Scottish Mortgage Preliminary Annual Results

RNS Number : 1375Y

Scottish Mortgage Inv Tst PLC

13 May 2016

 

RNS Announcement: Preliminary Results

Scottish Mortgage Investment Trust PLC

Results for the year to 31 March 2016

NAV*	-0.1%
Share Price*	-0.7%
Benchmark*†	-0.5%

*      Source: Morningstar, total return.

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

The following is the unaudited preliminary statement for the year to 31 March 2016 which was approved by the Board on 12 May 2016.

Chairman's Statement

I am pleased to say that the Scottish Mortgage portfolio has continued to produce good long term returns for shareholders. The past financial year, taken in isolation, has not been as strong as recent years, either in terms of the NAV performance or our own share price, but I hope that my earlier statements have been consistent in warning that not every year can be expected to produce the stellar results that we have been fortunate to see in the past.

 I would stress once again that such flat periods are to be expected and are consistent with the approach taken for Scottish Mortgage. Indeed, I would go so far as to suggest that shareholders should expect that there will be periods when our investment approach is out of favour, when there is a disconnect between share prices and the underlying fundamentals of the companies, and in such circumstances our share price may well suffer. A pleasing outcome of the last twelve months was that good individual company results managed to reverse share prices falls, mitigating broader negative sentiments which might otherwise have had a greater impact on the portfolio, for example regarding China, healthcare and technology.

In the context of a five year investment horizon, a single twelve month period is an insufficient time over which to evaluate the investment approach taken for Scottish Mortgage. Neither the Managers nor the Board make any attempt to mitigate the effects of short term market gyrations. The portfolio is invested in individual businesses which have the potential to offer extraordinary growth over the long term.

Over the past twelve months, behind the turbulent movement in their share prices, a number of the companies in the portfolio have reported strong operational results, reaping the benefit of prior years' capital investment. Looking ahead, the level of continued investment by the companies which Scottish Mortgage holds should provide a strong base for future growth and returns. This is particularly pleasing to see against a wider backdrop of slowing investment and companies which have been returning cash to their shareholders.

The table below shows the five and ten year total returns in percentage terms to 31 March 2016 alongside the Association of Investment Companies (AIC) Global Sector average for comparison.

	Total Return %
	Five Years	Ten Years
NAV	71.0	156.4
Share Price	91.1	202.2
FTSE All-World Index	48.0	92.9
Global Sector Av - NAV	46.4	87.9
Global Sector Av - share price	52.8	91.5

Source: AIC/Morningstar

Earnings and dividends

Scottish Mortgage is clear in its focus as a growth-oriented investment trust. Our objective is to maximise total returns to shareholders but, in light of the growth investment mandate, the likelihood is that the majority of returns in the portfolio will come through capital appreciation, as distinct from dividend income, over the longer term.

Our income has fallen again this year, reflecting several aspects of our investment policy: our holdings in quoted companies have been moving away from higher income-paying stocks, in favour of longer term growth investments, and we hold more unquoted companies, which currently provide little by way of income.  This year's earnings per share were 1.66p, 26% lower than in 2014/15.

The Board has encouraged the Managers to pursue a total return policy, without regard to the expected split between dividends and capital gains, believing that this is the best way to deliver value to shareholders in the long run. While we believe that Scottish Mortgage is held by investors mainly interested in capital growth, your Board nonetheless recognises the importance to many of our shareholders of the income from their holdings in the Company.  After careful consideration and notwithstanding the drop in our income we are recommending an increased final dividend, providing a total distribution for the year of 2.96 pence per share, which is some 1% higher than that paid in 2014/15.  To achieve this, we are once again having to use our reserves to supplement the income we have earned during the period.  Once the final dividend is approved and paid, the remaining reserves will stand at 2.5 pence per share.

At this level, we are unlikely to have sufficient income and revenue reserves to continue to pay a comparable dividend over the coming years from these two sources alone.  The Company is, however, permitted to make distributions from capital profits.  The Board will be willing to do this in order to continue to grow our dividend payments so long as it believes that the total returns being earned by the Company over the long run justify this.  The Baillie Gifford savings scheme, and many other platforms, give shareholders an opportunity to re-invest dividends in the Company, and the Board hopes that shareholders who have no immediate need of income will take advantage of this facility.

