Half Yearly Report

RNS Number : 7337V

Scottish Mortgage Inv Tst PLC

05 November 2010

 



SCOTTISH MORTGAGE INVESTMENT TRUST PLC

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

 

Half-Yearly Results to 30 September 2010

Over the six months to the end of September 2010, Scottish Mortgage's share price increased by 5% while the net asset value per share¹ rose by 3%.  In contrast, the FTSE All World Index (the benchmark²) fell by 4%. 

§ Over 5 years, the share price total return¹ (capital and dividends) has been 66% and the net asset value total return, 60%. The equivalent figure for the benchmark index was 36%. 

§ Earnings per share were 8.6p (7.1p) and the interim dividend per share of 5.8p is 5.4% higher than last year's interim payment.

§ Positive results from individual companies along with healthy developments such as the acceleration of German growth and the remarkable sustained advance in developing economies were encouraging indicators in the period.

§ Technological advances at an increasing rate are creating new investment opportunities across widespread areas including retailing, surgery, medicine, service delivery and energy. 

§ These factors, along with the growth of countries that are often now well beyond the point of emerging in economic terms, are likely to support growth and represent sources of long term investment opportunity.

The portfolio purposefully does not resemble, or try to match, the index at all so there will be inevitable periods of relative underperformance as well as outperformance. The investments are identified according to a set of long term criteria (5 years or more), so longer term performance is a better indicator of progress than short term (six monthly) reports. 

¹ With borrowings priced at fair value.

² Expressed in sterling terms.

5 November 2010

You can find up to date performance information about Scottish Mortgage on the Baillie Gifford website at www.scottishmortgageit.com.

For further information please contact:

James Budden, Baillie Gifford & Co	0131 275 2816 or 07507 201208
Roland Cross, Broadgate Mainland	0207 776 0512 or 07831 401309

Based in Edinburgh, Scotland, Baillie Gifford is one of the UK's leading investment management firms. Baillie Gifford has around £66 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 30 September 2010).

Baillie Gifford has been managing investment trusts since 1909 and is the manager of eight investment trusts with approximately £4.3bn of funds under management in these trusts (as at 30 September 2010).

Further information about the investment trusts managed by Baillie Gifford can be found by visiting their website www.bailliegifford.com/investmenttrusts.

Past performance is not a guide to future performance.  The value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.

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

The following is the unaudited Half-Yearly Financial Report

for the six months to 30 September 2010

 

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

Half-Yearly Financial Report 30 September 2010

Responsibility Statement

 

We confirm that to the best of our knowledge:

a)   the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';

b)   the Half-Yearly Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the financial statements, and a description of the principal risks and uncertainties (note 11) for the remaining six months of the year); and

c)   the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein - see note 3).

By order of the Board

John Scott

Chairman

5 November 2010

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

HALF-YEARLY MANAGEMENT REPORT

Results, markets and the portfolio

A snapshot marking the positions at the beginning and end of the six months under review shows that the share price increased by 5.1% and net asset value per share (at fair value) rose by 3.2%.  Over the same period the benchmark index, the FTSE All World Index (expressed in sterling terms), declined by 4.3%.

Two considerations bear repetition. The portfolio purposefully does not resemble, or try to match, the index at all so there will be inevitable periods of relative underperformance as well as outperformance, as has been the case over this six month reporting period.  Secondly, the investments are identified according to a set of long term criteria (5 years or more), so longer term performance is a better indicator of progress than short term (six monthly) reports. 

Over 5 years, the share price total return (capital and dividends) has been 66% and the net asset value (at fair value) total return, 60% while the equivalent figure for the benchmark index was 36%. 

Equity markets were volatile during the period.  Globally they expressed huge angst about the Greek and Irish debt crises.  These events must be seen in perspective and that they do not necessarily present major stumbling blocks to longer term global progress.  The evidence of individual company reports, along with healthy developments in the period such as the acceleration in German growth and the sustained and remarkable advance in growing economies (such as China but now including many other countries too), provide cause for optimism. The level of gearing had been broadly maintained in rising markets.

