Interim Results
Scottish American Investment Co PLC
31 July 2006
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. (SAINTS)
Results for the six months to 30 June 2006
Against a background of increased volatility, SAINTS continued to outperform its
benchmark* in the first six months of 2006 and increased its dividend by 11%.
• Over the six month period NAV per share** rose by 4.4% compared to a 2.0% rise in the benchmark.
• A second interim dividend has been declared of 1.85p bringing the first half total to 3.55p (2005
-3.21p). The second interim dividend is 14% higher than the corresponding dividend in 2005. The dividend
is covered by earnings which in the first half were 4.43p (2005 - 4.06p).
• Markets were strong in the opening months of 2006 but subsequently fell back in the remaining part of the
period. The UK portfolio, rising by 5.6%, performed better than the overseas portfolio which fell
slightly. The direct property holdings were re-valued at the interim stage and posted a gain. There were
selective additions to the bond portfolio.
• While rates of growth are expected to moderate, the Managers continue to view equity markets as
attractive.
* 70% FTSE All-Share Index and 30% FTSE World ex UK Index in Sterling terms.
** With the debenture valued at its market price.
Past performance is no guarantee of future performance. The value of an
investment and any income from it is not guaranteed and may go down as well as
up and investors may not get back the amount invested. This is because the share
price is determined by the changing conditions in the relevant markets in which
the Company invests and by the supply and demand for the Company's shares.
Investment in investment trusts should be regarded as medium to long-term. You
can find up to date performance information about SAINTS on the Baillie Gifford
website at www.bailliegifford.com.
SAINTS invests in a broad range of assets both in the UK and internationally. It
aims to offer private investors a diversified portfolio that achieves a balance
between growth of capital and income and a progressive dividend policy.
Baillie Gifford & Co, the Edinburgh based fund management group with around £44
billion under management and advice, are investment managers and secretaries to
SAINTS.
31 July 2006
- 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,
Baillie Gifford & Co. 07730 412007
Mike Lord, Director,
Broadgate Marketing 020 7726 6111
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
Interim Report
Against a backdrop of increased volatility in most financial markets, the first
half of 2006 saw further growth in the Company's net asset value and dividend.
Total returns based on NAV were 5.8% if calculated using the market value of the
Company's debenture and 4.1% if calculated using the book value (the difference
is explained by a fall in the market price of the debenture). Both measures
compare favourably to the 3.7% total return on the Company's benchmark index.
The dividend for the period will be 3.55p, 10.6% higher than the dividend for
the corresponding period last year and again well covered by earnings.
The share price total return was 3.8%. The shortfall between this figure and
the NAV returns reflects a slight widening of the discount between the share
price and the net asset value, from 9.3% to 11.1%.
The moderate levels of return and outperformance of the benchmark achieved by
the Company might suggest a placid six months for stockmarkets, but this was not
the experience. For the first few months, stockmarkets rose as investors were
more influenced by strong corporate profits than by the possibility of future
margin pressure or that inflation or interest rates might rise. During April,
the UK market, as measured by the FTSE All-Share Index, was some 10% above its
start of year level and overseas markets, as measured by the FTSE World ex-UK
Index, were 6% ahead. However, from these high points, UK and overseas markets
subsequently fell more than 10% and 13% respectively before recovering towards
the end of June.
For the full six months, the UK market returned 6.1%. The return from the
Company's UK equity investments was lower at 5.6%, a frustrating outcome after
what had been a strong start and given that most of the companies performed well
operationally. We had some notable winners in the mining company Lonmin and the
hedge fund manager Man Group but these were offset by negative contributions
from, for example, Carnival (the cruise ship operator) and Vodafone( the mobile
phone company). The reaction to these disappointments has been selective in
that we have maintained or increased our holdings in companies where we think
the investment case is unchanged (for example Carnival) but made reductions
where the investment case has weakened (for example Vodafone). We also look
forward to better share price performance from the positions in banks and
insurance companies. The investments in these sectors are some of the largest
positions in the UK portfolio, something we are very comfortable with given
their business prospects and share price valuations, but their performance has
been lacklustre to date.
