Interim Results
Scottish Mortgage & Trust PLC
27 October 2000
THE SCOTTISH MORTGAGE AND TRUST PLC
Results for the six months to 30 September 2000
Salient points
NAV fell 7.5% to 527.4p, compared with a fall of 1.2% in the benchmark index
comprising 50% FTSE All-Share and 50% FTSE World Ex UK. The disappointing
result was primarily caused by an initial heavy exposure to
telecommunications and technology stocks.
Proposed interim dividend 1.90p, a rise of 5.5%. The Board also anticipates
an increase in the real value of the full year dividend.
US stake increased. The Company made net purchases of £80 million in North
America in the light of the outstanding relative performance of the US
economy and the wide-ranging attractions of the corporate sector. The UK
stake has been reduced to 39.5% of total assets, a level that the Company
believes reflects the opportunities available in the British market.
Share buy back enhances NAV. The Company has reduced equity exposure by £59
million and used £29 million of the proceeds to buy back the Company's
shares, enhancing NAV by 0.3%.
Indirect expenses. As announced at the AGM, in future 50% of indirect
expenses will be charged to capital instead of charging all indirect
expenses to income. This will help the Company to achieve its objective of
providing dividend as well as capital growth.
AITC 'its' campaign. Our own marketing efforts in conjunction with the AITC
'its' campaign are showing signs of stimulating interest in investment
trusts and stabilising the discount to asset value. The Board will continue
to monitor developments to ensure adequate rewards for this expenditure.
Outlook for markets remains uncertain. Despite the current nervous mood in
international markets the Board remains confident about the long term
prospects for a geographically diversified portfolio of high quality
equities.
The Scottish Mortgage and Trust PLC (Scottish Mortgage) aims to maximise
total return to shareholders at the same time as generating real dividend
growth through investment in UK and international markets. The trust has
total assets of £2.0 billion. An ISA and Share Plan are available.
Scottish Mortgage is managed by Baillie Gifford & Co., the leading Edinburgh
based fund management group with around £22 billion under management and
advice.
For further information please contact:
James Anderson, Manager,
The Scottish Mortgage and Trust PLC 0131 222 4000
Mike Lord, Director,
Broadgate Marketing 020 7726 6111
THE SCOTTISH MORTGAGE AND TRUST PLC
Interim Report 30 September 2000
Over the six months to 30 September, the Company's net asset value fell by
7.5%. Over the same period the benchmark index comprising 50% FTSE All-Share
and 50% FTSE World Ex U.K. fell by 1.2%. This disappointing performance was
primarily caused by stock selection in all the major markets and in particular
by an initial heavy exposure to telecommunications and technology stocks.
The main movement in the portfolio over the last six months has been a further
reduction in the percentage of the Company's assets invested in Britain. Net
sales of £113m have been made. This cuts the U.K. stake to 39.5% of total
assets. We consider that this is now a level that reflects the opportunities
currently available to us in the British market. By contrast we have made net
purchases totaling £80m in North America in the light of the outstanding
relative performance of the U.S. economy and the wide-ranging attractions of
the corporate sector. Total equity exposure has been trimmed by net sales of
£59m as the economic outlook has deteriorated. £29m of the proceeds have been
employed in buying back the Company's own shares. This has enhanced the NAV by
0.3%. We have also reduced substantially the holding in Argentine bonds as the
economy shows few signs of imminent recovery and there is increasing pressure
for a change in fiscal and exchange rate policy in that country.
As the Board announced at the time of the A.G.M. it has been decided to amend
the policy of charging all indirect expenses to the income account. In future
50% of such expenses will be charged to capital in order to meet the objective
of providing dividend as well as capital growth. As a consequence of falling
dividend pay-outs in many of the markets in which Scottish Mortgage invests
the level of unfranked income earned is such that the Company finds itself in
a tax loss position. As a result, the Board considers that the £2.9m deferred
tax debtor is unlikely to be crystallised in the foreseeable future and has
therefore decided to write off this balance through the revenue account.
