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RNS

Final Results

Released 07:00 13-Feb-2020

RNS Number : 8352C
Scottish American Investment Co PLC
13 February 2020
 

The Scottish American Investment Company P.L.C.

 

RNS Announcement: Results

 

Legal Entity Identifier code: 549300NF03XVC5IFB447

 

The following is the results announcement for the year to 31 December 2019 which was approved by the Board on

12 February 2020.

 

 Results for the year to 31 December 2019

 

¾  Dividend - the full year dividend, including a recommended final dividend of 3.00p, is 11.875p per share. This is 3.3% higher than the 2018 dividend, extending the Company's record of dividend increases to forty  consecutive years. The increase is more than twice the rate of UK CPI inflation over the same period, which was 1.3%.

¾  Revenues - Income was £23.0m (2018 - £21.7m) and earnings per share were 11.87p (2018 - 11.75p).

¾ Total return* - Net Asset Value total return (capital and income) for the year was 22.9% (debenture at fair value), ahead of the total return from global equities of 22.3%. The share price total return was 25.1%. In a strong year for markets returns were assisted by the encouraging operational performance of many of the companies in which SAINTS invests, and also by the strong relative performance of the Company's property and bond investments.

¾  Peer Group performance - SAINTS is the best performing fund in its Global Equity Income peer group, in terms of both NAV total return and share price total return, over the past five years.

¾  Outlook - In the current environment the Managers are continuing to focus on the resilience and dependability of the Company's holdings, as well as their long-term growth potential. The Board considers that a long-term approach based on investing for sustainable growth is the best route to continuing to grow its dividend ahead of inflation and its capital over time.

 

*      See Glossary of Terms and Alternative Performance Measures, see note 12.

 

12 February 2020

 

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.

The Company is managed by Baillie Gifford, the Edinburgh based fund management group with around £230 billion under management and advice as at 12 February 2020.

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:

James Dow and Toby Ross, Managers, The Scottish American Investment Company P.L.C.

Tel: 0131 275 2000

 

James Budden, Baillie Gifford & Co  

Tel: 0131 275 2816 or 07507 201208

 

Mark Knight, Four Communications

Tel: 0203 697 4200 or 07803 758810

 

 

Chairman's Statement

 

The Company's objective is to deliver real dividend growth by increasing capital and growing income. An increased dividend of 11.875p (2018: 11.5p) will extend the Company's record of raising its dividend to forty consecutive years.

 

Overview

Markets again made good progress in 2019, helped by further support from the US Federal Reserve and other central banks. The path was not, however, smooth and the politicians were less helpful than the central bankers. Trade war fears were realised as tariffs were increased, and Brexit remained a feature. Eventually, though, markets returned to their upwards trajectory as trade tensions lessened, a withdrawal agreement was passed by the newly elected UK parliament and economic news improved. However, the reduction in uncertainties at one level has brought new ones in its wake such as the shape of any trade deal with the European Union.

Your Company has also made strong progress over the past year, outpacing the market despite enjoying the protection provided by investing in sources of revenue which are dependable. In uncertain times such dependability is rightly prized and this, together with generally strong operational progress from SAINTS' holdings, has helped deliver attractive returns as well as a dependable and rising income. The Company has also delivered strong absolute and relative performance over longer periods - total returns have topped our Global Equity Income peer group over the past five years.

 

Dividend and Inflation

A final dividend of 3.00p is recommended which will take the full year dividend to 11.875p per share, 3.3% higher than the 2018 dividend of 11.50p. This year's increase is more than twice the annual rate of inflation of 1.3% for 2019 as measured by CPI. Over the last ten years the Company's dividends have increased at well above the rate of inflation.

 

Revenues

Earnings per share have increased by 1% to 11.87p and investment income has risen to £23m. Income from equities has been helped by operational progress at many of the Company's investments and by increases in dividends, partially offset by a reduction in the special dividends received. The rents from the Company's property investments have also increased modestly, helped by the high proportion of rents which are linked to RPI. Against this, there has been a lower contribution to revenues from fixed income investments and in the latter part of the year sterling's strength had a negative impact on the income generated by the portfolio's overseas assets.      

Currency headwinds come and go, and it is a great advantage of the investment trust structure and our accumulated revenue reserves that the Board can look through such variations when setting the dividend, concentrating instead on the strength of underlying revenue progression and on overall returns.

Both managers (Baillie Gifford and, for the Company's property investments, OLIM) continue at the Board's request to emphasise supporting the dependability and the future growth of the Company's dividend in line with its objective.

 

Total Return Performance

Over the year your investment in SAINTS delivered a share price total return of 25.1% and the net asset value total return (capital and income) was 22.9%. As well as being a very strong year in terms of absolute performance, returns also exceeded those from global equities which rose 22.3% over 2019. More importantly, however, it continues a record of outperformance which has enabled SAINTS not only to meet its objectives but also to deliver returns at the head of its peer group of Global Income investment trusts over the past five years.

As always we would caution against reading too much into short-term relative performance. The Managers and your Board have a long-term perspective and the Company's portfolio of investments differs markedly from the make-up of the global equity index against which performance is often compared. This differentiated portfolio is necessary and appropriate in order for SAINTS to deliver a high and growing income stream, as well as real growth in the Company's assets. Nonetheless, it is worth highlighting that over the year the Company's equity portfolio outperformed equities, and that the returns from its property and fixed income investments also compared favourably with returns from those asset classes. Returns from equities were helped by the generally encouraging operational performance delivered by the companies in which the portfolio is invested. A further year of outperformance from property in a more challenging environment is a notable outcome of the property managers' emphasis on strength of covenant. Performance was also helped by the evolution of the property element of the portfolio away from sectors such as restaurants and retail, which was highlighted last year.

The principal contributors to and detractors from performance and the changes to the equity, property and bond investments are explained in more detail in the Managers' Review.

 

Borrowings and debt refinancing

SAINTS' borrowings take the form of a single £80m debenture.  Our current borrowing arrangements date from a time when the prevailing interest rates were much higher than today, and the existing debenture bears a coupon of 8%. During 2019, the borrowings continued to be used to fund a range of higher yielding commercial property and, to a much lesser extent, some fixed income investments.

As previously announced, the past year has seen a very positive development in relation to SAINTS' debenture, with terms having been agreed to issue £80m of long-term private placement debt to refinance our long-term borrowings when the existing debenture matures in April 2022. I am pleased to say that we were able to take advantage of market conditions to agree a fixed rate of just over 3% per annum. 

