SCOTTISH MORTGAGE INVESTMENT TRUST PLC

Your low cost choice for global investment

Annual Report and Financial Statements 31 March 2021

Scottish Mortgage Investment Trust PLC is a low cost investment trust that aims to maximise total return over the long term from a high conviction, actively managed portfolio. It invests globally, looking for strong businesses with above-average returns.

Contents

  1. Message from the Board
  1. Financial Highlights
    Strategic Report
    2 Statement from the Board
  1. One Year Summary
  2. Five Year Summary
  3. Business Review
  1. Managers' Review
  1. Thirty Largest Holdings and Twelve Month Performance
  2. Investment Changes
  1. Distribution of Total Assets
  2. Long Term Investment
  3. List of Investments
  1. Ten Year Record
    Governance Report
  2. Directors and Management
  1. Directors' Report
  1. Corporate Governance Report
  1. Audit Committee Report
  1. Directors' Remuneration Report

47 Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements

Financial Report

  1. Independent Auditors' Report
  1. Income Statement
  2. Balance Sheet
  3. Statement of Changes in Equity
  4. Cash Flow Statement
  5. Notes to the Financial Statements
    Shareholder Information
  1. Annual General Meeting
  1. Further Shareholder Information
  2. Analysis of Shareholders
  3. Investing in Scottish Mortgage
  4. Communicating with Shareholders

90 Glossary of Terms and Alternative Performance Measures

Investor Disclosure Document

The UK Alternative Investment Fund Managers Regulations requires certain information to be made available to investors prior to their investment in the Company. The Company's Investor Disclosure Document is available for viewing at scottishmortgageit.com.

Notes

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Investment trusts are UK public listed companies and as such comply with the requirements of the UK Listing Authority. They are not authorised or regulated by the Financial Conduct Authority.

Scottish Mortgage Investment Trust PLC currently conducts its affairs, and intends to continue to conduct its affairs, so that the Company's ordinary shares can qualify to be considered as a mainstream investment product and can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the rules of the Financial Conduct Authority in relation to non-mainstream investment products.

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt as to the action you should take you should consult your stockbroker, bank manager, solicitor, accountant or other independent financial advisor authorised under the Financial Services and Markets Act 2000 immediately if you are in the United Kingdom or, if not, another appropriately authorised financial adviser.

If you have sold or otherwise transferred all of your holding in Scottish Mortgage Investment Trust PLC, please forward this document, together with accompanying documents, but not your personalised Form of Proxy, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was or is being effected for delivery to the purchaser or transferee.

Message from the Board and Financial Highlights

Message from the Board

It has been a challenging year for us all. Let us hope the rollout of effective vaccines and easing of restrictions are steps towards some form of normality. Notwithstanding this backdrop, we are pleased to report that is has been an excellent year for the Company, during which the share price almost doubled. This builds on the strong long term share price total returns over five and ten years, which stand at 348% and 756% respectively.

The pandemic and its lasting consequences have been on all our minds throughout the year. Yet, for Scottish Mortgage, fundamentally nothing has changed in what we do. The Managers are committed to being patient long term owners of the world's most exciting growth companies, whether they be publicly listed or private. In doing so, they look to build long term relationships with company management teams and help them fulfil their potential. This sustainable approach enables companies to thrive, as well as providing shareholders with long term returns, at low cost. We hope this simple, but effective, proposition remains attractive to existing and new shareholders in the years to come.

Financial Highlights - Year to 31 March 2021

Share Price* +99.0%

NAV* +111.5%

NAV* +111.2%

Benchmark* +39.6%

(borrowings at

(borrowings at

book value)

fair value#)

  • Source: Refinitiv/Baillie Gifford. All figures are stated on a total return basis. Total return is an Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures on pages 90 to 92. Comparatives for 2020 can be found on page 5.

Share Price (pence)

Share price

NAV and Benchmark

(figures rebased to 100 at 31 March 2020)

NAV total return (after deducting borrowings at fair value#)

Benchmark total return

1500

1250

1000

750

500

M A M J J A S O N D J

F M

2020

2021

250

200

150

100

M A M J J A S O N D J

F M

2020

2021

Premium/(Discount)#

Premium/(Discount) (after deducting borrowings at fair value#) plotted as at month end dates

Source: Refinitiv/Baillie Gifford.

