RNS Announcement

The Monks Investment Trust PLC (MNKS)

Legal Entity Identifier: 213800MRI1JTUKG5AF64

Results for the six months to 31 October 2023

The following is the unaudited Interim Financial Report for the six months to 31 October 2023 which was approved by the Board on 7 December 2023.

Chairman's statement

Performance

During the first half of the financial year, the Company produced a net asset value (NAV) total return of -3.3% compared to +2.1% for the comparative index (FTSE World in sterling). The share price total return was -7.3%, as the discount widened from 8.7% to 11.6%. The investment trust sector is trading at discounts last seen during the financial crisis.

This is disappointing. Beyond the seven mega-cap stocks in the US, growth stocks have been out of favour during a period of rising interest rates. We believe that in the long run growth stocks will continue to deliver better investment returns, particularly as technology continues to transform economies in sometimes unpredictable ways. We also share the investment managers' optimism that the period of sharply rising rates is now behind us. Some of the underperformance, however, has been driven by specific stock selection, and commentary on the largest detractors from performance over the period is included in the Managers' report.

Discount management

Apart from challenging the manager, an essential role of an investment company board is to determine the company's policy in respect of discount management.

Monks has bought back approximately £300m of its own stock since the beginning of last year, when the Company's shares moved from a premium to a discount. Repurchasing shares provides NAV accretion, reduces share price volatility and reassures shareholders and potential investors that the Board is alive to the question of discount management. The Board therefore intends to continue to buy back while the Company's shares trade at a substantial discount to NAV. It continues to evaluate the range of alternative options at its disposal to seek to address the discount. 

Gearing

An advantage of the investment trust structure is that the Company can deploy borrowing to enhance returns in the long run. In 2020, the Board took advantage of low interest rates to issue debt to an insurer to provide structural gearing, securing £100m of borrowing with a maturity of 30 years at an interest rate of 1.8%. The Board believes that it is beneficial for the Company to have flexibility in its capital structure, so not all of the Company's borrowing is structural. The Company also has a revolving debt facility of £150m at a floating rate of interest, the cost of which has risen with market rates. This facility expires in November 2024. The Board is considering potential options to replace this facility and will update shareholders in due course.

The Board

As previously reported, Jeremy Tigue has indicated his intention not to offer himself for re-election at the AGM in September 2024 and, accordingly, Belinda Richards has succeeded him as Senior Independent Director ('SID') in order to oversee the necessary recruitment and succession planning. A recruitment process is under way to add further members to the Board. We expect to be in a position to announce the new appointments before the end of the Company's current financial year.

Outlook

Monks has a well-diversified portfolio of growth stocks, with less than 4% underlying exposure to unquoted companies. The Board believes that the Company's diversified approach offers investors exposure to a wide range of growth opportunities that are likely to drive returns in the years ahead. 

Karl Sternberg

Chairman

7 December 2023

Interim management report

The investment performance of Monks' portfolio in the first half of its financial year has been disappointing. This continues a run of poor relative returns that began two years ago, which has erased - for the time being - the superior returns delivered for shareholders since the Global Alpha team took over eight years ago. This stands in contrast to our view of the long-term growth prospects of the companies in the Monks portfolio.

Rapidly rising inflation and the increases in interest rates that began in the first half of 2022 suppressed investors' appetite for growth assets and precipitated sharp share price falls of companies held in the Monks portfolio. The portfolio was too concentrated in rapidly growing, earlier-stage companies that bore the brunt of share price declines. We have taken action by selling holdings poorly positioned in an environment of persistently higher inflation and interest rates, while restoring greater balance across the portfolio's three growth profiles (Stalwart, Rapid, Cyclical). Furthermore, we have strengthened the analytical inputs to our investment process, specifically, those related to valuations and stock correlations.

We believe that good times are ahead for the portfolio. The inflation and interest rate environment is stabilising and we expect the portfolio to deliver substantially higher levels of earnings growth than the market. Indeed, the three-year forecast earnings growth of portfolio companies is more than double the market average (+12.8% p.a. compared to +5.5% p.a.), its highest level relative to the index in a decade. The forecast price-to-earnings ratio of the portfolio companies in 2024 is 17.5x, an +18% premium to the index (14.8x). This is an attractive trade-off that we believe will drive future returns for Monks shareholders.  

