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RNS

Results for the year to 31 March 2018

Released 07:00 14-May-2018

RNS Number : 8884N
Scottish Mortgage Inv Tst PLC
14 May 2018
 

RNS Announcement: Annual Results

 

Scottish Mortgage Investment Trust PLC

 

Legal Entity Identifier: 213800G37DCS3Q9IJM38

 

Results for the year to 31 March 2018

 

NAV (borrowings at fair value) *

25.0%

NAV (borrowings at book value) *

24.5%

Share Price*

21.6%

Benchmark*

2.9%

*      Source: Morningstar / Baillie Gifford, total return. See disclaimer at the end of this announcement.

†      Benchmark: FTSE All-World index (in sterling terms)

 

The following is the Annual Results Statement for the year to 31 March 2018 which was approved by the Board on
11 May 2018.

 

Chairman's Statement

 

It is my great privilege to write to you for the first time as Chairman of Scottish Mortgage having taken up the role on 29 June 2017. I joined the Board in 2009 in the fall out of the Global Financial Crisis, when the share price stood at a discount of some 12%. 'Challenging' but valuable experience that has informed my contribution over the years.

My experience at Scottish Mortgage has also included serving under two Chairmen - the late Sir Donald MacKay and John Scott; that too has been valuable experience for which I am very grateful. I hope that the current Board and the Managers can do justice to the legacy we have inherited for the continuing benefit of all shareholders.

Long term performance continues to be the yardstick by which the Board measures the results of the Managers' endeavours for Scottish Mortgage. I would encourage all shareholders to focus on these figures and it is a pleasure to report that Scottish Mortgage's long term performance record, measured over the last five and ten years, remains very strong and amongst the best in the investment trust sector and beyond. This is true both of the share price and net asset value (NAV) returns. 

For more than a decade now, the Managers have remained steadfast in their approach. Their consistency and clarity of purpose has proved its value to shareholders over time, despite some exceptionally challenging phases in global financial markets over that same period.

The table below shows the five and ten year total returns for the Company to 31 March 2018, alongside the Association of Investment Companies (AIC) Global Sector average for comparison.

 

 

 

 

Total Return %

Five Years

Ten Years

NAV

171.6

287.8

Share Price

184.5

334.7

FTSE All-World Index

73.3

159.4

Global Sector Average - NAV

94.1

178.1

Global Sector Average - share price

111.6

218.1

Source: AIC/Morningstar. NAV after deducting borrowings at fair value for Five Years. NAV after deducting borrowings at par for Ten Years.

 

Earnings and Dividends

The Board firmly supports the Managers in the single-minded pursuit of the investment philosophy to maximise total return from a portfolio of long term investments chosen on a global basis, enabling the Company to provide capital and dividend growth. They have created a portfolio of the very best long term growth companies from around the world, both listed and unlisted. One common characteristic of many of these businesses is the retention and investment of most if not all of their earnings to support future growth. This tends to result in a relatively low level of dividend income for your Company. Whilst for this financial year our income has seen a rise compared with the previous one, it remains low overall; this year's earnings per share were 1.20 pence, up just over 12% on last year (1.07 pence).

The portfolio's earnings would be insufficient to pay a dividend equivalent to last year's 3.00 pence per share, even taken together with our remaining revenue reserves (0.47 pence per share). Scottish Mortgage's aim is defined in terms of total return. Shareholders have granted the Company the power to supplement the dividend from its distributable capital reserves. These reserves are predominantly the realised investment gains.

The Board understands that many shareholders value the income from Scottish Mortgage's dividend and it has set out its policy and intentions in this area very clearly in recent years. The Board has highlighted that, while returns for Scottish Mortgage's shareholders will predominantly come through capital appreciation, a modest and growing dividend will also be paid. The Board will continue to keep the position under review. The 2017 Interim Report made clear that the Board would use the power to supplement the Company's earnings from capital once the revenue reserve was exhausted, in order to do this.

