Final Results for year to 31 March 2007
To: Stock Exchange For immediate
release:
4 May 2007
SECURITIES TRUST OF SCOTLAND plc
Annual results for year to 31 March 2007
Chairman's statement
Welcome to the Report to shareholders covering the 12 months to 31 March 2007.
This is the first report covering a full 12-month period since the listing of
the Company on the London Stock Exchange on 28 June 2005. It is pleasing to be
able to report again on a period of good progress for the Company, with both
revenue and capital advancing. The net asset value ("nav") total return for the
period was 13.6%, compared to 11.1% from the Company's benchmark the FTSE All-
Share Index. UK equities have continued to make positive progress in terms of
both profits and dividends. With the fixed interest weight within the portfolio
remaining low, modest gearing contributed positively to the total return. The
maximum level of gearing currently permitted is 15% of shareholders' funds, but
the actual level has been around 10% for most of the period.
Revenue
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 31 March 2007, the Company's share offered a yield of 3.5% compared to the
2.8% available from the FTSE All-Share Index. A continuing feature of UK company
announcements over the last year has been the strong level of dividend growth
that has enabled the portfolio to maintain a low weighting in fixed interest
securities. The revenue return over the year to 31 March was 5.13p per share,
compared to 3.19p over the initial period from the Company's flotation to 31
March 2006. Three interim dividends each of 1.05p per share have already been
paid in respect of the period to 31 March 2007 and the Directors have declared a
fourth interim dividend of 1.90p per share making a total of 5.05p per share.
The Company will pay dividends quarterly in September, December, March and June.
Discount management
I am pleased that efforts made by the managers and the Board to promote the
Company to both existing and potential new shareholders have been well received.
Continued good investment performance has contributed to a gradual narrowing of
the discount in comparison to the Company's peers. In contrast to the previous
period, there has been almost no requirement to repurchase any of the Company's
shares. Only 160,150 shares were purchased and all of these were bought early in
the period.
Performance fee
In order to ensure that the interests of the managers are aligned with those of
the shareholders, the Directors negotiated a performance fee with Martin Currie.
Briefly, this entitled the managers to 15% of the outperformance of the nav
capital return over that of the FTSE All-Share Index capital return over the
year to 31 March 2007 - subject to a cap of 1% of year end assets, including the
base management fee of 0.3% of net assets. After this first year in operation,
the Directors are reviewing the structure of the performance fee.
Outlook
Last year in my statement, I stated that shareholders could look forward to a
year of positive returns. This comment proved to be accurate, although the start
to the period was volatile. Looking forward, UK equities continue to be
reasonably valued. I believe the Company is well positioned to benefit from the
profit and dividend growth expected to be delivered by UK companies.
Manager's report
The year under review has been another one when UK equities have generated good
real returns - although progress was volatile. The year began well with
equities worldwide continuing their strong progress. This ended with a sharp
correction beginning in May that saw UK share prices fall by almost 10%.
Although shares began to recover within a few weeks, it took several months for
them to reach their previous levels. Share prices continued to rise, helped by
the good progress in corporate profits and the continuing high level of
corporate activity apparent in all equity markets. The steady progress of the
equity market, which had seen the FTSE All-Share Index reach a new record high,
exceeding its previous peak in 2000, ended towards the close of the year. The
year under review was a good one for the portfolio which increased in value by
9.5%, compared to the 7.7% from the benchmark FTSE All-Share Index.
One very positive feature of the UK stockmarket has been the continued strong
growth in dividends, a trend which has lasted longer than we expected. The
benefits to shareholders are clear, and have enabled both an increase in
dividend payments and a low weighting in fixed interest investments within the
portfolio. Last year the managers highlighted the 25% dividend increase from
Royal Bank of Scotland and are pleased to report that the story has remained the
same with another 25% increase in dividend. This holding accounts for over 5% of
the portfolio and, although dividend growth will inevitably slow from this
level, the prospects for future growth remain good.
The rate of inflation became a source of concern to the Bank of England over the
year after a long period of stability and was a major factor behind the series
of increases in short term interest rates during the year. The biggest
contributor to the increase in the inflation measure targeted by the Bank of
England was the sharp increase in the price of domestic energy. During 2006 this
added almost 1% to the rate of inflation, but this effect fell rapidly during
2007, with the first price reductions now taking effect. By the end of 2007 we
expect the rate of consumer price inflation should again be close to the 2%
target level.
There has been an upsurge in corporate activity in equity markets, including the
UK, over the last year. The reasons for this include the ever-increasing scale
of private equity funds and the desire of companies to expand via acquisitions.
The easy availability of finance, from both banks and the bond markets, has been
a contributory factor. Two companies within the portfolio, BOC and awg, were the
target of takeover bids during the year at significant premiums to previous
prices.