This transaction effectively removes any refinancing risk and obtains long-dated financing at what the Board believes to be attractive pricing levels, with the intention of enhancing shareholder returns and income over the long term. It also enables the Board and the Managers to consider how best to invest in the coming years when the cost of debt will be much lower than currently.

The book value of the debenture is £81.9m which, at the year end, was equivalent to approximately 13.6% of shareholders' funds. The estimated market or fair value of the debenture was £91.0m, a decrease from the previous year's value of £92.0m. The market value of the Company's borrowings will fall more significantly over the next two years as the redemption date approaches which will enhance returns.

 

Environmental, Social and Governance (ESG)

 

The Board of SAINTS recognises the importance of considering Environmental, Social and Governance (ESG) factors when making investments. This is an area the Board has discussed at length during 2019, as we consider that Board oversight of ESG matters is an important part of our responsibility to shareholders. I am pleased to reassure you that consideration of relevant ESG factors is an integral part of the way in which your investments are managed and would refer you to the Managers' Review where there is more detail on Baillie Gifford's approach to stewardship and its activity over the past year.

 

Outlook

The concerns which dominate the market are varied but, with the notable and tragic exception of the new coronavirus, remain essentially the same as in recent years. Other concerns include worries over trade wars and economic growth, and conversely over less accommodative monetary policy. Brexit may be 'done', but the future shape of our relationship with Europe is still uncertain and much work remains.

The Board and the Managers are alert to both potential opportunities and challenges. In the current environment the Managers correctly remain focussed on the resilience of the Company's holdings and the dependability of their dividends. Importantly, however, they are also focussed on long-term potential, and on the sustainable growth of the cashflows from which future dividends will flow.

As a Board, we remain of the view that this long-term approach based on investing globally for sustainable growth is the best route to achieving SAINTS' aim of growing the dividend ahead of inflation over time.  We have great confidence in the Managers' approach, and this confidence has been strengthened by another year of generally encouraging operational performance and growth from the holdings in the portfolio.

 

Issuance

The Company has raised over £26 million from new share issuance, at a premium to net asset value prevailing from time to time, in order to satisfy investor demand over the year. This is some way above the level of issuance last year and serves the interests of current shareholders by reducing costs per share and helping to further improve liquidity.

 

The Board

The two Directors who joined the Board last year, Dame Mariot Leslie and Karyn Lamont, have settled in well and are already making a valuable contribution to the Board's deliberations. Their appointments were part of an ongoing Board refreshment exercise. As was announced at the beginning of February, the next stage of this refreshment is that Karyn will take over from Eric Hagman as chair of the Audit Committee with effect from the conclusion of the forthcoming AGM. Eric has, though, kindly agreed to give us the benefit of his experience for one more year. The Board believes that the pace of change should be measured, so that careful succession planning can allow a desirable mix of old and new hands, and also of knowledge, experience and background, on the Board.

 

AGM

The AGM will be held at 11am on Thursday 2 April 2020 at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh. The Managers will make a presentation on the investment portfolio and there will also be an opportunity to ask questions. The Directors and the Managers look forward to meeting you there.

 

 

Peter Moon

Chairman

12 February 2020

 

 

 

For a definition of terms see Glossary of Terms and Alternative Performance Measures, see note 12.

Past performance is not a guide to future performance.

 

 

 

 

 

 

Managers' Review

 

SAINTS aims to deliver real growth in income and capital to its shareholders, not just for one or two years but again and again.

In this section we provide a brief overview of how SAINTS' investments performed during 2019.  We then provide a more detailed report on the equity portfolio, including how during the past few years we have been incorporating sustainability questions in our thinking. A review of the Company's property and other investments follows. In the final section we reflect on so-called Dividend Aristocrats, and describe some of the ways in which we are seeking to improve as investors.

 

Progress during 2019

 

2019 may have been an exhausting year for journalists, but it was a good year for equity investors, including those in SAINTS.  During the year the Company's NAV total return (debenture at fair value) rose by 22.9%, driven by strong growth from the equity portfolio.  Income also grew by 5.6% to £23.0m, with growth from both the equity and property portfolios, though issuance meant this was spread across a higher number of shares.

As we explained last year, the biggest driver of returns in any one year will typically be the equity portfolio, which is roughly equivalent to the Company's NAV.  During 2019 the equity portfolio returned 23.6%, which was ahead of broader equity markets (22.3%).  The strong absolute performance in 2019 is at least partly the result of a rebound from the sell-off in markets at the end of 2018.  Indeed, some of the strongest contributors to returns this year were names like TSMC, whose share price had been weak when markets panicked about the health of the global economy at the end of 2018.  Over the course of 2019, TSMC's management team became steadily more upbeat about the demand for their semiconductors, to the point that they committed to new investments in capacity that should extend their lead as the largest foundry in the world. The share price performed strongly as markets worried less about the short-term and refocused on the long-term. 

We will comment below on some of the contributors to longer-term performance, but generally our bias towards capital-light businesses that have big growth opportunities ahead of them continued to be helpful. Growth in dividend income was 9.4%.  In general, we were pleased with the rate of dividend increases, with notable dividend increases from Kering, B3 and United Overseas Bank.  However, there were fewer one-off 'special' dividends paid in 2019 than last year. 

During the course of the year we also sold some holdings which previously contributed to income, such as the utility company SSE, because we were concerned about their managers not striking the right balance between dividends and reinvestment.  This sale was a drag on short-term income growth, but we think it will be helpful for SAINTS' longer-term progression. 

The property portfolio, managed by OLIM Ltd, produced a return of 7.1%, which was very strong in the context of the 1% return delivered by the IPD Index.  This demonstrates that SAINTS' portfolio is very different from the broader UK commercial property market.  SAINTS has, for instance, no exposure to high-street retail or restaurants.  This is a conscious choice by the manager, who has exited areas where there are significant worries around the health of tenants.  Income grew by 3% to £5.3m, which was a return of 6.3% on the portfolio's starting value.  Income rather than capital growth therefore provided the bulk of the portfolio's returns this year. 

The small fixed income portfolio, which represents less than 3% of SAINTS' assets, delivered a 15.7% return, and income of £0.7m.  The income was lower than in 2019, largely due to changes in the make-up of the portfolio.  Fixed income assets are not a natural fit for our goal of long-term income and capital growth ahead of inflation, but we can draw on an excellent pool of ideas from colleagues who are specialists in fixed income and sometimes these ideas do fit SAINTS' goals, as the returns generated by the portfolio last year testify.

