Half Yearly Report

RNS Number : 1987Q

Scottish American Investment Co PLC

30 July 2010

 



 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. (SAINTS)

RESULTS FOR THE SIX MONTHS TO 30 JUNE 2010

During the period the Company's net asset value total return, with debt at fair value, was minus 1.1% compared to the benchmark total return which was minus 3.7%. The share price total return was 8.0%.   The total dividend for the six month period is up on last year.

·   A second interim dividend of 2.30p per share (2009 - 2.25p) has been declared, bringing the first half total to 4.60p, up 2.2% on the same period last year (2009 - 4.50p).

·   Fixed interest, listed and direct property investments performed well whilst returns from equities reflected the more challenging conditions in stockmarkets.

·   Although many developed economies remain fragile and markets prone to periods of uncertainty, the Board and Managers expect the developing nations to lead the global recovery and this should allow corporate profits and dividends to grow.

SAINTS objective is to increase capital and grow income in order to deliver real dividend growth. Its policy is to invest flexibly and actively across a broad range of assets and markets. Listed equities, both UK and overseas, form the largest part of the portfolio. Investments are also made in bonds, property and other asset classes. 

Baillie Gifford & Co, the Edinburgh based fund management group with over £60 billion under management and advice as at 28 July 2010, is appointed as investment managers and secretaries to SAINTS.

29 July 2010

- ends -

For further information please contact:

Patrick Edwardson, Manager,                                                                                      

The Scottish American Investment Company P.L.C.                         0131 275 2133 or

                                                                                                            07812 537316

James Budden,

Baillie Gifford & Co                                                      0131 275 2816 or 07507201208

Roland Cross, Director

Broadgate Mainland                                                     0207 776 0512 or 07831 401309

The following is the unaudited Half-Yearly Financial Report for the six months

to 30 June 2010

 

 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

Half-Yearly Financial Report to 30 June 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, and their impact on the financial statements, and a description of principal risks and uncertainties 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).

By order of the Board

Sir Brian Ivory, CBE

Chairman

29 July 2010

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

Half-Yearly Management Report

In broad terms, we believe the global economy and financial system have continued to recover from the crisis of 2008 and early 2009.  However, the scale and nature of that crisis was such that a rapid and smooth recovery in stockmarkets and economic conditions was always rather unlikely.   Instead the pace of recovery was, and still is, likely to be variable with markets prone to periods of uncertainty. 

The first six months of 2010 has proved to be such a period, with initially buoyant conditions giving way to a more difficult environment towards the end and stockmarkets delivering negative returns overall.  The main trigger for this renewed uncertainty was concern about the level of sovereign debt, particularly in Europe.

The net asset value total return, at negative 1.1%, reflects this.  However, the result was better than the negative 3.7% return on the benchmark.  Moreover, a sharp narrowing of the discount meant that the share price total return was a more pleasing 8%.

The discount narrowed in from 12.1% at the start of the year to 4.2% at the end of June.  This encouraging trend is, at least in part, to reflect the high dividend yield on Saints' shares.  At 4.8%, this dividend yield is above that on gilts and stockmarket indices and is significantly better than the return on cash.

Our aim, of course, is to grow the dividend in real terms.  This year, the impact of corporate dividend cuts announced in 2009 and the post crisis decline in short term interest rates which may well mean that our investment income will be a little lower than last year.  However, our current expectation is that this year will mark the low point for income receipts and this, together, with the good level of revenue reserves, should allow the dividend to be increased this year.

With this in mind, the proposed dividend for the first half is 4.6p of which 2.3p was paid in June and the same amount is to be paid in September.  This represents a rise of 2.2% on the same period last year.  Although this rate of increase is below the rate of inflation (as measured by the Retail Prices Index), we remain committed to the objective of achieving real growth in the dividend and believe the portfolio is well placed to do so.

We made few changes to the allocation of the portfolio during the first half.  Our equity exposure was a little lower than we would usually choose but reflective of the difficult economic environment that we are in.  We do expect the global economy to continue its recovery and this should allow corporate profits and dividends to grow.  However, the developed economies are likely to have to save more and consume less in the following years in order to reduce debt levels whilst the developing economies, though structurally far better positioned, face a number of cyclical issues.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

Half-Yearly Management Report (Ctd)

During the first half, the choice of stocks and the country allocation was moderately helpful, particularly in the Emerging Markets, Europe ex UK and North America.  No further reduction was made to the UK weighting, a decision which reflected our stock preferences during the period and our view that those UK listed stocks which we did own had little exposure to the domestic UK economy.  However, it is likely that, over time, the UK weighting will fall from its current level.

