Scot.Mort Inv Tst - Scottish Mortgage Interim Financial Report
08/11/2024 07:00
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RNS Number : 4389L Scottish Mortgage Inv Tst PLC 08 November 2024
RNS Announcement
Scottish Mortgage Investment Trust PLC
Legal Entity Identifier: 213800G37DCS3Q9IJM38
Results for the six months to 30 September 2024
The following is the unaudited Interim Financial Report for the six months to
30 September 2024 which was approved by the Board on 7 November 2024.
Interim management report
Performance
Since the end of March, our net asset value per share ('NAV'), with debt at
fair value, has increased by 1.9%, compared to a rise of 3.6% for the FTSE
All-World Index (both in total return terms). Over the past five years, our
NAV has gained 88.9%, outpacing the index's 66.9% rise. Looking further back,
over the last decade, our NAV has grown by 347.8%, compared with 211.3% for
the index.
While our primary focus remains long-term capital appreciation, we recognise
the importance of providing a consistent dividend to our shareholders. In
light of this, the Board is recommending an interim dividend of 1.60p per
share, consistent with last year's interim payment.
Portfolio
AI
Writing the interim report this year was notably different. I didn't start by
sitting down with a blank page. Instead, AI systems competed to provide me
with summaries of the most significant events over the past six months. They
tried to explain stock price movements and even suggested topics that might
resonate with readers. The rising quality of their insights could be
unsettling, yet I share Professor Ethan Mollick's belief in "Co-intelligence."
Rather than replacing human creativity, these systems are enhancing our
productivity, efficiency, and imagination. Even without further breakthroughs,
their impact on business will be profound.
Understanding the implications of this technology wave will be our task for
the next decade. Despite growing conviction that generative AI will be a
transformative general-purpose technology, we reduced our position in NVIDIA,
the leading designer of semiconductors for AI. The primary challenge
hindering large-scale AI adoption remains the high cost. Companies must find
ways to offer competitively priced AI systems while managing the skyrocketing
costs of training them. This raises concerns about the sustainability of
current capital equipment spending, including NVIDIA chips.
Our investment in the AI ecosystem is not limited to NVIDIA. We've increased
our exposure to Meta Platforms, the parent company of Facebook, Instagram, and
WhatsApp. AI will improve Meta's products and its business model provides many
options for funding the necessary computing capacity. Its leadership team has
a strong track record of successfully integrating technology innovations,
giving us confidence in their strategy moving forward.
Highlights and Challenges
SpaceX has made remarkable progress with its reusable Starship launch
platform. Designed for rapid reusability, Starship dramatically reduces launch
costs, making space more accessible for a variety of missions. This capability
doesn't just open new doors for SpaceX, it could redefine what humanity can
achieve in space by making projects like lunar exploration, Mars missions, and
space tourism more feasible.
One of Starship's primary impacts will be its support for Starlink, SpaceX's
satellite communication network. With Starship's high payload capacity, SpaceX
can deploy and maintain a vast constellation of Starlink satellites at an
accelerated pace. The company has been steadily increasing the number and
capabilities of these satellites, recently adding more powerful models to
improve coverage, speed, and reliability.
In parallel, SpaceX has introduced a more affordable Starlink ground terminal,
lowering the barrier for users to access high-speed internet in remote or
underserved areas. This combination of enhanced satellite infrastructure and
accessible ground equipment is set to accelerate the growth of the space-based
communications market, potentially connecting millions of people worldwide who
previously had limited or no internet access.
While many of our portfolio companies performed well in both operational and
stock price terms, two larger positions dampened our overall NAV growth.
Moderna, the drug developer, has been underperforming. Its COVID vaccine
franchise is in decline, and its new vaccine for respiratory syncytial virus
has struggled to compete with established providers. This is disappointing,
and we're engaging with management to improve execution. However, we remain
optimistic about Moderna's differentiated pipeline of new therapies, which we
expect to drive long-term improvement.
