TIDMPCT
RNS Number : 4375G
Polar Capital Technology Trust PLC
19 July 2023
POLAR CAPITAL TECHNOLOGY TRUST PLC
AUDITED RESULTS ANNOUNCEMENT FOR THE FINANCIAL YEAR TO 30 APRIL
2023
FINANCIAL HIGHLIGHTS
FINANCIAL SUMMARY Change%
As at As at Year Ended Year Ended
30 April 2023 30 April 2022 2023 2022
---------------- ---------------- ---------- ------------
Total net assets GBP2,828,141,000 GBP3,050,985,000 (7.3%) (10.5%)
---------------- ---------------- ---------- ------------
Net Asset Value (NAV)
per ordinary share 2239.48p 2305.13p (2.8%) (7.7%)
---------------- ---------------- ---------- ------------
Benchmark(1) 3604.43 3504.44 2.9% (0.9%)
---------------- ---------------- ---------- ------------
Price per ordinary
share 1940.00p 2040.00p (4.9%) (13.7%)
---------------- ---------------- ---------- ------------
Discount of ordinary
share price to the NAV
per ordinary share(2) (13.4%) (11.5%)
---------------- ---------------- ---------- ------------
Ordinary shares in
issue(3) 126,285,544 132,356,426 (4.6%) (3.1%)
---------------- ---------------- ---------- ------------
Ordinary shares held
in treasury 11,029,456 4,958,574 122.4% 543.8%
---------------- ---------------- ---------- ------------
KEY DATA For the year to 30 April 2023
Local Currency Sterling Adjusted
% %
-------------- -----------------
Benchmark(1)
---------------------------------
Dow Jones Global Technology Index
(TR) 3.0 2.9
-------------- -----------------
Other Indices over the year (total
return)
---------------------------------
FTSE World 3.4 3.4
-------------- -----------------
FTSE All-Share 6.1
-------------- -----------------
S&P 500 Composite 2.7 2.7
-------------- -----------------
Nikkei 225 10.0 4.9
-------------- -----------------
Eurostoxx 600 7.3 12.3
-------------- -----------------
As at 30 April
EXCHANGE RATES 2023 2022
------- -------
US$ to GBP 1.2569 1.2555
------- -------
Japanese Yen to GBP 171.15 162.66
------- -------
Euro to GBP 1.1385 1.1901
------- -------
For the year to 30 April
EXPENSES 2023 2022
------------ ------------
Ongoing charges ratio(2) 0.81% 0.84%
------------ ------------
Ongoing charges ratio including
performance fee(2) 0.81% 0.84%
------------ ------------
Data supplied by Polar Capital LLP and HSBC Securities
Services.
1 Dow Jones Global Technology Index (total return, Sterling
adjusted, with the removal of relevant withholding taxes).
2 Alternative Performance Measures provided in the Annual
Report.
3 The issued share capital on 13 July 2023 (latest practicable
date) was 137,315,000 ordinary shares of which 12,258,825 were held
in treasury.
HISTORIC PERFORMANCE
As at 30 April 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
-------------------- ----- ----- ----- ----- ------- ------- ------- ------- ------- --------- ---------
Net Assets (GBPm) 528.8 606.6 793.0 801.3 1,252.5 1,551.6 1,935.6 2,308.6 3,408.8 3,051.0 2,828.1
----- ----- ----- ----- ------- ------- ------- ------- ------- --------- ---------
Share price
(pence) 398.5 442.0 592.0 566.0 947.0 1,148.0 1,354.0 1,774.0 2,364.0 2,040.0 1,940.0
----- ----- ----- ----- ------- ------- ------- ------- ------- --------- ---------
NAV per share
(pence) 412.4 458.4 599.2 605.5 945.4 1,159.7 1,446.4 1,715.6 2,496.4 2,305.1 2,239.5
----- ----- ----- ----- ------- ------- ------- ------- ------- --------- ---------
Indices of
Growth(1)
----- ----- ----- ----- ------- ------- ------- ------- ------- --------- ---------
Share price 100.0 110.9 148.6 142.0 237.6 288.1 339.8 445.2 593.2 511.9 486.8
----- ----- ----- ----- ------- ------- ------- ------- ------- --------- ---------
NAV per share 100.0 111.2 145.3 146.8 229.2 281.2 350.7 416.0 605.3 559.0 543.0
----- ----- ----- ----- ------- ------- ------- ------- ------- --------- ---------
Dow Jones Global
Technology Index
(2) 100.0 113.1 146.4 146.2 224.3 262.5 318.8 376.5 551.0 546.3 561.8
----- ----- ----- ----- ------- ------- ------- ------- ------- --------- ---------
The Company commenced trading on 16 December 1996 and the share
price on the first day was 96.0p per share and the NAV per share
was 97.5p.
Notes:
1 Rebased to 100 at 30 April 2013
2 Dow Jones Global Technology Index (total return, Sterling
adjusted) with the removal of relevant withholding taxes.
All data sourced from Polar Capital LLP .
For further information please contact:
Ben Rogoff Ed Gascoigne-Pees
-------------------
Polar Capital Technology Trust Camarco
PLC
-------------------
Tel: 020 7227 2700 Tel: 020 3757 4984
-------------------
CHAIR'S STATEMENT
Introduction
On behalf of myself and the Board I am pleased to share with you
the Annual Report of the Company for the year to 30 April 2023.
This is my first full year Chair Statement following my appointment
as Chair in September 2022.
The year under review and in particular the period since my
appointment as Chair, has been a tumultuous one for markets, with
the post-COVID settling down period, the continuation of the
Russia-Ukraine war and the sizeable hikes in interest rates as the
central banks sought somewhat belatedly to tackle the surge in
inflationary pressures causing a global cost of living crisis. This
has also had a resultant negative impact on long-duration assets
such as technology stocks. To add to these, on the day of my
appointment we sadly marked the passing of Queen Elizabeth II and
of course more recently we celebrated the coronation of our newest
monarch, King Charles III.
Performance
The Manager's report gives an overview of the year past and the
outlook for the near future. Over the year under review, your
Company's net asset value (NAV) per share fell from 2305.13p to
2239.48p, a decrease of 2.8%, while the Benchmark increased 2.9% in
Sterling terms over the same period. I would like to be reporting
more positive performance numbers, but generally markets have not
been constructive and technology in particular has suffered in the
post-Covid reset and high interest rate environment. Furthermore,
our underweighting of "mega-cap" technology stocks which now
dominate the index and which continue to lead the sector was a
significant factor in our underperformance relative to the
benchmark. That said, the Company has performed well against its
technology investment trust peer group. We believe that there are
interesting and exciting times ahead for our sector, particularly
in the field of Artificial Intelligence ("AI") and this is
discussed further in the Manager's Report.
Discount Management
The Board actively monitors the discount at which the Company's
ordinary shares trade in relation to the Company's underlying NAV
and, whilst the Board does not have a formal discount policy or a
fixed target level for all times and circumstances, it will
continue to exercise its discretion to buy back shares at a
discount. Equally, should fortunes change, the Board will also use
discretion to issue shares at a premium as has been done in the
past. The intent when buying back shares is to seek to reduce the
volatility of the share price, to add a small amount to NAV per
share and to address significant imbalances in the supply and
demand for shares.
We have continued to buy back stock regularly, repurchasing a
total of 6,070,882 shares in the year under review at an average
price of 1932.28 pence per share and an average discount of 11.95%.
Following the year end and up to 13 July 2023, the Company has
bought back a further 1,229,369 shares. While purchase levels have
been relatively low on an individual transaction basis, we should
note that this activity does not preclude the Manager determining
that a more significant amount than usual on any one day should be
purchased. Such a decision may be influenced by, in the Manager's
view, there being a particular investment opportunity best accessed
through buying shares in the Company rather than buying individual
securities.
Board Composition
Outside of my appointment as Chair on the retirement of Sarah
Bates after 12-years, there have been no other changes to the
membership of the Board during the financial year under review.
Biographical details of all Directors are available on the
Company's website and are provided in the Annual Report and
Accounts.
The Board is aware of the FCA's Diversity and Inclusion Policy
and notes that its current composition meets two of the three
'comply or explain' targets with three of the six members being
female and two of the three senior positions being occupied by
females. However we do not meet the recommended ethnicity
requirements. While there are no immediate plans to recruit to the
Board, the Board has put in place a succession plan based on the
recommended nine-year tenure of Directors. It is a priority of the
Board to be able to meet all aspects of the FCA's Diversity policy
as part of these future succession plans. Of paramount importance
is having the correct mix of skills around the table, diversity of
thought and a constructive culture that engenders lively
discussion. When we next select our recruitment consultant to
assist us with a director search we will set parameters that ensure
potential candidates are sourced from a broad pool such that the
Board can consider candidates with minority ethnic backgrounds,
especially at the final round of the recruitment process. Further
information is provided in the Nomination Committee Report.
Annual General Meeting
We are pleased to confirm that the Company's AGM will be held on
7 September 2023 at 2:30pm. We have considered feedback from the
prior few years AGM's and analysed the attendance levels pre,
during and post-COVID. Due to the previous lack of take up for the
option of attendance on-line we are opting this year to hold an
in-person only meeting and will not be providing a hybrid
attendance option. We have also considered comments from
shareholders on cost and location, and have this year decided to
move the meeting to a central City base. We will therefore be using
the auditorium at the offices of Herbert Smith Freehills, Exchange
House, Primrose Street, London, EC2A 2EG. We look forward to
welcoming shareholders to the meeting who will receive a
presentation from the Manager and his team and shareholders will
also have the opportunity to ask questions and meet the Board;
light refreshments will again be available following the
meeting.
The notice of AGM will shortly be provided to shareholders and
will also be available on the Company's website. Detailed
explanations on the formal business and the resolutions to be
proposed at the AGM is contained within the Shareholder Information
section of the Annual Report and Accounts as well as the Notice of
AGM.
Environmental, Social And Governance Matters (ESG)
We continue to keep abreast of ESG developments and changes in
the landscape. Through regular engagement with the Manager, we have
seen how ESG considerations have been integrated into the overall
house style, the technology team investment approach and decision
making as well as the methodology behind this. As a Board, we
believe that the Manager is best placed to integrate ESG factors
into the investment decision-making process, with the Board
providing oversight and challenge, to ensure that the process is
being executed as expected. This challenge is undertaken through
regular reporting and engagement with the Manager. The Board
receives tailored ESG related information including the ratings of
investee companies and is able to use this as a tool to inform
discussions with the Manager during Board meetings. As at 30 April
2023, based on MSCI ESG ratings, the portfolio and the benchmark
were both rated A.
The Board also receives regular updates on the progress that has
been made on the corporate side of Polar Capital's business. Please
refer to the ESG Report in the Annual Report and Accounts which
incorporates both the investment and corporate approaches.
Outlook
Given the recent breakthroughs in Artificial Intelligence
("AI"), we remain positive on the outlook and the future of
technology, despite a challenging macro backdrop. We look forward
to the investment opportunities this brings for the sector, which
looks well placed to benefit from AI disruption.
Finally, the Board is delighted to welcome Alastair (Ali) Unwin
formally as Deputy Fund Manager following his recent promotion
within Polar Capital. Ali joined the Polar Capital Technology team
in 2019, has worked closely with Ben Rogoff since joining the team
and has been a regular presenter to the Board. This appointment
formalises the involvement that Ali has on the portfolio and the
Board are pleased to support this move. Ben and Ali are supported
by an experienced technology team who have significant experience
of investing in the sector. Shareholders will have the opportunity
to meet and talk with Ali, along with other members of the
technology team at the AGM.
Catherine Cripps
Chair
18 July 2023
FINANCIAL AND PERFORMANCE REVIEW FOR THE YEARED 30 APRIL
2023
The NAV per share declined to 2239.48p as at 30 April 2023 from
2305.13p at the start of the year. The Company's NAV per share
total return for the period was a loss of 2.8% and finished the
year with a total net assets of GBP2,828.1m. The Investment
Manager's Report sets out in detail the performance of the Company
for the financial year. The chart contained in the annual report
shows in greater detail the movement in total net assets for the
year.
Total Return
The Company generates returns from both capital growth (capital
return) and dividend income received (revenue return). The total
return from the portfolio for the year was a loss of GBP105.2m
(2022: GBP258.6m loss), of which there was a GBP98.3m loss (2022:
GBP241.9m loss) from capital and a GBP6.9m loss (2022: GBP16.7m
loss) on our income account which offsets all expenses against
dividend income. Full details of the total return can be found in
the Statement of Comprehensive Income in the Annual Report and
Accounts . We choose as a matter of policy not to allocate our
expenses between capital and income, (any performance fee is the
only expense allocated to capital). The Company's allocation of
expenses is described in Note 2(d) in the Annual Report and
Accounts and the allocation methodology is considered on an annual
basis, no change to the policy is recommended (2022: no change).
The total net losses per share were 81.28p (2022: net losses of
191.61p per share). The total net losses per share was made up of
75.98p from capital return and a loss of 5.30p from revenue
return.
Capital Return
The investment portfolio was valued at GBP2,640.2m (2022:
GBP2,811.1m) at the year end 30 April 2023. The investment
portfolio delivered a realised loss on disposals of GBP190.5m
(2022: GBP121.2m loss) and valuation gains on investment of
GBP83.7m (2022: GBP132.5m loss) for the year ended 30 April 2023.
The Company's valuation approach is described in Note 2 (f) in the
Annual Report and Accounts . The derivative gains of GBP0.03m
(2022: GBP5.8m loss) represent the call and put options which are
used to facilitate efficient portfolio management. Full details of
the derivatives are set out in the Investment Managers Report.
Revenue Return
The total investment income of GBP16.2m (2022: GBP15.87m)
represents dividend income derived from listed investments. The
investment income, excluding any one-off special dividends,
increased by 0.7% for the year and this was driven by changes in
holdings, dividend rates, and FX rate changes as the Company's
revenue is generally denominated in currencies other than Sterling.
The increase in interest rates which started at the end of the 2022
financial year has continued. This led banks and Money Market Funds
(MMF) to make higher interest income payments. As a result, during
the year under review, the Company received other operating income
of GBP3.8m (2022: GBP0.031m) which was derived from bank interest
and MMF interest. It should be noted, however, that the MMF is held
primarily as a cash diversification factor rather than an income
generating investment. As stated above, as a matter of policy, all
expenses (excluding the performance fee) are charged to revenue and
as a result, expenses normally exceed the income received in any
given year. As has been the case for many years, the revenue
reserve therefore remains negative. The Company historically has
not paid dividends given the nature of its focus on longer-term
capital growth. The Board reviews this stance on a periodic
basis.
Expenses
The total expenses for the year under review amounted to
GBP24.7m (2022: GBP30.6m) and include investment management fees of
GBP21.9m (2022: GBP28.3m), administrative expenses of GBP1.2m
(2022: GBP1.3m) and finance costs of GBP1.6m (2022: GBP1.0m). The
Company's operating expenses comprise predominantly variable costs,
such as management, depositary and custody fees which increase and
decrease based on the net asset value. Other expenses remained at a
similar level to the last year. The finance costs increased
slightly due to the increase in interest rates. As noted in last
year's Annual Report, the agreement which was made with Polar
Capital to amend the base management fee tier levels came into
effect from 1 May 2022, and this resulted in a 8.7% reduction in
management fees for the year when compared to the prior management
tiers calculation. There was no performance fee accrued at the year
ended 30 April 2023 (2022: GBPnil).
Ongoing Charges
Ongoing Charges Ratio (OCR) is a measure of the ongoing
operating costs of the Company. It is calculated in line with the
AIC recommended methodology, represents the total expenses of the
Company, excluding finance costs, and is expressed as a percentage
of the average daily net asset value during the year. The OCR
demonstrates to Shareholders the annual percentage reduction in NAV
as a result of recurring operational expenses, that is, the
expected cost of managing the portfolio. Whilst based on historical
information, the OCR provides an indication of the likely level of
costs that will be incurred in managing the Company in the future.
The OCR for the year to 30 April 2023 was 0.81% (2022: 0.84%). The
OCR including the performance fee for the year to 30 April 2023 was
the same as no performance fee was accrued at the year end. As
noted above under expenses, the reduction in the OCR is mainly due
to the reduction in management fee tier levels which came into
effect from 1 May 2022, and the change in the net asset value
during the year under review. See Alternative Performance Measures
in the Annual Report and Accounts .
Cash and Cash Equivalents
As in the prior years, the Company's cash level remained
relatively high, closing the year with GBP239.1m (2022: GBP311.4m).
As noted above, as part of the Company's cash diversification
strategy, the Company has taken a cautious approach and has chosen
to invest 50% of its USD cash balance into a USD Treasury Money
Market Fund. As at 30 April 2023, the Company held the BlackRock
Institutional Cash Series - US Treasury Fund with a market value at
year end of GBP90.4m (2022: GBP92.0m).
Portfolio Turnover
Portfolio turnover (purchases and sales divided by two) totalled
GBP2,268.9m equating to 77% for the year to 30 April 2023 (2022:
84%) of average net assets over the year. Details of the investment
strategy and portfolio are given in the Investment Manager's Review
in the Annual Report and Accounts .
Gearing
The Company can use gearing for investment purposes as stated in
the Annual Report and Accounts . In September 2022, the Company
entered into replacement contracts with ING Bank N. V for two,
two-year fixed rate term loans (JPY 3.8bn and US$36m). These loans
replaced the previously held two -- year loans of JPY 3.8bn and
US$36m which expired on 30 September 2022. Both loans fall due for
repayment on 30 September 2024. The repayment of both loans,
totalling approximately GBP50.8m (2022: GBP52.0m), would equate to
less than 2% of the Company's NAV as at 30 April 2023.
Foreign Exchange
The majority of the Company's assets and revenue are denominated
in currencies other than Sterling and are impacted by foreign
exchange movements. As at the year ended the other currency gains
of GBP8.4m represents the exchange gains on currency balances of
GBP7.2m and net gains on translation of loan balances of GBP1.2m.
The Company's total return and net assets can be affected by the
currency translation and movements in foreign exchange. Note 27 (a)
(ii) in the Annual Report and Accounts , analyses the currency risk
and the management of such risks.
Catherine Cripps
Chair
18 July 2023
INVESTMENT MANAGER'S REPORT
Market Review
As discussed in our last Annual Report, we believe 2022 is best
understood as the year 'risk was repriced' as central banks moved
forcefully to rein in the economy, defend their credibility and
prevent inflation expectations becoming unanchored. Proving
anything but 'transitory', inflation continued to surprise to the
upside taking global risk-free rates with it. In the US, consumer
price inflation (CPI) averaged 8.0% during the calendar year, while
the +9.1% reading in June was the largest year-on-year (y/y)
monthly gain since 1981. The inflation shock was hardly unique to
the US, with soaring energy and food prices, Labour markets with
more jobs than available workers and the release of pent-up demand
combining to create the most inflationary backdrop globally for 40
years. For the full year, global inflation averaged 8.8% compared
to pre -- pandemic levels of around 3.5%.
As a result of this persistent inflation, 2022 was also a year
of unprecedented interest rate rises, after an oddly slow start by
central banks. In the US, the Federal Reserve (Fed; the US central
bank) embarked on the steepest set of rate hikes in 40 years as
rates were raised by 450 basis points (bps), including four 75bps
hikes, in addition to the resumption of quantitative tightening
(QT) whereby the Fed reduces its monetary reserves to 'tighten' its
balance sheet. Futures markets at the start of 2022 had priced in
expectations for Fed Funds (the key benchmark rate targeted by the
Fed) to be at c1% by June 2023; by year end, this figure had risen
to c5%. In Europe, the decade -- long experiment with negative
interest rates ended as the European Central Bank (ECB) raised
rates by 250bps despite a high likelihood of recession. Most other
major markets experienced tightening in excess of 200bps.
Sharply higher risk-free rates weighed heavily on asset prices,
not least bonds which experienced their worst calendar year returns
since at least the 1970s, the Bloomberg US Aggregate Float-Adjusted
Index losing 13.1%. This theme was painfully echoed in equity
markets- the longer the duration, the worse the return. Ten-year US
Treasuries suffered their worst annual performance since 1788 while
record government bond losses were recorded in Japan, Europe, and
the UK with drawdowns of 16.2%, 22% and c32% respectively. Having
stood at $10trn in January 2022, the global stock of negative
yielding bonds had fallen to essentially zero by calendar year
end.
Higher sovereign yields weighed heavily on global equities,
which also had to contend with elevated recession risk and negative
earnings revisions. During the calendar year, 2yr-10yr Treasury
yields fell to their most negative spread (where 2-year yields are
higher than 10-year yields) in more than 40 years. Aggregate
earnings estimates for companies in the S&P 500 Index in 2023
fell from $245 to around $230, while 2024 forecasts fell to c$250,
essentially losing a year of growth. As measured by the MSCI
All-Country World Index (ACWI), global equities fell by -18.4%, in
dollar terms, their worst showing since 2008. The S&P 500 Index
(-19.4%) also posted its biggest fall since 2008 and its seventh
worst year since 1926. The unusual correlation between bond and
equity markets, courtesy of inflation, meant that 2022 will
probably be remembered for being the first year that both the
S&P 500 (equities) and 10-year US Treasuries (bonds) each
registered losses of more than 10% on a total return basis. It was
also the worst year for combined total returns of stocks and bonds
since 1982.
