Results for the year to 31 March 2018

RNS Number : 8884N

Scottish Mortgage Inv Tst PLC

14 May 2018

 

RNS Announcement: Annual Results

Scottish Mortgage Investment Trust PLC

Legal Entity Identifier: 213800G37DCS3Q9IJM38

Results for the year to 31 March 2018

NAV (borrowings at fair value) *	25.0%
NAV (borrowings at book value) *	24.5%
Share Price*	21.6%
Benchmark*†	2.9%

*      Source: Morningstar / Baillie Gifford, total return. See disclaimer at the end of this announcement.

†      Benchmark: FTSE All-World index (in sterling terms)

The following is the Annual Results Statement for the year to 31 March 2018 which was approved by the Board on
11 May 2018.

Chairman's Statement

It is my great privilege to write to you for the first time as Chairman of Scottish Mortgage having taken up the role on 29 June 2017. I joined the Board in 2009 in the fall out of the Global Financial Crisis, when the share price stood at a discount of some 12%. 'Challenging' but valuable experience that has informed my contribution over the years.

My experience at Scottish Mortgage has also included serving under two Chairmen - the late Sir Donald MacKay and John Scott; that too has been valuable experience for which I am very grateful. I hope that the current Board and the Managers can do justice to the legacy we have inherited for the continuing benefit of all shareholders.

Long term performance continues to be the yardstick by which the Board measures the results of the Managers' endeavours for Scottish Mortgage. I would encourage all shareholders to focus on these figures and it is a pleasure to report that Scottish Mortgage's long term performance record, measured over the last five and ten years, remains very strong and amongst the best in the investment trust sector and beyond. This is true both of the share price and net asset value (NAV) returns. 

For more than a decade now, the Managers have remained steadfast in their approach. Their consistency and clarity of purpose has proved its value to shareholders over time, despite some exceptionally challenging phases in global financial markets over that same period.

The table below shows the five and ten year total returns for the Company to 31 March 2018, alongside the Association of Investment Companies (AIC) Global Sector average for comparison.

Total Return %	Five Years	Ten Years
NAV	171.6	287.8
Share Price	184.5	334.7
FTSE All-World Index	73.3	159.4
Global Sector Average - NAV	94.1	178.1
Global Sector Average - share price	111.6	218.1

Source: AIC/Morningstar. NAV after deducting borrowings at fair value for Five Years. NAV after deducting borrowings at par for Ten Years.

Earnings and Dividends

The Board firmly supports the Managers in the single-minded pursuit of the investment philosophy to maximise total return from a portfolio of long term investments chosen on a global basis, enabling the Company to provide capital and dividend growth. They have created a portfolio of the very best long term growth companies from around the world, both listed and unlisted. One common characteristic of many of these businesses is the retention and investment of most if not all of their earnings to support future growth. This tends to result in a relatively low level of dividend income for your Company. Whilst for this financial year our income has seen a rise compared with the previous one, it remains low overall; this year's earnings per share were 1.20 pence, up just over 12% on last year (1.07 pence).

The portfolio's earnings would be insufficient to pay a dividend equivalent to last year's 3.00 pence per share, even taken together with our remaining revenue reserves (0.47 pence per share). Scottish Mortgage's aim is defined in terms of total return. Shareholders have granted the Company the power to supplement the dividend from its distributable capital reserves. These reserves are predominantly the realised investment gains.

The Board understands that many shareholders value the income from Scottish Mortgage's dividend and it has set out its policy and intentions in this area very clearly in recent years. The Board has highlighted that, while returns for Scottish Mortgage's shareholders will predominantly come through capital appreciation, a modest and growing dividend will also be paid. The Board will continue to keep the position under review. The 2017 Interim Report made clear that the Board would use the power to supplement the Company's earnings from capital once the revenue reserve was exhausted, in order to do this.

Given the strength of the long run capital returns and the Company's investment objective, together with the clear guidance given in the past, the Board has decided that a modestly increased dividend would be appropriate this year. This will be paid from a combination of earnings, the remainder of the revenue reserve and the capital reserve. The Board is therefore recommending a final dividend of 1.68 pence per share, providing a total distribution for the year of 3.07 pence per share, a year-on-year increase of just over 2%.

