Interim Results
Scottish Mortgage Inv Tst PLC
27 October 2006
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
FUTURE CHANGE OF BENCHMARK AND INTERIM RESULTS
FOR THE SIX MONTHS TO 30 SEPTEMBER 2006
In 2007 Scottish Mortgage will move to a global benchmark, the FTSE All World
Index.
At the interim stage NAV per share was down 5.1% while the current benchmark
index(1) was down 2.4%. Over a longer three year period NAV has risen by 70%
compared to a 43% rise in the benchmark.
Change of Benchmark
The change of benchmark from a composite of 50% FTSE All-Share Index and 50%
FTSE World Ex. UK (in sterling terms) to the FTSE All World Index (in sterling
terms) will take place on 1 April 2007. The change is being made because:
• A genuinely global approach has been adopted over recent years and the UK
element is no longer core.
• The place where a company is listed does not reflect the source of its
profits (see note A).
• A broader based index, including a more significant weighting to emerging
markets, is a more appropriate index with which to compare performance (see
note B).
A long term view is adopted by Scottish Mortgage and performance is
assessed on a three to five year basis. The portfolio is actively managed
and is constructed on a stock by stock basis and not by reference to the
benchmark.
Interim Results
• Performance
Over a three year rolling period the share price is up by 79% and net asset
value per share (after deducting borrowings at fair value) is up by 70%,
the current benchmark index is up by 43%.
Over the six month period net asset value per share (after deducting
borrowings at fair value) fell by 5.1% while the current benchmark index
was down by 2.4%. The share price fell by 5.7%.
• Dividend and earnings
An interim dividend of 4.50p has been announced (3.85p in the corresponding
period). During the six months earnings rose by 9.1%.
• Comment
James Anderson,(2) the manager, commented:
'During this period separating out short term market noise from long term
trends has been challenging. Throughout the six months we have maintained a
positive attitude towards the portfolio and have taken the opportunity to
add to some of our holdings on market weakness. We remained geared into the
market and portfolio turnover continues to be low. I expect to maintain
this position as the indications are that conditions for business globally
will remain relatively benign.'
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
FUTURE CHANGE OF BENCHMARK AND INTERIM RESULTS
FOR THE SIX MONTHS TO 30 SEPTEMBER 2006 (Ctd)
Notes:
A. This table estimates the source of profits of Scottish Mortgage's equity
portfolio broken down by where companies are listed.
It shows that the place of listing does not mirror the source of profits:
Profit exposure (estimated source of profits) %
UK North Continental Asia Emerging
America Europe Pacific Markets
UK listed shares 39 23 16 15 7
European listed shares 5 28 42 16 9
Emerging Markets and Asia Pacific 1 10 5 16 68
listed shares
Japan listed shares 3 24 20 35 Japan 5
12 Asia
North America listed shares 4 71 11 7 6
Total Equities 17 34 15 15 20
Source: Baillie Gifford & Co 2006
B. This table shows the allocation of the existing and future benchmarks.
Composite 50% FTSE All-Share
Index and 50% FTSE World Ex. UK FTSE All World Index
UK 50.0 9.8
North America 28.1 49.0
Europe 11.2 19.5
Japan 5.5 9.6
Asia Pacific (ex Japan) 2.3 4.0
Emerging Markets 2.9 8.1
100.0 100.0
Past performance is no guarantee of 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. The Company has borrowed
money to make further investments. This is commonly referred to as gearing. The
risk is that, when this money is repaid by the Company, the value of these
investments may not be enough to cover the borrowing and interest costs, and the
Company makes a loss. If the Company's investments fall in value, gearing will
increase the amount of this loss. The more highly geared the Company, the
greater this effect will be. Investment in investment trusts should be regarded
as medium to long-term.
Your low cost alternative for global investment
Scottish Mortgage Investment Trust PLC is a low cost investment trust that aims
to maximise total returns from a focused and actively managed portfolio of
equities. It invests globally, looking for strong businesses with above-average
returns. The trust has total assets of £1.9 billion (before deduction of
debentures, long and short term borrowings of £278 million).
Scottish Mortgage is managed by Baillie Gifford & Co, an Edinburgh based fund
management group.
