Half-year Report - Replacement

RNS Number : 5261V

Scottish Mortgage Inv Tst PLC

03 November 2017

 



Replacement to correct formatting on List of Investments

RNS Announcement

Scottish Mortgage Investment Trust PLC

Legal Entity Identifier: 213800G37DCS3Q9IJM38

Results for the six months to 30 September 2017

The following is the unaudited Interim Financial Report for the six months to 30 September 2017 which was approved by the Board on 2 November 2017.

Interim management report

Approach

The approach undertaken for the Company has remained consistent for more than a decade. Scottish Mortgage offers shareholders a long term and committed investment approach through a diversified portfolio of companies with significant growth potential and durable competitive advantages, from across the world. The investment philosophy is underpinned by the belief that over time the distribution of returns from equity markets is significantly and positively skewed in favour of the few extraordinary businesses which can grow to become dominant in their respective industries. The Managers focus on trying to find such opportunities. The portfolio is not constructed relative to a benchmark and the dominant themes which result from the bottom up company selection process can and will vary over time. This allows the portfolio to evolve as the best opportunities shift between industries, helping to ensure the Company's investment approach remains relevant over the coming decades. 

The Board and Managers continue to believe that Scottish Mortgage's own scale, liquidity, clear investment approach and focus on offering a low cost investment proposition are key competitive advantages which are valued by shareholders.

Results

The net asset value per share (NAV) increased by 17.5% over the first half of the Company's financial year, whilst its share price rose by 15.4% as the shares moved to trade slightly closer to the underlying NAV. Global equity markets, as represented by the FTSE All-World Index, gained 1% in sterling terms over the same period.

Once again the Board and Managers wish to emphasise that six months is far too short a period over which to evaluate this investment strategy. The long term performance is much more representative of the investment approach of the Company. The total return from investing in the shares of Scottish Mortgage over the last 5 years to the end of September was 222.8%, with a corresponding performance in the underlying NAV of 193.1%. For comparison, had an investor simply passively invested in a global equities index over the same time, the return would have been considerably lower; for example, the FTSE All-World Index's total return over the 5 year period was less than half that of the Company's total share price return at 101.6%.

Over the six month period the Company continued to operate its long standing liquidity policy as documented in the Company's Annual Report. Between the start of April and the end of September, Scottish Mortgage issued 38.95 million shares from treasury in order to help facilitate the efficient functioning of the market in its shares so that they trade within a reasonable range around the underlying NAV. The Company did not buy back any shares into treasury over this period. Shareholders' funds increased by £153 million over the period as a result of the sales of treasury shares.

Earnings and Dividend

The Company has a total return based investment objective, albeit with a clear emphasis on capital appreciation. The Board and the Managers believe that it is important to evaluate the Company's total returns over a period of at least five years to be consistent with the investment time horizon. Whilst anticipating that capital appreciation will be the predominant reason for shareholders' investments in Scottish Mortgage, the Board is nevertheless mindful that many investors also value their modest dividend payments from their shares. These have grown consistently, if slowly, in line with the stated dividend policy over a long period. 

As the Managers select companies which prioritise investing for their own future growth over paying out dividends, the portfolio overall tends to generate a relatively low level of earnings. This position has not changed over the period. Earnings per share were 0.82p over the six months to 30 September 2017, whilst the earnings per share over the same period last year were 0.80p. 

The Board wishes to repeat the guidance given in the Company's Annual Report regarding its intentions in respect of future dividend payments. Without a sizeable increase in the income received from the portfolio in the second half of the financial year, come 31 March 2018 the Board will face a choice either to cut the dividend, or to continue to pay a comparable dividend supplemented from capital profits and the remainder of the revenue reserve. Currently, no such significant increase in revenue is anticipated. As the Company's stated objective contains an explicit dividend growth component, the Board wishes to reiterate to shareholders that it would be willing to consider funding a dividend payment in part from capital profits, provided that the Board is of the view that the total returns being earned by the Company over the long run justify this.  The Board will review the position again at the end of the financial year, once all of the final figures are known. With this in mind the Board proposes to pay an interim dividend of 1.39p, which is unchanged from the same period last year.

The Portfolio

Consistent with the long term approach, there has been little change in the portfolio over the first half of the financial year. At the end of September 2017, the portfolio was invested in 75 different companies. This compared with 72 held at the end of the same period last year.

The end of June marked a decade since the launch of the first Apple iPhone. This device was truly revolutionary and ultimately led to a mobile digital world which has connected us all like never before. This has forever changed the operating environment for a vast array of companies, as a result of the proliferation of such smart mobile devices. Over the past decade, the Managers have relentlessly focused on investing in those companies which have embraced these changes. This digital arena has come to be dominated by just six companies, three in China: Alibaba, Tencent and Baidu, and three in the US: Amazon, Facebook and Alphabet. All six will hopefully be familiar to shareholders of Scottish Mortgage.