Given the strength of the long run capital returns and the Company's investment objective, together with the clear guidance given in the past, the Board has decided that a modestly increased dividend would be appropriate this year. This will be paid from a combination of earnings, the remainder of the revenue reserve and the capital reserve. The Board is therefore recommending a final dividend of 1.68 pence per share, providing a total distribution for the year of 3.07 pence per share, a year-on-year increase of just over 2%.

 

Low Cost

Put simply, lower charges directly translate into shareholders keeping more of the returns generated from the investment of their capital. Ensuring that Scottish Mortgage has one of the lowest cost ratios in the sector remains an important objective of the Board, supported by the Managers. In addition to using its growing scale to progressively reduce costs for shareholders for many years now, the management fee has also been revised - most recently at the start of this accounting period. The introduction of a new tiered annual management charge (AMC) from 1 April 2017 helps to ensure that shareholders will continue to reap additional benefits from the Company's growth. The previous AMC of 0.3% only applies on the first £4 billion of assets under management and thereafter it falls to 0.25%. I am delighted to report that as a result, for the financial year to 31 March 2018, Scottish Mortgage's 'Ongoing Charges Ratio' (OCR) fell to 0.37%, down from 0.44% the previous year. This is an almost 16% reduction on what was already one of the lowest cost ratios in the sector.

The Board has also decided that it would be appropriate to revise the allocation of the management and borrowing costs to reflect better the split of returns between capital and income. From 1 April 2018, all of these costs will be allocated to capital. This is a change from the current allocation of 75 per cent to capital and 25 per cent to revenue. The total costs will not be affected by this change in accounting treatment and the distinction is somewhat arbitrary given the changing nature of investment returns, as discussed in recent years and above.

 

Investment Strategy

As I highlighted at the start, two distinctive aspects of Scottish Mortgage are the clarity of its investment proposition and the consistency with which it has been applied. The Board continues to believe that these clearly differentiate Scottish Mortgage in a crowded field, where many 'talk a good game' but where far fewer have consistently lived up to the inherent challenges of long term investment. The statement of the Managers' Core Investment Beliefs has been included within the Annual Report and Financial Statements for the last 5 years. This year, Tom Slater has also reviewed this in his section of the report. I would urge all shareholders and those considering making an investment to read both these pieces and James Anderson's report.

 

Opportunities to learn more about Scottish Mortgage

The Board and Managers believe it is important that all shareholders and prospective investors are able to develop a clear understanding of the investment approach taken for the Company.

One of the best ways to do this is to hear directly from those responsible for the management of your investment. The Company's Annual General Meeting (AGM) is held in Edinburgh and this year it will be at the Merchants' Hall, at 4.30pm on 28 June 2018. As is always the case, not only will shareholders be able to vote on the resolutions for the management of the Company and question the Directors, but the joint managers will present on the portfolio and also take shareholders' questions. I hope as many of you as possible will be able to attend.

Recognising that not everyone will be able to attend the AGM, the Managers have invested considerable resources in developing other opportunities for investors to hear their views and learn about the investment approach taken.  There is a large amount of information on the Company and the portfolio available through the Company's website: www.scottishmortgageit.com.

More recently, the Managers have created an additional site, www.resoluteoptimism.com which looks at the broader context around the portfolio companies and explores issues around the responsible use of investment capital and the financial industry. There is a related Resolute Optimism twitter feed (@SMTOptimism) which flags new articles on the Resolute Optimism site and also highlights interesting external pieces of news and information, thought-provoking commentaries and events.

Further, in recent years the Managers have hosted a series of Scottish Mortgage Investor Forums around the country to ensure that more investors have the opportunity to hear from them directly. The 2017 Forums in Birmingham, York and London were all very well attended. The first Forum of 2018 has already been held in Brighton and there are two more to come, in London in June and in Manchester in October.  Further details can be found on the Company's website: www.scottishmortgageit.com

 

Gearing and Borrowing Policy

The Board of Scottish Mortgage remains committed to the strategic use of borrowings for the Company, in the belief that gearing the portfolio in this way will enhance the long term returns for shareholders. The Board views this as a significant advantage of the investment trust structure.