Earnings and Dividend

Earnings per share were 8.6p compared to 7.1p in the corresponding period last year (flattered by a change in tax and, to some extent, the timing of income receipts; this increase should not be construed as a guide to the pattern of earnings for the year as a whole).  The Board proposes an increased interim dividend of 5.8p per share, a 5.4% increase on last year's interim payment of 5.5p.  The Board is committed to increasing the total dividend at a rate higher than inflation, as has been achieved continuously over the past 28 years.  On an annualised basis, the Retail Price Index rose by 4.6% in the period while the Government's new target measure, CPI (Consumer Price Indices), rose by 3.1%.

Outlook

Predicting where markets will be in six months time is a futile and distracting exercise given our strategy. That said, continuing volatility appears likely as the nature and pace of change within and between growing and mature economies is considerable.  Volatility represents a source of opportunity and is not a good proxy for risk as is so often claimed. It is significant that the number of attractive long term equity investment opportunities remains plentiful. The advances that new technologies bring, whether it be in the handling of information, the promotion of research or the unveiling of new applications, are creating new investment opportunities across widespread areas including retailing, surgery, medicine, service delivery and energy.  These factors, along with the growth of countries that are often now well beyond the point of emerging in economic terms, are likely to support growth and represent sources of long term investment opportunity.

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

 

INCOME STATEMENT

(unaudited)

	For the six months ended 30 September 2010				For the six months ended 30 September 2009			For the year ended 31 March 2010
	Revenue £'000	Capital £'000		Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on sales of investments	-	44,367		44,367	-	16,349	16,349	-	44,394	44,394
Changes in investment  holding gains/(losses)	-	22,609		22,609	-	491,814	491,814	-	793,210	793,210
Currency (losses)/gains	-	(3,625)		(3,625)	-	7,295	7,295	-	1,593	1,593
Income from investments and interest  receivable	32,124	-		32,124	30,034	-	30,034	48,581	-	48,581
Other income	17	-		17	575	-	575	593	-	593
Investment management fee (note 3)	(1,680)	(1,680)		(3,360)	(1,376)	(1,376)	(2,752)	(3,027)	(3,027)	(6,054)
Other administrative expenses	(1,085)	-		(1,085)	(1,094)	-	(1,094)	(2,289)	-	(2,289)
Net return before finance costs and  taxation	29,376	61,671		91,047	28,139	514,082	542,221	43,858	836,170	880,028
Finance costs of borrowings	(4,335)	(4,335)		(8,670)	(4,192)	(4,192)	(8,384)	(8,414)	(8,414)	(16,828)
Net return on ordinary activities before taxation	25,041	57,336		82,377	23,947	509,890	533,837	35,444	827,756	863,200
Tax on ordinary activities	(2,715)	-		(2,715)	(4,647)	2,366	(2,281)	(5,244)	1,143	(4,101)
Net return on ordinary activities after taxation	22,326	57,336		79,662	19,300	512,256	531,556	30,200	828,899	859,099
Net return per ordinary share (note 4)	8.64p		22.20p	30.84p	7.10p	188.46p	195.56p	11.18p	306.88p	318.06p
Dividends paid and proposed per ordinary share (note 5)	5.80p				5.50p			11.30p

 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. No operations were acquired or discontinued during the year.

 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

BALANCE SHEET

 (unaudited)

	At  30 September 2010	At 30 September 2009	At 31 March 2010
	£'000	£'000	£'000
FIXED ASSETS
Investments held at fair value through profit or loss	2,241,818	1,898,035	2,130,489
CURRENT ASSETS
Debtors	6,086	7,761	9,824
Cash and short term deposits	24,159	2,749	18,898
	30,245	10,510	28,722
CREDITORS
Amounts falling due within one year
Bank loans (note 6)	(165,622)	(157,711)	(163,125)
Other creditors	(6,490)	(4,455)	(4,626)
	(172,112)	(162,166)	(167,751)
NET CURRENT LIABILITIES	(141,867)	(151,656)	(139,029)
TOTAL ASSETS LESS CURRENT LIABILITIES	2,099,951	1,746,379	1,991,460
CREDITORS
Amounts falling due after more than one year
Bank loans (note 6)	(52,846)	-	-
Debenture stocks	(151,465)	(151,628)	(151,552)
	(204,311)	(151,628)	(151,552)
	1,895,640	1,594,751	1,839,908
CAPITAL AND RESERVES
Called-up share capital	71,086	71,086	71,086
Capital redemption reserve	19,094	19,094	19,094
Capital reserve	1,726,291	1,428,771	1,677,917
Revenue reserve	79,169	75,800	71,811
SHAREHOLDERS' FUNDS	1,895,640	1,594,751	1,839,908