A bad year for US equities proved a calamity for growth stocks
which suffered their worst year compared to value stocks since
2000. Helped by energy's record year (+59%) versus the broader
market, the Morningstar US Value Index fell just c1% while the
Morningstar US Growth Index plunged by c37%.
Equities started strongly in 2023 as extreme pessimism and
bearish positioning were challenged by disinflationary data, weaker
energy prices and sharply lower real rates, as well as a better
than feared Q4 company earnings season and a momentum / short
squeeze. European equities and 60/40
portfolios recorded their best start to a year since at least
1987, while the tech-heavy NASDAQ Composite Index enjoyed its
strongest year-to-date performance since 2001.
However, sentiment turned more negative in February as a slew of
strong economic data for January challenged the excitement that the
interest rate tightening cycle was largely complete. Investment
grade global bond markets gave back their year-to-date gains, while
corresponding equity market weakness has seen US indices either
approach or break 50-day moving averages as positioning and
sentiment tailwinds came to an end and stocks began to fall on bad
news or weak earnings reports.
The collapse of Signature Bank and then Silicon Valley Bank
(SVB) in March provided the most significant casualties of
aggressive Fed tightening. In order to prevent contagion, the US
Treasury, Federal Reserve and Federal Deposit Insurance Corporation
(FDIC) announced that all deposits of SVB and Signature Bank would
be insured, solving the immediate risk to deposit holders, and
helping to stem rapid withdrawals which totalled $42bn in just four
hours at peak. However, concerns remained that these bank failures
were emblematic of wider issues in the banking sector, prompting
extreme bond volatility and a 'flight to safety' with US 2-year
yields falling by 130bps in just eight trading days. Credit Suisse
fell soon afterwards, when actions by the Swiss central bank failed
to stem client outflows and counterparty de-risking. UBS Group
agreed to buy the 166-year-old lender for 3bn Swiss francs (40% of
its market value) in a historic government-brokered deal aimed at
containing the crisis.
Technology Review
In addition to the pressures felt by the broader market,
technology stocks also had to contend with the further unwinding of
perceived 'Covid winners' which weighed on the sector's relative
growth and its companies' valuations. However, marked
outperformance by the sector giants during early 2023 left the
technology sector (represented by the Dow Jones Global Technology
Index) modestly ahead of the broader market (MSCI ACWI) for our
full fiscal year to 30 April 2023, the Dow Jones Global Technology
Index returning +2.7% and the MSCI ACWI +2.1% respectively, both in
sterling terms.
However, overall index returns contrasted with those enjoyed by
the average stock, especially during 2022, when just 30% of
technology stocks outperformed. For the 2022 calendar year
(two-thirds of which fell within our past fiscal year), the Dow
Jones Industrial Average (DJIA) outpaced the NASDAQ Composite Index
by more than 2,400bps, the greatest divergence between the two
since 2000. During this period, value significantly outperformed,
outpacing the most expensive quintile of technology stocks by 35%
in 2022. Perceived defensive businesses such as Hewlett Packard
Enterprise (+17%), IBM (+24%) and Oracle (+7%) sidestepped the
massive de -- rating of growth stocks that all but wiped out the
EV/sales valuation premium normally enjoyed by next-generation
software stocks over legacy incumbents, making it another
challenging year for growth-oriented technology investors, us
included.
As in 2021, the greatest weakness was reserved for the longest
duration assets with limited valuation support. Tesla fell an
incredible 65% during 2022, commensurate with the decline
experienced by MSCI Ukraine and Bitcoin, revealing extreme
cross-correlation. Weakness in category leaders like Tesla presaged
a collapse in 'second liners' such as would-be electric vehicle
(EV) makers Rivian (-82%) and Lucid (-82%). The ARK Innovation fund
fell a further 63% in 2022 after declining 23% in 2021. Thankfully
- and something we have highlighted for the past two years - the
most pain was felt beyond listed equities as bubbles in
cryptocurrency, non-fungible tokens (NFTs) and Special Purpose
Acquisition Companies (SPACs) were destroyed. Cryptocurrencies
plunged in 2022, led by Solana (-94%), Cardano (-81%) and Ethereum
(-68%) leading to many industry bankruptcies before engulfing FTX
and Sam Bankman-Fried. PCTT does not invest in either SPACs or
cryptocurrencies.
Thankfully the technology sector's fortunes reversed with the
arrival of the new calendar year, covering the final four months of
our fiscal year, during which our benchmark advanced +16.9% as
compared to the MSCI ACWI's +4.7% gain. This was driven by
better-than-expected macroeconomic data which prompted optimism
around e-commerce and digital advertising growth against low
expectations, while Artificial Intelligence ("AI") provided a new
growth outlet to many semiconductor companies given the calculation
(compute)-intensive nature of large language model (LLM - see more
below) training and inference. However, this period also saw
extraordinary outperformance of large-cap companies, as measured by
the Russell 1000 Technology Index, which delivered +22% while
small-caps as measured by the Russell 2000 Technology Index, fell
1.9%, both in sterling terms. Megacap technology stock performance
has been even more pronounced, benefitting from a 'flight to
quality' amid the collapse of SVB, money flowing from the
financials and
energy sectors and excitement about and desire for AI
exposure.
At the technology subsector level, AI enthusiasm proved an
important driver for semiconductors, the Philadelphia Stock
Exchange Semiconductor Index (SOX) returning +4.2%. This was
impressive given weakness in other end markets including
smartphones and PCs. Earlier widespread semiconductor shortages and
price increases scared customers who then scrambled to modify
procurement policies to secure supply at the expense of inventory
discipline, resulting in a severe inventory correction. Auto and
industrial markets were more stable and datacentre spending
remained relatively resilient as the large cloud providers continue
to invest in anticipation of a compute -- intensive AI future.
These trends, together with further evidence of 'semiconductor
sovereignty'(epitomised by the $280bn CHIPS and Science Act) saw
wafer fabrication equipment (WFE) spending surpass $100bn for the
first time.
Despite enthusiasm about AI, there was a significant slowdown in
cloud revenue growth as customers optimised spend following the
pandemic-induced acceleration. Aggregate cloud revenue growth
slowed by 400-500bps per quarter from +36% in Q2'22 and +31% in Q3
before falling to +26% and +21% in Q4 and Q1 respectively. This was
a disappointment despite the public cloud's vast scale at
>$170bn annualised revenue run rate.
The slowdown in cloud revenues reflected a broader slowdown
within software, especially at Software as a Service (SaaS)
companies. During the year, many software companies highlighted
greater deal scrutiny, longer sales cycles, deal compression and in
later months found it more difficult to expand seat counts as
customers retrenched. While the Bloomberg Americas Software Index
returned 4%, this largely reflected strong returns from legacy
players with limited growth profiles but generally strong pricing
power and undemanding valuation multiples. Microsoft also delivered
strong returns (+11.8%) as Azure continued to grow well and
customers consolidated spend on the largest platforms. Conversely,
diminished risk appetite and a higher interest rate environment
presaged a material valuation reset in the higher growth parts of
the sector which saw the Goldman Sachs Expensive Software basket
return -27%.
In the internet sector, echoes of the pandemic period continued
to impact results, from still-slowing gross merchandise value (GMV)
growth at many e-commerce companies, inventory issues at retailers
and an ongoing travel and entertainment spending boom, as consumer
spending continued to shift from goods to services. The NASDAQ
Internet Index returned +1.0% during the fiscal year with a
material divergence between mega-cap and smaller-cap
constituents.
Portfolio Performance
The Company underperformed its benchmark with the net asset
value (NAV) per share falling -2.8% during the fiscal year versus
an increase of 2.9% for the Dow Jones Global Technology Index. The
Company's share price fell by -4.9%, reflecting the additional
impact of the discount widening from 11.5% to 13.4% during the
period. We continue to monitor the discount and the Company bought
back 6.07 million shares during the fiscal year, at an average
discount of 12% to NAV.
The greatest headwind to the Company's relative performance was
the dominance of large-cap technology stocks which we are
structurally underweight. The Russell 1000 Technology Index (large
cap) returned +5.5%, while the small-cap Russell 2000 Technology
Index declined -13.8%, in sterling terms, with divergence becoming
more accentuated into the end of the fiscal year following the
collapse of SVB. Mega-cap outperformance was even more striking as
Goldman Sachs' equal-weighted index of the six largest technology
stocks returned +10.2% during the fiscal year and +16.3% since the
end of February 2023. Within the growth part of the technology
market, the divergence in performance was even more stark. The
Russell 1000 Growth Technology Index returned +6.3% while the
Russell 2000 Growth Technology Index returned -14.4% during the
fiscal year. Unsurprisingly, mega-cap technology companies were
responsible for some of the largest individual detractors to the
Company's relative performance versus the benchmark. This included
large absolute but relative underweight positions in Meta
Platforms, Microsoft and Apple. Underweight positions in the
largest five index names were responsible for a little more than a
fifth of underperformance, with a larger portion of
underperformance due to compression of next generation
valuations.
During the latter half of 2022 we looked to cautiously rebuild
the Company's exposure to next-generation software companies
following significant valuation compression. This proved premature
and was responsible for several of our largest detractors that
included CrowdStrike (-40%), CloudFlare (-45%), Atlassian (-34%)
and GitLab (-37%). Software proved our biggest detractor at the
subsector level as a period of extreme multiple derating was
followed by softer 2023 guidance as growth slowed and customers
looked to optimise their cloud and software spending post-Covid.
Less expensive software companies fared little better as our
positions in Elastic (-25%), Five9 (-41%), CyberArk (-21%) and
Tenable (-33%) all contributed negatively to relative performance.
There were also a number of genuine disappointments which impacted
performance despite their modest position sizes, including Snap
(-69%), Bill.com (-55%), Square (-39%) and Kornit Digital
(-72%).
In terms of positives, our growth semiconductor positions made a
strong positive contribution given ongoing strength in data centre
demand and enthusiasm around AI. This included Lattice
Semiconductor (+66%), Monolithic Power Systems (+18%), eMemory
Technology (+36%), Advanced Micro Devices (+5%) and the impact of
our zero-weight position in Intel (-29%), which made up c1% of our
benchmark. Leading networking company Arista Networks (+39%) also
benefitted from robust hyperscale data centre spending. Strong
automotive demand and an inflection in electronic vehicle ("EV")
adoption helped power semiconductor holdings Infineon Technologies
(+26%) and ON Semiconductor (+38%). Semiconductor capital equipment
players KLA Tencor (+21%) and Disco (+40%) also delivered solid
returns.
Given the weak performance of most major technology subsectors
(especially beyond the largest companies), a number of positive
contributors to our relative performance came from peripheral areas
including public sector technology, MedTech and FinTech. They
included Axon Enterprise (+88%), Intuitive Surgical (+26%), Dexcom
(+19%) and Wise (+39%).
We are never happy when we underperform our benchmark, even
during periods when growth stocks are deeply out of favour.
However, we are heartened by the fact that according to Lipper
data, the performance of the Company versus the broader technology
peer group remains first or second quartile over almost every
period which suggests that the challenge posed by a highly
concentrated benchmark firing on most cylinders is being widely
felt.
Market Outlook
Last year we observed how risk was being repriced as the range
of potential macroeconomic outcomes had become unusually wide.
Valuations were elevated, earnings numbers at risk and early hopes
that inflation would subside proved sadly complacent. Twelve months
and 350bps of US rate hikes later, the range of potential outcomes
appears narrower. Tightening has weighed on growth expectations: in
its May update, the IMF forecast global growth of 2.8% in 2023, a
moderation from 3.4% in 2022, and c10bps lower than it estimated in
January. The slowdown continues to reflect sharply higher central
bank rates necessary to combat inflation as well as the conflict in
Ukraine. While growth may be bottoming out (aided by lower energy
prices, robust private consumption, and ongoing fiscal support),
recent turmoil in the financial sector following the collapse of
several US regional banks is a reminder that recovery is unlikely
to be straightforward.
The end of China's zero-Covid policy has already seen emerging
markets accelerate, led by China and India which are forecast to
grow 5.2% and 5.9% respectively this year. In contrast, growth in
advanced economies is expected to slow to just 1.3% (2022: 2.7%).
Risks to this outlook appear skewed to the downside while
inflation, expected to fall to 5.6% this year and 3.7% in 2024, is
likely to continue to dictate the tenor of monetary policy.
The good news for the market outlook is that most of the world's
major central banks appear substantially through their rate
tightening cycles. At the beginning of 2022, Fed Funds were near
zero with futures markets pricing in c70bps of rate hikes. Ten-year
US Treasury yields were 1.5% while real rates were negative. A
little more than a year later and following 500bps of rate hikes,
the Fed had begun to signal that the current rate-tightening cycle
might be over. However, recent central bank rhetoric and/or action
has become incrementally hawkish, dampening earlier hopes of a more
benign interest rate environment.
With the Fed remaining 'data dependent', we are hopeful that
rate expectations will moderate given our view that peak inflation
is behind us. At the February Fed press conference, Fed Chair
Jerome Powell unexpectedly declared it was "most welcome to be able
to say that we are now in disinflation". While he offered many
caveats, Powell mentioned disinflation 15 times during the press
conference. While subsequent data has been mixed; headline
inflation almost certainly peaked last summer. Others also appear
to be past peak inflation with c84% of countries expected to have
lower headline CPI in 2023 than in 2022. A key contributor to
headline disinflation has been sharply lower energy prices, as well
as falling goods prices as supply bottlenecks improve. Without
question, the faster-than-expected adjustment in commodity prices
to the shock from Russia's invasion of Ukraine represents the most
constructive market development during the past year. In Dollar
terms, crude oil has fallen by c.40% since its June highs while
natural gas prices (having risen to 18x their pre-crisis level)
have fallen precipitously, although they remain significantly
higher than before Russia began preparing to invade Ukraine. The
combination of a fortuitously warm winter, an impasse in Ukraine
and conservation measures recently saw EU consumption of natural
gas fall 25% below the 2017-21 average.
Although both core and service inflation remain uncomfortably
high, policymakers will likely be encouraged by falling headline
prices that may help reduce wage pressure by feeding into lower
wage demands that are typically informed by headline rates.
Inflation expectations also remain well-anchored, with market
expectations of US inflation 5-10 years out still around 2.5%, less
than half the current level. Policymakers may also regard recent
bank failures as evidence that the long and variable lag associated
with significant monetary tightening is beginning to show up, with
US regional bank turmoil acting like a further rate hike
transmitted through the credit creation channel.
According to the ECB, the negative impact on inflation will
increase from 0.2% in 2022 to 1.2% this year before rising to 1.8%
in 2024. Likewise, excess savings, which have acted as a buffer for
consumption, have also been significantly depleted. In the US, an
estimated $1.6trn of the $2.5trn in Covid-related stimulus savings
have been spent while the personal saving rate is at its lowest in
more than 60 years (except for July 2005). These factors may end up
proving Powell right on disinflation, stock returns have been
strong following a peak in inflation as long as a severe recession
is avoided. Since 1948, the S&P 500 has averaged a 59.2% price
gain five years post -- peak inflation, including the negative 2008
and 1973-74 experiences.
While we do not anticipate a severe downturn, US recession risk
remains elevated as indicated by the spread between two-year and
10-year Treasury yields. However, this remains at odds with a US
economy that, despite record monetary tightening, still grew 1.1%
y/y during Q1, supported by an incredibly robust labour market,
sharply lower energy prices and "remarkably resilient" consumer
spending. While we expect the backdrop to remain choppy,
first-quarter reporting season has been better-than-expected as 54%
of S&P 500 firms have beaten consensus earnings expectations by
more than one standard deviation of analyst estimates versus a
historical average of 46%, according to Goldman Sachs. The downward
slope of earnings per share (EPS) revisions has also continued to
improve, which could suggest the steepest of the estimate cuts are
behind us. This apparent contradiction is in part explained by the
fact that GDP is measured in real terms while earnings estimates
are nominal. As such, inflation - which has been supportive for
(nominal) corporate revenues - continues to represent a greater
risk to valuations (via a higher discount rate/ lower multiple)
than to corporate earnings, although cost pressures have seen
S&P net margins slip to 11.2% in Q4'22 from 12.4% in Q4'21.
Against a more persistent inflationary backdrop and a good start
for markets this calendar year, valuations appear relatively full,
with the S&P 500 trading at 18.8x forward earnings (2022: 19x).
This leaves US stocks trading a little above both the five (18.6x)
and 10-year (17.4x) averages. Having previously lent on past data
that compares inflation to average PE ratios, history suggests
there is further valuation downside (to c.15x PE) should inflation
remain above 4%, and considerably more with inflation above 6%
(c.11x). However, significantly lower valuation ranges may be more
appropriate during periods where central banks are less able to
curtail inflation (as with the 1970s' oil crisis) or when
policymakers choose to de-emphasise it. For now, central banks
remain highly credible and longer-term inflation expectations well
-- anchored. Inevitably, equities will have to contend with greater
competition from bonds and cash than during the era of 'free
money', when long-term rates averaged 2.3%. However, over the
medium term we can envisage many scenarios where equities
outperform bonds but very few where the opposite is true. That
said, we remain cautious of assets that are illiquid, complex, or
dependent on access to capital.
Upside risk will likely depend on the worst of inflation being
behind us and recession being avoided. A Fed pause suggests that
significantly tighter monetary policy has begun to bite. This is
evident not just in the banking sector but also in waning consumer
confidence, CEO sentiment, housing affordability and the
availability of credit. However, should the Fed prove able to
becalm the labour market without causing a major spike in
unemployment, the most widely forecast recession in history might
still be averted. While history suggests this is unlikely, there is
little that is 'normal' about the current cycle - the Fed has
tightened substantially over the past 15 months without any
significant impact on the labour market while price inflation has
declined. This unusual combination - coined 'immaculate
disinflation' - offers hope the Fed is able to recalibrate price
expectations without causing an economic dislocation. With no post
-- 1950 precedent, economists are naturally dismissive, but as Fed
Governor Philip Jefferson, put it, "history is useful, but it can
only tell us so much, particularly in situations without historical
precedent". Supply-chain disruptions are improving, the labour
participation rate is recovering, and Fed credibility is high.
While 1970s throwbacks make good copy ("another winter of
discontent"), the US became a net exporter of energy in 2019 and
union membership in the US stands at a third of its 1960 peak. Even
if the US cannot avoid a recession, it does not have to be a
disaster, just as a loss does not have to be total. With investors
said to be facing "the worst backdrop for equities in over 40
years", a mild recession may not prove too bitter a pill. Also,
absent a recession, markets may have bottomed in October 2022.
If 'immaculate disinflation' seems fanciful, consider the post
WWII period when a temporary malalignment of demand and supply saw
CPI leap from 1.7% in February 1946 to a peak of 19.7% in March
1947, before plunging to zero in 1949 with no lasting impact on
inflation expectations. Pent-up demand was part sated, part choked
by a modest Fed-induced recession while supply recovered as
factories retooled from armaments to consumer goods. If this sounds
oddly familiar, consider how the rejection (or resignation) of
'victorious' pandemic leaders - Ardern, Conte, Johnson, Merkel,
Sturgeon, and Trump - is also reminiscent of Churchill and De
Gaulle's post-war experiences.
Market Risks
Except for Covid (which has diminished further as a risk, thanks
to a high level of immunity and lack of a new variant), many of the
key challenges posed to equities are unchanged from last year. The
principal risk faced by most risk assets is inflation with central
banks focused on preventing relative price changes becoming
entrenched. However, calibrating monetary policy to prevent
"transitions from low to high inflation regimes" is extremely
challenging. Thankfully, the Fed's preferred measure - the personal
consumption expenditures (PCE) price index - has fallen back to
4.4%, from a high of 7% in June 2022. However, services inflation
and wage growth remain at levels incompatible with central bank
inflation targets. Services inflation will not be easy to resolve
due to post-pandemic pent-up demand and the fact that it has
averaged c3.3% growth per annum between 1982-2021. It will also be
made more difficult by an extremely tight US labour market with
unemployment recently at its lowest in over 50 years (3.4%) and
only 0.6 unemployed people available for every job opening.
Although a weaker economy should help, the market remains
desynchronised with sectors such as healthcare and leisure still
operating with fewer people than pre-Covid.