As previously announced, in April 2017 the Board took the opportunity to lock in borrowings of £125 million in long term, fixed rate, senior, unsecured private placement notes, denominated in sterling through the private placement debt market. This was achieved at a blended rate of a little over 3 per cent.

As a result of the continued strength of the portfolio's performance, particularly of the publicly listed companies, the gearing level continued to fall over this financial year. The impact of growth on the level of gearing is clearly illustrated in the table on the ten year record of Capital in the Annual Report and Financial Statements. The level of debt has increased by only 10% as compared to a three-fold increase in assets. Given current market costs of borrowing, the Board is of the view that the appropriate level of gearing is higher than the current level (as at the end of March 2018). The Board has therefore taken steps to increase the Company's borrowings. These have included organising to borrow further funds in the private placement market, once again to lock in attractive long term borrowing rates. Further announcements will be made when arrangements have been finalised.

 

Liquidity

The Company's shares continue to benefit from a good level of liquidity on the London Stock Exchange. In addition, the Company has continued to support this liquidity in normal market conditions through the operation of its long standing liquidity policy, which is set out in the Annual Report and Financial Statements.

Over the twelve months to 31 March 2018, the company issued 50.8 million shares from Treasury and bought back 14.0 million shares resulting in a net inflow of £145 million. The level of net issuance was illustrative of the strength of demand for Scottish Mortgage over the period.

 

Corporate Brokers

The corporate brokers are instrumental in applying the liquidity policy, and the new arrangements which took effect from the start of this financial year have been very effective, which is testimony to Cenkos Securities plc and Jefferies Hoare Govett operating well as joint brokers.

 

Outlook

In considering the outlook at the start of this financial year, my predecessor John Scott noted, "a number of political risks, from President Trump's unpredictable approach to policy making, to questions over North Korea's true intentions, to the escalation of the troubles in the Middle East..". Sadly those political risks remain the same today. However the task of the Board also remains the same, as John noted: "to consider the outlook in the context of the portfolio of Scottish Mortgage..."

To have been unduly focused on the headline topics 12 months ago might have led an investor to miss the importance of the extraordinary operational growth which was taking place at a number of the world's largest companies.

The Board believes the following areas to be amongst the most relevant considerations for the long term prospects for Scottish Mortgage:

1.  The continual rise and development of China, in particular of its world leading digital economy.

2.  The spread across all industries of the gathering and computer-facilitated use of data.

3.  The structural shifts in the global healthcare industry and the industrialisation of biology.

4.  The long run shift in much of the transportation infrastructure to electric and autonomous vehicles.

5.  Shifts in energy generation to renewable sources and the proliferation of energy storage solutions for domestic and commercial use.

6.  Greater social, political and regulatory scrutiny of large corporations.

The approach of the Managers, focused on the long term fundamental characteristics of businesses, favours the selection of companies which are adopting the advances in technology to enable them to provide what their customers want or need. This should offer the potential for durable growth in the long run. However, the above should not be taken to suggest that the path to any success will be smooth. Progress is almost always bumpy and stock markets tend to exacerbate these swings. There will be times when share prices diverge from company fundamentals and during such periods the companies in Scottish Mortgage's portfolio may fall out of favour. No attempt will be made to mitigate short-term volatility and the Board will continue to stand resolutely behind the Managers during such times.

Whatever the precise trajectory of stock markets turns out to be over the coming years, the Board and the Managers strongly believe that attractive long term returns continue to be available to those who can turn time to their advantage. Scottish Mortgage offers investors the potential to share in the value created by some of the best growth businesses in the world over the coming decade, in new or old industries and whether they be public or private companies.

