SGEM.L Regulatory News (SGEM)

ScotGems Plc - Final Results

PR Newswire

London, March 9

From: ScotGems plc

LEI: 549300GQHCPU9P1NYM13

Date: 10 March 2021

Results for the year ended 31 December 2020

The Directors of ScotGems plc (“the Company”) are pleased to announce the Company's results for the year ended 31 December 2020.

Chairman’s Statement

I am pleased to present the fourth Annual Report and Accounts of your Company for the year ended 31 December 2020.

During 2020 the share price rose by 2.1% and the Net Asset Value (“NAV”) fell by 1.3%. This compares to a rise in the MSCI Emerging Markets Small Cap Index of 8.5% and a fall in the MSCI Emerging Markets ex Asia Index of 15.3%. The Company’s discount has narrowed from 18.4% to 15.6%. It is not currently the Board’s policy to buy back shares.

Since inception the share price has fallen by 27.5% and the NAV by 14.1%. This compares to a rise in the MSCI Emerging Markets Small Cap Index of 30.0% and a fall in the MSCI Emerging Markets ex Asia Index of 10.9%.

At the Company’s formation it was the intention to create a long-term portfolio of companies, the market capitalisation of which is less than $2.5 billion at the time of investment. In that sense the short-term performance figures, in my view, are a poor guide as to what the long-term outcome of these investments might be. The Investment Manager has set out below a detailed description of the existing portfolio, as well as describing their philosophy in selecting the particular companies in which ScotGems invests.

Whilst my fellow Directors and I are all too aware of the disappointing performance to date, your portfolio bears little resemblance to any index in either asset allocation or stock selection terms. The aggregate MSCI Emerging Markets Small Cap Index weightings in the North Asian markets of China, South Korea and Taiwan now amounts to approximately 50%. The corresponding Trust exposure to these markets is a much lower figure of near ten per cent. These three markets performed extremely well over the period — partly as they have a high exposure to the information technology sector and partly because of their earlier recovery from Covid-19. Thus the principal cause of the Trust’s underperformance over the year can be attributed to its under-representation in North Asian markets largely for governance and valuation reasons, because the Investment Manager has selected what they regard as the best long-term opportunities in the emerging markets universe regardless of country or sector weighting. Their emphasis on holding a well-diversified portfolio of sensibly priced and steady-growth businesses, with a particular emphasis on strong corporate governance and financials, has been out of tune with the outperforming North Asian markets. I remain confident that buying high quality, mainly family controlled and dividend-paying companies, will eventually be reflected in shareholders achieving sustainable positive returns.

The portfolio consisted of 35 companies at 31 December 2020, making up 97.3% of net assets.

As I highlighted in my Interim Statement, both our Investment Manager and our Company Secretary and Administrator each rely on a handful of key individuals. Each organisation was quick to move to offsite working and have functioned smoothly throughout the pandemic.

The Annual General Meeting is currently scheduled to be held on 6 May 2021 at the offices of PATAC Limited, this is of course subject to change due to the uncertain nature of the Covid-19 restrictions. Any changes will be communicated via stock market announcement and on the Company’s website. There will in due course be a digital presentation by the Investment Managers and an opportunity to question them in more detail about individual investments that the Company has made.

It may be of some comfort to shareholders to know that the Board and Managers are aligned with the body of shareholders through their own investment in the Company. During 2020 the Board and Investment Manager have increased their holdings in the Company. The Directors (including persons closely associated with them) now own 4,790,096 Ordinary shares, an increase of 650,000 shares. The Investment Management Team have increased their shareholding by 653,867 and now own 1,687,781 Ordinary shares. This brings the total holding by employees of Stewart Investors to 7,957,957 Ordinary shares (this includes the shareholding by the Stewart Investors Employee Benefit Trust which remains unchanged at 5,000,000 Ordinary shares). The combined holdings of the Board and Investment Manager now represent 23.8% of the issued Ordinary share capital of the Company.

