REG - Scot.Mort Inv Tst - Scottish Mortgage Investment Trust Final Results
19/05/2022 07:00
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RNS Number : 0294M Scottish Mortgage Inv Tst PLC 19 May 2022
RNS Announcement: Preliminary Results
Scottish Mortgage Investment Trust PLC
Regulated Information Classification: Additional regulated information
required to be disclosed under applicable laws
Legal Entity Identifier: 213800G37DCS3Q9IJM38
Results for the year to 31 March 2022
NAV (borrowings at fair value) (*) (13.1%)
NAV (borrowings at book value) (*) (14.3%)
Share Price(*) (9.5%)
Benchmark(†) 12.8%
Source: Refinitiv / Baillie Gifford. All figures are total return(*). See
disclaimer at the end of this announcement.
* Alternative Performance Measure - see Glossary of Terms and
Alternative Performance Measures at the end of this announcement.
† Benchmark: FTSE All-World index (in sterling terms)
The following is the Preliminary Results Announcement for the year to 31 March
2022 which was approved by the Board on 18 May 2022.
Statement from the Chair
For many, the twelve months to 31 March 2022 marked the second year of living
with the Covid-19 pandemic. There was cause for optimism as the global economy
reopened following the initial period of lockdown. However, it did so in a
stuttering fashion that brought with it the spectre of higher inflation and
rising interest rates. These factors, together with concerns about Chinese
regulation and Russia's assault on Ukraine, spread fear amongst markets and
significantly reduced the valuations of many growth companies.
After the past few years of relatively benign market conditions, it is easy to
forget how bumpy the ride can become when storms roll in. Scottish Mortgage
has weathered more than most: the Great Depression; two World Wars; the Global
Financial Crisis, to name but a few. Over time, experience has shown that it
is not the ferocity of any market storm that matters, it is what one does
during it that will most influence outcomes for shareholders. In such times,
one must not let the stress induced by such volatility shorten time horizons
or prompt decisions taken to reduce discomfort, to the potential detriment of
maximising long term shareholder value.
In recent months, your Managers have remained calm and focused on what they
have been entrusted to do - to invest patiently in outstanding growth
businesses from across the globe. They have not been blind to market gyrations
but claim no insight over short-term reactions. They have continued to explore
central assumptions on the multiple drivers of change including the continuing
digitisation of our economy, the intersection of information technology and
biology and the much-needed energy transition. Market weakness and fresh
borrowings have been utilised to add to higher conviction holdings. And as
travel restrictions eased, the Managers took the opportunity to make research
trips, visiting companies to gain insights and build stronger relationships
with management teams. Supportive ownership during difficult times is
important, as it is when the skies are their darkest that companies discover
which investors will stay the course.
For Scottish Mortgage, our time horizons reach far beyond most others but a
sunny long-term forecast is of little value if companies themselves cannot
navigate the current storms. It has been pleasing, therefore, to note that,
whilst many portfolio companies possess the potential to shape the future,
they have also continued to deliver strong operational performance and
maintained a robust financial position. As such, competition for capital
within the portfolio has remained strong.
Performance
Total Return(*)(%) 12 Months to
31 March 2022
NAV (13.1)
Share price (9.5)
FTSE All-World Index 12.8
Global Sector Average - NAV (2.3)
Global Sector Average - share price (2.5)
Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair
value(*).
* Alternative Performance Measure - see Alternative Performance
Measures and Glossary of Terms at the end of this announcement.
Following the strongest ever return produced by the Company in the previous
year, the Company posted a negative return in the year to 31 March 2022.
However, these last couple of years have been extraordinary and do not offer a
suitable timeframe over which to judge investment returns.
Some shareholders' minds may have been focussed on the drop in the share price
that occurred during the year. I would reiterate my annual caution against
drawing any meaningful conclusions from this datapoint, other than this time
round to see it as an expected shorter-term cost when the longer-term rewards
on offer are potentially so high. Over five and ten years, respectively, the
share price has increased on an annualised, total return basis by 23.5% and
23.1%.
Total Return(*)(%) Five Years to Ten Years to
31 March 2022 31 March 2022
NAV 198.4 633.9
Share price 187.5 697.3
FTSE All-World Index 68.1 231.7
Global Sector Average - NAV 123.8 400.3
Global Sector Average - share price 120.1 445.8
Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair
value(*).
* Alternative Performance Measure - see Glossary of Terms and
Alternative Performance Measures at the end of this announcement.
Low Cost
Put simply, lower charges directly translate into shareholders keeping more of
the returns generated from their investment. Ensuring that Scottish Mortgage
has one of the lowest cost ratios available amongst active strategies remains
central to the proposition for shareholders.
It is difficult to draw fair comparison with other investment funds, as so few
provide access to both public and private companies in one portfolio, but the
Company's ongoing charges of 0.32% are less than most actively managed funds
and significantly less than private equity funds. As such, the Board and the
Managers believe Scottish Mortgage offers shareholders excellent value for
money.
Financial Position
The Board remains committed to the strategic use of borrowings for the
Company, in the belief that gearing the portfolio in this way will enhance the
long term returns for shareholders. The Board views this as a significant
advantage of the investment trust structure.
As previously announced, the Company has raised, in aggregate, a further £504
million in long-term, fixed rate, senior, unsecured private placement notes,
denominated in a combination of sterling and US Dollars. These transactions
provided further long-term financing at very attractive rates. Two sterling
denominated notes of £100 million each were issued in August 2021: a 15 year
note with a fixed coupon of 2.03% and a 25 year note with a fixed coupon of
2.30%. In January 2022, three US Dollar notes were issued: one 30 year note
for US$175 million with a fixed coupon of 2.99%, one 35 year note for US$110
million with a fixed coupon of 3.04% and a 40 year note for US$115 million
with a fixed coupon of 3.09%. Additionally, further short-term bank borrowing
was secured at competitive rates, full details of which are provided at the
end of this document.
At the end of the year the overall value of the borrowing represented
approximately 14% of the Company's net asset value. That marked a higher level
than has been reported in recent years and was largely borne out of share
price volatility, rather than a change in approach with regards to the level
of gearing employed.
Earnings and Dividends
For several years the Board has encouraged the Managers to pursue a total
return policy, without regard to the split between dividends and capital
gains, believing this to be the best way of delivering value to shareholders.
The Managers have created a portfolio of some of the best growth companies
from around the world, both public and private. One common characteristic of
these businesses is the retention and investment of most of their earnings to
support R&D and future growth. This tends to result in a relatively low
level of dividend income for the Company.
While we believe that Scottish Mortgage is held by investors for what it can
offer in terms of capital growth, the Board acknowledges the importance to
some shareholders of providing a predictable and growing level of dividend
income to help plan their income needs.
After careful discussion, taking into consideration several factors such as
the income generated from the portfolio, capital appreciation in recent years
and the recent increase in inflation, we are recommending that this year the
total dividend be increased by 5% to 3.59 pence.
The Company's revenue earnings for the year are insufficient to cover the
dividend and the majority will be paid from realised capital reserves.
Collectively, we believe this to be appropriate, given the relatively
immaterial size of the element paid from capital compared with the scale of
the distributable capital gains achieved over the long term.
Liquidity
Over the period, the Company continued to operate its liquidity policy to
meet, in normal market conditions, imbalances in supply and demand of its own
shares over the short term. In total, the Company issued 35.0 million shares
and bought back 12.4 million, resulting in a net issuance totalling around
£361 million.
Portfolio Manager Transition
In March last year we announced that James Anderson would stand down as joint
manager on 30 April 2022. It is difficult to find words to adequately thank
James on behalf of shareholders. The investment returns during his tenure as
manager, then joint manager, speak for themselves: from 30 April 2000 to 31
March 2022, the Company produced returns of 1,155% in NAV terms and 1,483% in
share price terms against a FTSE All-World Index return of 354%.
