Final Results
To: Stock Exchange For immediate release:
29 April 2004
Securities Trust of Scotland plc
Annual results for the year ended 31 March 2004
Chairman's statement
Following three years of almost unremitting gloom in the UK stockmarket,
the twelve months to 31 March 2004 witnessed a sharp recovery in equity
prices. Initially, sentiment improved with a 'relief rally' on events in
Iraq and, thereafter, robust economic performance bolstered investor
confidence.
Total return performance
The net asset value per share (NAV) total return of 32.3% outperformed
that of the benchmark FTSE All-Share index, at 31.0%. Gearing was
beneficial in the rising market, reversing three years of negative
contribution, and offset two other factors that were less helpful to
performance. First, the company's exposure to defensive equity sectors,
which had afforded some protection in the downturn, was unhelpful at a
time of economic recovery, when investors preferred the more cyclical
characteristics of financially and operationally leveraged companies.
Second, the company's income requirements necessitate a relatively high
weighting in fixed interest securities. Although these performed well
compared to their benchmark, they lagged the recovery in the equity
market.
The discount of the share price to NAV widened from 12.1% at 31 March
2003 to 15.7% at 31 March 2004. The Board is disappointed that the
discount has widened to this level and has recently reactivated a share
buyback program with a view to enhancing the NAV of the company and
reducing the level of the discount. In the twelve months to 31 March
2004, 1.7 million shares have been repurchased for cancellation and,
since the year-end, a further 1.25 million have been bought in. This
totals 0.4% of the share capital outstanding as at 31 March 2004. The
Board has no current intention of holding shares in treasury for re-
issue, despite recent changes in legislation that allow investment
trusts so to do.
Earnings and dividends
Earnings per share increased by 8.1%, from 4.47p to 4.83p. This is
higher than indicated in my letter accompanying the second interim
dividend, due to several companies unexpectedly paying dividends at the
end of March rather than in April. The underlying level of dividends
from the UK stockmarket has shown growth of just 2.4% over the last
twelve months due to, inter alia, a difficult operating environment and
the impact of a declining dollar on the many companies that declare
their dividends in the US currency. It is estimated that some 25% of the
value of UK stockmarket dividends is currently declared in dollars; 22%
of the company's equity income in the year was received in dollars.
The government has abolished the recoverable tax credit on dividends
received in PEPs and ISAs with effect from 5 April 2004. Therefore, to
help shareholders who hold their shares in PEPs or ISAs, the Board
declared a second interim dividend of 3.28p per share, payable on 31
March 2004 to shareholders on the register on 5 March 2004. Taken with
the first interim dividend of 1.27p per share, this made a total of
4.55p per share in respect of the year ended 31 March 2004, an increase
of 0.7% on the 4.52p paid in the previous financial year. The Board is
accordingly not recommending a final dividend.
The company's dividend has now increased for ten consecutive years. The
4.55p per share paid in the year just completed represented a yield of
5.2% on the share price at 31 March 2004, a significant premium to the
3.1% yield of the FTSE All-Share index on that date. Revenue reserves at
31 March 2004 stood at 2.85p per share, or over 60% of the current
dividend payment. The Board would remind shareholders that the company's
relatively high yield is achieved partially by gearing and the
accounting policy of charging 70% of finance costs and management fees
to capital. In the year to 31 March 2004, such capitalised expenses
amounted to 2.66p per share.
Corporate matters
Peter Millar, who joined the Board in 1996, stepped down in February
this year and I would like to thank him, on shareholders' behalf, for
the valuable contribution that he has made during his tenure. I have
intimated to my colleagues that I intend to retire at the 2005 AGM and,
as a consequence of recent changes to the Listing Rules, either Andrew
Irvine or Michael Walker must also step down by 1 April 2005, as both
are deemed professional advisers to the company's managers, Martin
Currie. The Board has begun the process of considering new candidates.
