Half Yearly Report

RNS Number : 4114N

Scottish American Investment Co PLC

28 July 2014

 



RNS Announcement

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

Results for the half-year to 30 June 2014

The following is the unaudited Half-Yearly Financial Report for the six months to 30 June 2014.

Half-Yearly Management Report

The net asset value total return for the first six months of 2014 was 1.6% and the share price total return was also 1.6%. The total return of the benchmark, the FTSE All-World Index (in sterling terms), was 3.2%. Earnings per share rose to 6.62p from 6.26p in the same period last year, and our expectation is that income for the full year will show growth compared to the 10.21p earned in the year to 31 December 2013.

A first interim dividend of 2.60p was paid at the end of June and the second interim dividend of 2.625p is payable at the end of September. The total amount of dividends, 5.225p, is 3.5% higher than the amount paid for the corresponding period in 2013. This rate of increase in the dividend exceeds the current rates of inflation, with RPI and CPI increasing by 2.6% and 1.9% respectively on an annual basis as at the end of June 2014.

Global growth rates remain lacklustre, meaning that sales and profits growth are likely to remain subdued in the near term. Emerging markets appear to offer more attractive valuations than those of the developed world on both an earnings and yield basis, but this at least partially recognises the uncertain impact of the continued tapering of quantitative easing.

Despite the challenging geo-political backdrop, particularly in Eastern Europe and the Middle East in 2014, world equity indices are generally at or around historic highs, as is SAINTS' share price. Within SAINTS' portfolio the property allocation was increased. Property's real yield premium over index-linked gilts remains close to 30-year highs, and growing signs of an economic recovery in the UK are prompting increasing demand: our purchases were funded by sales in the equity and bond portfolios. The NAV performance modestly lagged the benchmark return mainly because of our lower allocation to the US market which has performed strongly relative to other markets in the year to date.

Chairman's Statement on the Scottish Referendum

The Board and the Investment Manager are aware of the issues which may arise should the Scottish electorate vote for independence on 18 September 2014. The Company is registered as a Scottish Company, and its Investment Manager, Baillie Gifford and Co, is a Scottish Partnership. The Company's shares are listed on the London Stock Exchange (LSE), and it has shareholders throughout the United Kingdom.  The Board is aware that a vote for secession would bring new regulatory, fiscal and currency risks: Scotland's relationship with the residual United Kingdom and with the EU would be subject to negotiation, with transitional periods before and after actual secession. The Directors are fully aware of their responsibilities to shareholders and have had detailed discussions with the Investment Manager regarding appropriate action should there be a 'Yes' vote: the Board believes it would have sufficient time to assess the evolving situation and to take action as appropriate.

The principal risks and uncertainties facing the Company are set out in note 10.

Baillie Gifford & Co

25 July 2014

Past performance is not a guide to future performance. The value of SAINTS' shares and any income from those shares is not guaranteed and could go down as well as up

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 2014

Income Statement (unaudited)

	For the six months ended  30 June 2014			For the six months ended 30 June 2013			For the year ended 31 December 2013
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on sales of investments - securities	-	15,474	15,474	-	13,529	13,529	-	18,269	18,269
Changes in fair value of investments - securities	-	(15,716)	(15,716)	-	7,080	7,080	-	12,589	12,589
Currency gains/(losses)	-	613	613	-	(1,315)	(1,315)	-	(266)	(266)
Income - dividends and interest	9,501	-	9,501	9,184	-	9,184	15,183	-	15,183
Income - rent and other	1,819	-	1,819	1,616	-	1,616	3,238	-	3,238
Management fees	(339)	(629)	(968)	(340)	(631)	(971)	(678)	(1,259)	(1,937)
Other administrative expenses	(493)	-	(493)	(450)	-	(450)	(958)	-	(958)
Net return before finance costs and taxation	10,488	(258)	10,230	10,010	18,663	28,673	16,785	29,333	46,118
Finance costs of borrowings	(1,020)	(1,895)	(2,915)	(1,026)	(1,906)	(2,932)	(2,052)	(3,812)	(5,864)
Net return on ordinary activities before taxation	9,468	(2,153)	7,315	8,984	16,757	25,741	14,733	25,521	40,254
Tax on ordinary activities	(679)	140	(539)	(677)	236	(441)	(1,192)	457	(735)
Net return on ordinary activities after taxation	8,789	(2,013)	6,776	8,307	16,993	25,300	13,541	25,978	39,519
Net return per ordinary share (note 4)	6.62p	(1.52p)	5.10p	6.26p	12.81p	19.07p	10.21p	19.58p	29.79p

Statement of Total Recognised Gains and Losses (unaudited)

