Final Results

RNS Number : 8069E

Scottish American Investment Co PLC

13 February 2015

 



RNS Announcement: Preliminary Results

 Results for the year to 31 December 2014

¾  Dividend and inflation - the full year dividend of 10.50p per share, including a recommended final dividend of 2.65p, is covered by earnings and is 2.9% higher than 2013 and ahead of inflation (whether 0.5% as measured by CPI or 1.6% as measured by RPI), maintaining the Company's long record of growing the dividend in real terms over time.

¾  Revenues - investment income and earnings per share were higher than last year at £18.8m (2013 - £ 18.4m) and 10.51p (2013 - 10.21p) per share. Total Return Performance - Net Asset Value Total Return (capital and income) for the year was 2.9%, lagging the total return from global equities of 11.3%. The share price total return was 1.6% and the Net Asset Value per share on the fair value measure fell by 1.3%. Equity performance over the year was held back by the Company's modest exposure (relative to global index weightings) to the US equity market, and significant exposure to the UK.

¾  Whilst the global economy faces many challenges, the Board believes that prospects for dividends remain very encouraging, bolstered by the Manager's approach and supported by strong reserves.

12 February 2015

SAINTS' objective is to deliver real dividend growth by increasing capital and growing income. Its policy is to invest mainly in equity markets, but other investments may be held from time to time including bonds, property and other asset classes.

The Company is managed by Baillie Gifford, the Edinburgh based fund management group with around £118 billion under management and advice as at 12 February 2015.

Past performance is not a guide to future performance. SAINTS is a listed UK company. As a result, the value of its shares and any income from those shares is not guaranteed and could go down as well as up. You may not get back the amount you invested. As SAINTS invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. You can find up to date performance information about SAINTS on the SAINTS page of the Managers' website www.saints-it.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

For further information please contact:

Dominic Neary, Manager, The Scottish American Investment Company P.L.C.

Tel: [phone]

James Budden, Baillie Gifford & Co  

Tel: [phone] or 07507 201208

Roland Cross, Director, Broadgate Mainland

Tel: [phone]

The following is the unaudited Annual Financial Report for the year to 31 December 2014.

Chairman's Statement

The Company's objective is to deliver real dividend growth by increasing capital and growing income. An increased dividend of 10.5p will maintain the Company's long record of growing dividends in real terms over time.

Overview

2014 has been a year of further progress for global equity markets despite mixed economic news. Progress has not been uniform or universal however: the standout performer has been the US, helped by a strengthening economy and, for sterling investors, by gains in the Dollar. However, markets have been troubled from time to time by the prospect of reduced support from central banks and the perceived dangers of disappointing growth in Europe and China. Other crises have also erupted or worsened, notably in Crimea and the rest of the Ukraine and in the Middle East.  The most dramatic market development of the year however was the recent collapse in the oil price, and this may prove to be both a blessing and a curse - stimulating parts of the global economy whilst bringing deflationary dangers elsewhere and heightening problems for certain companies, countries and lending institutions.

      Against this mixed background, many companies continue to perform well operationally, increasing profits and raising dividends. Continued progress at the corporate level has helped equities, and these remain at the core of SAINTS' portfolio. Whilst their market value will fluctuate, and total returns will accordingly vary, the Board remains confident that their income producing power will continue to progress over time. The Company's other investments in property and fixed income have fulfilled their roles too, in particular delivering a high income and defraying borrowing costs.

Management arrangements

Dominic Neary took over as Manager of SAINTS at the start of the year. With the Board's encouragement the equity portfolio has continued to evolve, with an even greater emphasis being placed on supporting the dependability and progression of the Company's dividend, in line with its objective.

Revenues

Investment income and earnings per share were higher than last year, at £18.8m and 10.51p per share respectively.  The bond investments have been reduced further, continuing the direction of recent years, and the 3% increase in earnings masks a marked reduction in the contribution from fixed income. This has been outweighed by an increase in income from equities and rents. The proportionate increase in income arising from real assets, which are able to benefit from economic progress over time, bodes well for future dividend growth.