Finally, in addition to thanking my Board colleagues for their diligence over the year and James Anderson and Tom Slater for their insight and continuing success for shareholders, I would like to thank our professional advisers and the teams at Baillie Gifford that provide the support necessary to best look after your interests, and you, the shareholders, for your continued support.

 

 

 

Fiona McBain

Chairman

11 May 2018

 

 

Past performance is not a guide to future performance.

 

See disclaimer at the end of this announcement.




 

Income statement

 

 


For the year ended

31 March 2018

For the year ended

31 March 2017


Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

 

Gains on investments

1,203,348 

1,203,348 

1,354,245 

1,354,245 

Currency gains/(losses)

21,129 

21,129  

(42,958)

(42,958)

Income (note 2)

30,663 

30,663 

27,796 

27,796 

Investment management fee

(4,495)

(13,484)

(17,979)

(3,558)

(10,674)

(14,232)

Other administrative expenses

(3,929)

(3,929)

(3,544)

(3,544)

Net return before finance costs and taxation

22,239 

1,210,993 

1,233,232 

20,694 

1,300,613 

1,321,307 

Finance costs of borrowings

(5,490)

(16,471)

(21,961)

(4,837)

(14,510)

(19,347)

Net return before taxation

16,749 

1,194,522 

1,211,271 

15,857 

1,286,103 

1,301,960 

Tax

(48)

(48)

(1,721)

(1,721)

Net return after taxation

16,701 

1,194,522 

1,211,223 

14,136 

1,286,103 

1,300,239 

Net return per ordinary share (note 4)

1.20p

85.80p

87.00p

1.07p

97.31p

98.38p

                                                                                                                                                                                                     

 

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 all gains and losses of the Company have been reflected in the above statement.



 

Balance sheet

 

 


At 31 March 2018

              £'000               £'000    

At 31 March 2017

            £'000                   £'000

Fixed assets

 

 



Investments held at fair value through profit or loss

 

6,646,015 

 

5,298,338 

Current assets

 

 

 

 

Debtors

2,764 

 

16,293 

 

Cash and cash equivalents

34,974 

 

76,643 

 


37,738 

 

92,936 

 

Creditors

 

 

 

 

Amounts falling due within one year (note 6)

(241,961)

 

(367,973)

 

Net current liabilities


(204,223)


(275,037)

Total assets less current liabilities


6,441,792 


5,023,301 

Creditors

 

 

 

 

Amounts falling due after more than one year (note 6)

 

(254,036)

 

(149,710)



6,187,756 


4,873,591 

Capital and reserves

 

 

 

 

Share capital

 

71,086 

 

71,086 

Share premium account

 

352,375 

 

216,808 

Capital redemption reserve

 

19,094 

 

19,094 

Capital reserve

 

5,741,352 

 

4,537,789 

Revenue reserve

 

3,849 

 

28,814 

Shareholders' funds


6,187,756 


4,873,591 

Net asset value per ordinary share

(after deducting borrowings at book)*

 

443.5p

 

358.7p

Ordinary shares in issue (note 8)

 

1,395,363,209

 

1,358,569,485 

 

The Capital Reserve and Share Premium Account as at 31 March 2017 have been restated.



 

* See Glossary of Terms at the end of this announcement.

Statement of changes in equity

 

 

For the year ended 31 March 2018


Share
capital

£'000

Share premium account

£'000

Capital redemption reserve

£'000

Capital

Reserve†#

£'000

Revenue reserve#

£'000

Shareholders'
funds

£'000

Shareholders' funds at 1 April 2017

71,086

216,808

19,094

4,537,789 

28,814 

4,873,591 

Net return after taxation

-

-

-

1,194,522 

16,701 

1,211,223 

Ordinary shares bought back into treasury (note 8)

-

-

-

(62,951)

(62,951)

Ordinary shares sold from treasury (note 8)

-

135,567

-

71,992 

207,559 

Dividends paid during the year (note 5)

-

-

-

(41,666)

(41,666)

Shareholders' funds at 31 March 2018

71,086

352,375

19,094

5,741,352 

3,849 

6,187,756 

 

