Interim Results Correction of headline category...
To: Stock Exchange For immediate
release:
31 October 2006
Securities Trust of Scotland plc
Interim results for the six months ended 30 September 2006
Chairman's statement
Introduction
I am pleased to report encouraging results for the six-month period ended 30
September 2006. The company's net asset value (NAV) total return was 2.3% in
comparison to the benchmark FTSE All-Share index which returned 1.7%. Since
flotation in June 2005, the NAV total return of 27.4% has exceeded the benchmark
return of 25.7%. The company continues to seek rising income and long-term
capital performance through investment in a balanced portfolio of UK stocks.
This is described in more detail in the manager's review.
Revenue and dividends
The company's net revenue exceeded earlier estimates due to lower-than-forecast
costs and higher dividend income. This enabled an increase in the proportion of
the portfolio invested in equities, at the expense of fixed interest
investments, and increased dividend payments. A first interim dividend of 1.05p
for the year to 31 March 2007 has been paid, and a second interim dividend of
1.05p will be paid on 15 December to shareholders on the register on 17 November
2006, totalling 2.10p. The directors intend to declare two further interim
dividends totalling at least 2.90p, giving a total payment of at least 5.00p per
share for the year to 31 March 2007.
Discount
The company's share price has traded at a relatively stable discount to its NAV
in recent months, moving gradually closer to the peer-group average. During the
current financial year, only 160,150 shares have been purchased for
cancellation. The directors believe that this illustrates continuing support for
the company offering the highest yield in its peer group, and producing a better-
than-average total return. Ross Watson has met numerous existing and potential
shareholders to explain the company's investment policy and attractions.
Outlook
After falling back from the levels in the spring, UK shares have recently
recovered. With relatively attractive valuations and continuing corporate
activity, investors are more confident, and can continue to benefit from higher
profits and dividends. While some volatility is inevitable, our outlook remains
positive.
Manager's review
This six-month period was eventful as share prices reached their highest levels
for five years in April and then, in common with other world equity markets,
underwent a sharp correction during May and June. From this low point, shares
have steadily recovered, as investors regain confidence and companies continue
to provide good increases in profits and dividends.
The company has the power to utilise gearing to enhance performance, up to a
limit of 15% of net assets. During the six months under review, we have geared
the portfolio using short-term flexible debt at attractive rates. The average
gearing level has been approximately 10% of net assets, but due to the holdings
in fixed interest securities the effective equity gearing has been lower. At 30
September, gearing stood at 111% of net assets. Effective equity exposure was
106%.
The UK economy has performed reasonably well over the last six months with GDP
currently growing at slightly above its trend level. This, coupled with the
impact of higher energy and commodity prices, prompted the Bank of England to
increase short-term interest rates to 4.75%. In fact, oil and other commodity
prices have been falling and the retail price of petrol has already dropped. New
gas supplies are now reaching the UK, although suppliers will be unable to
reduce gas and electricity prices to consumers for many months. The squeeze on
consumer incomes due to higher fuel and energy costs has not dampened the
housing market, where prices and activity remain firm.
When examining opportunities for change within the portfolio, we look at
individual stocks and assess their relative valuation and future prospects in
profits and dividends. The relative weighting of the portfolio between the large-
capitalisation stocks in the FTSE 100 index and smaller companies is of lesser
importance. However, the portfolio weighting in the largest FTSE 100 companies
has increased, as we have added to our positions in both BP and Vodafone. These
companies have been trading on attractively low valuations relative to the
market. Vodafone, in addition to increasing its dividend payment sharply, has
recently made a significant capital return to shareholders.
The UK stockmarket has been alive with bid rumours in recent months. The focus
of this activity is now shifting to the utilities sectors, where stable and
regulated returns are attractive to debt-financed acquirers. We reduced our
holding in water firm AWG after it became a bidding target.
The combination of takeover bids and capital returns means that the UK
stockmarket's equity base has been shrinking in recent years. Some companies are
raising new capital, however. Resolution had a large rights issue to finance the
acquisition of a book of mostly closed life funds, in line with its key business
strategy. The weighting of our holding increased significantly as a result of
this issue. At the end of the period, our mining holding Xstrata also announced
a rights issue, to finance part of the cost of acquiring Falconbridge, a
Canadian mining business.