The underperformance of many of the very largest companies in the UK stockmarket
has attracted much attention in recent years. The fifteen largest companies
account for almost half of the market by value, but their continued
underperformance has opened up a valuation gap with the rest of the market. So
far these companies have been protected from takeover by their sheer size, but
this could change. Also the growth from many of the largest companies such as
BP, HSBC and Astra Zeneca has disappointed the market. Thus, despite looking
cheap, in some cases the lack of future growth is being correctly discounted by
the market. Nevertheless the valuation gap will inevitably be closed - although
this may take some time. The managers expect that the portfolio's exposure to
these companies will be increased in the future.
The managers continue to operate a relatively concentrated portfolio, usually
between 50 and 60 holdings. The weighting in the mining sector had been low for
much of the period but was increased with a purchase of BHP Billiton that had
lagged the sector. The yield is relatively low, but the dividend growth
prospects are good. The portfolio holdings in the media sector have changed
considerably. The position in Pearson was sold as the growth prospects appeared
to be discounted in the share price. New holdings were established in EMAP,
Informa and UBM. The Informa price has done well as the market has re-rated the
Company whose business is not dependent upon advertising. Good results have seen
the Company increase its total dividends by 43%. By contrast, continual
disappointment in TV advertising volumes led to the holding in ITV being sold.
The UK commercial property market has performed very well in recent years as
investors have pushed valuation yields lower. The managers believe that there
are better prospects, without taking risks, in Europe and added Summit Germany
and Northern European Properties to the portfolio. These both offer a high yield
and the prospect of growth in asset values. Both share prices have already
performed well. Within the Life Assurance sector, our holding in Legal & General
was switched into Aviva where future dividend growth prospects are better.
Unlike the previous year, UK equities have not been re-rated as share prices
have broadly kept pace with earnings over the period. The prospective PE
multiple of 13x offers fair value for this stage of the economic cycle although,
as already highlighted, there is a divergence of valuations in the stockmarket:
the very largest companies are trading on relatively low multiples. The economic
background is satisfactory, although there are concerns about how quickly
inflation will start to fall back, leading to a further increase in short term
interest rates. In the US the housing market is weakening and revealing the
excess lending made to sub-prime borrowers. But the economy will continue to
grow despite this. For the coming year, UK shareholders can look forward to
another year of real profit and dividend growth that should be reflected in
rising share prices. Corporate activity is likely to add to overall returns.
- ends -
For further information, please contact:
Ross Watson 0131 229 5252
Martin Currie Investment
Management Ltd
rwatson@martincurrie.com
Keith Swinley 0131 229 5252
Martin Currie Investment
Management Ltd
kswinley@martincurrie.com
SECURITIES TRUST OF SCOTLAND plc
INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2007
(Unaudited)
Revenue Capital Total
£000 £000 £000
Net gains on - realised - 2,829 2,829
investments
- unrealised - 8,316 8,316
Net currency - (15) (15)
losses
Income - franked 5,497 1,604 7,101
- unfranked 541 - 541
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' funds (4,028) - (4,028)
_______ _______ _______
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
The total column of this statement is the profit and loss account of the
Company.
The revenue and capital items are presented in accordance with the AIC SORP.
All revenue and capital items in the above statement derive from continuing
operations.
A Statement of Total Recognised Gains and Losses is not required, as all gains
and losses of the Company have been reflected in the above statement.
The board announces a fourth interim dividend of 1.90p per share. The dividend
will be paid on 30 June 2007 to shareholders on the register on 9 June 2007.
This is in addition to the three 1.05p interim dividends already paid during the
period.
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 period ended 31 March 2007, but is
derived from those financial statements. Statutory financial statements for
2007 will be delivered to the Registrar of Companies following the Company's
annual general meeting.
The terms of the preliminary announcement were approved by the board on 2 May
2007.