The FTSE World ex-UK Index delivered a return of -1.8% for the period under
review. The Company's investments performed relatively well with a return of
-0.7% but this is still of course an absolute loss. The strongest performances
came from the Russian oil companies Gazprom and Lukoil, the Brazilian oil
company Petrobas and Swedish engineer Atlas Copco. The weakest performances
were from the on-line auction house, e-Bay, the generic pharmaceutical
manufacturer, Teva, the web-based retailer, Amazon and the US housebuilder,
Pulte Homes. As with the UK investments, we have tended to add to stocks that
we think have strong long term prospects but whose share prices have been unduly
weak.
Past performance is no guarantee of future performance.
The Company's bond portfolio began the period with an approximate value of £17m
but ended it at a little over £25m. Bond markets have been tending to fall as
general complacency over inflation and interest rates has given way to concern.
However, the increase in the Company's bonds investments has not been in
response to the availability of higher yields nor to a belief that other
investors are somehow off the mark in what they have chosen to worry about.
Instead it reflects two specific opportunities, one in a bond issued by the Ford
Motor Company of the US but whose principal is guaranteed by a more
credit-worthy party (the investment bank Merrill Lynch), the other is an
index-linked bond issued by the Brazilian government. In both cases, we think
there are specific attractions that justify investment. We find no great appeal
in bond markets generally.
For the first time, the direct property investments have been re-valued at this
interim stage, the result of which is an uplift in value from £38.7m to £42.4m.
This gain reflects a further fall in commercial property yields across the UK
and a small incremental investment at one of the properties.
The Company has benefited greatly from its property investments, particularly so
in recent years, and some further modest capital gain is possible if the
commercial property market remains strong through to the end of the year.
However, the drift upwards in bond yields is beginning to reduce the relative
attractions of property.
The current asset allocation reflects a view that equity markets are attractive.
Global economic growth is expected to moderate, interest rates will probably
rise further and year on year growth rates in corporate earnings are likely to
decline. However, we view these developments as an adjustment to a more
sustainable path of economic development and corporate profits growth rather
than a precursor to a prolonged period of stockmarket gloom. If we are right,
the Company's net asset value and dividend should continue to grow.
Past performance is no guarantee of future performance.
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
The following is the interim statement for the six months ended 30 June 2006
which has been neither reviewed nor audited by the auditors. This statement is
being printed and will be sent to all shareholders on 15 August 2006. 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.
INCOME STATEMENT*
(unaudited)
For the six months ended For the six months ended For the year ended
30 June 2006 30 June 2005 31 December 2005
Revenue Capital Total* Revenue Capital Total* Revenue Capital Total*
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised gains on investments
- securities - 21,607 21,607 - 2,740 2,740 - 10,173 10,173
Unrealised (losses)/gains on
investments - securities - (14,929) (14,929) - 16,146 16,146 - 53,598 53,598
Currency losses - (156) (156) - (763) (763) - (691) (691)
Income 8,534 - 8,534 7,980 - 7,980 13,986 - 13,986
Management fees (487) (486) (973) (401) (401) (802) (812) (812) (1,624)
Other administrative expenses (373) - (373) (387) - (387) (796) - (796)
Net return before finance
costs and taxation 7,674 6,036 13,710 7,192 17,722 24,914 12,378 62,268 74,646
Finance costs of borrowings (1,513) (1,512) (3,025) (1,520) (1,519) (3,039) (3,035) (3,035) (6,070)
Return on ordinary activities
before taxation 6,161 4,524 10,685 5,672 16,203 21,875 9,343 59,233 68,576
Tax on ordinary activities (285) 241 (44) (290) 190 (100) (343) 205 (138)
Return on ordinary activities 5,876 4,765 10,641 5,382 16,393 21,775 9,000 59,438 68,438
after taxation
Return per ordinary share 4.43p 3.60p 8.03p 4.06p 12.38p 16.44p 6.80p 44.86p 51.66p
(note 2)
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
(unaudited)
Return on ordinary activities
after taxation 5,876 4,765 10,641 5,382 16,393 21,775 9,000 59,438 68,438
Gains on investments
- property - 3,382 3,382 - - - - 4,728 4,728
Total recognised gains for
the period 5,876 8,147 14,023 5,382 16,393 21,775 9,000 64,166 73,166
Total recognised gains per
ordinary share (note2) 4.43p 6.15p 10.58p 4.06p 12.38p 16.44p 6.80p 48.43p 55.23p
Note:
Dividends paid and proposed
per share (note 3) 3.55p 3.21p 6.53p
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.
