Scot.Mort Inv Tst - Scottish Mortgage Invt Tst PLC Final Results
23/05/2024 07:00
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RNS Number : 5534P Scottish Mortgage Inv Tst PLC 23 May 2024
RNS Announcement: Preliminary Results
Scottish Mortgage Investment Trust PLC
Legal Entity Identifier: 213800G37DCS3Q9IJM38
Results for the year to 31 March 2024
NAV (borrowings at fair value) * 11.5%
NAV (borrowings at book value) * 12.1%
Share Price* 32.5%
FTSE All-World Index† 21.0%
Source: LSEG / 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.
† In sterling terms.
The following is the Preliminary Results Announcement for the year to 31 March
2024 which was approved by the Board on 22 May 2024.
Statement from the Chair
Introduction
It has been a challenging yet rewarding year for the Company set against a
backdrop of volatile markets. Conflicting forces have been pulling investors
in different directions. There is a sense of optimism regarding the
integration of Artificial Intelligence ('AI') into business models. Meanwhile,
the macroeconomic and geopolitical factors driving market anxiety are too
numerous to mention. Much of this was reflected in unusual patterns of stock
market returns. Gains were highly concentrated, driven by a handful of large
AI enabled companies in the US, augmented by beneficiaries of strong energy
prices and high interest rates.
Scottish Mortgage remains well positioned to navigate such environments. From
a portfolio perspective, our long investment horizon provides the opportunity
to step back from the noise. Our managers, Tom Slater and Lawrence Burns,
continue to be constructive and patient owners of a diverse range of resilient
companies that possess the potential to shape the future of the modern
economy. It is pleasing to note that these companies continue to deliver
strong operational performance and remain in robust financial health. As such,
competition for capital within the portfolio remains high.
In these volatile conditions however, our shares traded at a discount to net
asset value per share throughout the year. Tackling this disconnect was an
active debate. Whilst the drivers of the discount are a matter of conjecture,
the Company possesses a clearly defined investment strategy; a strong balance
sheet; and a portfolio of growing companies delivering strong operational
results. The investment opportunity was clear, the discount unwarranted, and
concerted action was required. As a result, in March 2024, the Board announced
that the Company would make available at least £1 billion for the purpose of
buybacks over the following two years. By acting upon this investment
opportunity, we aim to maximise returns for our shareholders. At the time of
writing, the discount to net asset value has narrowed since the date of the
announcement. The Board and Managers are committed to facilitating trading
around net asset value in normal market conditions.
Total return* (%) 12 months to 12 months to
31 March 2024 31 March 2023
NAV (borrowings at fair value) 11.5 (17.8)
Share price 32.5 (33.5)
FTSE All-World Index (in sterling terms) 21.0 (0.9)
Global Sector Average - NAV 17.3 (8.2)
Global Sector Average - share price 24.8 (13.6)
Source: AIC/LSEG/Baillie Gifford.
* Alternative Performance Measure - see Glossary of terms and Alternative
Performance Measures at the end of this announcement.
Following two years of negative returns in both NAV and share price terms, the
Company posted a positive return over the past year. The strength of the share
price performance, relative to the NAV, reflects the reduction in the discount
(after deducting borrowings at fair value) from 19.6% to 4.5% over the year to
31 March 2024. Whilst it is pleasing to note these one-year returns, we feel
that this represents too short a time frame on which to judge performance
given the long-term nature of the investment strategy.
Over the last decade, the Scottish Mortgage Managers have delivered
outperformance for shareholders. The NAV per share has increased by 381.9%
compared to a 218.2% increase in the FTSE All-World index, on a total return
basis. Clearly, recent years have been a rollercoaster ride in share price
terms. Although unsettling, this serves as a useful reminder of what one can
expect from a growth investment strategy seeking to maximise returns.
Investing in companies at the forefront of structural change means share price
peaks and troughs are inevitable, for both the companies we own and the
Company itself. We ask that shareholders be aligned to our long investment
horizon and are aware that returns are not delivered in a straight line.
Performance
Total return* (%) Five years to 31 March 2024 Ten years to 31 March 2024
NAV (borrowings at fair value) 91.2 381.9
Share price 78.7 358.4
FTSE All-World Index (in sterling terms) 77.0 218.2
Global Sector Average - NAV 77.8 275.1
Global Sector Average - share price 66.4 268.7
Source: AIC/LSEG/Baillie Gifford.
* Alternative Performance Measure - see Glossary of terms and Alternative
Performance Measures at the end of this announcement.
Value for money
We strive to keep the cost of investing low so that shareholders retain as
much of the return on their investment as possible. Ongoing charges for the
year
were 0.35%, representing a small increase on the previous financial year
(0.34%).
On cost, it is difficult to find fair comparison as few other investment
companies provide such liquid access to both public and private companies in
one portfolio. However, the Company's ongoing charges are less than most
actively managed funds invested in public equities and significantly less than
private equity funds. This leads to the conclusion that Scottish Mortgage is
not only low-cost but, once long-term performance has been incorporated,
outstanding value for money for shareholders. This will continue to be a
central tenet for both the Board and Managers.
Financial position
The Board remains committed to the strategic use of borrowing, which is one of
the principal advantages of the investment trust structure. The nature and
level
of the gearing is discussed by the Board and Managers at each Board meeting.
With the continuation of volatile equity markets, the absolute level of
borrowing was actively reduced over the year to remain within an appropriate
range relative to net asset value. At the end of the year gearing was 11%, a
reduction from 14% at 31 March 2023. In an environment of higher interest
rates, US$165 million drawings on the National Australia Bank revolving
facility were repaid and the US$200 million 3 year fixed rate loan with Royal
Bank of Scotland International ('RBSI') was refinanced with RBSI on expiry
with a US$170 million 3 year revolving credit facility. In comparison to
Federal Reserve and Bank of England base rates, the average
interest rate cost of the Company's debt remains low at 3.18% as at 31 March
2024 (2.98% as at 31 March 2023).
Earnings and dividend
The investment portfolio does not generate significant income as the companies
held typically re-invest earnings to maximise their growth opportunities.
Income fell by 18% over the year, mainly due to a significant distribution
from Ant International in the prior year that was not repeated.
The Board recognises the importance to some shareholders of a predictable and
growing dividend. The Company is an 'AIC Dividend Hero' having increased its
dividend for 41 consecutive years. The Board plans to continue this trend and
is recommending that this year the total dividend be increased by 3.4% to 4.24
pence per share (2023 - 4.10 pence per share). Assuming approval by
shareholders, a final dividend of 2.64 pence per share will be paid on 11 July
2024.