Changes to Investment Policy

Currently, whilst Scottish Mortgage's investment policy specifically lists "unquoted entities" amongst the permissible investments, there are no formal parameters set out with regard to such. Given the rising level of these investments within the Scottish Mortgage portfolio and the changing nature of the investment opportunities being seen by the Managers, the Board is of the view that this is an appropriate moment to provide clarity for shareholders on the maximum level such investments might reach over time. 

The level of the investments in private or unquoted companies within the portfolio has been rising over the past few years and was around 12% at 31 March 2016. The investment case for holding such companies within the Scottish Mortgage portfolio, as well as the reasons why the Board believes the Managers have a competitive advantage in investing in this area, were set out in the Interim Report to 30 September 2015.  In addition, the Managers' Review in the Annual Report and Financial Statements will contain a more detailed exploration of this aspect of the portfolio. As always, I would encourage shareholders to read the Managers' commentary.

Whilst Scottish Mortgage has long been able to make investments in private companies, the increase in the level and number of such unlisted investments within the portfolio in recent years has been in direct response to a shift in the balance within the capital markets between the providers and consumers of capital, rather than a change in the Managers' investment philosophy and approach. The Managers remain committed long term investors in strong growth companies. In order to maintain the breadth of their investment opportunities, the Managers have sought to utilise the flexibility of the closed ended capital structure of Scottish Mortgage to invest in a number of private companies. The Managers believe that this will provide them with a greater opportunity to continue to deliver long term returns for shareholders in the future.

Historically, the Board has provided guidance to the Managers on the appropriate maximum level for such investments within the portfolio; this guidance has been reviewed and it is now proposed to adapt it to reflect developments in the corporate funding markets, whereby emerging companies are able to finance themselves for much longer before coming to public markets.  The Board believes this shift in the functioning of capital markets is likely to persist, rendering the flexibility to undertake investments ahead of public offerings of increasing importance for growth investors across the world.  The Board supports the Managers in their belief that investments made in the unquoted companies within the portfolio are entirely consistent with their investment philosophy and recognises that the Managers are agnostic as to whether a company chooses to remain private, or list on a public market.

Thus the Company is tabling an Ordinary Resolution at the Scottish Mortgage Annual General Meeting (AGM) on 30 June to seek permission from shareholders to amend the Company's Investment Policy to stipulate that the maximum amount which may be invested in companies not listed on a public market shall not exceed 25 per cent of the total assets of the Company, with this test applied by reference to the current values of unquoted holdings and total assets at the time of the intended purchase of the next investment not listed on a public market.

This Resolution also asks shareholders to approve other minor changes to the Investment Objective and Policy; these are intended as simplifications and clarifications of the text, not as substantive changes to the existing policy. The wording of the current and proposed Objective and Investment Policy will be set out in the Circular which will be sent to shareholders with the Annual Report and Financial Statements.

The Board believes that all of these changes are in the best interests of the Company and shareholders as a whole and it is unanimous in recommending that you vote in favour of all of the Resolutions, as the Directors intend to do in respect of their own holdings.

Gearing

The Board of Scottish Mortgage remains committed to the strategic use of gearing, in the belief that it is in the long term interests of shareholders to be geared into prospective long run equity market returns. No attempt is made to deploy short term tactical gearing shifts, or to express a view on future near term market moves, as we do not believe this to be one of our competitive advantages.  Accordingly, gearing levels were maintained throughout the year.

The Board will continue to monitor the appropriate level of gearing for the long term and is mindful that further rises in the allocation to private companies within the portfolio may result in it becoming appropriate to reduce the level of borrowing so as to keep a broadly consistent level of gearing relative to the listed equity portion of Shareholders' Funds.

Buybacks and Share Issuance

Despite some dramatic swings in sentiment in the broader equity markets throughout the past 12 months, Scottish Mortgage continued to see a reasonably sustained level of demand, with the Company's shares trading around, or at a small premium to, NAV for much of the period. 

In line with the stated policy of aiding the efficient functioning of the market in its shares, Scottish Mortgage both sold shares from Treasury from time to time and, on one occasion, bought back a small number of shares, when there were supply and demand imbalances building up in the market. The balance of these operations was heavily in favour of our issuing shares and we were able to attract additional net capital of £180 million, growing the Company by some 5%.

It is the Board's intention to continue this liquidity management policy in normal market conditions, with regard to share issuance and share buybacks, as it believes this to be in the interest of all shareholders. The Company has 109 million shares remaining in Treasury and the Board is once again seeking the necessary shareholder approvals to continue to undertake such transactions in the Company's own shares.

