Final Results

RNS Number : 6782D

Scottish Mortgage Inv Tst PLC

01 May 2013

 



RNS Announcement: Preliminary Results

Scottish Mortgage Investment Trust PLC

Results for the year to 31 March 2013

The following is the unaudited preliminary statement for the year to 31 March 2013 which was approved by the Board on 30 April 2013.

Chairman's Statement

Performance

The past year has seen continued progress for Scottish Mortgage with the share price reaching a new high of 862.5p in early March 2013, before falling back to close at 822.5p at the end of March. Over the course of the year to 31 March 2013 the share price rose by 16.2% and the net asset value (NAV) per share by 11.6%, whereas the benchmark index (the FTSE All-World Index in sterling terms) rose by 13.8%. Over 10 years to end March 2013, the share price total return (including both capital returns and dividends) has been 336%, the net asset value total return, 270% and the FTSE All-World Index total return, 174%. The five year figures are more modest as they still reflect the impact of the 2008 financial crisis. Nonetheless, over five years the total return was, respectively: 53% (share price), 45% (NAV) and 50% (benchmark). Given the long term investment approach, we consider that measurements over longer periods are more significant.

A year ago, the prevailing attitude towards equity markets was one of fear and nervousness. In the event, there was no wholesale renewal of the financial crisis, the European Union - despite some testing moments emanating from Cyprus and Italy - continues to hold together, there was progress in the United States towards a resumption of sustainable growth and at the same time operating conditions for many companies around the world have been favourable. More importantly, the Managers still seem to find plenty of opportunities, as can be seen from their Report in the Annual Report and Financial Statements. In particular, technology in its broadest sense and the growth of developing markets continue to provide fertile ground for those with a long term investment view. Despite some very significant holdings, the portfolio remains well diversified and growth opportunities are not restricted to these two criteria. 

Earnings and dividend

Earnings were strong in the past year, boosted by non recurring dividends, most notably from our holding in the Polish copper mining company KGHM. Earnings per share totalled 15.59p compared to 13.07p in 2011/12. A final dividend of 7.3p is proposed which will give a total for the year of 14.0p per share. This represents a rise of 7.7%, which is well ahead of sterling inflation (currently 3.3% as measured by RPI), which means that we have now increased our dividend by more than prevailing inflation for 31 years in a row.

It is probable that earnings in 2013/14 will be lower than in the past year as the Company has benefitted from the special dividends and accelerated timing of dividend receipts. Although the primary focus of this trust is to provide long term capital growth, it is the Board's intention to provide progressive and real dividend growth; the existence of reserves of 26p per share would allow us, if necessary, to smooth dividend payments from year to year should the need arise. Longer term, the outlook for dividend increases remains healthy.

Gearing

Scottish Mortgage remains committed to the use of gearing. Gearing levels were maintained throughout the year.

Demand for shares

I am pleased to say that over the past year the discount has progressively narrowed, meaning that the share price has risen faster than the underlying net asset value. To an extent this must reflect the fact that the long term and global approach, which was adopted as a strategy by the Company ten years ago, has proved attractive to investors. Ten years ago the discount stood at 12.5% and the following two years at 15.9% and 16.5% respectively. At the close of the year under review it stood at 4.1%. While performance is the primary impetus, a combination of judicious share buy backs as well as effective communication and marketing influence the balance between supply and demand.  In the past year 2,475,000 shares (1% of issued share capital at the start of the year) were bought back at discounts ranging from 4.0% to 5.8%. This should be seen as part of your Board's desire to maintain the trend of a narrowing discount.

A total of 33.2 million shares have been bought back since 2006, and these are held in Treasury and are available for reissue. The main advantages of reissuing shares are: the continued provision of good liquidity, the maintenance of scale and the further spreading of costs across a wider shareholder base. Shareholders' authority is being sought at the Annual General Meeting to sell shares held in Treasury at a premium to the NAV.

