Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — Shareholder Meeting (September 2016)
67 slides from Polar Capital Technology Trust's shareholder meeting presentation, Sep 9, 2016
Slide 1: AGM Presentation 9 September 2016
AGM Presentation 9 September 2016 This presentation is for one-on-one use with non-US professional investors only www.polarcapital.co.uk
Slide 2: Results As At 30 April 2016
Results As At 30 April 2016 Year ended Year ended Change 30/04/15 30/04/16 (y/y) Net Assets £793,019,000 £801,307,000 +1.0% NAV per ordinary share 599.25p 605.51p + 1.0% Price per ordinary share 592.00p 566.00p - 4.4% Benchmark Change - 0.1% Ordinary shares in issue 132,336,159 132,336,159 -- GBP /
Slide 3: PCT As At 31 August 2016
PCT As At 31 August 2016 Year ended Year ended Change As at FYTD 30/04/15 30/04/16 (y/y) 31/08/16 Net Assets £793,019,000 £801,307,000 +1.0% £1,043,014,000 +30.2% NAV per ordinary share 599.25p 605.51p + 1.0% 788.16p + 30.2% Price per ordinary share 592.00p 566.00p - 4.4% 731.50p +29.2% Benchmark Ch
Slide 4: Full Year Review
Full Year Review DJ World Technology vs. FTSE World TR since Apr 2015 • Global equities (FTSE World + 0.4%) consolidated earlier gains amid downward revisions to global growth, commodity price weakness and Chinese economic deceleration. • However, Sterling weakness (-5%/-7%/- 15% vs. Dollar / Euro /
Slide 5: Full Year Review
Full Year Review US technology small caps vs. large caps since Apr 2015 • Small-cap US technology stocks underperformed during the year (-0.2% vs. 1.7%) ameliorated by a strong April. • NAV performance (+1.0%) exceeded the benchmark by 1.1%. • New technology cycle appeared to have entered a more per
Slide 6: Current FY To Date
Current FY To Date PCT NAV vs. FTSE World since Apr 2016 • Strong NAV progress (+30.2%) aided by pronounced Sterling weakness (-10% / -13% / -8% vs. USD / JPY / Euro) and further equity market gains. • Technology stocks regained their prior fiscal year underperformance led by small caps • Relative p
Slide 7: Revisiting Highs (But This Time With Earnings)
Revisiting Highs (But This Time With Earnings) PCT share price performance (1997 – present) June 2016 March 2000 S&P Tech earnings: $34.78 S&P Tech earnings: $13.09 PE: 21x PE: 70x PCT in Sterling PCT in US Dollars Source: Bloomberg, 24 August 2016; NDR, July 2016. For non-US investor use only. Plea
Slide 8: The Internet (At 25)
The Internet (At 25) Source: Facebook. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 8
Slide 9: The Internet (At 25)
The Internet (At 25) In 1995, <1% of the world’s population had an Internet connection. Today c. 40% or 3.44bn people are ‘online’. 11 billion connected devices today** Every second, >40,000 Google queries are Internet traffic will reach 1.1 searched and >2m emails zettabytes in 2016 are sent 4.7bn
Slide 10: Deflation: Cost Of Bandwidth
Deflation: Cost Of Bandwidth The cost of 1,000Mbps of bandwidth Source: KPCB, Deloitte, May 2014. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 10
Slide 11: Deflation: Cost Of Computing
Deflation: Cost Of Computing The cost of 1m transistors Source: KPCB, Deloitte, May 2014. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 11
Slide 12: Deflation: Cost Of Storage
Deflation: Cost Of Storage The cost of storing one gigabyte of data Source: KPCB, Deloitte, May 2014. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 12
Slide 13: Ubiquitous Computing
Ubiquitous Computing ‒ PCT 2012 Source: Polar Capital. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 13
Slide 14: Ubiquitous Computing
