Half Yearly Report

RNS Number : 5131I

Scottish American Investment Co PLC

26 July 2012

 



Press Release

The Scottish American Investment Company P.L.C. (SAINTS)

Results for the half-year to 30 June 2012

SAINTS net asset value total return for the first six months of 2012 was 3.0% and the share price total return was 6.4%.  The benchmark total return was 4.3%.  The dividend was increased ahead of inflation. 

¾ The optimistic tone in the opening months of the period was later undermined by signs of weakness in the global economy and events in Europe.

¾ Earnings per share rose, a second interim dividend of 2.45p/share has been declared making a total of 4.85p/share (4.70p - 2011) for the six months, a 3.2% increase compared to the corresponding period which represents a real increase over inflation.

¾ The global economy is weak and the investing environment will remain difficult. Developing countries are in a better structural position. The percentage of total assets invested overseas is 60%.

25 July 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 over £75 billion under management and advice as at 24 July 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 Marketing

Tel: [phone] or 07831 401309

The following is the unaudited Half-Yearly Financial Report for the six months to 30 June 2012.

Responsibility statement

We confirm that to the best of our knowledge:

a)   the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement "Half-Yearly Financial Reports";

b)   the Half-Yearly Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, and their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

c)   the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Sir Brian Ivory, CBE

Chairman

25 July 2012

Half-Yearly Management Report

The net asset value total return for the first six months of 2012 was 3.0% and the share price total return was 6.4%.  The benchmark total return was 4.3%.

Earnings per share totalled 5.22p (5.07p in the corresponding period in 2011). A first interim dividend of 2.40p was paid at the end of June and a second interim dividend (payable at the end of September) will be at a higher rate of 2.45p. 

This increase is made possible by the ongoing improvement in the Company's revenue account. It will mean that dividends for the first six months of 2012 total 4.85p, a rise of 3.2% on the 4.70p dividend for the corresponding period in 2011.  This rate of increase is faster than the current rate of inflation.

The period covered by this report breaks down into two distinct parts.  In the opening months of the year, markets were buoyed by the actions of the European Central Bank (which provided substantial financial assistance to the European banking system by means of cheap, three-year loans) and a perception that economic growth, particularly in the United States, was healthy.  From around the middle of March onwards, this optimistic tone was undermined by signs of weakness in the global economy and by a run of events in Europe which fed doubts about the sustainability of the euro.

The net result over the full six months was a small positive return from stockmarkets.  The performance of stocks listed in the United States made the largest contribution to this result.  We have less money invested in US stocks than their weighting in global indices and this was the main factor behind the shortfall in our performance compared to that of our benchmark. 

There have been few changes in the portfolio over the period.  The most significant transaction was a reduction in the holding of Brazilian index linked bonds.  We have also made some alterations to the equity portfolio.  These transactions were prompted by stock-specific considerations rather than by a change in how we perceive the general prospects for stockmarkets.

The global economy is weak and our expectation is that the investing environment will remain difficult.  High income countries are struggling with significant debt burdens and attempts to resolve this problem quickly, such as the austerity programmes being implemented in many European countries, tend to have a harsh impact on growth.  The developing countries are in a significantly better structural position. The percentage of SAINTS total assets invested overseas is 60%.

This economic prospect, combined with the fact that profit margins are already high, probably means corporate profits will retrench.  However, balance sheets are generally strong and payout ratios low so we are hopeful that dividend payments can continue to grow. 

Past performance is not a guide to future performance.

Income Statement (unaudited)