Northvolt, the European battery manufacturer has struggled with production
delays. It has announced it will lay off 1,600 staff and scale back its
expansion plans, cancelling a project to increase its factory's capacity. The
company will need to deliver significant improvements if it is to retain the
confidence of its stakeholders and capitalise on the vast opportunity that
electrification of our transport system will present over the next decade.
In contrast, Redwood Materials, which focuses on battery recycling, is making
encouraging progress. The company is successfully scaling operations in the
U.S. and finding enthusiastic buyers for its intermediate products as it
builds towards full recycling. We have added to our investments in
electrification by acquiring a stake in Chinese electric vehicle ('EV')
manufacturer BYD. Despite fierce competition in China's EV market, BYD's
vertical integration and focus on hybrid vehicles have positioned it as a
dominant player with significant international potential. We believe its
business will continue to internationalise.
China
Global investors remain hesitant about Chinese companies due to domestic
economic struggles and geopolitical concerns. However, we've taken a different
approach, backing exceptional Chinese companies where we believe the upside
justifies the risk. Our Chinese holdings have been performing well. Meituan,
the food delivery company, has been growing at over 20%, improving margins,
and Pinduoduo, the ecommerce platform, has achieved explosive growth in export
markets. Bytedance, the owner of the Tiktok social media platform, is growing
strongly with a big user base and strong monetisation. As Chinese authorities
signal more substantive steps to support consumption, we've seen a rally in
Chinese assets, though they remain significantly undervalued compared to their
Western counterparts.
Emerging Growth Opportunities
Beyond the largest positions in our portfolio, several smaller holdings are
making steady progress toward transformational change. Joby Aviation, the
electric aircraft company, expects to deliver its second vehicle to the U.S.
Air Force by the end of 2024, bolstered by a $500 million investment from
Toyota. Meanwhile, Aurora Innovation, an autonomous trucking company, is on
track to launch commercially by the end of the year, with partnerships already
in place to scale the business thereafter.
In the quantum computing space, PsiQuantum has secured deals with governments
to build its first quantum computers in Australia and Illinois. These
advancements illustrate the exciting potential of our younger holdings.
Capital Allocation
We exited several smaller holdings where our growth outlook has changed. These
include HelloFresh, as the meal-kit market's potential seems more limited now,
and Zalando, which is facing increased competition from companies leveraging
the Chinese supply chain. While Zoom remains best-in-class in communication
software, Microsoft Teams' fierce competition has diminished Zoom's market
opportunity.
We've initiated a position in Nu Holdings, a digital bank in Latin America
that is rapidly becoming essential infrastructure for customers underserved by
traditional banks. It complements our holdings in Sea, Coupang and
MercadoLibre, giving us exposure to growing consumption from the world's
emerging middle class. Our new holding in Hermes International, the French
luxury goods company, has the potential to significantly expand its small
market share over the next decade while further strengthening its brand and
global appeal.
We have reduced our position in ASML, the lithography equipment maker, while
initiating a new position in its close partner, TSMC. Both companies are
essential to the semiconductor ecosystem, with clear technical and operational
advantages over their competitors. This strategic shift reflects our evolving
view of the semiconductor landscape and our belief in TSMC's long‑term
potential.
Private Companies: Patience and Impact
Our portfolio includes 23.3% allocation to private companies. No longer
included in this allocation is our holding in Tempus AI, which recently went
public through an IPO, even in the challenging environment for new listings.
Tempus AI focuses on improving cancer outcomes by characterising patients'
disease and recommending personalised treatments and clinical trials. It
received substantial funding from Scottish Mortgage while still private - an
example of how patient capital can drive impactful change.
While we can't predict when the funding environment for private companies will
improve, we are confident in our portfolio of high-quality growth companies.
Many of these companies are self-sustaining, and we remain patient, supportive
investors.
Looking Forward
Our world is evolving rapidly, and with change comes opportunity. The founders
and entrepreneurs leading our portfolio companies are well-positioned to seize
these opportunities. Over the long term, earnings growth drives stock prices,
and our portfolio consists of holdings growing much faster than the broader
market. We believe that potential is not fully reflected in stock prices
today, and we are excited about the returns they can deliver
for our shareholders.