Investment Manager’s Report

Introduction

Our conservative investment style has been out of kilter with prevailing market winds. This has been a rare recession where traditionally defensive, cash-generating and dividend-paying companies have underperformed. Meanwhile more conceptual and speculative businesses, particularly those linked to electric vehicles and online retail, have achieved ever higher valuations. The market’s apparent conviction that ultra-low interest rates are permanent has placed a huge premium on ‘jam tomorrow’ stock market sectors. The real risk for many of these expensive, cash-absorbing companies is not their valuations, it is whether they will ever become profitable and pay dividends at all. We often come across market niches where a multitude of companies are priced on a ‘winner takes all’ rating, but where there can only be one winner. Backing each horse in a ten-horse race is not a money-making strategy if every horse is already priced as the odds on favourite. While we are certainly not oblivious to the internet’s power, both in terms of growth acceleration and business model destruction, we continue to focus on running a ‘jam today and more jam tomorrow’ portfolio of well-run, soundly-financed and steady growth companies.

This is not to say we are outright “value” investors – we are not. True value investing in emerging markets is a risky business – governance can be weak enough to lose everything regardless of the purchase price, and the mechanisms to encourage change are far weaker than in the developed world, especially where a company is controlled by a family or government. We would instead say we are “valuation conscious” investors, although even this feels like a minority pursuit in 2021. Writing in late January 2021, Global Emerging Markets (“GEM”) are already up nearly ten percent in barely three weeks of trading. Valuations of many companies are unrealistic and we have accordingly continued to reduce a little the weightings of some of the “growth” companies the Trust owns.

With the exception of one ‘direct hit’ (a hotel chain in South Africa similar to the UK’s Premier Inn), our companies were fairly resilient as businesses in 2020. Our strong preference for a conservative financial base means most companies will see the pandemic as “only” a year (or two) of weak revenue. The stronger businesses may have a tough year but due to their financial resources and management will emerge stronger – we would put our Egyptian diagnostics company and both of our Indian financial companies in this category.

We were able to buy some new holdings for the Trust during the market turmoil, and added to other favourites. We acquired an Indian vehicle financing business controlled by a family conglomerate with impeccable governance credentials. We bought in expectation that we could contribute, alongside the family, to a capital raising – not all businesses have the luxury of a well-funded parent at a time when a little more capital goes a long way for the next five years’ market share growth. We purchased a modest position in a Sri Lankan textiles business – at time of purchase the market capitalisation was barely $100m. It is an example of a business which was having a tough short term – delayed and cancelled orders – but has a great management team and a strong balance sheet. People will continue to wear clothes, regardless of whether there is a High Street left on which to buy them. The largest new position, now a top-three weighting, is a Chilean holding company of one of our favourite GEM business families. The holding company in turn controls a well-managed bank, a brewer, and a stake in a shipping firm. All three divisions were out of favour mid-2020, and the holding company is valued at a further discount meaning that the company was briefly valued at less than the US$2.5bn cut-off we use for the Trust.

There were fewer sales than there were purchases. The most disappointing was an Indonesian chocolate company. When we first met them, many years ago, the franchise had the potential of becoming “the Nestle of Indonesia”, or at least of being acquired by an ambitious multinational. The family’s reticence to allow a greater role in decision making for professionals means that Nestle itself is far more likely “the Nestle of Indonesia”, with the company failing to make the necessary leap from a distribution-led to a brand-led franchise. Perhaps the company is still in with a shout, at least of being “Indonesia’s Tunnocks”, but even this will probably require the family to let go. Instead they parted company with a professional CEO which forced our hand.

We are worried about several GEM economies which makes us as keen as ever to find hard currency revenues (for example high quality exporters) and businesses with pricing power (good retailers, strong brands, or genuine intellectual property and industrial know-how). We are keen to avoid any businesses which may be asked to play a role in balancing budgets or controlling inflation which in GEM often comes hand in hand with devaluations. This makes us especially sceptical of state-owned businesses and regulated businesses, but also wary of importers asked to share the burden of rising local currency input costs, and perhaps lightly taxed tech companies which might also be asked to pull their weight having destroyed the franchises and therefore tax contributions of their offline peers.