6%

4%

2%

0%

(2%)

(4%)

(6%)

(8%)

M A M J J A S O N D J

F M

2020

2021

Source: Thomson Reuters Datastream/Baillie Gifford & Co.

  • Benchmark: FTSE All-World Index (in sterling terms).
  • Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures on pages 90 to 92.

Past performance is not a guide to future performance.

See disclaimer on page 89.

Scottish Mortgage Investment Trust PLC 01

Strategic Report

Strategic Report

This Strategic Report, which includes pages 2 to 32 and incorporates the Statement from the Board, has been prepared in accordance with the Companies Act 2006.

Statement from the Board

Corporate Strategy

The year to 31 March 2021 was clearly overshadowed by the Covid-19 pandemic. Quite apart from the devastating human cost, it has also created enormous social, economic and business disruption. However, this has also been a period that has supercharged the prospects of several portfolio companies, faster than many might have expected. We could point to Illumina and Moderna who, between them, took only four days to sequence the virus and make a candidate vaccine; online platforms such as Amazon that provided goods to our doors; or Zoom, the video conferencing service that turned into a verb overnight.

As an externally managed investment trust, the Company has been fortunate in not having to contend with so many of the difficulties faced by many operating businesses. But there have been some temporary challenges such as online Board meetings and restrictions on holding physical General Meetings.

In response to the obvious challenges of a virtual environment, Baillie Gifford made full use of the digital tools at its disposal to provide a full service that progressed uninterrupted. As one would expect, joint Managers James Anderson and Tom Slater remained resolutely focused on patient investment on behalf of shareholders and their time horizons reach far beyond the pandemic and its immediate after effects. Despite largely being confined to their own homes, they continued to engage with portfolio companies, as well as exploring new investment opportunities. It is worth noting that the portfolio turnover increased over the year in both monetary and number terms as Scottish Mortgage became owners of several new companies which the Managers believe can drive returns over the coming years.

Performance

For the financial year to 31 March 2021, shareholders saw the strongest ever return produced by the Company, surpassing the returns delivered during the Company's expansion post the Great Depression and, more recently, in the aftermath of the Global Financial Crisis. As a result, the Company reached new market capitalisation highs during the year, closing at just over £18 billion.

Total Return* (%)

12 months to

31 March 2021

NAV

111.2

Share price

99.0

FTSE All-World Index

39.6

Global Sector Average - NAV

76.8

Global Sector Average - share price

72.2

Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair value*.

  • Alternative Performance Measure - see Glossary of Terms and Alternative
    Performance Measures on pages 90 to 92.

Past performance is not a guide to future performance. See disclaimer on page 89.

When the Managers judge performance, they focus on long term returns and the impact of compounding over time. Following a period of outperformance, they remain patient and only trim holdings when they believe the upside has reduced. As we have learnt, over long time periods, a small number of companies generate most of the total return.

Total Return* (%)

Five years to

Ten years to

31 March 2021

31 March 2021

NAV

374.9

708.0

Share price

347.9

756.1

FTSE All-World Index

98.5

193.7

Global Sector Average - NAV

233.4

437.6

Global Sector Average - share price

232.3

482.7

Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair value*.

  • Alternative Performance Measure - see Glossary of Terms and Alternative
    Performance Measures on pages 90 to 92.

Value for Money

It is pleasing that the continued growth in Scottish Mortgage's assets has meant that costs as a proportion of net asset value have again reduced as the Company shares the benefits of scale with its owners. Ongoing charges for the year were 0.34%.

Value for money is moving up the agenda across the asset management industry. Net outperformance lies at the heart of this issue, which is comprised of two factors: relative investment performance to passives and peers, and cost.

On cost, it is difficult to find fair comparison as very few other investment companies provide 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 relative 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 extent and range of equity gearing was discussed by the Board and Managers at each Board meeting throughout the period. The absolute level of borrowing increased to remain within an appropriate range against a rapidly growing net asset value. All new borrowing was secured at very competitive rates (details provided on pages 69 and 70) and at the end of the year the overall value of the borrowing represented approximately 7% of the Company's net asset value.