Earnings on the new accounting basis were 4.15p for the six months,
representing a decline of 8% on the restated figure for the same period a year
ago. But for the £2.9m deferred tax debtor write off, earnings would have
amounted to 5.00p, a rise of 11%. The Board is proposing an interim dividend
of 1.90p (1.80p), a rise of 5.5%, and would expect to recommend an increase in
the real value of the full year dividend.
Our own marketing efforts in conjunction with the AITC 'its' campaign are
showing signs of stimulating interest in investment trusts and stabilising the
discount to asset value. We will continue to monitor developments to ensure
adequate rewards for this expenditure.
Prospects for the global economy have deteriorated in recent months. The
surging price of oil has combined with a period of monetary tightening in
America, Britain and Europe to weaken growth and modestly increase inflation.
In addition the persistent weakness of the euro has complicated the task of
international policy makers. It is probable that 2001 will simply see a
continued moderation in growth but it is conceivable that a further increase
in the oil price could trigger a more severe downturn than we currently
expect. It is already clear that the corporate sector has begun to suffer with
a series of profit warnings being issued in recent weeks.
However, our confidence in the long-term prospects for a geographically
diversified portfolio of high quality equities remains intact.
By order of the Board
Baillie Gifford & Co.
The following is the interim statement for the six months ended 30 September
2000 which has been neither reviewed nor audited by the auditors. This
statement is being printed and will be sent to all shareholders on 13
November 2000. 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.
THE SCOTTISH MORTGAGE AND TRUST PLC
STATEMENT OF TOTAL RETURN
(unaudited and incorporating the revenue account*)
for the six months ended for the six months ended
30 September 2000 30 September 1999 (restated+)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Realised gains
on investments - 78,480 78,480 - 93,028 93,028
Unrealised
(losses)/gains
on investments - (225,132) (225,132) - (85,554) (85,554)
Currency losses - (5,316) (5,316) - (274) (274)
Income (note 2) 25,559 - 25,559 23,726 - 23,726
Investment
management fee (1,860) (1,860) (3,720) (1,526) (1,526) (3,052)
Other
administrative
expenses (911) - (911) (709) - (709)
Net return
before finance
costs and
taxation 22,788 (153,828) (131,040) 21,491 5,674 27,165
Finance costs
of borrowings (5,297) (5,297) (10,594) (4,522) (4,522) (9,044)
Return on
ordinary
activities
before taxation 17,491 (159,125) (141,634) 16,969 1,152 18,121
Tax on ordinary
activities ^(3,575) - ^(3,575) (865) - (865)
Return on
ordinary
activities
after taxation 13,916 (159,125) (145,209) 16,104 1,152 17,256
Dividends in
respect of
equity shares (6,226) - (6,226) (6,402) - (6,402)
Transfer
to/(from)
reserves 7,690 (159,125) (151,435) 9,702 1,152 10,854
Return per
ordinary
share
(note 3) 4.15p (47.41p) (43.26p) 4.49p 0.32p 4.81p
Dividend
per Ordinary
Share
(note 4) 1.90p 1.80p
for the year ended
31 March 2000 (restated+)
Revenue Capital Total
£'000 £'000 £'000
Realised gains on investments - 272,713 272,713
Unrealised (losses)/gains on investments - 115,437 115,437
Currency losses - (948) (948)
Income (note 2) 44,100 - 44,100
Investment management fee (3,525) (3,525) (7,050)
Other administrative expenses (1,861) - (1,861)
Net return before finance costs and
taxation 38,714 383,677 422,391
Finance costs of borrowings (9,658) (9,658) (19,316)
Return on ordinary activities before
taxation 29,056 374,019 403,075
Tax on ordinary activities (1,249) - (1,249)
Return on ordinary activities after
taxation 27,807 374,019 401,826
Dividends in respect of equity shares (19,443) - (19,443)
Transfer to/(from) reserves 8,364 374,019 382,383
Return per ordinary share (note 3) 7.82p 105.27p 113.09p
Dividend per Ordinary Share (note 4) 5.65p
^ Inclusive of £2,879,000 deferred tax balance written off
* The revenue column of this statement is the profit and loss account of the
Company.
All revenue and capital items in the above statement derive from continuing
operations.