Liquidity
The share price traded at a discount to net asset value over the entire year.
We sought to address the excess supply of shares by buying back 68.5 million
shares over the period from 1 April 2023 to the date of this report, at a
total cost of £592 million, which represented 4.9% of the share capital in
issue at the start of the year.
The Board restates its commitment to facilitating trading around net asset
value over the long term and under normal market conditions, but it is
important to note that the Liquidity Policy does not imply any guarantees. The
Board and the Managers continue to 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.
Environmental, Social and Governance ('ESG')
The Board recognises the importance of considering ESG factors when making
investments and has asked the Managers to take these issues into account. Some
examples of the Managers' engagement with portfolio holdings on governance
matters are provided in the Stewardship and Governance Engagement report on
page 18 of the Annual Report and Financial Statements.
It is the Board's responsibility to monitor activity and progress in areas
such as voting and engagement. The Company's voting record can be found on the
website, scottishmortgage.com.
Shareholder engagement
The Annual General Meeting will be held at 4.30pm on Thursday 4 July 2024 at
the National Galleries of Scotland, Princes Street Gardens entrance,
Hawthornden
Lecture Theatre, The Mound, Edinburgh, EH2 2EL.
The Board extends a warm invitation to shareholders to attend, raise any
questions and exercise their votes. Shareholders are also able to submit proxy
voting forms
before the applicable deadline and to direct any comments or questions for the
Board in advance of the meeting through the Company's Managers, Baillie
Gifford. Alternatively, they may also get in touch via either of the Corporate
Brokers, Jefferies International and Deutsche Numis. Contact details for all
three firms are
included later in the Annual Report and are available on their respective
websites.
I encourage shareholders to engage with the opportunities to maintain an
active dialogue with the Company throughout the year.
Multiple shareholder meetings and events are hosted by the Managers around the
country. The Company also has a much-improved website that hosts more
information than ever before, including greater disclosures on the private
companies held in the portfolio. Scottish Mortgage has a growing social media
presence on LinkedIn where followers can see timely updates on the Company
itself as well as portfolio companies. Finally, the second season of 'Invest
in Progress', the Scottish
Mortgage podcast, was recently released. If you have not already done so, I
would strongly recommend listening to the podcast to hear insightful
discussions between our managers and the leaders of the companies we hold.
Board Composition
Three directors joined the Board during the year and the Company is already
benefiting from the contributions made by Sharon Flood, Stephanie Leung and
Vikram Kumaraswamy. They bring a variety of experiences and perspectives
covering a wide array of topics relevant to the Scottish Mortgage proposition.
As we consider board succession, our Nomination Committee has appointed a
recruitment firm to identify high calibre candidates who could serve as
directors of
your Company.
Outlook
Change drives growth. The pace and scope of transformation is accelerating, in
many cases fuelled by the adoption of AI. History has shown, in such
conditions, a small number of exceptional companies drive change and dominate
stock market returns.
Your Managers possess a clearly defined investment philosophy that is centered
on identifying these rare businesses and patiently owning them over long
periods. Alongside this, your Company possesses a strong balance sheet, high
conviction in the current portfolio and a commitment to facilitate trading of
its shares around net asset value in normal market conditions. I believe the
combination of these factors puts your Company in a strong position to
maximise returns for shareholders over the coming years.
Justin Dowley
Chair
22 May 2024
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this document
Total return information sourced from LSEG/StatPro/Baillie Gifford.
See disclaimer at end of this document.
Past performance is not a guide to future performance.
Managers' Review - Tom Slater
We live in a world of ongoing geopolitical tensions, shifting monetary
policies and disruptive technology. Against this dynamic backdrop, Scottish
Mortgage remains steadfast in its mission: seeking out exceptional companies
capable of delivering long-term growth and transformative change.
The volatility of economies, company profitability and our own stock price
prompts the question of whether investing as we do has become riskier. We do
not believe that it has. Instead, our diagnosis is that volatility reflects
the world becoming a more uncertain place. We must adapt to life with greater
uncertainty. That does not mean a flight to the perceived safety of dull
companies with low growth and established entry barriers. That would increase
our risk profile with the world in flux. What it does mean is that for our
companies to achieve their potential, they must first be resilient, and they
must be able to adapt.
Events like the Covid-19 pandemic, supply chain disruptions, two global
conflicts and an emerging cold war between the US and China are eroding trust
in the fundamental arrangement of the economy. People are more uncertain about
trade agreements, financial structures, democratic provisions, the
reasonableness of judicial decisions, and the dependability of public health
provisions. This feeling of instability makes the idea of rational
decision-making less reliable.
With basic economic assumptions in question, globalisation is slowing. For
reasons of stability and national security, countries are hesitant to rely as
heavily on foreign partners. There's a push to bring the manufacturing of
critical goods and resources back within domestic control. The US has decided
that semiconductor manufacturing is far too sensitive and important to leave
to China or even to Taiwan and has passed the Creating Helpful Incentives to
Produce Semiconductors (CHIPS) and Science Act, stimulating hundreds of
billions of dollars of domestic investment. Similarly, the EU, as a result of
the war in Ukraine, had to bring home a lot of energy production previously
farmed out to Russia.
This economic shift is a major adjustment after a long period of relative
stability post-World War II. It's unclear when, or even if, the previous
stability will return.
The tension between China and the US may prove manageable within current
frameworks. There is the small but growing possibility of rupture and a move
towards a multi-polar world order. There is a strong incentive for some of the
world's big growing economies to seek alternatives to dollar-denominated
trade.
Ongoing disruptions from technology (particularly generative AI, covered by my
partner Lawrence Burns later in this report), climate change, and geopolitics
will force continued economic transformation. Optimisation and profit
maximisation are desirable and rational in a settled environment, but they can
be dangerous in an uncertain one. Optimised systems are brittle and can break
despite even modest disruption . We are placing greater emphasis on
resilience. Adaptability is a crucial attribute in a world of uncertainty. It
is a multifaceted quality with financial components, such as high margins or
strong balance sheets, and cultural elements that are equally important.
Diverse organisations are more likely to contain the ingredients for success
in a shifting environment than are monocultures. This change in emphasis
doesn't diminish our focus on imagining what a company will look like ten
years from now. It is an acknowledgement that businesses must face challenges
in the interim as they exist today.