Last year, this statement highlighted that these network businesses had reached a critical tipping point.  Over the intervening period, their operational results all suggest that their sheer dominance and scale in their respective markets have indeed become reinforcing competitive advantages. The Managers had noted that this would be likely to be driven by progress in machine learning and artificial intelligence and the last twelve months have provided further support for this contention. As a result, the Managers continue to believe that the competitive positions of these digital network businesses will be further cemented by the power of their massive data sets and new advances in computing. The share prices of the three Chinese companies in particular have risen strongly over the last six months, as shareholders may note from later in this report. The Managers have been considering the future prospects for all six of these companies, asking if they still have the potential to become a multiple of their current size. There has also been discussion of the regulatory risk for the US companies, although this is not a new challenge for these businesses and has featured in the investment analysis for some time now. These companies need to be viewed as good corporate citizens in the eyes of their users and customers. Amazon has perhaps been the most thoughtful and made the most progress in this regard.

Looking out over the coming years, the Managers believe that we are on the cusp of a step change in healthcare through the development of personalised diagnostics and therapeutics. This will come from improvements in our understanding of genomics, primarily through large scale population studies which were previously not viable on cost and data processing capacity grounds. Dominant gene sequencing giant, Illumina, remains at the forefront of lowering sequencing costs to expand the use of this technology. This is still a large holding in the portfolio and the Managers have been making further investments in companies developing such new therapies and diagnostic tools.

Less widely appreciated perhaps has been the increase in scale and reach of some of the portfolio's largest private companies. Spotify's digital music service had over 60 million subscribers by the end of July 2017, more than twice the number of its largest competitor, Apple. Over 140 million people actively use the service each month worldwide. Travel business Airbnb now offers over four million listings across over 191 countries; no hotel chain has more rooms than their site has instantly bookable listings. These are truly global businesses, significantly impacting their large publicly-listed competitors, but as yet, they remain private companies. This makes it hard for most investors (professional or individual) to benefit from the capital creation from their growth. The ability to invest in such businesses on a global basis is an important differentiator for Scottish Mortgage and has been much discussed in the pages of the Company's reports over the last few years.  The Board and Managers believe this will continue to be the case in the future.

The Managers continued to make new investments in private companies and have added to a number of the existing holdings (including Spotify) over the period. Despite this activity, the level of such holdings within the overall portfolio has remained broadly consistent at around 13%. This is simply due to the relative strength of the performance of a number of the largest holdings, particularly those noted above, increasing the Company's total assets.

Outlook

The Board and Managers would like to emphasise that Scottish Mortgage is best suited to those who share its long term approach to investing. Without wishing to strike an unduly pessimistic note, shareholders are asked to bear in mind that there will almost certainly be periods when the focus of equity markets shifts away from company fundamentals.  If this were to be the case, the portfolio investments may well fall out of favour for a period of time. In such circumstances, shareholders should expect that the Board and Managers will remain faithful to the long term investment approach taken by Scottish Mortgage and will not seek to mitigate periods of portfolio underperformance over the shorter term. At the margin, the Managers may well look to turn such market volatility to shareholders' advantage by making further investments if a particular company's share price has been disproportionately impacted by wider negative market sentiments. Most of the time, though, the appropriate response will in fact be to do nothing.

It is notoriously difficult to predict which events will or will not generate a market tantrum. The last six months have seen significant political tensions rising in the Korean peninsular and Sea of Japan, and there has been no shortage of news flow surrounding a US president who, at the very least, shows no diminution in his love of controversy and the limelight. This is to say nothing of the ongoing saga around Britain's exit from the European Union. Perhaps rather surprisingly, markets seem to have weathered the various geopolitical events of the summer almost with equanimity. This might have surprised many investors, had they been asked to predict the outcome of such events even just a year ago.  The Managers do not attempt to make such forecasts.

What can be said with confidence is that the Managers will remain focused on the prospects of the underlying operational businesses in the portfolio over their investment time horizon. On this basis, they are excited by the rising potential of a broadening range of companies when compared with a year ago and remain convinced that this is a great time to be a long term growth investor. 

The principal risks and uncertainties facing the Company are set out at the end of this document.

2 November 2017

Past performance is not a guide to future performance.

Total return information sourced from Morningstar.

See disclaimer at end of this document.