The principal risks and uncertainties facing the Company are set out at the
end of this announcement.
Tom Slater
Baillie Gifford & Co Limited
Managers and Secretaries
For a definition of terms see Glossary of terms and Alternative Performance
Measures below.
Total return information sourced from LSEG/Baillie Gifford.
See disclaimer below.
Past performance is not a guide to future performance.
Chair's interim update
Capital Allocation
On 15 March 2024, the Board announced that it would make available at least
£1 billion for the purpose of purchasing its own shares over the following
two years. During the first half of this financial year the Company
repurchased 100.6m shares, at a total cost of £880.1m. This activity has had
a meaningful impact on the rating. The average discount was 8.9% over the
period, which compares well to 16.2% over the previous financial year.
Over the past few months, Directors held useful meetings with representatives
of several shareholders, whose clients represent a large portion of the
register in percentage terms. Some advocate for increased buyback activity,
whilst others feel capital is best deployed into long-term investments.
Balance is required. We take a pragmatic approach in making capital allocation
calls between buying back shares and other uses of capital such as making new
investments and reducing debt. Together, the Board and the Managers remain
committed to the continuation of the buyback.
Board Composition
The Board is pleased to announce the appointment of Christopher Samuel as an
independent Non-executive Director of the Company, with effect from 1 January
2025. Christopher's appointment is subject to shareholder approval at our
Annual General Meeting in 2025. I will retire from the Board at the Annual
General Meeting in 2025, following which Christopher Samuel will become the
Chair. Professor Maxwell, Senior Independent Director, intends to retire from
the Board a year after me, at the AGM in 2026. The Board will communicate his
successor as Senior Independent Director in due course.
Christopher Samuel is an experienced Chair and non-executive director with
financial services expertise. Formerly the Chief Executive of Ignis Asset
Management, Christopher also held board-level executive positions at several
asset management businesses including Gartmore, Hill Samuel Asset Management
and Cambridge Place Investment Management. Prior to that he worked at
Prudential-Bache and KPMG, where he qualified as a chartered accountant.
Christopher is the Chair of BlackRock Throgmorton Trust plc and a
non-executive director of Quilter plc, having previously been Chair of Quilter
Financial Planning Limited. He was previously Chair of JP Morgan Japanese
Investment Trust plc and a director of Alliance Trust, Sarasin, UIL and UIL
Finance Limited.
Justin Dowley
Chair
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
7 November 2024
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 two times 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
2024, 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 54%
Percentage of portfolio revalued up to 4 times 96%
Percentage of portfolio revalued at least 5 times 4%
* Each private holding valuation is assessed at least once in a
six-month period, in accordance with the Baillie Gifford valuation policy.
Valuation movements %
Average movement in investee company securities price (9.5)
Average movement in investee company valuation (11.3)
Performance, Portfolio executive summary, and List of Investments at 30 September 2024
http://www.rns-pdf.londonstockexchange.com/rns/4389L_1-2024-11-7.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/4389L_1-2024-11-7.pdf)
Income statement (unaudited)
For the six months ended 30 September
Notes 2024 2024 2024 2023 2023 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - 199,331 199,331 - (339,923) (339,923)
Currency gains/(losses) - 49,271 49,271 - (10,526) (10,526)
Income 22,996 - 22,996 26,311 - 26,311
Investment management fee 3 - (18,282) (18,282) - (17,224) (17,224)
Other administrative expenses 4 (6,581) - (6,581) (2,351) - (2,351)
Net return before finance costs and taxation 16,415 230,320 246,735 23,960 (367,673) (343,713)
Finance costs of borrowings - (28,150) (28,150) - (27,423) (27,423)
Net return before taxation 16,415 202,170 218,585 23,960 (395,096) (371,136)
