Final Results

RNS Number : 9320E
Scottish Mortgage Inv Tst PLC
16 May 2013
 

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

 

ANNUAL FINANCIAL REPORT

 

A copy of the Annual Report and Financial Statements for the year ended 31 March 2013 of Scottish Mortgage Investment Trust PLC has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM

 

The Annual Report and Financial Statements for the year ended 31 March 2013 including the Notice of Annual General Meeting is also available on Scottish Mortgage's page of the Baillie Gifford website at:  www.scottishmortgageit.com

 

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 March 2013 which require to be published by DTR 4.1 is set out on the following pages.

 

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.

 

Baillie Gifford & Co

CompanySecretaries

16 May 2013

 


SCOTTISH MORTGAGE INVESTMENT TRUST PLC

 

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 which follows. 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. Whilst, 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

10 May 2013

Past performance is not a guide to future performance.

 

MANAGERS' REVIEW

 

We made few changes to your portfolio in 2012/13. We still own all of the top thirty holdings of a year ago. Market movements accounted for the bulk of the changes in the rankings of these stocks. Overall turnover has been little over 10%.

 

Whilst equity markets have generally moved forward over the year it has been a frustrating period for patient investors looking for strongly growing companies. Our approach will not change but there is little sign that the markets are willing to abandon their preoccupation with alternating waves of macroeconomic and political hope followed by renewed angst. In the terrible but revealing jargon of our time this is presented as 'risk on' or 'risk off' with risk defined as short term share price volatility. Any serious assessment of the long-run competitive prospects of individual companies appears unlikely at the current juncture.

 

Whilst our portfolio is built upon the attractions of individual companies we think that the opportunities available to us are in turn moulded by the dominant forces in the global economy. For several years now we have believed that three factors are especially critical:

 

- The rise of China (and to a lesser extent other emerging economies).

- The underestimated power of structural technological change.

- The flaws of the Western financial system.

 

We see no imminent reason to amend this framework.

 

Our Core Investment Beliefs as set out in last year's Review are reiterated in the section following the California Note.

 

China

It is on this topic that we find ourselves most out of sympathy with current market sentiment. The disdain shown to Chinese equities (wherever they may be listed) is but part of a sustained and continuing antipathy towards the stocks of all the major emerging markets. Brazil, Russia and India have been similarly unpopular. This is an extraordinary contrast with the mood five years ago when the BRIC countries were perceived to be the saviours of the global economy. Whilst we share some disillusion with the current progress of Brazil, India and Russia we have long believed that China is in a class apart. This conviction has grown rather than shrunk over the last year. Growth has migrated from exports to domestic demand and from the coasts to the underdeveloped heartlands. Wages have risen as has productivity. Inflation is subdued. Naturally further progress is needed in several areas from corruption to pollution but the underlying transformation has been impressive. We cannot expect China to grow at 10% per annum as it has in the past. We do not want it to do so with the dramatic export surpluses of that era. The current trend of 7% growth and burgeoning import demand contribute far more to the health of the global economy than the unbalanced and immature boom of the past.

The future drivers of the Chinese economy are reflected in the portfolio. As imports have grown we have maintained significant exposure to international companies that have the skills and vision to enable them to flourish in China. PPR's luxury goods have been a major beneficiary of the conspicuous consumption of the newly wealthy Chinese consumer but broad gains in disposable income have opened up prospects for classic middle class purchases. This has made China fertile ground for the superb business model of Inditex in which we now have a larger holding. In such ways does the Chinese consumer aid even the rural economy of bedraggled Spain.