Aside from these worries, and aside from high aggregate valuations of stock markets across the globe, we are quite cheerful – especially looking through the portfolio stock by stock. The Trust owns some exciting growth businesses in the technology and pharmaceutical fields, all of which are profitable and generate free cashflow. We also own some companies which are surviving the pandemic well but which will thrive immediately when it ends. In addition, there are a number of hardy businesses owned by the Trust which are very affordably valued compared to the cashflows they are generating and paying out. Regardless of whether the market values them more optimistically or not, we are collecting hard currency dividend yields in excess of five percent from several holdings, and these are by no means ex-growth businesses.

Portfolio

The Trust owns shares in 35 companies, the ten largest holdings were 42.7% of NAV at the end of 2020. The average market cap (weighted by position size) is $1.29bn, which is similar to the 2019 and 2018 figures of $1.23bn and $1.16bn respectively. Our preference for investing alongside a large controlling shareholder does result in free float being significantly lower than the market cap in many of the companies in the portfolio. To our mind, one of the great advantages of the investment trust structure is its closed ended nature. This gives us an ability to own larger positions in our favourite smaller companies than would be possible or prudent in an open-ended pooled fund, and to hold such position sizes confidently in all weathers.

Turnover has been higher this year and we would expect this to fall to around 15 – 20% per annum, based on the long term historical record of other funds managed by the same team. The majority of this year’s turnover related to the final stages of the portfolio’s transition, together with some unusual opportunities for adding to some of our favourite small caps at acceptable valuations. Cash finished the year at 3.3% and remains split between US Dollars and Pound Sterling.

Additions

During the year we invested in thirteen new companies. Below is a list of additions shown in descending order of size.

Quiñenco is a Chilean holding company controlled by the Luksic family with high quality assets in banking, beverages and shipping. The family have been a conservative and growth orientated steward over a long period. United Kingdom based shareholders may know them better for their controlling stake in London listed miner Antofagasta.

Reunert is a small diversified South African conglomerate made up of three businesses, a cables business, an office equipment leasing business and an electrical engineering business. The business does not have a controlling shareholder but we believe that stewardship comes from its committed long term management team. The company has a strong net cash balance sheet and, despite 2020 being a tough year, the company began 2021 by paying a healthy dividend to shareholders.

Concepcion Industrial is a family owned manufacturer and distributer of air conditioning, lifts and white goods in the Philippines. The company has a leading market share which includes long-standing joint ventures with foreign brand owners. Its strong balance sheet means it can weather inevitable cycles.

Indiamart is India’s largest business-to-business classified website business connecting suppliers and buyers. The founding Agarwal family have a controlling stake and are active in management. It has a dominant 60% market share, strong cash generation and a solid balance sheet. As a result it should benefit from structural tailwinds of growth given current low internet use by small businesses.

Indus Motor Company is Pakistan’s largest car manufacturer. It is a 30 year partnership between Toyota and the Habib group. It has remained profitable through various cycles, has historically returned much of this profit through dividends and is financially very conservative.

Hochschild Mining is a gold and silver mining company with mines in Peru and Argentina, listed on the London Stock Exchange and controlled by the Hochschild family. It enjoys a strong cost position and a long term owner. In a portfolio context we are happy owning a modest gold hedge which may help protect the Trust somewhat from the fragility of the global economy and the volatility of central bank and government interventions.

Yue Yuen Industrials is listed in Hong Kong. The cash generative core business is making sports shoes where it has a decades long relationship with Nike, Adidas and others. This core business has funded Pou Sheng, the second largest sports retailer in China with exciting long term growth prospects.

Guaranty Trust Bank is a leading commercial bank in Nigeria. It has proven itself in tough times before, surviving through a combination of lending prudence and high margins resulting from a strong low cost deposit franchise. It is converting to a financial holding company in order to extend the trust afforded by its brand to asset management and other financial services. It does not have a controlling shareholder but its tight and long-standing management team are exceptional and own a decent number of shares too.

Square Pharmaceuticals is Bangladesh’s largest manufacturer of pharmaceuticals. Generic and branded-generic products make up the majority of its products. The founding family are directly involved in the business. The country is exempt from patent laws under a World Trade Organisation (WTO) ruling. India’s successful generic pharmaceuticals industry was built in a very similar context.

