Final Results

RNS Number : 0611A

Scottish American Investment Co PLC

14 February 2014

 



RNS Announcement: Preliminary Results

SAINTS net asset value per share rose 12% in the year to end December 2013.  The total return for the year (capital and income) was 17%.

Results for the year to 31 December 2013

¾ The full year dividend of 10.2p per share is covered by earnings and is 4.1% higher than the 2012 dividend and ahead of inflation (2.7% as measured by RPI) maintaining the record of growing the dividend in real terms over time.

¾ The NAV total return of 17% lagged the benchmark total return of 21%. This lag arose from the greater allocation to Emerging Market stocks and bonds.  The share price total return was 18%.

¾ The Benchmark is to be changed from the current composite index (50% FTSE All Share, 50% FTSE All World ex UK) to a simple global measure, the FTSE All World Index which aligns better with the investment policy.

¾ Global economic growth remains muted relative to pre-crisis levels and valuation measures suggest stockmarkets are not lowly rated.  The Board and Managers foresee further dividend growth.

14 February 2014

SAINTS' objective is to increase capital and grow income in order to deliver real dividend growth. Its policy is to invest mainly in equity markets, but other investments may be held from time to time including bonds, property and other asset classes.

Baillie Gifford & Co, the Edinburgh based fund management group with around £104 billion under management and advice as at 13 February 2014, 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:

Dominic Neary, 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]

The following is the unaudited Annual Financial Report for the year to 31 December 2013.

Chairman's Statement

Overview

In the five years since the 2008 global financial crisis, central banks, particularly in the large developed economies, have provided an extraordinary level of support by maintaining interest rates at exceptionally low levels and pursuing quantitative easing policies or, simply put, 'printing money'.

2013 may prove to have been the high water mark for these policies with their strong advocate, the US Federal Reserve, now reducing its bond buying programme.  This change to the investing environment will no doubt present challenges but, for the period covered by this report, there has been a strong gain in net asset value and, if the recommended final distribution is approved, an increased full year dividend of 10.2p per share will maintain the record of growing the dividend in real terms over time.

Performance

Net asset value (NAV) per share, on the fair value measure, rose 12% to 247.0p.  The total return for the year (capital and income) was 17%. 

The main explanation for this strong NAV result was the performance of stock markets in the developed economies.  These form the largest part of the SAINTS portfolio and they rose sharply in 2013.  A fall in the market value of the Company's debenture borrowings also served to boost NAV at fair value. 

The NAV total return lagged the benchmark total return of 21% because of SAINTS greater allocation to Emerging Markets and the emphasis on securing income well above average yields in equity markets. The weighting to Emerging Markets reflects that the long term potential here remains considerable. 

Benchmark

The current composite benchmark (50% FTSE All Share, 50% All World ex UK) no longer reflects the reality that SAINTS is now a Global Equity Income trust with a relatively small UK equity exposure. The FTSE All World Index would be more appropriate and it has been decided to make the change, effective from the start of 2014.

Revenues and Dividend

Investment income and earnings per share were at broadly similar levels to last year, at £18.4m and 10.21p per share respectively.  The fact that investment income did not increase reflects changes in the composition of the portfolio in the last two years, away from bonds and towards equities.  The immediate effect of this is to lower the current year income forecast but with improved prospects for capital and income growth over the long term.

A final dividend of 2.6p is recommended which will take the full year dividend to 10.2p per share, 4.1% higher than the 2012 dividend of 9.8p and also ahead of inflation of 2.7% as measured by RPI.

Borrowings

SAINTS' borrowings take the form of a single £80m debenture which is due for repayment in April 2022.  During 2013, the borrowings mainly funded a range of higher yielding commercial property and bond investments.

The book value of the debenture is £85.9m which, at the year end, was equivalent to approximately 25% of shareholders' funds.  The estimated market or fair value of the debenture was £100.6m, a decline from the previous year's value of £109.2m.  We expect further declines in both the debenture's book and market values as it approaches its final redemption value of £80m.