Ubiquitous Computing Smartphone installed base: 2008 – 2017E Smartphone penetration has transformed the value of the Internet (Metcalfe’s Law) Source: Statista, August 2016. All opinions and estimates constitute the best judgment of Polar Capital as of the date hereof, but are subject to change with
Slide 15: Ubiquitous Computing
Ubiquitous Computing Cumulative number of apps downloaded from Apple Apps Store (bn) Cumulative payments to iOS developers of $50bn Source: Statista, 2016. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 15
Slide 16: Ubiquitous Computing
Ubiquitous Computing Millennial smartphone behaviours, US 2014 Source: KPCB, 2015. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 16
Slide 17: Cloud Computing ('mass production of IT')
Cloud Computing (‘mass production of IT’) ‒ PCT 2011 Source: Polar Capital. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 17
Slide 18: Cloud Computing ('mass production of IT')
Cloud Computing (‘mass production of IT’) IT workloads in public clouds, by company size 30% 25% 20% 15% 10% 5% 0% End of 2013 End of 2014 End of 2015 Under US$5bn in Revenue Over US$5bn in Revenue Source: Morgan Stanley, 2015. For non-US investor use only. Please refer to the Important Information
Slide 19: Big Data
Big Data Volume of data stored (Zettabytes): 2009 – 2025E 180 Every day we create 2.5bn gigabytes of data* The amount of data in the world doubles every 2 years** 0.8 2009 2025 Source: Polar Capital; IDC, March 2016. All opinions and estimates constitute the best judgment of Polar Capital as of the
Slide 20: Low-innovation Internet Era.....??
Low-innovation Internet Era.....?? A hundred years from now, we might look back on the late 20th and early 21st centuries and say, “It was an actively creative society. Then the internet happened and everything got put on hold for a generation.” – Neal Stephenson “Has the ideas machine broken down?”
Slide 21: The Information Age
The Information Age ‒ PCT 2014 Source: Polar Capital. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 21
Slide 22: The Information Age
The Information Age Number of annual Google searches (bn) Source: Polar Capital, Business Insider 2013. All opinions and estimates constitute the best judgment of Polar Capital as of the date hereof, but are subject to change without notice, and do not necessarily represent the views of Polar Capita
Slide 23: The Information Age
The Information Age Number of manuscripts / books produced in Europe: 500 - 1800 500,000,000 50,000,000 5,000,000 500,000 50,000 5,000 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th Source: Polar Capital, Business Insider 2013, www.socialhistory.org. For non-US investor use only. Pleas
Slide 24: The Information Age
The Information Age Number of manuscripts / books produced in Europe: 500 - 1800 500,000,000 "Every single day 15% of the questions 50,000,000 people ask of Google are (ones) we've never seen before” 5,000,000 500,000 50,000 5,000 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th Source:
Slide 25: Big Data
Big Data ‒ PCT 2013 Source: Polar Capital. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 25
Slide 26: Big Data
Big Data “Ten years from now, when we look back at how this era of big data evolved... We will be stunned at how uninformed we used to be when we made decisions” ‒ Billy Bosworth, CEO DataStax Source: KPCB, 2015. For non-US investor use only. Please refer to the Important Information at the end of t
Slide 27: Disruptive New Networks / Unprecedented Scale
Disruptive New Networks / Unprecedented Scale Centralised, decentralised and distributed networks1 Source: 1. RAND corporation, ‘Where wizards stay up late’’ Other sources: LinkedIn, Statista, June 2016; Amazon, ExportX, December 2015; Alibaba, DMR, August 2016, revenuesandprofits.com, May 2016; Ten
Slide 28: Natural monopolies being created?