 

We remain most excited by the opportunities surrounding the Chinese internet. This was the specific area in which we have been most out of step with the market mood in the last year. In particular Baidu's share price has been extremely weak. As it began the year as our largest holding this has obviously had a substantial impact on our NAV. We do not intend to retreat from our belief in the company and its management. Baidu has been investing heavily in replicating its dominance of desktop search in the booming mobile business. This seems to us to be very sensible. It has been characteristic of the last year that equity markets are deeply intolerant of any investment spending by companies that crimp immediate profit growth. We find this both remarkably short term even by recent standards and deeply disturbing in its implications for corporate behaviour and the global economy. In the course of the year we have participated in a placing of unquoted convertible preference shares in Alibaba. This is China's dominant e-commerce enterprise. On its peak trading day last year Alibaba's gross merchandise volumes ran at double that of the entire US e-commerce sector on Cyber Monday. Alibaba too will continue to invest fearlessly and admirably. Its reticence about a full IPO reflects both this characteristic and its strong cash-flows.

 

Technology

We are appending a note by Tom Slater describing his extended stay in Silicon Valley last autumn. It describes areas of potential interest in the future. It may be worth adding a few words on current developments. Here too the dominant characteristic is extreme impatience and intolerance of even the most modest and temporary halt in earnings gratification. Thus we have seen the rise and dramatic fall of Apple (with a loss approaching $300bn in capitalization over the last seven months) although it is hard to see that future prospects have changed substantively. Such a pattern has been replicated from the high-profile lurches in Facebook's share price to similar but less heavily observed gyrations in cloud-computing company Rackspace. The only surprise is that Amazon has thus far avoided such dramatic share price swings (albeit with quite sufficient volatility around results). This is remarkable as Amazon is more dedicated to the pursuit of much deferred rewards than any other quoted company in our experience. It is possible that it has a shareholder base that tries to match this pleasing perspective.

 

The greatest encouragement of the year has been the continued progress in genomic science. Prices for sequencing continue to plunge, diagnostic improvements are following and gradually health systems and pharmaceutical behemoths are adjusted to a new world. Illumina continues to lead this technology. We are pleased it has preserved its independence.

 

Western Financial Flaws

There is little sign that banks have become less complex, less greedy or less dangerous. Management modesty remains rare. Regulatory changes have been piecemeal and hardly distinguished by their own simplicity. All we are left with is the hope that the combination of the savage lesson of 2008/9 and a gradual push for more equity within the banks has dampened the imminent threats.

 

 Over the last year more attention has been paid to the flaws of government finances than those of banks. At times conventional interpretations appeared lacking in common sense. It has always seemed improbable that the ECB and Germany were willing to walk away from the continued existence of the euro. That it was believed to be so appears to us to owe more to the lurid imaginings of the London establishment than to serious analysis. Equally it is becoming increasingly probable that the gospel of austerity that has so appealed to so many in conservative financial and political sectors is self-defeating in practice. That it appears historically and evidentially questionable is becoming increasingly obvious. Structural reform accompanied by the pursuit of growth rather than consolidation appears the appropriate policy in almost all the developed world.

 

Conclusion

Although the last 12 months have seen a modest improvement in stock markets the atmosphere remains acutely nervous and confidence low. Only those stocks and those countries perceived to be the safest and most stable have enjoyed consistent rallies. Even in America politics and economic data points continue to fray emotions. The corporate sector has as yet proven unwilling to re-invest its extraordinary cash riches - perhaps unsurprisingly given the suspicion investors have shown when any such ambitions have been mooted. At the same time prior optimism about emerging markets has been leeched away by the drip-drip of underperformance and redemptions. Yet all this seems to neglect substantial improvements. America is recovering - however inelegantly. The risk of extreme outcomes in Europe has been shown to be lower than once feared. China has transformed itself and in doing so assisted the global economy. Above all there are truly great, growing and sustainable companies available to us at alluring prices. Eventually this will matter.

JAMES ANDERSON

Manager of Scottish Mortgage

10 May 2013

 

CALIFORNIA NOTE

 

The model of capitalism that exists on the West Coast of the United States has produced several of the largest holdings in our portfolio. I spent the autumn there visiting existing holdings, thinking about the emerging technologies and meeting early stage companies that may become significant in future years

 

Despite the efforts of many imitators, the San Francisco Bay Area remains the most important centre for the generation and growth of new technology companies. The influence of such companies is increasing rapidly in both geographic reach and economic impact. The personal computer reached the upper income tier of the developed world. Over the coming decade, computers in the form of smartphones are likely to be in the hands of billions of users. This level of ubiquity transforms the opportunity set for those that can harness the technology. It is not just the scale of this change that is impressive. The way consumers access internet services is moving at astonishing speed. It is plausible that within the next two years the majority of access will be from mobile devices.