Responsibility statement

We confirm that to the best of our knowledge:

a)   the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';

b)   the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and

c)   the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Fiona McBain

Chairman

2 November 2017

Income statement (unaudited)

	For the six months ended  30 September 2017			For the six months ended  30 September 2016
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on sales of investments	-	130,477	130,477	-	110,182	110,182
Changes in investment holding gains and losses	-	729,073	729,073	-	770,789	770,789
Currency gains/(losses)	-	11,714	11,714	-	(34,271)	(34,271)
Income from investments and interest receivable	19,199	-	19,199	17,577	-	17,577
Investment management fee (note 3)	(2,172)	(6,516)	(8,688)	(1,674)	(5,021)	(6,695)
Other administrative expenses	(1,583)	-	(1,583)	(1,724)	-	(1,724)
Net return before finance costs and taxation	15,444	864,748	880,192	14,179	841,679	855,858
Finance costs of borrowings	(2,714)	(8,141)	(10,855)	(2,380)	(7,140)	(9,520)
Net return on ordinary activities before taxation	12,730	856,607	869,337	11,799	834,539	846,338
Tax on ordinary activities	(1,356)	-	(1,356)	(1,239)	-	(1,239)
Net return on ordinary activities after taxation	11,374	856,607	867,981	10,560	834,539	845,099
Net return per ordinary share (note 4)	0.82p	61.84p	62.66p	0.80p	63.55p	64.35p
Dividends proposed per ordinary share (note 5)	1.39p			1.39p

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

Balance sheet (unaudited)

	At 30 September 2017 £'000	At 31 March 2017 (audited) £'000
Fixed assets
Investments held at fair value through profit or loss (note 6)	6,303,810	5,298,338
Current assets
Debtors	17,323	16,293
Cash and cash equivalents	68,461	76,643
	85,784	92,936
Creditors
Amounts falling due within one year:
Bank loans (note 7)	(242,230)	(359,856)
Other creditors	(20,721)	(8,117)
	(262,951)	(367,973)
Net current liabilities	(177,167)	(275,037)
Total assets less current liabilities	6,126,643	5,023,301
Creditors
Amounts falling due after more than one year:
Loan notes (note 7)	(104,738)	-
Debenture stocks	(149,501)	(149,710)
	(254,239)	(149,710)
	5,872,404	4,873,591
Capital and reserves
Share capital	71,086	71,086
Share premium account†	315,295	216,808
Capital redemption reserve	19,094	19,094
Capital reserve†	5,449,005	4,537,789
Revenue reserve	17,924	28,814
Shareholders' funds	5,872,404	4,873,591
Net asset value per ordinary share (after deducting borrowings at book)*	420.2p	358.7p
Net asset value per ordinary share (after deducting borrowings at fair value)* (note 8)	416.7p	354.6p
Net asset value per ordinary share (after deducting borrowings at par)*	420.5p	359.0p
Ordinary shares in issue (note 9)	1,397,519,485	1,358,569,485

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

* The Capital Reserve and Share Premium Account as at 31 March 2017 have been restated - see note 9.

Statement of Changes in Equity (unaudited)

For the six months ended 30 September 2017

	Share capital £'000	Share premium account† £'000	Capital redemption reserve £'000	Capital reserve*† £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2017	71,086	216,808	19,094	4,537,789	28,814	4,873,591
Net return on ordinary activities after taxation	-	-	-	856,607	11,374	867,981
Shares sold from treasury (note 9)	-	98,487	-	54,609	-	153,096
Dividends paid during the period (note 5)	-	-	-	-	(22,264)	(22,264)
Shareholders' funds at 30 September 2017	71,086	315,295	19,094	5,449,005	17,924	5,872,404

For the six months ended 30 September 2016

	Share capital £'000	Share premium account† £'000	Capital redemption reserve £'000	Capital reserve*† £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2016	71,086	116,410	19,094	3,197,092	53,762	3,457,444
Net return on ordinary activities after taxation	-	-	-	834,539	10,560	845,099
Shares bought back into treasury	-	-	-	(19,558)	-	(19,558)
Shares sold from treasury (note 9)	-	8,245	-	8,468	-	16,713
Dividends paid during the period (note 5)	-	-	-	-	(20,795)	(20,795)
Shareholders' funds at 30 September 2016	71,086	124,655	19,094	4,020,541	43,527	4,278,903

* The Capital Reserve balance at 30 September 2017 includes investment holding gains on fixed asset investments of £3,376,894,000 (30 September 2016 - gains of £2,304,626,000).

† The Capital Reserve and Share Premium Account as at 31 March 2016, 30 September 2016 and 31 March 2017 have been restated - see note 9.

