Scottish Mortgage’s earnings rise by 12% – Scottish Mortgage (SMT) has published its final report for the twelve month period up to 31 March 2018.
Following a strong year of performance, the company has seen its earnings rise by 12% to 1.20p from 1.07p the year before. Therefore, it was decided that, given the long run capital returns, the dividend is to be modestly increased. This will be paid from a combination of earnings, the remainder of the revenue reserve ((0.47p per share) and the capital reserve. The board has therefore recommend a final dividend of 1.68p per share, providing a total distribution for the year of 3.07p per share, a year-on-year increase of just over 2%.
In her report as chairman, Fiona McBain points out that Baillie Gifford, the company’s investment manager picks very best long term growth companies from around the world, both listed and unlisted. One common characteristic of many of these businesses is the retention and investment of most if not all of their earnings to support future growth. This tends to result in a relatively low level of dividend income and by implication to pass on as dividends.
Performance
Scottish Mortgage’s board and Baillie Gifford, its investment manager share a long term investment philosophy and report performance over five years and ten years. The table below is supplied by SMT in its final report. Over one year, however, the NAV of the company and the share price rose by 24.9% and 21.6% respectively (Source: Morningstar).
|
Total Return % |
Five Years |
Ten Years |
|
NAV |
171.6 |
287.8 |
|
Share Price |
184.5 |
334.7 |
|
FTSE All-World Index |
73.3 |
159.4 |
|
Global Sector Av – NAV |
94.1 |
178.1 |
|
Global Sector Av – share price |
111.6 |
218.1 |
Source: Scottish Mortgage Final Report to 31 March 2018, AIC/Morningstar. NAV after deducting borrowings at fair value for five years. NAV after deducting borrowings at par for ten years.
Management of costs and fees
The chairman makes it clear that the board carefully manage the costs of the company and keep its total expense ratio at a level below that of the average for the sector. Scottish Mortgage’s ‘Ongoing Charges Ratio’ (OCR) fell to 0.37%, down from 0.44% the previous year. The chairman points out that this is a reduction of approximately 16%.
In 2017, the company moved to a tiered fee structure. The previous AMC of 0.3% only applies on the first £4 billion of assets under management and thereafter it falls to 0.25%. The company is currently over £7.2 billion in size.
The board has also announced that the allocation of the management and borrowing costs to reflect better the split of returns between capital and income. From 1 April 2018, all costs will be allocated to capital. This is a change from the current allocation of 75% to capital and 25%. The total costs will not be affected by this change.
SMT : Scottish Mortgage’s earnings rise by 12%