Tax (1,575) (2,951) (4,526) (1,238) (4,966) (6,204)
Net return after taxation 14,840 199,219 214,059 22,722 (400,062) (377,340)
Net return per ordinary share 5 1.12p 14.97p 16.09p 1.62p (28.44p) (26.82p)
Dividends proposed per ordinary share 6 1.60p 1.60p
The accompanying notes below 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 At At At
30 September
30 September
31 March 2024 31 March 2024
2024 2024
(audited) (audited)
£'000 £'000
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 7 13,473,177 14,118,531
Current assets
Debtors 12,560 266,379
Cash and cash equivalents 77,685 123,762
90,245 390,141
Creditors
Amounts falling due within one year: 8
Bank loans (201,290) (213,735)
Other creditors and accruals (38,498) (227,143)
(239,788) (440,878)
Net current liabilities (149,543) (50,737)
Total assets less current liabilities 13,323,634 14,067,794
Creditors
Amounts falling due after more than one year: 8
Bank loans (357,826) (379,937)
Loan notes (979,572) (998,991)
Debenture stocks (51,561) (51,793)
Provision for deferred tax liability (6,092) (7,259)
(1,395,051) (1,437,980)
Net assets 11,928,583 12,629,814
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 10,892,010 11,591,680
Revenue reserve 14,840 16,401
Total shareholders' funds 11,928,583 12,629,814
Net asset value per ordinary share
(after deducting borrowings at book)* 928.1p 911.3p
Ordinary shares in issue 10 1,285,246,434 1,385,868,493
* See Glossary of terms and Alternative Performance Measures at the end
of this announcement.
The accompanying notes below are an integral part of the Financial Statements.
Statement of changes in equity (unaudited)
For the six months ended 30 September 2024
Notes Called up Share Capital Capital Revenue Shareholders'
share premium redemption reserve * reserve funds
capital account reserve £'000 £'000 £'000
£'000 £'000 £'000
Shareholders' funds at 1 April 2024 74,239 928,400 19,094 11,591,680 16,401 12,629,814
Net return after taxation - - - 199,219 14,840 214,059
Ordinary shares bought back into treasury 10 - - - (880,114) - (880,114)
Dividends paid during the period 6 - - - (18,775) (16,401) (35,176)
Shareholders' funds at 30 September 2024 74,239 928,400 19,094 10,892,010 14,840 11,928,583
For the six months ended 30 September 2023
Notes Called up Share Capital Capital Revenue Shareholders'
share premium redemption reserve * reserve funds
capital account reserve £'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 10 - - - (11,520) - (11,520)
Dividends paid during the period 6 - - - - (35,190) (35,190)
Shareholders' funds at 30 September 2023 74,239 928,400 19,094 10,023,314 28,903 11,073,950
* The capital reserve balance at 30 September 2024 includes investment
holding gains on fixed asset investments of £3,446,573,000 (30 September
2023 - gains of £2,933,324,000).
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 2024 2023
£'000 £'000
Cash flows from operating activities
Net return before taxation 218,585 (371,136)
Adjustments to reconcile company net return before
tax to net cash flow from operating activities
(Gains)/losses on investments (199,331) 339,923
Currency (gains)/losses (49,271) 10,526
Finance costs of borrowings 28,150 27,423
Taxation
Overseas withholding tax (1,450) (1,238)
Indian capital gains tax paid on transactions (4,118) -
Other capital movements
Changes in debtors and creditors 1,187 (3,547)
Cash used in operations (6,248) 1,951
Interest paid (28,868) (28,879)
Net cash outflow from operating activities (35,116) (26,928)
Cash flows from investing activities
Acquisitions of investments (1,426,631) (406,046)
Disposals of investments 2,374,212 458,242
Net cash inflow from investing activities 947,581 52,196
Cash flows from financing activities
Ordinary shares bought back into treasury and stamp duty thereon (918,626) (11,579)
Bank loans drawn down 8 500,421 292,250
Bank loans repaid (500,421) (421,845)
Equity dividends paid 6 (35,176) (35,190)
Net cash outflow from financing activities (953,802) (176,364)
Decrease in cash and cash equivalents (41,337) (151,096)
Exchange movements (4,740) (2,453)
Cash and cash equivalents at start of period 123,762 184,945
Cash and cash equivalents at end of period* 77,685 31,396
* Cash and cash equivalents represent cash at bank and short term money
market deposits repayable on demand.