Fortunately, James has said that there is a John Maynard Keynes quote for
every situation, so in this case I will opt for, "words ought to be a little
wild, for they are the assaults of thoughts on the unthinking". As manager,
James has been both a devoted investor for shareholders and a visionary who
has challenged convention, revolutionised the investment approach and
entertained shareholders along the way. The current high conviction style with
its large stakes in global private companies is a far cry from the trust he
inherited. He invested in what are now household names years before peers and
held on long after other investors had headed for the exit. As manager of one
the UK's most widely held investment funds, his approach has also attracted
its fair share of critics. James has never been shy of meeting his critics
head on, often in illuminating fashion. In fact, I believe he secretly rather
enjoyed it.
In his final Manager's Review last year, he invited Tom Slater and Lawrence
Burns to, "please help Scottish Mortgage become more unreasonable and more
distinctive as the pressures of the investment world continue to pull at us".
A hallmark of James and Tom's tenure was the constant drive to observe, learn,
and improve which resulted in an investment philosophy that continued to
evolve. The Board has full confidence that it will continue to do so under the
excellent partnership that has already been established between Tom and
Lawrence. Meantime, the Board would like to wish James the very best for the
future and thank him for his 22 years of loyal service.
Environmental and Social Governance (ESG)
The Board recognises the importance of considering ESG factors when making
investments. We believe it is the Board's responsibility to monitor activity
and progress in areas such as voting and engagement. Please note that the
Company's voting record is displayed on the website.
The Managers' approach to sustainable investing is underpinned by five core
beliefs that are detailed in 'Our Approach to Governance'. We recommend this
as valuable reading to all shareholders and it can be accessed on the
Company's website at: scottishmortgageit.com.
Climate change is rising up the agenda for many shareholders and its
importance was highlighted by the COP 26 summit in November 2021. One hopes
that we may reflect on this year as one in which momentum shifted and the need
for significant action to limit global warming was widely recognised.
Over the next few years, the climate-related regulatory and policy environment
will be turbulent. Against this backdrop, the Managers' purpose and philosophy
will remain clear. They are resolutely long term and look for companies that
will grow for many years to come. Just as they believe that only a small
number of companies deliver outstanding returns, so they suspect a small group
of innovators and industry leaders will prove to have an outsized influence on
a timely energy transition. With this in mind, they continue to deploy capital
in companies that can deliver returns for shareholders and have a meaningful
impact in tackling the climate crisis. Further details of these companies can
be found in 'Our Approach to Governance' noted above.
Board Update
I am delighted to report the appointment of a new Non-Executive Director, Mark
FitzPatrick, who joined the Board on 5 October 2021 and became Chair of the
Audit Committee from 1 April 2022. Mark brings with him a wealth of knowledge
having held a range of executive leadership roles. He is currently interim
group chief executive & chief operating officer of Prudential plc, a
provider of life and health insurance and asset management exclusively focused
on Asia and Africa. His fellow Board members and attendees have already
benefited from his contribution on a wide range of topics in the Board. Mark's
appointment is subject to shareholder ratification at the forthcoming AGM.
Maintaining the knowledge base and diversity of thought on the Board is
critical towards helping to guide the Company's future. The Company's policy
on this and Board tenure is set out in the Annual Report and Financial
Statements.
Shareholder Engagement
Following two years in which we have not been able to meet in person, I hope
to see as many shareholders as possible at the Scottish Mortgage Annual
General Meeting on 30 June 2022. Please note that this year the meeting will
be held at a new venue: The Waldorf Astoria Edinburgh - The Caledonian,
Princes Street, Edinburgh, EH1 2AB. In the event that circumstances change and
shareholders are not permitted to attend the AGM, further information will be
made available through the Company's website at scottishmortgageit.com and the
London Stock Exchange regulatory news service.
As always, the details of the outcomes of the AGM business will subsequently
be available on the website. These will be accompanied by filmed Managers'
updates. More generally, I would encourage shareholders to engage with the
Company throughout the year, not solely via the AGM. Now more than ever,
digital resources are important in allowing shareholders to stay well
informed. I am pleased to report that in the Autumn of 2022 a new Scottish
Mortgage website will be launched that will host more information to provide
you with even better insights.
Outlook
Coming off the back of a challenging year it is perhaps worth remembering that
investing in growing companies that help to shape the future has been a
successful strategy for as long as there have been stock markets. There is no
reason to think that this will change. In the long run, growth is both
essential and valuable, often more so than the stock market is prepared to
believe in the short term. Investors' confidence in companies' growth
prospects will rise and fall, which creates opportunities for patient
long-term investors, such as your Managers.
We remain confident that Scottish Mortgage merits a place in all portfolios
and shareholders benefit from a high-quality management team, with a clearly
defined investment philosophy and process.
Finally, I would like to thank everyone who has continued to work on and
support this Company throughout this year and look forward to the future.
Fiona McBain
Chair
18 May 2022
Past performance is not a guide to future performance.
See disclaimer at the end of this announcement.
Managers' Report
It has been a tough year. Markets have been driven by macroeconomic concerns,
geopolitics and the ongoing shockwaves from Covid-19. Investing in this
environment requires resilience and clarity of purpose. Our purpose is to
provide long-term funding and support for Growth companies and the
entrepreneurs building the future of our economy. This approach will sometimes
be popular and sometimes, as now, be out of favour. Because of such swings, we
discourage those with a time horizon under five years from investing in our
shares. While we do not enjoy discomfiting our fellow shareholders, we believe
resilience during drawdowns is necessary for generating long-term returns. We
can do most to support our investee companies at times of stress.
It is more useful to observe and analyse geopolitical and macroeconomic
developments than to engage in futile attempts at prediction. A standout
lesson from the past two years is that our world is, in Sir John Kay's terms,
radically uncertain. We must be wary of those making confident assertions
about the future. Instead, our job is to acknowledge the limits of prediction,
build a portfolio that is robust to changing conditions and focus on answering
the question, 'What is going on here?'.
We think many of the challenges the world faces today are the negative
consequences of two contentions that have driven our portfolio construction
over the last decade. Firstly, China's economic development is disrupting the
established world order. Secondly, technological progress has created
companies of increasing geopolitical importance and a complex network of
global interconnection. China's rise has brought a vast swathe of humanity out
of poverty and created opportunities for workers and investors alike. However,
this success has fuelled greater geopolitical ambition and a challenge to US
hegemony. Online network companies have built an infrastructure that creates
economic opportunity for millions, but the scale of their impact raises
questions of governance and trade-offs to limit the influence of bad actors.
It will not be possible to resolve these issues quickly or easily.
China
China's economy is now approximately three-quarters of the size of the United
States (larger when measured using purchasing power parity) and a multiple of
any other country. Its technology companies are world-leading in some
important areas. The Made in China 2025 plan aims to make good its
shortcomings in others. Indeed, by denying access to American technology, the
US government forces previously ambivalent Chinese corporates to develop
domestic supply chains. China's rise has been predictable, and it telegraphs
its intentions using five-year plans. The change in recent times has been the
deterioration in the China-US relationship. Worsening trade relations have
been matched by an increasingly hostile attitude from the US cross-party
defence and foreign policy establishment, which events in Ukraine have
intensified.
Investors in Chinese companies have suffered from President Xi's regulatory
crackdowns in the name of 'common prosperity'. In retrospect, it has been a
mistake to reduce our holdings in western online platform companies rather
than their Chinese counterparts. The censure of Ant Group at the time of its
proposed stock market listing turned out to be the first in a slew of actions
that included severe constraints on the online tutoring sector, restrictions
on video games, anti-monopoly activities against internet platforms and new
policies on data and privacy. Many of the actions in isolation are similar to
reforms that have been considered but less successfully implemented elsewhere.
In aggregate, they add up to a substantial reinforcement of government control
of the private sector. They have discouraged the supply of western capital.
