Interim Results

RNS Number : 3962A

Scottish American Investment Co PLC

01 August 2008

 



THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. (SAINTS)

INTERIM RESULTS AND PROPOSED CHANGE OF BENCHMARK

Results for the Six Months to 30 June 2008  

In difficult market conditions net asset value per share decreased by 14.1% while the benchmark declined by 12.6%. Falls in some UK listed shares offset a good relative performance from overseas holdings while earnings rose strongly. The portfolio is well diversified and a long term investment approach is adopted. 

	Earnings per share were 6.30p (4.86p) and a second interim dividend of 2.20p is proposed which will result in a 7.4% increase in the first half payment.
	The discount widened slightly over the period from 12.0% to 12.9% and the share price total return was minus 13.4%.
	The portfolio remains well diversified with quoted equities accounting for 71% (76%) of total assets, bonds 11% (7%), direct property and property funds 12% (13%) and forestry funds 4% (4%).

Proposed Change of Benchmark

As of 1 January 2009 the benchmark against which the performance of SAINTS is measured will change from 70% FTSE All Share Index and 30% FTSE World Index ex UK (in sterling terms) to 50% FTSE All Share Index and 50% FTSE All World ex UK (in sterling terms).

	The increase in the weighting of overseas markets reflects the increasingly international nature of SAINTS' investments. As at 30th June 2008, the percentage of SAINTS' total assets accounted for by companies listed on UK exchanges had fallen to 42.5%.
	SAINTS' objective, to increase capital and grow income in order to deliver real dividend growth, is unchanged as is its investment policy which is to invest flexibly and actively across a broad range of assets and markets.
	The benchmark is not followed closely for the purposes of portfolio construction. SAINTS also invests in asset classes which are not represented in the index. However, the total return on the benchmark is felt to provide an appropriate yardstick for assessing SAINTS' performance over the long run.
	The Board assesses performance over a five year period and looks to the Manager to produce a net asset total return in excess of the benchmark total return.

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 £50 billion under management and advice, is appointed as investment managers and secretaries to SAINTS. 

1 August 2008

- 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, 

Baillie Gifford & Co.                                                  07730 412007

Roland Cross, Director

Broadgate Marketing                                                 020 7726 6111

The following is the unaudited Half-Yearly Financial Report for the six months 

to 30 June 2008

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

Half-Yearly Financial Report to 30 June 2008

Responsibility Statement

We confirm that to the best of our knowledge:

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

• 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 and a description of principal risks and uncertainties for the remaining six months of the year); and

• 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

31 July 2008

  THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

Interim Management Report

The first six months of 2008 have been a difficult period for investment.  The seizure in Western credit markets, which began last year, has had further negative impact on financial asset and property valuations and is now causing economic growth to slow.  At the same time, inflationary pressures have become more prominent, most notably in energy and basic commodity markets. 

The Company's net asset value and share price fell during the period covered by this report.  Total returns were also negative, despite strong growth in the Company's earnings.  The net asset value total return, with borrowings measured at market value, was -12.6%.  This compares to a return on the benchmark of -10.8%.  The share price total return was -13.4%, reflecting a slight widening of the discount to net asset value.

The proposed dividend for the first half is 4.35p, consisting of 2.15p paid in May and 2.20p to be paid in September.  This represents a rise of 7.4% over the same period a year ago.  The growth in the dividend, at a rate above that of inflation, is supported by strong growth in the revenues received by the Company from the investment portfolio.  The Company's earnings per share for the first half, 6.30p, also benefited from an initial re-imbursement from the Treasury of VAT charged on management fees in previous years (see note 4).

The total return on the equity investments (excluding holdings in listed property and forestry funds), was -12.6%. The investments in financial stocks, many of which are UK listed, bore the brunt of the losses and companies exposed to a downturn in consumer spending in the UK and the US also did poorly. At the end of the half year, 71% of gross assets was invested in equities with approximately half of this represented by UK listed stocks and half by stocks listed in overseas markets.