Low Cost

Put simply, lower charges directly translate into shareholders keeping more of the returns generated from the investment of their capital. Ensuring that Scottish Mortgage has one of the lowest cost ratios in the sector remains an important objective of the Board, supported by the Managers. In addition to using its growing scale to progressively reduce costs for shareholders for many years now, the management fee has also been revised - most recently at the start of this accounting period. The introduction of a new tiered annual management charge (AMC) from 1 April 2017 helps to ensure that shareholders will continue to reap additional benefits from the Company's growth. The previous AMC of 0.3% only applies on the first £4 billion of assets under management and thereafter it falls to 0.25%. I am delighted to report that as a result, for the financial year to 31 March 2018, Scottish Mortgage's 'Ongoing Charges Ratio' (OCR) fell to 0.37%, down from 0.44% the previous year. This is an almost 16% reduction on what was already one of the lowest cost ratios in the sector.

The Board has also decided that it would be appropriate to revise the allocation of the management and borrowing costs to reflect better the split of returns between capital and income. From 1 April 2018, all of these costs will be allocated to capital. This is a change from the current allocation of 75 per cent to capital and 25 per cent to revenue. The total costs will not be affected by this change in accounting treatment and the distinction is somewhat arbitrary given the changing nature of investment returns, as discussed in recent years and above.

Investment Strategy

As I highlighted at the start, two distinctive aspects of Scottish Mortgage are the clarity of its investment proposition and the consistency with which it has been applied. The Board continues to believe that these clearly differentiate Scottish Mortgage in a crowded field, where many 'talk a good game' but where far fewer have consistently lived up to the inherent challenges of long term investment. The statement of the Managers' Core Investment Beliefs has been included within the Annual Report and Financial Statements for the last 5 years. This year, Tom Slater has also reviewed this in his section of the report. I would urge all shareholders and those considering making an investment to read both these pieces and James Anderson's report.

Opportunities to learn more about Scottish Mortgage

The Board and Managers believe it is important that all shareholders and prospective investors are able to develop a clear understanding of the investment approach taken for the Company.

One of the best ways to do this is to hear directly from those responsible for the management of your investment. The Company's Annual General Meeting (AGM) is held in Edinburgh and this year it will be at the Merchants' Hall, at 4.30pm on 28 June 2018. As is always the case, not only will shareholders be able to vote on the resolutions for the management of the Company and question the Directors, but the joint managers will present on the portfolio and also take shareholders' questions. I hope as many of you as possible will be able to attend.

Recognising that not everyone will be able to attend the AGM, the Managers have invested considerable resources in developing other opportunities for investors to hear their views and learn about the investment approach taken.  There is a large amount of information on the Company and the portfolio available through the Company's website: www.scottishmortgageit.com.

More recently, the Managers have created an additional site, www.resoluteoptimism.com which looks at the broader context around the portfolio companies and explores issues around the responsible use of investment capital and the financial industry. There is a related Resolute Optimism twitter feed (@SMTOptimism) which flags new articles on the Resolute Optimism site and also highlights interesting external pieces of news and information, thought-provoking commentaries and events.

Further, in recent years the Managers have hosted a series of Scottish Mortgage Investor Forums around the country to ensure that more investors have the opportunity to hear from them directly. The 2017 Forums in Birmingham, York and London were all very well attended. The first Forum of 2018 has already been held in Brighton and there are two more to come, in London in June and in Manchester in October.  Further details can be found on the Company's website: www.scottishmortgageit.com

Gearing and Borrowing Policy

The Board of Scottish Mortgage remains committed to the strategic use of borrowings for the Company, in the belief that gearing the portfolio in this way will enhance the long term returns for shareholders. The Board views this as a significant advantage of the investment trust structure.

As previously announced, in April 2017 the Board took the opportunity to lock in borrowings of £125 million in long term, fixed rate, senior, unsecured private placement notes, denominated in sterling through the private placement debt market. This was achieved at a blended rate of a little over 3 per cent.