 

Today in the Western world there are four dominant platforms in the consumer internet: Amazon, Google, Facebook and Apple. We currently own shares in all of them. Whilst a lot is written in the media about the skirmishes between these companies, it appears to us that their core businesses encounter limited competition. They are growing rapidly. Their management teams have thus far been highly successful in navigating the shift towards mobile access and it seems no coincidence that three of the four are run by their founders. From IBM to Microsoft to Hewlett Packard to Intel it is striking that long periods of dominance in technology have coincided with the reigns of founder-managers. In the consumer internet in particular, having a CEO who is very close to product development seems likely to be a critical factor as user behaviour continues to evolve so quickly.

 

Spending time with some of the area's venture capitalists provided a perspective on some of the most interesting areas of early stage investment. In general the companies they are investing in build on top of the big four consumer platforms. This allows them to minimise development costs and also to acquire users rapidly. Instagram, a mobile photo sharing service recently acquired by Facebook, provides an example. Prior to acquisition, its user base grew from 10m people to 30m in six months. It served these users with just 13 employees and a modest amount of capital. This profile isn't unusual for a breakthrough consumer internet service.

 

E-commerce

E-commerce remains an area of active interest for early stage funding and new business models are emerging. However there seems little that might challenge the dominance of Amazon in the distribution of any item with a universal product code. Amazon's reputation for investing large sums of money over long periods of time in order to reinforce its dominance has informed the behaviour of the venture capital community, which is unwilling to fund direct competitors. Instead the new generation of  

e-commerce companies are finding other ways to serve customers. They are designing and sourcing their own goods. Often they are collapsing inefficient legacy supply chains by cutting out intermediate layers. They are re-inventing physical retail merchandising online and developing alternative ways of distributing their products. It seems very unlikely that there will be any let-up in the assault on high-street retail anytime soon.

 

Payments

A variety of venture-funded companies are seeking to reinvent the way we pay for goods and services. The underlying idea is that if mobile computing devices become widespread, consumers may use online methods to pay for goods in the offline world. This would be attractive to retailers as it would give them more information about their customers and allow them to better target their advertising budget. However, the user experience of swiping a payment card is straightforward and well understood. To change behaviour, the key will be providing sufficient incentive. Several ideas are being pursued, the most promising of which seems to me to be the elimination of physical checkout and the associated queues altogether. Through our holding in eBay we currently have exposure to the largest online payments business in the world, PayPal. This is a remarkable business which has continued to grow rapidly despite its already significant scale and a relatively lackluster pace of product development. The huge investment in infrastructure that has been required to get PayPal to its current base of 120m users in 190 countries now represents a significant asset and a major hurdle for new players. Following a change in leadership there seems to be a marked acceleration in the pace of product development at PayPal. This leaves it well placed to benefit from future growth in its addressable market despite the emergence of new and innovative competition.

 

Enterprise

The technologies that have been created by the recent wave of innovation in consumer internet are being adapted and developed for the enterprise marketplace. The latest consumer websites are driven by software architecture and interfaces that have great potential in a corporate setting. Whilst most of the existing enterprise software companies are built around providing systems of record in areas such as accounting or human resources, the next generation of businesses are utilising the data that exists outside of such a structured environment. Inexpensive storage techniques mean that huge volumes of data can be retained and the technologies to make the most of this information are starting to emerge. Typically, Amazon has been at the forefront of understanding the implications of these changes. It is now commonplace for new technology companies to outsource their computing infrastructure to Amazon rather than investing in servers or data centres. Similarly, Rackspace is rapidly becoming the world's largest IT department providing an outsourced service for those companies that no longer want such distractions.

