withholding tax incurred (1,238) (2,286)
Changes in debtors and creditors (3,547) 2,964
Cash from operations 1,951 4,890
Interest paid (28,879) (31,937)
Net cash outflow from operating activities (26,928) (27,047)
Acquisitions of investments (406,046) (620,418)
Disposals of investments 458,242 923,979
Net cash inflow from investing activities 52,196 303,561
Equity dividends paid 5 (35,190) (29,864)
Ordinary shares bought back into treasury and stamp duty thereon (11,579) (119,592)
Bank loans repaid (421,845) (1,026,906)
Bank loans drawn down 7 292,250 855,034
Net cash outflow from financing activities (176,364) (321,328)
Decrease in cash and cash equivalents (151,096) (44,814)
Exchange movements (2,453) 45,239
Cash and cash equivalents at start of period 184,945 229,962
Cash and cash equivalents at end of period* 31,396 230,387
* Cash and cash equivalents represent cash at bank and short term
money market deposits repayable on demand.
The accompanying notes are an integral part of the Financial Statements.
Notes to the Financial Statements (unaudited)
1. Basis of accounting
The condensed Financial Statements for the six months to 30 September 2023
comprise the statements set out on above together with the related notes
below. They have been prepared in accordance with FRS 104 'Interim Financial
Reporting' and the AIC's Statement of Recommended Practice issued in November
2014 and updated in July 2022 with consequential amendments. They have not
been audited or reviewed by the Auditor pursuant to the Auditing Practices
Board Guidance on 'Review of Interim Financial Information'. The Financial
Statements for the six months to 30 September 2023 have been prepared on the
basis of the same accounting policies as set out in the Company's Annual
Report and Financial Statements at 31 March 2023.
Going Concern
In accordance with the Financial Reporting Council's guidance on going concern
and liquidity risk, the Directors have undertaken a rigorous review of the
Company's ability to continue as a going concern. The Directors have
considered the nature of the Company's assets, its liabilities, projected
income and expenditure together with its investment objective and policy,
dividend policy and principal risks and uncertainties, as set at the end of
this document. The Board has, in particular, considered the impact of
heightened market volatility over recent months due to macroeconomic and
geopolitical concerns including high interest rates, inflation, the
Russia/Ukraine war, heightened tensions between China and both the US and
Taiwan and the developing situation in the Middle East. It has reviewed the
results of specific leverage and liquidity stress testing but does not believe
the Company's going concern status is affected. The Company's assets, the
majority of which are in quoted securities which are readily realisable,
exceed its liabilities significantly. All borrowings require the prior
approval of the Board. Gearing levels and compliance with borrowing covenants
is reviewed by the Board on a regular basis. During the period US$165m
drawings on the NAB revolving facility were repaid.
The Company has continued to comply with the investment trust status
requirements of section 1158 of the Corporation Tax Act 2010 and the
Investment Trust (Approved Company) Regulations 2011. Accordingly, the
Directors considered it appropriate to adopt the going concern basis of
accounting in preparing these Financial Statements and confirm that they are
not aware of any material uncertainties which may affect the Company's ability
to continue in operational existence for a period of at least twelve months
from the date of approval of these Financial Statements.
2. Financial information
The financial information contained within this Interim Financial Report does
not constitute statutory accounts as defined in sections 434 to 436 of the
Companies Act 2006. The financial information for the year ended 31 March 2023
has been extracted from the statutory accounts which have been filed with the
Registrar of Companies. The Auditors' Report on those accounts was not
qualified, did not include a reference to any matters to which the Auditors
drew attention by way of emphasis without qualifying its report and did not
contain statements under sections 498 (2) or (3) of the Companies Act 2006.
3. Investment manager
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford
& Co, has been appointed by the Company as its Alternative Investment Fund
Manager ('AIFM') and Company Secretary. The investment management function has
been delegated to Baillie Gifford & Co. The management agreement can be
terminated on six months' notice. The annual management fee is 0.30% on the
first £4 billion of total assets less current liabilities (excluding short
term borrowings for investment purposes) and 0.25% thereafter, calculated and
payable quarterly.
4. Net Return per Ordinary Share
Six months to Six months to
30 September 30 September
2023 2022
£'000 £'000
Revenue return on ordinary activities after taxation 22,722 20,719
Capital return on ordinary activities after taxation (400,062) (2,596,148)
Total net return (377,340) (2,575,429)
Weighted average number of ordinary shares in issue 1,406,934,969 1,439,460,353
The net return per ordinary share figures are based on the above totals of
revenue and capital and the weighted average number of ordinary shares in
issue during each period.