As a result of the continued strength of the portfolio's performance, particularly of the publicly listed companies, the gearing level continued to fall over this financial year. The impact of growth on the level of gearing is clearly illustrated in the table on the ten year record of Capital in the Annual Report and Financial Statements. The level of debt has increased by only 10% as compared to a three-fold increase in assets. Given current market costs of borrowing, the Board is of the view that the appropriate level of gearing is higher than the current level (as at the end of March 2018). The Board has therefore taken steps to increase the Company's borrowings. These have included organising to borrow further funds in the private placement market, once again to lock in attractive long term borrowing rates. Further announcements will be made when arrangements have been finalised.

Liquidity

The Company's shares continue to benefit from a good level of liquidity on the London Stock Exchange. In addition, the Company has continued to support this liquidity in normal market conditions through the operation of its long standing liquidity policy, which is set out in the Annual Report and Financial Statements.

Over the twelve months to 31 March 2018, the company issued 50.8 million shares from Treasury and bought back 14.0 million shares resulting in a net inflow of £145 million. The level of net issuance was illustrative of the strength of demand for Scottish Mortgage over the period.

Corporate Brokers

The corporate brokers are instrumental in applying the liquidity policy, and the new arrangements which took effect from the start of this financial year have been very effective, which is testimony to Cenkos Securities plc and Jefferies Hoare Govett operating well as joint brokers.

Outlook

In considering the outlook at the start of this financial year, my predecessor John Scott noted, "a number of political risks, from President Trump's unpredictable approach to policy making, to questions over North Korea's true intentions, to the escalation of the troubles in the Middle East..". Sadly those political risks remain the same today. However the task of the Board also remains the same, as John noted: "to consider the outlook in the context of the portfolio of Scottish Mortgage..."

To have been unduly focused on the headline topics 12 months ago might have led an investor to miss the importance of the extraordinary operational growth which was taking place at a number of the world's largest companies.

The Board believes the following areas to be amongst the most relevant considerations for the long term prospects for Scottish Mortgage:

1.  The continual rise and development of China, in particular of its world leading digital economy.

2.  The spread across all industries of the gathering and computer-facilitated use of data.

3.  The structural shifts in the global healthcare industry and the industrialisation of biology.

4.  The long run shift in much of the transportation infrastructure to electric and autonomous vehicles.

5.  Shifts in energy generation to renewable sources and the proliferation of energy storage solutions for domestic and commercial use.

6.  Greater social, political and regulatory scrutiny of large corporations.

The approach of the Managers, focused on the long term fundamental characteristics of businesses, favours the selection of companies which are adopting the advances in technology to enable them to provide what their customers want or need. This should offer the potential for durable growth in the long run. However, the above should not be taken to suggest that the path to any success will be smooth. Progress is almost always bumpy and stock markets tend to exacerbate these swings. There will be times when share prices diverge from company fundamentals and during such periods the companies in Scottish Mortgage's portfolio may fall out of favour. No attempt will be made to mitigate short-term volatility and the Board will continue to stand resolutely behind the Managers during such times.

Whatever the precise trajectory of stock markets turns out to be over the coming years, the Board and the Managers strongly believe that attractive long term returns continue to be available to those who can turn time to their advantage. Scottish Mortgage offers investors the potential to share in the value created by some of the best growth businesses in the world over the coming decade, in new or old industries and whether they be public or private companies.

Finally, in addition to thanking my Board colleagues for their diligence over the year and James Anderson and Tom Slater for their insight and continuing success for shareholders, I would like to thank our professional advisers and the teams at Baillie Gifford that provide the support necessary to best look after your interests, and you, the shareholders, for your continued support.

Fiona McBain

Chairman

11 May 2018

Past performance is not a guide to future performance.

See disclaimer at the end of this announcement.