Net return on ordinary activities after taxation	8,789	(2,013)	6,776	8,307	16,993	25,300	13,541	25,978	39,519
Changes in fair value of investments - property	-	679	679	-	100	100	-	950	950
Total recognised gains/(losses) for the period	8,789	(1,334)	7,455	8,307	17,093	25,400	13,541	26,928	40,469
Total recognised gains/(losses) per ordinary share (note 4)	6.62p	(1.00p)	5.62p	6.26p	12.88p	19.14p	10.21p	20.29p	30.50p
Note:
Dividends paid and payable per share (note 5)	5.225p			5.05p			10.20p

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 2014 £'000	At 30 June 2013 £'000	At 31 December 2013 £'000
Fixed assets
Investments - securities	376,566	381,370	386,448
Investments - property	50,250	38,750	39,600
	426,816	420,120	426,048
Current assets
Debtors	1,969	1,946	1,158
Cash and deposits	2,333	1,242	3,956
	4,302	3,188	5,114
Creditors
Amounts falling due within one year	(2,535)	(3,030)	(2,849)
Net current assets	1,767	158	2,265
Total assets less current liabilities	428,583	420,278	428,313
Creditors
Debenture stock (note 6)	(85,646)	(86,199)	(85,931)
Net assets	342,937	334,079	342,382
Capital and reserves
Called up share capital	33,169	33,169	33,169
Share premium	357	357	357
Capital redemption reserve	22,781	22,781	22,781
Capital reserve	267,768	259,267	269,102
Revenue reserve	18,862	18,505	16,973
Shareholders' funds	342,937	334,079	342,382
Net asset value per ordinary share (debenture at fair value) (note 6)	245.7p	238.0p	247.0p
Net asset value per ordinary share (debenture at book value)	258.5p	251.8p	258.1p
Ordinary shares in issue (note 7)	132,675,943	132,675,943	132,675,943

Reconciliation of Movements in Shareholders' Funds (unaudited)

For the six months ended 30 June 2014

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2014	33,169	357	22,781	269,102	16,973	342,382
Total recognised gains and losses	-	-	-	(1,334)	8,789	7,455
Dividends paid (note 5)	-	-	-	-	(6,900)	(6,900)
Shareholders' funds at 30 June 2014	33,169	357	22,781	267,768	18,862	342,937

For the six months ended 30 June 2013

	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	-	-	-	17,093	8,307	25,400
Dividends paid (note 5)	-	-	-	-	(6,634)	(6,634)
Shareholders' funds at 30 June 2013	33,169	357	22,781	259,267	18,505	334,079

For the year ended 31 December 2013

	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 (note 5)	-	-	-	-	(13,400)	(13,400)
Shareholders' funds at 31 December 2013	33,169	357	22,781	269,102	16,973	342,382

*      The Capital Reserve balance at 30 June 2014 includes investment holding gains of £54,107,000; (30 June 2013 - gains of £62,580,000; 31 December 2013 - gains of £68,939,000).

Condensed Cash Flow Statement (unaudited)

	Six months to 30 June 2014 £'000	Six months to 30 June 2013 £'000	Year to 31 December 2013 £'000
Net cash inflow from operating activities	8,817	8,735	15,644
Net cash outflow from servicing of finance	(3,200)	(3,200)	(6,400)
Total tax paid	(549)	(435)	(735)
Net cash inflow from financial investment	205	787	6,993
Equity dividends paid (note 5)	(6,900)	(6,634)	(13,400)
(Decrease)/increase in cash	(1,627)	(747)	2,102
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period	(1,627)	(747)	2,102
Translation difference	4	(31)	(166)
Other non-cash changes	285	268	536
Movement in net debt in the period	(1,338)	(510)	2,472
Net debt at start of the period	(81,975)	(84,447)	(84,447)
Net debt at end of the period	(83,313)	(84,957)	(81,975)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	10,230	28,673	46,118
Losses/(gains) on investments - securities	242	(20,609)	(30,858)
Currency (gains)/losses	(613)	1,315	266
Changes in debtors and creditors	(1,026)	(523)	557
Other non-cash changes	(16)	(121)	(439)
Net cash inflow from operating activities	8,817	8,735	15,644

Performance Attribution (unaudited)

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Global equities	102.3	100.0	1.7	3.2
Bonds	8.2		8.3
Direct property	12.9		5.5
Deposits	1.8		-
Debenture at book value	(25.2)		3.4
Portfolio total return (debenture at book value)			2.4	3.2
Other items *			(0.2)
Fund total return (debenture at book value)			2.2	3.2
Adjustment for change in fair value of debenture			(0.6)
Fund total return (debenture at fair value)			1.6	3.2

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

*      Includes Baillie Gifford and OLIM management fees.