02 Annual Report 2021

Strategic Report

Earnings and Dividend

The Managers seek to maximise total return by providing growth capital to a global portfolio of transformational 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 that represents a small and diminishing part of the overall return generated. The revenue earnings per share for Scottish Mortgage over the period were

0.62 pence - this represents a reduction on last year (1.55 pence in 2020), following a decline in income received from portfolio companies.

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 Directors are, therefore, recommending that this year the total dividend be increased by 5.2% to 3.42 pence.

The Company's revenue earnings for the year are insufficient to cover the dividend and the majority will be paid from realised capital reserves. Collectively, we believe this to be appropriate, given the relatively immaterial size of the element paid from capital compared with the scale of the distributable capital gains achieved over the long term.

Liquidity

Over the period, the Company continued to operate its liquidity policy to meet, in normal market conditions, imbalances in supply and demand of its own shares over the short term. In total, the Company issued 24.7 million shares and bought back 56.4 million, resulting in a net buyback totalling around £420 million.

Portfolio Manager Update

In March of this year we informed shareholders that James Anderson will retire as a partner from Baillie Gifford and stand down as joint manager of Scottish Mortgage on 30 April 2022. Over the last two decades James has led the transformation of the Company, from a largely UK-focused trust to one that is now global, long term and index indifferent. He also pioneered Scottish Mortgage's investments in private companies, one of its most important strategic initiatives to date. There is a lot more to say about the huge contribution that James has made, but it would be premature to do so now, as he remains focused on jointly managing the portfolio over the coming year.

During this year, the investment team increases to three, with the addition of Lawrence Burns as Deputy Manager. Lawrence's name may be new to many shareholders but he is philosophically aligned with the current Managers. He has a particular focus on transformative growth companies and has also co-managed some of Baillie Gifford's largest strategies alongside James and others.

Lawrence's arrival marks the next step in a long term succession plan that has been agreed between the Board and Managers and will ensure that we have a strong team in place to manage the portfolio for the next decade or more. The Board would like to take this opportunity to welcome Lawrence to his Scottish Mortgage role.

Environmental, Social and Governance (ESG)

We recognise the importance of considering ESG factors when making investments and in acting as a responsible steward of capital. We consider that Board oversight of such matters is an important part of our responsibility to shareholders.

Governance also needs to be considered in the context of the philosophy that underpins the management of the portfolio. The Managers take a very selective approach, with a focus on companies that can grow to many multiples of their current size. More often than not, the companies with the most exciting prospects are those that seek to tap into technological and cultural progress to find newer and better ways of producing the goods and services that society will need over the course of the next decade. In this context, the Managers' approach to governance and sustainability is based on five core beliefs that are detailed in the recently published document, 'Our Approach to Governance'. We recommend this as valuable reading to all shareholders and it can be accessed on the Company's website scottishmortageit.com.

Shareholder Engagement

The Annual General Meeting will be held on 24 June 2021 at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh. In view of the continuing Covid-19 related restrictions, attendance will be kept to the minimum permitted by the Company's Articles of Association and shareholders will not be able to attend. We would, though, remind shareholders that they are able to submit proxy voting forms before the applicable deadline and also to direct any questions or comments for the Board in advance of the meeting through the Company's Managers, either by emailing scottishmortgage@bailliegifford.comor calling 0800 917 2112 (Baillie Gifford may record your call).

As always, the details of the outcomes of the AGM business will subsequently be available on the website, as will a filmed Managers' update.

More generally, we would encourage shareholders to engage with the Company throughout the year, not solely via the AGM. The Managers provide information and 'Insight' pieces on the portfolio on the Company's website scottishmortgageit.com.

Now more than ever these digital resources allow shareholders to stay well informed, by hearing directly from those managing their money. Over the year, webinar presentations have been extremely well attended and more are planned in future. Details of these will be put on the website.

It is hoped that the Managers will be able to proceed with a shareholder forum in Edinburgh in September 2021, as well as other live events later in the year. If such events can take place, Board members will look to attend a number of these to provide opportunities for face to face engagement with shareholders.

Scottish Mortgage Investment Trust PLC 03

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Disclaimer

Scottish Mortgage Investment Trust plc published this content on 21 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 May 2021 10:18:05 UTC.