The following amendment(s) has been
made to the 'Scottish Mortgage Invt Tst PLC Final Resuls'
announcement released on 23 May 2024 at 0700 under RNS No
5534P.
In the fourth paragraph under the
title “Managers’ Review – Lawrence Burns” the word ‘FTSE’ was
removed before the word 'benchmark'.
All other details remain
unchanged.
The full
amended text is shown below
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
31 March
2024
|
12 months
to
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 benchmarks has been so fast that the
editor-in-chief of the AI Index recently commented that a decade
ago, 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/7433P_1-2024-5-23.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
Revenue
£'000
|
2024
Capital
£'000
|
2024
Total
£'000
|
2023
Revenue
£'000
|
2023
Capital
£'000
|
2023
Total
£'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 and taxation
|
|
34,412
|
1,392,289
|
1,426,701
|
43,174
|
(2,894,956)
|
(2,851,782)
|
|
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
£'000
|
2024
£'000
|
2023
£'000
|
2023
£'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
capital
£'000
|
Share premium account
£'000
|
Capital
redemption
reserve
£'000
|
Capital
reserve*
£'000
|
Revenue
reserve*
£'000
|
Total shareholders'
funds
£'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
capital
£'000
|
Share premium
account £'000
|
Capital
redemption
reserve
£'000
|
Capital
reserve*
£'000
|
Revenue
reserve*
£'000
|
Total shareholders'
funds
£'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
£'000
|
2024
£'000
|
2023
£'000
|
2023
£'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
£'000
|
2023
£'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 loss
|
28,452
|
38,578
|
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
Revenue
|
2024
Capital
|
2024
Total
|
2023
Revenue
|
2023
Capital
|
2023
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
£'000
|
2023
£'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
£'000
|
2023
£'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
£'000
|
Level 2
£'000
|
Level
3
£'000
|
Total
£'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
£'000
|
Level 2
£'000
|
Level 3
£'000
|
Total
£'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
£'000
|
2023
£'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
rate
%
|
Effective
rate
%
|
2024
£'000
|
2023
£'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
Number
|
2024
£'000
|
2023
Number
|
2023
£'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‡
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
£'000
|
31
March 2023
£'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
£'000
|
31
March 2023
£'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
NAV (book)
|
2024
NAV (fair)
|
2023
NAV (book)
|
2023
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 £'000
|
2023
£'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 £'000
|
31 March 2023
£'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 £'000
|
31 March 2023
£'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
NAV
(book)
|
2024
NAV
(fair)
|
2024
Share
price
|
2023
NAV
(book)
|
2023
NAV
(fair)
|
2023
Share
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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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
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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 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 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.