Annual Financial Report

RNS Number : 2157B

Scottish American Investment Co PLC

15 February 2011

 



 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

Results for the year to 31 December 2010

SAINTS net asset value total return (income and capital) in 2010 was 23% compared to a 16% increase in its benchmark.  Over the year the share price rose by 36% from 181p to 246p.

§ In 2010 the global economy continued its recovery while many companies reported strong growth in profits.  SAINTS fully participated in the rally in markets.

§ Earnings per share were slightly lower at 8.51p (9.05p in 2009) due to lower bond income and last year's exceptional VAT related receipts.  Revenue reserves stand at 10.6p per share.

§ A final dividend of 2.35p per share is proposed making an increased total of 9.25p per share for the year (9.05p in 2009). This represents the 23rd consecutive annual increase.

§ Over the last 5 years the dividend has risen by 42% compared to an increase in the RPI of 18%.  The Board is confident that the investment portfolio is capable of supporting dividend growth ahead of inflation over the medium term and longer.

§ A year of further growth in the world economy is expected as are continued growth in company profits and dividends.  Nevertheless, world trade imbalances, rising inflation, high debt levels in mature economies and the possibility of unexpected events all lend a note of caution to this outlook.

SAINTS objective is to increase capital and grow income in order to deliver real dividend growth. Its policy is to invest flexibly and actively across a broad range of assets and markets. Listed equities, both UK and overseas, form the largest part of the portfolio. Investments are also made in bonds, property and other asset classes. 

Past performance is not a guide to future performance. SAINTS is listed on the stock market. As a result, the value of the shares and any income from those shares is not guaranteed and may go down as well as up. You may not get back the amount you invested. You should view your investment as long term. As SAINTS invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.

Baillie Gifford & Co, the Edinburgh based fund management group with around £72 billion under management and advice as at 11 February 2011, is appointed as investment managers and secretaries to SAINTS.

14 February 2011

- ends -

For further information please contact:

Patrick Edwardson, Manager,                                                                                      

The Scottish American Investment Company P.L.C.                              0131 275 2133

James Budden,

Baillie Gifford & Co                                                      0131 275 2816 or 07507201208

Roland Cross, Director

Broadgate Mainland                                                     020 7726 6111 or 07831 401309

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

Chairman's Statement

Overview

The global economy continued to recover during 2010 and most investment markets, although volatile from one month to the next, delivered good returns over the year.  Many companies reported strong growth in profits and stockmarkets around the world recorded gains.  SAINTS participated fully in this rally.

Performance

The net asset value total return (income and capital), with the debenture valued at its fair value, was 22.8%.  This compares to a benchmark total return of 15.8%.  The net asset value per share rose from 206p to 242.5p, a rise of 17.7%.  The rise in the share price was stronger still, from 181p to 245.5p.  This 35.6% gain meant that the share price finished the year at a small premium to net asset value.   

Revenues and Dividend

Total income was £16.4m in 2010 compared to £17.2m in the previous year.  This decline is explained by a fall in bond income, itself a function of transactions and declining market rates of interest.  In 2009, the revenue account also benefited from exceptional payments relating to VAT amounting to £1.6m.  These were not repeated in 2010.  The combined effect of these two factors has meant that 2010 earnings per share was 8.51p, some 6% lower than the 9.05p recorded in the previous year. This decline masks a more promising underlying picture.  Strong corporate profitability is encouraging quoted companies to raise their dividends. Our expectation is that this trend will continue in 2011.

The decline in earnings per share means that our dividend this year will not be fully covered by earnings.  However, revenue reserves are substantial (10.6p per share) and this, alongside the expectation for improving investment income in the year ahead, allows us to propose an increased dividend for 2010.

Three payments of 2.3p have already been made and we propose to pay a final dividend of 2.35p making a total of 9.25p for the year as a whole.  This is an increase of 2.2% on last year's dividend.

This rate of increase falls short of the current rate of inflation in the UK.  However, we are confident that the investment portfolio is capable of supporting real dividend growth in the medium term and longer.  Over the last five years, the dividend has risen 42% which compares to an increase in the Retail Price Index of 18%.

Borrowings

SAINTS' borrowings take the form of a single debenture due for repayment in April 2022.  The book value of these borrowed funds is £87.4m. However, since the debenture was issued at a premium to its par value, the final repayment amount will be £80m.