Asset Allocation (unaudited)

	At 30 June 2014 %	At 30 June 2013 %	At 31 December 2013 %
Global equities	82.0	80.6	83.6
Bonds	5.9	10.1	6.7
Direct property	11.7	9.3	9.2
Net liquid assets	0.4	-	0.5
Total assets	100.0	100.0	100.0

Twenty Largest Equity Holdings (unaudited)

Name	Business	Value at  30 June 2014 £'000	% of total assets*
Amlin	Property and casualty insurance	11,421	2.7
Total	Integrated oil company	10,091	2.3
Rio Tinto	Mining	9,139	2.1
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	8,857	2.0
Hiscox	Property and casualty insurance	7,324	1.7
Roche Holdings	Pharmaceuticals	6,793	1.6
Analog Devices	Integrated circuits	5,850	1.4
Norsk Hydro	Aluminium producer	5,755	1.3
Aviva	Investment and life assurance	5,646	1.3
Nippon Telegraph and Telephone	Communication services	5,540	1.3
SK Telecom	Mobile telecommunication services	5,508	1.3
Japan Residential Investment Company	Japanese residential property fund	5,414	1.3
Sumitomo	Trading conglomerate	5,414	1.3
Provident Financial	Loans and credit cards	5,411	1.3
BHP Billiton	Mining	5,393	1.3
Progressive	Property and casualty insurance	5,389	1.3
Capita	Business process outsourcing	5,334	1.2
Coca Cola	Beverage manufacturer	5,234	1.2
Pepsico	Snack and beverage manufacturer	5,222	1.2
Johnson and Johnson	Pharmaceuticals and healthcare products	5,196	1.2
		129,931	30.3

*      Before deduction of the debenture.

Notes to the Condensed Financial Statements (unaudited)

1.	The condensed financial statements for the six months to 30 June 2014 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 2013 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 2013 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 Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager (AIFM) and Company Secretary with effect from 1 July 2014. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six month's notice. The annual fee is 0.45% of total assets less current liabilities, excluding the property portfolio, calculated on a quarterly basis. As AIFM, Baillie Gifford & Co Limited has delegated the management of the property portfolio to OLIM Property Limited. OLIM 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 is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,675,943 (30 June 2013 - 132,675,943; 31 December 2013 - 132,675,943) 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 2013 - 132,675,943; 31 December 2013 - 132,675,943) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each period.
5.	Dividends	Six months to  30 June  2014 £'000	Six months to 30 June  2013 £'000	Year to 31 December 2013 (audited) £'000
	Amounts recognised as distribution in the period:
	Previous year's final of 2.60p (2013 - 2.50p), paid 11April 2014	3,450	3,317	3,317
	First interim of 2.60p (2013 - 2.50p), paid 27 June 2014	3,450	3,317	3,317
	Second interim (2013 - 2.55p)	-	-	3,383
	Third interim (2013 - 2.60p)	-	-	3,383
		6,900	6,634	13,400

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

5.	Dividends (ctd)	Six months to  30 June 2014 £'000	Six months to 30 June  2013 £'000	Year to 31 December 2013 £'000
	Amounts paid and payable in respect of the period:
	First interim of 2.60p (2013 - 2.50p), paid 27 June 2014	3,450	3,317	3,317
	Second interim of 2.625p (2013 - 2.55p)	3,483	3,383	3,383
	Third interim (2013 - 2.55p)	-	-	3,383
	Final dividend (2013 - 2.60p)	-	-	3,450
		6,933	6,700	13,533
	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 26 September 2014 to shareholders on the register at the close of business on 22 August 2014.  The ex-dividend date is 20 August 2014. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 5 September 2014.
6.	The market value of the 8% Debenture Stock 2022 at 30 June 2014 was £102.6m (30 June 2013 - £104.5m; 31 December 2013 - £100.6m).
7.	At 30 June 2014, the Company had the authority to buy back 19,888,123 ordinary shares, and to issue 13,267,592 ordinary shares without application of pre-emption rights, in accordance with the authorities granted at the AGM in April 2014. No shares were bought back or issued during the period under review.
8.	During the period, transaction costs on purchases amounted to £75,000 (30 June 2013 - £68,000; 31 December 2013 - £131,000) and transaction costs on sales amounted to £29,000 (30 June 2013 - £23,000; 31 December 2013 - £33,000).
9.	The Half-Yearly Financial Report will be available on the SAINTS page of the Managers' website: www.saints-it.com‡ on or around 8 August 2014.
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 2013. 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 premium/(discount) can change; gearing risk (the use of borrowing can magnify the impact of falling markets); and political risk (the Board is aware that the Scottish Referendum Vote introduces elements of political uncertainty which may have practical consequences; developments will be closely monitored and considered by the Board and Managers). Further information can be found on page 7 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.

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 Limited, a wholly owned subsidiary of Baillie Gifford & Co, is appointed as investment managers and secretaries to SAINTS. Baillie Gifford & Co, the Edinburgh based fund management group has around £108 billion under management and advice as at 24 July 2014.

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]

Roland Cross, Director, Broadgate Mainland

Tel: [phone] 

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