The deteriorating geopolitical situation and significant job losses in the
technology and education sectors have made the Chinese government's aggressive
regulatory stance less tenable. Vice Premier Liu He's statement in March that
the authorities should deliver 'policies favourable to markets and be cautious
in introducing contractionary measures' may signal that the worst of the
crackdown is behind us. The challenge now for western investors is twofold:
incorporating the low but increased chances of future US sanctions into their
evaluation of Chinese investments and considering how the Chinese state may
limit the upside in stock prices for the breakthrough winners. Our Chinese
holdings have remained largely unchanged through this period of turbulence.
Technology
Technology and capital have been critical enablers of globalisation. Start-up
culture has spread from its homeland on the west coast of America to the east
coasts of both the US and China and then, in the mobile era, to anywhere with
an internet connection. However, the providers of the capital and skills
required to scale a start-up have remained relatively geographically
concentrated. US venture capital companies provided financing and reaped the
associated rewards from several of China's most successful start-ups. China's
softened stance on the common prosperity policy would suggest some
acknowledgement that western capital remains important. Before the war in
Ukraine, globalisation was already giving way to a world of three separate
economic zones (the Americas, Europe and Asia). It will be increasingly
challenging for investee companies to navigate these divides.
We have little to add on the central preoccupation of markets with inflation
and interest rates. Supply chains were already tight, and the combination of
war in Ukraine and a substantial Covid-19 outbreak in China has exacerbated
this situation. Capitalism, combined with the technical brilliance of
companies like ASML in the critical semiconductor area, will solve these
supply bottlenecks over time. We believe that technological progress is not
captured well in aggregate statistics and will be the primary determinant of
both growth and inflation in the long term. For example, on the supply side,
the production of batteries and solar panels continues to increase
exponentially. While the impact on energy markets takes time to accumulate,
manufacturing learning curves and ongoing technical improvements will
eventually drive down energy costs. From a demand perspective, the companies
we speak with that have embraced the modern tools of remote working report
that their new recruits are lower cost and higher quality than previously.
Portfolio
Diverse processes of significant change underpin the growth of our companies.
We believe that a greater understanding of disease's genomic and molecular
causes will result in targeted and personalised healthcare. People's attention
is shifting from traditional forms of media to online. The retail business is
going mobile and payments companies are becoming aggregators of information
and services. Enterprises are increasingly turning to the cloud for the
provision of IT services. We are moving away from a world of carbon-based
energy generation and transport. It is helpful to measure recent events and
stock prices against these contentions. Has healthcare become less likely to
personalise? Will people go back to offline forms of media and commerce? Are
we more likely to be using fossil fuels ten years from now?
For us, the answer to these questions is 'No!'. Indeed, recent events are
likely to have accelerated some of these processes. Consequently, we have not
made meaningful changes to the portfolio. We still own all the top 30 stocks
we owned a year ago (a relevant measure as approximately three-quarters of the
portfolio by weight is in the top 30 holdings). Moderna, the mRNA company
responsible for one of the key Covid vaccines, is now our largest holding,
partly because of additions. It is the only company in our top ten held for
less than five years. We think the approach that led to its Covid vaccine will
offer critical medical breakthroughs in the years to come. Tesla, the electric
car producer, is our second-largest holding despite further reductions. Demand
for its products far outstrips supply, and its operational execution has been
remarkable.
The most significant reduction has been Amazon, our largest holding for many
years. We still have enormous respect for the company and believe it has a
substantial opportunity ahead of it, particularly in providing cloud
infrastructure through Amazon Web Services. However, founder Jeff Bezos
stepping back from the CEO role is a source of concern given how central he
has been to the corporate culture. At the same time, the maths of future
growth is more challenging. E-commerce has grown from 5 per cent. to 15 per
cent. of the US retail market over the past ten years, tripling the market for
online retailers. Suppose e-commerce takes another ten percentage points of
market share over the next decade. In that case, the opportunity will only
have grown by two thirds. Given our focus on Growth, it now makes sense for us
to redeploy capital in other areas.
Private Companies
The contribution of venture investments to our portfolio and our thinking
continues to grow. As in previous years, most of our new ideas come through
private company investments. This year these included Solugen, a synthetic
biology company seeking to produce chemicals through low-carbon processes,
Redwood Materials, a battery recycling company and Capsule, an online
pharmacist. Successful private investments are growing into our top holdings.
We originally purchased over half of the top 30 as private investments. At
times of stress, our role in supporting younger loss-making companies becomes
ever more critical. We pay careful attention to those that can deal with
challenging conditions and use our capital to increase their chances of
success.
As a result of our reputation as patient owners, we get the opportunity to
invest in a diverse range of growth businesses. Hitherto, many of the most
exciting investments have had digital business models. We are now considering
more companies with physical products, which have a greater capital
requirement if they are to achieve scale. Scottish Mortgage is well suited to
investing in such companies, given its resources and time horizon. Our society
will not transition away from carbon-based energy and transportation without
substantial investment. Companies such as European battery manufacturer
Northvolt will be critical to progress, and we think the returns on capital
deployment can be very attractive. We are considering how we can help drive
progress in this and other essential areas, including taking a more
significant role in company formation.
Outlook
Most companies in the portfolio have delivered exceptional levels of growth
over the past two years in a challenging operating environment. Despite
geopolitical uncertainty, significant increases in the cost of living and
rapidly rising interest rate expectations in many parts of the world, we are
still expecting most to deliver high levels of growth this year. These firms
are well capitalised, led by exceptional leaders and have already demonstrated
high levels of adaptability and resilience. A small number of companies create
the majority of stock market returns regardless of the prevailing economic
conditions. We aim to identify companies with that potential and, where we
find them, to support them for as long as possible.
Tom Slater
Managers' Report
Long-Term Endurance
We believe that the long time horizon with which we approach investing is the
source of much of our distinctiveness and edge.
There are a great many investors and commentators focused on the short-term.
Consequently, our ability to derive an edge from such matters is limited. An
inordinate number of very smart people are already committed to that task.
Part of the challenge with trying to add value over short time horizons is
that you are competing against so many people in the same crowded pursuit.
However, if you are able to withstand the behavioural and institutional
pressures that come with operating over far longer time horizons then you can
dramatically reduce the number of people you are competing with. This in turn
makes the possibility of edge and genuine difference to the market far
greater.
We make our investment decisions by considering a company's prospects over a
decade and certainly no less than five years. We believe this is radically
different to the average market participant. In doing so it aligns us with the
fundamental progress of companies rather than the fashions of markets. After
all, it takes many years for large market opportunities to be seized, for
formidable competitive advantage to be recognised and for the vision of
founders to come to fruition.
Long and Winding Roads
What makes long-term investing difficult is that progress is rarely a
straight-line. Genuine long-term investing requires not just patience but the
ability to endure periods of intense discomfort. We have experienced such
discomfort often with our holdings. Tesla was first purchased by Scottish
Mortgage in January 2013. It experienced a fall of 40% that first year alone.
During the course of our ownership, it has now fallen by 30% or more on seven
occasions. Yet more extreme was NIO, the Chinese electric car maker. It
endured a near 90% drawdown in the year following its IPO before experiencing
its tremendous rise. Our other significant contributors to long-term
performance such as Amazon, Illumina and Tencent have all been subjected to
discomforting drawdowns during their time in the portfolio. The returns
generated by these companies could easily have been forgone if the endurance
of steep share price declines had not been weathered. Giving up on Tesla, on
any one of those seven occasions, would have been catastrophic to the returns
of Scottish Mortgage shareholders.
The work of Professor Hendrik Bessembinder, examining the last seven decades
of US equity returns, shows us our own examples are not unusual but
representative. He notes "even those investments that are the most successful
at long horizons involve painful losses over shorter horizons" with drawdowns
of 40% or more shown to be common and often lasting around a year.