Dividend and Inflation

A final dividend of 2.65p is recommended which will take the full year dividend to 10.5p per share, 2.9% higher than the 2013 dividend of 10.2p and also ahead of inflation as measured by both the Consumer Prices Index (CPI, 0.5%) and Retail Prices Index (RPI, 1.6%). The recommended dividend would be fully covered by earnings.

    In previous years we have shown dividend progression against RPI. This year, we are also showing CPI, which is now the UK Government's official measure of inflation. Further information on both measures is included within the Managers' report. On either measure, the Company has increased its dividend ahead of inflation over the last ten years.

Total Return Performance

The Company's net asset value (NAV) total return (capital and income) for the year was 2.9% and the share price total return was 1.6%.

    Net asset value (NAV) per share, on the fair value measure, fell by 1.3% to 243.7p. The explanation for this slight drop in NAV at fair value, despite an increase in the value of the Company's investments, was a greater increase in the current market value of the Company's debenture borrowings. 

    In order to achieve its objectives, deliver a higher yield than global equities and service its borrowings, the Company's investments necessarily differ markedly from the global equity index against which total return performance is now shown. Performance is therefore likely to differ markedly from that index.

Over the year, the NAV total return lagged the total return from the global equity market of 11.3%. In addition to the adverse effect from the change in the current value of the debenture, equity performance was held back in relative terms by modest exposure (relative to index weightings) to the low yielding US market, and significant exposure to the UK: nevertheless, the return was positive. This positioning increases the level and dependability of the Company's sterling income, but has been unhelpful in capital terms over the year.

Borrowings

SAINTS' borrowings take the form of a single £80m debenture which is due for repayment in April 2022.  During 2014, the borrowings mainly funded a range of higher yielding commercial property and bond investments.

The book value of the debenture is £85.4m which, at the year end, was equivalent to approximately 25% of shareholders' funds.  The estimated market or fair value of the debenture was £105.9m, an increase from the previous year's value of £100.6m.  However, over the coming years we expect declines in both the debenture's book and market values as it approaches its final redemption value of £80m, and this will boost total returns.

Regulation

In last year's report, I informed you that in order to comply with the Alternative Investment Fund Managers Directive, a major piece of EU legislation, the Company would be required to appoint a single Alternative Investment Fund Manager (AIFM) as well as a Depositary. Accordingly, as envisaged last year, the Company has now amended its contractual arrangements with our managers, the partnership of Baillie Gifford & Co and OLIM Property Ltd. Our contractual counterparty is now Baillie Gifford & Co Ltd, a wholly owned subsidiary of the Baillie Gifford partnership. In turn Baillie Gifford & Co Ltd has delegated investment management to Baillie Gifford & Co and also to OLIM Property Ltd.  SAINTS has appointed BNY Mellon as Depositary.

Outlook

The global economy faces many challenges, and markets are unlikely to rise smoothly from here. In addition, the General Election may mean that political uncertainties in the UK will remain in the short term. However, the prospects for dividends remain very encouraging, bolstered by the nature of the Managers' global approach and supported by the Company's strong revenue and capital reserves. The Company therefore remains very well placed to meet its objective over time.

The Board and AGM

Since my last statement one director, Rachel Lomax, has retired from the Board of the Company. Rachel's economic insights and broader contribution have been very much appreciated by the rest of the Board, and she stepped down with our heartfelt thanks.

In November I was delighted to announce the appointment of Bronwyn Curtis to the Board. An economist by background, Bronwyn has many years of financial services experience, latterly at HSBC Bank plc where she held senior positions including Head of Global Research and Senior Adviser to the Head of Global Banking and Markets.  Her appointment as a Director is subject to the approval of shareholders, and accordingly such approval will be sought at the forthcoming AGM. I am confident that, subject to that approval, Bronwyn's considerable experience and knowledge will augment that of the current Directors and enhance the Board.

The AGM will be held at 11am on Thursday 2 April at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh. The Managers will make a presentation on the investment portfolio, and there will also be an opportunity to ask questions. The Directors and Manager look forward to meeting you there.