Low Cost

Keeping costs low for shareholders continues to be a priority for the Board and an important competitive advantage for Scottish Mortgage, given the erosive effect of high costs on compounded returns to shareholders.

I am therefore delighted to announce that, for the year to 31 March 2016, Scottish Mortgage's 'Ongoing Charges Ratio' has fallen once again, this year by over 6% to 0.45%, from 0.48% the previous year.  This figure remains one of the lowest reported in the investment trust sector.

Board and AGM

I would like to take this opportunity to thank Gordon McQueen for his considerable number of years of service to the Company as a Director and in particular for his dedication and diligence in his role as Chairman of the Audit Committee. He has decided that, after more than fifteen years on the Board of Scottish Mortgage, he will not stand for re-election at the forthcoming AGM. We wish him all the very best in his future endeavours.

Gordon will be succeeded in his role as Audit Committee Chairman by Justin Dowley, who joined the Board last year and brings us many years of commercial and financial experience. We also welcome to the Board Professor Patrick Maxwell who was appointed at the start of the current financial year and, like Justin, stands for election at the forthcoming AGM. Amongst other distinguished roles, Patrick holds the position of Regius Professor of Physic at Cambridge University and it is, I hope, appropriate to point out that 'Physic' is a mediaeval term for what we now know as Medicine; given your Company's increasing exposure to life science businesses, we look forward to Patrick's contributions in this and other fields.  

The Annual General Meeting will be held in Edinburgh at the Merchants' Hall, at 4.30pm on 30 June 2016. The joint Managers of the Trust, James Anderson and Tom Slater, will make a presentation to shareholders on the investments and take questions.  I do hope you will be able to attend.

Scottish Mortgage Forum for individual investors

In recent years, the Board has been pleased to see considerable growth in the number of individual shareholders investing directly through execution-only platforms, but we realise that it can be difficult for many shareholders to attend the AGM, which is always held in Edinburgh. In order to provide our broad investor base with the opportunity to hear directly from those investing their assets, the Managers are holding a series of shareholder events, starting with a session in London on 22 June. Further details on this event will be provided in the Annual Report and Financial Statements and are available on the Scottish Mortgage website www.scottishmortgageit.com.

Investment Strategy

The Statement of the Managers' core investment beliefs will be included within the Annual Report and Financial Statements. The stability of their core investment philosophy and the consistency with which the Managers have applied this to the portfolio over many years is one of Scottish Mortgage's key strengths.

This style of investing requires commitment and a willingness to look through short term market gyrations. Both the Managers and the Board believe true investment risk is the permanent loss of capital. It cannot be encapsulated or even meaningfully estimated by measuring volatility over the short term relative to a market average. Where short term share price moves disconnect significantly from companies' fundamentals, this may provide even more attractive opportunities for the Managers.

Outlook

Scottish Mortgage's portfolio offers shareholders access to some of the most exciting growth companies across the world, whether they be public or private, which are themselves aiming to change the future of a wide range of industries over the coming years. We do not try to disguise the fact that our portfolio is a concentrated one and in many cases invested in businesses (of which Tesla is a prime example) whose intention is to disrupt the present incumbents and which has been constructed in accordance with the convictions of our Managers and with no heed to benchmarks or indices.

The Board acknowledges that there are some very obvious risks in the world, be they political in nature as countries negotiate their future relationships; or economic, as much of the world struggles with low growth, zero interest rates and a radically different supply/demand balance for fossil fuels. I will confine my comments on 'Brexit' to noting that, by the time we meet in Edinburgh at the end of June, the result will be known.

There are many threats out there and your Board spends a great deal of its time thinking about risk and trying to understand how well diversified our portfolio really is.  We also have a suspicion that the real hazard is what one American politician tried to articulate as the "unknown unknowns". Beyond ensuring that we are properly diversified from a political, geographical and industrial perspective, we focus on the opportunities which such events may offer to Scottish Mortgage if and when they occur.  We believe strongly in two things: first, that passive investing is no longer an adequate approach if investors wish to preserve capital in the medium term - there are simply too many competitive threats to established businesses, many of which will not survive. Secondly, that many of the companies in our portfolio offer the potential for growth based on structural rather than cyclical changes over the long term.

Looking to the future, the Board believes that, through the consistent application of its long term growth investment strategy, Scottish Mortgage offers its shareholders a real alternative to other investment vehicles. We are about as far removed from being an 'index tracker' as it is possible to be and we offer an active investment management approach at a very competitive cost.