Our bond investments were successful with particularly strong returns from the Athena Debt Opportunities Fund (which invests in structured finance issues), and our holdings in high yield corporate bonds and Brazilian index-linked bonds.  These investments still appear attractively valued and we expect further gains from them.

We also enjoyed a positive return from the commercial property portfolio, where a small capital gain enhanced the rental income.  We have been selectively adding to the property portfolio and will continue to do so. 

The principal risks facing the Company are set out in note 11.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

INCOME STATEMENT

(unaudited)

	For the six months ended 30 June 2010				For the six months ended 30 June 2009			For the year ended 31 December 2009
	Revenue £'000	Capital £'000		Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on sales of  investments - securities	-	1,154		1,154	-	(54,268)	(54,268)	-	127,820	127,820
Changes in fair value of investments - securities	-	(2,439)		(2,439)	-	60,391	60,391	-	(55,142)	(55,142)
Currency (losses)/gains	-	(1,270)		(1,270)	-	3,880	3,880	-	3,171	3,171
Income - dividends and interest	8,034	-		8,034	6,993	-	6,993	14,564	-	14,564
Income - rent and other	1,221	-		1,221	1,240	-	1,240	2,630	-	2,630
Management fees	(298)	(554)		(852)	(226)	(420)	(646)	(508)	(944)	(1,452)
Recoverable VAT (note 4)	-	-		-	970	9	979	945	17	962
Other administrative expenses	(462)	-		(462)	(398)	-	(398)	(859)	-	(859)
Net return before finance costs and taxation	8,495	(3,109)		5,386	8,579	9,592	18,171	16,772	74,922	91,694
Finance costs of borrowings	(1,042)	(1,935)		(2,977)	(1,047)	(1,943)	(2,990)	(2,093)	(3,887)	(5,980)
Net return on ordinary activities before taxation	7,453	(5,044)		2,409	7,532	7,649	15,181	14,679	71,035	85,714
Tax on ordinary activities	(901)	599		(302)	(1,507)	1,316	(191)	(2,690)	2,232	(458)
Net return on ordinary activities after taxation	6,552	(4,445)		2,107	6,025	8,965	14,990	11,989	73,267	85,256
Net return per ordinary share (note 5)	4.94p		(3.35p)	1.59p	4.55p	6.76p	11.31p	9.05p	55.30p	64.35p

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

(unaudited)

Net return on ordinary activities after taxation	6,552	(4,445)	2,107	6,025	8,965	14,990	11,989	73,267	85,256
Gains on sales of investments - property	-	2,080	2,080	-	-	-	-	17	17
Changes in fair value of investments - property	-	(1,042)	(1,042)	-	1,525	1,525	-	3,051	3,051
Total recognised gains/(losses) for the period	6,552	(3,407)	3,145	6,025	10,490	16,515	11,989	76,335	88,324
Total recognised gains/(losses) per ordinary share (note 5)	4.94p	(2.57p)	2.37p	4.55p	7.92p	12.47p	9.05p	57.62p	66.67p
Note:
Dividends paid and payable per share (note 6)	4.60p			4.50p			9.05p

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

The total column of this statement is the profit and loss account of the Company.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

BALANCE SHEET

 (unaudited)

	At 30 June 2010	At 30 June 2009	At 31 December 2009
	£'000	£'000	£'000
Fixed assets
Investments - securities	328,225	265,705	323,949
Investments - property	29,900	25,475	31,000
	358,125	291,180	354,949
Current assets
Debtors	2,127	17,495	2,086
Cash and deposits	4,990	1,658	10,683
	7,117	19,153	12,769
Creditors
Amounts falling due within one year	(3,347)	(10,903)	(2,651)
Net current assets	3,770	8,250	10,118
Total assets (less current liabilities)	361,895	299,430	365,067
Debenture stock (note 7)	(87,669)	(88,102)	(87,892)
Net assets	274,226	211,328	277,175
Capital and reserves
Called-up share capital	33,121	33,121	33,121
Capital redemption reserve	22,781	22,781	22,781
Capital reserve	200,699	138,261	204,106
Revenue reserve	17,625	17,165	17,167
Shareholders' funds	274,226	211,328	277,175
Net asset value per ordinary share (Debenture at fair value) (note 7)	199.3p	156.5p	206.0p
Net asset value per ordinary share (Debenture at book value)	207.0p	159.5p	209.2p
Ordinary shares in issue (note 8)	132,485,943	132,485,943	132,485,943

 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

For the six months ended 30 June 2010

 

	Share capital £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2010	33,121	22,781	204,106	17,167	277,175
Total recognised gains and losses	-	-	(3,407)	6,552	3,145
Dividends paid (note 6)	-	-	-	(6,094)	(6,094)
Shareholders' funds at 30 June 2010	33,121	22,781	200,699	17,625	274,226