We therefore know that significant drawdowns are a normal part of long-term
investing. Nevertheless, that does not dispel the uncertainty that inevitably
accompanies each occasion. We must always consider the possibility that the
world has changed and that our investment case is no longer valid. We have
never made a single investment we were certain would be successful. This is
why endurance in investing is so difficult. It is endurance not with the
certainty that we are right but with the acceptance that we could in the
fullness of time turn out to be wrong.
We must therefore engage in honest reflection during periods such as this. The
primary mechanism through which we do so is by returning to our scenario
analysis and updating as appropriate. For each holding we sketch out a range
of possible scenarios as to how a company might look in five to ten years.
Usually, those scenarios will range from zero to a very high figure. It is the
likelihood adjusted returns from those different scenarios that determines
whether we add, hold or redeploy our shareholders' capital elsewhere. As you
would expect we have revisited our holdings' future scenarios as they have
come under pressure.
http://www.rns-pdf.londonstockexchange.com/rns/0294M_3-2022-5-18.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0294M_3-2022-5-18.pdf)
The Drawdowns of Today
Moderna has experienced a 70 per cent. fall from the highs of last year. While
the market focus has been on the longevity of Covid vaccine revenues we have
felt this overlooks the progress being made to apply its mRNA technology to a
broader range of healthcare problems such as flu, Zika, HIV and even cancer.
It is hard to argue significant value is being placed upon that broader
potential platform when the company is valued by the market on a mere
five-times earnings and has nearly one-third of its market cap in cash. We
have therefore used the falls in the share price to add. This has in large
part been funded by reductions to Amazon and Tesla.
Delivery Hero, is a local delivery company headquartered in Berlin but
operating across 50 countries around the world from Argentina to Singapore. It
suffered a particularly precipitous fall in its share price. Nonetheless, when
re-visiting our investment case and accompanying scenario analysis we assessed
that, if anything, the likelihoods of success may have actually increased. Our
biggest concern had been competition in the key market of South Korea.
Nonetheless, the most recent evidence is that it is growing rapidly and
continuing to hold its near 80 per cent. market share in the country. Looking
across all the markets it operates in revenues grew over 50% annually in the
first three months of this year with a significant long-term growth
opportunity still remaining. Continued progress does not appear to be
recognised by the market. Indeed, over the last two years revenues have
increased nearly four-fold and yet the share price has fallen over 50 per
cent. during that same period.
We would far rather endure painful drawdowns such as these than too readily
abandon the companies and founders that have the potential to deliver the rare
outlier returns we seek. We remain deeply enthused by some of the long-term
changes we are seeing in the world and the companies bringing those changes to
life. The continuing digitisation of our society, the intersection of biology
and information technology and the much needed energy transition, each offer
tremendous long-term structural opportunities.
Of course, our reaction to some drawdowns will still be to conclude that the
investment case is not developing as hoped. This was the case with CureVac,
the German biotechnology company which we held for six years starting as a
private company. The lack of progress in multiple clinical trials compounded
with several disconcerting management changes led us to ascribe a
substantially lower likelihood of success and we therefore divested last
summer.
A Continued Commitment to Being Long-Term
Long-term endurance in turbulent times such as those of the last few months
can be challenging. In periods of stress people's time horizons contract, and
the pressure to sacrifice long-term gains for immediate respite grows by the
day. Should our own time horizon ever meaningfully shorten we would be
destroying our greatest advantage. We have no intention of ever doing this but
if we did our shareholders should sell. For it is precisely at such difficult
times that the distinctiveness, and importance, of taking a long-term
perspective is greatest - for us as investors, for the companies in which we
invest, and for our shareholders. We are deeply appreciative of the trust our
shareholders place in us, and of their support in our task.
Lawrence Burns
Income statement
The following is the preliminary statement for the year to 31 March 2022 which
was approved by the Board on 18 May 2022.
For the year ended 31 March
2022 2022 2022 2021 2021 2021
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments - (2,421,025) (2,421,025) - 9,265,424 9,265,424
Currency (losses)/gains on investments - (41,559) (41,559) - 14,093 14,093
Income 2 23,262 - 23,262 16,347 - 16,347
Investment management fee - (51,647) (51,647) - (42,197) (42,197)
Other administrative expenses (6,818) - (6,818) (6,302) - (6,302)
Net return before finance costs
and taxation 16,444 (2,514,231) (2,497,787) 10,045 9,237,320 9,247,365
Finance costs of borrowings - (44,651) (44,651) - (30,270) (30,270)
Net return before taxation 16,444 (2,558,882) (2,542,438) 10,045 9,207,050 9,217,095
Tax 137 (2,048) (1,911) (976) (2,459) (3,435)
Net return after taxation 16,581 (2,560,930) (2,544,349) 9,069 9,204,591 9,213,660
Net return per ordinary share 4 1.16p (179.48p) (178.32p) 0.62p 632.22p 632.84p
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital return columns are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing
operations.
A Statement of Comprehensive Income is not required as all gains and losses of
the Company have been reflected in the above statement.
Balance sheet
As at 31 March
2022 2022 2021 2021
Notes £'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or 16,669,469 18,042,688
loss
6
Current assets
Debtors 13,142 20,883
Cash and cash 229,962 212,128
equivalents
243,104 233,011
Creditors
Amounts falling due within one
year:
7 (502,032) (264,550)
Bank loans (23,814) (46,438)
Other creditors and accruals
(525,846) (310,988)
Net current liabilities (282,742) (77,977)
Total assets less current liabilities 16,386,727 17,964,711
Creditors
Amounts falling due after more than one year: Bank loans 7
Loan notes Debenture stock (516,384) (362,289)
Provision for deferred tax liability (985,613) (482,629)
(127,559) (127,864)
(1,172) (2,459)
(1,630,728) (975,241)
14,755,999 16,989,470
Capital and reserves Called up share capital Share premium account Capital
redemption reserve Capital reserve
9 74,239 74,239
Revenue reserve
928,400 781,771
19,094 19,094
13,717,685 16,105,297
16,581 9,069
Total shareholders' funds 14,755,999 16,989,470
Net asset value per ordinary share
(after deducting borrowings at book)* 1,021.8p 1,195.1p
* See Glossary of Terms and Alternative Performance Measures at the end of
this announcement.
Statement of changes in equity
For the year ended 31 March 2022
Called up Share premium account Capital redemption Total shareholders'
share capital £'000 reserve Capital reserve * Revenue reserve * funds
£'000 £'000 £'000 £'000 £'000
Notes
Shareholders' funds at 1 April 2021 74,239 781,771 19,094 16,105,297 9,069 16,989,470
Net return after taxation - - - (2,560,930) 16,581 (2,544,349)
Ordinary shares bought back into treasury - - - (157,597) - (157,597)
Ordinary shares sold from treasury - 146,629 - 371,617 - 518,246
Dividends paid during the year 5 - - - (40,702) (9,069) (49,771)
Shareholders' funds at 31 March 2022 74,239 928,400 19,094 13,717,685 16,581 14,755,999
For the year ended 31 March 2021
Called up Share premium account Capital redemption Total shareholders'
share capital £'000 reserve Capital reserve * Revenue reserve * funds
£'000 £'000 £'000 £'000 £'000
Notes
Shareholders' funds at 1 April 2020 74,239 764,521 19,094 7,363,915 22,865 8,244,634
Net return after taxation - - - 9,204,591 9,069 9,213,660
Ordinary shares bought back into treasury - - - (613,920) - (613,920)
Ordinary shares sold from treasury - 17,250 - 176,309 - 193,559
Dividends paid during the year 5 - - - (25,598) (22,865) (48,463)
Shareholders' funds at 31 March 2021 74,239 781,771 19,094 16,105,297 9,069 16,989,470
The Capital Reserve balance at 31 March 2022 includes investment holding gains
of £6,560,689,000(31 March 2021 - gains of £10,259,431,000).
* The Revenue Reserve and Capital Reserve (to the extent it constitutes
realised profits) are distributable.