 

The historic core functions of enterprise software are also being challenged by companies employing more modern approaches. Workday was founded in 2005 by the former management of Peoplesoft and listed on the stock market recently. Its centrally hosted software is accessed via a webpage to deliver accounting and human resources systems. Centralisation allows for much greater efficiency. Because all users are running the latest version of the software, support costs are lowered and development cycles are shortened. Salesforce.com has achieved a similar feat in customer relationship management and is trying to broaden the application of its software to manage online marketing.

 

Healthcare

Healthcare seems like an industry ripe for disruption through innovative technology. However the regulatory environment and unionised workforce are off-putting to the venture capitalist community, which creates a difficult funding environment for start-ups. Whilst Intuitive Surgical is nominally a healthcare company, it is headquartered in Silicon Valley, its research and development is lead by an engineer, not a doctor, and its robots run over a million lines of software code. To date, these instruments have employed artificial intelligence to recreate open surgery using minimally invasive techniques. The future might look quite different. Developments in diagnostic technology mean that clinical targets will get smaller. Targeting nerves or vessels will require precision beyond the abilities of most human surgeons. Equally the ability to distinguish between different tissue types can be beyond the scope of the human eye and new visualisation techniques are required. Over the coming decade we should anticipate that these technologies will expand the realm of what is surgically possible.

 

Electricity Consumption

Whilst much of the innovation we invest in is implemented by software companies, there are exceptions. The efficiency with which computers use electrical power has been doubling every eighteen months for the past sixty years equating to a 100-fold improvement every decade. It is this progress that has enabled laptop computing and subsequently the smartphone market. If a modern-day MacBook Air operated at the energy efficiency of computers from 1991, its fully charged battery would last 2.5 seconds. In recent years, the contribution of one of our holdings, ARM, to microprocessor designs has been increasingly important to this trend. Its designs are used in over 90% of mobile phone handsets as they offer the best trade-offs between performance and power consumption. Their technology continues to drive down power requirements and the implications of this progress continuing are fascinating. University laboratories are already producing sensors that use 60 microwatts when active. In metropolitan areas, this amount of power can be harvested from ambient radio and TV signals. Without the need for batteries you get sensors that run indefinitely. Such distributed computing power could significantly reduce our energy consumption by increasing the efficiency with which we use existing resources.

 

We are continually trying to improve our investment approach. Whilst we base ourselves in Edinburgh, in part to get away from the noise and compulsion to act that are present in major financial centres, spending time in the parts of the world that are producing great companies is a fabulous opportunity to learn. We are told by the efficient market theorists that future outcomes are down to chance and the best we can hope for is to diversify our portfolio. Engaging with the entrepreneurs who are out there creating value by building new companies reveals a very different view of the world. They don't leave things to the chance outcomes of normal distributions and believe that they must build the future for themselves. Most will fail (experimentation and failure is a badge of honour) but the returns that accrue to the winners can be very large. Our belief is that by developing our knowledge of the potential winners at an earlier stage of their development cycle we will be able to do a better job at investing in them for our shareholders in the future.

 

TOM SLATER

Deputy Manager of Scottish Mortgage

 10 May 2013

 

OUR CORE INVESTMENT BELIEFS

 

Whilst fund managers claim to spend much of their careers assessing the competitive advantage of companies they are notoriously reluctant to perform any such analysis on themselves. The tendency is to cite recent performance as evidence of skill despite the luck, randomness and mean-reverting characteristics of most such data. If this does not suffice then attention turns to a discussion of the high educational qualifications, hard work and exotic remuneration packages that the fund manager enjoys. Sometimes the procedural details of the investment process are outlined with heavy emphasis on risk controls. Little attention is given to either the distinctiveness of the approach or the strategic advantages the manager might enjoy in order to make imitation improbable. We think we should try to do better than this.