27 October 2006
- ends -
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
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
Over a three year rolling period the share price is up by 79% and net asset
value (NAV) per share (after deducting borrowings at fair value) is up by 70%,
the current benchmark is up by 43%.
Over the last six months the NAV per share fell by 5.1% from March's all time
high (584.1p) to 554.5p. This compares with a 2.4% decline in the benchmark (50%
FTSE All-Share and 50% FTSE World Ex. UK). It is unsurprising to have a modest
correction after a prolonged period of good absolute and relative performance.
The burst of exaggerated pessimism over global economic prospects that affected
markets and ourselves over the early summer seems to have been overcome in
recent weeks but our progress should be judged over the long-term.
Our revenues continue to be buoyant. Earnings per share rose by 9% to 5.16p and
we would expect a similar percentage increase in the remainder of the year. The
Board is proposing an interim dividend of 4.50p which is an increase of 16.9% on
last year. This is also the final step in the process of moving towards two
roughly equal dividend distributions each year. The final dividend is therefore
very likely to rise but by a lesser percentage than the interim increase.
We have made no major changes in asset allocation and as patient investors we
would not expect to do so in the remainder of the year. As a matter of
continuing strategy, the portfolio is relatively concentrated and managed on a
long-term basis with no direct reference to the benchmark. What changes we have
made have, as usual, been driven by the comparative attractions of individual
companies rather than by geographical or sectoral considerations. Interestingly
they have, however, translated into another increase in US exposure through net
purchases of £39m and another decrease in the UK (net sales of £34m). Although
our US purchases did not help us in the period under review we are finding more
individual stock opportunities in the US than has been the case for many years.
At the moment of writing our largest holding is no longer Petrobras or Gazprom
but eBay.
Whilst forecasting the immediate direction of markets is not our intention the
Managers are finding much to encourage investors for the years ahead. There is a
plentiful supply of competitively strong, well-managed businesses valued at
reasonable prices throughout most of the world. We believe that rapid growth in
emerging markets is a critical factor for the decades ahead that will influence
companies wherever they may be listed. The Board feels that the opportunities
and realities stemming from this intense process of globalisation makes it
sensible to abandon a benchmark that includes a 50% weighting to the UK. From
next year comparisons will be made to the widest global index in the form of the
FTSE All World ( in sterling terms). As before the Board will encourage the
Managers to regard this as a guideline rather than a controlling influence. As
this change is in line with the previous evolution of policy we do not expect it
to prompt a sharp change in asset allocation.
By order of the Board
Baillie Gifford & Co
26 October 2006
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
Interim Report
The following is the interim statement for the six months ended 30 September
2006 which has been neither reviewed nor audited by the auditors. This
statement is being printed and will be sent to all shareholders on 6 November
2006. 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
INCOME STATEMENT
(unaudited *)
for the six months ended for the six months ended for the year ended
30 September 2006 30 September 2005 31 March 2006
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised gains on - 111,645 111,645 - 39,819 39,819 - 161,363 161,363
investments
Unrealised (losses)/gains - (201,829) (201,829) - 249,921 249,921 - 392,711 392,711
on investments
Currency gains/(losses) - 2,963 2,963 - (2,482) (2,482) - (4,098) (4,098)
Income (note 2) 23,828 - 23,828 22,398 - 22,398 41,456 - 41,456
Investment management fee (1,648) (1,648) (3,296) (1,447) (1,447) (2,894) (3,062) (3,062) (6,124)
Other administrative (756) - (756) (801) - (801) (1,714) - (1,714)
expenses
Net return before finance 21,424 (88,869) (67,445) 20,150 285,811 305,961 36,680 546,914 583,594
costs and taxation
Finance costs of (4,220) (4,220) (8,440) (3,814) (3,814) (7,628) (7,722) (7,722) (15,444)
borrowings
Return on ordinary 17,204 (93,089) (75,885) 16,336 281,997 298,333 28,958 539,192 568,150
activities before
taxation
Tax on ordinary (2,499) 1,674 (825) (2,400) 1,715 (685) (3,220) 2,057 (1,163)
activities
Return on ordinary 14,705 (91,415) (76,710) 13,936 283,712 297,648 25,738 541,249 566,987
activities after taxation
Return per ordinary share 5.16p (32.11p) (26.95p) 4.73p 96.41p 101.14p 8.82p 185.58p 194.40p
(note 3)
Note:
Dividends paid and 4.50p 3.85p 8.50p
proposed per ordinary
share (note 4)
* 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.