Cash flow statement
For the year ended 31 March
2022 2022 2021 2021
Notes £'000 £'000 £'000 £'000
Cash flows from operating activities
Net return before taxation (2,542,438) 9,217,095
Losses/(gains) on investments 2,421,025 (9,265,424)
Currency losses/(gains) 41,559 (14,093)
Finance costs of borrowings 44,651 30,270
Overseas withholding tax incurred (5,104) (976)
Changes in debtors and creditors (4,054) 5,485
Cash used in operations (44,361) (27,643)
Interest paid (41,545) (30,316)
Net cash outflow from operating activities (85,906) (57,959)
Cash flows from investing activities
Acquisitions of investments (2,687,415) (4,168,249)
Disposals of investments 1,652,769 4,498,167
Net cash (outflow)/inflow from investing activities (1,034,646) 329,918
Equity dividends (49,771) (48,463)
paid
5
Ordinary shares bought back into treasury and stamp duty thereon (183,015) (588,502)
Ordinary shares sold from treasury 518,246 193,559
Debenture repaid - (20,000)
Bank loans repaid (265,727) -
Bank loans drawn down and loan notes issued 1,109,394 384,519
Net cash inflow/(outflow) from financing activities 1,129,127 (78,887)
Increase in cash and cash equivalents 8,575 193,072
Exchange movements 9,259 (19,470)
Cash and cash equivalents at start of period 212,128 38,526
Cash and cash equivalents at end of period* 229,962 212,128
* Cash and cash equivalents represent cash at bank and
short term money market deposits repayable on demand.
Thirty largest holdings and twelve month performance at 31 March 2022
http://www.rns-pdf.londonstockexchange.com/rns/0294M_1-2022-5-18.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0294M_1-2022-5-18.pdf)
Long Term Investment
Portfolio Holding Periods as at 31 March 2022
More Than 5 Years 2-5 Years Less Than 2 Years
Name % of total assets Name % of total assets Name % of total assets
Tesla Inc 6.6 NIO Inc (P) 2.1 Moderna 7.1
Illumina(10) 6.4 Space Exploration Northvolt AB (u) 2.3
ASML 6.4 Technologies (u) 2.0 Blockchain.com (u) 1.5
Tencent Holdings(10) 4.2 MercadoLibre 2.0 Adyen 1.3
NVIDIA 3.4 ByteDance Ltd (u) 1.9 Epic Games Inc (u) 0.9
Amazon.com(10) 3.0 Stripe Inc (u) 1.4 10x Genomics 0.6
Alibaba Group (P) 2.5 Delivery Hero 1.4 Ocado 0.6
Kering(10) 2.4 Tempus Labs Inc (u) 1.2 Nuro Inc (u) 0.5
Meituan Dianping (P) 2.3 Snowflake Inc (P) 1.0 Carvana 0.5
The Brandtech Group (u) 1.9 Zipline International Inc (u) 0.9 DoorDash 0.5
Ginkgo BioWorks Inc (P) 1.6 Affirm Holdings Inc (P) 0.9 Redwood Materials Inc (u) 0.4
Netflix 1.6 Pinduoduo Inc 0.8 Blockstream Corporation Inc (u) 0.4
Ferrari 1.4 Ant International Ltd (u) 0.8 ChargePoint Holdings Inc 0.4
Zalando 1.3 Shopify 0.8 Solugen Inc (u) 0.4
Spotify Technology SA (P) 1.1 Wayfair 0.7 Relativity Space Inc (u) 0.4
Wise Plc (P) 1.1 The Production Board (u) 0.7 Honor Technology Inc (u) 0.3
HelloFresh (P) 1.0 Tanium Inc (u) 0.6 Salt Pay Co Ltd (u) 0.3
Denali Therapeutics (P) 0.9 Zoom 0.5 Databricks Inc (u) 0.3
Warby Parker Inc (P) 0.6 Aurora Innovation Inc (P) 0.5 Rappi Inc (u) 0.3
Housing Development Finance Carbon Inc (u) 0.5 Jiangxiaobai Holdings Ltd (u) 0.3
Corporation(10) 0.6
Recursion Pharmaceuticals Inc (P) 0.4 GoPuff Inc (u) 0.3
Atlas Copco(10) 0.5 Vir Biotechnology Inc (P) 0.4 Lilium NV(P) 0.3
Kinnevik 0.5 Indigo Agriculture Inc (u) 0.4 Workrise Technologies Inc (u) 0.3
Airbnb Inc (P) 0.4 Uptake Technologies Inc (u) 0.4 Capsule (u) 0.3
Thumbtack Inc (u) 0.3 Bolt Threads Inc (u) 0.3 Horizon Robotics (u) 0.3
Essence Healthcare (u) 0.3 JRSK Inc (Away) (u) 0.3 Clover Health Investments(P) 0.1
Innovation Works Convoy Inc (u) 0.3 Clear Secure Inc 0.1
Development Fund (u)(10) 0.1 HeartFlow Inc (u) 0.3 PsiQuantum (u) 0.1
WI Harper Fund VII (u) (10) 0.1 Joby Aviation Inc (P) 0.2 KE Holdings 0.1
Zocdoc Inc (u) 0.1 Sana Biotechnology Inc (P) 0.2 Zymergen Inc(P) <0.1
ARCH Ventures Fund IX (u) 0.1 Full Truck Alliance Ltd (P) 0.2 ARCH Ventures Fund XI (u) <0.1
JD.com 0.1 KSQ Therapeutics Inc (u) 0.2 Beam Therapeutics <0.1
Sinovation Fund III (u) 0.1 Rubius Therapeutics Inc(P) 0.1 Antler Est Africa Fund (u) <0.1
WI Harper Fund VIII (u) 0.1 ARCH Ventures Fund X <0.1
Overage (u)
Udacity Inc (u) 0.1 ARCH Ventures Fund X (u) <0.1
Global AI Opportunities Fund <0.1
Intarcia Therapeutics Inc (u) -
( )
Total 53.1 Total 24.4 Total 21.2
(u) Denotes unlisted (private company) security.
(P) Denotes listed security previously held in the portfolio as an
unlisted (private company) security.
(10 ) Denotes security held for more than 10 years.
( )
Net liquid assets represent 1.3% of total assets. See Glossary of Terms and
Alternative Performance Measures at the end of this announcement.
List of Investments as at 31 March 2022
http://www.rns-pdf.londonstockexchange.com/rns/0294M_2-2022-5-18.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0294M_2-2022-5-18.pdf)
Absolute Performance to 31 March 2022
Total return* (%) for five years Total return* (%) for ten years Total return* (%) since inception† (2 June 2010)
Overall investment portfolio 194.7 620.7 777.5
Private and previously private companies 123.3 907.0 744.2
FTSE All-World Index (in sterling terms) 68.1 231.7 287.7
* For the definition of total return please see Glossary of Terms and
Alternative Performance Measures at the end of this announcement.
† Date of investment in first private company security. Source:
StatPro/Baillie Gifford and underlying index providers.
Past performance is not a guide to future performance
Distribution of total assets†
At At
31 March 2022 31 March
% 2021
%
North America 59.7 50.0
United States 58.5 48.9
Canada 1.2 1.1
Europe 21.9 24.0
United Kingdom 2.0 1.6
Eurozone 15.5 17.7
Developed Europe (non euro) 4.4 4.7
Asia 16.4 24.3
China 15.8 23.7
India 0.6 0.6
South America 2.0 1.7
Brazil 2.0 1.7
100.0 100.0
( )
(†) Total assets represent total net assets before deduction of all
borrowings
Notes to the financial statements
1. The Financial Statements for the year to 31 March 2022 have been prepared in
accordance with FRS 102, 'The Financial Reporting Standard applicable in the
UK and Republic of Ireland' and on the basis of the accounting policies set
out in the Annual Report and Financial Statements which are unchanged from the
prior year and have been applied consistently.