Regulation

To comply with the Alternative Investment Fund Managers Directive, a major piece of EU legislation, the Company is required to appoint a single Alternative Investment Fund Manager ( AIFM) as well as a Depositary. As a result, the Company intends amending its contractual arrangements with our managers, the partnership of Baillie Gifford & Co and OLIM Property Ltd.  This will see our contractual counterparty become Baillie Gifford & Co Ltd, a wholly owned subsidiary of the Baillie Gifford partnership. In turn Baillie Gifford & Co Ltd will delegate investment management to Baillie Gifford & Co and also to OLIM Property Ltd.  SAINTS has agreed to appoint BNY Mellon as Depositary.

Articles of Association

At the AGM, the Company is seeking shareholder approval to amend the Articles to delete the provision which prohibits the distribution of any surplus arising from the realisation of investments. The Board believes that the removal of this restriction will give the Company greater flexibility in its distribution policy in the long term.

Management Arrangements

On a more personal note, after ten years as manager, Patrick Edwardson will step aside from day to day responsibility of managing the portfolio and the current Deputy Manager, Dominic Neary, will become Manager. Dominic already manages the equity investments, which represent approximately 80% of the portfolio. Patrick will remain closely involved with the management of SAINTS particularly with issues of asset allocation.

Outlook

Global economic growth has improved but remains below trend and valuation measures suggest stock markets are not lowly rated.  This, together with the impact that less supportive monetary policy may have, suggests the outlook for capital returns is modest.  However, many companies are very profitable and cash-generative and there is scope for dividend payout ratios to rise.

The Board and the AGM

The AGM will be held at 11am on Thursday 3 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.

I would like to finish by thanking Sir Menzies Campbell who will be retiring from the Board at the AGM after six years. The Board and Managers have been very fortunate to have had the benefit of his wise counsel over this period as well as gaining from the singular insight that he has lent to discussions of wider political and global relevance.

Sir Brian Ivory, CBE

Chairman

13 February 2014

Income statement

The following is the unaudited preliminary statement for the year to 31 December 2013 which was approved by the Board on 13 February 2014. 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 3 April 2014 the payment of a final dividend of 2.60p (2.50p last year) per ordinary share making a total of 10.20p (9.80p last year) paid and proposed for the year ended 31 December 2013.

	For the year ended 31 December 2013 (unaudited)			For the year ended 31 December 2012 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains on investments - securities	-	30,858	30,858	-	25,178	25,178
Currency (losses)/gains	-	(266)	(266)	-	288	288
Income (note 2)	18,421	-	18,421	18,556	-	18,556
Management fees	(678)	(1,259)	(1,937)	(627)	(1,164)	(1,791)
Other administrative expenses	(958)	-	(958)	(881)	-	(881)
Net return before finance costs and taxation	16,785	29,333	46,118	17,048	24,302	41,350
Finance costs of borrowings	(2,052)	(3,812)	(5,864)	(2,063)	(3,832)	(5,895)
Net return on ordinary activities before taxation	14,733	25,521	40,254	14,985	20,470	35,455
Tax on ordinary activities	(1,192)	457	(735)	(1,421)	705	(716)
Net return on ordinary activities after taxation	13,541	25,978	39,519	13,564	21,175	34,739
Net return per ordinary share (note 3)	10.21p	19.58p	29.79p	10.22p	15.96p	26.18p

Statement of total recognised gains and losses

	For the year ended 31 December 2013 (unaudited)			For the year ended 31 December 2012 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net return on ordinary activities after taxation	13,541	25,978	39,519	13,564	21,175	34,739
Net losses on investments - property	-	950	950	-	(750)	(750)
Total recognised gains and losses for the year	13,541	26,928	40,469	13,564	20,425	33,989
Total recognised gains and losses per ordinary share (note 4)	10.21p	20.29p	30.50p	10.22p	15.39p	25.61p

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.