Performance

During the first half of the financial year, the Company produced a net asset value (NAV)* total return of -3.3% compared to +2.1% for the comparative index (FTSE World in sterling). The share price total return was -7.3%. Since our team took over the management of the portfolio in March 2015, the Company has produced a NAV total return +119.3% compared to +132.2% for the comparative index. The share price total return was +114.4%.

Among the largest detractors from performance were the holdings in The Schiehallion Fund (a closed-ended investment company managed by Baillie Gifford that invests in late-stage private companies), Pernod Ricard (spirits and drinks), and Shiseido (cosmetics).

Although the NAV of the Schiehallion Fund fell by 5%, it was a widening discount between the share price and NAV (from 25% to 50% in the period) that drove its underperformance. This reflects a more challenging operating environment for companies and investors' aversion to assets whose valuations are founded on long-term potential. This has contributed to share price weakness across the portfolio more broadly too. We continue to favour a modest level of exposure to private companies (3.9% of the portfolio, of which Schiehallion is 1.5%), but are enthusiastic about the potential of both Schiehallion and the handful of directly held private securities (which include Bytedance and SpaceX that are also held in Schiehallion).

The sharp share price falls (20-30%) for Pernod Ricard, the French spirits business, and Shiseido, the Japanese cosmetics company have, in part, been down to weaker demand from the Chinese market. Consumer appetite in China has been slower to return post-pandemic, which has been felt most acutely in 'premium' products of the type sold by Pernod and Shiseido. We believe that these developments are temporary. For example, in the case of Shiseido, it continues to focus on its 'prestige' brands (Cle de Peu, Anessa and Zanessa) in the Chinese market where we believe volumes and operating margins will be materially higher (versus 2019 levels) in the next 2-3 years.

On a sector basis, the portfolio's healthcare holdings have accounted for around 40% of the underperformance relative to the index over the period. For most of these, we remain enthusiastic about their long-term growth potential. For example, Moderna, the infectious disease vaccine producer, has seen revenue growth slow after demand for Covid vaccines fell. Whilst the share price spiked through the pandemic to over $400 and has fallen sharply, Moderna remains a relatively new position for Monks (purchased just two years ago) and the current price is above our initial purchase price (~$77 per share). Moderna has proven itself capable of executing and we believe that focusing on near-term demand for Covid vaccines ignores the strength of Moderna's pipeline of treatments (36 programs in clinical trials deploying mRNA technology to make infectious disease vaccines). Our conviction in Moderna's ability to be one of the leading biotech companies of the future, solving health challenges for millions of people, remains intact.

In contrast, where long-term growth prospects are faltering, we have taken action. This is true for Illumina (gene sequencing). We have sold the portfolio's holding as a result of significant management changes and poor operational execution of its acquisition of Grail (cancer testing), which it continues to contest with regulators.

Despite the poor share price reactions we have seen, the operational progress of a majority of holdings remains on track. Several of our long-established cyclical operators, such as building and aggregates businesses Martin Marietta and CRH, have contributed positively to NAV. These companies continue to demonstrate exceptional capital allocation discipline and very strong pricing power that has driven robust growth in profitability. For example, Martin Marietta increased pricing by 17% and grew gross profits by 38% year-on-year.

The strongest contributors have demonstrated increasing earnings power this year. This is true of Meta (social media) and Amazon (ecommerce and cloud). Mark Zuckerberg announced 2023 as Meta's 'year of efficiency', indeed, revenue growth is returning to faster growth (+23% year-on-year) and net income rose 164% year-on-year. We believe this is only the beginning of a material uptick in Meta's profitability. Its advertising estate (that includes Facebook, Instagram and Whatsapp platforms) reaches 3.6 billion users and is under-monetised. We are excited about its potential and have added twice this year. Amazon invested heavily in its logistics network during the pandemic. Utilisation rates are growing and its retail division is becoming more profitable, while its highly profitable Cloud computing division, Amazon Web Services, continues to make strong progress. Recent deals struck with other ecommerce platforms (such as Shopify and Pinterest) to provide fulfilment services for transactions on their platforms have underlined Amazon's credentials as the leading provider of infrastructure in this market.