A pertinent example of this is last year's largest holding (and biggest
headwind), Moderna. Vaccine fatigue has presented a challenge for the company,
with vaccination levels for endemic Covid-19 well below expectations. There
are several possible explanations for this, but the virus remains more lethal
than influenza and vaccination rates are less than half. Moderna is resilient
in the face of these events. The windfall it received from its Covid-19
vaccine has given it a substantial cash position to fund the deployment of its
technology into other areas.
Our reasons for having a significant investment in the company remain
unchanged. In the near term, the company's respiratory vaccine franchise will
grow. It has seen promising results from its trials of RNA-based vaccines for
flu and RSV and ought to be able to combine these vaccines with Covid-19 into
a single shot, which will be better for patients and cheaper for the
healthcare system. As its work on other respiratory viruses comes to fruition,
it should be able to add these and update for prevalent strains to ensure
maximum efficacy. Reducing hospital bed occupancy in the winter flu season
will be highly beneficial. The work the company is doing on several other
viruses, such as EBV and CMV, will help prevent these infections and,
importantly, address the impact that they can have on health later in life.
The data from trials of a personalised cancer vaccine that enables the body's
immune system to identify cancerous cells and remove them continue to be very
encouraging.
Our largest holdings, NVIDIA and ASML, are in the semiconductor industry.
Demand for NVIDIA's chips has vastly exceeded expectations, which has been an
important driver of our returns. Without NVIDIA's silicon or software, we
would not be seeing such remarkable progress from AI systems. Our key
consideration is the duration of the edge it has built over the competition.
ASML, the Dutch manufacturer of the lithography equipment needed to produce
cutting-edge semiconductors, has one of the most apparent competitive
advantages we've ever encountered. Its innovations are the central enablers of
miniaturisation in semiconductors. Growth in datacentres and AI applications
augment the growing demand for chips in many industries. At the same time,
chips are getting bigger, and the desire for greater sovereignty in
semiconductors is fuelling demand for capital equipment. The offset to these
encouraging trends is geopolitics impinging on the company's equipment sales
in China. The immediate challenge is demonstrating that innovation can
continue following the retirement of CEO Peter Wennink and President and CTO
Martin van den Brink.
Amazon and Spotify have taken drastic action to increase their resilience in
the past year, and stock markets have strongly rewarded them both. We added to
Amazon, and it has regained its position as one of our top holdings. It is now
reaping the benefits of substantial capacity increases made during Covid-19.
Periods of investment and cost increases at both companies have ended, and
there has been a much greater focus on efficiency, reflected in margin
improvement. The growth opportunities are exciting, and both exemplify the
types of businesses that seem likely to benefit from developments in AI. We
are seeing many companies invest in AI systems to improve their operations but
for investors, there is an essential question of whether this generates
additional returns or ends up being a zero-sum game. Spotify is a platform
business that benefits from the breadth and scale of content on its platform.
AI will likely lead to an explosion in available content, improving its
economics in a way that others cannot mitigate. If AI revolutionises how we
purchase products, this is likely to favour Amazon, the company with the most
consumer data and a vast physical infrastructure for getting products to those
consumers.
Tesla, which we reduced partway through the year, is at a fascinating
juncture. Its recent products have been hugely successful, and preliminary
sales data indicate that the Model Y was the best-selling vehicle in the world
last year. However, the rise in interest rates has reduced the affordability
of all high-ticket items, including Tesla vehicles, depressing demand. At the
same time, the rapid scaling of Chinese electric vehicle production, along
with improving quality, is a powerful source of competition and pricing
pressure. All of this may be irrelevant to the long-term investment story.
Tesla's massive investment in AI looks to be paying off with the rapid
improvement in its self-driving software. User reports on the latest version,
now entirely AI-controlled, are very favourable, and the company is installing
it in all new US vehicles. Tesla is harnessing the same investments to produce
humanoid robots, whose capabilities are progressing along an exponential
trajectory.
Our largest private position, SpaceX, now a bigger holding than Tesla,
launched 96 rockets last year (accounting for two-thirds of all commercial
launches). It has no peers when it comes to scale and cost efficiency. The
company's latest rocket, Starship, has unprecedented capabilities and will
transport 150 metric tonnes of payload. It is close to commercial launch.
Starlink, the satellite communications subsidiary, has 2.3 million subscribers
and is growing rapidly bringing connectivity to underserved parts of the
world. Its unique access to launch capacity puts it way ahead of potential
competitors. It already has sufficient scale to generate cash.
There has been little change elsewhere in our private portfolio. Our top ten
private holdings represent approximately two thirds of our private exposure,
and the operating performance of these companies has been encouraging. We
selectively supported holdings that raised money in the year. With financial
markets activity subdued, very few companies moved from private to public
markets.
The combination of a weak domestic economy, an uncertain regulatory
environment and geopolitical concerns have made the inclusion criteria for
Chinese stocks in the portfolio more demanding. However, the vast domestic
market and exceptional entrepreneurs mean we continue to take Chinese
investments seriously. Ecommerce giant Pinduoduo has a proven track record of
building a discount retail offering in China and turning it into a profitable
business. It is now attempting the same thing overseas, and the pace of
rollout for its platform, Temu, has been very impressive. The international
pattern of profitability is tracking what we have seen previously in China. We
added to Meituan, the local services company, which has proven leadership and
the scope for meaningful profit growth in the years to come.
We have sold our position in Tencent*, the Chinese mobile platform, which has
been a prominent holding for us over the past fifteen years. We have massive
respect for the team there, who have proven to be phenomenal operators and
astute investors. We think that ongoing political and regulatory developments
mean that the constraints that go with scale for Chinese businesses have
increased substantially. As a result, it will be difficult for Tencent to meet
our more demanding inclusion criteria over the coming years.
We also sold another long-standing holding, Illumina. We believe that genomic
sequencing is a fundamental building block for improving healthcare in the
coming decades. However, the company's execution could have been better, and
the work required to drive demand and lower costs will be challenging for some
time. Several other holdings are utilising genomic sequencing to improve
health outcomes. The progress made by Tempus in using sequencing data to guide
the treatment of US cancer patients is impressive, and potential applications
of the approach continue to multiply.