 

- We are long term in our investment decisions. It is only over periods of at least five years that the competitive advantages and managerial excellence of companies becomes apparent. It is these characteristics that we want to identify and support. We own companies rather than rent shares. We do not regard ourselves as experts in forecasting the oscillations of economies or the mood swings of markets. Indeed we think that it is hard to excel in such areas as this is where so many market participants focus and where so little of the value of companies lies. Equally Baillie Gifford is more likely to possess competitive advantages for the good of shareholders when it adopts a long term perspective. We are a 100 year old Scottish partnership. We think about our own business over decades not quarters. Such stability may not be exciting but it does encourage patience in this most impatient of industries. We only judge our investment performance over five year plus time horizons. In truth it takes at least a decade to provide adequate evidence of investment skill.

 

- The investment management industry is ill-equipped to deal with the behavioural and emotional challenges inherent in today's capital markets. Our time frame and ownership structure help us to fight these dangers. We are besieged by news, data and opinion. The bulk of this information is of little significance but it implores you to rapid and usually futile action. This can be particularly damaging at times of stress. Academic research argues that most individuals dislike financial losses twice as much as they take pleasure in gains. We fear that for fund managers this relationship is close to tenfold. Internal and external pressures make the avoidance of loss dominant. This is damaging in a portfolio context. We need to be willing to accept loss if there is an equal or greater chance of (almost) unlimited gain.

 

- We are very dubious about the value of routine information.  We have little confidence in quarterly earnings and none in the views of investment banks. We try to screen out rather than incorporate their noise. In contrast we think that the world offers joyous opportunities to hear views, perspectives and visions that are barely noticed by the markets. From our office in Shanghai to futurists in California there is more in the investment world than the Financial Times or Wall Street Journal describe.

 

- We are global in stock selection, asset allocation and attribution. We are active not passive - or far worse - index plus in stock selection. Holding sizes reflect the potential upside and its probability (or otherwise) rather than the combination of the market capitalization and geographical location of the company and its headquarters. We do not have sufficient confidence in our top-down asset allocation skills to wish to override stock selection. We do not have enough confidence in our market timing abilities to wish to add or remove gearing at frequent intervals. We do, however, have strong conviction that our portfolio should be comparatively concentrated, and that it is of little use to shareholders to tinker around the edges of indices. We think this produces better investment results and it certainly makes us more committed shareholders in companies. We suspect that selecting stocks on the basis of the past (their current market capitalization) is a policy designed to protect the security of tenure of asset managers rather than to build the wealth of shareholders. Companies that are large and established tend to be internally complacent and inflexible. They are often vulnerable to assault by more ambitious and vibrant newcomers.

 

- We are Growth stock investors. Such has been the preference for Value and the search to arbitrage away minor rating differentials that investors find it very hard to acknowledge the extraordinary growth rates and returns that can be found today. The growth that we are particularly interested in is of an explosive nature and often requires minimal fixed assets or indeed capital. We think of it as 'Growth at Unreasonable Prices' rather than the traditional discipline of 'Growth at a Reasonable Price'. We need to be willing to pay high multiples of immediate earnings because the scale of future potential and returns can be so dramatic. On the stocks that flourish the valuation will have turned out to be derisorily low. On the others we will lose money.

 

- We believe that it is our first duty to shareholders to limit fees. Both the investment management fee (equivalent to 0.32%) and ongoing charges (0.51%) are low by comparative standards but at least adequate in absolute terms. We think that the malign impact of high fees is frequently underestimated. The difference between ongoing charges of 0.5% and one of 1.5% may not appear great but if the perspective is altered to think of costs as a percentage of expected annual returns then the contrast becomes obvious. If annual returns average 10% (sadly they have not in recent years) then this is the difference between removing 5% or 15% of your returns each year. Nor do we believe in a performance fee. Usually it undermines investment performance. It increases pressure and narrows perspective.

THIRTY LARGEST HOLDINGS AND TWELVE MONTH PERFORMANCE

at 31 March 2013

 

 

 

 

Name

 

 

 

 

Business

Fair value

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) has been calculated on a total return basis over the period 1 April 2012 to 31 March 2013.

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

‡      Denotes holding in unlisted convertible preference shares.

Source: Baillie Gifford & Co/StatPro

Past performance is not a guide to future performance.

