Interim Results
Scottish American Investment Co PLC
30 July 2004
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
Results for the six months to 30 June 2004
• In the six months to 30 June 2004, the Company's net asset value (NAV)
total return was 0.9%*. The total return on the Company's shares over
this period was 6.0%.
• With the Company's share price return exceeding the NAV return, the
discount to NAV has narrowed from 17.9% to 14.2%*.
• A second interim dividend of 1.47p is to be paid, making the total for the
year to date of 2.94p, an increase of 4.3% compared to the same period last
year. This is in line with the Company's commitment to sustaining a
progressive dividend policy.
• The Company's benchmark composite index (70% FTSE All-Share Index and
30% FTSE World Ex UK Index in sterling terms) returned 2.8%.
• The Company's investments in UK quoted equities performed well, but this
was outweighed by the costs incurred in restructuring the portfolio and by
the performance of the bond and overseas equity portfolios.
• The Board and Managers remain positive on the prospects for the Company's
equity investments and, as such, remain modestly geared to quoted equity
markets.
*With debentures at Market Value
The Scottish American Investment Company P.L.C. (SAINTS) aims to achieve
balanced growth in both income and capital to sustain a progressive dividend
policy. It offers private investors a diversified portfolio through investment
in a broad range of assets. The focus is on UK and overseas equities; other
investments include direct UK property and fixed interest holdings.
SAINTS is managed by Baillie Gifford & Co., the Edinburgh based fund management
group with around £28 billion under management and advice.
30 July 2004
- ends -
For further information please contact:
Patrick Edwardson, Manager,
The Scottish American Investment Company P.L.C. 0131 275 2133
07812 537316
Robert O'Riordan, Marketing Manager
Baillie Gifford & Co. 07730 412007
Mike Lord, Director,
Broadgate Marketing 020 7726 6111
Baillie Gifford & Co. is authorised and regulated by the Financial Services
Authority.
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
Chairman's Statement
Results
The Company's net asset value per share at 30 June 2004 was 180.6p compared to
181.9p at 31 December 20031. The NAV total return for the period was 0.9%.
The Company's share price at 30 June 2004 was 155.0p compared to 149.3p at 31
December 2003, a rise of 3.8%*. Including dividends paid, the total return on
the Company's shares was 6.0%.
A composite index made up of 70% of the FTSE All-Share Index and 30% of the FTSE
World ex-UK Index would have returned 2.8% over the same period.
Dividend
The Company is committed to sustaining a progressive dividend policy. I am
pleased to report that the second interim dividend will be paid at a rate of
1.47p per share. This is an increase of 4.3% on the second interim payment in
2003. This makes a total for the year to date of 2.94p compared to 2.82p last
year.
Management
The Board appointed a new manager and secretary, Baillie Gifford and Co., at the
start of 2004. Their administration of the Company's portfolio during the first
six months of their tenure has been thorough and professional. Although the NAV
total return has fallen short of the benchmark, this is partly explained by the
costs of reorganising the portfolio in the opening weeks of their management.
The investment performance of the Company's UK equities has been good. UK
equities make up the majority of the Company's stockmarket investments and their
performance will have an important bearing on the ability of the Company to grow
capital over the long-term and sustain a progressive dividend policy.
Investment Background
The first half of 2004 has seen the global economy expand at its fastest rate
for some considerable time. Many companies have reported strong growth in their
profits and financial strength. Disappointingly, this good news has not been
rewarded with a noticeable rise in equity values. Instead, stockmarkets have
been restrained by the prospect of rising interest rates and by concern over the
strength in the oil price. Bond markets have been weak.
Outlook
The Company's investments are performing well at the operational level and
producing attractive rates of growth in their dividends and earnings per share.
In anticipation of this being reflected in higher share prices, the Board is
happy to remain modestly geared to quoted equity markets.
1These figures are calculated with the Company's debenture recorded at its
market value. With the debenture at book value, the respective figures are
184.5p and 185.8p.
* Past performance is no guarantee of future performance.
Manager's Report
The six months to 30 June was a period of robust growth in the world economy and
corporate profits but low returns for equity investors.
The return on the UK stockmarket, as measured by the FTSE All-Share Index, was a
modest 2.8%. Local currency returns on overseas markets were generally better
but the pound appreciated against other currencies. This appreciation ensured
that, in sterling terms, the FTSE World ex-UK Index produced a total return of
only 2.6%.
The prospect of higher interest rates has been one restraining factor on equity
markets. This has led some equity investors to fear that economic and profits
growth will falter. It has also been the prime cause of a poor six months in
bond markets.
Another factor affecting confidence has been the persistently high oil price,
partly because it threatens to push up inflation and partly because it dampens
growth in oil-consuming nations. With oil supply and demand finely balanced and
little spare capacity amongst producer nations, the price of oil seems likely to
stay high for some considerable time yet.
Despite these issues, we remain positive on the prospects for the Company's
equity investments. Our confidence is based on the operational performance of
the investments which, generally speaking, has been good. Reflecting this
positive assessment, the Company's net assets were at least fully invested
throughout the first six months and finished the period with modest gearing into
quoted equity markets.