NET ASSET VALUE PER ORDINARY SHARE (after deducting borrowings at fair value) (note 7)	714.7p	567.8p	692.8p
NET ASSET VALUE PER ORDINARY SHARE (after deducting borrowings at par)	736.8p	589.4p	711.2p
ORDINARY SHARES IN ISSUE (note 8)	258,069,897	271,564,897	259,519,897

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

For the six months ended 30 September 2010

	Share capital £'000	Capital redemption reserve £'000	Capital reserve† £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2010	71,086	19,094	1,677,917	71,811	1,839,908
Net return on ordinary activities after taxation	-	-	57,336	22,326	79,662
Shares bought back (note 8)	-	-	(8,962)	-	(8,962)
Dividends paid during the period (note 5)	-	-	-	(14,968)	(14,968)
Shareholders' funds at 30 September 2010	71,086	19,094	1,726,291	79,169	1,895,640

For the six months ended 30 September 2009

	Share capital £'000	Capital redemption reserve £'000	Capital reserve† £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2009	71,086	19,094	918,702	71,455	1,080,337
Net return on ordinary activities after taxation	-	-	512,256	19,300	531,556
Shares bought back	-	-	(2,187)	-	(2,187)
Dividends paid during the period (note 5)	-	-	-	(14,955)	(14,955)
Shareholders' funds at 30 September 2009	71,086	19,094	1,428,771	75,800	1,594,751

For the year ended 31 March 2010

	Share capital £'000	Capital redemption reserve £'000	Capital reserve† £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2009	71,086	19,094	918,702	71,455	1,080,337
Net return on ordinary activities after taxation	-	-	828,899	30,200	859,099
Shares bought back	-	-	(69,684)	-	(69,684)
Dividends paid during the year (note 5)	-	-	-	(29,844)	(29,844)
Shareholders' funds at 31 March 2010	71,086	19,094	1,677,917	71,811	1,839,908

†       The Capital Reserve balance at 30 September 2010 includes a gain of £645,239,000 relating to the revaluation of investments

         (30 September 2009 - gain of £321,234,000 and 31 March 2010 - gain of £622,630,000).

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

CONDENSED CASH FLOW STATEMENT (unaudited)
	Six months to 30 September 2010 £'000	Six months to 30 September 2009 £'000	Year to 31 March 2010 £'000
Net cash inflow from operating activities	29,936	28,588	40,740
Net cash outflow from servicing of finance	(9,340)	(10,505)	(18,968)
Total tax suffered	(2,634)	(2,349)	(4,093)
Net cash (outflow)/inflow from financial investment	(38,494)	(31,615)	64,975
Equity dividends paid (note 5)	(14,968)	(14,955)	(29,844)
NET CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING	(35,500)	(30,836)	52,810
Shares bought back (note 8)	(8,962)	(2,187)	(69,684)
Net cash inflow/(outflow) from bank loans (note 6)	49,723	(2)	(2)
INCREASE/(DECREASE) IN CASH	5,261	(33,025)	(16,876)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Increase/(decrease) in cash in the period	5,261	(33,025)	(16,876)
(Increase)/decrease in bank loans (note 6)	(49,723)	2	2
Exchange movement on bank loans	(5,620)	8,515	3,101
Other non-cash changes	87	77	153
MOVEMENT IN NET DEBT IN THE PERIOD	(49,995)	(24,431)	(13,620)
NET DEBT AT START OF THE PERIOD	(295,779)	(282,159)	(282,159)
NET DEBT AT END OF THE PERIOD	(345,774)	(306,590)	(295,779)
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Net return on ordinary activities before finance costs and taxation	91,047	542,221	880,028
Net gains on investments - securities	(66,976)	(508,163)	(837,604)
Currency losses/(gains)	3,625	(7,295)	(1,593)
Amortisation of fixed income book cost	(43)	(34)	(79)
Changes in debtors and creditors	2,283	1,859	(12)
NET CASH INFLOW FROM OPERATING ACTIVITIES	29,936	28,588	40,740

 

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

THIRTY LARGEST EQUITY HOLDINGS AND EQUITY PERFORMANCE (unaudited)