 

DISTRIBUTION OF ASSETS

 

 

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

 

 

RELATED PARTY TRANSACTIONS

 

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 29 in the Annual Report and Financial Statements.

 

No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

 

MANAGEMENT FEE ARRANGEMENTS

 

Baillie Gifford & Co is employed by the Company as Managers and Secretaries under a management agreement which is terminable 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). The management fee is levied on all assets, including holdings in collective investment schemes (OEICs) managed by Baillie Gifford & Co; however the OEICs' share class held by the Company does not itself attract a management fee. The details of the management fee are as follows:

2013

£'000


2012

£'000

Investment management fee

7,672


7,264

 

 

 

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

 

Market Risk

 

Currency Risk

 

 

As at 31 March 2013

 

 

Investments

£'000

 

Cash and deposits

£'000

Loans

and debentures

£'000

Other debtors and creditors*

£'000

 

 

Net exposure

£'000

US dollar

1,143,473

3,750

(172,539)

(139)

974,545

Euro

461,445

- 

(51,586) 

409

410,268

Swedish krona

149,675

- 

- 

-

149,675

Hong Kong dollar

103,779

- 

- 

-

103,779

Brazilian real

82,806

- 

- 

1,578

84,384

Polish zloty

60,200

- 

- 

-

60,200

Danish krone

50,676

- 

- 

69

50,745

Indian rupee

46,678

- 

- 

-

46,678

Swiss franc

29,473

- 

- 

-

29,473

Turkish lira

18,305

- 

- 

-

18,305

Indonesian rupiah

18,149

- 

- 

-

18,149

Czech koruna

13,163

- 

- 

-

13,163

Japanese yen

11,195

33

- 

-

11,228

Other overseas currencies

31,832

-

- 

4

31,836

Total exposure to

  currency risk

 

2,220,849

 

3,783

 

(224,125)

 

1,921

 

2,002,428

Sterling

361,000

10,084

(150,953)

(4,191)

215,940


2,581,849

13,867

(375,078)

(2,270)

2,218,368

*      Includes net non-monetary assets of £14,000.

 

 

 

As at 31 March 2012

 

 

Investments

£'000

 

Cash and deposits

£'000

Loans

and debentures

£'000

Other debtors and creditors*

£'000

 

 

Net exposure

£'000

US dollar

1,026,100

13,249 

(163,975) 

204

875,578

Euro

337,320

- 

(50,842) 

364

286,842

Swedish krona

127,568

- 

- 

- 

127,568

Hong Kong dollar

111,355

- 

- 

- 

111,355

Brazilian real

144,926

- 

- 

2,738

147,664

Polish zloty

82,167

- 

- 

- 

82,167

Danish krone

41,186

- 

- 

58 

41,244

Indian rupee

48,271

- 

- 

- 

48,271

Swiss franc

43,642

- 

- 

95 

43,737

Turkish lira

12,970

- 

- 

- 

12,970

Indonesian rupiah

17,268

- 

- 

- 

17,268

Czech koruna

30,659

- 

- 

- 

30,659

Japanese yen

11,012

29

- 

-  

11,041

Other overseas currencies

28,553

4,518

- 

1,973 

35,044

Total exposure to

  currency risk

 

2,062,997

 

17,796

 

(214,817)

 

5,432 

 

1,871,408

Sterling

298,639

3,059

(151,179)

(9,604) 

140,915


2,361,636

20,855 

(365,996)

(4,172) 

2,012,323

*      Includes net non-monetary assets of £48,000.

 

 

 

 

Currency Risk Sensitivity

2013

£'000


2012

£'000

US dollar

48,727


43,779

Euro

20,513


14,342

Swedish krona

7,484


6,378

Hong Kong dollar

5,189


5,568

Brazilian real

4,219


7,383

Polish zloty

3,010


4,108

Danish krone

2,537


2,062

Indian rupee

2,334


2,414

Swiss franc

1,474


2,187

Turkish lira

915


649

Indonesian rupiah

908


863

Czech koruna

658


1,533

Japanese yen

561


552

Other overseas currencies

1,592


1,752


100,121


93,570

 

Interest Rate Risk

Interest rate movements may affect directly:

•    the fair value of the investments in fixed interest rate securities;

•    the level of income receivable on cash deposits;

•    the fair value of the Company's fixed-rate borrowings; and

•    the interest payable on the Company's variable rate borrowings.

