TIDMSMT
RNS Number : 7038Z
Scottish Mortgage Inv Tst PLC
17 May 2023
RNS Announcement: Preliminary Results
Scottish Mortgage Investment Trust PLC
Legal Entity Identifier: 213800G37DCS3Q9IJM38
Results for the year to 31 March 2023
NAV (borrowings at fair
value) * (17.8%)
NAV (borrowings at book
value) * (19.7%)
--------
Share Price* (33.5%)
--------
Benchmark (0.9%)
--------
Source: Refinitiv / Baillie Gifford. All figures are total
return (*) . See disclaimer at the end of this announcement.
* Alternative Performance Measure - see Glossary of Terms and
Alternative Performance Measures at the end of this
announcement.
Benchmark: FTSE All-World index (in sterling terms)
The following is the Preliminary Results Announcement for the
year to 31 March 2023 which was approved by the Board on 16 May
2023.
Statement from the Chair
Introduction
Scottish Mortgage was founded after the market crash of 1909 to
provide capital to businesses that had huge potential but limited
access to funding. Over the course of our 114-year history, we've
seen many market highs and lows. Each time we have faced challenge,
we have emerged in strong shape with a renewed determination to
deliver value to our shareholders.
Today is no different. This has been a year of continued
economic, political, and social disruption in many parts of the
world. Whilst there were good signs of recovery from COVID-19, the
war in Ukraine led to significant uncertainty and contributed to
soaring inflation and rising interest rates, creating challenging
conditions for many companies. The current headwinds are not a new
economic phenomenon, and we are confident in our ability to
navigate through to calmer waters.
However, we recognise that - notwithstanding the macro-economic
headwinds - performance in recent years has been disappointing. The
Board shares this disappointment but remains confident that
Scottish Mortgage is a strong long-term investment. We firmly
believe in the fundamentals of our investment portfolio, which has
delivered so much value over many decades.
The challenges we have faced have not been unique to Scottish
Mortgage. Market turbulence has impacted all companies, and it
would be wrong to allow short-term market volatility to influence
our long-term investment decisions. That is why the Managers have
continued to do what they do best - engaging with portfolio
companies through the cycle, as well as selecting and patiently
investing in new growth businesses with extraordinary potential
from around the world.
Portfolio update
Your capital has benefitted hundreds of businesses over many
decades, providing much needed equity to high-potential,
high-growth companies. The Managers have identified some truly
ground-breaking businesses that are building the future of the
global economy. These companies have the potential to be category
winners, and their visions for the future need long-term capital to
become a reality.
Our investments span a wide range of companies in technology and
healthcare, decarbonisation, and digitalisation, as well as
entrepreneurs pioneering brand new frontiers.
A significant proportion of the Company is invested in publicly
listed equities, including Moderna, whose vaccines played a
critical role in addressing the pandemic, and which remains our
largest holding. Other significant listed holdings include ASML, an
innovation leader in the semiconductor industry; Tesla which
continues to transform battery energy storage solutions for the
automotive and clean energy industries; and MercadoLibre, Latin
America's most popular ecommerce site.
Increasingly often, high-growth companies are found in private
markets. Investing in private companies has formed part of the
Company's investment strategy since 2012. Scottish Mortgage does
not invest in start-ups, and as such, we are not venture
capitalists. We invest in large, late-stage companies, with an
average size of US$10 billion and a global footprint. There are
some very exciting companies in the private company investment
portfolio, including Zipline, a drone company which began by
delivering blood supplies in Rwanda and is scaling up its
operations in the United States. UPSIDE Foods which is
revolutionising food as one of the leading cultivated meat
companies in the United States; and Denali Therapeutics, a
biotechnology company focused on finding a cure for
neurodegenerative diseases such as Alzheimer's and Parkinson's.
Five companies make up nearly half of the Company's overall
exposure to private firms, and they have generally performed better
than their publicly listed peers, raising money at higher
valuations than last year, despite the market turmoil. We employ a
rigorous valuation process, which is described in the Managers'
Report below; in summary it involves a dedicated team at Baillie
Gifford, independent of the fund managers, plus valuation reports
prepared by an independent third party, S&P Global.
At the 2020 AGM shareholders approved a limit on private
investments of 30% of the total assets of the Company, measured at
the time of purchase, and we continue to believe that this provides
the Company with the appropriate flexibility to invest in some of
the world's most exceptional growth companies that have chosen to
remain private. The exposure at 31 March 2023 was 28.6% and the
Board and the Manager will continue to monitor this closely.
Performance
Total return* (%) 12 months to
31 March 2023
------------------------- ---------------
NAV (17.8%)
Share price (33.5%)
FTSE All-World Index (0.9%)
Global Sector Average -
NAV (8.2%)
Global Sector Average -
share price (13.6%)
Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting
borrowings at fair value*.
* Alternative Performance Measure - see Glossary of Terms and
Alternative Performance Measures at the end of this
announcement.
The Company posted a negative return in the year to 31 March
2023. Whilst this is a disappointing result, our view is that this
represents too short a time frame on which to judge returns given
the long-term nature of the investment strategy.
Over the last 10 years, Scottish Mortgage's net asset value
(NAV) per share has increased by 432% compared to a 181% increase
in the FTSE All-World index. This track record of delivering strong
returns and our reputation for identifying high-growth companies
that will transform society means that we continue to be regarded
as one of the UK's leading investment trusts. We are a long-term
investment, and investors who share our belief in the underlying
strengths of the portfolio expect to benefit from future
out-performance.
Total return*(%) Five years Ten years to
to 31 March 31 March 2023
2023
------------------------------- ------------- ---------------
NAV 96.3% 431.5%
Share price 57.1% 347.0%
FTSE All-World Index 62.0% 180.8%
Global Sector Average - NAV 70.2% 277.7%
Global Sector Average - share
price 49.4% 244.0%
Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting
borrowings at fair value*.
* Alternative Performance Measure - see Glossary of Terms and
Alternative Performance Measures at the end of this
announcement.
Value for money
We strive to keep the cost of investing low for shareholders to
retain as much of the return on their investment as possible.
Ongoing charges for the year were 0.34%, representing a small rise
on the previous financial year (0.32%). This is due to reduction in
the proportion of total assets above GBP4 billion, which attracts
the lowest management fee rate of 0.25%. The ongoing charge figure
remains less than most actively managed funds in public funds, and
significantly less than private equity funds. Notwithstanding
recent performance, the Board and Managers continue to believe that
Scottish Mortgage offers shareholders excellent value for
money.
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 extent and range of gearing is discussed by the
Board and Managers at each Board meeting.
With a backdrop of falling equity markets, the absolute level of
borrowing was actively gradually reduced over the period to remain
within an appropriate range with net asset value. The Board and
Managers repaid US$396 million (GBP322.2 million) of revolving
variable-rate bank facilities. The weighted average cost of debt,
based on drawn down borrowings is 2.98% as at 31 March 2023 (2.58%
as at 31 March 2022). Additionally, the GBP75 million 6.875%
debenture was redeemed on maturity on 31 January 2023 and not
refinanced.
At the end of the year gearing was 14%, a small increase from
13% at 31 March 2022.
Earnings and dividend
The Managers seek to maximise total return by providing growth
capital to a global portfolio of public and private companies. One
common characteristic across these companies is that many choose to
retain and reinvest most of their earnings to support future
growth. This results in a relatively low level of dividend income
for your Company.
However, over the year income received by the Company more than
doubled in value to GBP49.0 million. This can be accounted for by
increased income from the portfolio companies - most notably Ant
Group, Kering and ASML, which raised dividends following good
operational performance. Additionally, the rising interest rate
environment increased the level of deposit income received.