	For the six months ended  30 June 2012			For the six months ended 30 June 2011			For the year ended 31 December 2011
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on sales of investments - securities	-	13,033	13,033	-	8,674	8,674	-	11,637	11,637
Changes in fair value of investments - securities	-	(7,430)	(7,430)	-	(8,073)	(8,073)	-	(43,316)	(43,316)
Currency (losses)/gains	-	(6)	(6)	-	6	6	-	(840)	(840)
Income - dividends and interest	7,807	-	7,807	7,907	-	7,907	14,596	-	14,596
Income - rent and other	1,618	-	1,618	1,360	-	1,360	2,720	-	2,720
Management fees	(312)	(579)	(891)	(331)	(615)	(946)	(627)	(1,163)	(1,790)
Other administrative expenses	(446)	-	(446)	(508)	-	(508)	(1,000)	-	(1,000)
Net return before finance costs and  taxation	8,667	5,018	13,685	8,428	(8)	8,420	15,689	(33,682)	(17,993)
Finance costs of borrowings	(1,032)	(1,916)	(2,948)	(1,037)	(1,926)	(2,963)	(2,074)	(3,852)	(5,926)
Net return on ordinary activities before taxation	7,635	3,102	10,737	7,391	(1,934)	5,457	13,615	(37,534)	(23,919)
Tax on ordinary activities	(704)	365	(339)	(680)	315	(365)	(1,269)	698	(571)
Net return on ordinary activities after taxation	6,931	3,467	10,398	6,711	(1,619)	5,092	12,346	(36,836)	(24,490)
Net return per ordinary share (note 4)	5.22p	2.62p	7.84p	5.07p	(1.23p)	3.84p	9.32p	(27.80p)	(18.48p)

Statement of Total Recognised Gains and Losses (unaudited)

Net return on ordinary activities after taxation	6,931	3,467	10,398	6,711	(1,619)	5,092	12,346	(36,836)	(24,490)
Changes in fair value of investments - property	-	(550)	(550)	-	(114)	(114)	-	(86)	(86)
Total recognised gains/(losses) for the period	6,931	2,917	9,848	6,711	(1,733)	4,978	12,346	(36,922)	(24,576)
Total recognised gains/(losses) per ordinary share (note 4)	5.22p	2.20p	7.42p	5.07p	(1.31p)	3.76p	9.32p	(27.86p)	(18.54p)
Note
Dividends paid and payable per share (note 5)	4.85p			4.70p			9.45p

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 (unaudited)

	At 30 June 2012 £'000	At 30 June 2011 £'000	At 31 December 2011 £'000
Fixed assets
Investments  - securities	340,903	380,444	341,005
Investments - property	38,850	35,150	39,400
	379,753	415,594	380,405
Current assets
Debtors	2,394	1,740	1,552
Cash and deposits	8,981	2,025	3,165
	11,375	3,765	4,717
Creditors
Amounts falling due within one year	(6,735)	(2,576)	(3,956)
Net current assets	4,640	1,189	761
Total assets less current liabilities	384,393	416,783	381,166
Debenture stock (note 6)	(86,719)	(87,209)	(86,972)
Net assets	297,674	329,574	294,194
Capital and reserves
Called up share capital	33,169	33,121	33,169
Share premium	357	-	357
Capital redemption reserve	22,781	22,781	22,781
Capital reserve	224,666	256,938	221,749
Revenue reserve	16,701	16,734	16,138
Shareholders' funds	297,674	329,574	294,194
Net asset value per ordinary share (debenture at fair value) (note 6)	206.6p	240.9p	205.3p
Net asset value per ordinary share (debenture at book value)	224.4p	248.8p	221.7p
Ordinary shares in issue (note 7)	132,675,943	132,485,943	132,675,943

Reconciliation of Movements in Shareholders' Funds (unaudited)

For the six months ended 30 June 2012

	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	-	-	-	2,917	6,931	9,848
Dividends paid (note 5)	-	-	-	-	(6,368)	(6,368)
Shareholders' funds at 30 June 2012	33,169	357	22,781	224,666	16,701	297,674

For the six months ended 30 June 2011

	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	-	-	-	(1,733)	6,711	4,978
Dividends paid (note 5)	-	-	-	-	(6,227)	(6,227)
Shareholders' funds at 30 June 2011	33,121	-	22,781	256,938	16,734	329,574

For the year ended 31 December 2011

	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	48	357	-	-	-	405
Dividends paid (note 5)	-	-	-	-	(12,458)	(12,458)
Shareholders' funds at 31 December 2011	33,169	357	22,781	221,749	16,138	294,194

*       The Capital Reserve balance at 30 June 2012 includes investment holding gains of £41,101,000 30 June 2011 - gains of £84,296,000; 31 December 2011 - gains of £49,081,000).