SECURITIES TRUST OF SCOTLAND plc
INCOME STATEMENT FOR THE
PERIOD FROM 15 APRIL 2005 (DATE OF INCORPORATION) TO 31 MARCH 2006
(Audited)
Revenue Capital Total
£000 £000 £000
Net gains on - realised - 6,110 6,110
investments
- unrealised - 20,476 20,476
Net currency - 6 6
gains
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' funds (1,031) - (1,031)
_______ _______ _______
Return on ordinary activities before 2,367 26,630 28,997
taxation
Taxation on ordinary activities - - -
_______ _______ _______
Return attributable to ordinary 2,367 26,630 28,997
redeemable shareholders
_______ _______ _______
Return per ordinary redeemable share 3.19p 25.03p 28.22p
SECURITIES TRUST OF SCOTLAND plc
BALANCE SHEET
As at 31 March 2007 As at 31 March 2006
(Unaudited) (Audited)
Fixed assets
£000 £000 £000 £000
Investments at market value
Listed on The Stock Exchange 166,595 149,575
in the UK
Current assets
Debtors 1,391 4,408
Cash at bank 1,616 3,359
_______ _______
3,007 7,767
Creditors
Amounts falling due within one (15,509) (15,916)
year
_______ _______
Net current liabilities (12,502) (8,149)
_______ _______
Net assets attributable to 154,093 141,426
shareholders
Creditors
Distributable capital and
reserves attributable to (150,518) (139,059
shareholders on redemption )
_______ _______
3,575 2,367
_______ _______
Undistributable capital and
reserves
Revenue reserve 3,575 2,367
_______ ______
Net asset value per ordinary
share 151.12p 138.48p
(prior to shareholders'
redemption liability)
AIC net asset value per 148.40p 135.55p
ordinary share
SECURITIES TRUST OF SCOTLAND plc
STATEMENT OF CASH FLOW
Year ended 31 March Period from 15
2007 (Unaudited) April 2005
(date of
incorporation) to
31 March 2006
(Audited)
£000 £000 £000 £000
Net cash inflow from operating 6,274 3,250
activities
Servicing of finance
Finance - debt (700) (435)
costs
- equity (4,028) (1,031)
_______ _______
Net cash outflow from servicing of (4,728) (1,466)
finance
Taxation
Overseas taxation paid (3) -
_______ _______
(3) -
Capital expenditure and financial
investment
Payments to acquire investments (42,252) (159,189
)
Receipts from disposal of 35,184 38,335
investments
_______ _______
Net cash outflow from investing (7,068) (120,85
activities 4)
_______ _______
Net cash outflow before use of (119,07
liquid resources and financing (5,525) 0)
Financing
Issue of ordinary share capital - 119,518
Repurchase of ordinary share (203) (7,089)
capital
Movement in short-term borrowings 4,000 10,000
_______ _______
Net cash inflow from financing 3,797 122,429
_______ _______
(Decrease)/increase in cash for the (1,728) 3,359
period
________ _______
SECURITIES TRUST OF SCOTLAND plc
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(Unaudited)
Called Special
For year ended 31 March up Capital distrib Reali Unreal
2007 ordina redempt utable sed ised Reven
ry ion capital capit capita ue Total
share reserve reserve al l reser £000
capita £000 £000 reser reserv ve
l ve e £000 £000
£000 £000
As at 31 March 2006 1,021 60 111,348 6,154 20,476 2,367 141,4
26
Ordinary shares bought
back during the year (2) 2 (203) - - - (203)
Realised gain on - - - 2,829 - - 2,829
investments during the
year
Realised currency loss - - - (15) - - (15)
during the year
Unrealised appreciation - - - - 8,316 - 8,316
on investments
Franked income - - - 1,604 - - 1,604
Capitalised expenses - - - (1,07 - - (1,07
2) 2)
Return attributable to - - - - - 1,208 1,208
shareholders
______ _______ _______ _____ ______ _____ _____
_ __ _ __ __
Balance at 31 March 2007 1,019 62 111,145 9,500 28,792 3,575 154,0
93
______ _______ _______ _____ ______ _____ _____
_ __ _ __ __
SECURITIES TRUST OF SCOTLAND plc
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(Audited)
Calle
For period ended d up Special
31 March 2006 ordin Capital distribu Reali Unreali
ary Share redempt table sed sed Reven
share Premi ion capital capit capital ue Total
capit um reserve reserve al reserve reser £000
al £000 £000 £000 reser £000 ve
£000 ve £000
£000
As at 15 April - - - - - - - -
2005
Transferred in
as part of the
STOS plc scheme 1,081 118,4 - - - - - 119,5
of 37 18
reconstruction
Cancellation of
the share - (118, - 118,437 - - - -
premium account 437)
Ordinary shares
bought back (60) - 60 (7,089) - - - (7,08
during the 9)
period
Realised gain on
investments - - - - 6,110 - - 6,110
during the
period
Realised
currency gains - - - - 6 - - 6
during the
period
Unrealised
appreciation on - - - - - 20,476 - 20,47
investments 6
Franked income - - - - 639 - - 639
Capitalised - - - - (601) - - (601)
expenses
Return
attributable to - - - - - - 2,367 2,367
shareholders
_____ _____ _______ _______ _____ _______ _____ _____
__ __ __ __ __
Balance at 31 1,021 - 60 111,348 6,154 20,476 2,367 141,4
March 2006 26
_____ _____ _______ _______ _____ _______ _____
__ __ __ __ _______
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