2013 has also seen the implementation of the Retail Distribution Review which is designed to provide greater clarity on the true costs associated with different types of investments. As Scottish Mortgage enjoys one of the lowest expense ratios in the industry (currently 0.51%), we stand to benefit. Against this, we are currently in the process of complying with the EU-wide Alternative Investment Fund Managers Directive (AIFMD). This has been conceived by legislators in Brussels with, on the one hand, an agenda to bash hedge funds, but, on the other, with a limited understanding, at best, of how an Investment Trust operates - is Scottish Mortgage really an "Alternative Investment"?  The AIFMD will, in your Board's opinion, provide little additional investor protection, yet it stands to add significantly (and in our view unnecessarily) to our annual cost base.

Board

Dr Linda Yueh resigned as a Director with effect from 31 March 2013 following her appointment as BBC World News Chief Business Correspondent, based in Singapore. The Board greatly appreciated Dr Yueh's contributions in her year with Scottish Mortgage and wishes her well in her new post.

The Annual General Meeting will be held in Edinburgh at Baillie Gifford's offices at 4.30pm on the 18th June. James Anderson and Tom Slater will make presentations on the investments and I hope you will be able to attend.

Outlook

The past four years have seen a steady recovery in equity markets as investor confidence has returned and many equity indices are close to, or in, new high ground. This is happening at a time when interest rates in many markets, notably those scarred by the 2008 crash, remain abnormally low. Many pension funds, driven by regulatory requirements to match investment allocations to eventual liabilities, are increasingly investing in bonds where yields are historically low and prices high, a process sometimes referred to as "de-risking". Fortunately, the private investor has greater flexibility and can be less inhibited when it comes to asset allocation and long term equity investment which, while carrying greater risk, also offers the potential for commensurate returns. It is to this type of investor that Scottish Mortgage is designed to appeal; we offer a high conviction equity portfolio invested across the world's markets, constructed with little heed paid to short term performance relative to indices, but with great attention to the long term fundamentals of our investee companies.

The list of potential threats to global political, economic and commercial stability is no shorter than before and, close to home, there have been concerns at the level of unemployment in several of Europe's largest economies and their stubborn refusal to show any real signs of growth. At the same time, there may be profound long term consequences of the "bail-in" in Cyprus, which demonstrated that, even within the EU, private bank deposits can be at risk. However, despite the drive to austerity amongst those governments and consumers who are over-indebted, many quoted companies are enjoying favourable operating conditions. Accepting that economic growth and stock price appreciation do not always go hand in hand, a world where the IMF forecast for annual global growth is 3.3% is a fairly benign environment, even given the continued work needed to repair and reform banking systems and to balance national budgets - especially in developed economies.

I take this opportunity to remind our shareholders that Scottish Mortgage is founded on the principle of selecting well managed companies from around the world and investing in them on a long term basis; and, thanks in part to our size, doing so in a way which costs our shareholders less than most other approaches. The skill which your Managers display in identifying growth opportunities as well as the successful execution of individual corporate strategies will determine returns to a very great extent. Whist, as we are always reminded, past performance is no guide to the future, the record of our Managers in the past decade and their process for selecting investments to generate returns for the next one gives me great confidence in the investment proposition offered by Scottish Mortgage.

John Scott

Chairman

30 April 2013

Past performance is not a guide to future performance.

Income statement (unaudited)

	For the year ended 31 March 2013			For the year ended 31 March 2012 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on investments	-	244,988	244,988	-	(94,940)	(94,940)
Currency (losses)/gains	-	(10,396)	(10,396)	-	5,974	5,974
Income (note 2)	58,950	-	58,950	52,689	-	52,689
Investment management fee	(3,836)	(3,836)	(7,672)	(3,632)	(3,632)	(7,264)
Other administrative expenses	(2,379)	-	(2,379)	(2,380)	-	(2,380)
Net return before finance costs and taxation	52,735	230,756	283,491	46,677	(92,598)	(45,921)
Finance costs of borrowings	(9,215)	(9,215)	(18,430)	(9,401)	(9,401)	(18,802)
Net return on ordinary activities before taxation	43,520	221,541	265,061	37,276	(101,999)	(64,723)
Tax on ordinary activities	(4,010)	-	(4,010)	(3,803)	-	(3,803)
Net return on ordinary activities after taxation	39,510	221,541	261,051	33,473	(101,999)	(68,526)
Net return per ordinary share (note 4)	15.59p	87.42p	103.01p	13.07p	(39.81p)	(26.74p)

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations. No operations were acquired or discontinued during the year.