 

 

 

Equity Portfolio

What we look for

 

In the investment approach section, we set out some of the distinctive features which we believe the best long-term income investments typically share - features that most businesses simply don't have.  For instance, they need to be real growth businesses, meaning they need to have long runways of inflation-beating growth ahead of them. They also need to be capable of paying dividends while they grow.  This means they are unlikely to be a highly capital-intensive business, where there is a tension between dividends and growth. 

As long-term investors we want to own these businesses through good times and bad, and so the company needs to be capable of paying dividends in a resilient way, without nasty shortfalls when times are tough.  Finally, as long-term investors we always need to ask: is this a company that is run by an exceptional management team, who prioritise what is right for the business over the same long-term time horizon as we do for SAINTS?  Or do they prioritise short-term numbers and chasing fashions?

We look for all these characteristics in the companies in which we invest.  From our experience, considering hundreds of potential investments over the years, we know that very few of them make the cut.  Indeed, in a typical year we may research and discuss 30-50 potential new ideas, all of which will have some appeal - but they usually fall down on one or more of these hurdles. Only half a dozen may make their way into the portfolio in a given year.

That is why we are grateful to have a global universe of thousands of dividend paying stocks to pick from. This breadth of opportunity set dramatically improves the odds of finding exactly what we are looking for. It makes it much easier for us to find enough of the best opportunities to enable us to build a diversified portfolio than it would be if we were just confined to the UK market, for example.

 

Theory and practice

 

What strikes us most looking back over recent years is that, while the intellectual case for global investing for income has been easy to make for some time, the tangible benefits of following this approach are becoming increasingly apparent in the results of the Company. To put it another way, theory is being borne out by practice. 

To illustrate, the table below shows the largest equity contributors to SAINTS' absolute performance over the past five years. 

 

ANTA Sports Products

Chinese sportswear and footwear

Partners Group

Swiss alternative asset manager

Kering

French luxury goods holding company

B3 S.A.

Brazilian stock and derivative exchange

Cochlear

Australian hearing implant business

 

These winners have come from five different industries and four different continents.  The drivers of their success have been totally idiosyncratic. The businesses do share some common features - for example, they are all businesses with a low degree of capital intensity, and in parts of their businesses we would argue that they have significant pricing power, because they offer a compelling or even unique product.  We would struggle to find analogues for all of these businesses within any one regional stock market.  And we would certainly struggle to find analogues with as attractive business models, or similarly ambitious management teams. 

The other common factor in our assessment of these businesses is the emphasis that we put on growth in our initial investment hypothesis, rather than having a requirement for a high starting level of yield - a trap we believe many investors fall into.  Indeed, three of the businesses listed in the table above were classified by us at purchase as "Exceptional Revenue Opportunities" - in other words, businesses where we believed there was an opportunity to grow sales dramatically on a five-year view.  Five years ago, three of these five stocks yielded less than 3% and so would not have looked that interesting to many income investors.  But since then they've delivered earnings growth of between 100% and 273%, and dividend growth of 89% and 226%.  This goes to reinforce the importance of focusing our research process on looking for businesses with big growth opportunities that, along the way, can also pay healthy dividends.  It's easy for income investors to "reverse engineer" an investment case in a high yielding company like BT or Vodafone; it's much less easy to fall into this trap when your starting point is a clear focus on identifying opportunities for long-term earnings growth. 

Over the last five years, SAINTS' equity portfolio has returned 13.3% p.a.  The average global equity income fund has returned 9.1% p.a., while the average UK equity income fund has returned 6.7% p.a. (both figures net of costs).  We suspect our main difference with the former group is precisely this focus on growth over a long-term time horizon. Compared with the latter, we believe the breadth of our opportunity set has been an enormous benefit. To be clear, the UK market has some solid attractions to us as income investors, and we would be surprised if none of the shares in the portfolio were listed in London.  We still own some great companies in the UK - for instance Experian, the credit bureau, or the insurers Admiral and Prudential. 

But our incremental ideas have more typically been in other markets.  To re-use an analogy we have made in the past: managing a regional income portfolio is akin to trying to conduct an orchestra through Vivaldi's Four Seasons with only the brass section at one's disposal.  Managing a global income portfolio is akin to deploying the full orchestra.

To illustrate this further it is worth focussing on some of the new holdings which we have purchased for SAINTS in 2019.  Some of these businesses are pursuing a local opportunity in a particular market around the world.  For instance, USS is continuing to consolidate the Japanese car auction market, while Watsco is helping contractors in the US air conditioning market become more efficient.  Carsales.com's biggest opportunity is continuing to help Australian car dealers reach consumers more effectively.  Other new purchases are highly global businesses, with employees around the world.  Amadeus provides critical IT to airlines on every continent, helping them reduce costs and deliver more personalised services to passengers. Kuehne + Nagel's freight forwarding services help global companies operate their supply chains more effectively. 

Another category is businesses which span the globe, but where the edge is in services or brands with a very local appeal.  We think that a key part of Schneider's success in providing medium and low voltage electrical equipment to customers around the world has been the way they've mastered the quirks of local markets, be that in Europe or China.  The big growth drivers we see for demand for their products are global - namely a desire to reduce emissions, and to ensure electrical systems are safe and reliable.  But many of their solutions are local.  Similarly, Pernod Ricard has a portfolio of global brands, such as Jameson's, Glenlivet or Chivas Regal whiskeys.  But their success comes down to their ability to understand local consumer preferences, and tailor their strategy and brands to the tastes of the Indian or American consumer.

Wherever we search for these companies, we benefit from having a clear idea of what we are looking for, and setting the bar for inclusion high.  During the year, we decided that a number of businesses no longer met our high hurdles, either because we felt our investment case no longer held, or because they were just not as compelling when set against the other businesses we owned.  For example, Alphabet has been held by SAINTS for over a decade, and delivered very strong capital growth over that time, but our recent conversations with management have emphasised that there is little prospect of a dividend being paid within the next five years, and so Alphabet seems unlikely to contribute to SAINTS' income.  Other sales includes RPM, Johnson & Johnson, Apache, Zenkoku Hosho, SSE, M&G, and Signify. 