There is a lot to be excited about. Artificial intelligence, digitalisation,
scientific and engineering progress, and the opportunities presented by
transitioning our energy model will provide fertile investment territory for
years to come. Jeff Bezos stressed the importance of focusing on the things
that don't change as you build a business. For Scottish Mortgage, that means
seeking the most exceptional growth companies, being patient and constructive
owners, and harnessing the outsized impact of the small number of
extraordinary companies to drive our returns.
Tom Slater
Managers' Review - Lawrence Burns
Peeling Back the Layers of Artificial Intelligence:
In the summer of 2018, I was fortunate to spend two full days in Palo Alto
talking with Professor Brian Arthur, one of the world's most influential
thinkers on technology and the economy. He told me he thought artificial
intelligence (AI) would be the most significant invention since the Gutenberg
printing press.
It was quite a statement, given that the printing press was invented over half
a millennium ago. Before its invention, scribes painstakingly copied books by
hand. Most were kept in monasteries chained to desks to prevent theft.
Gutenberg's invention made knowledge accessible, allowing ideas to spread like
never before. It powered the Scientific Revolution, the Reformation, and
countless political revolutions. Its impact was profound and immeasurable.
AI has the potential to impact the world similarly, but instead of
externalising information, it is externalising intelligence. Making it
available at rapidly decreasing cost anywhere in the world, instantly and on
demand. That could be to write a high school student's essay on the reign of
Queen Victoria or to help a radiologist identify a cancerous tumour. Given
that you can do even more with intelligence than you can with information,
Brian Arthur concluded that, logically, AI's impact should be even more
significant than the printing press.
Fast-forward nearly six years, and his views look increasingly prescient. The
latest AI models now very nearly match or exceed human performance in a
growing number of tasks, including image classification, reading
comprehension, visual reasoning and competition-level mathematics. The
progress in surpassing human performance FTSE benchmarks has been so fast that
the editor-in-chief of the AI Index recently commented that a decade ago, FTSE
benchmarks would serve the AI community for five-to-ten years, but now they
often become irrelevant in just a few years.
This pace of progress has been made possible by the continued exponential
improvement of the three inputs that drive AI performance: compute, data and
algorithms. A way of measuring these improvements is the number of parameters
a model has. Each parameter is a variable that the model can adjust during the
training to better predict outcomes. In 2018, when talking to Professor
Arthur, GPT-1 had just been released, and it had 100 million parameters.
Earlier this year, OpenAI released GPT-4, which is believed to have 1.7
trillion parameters, demonstrating the rapid change in model size and
complexity in just a few years.
When considering investment opportunities within AI, it can be helpful to
divide them into three layers: hardware, infrastructure, and applications.
Scottish Mortgage is invested in companies involved in each of these layers.
Hardware
The hardware layer is about making the physical computational devices that
enable AI. In this layer, since 2016, we have owned NVIDIA, the leading
designer of AI chips. The company has a dominant position, with 90 per cent of
all generative AI models trained on its chips. It is the critical enabler of
AI.
However, NVIDIA only designs its chips, it needs others to fabricate them. For
this, it uses TSMC, the world's largest integrated circuit manufacturer and a
recent addition to the Scottish Mortgage portfolio. It has a dominant position
in an industry where scale matters with the latest foundries, such as the
three it is building in Arizona, costing over $65 billion. These chip
foundries are so critical to supply chains and the economy that they hold
geopolitical significance. Consequently, the US government is providing over
$10 billion in federal grants and loans to ensure they are built in the US.
TSMC can be thought of as a royalty on global computing power, just as NVIDIA
can be thought of as a royalty on AI. To help make chips, TSMC requires a
particularly crucial piece of equipment: lithography machines. For these, it
relies on another of our longstanding holdings, ASML, which has a monopoly
position in advanced lithography machines. These rely on the world's flattest
mirrors and one of the most powerful commercial lasers to create an explosion
40 times hotter than the surface of the sun to pattern tiny shapes on silicon
that measure just a few nanometres. This precision is what allows chips to be
made containing tens of billions of transistors. To different extents, all
three of these hardware companies benefit from the rise of AI while possessing
dominant and near-impregnable competitive positions.
The founder of OpenAI, Sam Altman is understandably evangelistic and has gone
as far as to say that computing power may become the most precious commodity
in the world. This is because the demand for computing power and intelligence
could be effectively limitless with demand progressively unlocked by supply at
ever lower price points. Crucially we are seeing a situation where the cost to
serve continues to rapidly fall leading these three hardware companies to face
a large structural opportunity even if it will likely remain a bumpy cyclical
journey along the way.
Infrastructure
The next layer is infrastructure. Here, we have the cloud service providers
that buy NVIDIA's chips and offer scalable, on-demand access allowing
companies to train and deploy AI models without the overhead of building their
own infrastructure. In essence, the cloud service providers democratise access
to both computing and AI. There are three dominant cloud service providers. We
own Amazon, which operates Amazon Web Services, the largest cloud service
provider in the world.
There are also companies that are building large foundational models for AI.
Foundational models are trained on broad datasets (ie large swathes of the
internet) that can be used to perform a wide variety of tasks. They are also
commonly used as the base upon which to build more specialised AI models.
These foundational models have become so large and complex that the computing
power and energy required to train them is making them increasingly expensive.
The foundational models expected to be released later this year will likely
have cost close to $1 billion to be trained. That cost is expected to rise to
between $5 billion and
$10 billion for the latest models in 2025 and 2026, which is indicative of the
growing demand for hardware companies. A consequence of this is that the
ability to create such models is fast becoming the preserve of just a handful
of mega-scale companies and those receiving their patronage. We have several
holdings developing foundational models, such as Meta Platforms, Amazon and
NVIDIA.
Another set of companies providing the infrastructure for AI are database
companies. The explosion of data in the world has meant that more data will be
created in the next three years than was created in the last thirty years.
Companies that Scottish Mortgage owns, such as Databricks and Snowflake, help
businesses store, manage, and use that data in the cloud. That same data is
also the lifeblood of AI, with companies increasingly looking to feed their
data into foundational models, allowing the creation of powerful new
applications specific to their business. For example, commerce software giant
Shopify has combined its proprietary data and merchants' data with Open AI's
GPT to create what it calls Sidekick, a conversational assistant that
merchants can talk to and ask questions about how to use Shopify's platform.
It can even be asked to accomplish specific tasks, such as compiling reports
on best-selling products. AI will allow companies to do more with their data
and, in doing so, increase the value of those that offer tools to store, parse
and effectively use data.