Cash flow statement (unaudited)

	Six months to  30 September 2017 £'000	Six months to  30 September 2016 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation	869,337	846,338
Net gains on investments	(859,550)	(880,971)
Currency (gains)/losses	(11,714)	34,271
Finance costs of borrowings	10,855	9,520
Overseas withholding tax	(1,454)	(1,214)
Changes in debtors and creditors	3,443	2,127
Cash from operations	10,917	10,071
Interest paid	(9,732)	(9,636)
Net cash inflow from operating activities	1,185	435
Net cash (outflow)/inflow from investing activities	(149,474)	106,239
Equity dividends paid (note 5)	(22,264)	(20,795)
Shares bought back	-	(19,574)
Shares sold from treasury	158,225	16,713
Net cash inflow/(outflow) from bank loans and issuance of loan notes (note 7)	4,146	(37,903)
Net cash inflow/(outflow) from financing activities	140,107	(61,559)
(Decrease)/increase in cash and cash equivalents	(8,182)	45,115
Cash and cash equivalents at start of period	76,643	43,973
Cash and cash equivalents at end of period*	68,461	89,088

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

List of investments at 30 September 2017 (unaudited)

Name		Business	Fair value 30 September 2017 £'000	% of total assets	Contribution to absolute performance* %	Notes †	Fair value 31 March 2017 £'000
Amazon.com		Online retailing and cloud computing	492,983	7.7	0.3		510,086
Tesla Inc		Electric cars, autonomous driving   and solar energy	434,906	6.8	1.2		366,984
Tencent Holdings		Internet services	432,021	6.8	2.5		308,730
Alibaba Group		Online retail	408,543	6.4	2.6		273,626
Illumina		Biotechnology equipment	346,032	5.4	0.5		318,103
Baidu		Online search engine	334,417	5.3	1.5		237,505
Inditex		Global clothing retailer	300,379	4.7	0.2		297,098
Facebook		Social networking site	265,420	4.2	0.7		257,167
Alphabet		Holding company for Google and   associated ventures	214,430	3.4	0.4		199,136
Ferrari		Luxury automobiles	205,695	3.2	1.2		148,851
Kering		Luxury goods producer and retailer	201,904	3.2	1.1	Significant addition	104,970
Ctrip.com		Travel agent	162,096	2.6	-	Significant addition	131,093
ASML		Lithography	148,517	2.3	0.4		110,439
Zalando		International online clothing retailer	145,197	2.3	0.4		108,578
Netflix		Subscription service for TV shows   and movies	125,434	2.0	0.3		98,605
Atlas Copco		Engineering	119,646	1.9	0.2		107,723
Nvidia		Visual computing	115,271	1.8	0.7	Significant addition	51,904
Kinnevik		Investment company	102,888	1.6	0.3		90,981
Bluebird Bio Inc		Provider of biotechnological   products and services	96,467	1.5	0.4		68,486
Intuitive Surgical		Surgical robots	95,834	1.5	0.4		75,393
Housing Development   Finance Corporation		Indian mortgage provider	84,395	1.3	-		78,537
Workday		Enterprise information technology	80,850	1.3	0.2		60,431
Renishaw		Electronic equipment	68,968	1.1	0.5		45,076
BASF		Chemicals	68,632	1.1	(0.1)	Significant reduction	118,852
Svenska Handelsbanken		Banking	66,495	1.0	-	Significant addition	48,280
Rolls-Royce Group		Aerospace equipment	58,894	0.9	0.3	Significant reduction	63,002
Delivery Hero		Online food delivery service	56,762	0.9	0.2	New purchase	-
Grail Inc Series B Pref.#		Clinical stage biotechnology   company	55,901	0.9	(0.1)		59,978
Rocket Internet		Internet startup factory	53,747	0.8	0.3		38,422
TransferWise Ltd Series D    Pref.#		Online money transfer	21,181	0.3	0.2		13,091
TransferWise Ltd   Ordinary#		Online money transfer	9,004	0.2	-		-
TransferWise Ltd Series A    Pref.#		Online money transfer	4,926	0.1	-		-
TransferWise Ltd Series B    Pref.#		Online money transfer	4,481	0.1	-		-
TransferWise Ltd Series E    Pref.#		Online money transfer	2,562	-	-		-
TransferWise Ltd Seed#		Online money transfer	1,199	-	-		-
TransferWise Ltd Series C   Pref.#		Online money transfer	188	-	-		-
			43,541	0.7	0.2	Increase in fair  valuation and    significant addition	13,091
Spotify Technology SA#		Online music streaming service	39,030	0.6	0.2	Increase in fair  valuation and  significant addition	22,428
You & Mr Jones Class A   Units#		Digital advertising	37,379	0.6	(0.1)	Decrease in fair  valuation	45,064
Thumbtack Inc Series G   Pref.#		Online directory service for local businesses	35,866	0.6	(0.1)	Decrease in fair  valuation	39,610
Home24 AG Series D   Pref.#		Online furniture retailer	20,467	0.3	-		19,869
Home24 AG Series E   Pref.#		Online furniture retailer	14,098	0.2	-	Participated in    additional funding  round	8,554