Natural monopolies being created? • 310m active users • $74bn revenue in 2015 • 63m Prime members • 63% US search share • 20m items eligible for Prime • 95% US smartphone paid • >350m total products offered search clicks in Q1 • Paid units grew 28% in Q2 • $12.3bn R&D spend (2015) • AWS @ $10bn trai
Slide 29: Accelerating Pace Of Adoption
Accelerating Pace Of Adoption Average company lifespan on S&P 500 index (in years) Source: innosight.com. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 29
Slide 30: Accelerating Pace Of Adoption
Accelerating Pace Of Adoption Technology adoption (1900 – 2005) Source: Michael Felton, New York Times, 2013. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 30
Slide 31: Accelerating Pace Of Adoption
Accelerating Pace Of Adoption Top 5 publicly traded companies (by market cap): 2001 – 2016 Source: visualcapitalist.com. The stocks represented herein do not reflect the entire holdings contained within the Fund. t should not be assumed that recommendations made in future will be profitable or will
Slide 32: Accelerating Pace Of Adoption
Accelerating Pace Of Adoption Buyers of $1bn+ VC-backed US companies: Tech vs. Non-tech Source: visualcapitalist.com. The stocks represented herein do not reflect the entire holdings contained within the Fund. It should not be assumed that recommendations made in future will be profitable or will eq
Slide 33: Enterprise Computing Becoming Anachronistic
Enterprise Computing Becoming Anachronistic IT spending: Information Processing Equipment as % of GDP: 1945-present Source: NDR June 2016. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 33
Slide 34: Enterprise Computing Becoming Anachronistic
Enterprise Computing Becoming Anachronistic Modest IT Spending + Budget Reallocation = GDP + Growth? Rev. Rev. Rev. 2016 IT priorities Growth Growth Growth 20142 20152 2016E2 1.5% in constant-currency 1. BI / Analytics 2. Infrastructure / Data Centre 3. Cloud 4. ERP 5. Digital Marketing Cisco EMC HP
Slide 35: Device Exhaustion
Device Exhaustion • Overall device market will contract for the first time this year –> end user spend falling 0.5% y/y in c/c to $719bn in 2016E1 • 2015 was the worst yet for the PC market (2015: $200bn) with units and revenues declining 10% and 13% y/y respectively2 • Elsewhere, the tablet (2015:
Slide 36: Device Exhaustion
Device Exhaustion • Overall device market will contract for the first time this year –> end user spend falling 0.5% y/y in c/c to $719bn in 2016E1 • 2015 was the worst yet for the PC market (2015: $200bn) with units and revenues declining 10% and 13% y/y respectively2 • Elsewhere, the tablet (2015:
Slide 37: Cloud Became "inevitable" During 2015…
Cloud Became “inevitable” During 2015… • Public cloud computing leader Amazon Web Services at c. $10bn of trailing twelve month sales (with operating margins > 20%) • Growing number of traditional companies prepared to go ‘all in’ / evangelise the merits of public cloud computing during 2015 – GE: m
Slide 38: …And Disruption Only Just Beginning
…And Disruption Only Just Beginning • Having debunked many of the earlier barriers to adoption, we expect Cloud migration to accelerate over the coming years. • Computing / storage costs headed lower: Amazon Web Services (AWS) has lowered prices 51 times since launch1 • Expect ‘all’ incremental capa
Slide 39: Diminished Value Of Incumbency & M&A
Diminished Value Of Incumbency M&A Technology M&A since 20061 Select M&A activity2 Date Target Acquirer Premium Value $m May-12 Ariba SAP 19% 4,324 Aug-12 Kenexa IBM 42% 1,260 Oct -12 OPNET Riverbed 31% 912 June-13 ExactTarget Salesforce 50% 2,419 Jul -13 Sourcefire Cisco 29% 2,185 Dec-13 Responsy
Slide 40: Software As A Service
Software As A Service • The rental / usage-based model is expanding the software market while threatening incumbent franchises / maintenance. • Enabled by Cloud, software as a service (SaaS) targets a $150bn opportunity, c. 27% penetrated today1 • Recent acceleration in M&A supportive of our view th