Credit markets also experienced sharp falls during the first half.  Deteriorating fundamentals played their part in this but bond prices have also been greatly affected by the withdrawal of market liquidity.  We believe the subsequent volatility has given rise to some very interesting investment opportunities and we have increased our allocation to fixed income securities, which delivered a positive return of 9.5%. The allocation now stands at 11% of gross assets.

The direct property assets returned -4.4%.  Although the rental income from these assets continues to rise, the market backdrop for UK commercial property is very difficult and capital values fell. At the half year end, these assets represented 7% of gross assets.

The listed property funds saw much more severe declines in their value, leading to a total return of 
-23.5%. This was a disappointing result, particularly because the net asset values of these funds were, on the whole, little changed meaning that they now trade at very large discounts. At the period end 5% of gross assets were invested in these funds. 

The listed forestry funds returned a loss for the period of -7.4%, mainly because the share price of our largest holding moved from a premium to a discount to net asset value. We continue to be excited about the long term prospects for forestry and, because falls elsewhere in the investment portfolio were greater, their value as a percentage of gross assets rose slightly to 4%.

Looking forward, we expect markets to remain very volatile in the near term. The combination of slowing growth and rising inflation is a poor one for corporate profits and the difficulties in credit markets are also very serious. However, these challenges are widely known and commented on and the prices of many financial instruments have already fallen a long way. The slowdown in economic activity should in time cause inflationary pressures to ease and, as this happens, market conditions should improve. 

We are also announcing with this report a change to the performance benchmark. We have moved the balance of the equity portfolio over recent years away from UK listed stocks and towards a more international portfolio. This has increased the range of potential investments from which individual holdings are chosen and will, we believe, prove beneficial over time. Effective from the 1 January 2009, we will provide performance comparisons against a composite index of 50% FTSE All-Share and 50% FTSE All World ex UK.

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 19 of the Company's full Annual Report and Accounts for the year to 31 December 2007 which can be obtained free of charge from Baillie Gifford & Co (see contact details on the inside back cover of this report) and is available on the SAINTS page of the Managers' website: www.saints-it.com. The principal risks and uncertainties have not changed since the publication of the Annual Report.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

INCOME STATEMENT

(unaudited)

	For the six months ended 30 June 2008				For the six months ended 30 June 2007			For the year ended 31 December 2007
	Revenue £'000	Capital £'000		Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net (losses)/gains on investments - securities	-	(56,962)		(56,962)	-	15,828	15,828	-	460	460
Currency (losses)/gains	-	(69)		(69)	-	139	139	-	53	53
Income - dividends and interest	10,633	-		10,633	8,504	-	8,504	15,640	-	15,640
Income - rent and other	1,055	-		1,055	1,188	-	1,188	2,111	-	2,111
Management fees	(467)	(467)		(934)	(547)	(547)	(1,094)	(1,053)	(1,053)	(2,106)
Recoverable VAT (note 4)	419	388		807	-	-	-	-	-	-
Other administrative expenses	(425)	-		(425)	(437)	-	(437)	(885)	-	(885)
Net return before finance costs and taxation	11,215	(57,110)		(45,895)	8,708	15,420	24,128	15,813	(540)	15,273
Finance costs of borrowings	(1,501)	(1,501)		(3,002)	(1,582)	(1,582)	(3,164)	(3,089)	(3,089)	(6,178)
Net return on ordinary activities before taxation	9,714	(58,611)		(48,897)	7,126	13,838	20,964	12,724	(3,629)	9,095
Tax on ordinary activities	(1,365)	1,161		(204)	(693)	572	(121)	(1,379)	1,116	(263)
Net return on ordinary activities after taxation	8,349	(57,450)		(49,101)	6,433	14,410	20,843	11,345	(2,513)	8,832
Net return per ordinary share (note 5)	6.30p		(43.36p)	(37.06p)	4.86p	10.87p	15.73p	8.56p	(1.89p)	6.67p

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

(unaudited)

