Half-yearly report - Interim Results to 30 Sep...
To: Stock Exchange For immediate
release:
30 October 2007
Securities Trust of Scotland plc
Interim results for the six months ended 30 September 2007
Chairman's statement
Introduction
During the period under review, higher yielding equities have underperformed.
Against this background we made modest progress in the six months to 30
September 2007. The net asset value (NAV) total return was 0.9%, compared with
the benchmark FTSE All-Share index, which returned 2.7%.
Since flotation in June 2005, the NAV total return has been 39.9%, while the
share price total return has been significantly ahead of this, at 43.7%.
A crisis in the credit markets, led by US sub-prime mortgages, has sent
confidence and stock markets falling worldwide. Although we had no mortgage
banks in the portfolio, stocks with exposure to UK housing and property were
weak. It is too soon to say exactly when these issues will be resolved, but your
board remains confident in equities as a long-term investment.
Revenue and dividends
The Company continues to focus upon delivering a high and growing income for
shareholders in excess of the average yield available from the UK equity market.
At 30 September 2007, the Company's share offered a yield of 3.8%, compared to
the 2.8% available from the FTSE All-Share Index.
A continuing feature of UK company announcements in 2007 has been the strong
level of dividend growth. This has enabled the portfolio to maintain a low
weighting in fixed interest securities. The first interim dividend of 1.10p per
share has already been paid in respect of the period to 31 March 2008, a 4.8%
rise on the 1.05p paid in the same period in the previous financial year. Your
board has declared a second interim dividend of 1.10p per share, making a total
to date of 2.20p per share, payable on 14 December to shareholders on the
register on 23 November. The Company will continue to pay dividends quarterly in
September, December, March and June.
Outlook
As a result of the well documented 'credit crunch', the UK economic outlook is
less positive than it looked six months ago. Credit conditions have tightened,
especially in the UK mortgage market, following the problems with Northern Rock.
However, even here there are winners - other lenders are now able to increase
their margins. Economic data remains broadly supportive, particularly on
inflation, where The Bank of England appears to be more relaxed about the future
trend of inflation. For UK equities, where the majority of corporate profits
are earned overseas, any weakness in the domestic economy will have only a
limited impact. We believe company earnings and dividend growth will continue,
and UK equities still offer good value.
Neil Donaldson
Manager's review
The relatively modest return generated by UK equities over the six months to 30
September, which saw the FTSE All-share Index produce a total return of 2.7%,
masked a wide trading range which saw sentiment fluctuate wildly. One of the few
constants throughout the period has been the relative underperformance of higher
yielding equities within the UK stock market, in contrast to the previous
period, and this contributed to the underperformance of the portfolio.
UK equities, in common with other major world equity markets, began the period
in an optimistic mood. World economicgrowth continued at a satisfactory pace and
this was being reflected in corporate profits. Takeover activity was also
prevalent. The portfolio benefited from this as both Hanson and PFI
Infrastructure were taken over at significant premia. Share prices rose steadily
and the FTSE All-Share Index for the first time exceeded its previous peak
reached in 2000, reaching a succession of new all-time highs. The market peaked
in mid-June and was only slightly below this a month later when there was an
abrupt change in sentiment. The bad news came from the US housing market, which
given its past rapid growth fuelled by credit, was not in itself a surprise.
Excesses in the subprime lending market suddenly emerged as a big threat to the
liquidity of the global financial system. Whilst the likely extent of losses,
perhaps $150bn, might seem high, it is modest in relation to the world's banking
system. What created the real concern was the lack of knowledge about where the
losses might reside. The selling on of mortgage loans via securitisation had
been going on for years but the market had expanded rapidly and the crucial
connection between the borrower and the owner of the loan had gone. Complex
financial instruments that were difficult to value began to fall in price and
banks began to hoard their liquidity. It was this lack of liquidity that forced
Northern Rock to seek finance from the lender of last resort - the Bank of
England. It remains to be seen if the equity in this company, not held by the
portfolio, has any value.
The key question for investors and monetary authorities is whether the effects
of this financial crisis will have any impact
upon the broader economy. Although the pictures of depositors queuing to
withdraw their savings were powerful, this will
probably not lead to a change in consumer behaviour. Of more importance will be
the effect of the removal of an aggressive lender from the mortgage market, and
whether other lenders take the opportunity to increase their rates and tighten
lending criteria. If this is the case, and the growth in the economy begins to
falter, then short-term interest rates in the country will be reduced, as they
already have been in the USA. This was a difficult period for the portfolio that
produced an NAV total return of 0.9%, 1.8% behind the FTSE All-Share Index. The
very strong performance of the mining sector was one reason for this, as it is
one of the lowest yielding sectors in the market despite strong dividend growth,
and one where the portfolio is underweight. Although there have been no mortgage
banks in the portfolio, stocks with exposure to UK housing and property have
been weak. The holdings in Persimmon, Mapeley and Savills were weak.
