Final Results
Scottish Mortgage Inv Tst PLC
03 May 2007
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
Results for the year to 31 March 2007
Excellent returns have been produced over the 4 years since Scottish Mortgage
initiated its integrated global approach: the share price has risen by 131% and
net asset value per share by 126% outstripping the 78% increase in the
benchmark. Over the current year NAV, the share price and benchmark all rose
by 4%, with the share price reaching an all time high of 551p.
• Over 4 years the Managers have invested with the courage of their
convictions and the number of equity holdings has fallen from 129 to 75.
A long term view is taken and an average holding period of 5 years or
more is anticipated.
• Companies from around the world that represent promising investment
opportunities are being identified and optimism is expressed about long
term global economic growth prospects.
• During the year the number of UK listed holdings was reduced from 33 to
18 and exposure to equities was increased when markets were weak.
• The Benchmark has changed to the FTSE All World Index reflecting the
global nature of the portfolio.
• An 11.8% increase in the total dividend for the year has been recommended
making a 25 year record of increases above inflation.
• In the second half of the year the NAV rose by 9.5% and the benchmark by 6.4%.
• The total expense ratio fell from 0.52% to 0.49%.
Scottish Mortgage Investment Trust PLC is a low cost investment trust that aims
to maximise total returns from a focused and actively managed portfolio. It
invests globally, looking for strong businesses with above-average returns. The
trust has total assets of £2,046 million (before deduction of debentures, long
and short term borrowings of £276 million).
Scottish Mortgage is managed by Baillie Gifford & Co, the Edinburgh based fund
management group with around £52 billion under management and advice as at 2 May
2007.
Scottish Mortgage Investment Trust PLC - Your low cost choice for global
investment.
3 May 2007
- ends -
For further information please contact:
Robert O'Riordan, 0131 275 3181
Baillie Gifford & Co 07730 412007
Mike Lord, Director, 020 7726 6111
Broadgate Marketing 07831 401311
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
Chairman's Statement
The share price, net asset value per share and the benchmark (50% FTSE All-Share
and 50% FTSE World Ex UK in sterling terms) all rose by 3.9% this year. Four
years ago we initiated an integrated global approach and chose to ignore the
make-up of the index when selecting investments. Over this period the share
price has risen by 131.1% and net asset value per share by 126.5%, both
outstripping a 77.9% increase in the benchmark.
The Portfolio
As well as taking a global not a regional view, over the past four years the
Managers, encouraged by the Board, have invested with the courage of their long
term convictions and the number of equity holdings has fallen from 129 to 75.
As demonstrated by the four year figures, this approach has paid off handsomely
and it will be continued into the future.
There has been an emphasis on companies with the most convincing long term
investment case with, notably, the number of UK listed investments falling from
33 to 18. This process of concentration is largely complete and the total
number of equity holdings is likely to settle at the current level of around 75.
Scottish Mortgage is now truly global in its span. Exposure to a diverse
range of businesses and geographies is achieved though both international and
domestic investments.
As announced at the interim stage, the composite UK/World benchmark will be
replaced, as of 1 April 2007, by the more broadly based FTSE All World Index in
sterling terms. This reflects - both the global nature of the portfolio and the
fact that the place where a company is listed is not necessarily where it
actually earns its profits. The benchmark is a reference point for judging
performance and emphatically is not a portfolio construction tool. The
portfolio does not set out to reproduce the index, there will be periods when
performance is below as well as above the benchmark. That said, I am very
conscious that over long periods of time shareholders require returns that
surpass the benchmark index.
While markets rose overall there were sharp falls, fuelled by concerns about the
future rate of global economic growth, in May and June 2006 and also in February
2007. These represented corrections to a broadly rising trend and were recouped.
I was impressed that the Managers maintained their positive stance towards
equities during these bouts of nervousness, taking the opportunity to increase
some holdings and introduce others while share prices were weak.
I urge you to read the Manager's very interesting and thought provoking
commentary on the investments which appears in the Annual Report. It includes
comment on some of the new holdings as well as those which have served us well
over the year. As always, there were investments which did not work and were
sold. An interview of the Manager can be found on Baillie Gifford's website at
www.bailliegifford.com under the Scottish Mortgage section.
The rate at which holdings were bought and sold (the portfolio turnover rate)
has been low, at 34%, despite the sales of the UK listed shares referred to
earlier. We expect the turnover to stabilise at around 20%, or lower, which
represents an average holding period for investments of five years or more.
Patient investment is something which I applaud. The trap of making too many
market timing calls is alluring but very dangerous.