Should inflation fail to return to old ranges, policymakers may
adopt much more restrictive policy or admit defeat and accept that
the post-pandemic world is likely to experience persistent higher
levels of inflation. This scenario envisages many of the same
medium-term inflationary headwinds we discussed last year: greener
but more expensive energy, deglobalisation and supply -- chain
fragmentation. These (and others, such as the loss of the peace
dividend) may be incompatible with present inflation targets that
are "too low for such a world and yet hard to revise given [the
risk to] central bank credibility". However, we remain relatively
sanguine about inflation given potential productivity gains that
have yet to manifest themselves (especially related to
AI) that could offset some of these potential inflationary
headwinds. We are also encouraged by the fact that high and
persistent US inflation is rare, especially outside war.
While the overarching need for central banks to remain credible
means monetary policy will remain data dependent, the risk of
policy error is magnified by the potential shift from a low to high
inflation regime. The Fed will also wish to avoid a repeat of the
1962-66 cycle when aggressive easing in late 1966 was followed by
"a decade of engrained inflation". If so, rates might stay higher
for longer, with the first rate cut arriving later than the typical
7-9 months after the last hike. As such, recession risk remains
elevated; the economy might 'slow dance' into recession, as in
2000, or a 'no landing' scenario might force the Fed into inducing
a recession to bring inflation down. If history is any guide,
markets may retest lows if recession is not avoided. According to
Ned Davis Research, the broader market takes a median of 5.3 months
to reach its nadir following the official declaration of a
recession by the National Bureau of Economic Research (NBER).
Meanwhile the average recessionary bear market has seen the market
fall by c33% over 17 months.
Recent financial sector stress has highlighted the liquidity
risk associated with unwinding record monetary and fiscal pandemic
stimulus. While we are hopeful that recent bank failures have been
contained, they - together with the earlier cryptocurrency collapse
and disfunction last year in the UK pension market - are salient
reminders of the systemic risk posed by continued withdrawal of
liquidity. Likewise, the geopolitical risk remains heightened too.
While Ukraine no longer dominates the headlines, war remains a key
determinant of the ongoing energy/cost of living crisis while
continuing to pose myriad risks. Despite both sides threatening
major new offensives, our base case assumes the current 'impasse'
in Ukraine persists as neither side looks capable of winning the
conflict nor acceding to peace terms this year. While there remains
a very serious risk of escalation, the conflict has remained
relatively well contained even as the rhetoric has flared up on
occasion. For now, stalemate ahead of a 'frozen conflict' (as per
Korea) rather than a negotiated peace, looks the most likely
outcome. Beyond Ukraine, other key geopolitical risks include
US-Sino relations with the downing of three Chinese spy balloons
over US airspace earlier this year reminding us of the risk
associated with rising nationalism in both countries. In the US,
this has taken the form of economic policy designed to frustrate
Chinese technological progress with recent export controls aimed at
denying Chinese access to advanced semiconductors representing a
notable escalation. While anti-China rhetoric is likely to remain
heightened ahead of US presidential elections, we remain hopeful
that further decoupling need not end in acrimonious divorce.
However, industrial policy is clearly back in vogue, evidenced by
greater subsidies, export restrictions and content requirements
such as the Inflation Reduction Act, which collectively may unwind
some of the benefits of post-war globalisation.
Finally, there are a number of tail risks. These include a new
deadlier Covid variant, a faltering Chinese recovery or a
particularly cold winter that might reignite energy prices. Iran
also represents an elevated tail risk with a number of factors -
domestic repression, nuclear advances, military support for Russia
and a Netanyahuled government in Israel - increasing the likelihood
of confrontation this year.
Technology Outlook
Earnings outlook
Having only increased 0.5% in 2022, worldwide IT spending is
expected to reach $4.6trn this calendar year, representing an
increase of 5.5%, in dollar terms. However, this relatively
sanguine forecast captures recent dollar weakness; constant
currency growth is likely to prove considerably weaker. For 2023,
the technology sector is expected to deliver revenue and earnings
growth of 1.4% and 0.8% respectively. Although this compares
unfavourably with the market, which is forecast to grow revenues
and earnings 2.4% and 1.1% respectively, the technology sector is
expected to revert to more typical above-market growth in 2024 with
revenues and earnings progress currently pegged at 8.7% and 16.3%
y/y. Technology sector progress will likely be driven by
macroeconomic conditions; net profit margins remain a key focus for
earnings as they remain above long-term averages, despite having
fallen back to 22.6.% from 26% last year After two years of
strength, recent dollar weakness represents a potential tailwind
for technology estimates given the sector's international exposure
of 58% (the highest of any sector) versus 40% for the market.
Valuation
The forward price to earnings (P/E - comparing a company's share
price to its annual net profits) of the technology sector continued
to contract during the past year. A year ago, valuations had fallen
back to 24x forward P/E, having earlier made cycle highs of c28x
ahead of the Fed pivot in November 2021. Since then, valuations
have continued to compress against a backdrop of higher risk-free
rates and greater economic uncertainty, with technology stocks
ending the year at c19x forward P/E. However, the calendar year to
date surge in large -- cap technology stocks (against a backdrop of
falling estimates) has seen valuations recover to 27.1x at the time
of writing, ahead of both five (22.4x) and 10 -- year (19.2x)
averages. The premium enjoyed by the sector has also expanded
during 2023 with technology stocks today trading at 1.4x the market
multiple in excess of the post-bubble range of between 0.9-1.3x.
While current ebullience reflects understandable excitement around
AI, the recent recovery in valuations may leave the sector
vulnerable to near-term setbacks. However, downside risk associated
with full valuations should be considered alongside actual progress
made in AI, which we believe represents a key moment for the
technology sector. It is also worth recalling that during the
dot.com period, the technology sector traded well in excess of
twice the market multiple.
No valuation premium for next-generation stocks
While aggregate sector valuations have fully recovered,
next-generation stocks, particularly within software, have not.
Last year we referenced that valuations were in "price discovery
mode" but the correction proved far more dramatic than we
anticipated. What began as an overdue reset has seen software
valuations fall back to c.6.3x forward EV/sales having peaked at
c.14.8x in late 2020. According to KeyBanc, this leaves them 25%
below the trailing five year average (8.4x) and broadly in line
with the ten-year average (6.6x). This has also recently left next
generation software stocks trading at a small discount to legacy
ones on a forward EV/sales metric.
What pandemic?
The current situation is highly unusual, reflecting a
challenging investment backdrop as well post-pandemic 'demand
normalisation' with many of the vestiges of the pandemic period
being swept away. Reopening has not just challenged 'new' pandemic
categories such as home fitness and telehealth; it has also hurt
existing ones such as online dating and videogaming, while more
durable segments such as e-commerce and payments have had to
contend with decelerating demand and/or increased competition. In
more mature markets, earlier working from home ('WFH')-related
strength has been followed by exceptionally weak demand. This is
most evident in the PC market where an extraordinary 2021 was
followed by a dismal 2022 as units shipped declined by the most
year-on-year since Gartner began tracking PC data. This dynamic has
also played a part in slower cloud and associated software demand
as customers moved to optimise their spending having earlier
migrated aggressively to the cloud. The impact on cloud spending
demonstrates the breadth of readjustment and why it has been so
difficult to avoid the miasma of post-Covid demand
normalisation.
Risk/reward much improved
We hope the largest part of any next-generation valuation reset
is behind us. In the absence of a recession, it is highly likely we
have already seen the valuation lows. While the absence of
strategic M&A remains something of a headscratcher, we are
encouraged by private equity (PE) activity that has picked up
significantly, with Avalara, Coupa, Duck Creek and ForgeRock all
being taken private in recent months. These take-private
transactions were consummated between 6.9-8.9x Enterprise Value/
next 12 months sales - well in excess of where most software stocks
trade today. As the recent (and competitive) bid for Software AG
attests, we expect private equity to remain very active, providing
software valuations with something of a floor. Private equity is
said to have c$2trn of 'dry powder' available while Thoma Bravo (an
investor in more than 420 technology companies over two decades)
raised $32bn across PE funds last year. In January, founder Orlando
Bravo revealed that despite the large fund raise, the selloff in
software stocks meant the opportunity to buy assets was "many,
many, many, many, many multiples of that.
Adopting a slower growth playbook
In the meantime, companies are borrowing from the so -- called
'PE playbook' by recalibrating their businesses to account for
slower growth and earlier disruption -- related exuberance. The
pivot towards profitability is evident from widespread workforce
reductions within the technology sector that have intensified
during 2023, with activist investors such as Starboard helping
drive the focus on greater cost discipline. Epitomised by
restructuring at Salesforce (which announced a 10% headcount
reduction and increased operating margin targets), the unwinding of
erroneous extrapolation of pandemic-related demand has seen layoffs
move from growth-challenged companies to high-flyers like Confluent
and HubSpot. Cost-cutting initiatives have shown positive early
results: the median software company operating margin has expanded
by nine percentage points over the past three quarters, according
to Goldman Sachs.
Nonetheless, revenue growth is slowing just as it did in the
recessions of 1990, 2002 and 2009 as well as during the 2016
deflationary echo. While macroeconomics will likely dictate the
magnitude of the current slowdown, the good news is the best
companies should still grow, just as the median SaaS company grew
18% in 2009 while, in 2002, median maintenance/subscription revenue
growth was 14%. Salesforce was still able to grow revenues 21% in
2009 - impressive given the prevailing macroeconomic conditions -
and therein lies the even better news which is that growth
slowdowns should help us identify more than our fair share of
next-cycle winners. After all, there is nothing like an ordeal to
test strength. In 2009, each of Baidu, Google, MercadoLibre, and
Salesforce. com were able to grow through a financial crisis before
becoming multi-baggers during the following cycle.
Artificial Intelligence
While the macroeconomic backdrop remains highly uncertain, Chief
Information Officer (CIO) spending priorities still align well with
many of our key themes such as digital transformation (software),
cloud and cybersecurity. The portfolio also has several additional
core themes including connectivity/5G, digital advertising/ e --
commerce and EV/energy transition as well as secondary/ emerging
themes such as fintech/ payments. However - as the theme of this
year's Annual Report attests - 2023 belongs to Artificial
Intelligence (AI). We have been excited about the potential of AI
for many years, highlighting the remarkable progress the technology
has made in narrow fields. This was led by Google's DeepMind
acquisition which achieved 'superhuman' ability in games such as Go
(2016) and Chess (2017) before solving one of the grand challenges
in biology during 2021 when AlphaFold was able to predict 3D models
of protein structures described at the time as "the most important
achievement in AI ever".
That lasted until ChatGPT used a transformer model trained on
175Tb of text to generate human-like responses to seemingly any
question. Able to take on different personas, write poems or
programming code, even offer opinions, ChatGPT is already the first
AI to "viably compete with humans". This is likely to prove a
pivotal moment for AI with Microsoft's $10bn investment in ChatGPT
maker OpenAI best understood as one of the 'opening shots' in an AI
war that has just commenced. We have long argued that the
semiconductor industry looks well positioned, with McKinsey arguing
this sector might capture as much as 40-50% of the value associated
with AI. This view was seemingly supported following recent
record-breaking July quarter guidance from chipmaker Nvidia that
was more than 50% ahead of consensus driven by AI-related strength.
On the earnings call, CEO Jensen Huang spoke to a $1trn opportunity
over ten years to replace CPU-based infrastructure with more
efficient, accelerated computing based around GPU architectures as
generative AI becomes the "primary workload of most of the world's
data centres". Nvidia stock rose 24% on the day, despite having
already gained 109% on a year-to-date basis prior to the
report.
Of course, there are myriad risks associated with AI, many of
which are beyond the scope of this report. However, the fact that
ChatGPT makes mistakes (socalled 'hallucinations') is not one of
them; most disruptive technologies begin as 'good enough' and
trading accuracy for speed worked wonders for the telegraph,
Encyclopaedia Britannica, and the biro. Moral and legal questions
posed by AI are more difficult to dismiss, especially those
regarding bias and the potential for it to "industrialise
plagiarism". While eventual regulation of AI seems inevitable, the
industry would likely welcome the introduction of legislative
guardrails. However, this will not be straightforward; rather than
a restrictive set of regulations applied suddenly, we believe
regulation may follow a 'governance by accident' approach that has
underpinned the development of the airline industry; if aviation is
any guide, it is possible that by reducing risk, regulation
actually accelerates the adoption of AI, rather than stymies its
progress.
As such, the focus on regulation - so soon after the advent of
generative AI - might say more about investor fatigue around
'technology disruption' than it does about the risk regulation
poses to the development of this nascent industry. This is
understandable, following a period that has witnessed more than its
fair share of investment hyperbole, much of which was catalysed by
the pandemic. In contrast with blockchain and the metaverse - early
stage technologies in search of a problem - artificial intelligence
might be "the most profound technology humanity is working on".
From a historical perspective, generative AI could prove another
key moment in human history when codification and dissemination of
knowledge is accelerated. In the ancient world, these included the
development of writing systems (such as cuneiform and
hieroglyphics) around 3500-3000 BCE, as well as advanced
mathematics and philosophy in Ancient Greece from the eight century
BCE onwards. Libraries, historical record-keeping, and translation
of ancient texts were other key developments in the codification
and preservation of knowledge, aided by breakthroughs that enabled
information to be stored (e.g., papyrus, paper), retrieved (e.g.,
cataloguing systems, encyclopaedia) and distributed (e.g.,
libraries, printing press). Advances in science, technology and
communication during the Modern Era have "led to the codification
of knowledge on an unprecedented scale" epitomised by the Internet
which has facilitated knowledge sharing and democratised access to
information in a manner that has changed the world.
Generative AI offers similar- if not greater - promise. Built
using 'foundation' models which contain "expansive neural networks
inspired by the billions of neurons connected in the human brain",
generative AI applications are able to process extremely large and
varied sets of unstructured data and perform more than one task.
This allows them to "augment human creativity, automate
labour-intensive tasks and generate novel solutions to complex
problems". They can also understand natural language which means
that generative AI could "change the anatomy of work" by automating
activities that today account for as much as 60-70% of employees'
time. However, in contrast with historic patterns of technology
automation, disruption is expected to be disproportionately felt by
knowledge workers. While Goldman Sachs estimate that more than 300m
jobs could be at risk, we remain optimistic that humans will
graduate to higher value work just as 60% of workers today are
employed in occupations that did not exist in 1940. Furthermore,
McKinsey forecast that generative AI could deliver $2.6-4.4trn
annually to global GDP driven
by productivity gains that could be as high as 3.3% per annum
when generative AI is combined with other technologies. This would
be remarkable given current labour market tightness, ageing Western
populations and below-average productivity growth achieved during
the past twenty years.
Artificial intelligence also has the potential to become a
transformative 'general purpose technology' (GPT) which -like
electricity, steel, and the internet - may "reshape economies,
drive innovation and create new opportunities". If so, history
suggests that bold, early predictions about AI may prove extremely
conservative. Not just because humans struggle with non-linear
change (an observation that has long informed our investment
approach) but also because as yet unknown technology improvements
subsequently transform the opportunity set. If early applications
for steel were predictable (e.g., bridges, ships, rails), later and
significantly larger market opportunities represented by
skyscrapers, cars and home appliances could not be known in 1855
when Bessemer perfected his steelmaking process. The same was true
for aviation when the jet engine (and other avionic developments)
transformed the cost and safety profile of flight, resulting in
passenger traffic growth compounding by more than 10% per year
between 1950-1970 and helping travel and tourism become one of the
world's largest sectors. More recently, the confluence of internet,
cloud and smartphone has presaged widespread disruption and
exponential change well beyond late 1990s predictions that were
only able to peer into a near and incomplete future that was yet to
feature Google, AWS, and iPhones. Today, the app economy is worth
c.$63trn, more than 60x times greater than the value of the handset
market in 2007, the year that Apple introduced the iPhone.
The impact of generative AI is likely to be felt more rapidly
than either the internet or the smartphone. In part, this reflects
the role that both earlier pervasive technologies will play as
AI-enablers with access to ChatGPT (and other natural language
'chat' interfaces) only requiring an internet connection and a
smartphone. These low barriers to adoption have already supported
an unprecedented rate with ChatGPT taking just 2.5 months to reach
100m users, as compared to Instagram which took 2.5 years (in
itself extraordinary). Another major difference between AI and
prior technology shifts is the astonishing speed of AI improvement.
This is most evident when comparing the capability of two OpenAI
large language models (LLMs) - GPT-4 (the latest version) and the
earlier GPT-3.5 (ChatGPT) released approximately a year apart.
While GPT-3.5 was trained on 175bn parameters (akin to internal
variables the model learns during its training phase), the newer
GPT-4 may have been trained on as many as 170trn. In addition,
GPT-4 also has a much larger context window - 25,000 words vs.
c.3,000 for its predecessor - which means it is able to retain far
more information from earlier conversations. Aside from its
"mastery of natural language", GPT-4 "can solve novel and difficult
tasks that span mathematics, coding, vision, medicine, law,
psychology and more, without needing any special prompting". In all
of these tasks, model performance is "strikingly close to human
level performance", evidenced by consistently high exam scores
across a diverse range of disciplines.
The improvements in GPT-4 have been so remarkable that Microsoft
recently posited in a whitepaper ('Sparks of artificial general
intelligence ("AGI") that the LLM "could reasonably be viewed as an
early version of AGI system". The concept of AGI was popularised in
the early 2000s to differentiate between 'narrow AI' being
developed at the time and "broader notions of intelligence". Until
recently, AGI remained a popular science fiction topic and
long-term aspirational goal within AI. That is until the range and
depth of GPT-4's capabilities "challenge(d) our understanding of
learning and cognition" with the model said to "exhibit many traits
of intelligence". Naysayers argue that large language models do not
'understand' concepts and are merely adept at 'improvising on the
fly'. However, like Microsoft, we believe the question is moot.
After all, one might ask "how much more there is to true
understanding than 'on-the-fly' improvisation?".
Technology Risks
As ever, there are multiple risks to our constructive
medium-term view. Many of these relate to macroeconomics,
particularly recession and inflation, that are covered elsewhere in
this report. As previously highlighted, there remain downside risks
to technology spending should CEO confidence meaningfully
deteriorate. Similarly, earnings estimates are likely to remain
subject to macroeconomic turbulence; while cost-cutting has
ameliorated downward revisions to date, technology margins may be
at risk should things worsen materially. Likewise, a weaker
macroeconomic environment might see the current semiconductor
downturn extend, resulting in delayed industry recovery and/or
result in a disappointing recovery trajectory for cloud spending
which would weigh on cloud-related sentiment.
Valuation is another key risk because the recent surge in
technology stocks has seen aggregate sector valuations revisit
their pandemic highs. While next-generation valuations have already
been meaningfully reset, a steeper yield curve may delay any
recovery in longer duration valuations.
As in previous years, regulation remains a key risk too,
although we are comforted by a divided Congress (making sweeping
legislation unlikely) and the fact that the largest US technology
companies represent the vanguard in the emerging AI battleground
with China. However, deteriorating US-Sino relations represent a
more significant threat to supply chains, especially in
semiconductors. For now, the Chinese appear able to work around US
legislation, suggesting it is more for domestic consumption ahead
of elections, but if this is the beginning of a new economic cold
war, then Taiwan - responsible for producing c90% of leading-edge
semiconductors - represents a critical fault line while a
meaningful escalation of tensions could weigh materially on a large
part of our portfolio.
Potential regulation could also stymie the explosive growth of
Generative AI which has been a key driver of technology returns
during 2023. Conversely, further excitement about Generative AI
might result in large -- cap technology stocks perceived as AI
beneficiaries and safe havens continuing to 'crowd-out' small-cap
companies. We must also acknowledge the risk posed to all
companies: should it become a general purpose technology (GPT) as
we suspect, history suggests there will be far more losers than
winners from today's group of companies within and beyond the
technology sector.
Concentration Risk
In addition to market and sector-specific risks, it would be
remiss of us not to remind our shareholders once again about the
concentration risk both within the Company and the
market-cap-weighted index around which we construct the portfolio.
At the year end our three largest holdings - Apple, Microsoft, and
Alphabet - represented c27% and c41.9% of our NAV and benchmark
(Dow Jones Global Technology Index) respectively. Last year, when
these three positions accounted for 29.2% of NAV and 40.7% our
benchmark respectively, we argued that concentration risk was
justified because they were unique, non-fungible assets that
captured the zeitgeist of this technology cycle. Following another
year of sustained outperformance from these stocks, as well as
several other outsized benchmark positions including Nvidia, we are
pleased to have retained large absolute positions in them all even
if their dominance of our benchmark has meaningfully contributed to
our relative underperformance.
We remain comfortable with the strategy of moving to materially
underweight positions in the largest index constituents should we
become concerned about their growth or return prospects, or should
we find more attractive risk/reward profiles elsewhere in the
market. However, this position is complicated by the fact that
concentration today does not obviously reflect outlandish
valuations as per the late 1990s; the top 10 positions in the
benchmark recently accounted for c55% of constituent market
capitalisation and an estimated 53% of net income in calendar year
2023. Likewise, Apple may have made headlines recently when its
market-cap exceeded that of the Russell 2000 (small-cap) Index, but
remarkably Apple also generates similar profits as those 2,000
companies combined. The emergence of AI also plays well into
mega-caps given the significant scale (reach; data; cost) likely
required to be competitive.
