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28 May 2003
THE SCOTTISH INVESTMENT TRUST PLC
Results for the six months to 30 April 2003
- Difficult and volatile first half but equities stabilised towards the end of the period
- NAV declined by 2.0%
- Invested assets performed broadly in line with benchmark
- Income held up well
The Scottish Investment Trust invests internationally and is independently managed. Its objectives are to achieve, over the long term, asset growth in excess of the trust's stated composite benchmark index and dividend growth ahead of inflation.
Commenting on the results, Chairman, Sir Angus Grossart said:-
""Equity market returns stabilised towards the end of the six months to April 2003 compared to the substantial falls experienced in the previous half year. Our Net Asset Value (NAV) declined by 2.0%. The benchmark index fell by 0.8% over the period having been down by almost 15% in the middle of March. Our invested assets performed broadly in line with the benchmark while the interest and expense charge against capital accounted for most of the shortfall of NAV performance against benchmark. The effect of gearing was minimal.
"Our income held up well and, although revenue before tax declined slightly, overall earnings per ordinary unit rose by 14.6% largely reflecting a change in the treatment of tax relief on interest and expenses charged to capital under the revised investment trust Statement of Recommended Practice (SORP) and also the lower number of units in issue. The interim dividend has been increased by 4.0% in line with the board's objective to grow the regular dividend ahead of UK inflation.
"It has been another very difficult period for all equity investors. There have been many uncertainties the greatest of which has been the situation in Iraq. Markets were weak in the period prior to the war but recovered sharply as hostilities began.
"The US has been the best performing market rising by 3.5% in dollar terms over the period. The other major markets all declined in local currency terms with Europe ex UK down by 5.9%, the UK by 2.4% and Japan by 9.6%. The dollar was weak against the euro over the period so that in currency adjusted terms Europe ex UK was the best performing area rising by 3.5%.
"We performed well in the UK and in the Pacific (ex Japan) but we were modestly behind the indices in Japan and the US. Performance in Europe was disappointing as the telecoms and insurance companies which we had previously avoided because of their poor balance sheets recovered strongly. Our unlisted portfolio remained stable at 6.4% of stockholders' funds.
"We made no major changes to our geographical distribution over the period and held our effective gearing at around 17% of stockholders' funds. We continue to maintain well diversified portfolios biased towards stable businesses which demonstrate good returns on capital, with reasonable valuations.
"Stockholders voted to renew the board's authority to buy back up to 14.99% of outstanding ordinary units at the AGM. Since the year end we have bought back 3.0m shares at a discount to NAV and this has had a small positive effect on performance. The board will continue to use this authority from time to time for the benefit of stockholders.
"Stockholders will be aware that I was re-elected to the board at the AGM in February. I have announced that I will retire when the process of the selection and appointment of a new chairman by the board has been completed. A committee of the board under the chairmanship of Sir George Mathewson is considering appropriate candidates.
"Two of the major uncertainties for world economies appear to have been resolved with the conclusion of hostilities in Iraq and the fall in the price of oil back to more normal levels. However, many of the underlying problems remain. The eurozone and Japan, the second and third largest world economies, are not operating policies which are conducive to growth. Too many countries are relying on increasing exports to the US. Moreover, the US is already running a large current account deficit and the weakening of the dollar is making exports to the US less competitive.
"While the US is clearly adopting expansionary fiscal and monetary policies to boost its economy, it is not clear that it will succeed in the near term as consumers and companies are highly indebted. The downturn there was relatively shallow and we continue to believe that the recovery will be correspondingly muted. The UK economy is performing better than most with the increase in government spending coming at a fortuitous time. Nevertheless, growth expectations continue to fall.
"Until recently the outlook in the Pacific appeared somewhat brighter driven by the continued growth in the Chinese economy and expanding trade within the region. However, the SARS virus is having an impact on the important tourist industry and although it is unlikely to have a lasting effect it may take some time to reverse.
"There are now some signs that companies, particularly in the US, have reacted to the poorer economic outlook by cutting costs and improving balance sheets. By historical standards equity values appear to be at reasonable levels relative to bonds. After two years of continuous downgrades forecasts of company profits have begun to stabilise and in the US declared profits have started to grow again.
"Further profit improvements inevitably depend on a revival in economic growth but at this time it would be particularly unwise to predict when this period of slower growth will come to an end."
Notes
- SIT's benchmark index is made up of 50% FTSE Actuaries UK All Share Index™ and 50% FTSE World ex UK Index Series. ™
For further information, please contact:-
Colin Browne, Maitland Consultancy
020 7379 5151
Ian McLeish, Manager
0131-225 7781
The income figure is made up as follows:-
NOTES:
The interim statement has been prepared under accounting policies consistent with those used in the preparation of the annual report and accounts for the year to 31 October 2002. The revised Statement of Recommended Practice : Financial Statements of Investment Trust Companies, has been adopted for the current financial year. The effect of this in the six months to 30 April 2003 is to increase earnings and decrease NAV by 0.40p per ordinary unit.
The figures for 31 October 2002 have been extracted from the annual report and accounts for the year ended on that date which have been filed with the Registrar of Companies and which contain an unqualified report from the auditors.
The interim dividend absorbs £5,468,000 (2002 - £5,410,000) and is payable on 17 July 2003 to stockholders registered at 20 June 2003. The ordinary stock will be traded ex the interim dividend from 18 June 2003 and investors purchasing on or after that date will not be entitled to the interim dividend for 2002/2003.
Equity stockholders' funds at 30 April 2003 exclude all revenue items for the current financial year.
Equity investments include the unlisted portfolio of £41.5m. Of this £5.2m is in recently listed securities and listed funds which invest in unlisted securities.
The weighted average number of ordinary stock units outstanding throughout the half-year was 210,676,719 (2002 - 221,425,750) and this figure has been used to calculate the return per ordinary stock unit shown in the statement of total return. The net asset value per ordinary stock unit at 30 April 2003 has been calculated using the number of ordinary stock units outstanding on that date which was 210,304,399 (31 October 2002 - 213,304,399).
Unless otherwise stated, performance comparisons in the Chairman's Review are made with the FTSE Actuaries All Share Index ™ for the UK and with the relevant currency adjusted constituents of the FTSE World ex UK Index Series ™ for other geographical areas.
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