SUMMARISED BALANCE SHEET
At 30 June 2006
(unaudited)
At 30 June At 30 June At 31 December
2006 2005 2005
£'000 £'000 £'000
Fixed assets
Investments - securities 392,154 342,321 386,748
Investments - property 42,400 33,972 38,700
434,554 376,293 425,448
Current assets
Debtors 1,350 7,140 1,393
Cash and deposits 4,604 4,474 1,095
5,954 11,614 2,488
Creditors
Amounts falling due within one year (5,143) (8,815) (1,915)
Net current assets 811 2,799 573
Total assets (before deduction of debenture stock) 435,365 379,092 426,021
Debenture stock (note 4) (89,255) (89,599) (89,430)
346,110 289,493 336,591
Capital and reserves
Called-up share capital 33,121 33,121 33,121
Capital redemption reserve 22,781 22,781 22,781
Capital reserve - realised 191,793 166,506 172,099
Capital reserve - unrealised 83,530 52,897 95,077
Revenue reserve 14,885 14,188 13,513
Equity shareholders' funds 346,110 289,493 336,591
Net asset value per ordinary share
(Debenture at market value) 251.8p 206.4p 241.2p
Net asset value per ordinary share
(Debenture at book value) 261.2p 218.5p 254.1p
Ordinary shares in issue (note 5) 132,485,943 132,485,943 132,485,943
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited)
For the For the For the
six months to six months to year to
30 June 30 June 31 December
2006 2005 2005
£'000 £'000 £'000
Shareholders' funds at start of the period 336,591 271,931 271,931
Total recognised gains for the period 14,023 21,775 73,166
Dividends recognised in the period (4,504) (4,213) (8,506)
Shareholders' funds at end of the period 346,110 289,493 336,591
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Six months to Six months to Year to
30 June 30 June 31 December
2006 2005 2005
£'000 £'000 £'000
Net cash inflow from operating activities 7,486 6,612 11,665
Net cash outflow from servicing of finance (3,200) (3,200) (6,400)
Total tax paid (35) (79) (120)
Net cash inflow from financial investment 3,762 1,283 2,491
Equity dividends paid (4,504) (4,054) (10,453)
Increase/(decrease) in cash 3,509 562 (2,817)
Reconciliation of net cash flow to movement in
net debt
Increase/(decrease) in cash in the period 3,509 562 (2,817)
Other non-cash changes 175 161 330
Movement in net debt in the period 3,684 723 (2,487)
Net debt at start of the period (88,335) (85,848) (85,848)
Net debt at end of the period (84,651) (85,125) (88,335)
Reconciliation of net return before finance costs and
taxation to net cash inflow from operating activities
Net return before finance costs and taxation 13,710 24,914 74,646
Gains on investments - securities (6,678) (18,886) (63,771)
Currency losses 156 763 691
Changes in debtors and creditors 309 (209) 51
Other non-cash changes (11) 30 48
Net cash inflow from operating activities 7,486 6,612 11,665
ASSET ALLOCATION
At 30 June 2006
(unaudited)
30 June 2006 30 June 2005 31 December 2005
% % %
UK Quoted Equities 55.3 59.1 56.6
Global (ex UK) Quoted Equities 28.2 24.9 28.9
Unquoted 0.8 1.3 1.2
Quoted Fixed Interest 5.8 5.0 4.1
Properties 9.7 9.0 9.1
Net Liquid Assets 0.2 0.7 0.1
100.0 100.0 100.0
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
PERFORMANCE FOR THE SIX MONTHS TO 30 JUNE 2006
(unaudited)
Average allocation Total return* Contribution
SAINTS Benchmark SAINTS Benchmark to total return
% % % % %
UK Quoted Equities 69.2 70.0 5.6 6.1 4.2
Global (ex UK) Quoted Equities 35.9 30.0 (0.9) (1.8) (0.3)
Quoted Fixed Interest 5.3 - (0.3) - 0.1
Properties 11.0 - 11.9 - 1.3
Unquoted 1.3 - (5.4) - (0.1)
Deposits and other items 2.5 - - - 0.1
Portfolio Total Return 5.3
Finance costs (25.2) - (3.4) - (0.8)
Management fees and other expenses - - - - (0.4)
NAV Total Return (debenture at
book value) 4.1
Adjustment for change in market value of
debenture 1.7
NAV Total Return (debenture at market
value) 5.8
Benchmark Total Return 3.7
* The above returns are calculated on a total return basis with net income
reinvested.