 

Governance and Sustainability

 

In his statement, the Chairman emphasised the importance the Board places on ensuring that as managers, we invest on your behalf in a sustainable way, which will support dividends for many years.  Over recent years this is an area we have increasingly emphasised in our research.  In many ways it is a natural counterpart to our focus on seeking dependable dividends: if a business is behaving in an unsustainable way, or abuses some of its stakeholders, then it is unlikely that we can have confidence in its future earnings and dividends on a longer term horizon. One of the first questions our analysis asks of any company we consider is therefore: "Is the business model sustainable?" 

Whenever we are considering a new buy idea, our dedicated Governance and Sustainability analyst provides us with independent research assessing the long-term case.  A focus of this research is alignment. Not only alignment between investors' interests and those of the board and management, but also of other stakeholders with the company.  For instance, following a helpful engagement with The Coca-Cola Company on their sustainability plans, we wrote last year to the board of directors highlighting the benefits to all stakeholders of continuing the company's push towards using more sustainable packaging and encouraging recycling. 

This work also explicitly considers the key sustainability opportunities and challenges for each investment.  For instance, what would it mean if Amadeus, which currently processes millions of airline ticket transactions each year, became the global leader in providing information on the carbon intensity of a particular passenger's journey?  How could they responsibly use that data? 

Investing in a sustainable way is partly about identifying the right companies. But in our view it is equally important to engage constructively with those companies to help them be as strong as they can possibly be.  Each year we identify our engagement priorities for the year ahead, focused on three areas which we view as the most material to the portfolio as a whole.  This year we have focused on climate change; fair tax practices; and responsible consumption (particularly the recycling of plastics and packaging). 

The scope of our engagements here was broad.  For example, in the climate change strand of work, we reviewed the carbon footprint of the portfolio, which is less than one-fifth of that of the wider equity market, a function of our emphasis on asset-light businesses.  We prioritised work on two areas.  Firstly, we encouraged large emitters, such as fossil fuel producer Total, to be bolder in their plans to reduce the carbon intensity of their production.  Total are one of very few traditional energy companies taking the transition seriously, with comprehensive targets and a clear plan to invest significantly in renewable energy. We have encouraged them not to benchmark themselves against the industry 'average' and set their sights even higher.  Secondly, we engaged with our logistics holdings, such as CH Robinson, UPS and Kuehne + Nagel. These companies have a lower profile but we think they have a major role to play in assisting the transition to a less carbon-intensive economy.  This year we engaged with them to understand how they are seeking to ensure they help customers reduce the emissions associated with freight transport - which revealed an interesting disparity between our most and least progressive holdings in the area.  Part of our job is applauding the achievements of those companies that are best-in-class - and using their example to encourage less dynamic businesses to be more ambitious. 

We are finding that the companies we admire most are often those that are several steps ahead of us when it comes to considering, for instance, how climate change might affect their businesses.  It is a reminder that one of the most important judgements we can make is around the quality of the management teams at the companies we invest in. 

We look forward to reporting what we are doing to progress our engagement plans in these and other areas over the coming years. 

 

Property and other investments

 

The long-term performance of SAINTS' property portfolio is outstanding, with a total return of 11.3% p.a. since 1996.  Such returns are only possible because the managers, OLIM, do not seek to replicate their 'benchmark', or copy the fashions of the property industry. 

The most notable contributor to the property portfolio's returns this year was a 23% increase in the valuation of the Caravan Park in New Romney, which has been held by SAINTS for over 20 years.  Strong trading by the tenant led to a favourable rent review and prompted the valuation uplift.  This esoteric property is exactly the sort of investment that the manager seeks out, with strong fundamentals behind it. Elsewhere, some of the assets saw modest decreases in their valuations, including the data centre in Milton Keynes that is leased to TalkTalk.  OLIM continue to be cautious about the potential impact of Brexit on certain sectors of the domestic UK economy, and manage the portfolio accordingly.  During the year, there was a new purchase of a bowling alley on a 6.6% yield, largely funded by the sale of two pubs to their tenant at a premium to the last valuation. 

The small fixed income portfolio, which represents less than 3% of SAINTS' assets, delivered a 15.7% return.  During the year we bought a small holding in Netflix bonds, due 2029.  We believe that their recurring subscriber base and large library of content are both valuable and long-lasting assets, and likely to support a higher credit rating over time.  We also bought a holding in the bonds of First Quantum, a low-cost copper producer, which is in the process of deleveraging its balance sheet.  We funded these through selling our investments in the Athena Debt Opportunities fund, the Alibaba convertible (as it approached maturity), and the Aryzta perpetual hybrid. 

 

Looking forward

 

Despite ongoing worries about politics and economic news, this has been a good year for most of our holdings, and for the performance of the Company.  However, it is always the future of the Company that we must concern ourselves with. A risk in investing is that you look backwards rather than forwards. 

One way that dividend investors sometimes do this is by focusing on so-called "Dividend Aristocrats".  This is a term that was popularised in the US market and refers to companies that have an unbroken 25-year history of continual dividend increases.  SAINTS, which has grown its dividend every year for the last four decades (and has not reduced its dividend since 1938), therefore meets the definition of being an 'aristocrat' in its own right.

In 2005, Standard & Poor's launched a "Dividend Aristocrats" Index, allowing investors to identify a basket of these companies. Today billions of passive dollars track this index. We recently thought it would be interesting to investigate how many of 2005's founding 'aristocrats' still make the criteria today?  We were surprised to find that only half of them did.  Over the fifteen years since the index was launched, a few of the original companies were acquired, or reshuffled their businesses, which interrupted their dividend records. But more than 1 in 3 of these blue-chip dividend payers went on to cut their dividends, often drastically. General Electric, for instance, which was once held up as a classic example of a "sure thing" for dividends, has seen its earnings and dividends collapse in recent years.  Often the Aristocrats have proved less robust and adaptable than their boards or investors expected, to changes that had not been foreseen.

This highlights the danger for investors of just looking backwards, particularly if they are long-term income investors.  Extrapolation tends to be a good way of forecasting what happens tomorrow, but it's a bad way of predicting what will happen in ten years from now. 

If anything, we tend to think the risks of gazing in the rear-view mirror are increasing.  Competitors are emerging faster, consumer habits changing more rapidly, and concerns over climate change are forcing many businesses to rethink strategies that have historically worked well.  Because we are investing for income for decades rather than quarters, we need to look for different pockets of opportunity, rather than just opting for those parts of the market which have historically offered safety; and we need to think critically about how adaptable the businesses we invest in are going to be in a future that is unlikely to offer 'more of the same'. 