As a Board we acknowledge the importance of providing a
predictable and growing level of dividend income, to help
shareholders plan for their own overall portfolio income needs. The
requirement for investment trusts to retain no more than 15% of
income has necessitated a significantly larger increase, in
percentage terms, in the dividend than would otherwise have been
proposed. Accordingly, the Directors are recommending that this
year the total dividend be increased by 14.2% to 4.10 pence per
share (2022 - 3.59 pence per share). Future increases to the
dividend are however, expected to be consistent with the more
modest uplifts in recent years unless higher levels are required to
maintain investment trust status.
Liquidity
With a backdrop of heightened market anxiety, particularly
around growth and private company investing - the share price moved
from a discount to net asset value of 0.5% to 19.6%. The Board is
acutely aware that such moves can be discomfiting for shareholders.
Over the year, we sought to address the excess supply of shares by
buying back 36.5 million shares at a total cost of GBP283.3
million, which represented 2.5% of the share capital in issue at
the start of the year.
The Board remains committed 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 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. All of this with an aim of enhancing shareholder
returns over the long term.
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.
The Managers' approach to sustainable investing is underpinned
by five core beliefs that are detailed in 'Our Approach to
Governance'. We recommend this as a valuable reading to all
shareholders, and it can be found on the website
scottishmortgage.com.
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, and the Company's
voting record can also be found on the website.
Shareholder engagement
The Annual General Meeting will be held at 4.30pm on Tuesday 27
June 2023 at The Royal College of Physicians of Edinburgh, 11 Queen
Street, Edinburgh EH2 1JQ.
As always, I would invite shareholders to attend, raise any
questions they may have 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 Numis
Securities. Contact details for all three firms are included in the
Annual Report and are available on their respective websites.
I would also encourage shareholders to maintain an active
dialogue with the Company throughout the year. The Company's
Managers hold multiple shareholder meetings and events around the
country throughout the year, as well as via webinars and 'Insight'
pieces published on the Company's website.
Board update
As announced in March, I will be retiring from the Board at this
year's AGM. I first signalled my intention to step down in 2020 but
remained as Chair at the request of my fellow Board members to
provide continuity given the extraordinary circumstances of the
pandemic and a period of transition with the Board and
Managers.
This has allowed us to plan for succession, and following a
process led by the Nomination Committee, the Board was unanimous in
supporting Justin Dowley, our current Senior Independent Director,
as the Company's new Chair. Subject to his re-election by
shareholders, Justin will take over as Chair following the AGM on
27 June.
Professor Paola Subacchi will also step down at the AGM after
nine years on the Board. I extend my sincere thanks to Paola for
her dedication to Scottish Mortgage during her tenure. On behalf of
the Board, I would like to wish her every success in her future
non-executive roles and distinguished executive career.
Professor Amar Bhidé left the Board in March following a
fundamental difference in view on the ongoing suitability of the
Company's investment policy as it relates to the Company's ability
to invest in companies not listed on a public market (see
'Investment policy' on page 40 of the Annual Report and Financial
Statements), and on whether the Board should maintain its stance on
managing the discount/premium (see 'Liquidity policy' on page 40 of
the Annual Report and Financial Statements). The Directors
discussed these matters on a number of occasions during Professor
Bhidé's tenure and the Board does not currently intend to change
its stance or to recommend to shareholders any proposed changes to
the Company's investment policy, although it continues to keep the
ongoing suitability of the investment policy under regular review.
The Board welcomes two new Non-Executive Directors, Sharon Flood
and Vikram Kumaraswamy. Sharon's and Vikram's appointments are
subject to shareholder ratification at the forthcoming AGM.
Sharon is a Non-Executive Director of Getlink SE, where she is
Chair of Safety and Security, and Pets at Home PLC, where she is
Chair of the Remuneration Committee and formerly Chair of the Audit
Committee. Sharon previously served as Chair of Seraphine Group PLC
and S T Dupont SA, and as non-executive director and Chair of the
Audit Committees at Crest Nicolson PLC, and Network Rail. A Fellow
of the Chartered Institute of Management Accountants, Sharon has
also held leadership roles at Sun European Partners and the John
Lewis Partnership. She is currently a Trustee of the University of
Cambridge and formerly a Trustee of both the Science Museum Group
and Shelter. On appointment, Sharon will join the Audit Committee
and Nomination Committee.
Vikram Kumaraswamy is the Head of Strategy and Corporate
Development at Unilever. He leads portfolio development and capital
allocation for the group, with responsibility for strategy, M&A
sourcing and execution, competitor intelligence and corporate
venturing. A chartered accountant, Vikram was responsible for
significant changes to Unilever's portfolio, positioning the
company for superior long-term growth and involved in other
strategic transformation initiatives. Vikram was previously CFO of
PT Unilever Indonesia Tbk, based in Jakarta. On appointment, Vikram
will join the Audit Committee and Nomination Committee.
I am delighted to welcome Sharon and Vikram and subject to their
election at the AGM, I am sure that the Board will greatly benefit
from their contributions.
Outlook
We remain confident that Scottish Mortgage merits a place in all
portfolios and that shareholders benefit from the patient,
long-term approach taken by your Managers. The Company has a
clearly defined investment philosophy and process, owning and
supporting the world's most exceptional growth companies. The
Company will continue to pursue its unconstrained approach to
investing in the broadest opportunity set, spanning both public and
private companies across the globe. We are resolute in our duty to
maximise total returns and limit fees so that shareholders enjoy
the maximum benefit of their investment. Whilst there is no doubt
that the year ahead will present challenges, we have plenty of
reasons for optimism as we continue to invest in companies that are
building a better future.
It has been my very great privilege to serve on the Board. As I
step down as your Chair, I would like to thank my fellow Directors
for their commitment and dedication to Scottish Mortgage. I would
also like to thank Tom Slater, Lawrence Burns, and each of the
teams at Baillie Gifford. We refer to 'The Managers', but in truth,
there are many people behind the scenes working tirelessly to
deliver for our shareholders.
The Board will continue to act in the interest of shareholders
to ensure an appropriate balance of opportunity and risk. We are
grateful to you for the trust you place in us and for your ongoing
and consistent support of the Company. I am confident that Scottish
Mortgage will continue to create long-term sustainable value for
shareholders in 2023 and beyond.
Fiona McBain
Chair
16 May 2023
For a definition of terms see Glossary of Terms and Alternative
Performance Measures at the end of this document
Total return information sourced from Refinitiv/StatPro/Baillie
Gifford.
See disclaimer at end of this document.
Past performance is not a guide to future performance.
Managers' Review - Tom Slater
Geopolitical tensions have escalated this year, most notably
with Russia's invasion of Ukraine, which marked the return of major
war to Europe and had significant global repercussions. The
invasion exposed the fault lines between nations and created
economic challenges such as price shocks, supply disruptions and
food shortages. Inflation emerged as a global concern, affecting
both developed and developing nations alike. Meanwhile, the great
power competition between the United States and China intensified,
with both countries adopting increasingly adversarial stances and
actions, further straining their relationship. On a more positive
note, many countries abandoned lockdowns, travel restrictions, and
other pandemic-related measures due to the success of vaccines and
therapeutic treatments.
Having initially been slow to respond to rising inflation,
central banks raised interest rates aggressively. The US Federal
Reserve was holding the federal funds rate at around zero as
recently as the first quarter of 2022 and buying billions of
dollars of bonds every month to stimulate the economy. This started
to change in March 2022 with the first of a series of rate
increases that summed close to five percentage points over the
company's financial year, one of the steepest increases on record.
This has led to strain in the banking sector and the collapse of
several US regional banks. The impact of tighter financial
conditions on consumers, inflation and the broader economy will be
felt over the coming year, given the delays in the system.
In this environment, investors have flocked to assets that are
already proven and profitable. Predictability can have a deep
allure as uncertainty grows and people are fearful. Investing in
such assets may be appropriate for others, but we are sceptical
that our shareholders will benefit in the long run if we too resort
to following the crowd. Buying predictability may provide temporary
comfort, but it is by embracing discomfort that we can entertain
the possibility of outsized returns from exceptional companies. The
universe of businesses with bounded opportunities and well-analysed
competitive positions is unlikely to yield extraordinary
outcomes.