+ Restated for changes in accounting policy (see note 1)
THE SCOTTISH MORTGAGE AND TRUST PLC
SUMMARISED BALANCE SHEET
at 30 September 2000
(unaudited)
31 March 2000
30 September 2000 (restated+)
£'000 £'000
NET ASSETS
Fixed asset investments 1,954,100 2,196,257
Net liquid assets 54,379 10,337
Total assets (before deduction of
loans and debentures) 2,008,479 2,206,594
Loans and debentures (note 5) (261,798) (279,010)
1,746,681 1,927,584
CAPITAL AND RESERVES
Called-up share capital 83,111 84,680
Capital reserves 1,618,151 1,805,175
Revenue reserve 45,419 37,729
EQUITY SHAREHOLDERS' FUNDS 1,746,681 1,927,584
NET ASSET VALUE PER ORDINARY SHARE
(after deducting prior charges at
par) 527.4p 570.2p
Ordinary shares in issue (note 6) 332,442,888 338,721,000
+ restated for changes in accounting policy (see note 1)
THE SCOTTISH MORTGAGE AND TRUST PLC
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Six months to Year to
30 September 2000 31 March 2000
£'000 £'000 £'000 £'000
NET CASH INFLOW
FROM OPERATING
ACTIVITIES 21,285 37,318
NET CASH OUTFLOW
FROM SERVICING OF
FINANCE (9,413) (15,059)
TOTAL TAX PAID (2,202) (3,955)
FINANCIAL INVESTMENT
Acquisitions of
investments (449,863) (866,787)
Disposals of
investments 533,381 917,294
Realised currency
profit/(loss) 804 (1,305)
NET CASH INFLOW
FROM FINANCIAL
INVESTMENT 84,322 49,202
EQUITY DIVIDENDS
PAID (12,951) (12,715)
NET CASH INFLOW
BEFORE FINANCING 81,041 54,791
FINANCING
Shares purchased
for cancellation (29,468) (100,700)
Loans repaid (149,116) (365,000)
Loans drawn down 132,552 421,967
Realised currency
loss on
multi-currency loans (6,781) -
NET CASH OUTFLOW
FROM FINANCING (52,813) (43,733)
INCREASE IN CASH 28,228 11,058
RECONCILIATION OF
NET CASH FLOW TO
MOVEMENT IN NET
DEBT
Increase in cash
in the period 28,228 11,058
Decrease/(increase)
in bank loans 23,345 (56,967)
Exchange movement (6,149) 357
Other non-cash
changes 17 27
MOVEMENT IN NET
DEBT IN THE PERIOD 45,441 (45,525)
NET DEBT AT 1
APRIL 2000 (260,359) (214,834)
NET DEBT AT 30
SEPTEMBER 2000 (214,918) (260,359)
THE SCOTTISH MORTGAGE AND TRUST PLC
TWENTY LARGEST EQUITY HOLDINGS
at 30 September 2000
Market
value % of total
Name Business £'000 assets
BP Amoco International oil 69,230 3.5
Vodafone Group Mobile
telecommunication
services 63,125 3.1
Glaxo Wellcome Pharmaceuticals 51,200 2.6
Shell Transport &
Trading International oil 45,182 2.3
Royal Bank of Scotland Banking 42,903 2.1
HSBC Holdings Banking 42,645 2.1
Lloyds TSB Retail banking and
insurance 33,128 1.6
* Nokia Telecommunications
equipment 31,545 1.6
SmithKline Beecham Pharmaceuticals 30,927 1.5
Baillie Gifford
European
Smaller Companies Fund Small company fund 30,817 1.5
AMVESCAP Fund manager 26,842 1.3
Baillie Gifford Latin Latin American 26,840 1.3
American Fund investment fund
Cable & Wireless Telecommunications and
cable television 26,235 1.3
* Total Fina Elf Integrated oil 25,550 1.3
* SAP Computer software 24,703 1.2
* Sun Microsystems Enterprise network
products 23,690 1.2
* NTT DoCoMo Mobile
telecommunications 23,284 1.2
* Cheung Kong Holdings Property and
telecommunications
investment company 23,138 1.2
* Philips Electronics Electronic equipment 23,068 1.2
* Scientific-Atlanta Cable transmission
equipment 22,808 1.1
686,860 34.2
* Primary listing outwith the UK
DISTRIBUTION OF ASSETS
at 30 September 2000
(unaudited)
30 September 2000 31 March 2000
% %
Equities: United Kingdom 39.5 43.1
Continental Europe 20.6 22.5
North America 17.6 12.9
Latin America 2.3 1.7
Japan 7.0 6.8
Asia Pacific 4.4 5.3
Total equities 91.4 92.3
United Kingdom bonds 1.5 1.2
European bonds 1.7 1.7
Argentine bonds 2.1 3.8
North American bond 0.6 0.5
Net liquid assets 2.7 0.5