Stock selection in the UK was good and returns on the UK investments exceeded
the return on the FTSE All-Share index. However, the margin of outperformance
was not great enough to offset relatively poor returns in overseas markets where
holdings in some emerging market stocks were unhelpful. The bond portfolio
proved a mixed blessing. Its capital value fell in line with the broader bond
market but the income received helped to offset the fixed borrowing cost of the
Company's debenture. The commercial property market has remained buoyant and the
Company's investments again seem likely to generate a positive return for the
full year.
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
The following is the interim statement for the six months ended 30 June 2004
which has been neither reviewed nor audited by the auditors. This statement is
being printed and will be sent to all shareholders on 16 August 2004. 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.
STATEMENT OF TOTAL RETURN
(unaudited and incorporating the revenue account*)
for the six months ended for the six months ended for the year ended
30 June 2004 30 June 2003 31 December 2003
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised gains/(losses) on - 3,046 3,046 - (9,020) (9,020) - (12,388) (12,388)
investments
Unrealised (losses)/ gains on - (4,902) (4,902) - 16,960 16,960 - 46,417 46,417
investments
Currency gains/(losses) - 36 36 - (8) (8) - (88) (88)
Income (note 4) 7,535 - 7,535 6,201 - 6,201 11,412 - 11,412
Investment management fee (344) (344) (688) 42 127 169 132 550 682
Property management fee (40) (40) (80) (74) - (74) (146) - (146)
Other administrative expenses (511) - (511) (384) - (384) (839) - (839)
Net return before finance 6,640 (2,204) 4,436 5,785 8,059 13,844 10,559 34,491 45,050
costs and taxation
Finance costs of borrowings (1,474) (1,473) (2,947) (736) (2,210) (2,946) (1,473) (4,420) (5,893)
Return on ordinary activities 5,166 (3,677) 1,489 5,049 5,849 10,898 9,086 30,071 39,157
before taxation
Tax on ordinary activities (311) 241 (70) (678) 604 (74) (1,173) 1,064 (109)
Return on ordinary activities 4,855 (3,436) 1,419 4,371 6,453 10,824 7,913 31,135 39,048
after taxation
Dividends in respect of equity(3,865) - (3,865) (3,815) - (3,815) (7,643) - (7,643)
shares
Transfer to/(from) reserves 990 (3,436) (2,446) 556 6,453 7,009 270 31,135 31,405
Return per ordinary share
(note 5) 3.63p (2.57p) 1.06p 3.20p 4.73p 7.93p 5.82p 22.90p 28.72p
Dividends per ordinary share 2.94p 2.82p 5.65p
(note 6)
* The revenue column of this statement is the profit and loss account of the
Company.
All revenue and capital items in this statement derive from continuing
operations.
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
SUMMARISED BALANCE SHEET
at 30 June 2004
(unaudited)
30 June 30 June 31 December
2004 2003 2003
£'000 £'000 £'000
NET ASSETS
Fixed asset investments 331,030 292,179 298,383
Net liquid assets 2,383 24,594 42,163
Total Assets (before deduction of debenture stock) 333,413 316,773 340,546
Debenture stock (note 2) (89,006) (89,513) (89,260)
244,407 227,260 251,286
CAPITAL AND RESERVES
Called-up share capital 33,121 33,881 33,818
Capital reserves 199,715 182,512 206,887
Revenue reserve 11,571 10,867 10,581
EQUITY SHAREHOLDERS' FUNDS 244,407 227,260 251,286
NET ASSET VALUE PER ORDINARY SHARE
(debentures at book value) 184.5p 167.7p 185.8p
NET ASSET VALUE PER ORDNARY SHARE
(debentures at market value) 180.6p 162.0p 181.9p
Ordinary shares in issue (note 3) 132,485,943 135,522,943 135,270,943
ASSET ALLOCATION
at 30 June 2004
(unaudited)
30 June 30 June 31 December
2004 2003 2003
% % %
UK Quoted Equities 53.5 48.1 51.9
Global (ex UK) Quoted Equities 23.3 24.3 23.4
Unquoted/Subsidiaries 1.8 2.2 1.9
Quoted Fixed Interest 11.6 8.6 1.5
Properties 9.1 9.1 8.9
Net Liquid Assets 0.7 7.7 12.4
100.0 100.0 100.0
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Six months to Restated Six Restated Year to
30 June months to 31 December
2004 30 June 2003
£'000 2003 £'000
£'000
Net cash inflow from operating activities 5,191 6,201 11,667
Net cash outflow from servicing of finance (3,200) (3,200) (6,400)
Total tax paid (62) (82) (144)
Net cash (outflow)/inflow from financial investment (38,112) (2,678) 17,940
Equity dividends paid (3,798) (3,862) (7,687)
NET CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES
AND FINANCING (39,981) (3,621) 15,376
Net cash inflow/(outflow) from use of liquid resources 40,000 7,698 (10,015)
Net cash outflow from financing (note 3) (4,433) (2,812) (3,183)
(DECREASE)/INCREASE IN CASH (4,414) 1,265 2,178
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(Decrease)/increase in cash in the period (4,414) 1,265 2,178
(Decrease)/increase in short term deposits (40,000) (7,698) 10,015