 

For the year ended 31 March 2017


Share
capital

£'000

Share premium account

£'000

Capital redemption reserve

£'000

Capital

Reserve†#

£'000

Revenue reserve#

£'000

Shareholders'
funds

£'000

Shareholders' funds at 1 April 2016

71,086

116,410

19,094

3,197,092 

53,762 

3,457,444 

Net return after taxation

-

-

-

1,286,103 

14,136 

1,300,239 

Ordinary shares bought back into treasury (note 8)

-

-

-

(19,558)

(19,558)

Ordinary shares issued from treasury (note 8)

-

 

100,398

-

74,152 

174,550 

Dividends paid during the year (note 5)

-

-

-

(39,084)

(39,084)

Shareholders' funds at 31 March 2017

71,086

216,808

19,094

4,537,789 

28,814 

4,873,591 

 

The Capital Reserve balance at 31 March 2018 includes investment holding gains of £3,392,070,000 (31 March 2017 - gains of £2,647,822,000).

The Capital Reserve and Share Premium Account as at 31 March 2016 and 31 March 2017 have been restated.

# The Capital Reserve (to the extent it constitutes realised profits) and the Revenue Reserve are distributable.

 

 



 

Cash flow statement

 


Year to

31 March 2018

£'000               £'000

Year to

31 March 2017

£'000               £'000

Cash flows from operating activities





Net return before taxation

1,211,271 

 

1,301,960 

 

Gains on investments

(1,203,348)

 

(1,354,245)

 

Currency (gains)/losses

(21,129)

 

42,958 

 

Finance costs of borrowings

21,961 

 

19,347 

 

Overseas withholding tax refunded

316 

 

124 

 

Overseas withholding tax incurred

(2,128)

 

(1,755)

 

Changes in debtors and creditors

4,295 

 

443 

 

Cash from operations


11,238 


8,832 

Interest paid

 

(20,972)

 

(19,484)

Net cash outflow from operating activities


(9,734)


(10,652)

Cash flows from investing activities


 


 

Acquisitions of investments

(938,385)

 

(723,418)

 

Disposals of investments

800,627 

 

686,952 

 

Net cash outflow from investing activities


(137,758)


(36,466)

Equity dividends paid

(41,666)

 

(39,084)

 

Ordinary shares bought back into treasury

(62,884)

 

(19,574)

 

Ordinary shares sold from treasury

212,687 

 

169,422 

 

Bank loans repaid

(132,775)

 

(37,903)

 

Bank loans drawn down and loan notes issued

136,921 

 

 

Net cash inflow from financing activities


112,283 


72,861 

(Decrease)/increase in cash and cash equivalents

 

(35,209)

 

25,743 

Exchange movements

 

(6,460)

 

6,927

Cash and cash equivalents at start of period

 

76,643 

 

43,973 

Cash and cash equivalents at end of period*


34,974 


76,643 

 

*      Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.

 

 



 

Thirty largest holdings and twelve month performance

 