Net return on ordinary activities after taxation	8,349	(57,450)	(49,101)	6,433	14,410	20,843	11,345	(2,513)	8,832
(Losses)/gains on investments - property	-	(2,225)	(2,225)	-	763	763	-	(309)	(309)
Total recognised gains/(losses) for the period	8,349	(59,675)	(51,326)	6,433	15,173	21,606	11,345	(2,822)	8,523
Total recognised gains/(losses) per ordinary share (note5)	6.30p	(45.04p)	(38.74p)	4.86p	11.45p	16.31p	8.56p	(2.13p)	6.43p
Note:
Dividends paid and proposed per share  (note 6)	4.35p			4.05p			8.25p

All revenue and capital items in the above statements derive from continuing operations.

The total column of this statement is the profit and loss account of the Company.

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

BALANCE SHEET

 (unaudited)

	At 30 June  2008	At 30 June  2007	At 31 December 2007
	£'000	£'000	£'000
Fixed assets
Investments - securities	370,977	435,166	428,429
Investments - property	27,600	30,850	29,825
	398,577	466,016	458,254
Current assets
Debtors	20,217	23,093	1,645
Cash and deposits	2,844	10,328	7,628
	23,061	33,421	9,273
Creditors
Amounts falling due within one year	(18,765)	(20,643)	(7,433)
Net current assets	4,296	12,778	1,840
Total assets (less current liabilities)	402,873	478,794	460,094
Debenture stock (note 7)	(88,510)	(88,894)	(88,708)
	314,363	389,900	371,386
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	229,105	223,857	286,437
Capital reserve - unrealised	11,981	94,899	14,324
Revenue reserve	17,375	15,242	14,723
Equity shareholders' funds	314,363	389,900	371,386
Net asset value per ordinary share (Debenture at fair value)	234.3p	288.9p	272.7p
Net asset value per ordinary share  (Debenture at book value)	237.3p	294.3p	280.3p
Ordinary shares in issue (note 8)	132,485,943	132,485,943	132,485,943

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 

(unaudited)

For the six months ended 30 June 2008

	Share capital £'000	Capital redemption reserve £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at  1 January 2008	33,121	22,781	286,437	14,324	14,723	371,386
Total recognised gains and losses			(57,332)	(2,343)	8,349	(51,326)
Dividends appropriated (note 6)	-	-	-	-	(5,697)	(5,697)
Shareholders' funds at 30 June 2008	33,121	22,781	229,105	11,981	17,375	314,363

For the six months ended 30 June 2007

	Share capital £'000	Capital redemption reserve £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at  1 January 2007	33,121	22,781	200,533	103,050	14,109	373,594
Total recognised gains and losses	-	-	23,324	(8,151)	6,433	21,606
Dividends appropriated (note 6)	-	-	-	-	(5,300)	(5,300)
Shareholders' funds at 30 June 2007	33,121	22,781	223,857	94,899	15,242	389,900

For the year ended 31 December 2007

	Share capital £'000	Capital redemption reserve £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at  1 January 2007	33,121	22,781	200,533	103,050	14,109	373,594
Transfer between reserves *	-	-	83,164	(83,164)	-	-
Total recognised gains and losses for the year	-	-	2,740	(5,562)	11,345	8,523
Dividends appropriated in the year (note 6)	-	-	-	-	(10,731)	(10,731)
Shareholders' funds at 31 December 2007	33,121	22,781	286,437	14,324	14,723	371,386

• With effect from 1 January 2007, changes in fair value investments which are readily convertible to cash, without accepting adverse terms, at the balance sheet date are included in realised, rather than unrealised, capital reserves. At 31 December 2007 the balances on both reserves were amended by a reserve transfer as at 1 January 2007 to reflect this change.

  THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

CONDENSED CASH FLOW STATEMENT (unaudited)
	Six months to 30 June 2008 £'000	Six months to 30 June 2007 £'000	Year to 31 December 2007 £'000
Net cash inflow from operating activities	10,698	9,470	14,195
Net cash outflow from servicing of finance	(3,200)	(3,350)	(6,549)
Total tax paid	(197)	(109)	(253)
Net cash inflow from financial investment	(6,388)	8,203	9,552
Equity dividends paid	(5,697)	(5,300)	(10,731)
(Decrease)/increase in cash	(4,784)	8,914	6,214
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period	(4,784)	8,914	6,214
Other non-cash changes	198	185	371
Movement in net debt in the period	(4,586)	9,099	6,585
Net debt at start of the period	(81,080)	(87,665)	(87,665)
Net debt at end of the period	(85,666)	(78,566)	(81,080)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	(45,895)	24,128	15,273
Losses/(gains) on investments - securities	56,962	(15,828)	(460)
Currency losses/(gains)	69	(139)	(53)
Changes in debtors and creditors	(428)	1,314	(558)
Other non-cash changes	(10)	(5)	(7)
Net cash inflow from operating activities	10,698	9,470	14,195

  THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

PERFORMANCE ATTRIBUTION FOR THE SIX MONTHS TO 30 JUNE 2008

(unaudited)

Portfolio Breakdown	Average allocation		Total return		Contribution to relative return %	Stock Selection %	Asset Allocation %
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
UK Quoted Equities*	49.6	70.0			(5.3)	(5.3)	-
Overseas Quoted Equities*	42.4	30.0	(2.5)	(10.1)	3.6	3.5	0.1
Total Quoted Equities*	92.0		(12.6)	(10.8)	(1.7)	(1.8)	0.1
Direct property	8.5		(4.4)		0.6	-	0.6
Quoted Equity Property Investments	7.2		(23.5)		(1.0)	-	(1.0)
Quoted Equity Forestry Investments	4.9		(7.4)		0.2	-	0.2
Quoted Fixed Interest	9.9		9.5		2.2	-	2.2
Unquoted	0.5		(4.7)		-	-	-
Debenture at book value	(25.2)		(3.5)		(3.8)	-	(3.8)
Deposits and other items	2.2		-		0.2	-	0.2
Portfolio Total Return (debenture at book value)			(13.8)	(10.8)	(3.3)	(1.8)	(1.4)
Adjustment for change in fair value of debenture			1.3
Portfolio Total Return  (debenture at fair value)			(12.5)	(10.8)	(2.0)
Expenses and other items			(0.1)
Fund Total Return  (debenture at fair value)			(12.6)

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

Past performance is no guarantee of future performance.

Source: Baillie Gifford & Co.

• Excludes quoted equity property and forestry investments

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

TWENTY LARGEST INVESTMENTS At 30 June 2008 (unaudited)
Name	Business	Market value £'000	% of total assets
Petrobras	Integrated oil	25,222	6.3
Cambium Global Timberland	Forestry investment fund	14,250	3.5
Royal Bank of Scotland	Banking	13,702	3.4
British Gas 5.45% and 7.25% 2008*	Oil and gas producer	12,304	3.1
Brazil CPI Linked 15/05/2045	Brazilian government bond	11,461	2.8
Barclays	Banking	7,927	2.0
Vale (CVRD)	Mining	7,693	1.9
Vodafone	Mobile telecommunication services	7,555	1.9
UBS and UBS 8% 2009*	Banking	7,520	1.8
Penn West Energy Trust	Oil and gas producer	7,336	1.8
British American Tobacco	Cigarette manufacturer	6,570	1.6
Athena 2007 F/R 31/12/37	Credit opportunities fund	6,500	1.6
Schlumberger 9.5% 2008*	Energy equipment and services	6,250	1.6
Hays	Recruitment agency	6,245	1.6
China Mobile	Mobile telecommunication services	6,177	1.5
Atlas Copco	Engineering	5,997	1.5
Amazon.com	Online retailer	5,963	1.5
Tesco	Food retailer	5,820	1.4
Holiday Village in New Romney	Property	5,800	1.4
Aviva	Life assurance	5,762	1.4
		176,054	43.6

• These investments are structured notes, the capital performance of which are dependent upon the share prices of the respective companies.