Elsewhere, there are similar stories of strong execution at the likes of The Trade Desk (programmatic advertising) and Doordash (food and grocery delivery). Doordash - led by founder Tony Xu - has a relentless focus on improving customer service and profitability. The business has taken its time to develop its business model in the suburbs of the US and is now proving its strength in city centre locations. The latest results saw its earnings grow just under 300% year-on-year.

Gearing

We continue to believe in the value of gearing to enhance long-term shareholder returns. Gross gearing has increased from 7.2% to 8.3% in the period. We drew down a modest sum from Monks' revolving debt facility which has supported both ongoing share buybacks and additions to existing positions. The £100m of structurally low-cost (1.8%) gearing secured for a 30-year term in 2020 has provided an excellent foundation from which to generate future excess return for shareholders and afforded us the latitude to consider the merits of further borrowing on behalf of investors.

Positioning and opportunity

Macroeconomic factors have been a key driver of share prices. Nevertheless, we continue to revisit the underlying growth drivers that underpin Monks' portfolio. We remain confident that the growth tailwinds will either endure despite global economic challenges or strengthen because of them.

The critical imperatives for upgrading crumbling infrastructure, decarbonising the economy and better meeting the needs of ageing populations have not gone away.  Nor have structural bottlenecks in critical resources, cloud infrastructure and logistics networks. At the same time, we believe that machine learning remains in the foothills and that deepening fissures between the US and China will broaden innovation into new developing markets. All these tailwinds remain intact, regardless of the market's focus.

These themes are consistent with our Research Agenda which outlines a handful of potentially rich seams for stock pickers. We have continued to pursue opportunities in these areas and have been adding selectively to the Monks portfolio. We highlight below some of the themes and positions which informed recent additions to the portfolio:

1.   New Growth Frontiers - if the growth engines of the past decade were the internet, mobile, and software, the next decade will be based on the cloud, data, and artificial intelligence. These technologies are likely to bridge the digital and physical world, having potentially profound implications for a range of industries.

We consider semiconductors to be the "picks and shovels" of this modern 'Gold Rush', underpinning many of these exciting growth trends. Research on various semiconductor opportunities has seen Monks' overall exposure to semiconductors double to 6% of assets in the past twelve months. Among the most recent new purchases in this area are Advanced Micro Devices, Samsung Electronics and NVIDIA. The latter is a market leader in graphics processing units (GPUs) that are essential in a world that has an insatiable demand for ever-increasing computing power. Around 90% of generative AI (artificial intelligence) programs are trained on NVIDIA hardware, and 3 million of the world's machine learning engineers (nearly all of them) have used NVIDIA's tools. Its dominant position in GPUs (as a fundamental enabler of AI model learning) supports attractive upside. We can see a plausible case for NVIDIA's revenue growing at 40% per annum over the next five years. Its dominant position should afford it pricing power and control of margins. While, even with a derating, the expected operational performance can drive a doubling of NVIDIA's share price through to 2028. 

2.   Infrastructure Upgrade - we have continued to invest where companies may be beneficiaries of an 'Infrastructure Upgrade', particularly in the US. There are several factors including re-shoring trends and infrastructure spending bills which are likely to support a material uptick in capital spending on areas including roads, energy and digital networks.   

The most recent purchase is Comfort Systems, an installer of heating, ventilation and air conditioning systems in the US. Over the last 25 years, Comfort has grown earnings before interest and tax at an annualised rate of 17%, and yet the opportunity to maintain this growth for many more years remains enormous. Industrial policy is spurring record construction starts, accelerating the growth outlook for various companies across the portfolio. Comfort joins that cohort. To meet our growth hurdle, Comfort needs to continue to consolidate the industry, although we are optimistic that growth may in fact accelerate on account of its strategic focus on smaller cities and large towns in the US. This affords it a cost advantage and allows it to better serve these communities by being based locally.

3.   Increased Return from Patience - during periods of fear and uncertainty, time horizons shrink and investors focus on the here and now. As long-term investors, this gives us a heightened advantage in identifying secular growth companies that are facing near-term headwinds that are obscuring the potential for long-term growth.