Balance sheet

	At 31 December 2013 (unaudited)		At 31 December 2012 (audited)
	£'000	£'000	£'000	£'000
Fixed assets
Investments - securities	386,448		362,004
Investments - property	39,600		38,650
		426,048		400,654
Current assets
Debtors	1,158		1,735
Cash and deposits	3,956		2,020
	5,114		3,755
Creditors
Amounts falling due within one year	(2,849)		(2,629)
Net current assets		2,265		1,126
Total assets less current liabilities		428,313		401,780
Creditors
Amounts falling due after more than one year		(85,931)		(86,467)
Total net assets		342,382		315,313
Capital and reserves
Called up share capital		33,169		33,169
Share premium		357		357
Capital redemption reserve		22,781		22,781
Capital reserve		269,102		242,174
Revenue reserve		16,973		16,832
Shareholders' funds		342,382		315,313
Net asset value per ordinary share (debenture at fair value)		247.0p		220.5p
Net asset value per ordinary share (debenture at par value)		258.1p		237.7p
Ordinary shares in issue (note 6)		132,675,943		132,675,943

Reconciliation of movements in shareholders' funds

For the year ended 31 December 2013 (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 2013	33,169	357	22,781	242,174	16,832	315,313
Total recognised gains and losses	-	-	-	26,928	13,541	40,469
Dividends paid in the year (note 4)	-	-	-	-	(13,400)	(13,400)
Shareholders' funds at 31 December 2013	33,169	357	22,781	269,102	16,973	342,382

For the year ended 31 December 2012 (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 2012	33,169	357	22,781	221,749	16,138	294,194
Total recognised gains and losses	-	-	-	20,425	13,564	33,989
Dividends paid in the year (note 4)	-	-	-	-	(12,870)	(12,870)
Shareholders' funds at 31 December 2012	33,169	357	22,781	242,174	16,832	315,313

Cash flow statement

	Year Ended 31 December 2013 (unaudited)		Year Ended 31 December 2012 (audited)
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		15,644		15,832
Servicing of finance
Interest paid	(6,400)		(6,400)
Net cash outflow from servicing of finance		(6,400)		(6,400)
Taxation
Overseas tax incurred	(735)		(720)
Total tax paid		(735)		(720)
Financial investment
Acquisitions of investments	(76,212)		(75,401)
Disposals of investments	83,240		78,382
Forward currency contracts	(35)		292
Net cash inflow from financial investment		6,993		3,273
Equity dividends paid		(13,400)		(12,870)
Net cash inflow/(outflow) before financing		2,102		(885)
Increase/(decrease) in cash		2,102		(885)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash		2,102		(885)
Translation difference		(166)		(260)
Other non-cash changes		536		505
Movement in net debt in the year		2,472		(640)
Net debt at 1 January		(84,447)		(83,807)
Net debt at 31 December		(81,975)		(84,447)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		46,118		41,350
Gains on investments - securities		(30,858)		(25,178)
Currency losses/(gains)		266		(288)
Decrease in accrued income and prepaid expenses		354		193
(Increase)/decrease in other debtors		(17)		4
Increase/(decrease) in creditors and prepaid income		220		(30)
Other non-cash changes		(439)		(219)
Net cash inflow from operating activities		15,644		15,832

Asset allocation

	At 31 December 2013 % (unaudited)		At 31 December 2012 % (audited)
Quoted equities	83.6		77.4
Bonds	6.7		12.8
Direct property	9.2		9.5
Net liquid assets	0.5		0.3
Total assets	100.0		100.0

Performance attribution

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Global equities	100.4	100.0	14.0	21.1
Bonds	12.1		(1.2)
Direct property	11.2		11.0
Deposits	1.2		-
Debenture at book value	(24.9)		6.8
Portfolio total return (debenture at book value)			13.6	21.1
Other items*			(0.8)
Fund total return (debenture at book value)			12.8
Adjustment for change in fair value of debenture			3.8
Fund total return (debenture at fair value)			16.6	21.1

* 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 equity holdings (unaudited)