Syngene is India’s largest pharmaceutical contract research and manufacturing company. Over 25 years it has established a strong track record and reputation. It works for eight of the world’s largest pharmaceuticals companies, making the development of new medicines cheaper and more efficient. It should also benefit from multinational companies’ increasing reluctance to entrust their intellectual property to firms working under the watchful eye of the Chinese Communist Party.

Mahindra & Mahindra Financial Services is an Indian non-banking financial company and a leading provider of affordable finance. It is controlled by the Mahindra group who are among the highest quality stewards in our investible universe. The business is largely a vehicle financer but is incubating several other financial businesses which we expect to be valuable in time.

Teejay Lanka is one of South Asia’s largest fabric manufacturers based in India and Sri Lanka, with two long term owners and a net cash balance sheet. We believe it is likely to be a beneficiary of customers becoming less reliant on Chinese supply chains.

Asia Commercial Bank is a well-capitalised and deposit funded Vietnamese bank. It is focussed on consumer lending which is less state influenced and therefore less risky than corporate lending. The family of the chairperson owns 10% of the bank and has been influential in its development.

Reduced

During the year the most significant reduction was in Tata Consumer Products (formerly Tata Global Beverages) following strong performance and following the reductions reported in the 2019 Annual Report and the last Interim Report. It is a food and beverages company with a focus on tea and coffee in India. We believe that the original investment case remains intact but that the company’s transformation will take a long time and valuations provide limited room for error. We also took some profits in Indiamart and Voltronic Power.

Disposals

During the year we sold all of our shares in six companies. Below is a list of disposals shown in descending order of size.

Delfi is an Indonesian chocolate company. Our original investment case was based on the chairman stepping back and hiring professional management, against a backdrop of increasing consumption levels as population and GDP both increase. We have lost conviction in this transition following a series of disappointing engagements with the company about their lack of progress and a key management departure.

Coca-Cola Icecek is a Coca-Cola bottler in Turkey. We sold this company on increasing concerns about a currency mismatch between earnings and borrowings.

Suprajit Engineering is an Indian supplier of components such as cables and lamps for automotive industry. Whilst it has a large market share and earns high margins, we believe that the company is fully valued and that earnings will be cyclical based on evidence from the company’s history. An acquisitive nature may increase risks.

Thermax is an Indian engineering company involved in power generation, water and waste management, waste heat recovery and air pollution control. We sold it on valuation concerns.

Mynews is a family owned Malaysian convenience retailer. Whilst the business has enjoyed decent growth, rapidly expanding to over 500 stores, this will likely be at the further detriment of the balance sheet which weighed on our conviction in the company. We continue to prefer Philippine Seven, the Uni-President controlled operator of the 7-11 franchise which enjoys a better balance sheet and an excellent track-record.

GlaxoSmithKline Nigeria is a local subsidiary of global pharmaceutical company GSK. It is inexpensive but is not necessarily the most resilient franchise under stress given the high level of imports required – we also wonder about potential cultural drift at the parent which is relevant given the related party transactions which are key to the business. We have reinvested the proceeds in Guaranty Trust Bank, described above.

Contribution

Positive

Tata Consumer Products is an Indian incorporated food and beverages company with a focus on tea and coffee. A recent management transition and a renewed focus on India sets the company on a strong trajectory to improve its profitability. We believe that the company has an exceptional opportunity to leverage the Tata brand, known for excellence, to become a diversified world-class consumer products company.

Indiamart has been a strong contributor despite only being added relatively recently. It has benefitted from the overall popularity of all things online and tech, but has also reported strong results, is profitable on an accounting basis, and is cashflow positive.

Voltronic Power is a Taiwanese business manufacturing and selling uninterruptible power supplies. It has grown market share successfully over the course of the last decade as branded owners have outsourced an increasing portion of their design and manufacturing process to Voltronic. Franchise strength is based on a long track record of efficient tailored manufacturing and trust.