We have been seeking opportunities to pick up a bargain where valuations look materially lower than history but the fundamental growth prospects remain intact. An example of this is the recent purchase of YETI Holdings (purchased on 16x forward earnings), a premium North American outdoor brand. Its appeal lies in its superior quality, built-to-last products such as beverage cups and coolers which are seen as premium outdoor products. Management is thoughtful in its approach to managing the brand while expanding the product range and growing the business outside North America. Another is Nippon Paint. A Japanese paint products manufacturing company, Nippon has a strong position in the Chinese market via its subsidiary, Nipsea. Brand and distribution are key competitive advantages and a well-aligned management team has a strong track record of success. China's per capita spend on paint is one-third that of developed markets and we believe it has huge growth potential. Nipsea is already the market leader and well-positioned to capture growth in China and Asia more broadly.

On the other side of the ledger, we have moved on from holdings that looked more fully valued or where the growth outlook had diminished. Examples of the former include Booking Holdings (online travel) and Axon Enterprises (security and law enforcement services). In the case of Booking Holdings, we felt a combination of a strong post-pandemic recovery in travel and a sharp increase in the share price diminished the upside for the business, but were also cognisant of the potential competitive threat that artificial intelligence applications might pose to Booking's online search platform. In Axon's case, the share price had doubled in the prior 12 months taking the valuation on a price-to-sales basis to over 10x. This has been a successful investment for Monks since first investing in 2019 (its share price grew nearly three-fold), but the probability of hitting our returns hurdle (a doubling in share price over the next 5 years) had fallen significantly. A diminishing growth outlook underpins the sales of long-term holding and financial exchange operator Deutsche Boerse, Japanese auto part manufacturer DENSO, and Chinese food delivery business, Meituan. The latter was subject to regulatory pressure to reduce take rates and increase staff benefits which reduced profitability. The scale of the opportunity perhaps led us to hold on too long, but we have exited with the shares up nearly two-fold since purchase five years ago. Ultimately, an increasingly competitive marketplace and a capped upside led us to sell the shares.

Outlook

It has been a bruising period performance-wise. But beneath the difficult headline numbers resides a portfolio in robust health. Forecast earnings growth - at nearly twice the market average - is coiled and ready to drive returns for shareholders in the years ahead. At the same time, portfolio companies boast superior gross and net margins relative to the index (37.2% versus 28.7% and 11.3% versus 9.0%, respectively) and are materially less indebted, with net debt-to-equity of 20% versus the index at 50%. The superior financial robustness of our holdings supports their ability to allocate more capital to Research and Development (R&D to sales for Monks holdings is 7.3% compared to the index at 4.6%). These investments will extend their competitive advantages and enable our companies to outcompete peers in years to come.

We know from experience that this is exactly the kind of environment where patience will be handsomely rewarded. Managing the assets of the Monks Investment Trust is a privilege. Holding course and owning a portfolio of high-quality companies that will deliver superior earnings is the best way to deliver attractive returns for Monks shareholders in the years ahead.

* With debt at fair value

Baillie Gifford & Co

Managers

7 December 2023

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this document

Total return information sourced from LSEG/Baillie Gifford. See disclaimer at end of this document.

Past performance is not a guide to future performance.

The Managers' core investment beliefs

We believe the following features of Monks provide a sustainable basis for adding value for shareholders.

Active management

-      We invest in attractive companies using a 'bottom-up' investment process. Macroeconomic forecasts are of relatively little interest to us.

-      High active share* provides the potential for adding value.

-      We ignore the structure of the index - for example the location of a company's HQ and therefore its domicile are less relevant to us than where it generates sales and profits.

-      Large swathes of the market are unattractive and of no interest to us.

-      As index agnostic global investors we can go anywhere and only invest in the best ideas.

-      As the portfolio is very different from the index, we expect portfolio returns to vary - sometimes substantially and often for prolonged periods.

Committed growth investors

-      In the long run, share prices follow fundamentals; growth drives returns.

-      We aim to produce a portfolio of stocks with above average growth - this in turn underpins the ability of Monks to add value.

-      We have a differentiated approach to growth, focusing on the type of growth that we expect a company to deliver. All holdings fall into one of three growth categories - as set out below.

-      The use of these three growth categories ensures a diversity of growth drivers within a disciplined framework.