The accompanying notes on the following pages 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 2024 comprise the statements set out 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 2024 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 2024.
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 out at
the end of this document. The Board has, in particular, considered the impact
of heightened macroeconomic and geopolitical concerns including the ongoing
Russia-Ukraine war, heightened tensions between China and both the US and
Taiwan and the conflict 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.
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 2024 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 Other administrative expenses
Other administrative expenses includes an impairment
provision of £4,409,000 in relation to Northvolt AB. See the Interim
management report above for further details.
5 Net return per ordinary share
Six months to Six months to
30 September 30 September
2024 2023
£'000 £'000
Revenue return on ordinary activities after taxation 14,840 22,722
Capital return on ordinary activities after taxation 199,219 (400,062)
Total net return 214,059 (377,340)
Weighted average number of ordinary shares in issue 1,330,142,922 1,406,934,969
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.
6 Dividends
Six months to Six months to
30 September 30 September
2024 2023
£'000 £'000
Amounts recognised as distributions in the period:
Previous year's final dividend of 2.64p (2023 - 2.50p), paid 11 July 2024 35,176 35,190
35,176 35,190
Dividends proposed in the period:
Interim dividend for the year ending 31 March 2024 of 1.60p (2023 - 1.60p) 20,564 22,469
20,564 22,469
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 13 December 2024 to shareholders on the register at the close of
business on 22 November 2024. The ex-dividend date is 21 November 2024. The
Company's Registrars offer a Dividend Reinvestment Plan and the final date for
elections for this dividend is 26 November 2024.
7 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 2024 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equities/funds 10,322,010 - - 10,322,010
Unlisted company ordinary shares - - 710,944 710,944
Unlisted company preference shares* - - 2,329,958 2,329,958
Unlisted company convertible note - - 50,787 50,787
Limited partnership investments - - 56,578 56,578
Contingent value rights - - 2,900 2,900
Total financial asset investments 10,322,010 - 3,151,167 13,473,177
As at 31 March 2024 (audited) Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equities/funds 10,370,152 - - 10,370,152
Unlisted company ordinary shares - - 822,338 822,338
Unlisted company preference shares* - - 2,766,518 2,766,518
Unlisted company convertible note - - 90,155 90,155
Limited partnership investments - - 66,289 66,289
Contingent value rights - - 3,079 3,079
Total financial asset investments 10,370,152 - 3,748,379 14,118,531
During the period, Bolt Projects Holdings and Tempus AI Inc
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.
8 Financial liabilities
The total value of the borrowings (at book) is
£1,590,249,000 (31 March 2024 - £1,644,456,000).
The bank loans falling due within one year are
a US$100 million revolving 3 year loan with Scotiabank and a US$170
million revolving 3 year loan with Royal Bank of Scotland International
'RBSI'. (31 March 2024 - US$100 million revolving 3 year loan with
Scotiabank and a US$170 million revolving 3 year loan with RBSI.).
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
2024 - 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 2024 is 3.11% (31 March 2024 - 3.22%)
9 Fair value of financial liabilities
The fair value of the borrowings at 30 September 2024 was
£1,281,780,000 (31 March 2024 - £1,293,632,000).
10 Share capital: ordinary shares of 5p each
At 30 September At 31 March
2024 2024
No. of shares (audited)
No. of shares
Allotted, called up and fully paid ordinary shares of 5p each 1,285,246,434 1,385,868,493
Treasury shares of 5p each 199,534,446 98,912,387
Total 1,484,780,880 1,484,780,880
In the six months to 30 September 2024, the Company sold no
ordinary shares from treasury (year to 31 March 2024 - nil).
In the six months to 30 September 2024, 100,622,059
ordinary shares with a nominal value of £5,031,103 were bought back at a
total cost of £880,114,000 and held in treasury (year to 31 March 2024 -
21,750,035 shares with a nominal value of £1,088,000 were bought back at a
total cost of £176,490,000 and held in treasury). At 30 September 2024 the
Company had authority remaining to buy back 160,896,994 ordinary shares.
11 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)
Borrowings are valued at adjusted net issue proceeds. The value of the
borrowings at book is set out in note 8 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 9 above and a reconciliation to net
asset value with borrowings at book value is provided below.