At the start of the year, the book value of the debenture was equivalent to approximately 32% of shareholders' funds.  For much of the year, this borrowed money was fully deployed in funding a range of investments across bond markets and in UK commercial property.  These performed well and, together with gains on the equity portfolio, contributed to a significant rise in shareholders' funds during the year.  This meant that at the year end the debenture's book value had fallen to 26% of shareholders' funds.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

Chairman's Statement (Ctd)

Supply and Demand for the Company's Shares

One of the most notable features of the last year has been the strong performance of the share price relative to our net asset value.  At the start of 2010 the discount to net asset value (debenture at fair value) stood at 12.1% but, by the end of the year, a 1.2% premium had emerged. 

This development owes much to SAINTS being able to offer a relatively high and growing dividend whilst many other forms of saving have seen income returns fall.  The Board and the Managers have also put much thought and effort into promoting SAINTS as a cost-effective savings vehicle for private investors, particularly those seeking a growing income stream, which has led to increasing demand for the shares.

Demand for regular and growing income will remain strong.  Should SAINTS continue to benefit from this and the premium to net asset value persist, the Board is likely to submit a block listing application to the London Stock Exchange.  This would allow new shares to be issued to the market as well as to meet demand for shares from regular savers in the various savings schemes.  Shares would only be issued at a premium to net asset value. Such issuance is beneficial to existing shareholders as it enhances net asset value and the increase in the size of the Company, although modest, spreads the burden of its administrative costs.

Notwithstanding the above, we also intend to seek shareholders' approval at this year's AGM for the renewal of the Company's authority to buy back its own shares at a discount to net asset value. Although this has not been used in recent years, the Board believes that buy backs can be useful in certain circumstances for reducing volatility in the discount and enhancing net asset value for continuing shareholders.

Outlook

Financial market valuations reached their lowest point of the 2007-2009 financial crisis during the first quarter of 2009. Since then, markets have rallied strongly as exceptional fiscal and monetary policies in many countries have stimulated a substantial recovery in global economic activity and a significant rise in investor confidence.

We think the year ahead will be one of further China led growth in the world economy.  We also expect the corporate sector to show good growth in profits which should allow the companies in which we are invested to raise their dividends.  On this basis, we are expecting our own revenue position to improve.

However, significant economic risks persist including imbalances in world trade, rising inflation and high debt levels in some of the mature economies.  Recent developments in a number of Middle East countries also remind us that unexpected events can, and will, happen.  We therefore start this new financial year with a slightly more cautious outlook than last year.

Annual General Meeting

At the AGM, under Special Business, the Company is proposing to adopt new Articles of Association to reflect the implementation of the last parts of the Companies Act 2006 which came into force on 1 October 2009. It is also proposed that the Articles be amended to increase the limits on the Directors' fees. Whilst it is not the Board's intention to increase Directors' fees for 2011, the fees are near the current limit which allows little scope for an increase in future years. All of the Directors are seeking re-election this year and will continue to do so on an annual basis.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

Chairman's Statement (Ctd)

The AGM will be held at 11am on Thursday 7 April at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh. The Managers will make a presentation on the investment portfolio. There will also be an opportunity to ask questions and the Directors and Managers look forward to meeting you there.

Sir Brian Ivory, CBE

Chairman

14 February 2011

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

The following is the unaudited preliminary statement for the year to 31 December 2010 which was approved by the Board on 14February2011. The Board of The Scottish American Investment Company P.L.C. is recommending to the Annual General Meeting of the Company to be held on
7 April 2011 the payment of a final dividend of 2.35p (2.30p last year) per ordinary share making a total of 9.25p (9.05p last year) paid and proposed for the year ended 31 December 2010.

INCOME STATEMENT

	For the year ended 31 December 2010 (unaudited)				For the year ended 31 December 2009                        (audited)
	Revenue £'000	Capital £'000		Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains on investments - securities	-	58,182		58,182	-	72,678	72,678
Currency (losses)/gains	-	(699)		(699)	-	3,171	3,171
Income (note 2)	16,379	-		16,379	17,194	-	17,194
Management fees	(618)	(1,147)		(1,765)	(508)	(944)	(1,452)
Recovered VAT (note 3)	-	-		-	945	17	962
Other administrative expenses	(901)	-		(901)	(859)	-	(859)
Net return before finance costs and taxation	14,860	56,336		71,196	16,772	74,922	91,694
Finance costs of borrowings	(2,084)	(3,870)		(5,954)	(2,093)	(3,887)	(5,980)
Net return on ordinary activities before taxation	12,776	52,466		65,242	14,679	71,035	85,714
Tax on ordinary activities	(1,505)	977		(528)	(2,690)	2,232	(458)
Net return on ordinary activities after taxation	11,271	53,443		64,714	11,989	73,267	85,256
Net return per ordinary share       (note 4)	8.51p		40.34p	48.85p	9.05p	55.30p	64.35p