Long-term perspective

-      Long-term holdings mean that company fundamentals are given time to drive returns.

-      We prefer companies that are managed with a long-term mindset, rather than those that prioritise the management of market expectations.

-      We believe our approach helps us focus on what is important during the inevitable periods of underperformance.

-      Short-term portfolio results are random.

-      As longer-term shareholders we are able to have greater influence on environmental, social and governance matters.

Dedicated team with clear decision-making process

-      Senior and experienced team drawing on the full resources of Baillie Gifford.

-      Alignment of interests - the investment team responsible for Monks all own shares in the Company.

Portfolio construction

-      Investments are held in three broad holding sizes - as set out below.

-      This allows us to back our judgement in those stocks for which we have greater conviction, and to embrace the asymmetry of returns through 'incubator' positions in higher risk/return stocks.

-      'Asymmetry of returns': some of our smaller positions will struggle and their share prices will fall; those that are successful may rise many fold. The latter should outweigh the former.

Low cost

-      Investors should not be penalised by high management fees.

-      Low turnover and trading costs benefit shareholders.

*For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this document

Responsibility statement

We confirm that to the best of our knowledge:

a)   the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';

b)   the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months, their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and

c)   the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Karl Sternberg

Chairman

7 December 2023

List of Investments as at 31 October 2023

* For a definition of terms used see Glossary of Terms and Alternative Performance Measures at the end of this document.

^U Denotes unlisted/private company holding.

† New purchase during the period. Complete sales during the period included: Axon Enterprise; Booking Holdings; Bumble; DENSO; Deutsche Boerse; Meituan; On the Beach; Team 17 Group; and Wizz Air Holdings.

# Includes holdings in preference shares, ordinary shares and contingent value rights (CVR).

Investment portfolio by growth category as at 31 October 2023*

*      Excludes net liquid assets.

Portfolio positioning as at 31 October 2023^*†

* Expressed as a percentage of total assets.

^†For a definition of terms used see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Income statement (unaudited)

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and total comprehensive income for the period.

Balance sheet (unaudited)

*      See Glossary of Terms and Alternative Performance Measures at the end of this announcement.

The accompanying notes on the following pages are an integral part of the Financial Statements

Statement of changes in equity (unaudited)

For the six months ended 31 October 2023

For the six months ended 31 October 2022

^*          The Capital Reserve balance at 31 October 2023 includes holding gains on investments of £520,850,000 (31 October 2022 - gains of £598,370).

The accompanying notes on the following pages are an integral part of the Financial Statements

Cash flow statement (unaudited)

^*          Cash from operations includes dividends received of £16,998,000 (31 October 2022 - £17,838,000) and deposit interest received of £727,000 (31 October 2022 - £94,000).

The accompanying notes are an integral part of the Financial Statements.

Notes to the condensed financial statements (unaudited)

1.   Basis of accounting

The condensed Financial Statements for the six months to 31 October 2023 comprise the statements set out above together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in November 2014 and updated in July 2022 with consequential amendments. They have not been audited or reviewed by the Auditor pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Financial Statements for the six months to 31 October 2023 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 30 April 2023.

Going concern

The Directors have considered the Company's principal risks and uncertainties, as set out in note 13 below, together with the Company's current position, investment objective and policy, the level of demand for the Company's shares, the nature of its assets, its liabilities and projected income and expenditure. The Board has, in particular, considered the impact of market volatility over recent months, owing to macroeconomic and geopolitical concerns, including increased inflation and interest rates, the Russia-Ukraine conflict and Israel-Palestine hostilities. It is the Directors' opinion that the Company has adequate resources to continue in operational existence for the foreseeable future. The vast majority of the Company's investments are readily realisable and can be sold to meet its liabilities as they fall due. All borrowings require the prior approval of the Board. Gearing levels and compliance with covenants are reviewed by the Board on a regular basis. The Company has continued to comply with the investment trust status requirements of section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) Regulations 2011. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue to do so over a period of at least twelve months from the date of approval of these Financial Statements.

