Interim Results
Scottish American Investment Co PLC
01 August 2005
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. (SAINTS)
Results for the six months to 30 June 2005
SAINTS' share price total return+ exceeds benchmark while earnings rise by 13%.
Share price total return+ of 12.4%
• A share price total return+ of 12.4% was achieved in the six months, ahead of the 7.9% total return+
recorded by SAINTS' composite benchmark index (70% FTSE All-Share Index and 30% FTSE World Ex-UK
Index in Sterling terms).
At interim stage dividend up 9.2%
• A second interim dividend of 1.62p is to be paid making a total for the half-year to date of 3.21p,
an increase of 9.2% compared to the same period last year. This is in line with SAINTS' stated
commitment to maintain a progressive dividend policy. Earnings of 4.06p were 13.1% higher than in
the same period last year.
NAV Performance
• The net asset value total return+ with the debentures priced at book value was 8.1%, while with the
debentures priced at market value it was 6.4%.
Mixed Equity Performance
• Operational performance of the UK holdings was, on the whole good, but this was not always reflected
in share price performance. The total return+ on the UK equity investments was 6.3% and behind an
8.2% rise in the UK element of the benchmark. In contrast, in the overseas portfolio positive
developments within many of the businesses held were rewarded with strong share price gains: the
total return+ on the overseas equity portfolio was 12.7% well ahead of the 7.2% return in the
overseas benchmark element.
Relatively Optimistic Outlook
• Exposure to equities was increased towards the end of the six month period when quoted equity
exposure was equivalent to 110% of shareholders' funds. Equity purchases were funded by bond sales.
The Manager remains relatively optimistic about the outlook for shares: in the UK it is likely that
any serious downturn in consumer demand will be offset by interest rate cuts while globally there are
few indications that high oil and commodity prices are restraining demand.
+ Total returns are calculated on the basis that net income is reinvested.
Past performance is no guarantee of future performance The value of an
investment and any income from it is not guaranteed and may go down as well as
up and investors may not get back the amount invested. This is because the share
price is determined by the changing conditions in the relevant stockmarkets in
which the Company invests and by the supply and demand for the Company's shares.
Investment in investment trusts should be regarded as medium to long-term. You
can find up to date performance information about SAINTS on the Baillie Gifford
website at www.bailliegifford.com.
The Scottish American Investment Company P.L.C. (SAINTS) aims to provide a
valuable income that should grow steadily over time and at a faster rate than
inflation, together with capital growth. It invests predominantly in the UK,
including holdings in property, but also has a spread of international equities.
Baillie Gifford & Co, the Edinburgh based fund management group with around £36
billion under management and advice, is appointed as investment managers and
secretaries to SAINTS.
29 July 2005
- ends -
For further information please contact:
Patrick Edwardson, Manager,
The Scottish American Investment Company P.L.C. 0131 275 2133
07812 537316
Robert O'Riordan, Marketing Manager
Baillie Gifford & Co. 07730 412007
Mike Lord, Director,
Broadgate Marketing 020 7726 6111
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
Interim Report
Stockmarkets delivered good returns in the first half of 2005. In the UK, the
total return on the FTSE All-Share Index was 8.2% whilst overseas markets, as
measured by the FTSE World Ex UK index, returned 7.2%. The total return on the
Company's shares over the period was 12.4%.
The particularly strong performance from the Company's shares is in part
explained by a narrowing of the gap between the share price and the net asset
value per share. Total returns based on NAV were 8.1% if calculated using the
book value of the Company's debenture and 6.4% if calculated using market value
(the difference being explained by an upwards move in the price at which the
debenture trades in the open market). These numbers for NAV total return
compare to 7.9% for the Company's benchmark index.
Throughout the period, we had a generally positive view on earnings growth and
equity valuations and, reflecting this, the Company was geared into equity
markets. On average through the first half, the value of the quoted equity
investments was equivalent to 106% of shareholders' funds though net purchases
had taken this figure to 110% by the end of the period. This use of gearing
added approximately 0.5% points to total return.