Other non-cash changes 254 254 507
MOVEMENT IN NET DEBT IN THE PERIOD (44,160) (6,179) 12,700
Net debt at start of the period (42,539) (55,239) (55,239)
NET DEBT AT END OF THE PERIOD (86,699) (61,418) (42,539)
RECONCILIATION OF OPERATING REVENUE TO NET CASH INFLOW
FROM OPERATING ACTIVITIES
Net revenue before finance costs and taxation 6,640 5,785 10,559
Management fees charged to capital (384) 127 550
Changes in debtors and creditors (1,065) 289 558
NET CASH INFLOW FROM OPERATING ACTIVIITES 5,191 6,201 11,667
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
PERFORMANCE ATTRIBUTION
for 6 months to 30 June 2004 (in sterling terms)
(unaudited)
Average allocation Total return* Contribution
SAINTS Benchmark SAINTS Benchmark to total return
% % % % %
UK Quoted Equities 71.8 70.0 3.2 2.8 2.3
Global (ex UK) Quoted Equities 30.7 30.0 (1.0) 2.6 (0.3)
Quoted Fixed Interest 15.2 - (2.8) - (0.4)
Properties 12.1 - 3.9 - 0.5
Unquoted/Subsidiaries 2.4 - (1.2) - -
Cash and Deposits 2.6 - 1.8 - -
Portfolio Total Return 2.1
Debentures (at market value) (34.8) - (3.0) - (1.0)
Share buy backs - - - - 0.3
Expenses - - - - (0.5)
NAV Total Return 0.9
* The above returns are calculated on a total return basis with net income
reinvested.
TWENTY LARGEST HOLDINGS
at 30 June 2004
(unaudited)
Market % of
value total
£'000 assets
Name Business
Vodafone Mobile telecommunication services 13,091 3.9
GlaxoSmithKline Pharmaceuticals 11,395 3.4
Royal Bank of Scotland Banking 9,451 2.8
Barclays Banking 9,309 2.8
HSBC Banking 9,294 2.8
British American Tobacco Tobacco 7,947 2.4
Aviva Life assurance 6,504 2.0
Diageo Branded spirits 6,137 1.8
Milton Keynes - The Approach Property - hotel 6,100 1.8
Imperial Tobacco Tobacco 6,083 1.8
International Mezzanine Unquoted 5,721 1.7
Prudential Life assurance 5,604 1.7
Scottish & Southern Energy Electricity utility 5,295 1.6
BOC Industrial gases supplier 4,821 1.4
Hilton Group Hotel chain 4,645 1.4
United Utilities Utilities company 4,573 1.4
Allied Domecq Branded spirits 4,239 1.4
BP Integrated oil 4,153 1.2
Altria Group Tobacco and food 4,115 1.2
Nottingham - Exchange Bar Diner Property - public house 4,100 1.2
132,577 39.7
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
NOTES
1. The financial statements for the six months to 30 June 2004 have been prepared on the basis of the
accounting policies set out in the Company's Annual Financial Statements at 31 December 2003 except
that the format of the Cash Flow Statement has been changed to comply with FRS1 (Revised 1996): Cash
Flow Statements. With effect from 1 January 2004 the allocation method applying to investment and
property management fees and finance costs has been changed to 50% revenue/50% capital. Previously,
investment management fees and finance costs were allocated 25% revenue/75% capital and property
management fees were allocated 100% to revenue.
The Interim Report was approved by the Board on 29 July 2004.
None of the views expressed in this document should be construed as advice to buy or sell a
particular investment.
2. The market value of the 8% Debenture Stock 2022 at 30 June 2004 was £94.2m (30 June 2003 - £97.2m;
31 December 2003 - £94.6m).
3. During the period under review the Company bought back 2,785,000 ordinary shares with a nominal
value of £696,250 for a total consideration of £4,433,000. At 30 June 2004 the Company had the
authority to buy back a further 19,311,328 shares.
30 June 30 June 31 December
2004 2003 2003
£'000 £'000 £'000
4. Income
Income from investments 6,168 4,431 8,146
Rental income 1,278 1,204 2,365
Other income 89 566 901
7,535 6,201 11,412
5. Return per ordinary share
Revenue return 4,855 4,371 7,913
Capital return (3,436) 6,453 31,135
Return per ordinary share is based on the above totals of revenue and capital and on 133,670,998 (30
June 2003 - 136,510,982; 31 December 2003 - 135,955,116) ordinary shares, being the weighted average
number of ordinary shares in issue during the period.
6. The first interim dividend of 1.47p (2003 - 1.41p) per share was paid on 2 July 2004. The second
interim dividend of 1.47p will be paid on 1 October 2004 to all shareholders on the register at the
close of business on 10 September 2004. The ex dividend date is 8 September 2004.
7. The financial information contained within this interim report does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. The financial information for the year
ended 31 December 2003 has been extracted from the statutory accounts which have been filed with the
Registrar of Companies and which contain an unqualified Auditors' Report and do not contain a
statement under sections 237(2) or (3) of the Companies Act.
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