Interim Results
Scottish Mortgage Inv Tst PLC
28 October 2005
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
Results for the six months to 30 September 2005
Excellent results from Scottish Mortgage reflect the success of the focussed
global approach initiated by the Manager three years ago. The share price rose
by 28% and net asset value by 23% outstripping the 13% rise in the Benchmark*.
The Chairman, Sir Donald MacKay commented:
'These excellent results show the success of our focussed global approach
initiated three years ago. The Manager, James Anderson** has carefully built up
a portfolio of shares in a limited number of leading companies from around the
world. By taking a long term view and not slavishly reproducing the list of
shares which make up regional indices, he has demonstrated the significant value
that rigorous management can add. The success of this distinctive and committed
stock selection process is clearly reflected in the three year record too - net
asset value per share is up by 77% compared to a 52% rise in the benchmark
index.' +
• Globalisation underpins growth. There were sharp increases in the share prices
of a number of large holdings, notably overseas energy and mining shares where
prices have been boosted by strong demand driven by the development and growth
of Asian and emerging market economies. The Manager currently views certain
leading global technology companies as opportunities for the patient investor.
• The long-term outlook remains favourable. While there may be a period of
consolidation ahead, we believe any setbacks are likely to be buying
opportunities rather than signaling serious concerns. Corporate profits
remain buoyant, inflation is remains subdued and the process of economic
globalisation is intact.
• Dividend equalised and a real increase for the year is expected. An interim
dividend of 3.85p is proposed as Scottish Mortgage moves to two roughly
equal payments during the year. The intention is that the total for the year
will continue to rise at a faster pace than inflation.
* The Benchmark is 50% FTSE All-Share Index and 50% FTSE World Ex. UK Index
expressed in sterling terms.
** Scottish Mortgage is managed by James Anderson who is the partner heading the
Baillie Gifford Global Investment Team and the firm's Chief Investment Officer
Designate.
+ Five year record, net asset value down 2% compared to a fall in the benchmark
of 15%.
Your low cost alternative for global investment.
Scottish Mortgage Investment Trust PLC aims to maximise total return whilst also
generating real dividend growth. Investment is made internationally but with a
core of exposure to the UK market. The trust has total assets of £1.7 billion
(before deduction of debentures, long and short term borrowings of £215
million).
Scottish Mortgage is managed by Baillie Gifford & Co, an Edinburgh based fund
management group.
28 October 2005
- ends -
For further information please contact:
Robert O'Riordan,
Baillie Gifford & Co. 07730 412007
Mike Lord, Director,
Broadgate Marketing 020 7726 6111
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
INTERIM REPORT
In the six months to 30 September the NAV rose by 22.9% to 519.4p. This compares
very favourably with a gain of 13.2% in the benchmark (50% FTSE All-Share Index
and 50% FTSE World Index Ex. UK in sterling terms) and contributed to a 28.5%
increase in the share price. We have benefited from sharp rises in the share
prices of many of our large holdings that are exposed to the rapid growth of the
major emerging market economies.
We have made no major changes to our asset allocation. We think that the themes
influencing the world economy and corporate fortunes have changed little in
recent months. Globalisation continues to underpin growth and to shift the focus
of economic development towards Asia and emerging markets. In the last six
months most attention has been focussed on the boost to commodity demand and
prices that this process implies. This has helped our performance and we remain
content with most of our holdings in the energy and mining sectors. But as so
often, the narrow focus of markets may have obscured other opportunities that
are just as closely linked to these patterns in the global economy. We are
increasingly interested by the shares of several global technology leaders, such
as Samsung, SAP and eBay, as we think that the aversion to growth stock
investing that followed the collapse of the Bubble in 2000 has eventually led to
opportunities for the patient investor.
The Board is proposing an interim dividend of 3.85p. This reflects the decision
to move towards two roughly equal dividend payments that we discussed in the
Annual Report. The sharp increase from the 2.30p of a year ago should not be
taken as representative of the degree of increase for the year as a whole.
However, we can confirm our intention to increase the total dividend for the
year at a rate higher than inflation. In the six months, earnings rose by 26.5%
to 4.73p but this was largely due to changes in the timing of dividends received
by the Company. We do not expect the full year's earnings to rise by this
extent.
We consider the rise in global markets to be generally justified. There may
well be a period of consolidation in the months ahead but we would tend to see
any setback as being more likely to offer opportunities than as being a signal
of serious concerns. Whilst corporate profits remain buoyant, inflation remains
subdued and globalisation intact we are likely to remain fundamentally
optimistic.