The return on the UK holdings lagged that on the FTSE All-Share by 1.9% points.
This was a frustrating outcome given that their operational performance was, on
the whole, good. We believe continued growth in profits at these companies will
in due course be translated into strong share price performance.
Fortunately, the performance of our overseas holdings offset the disappointing
UK contribution. The overseas equity investments are chosen for their long run
growth prospects and form a relatively concentrated portfolio of our best stock
ideas from around the world. As such, short term performance is likely to be
more variable than the Company's overall result. However, on this occasion, we
are pleased that the very positive developments in the businesses we chose to
invest in were rewarded with strong share price gains.
The return on the overseas holdings was also boosted by a fall in the value of
sterling against most major currencies, an unexpected move which prompted us to
remove the dollar hedge taken out towards the end of 2004.
The geared position in equities was financed by selling down the fixed income
portfolio. The return on these holdings was 5.3%, consisting of six months
worth of interest payments and some capital appreciation. The capital gain was
consistent with general developments in bond markets which saw yields fall and
prices rise. This buoyant tone to bond markets contributed to the rise in the
market price of the Company's debenture.
Aside from a small incremental investment at one site, the property portfolio
was unchanged. These investments are re-valued annually at the end of the
Company's financial year and, consequently, the 3.6% return shown in the
performance attribution reflects income alone.
Past performance is no guarantee of future performance.
In summary then, the first half of 2005 saw good use of gearing and strong
results from the overseas equity investments, offset by a return on the UK
holdings that lagged the market. Both the UK and overseas portfolios are
delivering strong income growth in addition to capital appreciation and the bond
and property portfolios have again made a very useful contribution to the
revenue account. The health of the revenue account puts the Company in a strong
position to grow its own dividend and the second interim payment has been set at
1.62p, giving a total dividend for the first half of 3.21p, a rise of 9.2% on
the same period a year ago. We believe these results demonstrate the advantages
of an investment approach that tries to balance immediate income with capital
growth and that seeks to invest across a range of different asset classes.
The period under review has also seen the introduction of a number of new
Financial Reporting Standards in the UK. The adoption of these Standards has
changed the basis of valuation of investments and the treatment of dividends and
has therefore required a restatement of prior year figures. The calculation of
finance costs has also been amended. Note 1 to the accounts explains these
changes in accounting treatment and the impact upon the prior year's reported
figures in more detail.
Looking forward, continued growth in the UK and world economies and in corporate
profits will be key to ensuring our investments maintain their current rate of
dividend growth. Consumer demand in the UK has clearly slowed but we do not
anticipate a more serious downturn and, if such a risk emerged, we would expect
the Bank of England to cut interest rates. As for the world economy, there is
little sign as yet that high oil and commodity prices are restraining demand and
monetary policy is still relatively loose despite recent US interest rate
hikes. Whilst acknowledging the need to stay vigilant, we enter the second half
happy with geared exposure to equities and confident as to the health of the
Company's revenue position.
By order of the Board
Baillie Gifford & Co
29 July 2005
Past performance is no guarantee of future performance.
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
The following is the interim statement for the six months ended 30 June 2005
which has been neither reviewed nor audited by the auditors. This statement is
being printed and will be sent to all shareholders on 16 August 2005. Copies
will be available for inspection at the Registered Office of the Company or may
be obtained on request from the Managers and Secretaries after that date.
