Scottish American’s results for 2015 show its net asset value (NAV) total return (capital and income) for the year was 5.9% and the share price total return was 9.2%: the total return from the global equity market was 4.1%. The full year dividend will be 10.70p per share, 1.9% higher than the 2014 dividend of 10.50p and also ahead of inflation as measured by both the Consumer Prices Index (CPI, 0.2%) and Retail Prices Index (RPI, 1.2%). The dividend was not quite covered by earnings – revenue for the year was 10.47p per share. Income was held back in part by a decision to reshape the property portfolio to extend the overall duration of its leases, with an accompanying fall in yield, and partly by a reduction in income from special dividends.
The equity portfolio achieved a return of 7.0%, as the portfolio’s investee companies generally reported strong operating and financial updates. For example WPP, the leading global media agency and one of the portfolio’s largest holdings, posted strong results despite a slow backdrop for some of their big customers. These results, and the company’s strong balance sheet and cash flow characteristics led the board to increase the interim dividend by over 30%. Amongst their European holdings the Spanish bank Bankinter reported significant improvements in their lending margins, credit costs, fee income and capital base, and as a result tripled its dividend compared to that of 2014. In Mexico Kimberly Clark de Mexico has experienced volume growth despite putting through some notable price increases across its portfolio of consumer hygiene products. This sales and margin growth alongside their cost savings programme running ahead of plan led to earnings growth of over 20%. In China sportswear company Anta Sports continued to gain share in its marketplace and grew its earnings and dividends by 20% running counter to more general concerns over Chinese growth. In the technology sector tech heavyweights Microsoft and SAP have been able to grow earnings and dividends at a double digit rate primarily thanks to strength in their cloud businesses.
Special dividends from, for example, Hiscox, Atlas Copco, Admiral, Amlin, Anta Sports, AVI and Svenska Handelsbanken, contributed notably to the revenue account. The largest contribution was from insurer Hiscox which experienced a very strong year in its Lloyds and reinsurance franchises, as well as continued growth in its international operations. This led to the payment of a special dividend in addition to 7% growth in the ordinary dividend.
SAINTS’ equity portfolio was on the receiving end of a number of such cash allocations during the year, with the announced acquisitions of Amlin, BG Group, Rexam, and the non-beer assets of China Resources Enterprise supporting the portfolio’s capital return.
At the stock level the range of returns across the equity portfolio was unsurprisingly broad. The strongest contributors to relative performance were Amlin, Hiscox and Anta Sports as their share prices responded to the positive developments noted above. Reynolds American, the tobacco company, and Deutsche Börse, the financial exchanges operator, were also top contributors to relative performance. Conversely Want Want China Holdings and Rio Tinto detracted most from returns. Want Want China, despite growing gross margins, reported disappointing sales of its beverages after a cooler than normal summer, and as a result operating margins fell, the dividend was cut, and the share price fell sharply. Rio Tinto was a casualty of price weakness in the hard commodities sector on falling Chinese demand, although it did nonetheless continue to contribute strongly to the revenue account.
The total return result from their small allocation to bonds was disappointing, posting a decline of 16%.
The total return of the property portfolio was 10.8%. Rental income from the property portfolio was £4.0m which was an increase on the amount received in 2014 as a result of both portfolio additions and rental income growth. Seven properties were purchased during the year, and four sold. These transactions, along with market valuation movements, took the capital value of the property portfolio to £56.0m at the year end, representing 12.9% of the total portfolio. Over 50% of the rental income is RPI-linked and the average unexpired lease length is now over 17 years, up from 15.5 years as at the end of 2014. The average yield on the properties that SAINTS owns is 6.9%.
SCAM : Property and equity returns help Scottish American beat benchmark