Intermediate Capital Group provides finance and invests in corporate buyouts and
reorganisations and had warned about increased competition and tight pricing in
its markets. This affected the share price although the problems within the bond
and credit markets are now working to its advantage.
New holdings added to the portfolio include Inchcape, an international car
distributor that is steadily expanding into new
countries. John Menzies is a magazine distributor and aircraft ground-handling
agent. Additions were made to HSBC, the diversified international bank, BAE
Systems, the supplier of advanced defence and aerospace systems and National
Grid. As well as the stocks that were taken over, other holdings sold included
HMV, Home Retail Group, Provident Financial and Go-Ahead Group. Reductions were
made in Scottish & Southern and Croda.
The economic outlook in both the UK and the USA is certainly less positive than
it had been earlier in 2007. The impact of the turmoil in credit markets upon
economic activity will not be known for some time. For the UK stock market,
where the majority of corporate profits are earned overseas, any weakness in the
domestic economy will have only a limited impact. Corporate profit and dividend
growth will continue, although the weakness of the US dollar will have an
effect. For this stage in the economic cycle, the valuation of UK equities on a
prospective PE multiple of 12.5X offers good value and the recent rise in share
prices, which has taken the FTSE All-Share Index close to its all time high, is
well supported.
Ross Watson
For more information, please contact:
Ross Watson rwatson@martincurrie.com 0131 229 5252
SECURITIES TRUST OF SCOTLAND plc
INCOME STATEMENT
for the six months ended 30 September 2007
Unaudited
Revenue Capital Total
£000 £000 £000
Net gains / - realised - 3,599 3,599
(losses) on
investments
- unrealised - (7,142) (7,142)
Currency gains - 10 10
Income - franked 3,019 635 3,654
- unfranked 225 - 225
- deposit income 49 - 49
- other income 2 - 2
Investment management fee (85) (158) (243)
Performance fee - - -
Other expenses (224) - (224)
_______ _______ _______
Net return before finance costs and 2,986 (3,056) (70)
taxation
Finance costs - debt (150) (277) (427)
- shareholders' (4,126) - (4,126)
funds
_______ _______ _______
Return on ordinary activities before (1,290) (3,333) (4,623)
taxation
Taxation on ordinary activities (3) - (3)
_______ _______ _______
Return attributable to ordinary (1,293) (3,333) (4,626)
redeemable shareholders
_______ _______ _______
Return per ordinary redeemable share 2.78p (3.27p) (0.49p)
Returns per ordinary share (as defined by the Articles) are detailed in note 1.
The total 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 period.
The directors have declared an interim dividend of 1.10p per share, which will
be paid on 14 December 2007 to shareholders on the register on 23 November 2007.
The interim results will be circulated to shareholders in the form of an interim
report, copies of which will be available at the company's registered office,
Saltire Court, 20 Castle Terrace, Edinburgh EH1 2ES.
SECURITIES TRUST OF SCOTLAND plc
INCOME STATEMENT
for the six months ended 30 September 2006
Unaudited
Revenue Capital Total
£000 £000 £000
Net gains / - realised - 162 162
(losses) on
investments
- unrealised - (2,181) (2,181)
Currency losses - (7) (7)
Income - franked 3,066 1,372 4,438
- unfranked 117 - 117
- deposit income 33 - 33
- other income - - -
Investment management fee (77) (142) (219)
Performance fee - - -
Other expenses (195) - (195)
_______ _______ _______
Net return before finance costs and 2,944 (796) 2,148
taxation
Finance costs - debt (115) (213) (328)
- shareholders' (2,957) - (2,957)
funds
_______ _______ _______
Return on ordinary activities before (128) (1,009) (1,137)
taxation
Taxation on ordinary activities (3) - (3)
_______ _______ _______
Return attributable to ordinary (131) (1,009) (1,140)
redeemable shareholders
_______ _______ _______
Return per ordinary redeemable share 2.77p (0.99p) 1.78p
Returns per ordinary share (as defined by the Articles) are detailed in note 1.
The total 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 period.
SECURITIES TRUST OF SCOTLAND plc
INCOME STATEMENT
for the six months ended 31 March 2007
Audited
Revenue Capital Total
£000 £000 £000
Net gains on - realised - 2,829 2,829
investments
- unrealised - 8,316 8,316
Currency losses - (15) (15)
Income - franked 5,497 1,604 7,101
- unfranked 448 - 448
- deposit income 93 - 93
- other income - - -
Investment management fee (162) (300) (462)
Performance fee - (320) (320)
Other expenses (393) - (393)
_______ _______ _______
Net return before finance costs and 5,483 12,114 17,597
taxation
Finance costs - debt (244) (452) (696)
- shareholders' (4,028) - (4,028)
funds
_______ _______ _______
Return on ordinary activities before 1,211 11,662 12,873
taxation
Taxation on ordinary activities (3) - (3)
_______ _______ _______
Return attributable to ordinary 1,208 11,662 12,870
redeemable shareholders
_______ _______ _______
Return per ordinary redeemable share 5.13p 11.44p 16.57p
Returns per ordinary share (as defined by the Articles) are detailed in note 1.
