Final Results

RNS Number : 3433X

Scottish American Investment Co PLC

14 February 2012

 



Press Release

In 2011, SAINTS net asset value total return (income and capital) was minus 11.8%, the share price fell by 11.5% and the benchmark fell by 5.2%.  Earnings per share were 9.5% higher and an increased total dividend for the year is proposed.  

 Results for the year to 31 December 2011

¾ 2011 was a difficult year for the global economy: stockmarkets were overshadowed by the Eurozone crisis and the possibility of a double dip recession.

¾ SAINTS earnings per share were 9.5% higher at 9.32p (8.51p) due to increases in income from overseas equity investments.  A final dividend of 2.4p per share is proposed making an increased total of 9.45p (9.25p in 2010). This represents the 24^th consecutive annual increase but is below the increase in the Retail Price Index. Revenue reserves stand at 9.8p per share.

¾ Further earnings improvement is expected during 2012 and it is hoped that there will be a return to dividend growth ahead of inflation.  However, markets are expected to remain volatile.  Significant challenges face the global economy and it is difficult to foresee any significant uplift in economic activity or corporate profits.  Such environments usually present as many opportunities as they do threats.

13 February 2012

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. 

Baillie Gifford & Co, the Edinburgh based fund management group with around £77 billion under management and advice as at 10 February 2012, is appointed as investment managers and secretaries to SAINTS.

Past performance is not a guide to future performance. SAINTS is a listed UK company. As a result, the value of its shares and any income from those shares is not guaranteed and could go down as well as up. You may not get back the amount you invested. 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. You can find up to date performance information about SAINTS on the SAINTS page of the Managers' website www.saints-it.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

For further information please contact:

Patrick Edwardson, Manager, The Scottish American Investment Company P.L.C.

Tel: [phone]

James Budden, Baillie Gifford & Co  

Tel: [phone] or 07507 201208

Roland Cross, Director, Broadgate Mainland

Tel: [phone] or 07831 401309

Chairman's Statement

Overview

2011 was a more difficult year for the global economy and for SAINTS, and stockmarkets gave back some of the gains from the previous two years.  In particular, markets were overshadowed by the Eurozone crisis and the possibility of a double dip recession.   However, I am happy to report that the income received from SAINTS' investment portfolio rose over the year, with particularly strong increases in the dividends from our equity investments.  I am hopeful that SAINTS will deliver real dividend growth in the years ahead.

Performance

The performance of the portfolio was more or less in line with the index but the debenture priced at fair value acted as a considerable drag on overall performance.  The net asset value total return, with the debenture at fair value, was
-11.8%.  Taking the debenture at its book value, the total return was -7.6%.  These figures compare to a benchmark total return of -5.2%. 

The share price total return for the year was -11.5%.  The share price began the year at a small premium to net asset value (again with the debenture at fair value) and this was maintained throughout the year.  At the year end, the premium was 1.6%.

Revenues and Dividend

Total income was £17.3m in 2011 compared to £16.4m in 2010, a rise of 6%.  Dividend income received from our listed equity investments rose 20% to £11.3m, income from our bond investments fell from £4.4m to £3.3m reflecting some changes in the portfolio while the rental income on our directly held properties rose from £2.3m to £2.7m as we benefited from some modest rent increases across the portfolio and the acquisition of some new properties.

This increase in our investment income fed through to a 9.5% increase in earnings per share, from 8.51p in 2010 to 9.32p this year.  It also means that we are required to draw only modestly on our revenue reserves (which stand at 9.8p per share) to pay this year's dividend.  Three payments of 2.35p have already been made and we propose to pay a final dividend of 2.40p, making a total of 9.45p for the year as a whole.

A dividend of 9.45p for 2011 represents an increase on the prior year of 2.2% and therefore falls short of the increase recorded in the Retail Prices Index last year.  However, over the long term, SAINTS has grown its dividend at a faster rate than inflation and we aim to continue to do so.