A Statement of total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the above statement.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
SUMMARISED BALANCE SHEET
at 30 September 2006
(unaudited)
at 30 September at 30 September at 31 March
2006 2005 2006
£'000 £'000 £'000
FIXED ASSETS
Investments held at fair value 1,895,752 1,724,387 1,956,580
CURRENT ASSETS
Debtors 10,131 6,691 9,922
Cash and short term deposits 26,165 7,872 22,650
36,296 14,563 32,572
CREDITORS
Amounts falling due within one year ++ (12,243) (6,574) (3,990)
NET LIQUID ASSETS ++ 24,053 7,989 28,582
TOTAL ASSETS (before deduction of loans and debentures) 1,919,805 1,732,376 1,985,162
Loans and debentures (note 5) (277,766) (215,436) (231,809)
1,642,039 1,516,940 1,753,353
CAPITAL AND RESERVES
Called-up share capital 70,959 73,319 72,019
Capital redemption reserve 19,221 16,861 18,161
Capital reserves - realised 976,752 801,159 892,063
Capital reserves - unrealised 504,829 557,490 702,315
Revenue reserve 70,278 68,111 68,795
EQUITY SHAREHOLDERS' FUNDS 1,642,039 1,516,940 1,753,353
NET ASSET VALUE PER ORDINARY SHARE
(after deducting borrowings at fair value) 554.5p 492.8p 584.1p
NET ASSET VALUE PER ORDINARY SHARE
(after deducting borrowings at par) 580.7p 519.4p 610.9p
ORDINARY SHARES IN ISSUE (note 6) 283,836,176 293,275,115 288,075,115
++ Excluding short term borrowings.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited)
For the six months ended 30 September 2006
Capital Capital Capital Total
redemption reserve - reserve - shareholders'
Share reserve realised unrealised Revenue funds
capital reserve
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at
1 April 2006 72,019 18,161 892,063 702,315 68,795 1,753,353
Return on ordinary
activities after taxation - - 106,071 (197,486) 14,705 (76,710)
Shares bought back + (1,060) 1,060 (21,382) - - (21,382)
Dividends paid during the
period# - - - - (13,222) (13,222)
Shareholders' funds at
30 September 2006 70,959 19,221 976,752 504,829 70,278 1,642,039
For the six months ended 30 September 2005
Capital Capital Capital Revenue Total
redemption reserve - reserve - reserve shareholders'
Share reserve realised unrealised funds
capital
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at
1 April 2005 73,901 16,279 773,424 309,966 69,051 1,242,621
Return on ordinary
activities after taxation - - 36,188 247,524 13,936 297,648
Shares bought back (582) 582 (8,453) - - (8,453)
Dividends paid during the
period# - - - - (14,876) (14,876)
Shareholders' funds at
30 September 2005 73,319 16,861 801,159 557,490 68,111 1,516,940
For the year ended 31 March 2006
Capital Capital Capital Total
redemption reserve - reserve - shareholders'
Share reserve realised unrealised Revenue funds
capital reserve
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at
1 April 2005 73,901 16,279 773,424 309,966 69,051 1,242,621
Return on ordinary
activities after taxation - - 148,900 392,349 25,738 566,987
Shares bought back (1,882) 1,882 (30,261) - - (30,261)
Dividends paid during the
year# - - - - (25,994) (25,994)
Shareholders' funds at
31 March 2006 72,019 18,161 892,063 702,315 68,795 1,753,353
+ See note 6.