Slide 41: Cyber Security
Cyber Security • Security remains one of the more attractive areas within traditional IT budgets, expected to grow c. 10% through 20201 • Favourable regulatory backdrop likely to persist – US National Action Plan calls for a c. 35% increase in spending to $19bn in FY172 • However, priorities shiftin
Slide 42: Internet Advertising
Internet Advertising • Global online advertising worth $156bn in 2015, having grown 13.6% y/y (including headwinds associated with strong USD)1 • US online advertising expected to reach $65bn in 2016, equivalent to 27% of total ad industry spend2 • Size matters: US market increasingly dominated by A
Slide 43: Internet Advertising
Internet Advertising • Global online advertising worth $156bn in 2015, having grown 13.6% y/y (including headwinds associated with strong USD)1 • US online advertising expected to reach $65bn in 2016, equivalent to 27% of total ad industry spend2 • Size matters: US market increasingly dominated by A
Slide 44: eCommerce
eCommerce • eCommerce growth continues unabated, accounting for 15.3% of US core retail sales at the end of 20151 • Global Retail eCommerce forecast to exceed $4tr by 2020E, from c. $1.5tr today2 • Mobile becoming an integral part of the shopping experience, enabling greater volumes and new use case
Slide 45: eCommerce
eCommerce • eCommerce growth continues unabated, accounting for 15.3% of US core retail sales at the end of 20151 • Global Retail eCommerce forecast to exceed $4tr by 2020E, from c. $1.5tr today2 • Mobile becoming an integral part of the shopping experience, enabling greater volumes and new use case
Slide 46: Videogames
Videogames • Video game industry worth $90bn in 2015 (+7% y/y) with growth in 2016/17 driven by new console cycle, mobile and AR/VR1 • Improving market dynamics: industry consolidation + focus on blockbuster franchises = greater scale / profitability / barriers to entry • The shift to digital distri
Slide 47: Payments / Fintech
Payments / Fintech • The shift to mobile remains the central and dominant trend in payments while merchant adoption represents the biggest obstacle. • Over time the smartphone is likely to replace the physical wallet, aided by the use of biometric authentication. • As payments are taken out of the b
Slide 48: Robotics
Robotics • The Fourth Industrial Revolution underway driven by Cyber Physical Systems, Internet of Things and Cloud Services • Over 25% of manufacturing tasks that can be automated may be performed by robots over the next decade1. • Human-robot collaboration will radically alter the way factories op
Slide 49: Robotics
Robotics • The Fourth Industrial Revolution underway driven by Cyber Physical Systems, Internet of Things and Cloud Services • Over 25% of manufacturing tasks that can be automated may be performed by robots over the next decade1. • Human-robot collaboration will radically alter the way factories op
Slide 50: Technology: Undemanding Valuations
Technology: Undemanding Valuations Absolute sector valuations (PE): 1992 – present Source: NDR, 19 August 2016. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 50
Slide 51: Technology: Undemanding Valuations
Technology: Undemanding Valuations Relative sector valuations (PE): 1992 – present Source: NDR, 19 August 2016. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 51
Slide 52: Technology: Undemanding Valuations
Technology: Undemanding Valuations Internet valuation: Software as a Service (SaaS) valuation: EV / forward 12 month EV/EBITDA levels1 EV / forward 12 month revenue multiples2 Source: 1. Goldman Sachs, May 2016. 2. Pacific Crest, July 2016. Past performance is not indicative or a guarantee of future
Slide 53: Technology: Undemanding Valuations
Technology: Undemanding Valuations IT security valuation: Cloud vs legacy valuation: EV / forward 12 month revenue multiples1 EV / trailing 12 month revenue multiples2 Source: 1. Citi, July 2016. 2. Merrill Lynch, June 2016. Past performance is not indicative or a guarantee of future returns. For no