ASSET ALLOCATION

At 30 June 2008

(unaudited)

	30 June 2008 %	30 June 2007 %	31 December 2007 %
UK Quoted Equities*	33.7	48.2	45.6
Overseas Quoted Equities*	37.6	27.3	30.2
Total Quoted Equities*	71.3	75.5	75.8
Direct Property	6.6	6.4	6.5
Quoted Equity Property Investments	5.3	5.5	6.3
Quoted Equity Forestry Investments	4.0	3.7	3.8
Quoted Fixed Interest	11.3	5.6	6.9
Unquoted	0.4	0.6	0.3
Net Liquid Assets	1.1	2.7	0.4
	100.0	100.0	100.0

• Excludes quoted equity and forestry investments  THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1.	The condensed set of financial statements for the six months to 30 June 2008 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Financial Statements at 31 December 2007 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'.
2.	The financial information contained within this Half-Yearly Financial 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 2007 has been extracted from the statutory accounts which have been filed with the Registrar of Companies and which contain an unqualified Auditor's Report and do not contain a statement under section 237 (2) or (3) of the Companies Act 1985.
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. The property portfolio is managed by OLIM 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.	Recoverable VAT In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. Since then HMRC has accepted the Managers' repayment claims for the periods from 2004 to 2007. The Board is satisfied that £807,000 of VAT, together with £71,000 of interest thereon, is certain to be recovered by the Managers on behalf of the Company in respect of the period 2004 to 2007 and therefore this amount has been recognised in the current year. The Board is in discussion with the previous Managers about sums recoverable for previous periods but is not yet in a position to recognise specific amounts.
5.	Net return 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 132,485,943 ordinary shares of 25p, being the number of ordinary shares in issue during each period. Total recognised gains per ordinary share is based on the total recognised gains for the period in the Statement of Total Recognised Gains and Losses and on 132,485,943 ordinary shares of 25p, being the number of ordinary shares in issue during each period.
6.	Dividends
		Six months to 30 June  2008	Six months to 30 June  2007	Year to  31 December 2007
		£'000	£'000	£'000
	Amounts recognised as distributions in the period:
	Previous year's final of 2.15p (2007 - 2.00p), paid 14 April 2008	2,848	2,650	2,650
	First Interim of 2.15p (2007 - 2.00p), paid 30 June 2008	2,849	2,650	2,649
	Second Interim (2007 - 2.05p)	-	-	2,716
	Third Interim (2007 - 2.05p)	-	-	2,716
		5,697	5,300	10,731

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CTD)

		Six months to 30 June  2008	Six months to 30 June  2007	Year to  31 December 2007
		£'000	£'000	£'000
	Amounts paid and proposed in the period:
	First Interim of 2.15p (2007 - 2.00p), paid 30 June 2008	2,849	2,650	2,649
	Second Interim of 2.20p (2007 - 2.05p)	2,915	2,716	2,716
	Third Interim (2007 - 2.05p)	-	-	2,716
	Final dividend (2007- 2.15p)	-	-	2,848
		5,764	5,366	10,929
	The second interim dividend was declared after the period end date and therefore has not been included as a liability in the balance sheet. It is payable on 30 September 2008 to shareholders on the register at the close of business on 5 September 2008. The ex-dividend date is 3 September 2008.
7.	The market value of the 8% Debenture Stock 2022 at 30 June 2008 was £92.5m (30 June 2007 - £96.0m; 31 December 2007 - £98.8m).
8.	At 30 June 2008, 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.
9.	During the period, transaction costs on purchases amounted to £133,000 (30 June 2007 - £191,000; 31 December 2007 - £351,000) and transaction costs on sales amounted to £63,000 (30 June 2007 - £83,000; 31 December 2007 - £127,000).
10.	The Half-Yearly Financial Report will be available on SAINTS page of the Managers' website www.saints-it.com on or around 1 August 2008. None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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