Dividend and Earnings
Earnings per share were 9.8p compared to 8.8p last year, an increase of 11.1%. A
final dividend of 5.0p is recommended. If approved, this will bring the total to
9.5p, an 11.8% increase on last year and higher than the inflation rate of 4.8%
as measured by the Retail Price Index. Traditionally the UK market has had a
higher yield than most overseas markets but we do now expect good levels of
dividend growth from our overseas holdings. We have a healthy level of revenue
reserves which are available to underpin our intention that dividends will
increase above the rate of inflation. I believe that a steadily growing dividend
stream which exceeds inflation is something that shareholders expect.
Discount, Marketing and Buybacks
The Board also views clear and effective communication with shareholders as
extremely important. The Managers are making considerable efforts to attract new
shareholders. During the year a range of new Scottish Mortgage materials were
introduced for the Company's various savings plans. Other marketing and
communications initiatives were also carried out with intermediary and
institutional shareholders. I was pleased when Baillie Gifford and Co was
awarded the coveted Investment Week award in 2006 for the fourth time in five
years, a considerable achievement.
Nevertheless, it still remains a source of great frustration to the Board that
the discount has not narrowed over the period and strenuous efforts to stimulate
long term demand will continue. Investment trusts such as Scottish Mortgage,
with their low cost base, global reach and first-rate long term track record,
are, in your Board's view, ideal vehicles for long term investors whether they
be individuals, advisers or institutions. I see the premise as simple: over
times of overall global economic growth equity investment is likely to prove
more rewarding than lending money to banks, companies or governments. Funds
managed by experienced global players, such as Baillie Gifford, are likely to
perform better than stockmarket indices.
Word of mouth is often the best recommendation and full details of the Manager's
various marketing initiatives and savings plans are given in the Annual Report.
I must emphasise that this does not constitute advice or a recommendation as
each investor has to have regard for his/her particular circumstances. Shares
and markets rise and fall. If you need advice you should contact an experienced
and reputable stockbroker or adviser.
During the year a total of around 6.6m shares were bought back at a cost of
about £34m enhancing net asset value per share by 0.3%. The Board is again
seeking powers at the AGM to hold any shares which are bought back in treasury.
Subsequent re-issue will only be made at a premium, ensuring that the interests
of shareholders will not be diluted.
Balance Sheet
The level of borrowings was increased during the year by a further £50 million.
As well as the outstanding debenture stocks (valued at market at £213.0m at the
year end) there are also 3 fixed term bank loans which run to various dates up
to 2009 totalling £123.7m. These are denominated in Yen (£ equivalent 59.3m),
Euros (£ equivalent 49.6m) and Swiss Francs (£ equivalent 14.8m).
Borrowing to invest in stockmarkets, while not without risk, is a very useful
way of boosting returns. During the year advantage was taken of weak equity
markets to deploy additional gearing. Equity gearing at the year end stood at a
relatively modest 10% of shareholders' funds while the potential gearing
position was 16%. This level of gearing is indicative of the Manager's view that
long term investment opportunities can be found under current market conditions.
Scottish Mortgage has an Aaa Issuer Rating from Moody's.
AGM
The AGM will be held on Wednesday 27 June in Edinburgh. I hope you will come,
meet the Board and listen to a presentation from the Manager.
Outlook
Inflation appears to be rising in some economies and rates of growth and levels
of profitability overall are, generally, historically high. There is uncertainty
about the direction of US interest rates and many expect to see growth rates
slow this year. However, the strong growth trends being experienced in China,
India, Russia and many other developing countries are likely to be at an early
stage. As these countries move towards having market based economies, where the
deployment of personal and corporate capital are the primary drivers, they will
have even more influence in political as well as economic terms. As ever, there
will be unexpected squalls and storms on the way but the Managers continue to
identify promising long term opportunities at company level.
Sir Donald MacKay
Chairman
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
The following is the unaudited preliminary statement for the year to 31 March
2007 which was approved by the Board on 2 May 2007. The Board of Scottish
Mortgage Investment Trust PLC is recommending to the Annual General Meeting of
the Company to be held on 27 June 2007 the payment of a final dividend of 5.00p
(4.65p last year) per ordinary share making 9.50p (8.50p last year) for the year
ended 31 March 2007.