There are no dilutive or potentially dilutive shares in issue.
5. Dividends
Six months to Six months to
30 September 30 September
2023 2022
£'000 £'000
Amounts recognised as distributions in the period:
Previous year's final dividend of 2.50p (2022 - 2.07p), paid 4 July 2023 35,190 29,864
35,190 29,864
Dividends proposed in the period:
Interim dividend for the year ending 31 March 2024 of 1.60p (2023 - 1.60p) 22,495 22,848
22,495 22,848
The interim dividend was declared after the period end date and has therefore
not been included as a liability in the Balance Sheet. It is payable on 15
December 2023 to shareholders on the register at the close of business on 24
November 2023. The ex-dividend date is 23 November 2023. The Company's
Registrars offer a Dividend Reinvestment Plan and the final date for elections
for this dividend is 28 November 2023.
6. Fair Value Hierarchy
The fair value hierarchy used to analyse the basis on which the fair values of
financial instruments held at fair value through the profit and loss account
are measured is described below. 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 Company's investments are financial assets designated at fair value
through profit or loss. An analysis of the Company's financial asset
investments based on the fair value hierarchy described above is shown below.
Investments held at fair value through profit or loss
As at 30 September 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equities/funds 8,921,972 - - 8,921,972
Private company ordinary shares - - 894,666 894,666
Private company preference shares* - - 2,741,340 2,741,340
Private company convertible note - - 112,743 112,743
Limited partnership investments - - 79,133 79,133
Contingent value rights - - 12,369 12,369
Total financial asset investments 8,921,972 - 3,840,251 12,762,223
As at 31 March 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equities/funds 9,347,981 - - 9,347,981
Private company ordinary shares - - 838,482 838,482
Private company preference shares* - - 2,723,897 2,723,897
Private company convertible note - - 113,692 113,692
Limited Partnership Investments - - 113,330 113,330
Contingent Value Rights - - 12,210 12,210
Total financial asset investments 9,347,981 - 3,801,611 13,149,592
During the period, no investments held at 31 March 2023 were transferred from
Level 3 to Level 1 on becoming listed. The fair value of listed investments is
bid value or, in the case of holdings on certain recognised overseas
exchanges, last traded price. Listed Investments are categorised as Level 1 if
they are valued using unadjusted quoted prices for identical instruments in an
active market and as Level 2 if they do not meet all these criteria but are,
nonetheless, valued using market data.
* 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.
Private company investments
The Company's holdings in unlisted (private company) investments are
categorised as Level 3. Private company investments are valued at fair value
by the Directors following a detailed review and appropriate challenge of the
valuations proposed by the Managers. The Managers' private company investment
policy applies techniques consistent with the International Private Equity and
Venture Capital Valuation Guidelines 2022 ('IPEV'). The techniques applied are
predominantly market-based approaches. The market-based approaches available
under IPEV are set out below and are followed by an explanation of how they
are applied to the Company's private company portfolio:
· Multiples;
· Industry Valuation Benchmarks; and
· Available Market Prices.
The nature of the private company portfolio will influence the valuation
technique applied. The valuation approach recognises that, as stated in the
IPEV Guidelines, the price of a recent investment, if resulting from an
orderly transaction, generally represents fair value as at the transaction
date and may be an appropriate starting point for estimating fair value at
subsequent measurement dates. However, consideration is given to the facts and
circumstances as at the subsequent measurement date, including changes in the
market or performance of the investee company. Milestone analysis is used
where appropriate to incorporate the operational progress of the investee
company into the valuation. Additionally, the background to the transaction
must be considered. As a result, various multiples-based techniques are
employed to assess the valuations particularly in those companies with
established revenues. Discounted cashflows are used where appropriate. An
absence of relevant industry peers may preclude the application of the
Industry Valuation Benchmarks technique and an absence of observable prices
may preclude the Available Market Prices approach. All valuations are
cross-checked for reasonableness by employing relevant alternative techniques.
The private company investments are valued according to a three monthly cycle
of measurement dates. The fair value of the private company investments will
be reviewed before the next scheduled three monthly measurement date on the
following occasions:
· At the year end and half year end of the Company; and
· Where there is an indication of a change in fair value as defined
in the IPEV guidelines (commonly referred to as 'trigger' events).
Further information on the private company valuation process in provided
above.
7. Financial liabilities
The total value of the borrowings (at book) is £1,701,600,000 (31 March 2023
- £1,823,294,000).