2. Income Year to Year to
31 March 31 March
2022 2021
£'000 £'000
Income from investments 23,239 16,347
Other income 23 -
23,262 16,347
3. Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford
& Co, has been appointed as the Company's Alternative Investment Fund
Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has
delegated portfolio management services to Baillie Gifford & Co. Dealing
activity and transaction reporting has been further sub-delegated to Baillie
Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.
The Investment Management Agreement is terminable on not less than six months'
notice. The annual management fee for the year to 31 March 2022 was 0.30% on
the first £4 billion of total assets less current liabilities (excluding
short term borrowings for investment purposes) and 0.25% on the remaining
assets.
4. Net Return per Ordinary Share Year to Year to
31 March 31 March
2022 2021
£'000 £'000
Revenue return on ordinary activities after taxation 16,581 9,069
Capital return on ordinary activities after taxation (2,560,930) 9,204,591
(2,544,349) 9,213,660
Weighted average number of ordinary shares in issue 1,426,897,806 1,455,916,335
Net
return
per
ordinar
y share
figures
are
based
on the
above
totals
of
revenue
and
capital
and the
weighte
d
average
number
of
ordinar
y
shares
(exclud
ing
treasur
y
shares)
in
issue
during
the
year.
There
are no
dilutiv
e or
potenti
ally
dilutiv
e
shares
in
issue.
5. Ordinary Dividends 2022 2021 2022 2021
£'000 £'000
Amounts recognised as distributions in the year:
Previous year's final (paid 1 July 2021) 1.97p 1.86p 27,984 27,306
Interim (paid 3 December 2021) 1.52p 1.45p 21,787 21,157
3.49p 3.31p 49,771 48,463
Also
set out
below
are the
total
dividen
ds paid
and
propose
d in
respect
of the
financi
al
year,
which
is the
basis
on
which
the
require
ments
of
section
1158 of
the
Corpora
tion
Tax Act
2010
are
conside
red.
The
revenue
availab
le for
distrib
ution
by way
of
dividen
d for
the
year is
£16,581
,000
(2021 -
£9,069,
000).
Notes to the financial statements (ctd)
5. Ordinary Dividends (Ctd)
2022 2021 2022 2021
£'000 £'000
Dividends paid and payable in respect of the year:
Interim dividend per ordinary share (paid 3 December 2021) 1.52p 1.45p 21,787 2
1
,
1
5
7
Proposed final dividend per ordinary share (payable 1 July 2022) 2.07p 1.97p 29,894 2
8
,
0
0
6
3.59p 3.42p 51,681 4
9
,
1
6
3
If approved the final dividend will be paid on 1 July 2022 to all shareholders
on the register at the close of business on 6 June 2022. The ex-dividend date
is 1 June 2022. The Company's Registrars offer a Dividend Reinvestment Plan
and the final date for elections for this dividend is 10 June 2022.
6. As at Level 1 Level 2 Level 3 Total
31 March 2022 £'000 £'000 £'000 £'000
Equities/funds 12,473,650 - - 12
,4
73
,6
50
Private Company ordinary shares - - 609,779 60
9,
77
9
Private Company preference shares† - - 3,470,105 3,
47
0,
10
5
Private Company convertible notes - - 38,853 38
,8
53
Limited Partnership Investments - - 77,082 77
,0
82
Total financial asset investments 12,473,650 - 4,195,819 16
,6
69
,4
69
As at Level 1 Level 2 Level 3 To
ta
31 March 2021 £'000 £'000 £'000 l
£'
00
0
Equities/funds 14,345,430 - - 14
,3
45
,4
30
Private Company ordinary shares - - 597,839 59
7,
83
9
Private Company preference shares† - - 3,004,792 3,
00
4,
79
2
Private Company convertible notes - - 15,949 15
,9
49
Warrants - - 6,764 6,
76
4
Limited Partnership Investments - - 71,914 71
,9
14
Total financial asset investments 14,345,430 - 3,697,258 18
,0
42
,6
88
† The investments in preference shares are not classified as
equity holdings as they include liquidation preference rights that determine
the repayment (or multiple thereof) of the original investment in the event of
a liquidation event such as a take-over.
Investments in securities are financial assets designated at fair value
through profit or loss on initial recognition. In accordance with Financial
Reporting Standard 102, the preceding tables provide an analysis of these
investments based on the fair value hierarchy described below, which reflects
the reliability and significance of the information used to measure their fair
value.
6. (Ctd) Fair Value Hierarchy
The fair value hierarchy used to analyse the fair values of financial assets
is described below. The levels are determined by the lowest (that is the least
reliable or least independently observable) level of input that is significant
to the fair value measurement for the individual investment in its entirety as
follows:
Level 1 - using unadjusted quoted prices for identical instruments in an
active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that
are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
Private Company Investments
Private company investments are valued at fair value by the Directors
following a detailed review and appropriate challenge of the valuations
proposed by the Managers. The Managers' private company investment policy
applies techniques consistent with the International Private Equity and
Venture Capital Valuation Guidelines 2018 ('IPEV'). The techniques applied are
predominantly market- based approaches. The market-based approaches available
under IPEV are set out below and are followed by an explanation of how they
are applied to the Company's private company portfolio:
- Multiples;
- Industry Valuation Benchmarks; and
- Available Market Prices.
The nature of the private company portfolio currently will influence the
valuation technique applied. The valuation approach recognises that, as stated
in the IPEV Guidelines, the price of a recent investment, if resulting from an
orderly transaction, generally represents fair value as at the transaction
date and may be an appropriate starting point for estimating fair value at
subsequent measurement dates. However, consideration is given to the facts and
circumstances as at the subsequent measurement date, including changes in the
market or performance of the investee company. Milestone analysis is used
where appropriate to incorporate the operational progress of the investee
company into the valuation. Additionally, the background to the transaction
must be considered. As a result, various multiples-based techniques are
employed to assess the valuations particularly in those companies with
established revenues. Discounted cashflows are used where appropriate. An
absence of relevant industry peers may preclude the application of the
Industry Valuation Benchmarks technique and an absence of observable prices
may preclude the Available Market Prices approach. All valuations are
cross-checked for reasonableness by employing relevant alternative techniques.
The private company investments are valued according to a three monthly cycle
of measurement dates. The fair value of the private company investments will
be reviewed before the next scheduled three monthly measurement date on the
following occasions:
- at the year end and half year end of the Company; and
- where there is an indication of a change in fair value as defined
in the IPEV guidelines (commonly referred to as 'trigger' events).
7. Creditors falling due within one year include drawings under the following
borrowing facilities:
Borrowing facilities at 31 March 2022
A 5 year US$50 million revolving loan facility has been arranged with The
Royal Bank of Scotland International Limited. A 3 year US$391 million
revolving loan facility has been arranged with National Australia Bank.
A 3 year US$100 million revolving loan facility has been arranged with
Scotiabank.
A 3 year US$120 million revolving loan facility has been arranged with
Industrial and Commercial Bank of China.
The revolving loan facilities are classified as due within one year due to the
revolving nature of the facilities and the short draw down periods. The
facilities are available until their termination dates which are in more than
one year. The maturity table on page 74 of the Annual Report and Financial
Statements reflects the termination dates of the revolving facilities.
At 31 March 2022 drawings were as follows:
The Royal Bank of Scotland International Limited US$50
million (revolving facility expiring 27 August 2026) at an interest
rate (at 31 March 2022) of 2.108% per annum
National Australia Bank Limited
US$391 million
(revolving facility expiring 20 September 2024) at an
interest rate (at 31 March 2022) of 2.184% per annum
Scotiabank
US$100 million (revolving facility expiring 17 December 2024) at an
interest rate (at 31 March 2022) of 1.401% per annum
Industrial and Commercial Bank of China
US$120 million loan (revolving facility expiring
12 October 2024) at an
interest rate (at 31 March 2022) of 1.588% per annum
At 31 March 2021 drawings were as follows:
The Royal Bank of Scotland International Limited US$80 million
at an interest rate of 1.050% per annum
US$85 million at an interest rate of 0.990% per annum
National Australia Bank Limited
US$200 million at an
interest rate of 1.75% per annum
During the period, the US$200 million revolving 3 year loan with National
Australia Bank Limited ('NAB') was refinanced with a US$391 million revolving
3 year loan with NAB, the US$80 million revolving 3 year loan with Royal Bank
of Scotland International Limited ('RBSI') was refinanced on expiry with a
US$180 million 5 year fixed rate credit facility with RBSI and the US$85
million revolving 2 year loan with RBSI was part refinanced with a US$50
million revolving 5 year loan with RBSI.