INCOME STATEMENT
(unaudited*)
For the year ended For the year ended
31 March 2007 31 March 2006
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 53,001 53,001 - 554,074 554,074
Currency gains/(losses) - 5,083 5,083 - (4,098) (4,098)
Income (note 2) 45,522 - 45,522 41,456 - 41,456
Investment management fee (3,462) (3,462) (6,924) (3,062) (3,062) (6,124)
Other administrative expenses (1,731) - (1,731) (1,714) - (1,714)
Net return before finance costs
and taxation 40,329 54,622 94,951 36,680 546,914 583,594
Finance costs of borrowings (8,452) (8,452) (16,904) (7,722) (7,722) (15,444)
Return on ordinary activities
before taxation 31,877 46,170 78,047 28,958 539,192 568,150
Tax on ordinary activities (4,060) 2,650 (1,410) (3,220) 2,057 (1,163)
Return on ordinary activities
after taxation 27,817 48,820 76,637 25,738 541,249 566,987
Return per ordinary share 9.80p 17.19p 26.99p 8.82p 185.58p 194.40p
(note 3)
The total column of this statement is the profit and loss account of the
Company.
All revenue and capital items in the above statement derive from continuing
operations.
A Statement of Total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the above statement.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
BALANCE SHEET
(unaudited)
At 31 March At 31 March
2007 2006
£'000 £'000
FIXED ASSETS
Investments held at fair value 2,031,907 1,956,580
CURRENT ASSETS
Debtors 25,037 9,922
Cash and short term deposits 19,165 22,650
44,202 32,572
CREDITORS
Amounts falling due within one year (note 5) (104,749) (54,918)
NET CURRENT LIABILITIES (60,547) (22,346)
TOTAL ASSETS LESS CURRENT LIABILITIES 1,971,360 1,934,234
CREDITORS
Amounts falling due after more than one year (note 5) (201,495) (180,881)
1,769,865 1,753,353
CAPITAL AND RESERVES
Called-up share capital 70,365 72,019
Capital redemption reserve 19,815 18,161
Capital reserve - realised 1,067,888 892,063
Capital reserve - unrealised 541,179 702,315
Revenue reserve 70,618 68,795
EQUITY SHAREHOLDERS' FUNDS 1,769,865 1,753,353
NET ASSET VALUE PER ORDINARY SHARE 607.1p 584.1p
(After deducting borrowings at fair value)
NET ASSET VALUE PER ORDINARY SHARE 631.0p 610.9p
(After deducting borrowings at par)
ORDINARY SHARES IN ISSUE (note 6) 281,461,176 288,075,115
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited)
For the year ended 31 March 2007
Capital Capital Capital Revenue Total
Share redemption reserve - reserve - reserve shareholders'
capital reserve realised unrealised funds
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at
1 April 2006 72,019 18,161 892,063 702,315 68,795 1,753,353
Return on ordinary
activities after taxation - - 209,956 (161,136) 27,817 76,637
Shares bought back + (1,654) 1,654 (34,131) - - (34,131)
Dividends paid during the
year# - - - - (25,994) (25,994)
Shareholders' funds at 31
March 2007 70,365 19,815 1,067,888 541,179 70,618 1,769,865
For the year ended 31 March 2006
Capital Capital Capital Revenue Total
Share redemption reserve - reserve - reserve shareholders'
capital reserve realised unrealised funds
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at
1 April 2005 73,901 16,279 773,424 309,966 69,051 1,242,621
Return on ordinary
activities after taxation - - 148,900 392,349 25,738 566,987
Shares bought back + (1,882) 1,882 (30,261) - - (30,261)
Dividends paid during the
year# - - - - (25,994) (25,994)
Shareholders' funds at 31
March 2006 72,019 18,161 892,063 702,315 68,795 1,753,353
+ See note 6
# See note 4
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
SUMMARISED CASH FLOW STATEMENT
(unaudited)
For the year ended For the year ended
31 March 2007 31 March 2006
£'000 £'000 £'000 £'000
Net cash inflow from operating Activities 40,741 32,386
NET CASH OUTFLOW FROM SERVICING OF FINANCE (16,570) (15,654)
TAXATION
Income tax paid (15) (1)
Overseas tax incurred (1,407) (1,149)
TOTAL TAX PAID (1,422) (1,150)
FINANCIAL INVESTMENT
Acquisitions of investments (688,970) (465,922)
Disposals of investments 673,837 503,640
Realised currency loss (2,293) (393)
Net cash (outflow)/inflow from financial investment (17,426) 37,325
Equity dividends paid (25,994) (25,994)