Applications
The final layer is the application layer. This is about making productive use
of AI in the real world. A significant number of Scottish Mortgage's holdings
are making use of it to expand addressable markets, reduce costs and dig
deeper competitive moats. Tesla is using AI to make its cars self-driving and
even hopes to leverage those advances to produce humanoid robots. After all,
what is a self-driving car if not a robot operating in the physical world?
Demonstrative of its progress is that Tesla cars have now driven 1.3 billion
miles autonomously, and the company is already in conversation with another
major carmaker about licensing its self-driving technology. Recursion
Pharmaceuticals is leveraging AI to improve drug discovery by creating a map
of human biology that could dramatically cut the cost of developing new drugs.
Tempus has built a vast database of over 7 million cancer patients' clinical
records and is applying machine learning to that dataset to enable physicians
to make better treatment decisions. Meta Platforms is using AI to improve
advertising targeting across its platforms such as Facebook, Instagram and
WhatsApp to powerful effect. Spotify is using it to enhance its personalised
song recommendations and has released its AI-powered DJ to much fanfare. AI
also enables podcasts on Spotify to be translated into other languages using
the actual voice of the podcaster.
The impact of AI across the portfolio is vast because all companies can
benefit from the application of intelligence. AI can be thought of as a
powerful new set of tools for companies to apply to their business that will,
crucially, only get significantly better with time. The companies that will be
best placed to use this toolkit
will be those with large amounts of proprietary data, software expertise and a
culture of innovation. In each of these dimensions, our portfolio companies
should be well-placed.
The opportunities of the application layer in new technology paradigms
naturally lag behind those in the hardware and infrastructure layer. Those
initial two layers need to scale first in order to support the development of
applications. It can also take time and human ingenuity to find ways to
leverage and apply powerful new technologies. We can draw an analogy with the
smartphone. When the iPhone was released, it was clearly an impactful piece of
hardware. Still, it took time for companies and aspiring founders to build
applications to utilise the new device's potential fully. At its release in
2007, it would have been hard to immediately predict the new business models
it would go on to enable, such as ride-hailing, food delivery, mobile payments
and short- form video apps such as ByteDance's TikTok. It even took time to
appreciate just how meaningful it would be for existing digital activities
such as e-commerce, streaming, and social media, which saw their market
opportunities greatly enlarged. Over time, the benefits of AI are likely to
similarly expand to a greater number of companies and lead to new business
models. After all, there is no point in investing billions in hardware and
infrastructure if there are not a lot of applications to be built.
Despite the excitement surrounding AI, it is still important to remember that
progress is rarely a straight line. We cannot rule out that there could be a
period of digestion following heavy investments in the hardware and
infrastructure layer as companies take longer than expected to work out how to
use new capabilities.
Alternatively, we could encounter unexpected limitations to AI models
requiring new algorithmic breakthroughs to be made. We are cognisant that the
hardware companies, in particular, though currently propelled by insatiable
demand, can be viciously cyclical businesses should they hit air pockets of
demand. We continue to expect them to perform well but, partially in
recognition of this cyclicality, have been making some mild reductions. This
has been the case for our largest holding, NVIDIA, following exceptionally
strong performance and having grown its net income by over 500 per cent last
year.
Overall, we still believe we are early in experiencing the impact of
artificial intelligence. That impact has been most strongly felt in the
hardware and infrastructure layers, but it should gradually expand to the
application layer. The role of Scottish Mortgage will continue to be to invest
in and support progress, and the developments in AI provide robust evidence
that progress is continuing at pace.
On behalf of our shareholders, we invest in transformative change. We're
greatly encouraged by the founders of our portfolio companies telling us that,
to them, the pace and magnitude of technological-driven change has never
appeared greater. The possibility of such change is a crucial enabler of the
outlier outcomes we seek, and aim to deliver for our shareholders.
Lawrence Burns
Portfolio executive summary, thirty largest holding and list of investments at
31 March 2024
http://www.rns-pdf.londonstockexchange.com/rns/5534P_1-2024-5-22.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/5534P_1-2024-5-22.pdf)
Income statement
The following is the preliminary statement for the year to 31 March 2024 which
was approved by the Board on 22 May 2024.
For the year ended 31 March
Notes 2024 2024 2024 2023 2023 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments 9 - 1,405,658 1,405,658 - (2,790,255) (2,790,255)
Currency gains/(losses) - 22,211 22,211 - (68,748) (68,748)
Income 2 40,046 - 40,046 49,035 - 49,035
Investment management fee 3 - (35,580) (35,580) - (35,953) (35,953)
Other administrative expenses 4 (5,634) - (5,634) (5,861) - (5,861)
Net return before finance costs 34,412 1,392,289 1,426,701 43,174 (2,894,956) (2,851,782)
and taxation
Finance costs of borrowings 5 - (54,981) (54,981) - (66,612) (66,612)
Net return before taxation 34,412 1,337,308 1,371,720 43,174 (2,961,568) (2,918,394)
Tax 6 (1,723) (4,034) (5,757) (1,803) (1,941) (3,744)
Net return after taxation 32,689 1,333,274 1,365,963 41,371 (2,963,509) (2,922,138)
Net return per ordinary share 7 2.33p 94.95p 97.28p 2.90p (207.49p) (204.59p)
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
Notes 2024 2024 2023 2023
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 6 14,118,531 13,149,592
Current assets
Debtors 266,379 12,037
Cash and cash equivalents 123,762 184,945
390,141 196,982
Creditors
Amounts falling due within one year: 7
Bank loans (213,735) (376,076)
Other creditors and accruals (227,143) (22,055)
(440,878) (398,131)
Net current liabilities (50,737) (201,149)
Total assets less current liabilities 14,067,794 12,948,443
Creditors
Amounts falling due after more than one year: 8
Bank loans (379,937) (388,149)
Loan notes (998,991) (1,006,857)
Debenture stock (51,793) (52,212)
Provision for deferred tax liability (7,259) (3,225)
(1,437,980) (1,450,443)
Net assets 12,629,814 11,498,000
Capital and reserves
Called up share capital 10 74,239 74,239
Share premium account 928,400 928,400
Capital redemption reserve 19,094 19,094
Capital reserve 11,591,680 10,434,896
Revenue reserve 16,401 41,371
Total shareholders' funds 12,629,814 11,498,000
Net asset value per ordinary share
(after deducting borrowings at book)* 911.3p 816.8p
* 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 2024
Notes Called up share Share premium account Capital Total shareholders'
£'000
Capital
capital redemption
Revenue funds
reserve*
£'000 reserve
£'000
£'000 reserve*
£'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 - - - 1,333,274 32,689 1,365,963
Ordinary shares bought back into treasury - - - (176,490) - (176,490)
Dividends paid during the year 5 - - - - (57,659) (57,659)
Shareholders' funds at 31 March 2024 74,239 928,400 19,094 11,591,680 16,401 12,629,814
For the year ended 31 March 2023
Notes Called up share Share premium account Capital Capital Revenue Total shareholders'
£'000
capital redemption reserve* reserve* funds
£'000 reserve £'000 £'000 £'000
£'000
Shareholders' funds at 1 April 2022 74,239 928,400 19,094 13,717,685 16,581 14,755,999
Net return after taxation - - - (2,963,509) 41,371 (2,922,138)
Ordinary shares bought back into treasury - - - (283,276) - (283,276)
Dividends paid during the year 5 - - - (36,004) (16,581) (52,585)
Shareholders' funds at 31 March 2023 74,239 928,400 19,094 10,434,896 41,371 11,498,000
The capital reserve balance at 31 March 2024 includes investment holding gains
of £4,358,579,000 (31 March 2023 - gains of £3,312,623,000).