Borrowings

SAINTS' borrowings take the form of a single debenture due for repayment in April 2022. The book value of these borrowed funds is £87.0m. 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 26% of shareholders' funds.

During 2011, this borrowed money was used as funding for a range of higher yielding investments across bond markets and in UK commercial property. The income from these investments makes a significant contribution to our total investment income but capital performance in 2011 was mixed with the property investments holding their value but the bond investments experiencing declines in sympathy with broader market movements. 

Fluctuations in the fair value of the debenture also affect our net asset value.  During 2011, the prices of UK gilts rose and this caused the market price of the debenture to rise from £97m to £109m.  This rise in the market value of the debenture was a drag on the performance of net assets and explains much of the shortfall against the composite index that we use for performance comparison purposes. 

Supply and Demand for the Company's Shares

I remarked last year that the relatively high and growing dividend offered by SAINTS was, in a world of low interest rates and falling gilt yields, an increasingly attractive proposition to private investors.  This favourable trend has allowed our shares to trade at premiums to net asset value during the last year.

Issuing shares when the price is at a premium to net asset value advantages existing shareholders, allows new shareholders to join the register with relative ease and enhances market liquidity for SAINTS shares.  We submitted a block listing application to the London Stock Exchange in May this year and by September the share price was trading at a sufficient level for us to issue a small amount of new shares.

We will continue to look to issue new shares when it is appropriate to do so, particularly when the share price stands at a premium to the net asset value per share with the debenture priced at book value

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

We expect our revenue account to show further improvement during 2012 and are hopeful that the year ahead will see a return to real growth in our dividend. 

The levels of stockmarkets and those of the other asset classes and investment markets in which SAINTS can invest will, we expect, remain volatile.  There are still many significant challenges facing the global economy and these make it difficult to foresee with great conviction any significant uplift in economic activity or corporate profits. 

However, such environments can sometimes present as many opportunities as they do threats and we and our Managers will endeavour to profit from them.  In this regard, we are pleased to announce the appointment of Dominic Neary as Deputy Manager.  Dominic will assist the current Manager, Patrick Edwardson, with particular responsibility for the equity portfolio.

The Board and the AGM

David Price, who has served on the Board for 14 years, has decided to retire from the Board after the forthcoming AGM. I am very grateful for his considerable contribution, full commitment and valued support over that period. He will be succeeded as Senior Independent Director by Lord Kerr.

The AGM will be held at 11am on Thursday 5 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

13 February 2012

Income statement

The following is the unaudited preliminary statement for the year to 31 December 2011which was approved by the Board on 13 February 2012. 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 5 April 2012 the payment of a final dividend of 2.40p (2.35p last year) per ordinary share making a total of 9.45p (9.25p last year) paid and proposed for the year ended 31 December 2011.

	For the year ended 31 December 2011 (unaudited)			For the year ended 31 December 2010 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net (losses)/gains on investments - securities	-	(31,679)	(31,679)	-	58,182	58,182
Currency losses	-	(840)	(840)	-	(699)	(699)
Income (note 2)	17,316	-	17,316	16,379	-	16,379
Management fees	(627)	(1,163)	(1,790)	(618)	(1,147)	(1,765)
Other administrative expenses	(1,000)	-	(1,000)	(901)	-	(901)
Net return before finance costs and  taxation	15,689	(33,682)	(17,993)	14,860	56,336	71,196
Finance costs of borrowings	(2,074)	(3,852)	(5,926)	(2,084)	(3,870)	(5,954)
Net return on ordinary activities before taxation	13,615	(37,534)	(23,919)	12,776	52,466	65,242
Tax on ordinary activities	(1,269)	698	(571)	(1,505)	977	(528)
Net return on ordinary activities after taxation	12,346	(36,836)	(24,490)	11,271	53,443	64,714
Net return per ordinary share (note 3)	9.32p	(27.80p)	(18.48p)	8.51p	40.34p	48.85p