Name	Business	Fair value at 30 Sept 2010 £'000	% of total assets	Contribution to absolute performance %†
Amazon.com	Online retailer	143,307	6.3	0.9
Baidu.com	Online search engine	130,607	5.8	2.9
Banco Santander	Banking	92,700	4.1	0.0
Petrobras	Oil producer	91,468	4.0	(1.1)
Atlas Copco	Engineering	84,282	3.7	0.9
PPR	Luxury goods producer and retailer	72,322	3.2	0.7
Tencent Holdings	Internet service portal	62,004	2.7	0.2
Vale (CVRD)	Iron ore and nickel mining	55,989	2.5	(0.1)
Deere	Farm machinery	53,174	2.3	0.4
Nintendo	Games consoles and software	46,825	2.1	(1.2)
Taiwan Semiconductor   Manufacturing	Semiconductor manufacturer	41,286	1.8	(0.1)
Garanti Bankasi	Banking	41,138	1.8	0.4
Google	Online search engine	40,741	1.8	(0.3)
Telekomunikacja Polska	Fixed and mobile telecoms	39,859	1.8	0.5
New Oriental Education &   Technology	Education and training	37,417	1.6	0.2
Berkshire Hathaway	Insurance	36,701	1.6	0.0
First Solar	Solar energy technology	35,449	1.6	0.3
Progressive Insurance	Property and casualty insurance	33,740	1.5	0.1
Intuitive Surgical	Medical equipment	33,095	1.5	(0.4)
Apple	Computer technology	29,996	1.3	0.2
Meggitt	Aerospace equipment and systems	29,766	1.3	(0.1)
Brown-Forman	Wine and spirits producer	29,314	1.3	0.0
Standard Chartered	Banking	29,030	1.3	0.1
ABB	Electronic and electrical equipment	28,702	1.3	(0.1)
Walgreen	Pharmacy chain	27,620	1.2	(0.3)
Schlumberger	Oil services	27,364	1.2	(0.1)
Novozymes	Enzyme manufacturer	27,107	1.2	0.2
Singapore Exchange	Securities exchange owner/operator	26,799	1.2	0.2
Intertek Group	Business support providers	26,780	1.2	0.4
Australia and New Zealand   Banking Group	Banking	26,470	1.2	(0.1)
		1,481,052	65.4

†      Contribution to absolute performance has been calculated on a total return basis over the period 1 April 2010 to 30 September 2010.

Source: Baillie Gifford & Co/StatPro.

Past performance is not a guide to future performance.

SCOTTISH MORTGAGE INVESTMENT TRUST PLC 

 

DISTRIBUTION OF ASSETS

(unaudited)

		At 30 September 2010 %	At 30 September 2009 %	At 31 March 2010 %
North America		28.0	26.1	28.2
South America		12.4	14.7	13.5
Europe		36.4	41.2	37.4
	United Kingdom	11.9	12.1	12.7
	Eurozone	12.1	14.4	10.6
	Developed Europe (non Euro)	6.4	10.2	7.9
	Rest of Europe	6.0	4.5	6.2
Africa and Middle East		0.5	1.2	0.5
Asia		21.5	16.8	19.1
	China	12.8	6.1	8.9
	India	1.4	1.5	1.5
	Japan	2.3	4.0	4.0
	Rest of Asia	5.0	5.2	4.7
Australasia		1.2	-	1.3
Total assets (before deduction of loans and debentures)		100.0	100.0	100.0

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

Notes to the condensed financial statements (unaudited)