* The revenue reserve and capital reserve (to the extent it
constitutes realised profits) are distributable.
Cash Flow Statement
For the year ended 31 March
Notes 2024 2024 2023 2023
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return before taxation 1,371,720 (2,918,394)
Adjustments to reconcile company net return before tax to net cash flow from
operating activities
(Gains)/losses on investments (1,405,658) 2,790,255
Currency (gains)/ losses (22,211) 68,748
Finance costs of borrowings 54,981 66,612
Taxation
Overseas withholding tax incurred (1,685) (1,927)
Other capital movements
Changes in debtors and creditors (4,344) (2,449)
Cash from operations (7,197) 2,845
Interest paid (55,193) (66,322)
Net cash outflow from operating activities (62,390) (63,477)
Cash flows from investing activities
Acquisitions of investments (677,577) (868,191)
Disposals of investments 1,014,781 1,599,218
Net cash inflow from investing activities 337,204 731,027
Cash flows from financing activities
Equity dividends paid 5 (57,659) (52,585)
Ordinary shares bought back into treasury and stamp duty thereon (122,056) (283,213)
Debenture repaid - (75,000)
Bank loans repaid (657,625) (1,913,150)
Bank loans drawn down 504,505 1,591,000
Net cash outflow from financing activities (332,835) (732,948)
Decrease in cash and cash equivalents (58,021) (65,398)
Exchange movements (3,162) 20,381
Cash and cash equivalents at start of period 184,945 229,962
Cash and cash equivalents at end of period* 123,762 184,945
* Cash and cash equivalents represent cash at bank and short term
money market deposits repayable on demand.
( )
Notes to the financial statements
1. The Financial Statements for the year to 31 March 2024 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
2024 2023
£'000 £'000
Income from investments
Overseas dividends* 28,452 38,578
Overseas interest 7,512 4,576
35,964 43,154
Other income
Deposit interest 4,082 5,881
Total income 40,046 49,035
Total income comprises:
Dividends from financial assets designated at fair value through profit or 28,452 38,578
loss
Interest from financial assets designated at fair value through profit or loss 7,512 4,576
Interest from financial assets not at fair value through profit or loss 4,082 5,881
40,046 49,035
* Overseas dividend income represents income from equity holdings. There was
no income from preference share (non-equity) holdings during the year (2023 -
nil).
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 2024 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
2024 2024 2024 2023 2023 2023
Revenue Capital Total Revenue Capital Total
Net return per ordinary share 2.33p 94.95p 97.28p 2.90p (207.49p) (204.59p)
Revenue return per ordinary share is based on the net revenue after taxation
of £32,689,000 (2023 - £41,371,000), and on 1,404,228,553 (2023 -
1,428,245,353) ordinary shares, being the weighted average number of ordinary
shares (excluding treasury shares) during the year.
Capital return per ordinary share is based on the net capital return for the
financial year of £1,333,274,000 (2023 - net capital loss of
(£2,963,509,000)), and on 1,404,228,553 (2023 - 1,428,245,353) ordinary
shares, being the weighted average number of ordinary shares (excluding
treasury shares) during the year.
There are no dilutive or potentially dilutive shares in issue.
5. Ordinary dividends
2024 2023 2024 2023
£'000 £'000
Amounts recognised as distributions in the year:
Previous year's final (paid 4 July 2023) 2.50p 2.07p 35,190 29,864
Interim (paid 15 December 2023) 1.60p 1.60p 22,469 22,721
4.10p 3.67p 57,659 52,585
Also set out below are the total dividends paid and proposed in respect of the
financial year, which is the basis on which the requirements of section 1158
of the Corporation Tax Act 2010 are considered. The revenue available for
distribution by way of dividend for the year is £32,689,000 (2023 -
£41,371,000).
2024 2023 2024 2023
£'000 £'000
Dividends paid and payable in respect of the year:
Interim dividend per ordinary share (paid 15 December 2023) 1.60p 1.60p 22,469 22,721
Proposed final dividend per ordinary share (payable 11 July 2024) 2.64p 2.50p 36,587 35,190
4.24p 4.10p 59,056 57,911
If approved, the recommended final dividend on the ordinary shares will be
paid on 11 July 2024 to shareholders on the register at the close of business
on 14 June 2024. The ex-dividend date is 13 June 2024. The Company's
Registrars offer a Dividend Reinvestment Plan and the final date for elections
for this dividend is 20 June 2024.
6. Fair Value Hierarchy
As at 31 March 2024 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equities/funds 10,370,152 - - 10,370,152
Private company ordinary shares - - 822,338 822,338
Private company preference shares* - - 2,766,518 2,766,518
Private company convertible notes - - 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
As at 31 March 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equities/funds 9,347,981 - - 9,347,981
Private company ordinary shares - - 838,482 838,482
Private company preference shares* - - 2,723,897 2,723,897
Private company convertible notes - - 113,692 113,692
Limited Partnership Investments - - 113,330 113,330
Contingent value rights - - 12,210 12,210
Total financial asset investments 9,347,981 - 3,801,611 13,149,592
During the year, Oddity (book cost - £26,689,000) was transferred from Level
3 to Level 1 on becoming listed (2023 - nil). 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.