2.   Financial information

The financial information contained within this Interim Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 30 April 2023 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on those accounts was not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying its report, and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

3.   Investment managers

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Managers (AIFM) and Company Secretaries. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six months' notice. The annual management fee is 0.45% on the first £750 million of total assets, 0.33% on the next £1 billion of total assets and 0.30% on the remaining total assets. For fee purposes, total assets is defined as the total value of all assets held less all liabilities (other than any liability in the form of debt intended for investment purposes) and excludes the value of the Company's holding in The Schiehallion Fund a closed-ended investment company managed by Baillie Gifford & Co. The Company does not currently hold any other collective investment vehicles managed by Baillie Gifford & Co. Where the Company holds investments in open-ended collective investment vehicles managed by Baillie Gifford, such as OEICs, Monks' share of any fees charged within that vehicle will be rebated to the Company. All debt drawn down during the periods under review is intended for investment purposes.

4.   Tax on ordinary activities

The revenue tax charge arises from withholding tax suffered on overseas dividends. The capital tax charge results from the Provision for Tax Liability in respect of Indian capital gains tax as detailed in note 9.

5.    Net return per ordinary share

Net return per ordinary share is based on the above totals of revenue and capital and on 228,211,498 (31 October 2022 - 222,840,019; 30 April 2023 - 227,887,889) ordinary shares, being the weighted average number of ordinary shares in issue during the period.

There are no dilutive or potentially dilutive shares in issue.

6.   Dividends

No interim dividend has been declared in respect of the current period.

7.    Fair value hierarchy

The Company's investments are financial assets held at fair value through profit or loss. The fair value hierarchy used to analyse the basis on which the fair values of such financial instruments are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement.

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

An analysis of the Company's financial asset investments based on the fair value hierarchy described above is shown below.

The fair value of listed investments is either bid price or last traded price depending on the convention of the exchange on which the investment is listed. Listed Investments are categorised as Level 1 if they are valued using unadjusted quoted prices for identical instruments in an active market and as Level 2 if they do not meet all these criteria but are, nonetheless, valued using market data. Unlisted investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' unlisted investment policy applies methodologies consistent with the

International Private Equity and Venture Capital Valuation Guidelines ('IPEV'). These methodologies can be categorised as follows: (a) market approach (multiples, industry valuation benchmarks and available market prices); (b) income approach (discounted cash flows); and (c) replacement cost approach (net assets). The Company's holdings in unlisted investments are categorised as Level 3 as unobservable data is a significant input to their fair value measurements.

8.    Financial liabilities

At 31 October 2023 the total book value of the Company's borrowings amounted to £189,860,000 (30 April 2023 - £174,858,000). This comprised loan notes of £60m repayable in 2054 (30 April 2023 - £60m), loan notes of £40m repayable in 2045 (30 April 2023 - £40m) and £90m drawn under the revolving credit facility with National Australia Bank Limited (30 April 2022 - £75m).

The fair value of borrowings at 31 October 2023 was £134,261,000 (30 April 2023 - £125,404,000).

9.   Provision for tax liability

The tax liability provision at 31 October 2023 of £1,719,000 (30 April 2023 - £1,160,000) relates to a potential liability for Indian capital gains tax that may arise on the Company's Indian investments should they be sold in the future, based on the net unrealised taxable capital gain at the period end and on enacted Indian tax rates. The amount of any future tax amounts payable may differ from this provision, depending on the value and timing of any future sales of such investments and future Indian tax rates.

10.  Shareholders' funds

The shareholders' funds figures above have been calculated after deducting borrowings at book value, in accordance with the provisions of FRS 104. Reconciliations between shareholders' funds and net asset values, calculated after deducting borrowings at par value and fair value, are shown in the Glossary of Terms and Alternative Performance Measures below.

11.  Share capital

In the six months to 31 October 2023 the Company bought back 6,521,000 ordinary shares into treasury (31 October 2022 - 9,796,244 shares bought back). No shares were issued during the period and 28,895,794 shares were held in treasury at 31 October 2023. At 31 October 2023, the Company had authority to buy back 31,323,652 shares and to allot, or sell from treasury, 22,988,666 shares.

12.  Related party transactions

There have been no transactions with related parties during the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Financial Statements that could have had such an effect on the Company during that period.