Income statement

	For the year ended 31 March 2018			For the year ended 31 March 2017
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	1,203,348	1,203,348	-	1,354,245	1,354,245
Currency gains/(losses)	-	21,129	21,129	-	(42,958)	(42,958)
Income (note 2)	30,663	-	30,663	27,796	-	27,796
Investment management fee	(4,495)	(13,484)	(17,979)	(3,558)	(10,674)	(14,232)
Other administrative expenses	(3,929)	-	(3,929)	(3,544)	-	(3,544)
Net return before finance costs and taxation	22,239	1,210,993	1,233,232	20,694	1,300,613	1,321,307
Finance costs of borrowings	(5,490)	(16,471)	(21,961)	(4,837)	(14,510)	(19,347)
Net return before taxation	16,749	1,194,522	1,211,271	15,857	1,286,103	1,301,960
Tax	(48)	-	(48)	(1,721)	-	(1,721)
Net return after taxation	16,701	1,194,522	1,211,223	14,136	1,286,103	1,300,239
Net return per ordinary share (note 4)	1.20p	85.80p	87.00p	1.07p	97.31p	98.38p

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

	At 31 March 2018               £'000               £'000		At 31 March 2017             £'000                   £'000
Fixed assets
Investments held at fair value through profit or loss		6,646,015		5,298,338
Current assets
Debtors	2,764		16,293
Cash and cash equivalents	34,974		76,643
	37,738		92,936
Creditors
Amounts falling due within one year (note 6)	(241,961)		(367,973)
Net current liabilities		(204,223)		(275,037)
Total assets less current liabilities		6,441,792		5,023,301
Creditors
Amounts falling due after more than one year (note 6)		(254,036)		(149,710)
		6,187,756		4,873,591
Capital and reserves
Share capital		71,086		71,086
Share premium account†		352,375		216,808
Capital redemption reserve		19,094		19,094
Capital reserve†		5,741,352		4,537,789
Revenue reserve		3,849		28,814
Shareholders' funds		6,187,756		4,873,591
Net asset value per ordinary share (after deducting borrowings at book)*		443.5p		358.7p
Ordinary shares in issue (note 8)		1,395,363,209		1,358,569,485

† The Capital Reserve and Share Premium Account as at 31 March 2017 have been restated.

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

Statement of changes in equity

For the year ended 31 March 2018

	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 after taxation	-	-	-	1,194,522	16,701	1,211,223
Ordinary shares bought back into treasury (note 8)	-	-	-	(62,951)	-	(62,951)
Ordinary shares sold from treasury (note 8)	-	135,567	-	71,992	-	207,559
Dividends paid during the year (note 5)	-	-	-	-	(41,666)	(41,666)
Shareholders' funds at 31 March 2018	71,086	352,375	19,094	5,741,352	3,849	6,187,756

For the year ended 31 March 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 2016	71,086	116,410	19,094	3,197,092	53,762	3,457,444
Net return after taxation	-	-	-	1,286,103	14,136	1,300,239
Ordinary shares bought back into treasury (note 8)	-	-	-	(19,558)	-	(19,558)
Ordinary shares issued from treasury (note 8)	-	100,398	-	74,152	-	174,550
Dividends paid during the year (note 5)	-	-	-	-	(39,084)	(39,084)
Shareholders' funds at 31 March 2017	71,086	216,808	19,094	4,537,789	28,814	4,873,591

The Capital Reserve balance at 31 March 2018 includes investment holding gains of £3,392,070,000 (31 March 2017 - gains of £2,647,822,000).

† The Capital Reserve and Share Premium Account as at 31 March 2016 and 31 March 2017 have been restated.