Vinda International manufactures household tissue paper products and personal care products in China and Asia Pacific. We believe that the ownership combination of a local entrepreneur and the Swedish company Essity (formerly known as SCA), provides an attractive balance of local knowledge and the quality and marketing experience of a multinational steward. We have seen this ownership structure work well many times in Emerging Markets and one example is Kimberly Clark-de-Mexico which we own elsewhere. Vinda has enjoyed a significant increase in demand during the Covid-19 pandemic. Longer term, we are backing the company to move away from tissue paper to becoming a dominant player in China’s feminine hygiene and incontinence markets. Success here would allow Vinda to earn more attractive returns and provide structural long-term growth from exposure to sectors that are significantly underpenetrated relative to developed markets.

Grupo Herdez is a Mexico listed family-owned foods business, structured as a series of joint ventures with multinational brands such as McCormick (jams and teas), Kikkoman (soy sauce), Barilla (pasta) and Hormel (branded foods). We admire any group which has established multi-decade long relationships with high quality multinational partners.

Top Ten Contributors – Year ended 31 December 2020

* Company not held at start of period

Negative

City Lodge Hotels is a hotel chain owner and operator in South Africa, comparable to Premier Inn or Travel Lodge in the United Kingdom. It has been the portfolio’s “direct hit” from the pandemic. It has survived in part through swift management action from its long tenured team, but also because its freehold ownership of many of its hotels meant its debt was long-term and secured. It raised capital in a rights issue, to which the Trust subscribed, to buy out a struggling partner and provide a cash cushion. We cannot predict when the pandemic will end but are confident the business has the means to last until then, at which point it should recover rapidly.

RCL Foods is a South African business generating the majority of its earnings from commodity foods, namely chicken and sugar. Longer term we are backing the company to develop consumer brands in grocery categories. The company is controlled by the Rupert family’s South African investment holding company, Remgro. The family has a long history of responsible corporate citizenship, and has always ensured that minority shareholders have benefitted from corporate actions. The pandemic has delayed the company’s improvement plans but also hurt profitability in particular of the chicken division as South Africa closed all restaurants for an extended period.

Unilever Nigeria is a local subsidiary of Unilever Plc. Despite what we would have hoped was a high level of oversight from the parent, local management underperformed and results have been poor.

Fortunately, Unilever Plc does not lack experienced country heads and we believe the management problem has been rectified and that financial improvement should follow. On a sales per capita metric, this company has more potential than possibly any other held in the Trust – though we recognise that Nigeria is about as tough an operational jurisdiction as GEM has to offer.

Suprajit Engineering is an Indian supplier of components such as cables and lamps for the automotive industry. The business suffered from the auto industry lockdown, and we also have concerns about its acquisitive nature. The proceeds were reinvested in Mahindra & Mahindra Financial Services, another Indian business which we also think has good growth potential, but which has better stewardship.

Delfi is an Indonesian chocolate company. The company has suffered recently due to aggressive competition from local competitors and multinational chocolate brands. We do not believe our original investment case remains intact and have sold our position, as discussed above.

Top Ten Detractors – Year ended 31 December 2020

* Company not held at end of period

For further information contact:

Stewart Investors

Investment Manager

Tel: 0131 473 2900

PATAC Limited

Company Secretary

Tel: 0131 378 0500

The Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Cash Flow Statement follow.

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Equity

Share premium. The share premium represents the difference between the nominal value of new Ordinary shares issued and the consideration the Company receives for these shares.

Special reserve. Created from the Court cancellation of the share premium account which had arisen from premiums paid on the Ordinary shares at launch. Available as distributable profits to be used for the buy back of shares. The cost of any shares bought back is deducted from this reserve. The cost of any shares resold from treasury is added back to this Reserve.

Capital reserve. Gains and losses on the realisation of investments, realised exchange differences of a capital nature and returns of capital are accounted for in this Reserve. Increases and decreases in the valuation of investments held at the year end, and unrealised exchange differences of a capital nature are also accounted for in this Reserve.

Revenue reserve. Any surplus/deficit arising from the revenue profit/loss for the year is taken to/from this Reserve.

Cash Flow Statement

Principal Risks and Risk Management

The Board has carried out a careful assessment of the principal and emerging risks facing the Company, including the unprecedented situation surrounding the Covid-19 pandemic. The Board acknowledges that there are a number of related emerging risks resulting from the pandemic that may impact the Company. These include investment risks surrounding the companies in the portfolio such as reduced demand, reduced turnover and supply chain breakdowns. The Board continues to work with Stewart Investors, PATAC and its other advisers to manage these risks as far as possible in these uncertain times.