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

	For the year ended 31 December 2010 (unaudited)			For the year ended 31 December 2009 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net return on ordinary activities after taxation	11,271	53,443	64,714	11,989	73,267	85,256
Net gains on investments - property	-	1,122	1,122	-	3,068	3,068
Total recognised gains and losses for the year	11,271	54,565	65,836	11,989	76,335	88,324
Total recognised gains and losses  per ordinary share (note 4)	8.51p	41.18p	49.69p	9.05p	57.62p	66.67p

 The total column of the Income Statement is the profit and loss account of the Company.

All revenue and capital items in these statements derive from continuing operations.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

BALANCE SHEET

	At 31 December 2010		At 31 December 2009
	£'000 (unaudited)		£'000 (audited)
Fixed Assets
Investments - securities	381,239		323,949
Investments - property	31,950		31,000
		413,189		354,949
Current Assets
Debtors	1,542		2,086
Cash and deposits	6,154		10,683
	7,696		12,769
Creditors
Amounts falling due within one year	(2,616)		(2,651)
Net Current Assets		5,080		10,118
Total Assets Less Current Liabilities		418,269		365,067
Creditors
Amounts falling due after more than one year (note 6)		(87,446)		(87,892)
Total Net Assets		330,823		277,175
Share Capital and Reserves
Called-up share capital		33,121		33,121
Capital redemption reserve		22,781		22,781
Capital reserve		258,671		204,106
Revenue reserve		16,250		17,167
Shareholders' funds		330,823		277,175
Net Asset Value Per Ordinary Share:
(Debenture at fair value)		242.5p		206.0p
Net Asset Value Per Ordinary Share:
(Debenture at book value)		249.7p		209.2p
Ordinary Shares In Issue (note 7)		132,485,943		132,485,943

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 December 2010 (unaudited)

	Share capital £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 January 2010	33,121	22,781	204,106	17,167	277,175
Total recognised gains and losses for the year	-	-	54,565	11,271	65,836
Dividends paid in the year (note 5)	-	-	-	(12,188)	(12,188)
Shareholders' funds at 31 December 2010	33,121	22,781	258,671	16,250	330,823

For the year ended 31 December 2009 (audited)

	Share capital £'000	Capital redemption reserve £'000	Capital reserve   £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 January 2009	33,121	22,781	127,771	17,102	200,775
Total recognised gains and losses for the year	-	-	76,335	11,989	88,324
Dividends paid in the year (note 5)	-	-	-	(11,924)	(11,924)
Shareholders' funds at 31 December 2009	33,121	22,781	204,106	17,167	277,175

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

CASH FLOW STATEMENT
	For the year ended 31 December 2010 (unaudited)			For the year ended 31 December 2009 (audited)
	£'000	£'000		£'000	£'000
Net cash inflow from operating activities		13,616			17,097
Servicing of finance
Interest paid	(6,400)			(6,400)
Net cash outflow from servicing of finance		(6,400)			(6,400)
Taxation
Overseas tax	(522)			(476)
Total tax paid		(522)			(476)
Financial investment
Acquisitions of investments	(46,889)			(103,214)
Disposals of investments	48,700			111,217
Forward currency contracts	(840)			1,526
Net cash inflow from financial investment		971			9,529
Equity dividends paid		(12,188)			(11,924)
(Decrease)/increase in cash		(4,523)			7,826
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash		(4,523)			7,826
Translation difference		(6)			(71)
Other non-cash changes		446			420
Movement in net debt in the year		(4,083)			8,175
Net debt at 1 January		(77,209)			(85,384)
Net debt at 31 December		(81,292)			(77,209)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		71,196			91,694
Gains on investments - securities		(58,182)			(72,678)
Currency losses/(gains)		699			(3,171)
Decrease in accrued income		63			1,447
Increase in other debtors		(109)			(16)
Increase in creditors and prepaid income		17			278
Other non-cash changes		(68)			(457)
Net cash inflow from operating activities		13,616			17,097

