SAINTS half year results to 30 June 2016

RNS Number : 5831F

Scottish American Investment Co PLC

29 July 2016

 



RNS Announcement

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

Results for the six months to 30 June 2016

The following is the unaudited Interim Financial Report for the six months to 30 June 2016.

Interim Management Report

The net asset value total return for the first six months of 2016 was 14.0% and the share price total return was 12.0%. The total return of the global equities, as measured by the FTSE All World Index in sterling, was 12.0%. Over the six month period 235,000 shares were issued at a premium to net asset value. Earnings per share for the six months were 5.77p compared to 6.18p in the same period last year. While the underlying trend in income from SAINTS' assets continued to show solid growth year on year, two specific factors were the primary drivers of the fall in earnings for the first half of 2016 as compared to 2015: a significantly lower contribution from special dividends, and reduced rental income from the property portfolio as a result of the sale of some higher-yielding properties in the second half of 2015.

A first interim dividend of 2.70p was paid at the end of June and a second interim dividend of 2.70p will be paid at the end of September. The total amount of dividends, 5.4p, is 1.4% higher than the amount paid for the corresponding period in 2015. The rate of increase in the dividend exceeds the current annual rate of CPI inflation of 0.3% as at the end of June 2016. Our expectation is that income for the full year will show a modest fall compared with the 10.47p earned in the year to 31 December 2015.  Revenue reserves stand at 9.92p per share.

NAV performance exceeded the comparative FTSE All World Index return mainly due to strong performance from the equity portfolio, with solid operational performance from the majority of companies held. The healthcare and financial services sectors were areas of particular strength with, for example, our holdings of Cochlear, the hearing implant company, and BM&F Bovespa, the Brazilian stock exchange, performing well. General operational resilience has also enabled almost all of SAINTS' equity holdings to deliver continued dividend growth. In common with the broader UK equity market, the recent vote in favour of Brexit was a setback to progression in the share prices of SAINTS' UK-listed stocks. However, as a globally-invested Company the portfolio's overseas stocks have, in sterling terms, benefited from the related currency movements. In the fixed income portfolio a strong rebound in the Brazilian inflation-linked bond in both local currency and sterling terms further contributed to strong total portfolio performance.

During the period a small addition was made to the directly-held UK property portfolio, which posted a positive total return. The valuations of SAINTS' property investments are well-supported by attractive yields, sound tenants on long-duration leases, and a strong component of inflation-linked rental income. The property portfolio continues to have excellent prospects for long-term capital and income growth irrespective of the widely-reported challenges experienced by open-ended property funds in the wake of the European referendum result.

Whatever the broader economic and fiscal effects of Brexit, the long term outlook for SAINTS' income and capital growth is robust. Both the international nature of SAINTS' portfolio, and the Manager's focus on identifying investments which have strong and sustainable growth prospects, and that offer a dependable and growing income stream, should support the Company in continuing its long record of delivering a dividend which rises in real terms over time.

Board and Management Arrangements

As previously announced, during the period Sir Brian Ivory stepped down from the Board and Peter Moon has taken over as Chairman.

The Company is pleased to announce the appointment of James Dow and Toby Ross as deputy managers of SAINTS with immediate effect. James and Toby are investment managers in Baillie Gifford's Global Income Growth team which is headed by Dominic Neary, the manager of SAINTS. This positive development reflects their close involvement in the management of SAINTS and Baillie Gifford's team-based approach.