Statement of total recognised gains and losses

	For the year ended 31 December 2011 (unaudited)			For the year ended 31 December 2010 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net return on ordinary activities after taxation	12,346	(36,836)	(24,490)	11,271	53,443	64,714
Net (losses)/gains on investments - property	-	(86)	(86)	-	1,122	1,122
Total recognised gains and losses for the year	12,346	(36,922)	(24,576)	11,271	54,565	65,836
Total recognised gains and losses  per ordinary share (note 4)	9.32p	(27.86p)	(18.54p)	8.51p	41.18p	49.69p

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

Balance sheet

	At 31 December 2011 (unaudited)		At 31 December 2010 (audited)
	£'000	£'000	£'000	£'000
Fixed assets
Investments - securities	341,005		381,239
Investments - property	39,400		31,950
		380,405		413,189
Current assets
Debtors	1,552		1,542
Cash and deposits	3,165		6,154
	4,717		7,696
Creditors
Amounts falling due within one year:	(3,956)		(2,616)
Net current assets		761		5,080
Total assets less current liabilities		381,166		418,269
Creditors
Amounts falling due after more than one year:		(86,972)		(87,446)
Total net assets		294,194		330,823
Capital and reserves
Called up share capital		33,169		33,121
Share premium		357		-
Capital redemption reserve		22,781		22,781
Capital reserve		221,749		258,671
Revenue reserve		16,138		16,250
Shareholders' funds		294,194		330,823
Net asset value per ordinary share (debenture at fair value)		205.3p		242.5p
Net asset value per ordinary share (debenture at book value)		221.7p		249.7p
Ordinary shares in issue (note 6)		132,675,943		132,485,943

Reconciliation of movements in shareholders' funds

For the year ended 31 December 2011 (unaudited)

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2011	33,121	-	22,781	258,671	16,250	330,823
Total recognised gains and losses	-	-	-	(36,922)	12,346	(24,576)
Shares issued (note 6)	48	357	-	-	-	405
Dividends paid in the year (note 4)	-	-	-	-	(12,458)	(12,458)
Shareholders' funds at 31 December 2011	33,169	357	22,781	221,749	16,138	294,194

For the year ended 31 December 2010 (audited)

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2010	33,121	-	22,781	204,106	17,167	277,175
Total recognised gains and losses	-	-	-	54,565	11,271	65,836
Dividends paid in the year (note 4)	-	-	-	-	(12,188)	(12,188)
Shareholders' funds at 31 December 2010	33,121	-	22,781	258,671	16,250	330,823

Condensed cash flow statement

	Year Ended 31 December 2011 (unaudited)		Year Ended 31 December 2010 (audited)
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		14,253		13,616
Servicing of finance
Interest paid	(6,400)		(6,400)
Net cash outflow from servicing of finance		(6,400)		(6,400)
Taxation
Overseas tax incurred	(564)		(522)
Income tax refunded	9		-
Total tax paid		(555)		(522)
Financial investment
Acquisitions of investments	(51,733)		(46,889)
Disposals of investments	54,225		48,700
Forward currency contracts	(782)		(840)
Net cash inflow from financial investment		1,710		971
Equity dividends paid		(12,458)		(12,188)
Net cash outflow before financing		(3,450)		(4,523)
Financing
Shares issued	405		-
Net cash inflow from financing		405		-
Decrease in cash		(3,045)		(4,523)
Reconciliation of net cash flow to movement in net debt
Decrease in cash		(3,045)		(4,523)
Translation difference		56		(6)
Other non-cash changes		474		446
Movement in net debt in the year		(2,515)		(4,083)
Net debt at 1 January		(81,292)		(77,209)
Net debt at 31 December		(83,807)		(81,292)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		(17,993)		71,196
Losses/(gains) on investments - securities		31,679		(58,182)
Currency losses		840		699
(Increase)/decrease in accrued income and prepaid expenses		(128)		63
Decrease/(increase) in other debtors		43		(109)
Increase in creditors and prepaid income		43		17
Other non-cash changes		(231)		(68)
Net cash inflow from operating activities		14,253		13,616

Asset allocation

	At 31 December 2011 % (unaudited)		At 31 December 2010 % (audited)
UK quoted equities*	26.3		24.6
Overseas quoted equities*	45.1		45.4
Total quoted equities*	71.4		70.0
Quoted fixed interest	12.3		15.4
Direct property	10.4		7.7
Quoted equity property investments	3.0		2.9
Quoted equity forestry investments	2.2		2.4
Unquoted	0.5		0.4
Net liquid assets	0.2		1.2
Total assets	100.0		100.0

* Excludes quoted equity property and forestry investments.