The sharp increase in interest rates and associated collapse in
the supply of capital has led to a fearful mood in financial
markets. This negative disposition ignores the exciting progress in
several key technologies and companies. The deterioration in
markets has a greater impact in the near term, both through the
immediate prospects for corporate profitability and the decline in
our stock price relative to the value of our assets. However, over
the longer term, the more profound consequences will come from
developments in areas such as mRNA-based medicines or artificial
intelligence.
Progress
Growth and innovation are not dependent on the direction of
macro-economic developments. Instead, we pay close attention to
exponential trends such as Moore's Law in semiconductors, Carlson's
curve in genomic sequencing or Wright's Law in manufacturing. These
predictable trajectories of progress are a valuable way to
understand what is happening in the world. A feature of these laws
is that progress each year can underwhelm but cumulative progress
over a decade or more is remarkable. The past year was an exception
because there were breakthroughs across various industries and
technologies.
One striking example came from healthcare and our largest
holding, Moderna. The company has demonstrated that mRNA technology
can be used to create effective personalised cancer vaccines. Phase
2 trials in advanced melanoma showed a 44% increase in survival for
those taking the therapy in addition to the current standard of
care. Pharmaceutical giant Merck paid US$250 million to co-develop
the technology with Moderna, and we expect Phase 3 trials in
various cancer types to launch this year. Moderna now has 30
vaccines in clinical trials for infectious diseases and with the
addition of therapies for cancer, liver disease and lung disease,
the number of potential applications for Moderna's technology is
multiplying.
While the focus of energy markets was on the immediate impact of
the crisis in Ukraine, the long-term trajectory away from carbon
remains. The Inflation Reduction Act in the United States has
created a framework for significant investment in electrification,
aiming to prevent Chinese companies from dominating the supply
chain. Europe must respond with an equivalent strategy to avoid all
the industrial capacity being built elsewhere.
Our holding Northvolt, the European battery manufacturer, made
its first commercial deliveries in 2022 as its production
facilities in Northern Sweden ramped up. It is tapping into
enormous latent demand for electrification and has announced US$55
billion of contracts to supply major automotive manufacturers. It
is expanding its manufacturing footprint outside Sweden as it
scales up rapidly to meet the industry's needs.
Solar generating capacity doubled in the three years to 2022
although it remains less than 5% of the global energy mix. In
December, there was the first confirmed example of net power
production from a nuclear fusion reaction. This result has proven
elusive for several decades and is an important milestone on the
path to harnessing the technology. The price deflation that will
eventually flow from renewable generation makes identifying direct
investments challenging, but it is crucial to consider how abundant
clean energy will impact society's ability to innovate.
The Henry Adams curve describes the 7% annual growth in energy
available to civilisation since the invention of the steam engine
300 years ago. However, since the 1970s oil price shocks, we have
fallen off the curve and energy consumption in Western economies
has stagnated. As a result, we have seen significant innovation in
areas where we can do more with less. Semiconductors have turned
some science fiction predictions into reality, but advances in
other areas have lagged. We have few space stations, no lunar
landings or bases, no interplanetary travel or colonies and no
supersonic aircraft or flying cars. Amidst the many challenges, a
missing ingredient for all these endeavours has been abundant,
low-cost, clean energy.
Our largest private holding, Space Exploration Technologies
(SpaceX) made 60 launches in 2022, more than one per week and twice
the number it achieved the previous year. The commercial space
market has finally become a reality thanks to SpaceX's reusable
rockets, which have reduced launch costs by 95% from those of the
space shuttle. This is even more striking when you consider that
Moore's law and associated software have made each kilogram of
payload much more productive. The first iterations of
extra-terrestrial services have been focused on sectors such as
agriculture and mining. Consumer applications are now appearing,
including T-Mobile and SpaceX's collaboration to eliminate the
mobile-reception dead zones that still cover 20% of the US
landmass. Over time, R&D, manufacturing, tourism, and other
space-based applications will become more common.
We have been commenting on progress in Artificial Intelligence
(AI) for some time, and we saw some meaningful breakthroughs this
year. At the risk of hyperbole, this could be the start of another
computing paradigm akin to the personal computer or smartphone.
Most noteworthy was the success of OpenAI in making AI technology
available to non-technical users with the release of ChatGPT. The
service signed up a hundred million users in just two months as
engineers and entrepreneurs recognised the potential offered by
this approach to computation. AI can already augment human software
programmers and enhance productivity, and AI services will likely
write most computer code in the future. The implications of
AI-generated student essays are less encouraging and only a minor
example of the governance challenges these systems will create.
AI will likely transform many parts of the economy, but it would
be foolhardy to make specific predictions. We can, however, say
with some certainty that AI systems will require a lot of silicon.
OpenAI has suggested that the computing power needed to run the
latest models doubles every 14 weeks. Our holding NVIDIA is a key
supplier and enjoys formidable advantages, as the chip technology
it has built over decades for computer games has proven ideally
suited for AI computation. The semiconductor industry depends on
ASML's exceptional engineering skills to produce cutting-edge
chips, and AI is just one driver of the strong demand we anticipate
over the next decade.
One of the largest AI companies in the world, Tesla, rolled out
initial access to its full self-driving software in the US this
year. It has now driven 150 million autonomous miles, providing it
with a vast data advantage over the rest of the automotive
industry. The system's capability is already impressive, but the
pace of improvement will be most important over time. In the short
run, new vehicle sales will face headwinds from higher interest
rates, but electric vehicles continue to gain share and Tesla, as
the market leader, has the scale and profitability to invest and
grow in challenging conditions. In the long run, its software and
AI capabilities will be deployed to a much larger fleet of
vehicles, and others will struggle to compete.
Portfolio
Turnover in the portfolio remains low, reflecting our belief in
the companies we own. The lone sale from last year's top thirty was
Alibaba. We reduced other Chinese holdings and sold two smaller
positions, KE Holdings and Full Truck Alliance. These sales were
driven by concerns about the growth of big online platform
companies in China after several regulatory interventions, as well
as reflecting disquiet about deteriorating Sino-US relations. China
remains an important market for stockpickers. It is one of the
world's largest economies and home to some of the most innovative
management teams we know (our best-performing stock last year was
the Chinese ecommerce company PDD). However, we will continue to
manage the overall exposure of the Company in light of the
geopolitical environment.
We have substantially reduced our holding in Illumina, the
sequencing machine company. We still believe gene-sequencing is a
fundamental building-block for advances in healthcare, but the
company's execution has been disappointing, which has been
reflected in a weak stock price. We have retained positions in
other companies where valuation declines have hurt us in the short
run. Ginkgo, the synthetic biology company, has struggled to
explain its story to public market investors since listing in 2021
but has delivered operationally and is well placed to consolidate
its nascent market. Blockchain.com, the crypto banking business,
has been hit by the weak digital asset market and the bankruptcy of
a large customer but ought to have a much stronger competitive
position in the next up-cycle given the larger problems experienced
by its peers. We are confident that Affirm, the US point-of-sale
lender, will be able to navigate the interest rate cycle while
maintaining credit quality and growing its loan book.
We purchased a new holding in the gaming company Roblox. Its
audience use it as an entertainment platform initially and the
conversion of those players into creators and paid users will
underpin substantial growth over the next decade. We also took a
position in Cloud networking-provider Cloudflare which will be an
essential enabler of the next generation of software systems. We
added to Latin American ecommerce and finance company,
MercadoLibre, which is still in the early stages of market
penetration and is adept at creating the products its users need.
As with many of our established holdings, it benefits from a more
benign competitive environment as capital is withdrawn. It is now a
top-five holding.