			34,565	0.5	-		28,423
Flipkart Series G Pref.#		Indian e-commerce	33,541	0.5	-	Increase in fair  valuation	32,387
Hellofresh SE Series C3   Pref.#		Grocery retailer	15,519	0.2	(0.1)		19,047
Hellofresh SE Series D1   Pref.#		Grocery retailer	10,490	0.2	(0.1)		12,830
Hellofresh SE Series C4   Pref.#		Grocery retailer	6,696	0.1	-		8,218
			32,705	0.5	(0.2)	Decrease in fair     valuation	40,095
Tableau Software		Analytics software	32,579	0.5	0.2		23,117
Juno Therapeutics		Clinical stage biotechnology company	29,932	0.5	0.2		15,893
Palantir Technologies Inc   Series J Pref.#		Data integration software and service   provider	29,890	0.4	(0.2)	Decrease in fair  valuation	38,142
Alnylam Pharmaceuticals		Biotechnology	28,621	0.4	0.3		13,400
Essence Healthcare Series    3 Pref.#		Cloud-based health provider	27,737	0.4	0.1	Increase in fair  valuation	22,126
Airbnb Inc Series E Pref.#		Online market place for travel   accommodation	26,985	0.4	0.1	Increase in fair  valuation	22,550
Salesforce		Cloud computing and hosting	26,556	0.4	-		25,166
Indigo Agriculture Inc   Series D Pref.#		Analyses plant microbiomes to   increase crop yields	26,087	0.4	-	New purchase	-
Lyft Inc Series G Pref.#		Ride sharing services	25,059	0.4	-	New purchase	-
Dropbox Inc Series B   Common#		Online storage	24,317	0.4	-	Increase in fair  valuation	23,731
Funding Circle Ltd Series    E Pref.#		Facilitates loans to small medium   enterprises	15,790	0.3	-		15,790
Funding Circle Ltd Series F   Pref.#		Facilitates loans to small and medium   enterprises	8,219	0.1	-		8,219
			24,009	0.4	-		24,009
Prudential		International insurance	22,556	0.4	0.1	Significant reduction	51,845
Internet Plus Holdings Ltd    Series B Pref.#		Local services aggregator	22,347	0.4	0.1	Increase in fair  valuation	19,993
AUTO1 Group GmbH   Series E Pref.#		Online retailer of used cars	22,028	0.3	-		21,384
Curevac AG Series B#		Biotechnology	22,028	0.3	-		21,383
Denali Therapeutics Inc   Series B-1 Pref.#		Biotechnology	19,239	0.3	-	Increase in fair  valuation	20,093
Innovation Works   Development Fund#		Venture capital	19,148	0.3	-	Cash distribution  received	24,292
Intarcia Therapeutics Inc   Series EE Pref.#		Biotechnology	18,634	0.3	-		19,993
Unity Biotechnology Inc   Series B Pref.#	Clinical stage biotechnology company		18,634	0.3	-		19,993
Eventbrite Inc Series G   Pref.#	Online ticketing service		18,634	0.3	-	New purchase	-
Clover Health Investments    Corp Series D Pref.#	Healthcare insurance provider		18,634	0.3	-	New purchase	-
Under Armour	Develops, markets and distributes   branded performance products		18,591	0.3	(0.1)	Significant addition	7,378
Zocdoc Inc Series D-2   Pref.#	Online platform for searching for   doctors and  booking appointments		17,721	0.3	-	Increase in fair  valuation	18,752
JAND Inc (Warby Parker)   Series D Pref.#	Online and physical glasses retailer		12,282	0.2	-		12,780
JAND Inc (Warby Parker)   Series A Common#	Online and physical glasses retailer		5,410	0.1	-		5,686
			17,692	0.3	-	Increase in fair  valuation	18,466
Orchard Therapeutics#	Gene therapy for rare diseases		16,076	0.3	-		16,076
Novozymes	Enzyme manufacturer		15,298	0.2	0.2	Significant reduction	47,104
Rubius Therapeutics Inc   Series B Pref.#	Biotechnology		14,907	0.2	-	New purchase	-
Marketaxess Holdings	Electronic bond trading platform		14,438	0.2	-	New purchase	-
Anaplan Inc#	Enterprise planning software		12,654	0.2	-	Increase in fair  valuation	11,996
Gingko Bioworks#	Bio-engineering company		12,396	0.2	-	Increase in fair  valuation	10,191
Udacity#	Online education		11,180	0.2	-		11,996
SurveyMonkey#	Online surveys		10,036	0.2	-	Increase in fair  valuation	9,723
WI Harper Fund VII#	Venture capital		8,501	0.1	-		9,067
Vir Biotechnology Inc#	Biotechnology company developing   anti-infective therapies		7,454	0.1	-	New purchase	-
Flatiron Health#	Software and data aggregation for   oncology		7,398	0.1	-	Decrease in fair  valuation	9,359
Level E Maya Fund	Artificial intelligence based algorithmic    trading		5,439	0.1	-		5,463
Sinovation Fund III#	Venture capital		5,292	0.1	-	Additional investment	1,949
WI Harper Fund VIII#	Venture capital		3,982	0.1	-	Additional investment	3,737
ARCH Ventures Fund IX   LP#	Venture capital fund to invest in   biotech start-ups		1,750	<0.1	-	Additional investment	705
Total Investments			6,303,810	99.0
Net liquid assets			65,063	1.0
Total Assets			6,368,873	100.0