 

For the six months ended 30 June 2009

	Share capital £'000	Capital redemption reserve £'000	Capital reserve * £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2009	33,121	22,781	127,771	17,102	200,775
Total recognised gains and losses	-	-	10,490	6,025	16,515
Dividends paid (note 6)	-	-	-	(5,962)	(5,962)
Shareholders' funds at 30 June 2009	33,121	22,781	138,261	17,165	211,328

For the year ended 31 December 2009

	Share capital £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2009	33,121	22,781	127,771	17,102	200,775
Total recognised gains and losses	-	-	76,335	11,989	88,324
Dividends paid (note 6)	-	-	-	(11,924)	(11,924)
Shareholders' funds at 31 December 2009	33,121	22,781	204,106	17,167	277,175

 

*      The Capital Reserve balance at 30 June 2010 includes investment holding gains of £28,319,000 (30 June 2009 - losses of £37,153,000; 31 December 2009 - gains of £31,801,000).

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

CONDENSED CASH FLOW STATEMENT (unaudited)
	Six months to 30 June 2010 £'000	Six months to 30 June 2009 £'000	Year to 31 December 2009 £'000
Net cash inflow from operating activities	7,929	8,136	17,097
Net cash outflow from servicing of finance	(3,200)	(3,200)	(6,400)
Total tax paid	(287)	(203)	(476)
Net cash (outflow)/inflow from financial investment	(4,004)	38	9,529
Equity dividends paid	(6,094)	(5,962)	(11,924)
(Decrease)/increase in cash	(5,656)	(1,191)	7,826
Reconciliation of net cash flow to movement in            net debt
(Decrease)/increase in cash in the period	(5,656)	(1,191)	7,826
Translation difference	(37)	(79)	(71)
Other non-cash changes	223	210	420
Movement in net debt in the period	(5,470)	(1,060)	8,175
Net debt at start of the period	(77,209)	(85,384)	(85,384)
Net debt at end of the period	(82,679)	(86,444)	(77,209)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	5,386	18,171	91,694
Losses/(gains) on investments - securities	1,285	(6,123)	(72,678)
Currency losses/(gains)	1,270	(3,880)	(3,171)
Changes in debtors and creditors	(11)	142	1,709
Other non-cash changes	(1)	(174)	(457)
Net cash inflow from operating activities	7,929	8,136	17,097

 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

PERFORMANCE ATTRIBUTION FOR THE SIX MONTHS TO 30 JUNE 2010

(unaudited)

Portfolio breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Total Quoted Equities*	89.5	100.0	(1.7)	(3.7)
Direct Property	10.2	-	7.5	-
Quoted Equity Property Investments	2.9	-	17.6	-
Quoted Equity Forestry Investments	3.8	-	(0.4)	-
Quoted Fixed Interest	20.7	-	13.6	-
Unquoted	0.6	-	7.9	-
Debenture at book value	(29.8)	-	(3.4)	-
Deposits	2.1	-	-	-
Portfolio Total Return (debenture at book value)	100.0	100.0	0.8	(3.7)
Other items			0.3	-
Fund Total Return (debenture at book value)			1.1	(3.7)
Adjustment for change in fair value of debenture			(2.2)	-
Fund Total Return (debenture at fair value)			(1.1)	(3.7)

 

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 & Co.

 

*Excludes quoted equity property and forestry investments.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

TWENTY LARGEST INVESTMENTS At 30 June 2010 (unaudited)
Name	Business	Value £'000	% of total assets
Athena Debt Opportunities Fund	Debt opportunities fund	17,979	5.0
Brazil CPI Linked 15/05/2045	Brazilian government bond	15,814	4.4
Baillie Gifford High Yield Bond Fund	High yield bond fund	12,250	3.4
Cambium Global Timberland	Forestry investment fund	10,350	2.9
Baillie Gifford Greater China Fund	Equity investment fund	8,834	2.4
Holiday Village in New Romney	Holiday village	6,800	1.9
British American Tobacco	Cigarette manufacturer	6,468	1.8
HSBC	Banking	6,179	1.7
Quorum Oil and Gas	Oil industry technology fund	5,955	1.6
DBS	Banking	5,641	1.6
Penn West Energy Trust	Oil and natural gas income trust	5,485	1.5
Nursing Home in Kenilworth	Nursing home	5,200	1.4
Imperial Tobacco	Tobacco	5,165	1.4
Atlas Copco	Engineering	4,930	1.4
GlaxoSmithKline	Pharmaceuticals	4,858	1.3
Rio Tinto	Mining	4,689	1.3
BHP Billiton	Mining	4,629	1.3
New York Community Bank	Banking	4,628	1.3
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	4,621	1.3
Vodafone	Mobile telecommunication services	4,604	1.3
		145,079	40.2