So what are we doing differently, to avoid extrapolating yesterday's successes? 

The core DNA of what we look for, which we set out in our "Investment Approach" section is not changing.  But we have been trying to improve what we do, in three areas. 

Firstly, we have been seeking to broaden SAINTS' opportunity set.  In 2019, an analyst who had spent two years on our team became one of the initial members of the firm's new research office in Shanghai.  Part of his remit is to generate income-growth ideas from the China A-share market for SAINTS.  This should be a fertile hunting ground.  We estimate that including the A-share market would increase our global 'universe' of dividend-paying companies with a market cap of >£1bn from 4,500 to 5,400 (both numbers much higher than the UK market's universe of 250 companies!).  We will continue to apply a high hurdle to new ideas from China, as elsewhere - but we think that on a 5-10 year view, the increase in the opportunity set that this offers us could be material. 

Beyond idea generation, a continuing focus for our team is broadening the range of research inputs we can use in order to better understand the long-term opportunity each company enjoys.  We are already finding that a local, mandarin-speaking presence on the ground in China is helping us better understand the opportunities facing some of our existing holdings, such as Anta Sports.  In other areas we are working more intensively with our investigative researcher, who spends several months at a time speaking to a long list of employees, customers and suppliers of a given company. Recently her projects included prodding the cultures of Johnson & Johnson (which we sold), or Novo Nordisk (which we added to).  We are also working more closely with our unlisted equities team, who invest in many innovative companies that are seeking to disrupt established businesses. These conversations are helping us understand what competition for some of our holdings may look like in five or ten years time, and understand the challenges that businesses may need to adapt to.

One of the joys of investing in a company's equity, rather than debt, is that you are investing in an adaptable, living entity, made up of people, who can pre-empt challenges, and adjust - often long before financial markets have started to discount an issue.  Engaging with boards and management on sustainability and governance questions, such as the climate change investigations we have recently been making, is one way of testing which companies are truly adaptable, and thinking imaginatively about the opportunities and challenges they may face. There are of course other risks and challenges beyond climate change, ranging from the new coronavirus to continued uncertainty relating to the UK's future trading relationship with Europe. In this environment it is possible the level of sterling may also see further changes, which would have an impact on both the sterling value of SAINTS' overseas assets and of its overseas income. As fund managers, we are always mindful of such risks in relation to both stock selection and the overall balance of the portfolio.

However, notwithstanding such uncertainties, as growth investors we also have a clear focus on opportunities. We enter the new decade feeling optimistic about the individual investments within your Company's equity and property portfolios, and their ability to support a growing income stream for SAINTS' shareholders in the future. Whilst we are proud of SAINTS' record over the past several years, it is this forward-looking analysis that matters for the decade ahead.

 

 

James Dow

Toby Ross

Baillie Gifford & Co

12 February 2020

 

 

 

 

 

 

Income Statement

 

 

 

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Net gains/(losses) on investments - securities

95,135 

95,135 

(31,218)

(31,218)

Net gains on investments - property

619 

619 

3,181 

3,181 

Currency losses

(56)

(56)

(159)

(159)

Income (note 2)

22,950 

22,950 

21,743 

21,743 

Management fees

(1,047)

(1,945)

(2,992)

(926)

(1,720)

(2,646)

Other administrative expenses

(1,247)

(1,247)

(1,073)

(1,073)

Net return before finance costs and taxation

20,656 

93,753 

114,409 

19,744 

(29,916)

(10,172)

Finance costs of borrowings

(1,970)

(3,659)

(5,629)

(1,986)

(3,688)

(5,674)

Net return on ordinary activities before taxation

18,686 

90,094 

108,780 

17,758 

(33,604)

(15,846)

Tax on ordinary activities

(1,590)

363 

(1,227)

(1,528)

464 

(1,064)

Net return on ordinary activities after taxation

17,096 

90,457 

107,553 

16,230 

(33,140)

(16,910)

Net return per ordinary share (note 4)

11.87p

62.81p

74.68p

11.75p

(23.99p)

(12.24p)

 

The total column of the income statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as there is no other comprehensive income.

The accompanying notes at the end of this document are an integral part of the Financial Statements.

 

 

Balance Sheet

 

 

At 31 December 2019

At 31 December 2018

 

£'000

£'000

£'000

£'000

Non-current assets

 

 

 

 

Investments - securities

591,664 

 

476,497 

 

Investments - property

84,800 

 

83,500 

 

Deferred expenses

207 

 

 

 

 

676,671 

 

559,997

Current assets

 

 

 

 

Debtors

1,501 

 

1,739 

 

Cash and cash equivalents

7,457 

 

7,464 

 

 

8,958 

 

9,203 

 

Creditors

 

 

 

 

Amounts falling due within one year

(3,211)

 

(3,046)

 

Net current assets

 

5,747 

 

6,157 

Total assets less current liabilities

 

682,418 

 

566,154 

Creditors

 

 

 

 

Amounts falling due after more than one year

 

(81,930)

 

(82,701)

Net assets

 

600,488 

 

483,453 

Capital and reserves

 

 

 

 

Share capital

 

36,880 

 

35,233 

Share premium account

 

52,535 

 

27,694 

Capital redemption reserve

 

22,781 

 

22,781 

Capital reserve

 

470,949 

 

380,492 

Revenue reserve

 

17,343 

 

17,253 

Shareholders' funds

 

600,488 

 

483,453 

Net asset value per ordinary share

 

407.1p

 

343.0p

Ordinary shares in issue (note 7)*

 

147,520,943

 

140,930,943 

 

*      See Glossary of Terms and Alternative Performance Measures in note 12.

 

The accompanying notes at the end of this document are an integral part of the Financial Statements.