The total 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 period.
SECURITIES TRUST OF SCOTLAND plc
BALANCE SHEET
As at 30 September As at 30 September As at 31 March
2007 2006 2007
(unaudited) (unaudited) (audited)
£000 £000 £000 £000 £000 £000
Non-current
assets
Investments
Listed on 163,757 152,554 166,595
Exchanges in
the UK
Current assets
Debtors 1,837 794 1,391
Cash at bank 593 1,712 1,616
_______ _______ _______
2,430 2,506 3,007
Creditors
Amounts falling (16,720) (14,977) (15,509)
due within one
year
_______ _______ _______
Net current (14,290) (12,471) (12,502
liabilities )
_______ _______ _______
Shareholders' 149,467 140,083 154,093
funds
(prior to
shareholders'
redemption
liability)
Creditors
Distributable (147,185) (137,847 (150,51
capital and ) 8)
reserves
attributable to
shareholders on
redemption
_______ _______ _______
2,282 2,236 3,575
_______ _______ _______
Undistributable
capital and
reserves
Revenue reserve 2,282 2,236 3,575
Net asset value 146.58p 137.38p 151.12p
per ordinary
redeemable
share
(prior to
shareholders'
redemption
liability)
AIC net asset 144.90p 135.67p 148.40p
value per
ordinary share
SECURITIES TRUST OF SCOTLAND plc
STATEMENT OF CASH FLOW
Six months ended Six months ended Year to
30 September 2007 30 September 31 March 2007
(unaudited) 2006 (unaudited) (audited)
£000 £000 £000 £000 £000
£000
Net cash inflow 3,603 4,234 6,274
from operating
activities
Servicing of
finance
Finance - debt (432) (327) (700)
costs
- equity (4,126) (2,957) (4,028)
_______ _______ _______
Net cash outflow (4,558) (3,284) (4,728)
from servicing of
finance
Taxation
Overseas taxation (3) (4) (3)
paid
_______ _______ _______
Net cash outflow (3) (4) (3)
from taxation
Capital expenditure
and financial
investment
Payments to acquire (19,108) (27,047 (42,252
investments ) )
Receipts from 17,733 19,914 35,184
disposal of
investments
_______ _______ _______
Net cash outflow (1,375) (7,133) (7,068)
from investing
activities
_______ _______ _______
Net cash outflow (2,333) (6,187) (5,525)
before use of
liquid resources
and financing
Financing
Repurchase of - (203) (203)
ordinary share
capital
Movement in short- 1,300 4,750 4,000
term borrowings
_______ _______ _______
Net cash inflow 1,300 4,547 3,797
from financing
_______ _______ _______
Decrease in cash (1,033) (1,640) (1,728)
for the period
_______ _______ _______
Notes
1. Returns and net asset value
The return and net asset value per ordinary share are calculated with reference
to the following figures:
Six months Six months Year to
Revenue return ended ended 31 March
30 30 2007
September September
2007 2006
Revenue return attributable (£1,293,000 (£131,000) £1,208,000
to shareholders )
Add back finance costs - £4,126,000 £2,957,000 £4,028,000
shareholders' funds
___________ ___________ ___________
£2,833,000 £2,826,000 £5,236,000
___________ ___________ ___________
Average number of shares in 101,970,223 101,973,904 101,973,904
issue during period
Revenue return per ordinary 2.78p 2.77p 5.13p
redeemable share
Capital return
Capital return attributable (£3,330,000 (£1,009,000 £11,662,000
to shareholders ) )
___________ ___________ ___________
Average number of shares in 101,970,223 101,973,904 101,973,904
issue during period
Capital return per ordinary (3.27p) (0.99p) 11.44p
redeemable share
Total return (0.49p) 1.78p 16.57p
Total return per ordinary
redeemable share
Net asset value per share As at As at As at
30 30 31 March
September September 2007
2007 2006
Net assets attributable to £149,467,00 £140,083,00 £154,093,00
shareholders 0 0 0
___________ ___________ ___________
Number of shares in issue at 101,970,223 101,970,223 101,970,223
period end
Net asset value per share 146.58p 137.38p 151.12p
2. Reconciliation of accounting and AIC net asset values
As at As at As at
30 30 31 March
September September 2007
2007 2006
Accounting net asset value 146.58p 137.38p 151.12p
per share
Exclusion of undistributed (1.68p) (1.71p) (1.18p)
current period revenue
Re-classification of capital - - (1.35p)
dividend
Period-end accrual - - (0.19p)
adjustments
___________ ___________ ___________
AIC net asset value per share 144.90p 135.67p 148.40p
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