30 September 2024 31 March 2024
Net asset value per ordinary share (borrowings at book value) 928.1p 911.3p
Shareholders' funds (borrowings at book value) £11,928,583 £12,629,814
Add: book value of borrowings £1,590,249 £1,644,456
Less: fair value of borrowings (£1,281,780) (£1,293,632)
Net asset value (borrowings at fair value) £12,237,052 £12,980,638
Shares in issue at year end (excluding treasury shares) 1,285,246,434 1,385,868,493
Net asset value per ordinary share (borrowings at fair value) 952.1p 936.6p
Net liquid assets
Net liquid assets comprise current assets less current liabilities, excluding
borrowings.
Discount/premium (APM)
As stock markets and share prices vary, an investment trust's share price is
rarely the same as its 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 2024 31 March 2024
NAV (book) NAV (fair) NAV (book) NAV (fair)
Net asset value per share (a) 928.1p 952.1p 911.3p 936.6p
Share price (b) 837.0p 837.0p 894.0p 894.0p
Discount ((b)-(a)) ÷ (a) (9.8%) (12.1%) (1.9%) (4.5%)
Active share (APM)
Active share, a measure of how actively a portfolio is managed, is the
percentage of the portfolio that differs from its comparative index. It is
calculated by deducting from 100 the percentage of the portfolio that overlaps
with the comparative index. An active share of 100 indicates no overlap with
the index and an active share of zero indicates a portfolio that tracks the
index.
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other public company, an
investment trust can borrow money to invest in additional investments for its
portfolio. The effect of the borrowing on the shareholders' assets is called
'gearing'. If the Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same, but if the value of
the Company's assets falls, the situation is reversed. Gearing can therefore
enhance performance in rising markets but can adversely impact performance in
falling markets. Gearing represents borrowings at book value less cash and
cash equivalents (including any outstanding trade settlements) expressed as a
percentage of shareholders' funds.
30 September 2024 31 March 2024
Borrowings (at book value) £1,590,249 £1,644,456
Less: cash and cash equivalents (£77,685) (£123,762)
Less: sales for subsequent settlement (£1,663) (£253,707)
Add: purchases for subsequent settlement - £149,148
Adjusted borrowings (a) £1,510,901 £1,416,135
Shareholders' funds (b) £11,928,583 £12,629,814
Gearing: (a) as a percentage of (b) 13% 11%
Gross gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
30 September 2024 31 March 2024
Borrowings (at book value) (a) £1,590,249 £1,644,456
Shareholders' funds (b) £11,928,583 £12,629,814
Gross gearing: (a) as a percentage of (b) 13% 13%
Turnover (APM)
Turnover is calculated as the minimum of purchases and sales in a month,
divided by the average market values of the portfolio, summed to get rolling
12 months turnover data.
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 2024 30 September 2023
NAV NAV Share NAV NAV Share
(book) (fair) price (book) (fair) price
Closing NAV per share/share price (a) 928.1p 952.1p 837.0p 787.7p 818.9p 669.6p
Dividend adjustment factor* (b) 1.0027 1.0027 1.0029 1.0027 1.0027 1.0033
Adjusted closing NAV per share/share price (c = a x b) 930.7p 954.7p 839.5p 789.8p 821.1p 671.8p
Opening NAV per share/share price (d) 911.3p 936.6p 894.0p 816.8p 843.9p 678.6p
Total return (c ÷ d)-1 2.1% 1.9% (6.1%) (3.3%) (2.7%) (1.0%)
* The dividend adjustment factor is calculated on the assumption that
the final dividend of 2.64p (2023 - 2.50p) 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.
Unlisted (private) 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 44 to
47 of the Company's Annual Report and Financial Statements for the year to 31
March 2024 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 18 November 2024 that the Interim
Financial Report has been published and will be available on the Scottish
Mortgage page of the Managers' 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 £221 billion under management and advice in
active equity and bond portfolios for clients in the UK and throughout the
world (as at 7 November 2024).
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.
7 November 2024
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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