By order of the Board
Baillie Gifford & Co
27 October 2005
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
Interim Report
The following is the interim statement for the six months ended 30 September
2005 which has been neither reviewed nor audited by the auditors. This
statement is being printed and will be sent to all shareholders on 7 November
2005. Copies will be available for inspection at the Registered Office of the
Company or may be obtained on request from the Managers and Secretaries after
that date.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
STATEMENT OF TOTAL RETURN
(unaudited and incorporating the revenue account*)
for the six months ended for the six months ended for the year ended
30 September 2005 30 September 2004 31 March 2005
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Restated+ Restated+ Restated+ Restated+
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised gains/(losses)
on investments - 39,819 39,819 - (6,777) (6,777) - (1,102) (1,102)
Unrealised gains on - 249,921 249,921 - 2,948 2,948 - 117,283 117,283
investments
Currency (losses)/gains - (2,482) (2,482) - 323 323 - 1,534 1,534
Income (note 4) 22,398 - 22,398 17,794 - 17,794 35,456 - 35,456
Investment management fee (1,447) (1,447) (2,894) (1,150) (1,150) (2,300) (2,385) (2,385) (4,770)
Other administrative (801) - (801) (805) - (805) (1,382) - (1,382)
expenses
Net return before finance
costs and taxation 20,150 285,811 305,961 15,839 (4,656) 11,183 31,689 115,330 147,019
Finance costs of (3,814) (3,814) (7,628) (3,658) (3,658) (7,316) (7,385) (7,385) (14,770)
borrowings
Return on ordinary
activities before 16,336 281,997 298,333 12,181 (8,314) 3,867 24,304 107,945 132,249
taxation
Tax on ordinary (2,400) 1,715 (685) (1,091) 552 (539) (2,495) 392 (2,103)
activities
Return on ordinary
activities after taxation 13,936 283,712 297,648 11,090 (7,762) 3,328 21,809 108,337 130,146
Return per ordinary share
(note 5) 101.14p 1.12p 43.95p
Note:
Dividends paid and
proposed per ordinary
share (note 6) 3.85p 2.30p 7.35p
* 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.
+ see note 1.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
SUMMARISED BALANCE SHEET
at 30 September 2005
(unaudited)
Restated + Restated +
at 30 September at 30 September at 31 March
2005 2004 2005
£'000 £'000 £'000
FIXED ASSETS
Investments 1,724,387 1,309,668 1,448,352
CURRENT ASSETS
Debtors 6,691 7,599 9,293
Term deposits - 11,052 -
Cash and short term deposits 7,872 2,851 10,892
14,563 21,502 20,185
CREDITORS
Amounts falling due within one year ++ (6,574) (4,706) (12,833)
NET LIQUID ASSETS ++ 7,989 16,796 7,352
TOTAL ASSETS (before deduction of loans and debentures) 1,732,376 1,326,464 1,455,704
Loans and debentures (note 2) (215,436) (203,862) (213,083)
1,516,940 1,122,602 1,242,621
CAPITAL AND RESERVES
Called-up share capital 73,319 73,901 73,901
Capital redemption reserve 16,861 16,279 16,279
Capital reserves - realised 801,159 769,495 773,424
Capital reserves - unrealised 557,490 197,796 309,966
Revenue reserve 68,111 65,131 69,051
EQUITY SHAREHOLDERS' FUNDS 1,516,940 1,122,602 1,242,621
NET ASSET VALUE PER ORDINARY SHARE
(after deducting debentures at par) 519.4p 382.0p 422.6p
NET ASSET VALUE PER ORDINARY SHARE
(after deducting debentures at market value) 492.8p 359.3p 398.8p
ORDINARY SHARES IN ISSUE (note 3) 293,275,115 295,605,115 295,605,115
+ see note 1
++ excluding short term borrowings
STATEMENT OF CHANGES IN EQUITY
(unaudited)
Restated + Restated +
Six months to Six months to Year to
30 September 30 September 2004 31 March
2005 £'000 2005
£'000 £'000
Balance at 31 March 2005/2004 (restated) 1,242,621 1,125,371 1,125,371
Net profit on ordinary activities after taxation 297,648 3,328 130,146
Dividends paid (note 6) (14,876) (1,189) (7,988)
Buyback of ordinary shares (8,453) (4,908) (4,908)
BALANCE AT 30 SEPTEMBER / 31 MARCH 1,516,940 1,122,602 1,242,621
+ see note 1
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
£'000 £'000 £'000
Net cash inflow from operating activities 20,342 17,212 30,443
Net cash outflow from servicing of finance (7,665) (7,478) (14,766)
Total tax paid (632) (508) (1,024)
Net cash inflow from financial investment 8,264 26,594 14,424
Equity dividends paid (14,876) (14,270) (21,069)
NET CASH INFLOW BEFORE USE OF LIQUID RESOURCES AND
FINANCING 5,433 21,550 8,008
Shares purchased for cancellation (8,453) (4,908) (4,908)
Net cash outflow from bank loans (note 2) - (23,069) (12,709)
Net cash (outflow)/inflow to liquid resources - (11,116) 107