Condensed Cash Flow Statement (unaudited)

	Six months to 30 June 2012 £'000	Six months to 30 June 2011 £'000	Year to 31 December 2011 £'000
Net cash inflow from operating activities	7,770	7,412	14,253
Net cash outflow from servicing of finance	(3,200)	(3,200)	(6,400)
Total tax paid	(324)	(319)	(555)
Net cash inflow/(outflow) from financial investment	8,142	(1,850)	1,710
Equity dividends paid (note 5)	(6,368)	(6,227)	(12,458)
Net cash inflow from financing	-	-	405
Increase/(decrease) in cash	6,020	(4,184)	(3,045)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the period	6,020	(4,184)	(3,045)
Translation difference	(204)	55	56
Other non-cash changes	253	237	474
Movement in net debt in the period	6,069	(3,892)	(2,515)
Net debt at start of the period	(83,807)	(81,292)	(81,292)
Net debt at end of the period	(77,738)	(85,184)	(83,807)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	13,685	8,420	(17,993)
(Gains)/losses on investments - securities	(5,603)	(601)	31,679
Currency losses/(gains)	6	(6)	840
Changes in debtors and creditors	(209)	(279)	(42)
Other non-cash changes	(109)	(122)	(231)
Net cash inflow from operating activities	7,770	7,412	14,253

Performance Attribution (unaudited)

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Quoted equities*	92.0	100.0	3.4	4.3
Quoted fixed interest	15.7	-	10.6	-
Direct property	11.3	-	2.6	-
Quoted equity property  investments	3.8	-	3.7	-
Quoted equity forestry investments	2.5	-	(21.8)	-
Unquoted	0.6	-	(0.9)	-
Deposits	2.1	-	-	-
Debenture at book value	(28.0)	-	(3.4)	-
Portfolio total return (debenture at book value)			3.8	4.3
Other items #			(0.5)	-
Fund total return (debenture at book value)			3.3	4.3
Adjustment for change in fair value of debenture			(0.3)	-
Fund total return (debenture at fair value)			3.0	4.3

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

*      Excludes quoted equity property and forestry investments.

#      This includes Baillie Gifford and OLIM management fees.

Asset Allocation (unaudited)

	At 30 June 2012 %	At 30 June 2011%	At 31 December 2011 %
Quoted equities*	70.7	70.8	71.4
Quoted fixed interest	12.0	14.9	12.3
Direct property	10.1	8.5	10.4
Quoted equity property investments	3.8	3.1	3.0
Quoted equity forestry investments	1.7	2.0	2.2
Unquoted	0.5	0.4	0.5
Net liquid assets	1.2	0.3	0.2
Total assets	100.0	100.0	100.0

* Excludes quoted equity property and forestry investments.

Twenty Largest Investments (unaudited)

Name	Business	Value at  30 June 2012 £'000	% of total assets*
Athena Debt Opportunities Fund	Structured finance investment fund	13,972	3.6
Baillie Gifford High Yield Bond Fund	High yield bond fund	11,348	3.0
Brazil CPI Linked 15/05/2045	Brazilian government bond	9,446	2.5
Philip Morris International	Cigarette manufacturer	8,290	2.2
Baillie Gifford Greater China Fund	Chinese equities investment fund	8,126	2.1
Holiday Village in New Romney	Holiday village	7,600	2.0
Cambium Global Timberland	Forestry investment fund	6,450	1.7
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	6,309	1.6
BHP Billiton	Mining	6,122	1.6
Industrial & Infrastructure Fund	Japanese commercial property fund	6,082	1.6
Deere	Farm and construction machinery	5,970	1.6
Samsung Electronics	Electronic devices	5,727	1.5
Rio Tinto	Mining	5,676	1.5
Amlin	Property and casualty insurance	5,516	1.4
Nursing home in Kenilworth	Nursing home	5,250	1.4
Royal Dutch Shell	Integrated oil company	5,118	1.3
Scottish & Southern Energy	Electricity utility	5,008	1.3
Japan Residential Investment Company	Japanese residential property fund	4,805	1.2
British American Tobacco	Cigarette manufacturer	4,622	1.2
Jeronimo Martins	Food retailer	4,601	1.2
		136,038	35.5

*      Before deduction of the debenture.