# The Capital Reserve (to the extent it constitutes realised profits) and the Revenue Reserve are distributable.

Cash flow statement

	Year to 31 March 2018 £'000               £'000		Year to 31 March 2017 £'000               £'000
Cash flows from operating activities
Net return before taxation	1,211,271		1,301,960
Gains on investments	(1,203,348)		(1,354,245)
Currency (gains)/losses	(21,129)		42,958
Finance costs of borrowings	21,961		19,347
Overseas withholding tax refunded	316		124
Overseas withholding tax incurred	(2,128)		(1,755)
Changes in debtors and creditors	4,295		443
Cash from operations		11,238		8,832
Interest paid		(20,972)		(19,484)
Net cash outflow from operating activities		(9,734)		(10,652)
Cash flows from investing activities
Acquisitions of investments	(938,385)		(723,418)
Disposals of investments	800,627		686,952
Net cash outflow from investing activities		(137,758)		(36,466)
Equity dividends paid	(41,666)		(39,084)
Ordinary shares bought back into treasury	(62,884)		(19,574)
Ordinary shares sold from treasury	212,687		169,422
Bank loans repaid	(132,775)		(37,903)
Bank loans drawn down and loan notes issued	136,921		-
Net cash inflow from financing activities		112,283		72,861
(Decrease)/increase in cash and cash equivalents		(35,209)		25,743
Exchange movements		(6,460)		6,927
Cash and cash equivalents at start of period		76,643		43,973
Cash and cash equivalents at end of period*		34,974		76,643

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

Thirty largest holdings and twelve month performance

Name	Business	Fair Value at 31 March 2018 £'000	% of total assets	Absolute performance† %	Contribution to absolute performance# %	Fair value 31 March 2017 £'000
Amazon.com	Online retailing and cloud computing	661,339	9.9	45.5	3.7	510,086
Tencent Holdings	Internet services	500,986	7.5	62.7	3.7	308,730
Alibaba Group	Online retailing and financial services	497,643	7.5	51.5	2.9	273,626
Illumina	Biotechnology equipment	433,312	6.5	23.5	1.4	318,103
Tesla Inc	Electric cars, autonomous driving and   solar energy	324,503	4.9	(14.8)	(0.5)	366,984
Baidu	Online search engine	265,268	4.0	15.4	1.0	237,505
Inditex	Global clothing retailer	239,840	3.6	(19.6)	(0.7)	297,098
Kering	Luxury goods producer and retailer	231,740	3.5	66.8	1.7	104,970
ASML	Lithography	207,437	3.1	33.1	0.7	110,439
Ferarri	Luxury automobiles	195,553	2.9	44.6	1.4	148,851
Netflix	Subscription service for TV shows and movies	195,159	2.9	78.1	1.4	104,970
Zalando	International online clothing retailer	151,205	2.3	19.8	0.5	108,578
Nvidia	Visual computing	143,346	2.2	90.3	1.2	51,904
Ctrip.com	Travel agent	137,095	2.1	(15.4)	(0.4)	131,093
Facebook	Social networking site	130,886	2.0	0.5	0.6	257,167
Alphabet	Holding company for Google and associated ventures	128,777	1.9	11.1	0.6	199,136
Bluebird Bio Inc	Provider of biotechnological products   and services	124,535	1.9	67.4	0.8	68,486
Kinnevik	Investment company	108,283	1.6	23.2	0.4	90,981
Atlas Copco	Engineering	106,975	1.6	10.6	0.2	107,723
Workday	Enterprise information technology	93,244	1.4	36.2	0.5	60,431
Intuitive Surgical	Surgical robots	89,464	1.3	44.1	0.7	75,393
Housing Development Finance Corporation	Indian mortgage provider	84,710	1.3	9.1	0.2	78,537
Delivery Hero	Online food delivery service	67,124	1.0	53.8*	0.4	-
Renishaw	Electronic equipment	65,218	1.0	46.4	0.5	45,076
BASF	Chemicals	62,695	0.9	(6.2)	(0.2)	118,852
Spotify Technology SA u	Online music streaming service	62,505	0.9	71.2	0.4	22,428
Rocket Internet	Internet start-up factory	61,456	0.9	59.3	0.4	38,422
Uptake Technologies Inc   Series D Pref. u	Designs and develops enterprise software	60,814	0.9	(4.7)*	-	-
Svenska Handelsbanken	Banking	55,543	0.8	(13.6)	(0.1)	48,280
Grail Inc Series B Pref.u	Clinical stage biotechnology company	53,485	0.8	(10.8)	(0.1)	59,978
		5,540,140	83.1

†      Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 April 2017 to 31 March 2018.