DECREASE IN CASH (3,020) (17,543) (9,502)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
DEBT
Decrease in cash in the period (3,020) (17,543) (9,502)
Increase/(decrease) in short term investments - 11,116 (107)
Exchange movement on short term investments - (64) 107
Decrease in bank loans - 23,069 12,709
Exchange movement on bank loans (2,396) 593 1,695
Other non-cash changes 43 36 73
MOVEMENT IN NET DEBT IN THE PERIOD (5,373) 17,207 4,975
NET DEBT AT START OF THE PERIOD (202,191) (207,166) (207,166)
NET DEBT AT END OF THE PERIOD (207,564) (189,959) (202,191)
RECONCILIATION OF NET REVENUE BEFORE FINANCE COSTS
AND TAXATION TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
Net revenue before finance costs and taxation 20,150 15,839 31,689
Management fees charged to capital (1,447) (1,150) (2,385)
Changes in debtors and creditors 1,639 2,523 1,139
NET CASH INFLOW FROM OPERATING ACTIVITIES 20,342 17,212 30,443
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
THIRTY LARGEST EQUITY HOLDINGS
at 30 September 2005
Market % of total
value assets
Name Country Business £'000
Vodafone United Kingdom Mobile telecommunication services 55,955 3.2
Petrobras Brazil Oil company 55,031 3.2
Gazprom Russia Gas producer 44,727 2.6
Royal Bank of Scotland United Kingdom Banking 40,659 2.4
Samsung Electronics Korea Electronics manufacturer 40,370 2.3
GlaxoSmithKline United Kingdom Pharmaceuticals 38,907 2.3
Barclays United Kingdom Banking 38,876 2.2
British American Tobacco United Kingdom Tobacco 37,783 2.2
EOG Resources United States Gas and oil exploration and production 37,422 2.2
BHP Billiton Australia Diversified resources 33,584 1.9
Atlas Copco Sweden Engineering 30,555 1.8
SAP Germany Business software 30,364 1.8
Carnival United Kingdom Cruise ship operator 29,961 1.7
Moody's United States Bond rating agency 28,112 1.6
ConocoPhillips United States Integrated oil company 27,646 1.6
Golden West Financial United States Savings and loans 26,884 1.6
CVRD Brazil Mining company 26,386 1.5
Suncor Energy Canada Oil company 24,865 1.4
Man Group United Kingdom Hedge fund manager and asset gatherer 24,840 1.4
Altria United States Tobacco and food 24,687 1.4
Microsoft United States Software products 23,262 1.3
Imperial Tobacco United Kingdom Tobacco 23,079 1.3
Sandvik Sweden Engineering 22,933 1.3
Wolseley United Kingdom Builders' merchant 22,762 1.3
Standard Chartered United Kingdom Banking 22,564 1.3
Teva Pharmaceuticals Israel Generic drugs manufacturer 22,518 1.3
eBay United States Internet trading company 22,515 1.3
Diageo United Kingdom Branded spirits 22,154 1.3
Northern Rock United Kingdom Mortgage banking 21,632 1.3
CNOOC China Oil and gas exploration 21,455 1.2
922,488 53.2
DISTRIBUTION OF ASSETS
at 30 September 2005
(unaudited)
Restated + Restated +
30 September 30 September 31 March
2005 2004 2005
% % %
Equities: United Kingdom 36.4 43.3 41.7
Continental Europe 8.9 9.0 9.7
North America 23.6 20.6 21.5
Japan 5.0 5.2 4.8
Asia Pacific 10.1 9.2 9.0
Other Emerging Markets 11.2 5.3 7.7
Total equities 95.2 92.6 94.4
Sterling denominated bonds 3.0 4.2 3.8
Euro denominated bonds 1.0 1.5 0.9
US$ denominated bonds 0.3 0.4 0.4
Net liquid assets 0.5 1.3 0.5
Total assets (before deduction of loans and debentures) 100.0 100.0 100.0
+ see note 1
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
NOTES
1. A number of new UK Financial Reporting Standards have been introduced with which the Company must comply
by its 31 March 2006 financial year end. These standards are part of the UK convergence programme with
International Accounting Standards and as such have required most UK listed companies to restate prior
year figures to reflect the new accounting treatment. The financial statements for the six months to 30
September 2005 have been prepared on the basis of the accounting policies set out in the Company's
Annual Financial Statements at 31 March 2005 except as detailed below:
(a) investments have been valued at fair value through profit and loss in accordance with FRS 26 '
Financial Instruments: Measurement'. The effect is to move from a mid to a bid basis of valuation,
resulting in a reduction in the value of investments and unrealised capital reserves of £2,229,000 (30
September 2004 - £2,068,000; 31 March 2005 - £1,743,000);
(b) in compliance with FRS 21 'Events after the Balance Sheet Date', dividends declared after the
period end are no longer treated as a liability at the period end. The effect is to reduce creditors