Notes to the Condensed Financial Statements (unaudited)

1.	The condensed financial statements for the six months to 30 June 2012 comprise the statements set out in the previous pages together with the related notes below. They have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 December 2011 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. The Company has no short term borrowings and the redemption date for the Company's Debenture is April 2022. Accordingly, the Half-Yearly Financial Report has been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 December 2011 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain statements under sections 498 (2) or (3) of the Companies Act 2006.
3.	Baillie Gifford & Co are employed by the Company as investment managers and secretaries under a management agreement which can be terminated on six months' notice. Baillie Gifford & Co receive an annual fee of 0.45% of total assets less current liabilities, excluding the property portfolio, calculated on a quarterly basis. Although holdings in collective investment schemes (OEICs) managed by Baillie Gifford & Co are subject to this fee the OEIC share class held by the Company does not itself attract a fee, thereby avoiding any duplication of fees. The property portfolio is managed by OLIM Property Limited, which receives an annual fee of 0.5% of the value of the property portfolio, subject to a minimum quarterly fee of £6,250. The agreement can be terminated on three months' notice.
4.	Returns per ordinary share Net return per ordinary share figures are based on the return on ordinary activities after taxation figures in the Income Statement and on 132,675,943 (30 June 2011 - 132,485,943; 31 December 2011 - 132,533,834) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each period. Total recognised gains and losses per ordinary share is based on the total recognised gains for the period in the Statement of Total Recognised Gains and Losses and on 132,675,943 (30 June 2011 - 132,485,943; 31 December 2011 - 132,533,834) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each period.
5.	Dividends	Six months to  30 June  2012 £'000	Six months to 30 June  2011 £'000	Year to 31 December 2011 (audited) £'000
	Amounts recognised as distribution in the period:
	Previous year's final of 2.40p (2011 - 2.35p), paid 13April 2012	3,184	3,113	3,113
	First interim of 2.40p (2011 - 2.35p), paid 29 June 2012	3,184	3,114	3,113
	Second interim (2011 - 2.35p)	-	-	3,114
	Third interim (2011 - 2.35p)	-	-	3,118
		6,368	6,227	12,458

Notes to the Condensed Financial Statements (unaudited) (ctd)

5.	Dividends (ctd)	Six months to  30 June 2012 £'000	Six months to 30 June  2011 £'000	Year to 31 December 2011 (audited) £'000
	Amounts paid and payable in respect of the period:
	First interim of 2.40p (2011 - 2.35p), paid 29 June 2012	3,184	3,114	3,113
	Second interim of 2.45p (2011 - 2.35p)	3,251	3,113	3,114
	Third interim (2011 - 2.35p)	-	-	3,118
	Final dividend (2011 - 2.40p)	-	-	3,184
		6,435	6,227	12,529
	The second interim dividend was declared after the period end date and has therefore not been included as a liability in the balance sheet. It is payable on 28 September 2012 to shareholders on the register at the close of business on  24 August 2012.  The ex-dividend date is 22 August 2012. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 7 September 2012.
6.	The market value of the 8% Debenture Stock 2022 at 30 June 2012 was £110.2m (30 June 2011 - £97.7m; 31 December 2011 - £108.8m).
7.	At 30 June 2012, the Company had the authority to buy back 19,888,123 ordinary shares and to issue 13,267,594 ordinary shares, without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2012. No shares were bought back or issued during the period under review.
8.	During the period, transaction costs on purchases amounted to £37,000 (30 June 2011 - £60,000; 31 December 2011 - £91,000) and transaction costs on sales amounted to £18,000 (30 June 2011 - £16,000; 31 December 2011 - £31,000).
9.	The Half-Yearly Financial Report will be available on the SAINTS page of the Managers' website: www.saints-it.com‡ on or around 10 August 2012.
10.	Principal Risks and Uncertainties The principal risks facing the Company relate to the Company's investment activities. These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 18 of the Company's Annual Report and Financial Statements for the year to 31 December 2011. The principal risks and uncertainties have not changed since the publication of the Annual Report, which can be obtained free of charge from Baillie Gifford & Co and is available on the SAINTS page of the Managers' website: www.saints-it.com‡. Other risks facing the Company include the following: regulatory risk (that the loss of investment trust status or a breach of applicable legal and regulatory requirements could have adverse financial consequences and cause reputational damage); operational/financial risk (failure of service providers' accounting systems could lead to inaccurate reporting or financial loss); the risk that the discount can widen; and gearing risk (the use of borrowing can magnify the impact of falling markets). Further information can be found on page 22 of the Annual Report.

‡    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.

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