Annual Financial Report

RNS Number : 2359G

Scottish American Investment Co PLC

02 March 2015

 



The Scottish American Investment Company P.L.C.

Annual Financial Report

Copies of the Annual Report and Financial Statements for the year ended 31 December 2014 have been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/nsm.

The Annual Report and Financial Statements for the year ended 31 December 2014 including the Notice of Annual General Meeting is also available on the Company's page of the Baillie Gifford website at: www.saints-it.com

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 December 2014 which require to be published by DTR 4.1 is set out on the following pages.

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.

Baillie Gifford & Co Limited

Company Secretary

2 March 2015

Chairman's Statement

The Company's objective is to deliver real dividend growth by increasing capital and growing income. An increased dividend of 10.5p will maintain the Company's long record of growing dividends in real terms over time.

Overview

2014 has been a year of further progress for global equity markets despite mixed economic news. Progress has not been uniform or universal however: the standout performer has been the US, helped by a strengthening economy and, for sterling investors, by gains in the Dollar. However, markets have been troubled from time to time by the prospect of reduced support from central banks and the perceived dangers of disappointing growth in Europe and China. Other crises have also erupted or worsened, notably in Crimea and the rest of the Ukraine and in the Middle East. The most dramatic market development of the year however was the recent collapse in the oil price, and this may prove to be both a blessing and a curse - stimulating parts of the global economy whilst bringing deflationary dangers elsewhere and heightening problems for certain companies, countries and lending institutions.

Against this mixed background, many companies continue to perform well operationally, increasing profits and raising dividends. Continued progress at the corporate level has helped equities, and these remain at the core of SAINTS' portfolio. Whilst their market value will fluctuate, and total returns will accordingly vary, the Board remains confident that their income producing power will continue to progress over time. The Company's other investments in property and fixed income have fulfilled their roles too, in particular delivering a high income and defraying borrowing costs.

Management arrangements

Dominic Neary took over as Manager of SAINTS at the start of the year. With the Board's encouragement the equity portfolio has continued to evolve, with an even greater emphasis being placed on supporting the dependability and progression of the Company's dividend, in line with its objective.

Revenues

Investment income and earnings per share were higher than last year, at £18.8m and 10.51p per share respectively. The bond investments have been reduced further, continuing the direction of recent years, and the 3% increase in earnings masks a marked reduction in the contribution from fixed income. This has been outweighed by an increase in income from equities and rents. The proportionate increase in income arising from real assets, which are able to benefit from economic progress over time, bodes well for future dividend growth.

Dividend and Inflation

A final dividend of 2.65p is recommended which will take the full year dividend to 10.5p per share, 2.9% higher than the 2013 dividend of 10.2p and also ahead of inflation as measured by both the Consumer Prices Index (CPI, 0.5%) and Retail Prices Index (RPI, 1.6%). The recommended dividend would be fully covered by earnings.

In previous years we have shown dividend progression against RPI. This year, we are also showing CPI, which is now the UK Government's official measure of inflation. Further information on both measures is included within the Managers' report. On either measure, the Company has increased its dividend ahead of inflation over the last ten years.

Total Return Performance

The Company's net asset value (NAV) total return (capital and income) for the year was 2.9% and the share price total return was 1.6%.

Net asset value (NAV) per share, on the fair value measure, fell by 1.3% to 243.7p. The explanation for this slight drop in NAV at fair value, despite an increase in the value of the Company's investments, was a greater increase in the current market value of the Company's debenture borrowings.

In order to achieve its objectives, deliver a higher yield than global equities and service its borrowings, the Company's investments necessarily differ markedly from the global equity index against which total return performance is now shown. Performance is therefore likely to differ markedly from that index.

Over the year, the NAV total return lagged the total return from the global equity market of 11.3%. In addition to the adverse effect from the change in the current value of the debenture, equity performance was held back in relative terms by modest exposure (relative to index weightings) to the low yielding US market, and significant exposure to the UK: nevertheless, the return was positive. This positioning increases the level and dependability of the Company's sterling income, but has been unhelpful in capital terms over the year.