Slide 54: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Software 26.6% Internet Software & Services 26.2% Large Cap (>$10bn) 67.2% Semiconductors & Semiconductor Equipment 13.7% Mid Cap (>$1bn - $10bn) 27.1% Technology Hardware, Storage & Peripherals 9.5% Internet & Catalog Retail 4.9% Small Cap
Slide 55: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark1 8x8 Apple Activision Blizzard Canon Alibaba Group Holding Cisco Systems Large-cap -17.6% Amazon Cognizant Technology Solutions CyberArk Software Corning Dena Co EMC Dolby Laboratories Inc Hewlett Packard E
Slide 56: PCT Positioning: Thematic breakdown
PCT Positioning Thematic breakdown1,2 Thematic breakdown relative to benchmark1,2 15.0 Legacy 10.0 9% 5.0 Internet 30% 0.0 Semiconductors 14% -5.0 Smartphones -10.0 7% Medical Technology 1% -15.0 Electric Vehicles Apple Cloud: applications -20.0 0% 6% 13% Solar 1% -25.0 Emerging Big data IoT Medical
Slide 57: PCT Positioning
PCT Positioning PCT1 Index Index ex Sales growth 2017 – PCT vs. benchmark2 Top 100 Apple 70.0 PE (Median) CY 25.0 17.6 17.7 NY 20.4 15.8 16.0 Earnings growth (Median) CY 10.7 7.1 7.2 60.0 NY 17.9 12.3 12.0 EV/Sales (Mean) CY 5.1 4.3 4.4 NY 4.3 3.8 3.9 50.0 EV/Sales (Median) CY 4.4 3.9 4.0 NY 3.8 3.6
Slide 58: Emerging Themes
Emerging Themes Source: Gartner, August 2016. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 58
Slide 59: Voice As a Computing Interface
Voice As a Computing Interface • Humans can speak 150 vs. type 40 words per minute on average voice should become the most efficient form of computing input1 • Voice queries already account for 20% of Android mobile app searches in the US, while Siri handles >1bn requests per week2 • “As speech re
Slide 60: Autonomous Vehicles
Autonomous Vehicles • Automotive market ripe for reinvention: connectivity / infotainment, ADAS / autonomous driving, vehicle electrification • Global ADAS / autonomous vehicle penetration forecast to grow from 12% in 2015, to 48% in 2020 and 70% by 20251 • Fully autonomous driving by 2020? Technica
Slide 61: Summary & Outlook
Summary & Outlook • PCT offers a differentiated, growth centric and increasingly “active” investment portfolio – Our goal is to deliver outperformance via superior underlying revenue / cashflow / earnings – Risk and volatility reduced through diversification and strength / depth of investment team.
Slide 62: Appendix
Appendix For non-US investor use only. Please refer to the Important Information at the end of this presentation. 62
Slide 63: Team Biographies
Team Biographies Ben Rogoff, Director – Technology Experience: 21 years Ben joined Polar Capital in May 2003. He is lead manager of Polar Capital Technology Trust plc and is also joint manager of the Polar Capital Global Technology Fund. He has been a technology specialist for 21 years. Prior to joi
Slide 64: Team Biographies Cont.
Team Biographies Cont. Xuesong Zhao Experience: 9 years Xuesong joined Polar Capital in May 2012, having spent most of the previous four years working as an investment analyst within the emerging market & Asia team at Aviva Investors, where he was responsible for the technology, media and telecom se
Slide 65: New Cycles Challenge The Value Of Incumbency
New Cycles Challenge The Value Of Incumbency Inflation adjusted UK holiday expenditure: 1951-1996 overseas domestic Source: seasidehistory.co.uk. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 65
Slide 66: Important Information
Important Information Polar Capital 16 Palace Street London SW1E 5JD Important Information: This document is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any
Slide 67: Important Information Cont.
Important Information Cont. Polar Capital 16 Palace Street London SW1E 5JD Regulatory Status: Polar Capital LLP is a limited liability partnership number OC314700. It is authorised and regulated by the UK FCA and is registered as an investment adviser with the US Securities & Exchange Commission (“S
Polar Capital Technology Trust — Shareholder Meeting (September 2016) on 6ix