Performance attribution

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Quoted equities*	89.8	100.0	(5.7)	(5.2)
Quoted fixed interest	18.2		0.6
Direct property	11.0		7.9
Quoted equity forestry investments	2.7		(12.3)
Quoted equity property investments	3.8		(0.4)
Unquoted	0.6		3.3
Deposits	1.5		-
Debenture at book value	(27.6)		(6.8)
Portfolio total return (debenture at book value)			(6.5)	(5.2)
Other items #			(1.1)
Fund total return (debenture at book value)			(7.6)	(5.2)
Adjustment for change in fair value of debenture			(4.2)
Fund total return (debenture at fair value)			(11.8)	(5.2)

*      Excludes quoted equity property and forestry investments.

#      This includes Baillie Gifford and OLIM management fees.

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

Thirty largest holdings (unaudited)

Name	Classification	Business	2011 Value £'000	2011 % of total assets	2010 Value %
Brazil CPI Linked 15/05/2045	Quoted Fixed Interest	Brazilian government bond	17,742	4.7	18,780
Athena Debt Opportunities Fund	Quoted Fixed Interest	Structured finance investment fund	12,758	3.3	22,063
Cambium Global Timberland	Quoted Equity Forestry Investments	Forestry investment fund	8,250	2.2	9,975
Baillie Gifford Greater China Fund	Overseas Quoted Equities	Chinese equities investment fund	7,676	2.0	10,338
Philip Morris International	Overseas Quoted Equities	Cigarette manufacturer	7,528	2.0	5,574
Holiday Village in New Romney	Direct Property	Holiday village	7,450	2.0	6,800
British American Tobacco	United Kingdom Quoted Equities	Cigarette manufacturer	6,740	1.8	7,459
Baillie Gifford High Yield Bond Fund	Quoted Fixed Interest	High yield bond fund	6,642	1.8	13,545
BHP Billiton	United Kingdom Quoted Equities	Mining	6,344	1.7	6,735
Rio Tinto	United Kingdom Quoted Equities	Mining	5,875	1.5	7,089
Taiwan Semiconductor Manufacturing	Overseas Quoted Equities	Semiconductor manufacturer	5,870	1.5	5,669
Deere	Overseas Quoted Equities	Farm and construction machinery	5,764	1.5	6,142
Royal Dutch Shell	United Kingdom Quoted Equities	Integrated oil company	5,643	1.5	4,865
Penn West Energy Trust	Overseas Quoted Equities	Oil exploration and production	5,472	1.4	6,584
Samsung Electronics	Overseas Quoted Equities	Electronic devices	5,096	1.3	5,032
Japan Residential Investment Company	Quoted Equity Property Investments	Japanese residential property fund	5,063	1.3	4,172
Nursing home in Kenilworth	Direct Property	Nursing home	4,950	1.3	5,200
DBS	Overseas Quoted Equities	Banking	4,931	1.3	6,158
Amlin	United Kingdom Quoted Equities	Property and casualty insurance	4,886	1.3	2,307
Canon	Overseas Quoted Equities	Imaging devices	4,791	1.3	4,907
Scottish & Southern Energy	United Kingdom Quoted Equities	Electricity utility	4,644	1.2	3,185
Jeronimo Martins	Overseas Quoted Equities	Food retailer	4,552	1.2	4,169
Doric Nimrod Air Two	United Kingdom Quoted Equities	Aircraft leasing	4,480	1.2	-
Vodafone	United Kingdom Quoted Equities	Mobile telecommunication services	4,372	1.1	4,052
Altria	Overseas Quoted Equities	Cigarette manufacturer	4,277	1.1	3,523
Office and leisure property in Sunderland	Direct Property	Office and leisure property	4,250	1.1	-
International Oil and Gas Technology   Fund	United Kingdom Quoted Equities	Oil and gas private equity   investment fund	4,070	1.1	-
Catco	United Kingdom Quoted Equities	Catastrophe re-insurance	3,793	1.0	-
Atlas Copco	Overseas Quoted Equities	Engineering	3,734	1.0	8,061
Vale	Overseas Quoted Equities	Mining	3,726	1.0	5,428
			181,369	47.7	187,812