#      Contribution to absolute performance (in sterling terms) has been calculated to illustrate how an individual stock has contributed to the overall return. It is influenced by both share price performance and the weighting of the stock in the portfolio, taking account of any purchases or sales over the period.

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

^u      Denotes unlisted investment

Source: Baillie Gifford/StatPro and underlying index providers. See disclaimer at the end of this announcement.

Past performance is not a guide to future performance.

Distribution of total assets

		At 31 March 2018 %	At 31 March 2017 %
North America		48.1	47.9
South America		-	0.5
Europe		27.7	30.3
	United Kingdom	2.9	4.4
	Eurozone	19.9	19.6
	Developed Europe (non euro)	4.9	5.9
	Rest of Europe	-	0.4
Africa and Middle East		-	0.4
Asia		24.2	20.9
	China	22.5	18.5
	India	1.7	2.1
	Rest of Asia	-	0.3
		100.0	100.0

Notes to the financial statements

1.	The Financial Statements for the year to 31 March 2018 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently.
2.	Income			Year to 31 March 2018 £'000		Year to 31 March 2017 £'000
	Income from investments			30,283		27,752
	Other income			380		44
				30,663		27,796
3.	Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas Limited. The Investment Management Agreement sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. The annual management fee for the year to 31 March 2018 was 0.30% on the first £4 billion of total assets less current liabilities (excluding short term borrowings for investment purposes) and 0.25% on the remaining assets. The investment management fees for the years to 31 March 2018 and 31 March 2017 were charged 25% to revenue and 75% to capital (with effect from 1 April 2018 the investment management fee will be charged 100% to capital - see Chairman's Statement).
4.	Net Return per Ordinary Share			Year to 31 March 2018 £'000		Year to 31 March 2017 £'000
	Revenue return on ordinary activities after taxation			16,701		14,136
	Capital return on ordinary activities after taxation			1,194,522		1,286,103
	Total net return			1,211,223		1,300,239
	Weighted average number of ordinary shares in issue			1,392,180,470		1,321,667,362
	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) in issue during the year. There are no dilutive or potentially dilutive shares in issue.
5.	Ordinary Dividends	2018	2017		2018 £'000		2017 £'000
	Amounts recognised as distributions in the year:
	Previous year's final (paid 3 July 2017)	1.61p	1.58p		22,264		20,795
	Interim (paid 1 December 2017)	1.39p	1.39p		19,402		18,289
		3.00p	2.97p		41,666		39,084
	Also set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £16,701,000 (2017 - £14,136,000).

Notes to the condensed financial statements (ctd)

5.	Ordinary Dividends (Ctd)
		2018	2017	2018 £'000	2017 £'000
	Dividends paid and payable in respect of the year:
	Interim dividend per ordinary share (paid 1 December 2017)	1.39p	1.39p	19,402	18,289
	Proposed final dividend per ordinary share (payable 2 July 2018)	1.68p	1.61p	23,442	22,264
		3.07p	3.00p	42,844	40,553
	If approved the final dividend will be paid on 2 July 2018 to all shareholders on the register at the close of business on 8 June 2018. The ex-dividend date is 7 June 2018. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 11 June 2018.
6.	Creditors falling due within one year include drawings under the following borrowing facilities: Borrowing facilities at 31 March 2018 A 1 year US$40 million revolving loan facility has been arranged with The Royal Bank of Scotland plc. A 2 year US$85 million revolving loan facility has been arranged with The Royal Bank of Scotland plc. A 2 year US$200 million revolving loan facility has been arranged with National Australia Bank Limited. At 31 March 2018 drawings were as follows: The Royal Bank of Scotland plc       US$40 million (revolving facility) at an interest rate (at 31 March 2018) of 2.255%                                                                per annum.                                                                US$85 million (revolving facility) at an interest rate (at 31 March 2018) of 2.764%                                                                per annum. National Australia Bank                    US$200 million (revolving facility) at an interest rate (at 31 March 2018) of                                                                2.623% per annum. At 31 March 2017 drawings were as follows: The Royal Bank of Scotland plc      US$165 million (revolving facility) at an interest rate (at 31 March 2017) of                                                               1.525% per annum.                                                                US$85 million (fixed rate facility) at an interest rate of 1.945% per annum. National Australia Bank                    US$200 million (revolving facility) at an interest rate (at 31 March 2017) of                                                                1.792% per annum. During the year 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 2 year revolving loan from RBS. During the year the Company issued the following private placement unsecured loan notes and are included within creditors falling due after more than one year: 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. Subsequent to the year end on 11 April 2018 the US$40 million 1 year revolving loan with RBS was replaced with a US$80 million 3 year revolving loan with RBS.