Unlike many of our competitors that are limited to a maximum 10%
in any individual position, PCT is able to hold up to a full
benchmark weight subject to a maximum limit of 15%. While this
gives us more room for manoeuvre - and fewer excuses for
underperformance - we rarely exceed 10% in individual stocks, and
when we do, it is often via a smaller equity position held in
combination with a slither of call options designed to ameliorate
upside risk in exchange for a modest premium. Having been very
clear with shareholders that we do not invest in certain types of
stock (including private, value and those likely to require
capital) perhaps this isa good opportunity to make it equally clear
that we are unlikely to hold individual positions much above 10%
even when they are as unique as Apple and Microsoft. If this sounds
at odds with our 'benchmark-aware' approach, it is worth recalling
that this approach has risk reduction at its core. It has helped us
avoid hubris, appropriately size overweight positions while helping
ensure the portfolio reflects the best the index has to offer.
However, benchmark concentration has begun to create a tension
between managing absolute and relative risk. As stewards of your
capital as well as technology investors, we find it very difficult
to argue we are reducing risk by making the portfolio ever more
concentrated. While this may come at the
expense of raw performance and greater relative variance, we
believe a diversified portfolio of growth stocks and themes capable
of outperformance, but also constructed to withstand investment
setbacks will prove superior over the medium term, particularly on
a risk-adjusted basis.
Conclusions
Market conditions in early 2023 lend support to a wide range of
potential outcomes, both good and bad. Macroeconomics will likely
continue to lead the market in the near term, although the primary
debate has shifted somewhat to the timing and magnitude of a
recession and its impact on revenue and earnings estimates, rather
than the extent of the central bank response required to deal with
inflation, as dominated last year. However, the relative
performance of the technology sector - particularly after a strong
run - may continue to take its cue from real rates - a good
reminder that we are not out of the inflation woods yet, and the
need to remain pragmatic (and highly liquid) in terms of portfolio
positioning. While we typically avoid 'value' technology stocks, we
do own companies able to pass on inflation to the consumer should
it remain stubbornly high, even if this is not our base case .
There are two principal reasons for being more constructive on
technology this year: more attractive risk/reward and the rapid
adoption of artificial intelligence. Despite continued near-term
macroeconomic uncertainty and the likelihood of further estimate
cuts, the explosion of interest in AI has been a powerful reminder
of why we remain so excited about our sector over the medium term.
We also know that market narratives can change quickly should
macroeconomic headwinds and/or exogenous risks subside.
Furthermore, the risk/reward from current levels appears better:
next-generation valuations have returned to much more attractive
levels, as previously discussed. Before the recent move higher,
growth internet valuations had reached multi-year lows, on an
EV/NTM EBITDA basis, just as software growth-adjusted EV/sales
multiples sat at 10-year lows. According to Morgan Stanley, at the
beginning of 2023 80% of their software sector coverage was trading
below 8.6x EV/forward sales - the median private equity takeout
multiple since 2013. The semiconductor sector (SOX) had also
meaningfully derated, by more than -40% from its recent highs at
year end, against an average cycle decline of -26% over the past
seven years. Positioning has improved too, although investor
pessimism towards technology at the start of the calendar year has
been ameliorated by its relative stability amid travails within US
banking, combined with AI-related excitement.
The combination of better than expected first-quarter results
and a 'flight to safety' (away from financials in favour of
cash-generative mega-cap technology companies) has meant five
technology stocks have driven almost two-thirds of the S&P
500's return year-to-date. An index made up of Apple, Amazon,
Microsoft, Meta Platforms and Google has returned +31% versus the
other 495 S&P 500 constituents' +3% return. For the calendar
year, only 30% of S&P 500 companies have outperformed the
market, a level not seen on a full calendar year basis since 1998
(28%) and 1999 (32%). Within technology, limited breadth is
apparent by the remarkable year-to-date spread between large and
small-cap technology performance (+26%) as well as the difference
between the market-cap weighted NASDAQ 100 Index and an
equally-weighted version of it, which at +11% is the widest spread
seen over any 4.5 month period during the past 18 years.
While we expect the market to broaden, we cannot help but share
the market's excitement about the AI opportunity which - at present
- is most easily accessed via mega-cap stocks primarily within the
semiconductor and cloud computing subsectors. After decades of
unrealised hopes around artificial intelligence, we believe that
generative AI is likely to prove the technology's so-called 'iPhone
moment', the new user interface that sparks mass adoption. Other AI
models will come, compete, and possibly surpass ChatGPT but it
represents the first "hands- on introduction to how powerful modern
AI has got". It has stunned consumers, investors, and companies
alike; the risk and opportunity it poses to established market
shares, consumer behaviour and existing profit pools has ignited a
powerful wave of AI spending. Inevitably there will be technology
casualties from AI disruption, while investors will have to
navigate periods when narrative and fundamentals diverge. However,
the "era of generative AI is just beginning" and our sector has
front row seats for what is likely to be one of the most disruptive
performances of our investment lifetimes.
Ben Rogoff & Ali Unwin
18 July 2023
The Investment Managers' Core Themes and ESG Report from a
corporate and investment perspective are included in the Annual
Report and Accounts
PORTFOLIO REVIEW
As at
As at 30 April
Breakdown of Investments by Region 30 April 2023 2022
------------------------------------- --------------- ----------
US & Canada 72.8% 74.2%
Asia Pacific (ex-Japan) 10.4% 10.2%
Other Net Assets 6.6% 7.9%
Japan 4.4% 3.4%
Europe (inc -UK) 3.9% 2.9%
Middle East & Africa 1.2% 1.4%
Latin America 0.7% 0.0%
Market Capitalisation of Underlying Investments As at As at
30 April 30 April
2023 2022
-------------------------------------------------- ---------- ----------
>$10bn 92.1% 88.0%
$1bn-$10bn 7.5% 11.7%
<$1bn 0.4% 0.3%
All data sourced from Polar Capital LLP.
CLASSIFICATION OF INVESTMENTS*
as at 30 April 2023
Total Total
30 April 30 April
Benchmark
Asia Pacific Weightings
(inc. Middle as at 30
North Europe East) 2023 2022 April 2023
America
(inc.
Latin
America)
% % % % % %
------------------------------------- ---------- ------ ------------- --------- --------- -----------
Software 22.7 0.1 1.3 24.1 27.6 29.0
---------- ------ ------------- --------- --------- -----------
Semiconductors & Semiconductor
Equipment 15.9 3.3 4.8 24.0 22.4 22.6
---------- ------ ------------- --------- --------- -----------
Technology Hardware, Storage
& Peripherals 10.4 - 3.0 13.4 14.6 21.5
---------- ------ ------------- --------- --------- -----------
Interactive Media & Services 9.8 - 1.9 11.7 14.0 15.0
---------- ------ ------------- --------- --------- -----------
IT Services 3.8 - 0.2 4.0 2.3 5.2
---------- ------ ------------- --------- --------- -----------
Broadline Retail 2.5 - 0.8 3.3 - 1.5
---------- ------ ------------- --------- --------- -----------
Financial Services 2.7 0.4 0.2 3.3 - 0.1
---------- ------ ------------- --------- --------- -----------
Electronic Equipment, Instruments
& Components 0.1 - 1.3 1.4 1.6 0.5
---------- ------ ------------- --------- --------- -----------
Communications Equipment 1.4 - - 1.4 1.5 2.6
---------- ------ ------------- --------- --------- -----------
Hotels, Restaurants & Leisure 0.7 - 0.5 1.2 - 0.5
---------- ------ ------------- --------- --------- -----------
Automobiles 0.5 - 0.6 1.1 1.6 -
---------- ------ ------------- --------- --------- -----------
Entertainment 1.0 - - 1.0 1.2 0.6
---------- ------ ------------- --------- --------- -----------
Healthcare Equipment & Supplies 0.5 - 0.5 1.0 0.6 -
---------- ------ ------------- --------- --------- -----------
Ground Transportation 0.9 - - 0.9 - -
---------- ------ ------------- --------- --------- -----------
Machinery - - 0.9 0.9 0.7 -
---------- ------ ------------- --------- --------- -----------
Healthcare Technology 0.4 - - 0.4 - 0.2
---------- ------ ------------- --------- --------- -----------
Aerospace & Defence 0.2 - - 0.2 0.7 -
---------- ------ ------------- --------- --------- -----------
Electrical Equipment - 0.1 - 0.1 0.4 -
---------- ------ ------------- --------- --------- -----------
Internet & Direct Marketing - - - - 2.9 -
Retail
---------- ------ ------------- --------- --------- -----------
Total investments (GBP2,640,177,000) 73.5 3.9 16.0 93.4 92.1
---------- ------ ------------- --------- --------- -----------
Other net assets (excluding
loans) 6.4 0.9 1.1 8.4 9.6
---------- ------ ------------- --------- --------- -----------
Loans (1.0) - (0.8) (1.8) (1.7)
------------------------------------- ---------- ------ ------------- --------- --------- -----------
Grand total (net assets of
GBP2,828,141,000) 78.9 4.8 16.3 100.0 -
---------- ------ ------------- --------- --------- -----------
At 30 April 2022 (net assets
of GBP3,050,985,000) 79.3 5.2 15.5 - 100.0
---------- ------ ------------- --------- --------- -----------
* The classifications are derived from the Benchmark as far as
possible. The categorisation of each investment is shown in the
portfolio available on the Company's website. Where a dash is shown
for the Benchmark it means that the sector is not represented in
the Benchmark. Not all sectors of the Benchmark are shown, only
those in which the Company has an investment at the financial year
end.
FULL PORTFOLIO as at 30 April 2023
% of
Value of holding net assets
30 30 30 30
April April April April
Ranking 2023 2022 2023 2022
--------------------- ----------------------- -------------- ---------- --------- ------- -------
2023 2022 Stock Sector Region GBP'000 GBP'000 % %
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
1 (1) Microsoft Software North America 302,791 336,977 10.7 11.0
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Technology Hardware,
2 (2) Apple Storage & Peripherals North America 284,199 305,244 10.0 10.1
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Interactive
3 (3) Alphabet Media & Services North America 174,388 249,058 6.2 8.2
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
4 (4) Nvidia Equipment North America 130,855 95,065 4.6 3.1
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
Advanced & Semiconductor
5 (5) Micro Devices Equipment North America 94,299 86,045 3.3 2.8
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Samsung Technology Hardware,
6 (6) Electronics Storage & Peripherals Asia Pacific 83,894 82,312 3.0 2.7
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Interactive
7 (11) Meta Platforms Media & Services North America 82,047 54,509 2.9 1.8
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
8 (7) Taiwan Semiconductor Equipment Asia Pacific 61,421 82,012 2.2 2.7
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
9 (10) ServiceNow Software North America 51,884 56,280 1.8 1.8
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
10 (8) ASML Equipment Europe 49,941 59,248 1.8 1.9
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Top 10 investments 1,315,719 46.5
----------------------- -------------- ---------- --------- ------- -------
11 (9) Amazon.com Broadline Retail North America 46,756 57,558 1.7 1.9
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
12 (17) HubSpot Software North America 45,203 38,675 1.6 1.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Communications
13 (13) Arista Networks Equipment North America 38,201 44,318 1.4 1.5
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
14 (16) CrowdStrike Software North America 36,041 39,441 1.3 1.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Interactive
15 (14) Tencent Media & Services Asia Pacific 35,666 43,880 1.3 1.4
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
16 (15) KLA-Tencor Equipment North America 35,072 39,816 1.2 1.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
17 (24) Mastercard Financial Services North America 34,908 26,330 1.2 0.9
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Palo Alto
18 (41) Networks Software North America 34,847 18,479 1.2 0.6
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
19 (-) Analog Devices Equipment North America 33,975 - 1.2 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
Infineon & Semiconductor
20 (77) Technologies Equipment Europe 33,792 6,891 1.2 0.2
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Top 20 investments 1,690,180 59.8
----------------------- -------------- ---------- --------- ------- -------
21 (60) Workday Software North America 33,429 11,557 1.2 0.4
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
22 (38) Visa Financial Services North America 33,156 19,629 1.2 0.6
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
23 (21) Qualcomm Equipment North America 32,525 32,622 1.1 1.0
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
Monolithic & Semiconductor
24 (35) Power Systems Equipment North America 32,453 20,305 1.1 0.7
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
25 (45) Cloudflare IT Services North America 29,973 15,864 1.0 0.5
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
26 (51) Shopify IT Services North America 29,497 13,251 1.0 0.4
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
27 (42) Salesforce.com Software North America 27,910 18,315 1.0 0.6
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
28 (49) Snowflake IT Services North America 27,622 13,973 1.0 0.5
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
29 (80) Disco Corporation Equipment Asia Pacific 26,960 6,256 1.0 0.2
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
30 (-) Uber Technologies Ground Transportation North America 25,788 - 0.9 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Top 30 investments 1,989,493 70.3
----------------------- -------------- ---------- --------- ------- -------
CyberArk
31 (34) Software Software Asia Pacific 24,330 21,721 0.9 0.7
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Electronic Equipment,
Instruments
32 (73) Keyence & Components Asia Pacific 23,561 8,251 0.8 0.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
33 (28) Tokyo Electron Equipment Asia Pacific 23,016 23,889 0.8 0.8
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
34 (40) Alibaba Broadline Retail Asia Pacific 22,333 18,888 0.8 0.6
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
35 (50) MongoDB IT Services North America 22,107 13,343 0.8 0.5
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
36 (-) MercadoLibre Broadline Retail North America 20,965 - 0.8 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
Lattice & Semiconductor
37 (26) Semiconductor Equipment North America 20,572 24,788 0.7 0.8
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
38 (-) Dynatrace Software North America 19,644 - 0.7 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
39 (47) ON Semiconductor Equipment North America 19,534 14,451 0.7 0.5
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Hotels, Restaurants
40 (37) Airbnb & Leisure North America 19,073 19,708 0.7 0.7
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Top 40 investments 2,204,628 78.0
----------------------- -------------- ---------- --------- ------- -------
41 (-) Confluent Software North America 18,140 - 0.6 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
42 (72) Roblox Entertainment North America 17,444 8,655 0.6 0.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Interactive
43 (-) Baidu Media & Services Asia Pacific 16,616 - 0.6 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
44 (32) BYD Automobiles Asia Pacific 15,976 23,080 0.6 0.7
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Hotels, Restaurants
45 (-) Trip.Com & Leisure Asia Pacific 15,415 - 0.5 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Interactive
46 (-) Pinterest Media & Services North America 15,134 - 0.5 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
eMemory & Semiconductor
47 (56) Technology Equipment Asia Pacific 14,524 12,388 0.5 0.4
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Healthcare Equipment
48 (71) Hoya & Supplies Asia Pacific 14,264 8,746 0.5 0.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
Marvell & Semiconductor
49 (18) Technology Equipment North America 13,879 38,601 0.5 1.2
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
50 (23) Tesla Motors Automobiles North America 13,358 26,891 0.5 0.9
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Top 50 investments 2,359,378 83.4
----------------------- -------------- ---------- --------- ------- -------
Intuitive Healthcare Equipment
51 (-) Surgical & Supplies North America 13,230 - 0.5 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
52 (44) Smartsheet Software North America 13,018 16,414 0.5 0.5
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Harmonic
53 (78) Drive Systems Machinery Asia Pacific 12,777 6,430 0.5 0.2
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
54 (64) Paycom Software Software North America 12,567 10,780 0.4 0.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
55 (-) Adyen Financial Services Europe 12,348 - 0.4 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
56 (66) Atlassian Software Asia Pacific 12,039 9,414 0.4 0.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Electronic Equipment,
Instruments
57 (39) E Ink & Components Asia Pacific 12,028 19,235 0.4 0.6
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
58 (68) Kinaxis Software North America 11,909 9,169 0.4 0.3
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Technology Hardware,
59 (36) Pure Storage Storage & Peripherals North America 10,694 19,712 0.4 0.7
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
60 (83) Intuit Software North America 10,538 5,521 0.4 0.2
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Top 60 investments 2,480,526 87.7
----------------------- -------------- ---------- --------- ------- -------
61 (-) Veeva Systems Healthcare Technology North America 10,390 - 0.4 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
62 (-) Activision Entertainment North America 10,372 - 0.4 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
63 (58) SiTime Equipment North America 9,912 11,860 0.4 0.4
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
64 (-) ASM International Equipment Europe 9,614 - 0.3 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
65 (-) Flywire Financial Services North America 9,503 - 0.3 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
66 (30) Elastic Software North America 9,134 23,453 0.3 0.8
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
SolarEdge & Semiconductor
67 (55) Technologies Equipment Asia Pacific 8,976 12,519 0.3 0.4
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
Enphase & Semiconductor
68 (-) Energy Equipment North America 8,577 - 0.3 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
69 (-) First Solar Equipment North America 7,708 - 0.3 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
70 (-) Teradyne Equipment North America 7,012 - 0.2 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Top 70 investments 2,571,724 90.9
----------------------- -------------- ---------- --------- ------- -------
Fuji Machine
71 (75) Manufacturing Machinery Asia Pacific 5,680 7,403 0.2 0.2
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Interactive
72 (48) TripAdvisor Media & Services North America 5,535 14,362 0.2 0.5
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
73 (-) Nabtesco Machinery Asia Pacific 5,533 - 0.2 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Aerospace &
74 (33) Axon Enterprise defence North America 5,357 21,985 0.2 0.7
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
GMO Payment
75 (-) Gateway Financial Services Asia Pacific 5,224 - 0.2 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
76 (92) Zuken IT Services Asia Pacific 5,187 3,081 0.2 0.1
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
77 (-) Freshworks Software North America 4,659 - 0.2 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
78 (46) Power Integrations Equipment North America 4,388 14,930 0.2 0.5
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
79 (-) GitLab Software North America 4,063 - 0.2 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
80 (-) Darktrace Software Europe 4,039 - 0.1 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Top 80 investments 2,621,389 92.8
----------------------- -------------- ---------- --------- ------- -------
Semiconductors
& Semiconductor
81 (90) Impinj Equipment North America 4,012 3,417 0.1 0.1
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
82 (-) Braze Software North America 3,668 - 0.1 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Electronic Equipment,
Instruments
83 (-) Cognex & Components North America 3,471 - 0.1 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Electronic Equipment,
Instruments
84 (93) Seeing Machines & Components Asia Pacific 3,265 2,894 0.1 0.1
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
85 (59) Ceres Power Electrical Equipment Europe 2,703 11,569 0.1 0.4
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
86 (-) HashiCorp Software North America 1,668 - 0.1 -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Electronic Equipment,
Cermetek Instruments
87 (96) Microelectronics & Components North America 1 1 - -
----- --------------------- ----------------------- -------------- ---------- --------- ------- -------
Total equities 2,640,177 93.4
--------------------- --------------------------------------------------- ------------------
Other net
assets 187,964 6.6
--------------------- --------------------------------------------------- ------------------
Total net
assets 2,828,141 100.0
--------------------- --------------------------------------------------- ------------------ -------
Note: Asia Pacific includes Middle East and North America
includes Latin America.
STRATEGIC REPORT
This report has been provided in accordance with The Companies
Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
The aim of this report is to provide information to shareholders on
the Company's strategy and the potential for such to succeed,
including a fair review of the Company's performance during the
year ended 30 April 2023, the position of the Company at the year
end and a description of the principal risks and uncertainties,
including both economic and business risk factors underlying any
such forward-looking information.
Business Model and Regulatory Requirements
The Company's business model follows that of an externally
managed investment trust providing shareholders with access to an
actively managed portfolio of technology shares selected on a
worldwide basis.
The Company is designated as an Alternative Investment Fund
('AIF') under the Alternative Investment Fund Management Directive
('AIFMD') and, as required by the Directive, has contracted with
Polar Capital LLP to act as the Alternative Investment Fund Manager
('AIFM') and Investment Manager (or 'Manager') and HSBC Bank Plc to
act as the Depositary.
Both the AIFM and the Depositary have responsibilities under
AIFMD for ensuring that the assets of the Company are managed in
accordance with the Investment Policy and are held in safe custody.
The Board remains responsible for setting the investment strategy
and operational guidelines as well as meeting the requirements of
the FCA's Listing Rules and the Companies Act 2006.
The AIFMD requires certain information to be made available to
investors in AIFs before they invest and requires that material
changes to this information be disclosed in the Annual Report of
each AIF. Investor Disclosure Documents, which set out information
on the Company's investment strategy and policies, leverage, risk,
liquidity, administration, management, fees, conflicts of interest
and other shareholder information are available on the Company's
website.
There have been no material changes to the information requiring
disclosure. Any information requiring immediate disclosure pursuant
to the AIFMD will be disclosed to the London Stock Exchange.
Statements from the Depositary and the AIFM can be found on the
Company's website.