Name

Business

Fair Value at 31 March

2018

£'000

% of
total assets

Absolute performance

%

Contribution to absolute performance#

%

Fair value 31 March 2017

£'000

Amazon.com

Online retailing and cloud computing

661,339

9.9

510,086

Tencent Holdings

Internet services

500,986

7.5

308,730

Alibaba Group

Online retailing and financial services

497,643

7.5

273,626

Illumina

Biotechnology equipment

433,312

6.5

318,103

Tesla Inc

Electric cars, autonomous driving and

  solar energy

324,503

4.9

366,984

Baidu

Online search engine

265,268

4.0

237,505

Inditex

Global clothing retailer

239,840

3.6

297,098

Kering

Luxury goods producer and retailer

231,740

3.5

104,970

ASML

Lithography

207,437

3.1

110,439

Ferarri

Luxury automobiles

195,553

2.9

148,851

Netflix

Subscription service for TV shows and movies

195,159

2.9

104,970

Zalando

International online clothing retailer

151,205

2.3

108,578

Nvidia

Visual computing

143,346

2.2

51,904

Ctrip.com

Travel agent

137,095

2.1

131,093

Facebook

Social networking site

130,886

2.0

257,167

Alphabet

Holding company for Google and associated ventures

128,777

1.9

199,136

Bluebird Bio Inc

Provider of biotechnological products

  and services

124,535

1.9

68,486

Kinnevik

Investment company

108,283

1.6

90,981

Atlas Copco

Engineering

106,975

1.6

107,723

Workday

Enterprise information technology

93,244

1.4

60,431

Intuitive Surgical

Surgical robots

89,464

1.3

75,393

Housing Development Finance Corporation

Indian mortgage provider

84,710

1.3

78,537

Delivery Hero

Online food delivery service

67,124

1.0

-

Renishaw

Electronic equipment

65,218

1.0

45,076

BASF

Chemicals

62,695

0.9

118,852

Spotify Technology SA u

Online music streaming service

62,505

0.9

22,428

Rocket Internet

Internet start-up factory

61,456

0.9

38,422

Uptake Technologies Inc

  Series D Pref. u

Designs and develops enterprise software

60,814

0.9

-

Svenska Handelsbanken

Banking

55,543

0.8

48,280

Grail Inc Series B Pref.u

Clinical stage biotechnology company

53,485

0.8

59,978



5,540,140

83.1




†      Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 April 2017 to 31 March 2018.

#      Contribution to absolute performance (in sterling terms) has been calculated to illustrate how an individual stock has contributed to the overall return. It is influenced by both share price performance and the weighting of the stock in the portfolio, taking account of any purchases or sales over the period.

*      Figures relate to part-period returns where the equity has been purchased during the period.

u      Denotes unlisted investment

Source: Baillie Gifford/StatPro and underlying index providers. See disclaimer at the end of this announcement.

Past performance is not a guide to future performance.


Distribution of total assets

 

 

At

31 March 2018

%

At

31 March

2017

%

North America

48.1

47.9

South America

-

0.5

Europe

27.7

30.3

 

United Kingdom

2.9

4.4

 

Eurozone

19.9

19.6

 

Developed Europe (non euro)

4.9

5.9

 

Rest of Europe

-

0.4

Africa and Middle East

-

0.4

Asia

24.2

20.9

 

China

22.5

18.5

 

India

1.7

2.1

 

Rest of Asia

-

0.3


100.0

100.0

 

 

 

 

  

 

 

Notes to the financial statements

 

   

1.    

The Financial Statements for the year to 31 March 2018 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently.

2.    

Income

Year to

31 March

2018

£'000

Year to

31 March

2017

£'000


Income from investments

30,283

27,752


Other income

380

44



30,663

27,796

3.    

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas Limited. The Investment Management Agreement sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. The annual management fee for the year to 31 March 2018 was 0.30% on the first £4 billion of total assets less current liabilities (excluding short term borrowings for investment purposes) and 0.25% on the remaining assets.

The investment management fees for the years to 31 March 2018 and 31 March 2017 were charged 25% to revenue and 75% to capital (with effect from 1 April 2018 the investment management fee will be charged 100% to capital - see Chairman's Statement).

4.    

Net Return per Ordinary Share


Year to

31 March

2018

£'000

Year to

31 March

2017

£'000

Revenue return on ordinary activities after taxation

 

16,701

14,136

Capital return on ordinary activities after taxation

 

1,194,522

1,286,103

Total net return


1,211,223

1,300,239

Weighted average number of ordinary shares in issue


1,392,180,470

1,321,667,362

Net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares (excluding treasury shares) in issue during the year. There are no dilutive or potentially dilutive shares in issue.

5.    