NET CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES AND
FINANCING (20,671) 26,913
LIQUID RESOURCES
Acquisition of term deposits - (258,518)
Disposal of term deposits - 258,877
Net cash inflow from use of liquid resources - 359
FINANCING
Shares bought back (34,131) (30,261)
Bank loans repaid (99,145) (34,674)
Bank loans drawn down 150,462 49,421
NET CASH INFLOW/(OUTFLOW) FROM FINANCING 17,186 (15,514)
(DECREASE)/INCREASE IN CASH (3,485) 11,758
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(Decrease)/increase in cash in the period (3,485) 11,758
Increase in bank loans (51,317) (14,747)
Exchange movement on bank loans 7,376 (4,064)
Increase in short term deposits - (359)
Exchange movement on short term deposits - 359
Other non-cash changes 100 85
MOVEMENT IN NET DEBT IN THE YEAR (47,326) (6,968)
NET DEBT AT 1 APRIL (209,159) (202,191)
NET DEBT AT 31 MARCH (256,485) (209,159)
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION
TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Net return on ordinary activities before finance costs and 94,951 583,594
taxation
Gains on investments - securities (53,001) (554,074)
Currency (gains)/losses (5,083) 4,098
Amortisation of fixed income book cost (26) 48
Changes in debtors and creditors 3,900 (1,280)
NET CASH INFLOW FROM OPERATING ACTIVITIES 40,741 32,386
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
DISTRIBUTION OF ASSETS
(unaudited)
At 31 March 2007 At 31 March 2006
% %
Equities: United Kingdom 24.8 35.0
Continental Europe 16.1 10.5
North America 23.9 24.5
Japan 3.2 3.9
Asia Pacific 11.8 8.8
Emerging Markets 15.7 12.6
Total equities 95.5 95.3
Sterling denominated bonds 0.4 1.7
Euro denominated bonds 0.8 1.0
US$ denominated bonds 0.2 0.6
Brazilian real denominated bonds 2.4 -
Net liquid assets 0.7 1.4
Total assets (before deduction of loans and debentures) 100.0 100.0
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
THIRTY LARGEST EQUITY HOLDINGS AND EQUITY PERFORMANCE
at 31 March 2007
Fair value
31 March
Fair value Performance + 2006
31 March % of £'000
2007 total
Name Business £'000 assets Absolute Relative
% %
Petrobras Oil producer 72,913 3.6 3.2 (3.2) 69,950
eBay Internet trading company 68,697 3.4 (25.0) (29.7) 41,058
Royal Bank of Scotland Banking 68,193 3.3 10.8 4.0 52,444
Gazprom Gas producer 62,715 3.1 2.0 (4.3) 65,338
CVRD Iron ore and nickel mining 58,188 2.8 32.2 24.0 32,085
Atlas Copco Engineering 55,919 2.7 6.0 (0.5) 44,919
Sandvik Engineering 55,596 2.7 35.0 26.7 30,268
British American Tobacco Tobacco 50,419 2.5 18.2 11.0 44,259
Wolseley Builders' merchant 44,305 2.2 (13.6) (18.9) 34,619
Canon Printers, copiers and cameras 44,206 2.1 9.3 2.6 33,876
Samsung Electronics Electronics manufacturer 42,572 2.1 (17.8) (22.8) 52,063
Omnicom Advertising agency 41,721 2.0 9.7 3.0 38,395
Tesco Food retailer 40,911 2.0 38.8* 22.6* -
Man Group Hedge fund manager 39,960 2.0 37.9 29.4 36,975
SAP Business software 39,512 1.9 (27.0) (31.5) 48,269
GlazoSmithKline Pharmaceuticals 37,692 1.8 (4.1) (10.0) 40,635
Standard Chartered Banking 37,610 1.8 4.8 (1.7) 26,506
Teva Pharmaceuticals Generic drugs manufacturer 36,073 1.8 (19.1) (24.0) 28,301
Porsche Automobiles 35,543 1.7 41.9 33.2 25,139
Schlumberger Oil services 35,189 1.7 17.7* 6.4* -
Reed Elsevier Publisher 34,145 1.7 11.9 5.0 25,975
EOG Resources Oil and gas producer 32,094 1.6 (12.1) (17.5) 36,693
Norilsk Nickel Diversified mining 28,179 1.4 78.4 67.4 14,943
Amazon.com Online retailer 26,466 1.3 (3.8) (9.7) 23,971
The Hershey Company Confectionery 26,335 1.3 (5.9) (11.7) 28,427
Berkshire Hathaway Insurance 25,839 1.3 (3.8)* (7.4)* -
Carnival Cruise ship operator 25,164 1.2 (11.0) (16.5) 28,945
Australia and New
Zealand Banking Banking 24,977 1.2 17.3 10.1 22,243
Wellpoint Managed care 24,794 1.2 (7.2) (12.9) 18,743
UBS Banking 24,767 1.2 (1.1)* (6.5)* -
1,240,694 60.6 945,039
+ Absolute and relative performance has been calculated on a total return basis
over the period 1 April 2006 to 31 March 2007. Absolute performance is in
sterling terms; relative performance is against the benchmark: 50%
FTSE All-Share Index and 50% FTSE World Ex UK Index (in sterling terms).