 

Statement of Changes in Equity

 

 

For the year ended 31 December 2019

 

 

Share capital

£'000

Share premium account

£'000

Capital redemption reserve

£'000

Capital

reserve*

£'000

Revenue reserve

£'000

Shareholders'
funds

£'000

Shareholders' funds at 1 January 2019

 

35,233

27,694

22,781

380,492

17,253 

483,453 

Shares issued

 

1,647

24,841

-

-

26,488 

Net return on ordinary activities after taxation

 

-

-

-

90,457

17,096 

107,553 

Dividends paid in the year (note 5)

 

-

-

-

-

(17,006)

(17,006)

Shareholders' funds at 31 December 2019

 

36,880

52,535

22,781

470,949

17,343 

600,488 

 

 

For the year ended 31 December 2018

 

 

Share capital

£'000

Share premium account

£'000

Capital redemption reserve

£'000

Capital

reserve*

£'000

Revenue reserve

£'000

 

Shareholders'
funds

£'000

Shareholders' funds at 1 January 2018

 

33,994

10,744

22,781

413,632 

16,787 

497,938 

Shares issued

 

1,239

16,950

-

18,189 

Net return on ordinary activities after taxation

 

-

-

-

(33,140)

16,230 

(16,910)

Dividends paid in the year (note 5)

 

-

-

-

(15,764)

(15,764)

Shareholders' funds at 31 December 2018

 

35,233

27,694

22,781

380,492 

17,253 

483,453 

 

*      The capital reserve balance as at 31 December 2019 includes unrealised investment holding gains of £193,826,000 (31 December 2018 - £111,702,000).

 

The accompanying notes at the end of this document are an integral part of the Financial Statements.
 

Cash Flow Statement

 

 

Year Ended

31 December 2019

Year Ended

31 December 2018

 

£'000

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

 

Net return on ordinary activities before taxation

108,780 

 

(15,846)

 

Net (gains)/losses on investments - securities

(95,135)

 

31,218 

 

Net gains on investments - property

(619)

 

(3,181)

 

Currency losses

56 

 

159 

 

Finance costs of borrowings

5,629 

 

5,674 

 

Overseas withholding tax

(1,214)

 

(1,053)

 

Changes in debtors and creditors

183 

 

(828)

 

Other non-cash changes

 

(83)

 

Cash from operations

 

17,683 

 

16,060 

Interest paid

 

(6,400)

 

(6,400)

Net cash inflow from operating activities

 

11,283 

 

9,660 

Cash flows from investing activities

 

 

 

 

Acquisitions of investments

(125,115)

 

(85,572)

 

Disposals of investments

104,399 

 

78,216 

 

Net cash outflow from investing activities

 

(20,716)

 

(7,356)

Cash flows from financing activities

 

 

 

 

Equity dividends paid (note 5)

(17,006)

 

(15,764)

 

Shares issued (note 7)

26,488 

 

18,189 

 

Net cash inflow from financing activities

 

9,482 

 

2,425 

Increase in cash and cash equivalents

 

49 

 

4,729 

Exchange movements

 

(56)

 

(159)

Cash and cash equivalents at 1 January (note 9)

 

7,464 

 

2,894 

Cash and cash equivalents at 31 December* (note 9)

 

7,457 

 

7,464 

 

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

 

The accompanying notes at the end of this document are an integral part of the Financial Statements.

 

 

*       

Asset Allocation

 

                                           

At 31 December 2019

%

 

At 31 December 2018

%

 

Quoted equities

84.7

 

 

79.9

Bonds

2.0

 

4.3

Direct property

12.4

 

14.7

Net liquid assets

0.9

 

1.1

Total assets

100.0

 

100.0

 

 

 

 

 

List of Investments at 31 December 2019

 

Name

Business

Value

£'000

% of
total assets

Coca Cola

Beverage manufacturer

18,789

2.8

Roche Holdings

Pharmaceuticals

17,916

2.6

Procter & Gamble

Household product manufacturer

17,514

2.6

Deutsche Boerse

Securities exchange owner/operator

16,217

2.4

Fastenal

Distribution and sales of industrial supplies

15,217

2.2

Sonic Healthcare

Laboratory testing

15,125

2.2

Microsoft

Computer software

14,867

2.2

Pepsico

Snack and beverage manufacturer

14,688

2.2

Edenred

Voucher programme outsourcer

14,597

2.1

B3 S.A.

Securities exchange owner/operator

14,254

2.1

Nestlé

Food producer

14,088

2.1

Taiwan Semiconductor Manufacturing

Semiconductor manufacturer

13,977

2.0

Admiral

Car insurance

13,768

2.0

Partners Group

Asset management

13,140

1.9

Experian

Credit scoring and marketing services

12,425

1.8

GlaxoSmithKline

Pharmaceuticals, vaccines and consumer healthcare

12,034

1.8

Prudential

Life insurer

12,019

1.8

CH Robinson

Delivery and logistics

11,951

1.7

United Parcel Service

Courier services

11,729

1.7

Analog Devices

Integrated circuits

10,691

1.6

Atlas Copco

Engineering

10,450

1.5

Kuhne + Nagel

Worldwide freight forwarder

10,253

1.5

Anta Sports Products

Sportswear manufacturer and retailer

10,112

1.5

McDonald's

Fast food restaurants

9,641

1.4

Total

Integrated oil company

9,565

1.4

Kering

Luxury brand conglomerate

9,164

1.3

Wolters Kluwer

Information services and solutions provider

9,081

1.3

Schneider Electric

Electrical power products

8,882

1.3

AVI 

Staple foods manufacturer

8,811

1.3

Novo Nordisk

Pharmaceutical company

8,805

1.3

Greencoat UK Wind

UK wind farms

8,446

1.3

United Overseas Bank

Commercial banking

8,444

1.2

Watsco

Distributes air conditioning, heating and refrigeration equipment

8,432

1.2

British American Tobacco

Cigarette manufacturer

8,391

1.2

Kimberly-Clarke De México

Paper-based household products

8,249

1.2

Apple

Computer technology

8,183

1.2

Sandvik

Engineering

7,587

1.1

Hiscox

Property and casualty insurance

7,545

1.1

Carsales.com

Online marketplace for classified car advertisements

7,472

1.1

Sumitomo Mitsui Trust Holdings

Trust bank and investment manager

7,465

1.1

Name

Business

Value

£'000

% of
total assets

Rio Tinto

Mining

7,294

1.1

Want Want

Snacks and milk-based products

6,877

1.0

China Mobile

Mobile telecommunication services

6,829

1.0

Cochlear

Hearing aids

6,806

1.0

Cullen/Frost Bankers

Provides banking services throughout the state of Texas

6,609

1.0

Hong Kong Exchanges and Clearing

Securities exchange owner/operator

6,353

0.9

Svenska Handelsbanken

Banking

6,150

0.9

Ambev

Brewing

6,077

0.9

SAP

Business software developer

6,036

0.9

Bankinter

Corporate and retail bank

5,942

0.9

National Instruments

Electronic test and measurement systems

5,937

0.9

Albemarle

Producer of speciality and fine chemicals

5,887

0.9

Amadeus IT Group

Technology provider for the travel industry

5,708

0.8

Man Wah

Sofa designer and manufacturer

5,617

0.8

Pernod Ricard

Global spirits manufacturer

5,488

0.8

Dolby Laboratories

Multimedia software

5,418

0.8

USS

Second-hand car auctioneer

5,341

0.8

Arthur J Gallagher

Insurance broker

5,258

0.8

Aberforth Split Level Income Trust

UK small-cap equities fund

4,162

0.6

Doric Nimrod Air Two

Aircraft leasing

1,797

0.3

WPP

Advertising agency

1,561

0.2

Cambium Global Timberland

Forestry investment fund

726

0.1

Terra Catalyst Fund*

Fund of European property funds

265

0.0

Total Equities

 