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.

Balance sheet (unaudited)

	At 31 March 2013 £'000	At 31 March 2012 (audited) £'000
Fixed assets
Investments held at fair value through profit or loss	2,581,849	2,361,636
Current assets
Debtors	5,401	8,321
Cash and short term deposits	13,867	20,855
	19,268	29,176
Creditors
Amounts falling due within one year	(72,867)	(125,295)
Net current liabilities	(53,599)	(96,119)
Total assets less current liabilities	2,528,250	2,265,517
Creditors
Amounts falling due after more than one year	(309,882)	(253,194)
	2,218,368	2,012,323
Capital and reserves
Called up share capital	71,086	71,086
Capital redemption reserve	19,094	19,094
Capital reserve	2,045,003	1,844,229
Revenue reserve	83,185	77,914
Shareholders' funds	2,218,368	2,012,323
Net asset value per ordinary share (after deducting borrowings at fair value) (note 7)	857.6p	768.7p
Net asset value per ordinary share (after deducting borrowings at par)	885.4p	795.6p
Ordinary shares in issue (note 8)	251,144,897	253,619,897

Reconciliation of movements in shareholders' funds (unaudited)

For the year ended 31 March 2013

	Share capital £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2012	71,086	19,094	1,844,229	77,914	2,012,323
Net return on ordinary activities after taxation	-	-	221,541	39,510	261,051
Shares bought back (note 8)	-	-	(20,767)	-	(20,767)
Dividends paid during the year (note 5)	-	-	-	(34,239)	(34,239)
Shareholders' funds at 31 March 2013	71,086	19,094	2,045,003	83,185	2,218,368

For the year ended 31 March 2012 (audited)

	Share capital £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2011	71,086	19,094	1,965,865	76,249	2,132,294
Net return on ordinary activities after taxation	-	-	(101,999)	33,473	(68,526)
Shares bought back (note 8)	-	-	(19,637)	-	(19,637)
Dividends paid during the year (note 5)	-	-	-	(31,808)	(31,808)
Shareholders' funds at 31 March 2012	71,086	19,094	1,844,229	77,914	2,012,323

*      The Capital Reserve balance at 31 March 2013 includes investment holding gains on fixed asset investments of £894,384,000 (31 March 2012 - gains of £755,250,000).

Cash flow statement (unaudited)

	Year to 31 March 2013 £'000               £'000		Year to 31 March 2012 (audited) £'000               £'000
Net cash inflow from operating activities		48,335		44,484
Servicing of finance
Interest paid	(18,693)		(18,803)
Net cash outflow from servicing of finance		(18,693)		(18,803)
Taxation
Income tax refunded	19		38
Overseas tax incurred	(4,061)		(3,896)
Total tax paid		(4,042)		(3,858)
Financial investment
Acquisitions of investments	(287,065)		(621,168)
Disposals of investments	310,571		654,761
Realised currency (loss)/profit	(1,088)		3,562
Net cash inflow from financial investment		22,418		37,155
Equity dividends paid (note 5)		(34,239)		(31,808)
Net cash inflow before financing		13,779		27,170
Financing
Shares bought back (note 8)	(20,767)		(19,637)
Bank loans repaid	-		(102,206)
Bank loans drawn down	-		100,829
Net cash outflow from financing		(20,767)		(21,014)
(Decrease)/increase in cash		(6,988)		6,156
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period		(6,988)		6,156
Decrease/(increase) in bank loans		-		1,377
Exchange movement on bank loans		(9,308)		2,412
Other non-cash changes		226		199
Movement in net debt in the year		(16,070)		10,144
Net debt at 1 April		(345,141)		(355,285)
Net debt at 31 March		(361,211)		(345,141)
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 taxation		283,491		(45,921)
(Gains)/losses on investments		(244,988)		94,940
Currency losses/(gains)		10,396		(5,974)
Amortisation of fixed income book cost		-		(3)
Decrease in accrued income		1,116		1,167
Decrease/(increase) in debtors		130		(19)
(Decrease)/increase in creditors		(1,810)		294
Net cash inflow from operating activities		48,335		44,484