Investment Objective and Policy
While observing the Dow Jones Global Technology Index (total
return, Sterling adjusted, with the removal of relevant withholding
taxes) as the Benchmark against which NAV performance is measured,
shareholders should be aware that the portfolio is actively managed
and is not designed to track any particular benchmark index or
market. The performance of the portfolio can vary from the
Benchmark performance, at times considerably.
Over recent decades the technology industry has been one of the
most vibrant, dynamic and rapidly growing segments of the global
economy. Technology companies offer the potential for substantially
faster earnings growth than the broader market.
Investments are selected for their potential shareholder
returns, not on the basis of technology for its own sake. The
Investment Manager believes in rigorous fundamental analysis and
focuses on:
-- management quality;
-- the identification of new growth markets;
-- the globalisation of major technology trends; and
-- exploiting international valuation anomalies and sector volatility.
Changes to Investment Policy
Any material change to the Investment Policy will require the
approval of the shareholders by way of an ordinary resolution at a
general meeting. The Company will promptly issue an announcement to
inform shareholders and the public of any change to its Investment
Policy. No changes to the Investment Policy are presently
anticipated.
Investment Strategy Guidelines and Board Limits
The Board has established guidelines for the Investment Manager
in pursuing the Investment Policy. The Board uses these guidelines
to monitor the portfolio's exposure to different geographical
markets, sub-sectors within technology and the spread of
investments across different market capitalisations.
These guidelines are kept under review as cyclical changes in
markets and new technologies will bring certain sub-sectors or
companies of a particular size or market capitalisation into or out
of favour.
Asset Allocation
Technology may be defined as the application of scientific
knowledge for practical purposes and technology companies are
defined accordingly. While this offers a very broad and dynamic
investing universe and covers many different companies, the
portfolio of the Company (the 'Portfolio') is focused on companies
which use technology or which develop and supply technological
solutions as a core part of their business models. This includes
areas as diverse as information, media, communications,
environmental, healthcare, finance, e-commerce and renewable
energy, as well as the more obvious applications such as computing
and associated industries.
The Board has agreed a set of parameters which seek to ensure
that investment risk is spread and diversified. The Board believes
that this provides the necessary flexibility for the Investment
Manager to pursue the Investment Objective, given the dynamic and
rapid changes in the field of technology, while maintaining a
spread of investments.
Market Parameters
With current and foreseeable investment conditions, the
Portfolio will be invested in accordance with the Investment
Objective and Policy across worldwide markets, generally within the
following ranges:
-- North America up to 85%.
-- Europe up to 40%.
-- Japan and Asia up to 55%.
-- Rest of the world up to 10%.
The Board has set specific upper exposure limits for certain
countries where they believe there may be an elevated risk. As
reported last year, the Company does not hold stocks in Russia and
has no intention of doing so in the near future.
The Company will at all times invest and manage its assets in a
manner that is consistent with spreading investment risk and
invests in a Portfolio comprised primarily of international quoted
equities which is diversified across both regions and sectors.
Investment Limits
In applying the Policy, the Company will satisfy the following
investment restrictions:
-- The Company's interest in any one company will not exceed 10%
of the gross assets of the Company, save where the Benchmark
weighting of any investee company in the Company's portfolio
exceeds this level, in which case the Company will be permitted to
increase its exposure to such investee company up to the Benchmark
'neutral' weighting of that company or, if lower, 15% of the
Company's gross assets.
-- The Company will have a maximum exposure to companies listed
in emerging markets (as defined by the MSCI Emerging Markets Index)
of 25% of its gross assets.
-- The Company may invest in unquoted companies from time to
time, subject to prior Board approval. Investments in unquoted
companies in aggregate will not exceed 10% of the gross assets of
the Company.
Such limits are measured at the time of acquisition of the
relevant investment and whenever the Company increases the relevant
holding.
In addition to the restrictions set out above, the Company is
subject to Chapter 15 of the FCA's Listing Rules which apply to
closed ended investment companies with a premium listing on the
Official List of the London Stock Exchange.
In order to comply with the current Listing Rules, the Company
will not invest more than 10% of its total assets at the time of
acquisition in other listed closed ended investment funds, whether
managed by the Investment Manager or not. This restriction does not
apply to investments in closed ended investment funds which
themselves have published investment policies to invest no more
than 15% of their total assets in other listed closed ended
investment funds. However, the Company will not in any case invest
more than 15% of its total assets in other closed ended investment
funds.
Cash, Borrowings (Gearing) and Derivatives
The Company may borrow money to invest in the Portfolio over
both the long and short-term. Any commitment to borrow funds is
agreed by the Board and the AIFM.
The Investment Manager may also use from time-to-time derivative
instruments, as approved by the Board, such as financial futures,
options, contracts-for-difference and currency hedges. These are
used for the purpose of efficient portfolio management. Any such
use of derivatives will be made in accordance with the Company's
policies on spreading investment risk as set out in this investment
policy and any leverage resulting from the use of such derivatives
will be subject to the restrictions on borrowings.
Cash
The Company may hold cash or cash equivalents if the Investment
Manager feels that these will, at a particular time or over a
period, enhance the performance of the Portfolio. The Board has
agreed that management of cash may be achieved through the purchase
of appropriate government bonds, money market funds or bank
deposits depending on the Investment Manager's view of the
investment opportunities and the benefits of diversification.
Gearing and Derivatives
The Company's Articles of Association permit borrowings up to
the amount of its paid-up share capital plus capital and revenue
reserves. The Company may use gearing in the form of bank loans
which are used on a tactical basis by the Investment Manager, when
considered appropriate. The Board monitors the level of gearing
available to the Portfolio Manager and agrees, in conjunction with
the AIFM, all bank facilities in accordance with the Investment
Policy. The Board approves and controls all bank facilities and any
net borrowings over 20% of the Company's net assets at the time of
draw down will only be made after approval by the Board.
During the year the Company had two loan facilities with ING
Bank NV: One for 36m US Dollars at a fixed rate of 5.43% pa and one
for 3.8bn Japanese Yen at a fixed rate of 1.13% pa, both of which
were drawn down on 30 September 2022. These loans fall due for
repayment on 30 September 2024. The loan facilities will be
reviewed and may be replaced on expiry.
Details of the loans are set out in Note 17 to the Financial
Statements.
The Investment Manager's use of derivatives is monitored by the
Board in accordance with the Company's investment policy and any
leverage from the use of such derivatives will be subject to the
restriction on gearing.
Future Developments
The Board remains positive on the longer-term outlook for
technology and the Company will continue to pursue its Investment
Objective. The outlook for future performance is dependent to a
significant degree on the world's financial markets and their
reactions to economic events and other geopolitical forces. In
accordance with the Articles of Association, the Board will propose
the next five-yearly continuation vote of the Company at the Annual
General Meeting to be held in September 2025. The Chair's Statement
and the Investment Manager's Report comment on the outlook.
Dividends
The Company's revenue varies from year to year and the Board
considers the dividend position each year in order to maintain the
Company's status as an investment trust. The revenue reserve
remains in deficit and historically the Company has not paid
dividends given its focus on capital growth.
The Directors do not recommend, for the year under review, the
payment of a dividend (2022: no dividend recommendation).
Service Providers
Polar Capital LLP has been appointed to act as the Investment
Manager and AIFM as well as to provide or procure company
secretarial services, marketing and website services which it
arranges through Huguenot Limited, and administrative services,
including accounting, portfolio valuation and trade settlement
which it has arranged to deliver through HSBC Securities Services
('HSS' or 'the Administrator').
The Company also contracts directly, on terms agreed
periodically, with a number of third parties for the provision of
specialist services. The cost of the services outlined below are
paid for directly by the Company and are separate from the
Investment Management Fee payable to Polar Capital:
-- Stifel Nicolaus Europe Limited as Corporate Broker;
-- Equiniti Limited as Share Registrars;
-- HSBC Securities Services as Custodian and Depositary;
-- RD:IR for Investor Relations and Shareholder Analysis;
-- Camarco as PR advisors; and
-- Perivan Limited as designers and printers for shareholder communications.
Investment Management Company and Management of the
Portfolio
As the Company is an investment vehicle for shareholders, the
Directors have sought to ensure that the business of the Company is
managed by a leading specialist investment management team and that
the investment strategy remains attractive to shareholders. The
Directors believe that a strong working relationship with the
investment management team will help to achieve the optimum return
for shareholders. As such, the Board and the Investment Manager
operate in a supportive, co-operative and open environment.
The Investment Manager is Polar Capital LLP ('Polar Capital'),
which is authorised and regulated by the Financial Conduct
Authority, to act as Investment Manager and AIFM of the Company
with sole responsibility for the discretionary management of the
Company's assets (including uninvested cash) and sole
responsibility to take decisions as to the purchase and sale of
individual investments. The Investment Manager also has
responsibility for asset allocation within the limits of the
investment policy and guidelines established and regularly reviewed
by the Board, all subject to the overall control and supervision of
the Board.
Polar Capital provides a team of technology specialists led by
Ben Rogoff. Each team member focuses on specific areas while Ben
Rogoff, with Alastair Unwin as Deputy, has overall responsibility
for the portfolio. Polar Capital also has other specialist and
geographically focused investment teams which may contribute to
idea generation. The technology investment team's biographies can
be found in the Annual Report and Accounts. The Investment Manager
has other investment resources which support the investment team
and has experience in administering and managing other investment
companies.
Fee Arrangements
Under the terms of the Investment Management Agreement, the
Company pays to the Investment Manager a base fee, and in certain
performance circumstances, a performance fee.
Management Fee
With effect from 1 May 2022, the base management fee paid by the
Company monthly in arrears to the Manager is calculated on the
daily Net Asset Value ('NAV') as follows:
-- Tier 1: 0.80 per cent. for such of the NAV up to and including GBP2bn;
-- Tier 2: 0.70 per cent. for such of the NAV between GBP2bn and GBP3.5bn; and
-- Tier 3: 0.60 per cent. for such of the NAV above GBP3.5bn.
Any investment in funds managed by Polar Capital are wholly
excluded from the base management fee calculation. Management fees
of GBP21,918,000 (2022: GBP28,281,000) have been paid for the year
to 30 April 2023 of which GBP1,827,000 (2022: GBP6,374,000) was
outstanding at the year end.
Under the terms of the IMA the Board may undertake a
three-yearly review of the fee arrangements, the next of which will
commence in 2025, with the anticipation that any changes proposed
and subsequently agreed will take effect from the start of the
following financial year.
Further details on the performance fee methodology and
calculation are provided within the Shareholder Information section
of the Annual Report and Accounts.
LONG-TERM VIABILITY
In accordance with the AIC Code of Corporate Governance, the
Company is required to make a forward-looking longer-term viability
statement. The Board has considered and addressed the ability of
the Company to continue to operate over a period significantly
beyond the twelve-month period required for the going concern
statement. The Board has considered the industry and market in
which the Company operates and believes that despite the market
volatility experienced during the financial year under review,
there continues to be appetite for technology investment. The Board
continues to use five years as a reasonable term over which the
viability of the Company should be viewed; Shareholders have the
opportunity to vote on the continuation of the Company every five
years, therefore the outlook for the next five-year period
incorporates the continuation vote which will be put to
shareholders at the AGM in 2025. The process and matters considered
in establishing the longer-term viability are detailed within the
Audit Committee Report in the Annual Report and Accounts. In
establishing the positive outlook for the Company over the next
five years to 30 April 2028, the Board has taken into account:
The ability of the Company to The assessment took account of
meet its liabilities as they the Company's current financial
fall due position, its cash flows and
its liquidity position, the principal
risks as set out in the Strategic
Report and the Committee's assessment
of any material uncertainties
and events that might cast significant
doubt upon the Company's ability
to continue as a going concern.
The assessment was then subject
to a sensitivity analysis over
a five-year period, which stress
tested a number of the key assumptions
underlying the forecasts both
individually and in aggregate
for normal, favourable and stressed
conditions and considered whether
financing facilities will be
renewed.
The portfolio comprises a spread
of investments by size of company,
traded on major international
stock exchanges.
99.8% of the current portfolio
could be liquidated within seven
trading days and there is no
expectation that the nature of
the investments held within the
portfolio will be materially
different in future.
The expenses of the Company are
predictable and modest in comparison
with the assets and there are
no capital commitments foreseen
which would alter that position.
The ongoing charges of the Company
for the year ended 30 April 2023
(excluding performance fees)
were 0.81% (2022: 0.84%).
Repayment of the bank facilities,
drawn down at the year end, and
due in September 2024, would
equate to approximately 21% of
the cash or cash equivalents
available to the Company at 30
April 2023, without having to
liquidate the portfolio of investments.
The Company has no employees
and consequently does not have
redundancy or other employment
related liabilities or responsibilities.
The Company will propose a resolution Under the AIC SORP, where Shareholders
on the continuation of the Company have the opportunity to vote
at the AGM in September 2025 in favour or against a company
continuing in existence, it will
normally be the case that Shareholders
will have to vote in favour of
a liquidation before it can occur.
It is reasonable to believe that
if positive long-term performance
is achieved over the period until
the next continuation vote shareholders
will vote in favour of continuation.
------------------------------------------
Factors impacting the forthcoming The Investment Manager's Report
years and the Strategic Report provide
a comprehensive review of factors
which may impact the Company
in forthcoming years. In making
its assessment, the Board considered
these factors alongside the Principal
Risks and Uncertainties, and
their corresponding mitigation
and controls, in the Annual Report
and Accounts.
------------------------------------------
Regulatory changes Despite the increased level of
regulation and the unpredictability
of future requirements it is
considered that regulation will
not increase to a level that
makes the running of the Company
uneconomical in comparison to
other competitive products.
------------------------------------------
Closed-ended Investment Funds It is believed that the business
model of being a closed ended
investment fund will continue
to be wanted by investors and
the Investment Objective will
continue to be desired and achievable.
------------------------------------------
Further, the Board recognises that there has been significant
progress made in the technology sector and immense change in what
is deemed to be a technology company which broadens the universe
for potential investment. Technology remains a specialist sector
for which there continues to be a need for independent specialist
sector investment expertise. The Board therefore have a reasonable
expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the five years to 30
April 2028.
GOING CONCERN
The Board has also considered the ability of the Company to
adopt the Going Concern basis for the preparation of the Financial
Statements.
Consideration included the Company's current financial position,
its liquidity position and its assessment. In addition, the
Company's cash flows were stressed tested for base case and
reasonable worse case scenarios such as higher inflation and
interest rate increases. Further detail on the assessment for going
concern is provided in the Report of the Audit Committee and in
Note 2(a) of the Financial Statements.
KEY PERFORMANCE INDICATORS
The Board appraises the performance of the Company and the
Investment Manager as the key supplier of services to the Company
against Key Performance Indicators ('KPIs'). The objectives of the
KPIs comprise both specific financial and shareholder related
measures and these KPIs have not differed from the prior year.
KPI Control process Outcome
The provision of investment The Board reviews the At 30 April 2023 the
returns to shareholders performance of the total net assets of
measured by long-term portfolio in detail the Company amounted
NAV growth and relative and hears the views to GBP2,828,141,000
performance against of the Investment Manager (2022: GBP3,050,985,000).
the at each meeting. The Company's NAV has,
Benchmark. over the year to 30
The Board discusses April 2023, underperformed
The Board is aware the market factors the Benchmark by 5.7%.
of the vulnerability giving rise to any The NAV per share fell
of a sector specialist discount or premium, by 2.8% from 2305.13p
investment trust to the long or short-term to 2239.48p while the
a change in investor nature of those factors Benchmark increased
sentiment to that sector. and the overall benefit 2.9% in Sterling terms
to Shareholders of over the same period.
any actions. The market As at 30 April 2023
liquidity is also considered the portfolio comprised
when authorising the 87 (2022: 96) investments.
issue or buy back of
shares when appropriate Investment performance
market conditions prevail. is explained in the
Chair's Statement and
the Investment Manager's
Report. The performance
of the Company over
the longer-term is
shown by the ten year
historic performance
chart in the Annual
Report and Accounts.
------------------------------- --------------------------------------------
Monitoring and reacting The Board receives The discount/premium
to issues created by regular information of the ordinary share
the discount or premium on the composition price to NAV per ordinary
of the ordinary share of the share register share (diluted
price to the NAV per including trading when appropriate) has
ordinary share with patterns and discount/premium been as follows:
the aim of reduced levels of the Company's Financial year to 30
discount volatility ordinary shares. April 2023
for Shareholders. -- Minimum discount
A daily NAV per share, over year: 5.55%
diluted when appropriate, -- Maximum discount
calculated in accordance over year: 17.28%
with the AIC guidelines, -- Average discount
is issued to the London over year: 11.85%
Stock Exchange.
In the year ended 30
The Company does not April 2023, the Company
have an absolute target bought back 6,070,882
discount level at which ordinary shares (representing
it buys back shares 4.4% of the issued
but has historically share capital) at an
bought back significant average discount of
amounts of the outstanding 11.95%, Subsequent
share capital when to the year end and
deemed appropriate to 13 July 2023, the
and will continue to Company bought back
do so. This approach a further 1,229,369
does not preclude a shares.
more active approach
as discounts widen Over the previous five
and the Investment financial years ended
Manager may consider 30 April 2023
that a single purchase * Maximum premium over period: 6.06%
or a series of purchases
of shares in current
or greater volumes, * Maximum discount over period: 17.28%
which would
enhance the Company's
NAV per share, would * Average discount over period: 6.52%
be an attractive investment
of the Company's cash
resources, given the
positive long-term Over the previous five
prospects for the Company's financial years ended
portfolio. As always, 30 April 2023 the Company
the Board keeps the has issued 3,520,000
level of discount under Ordinary shares as
careful review and a result of market
has been buying back demand.
shares actively in
recent months at levels
set out in the adjacent
column.
------------------------------- --------------------------------------------
To qualify and continue The Board receives This has been achieved
to regular financial information for every year since
meet the requirements which discloses the launch in 1996.
for Sections 1158 and current and projected
1159 of the Corporation financial position HMRC has approved the
Tax Act 2010 of the Company against investment trust status
('investment trust each of the tests set subject to the Company
status'). out continuing to meet
in Sections 1158 and the relevant eligibility
1159. conditions and ongoing
requirements.
The Directors believe
that the tests have
been met in the financial
year ended 30 April
2023 and will continue
to be met.
------------------------------- --------------------------------------------
Efficient operation The Board considers The Board has received
of the Company with annually the services and considered satisfactory
appropriate investment provided by the Investment the internal controls
management resources Manager, both investment report of the Investment
and services from third and administrative, Manager and other key
party suppliers within and reviews on a cycle suppliers including
a stable and risk-controlled the provision and costs contingency arrangements
environment. of services provided to facilitate the ongoing
by third parties. operations of the Company
in the event of withdrawal
The annual operating or failure of services.
expenses are reviewed
and any non-recurring The ongoing charges
project related expenditure of the Company for
is approved separately the year ended 30 April
by the Board. 2023 excluding the
performance fee were
0.81% of net assets
(2022: 0.84%). There
was no performance
fee payable for the
year ended 30 April
2023 (2022: nil) and
therefore the ongoing
charges including the
performance fee were
0.81% (2022: 0.84%)
of net assets.
------------------------------- --------------------------------------------
PRINCIPAL RISKS AND UNCERTAINTIES
The Board is responsible for the management of risks faced by
the Company and, through delegation to the Audit Committee, has
established procedures to manage risk, oversee the internal control
framework and determine the nature and extent of the principal
risks the Company is willing to take in order to achieve its
long-term strategic objectives.
The established risk management process the Company follows,
identifies and assesses various risks, their likelihood, and
possible severity of impact, considering both internal and external
controls and factors that could provide mitigation. A post
mitigation risk impact score is then determined for each principal
risk.
At each Audit Committee, identified principal risks are reviewed
and reassessed against the backdrop of the ever-changing world the
Company is operating in. Furthermore, the Audit Committee carries
out, at least annually, a robust assessment of overall risks and
uncertainties faced by the Company with the assistance of the
Investment Manager. As part of this process, the Committee also
identifies any emerging risks during its review process and
continues to closely monitor these risks along with any other
emerging risks as they develop and implements mitigating actions as
necessary. Emerging risks during the financial year under review
included Climate change as well as the deterioration of relations
between China and Taiwan and the impact that a war between the two
countries may have on the Company's portfolio, the market and
global economy. This has also been captured in our risk map as an
emerging risk. The medium and longer term impacts of this risk will
continue to be assessed by the Audit Committee in light of how they
may affect the Company's portfolio and the economic and
geopolitical environment in which the Company operates.
The Principal Risks post mitigation are detailed on the
following pages along with a high-level summary of their management
through mitigation and status arrows to indicate any change in
assessment over the past financial year.
Management of risks through Mitigation & Controls
PORTFOLIO RISK Trend
year
on yea
r
-------------------
Failure to achieve investment objective due to poor performance
-------------------
The Board seeks to manage the impact of such risks through
regular reporting and monitoring of investment performance.