Sir Brian Ivory, CBE

Chairman

12 February 2015

Income statement

The following is the unaudited preliminary statement for the year to 31 December 2014 which was approved by the Board on 12 February 2015. The Board of The Scottish American Investment Company P.L.C. is recommending to the Annual General Meeting of the Company to be held on 2 April 2015 the payment of a final dividend of 2.65p (2.60p last year) per ordinary share making a total of 10.50p (10.20p last year) paid and proposed for the year ended 31 December 2014.

	For the year ended 31 December 2014 (unaudited)			For the year ended 31 December 2013 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains on investments - securities	-	3,806	3,806	-	30,858	30,858
Currency gains/(losses)	-	17	17	-	(266)	(266)
Income (note 2)	18,782	-	18,782	18,421	-	18,421
Management fees	(680)	(1,262)	(1,942)	(678)	(1,259)	(1,937)
Other administrative expenses	(949)	-	(949)	(958)	-	(958)
Net return before finance costs and taxation	17,153	2,561	19,714	16,785	29,333	46,118
Finance costs of borrowings	(2,041)	(3,790)	(5,831)	(2,052)	(3,812)	(5,864)
Net return on ordinary activities before taxation	15,112	(1,229)	13,883	14,733	25,521	40,254
Tax on ordinary activities	(1,172)	286	(886)	(1,192)	457	(735)
Net return on ordinary activities after taxation	13,940	(943)	12,997	13,541	25,978	39,519
Net return per ordinary share (note 3)	10.51p	(0.72p)	9.79p	10.21p	19.58p	29.79p

Statement of total recognised gains and losses

	For the year ended 31 December 2014 (unaudited)			For the year ended 31 December 2013 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net return on ordinary activities after taxation	13,940	(943)	12,997	13,541	25,978	39,519
Net gains on investments - property	-	2,293	2,293	-	950	950
Total recognised gains and losses for the year	13,940	1,350	15,290	13,541	26,928	40,469
Total recognised gains and losses per ordinary share (note 3)	10.51p	1.02p	11.53p	10.21p	20.29p	30.50p

The total column of the Income Statement is the profit and loss account of the Company.

All revenue and capital items in these statements derive from continuing operations.

Balance sheet

	At 31 December 2014 (unaudited)		At 31 December 2013 (audited)
	£'000	£'000	£'000	£'000
Fixed assets
Investments - securities	373,112		386,448
Investments - property	47,925		39,600
		421,037		426,048
Current assets
Debtors	1,063		1,158
Cash and deposits	9,977		3,956
	11,040		5,114
Creditors
Amounts falling due within one year	(2,910)		(2,849)
Net current assets		8,130		2,265
Total assets less current liabilities		429,167		428,313
Creditors
Amounts falling due after more than one year		(85,361)		(85,931)
Net assets		343,806		342,382
Capital and reserves
Called up share capital		33,169		33,169
Share premium		357		357
Capital redemption reserve		22,781		22,781
Capital reserve		270,452		269,102
Revenue reserve		17,047		16,973
Shareholders' funds		343,806		342,382
Net asset value per ordinary share (debenture at fair value)		243.7p		247.0p
Net asset value per ordinary share (debenture at book value)		259.1p		258.1p
Ordinary shares in issue (note 6)		132,675,943		132,675,943

Reconciliation of movements in shareholders' funds

For the year ended 31 December 2014 (unaudited)

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2014	33,169	357	22,781	269,102	16,973	342,382
Total recognised gains and losses	-	-	-	1,350	13,940	15,290
Dividends paid in the year (note 4)	-	-	-	-	(13,866)	(13,866)
Shareholders' funds at 31 December 2014	33,169	357	22,781	270,452	17,047	343,806

For the year ended 31 December 2013 (audited)

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2013	33,169	357	22,781	242,174	16,832	315,313
Total recognised gains and losses	-	-	-	26,928	13,541	40,469
Dividends paid in the year (note 4)	-	-	-	-	(13,400)	(13,400)
Shareholders' funds at 31 December 2013	33,169	357	22,781	269,102	16,973	342,382