John Scott

Chairman

12 May 2016

Income statement (unaudited)

	For the year ended 31 March 2016			For the year ended 31 March 2015 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments	-	(6,647)	(6,647)	-	747,859	747,859
Currency losses	-	(7,212)	(7,212)	-	(32,287)	(32,287)
Income (note 2)	32,910	-	32,910	38,964	-	38,964
Investment management fee	(2,881)	(8,642)	(11,523)	(2,562)	(7,685)	(10,247)
Other administrative expenses	(3,176)	-	(3,176)	(3,315)	-	(3,315)
Net return before finance costs and taxation	26,853	(22,501)	4,352	33,087	707,887	740,974
Finance costs of borrowings	(4,568)	(13,704)	(18,272)	(4,452)	(13,357)	(17,809)
Net return on ordinary activities before taxation	22,285	(36,205)	(13,920)	28,635	694,530	723,165
Tax on ordinary activities	(857)	-	(857)	(1,095)	-	(1,095)
Net return on ordinary activities after taxation	21,428	(36,205)	(14,777)	27,540	694,530	722,070
Net return per ordinary share (note 4)	1.66p	(2.81p)	(1.15p)	2.24p	56.50p	58.74p

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

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

 

Balance sheet (unaudited)

	At 31 March 2016 £'000	At 31 March 2015 (audited) £'000
Fixed assets
Investments held at fair value through profit or loss	3,922,124	3,747,288
Current assets
Debtors	4,051	3,693
Cash and cash equivalents	43,973	76,543
	48,024	80,236
Creditors
Amounts falling due within one year	(303,486)	(118,234)
Net current liabilities	(255,462)	(37,998)
Total assets less current liabilities	3,666,662	3,709,290
Creditors
Amounts falling due after more than one year	(209,218)	(376,072)
	3,457,444	3,333,218
Capital and reserves
Called up share capital	71,086	71,086
Capital redemption reserve	19,094	19,094
Capital reserve	3,313,502	3,173,033
Revenue reserve	53,762	70,005
Shareholders' funds	3,457,444	3,333,218
Net asset value per ordinary share (after deducting borrowings at fair value) (note 7)	259.2p	262.4p
Net asset value per ordinary share (after deducting borrowings at par)	263.8p	268.0p
Ordinary shares in issue† (note 8)	1,312,524,485	1,245,674,485

 

Statement of Changes in Equity (unaudited)

For the year ended 31 March 2016

	Share capital £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2015	71,086	19,094	3,173,033	70,005	3,333,218
Net return on ordinary activities after taxation	-	-	(36,205)	21,428	(14,777)
Ordinary shares bought back (note 8)	-	-	(3,199)	-	(3,199)
Ordinary shares issued (note 8)	-	-	179,873	-	179,873
Dividends paid during the year (note 5)	-	-	-	(37,671)	(37,671)
Shareholders' funds at 31 March 2016	71,086	19,094	3,313,502	53,762	3,457,444

For the year ended 31 March 2015 (audited)

	Share capital £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2014	71,086	19,094	2,429,523	78,010	2,597,713
Net return on ordinary activities after taxation	-	-	694,530	27,540	722,070
Ordinary shares bought back (note 8)	-	-	(13,730)	-	(13,730)
Ordinary shares issued (note 8)	-	-	62,710	-	62,710
Dividends paid during the year (note 5)	-	-	-	(35,545)	(35,545)
Shareholders' funds at 31 March 2015	71,086	19,094	3,173,033	70,005	3,333,218

*      The Capital Reserve balance at 31 March 2016 includes investment holding gains of £1,533,836,000 (31 March 2015 - gains of £1,776,507,000).

 

Cash flow statement (unaudited)

	Year to 31 March 2016 £'000               £'000		Year to 31 March 2015 (audited) £'000               £'000
Cash flows from operating activities
Net return on ordinary activities before taxation	(13,920)		723,165
Net losses/(gains) on investments	6,647		(747,859)
Currency losses	7,212		32,287
Finance costs of borrowings	18,272		17,809
Overseas withholding tax refunded	935		1,377
Overseas withholding tax incurred	(1,792)		(2,469)
Changes in debtors and creditors	(216)		2,647
Cash from operations		17,138		26,957
Interest paid		(18,422)		(18,104)
Net cash (outflow)/inflow from operating activities		(1,284)		8,853
Cash flows from investing activities
Acquisitions of investments	(619,851)		(668,702)
Disposals of investments	445,699		650,501
Realised currency gain	3,848		2,496
Net cash outflow from investing activities		(170,304)		(15,705)
Equity dividends paid	(37,671)		(35,545)
Ordinary shares bought back	(3,184)		(29,337)
Ordinary shares sold from treasury	179,873		62,710
Bank loans repaid	(111,963)		(234,746)
Bank loans drawn down	111,963		298,608
Net cash inflow from financing activities		139,018		61,690
(Decrease)/increase in cash and cash equivalents		(32,570)		54,838
Cash and cash equivalents at start of period		76,543		21,705
Cash and cash equivalents at end of period*		43,973		76,543