* Contribution to absolute performance has been calculated on a total return basis over the period 1 April 2017 to 30 September 2017.

†  Significant additions and reductions to investments have been noted where the transaction value represents at least a 20% movement from the value of the holding at 31 March 2017. The change in value over the period also reflects the share price performance and the movements in exchange rates.

# Denotes unlisted security.

Source: Baillie Gifford/StatPro. See disclaimer at the end of this report.

Complete sales during the period: Astra International, Brazil CPI Linked 2045, Castlight Health Inc, Jeronimo Martins, Magnit OJSC and Souq Group Ltd.

Past performance is not a guide to future performance.

Distribution of assets (unaudited)

			At 30 September 2017 %	At 31 March 2017 %
North America			46.9	47.9
South America			-	0.5
Europe			29.5	30.3
	United Kingdom		3.7	4.4
	Eurozone		20.2	19.6
	Developed Europe (non Euro)		5.6	5.9
	Rest of Europe		-	0.4
Africa and Middle East			-	0.4
Asia			23.6	20.9
	China		21.7	18.5
	India		1.9	2.1
	Rest of Asia		-	0.3
Total assets (before deduction of loans and debentures)			100.0	100.0

	Listed Equities %	Unlisted Equities %	Bonds %	Net Liquid Assets %	Total %
30 September 2017	86.1	12.9	-	1.0	100.0
31 March 2017	84.9	13.0	0.5	1.6	100.0

Notes to the condensed financial statements (unaudited)

1.	The condensed Financial Statements for the six months to 30 September 2017 comprise the statements set out in the previous pages together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in November 2014 and have not been audited or reviewed by the Auditor pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Financial Statements for the six months to 30 September 2017 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 March 2017.
	Going Concern The Directors have considered the nature of the Company's assets, its liabilities, projected income and expenditure together with its investment objective and policy, dividend policy and principal risks and uncertainties, as set out at the end of this document. The Company's assets, the majority of which are in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. Accordingly, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.
2.	The financial information contained within this Interim Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 March 2017 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on those accounts was not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report, and did not contain statements under sections 498 (2) or (3) of the Companies Act 2006.
3.	Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager (AIFM) and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six months' notice. The annual management fee is 0.30% on the first £4 billion of total assets less current liabilities (excluding short term borrowings for investment purposes) and 0.25% thereafter, calculated and payable quarterly. Prior to 1 April 2017, the management fee was 0.30% of total assets less current liabilities (excluding short term borrowings for investment purposes).
4.	Net return per ordinary share	Six months to  30 September 2017 £'000	Six months to 30 September 2016 £'000
	Revenue return on ordinary activities after taxation	11,374	10,560
	Capital return on ordinary activities after taxation	856,607	834,539
	Total net return	867,981	845,099
	Weighted average number of ordinary shares in issue	1,385,138,611	1,313,269,731
	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.

Notes to the condensed financial statements (unaudited) (ctd)