Baillie Gifford & Co

28 July 2016

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 upResponsibility Statement

We confirm that to the best of our knowledge:

a)   the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';

b)   the Interim 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, 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 Interim 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

Peter Moon

Chairman

28 July 2016

Income Statement (unaudited)

	For the six months ended  30 June 2016			For the six months ended 30 June 2015			For the year ended 31 December 2015
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on sales of investments - securities	-	3,089	3,089	-	4,312	4,312	-	11,356	11,356
Gains/(losses) on sales of investments - property	-	14	14	-	217	217	-	(1,703)	(1,703)
Changes in fair value of investments - securities	-	39,043	39,043	-	1,972	1,972	-	(4,318)	(4,318)
Changes in fair value of investments - property	-	250	250	-	736	736	-	3,346	3,346
Currency losses	-	(527)	(527)	-	(1,056)	(1,056)	-	(272)	(272)
Income - dividends and interest	7,968	-	7,968	8,747	-	8,747	14,598	-	14,598
Income - rent and other	1,966	-	1,966	1,990	-	1,990	4,028	-	4,028
Management fees	(368)	(684)	(1,052)	(351)	(651)	(1,002)	(690)	(1,282)	(1,972)
Other administrative expenses	(526)	-	(526)	(639)	-	(639)	(1,137)	-	(1,137)
Net return before finance costs and taxation	9,040	41,185	50,225	9,747	5,530	15,277	16,799	7,127	23,926
Finance costs of borrowings	(1,007)	(1,871)	(2,878)	(1,014)	(1,883)	(2,897)	(2,028)	(3,767)	(5,795)
Net return on ordinary activities before taxation	8,033	39,314	47,347	8,733	3,647	12,380	14,771	3,360	18,131
Tax on ordinary activities	(352)	110	(242)	(534)	90	(444)	(858)	226	(632)
Net return on ordinary activities after taxation	7,681	39,424	47,105	8,199	3,737	11,936	13,913	3,586	17,499
Net return per ordinary share (note 4)	5.77p	29.60p	35.37p	6.18p	2.82p	9.00p	10.47p	2.70p	13.17p
Note: Dividends paid and payable per share (note 5)	5.40p			5.325p			10.70p

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 2016 £'000	At 31 December 2015 £'000
Fixed assets
Investments - securities	413,349	375,868
Investments - property	59,950	56,000
	473,299	431,868
Current assets
Debtors	6,308	1,115
Cash and deposits	4,820	3,399
	11,128	4,514
Creditors
Amounts falling due within one year	(10,972)	(3,173)
Net current assets	156	1,341
Total assets less current liabilities	473,455	433,209
Creditors
Debenture stock (note 7)	(84,434)	(84,756)
Net assets	389,021	348,453
Capital and reserves
Called up share capital	33,349	33,290
Share premium	2,131	1,534
Capital redemption reserve	22,781	22,781
Capital reserve	313,462	274,038
Revenue reserve	17,298	16,810
Shareholders' funds	389,021	348,453
Net asset value per ordinary share (Debenture at fair value) (note 7)	276.4p	247.5p
Net asset value per ordinary share (Debenture at book value)	291.6p	261.7p
Ordinary shares in issue (note 8)	133,395,943	133,160,943

Statement of Changes in Equity (unaudited)

For the six months ended 30 June 2016

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2016	33,290	1,534	22,781	274,038	16,810	348,453
Shares issued	59	597	-	-	-	656
Net return on ordinary activities after taxation	-	-	-	39,424	7,681	47,105
Dividends paid (note 5)	-	-	-	-	(7,193)	(7,193)
Shareholders' funds at 30 June 2016	33,349	2,131	22,781	313,462	17,298	389,021

For the six months ended 30 June 2015

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2015	33,169	357	22,781	270,452	17,047	343,806
Shares issued	71	697	-	-	-	768
Net return on ordinary activities after taxation	-	-	-	3,737	8,199	11,936
Dividends paid (note 5)	-	-	-	-	(7,032)	(7,032)
Shareholders' funds at 30 June 2015	33,240	1,054	22,781	274,189	18,216	349,478

*      The Capital Reserve balance at 30 June 2016 includes investment holding gains of £92,979,000; (30 June 2015 - gains of £57,365,000).