 

 

ASSET ALLOCATION

At 30 June 2010

(unaudited)

 

	30 June 2010 %	30 June 2009 %	31 December 2009 %
UK Quoted Equities*	27.0	24.9	28.9
Overseas Quoted Equities*	42.7	38.6	39.9
Total Quoted Equities*	69.7	63.5	68.8
Direct Property	8.2	8.7	8.5
Quoted Equity Property Investments	2.8	2.4	2.0
Quoted Equity Forestry Investments	2.9	3.5	2.8
Quoted Fixed Interest	14.9	18.5	14.6
Unquoted	0.5	0.6	0.5
Net Liquid Assets	1.0	2.8	2.8
	100.0	100.0	100.0

 

*   Excludes quoted equity and forestry investments

 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited)

1.	The condensed financial statements for the six months to 30 June 2010 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Financial Statements at 31 December 2009 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 to 436 of the Companies Act 2006.  The financial information for the year ended 31 December 2009 has been extracted from the statutory accounts which have been filed with the Registrar of Companies and which contain an unqualified Auditor's Report and do not contain a statement under section 489 (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 six months' notice.  Baillie Gifford & Co receive an annual fee of 0.45% of total assets less current liabilities, excluding the property portfolio, calculated on a quarterly basis. The property portfolio is managed by OLIM Limited, which receives an annual fee of 0.5% of the value of the property portfolio, subject to a minimum quarterly fee of £6,250.  The agreement can be terminated on three months' notice.
4.	Recoverable VAT In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. In the year to 31 December 2009 the Company received further VAT refunds plus interest of £1,649,000 (31 December 2008 - £880,000). In accordance with guidance from the AIC, the VAT recovered has been allocated between revenue and capital on the same basis as the VAT expense was originally charged and the interest received has been allocated wholly to revenue. The Board considers it unlikely that further refunds will be received.
5.	Returns per ordinary share Net return per ordinary share is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,485,943 ordinary shares of 25p, being the number of ordinary shares in issue during each period.  Total recognised gains and losses per ordinary share is based on the total recognised gains for the period in the Statement of Total Recognised Gains and Losses and on 132,485,943 ordinary shares of 25p, being the number of ordinary shares in issue during each period.

 

 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (Ctd)

		Six months to 30 June  2010	Six months to 30 June  2009	Year to 31 December 2009
		£'000	£'000	£'000
6.	Dividends
	Amounts recognised as distributions in the period:
	Previous year's final of 2.30p (2009 - 2.25p), paid 12 April 2010	3,047	2,981	2,981
	First Interim of 2.30p (2009 - 2.25p), paid 30 June 2010	3,047	2,981	2,981
	Second Interim (2009 - 2.25p)	-	-	2,981
	Third Interim (2009 - 2.25p)	-	-	2,981
		6,094	5,962	11,924

	Amounts paid and payable in respect of the period:
	First Interim of 2.30p (2009 - 2.25p), paid 30 June 2010	3,047	2,981	2,981
	Second Interim of 2.30p (2009 - 2.25p)	3,047	2,981	2,981
	Third Interim (2009 - 2.25p)	-	-	2,981
	Final dividend (2009- 2.30p)	-	-	3,047
		6,094	5,962	11,990
	The second interim dividend was declared after the period end date and therefore has not been included as a liability in the balance sheet.  It is payable on 30 September 2010 to shareholders on the register at the close of business on 27 August 2010. The ex-dividend date is 25 August 2010. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for this dividend is 9 September 2010.
7.	The market value of the 8% Debenture Stock 2022 at 30 June 2010 was £97.8m (30 June 2009 - £92.1m; 31 December 2009 - £92.2m).
8.	At 30 June 2010, the Company had the authority to buy back 19,859,642 of its own shares. No shares were bought back during the period under review.
9.	During the period, transaction costs on purchases amounted to £29,000 (30 June 2009 - £149,000; 31 December 2009 - £263,000) and transaction costs on sales amounted to £3,000 (30 June 2009 - £37,000; 31 December 2009 - £73,000).
10.	The Half-Yearly Financial Report will be available on the SAINTS page of the Managers' website: www.saints-it.com on or around 13 August 2010.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (Ctd)

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 19 of the Company's Annual Report and Financial Statements for the year to 31 December 2009. 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 SAINTS page of the Managers' website: www.saints-it.com. Other risks facing the Company include the following: 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); the risk that the discount can widen; and gearing risk (the use of borrowing can magnify the impact of falling markets).
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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