5.	Dividends			Six months to  30 September 2017 £'000		Six months to 30 September 2016 £'000
	Amounts recognised as distributions in the period:
	Previous year's final dividend of 1.61p (2016 - 1.58p), paid 3 July 2017			22,264		20,795
				22,264		20,795
	Dividends proposed in the period:
	Interim dividend for the year ending 31 March 2018 of 1.39p (2017 - 1.39p)			19,426		18,289
				19,426		18,289
	The interim dividend was declared after the period end date and has therefore not been included as a liability in the Balance Sheet. It is payable on 1 December 2017 to shareholders on the register at the close of business on 17 November 2017.  The ex-dividend date is 16 November 2017. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 20 November 2017.
6.	Fair Value The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit and loss account are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement. Level 1 - using unadjusted quoted prices for identical instruments in an active market; Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on                market data) and; Level 3 - using inputs that are unobservable (for which market data is unavailable). The Company's investments are financial assets designated at fair value through profit or loss. An analysis of the Company's financial asset investments based on the fair value hierarchy described above is shown below.
	Investments held at fair value through profit or loss
	As at 30 September 2017	Level 1 £'000	Level 2 £'000		Level 3 £'000		Total £'000
	Listed equities/funds	5,475,394	5,439		-		5,480,833
	Unlisted equities	-	-		822,977		822,977
	Total financial asset investments	5,475,394	5,439		822,977		6,303,810
	As at 31 March 2017	Level 1 £'000	Level 2 £'000		Level 3 £'000		Total £'000
	Listed equities/funds	4,565,355	5,463		-		4,570,818
	Listed debt securities	-	27,277		-		27,277
	Unlisted equities	-	-		700,243		700,243
	Total financial asset investments	4,565,355	32,740		700,243		5,298,338
	There have been no transfers between levels of the fair value hierarchy during the period. The fair value of listed investments is bid value or, in the case of holdings on certain recognised overseas exchanges, last traded price. Listed investments are categorised as Level 1 if they are valued using unadjusted quoted prices for identical instruments in an active market and as Level 2 if they do not meet all these criteria but are, nonetheless, valued using market data.

Notes to the condensed financial statements (unaudited) (ctd)

	Unlisted Investments The Company's holdings in unlisted investments are categorised as Level 3. Unlisted investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' unlisted investment policy applies methodologies consistent with the International Private Equity and Venture Capital Valuation guidelines ('IPEV'). These methodologies can be categorised as follows: ¾    Market Approach (a. Price of Recent Investment; b. Multiples; c. Industry Valuation Benchmarks; and d. Available Market Prices); ¾    Income Approach (Discounted Cash Flows); and ¾    Replacement Cost Approach (Net Assets). The nature of the unlisted portfolio currently will influence the valuation methodology applied. The price of a recent investment or available market prices for secondary transactions may be the most appropriate approach for investments in young, rapidly growing companies using technology to create new, or disrupt existing, business models. The policy, however, recognises that the robustness of a transaction based valuation will erode as the length of time from the relevant transaction increases. Additionally, the background to the transaction must be considered. In these cases, alternative techniques consistent with IPEV guidelines will be employed. Methodologies using multiples or discounted cash flows are utilised where appropriate, particularly in those companies with established earnings. An absence of relevant industry peers may preclude the application of the Industry Valuation Benchmarks method. The Replacement Cost Approach is likely to result in a misleadingly conservative valuation of the typical companies within the current unlisted portfolio, where financial net assets are less important than intangible technological assets. The unlisted investments are valued according to a three monthly cycle of measurement dates. The fair value of the unlisted investments will be reviewed before the next scheduled three monthly measurement date on the following occasions: ¾    At the year end and half year end of Scottish Mortgage; and ¾    Where there is an indication of a change in fair value as defined in the IPEV guidelines (commonly referred to as 'trigger' events).
7.	The bank loans falling due within one year are a US$200 million revolving loan with National Australia Bank Limited ('NAB'), a US$40 million revolving loan with The Royal Bank of Scotland plc ('RBS') and a US$85 million revolving loan with RBS (31 March 2017 - US$200 million revolving loan with NAB, a US$165 million revolving loan with RBS and a US$85 million fixed rate loan with RBS). There are no bank loans falling due in more than one year (31 March 2017 - none). During the period the Company issued the following private placement unsecured loan notes: ¾    £45 million at a coupon of 3.05% maturing on 7 April 2042 ¾    £30 million at a coupon of 3.30% maturing on 6 April 2044 ¾    £30 million at a coupon of 3.12% maturing on 6 April 2047 A further unsecured loan note was agreed for funding on 30 September 2020 to refinance the £20 million 8-14% stepped interest debenture stock maturing on 30 September 2020: ¾    £20 million at a coupon of 3.65% maturing on 6 April 2044 Additionally, the US$165 million 1 year revolving loan with The Royal Bank of Scotland plc ('RBS') was repaid and replaced with a US$40 million 1 year revolving loan with RBS. The US$85 million 3 year fixed rate loan with RBS was refinanced with a US$85 million revolving loan with RBS.
8.	The fair value of the borrowings at 30 September 2017 was £545,549,000 (31 March 2017 - £566,251,000).