Cash flow statement

	Year Ended 31 December 2014 (unaudited)		Year Ended 31 December 2013 (audited)
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		15,957		15,644
Servicing of finance
Interest paid	(6,400)		(6,400)
Net cash outflow from servicing of finance		(6,400)		(6,400)
Taxation
Overseas tax incurred	(857)		(735)
Total tax paid		(857)		(735)
Financial investment
Acquisitions of investments	(108,090)		(76,212)
Disposals of investments	119,232		83,240
Forward currency contracts	14		(35)
Net cash inflow from financial investment		11,156		6,993
Equity dividends paid		(13,866)		(13,400)
Net cash inflow before financing		5,990		2,102
Increase in cash		5,990		2,102
Reconciliation of net cash flow to movement in net debt
Increase in cash		5,990		2,102
Translation difference		31		(166)
Other non-cash changes		570		536
Movement in net debt in the year		6,591		2,472
Net debt at 1 January		(81,975)		(84,447)
Net debt at 31 December		(75,384)		(81,975)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		19,714		46,118
Gains on investments - securities		(3,806)		(30,858)
Currency (gains)/losses		(17)		266
Decrease in accrued income and prepaid expenses		107		354
Increase in other debtors		(70)		(17)
Increase in creditors and prepaid income		61		220
Other non-cash changes		(32)		(439)
Net cash inflow from operating activities		15,957		15,644

Asset allocation

	At 31 December 2014 % (unaudited)		At 31 December 2013 % (audited)
Quoted equities	81.1		83.6
Bonds	5.8		6.7
Direct property	11.2		9.2
Net liquid assets	1.9		0.5
Total assets	100.0		100.0

Performance attribution

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Global equities	101.8	100.0	4.3	11.3
Bonds	7.8		10.0
Direct property	13.6		13.6
Deposits	1.7		-
Debenture at book value	(24.9)		6.8
Portfolio total return (debenture at book value)			5.2	11.3
Other items*			(0.7)
Fund total return (debenture at book value)			4.5	11.3
Adjustment for change in fair value of debenture			(1.6)
Fund total return (debenture at fair value)			2.9	11.3

* Includes Baillie Gifford and OLIM management fees.

The above returns are calculated on a total return basis with net income reinvested.

Past performance is not a guide to future performance.

Source: Baillie Gifford

Thirty largest equity holdings (unaudited)

Name	Business	2014 Value £'000	2014 % of total assets	2013 Value %
Rio Tinto	Mining	8,817	2.1	10,012
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	8,010	1.9	7,454
Total	Integrated oil company	7,885	1.8	8,854
Hiscox	Property and casualty insurance	7,423	1.7	5,610
Coca Cola	Beverage manufacturer	7,126	1.7	-
Roche Holdings	Pharmaceuticals	6,781	1.6	4,780
Analog Devices	Integrated circuits	6,588	1.5	5,688
AVI	Staple foods manufacturer	6,571	1.5	-
SK Telecom	Mobile telecommunication services	6,301	1.5	5,291
Deutsche Boerse	Securities exchange owner/operator	6,275	1.5	-
Pepsico	Snack and beverage manufacturer	6,062	1.4	-
Provident Financial	Loans and credit cards	5,825	1.4	3,839
Johnson and Johnson	Pharmaceuticals and healthcare products	5,698	1.3	3,649
Want Want	Snacks and milk-based products	5,583	1.3	-
Aviva	Investment and life assurance	5,363	1.2	2,473
United Parcel Service	Courier services	5,357	1.2	4,767
Amlin	Property and casualty insurance	5,344	1.2	11,165
China Mobile	Mobile telecommunication services	5,273	1.2	4,393
Partners Group	Asset management	5,089	1.2	3,521
McDonald's	Fast food restaurants	5,055	1.2	4,221
Capita	Business process outsourcing	5,041	1.2	3,884
Japan Residential Investment Company	Japanese residential property fund	5,016	1.2	5,625
Edenred	Voucher programme outsourcer	4,963	1.2	-
Svenska Handelsbanken	Banking	4,917	1.1	4,861
Linear Technology	Integrated circuits	4,913	1.1	4,619
M6-Metropole TV	Television broadcasting	4,804	1.1	5,525
Brambles	Pallet pool operator	4,765	1.1	2,602
Kraft Foods Group	Branded food and beverages	4,712	1.1	3,817
New York Community Bankcorp	Banking	4,659	1.1	4,619
Sumitomo	Trading conglomerate	4,554	1.1	2,908
		174,770	40.7	124,177