13.  Principal risks and uncertainties

The principal risks facing the Company, which have not changed since the date of the Company's Annual Report and Financial Statements for the year ended 30 April 2023, are financial risk, investment strategy risk, climate and governance risk, regulatory risk, custody and depositary risk, operational risk, discount risk, political and associated economic risk and leverage risk. An explanation of these risks and how they are managed is set out on pages 19 and 20 of that report, which is available on the Company's website: monksinvestmenttrust.co.uk.^‡

^‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

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

Baillie Gifford's approach to valuing private companies

We aim to hold our private company investments at 'fair value' i.e., the price that would be paid in an open-market transaction. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations group at Baillie Gifford which takes advice from an independent third party (S&P Global). The valuations group is independent from the investment team, with all voting members being from different operational areas of the firm, and the portfolio managers only receive final valuation notifications once they have been applied.

We revalue the private holdings on a three-month rolling cycle, with one-third of the holdings reassessed each month. During stable market conditions, and assuming all else is equal, each investment would be valued four times in a twelve month period. For investment trusts, the prices are also reviewed twice per year by the respective investment trust boards and are subject to the scrutiny of external auditors in the annual audit process.

Recent market volatility has meant that recent pricing has moved much more frequently than would have been the case with the quarterly valuations cycle.

Beyond the regular cycle, the valuations team also monitors the portfolio for certain 'trigger events'. These may include: changes in fundamentals; a takeover approach; an intention to carry out an Initial Public Offering (IPO); company news which is identified by the valuation team or by the portfolio managers or changes to the valuation of comparable public companies. Any ad hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published NAV. There is no delay.

The valuations team also monitors relevant market indices on a weekly basis and updates valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate. When market volatility is particularly pronounced the team undertakes these checks daily.

In addition to the 2.4% of the portfolio holdings in direct private company investments, 1.5% of the portfolio is in The Schiehallion Fund, a closed ended investment company investing predominantly in private companies, which Monks values by reference to its market price.

Glossary of terms and alternative performance measures (APM)

Total assets

This is the Company's definition of adjusted total assets, being the total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Shareholders' funds

Shareholders' funds is the value of all assets held less all liabilities, with borrowings deducted at book cost.

Net asset value (APM)

Net asset value (NAV) is the value of all assets held less all liabilities, with borrowings deducted at either par value or fair value as described below. Per share amounts are calculated by dividing the relevant figure by the number of ordinary shares in issue.

Net asset value (borrowings at par value) (APM)

Borrowings are valued at nominal par value. A reconciliation from shareholders' funds (borrowings at book value) to net asset value after deducting borrowings at par value is provided below.

The per share figures above are based on 224,275,666 (30 April 2023 - 230,796,666) ordinary shares of 5p, being the number of ordinary shares in issue

at the period end excluding treasury shares.

Net asset value (borrowings at fair value) (APM)

Borrowings are valued at an estimate of market worth. The fair values of the loan notes are calculated using a comparable debt approach, by reference to a basket of corporate debt. The fair value of the Company's short term bank borrowings is equivalent to its book value.

A reconciliation from shareholders' funds (borrowings at book value) to net asset value after deducting borrowings at fair value is provided below.

The per share figures above are based on 224,275,666 (30 April 2023 - 230,796,666) ordinary shares of 5p, being the number of ordinary shares in issue

at the period end excluding treasury shares.

Net liquid assets

Net liquid assets comprise current assets less current liabilities (excluding borrowings) and provisions for deferred liabilities.

Discount/premium (APM)

As stock markets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Active share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the listed equity portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Total return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend, as detailed below.

Net asset value total return

*The dividend adjustment factor is calculated on the assumption that the dividend of 3.15p paid by the Company during the period was reinvested into shares of the Company at the cum income NAV at the ex-dividend date.

Share price total return

*The dividend adjustment factor is calculated on the assumption that the dividend of 3.15p paid by the Company during the period was reinvested into shares of the Company at the share price at the ex-dividend date.

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. The level of gearing can be adjusted through the use of derivatives which affect the sensitivity of the value of the portfolio to changes in the level of markets.

Gross gearing, also referred to as potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds (a ÷ c in the table below).

Net gearing, also referred to as invested gearing is borrowings at book value less cash and cash equivalents (any certificates of deposit are not deducted) and brokers' balances expressed as a percentage of shareholders' funds (b ÷ c in the table below)*.