Notes to the condensed financial statements (unaudited) (ctd)

9.		At  30 September 2017 Number of shares	At 31 March 2017 (audited) Number of shares
	Share capital: Ordinary shares of 5p each
	Allotted, called up and fully paid	1,397,519,485	1,358,569,485
	Treasury shares	24,211,395	63,161,395
		1,421,730,880	1,421,730,880
	In the six months to 30 September 2017, the Company sold 38,950,000 ordinary shares from treasury at a premium to net asset value raising net proceeds of £153,096,000 (year to 31 March 2017 - 53,050,000 shares sold from treasury raising net proceeds of £174,550,000). At 30 September 2017 the Company had authority to issue or sell from treasury a further 133,136,948 ordinary shares. In the six months to 30 September 2017 the Company no ordinary shares were bought back. In the year to 31 March 2017 a total of 7,005,000 ordinary shares were bought back into treasury at a total cost of £19,558,000. At 30 September 2017 the Company had authority remaining to buy back 205,718,185 ordinary shares. Share Premium Account Where the sale of shares held in treasury results in proceeds in excess of the weighted average purchase price paid by the Company to repurchase the shares, the excess must be transferred to the Company's Share Premium Account. In prior years, when shares held in treasury were subsequently sold, the proceeds of the sale were reflected in full in the Capital Reserve. Consequently, an adjustment has been made between the Capital Reserve and the Share Premium Account in the current period and the prior year disclosures have been restated accordingly. There is no impact on total reserves in the current or prior periods arising from this restatement.
10.	Transaction costs on acquisitions within the portfolio amounted to £250,000 (30 September 2016 - £156,000) and transaction costs on sales amounted to £189,000 (30 September 2016 - £221,000). These costs are included in the book cost of acquisitions and in the net proceeds of disposals.
11.	Related Party Transactions There have been no transactions with related parties during the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Financial Statements that could have had such an effect on the Company during that period.
Glossary of Terms Active Share Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index. Discount/Premium As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium. Gearing At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same, but if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. Gearing represents borrowings at par less cash and cash equivalents (including any outstanding trade or foreign exchange settlements) expressed as a percentage of shareholders' funds. Net Asset Value Net Asset Value (NAV) is the value of all assets held less all liabilities (including liabilities in the form of borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue and is stated on a cum-income basis. Net Asset Value (Borrowings at Fair Value) Borrowings are valued at an estimate of their market worth. Net Asset Value (Borrowings at Par) Borrowings are valued at their nominal par value. Net Asset Value (Borrowings at Book/Shareholders' Funds) Borrowings are valued at adjusted net issue proceeds. Net Liquid Assets Net liquid assets comprise current assets less current liabilities (excluding borrowings). Ongoing Charges Ratio The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). Total Assets The total value of all assets held less all liabilities (other than liabilities in the form of borrowings). Total Return The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.
Principal Risks and Uncertainties The principal risks facing the Company are financial risk, unlisted investments risk, investment strategy risk, discount risk, regulatory risk, custody and depositary risk, operational risk, leverage risk and political risk. An explanation of these risks and how they are managed is set out on pages 8 and 9 of the Company's Annual Report and Financial Statements for the year to 31 March 2017 which is available on the Company's website: www.scottishmortgageit.com.‡ The principal risks and uncertainties have not changed since the date of that report. Shareholders will be notified on or around 13 November 2017 that the Interim Financial Report has been published and will be available on the Scottish Mortgage page of the Managers' website www.scottishmortgageit.com. ‡

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

Scottish Mortgage Investment Trust PLC is an actively managed, low cost investment trust, investing in a concentrated global portfolio of companies with the aim of maximising its total return over the long term. It looks for strong businesses with above-average returns and aims to achieve a greater return than the FTSE All-World Index (in sterling terms) over a five year rolling period.

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 over £180 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 2 November 2017).

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.

2 November 2017

For further information please contact:

Catharine Flood, Baillie Gifford & Co  

Tel: [phone]

Roland Cross, Director, Four Broadgate

Tel: [phone] or 07831 401309

Automatic Exchange of Information

In order to fulfil its obligations under UK tax legislation relating to the automatic exchange of information, Scottish Mortgage Investment Trust PLC is required to collect and report certain information about certain shareholders.

The legislation requires investment trust companies to provide personal information to HMRC on certain investors who purchase shares in investment trusts. Accordingly, Scottish Mortgage Investment Trust PLC will have to provide information annually to the local tax authority on the tax residencies of a number of non-UK based certificated shareholders and corporate entities. Shareholders, excluding those whose shares are held in CREST, who come on to the share register will be sent a certification form for the purposes of collecting this information.

For further information, please see HMRC's Quick Guide: Automatic Exchange of Information - information for account holders on https://www.gov.uk/government/publications/exchange-of-information-account-holders.

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