 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

ASSET ALLOCATION

	At 31 December 2010 % (unaudited)		At 31 December 2009 % (audited)
UK Quoted Equities*	24.6		28.9
Overseas Quoted Equities*	45.4		39.9
Total Quoted Equities*	70.0		68.8
Quoted Fixed Interest	15.4		14.6
Direct property	7.7		8.5
Quoted Equity Property Investments	2.9		2.0
Quoted Equity Forestry Investments	2.4		2.8
Unquoted	0.4		0.5
Net Liquid Assets	1.2		2.8
	100.0		100.0

* Excludes quoted equity property and forestry investments.

PERFORMANCE ATTRIBUTION

for the year ended 31 December 2010

(unaudited)

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Quoted Equities*	89.3	100.0	19.3	15.8
Quoted Fixed Interest	20.1		35.1
Direct Property	10.0		12.0
Quoted Equity Forestry Investments	3.6		1.1
Quoted Equity Property Investments	3.2		42.2
Unquoted	0.6		3.1
Deposits	2.5		-
Debenture at Book Value	(29.3)		(6.8)
Portfolio Total Return (debenture at book value)			24.2	15.8
Other items #			0.1
Fund Total Return (debenture at book value)			24.3	15.8
Adjustment for change in fair value of debenture			(1.5)
Fund Total Return (debenture at fair value)			22.8	15.8

* Excludes quoted equity property and forestry investments.

# This includes Baillie Gifford and OLIM management fees, other costs of running the trust such as marketing expenditure, the VAT refund and a residual item which arises because of a disparity between the NAV total return figure and the individual asset class portfolio return numbers as calculated by Baillie Gifford's performance measurement system (provided by Statpro).

The above returns are calculated on a total return basis with net income reinvested.

Past performance is not a guide to future performance.

Source: Baillie Gifford & Co

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

 

THIRTY LARGEST HOLDINGS at 31 December 2010 (unaudited)
Name	Classification	Business		2010					2009
				Value £'000			% of total assets		Value £'000
Athena Debt Opportunities   Fund	Fixed Interest		Debt opportunities fund		22,063	5.3		14,501
Brazil CPI Linked 15/05/2045	Fixed Interest		Brazilian government bond		18,780	4.5		14,487
Baillie Gifford High Yield    Bond Fund	Fixed Interest		High yield bond fund		13,545	3.2		9,663
Baillie Gifford Greater China   Fund	Overseas		Equity investment fund		10,338	2.5		9,075
Cambium Global Timberland	Quoted Equity   Forestry Inv		Forestry investment fund		9,975	2.4		10,350
Atlas Copco	Overseas		Engineering		8,061	1.9		3,653
British American Tobacco	United Kingdom		Cigarette manufacturer		7,459	1.8		6,104
Rio Tinto	United Kingdom		Mining		7,089	1.7		4,509
Holiday Village in New Romney	Direct Property		Holiday village		6,800	1.6		6,500
BHP Billiton	United Kingdom		Mining		6,735	1.6		5,267
Penn West Energy Trust	Overseas		Oil and natural gas income trust		6,584	1.6		4,704
DBS	Overseas		Banking		6,158	1.5		5,851
Deere	Overseas		Farm machinery		6,142	1.5		3,874
Taiwan Semiconductor   Manufacturing	Overseas		Semiconductor manufacturer		5,669	1.4		5,013
Philip Morris International	Overseas		Cigarette manufacturer		5,574	1.3		4,444
HSBC	United Kingdom		Banking		5,491	1.3		7,118
New York Community Bank	Overseas		Banking		5,466	1.3		4,079
CVRD	Overseas		Mining		5,428	1.3		4,318
Nursing home in Kenilworth	Direct Property		Nursing home		5,200	1.2		5,000
Samsung Electronics	Overseas		Electronic devices		5,032	1.2		3,541
Canon	Overseas		Imaging Devices		4,907	1.2		3,849
Royal Dutch Shell	United Kingdom		Integrated oil		4,865	1.2		4,165
Petrobras	Overseas		Integrated oil		4,817	1.2		5,789
Man Group	United Kingdom		Hedge fund manager		4,644	1.1		3,282
Quorum Oil and Gas	United Kingdom		Oil industry technology fund		4,250	1.0		6,255
Massmart	Overseas		Food retailer		4,249	1.0		2,255
Japan Residential Investment   Company	Quoted Equity   Property Inv		Japanese residential property fund		4,172	1.0		1,600
Jeronimo Martins	Overseas		Discount retailer		4,169	1.0		-
Vodafone	United Kingdom		Mobile telecommunication services		4,052	1.0		5,463
Aviva	United Kingdom		Life assurance		4,048	1.0		4,079
					211,762	50.8		168,788