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.
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 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 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. Valuations are typically
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 - amounts falling due within one year
2024 2023
£'000 £'000
The Royal Bank of Scotland International Limited 3 year fixed rate loan 2024 161,753
The Royal Bank of Scotland International Limited 3 year revolving loan 134,574
National Australia Bank Limited 3 year revolving loan 133,447
Scotiabank 3 year revolving loan 79,161 80,876
Purchases for subsequent settlement 149,148 -
Other creditors and accruals 77,995 22,055
440,878 398,131
Included in other creditors is £9,426,000 (2023 - £8,828,000) in respect of
the investment management fee.
Borrowing facilities at 31 March 2024
A 3 year US$350 million revolving loan facility has been arranged with
National Australia Bank. (expiring 20 September 2024)
A 3 year US$170 million revolving loan facility has been arranged with The
Royal Bank of Scotland International Limited. (expiring 8 January 2027)
A 3 year US$100 million revolving loan facility has been arranged with
Scotiabank. (expiring 17 December 2024)
A 5 year US$25 million revolving loan facility has been arranged with The
Royal Bank of Scotland International Limited. (expiring 27 August 2026)
A 3 year US$120 million revolving loan facility has been arranged with
Industrial and Commercial Bank of China Limited. (expiring 7 October 2024)
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 noted above.
At 31 March 2024 drawings were as follows:
Scotiabank US$100 million (revolving facility expiring 17 December 2024) at an interest
rate (at 31 March 2024) of 6.360% per annum
The Royal Bank of Scotland International Limited US$170 million (revolving facility expiring 8 January 2027) at an interest
rate (at 31 March 2024) of 6.613% per annum
At 31 March 2023 drawings were as follows:
National Australia Bank Limited US$165 million (revolving facility expiring 20 September 2024) at an interest
rate (at 31 March 2023) of 6.027% per annum
Scotiabank US$100 million (revolving facility expiring 17 December 2024) at an interest
rate (at 31 March 2023) of 6.215% per annum
The Royal Bank of Scotland International Limited US$200 million (fixed rate loan repayable 8 January 2024 at an interest rate
of 1.491% per annum)
During the period, US$165 million drawings on the National Australia Bank
revolving credit facility were repaid and the US$200 million 3 year fixed rate
loan with Royal Bank of Scotland (International) Limited ('RBSI') was part
refinanced on expiry with a US$170 million 3 year revolving credit facility
with RBSI.
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.
8. Creditors - Amounts falling due after more than one year
Nominal Effective 2024 2023
rate % rate % £'000 £'000
Debenture stocks:
£50 million 6-12% stepped interest debenture stock 2026 12.0 10.8 51,118 51,537
£675,000 4½% irredeemable debenture stock 675 675
Unsecured loan notes:
£30 million 2.91% 2038 2.91 2.91 29,971 29,969
£150 million 2.30% 2040 2.30 2.30 149,842 149,831
£50 million 2.94% 2041 2.94 2.94 49,949 49,945
£45 million 3.05% 2042 3.05 3.05 44,918 44,913
£30 million 3.30% 2044 3.30 3.30 29,943 29,941
£20 million 3.65% 2044 3.65 3.65 19,973 19,972
€18 million 1.65% 2045 1.65 1.65 15,372 15,797
£30 million 3.12% 2047 3.12 3.12 29,942 29,939
£90 million 2.96% 2048 2.96 2.96 89,899 89,896
€27 million 1.77% 2050 1.77 1.77 23,057 23,695
£100 million 2.03% 2036 2.03 2.03 99,932 99,927
£100 million 2.30% 2046 2.30 2.30 99,927 99,923
US$175 million 2.99% 2052 2.99 2.99 138,368 141,361
US$110 million 3.04% 2057 3.04 3.04 86,973 88,855
US$115 million 3.09% 2062 3.09 3.09 90,925 92,893
Long term bank loans:
US$180 million RBSI 2.60% fixed rate loan 2026 2.60 2.60 142,490 145,579
US$300 million Scotiabank 2.23% fixed rate loan 2026 2.23 2.23 237,447 242,570
Provision for deferred tax liability (see note below) 7,259 3,225
1,437,980 1,450,443
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 £1,118,000 (2023 - £1,537,000) over nominal value. The
debenture stocks are secured by a floating charge over the assets of the
Company.
Unsecured loan notes
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 £1,099,000 (2023 - £1,152,000).
Long term bank loans
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 £33,000 (2023 - £60,000).The main covenants are detailed in
note 11 of the Annual Report and Financial Statements.
Provision for deferred tax liability
The deferred tax liability provision at 31 March 2024 of £7,259,000 (31 March
2023 - £3,225,000) 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.
Borrowing limits
Under the terms of the Articles of Association and the Debenture Trust Deeds,
total borrowings should not exceed a sum equal to one half of the adjusted
total of capital and reserves at the Company's year end.
9. The fair value of borrowings at 31 March 2024 was £1,293,632,000
(2023 - £1,442,809,000). Net asset value per share (after deducting
borrowings at fair value) was 936.6p (2023 - 843.9p).
10. Called up share capital
2024 2024 2023 2023
Number £'000 Number £'000
Allotted, called up and fully paid ordinary shares of 5p each 1,385,868,493 69,293 1,407,618,528 70,381
Treasury shares of 5p each 98,912,387 4,946 77,162,352 3,858
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 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 (2023 -
36,513,122 shares with a nominal value of £1,825,000 were bought back at a
total cost of £283,276,000 and held in
treasury). At 31 March 2024 the Company had authority to buy back 184,740,790
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 2024, the Company sold no treasury ordinary shares (31
March 2023 - no ordinary shares). At 31 March 2024 the Company had authority
to issue or sell from treasury a further 140,761,853 ordinary shares
(98,912,387 shares were held in treasury at 31 March 2024).
11. Transaction costs on purchases amounted to £187,000 (2023 -
£413,000) and transaction costs on sales amounted to £576,000 (2023 -
£1,651,000).
12. The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2024 or 2023 but is
derived from those accounts. Statutory accounts for 2023 have been delivered
to the Registrar of Companies, and those for 2024 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.
13. Related Party Transactions
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.
The Annual Report and Financial Statements will be available on the Managers'
website www.scottishmortgage.com (http://www.scottishmortgage.com) ‡ on or
around 3 June 2024.