Financial Assets

2013

2012


 

 

Fair value

£'000

 

Weighted average interest rate

Weighted average period until maturity*

 

 

Fair value

£'000

 

Weighted average interest rate

Weighted average period until maturity*

Floating rate:







Brazilian bonds (index linked)

66,857

8.8%

32 years

120,575

9.7%

33 years

Cash and short-term

  deposits:







Other overseas currencies

3,783

- 

n/a

17,796

- 

n/a

Sterling

10,084

0.1%

n/a

3,059

0.1%

n/a

*Based on expected maturity date.

 

The cash deposits generally comprise call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.

 

Financial Liabilities

The interest rate risk profile of the Company's bank loans and debentures (at amortised cost) and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 31 March are shown below.

 

Interest Rate Risk Profile

The interest rate risk profile of the Company's financial liabilities at 31 March was: 

2013

£'000

2012

£'000

Floating rate - US$ denominated

65,196

61,960

Fixed rate -  Sterling denominated

150,953

151,179

-     Euro denominated


51,586

50,842

-     US$ denominated


107,343

102,015



375,078

365,996

 

Maturity Profile

The maturity profile of the Company's financial liabilities at 31 March was:

Financial Assets

2013

2012


Within 1 year

£'000

Between 1 and 5 years

£'000

More than 5 years

£'000

Within 1 year

£'000

Between 1 and 5 years

£'000

More than 5 years

£'000

Repayment of loans and debentures

65,196

158,929

145,675*

112,802

102,015

145,675*

Accumulated interest on loans and debentures to maturity date

17,776

57,067

84,738

17,483

59,330

98,725


82,972

215,996

230,413

130,285

161,345

244,400

*Includes £675,000 irredeemable debenture stock.

 

 

 

 

 

Interest Rate Risk Sensitivity

 

Other Price Risk

 

Other Price Risk Sensitivity

 

Liquidity Risk

 

Credit Risk

•    Where the Investment Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question.

•    The Board regularly receives information from the Investment Managers on the credit ratings of those bonds and other securities in which the Company has invested.

•    The Company's listed investments are held on its behalf by The Bank of New York Mellon (acting as agent), the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board.

•    Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations at the same time as any transfer of cash or securities away from the Company is completed.

•    Transactions involving derivatives, and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Managers of the creditworthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board.

•    Cash is held only at banks that are regularly reviewed by the Managers.

 

Credit Risk Exposure

The maximum exposure to credit risk at 31 March was:

2013

£'000

2012

£'000

Fixed interest investments

66,857

120,575

Cash and short term deposits

13,867

20,855

Debtors and prepayments

5,401

8,321


86,125

149,751

 

None of the Company's financial assets are past due or impaired.

 

Fair Value of Financial Assets and Financial Liabilities

The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the balance sheet with the exception of long term borrowing. Long term borrowings in relation to debentures are included in the accounts at the amortised amount of net proceeds after issue, plus accrued finance costs in accordance with FRS26. The fair value of the bank loan is calculated with reference to government bonds of comparable maturity and yield. A comparison with the fair value (closing offer value) is as follows:

2013

2012


Par/nominal

£'000

Book

£'000

Fair

£'000

Par/nominal

£'000

Book

£'000

Fair

£'000

8-14% stepped interest

 debenture stock 2020

20,000

21,619

33,618

20,000

21,747

31,660

6.875% debenture stock 2023

75,000

74,636

92,287

75,000

74,599

94,140

6-12% stepped interest

 debenture stock 2026

50,000

54,023

87,430

50,000

54,158

85,740

4.5% irredeemable debenture

 stock

675

675

565

675

675

616

Total debentures

145,675

150,953

213,900

145,675

151,179

212,156

Fixed rate loans


158,929

160,461


102,015

103,738

Total long term borrowings


309,882

374,361


253,194

315,894

All short term borrowings are stated at fair value, which is considered to be equal to their par value.