 

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES (unaudited)

1.	The financial statements for the year to 31 December 2010 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements to 31 December 2009.
2.	Income
				2010						2009
				£'000						£'000
	Franked investment income			3,652						2,983
	UK unfranked investment income			2,305						1,601
	Overseas dividends			5,751						4,664
	Overseas interest			2,104						4,610
				13,812						13,858
	Deposit interest			26						19
	Interest on VAT recovered			-						687
	Rental income			2,287						2,037
	Other income			254						593
				2,567						3,336
	Total income			16,379						17,194
3.	Recovered VAT
	In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. In 2009 the Company received VAT refunds from HMRC of £962,000 (2008 - £807,000) together with interest received on these refunds £687,000. In accordance with guidance from the AIC, the VAT recovered has been allocated between revenue and capital on the same basis as the VAT expense was originally charged and the interest received has been allocated wholly to revenue. The Board considers it unlikely that further refunds will be received.
4.	Returns per ordinary share
		2010						2009
		Revenue	Capital			Total		Revenue			Capital		Total
	Net return per ordinary share (Income Statement)	8.51p	40.34p			48.85p		9.05p			55.30p		64.35p
	Total recognised gains and losses per ordinary share	8.51p	41.18p			49.69p		9.05p			57.62p		66.67p
	Net 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 number of ordinary shares in issue during each year. Total recognised gains and losses per ordinary share is based on the total recognised gains and losses for the year in the Statement of Total Recognised Gains and Losses and on 132,485,943 ordinary shares of 25p, being the number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES (unaudited) (cont'd)

5.	Ordinary dividends
						2010		2009
		2010		2009		£'000		£'000
	Amounts recognised as distributions in the year:
	Previous year's final (paid 12 April 2010)	2.30p		2.25p		3,047		2,981
	First interim (paid 30 June 2010)	2.30p		2.25p		3,047		2,981
	Second interim (paid 30 September 2010)	2.30p		2.25p		3,047		2,981
	Third interim (paid 31 December 2010)	2.30p		2.25p		3,047		2,981
		9.20p		9.00p		12,188		11,924
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1159 of the Corporation Taxes Act 2010 (formerly section 842 of the Income and Corporation Taxes Act 1988) are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £11,271,000 (2009 - £11,989,000).
		2010		2009		2010 £'000		2009 £'000
	Dividends paid and payable in respect of the year:
	First interim (paid 30 June 2010)	2.30p		2.25p		3,047		2,981
	Second interim (paid 30 September 2010)	2.30p		2.25p		3,047		2,981
	Third interim (paid 31 December 2010)	2.30p		2.25p		3,047		2,981
	Current year's proposed final dividend (payable 11 April 2011)	2.35p		2.30p		3,113		3,047
		9.25p		9.05p		12,254		11,990
	If approved the final dividend of 2.35p will be paid on 11 April 2011 to all shareholders on the register at the close of business on 11 March 2011. The ex-dividend date is 9 March 2011. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for reinvestment of this dividend is 21 March 2011.
6.	The fair value of the 8% Debenture Stock 2022 at 31 December 2010 was £97.0m  (2009 - £92.2m)
7.	At 31 December 2010, the Company had the authority to buy back 19,859,642 of its own shares. No shares were bought back during the year under review.
8.	The Report and Accounts will be available on the SAINTS page of the Managers' website www.saints-it.com on or around 7 March 2011.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES (unaudited) (cont'd)

9.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2010.  The financial information for 2009 has been extracted from the statutory accounts for 2009.  The statutory accounts for 2009 have been delivered to the Registrar of Companies.  The Auditors have reported on the 2009 accounts, their report was unqualified and did not contain a statement under section 489 (2) or (3) of the Companies Act 2006.  The statutory accounts for 2010 are unaudited and will be finalised on the basis of the financial information presented in this preliminary announcement. They will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
	None of the views expressed in this document should be construed as advice to buy or sell a particular investment. Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

FR USONRARAUAAR