Conclusion
Despite recent stock market declines, significant operational
progress continues, reflecting the accelerating pace of change
throughout the economy. While this progress has not translated into
our investment results lately, we need to remain disciplined and
patient. We know this has been painful for shareholders, but
history shows that periods of poor performance are inevitable. Our
approach will never be consistently in favour, and we should not
deviate from it to avoid short-term headwinds. If patient ownership
of growth companies was easy, there would be far more
competition.
We cannot know when stock markets will reflect the progress we
see, but in the long run, share prices follow company fundamentals.
In the meantime, we will focus on the bigger picture and avoid
impulsive decisions based on market movements. Previous downturns
have drawn attention to companies solving important problems and we
remain vigilant for new opportunities.
There is no going back to a world of static and unchanging
industries. The retreat to perceived safety can only be temporary,
as safety is ephemeral amidst such upheaval. It is by investing in
the agents of change and partnering to develop big new
opportunities, that exceptional returns for shareholders will be
generated.
Tom Slater
Managers' Review - Lawrence Burns
Reflecting on a decade of private company investing
Scottish Mortgage has now been investing in private companies
for over a decade. We began this journey in 2012 when Yahoo! was
looking to off-load its stake in the Chinese ecommerce behemoth
Alibaba. It was a fortuitous start to private company investing.
The Company's GBP30 million holding became worth more than GBP150
million just two years later when Alibaba launched what at the time
was the world's largest-ever stock market flotation.
The Company's private company exposure has expanded over the
decade since, giving our shareholders access to a range of
differentiated businesses, many of which have no public market
equivalent. From SpaceX radically lowering the cost to access
space; to Northvolt providing crucial homegrown battery production
for the European market; to Tempus Labs developing personalised
cancer diagnoses powered by artificial intelligence. Our private
company exposure is concentrated in a small number of these very
large private businesses. The five largest private holdings alone
account for nearly half of our private company exposure with the
ten largest accounting for nearly two-thirds:
Private Exposure at 31 March 2023
http://www.rns-pdf.londonstockexchange.com/rns/7038Z_2-2023-5-17.pdf
There are four main reasons we invest in private companies:
-- Companies are staying private longer
We have never aspired to become early-stage venture capitalists.
We merely adapted to the type of companies we invested in choosing
to stay private longer. The Facebook IPO was an important
datapoint. When it listed in 2012 and finally became available for
the Company to invest in, it was already valued at over US$100
billion. Alibaba listed at nearly US$ 200 billion two years later.
The implication of this trend was that ever greater value creation
was occurring before companies went public. Exceptional businesses
and the returns they generated were staying out of the reach of
public market investors and thus Scottish Mortgage shareholders. In
the technology sector, the average age of a new public company in
1999 was 4 years. By 2020 that extended to more than 12 years
according to research from the University of Florida.
Companies are staying private longer and building more value
while unlisted
http://www.rns-pdf.londonstockexchange.com/rns/7038Z_3-2023-5-17.pdf
The companies that make up the bulk of our private company
exposure are consequently neither small nor early-stage. We have
several private holdings that already have many thousands of
employees and billions in annual revenue. The majority of our
assets invested in private companies are in businesses which would
be large enough in scale to join the FTSE 100 Index, if they were
based in the UK and listed.
Total equity value Company count Portfolio
(USD) %
-------------------- ------------- ---------
Micro (<$300m) 7 0.9
Small ($300m-$2bn) 14 5.0
Medium ($2bn-$10bn) 14 10.1
Large (>$10bn) 7 12.6
-------------------- ------------- ---------
Grand total 42 28.6
-------------------- ------------- ---------
As at 31 March 2023. There are ten limited partnership
investments not included in the table above.
-- Access is an advantage
The second reason we invest in private companies is that we
believe we should have an edge in doing so.
Public companies can choose whom they speak to and we are
privileged in terms of the access we get. However, private
companies do not just choose who they talk to but also take great
care in picking who is allowed to own their shares. For the most
exceptional private companies supply of capital often dwarfs the
amount they wish to raise. It is usually a good signal when a
meeting with a new private company resembles a two-way interview
process.
Our reputation as long-term owners of businesses and our
closed-ended structure make us stable shareowners which is
attractive to private companies. The good access we consequently
receive is evidenced by over 90% of our investments in private
companies coming from proprietary sources in recent years. That
means coming from a company approaching us directly or an
introduction from another founder or investor as opposed to a
bank-sponsored funding round.
-- Insights without boundaries
Investing in private companies has also provided us with an
entirely new world of insights to leverage over the last decade.
Understanding how the world is changing solely through public
companies now feels akin to trying to construct a puzzle with half
the pieces missing.
Ant Group helped us to better understand the potential of
MercadoLibre's payment arm earlier than would otherwise have been
the case. While a tour of private AI chip companies in the Bay area
back in 2018 helped us to better understand the threat of those
trying to disrupt NVIDIA. Meituan helped us understand the
potential of food delivery across the globe. Private company
investing has continually provided us with a lens into the future.
Today it is allowing us to better understand emerging areas such as
synthetic biology, artificial intelligence and climate
solutions.
It has also allowed us to get to know companies well before they
go public. We have now had 35 of our private holdings transition to
listed companies. Getting to know Spotify, Meituan, HelloFresh and
many more before they went public gave us a far more informed
perspective than meeting them for the first time on a highly
choreographed IPO roadshow with a team of investment bankers in
tow. Over 40% of Scottish Mortgage's assets are invested in
companies that were first purchased as private companies. Private
company investing has become an important funnel for the public
part of our portfolio.
-- Low-cost access
The ability to invest in world-leading private companies has
traditionally been neither accessible nor cheap.
Scottish Mortgage is able to offer access to both the world's
leading private and public companies for an annual fee of 0.34%. In
doing so we believe Scottish Mortgage plays a role in democratising
access to private companies at low cost.
A decade of learning and building
When we began investing a decade ago there was much we did not
know. The infrastructure we would need to do this at scale did not
exist and took time to build. Nevertheless, we sensed an
opportunity and proceeded cautiously but deliberately allowing us
to learn and build the internal capabilities required.
Today we work alongside a team of seven dedicated private
company investors as well as 30 investors who work on both public
and private companies. In addition, we have an in-house Private
Companies Legal Team to manage aspects such as non-disclosure
agreements, term sheets and legal due diligence.
Private company valuations
We also have a Private Company Valuations Team whose work has
attracted far greater attention than ever before over the last year
given the volatile conditions.
As Scottish Mortgage has a daily reported NAV (net asset value),
it requires a robust valuations process to ensure our valuations
are kept as up-to-date as possible. The aim of the valuations
process is to hold private companies at 'fair value'. In other
words, the price we believe we would get were we to try to sell our
shares.
This process is carried out by Baillie Gifford's Private Company
Valuations Team which takes advice from an independent third party,
S&P Global. Valuations are then approved by Baillie Gifford's
Valuations Group which comprises five voting members all
independent of those making investment decisions. Scottish
Mortgage's investment managers, Tom Slater and I are informed via
email after any valuation changes have been applied.
The fair value assessment itself is carried out on a rolling
three-month cycle. This means that a third of the private component
of the portfolio is valued each month. However, this frequency is
only the bare minimum. In practice, the pricing of private
companies is monitored continually with 'trigger events' such as a
funding round or change in fundamentals prompting revaluations,
outside the three-monthly cycle.
The two most common triggers over the last year have been
changes in the value of publicly listed comparator companies or
comparator indices. A 5% movement in either was sufficient to
trigger a re-assessment. In total 532 revaluations were made with
84% of the private instruments held re-valued five times or
more:
Revaluations performed 532
Instruments held 87
Valued up to four times 16%
Valued five times or
more 84%
------------------------- ---
The result of these re-valuations in aggregate was that the
private company valuations were written down by 28% which compares
to the fall in the NASDAQ of 14%. The write-downs would have been
materially greater if it were not for the upward revaluations of
seven companies during the period.