# See note 4.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Six months to Six months to Year to
30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
Net cash inflow from operating activities 21,978 20,342 32,386
Net cash outflow from servicing of finance (7,942) (7,665) (15,654)
Total tax paid (789) (632) (1,150)
Net cash (outflow)/inflow from financial (25,221) 8,264 37,325
investment
Equity dividends paid (13,222) (14,876) (25,994)
NET CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID
RESOURCES AND FINANCING (25,196) 5,433 26,913
Net cash inflow to liquid resources - - 359
Shares bought back (21,382) (8,453) (30,261)
Net cash inflow from bank loans (note 5) 50,093 - 14,747
INCREASE/(DECREASE) IN CASH 3,515 (3,020) 11,758
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
DEBT
Increase/(decrease) in cash in the period 3,515 (3,020) 11,758
(Decrease) in short term investments - - (359)
Exchange movement on short term investments - - 359
(Increase) in bank loans (50,093) - (14,747)
Exchange movement on bank loans 4,086 (2,396) (4,064)
Other non-cash changes 50 43 85
MOVEMENT IN NET DEBT IN THE PERIOD (42,442) (5,373) (6,968)
NET DEBT AT START OF THE PERIOD (209,159) (202,191) (202,191)
NET DEBT AT END OF THE PERIOD (251,601) (207,564) (209,159)
RECONCILIATION OF NET REVENUE BEFORE FINANCE COSTS
AND TAXATION TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
Net revenue on ordinary activities before finance (67,445) 305,961 583,594
costs and taxation
Net losses/(gains) on investments 90,184 (289,740) (554,074)
Currency (gains)/losses (2,963) 2,482 4,098
Amortisation of fixed income book cost (4) - 48
Changes in debtors and creditors 2,206 1,639 (1,280)
NET CASH INFLOW FROM OPERATING ACTIVITIES 21,978 20,342 32,386
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
THIRTY LARGEST EQUITY HOLDINGS AND EQUITY PERFORMANCE
at 30 September 2006
% of total Performance+
Fair value assets
Name Business £'000 Absolute Relative %
%
Petrobras Oil producer 61,164 3.2 (11.9) (11.1)
Gazprom Gas producer 61,098 3.2 10.6 11.6
Samsung Electronics Electronics manufacturer 52,391 2.7 0.5 1.5
Royal Bank of Scotland Banking 51,492 2.7 (0.5) 0.5
British American Tobacco Tobacco 45,815 2.4 4.7 5.7
Barclays Banking 45,735 2.4 1.7 2.7
eBay Internet trading company 44,501 2.3 (32.8) (32.2)
Atlas Copco Engineering 43,976 2.3 (11.7) (10.8)
SAP Business software 41,129 2.1 (14.5) (13.6)
Omnicom Advertising agency 40,064 2.1 4.9 5.9
GlaxoSmithKline Pharmaceuticals 38,394 2.0 (4.1) (3.2)
Canon Copiers and cameras 37,289 1.9 10.7 11.8
Reed Elsevier Publisher 33,887 1.8 11.0 12.1
CVRD Iron ore mining 33,207 1.7 (18.2) (17.4)
Man Group Hedge fund manager 32,256 1.7 10.4 11.5
Sandvik Engineering 31,921 1.7 (8.1) (7.2)
Tesco General retail 31,500 1.6 11.7* 6.1*
EOG Resources Oil and gas producer 30,779 1.6 (16.0) (15.2)
Diageo Branded spirits 30,648 1.6 6.2 7.2
Yell Group Directories 30,371 1.6 11.4 12.5
Northern Rock Mortgage banking 30,368 1.6 1.5 2.5
Rio Tinto Diversified mining 30,300 1.6 (12.8) (12.0)
Wolseley Builders' merchant 27,587 1.4 (20.4) (19.6)
HSBC Banking 27,272 1.4 0.2* (0.3)*
The Hershey Company Confectionery 27,009 1.4 (4.2) (3.3)
Teva Pharmaceuticals Generic drugs manufacturer 26,331 1.4 (23.0) (22.2)
Standard Chartered Banking 25,266 1.3 (3.7) (2.8)
Porsche Automobiles 25,191 1.3 0.5 1.5
Wellpoint Managed care 24,739 1.3 (7.4) (6.5)
Moody's Bond rating agency 23,236 1.2 (14.9) (14.0)
1,084,916 56.5
+ Absolute and relative performance has been calculated over the period 1 April
2006 to 30 September 2006.
Absolute performance is in sterling terms; relate performance is against the
benchmark: 50% FTSE All-Share Index and 50% FTSE
World Ex. UK Index (in sterling terms).
*Figures relate to part-period returns.
Source: Baillie Gifford & Co/StatPro.
Past performance is no guarantee of future performance.