STATEMENT OF TOTAL RETURN
(unaudited and incorporating the revenue account*)
Restated+ Restated+
For the six months ended For the six months ended For the year ended
30 June 2005 30 June 2004 31 December 2004
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised gains on
investments - 2,740 2,740 - 3,046 3,046 - 2,779 2,779
Unrealised gains/(losses)
on investments - 16,146 16,146 - (4,604) (4,604) - 24,226 24,226
Currency (losses)/gains - (763) (763) - 36 36 - 388 388
Income 7,980 - 7,980 7,506 - 7,506 13,707 - 13,707
Management fees (401) (401) (802) (384) (384) (768) (812) (813) (1,625)
Other administrative
expenses (387) - (387) (511) - (511) (887) - (887)
Net return before finance
costs and taxation 7,192 17,722 24,914 6,611 (1,906) 4,705 12,008 26,580 38,588
Finance costs of borrowings (1,520) (1,519) (3,039) (1,525) (1,524) (3,049) (3,045) (3,045) (6,090)
Return on ordinary
activities before
taxation 5,672 16,203 21,875 5,086 (3,430) 1,656 8,963 23,535 32,498
Tax on ordinary
activities (290) 190 (100) (287) 217 (70) (584) 441 (143)
Return on ordinary
activities 5,382 16,393 21,775 4,799 (3,213) 1,586 8,379 23,976 32,355
after taxation
Return per ordinary share
(note 2) 4.06p 12.38p 16.44p 3.59p (2.40p) 1.19p 6.30p 18.01p 24.31p
Note:
Dividends paid and
proposed 3.21p 2.94p 6.00p
* The total column of this statement is the profit and loss account of the
Company.
+ See note 1.
All revenue and capital items in this statement derive from continuing
operations.
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
SUMMARISED BALANCE SHEET
At 30 June 2005
(unaudited)
Restated+ Restated+
At 30 June At 30 June At 31 December
2005 2004 2004
£'000 £'000 £'000
Fixed Assets
Investments 376,293 330,643 359,832
Current Assets
Debtors 7,140 6,133 2,076
Cash and deposits 4,474 2,307 3,912
11,614 8,440 5,988
Creditors
Amounts falling due within one year (8,815) (4,109) (4,129)
Net Current Assets 2,799 4,331 1,859
Total Assets (before deduction of debenture stock) 379,092 334,974 361,691
Debenture stock (note 3) (89,599) (89,918) (89,760)
289,493 245,056 271,931
Capital and Reserves
Called-up share capital 33,121 33,121 33,121
Capital redemption reserve 22,781 22,781 22,781
Capital reserve - realised 166,506 167,898 165,912
Capital reserve - unrealised 52,897 7,922 37,098
Revenue reserve 14,188 13,334 13,019
Equity Shareholders' Funds 289,493 245,056 271,931
Net Asset Value Per Ordinary Share
(Debentures at market value) 206.4p 181.8p 197.1p
Net Asset Value Per Ordinary Share
(Debentures at book value) 218.5p 185.0p 205.3p
Ordinary Shares In Issue (note 4) 132,485,943 132,485,943 132,485,943
+ See note 1.
ASSET ALLOCATION
At 30 June 2005
(unaudited)
30 June 2005 30 June 2004 31 December 2004
% % %
UK Quoted Equities 59.1 53.5 56.1
Global (ex UK) Quoted Equities 24.9 23.3 22.4
Unquoted 1.3 1.8 1.6
Quoted Fixed Income 5.0 11.6 10.1
Properties 9.0 9.1 9.3
Net Liquid Assets 0.7 0.7 0.5
100.0 100.0 100.0
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Restated+ Restated+
Six months to Six months to Year to
30 June 30 June 31 December 2004
2005 2004 £'000
£'000 £'000
Net cash inflow from operating activities 6,612 5,191 10,943
Net cash outflow from servicing of finance (3,200) (3,200) (6,400)
Overseas tax incurred (79) (62) (142)
Net cash inflow/(outflow) from financial investment 1,283 (38,112) (35,085)
Equity dividends paid (4,054) (3,798) (7,693)
Net cash inflow/(outflow) before use of liquid
resources and financing 562 (39,981) (38,377)
Net cash inflow from use of liquid resources - 40,000 40,000
Net cash outflow from financing - (4,433) (4,432)
Increase/(decrease) in cash 562 (4,414) (2,809)
Reconciliation of net cash flow to movement in
net debt
Increase/(decrease) in cash in the period 562 (4,414) (2,809)
Decrease in short term deposits - (40,000) (40,000)
Other non-cash changes 161 152 310
Movement in net debt in the period 723 (44,262) (42,499)
Net debt at start of the period (85,848) (43,349) (43,349)
Net debt at end of the period (85,125) (87,611) (85,848)
Reconciliation of operating revenue to net cash
inflow from operating activities
Net revenue before finance costs and taxation 7,192 6,611 12,008
Management fees charged to capital (401) (384) (813)
Changes in debtors and creditors (209) (1,065) (284)
Other non-cash changes 30 29 32
Net cash inflow from operating activities 6,612 5,191 10,943
+ See note 1.