The private company valuations also receive external checks in
three key ways. First, the Audit Committee of Scottish Mortgage
meets twice a year specifically to review the valuations. Second,
the valuations are subject to the annual scrutiny of our auditors
PwC. Finally, because Scottish Mortgage's largest private holdings
are also held by other Baillie Gifford funds, this subjects them to
checks by different auditors. Moreover, these checks occur at
different points throughout the year due to these trusts having
different financial year-ends.
Private company allocation
When we started private company investing there was no limit in
place. As the proportion invested in this area grew, the Directors
felt it appropriate to provide shareholders with more clarity. At
the annual general meeting in 2016, shareholders approved an update
to the investment policy to include a limit for private companies
of 25% of the total assets, measured at the time of purchase. In
2020, this limit was raised to 30%, where it remains.
That limit only applies at the time of purchase. This means that
when the level is exceeded no further private company purchases can
be made. However, it also protects Scottish Mortgage from being
forced sellers of private companies purely due to relative or
absolute movements in the value ascribed to either private or
public assets.
Over the course of the financial year we were able to deploy
GBP281m into private companies during the financial year. This
included follow-on investments as well as two new private
investments in UPSIDE Foods and Climeworks. The proportion invested
in private companies stood at 28.6% as of 31 March 2023.
This figure is primarily influenced by the value of our public
market investments and the valuation changes in our private
companies. However, it is also impacted by buybacks and gearing. An
important influence over the last year has been the closing of the
IPO market. We had fourteen companies go public in 2021 but as the
IPO market closed in 2022 companies postponed their plans with no
private holdings going public. We will continue to closely monitor
the proportion of the Company invested in private companies
throughout the year recognising that the proportion can be
volatile. Should the Company experience material, prolonged and
disadvantageous impact stemming from this or any other facet of our
investment policy we would naturally seek to sound out the views of
our shareholders to understand their perspective.
Looking forward
Tom Slater has helpfully provided examples of private companies
that have made encouraging progress over the course of the last
year. However, we are also cognisant that there has been a material
change in the funding environment. We have transitioned from a
period of capital abundance to one of capital scarcity.
We have seen several of our companies successfully raise further
capital in this environment while a number of our private holdings
are already generating positive cashflow. Moreover, we are seeing
companies bring down their cash burn materially. Nevertheless, it
is likely that a few of our smaller private company holdings may
find themselves casualties of this new environment. Should this
happen we expect the impact to represent only a small percentage of
the portfolio's assets. As ever, our performance will be primarily
driven by those companies that succeed rather than those that
fail.
Over the past decade our private exposure has grown to become an
integral part of Scottish Mortgage. It has expanded our opportunity
set from which to identify outliers. It has provided insights that
would have otherwise been out of reach and we believe it offers our
shareholders exposure to exceptional hard to access growth
companies at a low fee level.
As we look to the future perhaps it is only right to let one of
our private holdings have the final word. The founders of payment
processing giant Stripe write in their shareholder letter that the
propensity to start new businesses has increased significantly and
persistently. The US Census data supports this showing that the
rate of business formation has increased by 44% since 2019. As they
reflect:
"Entrepreneurship is the lifeblood of a dynamic economy. For all
the gloomy economic headlines, it's important to contextualise with
the fact that more new ventures are being started today than during
the market boom of 2021"
The role of Scottish Mortgage will continue to be to support
that growth in entrepreneurship in good times and bad, whether
public or private and through doing so generate long-term returns
for our shareholders. We are intensely grateful for the continued
trust our shareholders place in us and for their patience
particularly over the last year.
Lawrence Burns
Portfolio executive summary, thirty largest holding and list of
investments at 31 March 2023
http://www.rns-pdf.londonstockexchange.com/rns/7038Z_1-2023-5-17.pdf
Income statement
The following is the preliminary statement for the year to 31
March 2023 which was approved by the Board on 16 May 2023.
For the year ended 31 March
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----- -------- ------------------- ----------- -------- ------------ ------------
Losses on investments - (2,790,255) (2,790,255) - (2,421,025) (2,421,025)
Currency losses on
investments - (68,748) (68,748) - (41,559) (41,559)
Income 2 49,035 - 49,035 23,262 - 23,262
Investment management fee - (35,953) (35,953) - (51,647) (51,647)
Other administrative
expenses (5,861) - (5,861) (6,818) - (6,818)
----------------------------- ----- -------- ------------------- ----------- -------- ------------ ------------
Net return before finance
costs and taxation 43,174 (2,894,956) (2,851,782) 16,444 (2,514,231) (2,497,787)
----------------------------- ----- -------- ------------------- ----------- -------- ------------ ------------
Finance costs of borrowings - (66,612) (66,612) - (44,651) (44,651)
----------------------------- ----- -------- ------------------- ----------- -------- ------------ ------------
Net return before taxation 43,174 (2,961,568) (2,918,394) 16,444 (2,558,882) (2,542,438)
----------------------------- ----- -------- ------------------- ----------- -------- ------------ ------------
Tax (1,803) (1,941 ) (3,744) 137 (2,048) (1,911)
Net return after taxation 41,371 (2,963,509) (2,922,138) 16,581 (2,560,930) (2,544,349)
----------------------------- ----- -------- ------------------- ----------- -------- ------------ ------------
Net return per ordinary
share 4 2.90p (207.49p) (204.59p) 1.16p (179.48p) (178.32p)
----------------------------- ----- -------- ------------------- ----------- -------- ------------ ------------
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
2023 2023 2022 2022
Notes GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------ ----------- ----------- --------- -----------
Fixed assets
Investments held at fair value
through profit or loss 6 13,149,592 16,669,469
--------------------------------------- ------ ----------- ----------- --------- -----------
Current assets
Debtors 12,037 13,142
Cash and cash equivalents 184,945 229,962
--------------------------------------- ------ ----------- ----------- --------- -----------
196,982 243,104
--------------------------------------- ------ ----------- ----------- --------- -----------
Creditors
Amounts falling due within one
year: 7
Bank loans (376,076) (502,032)
Other creditors and accruals (22,055) (23,814)
--------------------------------------- ------ ----------- ----------- --------- -----------
(398,131) (525,846)
--------------------------------------- ------ ----------- ----------- --------- -----------
Net current liabilities (201,149) (282,742)
Total assets less current liabilities 12,948,443 16,386,727
Creditors
Amounts falling due after more
than one year: 7
Bank loans (388,149) (516,384)
Loan notes (1,006,857) (985,613)
Debenture stock (52,212) (127,559)
Provision for deferred tax liability (3,225) (1,172)
--------------------------------------- ------ ----------- ----------- --------- -----------
(1,450,443) (1,630,728)
11,498,000 14,755,999
--------------------------------------- ------ ----------- ----------- --------- -----------
Capital and reserves
Called up share capital 9 74,239 74,239
Share premium account 928,400 928,400
Capital redemption reserve 19,094 19,094
Capital reserve 10,434,896 13,717,685
Revenue reserve 41,371 16,581
Total shareholders' funds 11,498,000 14,755,999
--------------------------------------- ------ ----------- ----------- --------- -----------
Net asset value per ordinary
share
(after deducting borrowings
at book) * 816.8p 1,021.8p
--------------------------------------- ------ ----------- ----------- --------- -----------
* 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 2023
Called Share Capital Capital Revenue
up share premium redemption reserve reserve Total shareholders'
capital account reserve * * funds
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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)
Ordinary shares sold from - - - - - -
treasury
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
--------------------------- ------ --------- -------- ----------- ----------- -------- -------------------
For the year ended 31 March 2022
Called Share Capital
up share premium redemption Capital Revenue Total shareholders'
capital account reserve reserve reserve funds
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------ --------- -------- ----------- ----------- -------- -------------------
Shareholders' funds at
1 April 2021 74,239 781,771 19,094 16,105,297 9,069 16,989,470
Net return after taxation - - - (2,560,930) 16,581 (2,544,349)
Ordinary shares bought
back into treasury - - - (157,597) - (157,597)
Ordinary shares sold from
treasury - 146,629 - 371,617 - 518,246
Dividends paid during
the year 5 - - - (40,702) (9,069) (49,771)
--------------------------- ------ --------- -------- ----------- ----------- -------- -------------------
Shareholders' funds at
31 March 2022 74,239 928,400 19,094 13,717,685 16,581 14,755,999
--------------------------- ------ --------- -------- ----------- ----------- -------- -------------------
The capital reserve balance at 31 March 2023 includes investment
holding gains of GBP3,312,623,000 (31 March 2022 - gains of
GBP6,560,689,000).