In addition, the Board regularly considers, the level of
premium and discount of the share price to the NAV and ways
to enhance shareholder value including share issuance and
buy backs.
A detailed annual review of the investment strategy is undertaken
by the Investment Manager with the Board including analysis
of investment markets and sector trends.
The Board is committed to a clear communication program
to ensure shareholders understand the investment strategy.
A resolution is put forward every five years to provide
shareholders with an opportunity to vote on the continuation
of the Company. The last continuation vote was held in September
2020 and had 100% of votes cast in favour, the next continuation
resolution will be proposed at the AGM to be held in September
2025.
Given the market volatility experienced during the year
under review and the increased timeframe over which the
Company's performance has suffered, the Board agreed to
hold this risk at the elevated level following the Company's
year-end.
-------------------
Portfolio management errors e.g. breach of policy
-------------------
Investment limits and restrictions are encoded into the
dealing and operations systems of the Investment Manager
and various oversight functions are undertaken to ensure
there is early warning of any potential issue of compliance
or regulatory matters.
The Investment Manager on behalf of the Company undertakes
counterparty monitoring and only trades with brokers which
have satisfied the approval process. Trade settlement, currency
exposure and all dealing operations are monitored by various
systems and groups including the Investment Manager's operations
and risk teams and independent monitoring by the depositary.
-------------------
OPERATIONAL RISK
-------------------
Failure in services provided by the Investment Manager
-------------------
The Board carries out an annual review of internal control
reports from suppliers which includes the Investment Manager's
cyber protocols and disaster recovery procedures.
-------------------
Accounting, Financial or Custody errors
-------------------
Due diligence and service reviews are undertaken with third-party
service providers including the Custodian and Depositary.
The Board considers, approves and monitors supplier appointments.
The Investment manager reports on breaches of service level
agreements and failure to meet standards as it becomes aware
of the issue.
Annual controls reports from service providers are reviewed
by Board, and exceptions highlighted to the Board. Representatives
from each service provider attend meetings to apprise the
Board of exceptions found in their control environments.
Directors regularly attend due diligence visits to service
providers.
-------------------
IT failure, Fraud and Cyber Risk
-------------------
The number, severity and success rate of cyberattacks have
increased considerably in recent years. However, controls
are in place and the Board proactively seeks to keep abreast
of developments through updates with representatives of
the Investment Manager who undertakes meetings with relevant
service providers.
The Audit Committee once again sought assurance via the
Company Secretary, from each of the Company's service providers
on the resilience of their business continuity arrangements.
These assurances and the subsequent detailed updates that
were given to the Committee provided a satisfactory level
of assurance that there had not been, and there was no anticipation
of any disruption in the ability of each service provider
to fulfil their duties as would typically be expected.
In light of the increased potential for fraud and cyber
attacks during the year under review, the Board decided
to elevate the pre-mitigation score associated with this
risk, the post mitigation remains unchanged.
-------------------
Black Swan event - e.g. unforeseen
natural disaster
-------------------
The Company has a disaster recovery plan in place along
with a Black Swan Committee comprised of any two directors,
who are able to provide a response to such events as necessary.
-------------------
Failure of Depositary, Custodian, Sub-Custodian
-------------------
A full review of the internal control framework is carried
out at least annually. Regular reporting is received by
the Investment Manager on behalf of the Board from the Depositary
on the safe custody of the Company's assets. The Board undertakes
independent reviews of the Depositary and Administrator
services (see glossary for further information) and additional
resources have been put in place by the Investment Manager.
Management accounts are produced and reviewed monthly, statutory
reporting and daily NAV calculations are produced by the
Administrator and verified by the Investment Manager.
-------------------
REGULATORY RISKS
-------------------
Breach of Statutes and Regulation
-------------------
The Board monitors regulatory change with the assistance
of the Investment Manager, Company Secretary and external
professional suppliers and implements necessary changes
should they be required.
The Board receives regulatory reports for discussion and,
if required, considers the need for any remedial action.
In addition, as an investment company, the Company is required
to comply with a framework of tax laws, regulation and company
law.
The Board keeps abreast of third party service provider
internal controls processes to ensure requirements are met
in accordance with regulatory requirements.
-------------------
Failure to effectively communicate with investors
-------------------
Polar Capital Sales Team and the Corporate Broker provide
periodic reports to the Board on
Communications with shareholders and feedback received.
The Audit Committee received the half-year and annual financial
statements prior to sign-off and
makes recommendations to the Board.
Contact details and how to contact the Board are provided
in regulatory announcements and in half
year and annual reports. The Board are present at the AGM
to speak to shareholders.
-------------------
ECONOMIC AND MARKET RISK
-------------------
Global geo-political risk
-------------------
The Board regularly discusses the global geopolitical issues
and general economic conditions and developments. The impact
on the portfolio from geopolitical changes is monitored
through existing control systems and discussed regularly
by the Board. While it is difficult to quantify the impact
of such changes, it is not anticipated that they will fundamentally
affect the business of the Company.
-------------------
Uncertainty in regulatory environment (including inflation,
recession and interest rates)
-------------------
The Board regularly receives reports which detail corporate
matters including legislative and regulatory developments.
Guidance on implementation is sought from and provided via
the Company Secretary and professional advisers where necessary.
Note 27 describes the impact of changes in foreign exchange
rates. The Company's largest exposure is to US$ holdings.
The Company has a varying level of cash which is primarily
held in US Dollars and also has loan facilities in both
US Dollars and Japanese Yen. Fluctuations in exchange rates
are monitored which may impact investor returns. An analysis
of currency is given in Note 27 to the Financial Statements.
-------------------
KEY STAFF RISK
-------------------
Loss of Portfolio Manager or other Key staff
-------------------
The strength and depth of investment team provides comfort
that there is not over-reliance on one person with alternative
senior technology portfolio managers available to act if
needed. For each key business process roles, responsibilities
and reporting lines are clear and unambiguous. Key personnel
are incentivised by equity participation in the investment
management company.
Ali Unwin was appointed as Deputy Fund Manager and is responsible
for managing the portfolio of the Company alongside Ben
Rogoff, Lead Manager since 1 May 2006.
-------------------
Insufficient resource or experience on the Board
-------------------
Respected recruiters are used to source suitably experienced
candidates for non-executive directorships. A Board, Committee
and Individual evaluation process is carried out annually
and justification for re-election of Directors is provided
in Annual Report to Shareholders.
-------------------
Increase
Decrease
unchanged
SECTION 172 OF THE COMPANIES ACT 2006
The statutory duties of the Directors are detailed in s171-177
of the Companies Act 2006. The Board recognises that under s172,
Directors have a duty to promote the success of the Company for the
benefit of its shareholders as a whole and in doing so have regard
to the consequences of any decision in the long term, as well as
having regard to the Company's wider stakeholders amongst other
considerations. The fulfilment of this duty not only helps the
Company achieve its Investment Objective but ensures decisions are
made in a responsible and sustainable way for shareholders.
To ensure that the Directors are aware of, and understand, their
duties, they are provided with an induction, including details of
all relevant regulatory and legal duties as a director when they
first join the Board, and continue to receive regular and ongoing
updates on relevant good practice, legislative and regulatory
developments. They also have continued access to the advice and
services of the Company Secretary and, where deemed necessary, the
Directors may seek independent professional advice. The Schedule of
Matters Reserved for the Board, as well as the Terms of Reference
of its committees are reviewed annually and further describe
Directors' responsibilities and obligations and include any
statutory and regulatory duties.
The Board seeks to understand the needs and priorities of the
Company's shareholders and stakeholders and these are taken into
account during all of its discussions and as part of its
decision-making process. As an externally managed investment
company, the Company does not have any employees or customers,
however the key stakeholders and a summary of the Board's
consideration and actions where possible in relation to each group
of stakeholders are described in the table below.
SHAREHOLDERS
Engagement
The Directors have considered shareholder engagement when making
the strategic decisions during the year that affect shareholders,
the confirmation of the continued appointment of the Investment
Manager and the recommendation that shareholders vote in favour of
the resolutions to be proposed at the AGM. The Directors have also
engaged with and taken account of shareholders' interests during
the year.
The Portfolio Manager has held numerous face to face meetings
and interacted with a number of shareholders and institutions in
addition to presenting at a number of conferences during the year.
Where appropriate, directors are invited to attend these
conferences to meet with shareholders and prospective investors; in
addition, the annual Investor Relations dinner was again held in
October 2022. Positive feedback was received from all attendees of
the dinner who welcomed the opportunity to interact with the Board
and Manager.
The Chair will write to the Company's largest shareholders
following the publication of the Annual Report and Financial
Statements offering the opportunity to meet to discuss any matters
of interest or concern.
The AGM of the Company was held as a hybrid event in September
2022 and the Board were delighted to once again welcome
shareholders to the meeting in person. However the online level of
presence was minimal. The Company's next AGM will be held at 2:30pm
on Thursday 7 September 2023. Following the trials of holding
semi-virtual and hybrid meetings, and considering the feedback
received from shareholders, we have decided to return to an
in-person only AGM and will not be providing a facility for online
attendance. The Board recognises that the AGM is an important event
for shareholders and the Company and is keen to ensure that
shareholders are able to exercise their right to attend, vote and
participate, we have therefore considered the meeting location and,
based on feedback received, have moved to a central London office
which is close to Liverpool Street Station with easy access from a
number of directions. The meeting will therefore be held at the
offices of Herbert Smith Freehills, Exchange House, Primrose
Street, London, EC2A 2EG. Once again, we will be inviting feedback
from shareholders and will take this into account when planning the
2024 meeting.
The Board believes that shareholder engagement remains
important, especially in the current market conditions and is keen
that the AGM be a participative event for all shareholders who
attend. Shareholders are encouraged to send any questions ahead of
the AGM to the Board via the Company Secretary at
cosec@polarcapital.co.uk stating the subject matter as PCTT-AGM.
The investment manager will give an in-person presentation and the
Chair of the Board and all members of the Board will be in
attendance and will be available to respond to questions and
concerns from shareholders.
Should any significant votes be cast against a resolution, the
Board will engage with shareholders. Should this situation occur,
the Board will explain in its announcement of the results of the
AGM the actions it intends to take to consult shareholders in order
to understand the reasons behind the votes against. Following the
consultation, an update will be published no later than six months
after the AGM and the next Annual Report will detail the impact the
shareholder feedback has had on any decisions the Board has taken
and any actions or resolutions proposed.
Relations with Shareholders
The Board and the Manager consider maintaining good
communications and engaging with shareholders through meetings and
presentations a key priority. The Board regularly considers the
share register of the Company and receives regular reports from the
Manager and the Corporate Broker on shareholder meetings attended
and any concerns that have been raised in those meetings. The Board
also reviews correspondence from shareholders and may attend
investor presentations.
The Chair has met with shareholders representing in the region
of 12% of the share register, during the year and responded to
comments raised both at the AGM and via email.
Shareholders are able to raise any concerns directly with the
Chair or the Board without intervention of the Manager or Company
Secretary, they may do this either in person at the AGM or at other
events, or in writing either via the registered office of the
Company or to the Chair's specific email address
Chair.pctt@polarcapital.co.uk.
Shareholders are kept informed by the publication of annual and
half year reports, monthly fact sheets, access to commentary from
the Investment Manager via the Company's website and attendance at
events in which the Investment Manager presents.
The Company, through the sales and marketing efforts of the
Investment Manager, encourages retail investment platforms to
engage with underlying shareholders in relation to Company
communications and enable those shareholders to cast their votes on
shareholder resolutions; the Company however has no responsibility
over such platforms. The Board therefore encourage shareholders
invested via the platforms to regularly visit the Company's website
or to make contact with the Company directly to obtain copies of
shareholder communications.
The Company has also made arrangements with its registrar for
shareholders, who own their shares directly rather than through a
nominee or share scheme, to view their account online at
www.shareview.co.uk. Other services are also available via this
service.
Outcomes and strategic decisions during the year
AGM
As detailed above the Board have decided to hold an in-person
only AGM this year and have changed the location to accommodate
feedback received in 2022. Further details can be found in the
Shareholder Information section of the Annual Report and
Accounts.
Buybacks
Further to shareholder authority being granted, the Company has
the facility to conduct share buy backs when, in normal market
conditions, it is in the best interests of shareholders to do so.
The Company bought back a total of 6,070,882 shares during the year
under review. Subsequent to the year end and to 13 July 2023, the
Company bought back a further 1,229,369 shares.
Gearing
The Company is aware of the positive effect that leverage can
have in increasing the return to shareholders when utilised. The
Company has term loans with ING Bank NV, which expire in September
2024, consideration will be given to renewal or replacement ahead
of the expiry date. Please see note 17 for further information.
Continuation Vote
The Company has within its corporate structure the requirement
to hold a continuation vote every five years; ahead of each vote
the Board, Investment Manager and Corporate Broker seek the
feedback of shareholders including any concerns, and an indication
of whether they were likely to vote in favour of the Company's
continuation. The last continuation vote was held in September
2020, for which 100% of the votes cast were in favour, and the next
continuation vote will be held at the AGM in September 2025.
Directors Remuneration
The remuneration of Directors is reviewed regularly and was
increased with effect from 1 May 2022 and again from 1 May 2023, to
bring the fees of the Directors more in line with the wider market.
Further details are provided in the Report of the Remuneration
Committee in the Annual Report and Accounts.
THE INVESTMENT MANAGER
Engagement
Through the Board meeting cycle, regular updates and the work of
the Management Engagement Committee reviewing the services of the
Investment Manager twice yearly, the Board is able to safeguard
shareholder interests by:
-- Ensuring adherence to the Investment Management Policy and
reviewing the agreed management and performance fees;
-- Ensuring excessive risk is not undertaken in the pursuit of investment performance;
-- Reviewing the Investment Manager's decision making and consistency in investment process;
-- Ensuring compliance with statutory legal requirements,
regulations and other advisory guidance such as consumer duty and
aspects of operational resilience; and
-- Considering the succession plans for the Technology Team in
ensuring the continued provision of portfolio management
services.
Maintaining a close and constructive working relationship with
the Manager is crucial as the Board and the Investment Manager both
aim to continue to achieve consistent, long-term returns in line
with the Investment Objective. The culture which the Board
maintains to ensure this involves encouraging open discussion with
the Investment Manager; recognising that the interests of
shareholders and the Investment Manager are aligned, providing
constructive challenge and making Directors' experience available
to support the Investment Manager. This culture is aligned with the
collegiate and meritocratic culture which Polar Capital has
developed and maintains .
Outcomes and strategic decisions during the year
ESG
The Board continued to engage with the Investment manager to
understand how ESG has been integrated into the overall house
style, the technology team investment approach and decision making
as well as the methodology behind this. The Board also receives
information on how ESG affects Polar Capital as a business and the
technology team in particular.
Consumer Duty
The Board has worked with the Investment Manager to ensure the
obligations of the new Consumer Duty regulations are appropriately
applied to the Company. In light of the obligations, all
communications including the website, fact sheets and other
published documentation, have been reviewed to ensure they are
appropriate for all end users. A 'value for money' assessment has
also been undertaken and is made available to distributors on
request for their due diligence processes.
Management
The Management Engagement Committee has recommended the
continued appointment of the Investment Manager on the terms agreed
within the Investment Management Agreement.
INVESTEE COMPANIES
Stewardship
The Board has instructed the Investment Manager to take into
account the published corporate governance policies of the
companies in which it invests.
The Board has also considered the Investment Manager's
Stewardship Code and Proxy Voting Policy. The voting policy is for
the Investment Manager to vote at all general meetings of companies
in favour of resolutions proposed by the management where it
believes that the proposals are in the interests of shareholders.
However, in exceptional cases, where it believes that a resolution
could be detrimental to the interests of shareholders or the
financial performance of the Company, appropriate notification will
be given and abstentions or a vote against will be lodged.
The Investment Manager reports to the Board, when requested, on
the application of the Stewardship Code and Voting Policy. The
Investment Manager's Stewardship Code and Voting Policy can be
found on the Investment Manager's website in the Corporate
Governance section ( www.polarcapital.co.uk ).
The Technology Investment Team also use the services of ISS to
assist with their own evaluation of companies' proposals or
reporting ahead of casting votes on behalf of the Company at their
general meetings. In the event that an investee company has share
blocking in place, the default position is to refrain from voting
to ensure the ability to trade these stocks if required.
During the year ended 30 April 2023, votes were cast at 99% of
investee company general meetings held. At 52% of those meetings a
vote was either cast against management recommendation, withheld or
abstained from. Further information on how the Investment Manager
considers ESG in its engagement with investee companies can be
found in the ESG Report.
Outcomes and strategic decisions during the year
During the year the Board discussed the impact of ESG and other
market factors and how the Investment Manager factors these into
its strategy, investment and decision-making process. The Board
receives information on the ratings of investee companies and is
able to use this as tool to inform discussions with the Manager
during Board meetings.
SERVICE PROVIDERS
Engagement
The Directors have frequent engagement with the Company's other
key service providers through the annual cycle of reporting, site
visits and due diligence meetings. The schedule of deep-dive
in-person meetings re-commenced in 2023. This engagement is
completed with the aim of having effective oversight of delegated
services, seeking to improve the processes for the benefit of the
Company and to understand the needs and views of the Company's
service providers, as stakeholders in the Company. Further
information on the Board's engagement with service providers is
included in the Corporate Governance Statement and the Report of
the Audit Committee. During the year under review, due diligence
meetings have been undertaken by the Investment Manager and where
possible, service providers have joined meetings to present their
reports directly to the Board or the Audit Committee as
appropriate.
Outcomes and strategic decisions during the year
The reviews of the Company's service providers have been
positive and the Directors believe their continued appointment is
in the best interests of the shareholders and the Company as a
whole. The accounting and administration services of HSBC
Securities Services (HSS) are contracted through Polar Capital and
provided to the Company under the terms of the IMA. The Board,
through due diligence undertaken by the Company Secretary and the
Polar Capital Compliance team, is satisfied that the service
received continues to be of a high standard.
PROXY ADVISORS
Engagement
The support of proxy adviser agencies is important to the
Directors, as the Company seeks to retain a reputation for high
standards of corporate governance, which the Directors believe
contributes to the long-term sustainable success of the Company.
The Directors consider the recommendations of these various proxy
voting agencies when contemplating decisions that will affect
shareholders and also when reporting to shareholders through the
Half Year and Annual Reports.
Recognising the principles of stewardship, as promoted by the UK
Stewardship Code, the Board welcomes engagement with all of its
investors. The Board recognises that the views, questions from, and
recommendations of many institutional investors and proxy adviser
agencies provide a valuable feedback mechanism and play a part in
highlighting evolving shareholders' expectations and concerns.
Outcomes and strategic decisions during this year
Where possible the Chair and other representatives of the
Company have engaged with the stewardship teams of some larger
investors to understand and address their expectations in terms of
board governance, recruitment and diversity. Prior to the Company's
AGMs, the Company engages with agencies including PIRC and ISS to
fact check their advisory reports and clarify any areas or topics
contained within the report. This ensures that whilst the proxy
advisory reports provided to shareholders are objective and
independent, the Company's actions and intentions are represented
as clearly as possible to assist with shareholders' decision making
when considering the resolutions proposed at the AGM.
THE AIC
Engagement
The Company is a member of the AIC and has supported lobbying
activities such as the consultation on the 2019 AIC Code, the 2021
BEIS Restoring Trust in Audit and Corporate Governance and the
FCA's 2021 consultation on Diversity and Inclusion on Company
Boards. The Directors also cast votes in the AIC Board Elections
each year and regularly attend AIC events.
Approved by the Board on 18 July 2023
By order of the Board
Jumoke Kupoluyi, ACG
Polar Capital Secretarial Services Limited
Company Secretary
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with
UK-adopted international accounting standards and applicable law.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss for that period. In preparing these financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether they have been prepared in accordance with
UK-adopted international accounting standards;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations .
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORT AND FINANCIAL STATEMENTS
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
issuer, together with a description of the principal risks and
uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy .
Catherine Cripps
Chair
18 July 2023
Status of announcement
The figures and financial information contained in this
announcement are extracted from the Audited Annual Report for the
year ended 30 April 2023 and do not constitute statutory accounts
for the year. The Annual Report and Financial Statements include
the Report of the Independent Auditors which is unqualified and
does not contain a statement under either section 498(2) or Section
498(3) of the Companies Act 2006.
The Annual Report and Financial Statements for the year ended 30
April 2023 have not yet been delivered to the Registrar of
Companies. The figures and financial information for the year ended
30 April 2022 are extracted from the published Annual Report and
Financial Statements for the year ended 30 April 2022 and do not
constitute the statutory accounts for that year. The Annual Report
and Financial Statements for the year ended 30 April 2022 have been
delivered to the Registrar of Companies and included the Report of
the Independent Auditors which was unqualified and did not contain
a statement under either section 498(2) or Section 498(3) of the
Companies Act 2006.