The bank loans falling due within one year are a US$200 million fixed rate
loan with The Royal Bank of Scotland ('RBSI') and a US$100 million revolving 3
year loan with Scotiabank (31 March 2023 - US$350 million revolving 3 year
loan with NAB, a US$200 million fixed rate loan with RBSI and a US$100 million
revolving 3 year loan with Scotiabank).
During the period US$165m drawings on the NAB revolving facility were repaid.
The bank loans falling due after more than one year are a US$180 million fixed
rate loan with RBSI and a US$300 million fixed rate loan with Scotiabank (31
March 2023 - US$180 million fixed rate loan with RBSI and a US$300 million
fixed rate loan with Scotiabank).
Debenture stocks include a £50 million debenture redeeming in 2026 and a
£675,000 irredeemable debenture.
Loan notes are unsecured with redemptions from 2036 to 2062.
The weighted average cost of the borrowings as at 30 September 2023 is 2.79%
(31 March 2023 - 2.98%)
8. Fair value of financial liabilities
The fair value of the borrowings at 30 September 2023 was £1,262,823,000 (31
March 2023 - £1,442,809,000).
9. Share Capital: Ordinary Shares of 5p Each
At 30 September At 31 March
2023 2023
No. of shares (audited)
No. of shares
Allotted, called up and fully paid ordinary shares of 5p each 1,405,929,902 1,407,618,528
Treasury shares of 5p each 78,850,978 77,162,352
Total 1,484,780,880 1,484,780,880
In the six months to 30 September 2023, the Company sold no ordinary shares
from treasury (year to 31 March 2023 - nil).
In the six months to 30 September 2023, 1,688,626 ordinary shares with a
nominal value of £84,431 were bought back at a total cost of £11,520,000 and
held in treasury (year to 31 March 2023 - 36,513,122 shares with a nominal
value of £1,825,656 were bought back at a total cost of £283,276,000 and
held in treasury). At 30 September 2023 the Company had authority remaining to
buy back 209,802,198 ordinary shares.
10. Related Party Transactions
There have been no transactions with related parties during the first six
months of the current financial year that have materially affected the
financial position or the performance of the Company during that period and
there have been no changes in the related party transactions described in the
last Annual Report and Financial Statements that could have had such an effect
on the Company during that period.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
Glossary of Terms and Alternative Performance Measures (APM)
An alternative performance measure ('APM') 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. The APMs noted below are commonly used measures
within the investment trust industry and serve to improve comparability
between investment trusts.
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
Also described as shareholders' funds. Net Asset Value ('NAV') is the value of
total assets less liabilities (including borrowings). Net Asset Value is
calculated on the basis of borrowings stated at book value or fair 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. The value of the
borrowings at book is set out in note 7 above.
Net Asset Value (Borrowings at Fair Value) (APM)
Borrowings are valued at an estimate of their market worth. The value of the
borrowings at fair is set out in note 8 above and a reconciliation to Net
Asset Value with borrowings at book value is provided below.
30 September 2023 31 March 2023
Net Asset Value per ordinary share (borrowings at book value) 787.7p 816.8p
Shareholders' funds (borrowings at book value) £11,073,950,000 £11,498,000,000
Add: book value of borrowings £1,701,600,000 £1,823,294,000
Less: fair value of borrowings (£1,262,823,000) (£1,442,809,000)
Net Asset Value (borrowings at fair value) £11,512,727,000 £11,878,485,000
Shares in issue at year end (excluding treasury shares) 1,405,929,902 1,407,618,528
Net Asset Value per ordinary share (borrowings at fair value) 818.9p 843.9p
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.
30 September 2023 31 March 2023
NAV (book) NAV (fair) NAV (book) NAV (fair)
Net Asset Value per share (a) 787.7p 818.9p 816.8p 843.9p
Share price (b) 669.9p 669.6p 678.6p 678.6p
Discount ((b)-(a)) ÷ (a) (15.0%) (18.2%) (16.9%) (19.6%)
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.
30 September 2023 31 March 2023
Borrowings (at book value) £1,701,600,000 £1,823,294,000
Less: cash and cash equivalents (£31,396,000) (£184,945,000)
Less: sales for subsequent settlement (£295,000) (£5,044,000)
Add: purchases for subsequent settlement - -
Adjusted borrowings (a) £1,699,909,000 £1,633,305,000
Shareholders' funds (b) £11,073,950,000 £11,498,000,000
Gearing: (a) as a percentage of (b) 15% 14%
30 September 2023 31 March 2023
Borrowings (at book value) (a) £1,701,600,000 £1,823,294,000
Shareholders' funds (b) £11,073,950,000 £11,498,000,000
Gross gearing: (a) as a percentage of (b) 15% 16%
Turnover (APM)
Annual turnover is calculated on a rolling 12 month basis. The lower of
purchases and sales for the 12 months is divided by the average assets, with
average assets being calculated on assets as at each month's end.