Name	Business	2013 Value £'000	2013 % of total assets	2012 Value %
Amlin	Property and casualty insurance	11,165	2.6	5,906
Rio Tinto	Mining	10,012	2.3	6,600
Progressive	Property and casualty insurance	9,893	2.3	10,518
Baillie Gifford Greater China Fund	Chinese equities investment fund	9,802	2.3	8,734
Total	Integrated oil company	8,854	2.1	3,321
Samsung Electronics	Electronic devices	7,978	1.9	6,735
Vodafone	Mobile telecommunication services	7,584	1.8	3,773
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	7,454	1.7	7,478
Analog Devices	Integrated circuits	5,688	1.3	3,253
Japan Residential Investment Company	Japanese residential property fund	5,625	1.3	5,156
Baidu	Online search engine	5,616	1.3	2,233
Hiscox	Property and casualty insurance	5,610	1.3	1,359
M6-Metropole TV	Television broadcasting	5,525	1.3	-
SK Telecom	Mobile telecommunication services	5,291	1.2	-
Philip Morris International	Cigarette manufacturer	5,151	1.2	6,162
Jeronimo Martins	Food retailer	5,038	1.2	5,054
Rexam	Beverage can manufacturer	5,015	1.2	4,584
Norsk Hydro	Aluminium producer	4,955	1.1	-
SAP	Business software developer	4,876	1.1	4,620
Svenska Handelsbanken	Banking	4,861	1.1	3,598
Roche Holdings	Pharmaceuticals	4,780	1.1	3,495
United Parcel Service	Courier services	4,767	1.1	2,495
Doric Nimrod Air Two	Aircraft leasing	4,725	1.1	4,620
Aberforth Geared Income Trust	UK small-cap equities fund	4,652	1.1	2,974
Konecranes	Lifting equipment	4,634	1.1	3,555
New York Community Bancorp	Banking	4,619	1.1	3,656
Linear Technology	Integrated circuits	4,619	1.1	3,543
Penn West Energy Trust	Oil exploration and production	4,516	1.1	5,962
Cambium Global Timberland	Forestry investment fund	4,500	1.1	6,600
China Mobile	Mobile telecommunication services	4,393	1.0	3,471
		182,198	42.5	129,455

Notes (unaudited)

1.	The financial statements for the year to 31 December 2013 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements to 31 December 2012.
2.	Income					2013 £'000		2012 £'000
	Income from investments
	Franked investment income					3,554		3,995
	UK unfranked investment income					472		1,198
	Overseas dividends					9,445		8,357
	Overseas interest					1,700		1,793
						15,171		15,343
	Other income
	Deposit interest					12		9
	Rental income					3,198		3,153
	Other income					40		51
						3,250		3,213
	Total income					18,421		18,556
3.	Returns per ordinary share	2013				2012
		Revenue	Capital		Total	Revenue	Capital		Total
	Net return per ordinary share (Income Statement)	10.21p	19.58p		29.79p	10.22p	15.96p		26.18p
	Total recognised gains and losses per ordinary share	10.21p	20.29p		30.50p	10.22p	15.39p		25.61p
	Net return per ordinary share is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,675,943 (2012 - 132,675,943) 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 132,675,943 (2012 - 132,675,943) 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			2013		2012	2013 £'000			2012 £'000
	Amounts recognised as distribution in the year:
	Previous year's final (paid 12 April 2013)			2.50p		2.40p	3,317			3,184
	First interim (paid 28 June 2013)			2.50p		2.40p	3,317			3,184
	Second interim (paid 27 September 2013)			2.55p		2.45p	3,383			3,251
	Third interim (paid 20 December 2013)			2.55p		2.45p	3,383			3,251
				10.10p		9.70p	13,400			12,870

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 Tax Act 2010 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £13,541,000 (2012 - £13,564,000).
		2013	2012	2013 £'000	2012 £'000
	Dividends paid and payable in respect of the year:
	First interim (paid 28 June 2013)	2.50p	2.40p	3,317	3,184
	Second interim (paid 27 September 2013)	2.55p	2.45p	3,383	3,251
	Third interim (paid 20 December 2013)	2.55p	2.45p	3,383	3,251
	Current year's proposed final dividend (payable 11 April 2014)	2.60p	2.50p	3,450	3,317
		10.20p	9.80p	13,533	13,003
	If approved the final dividend of 2.60p will be paid on 11 April 2014 to all shareholders on the register at the close of business on 7 March 2014. The ex-dividend date is 5 March 2014. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 20 March 2014.
5.	The fair value of the 8% Debenture Stock 2022 at 31 December 2013 was £100.6m (2012 - £109.2m).
6.	The Company allotted no shares in the year to 31 December 2013 (2012 - allotted no ordinary shares). At 31 December 2013 the Company had authority to buy back 19,888,123 ordinary shares and to allot 13,267,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2013. 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 2013. The financial information for 2012 is derived from the statutory accounts for 2012 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2012 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 2013 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 3 March 2014.‡

‡    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 -

 

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