and increase revenue reserves by £11,291,000 (30 September 2004 - £6,799,000; 31 March 2005 -
£14,928,000);
The overall effect of these changes on shareholders' funds is detailed below:
At 30 Sept At 30 Sept 2004 At 31 March
2005 £'000 2005
£'000 £'000
Investments/Capital reserve - unrealised (2,229) (2,068) (1,743)
Creditors: dividends payable/Revenue 11,291 6,799 14,928
reserve
9,062 4,731 13,185
Under the new standards, dividends may no longer be charged through the Statement of Total Return but
should be included in the Statement of Changes in Equity. Dividends paid and proposed are disclosed in
note 6; and
(c) income from fixed interest securities has been calculated using the effective interest rate
method. The net effect of this change in the six months to 30 September 2005 is to increase unrealised
capital reserves by £118,000 and reduce realised capital reserves by £16,000 and reduce revenue reserves
by £102,000 respectively. Comparative figures have not been restated as the effect on prior periods is
immaterial.
2. Loans and debentures include Y5,900 million drawn down under a three year multi-currency loan facility
and US$60 million drawn down under a short term facility (30 September 2004 - Y5,900 million and US$40
million and 31 March 2005 - Y5,900 million and US$60 million, drawn down under the three year and the
short term facilities).
Net asset value per share (after deducting prior charges at market value) was 492.8p (30 September 2004
- 359.3p and 31 March 2005 - 398.8p). The market value of debenture stocks at 30 September 2005 was
£223,648,000 (30 September 2004 - £212,807,000 and 31 March 2005 - £215,808,000).
3. On 11 February 1999 authority was first granted to the Company to buy back its ordinary shares
(equivalent to 14.99% of its issued share capital at that date). The authority has been renewed at each
subsequent AGM and was last renewed at the AGM on 30 June 2005 in respect of 44,066,869 ordinary shares
(equivalent to 14.99% of its issued share capital at that date). In the six months to 30 September 2005
a total of 2,330,000 ordinary shares with a nominal value of £582,000 were bought back at a total cost
of £8,453,000. At 30 September 2005 the Company had authority to buy back a further 43,366,869 ordinary
shares.
30 September 2005 30 September 2004 31 March
2005
£'000 £'000 £'000
4. Income
Income from investments and interest 22,363 17,759 35,386
receivable
Other income 35 35 70
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
NOTES
Restated+ Restated+
30 September 2005 30 September 2004 31 March
2005
5. Return per ordinary share
Revenue return 4.73p 3.74p 7.37p
Capital return 96.41p (2.62p) 36.58p
101.14p 1.12p 43.95p
The return per ordinary share figures are based on the following totals of revenue and capital and on
294,280,853 (30 September 2004 - 296,589,814 and 31 March 2005 - 296,098,814) ordinary shares, being the
weighted average number of ordinary shares in issue during each period.
£'000 £'000 £'000
Revenue return 13,936 11,090 21,809
Capital return 283,712 (7,762) 108,337
Restated+ Restated+
Six months to Six months to Year to
30 September 2005 30 September 2004 31 March 2005
£'000 £'000 £'000
6. Dividends
Amounts recognised as distributions in the
period:
Final dividend for the year ended 31 March 2005
of 5.05p (2004 - 0.40p), paid 6 July 2005 14,876 1,189 1,189
Interim dividend for the year ending 31 March
2005 of 2.30p, paid 26 November 2004 - - 6,799
14,876 1,189 7,988
Interim dividend for the year ending 31 March
2006 of 3.85p (2005 - 2.30p) 11,291 6,799 6,799
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 25 November 2005 to shareholders on the register at the
close of business on
11 November 2005. The ex dividend date is 9 November 2005.
7. The financial information contained within this Interim Report does not constitute statutory accounts as
defined in section 240 of the Companies Act 1985. The financial information for the year ended 31 March
2005 has been extracted from the statutory accounts and restated as disclosed in note 1. Those accounts
have been filed with the Registrar of Companies and contain an unqualified Auditors' Report and do not
contain a statement under sections 237 (2) or (3) of the Companies Act.
8. The Interim Report was approved by the Board on 27 October 2005.
None of the views expressed in this document should be construed as advice to buy or sell a particular
investment.
+ see note 1.
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