* The Revenue Reserve and Capital Reserve (to the extent it constitutes realised profits) are distributable.
Cash Flow Statement
For the year ended 31 March
2023 2023 2022 2022
Notes GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ----- ----------- --------- ----------- -----------
Cash flows from operating activities
Net return before taxation (2,918,394) (2,542,438)
Losses on investments 2,790,255 2,421,025
Currency losses 68,748 41,559
Finance costs of borrowings 66,612 44,651
Overseas withholding tax incurred (1,927) (5,104)
Changes in debtors and creditors (2,449) (4,054)
-------------------------------------------- ----- ----------- --------- ----------- -----------
Cash from operations 2,845 (44,361)
Interest paid (66,322) (41,545)
-------------------------------------------- ----- ----------- --------- ----------- -----------
Net cash outflow from operating activities (63,477) (85,906)
-------------------------------------------- ----- ----------- --------- ----------- -----------
Cash flows from investing activities
Acquisitions of investments (868,191) (2,687,415)
Disposals of investments 1,599,218 1,652,769
Net cash inflow/(outflow) from investing
activities 731,027 (1,034,646)
-------------------------------------------- ----- ----------- --------- ----------- -----------
Cash flows from financing activities
Equity dividends paid 5 (52,585) (49,771)
Ordinary shares bought back into treasury
and stamp duty thereon (283,213) (183,015)
Ordinary shares sold from treasury - 518,246
Debenture repaid (75,000) -
Bank loans repaid (1,913,150) (265,727)
Bank loans drawn down and loan notes
issued 1,591,000 1,109,394
-------------------------------------------- ----- ----------- --------- ----------- -----------
Net cash (outflow)/inflow from financing
activities (732,948) 1,129,127
-------------------------------------------- ----- ----------- --------- ----------- -----------
(Decrease)/increase in cash and cash
equivalents (65,398) 8,575
Exchange movements 20,381 9,259
Cash and cash equivalents at start
of period 229,962 212,128
-------------------------------------------- ----- ----------- --------- ----------- -----------
Cash and cash equivalents at end of
period * 184,945 229,962
-------------------------------------------- ----- ----------- --------- ----------- -----------
* 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 2023 have
been prepared in accordance with FRS 102, 'The Financial Reporting
Standard applicable in the UK and Republic of Ireland' and on the
basis of the accounting policies set out in the Annual Report and
Financial Statements which are unchanged from the prior year and
have been applied consistently.
2. Income
2023 2022
GBP'000 GBP'000
-------------------------------------------- -------- --------
Income from investments
UK dividend income - -
Overseas dividends * 38,578 22,244
Overseas interest 4,576 995
-------------------------------------------- -------- --------
43,154 23,239
-------------------------------------------- -------- --------
Other income
Deposit interest 5,881 23
Total income 49,035 23,262
-------------------------------------------- -------- --------
Total income comprises:
Dividends from financial assets designated
at fair value through profit or loss 38,578 22,244
Interest from financial assets designated
at fair value through profit or loss 4,576 995
Interest from financial assets not at fair
value through profit or loss 5,881 23
-------------------------------------------- -------- --------
49,035 23,262
-------------------------------------------- -------- --------
* Overseas dividend income represents income from equity
holdings. There was no income from preference share (non-equity)
holdings during the year (2022 - 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 2023 was 0.30% on the first GBP4 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
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
------------------------- -------- --------- --------- -------- --------- ---------
Net return per ordinary
share 2.90p (207.49p) (204.59p) 1.16p (179.48p) (178.32p)
------------------------- -------- --------- --------- -------- --------- ---------
Revenue return per ordinary share is based on the net revenue
after taxation of GBP41,371,000 (2022 - GBP16,581,000), and on
1,428,245,353 (2022 - 1,426,897,806) 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 (GBP2,963,509,000) (2022 - net
capital return of (GBP2,560,930,000)), and on 1,428,245,353 (2022 -
1,426,897,806) 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
2023 2022
2023 2022 GBP'000 GBP'000
------------------------------------- ----- ------ -------- --------
Amounts recognised as distributions
in the year:
Previous year's final (paid 1 July
2022) 2.07p 1.97p 29,864 27,984
Interim (paid 16 December 2022) 1.60p 1.52p 22,721 21,787
------------------------------------- ----- ------ -------- --------
3.67p 3.49p 52,585 49,771
------------------------------------- ----- ------ -------- --------
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 GBP41,371,000 (2022 - GBP16,581,000).
2023 2022
2023 2022 GBP'000 GBP'000
--------------------------------------- ----- ------ -------- --------
Dividends paid and payable in respect
of the year:
Interim dividend per ordinary share
(paid 16 December 2022) 1.60p 1.52p 22,721 21,787
Proposed final dividend per ordinary
share (payable 4 July 2023) 2.50p 2.07p 35,190 29,894
--------------------------------------- ----- ------ -------- --------
4.10p 3.59p 57,911 51,681
--------------------------------------- ----- ------ -------- --------
If approved, the recommended final dividend on the ordinary
shares will be paid on 4 July 2023 to shareholders on the register
at the close of business on 2 June 2023. The ex-dividend date is 1
June 2023. The Company's Registrars offer a Dividend Reinvestment
Plan and the final date for elections for this dividend is 13 June
2023.
6. Fair Value Hierarchy
Level Level Level
1 2 3 Total
As at 31 March 2023 GBP'000 GBP'000 GBP'000 GBP'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
----------------------------------- --------- -------- --------- ----------
Level Level Level
1 2 3 Total
As at 31 March 2022 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --------------- -------- ------------- ----------
Equities/funds 12,473,650 - - 12,473,650
Private company ordinary shares - - 609,779 609,779
Private company preference shares* - - 3,470,105 3,470,105
Private company convertible notes - - 38,853 38,853
Limited Partnership Investments - - 77,082 77,082
------------------------------------ --------------- -------- ------------- ----------
Total financial asset investments 12,473,650 - 4,195,819 16,669,469
------------------------------------ --------------- -------- ------------- ----------
During the period, no investments 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.
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 2018 ('IPEV'). The techniques applied are predominantly
market- based approaches. The market-based approaches available
under IPEV are set out below and are followed by an explanation of
how they are applied to the Company's private company
portfolio:
- Multiples;
- Industry Valuation Benchmarks; and
- Available Market Prices.
The nature of the private company portfolio currently will
influence the valuation technique applied. The valuation approach
recognises that, as stated in the IPEV Guidelines, the price of a
recent investment, if resulting from an orderly transaction,
generally represents fair value as at the transaction date and may
be an appropriate starting point for estimating fair value at
subsequent measurement dates. However, consideration is given to
the facts and circumstances as at the subsequent measurement date,
including changes in the market or performance of the investee
company. Milestone analysis is used where appropriate to
incorporate the operational progress of the investee company into
the valuation. Additionally, the background to the transaction must
be considered. As a result, various multiples-based techniques are
employed to assess the valuations particularly in those companies
with established revenues. Discounted cashflows are used where
appropriate. An absence of relevant industry peers may preclude the
application of the Industry Valuation Benchmarks technique and an
absence of observable prices may preclude the Available Market
Prices approach. 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.