* Figures relate to part-period returns.
Source: Baillie Gifford & Co, StatPro
Past performance is no guarantee of future performance.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
NOTES
1. The financial statements for the year to 31 March 2007 have been prepared on the basis of the
accounting policies set out in the Company's Annual Financial Statements at 31 March 2006.
2007 2006
£'000 £'000
2. Income
Income from investments and interest receivable 45,472 41,391
Other income 50 65
45,522 41,456
3. Return per ordinary share
Revenue return 9.80p 8.82p
Capital return 17.19p 185.58p
Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of
£27,817,000 (2006 - £25,738,000), and on 283,953,088 (2006 - 291,656,348) ordinary shares, being the
weighted average number of ordinary shares in issue during the year.
Capital return per ordinary share is based on the net capital gain for the financial year of £48,820,000
(2006 - net capital gain of £541,249,000), and on 283,953,088 (2006 - 291,656,348) ordinary shares,
being the weighted average number of ordinary shares in issue during the year.
There are no dilutive or potentially dilutive shares in issue.
2007 2006 2007 2006
£'000 £'000
4. Ordinary Dividends
Amounts recognised as distributions in the
period:
Previous year's final (paid 5 July 2006) 4.65p 5.05p 13,222 14,876
Interim (paid 24 November 2006) 4.50p 3.85p 12,772 11,118
9.15p 8.90p 25,994 25,994
We also set out below the total dividends paid and proposed in respect of the financial year, which is
the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are
considered. The revenue available for distribution by way of dividend for the year is £27,817,000 (2006
- £25,738,000).
2007 2006 2007 2006
£'000 £'000
Dividends paid and proposed in the period:
Interim dividend per ordinary share (paid
24 November 2006) 4.50p 3.85p 12,772 11,118
Proposed final dividend per ordinary share
(payable 4 July 2007) 5.00p 4.65p 14,073 13,395
Adjustment to provision for 2006 final
dividend re shares bought back (173) (52)
9.50p 8.50p 26,672 24,461
If approved the final dividend will be paid on 4 July 2007 to all shareholders on the register at the close
of business on 8 June 2007. The ex-dividend date is 6 June 2007.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
NOTES (Ctd)
5. Loans and debentures include Y5,900 million drawn down under an existing three year multi-currency loan
facility which now expires within one year, Y7,840 million and CHF 35.5 million drawn down under a short term
facility and €73 million drawn down under a new three year facility. (2006 - Y5,900 million and €73 million,
drawn down under the three year and the short term facilities, respectively).
Net asset value per share (after deducting borrowings at fair value) was 607.1p (2006 - 584.1p). The fair
value of borrowings at 31 March 2007 was £336,735,000 (2006 - £302,489,000).
6. On 11 February 1999 authority was first granted to the Company to buy back its ordinary shares (equivalent to
14.99% of its issued share capital at that date). The authority has been renewed at each subsequent AGM and
was last renewed at the AGM on 28 June 2006 in respect of 42,623,491 ordinary shares (equivalent to 14.99% of
its issued share capital at that date). The Company's authority now permits it to hold shares bought back '
in treasury'. Such treasury shares may subsequently be either sold for cash (at, or at a premium to, net
asset value per ordinary share) or cancelled. At 31 March 2007 the Company held 2,885,000 shares in
treasury. In the year to 31 March 2007 a total of 6,613,939 (2006 - 7,530,000) ordinary shares with a
nominal value of £1,654,000 (2006 - £1,882,000) were bought back at a total cost of £34,131,000 (2006 -
£30,261,000). At 31 March 2007 the Company had authority to buy back a further 39,738,491 ordinary shares.
7. The financial information set out above does not constitute the Company's statutory accounts for the year
ended
31 March 2007. The financial information for 2006 is derived from the statutory accounts for 2006 which have
been delivered to the Registrar of Companies. The Auditors have reported on the 2006 accounts, their report
was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The
statutory accounts for 2007 are unaudited, however it is expected that the Auditors will issue an unqualified
opinion. The statutory accounts for 2007 will be finalised on the basis of the financial information
presented in this preliminary announcement and will be delivered to the Registrar of Companies following the
Company's Annual General Meeting.
8. The Report and Accounts will be available on the Managers' website www.bailliegifford.com on or around 25 May
2007.
9. None of the views expressed in this document should be construed as advice to buy or sell a particular
investment.
This information is provided by RNS
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