Total assets (before loans and 100.0 100.0
debentures)
THE SCOTTISH MORTGAGE AND TRUST PLC
NOTES
1. The financial statements for the six months to 30 September 2000 have
been prepared on the basis of the accounting policies set out in the
Company's financial statements at 31 March 2000, with the exception of a
change in the policy for accounting for expenses connected with the
maintenance or enhancement of the value of investments. In this respect,
50% of management fees, including related VAT, and interest payable are
allocated to capital reserve realised in accordance with the Company's
objective of combining capital and income growth. Previously, all
management fees, and related VAT, and interest expenses were charged 100%
to revenue. The effect of the change in accounting policy is to increase
revenue return, and to decrease capital return, attributable to equity
shareholders by £7,157,000 for the six months to 30 September 2000
(£6,048,000 for the six months to 30 September 1999 and £13,183,000 for the
year ended 31 March 2000). There is no impact on total return recognised in
any period.
Franked dividends for the six months to 30 September 1999 have been
restated and are accounted for in accordance with FRS16 'Current Tax',
accounting for UK Dividend income net of tax. This is consistent with the
treatment adopted in the financial statements for the year ended 31 March
2000. The effect of the change in accounting policy is to reduce gross
income and taxation equally by £1,247,000 for the six months to 30
September 1999; the net effect has no impact upon the revenue return
attributable to equity shareholders.
The Interim Report was approved by the Board on 26 October 2000.
30 September 2000 30 September 31 March 2000
1999 (restated)
£'000 (restated) £'000
£'000
2. Income
Income from investments
and interest receivable 25,522 23,726 44,100
Other income 37 Nil Nil
3. Return per ordinary share
Revenue return 13,916 16,104 27,807
Capital return (159,125) 1,152 374,019
Return per ordinary share is based on the above totals of revenue and
capital and on 335,629,243 (30 September 1999 - 358,901,120 and 31
March 2000 - 355,302,538) ordinary shares, being the weighted average
number of ordinary shares in issue during the period.
4. The interim dividend will be paid on 1 December 2000 to all shareholders
on the register at the close of business on 17 November 2000.
5. Loans and debentures include US$100 million and euro70 million drawn
down under short term multi-currency loan facilities (31 March 2000 -
US$135 million and euro70 million).
Net asset value per share (with debenture stocks at market value) was
511.6p (30 September 1999 - 442.6p and 31 March 2000 - 549.2p). The market
value of debenture stocks at 30 September 2000 was £198,383,000 (30
September 1999 - £211,138,000 and 31 March 2000 - £216,836,000).
6. On 11 February 1999 authority was granted to the Company to buy back
54,071,928 ordinary shares (equivalent to 14.99% of its issued share
capital at that date). The authority was renewed at the AGM on 29 June
2000 in respect of 50,265,422 ordinary shares (equivalent to 14.99% of its
issued share capital at that date). In the six months to 30 September 2000
a total of 6,278,112 ordinary shares with a nominal value of £1,569,000
were bought back at a total cost of £29,468,000. At 30 September 2000 the
Company had authority to buy back a further 47,381,943 ordinary shares.
7. The financial information for the year ended 31 March 2000 has been
extracted from the full accounts which have been filed with the Registrar
of Companies and which contain an unqualified Auditors' Report.
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