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30 May 2006
THE SCOTTISH INVESTMENT TRUST PLC
Results for the Six Months to 30 April 2006
- NAV performance well ahead of main stockmarket indices.
- Strong performance reflects stock selection in listed portfolio and uplift from tender offer.
- Interim dividend per ordinary stock unit increased by 2.5% to 4.15p.
The Scottish Investment Trust PLC invests internationally and is independently managed. It is categorised as a global growth trust by the Association of Investment Trust Companies.
Commenting on the results, Chairman, Douglas McDougall said:-
"In the six months to 30 April 2006, the net asset value per ordinary stock unit (NAV) rose by 19.5% (with borrowings valued at par), ahead of the company’s new principal comparator indices – the FTSE All-World Index TM (+13.5%) and the UK FTSE All-Share Index TM (+15.4%). At the AGM in January 2006, stockholders voted to dispense with the company’s single benchmark index which, for the record, rose by 14.1%. Over the period, the company’s stock price rose by 22.0% reflecting the increase in NAV and a slight narrowing of the discount."
"Global equity markets rose strongly over the first half of the company’s year stretching the equity market recovery from the lows of 2003 into a fourth year. Driven by a combination of strong growth in corporate profits, a vibrant world economy and low interest rates, global equity markets were able to advance steadily between November and March despite sustained high oil and commodity prices as well as rising US short term interest rates. The period witnessed considerable merger and acquisition activity reflecting the strength of corporate balance sheets and low funding costs. In general, the trends from the previous financial year continued, with medium-sized companies, industrials, resources and market-sensitive financial stocks leading the way. By region, emerging markets such as Latin America and Russia provided strong returns while among the developed markets, the main laggard was North America with good returns achieved by the other major regional stockmarkets."
"Following on from the much improved performance since changes were made to the investment approach in early 2004, the NAV outperformance has continued into the current year. Viewed against the FTSE All-World Index TM, the 6.0 percentage point NAV outperformance over this international comparator reflected a strong return from the listed portfolio. The principal contributors to the portfolio performance included energy companies Suncor (Canada) and BG Group (UK), Barclays (UK), housebuilder Persimmon (UK), German tyre and automotive parts specialist Continental and US technology company Nvidia. NAV performance also benefited from the tender offer in February, gearing into rising markets and ordinary stock repurchases. Equity gearing levels were increased modestly over the half year from 104.2% to 106.5%. The number of listed portfolio holdings has been maintained at 116 over the half year."
"Since the introduction of the current investment approach in January 2004, the listed portfolio has performed strongly, rising 46.6% compared with the 34.6% increase in the FTSE All-World Index TM and 40.6% in the FTSE All-Share IndexTM."
"The period under review has been an eventful one for the company. As many stockholders will be aware, following the outcome of the EGM in January 2006, the company undertook a tender offer in February in order to provide any stockholders seeking an exit with an opportunity to sell some, or potentially all, of their stock back to the company. The terms of the tender provided that up to 40% of the company’s stock would be repurchased at a 9% discount to the NAV with borrowings taken at par. In the event, only 27.75% of outstanding stock was tendered including the entire 10.6% holding of the company’s then largest stockholder. Consequently, the company repurchased 57.972m stock units at a tender price of 436.0834p per unit – a return of capital of £252.8m. The cash requirement for the tender was realised by a sale of listed equities carried out efficiently and at low cost by means of a portfolio programme trade."
"The company’s gearing potential was maintained at pre-tender levels by the subsequent repurchase of £42.0m nominal of the company’s 5.75% secured bonds due 2030 at a margin of 0.25% over gilt yields and a total cost of £51.8m."
"Stockholders also voted in favour of the introduction of a stock buyback scheme intended to maintain a stock price discount to NAV of 9% or less in normal market conditions (taking borrowings at market value). Under this authority, over the first half of the year the company repurchased for cancellation 4.184m stock units (2.77% of the 14.99% authority) at an average discount of 9.4% and a cost of £18.9m inclusive of dealing expenses. The estimated average daily discount since the introduction of the scheme was 9.2%. Stock repurchases, including those resulting from the tender offer, provided a contribution to the NAV return of 2.3% over the period net of all related costs including the debt repayment premium."
