Scottish Mortgage has announced its annual results for the year ended 31 March 2016. During the period, which its chairman says, “has not been as strong as in recent years”, the company’s NAV effectively remained flat in total return terms (it fell 0.1% over the year) but beat it FTSE All-World Benchmark, which declined by 0.5%. Reflecting a mild widening of the discount during the period, the company’s share price total return was -0.7%. However, over the last five years, the trust has provided NAV and share price total returns of 71.0 and 91.1% thereby beating its benchmark, which returned 48.0%. In terms of the performance of individual companies, and their contribution to the trust’s returns, the report gives little detail so we cannot comment on that here (further detail will be available when the full annual report is published). However, it does say that some good individual company results managed to reverse share prices falls, mitigating broader negative sentiments which might otherwise have had a greater impact on the trust’s portfolio, for example regarding China, healthcare and technology.
In terms of income generation, the company says that its income has fallen again this year and that this reflects several aspects of the trust’s investment policy. Specifically, their holdings in quoted companies have been moving away from higher income-paying stocks, in favour of longer term growth investments, and are also holding 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.
However, the board says that, after careful consideration and notwithstanding the drop in income, they 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, the company will once again have to use its reserves to supplement the income earned during the period. The company says that, once the final dividend is approved and paid, the remaining reserves will stand at 2.5 pence per share. Furthermore, the board say that the trust is unlikely to have sufficient income and revenue reserves to continue to pay a comparable dividend over the coming years but that the trust ispermitted to make distributions from capital profits. The Board say that they will be willing to do this in order to continue to grow the trust’s dividend payments so long as they believe that the total returns being earned by the trust over the long run can justify this.
The trust has also announced some proposed changes to its investment policy. At present, the company is permitted to invest in unquoted securities but there are no formal limits specified. Unquoteds have been rising in recent years and, whilst the board has historically given guidance regarding the appropriate level, they now feel it is time to provide shareholders with clarity regarding a maximum level. The board therefore proposes tom put a resolution to shareholders at the forthcoming GAM that the maximum level of unquoteds shall not exceed 25% of the company’s total assets.
Scottish Mortgage has a pretty flat year! : SMT