Ordinary Dividends

2018

2017

 

2018

£'000

2017

£'000

Amounts recognised as distributions in the year:

 

 

 

 

Previous year's final (paid 3 July 2017)

1.61p

1.58p

22,264

20,795

Interim (paid 1 December 2017)

1.39p

1.39p

19,402

18,289

 

3.00p

2.97p

41,666

39,084

Also set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £16,701,000 (2017 - £14,136,000).

 

 

 

Notes to the condensed financial statements (ctd)

 

5.

Ordinary Dividends (Ctd)

 

 

 

2018

2017

 

2018

£'000

2017

£'000

Dividends paid and payable in respect of the year:

 

 

 

 

Interim dividend per ordinary share (paid 1 December 2017)

1.39p

1.39p

19,402

18,289

Proposed final dividend per ordinary share (payable 2 July 2018)

1.68p

1.61p

23,442

22,264


3.07p

3.00p

42,844

40,553

 

If approved the final dividend will be paid on 2 July 2018 to all shareholders on the register at the close of business on 8 June 2018. The ex-dividend date is 7 June 2018. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 11 June 2018.

6.    

Creditors falling due within one year include drawings under the following borrowing facilities:

Borrowing facilities at 31 March 2018

A 1 year US$40 million revolving loan facility has been arranged with The Royal Bank of Scotland plc.

A 2 year US$85 million revolving loan facility has been arranged with The Royal Bank of Scotland plc.

A 2 year US$200 million revolving loan facility has been arranged with National Australia Bank Limited.

At 31 March 2018 drawings were as follows:

The Royal Bank of Scotland plc       US$40 million (revolving facility) at an interest rate (at 31 March 2018) of 2.255%

                                                               per annum.

                                                               US$85 million (revolving facility) at an interest rate (at 31 March 2018) of 2.764%

                                                               per annum.

National Australia Bank                    US$200 million (revolving facility) at an interest rate (at 31 March 2018) of

                                                               2.623% per annum.

At 31 March 2017 drawings were as follows:

The Royal Bank of Scotland plc      US$165 million (revolving facility) at an interest rate (at 31 March 2017) of

                                                              1.525% per annum.

                                                               US$85 million (fixed rate facility) at an interest rate of 1.945% per annum.

National Australia Bank                    US$200 million (revolving facility) at an interest rate (at 31 March 2017) of

                                                               1.792% per annum.

During the year the US$165 million 1 year revolving loan with The Royal Bank of Scotland plc ('RBS') was repaid and replaced with a US$40 million 1 year revolving loan with RBS. The US$85 million 3 year fixed rate loan with RBS was refinanced with a US$85 million 2 year revolving loan from RBS.

During the year the Company issued the following private placement unsecured loan notes and are included within creditors falling due after more than one year:

¾    £45 million at a coupon of 3.05% maturing on 7 April 2042.

¾    £30 million at a coupon of 3.30% maturing on 6 April 2044.

¾    £30 million at a coupon of 3.12% maturing on 6 April 2047.

A further unsecured loan note was agreed for funding on 30 September 2020 to refinance the £20 million 8-14% stepped interest debenture stock maturing on 30 September 2020:

¾    £20 million at a coupon of 3.65% maturing on 6 April 2044.

Subsequent to the year end on 11 April 2018 the US$40 million 1 year revolving loan with RBS was replaced with a US$80 million 3 year revolving loan with RBS.

 

 

 

 

Notes to the condensed financial statements (ctd)

 

  

7.    

The fair value of borrowings at 31 March 2018 was £535,814,000 (2017 - £566,251,000). Net asset value per share (after deducting borrowings at fair value) was 439.9p (2017 - 354.6p). 

8.    



2018

Number of Shares

2017

Number of shares

Share capital: Ordinary shares of 5p each

 

 

 

Allotted, called up and fully paid

 

1,395,363,209

1,358,569,485

Treasury shares

 

26,367,671

63,161,395

Total


1,421,730,880

1,421,730,880

 

The Company's authority permits it to hold shares bought back 'in treasury'. Such treasury shares may be subsequently either sold for cash (at, or at a premium to, net asset value per ordinary share) or cancelled.  In the year to 31 March 2018 a total of 14,006,276 (2017 - 7,005,000) ordinary shares with a nominal value of £700,000 (2017 - £350,000) were bought back at a total cost of £62,951,000 (2017 - £19,558,000) and held in treasury.  At 31 March 2018 the Company had authority to buy back a further 191,711,909 ordinary shares.