"Post-tender, some 65% of the company’s stock is in the hands of private investors and private client managers. Despite the return of capital, the company remains cost-competitive with an expense ratio which is considerably lower than the average of all investment trusts."
"The accounts for the interim period feature a number of accounting changes including those required by the convergence of UK accounting standards with International Accounting Standards which, taken together, lowered the reported NAV return for the period by 0.7%. These are described in the notes to the financial statements."
"As I advised in my last chairman’s statement in the 2005 annual report, the board decided to lower the proportion of interest and expenses charged to capital from two-thirds to one half with effect from this year. As I indicated, this has had the effect of lowering the revenue return this year but it is not expected to inhibit the company’s dividend policy. The board has declared an interim dividend of 4.15p, an increase of 2.5% on 2005, which is payable on 14 July 2006."
For further information, please contact:-
John Kennedy, Manager 0131 225 7781
Wendy Timmons, Maitland 020 7379 5151
* These figures have been restated, where applicable, in accordance with accounting changes referred to in the Chairman’s Review and as detailed in the notes to the financial statements.
** The discount shown for 31 October 2005 is based on the NAV prior to restatement.
* These figures have been restated, where applicable, in accordance with accounting changes referred to in the Chairman’s Review and as detailed in the notes to the financial statements.
* These figures have been restated, where applicable, in accordance with accounting changes referred to in the Chairman’s Review and as detailed in the notes to the financial statements.
NOTES:-
The interim accounts have been prepared under accounting policies consistent with those used in the preparation of the annual report and accounts for the year to 31 October 2005 with the exception of the following:
- In accordance with Financial Reporting Standard 26 ‘Financial Instruments: Measurement’ investments have been valued at fair value through profit or loss. The profit and loss account is the ‘Total’ column in the Income Statement. This results in a move from a mid to a bid basis of valuation and a reduction in valuation of investments and unrealised capital reserves at 31 October 2005 of £1,083,000 (30 April 2005 - £1,788,000).
- In accordance with FRS 21 ‘Events after the Balance Sheet Date’, dividends paid after the period end are no longer treated as a liability at the balance sheet date but are now recognised in the period in which they are paid. This results in a reduction in creditors and an increase in revenue reserves at 31 October 2005 of £9,087,000. Dividends are no longer charged through the Income Statement. Dividends paid during the reporting period are included in the Statement of Changes in Equity.
- In accordance with FRS 17 ‘Retirement Benefits’, the company is required to disclose in its financial statements the cost of providing retirement benefits and the related gains, losses, assets and liabilities. This results in an increase in creditors of £2,594,000, a reduction in capital reserve of £2,673,000 and an increase in revenue reserve of £79,000 at 31 October 2005.
The figures for 31 October 2005 have been extracted from the annual report and accounts for the year ended on that date, restated where applicable, which have been filed with the Registrar of Companies and which contain an unqualified report from the auditors.
Based on the number of ordinary stock units in issue at 30 April 2006, the interim dividend would absorb £6,090,000 (2005 - £8,461,000) and is payable on 14 July 2006 to stockholders registered at 9 June 2006. The ordinary stock will be traded ‘ex’ the interim dividend from 7 June 2006 and investors purchasing on or after that date will not be entitled to the interim dividend for 2005/6.
Equity stockholders' funds at 30 April 2006 exclude all revenue items for the current financial year.
Equity investments include the unlisted portfolio of £38.4m. Of this £8.5m is in listed funds which invest in unlisted securities.
The weighted average number of ordinary units during the half-year was 181,420,683 (2005 – 208,910,518) and this figure has been used to calculate the return per ordinary unit shown in the Income Statement. The net asset value per ordinary unit at 30 April 2006 has been calculated using the number of ordinary units in issue on that date which was 146,754,215 (31 October 2005 – 208,910,518).
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