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 April 2023
Y e a r e n ded 30 Y e a r e n ded 30
A p r il 2023 A p r il 2022
============================== ===== ===================================== ==================================
R evenue
retu rn Capital Total Revenue Capital Total
GBP' return return return return return
Notes 000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ===== =============== ========= ========= ============ ========= =========
Investment income 3 16,160 42 16,202 15,870 - 15,870
============================== ===== =============== ========= ========= ============ ========= =========
Other operating income 4 3,820 - 3,820 31 - 31
============================== ===== =============== ========= ========= ============ ========= =========
Losses on investments
held at fair value 5 - (106,807) (106,807) - (253,694) (253,694)
============================== ===== =============== ========= ========= ============ ========= =========
Gains/(losses) on derivatives 6 - 34 34 - (5,799) (5,799)
============================== ===== =============== ========= ========= ============ ========= =========
Other currency gains 7 - 8,409 8,409 - 17,535 17,535
============================== ===== =============== ========= ========= ============ ========= =========
15,901
-
-
-
T ot al income 19,980 (98,322) (78,342) 15,9018,164 (241,958) (226,057)
===================================== =============== ========= ========= ============ ========= =========
E xp enses
===================================== ===================================== ==================================
I nve s tment management
f ee 8 (21,918) - (21,918) (28,281) - (28,281)
============================== ===== =============== ========= ========= ============ ========= =========
O t her adminis t r a
t ive e xp ens es 9 (1,176) - (1,176) (1,335) - (1,335)
============================== ===== =============== ========= ========= ============ ========= =========
T ot al e x penses (23,094) - (23,094) (29,616) - (29,616)
===================================== =============== ========= ========= ============ ========= =========
Loss before finance costs
and tax (3,114) (98,322) (101,436) (13,715) (241,958) (255,673)
===================================== =============== ========= ========= ============ ========= =========
Finance costs 10 (1,598) - (1,598) (973) - (973)
============================== ===== =============== ========= ========= ============ ========= =========
Loss before tax (4,712) (98,322) (103,034) (14,688) (241,958) (256,646)
===================================== =============== ========= ========= ============ ========= =========
T a x 11 (2,148) - (2,148) (2,000) - (2,000)
============================== ===== =============== ========= ========= ============ ========= =========
Net loss for the year and
total comprehensive expense (6,860) (98,322) (105,182) (16,688) (241,958) (258,646)
===================================== =============== ========= ========= ============ ========= =========
Loss per share (basic
and diluted) (pence) 12 (5.30) (75.98) (81.28) (12.36) (179.25) (191.61)
============================== ===== =============== ========= ========= ============ ========= =========
The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
UK-adopted International Accounting Standards.
The revenue return and capital return columns are supplementary
to this and are prepared under guidance published by the AIC.
All items in the above statement derive from continuing
operations.
The Company does not have any other comprehensive income.
The notes below form part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 April 2023
Sp ecial
C ap ital no n -
redem ption distr ibutable C ap R evenue
Share re s e Share re s e ital re re s e T o ta
c apital rve premium rve s e rves rve l
GBP' GBP' GBP' GBP'
Notes 000 GBP' 000 000 GBP' 000 000 000 GBP' 000
================ ===== ========= ============ =========== =============== ========== =========== =============
Total equity at
30 April 2021 34,329 12,802 223,374 7,536 3,240,833 (110,111) 3,408,763
================ ===== ========= ============ =========== =============== ========== =========== =============
Total
comprehensive
expense:
================ ===== ========= ============ =========== =============== ========== =========== =============
Loss for the
year
to 30 April
2022 - - - - (241,958) (16,688) (258,646)
================ ===== ========= ============ =========== =============== ========== =========== =============
Transactions
with
owners, recorded
directly to
equity:
================ ===== ========= ============ =========== =============== ========== =========== =============
Ordinary shares
repurchased
into
treasury 15 - - - - (99,132) - (99,132)
================ ===== ========= ============ =========== =============== ========== =========== =============
T ot al equity
at 30 April
2022 34,329 12,802 223,374 7,536 2,899,743 (126,799) 3,050,985
================ ===== --------- ------------ ----------- --------------- ---------- ----------- -------------
Total
comprehensive
expense:
================ ===== ========= ============ =========== =============== ========== =========== =============
Loss for the
year
to 30 April
2023 - - - - (98,322) (6,860) (105,182)
================ ===== ========= ============ =========== =============== ========== =========== =============
Transactions
with
owners, recorded
directly to
equity:
================ ===== ========= ============ =========== =============== ========== =========== =============
Ordinary shares
repurchased
into
treasury 15 - - - - (117,662) - (117,662)
================ ===== ========= ============ =========== =============== ========== =========== =============
T o tal e quity
at 30 Apr il
2023 34,329 12,802 223,374 7,536 2,683,759 (133,659) 2,828,141
---------------- ----- --------- ------------ ----------- --------------- ---------- ----------- -------------
The notes below form part of these Financial Statements.
BALANCE SHEET
as at 30 April 2023
3 0 A p 3 0 A p r
r il 2023 il 2022
Notes GBP '000 GBP '000
=================================== =========== =================== =======================
Non current assets
================================================ =================== =======================
I nves tme n ts held at f a ir
v alue through profit or loss 13 2,640,177 2,811,080
=================================== =========== =================== =======================
C ur rent a s sets
================================================ =================== =======================
R e c e i v a bles 20,605 31,096
=================================== =========== =================== =======================
O ve r seas tax re cove r able 379 286
================================================ =================== =======================
C ash and cash e qu i v alen ts 14 239,096 311,363
=================================== =========== =================== =======================
D e ri v a t i ve financi al ins
t r ume n ts 13 2,571 6,479
=================================== =========== =================== =======================
262,651 349,224
================================================ =================== =======================
T ot al as sets 2,902,828 3,160,304
================================================ =================== =======================
Current liabilities
================================================ =================== =======================
P ay ables (23,842) (57,284)
=================================== =========== =================== =======================
Bank loans - (52,035)
=================================== =========== =================== =======================
(23,842) (109,319)
=================================== =========== =================== =======================
Non current liabilities
=================================== =========== =================== =======================
Bank loans (50,845) -
=================================== =========== =================== =======================
Net assets 2,828,141 3,050,985
================================================ =================== =======================
Equity attributable to equity Shareholders
================================================ =================== =======================
Share c apital 15 34,329 34,329
=================================== =========== =================== =======================
C a pital redemp tion re serve 12,802 12,802
=================================== =========== =================== =======================
Share pre mium 223,374 223,374
=================================== =========== =================== =======================
Speci al non- dis t r ibutable
re s e rve 7,536 7,536
=================================== =========== =================== =======================
C a pital re s e rves 2,683,759 2,899,743
=================================== =========== =================== =======================
R evenue re serve (133,659) (126,799)
=================================== =========== =================== =======================
Total equity 2,828,141 3,050,985
================================================ =================== =======================
Net asset value per ordinary share
(pence) 2239.48 2305.13
=================================== =========== =================== =======================
The Financial Statements, were approved and authorised for issue
by the Board of Directors on 18 July 2023 and signed on its behalf
by:
Catherine Cripps
Chair
The notes below form part of these Financial Statements.
Registered number 3224867
CASH FLOW STATEMENT
for the year ended 30 April 2023
2023 2022
Notes GBP '000 GBP '000
============================================ ======= ====================== =======================
C ash flows from operating acti vities
============================================ ======= ====================== =======================
Loss before tax (103,034) (256,646)
============================================ ======= ====================== =======================
A d j us tme n t s
============================================ ======= ====================== =======================
Losses on investments held at fair
value through profit or loss 5 106,807 253,694
============================================ ======= ====================== =======================
(Gains)/losses on derivative financial
instruments 6 (34) 5,799
============================================ ======= ====================== =======================
P ro c eeds of dis pos al on inve
s tmen ts 2,311,861 2,822,328
============================================ ======= ====================== =======================
Purchases of investments (2,266,936) (2,618,737)
============================================ ======= ====================== =======================
P ro c eeds on dis pos al of de ri
v a t ive financi al ins t r ume n
ts 13 46,536 39,006
============================================ ======= ====================== =======================
P u rchas es of de ri v a t ive financi
al ins t r ume n ts 13 (42,594) (47,194)
============================================ ======= ====================== =======================
Increase in receivables (472) (64)
============================================ ======= ====================== =======================
Decrease in payables* (4,580) (401)
============================================ ======= ====================== =======================
Finance Costs* 1,598 973
============================================ ======= ====================== =======================
O ver seas tax (2,241) (2,124)
============================================ ======= ====================== =======================
Foreign exchange gains 7 (8,409) (17,535)
============================================ ======= ====================== =======================
Net cash generated from operating
activities 38,502 179,099
============================================ ======= ====================== =======================
Cash flows from financing activities
============================================ ======= ====================== =======================
Finance costs paid* (1,539) (927)
============================================ ======= ====================== =======================
Ordinary shares repurchased into treasury (116,449) (98,001)
============================================ ======= ====================== =======================
Net cash used in financing activities (117,988) (98,928)
============================================ ======= ====================== =======================
Net (decrease)/increase in cash and
cash equivalents (79,486) 80,171
============================================ ======= ====================== =======================
C ash and cash e qu i v alen ts at
the be ginning of the year 311,363 212,732
============================================ ======= ====================== =======================
E f f e c t of moveme nt in foreign
e xchange r at es on cash held 7 7,219 18,460
============================================ ======= ====================== =======================
Cash and cash equivalents at the
end of the year 14 239,096 311,363
============================================ ======= ====================== =======================
2023 2022
Notes GBP '000 GBP '000
============================================ ======= ====================== =======================
Reconciliation of cash and cash equivalents
to the Balance Sheet is as follows:
============================================ ======= ====================== =======================
Cash held at bank and derivative clearing
houses 14 148,682 219,403
============================================ ======= ====================== =======================
BlackRock's Institutional Cash Series
plc
(US Treasury Fund), money market
fund 14 90,414 91,960
============================================ ======= ====================== =======================
Cash and cash equivalents at the
end of the year 14 239,096 311,363
============================================ ======= ====================== =======================
* The finance costs paid which were previously included in the
cash flows from operating activities in the year 2022 have been
represented as a cash flow from financing activities to align with
the current year presentation.
The notes below form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 April 2023
1. GENERAL INFORMATION
Polar Capital Technology Trust plc is a public limited company
registered in England and Wales whose shares are traded on the
London Stock Exchange.
The principal activity of the Company is that of an investment
trust company within the meaning of Section 1158/1159 of the
Corporation Tax Act 2010 and its investment approach is detailed in
the Strategic Report.
The Company financial statements have been prepared and approved
by the Directors in accordance with international accounting
standards in accordance with UK-adopted international accounting
standards ("UK-adopted IAS").
The Company's presentational currency is Pounds Sterling. All
figures are rounded to the nearest thousand pounds (GBP'000) except
as otherwise stated.
2. ACCOUNTING POLICIES
The principal accounting policies, which have been applied
consistently for all years presented are set out below:
(A) BASIS OF PREPARATION
The Financial Statements have been prepared on a going concern
basis under the historical cost convention, as modified by the
inclusion of investments and derivative financial instruments at
fair value through profit or loss.
Where presentational guidance set out in the Statement of
Recommended Practice (SORP) for investment trusts issued by the
Association of Investment Companies (AIC) in July 2022 is
consistent with the requirements of UK-adopted IAS, the Directors
have sought to prepare the Financial Statements on a basis
compliant with the recommendations of the SORP.
The financial position of the Company as at 30 April 2023 is
shown in the balance sheet above. As at 30 April 2023 the Company's
total assets exceeded its total liabilities by a multiple of over
37. The assets of the Company consist mainly of securities that are
held in accordance with the Company's Investment Policy, as set out
in the annual report and these securities are readily realisable.
The Company has two, two-year fixed rate term loans with ING Bank
N.V. both of which fall due for repayment on 30 September 2024. The
Directors have considered a detailed assessment of the Company's
ability to meet its liabilities as they fall due. The assessment
took account of the Company's current financial position, its cash
flows and its liquidity position. In addition, the Company's cash
flows were stressed tested for base case and reasonable worse case
scenarios such as higher inflation and interest rate increases. In
light of the results of these tests, the Company's cash balances,
and the liquidity position, the Directors consider that the Company
has adequate financial resources to enable it to continue in
operational existence for at least 12 months. Accordingly, the
Directors believe that it is appropriate to continue to adopt the
going concern basis in preparing the Company's Financial
Statements.
(B) PRESENTATION OF STATEMENT OF COMPREHENSIVE INCOME
AIC, supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive Income.
The results presented in the revenue return column is the measure
the Directors believe appropriate in assessing the Company's
compliance with certain requirements set out in section 1158 of the
Corporation Taxes Act 2010.
(C) INCOME
Dividends receivable from equity shares are taken to the revenue
return column of the Statement of Comprehensive Income on an
ex-dividend basis.
Special dividends are recognised on an ex-dividend basis and may
be considered to be either revenue or capital items.
The facts and circumstances are considered on a case by case
basis before a conclusion on appropriate allocation is reached.
Where the Company has received dividends in the form of
additional shares rather than in cash, the amount of the cash
dividend foregone is recognised in the revenue return column of the
Statement of Comprehensive Income. Any excess in value of shares
received over the amount of the cash dividend foregone is
recognised in the capital return column of the Statement of
Comprehensive Income.
Unfranked income includes the taxes deducted at source.
Bank interest, money market fund interest and other income
receivable are accounted for on an accruals basis and is recognised
in the period in which it was earned.
Interest outstanding at the year end is calculated on a time
apportioned basis using the market rates of interest
(D) EXPENSES AND FINANCE COSTS
All expenses, including finance costs, are accounted for on an
accruals basis.
All indirect expenses have been presented as revenue items per
the non-allocation method except as follows:
- any performance fees payable are allocated wholly to capital,
reflecting the fact that, although they are calculated on a total
return basis, they are expected to be attributable largely, if not
wholly, to capital performance.
- transaction costs incurred on the acquisition or disposal of
investments are expensed either as part of the unrealised gain/loss
on investments (for acquisition costs) or as a deduction from the
proceeds of sale (for disposal costs).
Finance costs are calculated using the effective interest rate
method and are accounted for on an accruals basis.
(E) TAXATION
The tax expense represents the sum of the overseas withholding
tax deducted from investment income, tax currently payable and
deferred tax.
The tax currently payable is based on the taxable profit for the
year. Taxable profit differs from net profit as reported in the
Statement of Comprehensive Income because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
Company's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the balance
sheet date.
In line with the recommendations of the SORP, the allocation
method used to calculate tax relief on expenses presented against
capital returns in the supplementary information in the Statement
of Comprehensive Income is the 'marginal basis'. Under this basis,
if taxable income is capable of being offset entirely by expenses
presented in the revenue return column of the Statement of
Comprehensive Income, then no tax relief is transferred to the
capital return column.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the Financial Statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax
liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Investment trusts which have approval as such under section 1158
of the Corporation Tax Act 2010 are not liable for taxation on
capital gains.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax rates that have been enacted or substantively
enacted at the balance sheet date.
Deferred tax is charged or credited in the Statement of
Comprehensive Income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
(F) INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
When a purchase or sale is made under contract, the terms of
which require delivery within the timeframe of the relevant market,
the investments concerned are recognised or derecognised on the
trade date and are initially measured at fair value.
On initial recognition the Company has designated all of its
investments as held at fair value through profit or loss as defined
by UK-adopted IAS.
All investments are measured at subsequent reporting dates at
fair value, which is either the bid price or the last traded price,
depending on the convention of the exchange on which the investment
is quoted. Investments in unit trusts or OEICs are valued at the
closing price, the bid price or the single price as appropriate, as
released by the relevant investment manager.
Fair values for unquoted investments, or for investments for
which there is only an inactive market, are established by using
various valuation techniques. These may include recent arms length
market transactions, the current fair value of another instrument
that is substantially the same, discounted cash flow analysis and
option pricing models. Where there is a valuation technique
commonly used by market participants to price the instrument and
that technique has been demonstrated to provide reliable estimates
of prices obtained in actual market transactions, that technique is
utilised. Where no reliable fair value can be estimated for such
instruments, they are carried at cost, subject to any provision for
impairment.
Changes in fair value of all investments held at fair value and
realised gains and losses on disposal are recognised in the capital
return column of the Statement of Comprehensive Income.
(G) RECEIVABLES
Receivables are initially recognised at fair value and
subsequently measured at amortised cost. Receivables do not carry
any interest and are short-term in nature and are accordingly
stated at their nominal value (amortised cost) as reduced by
appropriate allowances for estimated irrecoverable amounts.
(H) CASH AND CASH EQUIVALENTS
Cash comprises cash on hand and demand deposits. Cash
equivalents are short-term maturity of three months or less, highly
liquid investments that are readily convertible to known amounts of
cash.
The Company's investment in BlackRock's Institutional Cash
Series plc - US Treasury Fund of GBP90,414,000 (2022:
GBP91,960,000) is managed as part of the Company's cash and cash
equivalents as defined under IAS 7.
In the Balance Sheet bank overdrafts are shown within current
liabilities.
(I) PAYABLES
Payables are initially recognised at fair value and subsequently
measured at amortised cost. Payables are not interest- bearing and
are stated at their nominal value (amortised cost).
(J) BANK LOANS
Interest bearing bank loans are initially recognised at cost,
being the proceeds received net of direct issue costs, and
subsequently at amortised cost. The amounts falling due for
repayment within one year are included under current liabilities in
the Balance Sheet.
(K) DERIVATIVE FINANCIAL INSTRUMENTS
The Company's activities expose it primarily to the financial
risks of changes in market prices, foreign currency exchange rates
and interest rates. Derivative transactions which the Company may
enter into comprise forward exchange contracts, the purpose of
which is to manage the currency risks arising from the Company's
investing activities, quoted options on shares held within the
portfolio, or on indices appropriate to sections of the portfolio,
the purpose of which is to provide additional capital return.
The use of financial derivatives is governed by the Company's
policies as approved by the Board, which has set written principles
for the use of financial derivatives.
A derivative instrument is considered to be used for hedging
purposes when it alters the market risk profile of an existing
underlying exposure of the Company. The use of financial
derivatives by the Company does not qualify for hedge accounting
under UK-adopted IAS. As a result, changes in the fair value of
derivative instruments are recognised in the Statement of
Comprehensive Income as they arise. If capital in nature,
associated change in value is presented in the capital return
column of the Statement of Comprehensive Income.
(L) RATES OF EXCHANGE
Transactions in foreign currencies are translated into Sterling
at the rate of exchange ruling on the date of each
transaction. Monetary assets, monetary liabilities and equity
investments in foreign currencies at the balance sheet date are
translated into Sterling at the rates of exchange ruling on that
date. Realised profits or losses on exchange, together with
differences arising on the translation of foreign currency assets
or liabilities, are taken to the capital return column of the
Statement of Comprehensive Income.
Foreign exchange gains and losses arising on investments held at
fair value are included within changes in fair value.
(M) SHARE CAPITAL
Represents the nominal value of authorised and allocated,
called-up and fully paid shares issued.
(N) CAPITAL RESERVES
Capital reserves - gains/losses on disposal includes:
- gains/losses on disposal of investments
- exchange differences on currency balances and on settlement of loan balances
- cost of own shares bought back
- other capital charges and credits charged to this account in
accordance with the accounting policies above
Capital reserve - revaluation on investments held includes:
- increases and decreases in the valuation of investments and loans held at the year end.
All of the above are accounted for in the Statement of
Comprehensive Income except the cost of own shares bought back or
issued which are accounted for in the Statement of Changes in
Equity.
(O) REPURCHASE OF ORDINARY SHARES (INCLUDING THOSE HELD IN TREASURY)
Where applicable, the costs of repurchasing ordinary shares
including related stamp duty and transaction costs are taken
directly to equity and reported through the Statement of Changes in
Equity as a charge on the capital reserve. Share repurchase
transactions are accounted for on a trade date basis.
The nominal value of ordinary share capital repurchased and
cancelled is transferred out of called up share capital and into
the capital redemption reserve.
Where shares are repurchased and held in treasury, the transfer
to capital redemption reserve is made if and when such shares are
subsequently cancelled.
(P) SHARE ISSUE COSTS
Costs incurred directly in relation to the issue of new shares
together with additional share listing costs have been deducted
from the share premium reserve.
(Q) SEGMENTAL REPORTING
Under IFRS 8, 'Operating Segments', operating segments are
considered to be the components of an entity about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance. The chief operating
decision maker has been identified as the Manager (with oversight
from the Board).
The Board is of the opinion that the Company is engaged in a
single segment of business, namely by investing in a diversified
portfolio of technology companies from around the world in
accordance with the Company's Investment Objective, and
consequently no segmental analysis is provided.
In line with IFRS 8, additional disclosure by geographical
segment has been provided in Note 26.