Notes (unaudited)

1.	The financial statements for the year to 31 December 2014 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements to 31 December 2013.
2.	Income					2014 £'000		2013 £'000
	Income from investments
	Franked investment income					3,295		3,554
	UK unfranked investment income					4		472
	Overseas dividends					10,627		9,445
	Overseas interest					1,089		1,700
						15,015		15,171
	Other income
	Deposit interest					17		12
	Rental income					3,713		3,198
	Other income					37		40
						3,767		3,250
	Total income					18,782		18,421
3.	Returns per ordinary share	2014				2013
		Revenue	Capital		Total	Revenue	Capital		Total
	Net return per ordinary share (Income Statement)	10.51p	(0.72p)		9.79p	10.21p	19.58p		29.79p
	Total recognised gains and losses per ordinary share	10.51p	1.02p		11.53p	10.21p	20.29p		30.50p
	Net return per ordinary share is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,675,943 (2013 - 132,675,943) ordinary shares of 25p, being the number of ordinary shares in issue during each year. Total recognised gains and losses per ordinary share is based on the total recognised gains and losses for the year in the Statement of Total Recognised Gains and Losses and on 132,675,943 (2013 - 132,675,943) ordinary shares of 25p, being the number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue.
4.	Ordinary Dividends			2014		2013	2014 £'000			2013 £'000
	Amounts recognised as distribution in the year:
	Previous year's final (paid 11 April 2014)			2.60p		2.50p	3,450			3,317
	First interim (paid 27 June 2014)			2.60p		2.50p	3,450			3,317
	Second interim (paid 26 September 2014)			2.625p		2.55p	3,483			3,383
	Third interim (paid 19 December 2014)			2.625p		2.55p	3,483			3,383
				10.45p		10.10p	13,866			13,400

Notes (unaudited) (ctd)

4.	Dividends (ctd)
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £13,940,000 (2013 - £13,541,000).
		2014	2013	2014 £'000	2013 £'000
	Dividends paid and payable in respect of the year:
	First interim (paid 27 June 2014)	2.60p	2.50p	3,450	3,317
	Second interim (paid 26 September 2014)	2.625p	2.55p	3,483	3,383
	Third interim (paid 19 December 2014)	2.625p	2.55p	3,483	3,383
	Current year's proposed final dividend (payable 10 April 2015)	2.65p	2.60p	3,516	3,450
		10.50p	10.20p	13,932	13,533
	If approved the final dividend of 2.65p will be paid on 10 April 2015 to all shareholders on the register at the close of business on 6 March 2015. The ex-dividend date is 5 March 2015. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 18 March 2015.
5.	The fair value of the 8% Debenture Stock 2022 at 31 December 2014 was £105.9m (2013 - £100.6m).
6.	The Company allotted no shares in the year to 31 December 2014 (2013 - allotted no ordinary shares). At 31 December 2014 the Company had authority to buy back 19,888,123 ordinary shares and to allot 13,267,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2014. No shares were bought back during the year.
7.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2014. The financial information for 2013 is derived from the statutory accounts for 2013 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2013 accounts, their report was unqualified and did not contain a statement under section 495 to 497 of the Companies Act 2006. The statutory accounts for 2014 are unaudited and will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
8.	The Report and Accounts will be available on the SAINTS page of the Managers' website www.saints-it.com on or around 2 March 2015.‡

‡    Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

- ends -

 

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