Additionally, a US$120 million revolving 3 year loan was drawn down from
Industrial and Commercial Bank of China Limited ('ICBC') and a US$100 million
revolving 3 year loan was drawn down from Scotiabank.
The main covenants which are tested monthly are:
(i) Total borrowings shall not exceed 35% of the
Company's adjusted net asset value.
(ii) Total borrowings shall not exceed 35% of the
Company's adjusted total assets.
(iii) The Company's minimum net asset value shall be £2,500
million.
(iv) The Company shall not change the investment manager
without prior written consent of the lenders.
Following the year end, on 1 April 2022 the US$391 million revolving loan
facility with NAB was reduced to a facility of US$350 million under the terms
of the facility agreement and the drawings were reduced accordingly by US$41
million.
7. (Ctd) Creditors falling due after more than one year:
Nominal rate % Effective rate% 2022 2021
£'000 £'000
Debenture stocks:
£75 million 6.875% debenture stock 2023 6.875 6.9 74,969 74,932
£50 million 6-12% stepped interest debenture stock 2026 12.0 10.8 51,915 52,257
£675,000 4½% irredeemable debenture stock 675 675
Unsecured loan notes:
£30 million 2.91% 2038 2.91 2.91 29,967 29,964
£150 million 2.30% 2040 2.30 2.30 149,821 149,811
£50 million 2.94% 2041 2.94 2.94 49,942 49,939
£45 million 3.05% 2042 3.05 3.05 44,908 44,904
£30 million 3.30% 2044 3.30 3.30 29,938 29,935
£20 million 3.65% 2044 3.65 3.65 19,970 19,969
€18 million 1.65% 2045 1.65 1.65 15,192 15,314
£30 million 3.12% 2047 3.12 3.12 29,936 29,934
£90 million 2.96% 2048 2.96 2.96 89,892 89,888
€27 million 1.77% 2050 1.77 1.77 22,788 22,971
£100 million 2.03% 2036 2.03 2.03 99,922 -
£100 million 2.30% 2046 2.30 2.30 99,920 -
US$175 million 2.99% 2052 2.99 2.99 132,745 -
US$110 million 3.04% 2057 3.04 3.04 83,440 -
US$115 million 3.09% 2062 3.09 3.09 87,232 -
Long term bank loans:
US$180 million RBSI fixed rate loan 2026 136,712 -
US$200 million RBSI fixed rate loan 2024 151,901 144,959
US$300 million Scotiabank fixed rate loan 2026 227,771 217,330
Provision for deferred tax liability (see note below) 1,172 2,459
1,630,728 975,241
Debenture Stocks
The debenture stocks are stated at the cumulative amount of net proceeds after
issue, plus accrued finance costs attributable to the stepped interest
debentures. The cumulative effect is to increase the carrying amount of
borrowings by £1,884,000 (2021 - £2,189,000) over nominal value. The
debenture stocks are secured by a floating charge over the assets of the
Company.
Unsecured Loan Notes
During the period the Company arranged the following private placement
unsecured loan notes:
- £100 million at a coupon of 2.03% maturing on 10 August 2036
- £100 million at a coupon of 2.30% maturing on 10 August 2046
- US$175 million at a coupon of 2.99% maturing on 19 January 2052
- US$110 million at a coupon of 3.04% maturing on 19 January in 2057
- US$115 million at a coupon of 3.09% maturing on 19 January 2062.
The unsecured loan notes are stated at the cumulative amount of net proceeds
after issue. The cumulative effect is to reduce the carrying amount of
borrowing by £829,000 (2021 - £705,000).
Long Term Bank Loans
During the year, the Company arranged the following loan facilities:
- US$180 million loan with The Royal Bank of Scotland International
Limited at a rate of 2.601% maturing on 9 April 2026;
The long term bank loans are stated at the cumulative amount of net proceeds
after issue. The cumulative effect is to reduce the carrying amount of
borrowing by £76,000 (2021 - nil).
Provision for Deferred Tax Liability
The deferred tax liability provision at 31 March 2022 of £1,172,000 (31 March
2021 - £2,459,000) relates to a potential liability for Indian capital gains
tax that may arise on the Company's Indian investment should it be sold in the
future, based on the net unrealised taxable capital gain at the period end and
on enacted Indian tax rates. The amount of any future tax amounts payable may
differ from this provision, depending on the value and timing of any future
sales of such investments and future Indian tax rates.
8. The fair value of borrowings at 31 March 2022 was £2,001,685,000 (2021 -
£1,309,443,000). Net asset value per share (after deducting borrowings at
fair value) was 1,030.8p (2021 - 1,190.0p).
9. 2022 2022 2021 2021
Number £'000 Number £'000
Called up share capital: Ordinary shares of 5p each
Allotted, called up and fully paid 1,444,131,650 72,207 1,421,618,969 71,081
Treasury shares of 5p each 40,649,230 2,032 63,161,911 3,158
Total 1,484,780,880 74,239 1,484,780,880 74,239
The Company's authority permits it to hold shares bought back 'in treasury'.
Such treasury shares may be subsequently either sold for cash (at, or at a
premium to, net asset value per ordinary share) or cancelled. In the year to
31 March 2022, 12,437,319 shares with a nominal value of £621,000 were bought
back at a total cost of £157,597,000 and held in treasury (2021 - 56,365,839
shares with a nominal value of £2,818,000 were bought back at a total cost of
£613,920,000 and held in treasury). At 31 March 2022 the Company had
authority to buy back 206,818,922 ordinary shares.
Under the provisions of the Company's Articles, the share buy-backs are funded
from the capital reserve.
In the year to 31 March 2022, the Company sold from treasury 34,950,000
ordinary shares at a premium to net asset value, with a nominal value of
£1,747,500 raising net proceeds of £518,246,000 (31 March 2021 - 24,725,000
ordinary shares at a premium to net asset value, with a nominal value of
£1,236,250 raising net proceeds of £193,559,000). At 31 March 2022 the
Company had authority to issue or sell from treasury a further 107,211,896
ordinary shares (40,649,230 shares were held in treasury at 31 March 2022).
10. Transaction costs on purchases amounted to £576,00 (2021 - £2,661,000) and
transaction costs on sales amounted to £209,000 (2021 - £430,000).
11. The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 March 2022 or 2021 but is derived
from those accounts. Statutory accounts for 2021 have been delivered to the
Registrar of Companies, and those for 2022 will be delivered in due course.
The auditor has reported on those accounts; the reports were (i) unqualified,
(ii) did not include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies Act 2006.
12. Related Parties and Transaction with the Manager
No Director has a contract of service with the Company. During the year no
Director was interested in any contract or other matter requiring disclosure
under section 412 of the Companies Act 2006.
The management fee payable for the year end and details of the management fee
arrangements are included on note 3 above.
13. The Annual Report and Financial Statements will be available on the Managers'
website www.scottishmortgageit.com (http://www.scottishmortgageit.com) ‡ on
or around 26 May 2022.
Glossary of Terms and Alternative Performance Measures (APM)
An Alternative Performance Measure ('APM') is a financial measure of
historical or future financial performance, financial position, or cashflows,
other than a financial measured defined or specified in the applicable
financial reporting framework. The APMs noted below are commonly used measures
within the investment trust industry and served to improve comparability
between investment trusts.