There have been a number of other changes to the corporate governance
landscape over the last twelve months, which you will find reflected in
a somewhat expanded Report of the Directors. I trust that the additional
information that this provides will give you further reassurance that
the stewardship of the company is in safe hands, both with respect to
the Directors - all, like yourselves, shareholders - and our service
providers.
Outlook
Although investor sentiment has clearly improved since the initial
success of the ground war in Iraq, global political instability will
continue to exert a negative influence on confidence for the foreseeable
future. Economic conditions are no less uncertain, with the interest
rate cycle having already turned in the UK and closer to so doing in the
key US economy. Equities will thus struggle to maintain the momentum of
the last twelve months, given that they are no longer obviously cheap
and with corporate earnings' expectations already reflecting much of the
anticipated recovery in the economy. Dividend growth remains sluggish,
with the full-year impact of the declining dollar now starting to be
felt.
- ends -
For further information, please contact:
Tom Maxwell or Michael Woodward
Martin Currie Investment 0131 229 5252
Management Ltd
tmaxwell@martincurrie.com / mwoodward@martincurrie.com
SECURITIES TRUST OF SCOTLAND plc
Statement of total return (incorporating the revenue account*) for the
year ended 31 March 2004
Audited
Revenue Capital Total
£'000 £'000 £'000
Gains on investments - realised - 12,214 12,214
- unrealised - 54,492 54,492
Currency losses - (113) (113)
Income - franked 17,886 - 17,886
- unfranked 1,427 - 1,427
Investment management fee (593) (1,383) (1,976)
Other expenses (636) (28) (664)
________ ________ ________
Net return before finance costs and 18,084 65,182 83,266
taxation
Interest payable and similar charges (2,940) (6,861) (9,801)
________ ________ ________
Return on ordinary activities before 15,144 58,321 73,465
taxation
Taxation on ordinary activities (74) - (74)
________ ________ ________
Return attributable to equity shares 15,070 58,321 73,391
Dividends in respect of equity (14,177) - (14,177)
shares (4.55p per share)
________ ________ ________
Transfer to reserves 893 58,321 59,214
________ ________ ________
Return per ordinary share 4.83p 18.70p 23.53p
* The revenue column of this statement is the profit and loss account of
the company. All revenue and capital items in the above statement derive
from continuing operations. No operations were acquired or discontinued
in the year.
The financial information contained within this preliminary announcement
does not constitute the company's statutory financial statements as
defined in section 240 of the Companies Act 1985 for the years ended 31
March 2004 or 2003, but is derived from those financial statements.
Statutory financial statements for 2003 have been delivered to the
Registrar of Companies and those for 2004 will be delivered following
the company's annual general meeting which will be held at Saltire
Court, 20 Castle Terrace, Edinburgh EH1 2ES on Wednesday 16 June 2004 at
12.30pm. The auditors have reported on those financial statements,
their reports were unqualified and did not contain statements under
s237(2) or (3) of the Companies Act (1985).
The terms of the annual report and preliminary announcement were
approved by the board on 29 April 2004.
SECURITIES TRUST OF SCOTLAND plc
Statement of total return (incorporating the revenue account*) for the
year ended 31 March 2003
Audited
Revenue Capital Total
£'000 £'000 £'000
Losses on - realised - (26,003) (26,003)
investments
- unrealised - (110,737) (110,737)
Income - franked 16,864 - 16,864
- unfranked 1,371 - 1,371
Investment management fee (692) (1,615) (2,307)
Other expenses (661) (46) (707)
________ ________ ________
Net return before finance costs and 16,882 (138,401) (121,519)
taxation
Interest payable and similar charges (2,937) (6,853) (9,790)
________ ________ ________
Return on ordinary activities before 13,945 (145,254) (131,309)
taxation
Taxation on ordinary activities - - -
________ ________ ________
Return attributable to equity shares 13,945 (145,254) (131,309)
Dividends in respect of equity (14,103) - (14,103)
shares (4.52p per share)
________ ________ ________
Transfer from reserves (158) (145,254) (145,412)
________ ________ ________
Return per ordinary share 4.47p (46.55p) (42.08p)
* The revenue column of this statement is the profit and loss account of
the company. All revenue and capital items in the above statement derive
from continuing operations. No operations were acquired or discontinued
in the year.