578,122

 

84.7

 

Direct Property

 

84,800

12.4

Direct Property

See table below

 

 

Bonds

 

 

 

US dollar denominated

First Quantum Minerals 7.25% 2023

2,851

0.4

 

Netflix 5.375% 2029

3,774

0.6

 

 

6,625

1.0

Brazilian real denominated

Brazil CPI Linked 15/05/2045

6,917

1.0

Total Bonds

 

13,542

2.0

Total Investments

 

676,464

99.1

Net Liquid Assets

(including deferred expenses)

 

5,954

0.9

Total Assets

 

682,418

100.0

(before deduction of debenture)

 

 

 

 

*      Delisted.

 

 

 

 

Property Portfolio

 

Location

Tenant

 

2019

Value £'000

 

2019

%

 of total assets

 

2018

Value £'000

Basingstoke

Warehouse

G4S Cash Solutions (UK) Ltd

3,300

 

0.5

 

3,500

Biggleswade

Warehouse

Quest Automotive Products UK Limited

5,700

 

0.8

 

5,200

Cleethorpes

Public House

Stonegate Pub Company Limited

850

 

0.1

 

1,000

Crawley

Petrol Station and Convenience

  Store

Co-operative Group Food Limited

3,750

 

0.5

 

3,750

Denbigh

Supermarket

Aldi Stores Limited

5,150

 

0.7

 

5,000

Dundee*

Public House

JD Wetherspoon Plc

-

 

-

 

1,300

Earley

Public House

Spirit Pub Company (Managed) Limited

2,900

 

0.4

 

3,200

Kenilworth

Nursing Home

Care UK Community Partnerships

  Limited

7,200

 

1.1

 

7,200

Luton

Public House

Stonegate Pub Company Limited

3,400

 

0.5

 

3,400

Milton Keynes

Data Centre

TalkTalk Communications Limited

15,500

 

2.3

 

16,700

New Romney

Holiday Village

Park Resorts Ltd

16,300

 

2.4

 

13,200

Newport Pagnell

Car Showroom

Pendragon Plc

3,200

 

0.5

 

4,000

Otford

Public House

Spirit Pub Company (Managed) Limited

1,950

 

0.3

 

2,100

Pagham

Convenience Store

Co-operative Group Food Limited

1,200

 

0.2

 

1,300

Portsmouth*

Public House

JD Wetherspoon Plc

-

 

-

 

2,600

Prestatyn

Public House

Stonegate Pub Company Limited

1,400

 

0.2

 

1,800

Southend-on-Sea

Warehouse

Giant Booker Limited

8,000

 

1.2

 

8,250

Taunton

Bowling Alley

Mitchells & Butlers Retail (No.2) Limited

5,000

 

0.7

 

-

 

 

 

84,800

 

12.4

 

83,500

 

*       Sold during the year.

†      Purchased during the year.

 

 

 

 

Notes

 

1.    

The Financial Statements for the year to 31 December 2019 have been prepared in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and on the basis of the accounting policies set out in the Annual Report and Financial Statements for the year ending 31 December 2019.

2.    

Income

2019

£'000

 2018

£'000

Income from investments

 

 

UK dividends

3,760

3,333

Overseas dividends

13,080

12,063

Overseas interest

736

1,170

 

17,576

16,566

Other income

 

 

Deposit interest

33

19

Rental income

5,310

5,133

Other income

31

25

 

5,374

5,177

Total income

22,950

21,743

 

Total income comprises

 

 

Dividends from financial assets designated at fair value through profit or loss

16,840

15,396

Interest from financial assets designated at fair value through profit or loss

736

1,170

Interest from financial assets not at fair value through profit or loss

33

19

Other income not from financial assets

5,341

5,158

 

22,950

21,743

3.    

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary. Baillie Gifford & Co Limited has delegated investment management services to Baillie Gifford & Co. The management of the property portfolio has been delegated to OLIM Property Limited.

The Investment Management Agreement between the AIFM and the Company sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. Compensation fees would only be payable in respect of the notice period if termination were to occur sooner. The annual management fee is 0.45% of total assets less current liabilities, excluding the property portfolio, calculated on a quarterly basis. The Board is of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence on performance.

The Property Management Agreement sets out the matters over which OLIM Property Limited has discretion and those matters which require Board approval. The Property Management Agreement is terminable on three months' notice. The annual fee is 0.5% of the value of the property portfolio, subject to a minimum quarterly fee of £6,250.

 

 

 

Notes (Ctd)

 

  

4.    

Net return per ordinary share

2019

2018

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

Net return per ordinary share

11.87p

62.81p

74.68p

11.75p

(23.99p)

(12.24p)

 

Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of £17,096,000  (2018 - £16,230,000) and on 144,027,109 (2018 - 138,152,888) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during the year.

Capital return per ordinary share is based on the net capital gain for the financial year of £90,457,000 (2018 - net capital loss of £33,140,000), and on 144,027,109 (2018 - 138,152,888) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

There are no dilutive or potentially dilutive shares in issue.

5.    

Ordinary Dividends

2019

 

2018

 

2019

£'000

2018

£'000

Amounts recognised as distributions in the year:

 

 

 

 

Previous year's final (paid 11 April 2019)

2.925p

2.825p

4,132

3,848

First interim (paid 21 June 2019)

2.925p

2.825p

4,185

3,892

Second interim (paid 20 September 2019)

2.95p

2.85p

4,279

3,953

Third interim (paid 19 December 2019)

3.00p

2.90p

4,410

4,071

 

11.80p

11.40p

17,006

15,764

 

We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £17,096,000 (2018 - £16,230,000).