1.	The condensed financial statements for the six months to 30 September 2010 comprise the statements set out in the previous pages together with the related notes below. They have been prepared on the basis of the same accounting policies as set out in the Company's Annual Financial Statements at 31 March 2010 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly; accordingly, the Half-Yearly Financial Report has been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 and 436 of the Companies Act 2006.  The financial information for the year ended 31 March 2010 has been extracted from the statutory accounts which have been filed with the Registrar of Companies.  The Auditors' Report on those accounts was not qualified and did not contain statements under the sections 498 (2) or (3) of the Companies Act 2006.
3.	Baillie Gifford & Co are employed by the Company as investment managers and secretaries under a management agreement which can be terminated on not less than six months' notice, or on shorter notice in certain circumstances. The fee in respect of each quarter is 0.08% of total assets less current liabilities (excluding short term borrowings for investment purposes).
		Six months to  30 September 2010 £'000	Six months to 30 September  2009 £'000		Year to 31 March 2010 £'000
4.	Net return per ordinary share
	Revenue return	22,326	19,300		30,200
	Capital return	57,336	512,256		828,899
	Total return	79,662	531,556		859,099
	Weighted average number of ordinary shares in issue	258,254,050	271,817,766		270,102,144
	Net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.
		Six months to  30 September 2010 £'000		Six months to 30 September  2009 £'000		Year to 31 March 2010 £'000
5.	Dividends
	Amounts recognised as distributions in the period:
	Previous year's final dividend of 5.80p (2009 - 5.50p), paid 1 July 2010	14,968		14,955		14,955
	Interim dividend for the year ended 31 March 2010 of 5.50p, paid 27 November 2009	-		-		14,889
		14,968		14,955		29,844

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

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

			Six months to  30 September 2010 £'000		Six months to 30 September  2009 £'000		Year to 31 March 2010 £'000
5.	Dividends (Ctd)
	Dividends paid and proposed in the period:
	Interim dividend for the year ending 31 March 2011 of 5.80p (2010 - 5.50p)		14,968		14,889		14,889
	Final dividend for the year ended 31 March 2010		-		-		15,052
	Adjustment to provision for previous year's final dividend re shares bought back		-		(10)		(10)
			14,968		14,879		29,931
	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 3 December 2010 to shareholders on the register at the close of business on 19 November 2010.  The ex dividend date is 17 November 2010. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 22 November 2010.
6.	The bank loans falling due within one year comprise US$99 million, ¥6,712.5 million and Euro 59.8 million (30 September 2009 - US$99 million, ¥8,500 million and CHF60.5 million; 31 March 2009 - US$99 million, ¥8,500 million and CHF 60.5 million). The bank loans falling due in more than one year comprise Euro 61 million (30 September 2009 - nil; 31 March 2010 - nil). During the period bank loans of ¥8,500 million and CHF60.5 million were repaid and loans of ¥6,712.5 million, Euro 59.8 million and Euro 61 million were drawn down.
7.	The fair value of the borrowings at 30 September 2010 was £421,076,000 (30 September 2009 - £362,075,000; 31 March 2010 - £356,653,000).
		At 30 September 2010 Number of shares		At 30 September  2009 Number of shares		At 31 March 2010 Number of shares
8.	Share capital: Ordinary shares of 25p each
	Allotted, called-up and fully paid	258,069,897		271,564,897		259,519,897
	Treasury shares	26,276,279		12,781,279		24,826,279
		284,346,176		284,346,176		284,346,176
	In the six months to 30 September 2010 a total of 1,450,000 ordinary shares with a nominal value of £362,500 were bought back at a total cost of £8,962,000 and held in treasury. At 30 September 2010 the Company had authority to buy back a further 38,684,677 ordinary shares.
9.	Transaction costs on purchases amounted to £232,000 (30 September 2009 - £225,000; 31 March 2010 - £829,000) and transaction costs on sales amounted to £180,000 (30 September 2009 - £190,000; 31 March 2010 - £576,000).

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

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

10.	Shareholders will be notified on or around 16 November 2010 that the Half-Yearly Financial Report has been published and will be available on the Scottish Mortgage page of the Managers' website www.scottishmortgageit.com.
11.	Principal Risks and Uncertainties The principal risks facing the Company relate to the Company's investment activities. These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 23 of the Company's Annual Report and Financial Statements for the year to 31 March 2010. The principal risks and uncertainties have not changed since the publication of the Annual Report which can be obtained free of charge from Baillie Gifford & Co and is available on the Scottish Mortgage page of the Managers' website: www.scottishmortgageit.com. Other risks facing the Company include the following: gearing risk (the use of borrowings can magnify the impact of falling markets); regulatory risk (that the loss of investment trust status or a breach of applicable legal and regulatory requirements, could have adverse financial consequences and cause reputational damage); operational/financial risk (failure of service providers' accounting systems could lead to inaccurate reporting or financial loss); and the risk that the discount can widen, further information can be found on page 21 of the Annual Report and Financial Statements.
None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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