Condensed Cash Flow Statement (unaudited)

	Six months to 30 June 2016 £'000	Six months to 30 June 2015 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation	47,347	12,380
Net gains on investments - securities	(42,132)	(6,284)
Net gains on investments - property	(264)	(953)
Currency losses	527	1,056
Finance costs of borrowings	2,878	2,897
Overseas withholding tax	(490)	(439)
Changes in debtors and creditors	(416)	(1,223)
Other non-cash changes	(65)	(43)
Cash from operations	7,385	7,391
Interest paid	(3,200)	(3,200)
Net cash inflow from operating activities	4,185	4,191
Net cash inflow/(outflow) from investing activities	3,442	(4,010)
Equity dividends paid	(7,193)	(7,032)
Shares issued	656	768
Net cash outflow from financing activities	(6,537)	(6,264)
Increase/(decrease) in cash and cash equivalents	1,090	(6,083)
Exchange movements	331	(1,494)
Cash and cash equivalents at start of period	3,399	9,977
Cash and cash equivalents at end of period*	4,820	2,400

*      Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.

*    

Performance Attribution (unaudited)

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Global equities	101.6	100.0	12.8	12.0
Bonds	4.7		28.8
Direct property	15.9		3.9
Deposits	1.5		-
Debenture at book value	(23.7)		3.4
Portfolio total return (debenture at book value)			13.9	12.0
Other items*			(0.3)
Fund total return (debenture at book value)			13.6	12.0
Adjustment for change in fair value of debenture			0.4
Fund total return (debenture at fair value)			14.0	12.0

The above returns are calculated on a total return basis with net income reinvested.

Source: Baillie Gifford

*      Includes Baillie Gifford and OLIM management fees.

Past performance is not a guide to future performance.

Twenty Largest Equity Holdings (unaudited)

Name	Business	Value at  30 June 2016 £'000	% of total assets*
Coca Cola	Beverage manufacturer	12,508	2.6
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	10,475	2.2
WPP	Advertising agencies	10,385	2.2
Hiscox	Property and casualty insurance	9,969	2.1
Johnson and Johnson	Pharmaceuticals and healthcare products	9,926	2.1
Partners Group	Asset management	9,290	2.0
Procter & Gamble	Household product manufacturer	8,836	1.9
Kimberly-Clark de México	Paper-based household products	8,552	1.8
Pepsico	Snack and beverage manufacturer	8,380	1.8
Fastenal	Distribution and sales of industrial supplies	8,373	1.8
Linear Technology	Integrated circuits	8,274	1.8
Sonic Healthcare	Laboratory testing	8,209	1.7
Total	Integrated oil company	8,158	1.7
Reynolds American	Cigarette manufacturer	8,137	1.7
Admiral	Car insurance	8,039	1.7
United Parcel Service	Courier services	7,501	1.6
China Mobile	Mobile telecommunication services	7,278	1.5
Deutsche Boerse	Securities exchange owner/operator	7,215	1.5
Want Want	Snacks and milk-based products	7,118	1.5
Prudential	Life insurer	6,960	1.5
		173,583	36.7

*      Before deduction of the debenture.

Notes to the Condensed Financial Statements (unaudited)

1.		The condensed Financial Statements for the six months to 30 June 2016 comprise the statements set out in the previous pages together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in November 2014 and have not been audited or reviewed by the Auditor pursuant to the Auditing Practices Board Guidance 'Review of Interim Financial Information'. The Financial Statements for the six months to 30 June 2016 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 2015. Going Concern 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 Directors consider it appropriate to adopt the going concern basis of accounting in preparing the Interim Financial Statements.
2.		The financial information contained within this Interim 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 2015 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, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report, 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. 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.	Net return per ordinary share		Six months to  30 June  2016 £'000	Six months to 30 June  2015 £'000
	Revenue return on ordinary activities after taxation		7,681	8,199
	Capital return on ordinary activities after taxation		39,424	3,737
	Total net return		47,105	11,936
	Weighted average number of ordinary shares in issue		133,184,953	132,677,821
	The net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.

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

1.    

1.    

1.    

1.    

5.    

5.    

5.    