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

 

Thirty largest holdings and twelve month performance (unaudited)

Name	Business	Fair Value at 31 March 2016 £'000	% of total assets	Absolute performance† %	Contribution to absolute performance# %	Fair value 31 March 2015 £'000
Amazon.com	Online retailer	330,117	8.3	64.4	5.7	305,142
Illumina	Biotechology equipment	291,722	7.4	(9.8)	(1.2)	299,082
Inditex	International clothing retailer	231,567	5.9	10.1	0.7	195,943
Baidu	Online search engine	228,621	5.8	(5.5)	(0.2)	254,498
Tencent Holdings	Internet services	190,964	4.8	11.1	0.7	257,783
Tesla Motors	Electric cars	185,552	4.7	26.4	0.5	67,764
Facebook	Social networking site	179,697	4.6	43.3	1.7	125,367
Alibaba Group	Online retailer	164,129	4.1	(1.9)	0.0	151,530
Alphabet (formerly Google)	Online search engine	155,518	3.9	40.8	1.4	110,504
Atlas Copco	Engineering	87,657	2.2	(15.7)	(0.4)	102,647
Kering	Luxury goods producer and retailer	86,183	2.2	(2.9)	0.0	91,043
BASF	Chemicals	78,624	2.0	(19.4)	(0.5)	100,452
Prudential	International insurance	76,256	1.9	(19.3)	(0.5)	98,001
Kinnevik	Investment company	68,867	1.7	(9.9)	(0.2)	78,408
Zalando	International clothing retailer	68,231	1.7	35.9	0.5	50,308
Intuitive Surgical	Surgical robots	67,644	1.7	22.9	0.4	55,041
Apple	Computer technology	58,850	1.5	(8.1)	(0.1)	56,263
Rolls-Royce Group	Aerospace equipment	56,982	1.4	(26.8)	(0.6)	48,957
Novozymes	Enzyme manufacturer	54,045	1.4	2.8	0.1	53,251
Fiat Chrysler Automobiles	Automobiles	54,015	1.4	(22.5)	(0.7)	149,890
Rocket Internet	Internet startup factory	44,793	1.1	(41.6)	(0.7)	60,655
ASML Holding	Lithography	42,067	1.1	3.9	0.1	40,744
Housing Development   Finance Corporation	Mortgage bank	42,009	1.1	(17.0)	(0.3)	51,219
Palantir Technologies Incu	Data integration software and   service provider	41,479	1.1	23.2	0.3	33,682
Reckitt Benckiser	Consumer goods company	40,319	1.0	18.6	0.2	34,742
ARM Holding	Semiconductor and software design   company	40,108	1.0	(7.6)	(0.1)	43,707
Netflix	Subscription service for TV shows   and movies	36,264	0.9	31.1*	0.1*	-
Ctrip.com	Travel agent	35,752	0.9	56.0	0.4	22,939
Thumbtack Incu	Online directory service for local   businesses	34,787	0.9	6.4*	0.1*	-
You & Mrs Jonesu	Digital advertising agency	34,787	0.9	6.1*	0.1*	-
		3,107,606	78.6

†      Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 April 2015 to 31 March 2016.