The Board believes that the principal risks to shareholders, which it seeks to mitigate through continual review of its investments and through shareholder communication, are events or developments which can affect the general level of share prices and currencies, including, for instance, inflation or deflation, economic recessions and movements in interest rates and currencies.

Other risks faced by the Company include breach of regulatory rules which could lead to suspension of the Company’s Stock Exchange listing, financial penalties, or a qualified audit report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains. Details of the Company’s financial risks are contained in the Notes to the Accounts on pages 23 to 34 of the Annual Report.

In the mitigation and management of these risks and to ensure emerging risks are identified, the Board regularly monitors the investment environment and the management of the Company’s investment portfolio, and applies the principles detailed in the guidance provided by the Financial Reporting Council. The Company’s internal controls are described in more detail on page 49 of the Annual Report.

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with the Disclosure Guidance and Transparency Rules, we confirm that to the best of our knowledge:

· The financial statements contained within the Annual Report for the year ended 31 December 2020, of which this statement of results is an extract, have been prepared in accordance with applicable United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102, and applicable law), give a true and fair view of the assets, liabilities, financial position and net 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 Company, together with a description of the principal risks and uncertainties that it faces.

In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, position, business model and strategy.

Going Concern

The Directors believe, in the light of the controls and review processes reported in the Report of the Audit Committee on page 49 of the Annual Report and bearing in mind the nature of the Company’s business and assets, which are considered to be readily realisable if required, that the Company has adequate resources to continue operating for at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the accounts.

Related Party Transactions

Related party transactions with the Directors, for the year ended 31 December 2020 are disclosed in the Directors’ Report on page 36 of the Annual Report. At the year end no amounts were due to the Directors (2019: nil).

The AIFM, the Investment Manager and the Company have entered into the Investment Management Agreement. Pursuant to the terms of the Investment Management Agreement, the AIFM has delegated to Stewart Investors the management of the Company’s portfolio subject to its and the Directors’ overall supervision. Details of transactions during the year are disclosed in note 3 of the Annual Report. Amounts outstanding at the year end are shown in note 7 and note 8 of the Annual Report.

There were no other related-party transactions.

Notes:

1. ScotGems plc is a public company limited by shares, incorporated and domiciled in England and Wales, and carries on business as an investment trust. Details of the Company’s registered office can be found in the Annual Report.

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (Accounting Standards “UK GAAP”) including Financial Reporting Standard (FRS) 102 “The Financial Reporting Standard applicable

in the UK and Republic of Ireland” and the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“the SORP”) issued by the Association of Investment Companies in October 2019.

All of the Company’s operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

There are no critical accounting estimates or judgements.

The accounts have also been prepared on the assumption that approval as an investment trust will continue to be granted.

The functional and reporting currency of the Company is pounds sterling as most investors in the Company are based in the United Kingdom.

2. The Company held the following categories of financial instruments as at 31 December 2020:

Level 2 investments represent the Company’s investments in Nigeria. These have been categorised as Level 2 owing to uncertainty relating to the Nigerian naira exchange rate.

The Company held the following categories of financial instruments as at 31 December 2019:

The above table provides an analysis of financial assets and financial liabilities based on the fair value hierarchy described below. Short term balances are excluded from the table as their carrying value at the reporting date approximates to their fair value.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets and liabilities are described below.

The levels are determined by the lowest (that is, the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - investments with prices quoted in an active market;

Level 2 - investments whose fair value is based directly on observable current market prices or is indirectly being derived from market prices; and

Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or are not based on observable market data.

3.

4. These are not statutory accounts in terms of Section 434 of the Companies Act 2006. Full audited accounts for the year to 31 December 2020 will be sent to shareholders in March 2021 and will be available for inspection at Broadgate Tower, 20 Primrose Street, London EC2A 2EW, the registered office of the Company. The full annual report and accounts will be available on the Company’s website www.scotgems.com.

5. The audited accounts for the year ended 31 December 2020 will be lodged with the Registrar of Companies.