Further analyses of expenses, investment gains or losses, profit
and other assets and liabilities by country have not been given as
either it is not possible to prepare such information in a
meaningful way or the results are not considered to be
significant.
(R) KEY ESTIMATES, JUDGMENTS AND ASSUMPTIONS
Estimates and assumptions used in preparing the Financial
Statements are reviewed on an ongoing basis and are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances. The results of these
estimates and assumptions form the basis of making judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources.
The majority of the Company's investments are in US Dollars, the
level of which varies from time to time. The Board considers the
functional and reporting currency to be Sterling. In arriving at
this conclusion the Board considered that Sterling is most relevant
to the majority of the Company's Shareholders and creditors and the
currency in which the majority of the Company's operating expenses
are paid and the Company's shares are denominated in Sterling.
The only estimates and assumptions that may cause material
adjustment to the carrying value of assets and liabilities relate
to the valuation of unquoted investments and investments for which
there is an inactive market. These are valued in accordance with
the techniques set out in Note 2(f). At the year end, there was no
unquoted investments (2022: same).
(S) NEW AND REVISED ACCOUNTING STANDARDS
There were no new UK-adopted IAS or amendments to UK-adopted IAS
applicable to the current year which had any significant impact on
the Company's Financial Statements.
i) There were no relevant standards became effective for the
current annual reporting period that potentially impact the Company
are in issue.
ii) At the date of authorisation of the Company's Financial
Statements, the following relevant standards that potentially
impact the Company are in issue but are not yet effective and have
not been applied in the Financial Statements.
Standards & Interpretations Effective for periods
commencing on or
after
Disclosure of Accounting Requirement amended to disclose 1 January 2023
Policies (Amendments material accounting policies
to IAS 1 and IFRS instead of significant accounting
Practice Statement policies and provided guidance
2) in making materiality judgements
to accounting policy disclosure..
----------------------------------- ----------------------
Definition of Accounting Introduced the definition 1 January 2023
Estimates (amendments of accounting estimates
to IAS 8) and included other amendments
to IAS 8 to help entities
distinguish changes in accounting
estimates from changes in
accounting policy.
----------------------------------- ----------------------
The Directors expect that the adoption of the standards listed
above will have either no impact or that any impact will not be
material on the Financial Statements of the Company in future
periods.
3. INVESTMENT INCOME Y e ar e n
ded 30 A p Year ended
r il 2 0 23 30 April 2022
GBP '000 GBP'000
======================================= ============================ ==============================
R eve nue:
======================================= ============================ ==============================
Overseas Di vidend income 16,160 15,870
======================================= ============================ ==============================
16,160 15,870
======================================= ============================ ==============================
Capital:
======================================= ============================ ==============================
Special dividends allocated to capital 42 -
======================================= ============================ ==============================
All investment income is derived from listed investments .
Included within income from investments is GBP350,000 (2022:
GBP172,000) of special dividends classified as revenue in nature in
accordance with note 2 (c). GBP42,000 of special dividend has been
recognised in capital as the dividend paid out of the proceeds from
a disposal of an overseas investments (2022: nil).
4. OTHER OPERATING INCOME Y e ar e n Y e ar e n ded
ded 30 A p 3 0 A p r il
r il 2 0 23 2 0 22
GBP '000 GBP '000
--------------------------- ---------------------------- ------------------------------
Bank interest 1,478 4
Money market fund interest 2,342 27
3,820 31
=========================== ============================ ==============================
5. LOSSES ON INVESTMENTS HELD AT FAIR VALUE Y e ar e
Y e ar e n n ded
ded 30 A p 3 0 A p r
r il 2023 il 2022
GBP '000 GBP '000
============================================== =========================== ==========
Net (losses)/gains on disposal of investments
at historic cost (130,861) 232,360
============================================== =========================== ==========
Transfer on disposal of investments (59,647) (353,508)
============================================== =========================== ==========
Losses on disposal of investments based
on carrying value at previous balance sheet
date (190,508) (121,148)
============================================== =========================== ==========
Valuation gains/(losses) on investments
held during the year 83,701 (132,546)
============================================== =========================== ==========
(106,807) (253,694)
============================================== =========================== ==========
6. GAINS/(LOSSES) ON DERIVATIVES Y e ar e
Y e ar e n n ded
ded 30 A p 3 0 A p r
r il 2023 il 2022
GBP '000 GBP '000
============================================= =========================== ================
Gains/(losses) on disposal of derivatives
held 5,019 (10,212)
============================================= =========================== ================
(Losses)/gains on revaluation of derivatives
held (4,985) 4,413
============================================= =========================== ================
34 (5,799)
============================================= =========================== ================
The derivative financial instruments represent the call and put
options, which are used for the purpose of efficient portfolio
management. Refer to Note 13 below for further details.
7. OTHER CURRENCY GAINS Y e ar e n Y e ar e
ded n ded
3 0 A p r 3 0 A p r
il 2023 il 2022
GBP '000 GBP '000
----------------------------------------------- ---------- ----------
Exchange gains on currency balances 7,219 18,460
Exchange losses on settlement of loan balances (507) -
=============================================== ========== ==========
Exchange gains/(losses) on translation of
loan balances 1,697 (925)
=============================================== ========== ==========
8,409 17,535
=============================================== ========== ==========
8. INVESTMENT MANAGEMENT AND PERFORMANCE FEE
Y e ar e
Y e ar e n n ded
ded 30 A p 30 A p r
r il 2023 il 2022
GBP '000 GBP '000
========================================== =========================== ===================
I n v est m e nt m a n a g e m e nt f ee
p a yable to Po l ar Ca pital ( ch arged
wh o l ly to
r e ven u e ) 21,918 28,281
========================================== =========================== ===================
Performance fee payable to Polar Capital - -
(charged wholly to capital)
========================================== =========================== ===================
There was no performance payable in respect of the year nor
outstanding at the year end (2022:same).
The basis for calculating the investment management and
performance fees are set out in the Strategic Report above and
details of all amounts payable to the Manager are given in Note 16
below.
As a result of the current fee arrangements which came into
force on 1 May 2022, the management fee in 2023 is calculated on
the reduced rates and daily net asset value, as such has
subsequently decreased compared to the previous year. Details of
the Investment Management Agreement are disclosed in the Strategic
Report above.
9. OTHER ADMINISTRATIVE EXPENSES
Y e ar e Y e ar e
n ded n ded 30
3 0 A p A p r il
r il 2023 2022
GBP '000 GBP '000
============================================== ========== ==============
Directors' fees and expenses(1) 247 229
============================================== ========== ==============
National insurance contributions 26 24
============================================== ========== ==============
Depositary fee(2) 192 233
============================================== ========== ==============
Registrar fee 54 51
============================================== ========== ==============
Custody and other bank charges(3) 267 358
============================================== ========== ==============
UKLA and LSE listing fees(4) 204 190
============================================== ========== ==============
Legal & professional fees and other financial
services 16 4
============================================== ========== ==============
AIC fees 21 21
============================================== ========== ==============
Auditors' remuneration - for audit of the
financial Statements 63 45
============================================== ========== ==============
Directors' and officers' liability insurance 38 23
============================================== ========== ==============
AGM expenses(5) 6 31
============================================== ========== ==============
Corporate brokers' fee(6) - -
============================================== ========== ==============
Shareholder communications(7) 38 82
============================================== ========== ==============
Other expenses 4 44
============================================== ========== ==============
1,176 1,335
============================================== ========== ==============
1. Full disclosure is given in the Directors' Remuneration Report in the Annual Report.
2. Depositary fee is based on the value of the net assets. The
daily average net asset value decreased by 19.3% compared to the
previous year.
3. Custody fees are based on the value of the assets and
geographical activity and determined on the pre-approved rate card
with HSBC.
4. Fees are based on the market capitalisation of the Company
which has risen over the last invoice period.
5. Reduced 2023 AGM expenses mainly due to the removal of Lumi online hybrid AGM option.
6. 2022/2023 annual fee was offset by the commission credit on shares repurchases.
7. Includes reversal of prior year over accruals in this period.
10. FINANCE COSTS Y e ar e n Y e ar e n ded
ded 30 A p 3 0 A p r il
r il 2 0 23 2 0 22
GBP '000 GBP '000
----------------------------------- ---------------------------------- ------------------------------
Interest on loans and overdrafts 1,514 973
Loan arrangement and facility fees 84 84- -
1,598 973
=================================== ================================== ==============================
11. TAXATION Y e ar e n Y e ar e n ded
ded 30 A p 3 0 A p r il
r il 2 0 23 2 0 22
GBP '000 GBP '000
----------------------------------------- ---------------------------- ------------------------------
(a) Analysis of tax charge for the year:
Overseas tax 2,148 2,000
Total tax for the year (see Note 11b) 2,148 2,000
========================================= ============================ ==============================
(b) Factors affecting tax charge for the year:
The charge for the year can be reconciled to the loss per the
Statement of Comprehensive Income as follows:
Loss before tax (103,034) (256,646)
---------------------------------------------- --------- ---------
Tax at the UK corporation effective tax
rate of 19.5% (2022: 19%) (20,092) (48,763)
Tax effect of non-taxable dividends (3,159) (3,015)
Tax effect of losses on investments that
are not taxable 19,181 45,972
Unrelieved current year expenses and deficits 4,070 5,806
Overseas tax suffered 2,148 2,000
Total tax for the year (see Note 11a) 2,148 2,000
============================================== ========= =========
(c) Factors that may affect future tax charges:
There is an unrecognised deferred tax asset comprising:
Unrelieved management expenses 66,998 61,780
Non-trading loan relationship deficits 1,807 1,807
68,805 63,587
======================================= ====== ======
The deferred tax asset is based on a corporation tax rate of 25%
(2022: 25%).
The Company has an unrecognised deferred tax asset of
GBP66,998,000 (2022: GBP61,780,000) arising from surplus management
expenses of GBP267,992,000 (2022: GBP247,120,000) and unrecognised
deferred tax asset of GBP1,807,000 (2022: GBP1,807,000) arising
from non-trade loan relationship deficits of GBP7,227,000 (2022:
GBP7,227,000) based on a corporation tax rate of 25% (2022: 25%).
In its 2021 budget, the government announced that the main rate of
corporation tax would increase to 25% for the fiscal year beginning
on 1 April 2023. This deferred tax asset has arisen due to the
cumulative excess of deductible expenses over taxable income. Given
the composition of the Company's portfolio, it is not likely that
this asset will be utilised in the foreseeable future and therefore
no asset has been recognised in the accounts.
Due to the Company's tax status as an investment trust and the
intention to continue meeting the conditions required to maintain
approval of such status in the foreseeable future, the Company has
not provided tax on any capital gains arising on the revaluation or
disposal of investments held by the Company.
12. LOSS PER ORDINARY SHARE
Y e a r e n ded 30 A Y e a r e n ded 30 A
p r il 2 023 p r il 2 022
---------------------------------------- ----------------------------------------
C ap T o t T o t
R evenue ital retu al retu R evenue C ap ital al
retu rn rn rn retu rn retu rn retu rn
--------------------------- ------------ ------------ ------------ ------------ ------------ ------------
T he c a lcu l a tion
of bas ic ea r nings
p er share is based
on the follo w ing
data:
------------ ------------ ------------ ------------ ------------ ------------
Loss per ordinary
share (GBP'00 0) (6,860) (98,322) (105,182) (16,688) (241,958) (258,646)
------------ ------------ ------------ ------------ ------------ ------------
W e ig ht ed ave rage
or dina ry shares
in issue d u r ing
the year 129,409,889 129,409,889 129,409,889 134,984,460 134,984,460 134,984,460
------------ ------------ ------------ ------------ ------------ ------------
F rom con tinuing
op e r a tions
------------ ------------ ------------ ------------ ------------ ------------
Basic - loss per ordinary
share (pence) (5.30) (75.98) (81.28) (12.36) (179.25) (191.61)
--------------------------- ------------ ------------ ------------ ------------ ------------ ------------
As at 30 April 2023 there are no potentially dilutive shares in
issue and the earnings per share therefore equate to those shown
above (2022: there was no dilution).
13. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
(i) Investments held at fair value through profit or loss
Y e ar e n Y e ar e n ded
ded 30 A p 3 0 A p r il
r il 2 0 23 2 0 22
GBP '000 GBP '000
----------------------------------------- ---------------------------- ------------------------------
Opening book cost 2,253,434 2,199,334
Opening investment holding gains 557,646 1,043,700
Opening fair value 2,811,080 3,243,034
Analysis of transactions made during the
year
Purchases at cost 2,236,802 2,639,004
Sales proceeds received (2,300,898) (2,817,264)
Losses on investments held at fair value (106,807) (253,694)
----------------------------------------- ---------------------------- ------------------------------
Closing fair value 2,640,177 2,811,080
----------------------------------------- ---------------------------- ------------------------------
Closing book cost 2,058,477 2,253,434
Closing investment holding gains 581,700 557,646
----------------------------------------- ---------------------------- ------------------------------
Closing fair value 2,640,177 2,811,080
----------------------------------------- ---------------------------- ------------------------------
Of which:
Listed on a recognised Stock Exchange 2,640,177 2,811,080
----------------------------------------- ---------------------------- ------------------------------
The Company received GBP2,300,898,000 (2022: GBP2,817,264,000)
from disposal of investments in the year. The book cost of these
investments when they were purchased was GBP2,431,759,000 (2022:
GBP2,584,904,000). These investments have been revalued over time
and until they were sold any unrealised gains/losses were included
in the fair value of the investments.
Included in additions at cost are purchase costs of GBP1,055,000
(2022: GBP1,005,000). Included in proceeds of disposals are sales
costs of GBP1,231,000 (2022: GBP1,182,000). These costs primarily
comprise commission.
(ii) Changes in derivative financial instruments Y e ar e n Y e ar e n ded
ded 30 A p 3 0 A p r il
r il 2 0 23 2 0 22
GBP '000 GBP '000
------------------------------------------------- ---------------------------- ------------------------------
Valuation at 1 May 6,479 4,090
Additions at cost 42,594 47,194
Proceeds of disposal (46,536) (39,006)
Gains/(losses) on disposal 5,019 (10,212)
Valuation (losses)/ gains (4,985) 4,413
------------------------------------------------- ---------------------------- ------------------------------
Valuation at 30 April 2,571 6,479
------------------------------------------------- ---------------------------- ------------------------------
The derivative financial instruments represent the call and put
options, which are used for the purpose of efficient portfolio
management. As at 30 April 2023, the Company held NASDAQ 100 Stock
Index put option and the market value of these open put option
position was GBP1,559,000 (2022: NASDAQ 100 Stock Index put options
with a market value of GBP6,431,000). The Company also held
Microsoft Corp call options and the market value of these open call
option position was GBP1,012,000 (2022: Apple Inc. call options
with a market value of GBP48,000).
(iii) Classification under Fair Value Hierarchy:
The table below sets out the fair value measurements using the
IFRS 7 fair value hierarchy. Categorisation within the hierarchy
has been determined on the basis of the lowest level of input that
is significant to the fair value measurement of the relevant asset
as follows:
Level 1 - valued using quoted prices in active markets for
identical assets.
Level 2 - valued by reference to valuation techniques using
observable inputs other than quoted prices included within Level
1.
Level 3 - valued by reference to valuation techniques using
inputs that are not based on observable market data.
The valuation techniques used by the Company are explained in
the accounting policies note above.
Y e ar e n Y e ar e n ded
ded 30 A p 3 0 A p r il
r il 2 0 23 2 0 22
GBP '000 GBP '000
-------------------------------------------- ---------------------------- ------------------------------
Equity Investments and derivative financial
instruments
Level 1 2,641,189 2,817,559
Level 2 1,559 -
Level 3 - -
-------------------------------------------- ---------------------------- ------------------------------
2,642,748 2,817,559
-------------------------------------------- ---------------------------- ------------------------------
The NASDAQ 100 Stock Index put options held at the year ended 30
April 2023 have been classified as level 2 due to the absence of
regular trading activity levels closer to the measurement date. All
other options held at the current and prior year end have been
classified as level 1.
There has been no further transfer between Levels 1, 2 and 3
during the year ended 30 April 2023.
(iv) Unquoted investments
As at 30 April 2023, the portfolio comprised no unquoted
investment (30 April 2021: same):
The carrying values of other receivables approximate their fair
value.
14. CASH AND CASH EQUIVALENTS 3 0 A p 3 0 A p r
r il 2023 il 2022
GBP '000 GBP '000
======================================== ============= ===========
C ash at b ank 148,682 211,940
Cash held at derivative clearing houses - 7,463
Money market funds 90,414 91,960
======================================== ============= ===========
Cash and cash equivalents 239,096 311,363
======================================== ============= ===========
As at 30 April 2023, the Company held BlackRock's Institutional
Cash Series plc - US Treasury Fund with a market value of
GBP90,414,000 (30 April 2022: GBP91,960,000), which is managed as
part of the Company's cash and cash equivalents as defined under
IAS 7.
15. SHARE CAPITAL
3 0 A p 3 0 A p r
r il il
2023 2022
GBP '000 GBP '000
=================================================== ============ ============
Allotted, Called up and Fully paid:
=================================================== ============ ============
Ordinary shares of 25p each
=================================================== ============ ============
Opening balance of 132,356,426 (30 April 2022:
136,544,764) 33,089 34,136
=================================================== ============ ============
Repurchase of 6,070,882 (30 April 2022: 4,188,338)
ordinary shares into
treasury (1,518) (1,047)
=================================================== ============ ============
Allotted, called up and fully paid: 126,285,544
(30 April 2022: 132,356,426)
ordinary shares
of 25p ordinary shares of 25p 31,571 33,089
ordinary shares of 25p
of 25p
=================================================== ============ ============
11,029,456 (2022: 4,958,574) ordinary shares
held in treasury 2,758 1,240
=================================================== ============ ============
At 30 April 2023 34,329 34,329
=================================================== ============ ============
During the year, there were no ordinary shares issued to the
market (2022: same). A total of 6,070,882 (2022: 4,188,338)
ordinary shares were repurchased into treasury at a cost of
GBP117,078,000 (2022: GBP98,639,000).
Subsequent to the year end, and to 13 July 2023 (latest
practicable date), 1,229,369 ordinary shares were repurchased into
treasury at an average price of 2,151.43p per share.
16. TRANSACTIONS WITH THE MANAGER AND RELATED PARTY
TRANSACTIONS
(A) TRANSACTIONS WITH THE MANAGER
Under the terms of an agreement dated 9 February 2001 the
Company has appointed Polar Capital LLP ("Polar Capital") to
provide investment management, accounting, secretarial and
administrative services. Details of the fee arrangement for these
services are given in the Strategic Report. The total management
fees, paid under this agreement to Polar Capital in respect of the
year ended 30 April 2023 were GBP21,918,000 (2022: GBP28,281,000)
of which GBP1,827,000 (2022: GBP6,374,000) was outstanding and
accrued at the year end.
There was no performance fee payable in respect of the year nor
outstanding at the year end (2022: same).
In addition, the research costs and the first GBP200,000 of
marketing costs per annum are borne by the Manager.
The new investment management agreement which came into force on
1 May 2022 agreed lower rates of the management base fee,
simplified the structure of the base fee to three tiers and
calculated on the daily net asset value. The Manager also agreed an
increased contribution to the marketing costs payable by the
Company to the first GBP200,000 per annum. Details of the
Investment Management Agreement are provided in the Strategic
Report above.
(B) RELATED PARTY TRANSACTIONS
The compensation payable to key management personnel in respect
of short term employee benefits is GBP229,000 (2021: GBP182,000)
which comprises GBP229,000 (2021: GBP182,000) paid by the Company
to the Directors.
Refer to Company's 2023 Annual Report for the Directors'
Remuneration Report including Directors' shareholdings and
movements within the year.
17. NET ASSET VALUE PER ORDINARY SHARE
N e t a s set value
per share
=========================================== ----------------------------------
3 0 A p r 3 0 A p r
il il
2023 2022
=========================================== ================= ===============
U nd ilut e d:
=========================================== ================= ===============
Net as s e ts a t t r ibutable to or d ina
ry Shareholders ( GBP ' 00 0) 2,828,141 3,050,985
=========================================== ================= ===============
Or dina ry shares in issue at end of year 126,285,544 132,356,426
=========================================== ================= ===============
Net as s et v alue p er or d ina ry share
( p enc e) 2239.48 2305.13
=========================================== ================= ===============
As at 30 April 2023, there were no potentially dilutive shares
in issue (2022: there was no dilution).
18. POST BALANCE SHEET EVENT
Subsequent to the year end, and to 13 July 2023, 1,229,369
ordinary shares were repurchased and placed in the Treasury at an
average price of 2,151.43p per share.
There are no other significant events that have occurred after
the end of the reporting period to the date of this report which
require disclosure.
.
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END
FR UWVRRONUBAUR
(END) Dow Jones Newswires
July 19, 2023 02:00 ET (06:00 GMT)
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