Investments

 

31 March 2013

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Listed equities/funds

2,463,152

4,498

- 

2,467,650

Listed debt securities

-

66,857

- 

66,857

Unlisted equities

- 

- 

47,342

47,342

Total financial asset

 investments

 

2,463,152

 

71,355

 

47,342

 

2,581,849

 

 

31 March 2012

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Listed equities/funds

2,226,765

7,612

- 

2,234,377

Listed debt securities

-

120,575

- 

120,575

Unlisted equities

- 

- 

6,684

6,684

Total financial asset

 investments

 

2,226,765

 

128,187

 

6,684

 

2,361,636

 

Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with Financial Reporting Standard 29 'Financial Instruments: Disclosures', the preceding tables provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

 

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

 

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

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

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

 

 

Capital Management

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

By order of the Board

JOHN SCOTT

10 May 2013

INCOME STATEMENT

 

For the year ended

31 March 2013


For the year ended

31 March 2012


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 3)

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

 

 At 31 March

 2013 


            £'000 

£'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 (note 5)

(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 (note 5)

(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

857.6p

768.7p

(After deducting borrowings at fair value) (note 6)






NET ASSET VALUE PER ORDINARY SHARE

885.4p

795.6p

(After deducting borrowings at par)






ORDINARY SHARES IN ISSUE (note 7)

251,144,897

253,619,897

 

 


RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

 

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 7)

-

-

(20,767)

-

(20,767)

Dividends paid during the year (note 4)

-

-

- 

(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

 

       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 7)

-

-

(19,637)

-

(19,637)

Dividends paid during the year (note 4)

-

-

- 

(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

 


For the year ended

31 March 2013

For the year ended

31 March 2012


£'000

£'000

£'000

£'000

NET CASH INFLOW FROM OPERATING ACTIVITIES (note 8)


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 4)


(34,239)


(31,808)

NET CASH INFLOW BEFORE FINANCING


13,779


27,170 

FINANCING





Shares bought back (note 7)

(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)

 

 

 

 

 

 

 

 

NOTES

 

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.

 

In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 22 to the financial statements.

 

The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. The Board approves borrowing limits and reviews regularly the amount of any borrowings and compliance with banking covenants. During the year The Royal Bank of Scotland plc loan, which had drawings of €61.0 million was repaid and a new two year €61.0 million loan has been drawn down with The Royal Bank of Scotland plc. Since the year end the US$99 million loan with The Bank of New York Mellon has been repaid and replaced with a £100 million multi-currency facility with State Street Bank and Trust Company. Accordingly, the financial statements have been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future.

 

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 and its investment manager, who are subject to the UK's regulatory environment, are also UK based.

 

 



2013


2012

 



£'000


£'000

 

2.
Income




 


Income from investments and interest receivable

58,950


52,681

 



58,950


52,689

 






 









 



2013

£'000


2012

£'000

3.
Net return per ordinary share





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

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 (excluding treasury shares) during each period.

 

There are no dilutive or potentially dilutive shares.

 



2013

 


2012

 


2013

£'000


2012

£'000

4.

Ordinary dividends









Amounts recognised as distributions 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 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

 


2013

£'000


2012

£'000

4.

Ordinary dividends (Ctd)









Dividends paid and payable in respect of 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




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.

 

5.

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$99 million loan has been repaid and replaced with a £100 million multi-currency facility which has been drawn down in US$.

 

6.

 

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). 

 



2013

Number


2012

Number

 

7.

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.

 



2013

£'000


2012

£'000

8.

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 



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 Auditor has reported on the 2012 and 2013 accounts, the report for both years was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The statutory accounts for 2013 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. This will be held on 18 June 2013.

 

11.

The Annual Report and Financial Statements will be available on the Managers' website www.scottishmortgageit.com† on or around 16 May 2013.

 


None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

 

† 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

 

- ends -

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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