2023 2022
GBP'000 GBP'000
----------------------------------------------------- -------- --------
The Royal Bank of Scotland International Limited
3 year fixed rate loan 2024 161,753 -
The Royal Bank of Scotland International Limited
5 year loan - 37,975
National Australia Bank Limited 3 year loan 133,447 296,966
Scotiabank 3 year loan 80,876 75,950
Industrial and Commercial Bank of China 3 year loan - 91,141
Other creditors and accruals 22,055 23,814
----------------------------------------------------- -------- --------
398,131 525,846
----------------------------------------------------- -------- --------
Included in other creditors is GBP8,828,000 (2022 -
GBP11,055,000) in respect of the investment management fee.
Borrowing facilities at 31 March 2023
A US$200 million fixed rate loan has been arranged with The
Royal Bank of Scotland International Limited (repayable on 8
January 2024)
A 3 year US$350 million revolving loan facility has been
arranged with National Australia Bank.
A 3 year US$100 million revolving loan facility has been
arranged with Scotiabank.
A 5 year US$25 million revolving loan facility has been arranged
with The Royal Bank of Scotland International Limited.
A 3 year US$120 million revolving loan facility has been
arranged with Industrial and Commercial Bank of China Limited.
The revolving loan facilities are classified as due within one
year due to the revolving nature of the facilities and the short
draw down periods. The facilities are available until their
termination dates which are in more than one year. The maturity
table on page 90 of the Annual Report and Financial Statements
reflects the termination dates of the revolving facilities.
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 US$200 million (fixed rate loan repayable 8 January
Limited 2024 at an interest rate of 1.491% per annum)
At 31 March 2022 drawings were as follows:
The Royal Bank of Scotland International US$50 million (revolving facility expiring 27 August
Limited 2026) at an interest rate (at 31 March 2022) of
2.108% per annum
National Australia Bank Limited US$391 million (revolving facility expiring 20 September
2024) at an interest rate (at 31 March 2022) of
2.184% per annum
Scotiabank US$100 million (revolving facility expiring 17 December
2024) at an interest rate (at 31 March 2022) of
1.401% per annum
Industrial and Commercial Bank US$120 million loan (revolving facility expiring
of China 12 October 2024) at an interest rate (at 31 March
2022) of 1.588% per annum
During the period, the US$391 million revolving 3 year loan with
NAB was reduced to a facility of US$350 million and US$185 million
was repaid. The ICBC US$120 million revolving 3 year loan was
repaid in full. The RBSI US$50 million revolving 5 year loan
facility was repaid in full and subsequently reduced to a facility
of US$25 million.
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 GBP2,500
million.
(iv) The Company shall not change the investment manager without
prior written consent of the lenders.
Nominal Effective 2023 2022
rate % rate % GBP'000 GBP'000
-------------------------------------- ------- --------- --------- ---------
Debenture stocks:
GBP75 million 6.875% debenture
stock 2023 - 74,969
GBP50 million 6-12% stepped interest
debenture stock 2026 12.0 10.8 51,537 51,915
GBP675,000 4 1/2 % irredeemable
debenture stock 675 675
Unsecured loan notes:
GBP30 million 2.91% 2038 2.91 2.91 29,969 29,967
GBP150 million 2.30% 2040 2.3 2.3 149,831 149,821
GBP50 million 2.94% 2041 2.94 2.94 49,945 49,942
GBP45 million 3.05% 2042 3.05 3.05 44,913 44,908
GBP30 million 3.30% 2044 3.30 3.30 29,941 29,938
GBP20 million 3.65% 2044 3.65 3.65 19,972 19,970
EUR18 million 1.65% 2045 1.65 1.65 15,797 15,192
GBP30 million 3.12% 2047 3.12 3.12 29,939 29,936
GBP90 million 2.96% 2048 2.96 2.96 89,896 89,892
EUR27 million 1.77% 2050 1.77 1.77 23,695 22,788
GBP100 million 2.03% 2036 2.03 2.03 99,927 99,922
GBP100 million 2.30% 2046 2.30 2.30 99,923 99,920
US$175 million 2.99% 2052 2.99 2.99 141,361 132,745
US$110 million 3.04% 2057 3.04 3.04 88,855 83,440
US$115 million 3.09% 2062 3.09 3.09 92,893 87,232
Long term bank loans:
US$180 million RBSI 2.60% fixed
rate loan 2026 2.60% 2.60% 145,579 136,712
US$200 million RBSI 1.49% fixed
rate loan 2024 1.49% 1.49% - 151,901
US$300 million Scotiabank 2.23%
fixed rate loan 2026 2.23% 2.23% 242,570 227,771
Provision for deferred tax liability
(see note below) 3,225 1,172
-------------------------------------- ------- --------- --------- ---------
1,450,443 1,630,728
-------------------------------------- ------- --------- --------- ---------
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 GBP1,537,000 (2022 -
GBP1,884,000) 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 GBP1,152,000 (2022 -
GBP829,000).
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 GBP60,000 (2022 - GBP76,000). 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 2022 of
GBP1,172,000 (31 March 2021 - GBP2,459,000) relates to a potential
liability for Indian capital gains tax that may arise on the
Company's Indian investment should it be sold in the future, based
on the net unrealised taxable capital gain at the period end and on
enacted Indian tax rates. The amount of any future tax amounts
payable may differ from this provision, depending on the value and
timing of any future sales of such investments and future Indian
tax rates.
Provision for deferred tax liability
The deferred tax liability provision at 31 March 2023 of
GBP3,225,000 (31 March 2022 - GBP1,172,000) 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.
8. The fair value of borrowings at 31 March 2023 was
GBP1,442,809,000 (2022 - GBP2,001,685,000). Net asset value per
share (after deducting borrowings at fair value) was 843.9p (2022 -
1,030.8p).
9. Share Capital: Ordinary Shares of 5p Each
2023 2023 2022 2022
Number GBP'000 Number GBP'000
------------------------------------ ------------- -------- -------------- --------
Allotted, called up and fully paid
ordinary shares of 5p each 1,407,618,528 70,381 1,444,131,650 72,207
Treasury shares of 5p each 77,162,352 3,858 40,649,230 2,032
------------------------------------ ------------- -------- -------------- --------
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 2023, 36,513,122
shares with a nominal value of GBP1,825,000 were bought back at a
total cost of GBP283,276,000 and held in treasury (2022 -
12,437,319 shares with a nominal value of GBP621,000 were bought
back at a total cost of GBP157,597,000 and held in treasury). At 31
March 2023 the Company had authority to buy back 184,322,175
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 2023, the Company sold no treasury
ordinary shares (31 March 2022 - 34,950,000 ordinary shares at a
premium to net asset value, with a nominal value of GBP1,747,500
raising net proceeds of GBP518,246,000). At 31 March 2023 the
Company had authority to issue or sell from treasury a further
144,405,056 ordinary shares (77,162,352 shares were held in
treasury at 31 March 2023).
10. Transaction costs on purchases amounted to GBP413,000 (2022
- GBP576,000) and transaction costs on sales amounted to
GBP1,651,000 (2022 - GBP209,000).
11. The financial information set out above does not constitute
the Company's statutory accounts for the years ended 31 March 2023
or 2022 but is derived from those accounts. Statutory accounts for
2022 have been delivered to the Registrar of Companies, and those
for 2023 will be delivered in due course. The auditor has reported
on those accounts; the reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
12. 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 ++ on or around 25
May 2023.