Notes to the condensed financial statements (ctd)

7.	The fair value of borrowings at 31 March 2018 was £535,814,000 (2017 - £566,251,000). Net asset value per share (after deducting borrowings at fair value) was 439.9p (2017 - 354.6p).
8.			2018 Number of Shares	2017 Number of shares
	Share capital: Ordinary shares of 5p each
	Allotted, called up and fully paid		1,395,363,209	1,358,569,485
	Treasury shares		26,367,671	63,161,395
	Total		1,421,730,880	1,421,730,880
	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 2018 a total of 14,006,276 (2017 - 7,005,000) ordinary shares with a nominal value of £700,000 (2017 - £350,000) were bought back at a total cost of £62,951,000 (2017 - £19,558,000) and held in treasury.  At 31 March 2018 the Company had authority to buy back a further 191,711,909 ordinary shares. Under the provisions of the Company's Articles the share buy-backs were funded from the capital reserve. In the year to 31 March 2018, the Company sold 50,800,000 ordinary shares from treasury at a premium to net asset value, with a nominal value of £2,540,000 raising net proceeds of £207,559,000 (31 March 2017 - 53,050,000 ordinary shares raising net proceeds of £174,550,000). At 31 March 2018 the Company had authority to issue or sell from treasury a further 121,286,948 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 and the prior year disclosures have been restated accordingly. The effect of this adjustment as at 1 April 2016 has been to increase Share Premium to £116,410,000 from Nil and decrease Capital Reserve to £3,197,092,000 from £3,313,502,000. For the year ended 31 March 2017, the credit to Share Premium for the year has been increased to £100,398,000 from Nil with the in year movement on Capital Reserve decreased to £74,152,000 from £174,550,000. This has resulted in revised Share Premium and Capital Reserve balances of £216,808,000 and £4,537,789,000 respectively at 31 March 2017 and forms the restated opening position at 1 April 2017. There is no impact on total reserves in the current or prior periods arising from this restatement.
9.	Transaction costs on purchases amounted to £332,000 (2017 - £261,000) and transaction costs on sales amounted to £383,000 (2017 - £312,000).
10.	The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
11.	The Annual Report and Financial Statements will be available on the Managers' website www.scottishmortgageit.com‡ on or around 25 May 2018.

Notes to the condensed financial statements (ctd)

	Glossary of Terms Total Assets Total assets less current liabilities, before deduction of all borrowings. Net Asset Value Also described as shareholders' funds. Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue. Net Asset Value (Borrowings at Fair Value) Borrowings are valued at an estimate of their market worth. Net Asset Value (Borrowings at Par Value) Borrowings are valued at adjusted net issue proceeds. 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. 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. Total Return The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes xd. 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). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies. 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. 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. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. Leverage For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.
Notes to the condensed financial statements (ctd)

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.

‡    Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

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

Scottish Mortgage is a low cost investment trust that aims to maximise total return over the long term from a high conviction and actively managed portfolio. It invests globally, looking for strong businesses with above-average returns.

You can find up to date performance information about Scottish Mortgage on the Scottish Mortgage page of the Managers' website at www.scottishmortgageit.com^‡

Scottish Mortgage is managed by Baillie Gifford, the Edinburgh based fund management group with around £187 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 10 May 2018).

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.

11 May 2018

For further information please contact:

Catharine Flood, Baillie Gifford & Co

Tel: [phone]

James Budden, Baillie Gifford & Co  

Tel: [phone] or 07507 201208

Roland Cross, Director, Four Broadgate

Tel: [phone]

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