SECURITIES TRUST OF SCOTLAND plc
BALANCE SHEET
As at 31 March As at 31 March
2004 2003
(audited) (audited)
£000 £000 £000 £000
Investments at market value
Listed on Stock Exchanges in the UK 439,247 364,551
Unlisted at Directors' valuation - -
_______ _______
439,247 364,551
Current assets
Debtors 9,450 6,492
Cash at bank 1,909 28,358
_______ _______
11,359 34,850
Creditors
Amounts falling due within one year (55,422) (11,943)
_______ _______
Net current (liabilities) / assets (44,063) 22,907
_______ _______
Total assets less current 395,184 387,458
liabilities
Creditors
Amounts falling due after one year (73,922) (123,882)
_______ _______
Total assets attributable to 321,262 263,576
share capital
_______ _______
Capital and reserves
Called up ordinary share capital 77,581 78,006
Capital redemption reserve 2,499 2,074
Realised capital reserve 201,673 199,372
Unrealised capital reserve 30,651 (23,841)
Revenue reserve 8,858 7,965
_______ _______
Equity shareholders' funds 321,262 263,576
_______ _______
Net asset value per ordinary share 103.53p 84.47p
SECURITIES TRUST OF SCOTLAND plc
STATEMENT OF CASH FLOW
Year to Year to
31 March 2004 (audited) 31 March 2003 (audited)
£000 £000 £000 £000
Operating activities
Net dividends and interest received from investments 18,628 18,351
Investment management fee (1,976) (2,307)
Cash paid to and on behalf of Directors (78) (83)
Bank charges (19) (30)
Other cash payments (543) (575)
_______ _______
Net cash inflow from operating activities 16,012 15,356
Servicing of finance
Interest paid (9,801) (9,779)
_______ _______
Net cash outflow from servicing of finance (9,801) (9,779)
Taxation
Foreign taxation recovered 24 43
_______ _______
Net cash inflow from taxation 24 43
Capital expenditure and financial investment
Payments to acquire investments (104,479) (44,225)
Receipts from disposal of investments 97,640 59,573
_______ _______
Net cash (outflow) / inflow from investing activities (6,839) 15,348
Equity dividends paid (24,317) (13,855)
_______ _______
Net cash (outflow) / inflow before use of liquid (24,921) 7,113
resources and financing
Financing
Repurchase of ordinary share capital (1,528) -
_______ _______
Net cash outflow from financing (1,528) -
_______ _______
(Decrease) / increase in cash for the year (26,449) 7,113
_______ _______
SECURITIES TRUST OF SCOTLAND plc
NOTES TO THE STATEMENT OF CASH FLOW
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Year to Year to
31 March 2004 (audited) 31 March 2003 (audited)
£000 £000
Net revenue before interest payable and taxation 18,084 16,882
(Increase) / decrease in accrued income and other (637) 130
debtors
Decrease in creditors (20) (24)
Capitalised management expenses (1,383) (1,615)
Capitalised expenses - (18)
Amortised debenture issue expenses and discount 12 12
Net taxation withheld (74) (43)
Effective yield adjustment 30 32
________ ________
Net cash inflow from operating activities 16,012 15,356
________ ________
Reconciliation of net cash flow to movement in net debt
Year to Year to
31 March 2004 (audited) 31 March 2003 (audited)
£000 £000
(Decrease) / increase in cash in the period (26,449) 7,113
Expenses amortised during the year (40) (40)
Net debt as at 1 April (95,524) (102,597)
_________ _________
Net debt as at 31 March (122,013) (95,524)
_________ _________
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