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
PERFORMANCE ATTRIBUTION
For the six months to 30 June 2005
(unaudited)
Average allocation Total return* Contribution
SAINTS Benchmark SAINTS Benchmark to total return
% % % % %
UK Quoted Equities 75.3 70.0 6.3 8.2 4.8
Global (ex UK) Quoted Equities 30.4 30.0 12.7 7.2 3.9
Quoted Fixed Interest 9.6 - 5.3 - 0.5
Properties 12.0 - 3.6 - 0.4
Unquoted 1.8 - 9.4 - 0.2
Deposits 2.3 - 3.1 - 0.1
Forward contracts - - (4.0) - (0.3)
Portfolio Total Return 9.6
Finance costs (31.4) - (3.4) - (1.1)
Management fees and other expenses - - - - (0.4)
NAV Total Return (debenture at
8.1
book value)
Change in market value of debenture (1.7)
NAV Total Return (debenture at market
value) 6.4
* The above returns are calculated on a total return basis with net income
reinvested.
TWENTY LARGEST HOLDINGS
At 30 June 2005
(unaudited)
Market % of
value total
£'000 assets
Name Business
Vodafone Mobile telecommunications 15,764 4.2
GlaxoSmithKline Pharmaceuticals 13,794 3.6
Royal Bank of Scotland Banking 13,575 3.6
Barclays Banking 11,009 2.9
British American Tobacco Tobacco 10,007 2.6
HSBC Banking 9,050 2.4
Shell Transport & Trading Integrated oil 7,775 2.1
Imperial Tobacco Tobacco 7,670 2.0
Aviva Life assurance 7,104 1.9
Diageo Branded spirits 6,785 1.8
Milton Keynes - The Approach Property - hotel 6,500 1.7
Moody's Credit rating agency 5,642 1.5
Standard Chartered Banking 5,631 1.5
Altria Tobacco 5,378 1.4
BP Integrated oil 4,955 1.3
Hilton Group Hotel chain 4,813 1.3
International Mezzanine Unquoted 4,629 1.2
Friends Provident Life insurance 4,603 1.2
Petrobras Integrated oil 4,518 1.2
Man Group Hedge fund manager 4,424 1.2
153,626 40.6
THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.
NOTES
1. A number of new UK Financial Reporting Standards have been introduced with which the Company must
comply by its 31 December 2005 financial year end. These standards are part of the UK convergence
programme with International Accounting Standards and as such have required most UK listed companies
to restate prior year figures to reflect the new accounting treatment. The financial statements for
the six months to 30 June 2005 have been prepared on the basis of the accounting policies set out in
the Company's Annual Financial Statements at
31 December 2004 except as detailed below:
a) investments have been valued at fair value through profit and loss in accordance with FRS
26 'Financial Instruments: Measurement'. The effect is to move from a mid to a bid basis of
valuation, resulting in a reduction in the value of investments and unrealised capital reserves of
£716,000 (30 June 2004 - £387,000; 31 December 2004 - £834,000);
b) debentures are held at amortised cost in accordance with FRS 25 'Financial Instruments:
Disclosure and Presentation' and FRS 26 and finance costs have been charged 50:50 to capital and
revenue using the effective interest rate method. The effect is to increase the carrying amount of
the debenture by £1,100,000 (30 June 2004 - £912,000; 31 December 2004 - £1,007,000) and to reduce
realised capital reserves by £764,000 (30 June 2004 - £670,000; 31 December 2004 - £718,000) and
revenue reserves by £336,000 (30 June 2004 - £242,000; 31 December 2004 - £289,000) respectively;
and
c) in compliance with FRS 21 'Events after the Balance Sheet Date', dividends declared after
the period end are no longer treated as a liability at the period end. The effect is to reduce
creditors and increase revenue reserves by £2,146,000 (30 June 2004 - £1,948,000; 31 December 2004 -
£2,106,000).