Total Assets
Total assets less current liabilities, before deduction of all borrowings.
Net Asset Value
Also described as shareholders' funds. Net Asset Value (NAV) is the value of
total assets less liabilities (including borrowings). The Net Asset Value can
be calculated on the basis of borrowings stated at book value, fair value and
par value. An explanation of each basis is provided below. The NAV per share
is calculated by dividing this amount by the number of ordinary shares in
issue (excluding treasury shares).
Net Asset Value (Borrowings at Book)/Shareholders' Funds
Borrowings are valued at adjusted net issue proceeds.
Net Asset Value (Borrowings at Fair Value) (APM)
Borrowings are valued at an estimate of their market worth. A reconciliation
to Net Asset Value with borrowings at book value is provided below.
31 March 2022 31 March 2021
Net Asset Value per ordinary share (borrowings at book value) 1,021.8p 1,195.1p
Shareholders' funds (borrowings at book value) £14,755,999k £16,989,470k
Add: book value of borrowings £2,131,588k £1,237,332k
Less: fair value of borrowings (£2,001,885k) (£1,309,443k)
Net Asset Value (borrowings at fair value) £14,885,702k £16,917,359k
Shares in issue at year end (excluding treasury shares) 1,444,131,650 1,421,618,969
Net Asset Value per ordinary share (borrowings at fair value) 1,030.8p 1,190.0p
Net Asset Value (Borrowings at Par) (APM)
Borrowings are valued at their nominal par value. A reconciliation to Net
Asset Value with borrowings at book value is provided below.
31 March 2022 31 March 2021
Net Asset Value per ordinary share (borrowings at book value) 1,021.8p 1,195.1p
Shareholders' funds (borrowings at book value) £14,755,999k £16,989,470k
Add: allocation of interest on borrowings £2,207k £2,618k
Less: expenses of debenture issue (£1,228k) (£1,135k)
Net Asset Value (borrowings at par value) £14,756,978k £16,990,953k
Shares in issue at year end (excluding treasury shares) 1,444,131,650 1,421,618,969
Net Asset Value per ordinary share (borrowings at par value) 1,021.9p 1,195.2p
Net Liquid Assets
Net liquid assets comprise current assets less current liabilities, excluding
borrowings.
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's share price is
rarely the same as its NAV. When the share price is lower than the NAV per
share it is said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the share price is
higher than the NAV per share, it is said to be trading at a premium.
2022 2022 2021 2021
NAV (book) NAV (fair) NAV (book) NAV (fair)
Closing NAV per share 1,021.8p 1,030.8p 1,195.1p 1,190.0p
Closing share price 1,026p 1,026p 1,137.0p 1,137.0p
(Discount)/premium 0.4% (0.5%) (4.9%) (4.5%)
Ongoing Charges Ratio (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a
percentage of the average net asset value (with debt at fair value). The
ongoing charges have been calculated on the basis prescribed by the
Association of Investment Companies.
A reconciliation from the expenses detailed in the Income Statement is
provided below.
2022 2021
Investment management fee £51,647k £42,197k
Other administrative expenses £6,818k £6,302k
Total expenses (a) £58,465k £48,499k
Average net asset value (with borrowings deducted at fair value) (b) £18,094,508k £14,224,915k
Ongoing charges ((a) ÷(b) expressed as a percentage) 0.32% 0.34%
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other public company, an
investment trust can borrow money to invest in additional investments for its
portfolio. The effect of the borrowing on the shareholders' assets is called
'gearing'. If the Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same. But if the value of
the Company's assets falls, the situation is reversed. Gearing can therefore
enhance performance in rising markets but can adversely impact performance in
falling markets.
Gearing represents borrowings at book value less cash and cash equivalents
(including any outstanding trade settlements) expressed as a percentage of
shareholders' funds.
31 March 2022 31 March 2021
Borrowings (at book value) £2,131,588k £1,237,332k
Less: cash and cash equivalents (£229,962k) (£212,128k)
Less: sales for subsequent settlement (£6,450k) (£19,610k)
Add: purchases for subsequent settlement - -
Adjusted borrowings (a) £1,895,176k £1,005,594k
Shareholders' funds (b) £14,755,999k £16,989,470k
Gearing: (a) as a percentage of (b) 13% 6%
Potential gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
31 March 2022 31 March 2021
Borrowings (at book value) (a) £2,131,588k £1,237,332k
Shareholders' funds (b) £14,755,999k £16,989,470k
Potential gearing: (a) as a percentage of (b) 14% 7%
Leverage (APM)
For the purposes of the UK Alternative Investment Fund Managers (AIFM)
Regulations, leverage is any method which increases the Company's exposure,
including the borrowing of cash and the use of derivatives. It is expressed as
a ratio between the Company's exposure and its net asset value and can be
calculated on a gross and a commitment method. Under the gross method,
exposure represents the sum of the Company's positions after the deduction of
sterling cash balances, without taking into account any hedging and netting
arrangements. Under the commitment method, exposure is calculated without the
deduction of sterling cash balances and after certain hedging and netting
positions are offset against each other.
Turnover (APM)
Annual turnover is calculated on a rolling 12 month basis. The lower of
purchases and sales for the 12 months is divided by the average assets, with
average assets being calculated on assets as at each month's end.
Active Share (APM)
Active share, a measure of how actively a portfolio is managed, is the
percentage of the portfolio that differs from its comparative index. It is
calculated by deducting from 100 the percentage of the portfolio that overlaps
with the comparative index. An active share of 100 indicates no overlap with
the index and an active share of zero indicates a portfolio that tracks the
index.
Total Return (APM)
The total return is the return to shareholders after reinvesting the net
dividend on the date that the share price goes ex-dividend.
2022 2022 2022 2021 2021 2021
NAV NAV Share NAV NAV Share
(book) (fair) Price (book) (fair) Price
Closing NAV per share/share price (a) 1,021.8p 1,030.8p 1,026.0p 1,195.1p 1,190.0p 1,137.0p
Dividend adjustment factor* (b) 1.0026 1.0026 1.0039 1.0039 1.0040 1.0038
Adjusted closing NAV per share/share price (c = a x b) 1,024.2p 1,033.5p 1,030.0p 1,199.8p 1,194.8p 1,141.3p
Opening NAV per share/share price (d) 1,195.1p 1,190.0p 1,137.0p 567.3p 565.7p 573.5p
Total return (c ÷ d) - 1 (14.3%) (13.1%) (9.5%) 111.5% 111.2% 99%
* The dividend adjustment factor is calculated on the assumption
that the dividends of 3.49p (2021 - 3.31p) paid by the Company during the year
were reinvested into shares of the Company at the cum income NAV per
share/share price, as appropriate, at the ex-dividend date.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
Scottish Mortgage is a low cost investment trust that aims to maximise total
return over the long term from a high conviction and actively managed
portfolio. It invests globally, looking for strong businesses with
above-average returns.
You can find up to date performance information about Scottish Mortgage on the
Scottish Mortgage page of the Managers' website at www.scottishmortgageit.com
(http://www.scottishmortgageit.com) (‡)
Scottish Mortgage is managed by Baillie Gifford, the Edinburgh based fund
management group with around £239 billion under management and advice in
active equity and bond portfolios for clients in the UK and throughout the
world (as at 16 May 2022).
Investment Trusts are UK public limited companies and are not authorised or
regulated by the Financial Conduct Authority.
‡ Neither the contents of the Managers' website nor the contents of
any website accessible from hyperlinks on the Managers' website (or any other
website) is incorporated into, or forms part of, this announcement.
Past performance is not a guide to future performance. The value of an
investment and any income from it is not guaranteed and may go down as well as
up and investors may not get back the amount invested. This is because the
share price is determined by the changing conditions in the relevant stock
markets in which the Company invests and by the supply and demand for the
Company's shares.
18 May 2022
For further information please contact:
Stewart Heggie, Baillie Gifford & Co
Tel: 0131 275 5117
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
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