We have built two new positions in the media sector. Informa provides business
information through journals, newspapers, electronic media and books. They also
run trade exhibitions, which link to many of their other activities. Although
the yield on their shares is relatively low (below that of the market), the P/E
multiple was attractive and the prospects for sustained dividend growth are
good. Since we purchased this stock, Informa has increased its interim dividend
by 22%, well ahead of our expectations, and the share price has responded
positively. The share price has subsequently risen further after announcing
that they have received an approach that may lead to a takeover bid. We
established a holding in EMAP for different reasons. Emap operates radio
stations and publishes a wide range of consumer magazines. It is therefore much
more exposed to advertising volumes and the consumer than Informa. Recent
interim results were disappointing and the share price fell sharply, presenting
us with the opportunity to acquire the holding.
After a steady recovery in recent months, UK share prices have returned to their
highest levels of the year. Despite this, valuation levels are inexpensive, with
the prospective P/E ratio for 2007 at 12X. With profits and dividends set to
continue to grow - although not at the rates experienced recently - share prices
can appreciate from here. Moreover, the prospect of further takeovers will act
as a spur to valuations in certain sectors. A further increase in UK interest
rates to 5% would not have a significant impact on UK corporate profits, which
are more widely exposed to the world economy.
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 2006
Unaudited
Revenue Capital Total
£000 £000 £000
Gains / (losses) on - realised - 162 162
investments
- unrealised - (2,181) (2,181)
Currency losses - (7) (7)
Income - franked 3,066 1,372 4,438
- unfranked 150 - 150
Investment management fee (77) (142) (219)
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 shareholders (131) (1,009) (1,140)
_______ _______ _______
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.
The directors have declared an interim dividend of 1.05p per share, which will
be paid on 15 December 2006 to shareholders on the register on 17 November 2006.
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 period ended 30 September 2005
Unaudited
Revenue Capital Total
£000 £000 £000
Gains on - realised - 114 114
investments
- unrealised - 8,927 8,927
Currency losses - - -
Income - franked 1,631 - 1,631
- unfranked 88 - 88
Investment management fee (45) (84) (129)
Other expenses (107) - (107)
_______ _______ _______
Net return before finance costs and 1,567 8,957 10,524
taxation
Finance costs - debt (66) (122) (188)
- shareholders' - - -
funds
_______ _______ _______
Return on ordinary activities before 1,501 8,835 10,336
taxation
Taxation on ordinary activities - - -
_______ _______ _______
Return attributable to shareholders 1,501 8,835 10,336
_______ _______ _______
Return per ordinary redeemable share 1.39p 8.18p 9.57p
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
INCOME STATEMENT
for the period ended 31 March 2006
Audited
Revenue Capital Total
£000 £000 £000
Gains on - realised - 6,110 6,110
investments
- unrealised - 20,476 20,476
Currency gains - 6 6
Income - franked 3,915 639 4,554
- unfranked 223 - 223
Investment management fee (158) (293) (451)
Other expenses (416) - (416)
_______ _______ _______
Net return before finance costs and 3,564 26,938 30,502
taxation
Finance costs - debt (166) (308) (474)
- shareholders' (1,031) - (1,031)
funds
_______ _______ _______
Return on ordinary activities before 2,367 26,630 28,997
taxation
Taxation on ordinary activities - - -
_______ _______ _______
Return attributable to shareholders 2,367 26,630 28,997
_______ _______ _______
Return per ordinary redeemable share 3.19p 25.03p 28.22p
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
2006 2005 2006
(unaudited) (unaudited) (audited)
£000 £000 £000 £000 £000 £000
Fixed assets
Investments
Listed on 152,554 138,041 149,575
Exchanges in the
UK
Current assets
Debtors 794 4,183 4,408