DISTRIBUTION OF ASSETS
at 30 September 2006
30 September 30 September 31 March
2006 2005 2006
% % %
Equities: United Kingdom 34.4 36.4 35.0
Continental Europe 11.2 8.9 10.5
North America 24.5 23.6 24.5
Japan 3.8 5.0 3.9
Asia Pacific 8.5 10.1 8.8
Emerging Markets 11.6 11.2 12.6
Total equities 94.0 95.2 95.3
Sterling denominated bonds 1.5 3.0 1.7
Euro denominated bonds 1.2 1.0 1.0
US$ denominated bonds 0.5 0.3 0.6
Brazilian cruzeiro denominated bonds 1.6 - -
Net liquid assets 1.2 0.5 1.4
Total assets (before deduction of loans and 100.0 100.0 100.0
debentures)
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
NOTES
1. The financial statements for the six months to 30 September 2006 have been prepared on the basis of
the accounting policies set out in the Company's Annual Financial Statements at 31 March 2006.
The Interim Report was approved by the Board on 26 October 2006.
None of the views expressed in this document should be construed as advice to buy or sell a particular
investment.
Six months to Six months to 30 Year to
30 September September 31 March
2006 2005 2006
£'000 £'000 £'000
2. Income
Income from investments and interest receivable 23,803 22,363 41,391
Other income 25 35 65
3. Return per ordinary share
Revenue return 14,705 13,936 25,738
Capital return (91,415) 283,712 541,249
The return per ordinary share figures are based on the above totals of revenue and capital and on
284,699,668 (30 September 2005 - 294,280,853 and 31 March 2006 - 291,656,348) ordinary shares, being
the weighted average number of ordinary shares in issue during each period.
Six months to Six months to Year to
30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
4. Dividends
Amounts recognised as distributions in the
period:
Final dividend for the year ended 31 March
2006 or 4.65p (2005 - 5.05p), paid 5 July
2006 13,222 14,876 14,876
Interim dividend for the year ended 31 March
2006 of 3.85p, paid 25 November 2005 - - 11,118
13,222 14,876 25,994
Dividends paid and proposed in the period:
Interim dividend for the year ending 31 March
2007 of 4.50p (2006 - 3.85p) 12,773 11,118 11,118
Final dividend for the year ended 31 March - - 13,395
2006
Adjustment to provision for previous year's
final dividend re shares bought back (173) (52) (52)
12,600 11,066 24,461
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 24 November 2006 to shareholders on the register at
the close of business on 10 November 2006. The ex dividend date is 8 November 2006.
SCOTTISH MORTGAGE INVESTMENT TRUST PLC
NOTES (Ctd)
5. Loans and debentures include Y5,900 million drawn down under an existing three year multi-currency loan
facility which now expires within one year, €73 million drawn down under a short term facility and €73
million drawn down under a new three year facility. (30 September 2005 - Y5,900 million and US$60 million
and 31 March 2006 - Y5,900 million and €73 million, drawn down under the three year and the short term
facilities, respectively).
Net asset value per share (after deducting borrowings at fair value) was 554.5p (30 September 2005 - 492.8p
and 31 March 2006 - 584.1p). The fair value of borrowings at 30 September 2006 was £345,949,000 (30
September 2005 - £286,990,000 and 31 March 2006 - £302,484,000).
6. 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 28 June 2006 in respect of 42,623,491 ordinary shares (equivalent to
14.99% of its issued share capital at that date). The Company's authority now permits it to hold shares
bought back 'in treasury'. Such treasury shares may subsequently be either sold for cash (at, or at a
premium to net asset value per ordinary share) or cancelled. At 30 September 2006 the Company held 510,000
shares in treasury. In the six months to 30 September 2006 a total of 4,238,939 ordinary shares with a
nominal value of £1,060,000 were bought back at a total cost of £21,382,000. At 30 September 2006 the
Company had authority to buy back a further 42,113,491 ordinary shares.
7. Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost or
deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases amounted
to £635,000 (30 September 2005 - £430,000; 31 March 2006 - £911,000) and transaction costs on sales amounted
to £207,000 (30 September 2005 - £168,000; 31 March 2006 - £522,000).
8 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
2006 has been extracted from the statutory accounts which 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 1985.
--------------------------
(1) 50% FTSE All-Share Index and 50% FTSE World Ex. UK (in sterling terms)
(2) 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.
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