5.	Dividends		Six months to  30 June  2016 £'000	Six months to 30 June  2015 £'000
	Amounts recognised as distributions in the period:
	Previous year's final of 2.70p (2015 - 2.65p), paid 5April 2016		3,595	3,516
	First interim of 2.70p (2015 - 2.65p), paid 24 June 2016		3,598	3,516
			7,193	7,032
	Amounts paid and payable in respect of the period:
	First interim of 2.70p (2015 - 2.65p), paid 24 June 2016		3,598	3,516
	Second interim of 2.70p (2015 - 2.675p)		3,602	3,559
			7,200	7,075
		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 23 September 2016 to shareholders on the register at the close of business on 19 August 2016.  The ex-dividend date is 18 August 2016. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 2 September 2016.
6.		Fair Value Heirarchy In accordance with FRS 102 and FRS 104, fair value measurements have been classified using the following fair value hierarchy: Level 1 - investments with quoted prices in an active market; Level 2 - investments whose fair value is based directly on observable current market prices or is indirectly being                derived from market prices; and Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not                supported by observable current market prices or are not based on observable market data. The Company has early adopted the amendments to section 34 of FRS 102 regarding fair value hierarchy disclosures.

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

	As at 30 June 2016	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
	Securities
	Listed equities/funds	389,178	1,823	-	391,001
	Bonds	-	13,420	8,928	22,348
	Total financial asset investments	389,178	15,243	8,928	413,349
	Property
	Freehold				59,950
					59,950
	Total Investments				473,299
	As at 31 December 2015	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
	Securities
	Listed equities/funds	350,346	1,808	-	352,154
	Other equities	-	-	7,061	7,061
	Bonds	1,735	6,335	8,583	16,653
	Total financial asset investments	352,081	8,143	15,644	375,868
	Property
	Freehold				56,000
					56,000
	Total Investments				431,868
	There have been no transfers between levels of the fair value hierarchy during the period. The fair value of listed investments is bid price or, in the case of FTSE 100 constituents or holdings on certain recognised overseas exchanges, last traded price. They are categorised as Level 1 if they trade in an active market and Level 2 if they are traded on a market which is not considered to be active. The fair value of unlisted investments is determined using valuation techniques, determined by the Directors, based upon observable and/or non-observable data such as latest dealing prices, stockbroker valuations, net asset values and other information, as appropriate. The Company's holdings in unlisted investments are categorised as Level 3 as the valuation techniques applied include the use of non-observable data.
7.	The market value of the 8% Debenture Stock 2022 at 30 June 2016 was £104.7m (31 December 2015 - £103.6m).
8.	At 30 June 2016, the Company had the authority to buy back 19,960,825 ordinary shares, and to issue 13,081,092 ordinary shares without application of pre-emption rights, in accordance with the authorities granted at the AGM in April 2016. During the six months to 30 June 2016, 235,000 (31 December 2015 - 485,000) shares were issued at a premium to net asset value raising proceeds of £656,000 (31 December 2015 - £1,298,000). No shares were bought back.
9.	During the period, transaction costs on equity purchases amounted to £107,000 (30 June 2015 - £74,000) and on equity sales £30,000 (30 June 2015 - £47,000). Transaction costs on property purchases amounted to £200,000 (30 June 2015 - £550,000) and on property sales £nil (30 June 2015 - £8,000).
10.	The Interim Financial Report will be available on the SAINTS page of the Managers' website: www.saints-it.com‡ on or around 12 August 2016.
11.	Principal Risks and Uncertainties The principal risks facing the Company are financial risk, regulatory risk, custody and depositary risk, operational risk, premium/discount volatility, leverage risk and  political risk. An explanation of these risks and how they are managed is set out on pages 7 and 8 of the Company's Annual Report and Financial Statements for the year to 31 December 2015 which is available on the Company's website: www.saints-it.com‡. The principal risks and uncertainties have not changed since the publication 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 deliver real dividend growth by increasing capital and growing income. 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 £138 billion under management and advice as at 28 July 2016.

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:

Anthony Dickson, Baillie Gifford & Co

Tel: [phone]

Roland Cross, Director, FourBroadgate

Tel: [phone] or 07831 401309

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