Thirty largest holdings and twelve month performance (unaudited)

Name	Business	Fair Value at 31 March 2013 £'000	% of total assets	Absolute   performance†   %	Contribution to absolute performance %	Fair value 31 March 2012 £'000
Amazon.com	Online retailer	214,120	8.26	38.6	3.8	186,895
Atlas Copco	Engineering	134,345	5.18	27.7	1.6	113,961
PPR	Luxury goods producer and   retailer	129,785	5.00	39.0	2.2	136,045
Baidu	Online search engine	128,692	4.96	(36.7)	(3.8)	197,279
Inditex	International clothing retailer	125,978	4.86	48.9	1.9	60,201
Tencent Holdings	Internet services	94,668	3.65	20.2	1.1	102,012
Google	Online search engine	91,998	3.55	30.3	1.1	70,674
Salesforce	Cloud computing and hosting	81,120	3.13	21.8	0.7	61,701
Illumina	Biotechnology equipment	76,518	2.95	8.0	0.2	70,861
Prudential	International insurance	67,109	2.59	46.6	1.1	42,165
Brazil CPI Linked 2045	Brazilian government inflation   linked bond	66,857	2.58	19.8	1.2	120,575
Intuitive Surgical	Surgical robots	62,307	2.40	(4.6)	(0.2)	65,370
Apple	Computer technology	61,270	2.36	(21.2)	(0.6)	40,894
Reckitt Benckiser	Consumer goods company	57,706	2.22	37.7	0.8	35,330
Banco Santander	Banking	53,199	2.05	3.9	0.3	53,022
KGHM	Copper mining	52,720	2.03	36.1	1.1	51,141
Novozymes	Enzyme manufacturer	50,676	1.95	24.0	0.4	41,186
BASF	Chemicals	49,848	1.92	9.2	0.1	27,811
Vale (CVRD)	Iron ore and nickel mining	49,461	1.91	(19.4)	(0.7)	60,946
Rolls-Royce Group	Aerospace equipment	45,200	1.74	39.2	0.6	32,480
Whole Foods Market	Food retailer	40,351	1.56	12.4	0.3	32,383
Deere	Farm machinery	40,021	1.54	14.0	0.3	35,792
Alibaba Group‡	Online retail	38,064	1.47	23.8*	0.3*	-
Rackspace Hosting	Cloud computing and hosting	35,852	1.38	(7.6)	0.1	22,671
New Oriental Education &   Technology	Education and training	35,730	1.38	(29.9)	(1.2)	51,851
Fiat	Automobiles	34,599	1.33	(5.1)	0.0	15,349
Intertek Group	Business support providers	34,375	1.33	36.9	0.6	36,746
Facebook	Social networking site	29,493	1.14	(29.2)*	(0.4)*	-
ABB	Power systems and automation	29,473	1.14	20.7	0.1	43,642
Housing Development Finance    Corporation	Mortgage bank	28,197	1.09	23.2	0.3	23,296
		2,039,732	78.65			1,832,279

†      Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 April 2012 to 31 March 2013.

‡      Denotes holding in unlisted convertible preference shares.

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

        Source: Baillie Gifford & Co/StatPro.

Past performance is not a guide to future performance.

Distribution of assets (unaudited)

		At 31 March 2013 %	At 31 March 2012 %
North America		32.3	27.1
South America		2.5	3.6
Europe		44.5	41.9
	United Kingdom	13.9	12.5
	Eurozone	17.8	14.2
	Developed Europe (non euro)	8.9	8.9
	Rest of Europe	3.9	6.3
Africa and Middle East		0.4	0.4
Asia		17.3	21.2
	China	12.6	16.3
	India	1.8	2.1
	Japan	0.4	0.5
	Rest of Asia	2.5	2.3
Total equities		97.0	94.2
Brazilian real denominated bonds		2.6	5.1
Net liquid assets		0.4	0.7
Total assets (before deduction of loans and debentures)		100.0	100.0

Notes to the condensed financial statements (unaudited)