Under the provisions of the Company's Articles the share buy-backs were funded from the capital reserve.

In the year to 31 March 2018, the Company sold 50,800,000 ordinary shares from treasury at a premium to net asset value, with a nominal value of £2,540,000 raising net proceeds of £207,559,000 (31 March 2017 - 53,050,000 ordinary shares raising net proceeds of £174,550,000). At 31 March 2018 the Company had authority to issue or sell from treasury a further 121,286,948 ordinary shares.

Share Premium Account

Where the sale of shares held in treasury results in proceeds in excess of the weighted average purchase price paid by the Company to repurchase the shares, the excess must be transferred to the Company's Share Premium Account. In prior years, when shares held in treasury were subsequently sold, the proceeds of the sale were reflected in full in the Capital Reserve. Consequently, an adjustment has been made between the Capital Reserve and the Share Premium Account and the prior year disclosures have been restated accordingly. The effect of this adjustment as at 1 April 2016 has been to increase Share Premium to £116,410,000 from Nil and decrease Capital Reserve to £3,197,092,000 from £3,313,502,000. For the year ended 31 March 2017, the credit to Share Premium for the year has been increased to £100,398,000 from Nil with the in year movement on Capital Reserve decreased to £74,152,000 from £174,550,000. This has resulted in revised Share Premium and Capital Reserve balances of £216,808,000 and £4,537,789,000 respectively at 31 March 2017 and forms the restated opening position at 1 April 2017.

There is no impact on total reserves in the current or prior periods arising from this restatement.

9.    

Transaction costs on purchases amounted to £332,000 (2017 - £261,000) and transaction costs on sales amounted to £383,000 (2017 - £312,000).

10. 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

11. 

The Annual Report and Financial Statements will be available on the Managers' website www.scottishmortgageit.com on or around 25 May 2018.

 

 

 

Notes to the condensed financial statements (ctd)

 

 

Glossary of Terms

Total Assets

Total assets less current liabilities, before deduction of all borrowings.

Net Asset Value

Also described as shareholders' funds. Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

Net Asset Value (Borrowings at Fair Value)

Borrowings are valued at an estimate of their market worth.

Net Asset Value (Borrowings at Par Value)

Borrowings are valued at adjusted net issue proceeds.

Net Asset Value (Borrowings at Book)/Shareholders' Funds

Borrowings are valued at adjusted net issue proceeds.

Net Liquid Assets

Net liquid assets comprise current assets less current liabilities, excluding borrowings.

Discount/Premium

As stockmarkets 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.

Total Return

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes xd.

Ongoing Charges Ratio

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies.

Gearing

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.

Gearing represents borrowings at par less cash and cash equivalents (including any outstanding trade or foreign exchange settlements) expressed as a percentage of shareholders' funds.

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

Leverage

For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Notes to the condensed financial statements (ctd)

 

 

 

Active Share

Active share, a measure of how actively a portfolio is managed, is the percentage of the 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.

 

 

‡    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.

 

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

 

You can find up to date performance information about Scottish Mortgage on the Scottish Mortgage page of the Managers' website at www.scottishmortgageit.com

 

Scottish Mortgage is managed by Baillie Gifford, the Edinburgh based fund management group with around £187 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 10 May 2018).

 

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.

11 May 2018

For further information please contact:

 

Catharine Flood, Baillie Gifford & Co

Tel: 0131 275 2718

 

James Budden, Baillie Gifford & Co  

Tel: 0131 275 2816 or 07507 201208

 

Roland Cross, Director, Four Broadgate

Tel: 0203 761 4440

 

 

 

 

 

 

 

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