Past performance is no guarantee of future performance.
Source: Baillie Gifford & Co
TWENTY LARGEST INVESTMENTS
At 30 June 2006
(unaudited)
Market % of total
value
assets
£'000
Name Business
GlaxoSmithKline Pharmaceuticals and biotechnology 17,340 4.0
Royal Bank of Scotland Banking 16,627 3.8
HSBC Banking 14,571 3.3
BP Oil and gas 14,319 3.3
Barclays Banking 13,334 3.1
Petrobras Oil and Gas 11,270 2.6
HBOS Banking 10,105 2.3
Royal Dutch Shell Oil and Gas 9,577 2.2
Rio Tinto Mining 9,435 2.2
Aviva Life assurance 8,750 2.0
Hotel in Milton Keynes Property 8,000 1.8
Diageo Beverages 7,503 1.7
Lonmin Mining 7,033 1.6
Vodafone Telecommunications 6,660 1.5
Atlas Copco Industrial engineering 6,072 1.4
Holiday Village in New Romney Property 6,000 1.4
Altria Tobacco 5,920 1.4
Prudential Life assurance 5,387 1.2
Northern Rock Banking 5,297 1.2
Samsung Electronics Electronic and electrical 5,177 1.2
equipment
188,377 43.2
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
NOTES
1. The financial statements for the six months to 30 June 2006 have been prepared on the basis of the
accounting policies set out in the Company's Annual Financial Statements at 31 December 2005.
2. 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 weighted average number of
ordinary shares in issue during each period. Total recognised gains per ordinary share is based on
the total recognised gains for the period figures in the Statement of Total Recognised Gains and
Losses and on 132,485,943 ordinary shares of 25p, being the weighted average number of ordinary
shares in issue during each period.
3. Dividends
Six months to Six months to Year to
30 June 30 June 31 December
2006 2005 2005
£'000 £'000 £'000
Amounts recognised as distributions in the
period:
Previous year's final of 1.70p (2005 - 1.59p),
paid 31 March 2006 2,252 2,106 2,106
First Interim of 1.70p (2005 - 1.59p), paid 30
June 2006 2,252 2,107 2,106
Second Interim (2005 - 1.62p) - - 2,147
Third Interim (2005 - 1.62p) - - 2,147
4,504 4,213 8,506
Amounts paid and proposed in the period:
First Interim of 1.70p (2005 - 1.59p), paid 30
June 2006 2,252 2,107 2,106
Second Interim of 1.85p (2005 - 1.62p) 2,451 2,146 2,147
Third Interim (2005 - 1.62p) - - 2,147
Final dividend (2005 - 1.70p) - - 2,252
4,703 4,253 8,652
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 29 September 2006 to shareholders on
the register at the close of business on 8 September 2006. The ex-dividend date is 6 September 2006.
4. The market value of the 8% Debenture Stock 2022 at 30 June 2006 was £101.8m (30 June 2005 - £105.6m;
31 December 2005 - £106.4m).
5. At 30 June 2006, 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.
6. Transaction costs incurred on the purchase and sale of investments are added to the purchase costs
or deducted from the sales proceeds, as appropriate. During the period, transaction costs on
purchases amounted to £270,000 (30 June 2005 - £156,000; 31 December 2005 - £322,000) and
transaction costs on sales amounted to £85,000 (30 June 2005 - £24,000; 31 December 2005 - £72,000).
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 2005 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 237 (2) or (3) of the Companies Act 1985.
8. The Interim Report was approved by the Board on 28 July 2006.
None of the views expressed in this document should be construed as advice to buy or sell a
particular investment.
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