Active Share (APM)
Active share, a measure of how actively a portfolio is managed, is the
percentage of the portfolio that differs from its comparative index. It is
calculated by deducting from 100 the percentage of the portfolio that overlaps
with the comparative index. An active share of 100 indicates no overlap with
the index and an active share of zero indicates a portfolio that tracks the
index.
Total Return (APM)
The total return is the return to shareholders after reinvesting the net
dividend on the date that the share price goes ex-dividend.
30 September 2023 30 September 2022
NAV NAV Share NAV NAV Share
(book) (fair) price (book) (fair) price
Closing NAV per share/share price (a) 787.7p 818.9p 669.6p 841.7p 875.0p 782.4p
Dividend adjustment factor* (b) 1.0027 1.0027 1.0033 1.0025 1.0024 1.0026
Adjusted closing NAV per share/share price (c = a x b) 789.8p 821.1p 671.8p 843.8p 877.1p 784.4p
Opening NAV per share/share price (d) 816.8p 843.9p 678.6p 1,021.8p 1,030.8p 1,026.0p
Total return (c ÷ d)-1 (3.3%) (2.7%) (1.0%) (17.4%) (14.9%) (23.5%)
* The dividend adjustment factor is calculated on the assumption
that the final dividend of 2.50p (2022 - 2.07p) paid by the Company during the
period was reinvested into shares of the Company at the cum income NAV per
share/share price, as appropriate, at the ex-dividend date.
Private (Unlisted) Company
An unlisted or private company means a company whose shares are not available
to the general public for trading and are not listed on a stock exchange.
Principal Risks and Uncertainties
The principal risks facing the Company are financial risk, private company
investments risk, investment strategy risk, climate and governance risk,
discount risk, regulatory risk, custody and depositary risk, operational risk,
cyber security risk, leverage risk, political risk and emerging risks. An
explanation of these risks and how they are managed is set out on pages 42 and
43 of the Company's Annual Report and Financial Statements for the year to 31
March 2023 which is available on the Company's website: scottishmortgage.com.
The principal risks and uncertainties have not changed since the date of that
report.
Shareholders will be notified on or around 14 November 2023 that the Interim
Financial Report has been posted. The report is also available on the Scottish
Mortgage website scottishmortgageit.com. (‡)
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
Scottish Mortgage Investment Trust PLC is an actively managed, low cost
investment trust, investing in a concentrated global portfolio of companies
with the aim of maximising its total return over the long term. It looks for
strong businesses with above-average returns and aims to achieve a greater
return than the FTSE All-World Index (in sterling terms) over a five year
rolling period.
You can find up to date performance information about Scottish Mortgage on the
Scottish Mortgage page of the Managers' website at scottishmortgageit.com‡
‡ 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.
Scottish Mortgage is managed by Baillie Gifford & Co, the Edinburgh based
fund management group with over £208 billion under management and advice in
active equity and bond portfolios for clients in the UK and throughout the
world (as at 3 November 2023).
Investment Trusts are UK public limited companies and are not authorised or
regulated by the Financial Conduct Authority.
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.
3 November 2023
For further information please contact:
Stewart Heggie, Baillie Gifford & Co
Tel: 0131 275 5117
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
Automatic Exchange of Information
In order to fulfil its obligations under UK tax legislation relating to the
automatic exchange of information, Scottish Mortgage Investment Trust PLC is
required to collect and report certain information about certain shareholders.
The legislation requires investment trust companies to provide personal
information to HMRC on certain investors who purchase shares in investment
trusts. Accordingly, Scottish Mortgage Investment Trust PLC will have to
provide information annually to the local tax authority on the tax residencies
of a number of non-UK based certificated shareholders and corporate entities.
New shareholders, excluding those whose shares are held in CREST, who come on
to the share register will be sent a certification form for the purposes of
collecting this information.
For further information, please see HMRC's Quick Guide: Automatic Exchange of
Information - information for account holders
gov.uk/guidance/automatic-exchange -of-information-account-holders.
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FTSE Index Data
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'LSE Group'). ©LSE Group 2023. FTSE Russell is a trading name of certain LSE
Group companies. 'FTSE®', 'Russell®', 'FTSE Russell®', is/are a trade
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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 Scottish Mortgage is marketed in the EU by the
AIFM, BG & 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.
The underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities established under the EU
Taxonomy Regulation.
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