1.	The financial statements for the year to 31 March 2013 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 March 2012. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment.
2.	Income				Year to 31 March 2013 £'000		Year to 31 March 2012 (audited) £'000
	Income from investments and interest receivable				58,950		52,681
	Other income				-		8
					58,950		52,689
3.	Baillie Gifford & Co are employed by the Company as investment managers and secretaries under a management agreement which can be terminated on not less than six months' notice, or on shorter notice in certain circumstances. The fee in respect of each quarter is 0.08% of total assets less current liabilities (excluding short term borrowings for investment purposes).
4.	Net Return per Ordinary Share				Year to 31 March 2013 £'000		Year to 31 March 2012 (audited) £'000
	Revenue return on ordinary activities after taxation				39,510		33,473
	Capital return on ordinary activities after taxation				221,541		(101,999)
	Total net return				261,051		(68,526)
	Weighted average number of ordinary shares in issue				253,421,883		256,199,678
	Net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.
5.	Ordinary Dividends	2013		2012 (audited)		2013 £'000			2012 (audited) £'000
	Amounts recognised as distribution in the year:
	Previous year's final (paid 2July 2012)	6.80p		6.20p		17,246			15,904
	Interim (paid 23 November 2012)	6.70p		6.20p		16,993			15,904
		13.50p		12.40p		34,239			31,808
	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 £39,510,000 (2012 - £33,473,000).
			2013	2012 (audited)		2013 £'000			2012 (audited) £'000
	Amounts recognised as distribution in the year:
	Interim dividend per ordinary share (paid 23 November 2012)		6.70p	6.20p		16,993			15,904
	Proposed final dividend per ordinary share (payable 1 July 2013)		7.30p	6.80p		18,334			17,246
			14.00p	13.00p		35,327			33,150
Notes to the condensed financial statements (unaudited) (ctd)

5.	Ordinary Dividends (Ctd)
	The final dividend was declared after the period end date and has therefore not been included as a liability in the balance sheet. If approved the final dividend will be paid on 1 July 2013 to all shareholders on the register at the close of business on 31 May 2013. The ex-dividend date is 29 May 2013. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 10 June 2013.
6.	The bank loan falling due within one year comprises US$99 million (2012 - US$99 million and €61 million). The bank loans falling due in more than one year comprise €61million and US$163 million (2012 - US$163 million). During the year the €61 million bank loan was repaid and a new two year €61 million loan was drawn down. Since the year end the US$99 million loan has been repaid and replaced with a £100 million multi-currency facility which has been drawn down in US$.
7.	The fair value of borrowings at 31 March 2013 was £439,557,000 (2012 - £428,696,000). Net asset value per share (after deducting borrowings at fair value) was 857.6p (2012 - 768.7p).
8.			2013 Number of shares	2012 (audited) Number of shares
	Share capital: Ordinary shares of 25p each
	Allotted, called up and fully paid		251,144,897	253,619,897
	Treasury shares		33,201,279	30,726,279
	Total		284,346,176	284,346,176
	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 2013 a total of 2,475,000 (2012 - 2,900,000) ordinary shares with a nominal value of £619,000 (2012 - £725,000) were bought back at a total cost of £20,767,000 (2012- £19,637,000) and held in treasury.  At 31 March 2013 the Company had authority to buy back a further 35,542,622 ordinary shares. Under the provisions of the Company's Articles the share buy-backs were funded from the capital reserve.
9.	Transaction costs on purchases amounted to £238,000 (2012 - £968,000) and transaction costs on sales amounted to £188,000 (2012 - £669,000).
10.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 March 2013. The financial information for 2012 is derived from the statutory accounts for 2012 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2012 accounts, their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.  The statutory accounts for 2013 are unaudited, however it is expected that the Auditors will issue an unqualified opinion. The statutory accounts for 2013 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.
11.	The Annual Report and Financial Statements will be available on the Managers' website www.scottishmortgageit.com‡ on or around 16 May 2013.

‡    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 focused 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^‡

‡    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.

Scottish Mortgage is managed by Baillie Gifford & Co, the Edinburgh based fund management group with around £93 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 30 April 2013).

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.

1 May 2013

For further information please contact:

James Budden, Baillie Gifford & Co  

Tel: [phone] or 07507 201208

Roland Cross, Director, Broadgate Mainland

Tel: [phone]  

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