The overall effect of these changes on shareholders' funds is detailed below:
At 30 June At 30 June At 31 December
2005 2004 2004
£'000 £'000 £'000
Investments (716) (387) (834)
Creditors: dividends payable 2,146 1,948 2,106
Debenture stock (1,100) (912) (1,007)
330 649 265
In addition to finance costs, income from fixed interest securities has also been calculated using
the effective interest rate method. The allocation of the tax charge between revenue and capital
has been amended to reflect the revised income and capital returns. The effect of these changes is
to reduce realised capital reserves by £115,000 (30 June 2004 - £86,000; 31 December 2004 -
£101,000) and to increase unrealised capital reserves by £53,000 (30 June 2004 - £29,000; 31
December 2004 - £32,000) and revenue reserves by £62,000 (30 June 2004 - £57,000; 31 December 2004 -
£69,000) respectively.
The overall impact upon the Company's reserves as a result of the above changes is as follows:
At 30 June At 30 June At 31 December
2005 2004 2004
£'000 £'000 £'000
Capital reserve - realised (879) (756) (819)
Capital reserve - unrealised (663) (358) (802)
Revenue reserve 1,872 1,763 1,886
330 649 265
Under the new standards, dividends may no longer be charged through the Statement of Total Return.
As a result, dividends paid and proposed have been presented as a note to the accounts.
Restated+ Restated+
Six months to Six months to Year to
30 June 30 June 31 December
2005 2004 2004
£'000 £'000 £'000
2. Return per ordinary share
Revenue return 5,382 4,799 8,379
Capital return 16,393 (3,213) 23,976
Return per ordinary share is based on the above totals of revenue and capital and on 132,485,943
(30 June 2004 - 133,670,998; 31 December 2004 - 133,075,233) ordinary shares, being the weighted
average number of ordinary shares in issue during the period.
3. The market value of the 8% Debenture Stock 2022 at 30 June 2005 was £105.6m (30 June 2004 -
£94.2m; 31 December 2004 - £100.6m).
4. At 30 June 2005, the Company had the authority to buy back 19,859,642 of its own shares. No
shares were bought back during the period under review.
Restated+
Six months to Six months to 31
30 June December
2005 2004
£'000 £'000
5. Dividends
Amounts recognised as distributions in the period:
Final dividend for the year ended 31 December 2004 of 1.59p
(2003 - 1.42p), paid 4 April 2005 2,106 1,890
First interim dividend for the year ending 31 December 2005 of
1.59p (2004 - 1.47p), paid 1 July 2005 2,107 1,948
4,213 3,838
Second interim dividend for the year ending 31 December 2005
of 1.62p (2004 - 1.47p) 2,146 1,948
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 3 October 2005 to shareholders
on the register at the close of business on 9 September 2005. The ex dividend date is 7
September 2005.
6. The financial information contained within this Interim Report does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. The financial information for the
year ended
31 December 2004 has been extracted from the statutory accounts which have been filed with the
Registrar of Companies and which contain an unqualified Auditors' Report and do not contain a
statement under sections 237(2) or (3) of the Companies Act 1985.
7. The Interim Report was approved by the board on 29 July 2005. None of the views expressed in
this document should be construed as advice to buy or sell a particular investment.
+ See note 1.
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