Notes (unaudited)

1.	The financial statements for the year to 31 December 2011 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements to 31 December 2010.
2.	Income					2011 £'000		2010 £'000
	Income from investments
	Franked investment income					3,989		3,652
	UK unfranked investment income					1,114		2,305
	Overseas dividends					7,272		5,751
	Overseas interest					2,215		2,104
						14,590		13,812
	Other income
	Deposit interest					6		26
	Rental income					2,670		2,287
	Other income					50		254
						2,726		2,567
	Total income					17,316		16,379
3.	Returns per ordinary share	2011				2010
		Revenue	Capital		Total	Revenue	Capital		Total
	Net return per ordinary share (Income Statement)	9.32p	(27.80p)		(18.48p)	8.51p	40.34p		48.85p
	Total recognised gains and losses per ordinary share	9.32p	(27.86p)		(18.54p)	8.51p	41.18p		49.69p
	Net return per ordinary share is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,533,834 (2010 - 132,485,943) ordinary shares of 25p, being the weighted average 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 132,533,834 (2010 - 132,485,943) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue.
4.	Ordinary Dividends			2011		2010	2011 £'000			2010 £'000
	Amounts recognised as distribution in the year:
	Previous year's final (paid 11 April 2011)			2.35p		2.30p	3,113			3,047
	First interim (paid 30 June 2011)			2.35p		2.30p	3,113			3,047
	Second interim (paid 30 September 2011)			2.35p		2.30p	3,114			3,047
	Third interim (paid 30 December 2011)			2.35p		2.30p	3,118			3,047
				9.40p		9.20p	12,458			12,188

Notes (unaudited) (ctd)

4.	Dividends (ctd)
	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 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £12,346,000 (2010 - £11,271,000).
		2011	2010	2011 £'000	2010 £'000
	Dividends paid and payable in respect of the year:
	First interim (paid 30 June 2011)	2.35p	2.30p	3,113	3,047
	Second interim (paid 30 September 2011)	2.35p	2.30p	3,114	3,047
	Third interim (paid 30 December 2011)	2.35p	2.30p	3,118	3,047
	Current year's proposed final dividend (payable 13 April 2012)	2.40p	2.35p	3,184	3,113
		9.45p	9.25p	12,529	12,254
	If approved the final dividend of 2.40p will be paid on 13 April 2012 to all shareholders on the register at the close of business on 9 March 2012. The ex-dividend date is 7 March 2012. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for reinvestment of this dividend is 21 March 2012.
5.	The fair value of the 8% Debenture Stock 2022 at 31 December 2011 was £108.8m (2010 - £97.0m).
6.	In the year to 31 December 2011 the Company allotted 190,000 ordinary shares with a nominal value of £47,500 for a total consideration of £405,000. At 31 December 2011 the Company had authority to buy back 19,859,643 ordinary shares and to allot a further 13,058,594 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2011. No shares were bought back during the year.
7.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2011. The financial information for 2010 is derived from the statutory accounts for 2010 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2010 accounts, their report was unqualified and did not contain a statement under section 495 to 497 of the Companies Act 2006. The statutory accounts for 2011 are unaudited and will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
8.	The Report and Accounts will be available on the SAINTS page of the Managers' website www.saints-it.com on or around 5 March 2012.‡

‡    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.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

- ends -

 

END

 

 

FR UOOBRUSAUAAR