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 31 March
2023 2022
------------------------------------------------ --------------- ---------------
Net Asset Value per ordinary share (borrowings
at book value) 816.8p 1,021.8p
Shareholders' funds (borrowings at book GBP11,498,000k GBP14,755,999k
value)
Add: book value of borrowings GBP1,823,294k GBP2,131,588k
Less: fair value of borrowings (GBP1,442,809k) (GBP2,001,685k)
------------------------------------------------ --------------- ---------------
Net Asset Value (borrowings at fair value) GBP11,878,485k GBP14,885,902k
Shares in issue at year end (excluding
treasury shares) 1,407,618,528 1,444,131,650
Net Asset Value per ordinary share (borrowings
at fair value) 843.9p 1,030.8p
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 31 March
2023 2022
------------------------------------------------ -------------- --------------
Net Asset Value per ordinary share (borrowings
at book value) 816.8p 1,021.8p
Shareholders' funds (borrowings at book GBP11,498,000k GBP14,755,999k
value)
Add: allocation of interest on borrowings GBP1,716k GBP2,207k
Less: expenses of debenture/loan note (GBP1,429k) (GBP1,228k)
issue
------------------------------------------------ -------------- --------------
Net Asset Value (borrowings at par value) GBP11,498,332k GBP14,756,978k
Shares in issue at year end (excluding
treasury shares) 1,407,618,528 1,444,131,650
Net Asset Value per ordinary share (borrowings
at par value) 816.9p 1,021.9p
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.
2023 2023 2022 2022
NAV (book) NAV (fair) NAV (book) NAV (fair)
--------------------------- ---- ----------- ----------- ----------- -----------
Closing NAV per share (a) 816.8p 843.9p 1,021.8p 1,030.8p
Closing share price (b) 678.6p 678.6p 1,026p 1,026p
(Discount)/premium ((b) -
(a)) ÷ (a) (16.9%) (19.6%) 0.4% (0.5%)
Ongoing Charges Ratio (APM)
The total expenses (excluding borrowing costs) incurred by the
Company as a percentage of the average net asset value (with debt
at fair value). The ongoing charges have been calculated on the
basis prescribed by the Association of Investment Companies.
A reconciliation from the expenses detailed in the Income
Statement is provided below.
2023 2022
------------------------------------------- ---- -------------- --------------
Investment management fee GBP35,953k GBP51,647k
Other administrative expenses GBP5,861k GBP6,818k
Total expenses (a) GBP41,814k GBP58,465k
Average net asset value (with borrowings (b) GBP12,458,941k GBP18,094,508k
deducted at fair value)
------------------------------------------- ---- -------------- --------------
Ongoing charges ((a) ÷ (b) expressed
as a percentage) 0.34% 0.32%
------------------------------------------------- -------------- --------------
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 31 March
2023 2022
------------------------------------------ ---- -------------- --------------
Borrowings (at book value) GBP1,823,294k GBP2,131,588k
Less: cash and cash equivalents (GBP184,945) (GBP229,962k)
Less: sales for subsequent settlement (GBP5,044k) (GBP6,450k)
Add: purchases for subsequent settlement - -
------------------------------------------ ---- -------------- --------------
Adjusted borrowings (a) GBP1,633,305k GBP1,895,176k
Shareholders' funds (b) GBP11,498,000k GBP14,755,999k
------------------------------------------ ---- -------------- --------------
Gearing: (a) as a percentage of (b) 14% 13%
------------------------------------------------ -------------- --------------
Potential gearing is the Company's borrowings expressed as a
percentage of shareholders' funds.
31 March 31 March
2023 2022
--------------------------- -------------- --------------
Borrowings (at book value) GBP1,823,294k GBP2,131,588k
Shareholders' funds GBP11,498,000k GBP14,755,999k
Potential gearing: (a) as a percentage
of (b) 16% 14%
----------------------------------------- --- ---
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.
2023 2023 2023 2022 2022 2022
NAV NAV Share NAV NAV Share
(book) (fair) price (book) (fair) price
----------------------------- ----------- -------- -------- -------- -------- -------- --------
Closing NAV per share/share
price (a) 816.8p 843.9p 678.6p 1,021.8p 1,030.8p 1,026.0p
Dividend adjustment factor
* (b) 1.0045 1.0045 1.0047 1.0026 1.0026 1.0029
Adjusted closing NAV per (c = a
share/share price x b) 820.5 847.7 681.8 1,024.2p 1,033.5p 1,029.0p
Opening NAV per share/share
price (d) 1,021.8p 1,030.8p 1,026.0p 1,195.1p 1,190.0p 1,137.0p
----------------------------- ----------- -------- -------- -------- -------- -------- --------
(c ÷
Total return d)-1 (19.7%) (17.8%) (33.5%) (14.3%) (13.1%) (9.5%)
----------------------------- ----------- -------- -------- -------- -------- -------- --------
* The dividend adjustment factor is calculated on the assumption
that the dividends of 3.67p (2022 - 3.49p) 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 GBP226 billion under
management and advice in active equity and bond portfolios for
clients in the UK and throughout the world (as at 12 May 2023).
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.
16 May 2023
For further information please contact:
Stewart Heggie, Baillie Gifford & Co
Tel: 0131 275 5117
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
Nick Cosgrove / Eilis Murphy, Brunswick Group
Tel: 020 7404 5959
Third Party Data Provider Disclaimer
No third party data provider ('Provider') makes any warranty,
express or implied, as to the accuracy, completeness or timeliness
of the data contained herewith nor as to the results to be obtained
by recipients of the data. No Provider shall in any way be liable
to any recipient of the data for any inaccuracies, errors or
omissions in the index data included in this document, regardless
of cause, or for any damages (whether direct or indirect) resulting
therefrom.
No Provider has any obligation to update, modify or amend the
data or to otherwise notify a recipient thereof in the event that
any matter stated herein changes or subsequently becomes
inaccurate.
Without limiting the foregoing, no Provider shall have any
liability whatsoever to you, whether in contract (including under
an indemnity), in tort (including negligence), under a warranty,
under statute or otherwise, in respect of any loss or damage
suffered by you as a result of or in connection with any opinions,
recommendations, forecasts, judgements, or any other conclusions,
or any course of action determined, by you or any third party,
whether or not based on the content, information or materials
contained herein.
FTSE Index Data
London Stock Exchange Group plc and its group undertakings
(collectively, the 'LSE Group'). (c)LSE Group 2022. FTSE Russell is
a trading name of certain LSE Group
companies. 'FTSE(R)', 'Russell(R)', 'FTSE Russell(R)', is/are a
trademark(s) of the relevant LSE Group companies and is/are used by
any other LSE Group company under license. All rights in the FTSE
Russell indexes or data vest in the relevant LSE Group company
which owns the index or the data. Neither LSE Group nor its
licensors accept any liability for any errors or omissions in the
indexes or data and no party may rely on any indexes or data
contained in this communication. No further distribution of data
from the LSE Group is permitted without the relevant LSE Group
company's express written consent. The LSE Group does not promote,
sponsor or endorse the content of this communication.
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 PLC is marketed in the EU by the AIFM, BG
& Co Limited, via the National Private Placement Regime
('NPPR') the following disclosures have been provided to comply
with the high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's Governance and
Sustainable Principles and Guidelines as its policy on integration
of sustainability risks in investment decisions.
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 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.
More detail on the Managers' approach to sustainability can be
found in the Governance and Sustainability Principles and
Guidelines document, available publicly on the Baillie Gifford
website bailliegifford.com.
Taxonomy Regulation
The Taxonomy Regulation establishes an EU-wide framework of
criteria for environmentally sustainable economic activities in
respect of six environmental objectives. It builds on the
disclosure requirements under SFDR by introducing additional
disclosure obligations in respect of Alternative Investment Funds
that invest in an economic activity that contributes to an
environmental objective. The Company does not commit to make
sustainable investments as defined under SFDR. As such, the
underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR ZZGMKKNNGFZG
(END) Dow Jones Newswires
May 17, 2023 02:00 ET (06:00 GMT)
Scottish Mortgage Invest... (LSE:SMT)
Gráfica de Acción Histórica
De Abr 2024 a May 2024
Scottish Mortgage Invest... (LSE:SMT)
Gráfica de Acción Histórica
De May 2023 a May 2024