Effective gearing, as defined by the Board and Managers of Monks, is the Company's borrowings at par less cash, brokers' balances and investment grade bonds maturing within one year, expressed as a percentage of shareholders' funds*.

*        As adjusted to take into account the gearing impact of any derivative holdings.

Unlisted, Unquoted and Private Company Investments

'Unlisted', 'Unquoted' and 'Private Company' investments are investments in securities not traded on a recognised exchange.

Treasury shares

The Company has the authority to make market purchases of its ordinary shares for retention as treasury shares for future reissue, resale, transfer, or for cancellation. Treasury shares do not receive distributions and the Company is not entitled to exercise the voting rights attaching to them.

Turnover (APM)

Turnover is a measure of portfolio change or trading activity. Monthly turnover is calculated as the minimum of purchases and sales in a month, divided by the average market value of the fund. Monthly numbers are added together to get the rolling 12 month turnover data.

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

The printed version of the Interim Financial Report will be sent to shareholders and will be available on the Monks' page of the Managers' website monksinvestmenttrust.co.uk ‡ on or around 20 December 2023.

‡          Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

Monks is managed by Baillie Gifford & Co, the Edinburgh based fund management group with around £217 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 6 December 2023).

Investment Trusts are UK public limited companies and are not authorised or regulated by the Financial Conduct Authority.

Past performance is not a guide to future performance.  The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares.

8 December 2023

For further information please contact:

Client Relations, Baillie Gifford & Co - Tel: 0131 275 2000

Jonathan Atkins, Four Communications - Tel: 0203 920 0555 or 07872 495396

Automatic exchange of information

In order to fulfil its obligations under UK tax legislation relating to the automatic exchange of information, the Company is required to collect and report certain information about certain shareholders.

The legislation requires investment trust companies to provide personal information to HMRC on certain investors who purchase shares in investment trusts. Accordingly, the Company will have to provide information annually to the local tax authority on the tax residencies of a number of non-UK based certificated shareholders and corporate entities.

Shareholders, excluding those whose shares are held in CREST, who come on to the share register will be sent a certification form for the purposes of collecting this information.

For further information, please see HMRC's Quick Guide: Automatic Exchange of Information - information for account holders gov.uk/government/publications/exchange-of-information-account-holders.

Third party data provider disclaimer

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data.

No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate. Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

FTSE index data

London Stock Exchange Group plc and its group undertakings (collectively, the 'LSE Group'). © LSE Group 2022. FTSE Russell is a trading name of certain of the LSE Group companies. 'FTSE®' 'Russell®', FTSE Russell®, is/are a trade mark(s) of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication.

No further distribution of data from the LSE Group is permitted without the relevant LSE Group company's express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

Sustainable finance disclosure regulation ('SFDR')

The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a direct impact in the UK due to Brexit, however, it applies to third-country products marketed in the EU. As The Monks Investment Trust PLC is marketed in the EU by the AIFM, BG & Co Limited, via the National Private Placement Regime ('NPPR') the following disclosures have been provided to comply with the high-level requirements of SFDR.

The AIFM has adopted Baillie Gifford & Co's Governance and Sustainable Principles and Guidelines as its policy on integration of sustainability risks in investment decisions.

Baillie Gifford & Co's approach to investment is based on identifying and holding high quality growth businesses that enjoy sustainable competitive advantages in their marketplace. To do this it looks beyond current financial performance, undertaking proprietary research to build up an in-depth knowledge of an individual company and a view on its long-term prospects. This includes the consideration of sustainability factors (environmental, social and/or governance matters) which it believes will positively or negatively influence the financial returns of an investment.

More detail on the Investment Managers' approach to sustainability can be found in the Governance and Sustainability Principles and Guidelines document, available publicly on the Baillie Gifford website bailliegifford.com.

Taxonomy regulation

The Taxonomy Regulation establishes an EU-wide framework or criteria for environmentally sustainable economic activities in respect of six environmental objectives. It builds on the disclosure requirements under SFDR by introducing additional disclosure obligations in respect of Alternative Investment Funds that invest in an economic activity that contributes to an environmental objective.

The Company does not commit to make sustainable investments as defined under SFDR. As such, the underlying investments do not take into account the EU criteria for environmentally sustainable economic activities.

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