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
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). 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 2024 31 March 2023
£'000
£'000
Net asset value per ordinary share (borrowings at book value) 911.3p 816.8p
Shareholders' funds (borrowings at book value) £12,629,814 £11,498,000
Add: book value of borrowings £1,644,456 £1,823,294
Less: fair value of borrowings (£1,293,632) (£1,442,809)
Net asset value (borrowings at fair value) £12,980,638 £11,878,485
Shares in issue at year end (excluding treasury shares) 1,385,868,493 1,407,618,528
Net asset value per ordinary share (borrowings at fair value) 936.6p 843.9p
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 2024 31 March 2023
£'000
£'000
Net asset value per ordinary share (borrowings at book value) 911.3p 816.8p
Shareholders' funds (borrowings at book value) £12,629,814 £11,498,000
Add: allocation of interest on borrowings £1,273 £1,716
Less: expenses of debenture/loan note issue (£1,286) (£1,429)
Net asset value (borrowings at par value) £12,629,801 £11,498,287
Shares in issue at year end (excluding treasury shares) 1,385,868,493 1,407,618,528
Net asset value per ordinary share (borrowings at par value) 911.3p 816.9p
Net liquid assets
Net liquid assets comprise current assets less current liabilities, excluding
borrowings.
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's share price is
rarely the same as its NAV. When the share price is lower than the NAV per
share it is said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the share price is
higher than the NAV per share, it is said to be trading at a premium.
2024 2024 2023 2023
NAV (book) NAV (fair) NAV (book) NAV (fair)
Closing NAV per share (a) 911.3p 936.6p 816.8p 843.9p
Closing share price (b) 894.0p 894.0p 678.6p 678.6p
(Discount)/premium ((b) - (a)) ÷ (a) (1.9%) (4.5%) (16.9%) (19.6%)
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.
2024 2023
£'000
£'000
Investment management fee £35,580 £35,953
Other administrative expenses £5,634 £5,861
Total expenses (a) £41,214 £41,814
Average net asset value (with borrowings deducted at fair value) (b) £11,877,157 £12,458,941
Ongoing charges ((a) ÷ (b) expressed as a percentage) 0.35% 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.
Invested 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 2024 31 March 2023
£'000
£'000
Borrowings (at book value) £1,644,456 £1,823,294
Less: cash and cash equivalents (£123,762) (£184,945)
Less: sales for subsequent settlement (£253,707) (£5,044)
Add: purchases for subsequent settlement £149,148 -
Adjusted borrowings (a) £1,416,135 £1,633,305
Shareholders' funds (b) £12,629,814 £11,498,000
Gearing: (a) as a percentage of (b) 11% 14%
Gross gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
31 March 2024 31 March 2023
£'000
£'000
Borrowings (at book value) (a) £1,644,456 £1,823,294
Shareholders' funds (b) £12,629,814 £11,498,000
Gross gearing: (a) as a percentage of (b) 13% 16%
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.
2024 2024 2024 2023 2023 2023
NAV NAV Share NAV NAV Share
(book) (fair) price (book) (fair) price
Closing NAV per share/share price (a) 911.3p 936.6p 894.0p 816.8p 843.9p 678.6p
Dividend adjustment factor* (b) 1.0048 1.0046 1.0058 1.0045 1.0045 1.0047
Adjusted closing NAV per share/share price (c = a x b) 915.7p 940.9p 899.2p 820.5 847.7 681.8
Opening NAV per share/share price (d) 816.8p 843.9p 678.6p 1,021.8p 1,030.8p 1,026.0p
Total return (c ÷ d)-1 12.1% 11.5% 32.5% (19.7%) (17.8%) (33.5%)
* The dividend adjustment factor is calculated on the assumption that
the dividends of 4.10p (2023 - 3.67p) 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.
Compound annual return (APM)
The compound annual return converts the return over a period of longer than
one year to a constant annual rate of return applied to the compound value at
the start of each year.
Private (unlisted) company
An unlisted or private company means a company whose shares are not available
to the general public for trading and are not listed on a stock exchange.
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 scottishmortgageit.com‡
Scottish Mortgage is managed by Baillie Gifford, the Edinburgh based fund
management group with around £228 billion under management and advice in
active equity and bond portfolios for clients in the UK and throughout the
world (as at 20 May 2024).
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.
22 May 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
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FTSE Index Data
London Stock Exchange Group plc and its group undertakings (collectively, the
'LSE Group'). ©LSE Group 2024. FTSE Russell is a trading name of certain LSE
Group
companies. 'FTSE®', 'Russell®', 'FTSE Russell®', is/are a trademark(s) of
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Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a
direct impact in the UK due to Brexit, however, it applies to third-country
products
marketed in the EU. As Scottish Mortgage Investment Trust is marketed in the
EU by the AIFM, Baillie Gifford & Co Limited, via the National Private
Placement Regime
('NPPR') the following disclosures have been provided to comply with the
high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's stewardship principles and
guidelines as its policy on integration of sustainability risks in investment
decisions.
Baillie Gifford & Co believes that a company cannot be financially
sustainable in the long run if its approach to business is fundamentally out
of line with changing
societal expectations. It defines 'sustainability' as a deliberately broad
concept which encapsulates a company's purpose, values, business model,
culture,
and operating practices.
Baillie Gifford & Co's approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their
marketplace. To do this it looks beyond current financial performance,
undertaking proprietary research to build up an in-depth knowledge of an
individual company and
a view on its long-term prospects. This includes the consideration of
sustainability factors (environmental, social and/or governance matters) which
it believes will
positively or negatively influence the financial returns of an investment. The
likely impact on the return of the portfolio from a potential or actual
material decline in the
value of investment due to the occurrence of an environmental, social or
governance event or condition will vary and will depend on several factors
including but
not limited to the type, extent, complexity and duration of an event or
condition, prevailing market conditions and existence of any mitigating
factors.
Whilst consideration is given to sustainability matters, there are no
restrictions on the investment universe of the Company, unless otherwise
stated within in its
Investment Objective & Policy. Baillie Gifford & Co can invest in any
companies it believes could create beneficial long-term returns for investors.
However, this might
result in investments being made in companies that ultimately cause a negative
outcome for the environment or society.
More detail on the Investment Managers' approach to sustainability can be
found in the ESG Principles and Guidelines document, available publicly on the
Baillie
Gifford website bailliegifford.com.
The underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities established under the EU
Taxonomy Regulation.
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. END FR QKBBDDBKBBPB
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