Cash at bank 1,712 3,234 3,359
_______ _______ _______
2,506 7,417 7,767
Creditors
Amounts falling (14,977) (16,569) (15,916)
due within one
year
_______ _______ _______
Net current
liabilities (12,471) (9,152) (8,149)
_______ _______ _______
Shareholders' 140,083 128,889 141,426
funds
(prior to
shareholders'
redemption
liability)
Creditors
Distributable (137,847) (8,951) (139,059)
capital and
reserves
attributable to
shareholders on
redemption
_______ _______ _______
2,236 119,938 2,367
_______ _______ _______
Undistributable
capital and
reserves
Share premium - 118,437 -
Revenue reserve 2,236 1,501 2,367
_______ _______ ______
2,236 119,938 2,367
_______ _______ ______
Net asset value 137.38p 120.18p 138.48p
per ordinary
redeemable share
(prior to
shareholders'
redemption
liability)
AIC net asset 135.67p 119.07p 135.55p
value per
ordinary share
SECURITIES TRUST OF SCOTLAND plc
STATEMENT OF CASH FLOW
Six months ended Period ended Period ended
30 September 2006 30 September 2005 31 March 2006
(unaudited) (unaudited) (audited)
£000 £000 £000 £000 £000 £000
Operating activities
Net dividends and 4,732 850 3,749
interest received
from investments
Interest received 41 12 55
from deposits
Investment management (259) - (299)
fee
Cash paid to and on (42) (16) (58)
behalf of directors
Bank charges (6) - (4)
Other cash payments (239) (22) (193)
_______ _______ _______
Net cash inflow from 4,227 824 3,250
operating activities
Servicing of finance
Finance - debt (327) (127) (435)
costs
- equity (2,957) - (1,031)
_______ _______ _______
Net cash outflow from (3,284) (127) (1,466)
servicing of finance
Taxation
Overseas taxation (4) - -
paid
_______ _______ _______
Net cash outflow from
taxation (4) - -
Capital expenditure
and financial
investment
Payments to acquire
investments (27,047) (134,522) (159,189)
Receipts from 19,914 3,006 38,335
disposal of
investments _______ ________ ________
Net cash outflow from
investing activities (7,133) (131,516) (120,854)
_______ ________ ________
Net cash outflow (6,194) (130,819) (119,070)
before use of liquid
resources and
financing
Financing
Issue of ordinary - 119,518 119,518
share capital
Repurchase of (203) (965) (7,089)
ordinary share
capital
Net movement in short- 4,750 15,500 10,000
term borrowings
_______ _______ _______
Net cash inflow from 4,547 134,053 122,429
financing
_______ _______ _______
(Decrease)/increase (1,647) 3,234 3,359
in cash 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 Period Period
Revenue return ended ended ended
30 30 31 March
September September 2006
2006 2005
Revenue return attributable (£131,000) £1,501,000 £2,367,000
to shareholders
Add back finance costs - £2,957,000 - £1,031,000
shareholders' funds
___________ ___________ ___________
£2,826,000 £1,501,000 £3,398,000
___________ ___________ ___________
Average number of shares in 101,973,904 108,058,258 106,407,347
issue during period
Revenue return per ordinary 2.77p 1.39p 3.19p
redeemable share
Capital return
Capital return attributable (£1,009,000) £8,835,000 £26,630,000
to ordinary shareholders
___________ ___________ ___________
Average number of shares in 101,973,904 108,058,258 106,407,347
issue during period
Capital return per ordinary (0.99p) 8.18p 25.03p
share
Net asset value per share As at As at As at
30 30 31 March
September September 2006
2006 2005
Net assets attributable to £140,083,000 £128,889,000 £141,426,000
shareholders
___________ ___________ ___________
Number of shares in issue at 101,970,223 107,246,570 102,130,373
period end
Net asset value per share 137.38p 120.18p 138.48p
2. Reconciliation of accounting and AIC net asset values
As at As at As at
30 30 31 March
September September 2006
2006 2005
Accounting net asset value 137.38p 120.18p 138.48p
per share
Adjustment per share from bid - 0.28p -
to mid price valuation of
investments
Exclusion of undistributed (1.71p) (1.39p) (2.32p)
current period revenue
Re-classification of capital - - (0.63p)
dividend
Period-end accrual - - 0.02p
adjustments
___________ ___________ ___________
AIC net asset value per share 135.67p 119.07p 135.55p
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