#      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 an 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.

Distribution of portfolio (unaudited)

		At 31 March 2016 %	At 31 March 2015 %
North America		46.4	38.7
South America		0.4	1.2
Europe		33.7	37.7
	United Kingdom	8.6	9.3
	Eurozone	18.6	20.6
	Developed Europe (non euro)	5.8	6.2
	Rest of Europe	0.7	1.6
Africa and Middle East		0.4	-
Asia		19.1	22.4
	China	16.9	19.6
	India	1.7	2.1
	Japan	0.2	0.3
	Rest of Asia	0.3	0.4
		100.0	100.0

Notes to the financial statements (unaudited)

1.	The Financial Statements for the year to 31 March 2016 have been prepared in accordance with The Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') which the Company must adopt for its financial year ending 31 March 2016. Following the application of the new reporting standard and the AIC's issued Statement of Recommended Practice, there has been no impact on the Company's Income Statement, Balance Sheet or Statement of Changes in Equity (previously called the Reconciliation of Movements in Shareholders' Funds) for the period previously reported. The Cash Flow Statement reflects the presentational requirements of FRS 102, which are different to FRS 1. In addition, the Cash Flow Statement reconciles to cash and cash equivalents whereas under previous UK GAAP the Cash Flow Statement reconciled to cash.
2.	Income			Year to 31 March 2016 £'000		Year to 31 March 2015 (audited) £'000
	Income from investments			32,673		38,660
	Other income			237		304
				32,910		38,964
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% of total assets less current liabilities (excluding short term borrowings for investment purposes), calculated quarterly.
4.	Net Return per Ordinary Share			Year to 31 March 2016 £'000		Year to 31 March 2015 (audited) £'000
	Revenue return on ordinary activities after taxation			21,428		27,540
	Capital return on ordinary activities after taxation			(36,205)		694,530
	Total net return			(14,777)		722,070
	Weighted average number of ordinary shares in issue			1,290,467,928		1,229,231,951
	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	2016	2015 (audited)		2016 £'000		2015 (audited) £'000
	Amounts recognised as distributions in the year:
	Previous year's final (paid 6 July 2015)	1.55p	1.52p		19,758		18,646
	Interim (paid 4 December 2015)	1.38p	1.38p		17,913		16,899
		2.93p	2.90p		37,671		35,545
	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 £21,428,000 (2015 - £27,540,000).

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

5.	Ordinary Dividends (Ctd)
			2016	2015† (audited)		2016 £'000		2015 (audited) £'000
	Dividends paid and payable in respect of the year:
	Interim dividend per ordinary share (paid 4 December 2015)		1.38p	1.38p		17,913		16,899
	Proposed final dividend per ordinary share (payable 4 July 2016)		1.58p	1.55p		20,738		19,308
			2.96p	2.93p		38,651		36,207
	If approved the final dividend will be paid on 4 July 2016 to all shareholders on the register at the close of business on 10 June 2016. The ex-dividend date is 9 June 2016. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 13 June 2016.
6.	The bank loans falling due within one year comprise: US$165million, US$50 million and US$200 million (2015 - US$165million). The bank loans falling due in more than one year comprise: US$85 million (2015 - US$50 million, US$200 million and US$85 million).
7.	The fair value of borrowings at 31 March 2016 was £553,646,000 (2015 - £552,353,000). Net asset value per share (after deducting borrowings at fair value) was 259.2p (2015 - 262.4p).
8.					2016 Number of shares		2015 (audited)  Number of shares†
	Share capital: Ordinary shares of 5p each
	Allotted, called up and fully paid				1,312,524,485		1,245,674,485
	Treasury shares				109,206,395		176,056,395
	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 2016 a total of 1,250,000 (2015 - 6,625,000) ordinary shares with a nominal value of £63,000 (2015 - £331,000) were bought back at a total cost of £3,199,000 (2015 - £13,730,000) and held in treasury.  At 31 March 2016 the Company had authority to buy back a further 187,762,580 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 2016, the Company sold 68,100,000 ordinary shares from treasury at a premium to net asset value raising net proceeds of £179,873,000 (31 March 2015 - 25,600,000 ordinary shares raising net proceeds of £62,710,000). At 31 March 2016 the Company had authority to issue or sell from treasury a further 151,588,672 ordinary shares.
9.	Transaction costs on purchases amounted to £275,000 (2015 - £393,000) and transaction costs on sales amounted to £325,000 (2015 - £473,000).

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

10.

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 March 2016. The financial information for 2015 is derived from the statutory accounts for 2015 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2015 accounts, the report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The statutory accounts for 2016 are unaudited, however it is expected that the Auditor will issue an unqualified opinion. The statutory accounts for 2016 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

11.

The Annual Report and Financial Statements will be available on the Managers' website www.scottishmortgageit.com‡ on or around 27 May 2016.

‡    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 £124 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 12 May 2016).

Investment Trusts are UK public limited companies and are not authorised or regulated by the Financial Conduct Authority.

12 May 2016

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, FourBroadgate Marketing

Tel: [phone] or 07831 401309

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