 

 

2019

 

2018

 

2019

£'000

2018

£'000

Dividends paid and payable in respect of the year:

 

 

 

 

First interim (paid 21 June 2019)

2.925p

2.825p

4,185

3,892

Second interim (paid 20 September 2019)

2.95p

2.85p

4,279

3,953

Third interim (paid 19 December 2019)

3.00p

2.90p

4,410

4,071

Current year's proposed final dividend (payable 9 April 2020)

3.00p

2.925p

4,426

4,132

 

11.875p

11.50p

17,300

16,048

 

If approved at the Annual General Meeting to be held on 2 April 2020, the final dividend of 3.00p will be paid on 9 April 2020 to all shareholders on the register at the close of business on 6 March 2020. The ex-dividend date is 5 March 2020. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 19 March 2020.

6.    

The fair value of the 8% Debenture Stock 2022 at 31 December 2019 was £91.02m (2018 - £92.0m).

7.    

During the year, 6,590,000 (2018 - 4,955,000) shares were issued at a premium to net asset value raising proceeds of £26,488,000 (2018 - £18,189,000). At 31 December 2019 the Company had authority to buy back 21,166,770 ordinary shares and to allot 8,640,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2019. No shares were bought back during the year.

                   

 

 

 

 

Notes (Ctd)

 

8.    

Transaction costs incurred on the purchase and sale of investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the year, transaction costs on purchases and sales amounted to £392,000 (2018 - £193,000) and £82,000 (2018 - £204,000) respectively. Of the gains on sales during the year of £13,630,000 (2018 - gains of £7,722,000) a net gain of £13,943,000 (2018 - gain of £19,352,000) was included in investment holding gains at the previous year end.

9.    

 

 

 

 

1 January

2019

£'000

 

Cash

Flows

£'000

 

Exchange Movement

£'000

Other non-cash changes

£'000

 

31 December

2019

£'000

 

Cash and cash equivalents

7,464 

49

(56)

-

7,457 

 

Debenture Stock due in more than one year

(82,701)

-

771

(81,930)

 

Total

(75,237)

49

(56)

771

(74,473)

10. 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

11. 

The Report and Accounts will be available on the SAINTS page of the Managers' website www.saints-it.com on or around 2 March 2020.

12. 

Glossary of Terms and Alternative Performance Measures (APM)

Total Assets

Total assets less current liabilities, before deduction of all borrowings.

Net Asset Value

Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

Net Asset Value (Debentures at Book Value)

Borrowings are valued at adjusted net issue proceeds. Book value approximates amortised cost.

Net Asset Value (Debentures at Fair Value) (APM)

Borrowings are valued at an estimate of their market worth. This indicates the cost to the Company of repaying its borrowings under current market conditions. It is a widely reported measure across the investment trust industry.

 

31 December

2019

31 December

2018

Shareholders' funds (debenture at book value)

£600,488,000 

£483,453,000 

Add: book value of debenture

£81,930,000 

£82,701,000 

Less: fair value of debenture

(£91,024,000)

(£92,000,000)

Shareholders' funds (debenture at fair value)

£591,394,000 

£474,154,000 

Shares in issue at year end

147,520,943 

140,930,943 

Net Asset Value per ordinary share (debenture at fair value)

400.9p 

336.4p 

 

 

 

12. 

Glossary of Terms and Alternative Performance Measures (APM) (Ctd)

Discount/Premium (APM)

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

 

Ongoing Charges (APM)

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies.

A reconciliation from the expenses detailed in the Income Statement above is provided below.

 

 

31 December

2019

31 December

2018

 

 

Investment management fee

£2,992,000

£2,646,000

 

 

Other administrative expenses

£1,247,000

£1,073,000

 

 

Total expenses (a)

£4,239,000

£3,719,000

 

 

Average daily cum-income net asset value (with debt at fair value) (b)

£549,105,000

£489,544,000

 

 

Ongoing charges (a)÷(b) (expressed as a percentage)

0.77%

0.76%

 

 

Performance Attribution (APM)

Analysis of how the Company achieved its performance relative to its benchmark.

Total Return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

 

 

 

 

2019

NAV

(book)

2019

NAV

(fair)

2019

Share

price

2018

NAV

(book)

2018

NAV

(fair)

2018

Share

price

 

 

Opening NAV per share/share price

 

(a)

 

343.0p

 

336.4p

 

351.0p

 

366.2p

 

355.6p

 

368.0p

 

 

Closing NAV per share/share price

 

(b)

 

407.1p

 

400.9p

 

426.0p

 

343.0p

 

336.4p

 

351.0p

 

 

Dividend adjustment factor*

 

(c)

 

1.030459

 

1.031180

 

1.030751

 

1.031195

 

1.031807

 

1.031624

 

 

Adjusted closing NAV per share/share price

 

(d=b x c)

 

419.5p

 

413.4p

 

439.1p

 

353.7p

 

347.1p

 

362.1p

 

 

Total return

(d÷a)-1

22.3%

22.9%

25.1%

(3.4%)

(2.4%)

(1.6%)

 

 

* The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at the last traded price quoted at the ex-dividend date.

 

                                   

 

 

 

 

 

12. 

Glossary of Terms and Alternative Performance Measures (APM) (Ctd)

 

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Gearing represents borrowings at book less cash and cash equivalents expressed as a percentage of shareholders' funds.

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

Equity gearing is the Company's borrowings adjusted for cash, bonds and property expressed as a percentage of shareholders' funds.

 

 

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Active Share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the listed equity portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

 

 

 

Third Party Data Provider Disclaimer

 

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

 

 

 

 

 

FTSE Index Data

 

Source: FTSE International Limited ('FTSE') © FTSE 2020. 'FTSE®' is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication.

 

Automatic Exchange of Information

 

In order to fulfil its legal obligations under UK tax legislation relating to the automatic exchange of information, The Scottish American Investment Company P.L.C. is required to collect and report certain information about certain shareholders.

The legislation requires investment trust companies to provide personal information to HMRC on certain investors who purchase shares in investment trusts. Accordingly, The Scottish American Investment Company P.L.C. will have to provide information annually to the local tax authority on the tax residencies of a number of non-UK based certificated shareholders and corporate entities.

Shareholders, excluding those whose shares are held in CREST, who come on to the share register will be sent a certification form for the purposes of collecting this information.

For further information, please see HMRC's Quick Guide: Automatic Exchange of Information - information for account holders https://www.gov.uk/government/publications/exchange-of-information-account-holders

 

Regulated Information Classification: Additional regulated information required to be disclosed under applicable law

‡    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.

 

 

 

- ends -


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