Borrowings

SAINTS' borrowings take the form of a single £80m debenture which is due for repayment in April 2022. During 2014, the borrowings mainly funded a range of higher yielding commercial property and bond investments.

The book value of the debenture is £85.4m which, at the year end, was equivalent to approximately 25% of shareholders' funds. The estimated market or fair value of the debenture was £105.9m, an increase from the previous year's value of £100.6m.

However, over the coming years we expect declines in both the debenture's book and market values as it approaches its final redemption value of £80m, and this will boost total returns.

Regulation

In last year's report, I informed you that in order to comply with the Alternative Investment Fund Managers Directive, a major piece of EU legislation, the Company would be required to appoint a single Alternative Investment Fund Manager (AIFM) as well as a Depositary. Accordingly, as envisaged last year, the Company has now amended its contractual arrangements with our managers, the partnership of Baillie Gifford & Co and OLIM Property Ltd. Our contractual counterparty is now Baillie Gifford & Co Limited, a wholly owned subsidiary of the Baillie Gifford partnership. In turn Baillie Gifford & Co Limited has delegated investment management to Baillie Gifford & Co and also to OLIM Property Ltd. SAINTS has appointed BNY Mellon as Depositary.

Outlook

The global economy faces many challenges, and markets are unlikely to rise smoothly from here. In addition, the General Election may mean that political uncertainties in the UK will remain in the short term. However, the prospects for dividends remain encouraging, bolstered by the nature of the Managers' global approach and supported by the Company's strong revenue and capital reserves. The Company therefore remains well placed to meet its objective over time.

The Board and AGM

Since my last statement one director, Rachel Lomax, has retired from the Board of the Company. Rachel's economic insights and broader contribution have been very much appreciated by the rest of the Board, and she stepped down with our heartfelt thanks.

In November I was delighted to announce the appointment of Bronwyn Curtis to the Board. An economist by background, Bronwyn has many years of financial services experience, latterly at HSBC Bank plc where she held senior positions including Head of Global Research and Senior Adviser to the Head of Global Banking and Markets. Her appointment as a Director is subject to the approval of shareholders, and accordingly such approval will be sought at the forthcoming AGM. I am confident that, subject to that approval, Bronwyn's considerable experience and knowledge will augment that of the current Directors and enhance the Board.

The AGM will be held at 11am on Thursday 2 April 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 Manager look forward to meeting you there.

Sir Brian Ivory, CBE

Chairman

19 February 2015

Managers' Review

Overview

SAINTS' total return for 2014 of 2.9% was reasonable in absolute terms, but it lagged the 11.3% total return of the FTSE All World comparative index. Total income for the year was £18.8m leading to earnings per share of 10.51p, which compare to £18.4m and 10.21p for 2013 respectively. The NAV per share fell modestly from 247.0p to 243.7p on the fair value measure.

SAINTS aims to provide an above-average, dependable and growing income stream to shareholders, and therefore the portfolio is very different from its comparative index by necessity and design. As a result we expect performance to deviate significantly from the performance of the index over the medium term, both positively and negatively, however we strongly believe that the Company's asset allocation policy and the characteristics which we seek in its underlying investments will serve relative total returns very well over a full investment cycle. The comparative index should therefore be considered as a guide to our expectations for long-term performance rather than a benchmark for short-term comparisons.

The economic backdrop to 2014 was mixed. The United States economy gained momentum and growth in China, while slower than previous years, remained at enviable levels. However, other regions fared less well, notably Europe which was bedevilled by slow growth and a growing threat of deflation. This divergence in economic performance is reflected in different courses being charted for monetary policy around the world. In the United States, the Federal Reserve has wound down its quantitative easing programme and may soon embark on a journey towards higher interest rates. Conversely Japan increased its money printing efforts and the European Central Bank announced a program of quantitative easing. We should also mention the precipitous decline in the price of crude oil, from over $100 per barrel to below $60 per barrel at the end of 2014. In time this should boost the world economy but its immediate effect has been to reduce inflation rates.

The portfolio was fully invested through the year with the major part being invested in shares of companies listed on world stockmarkets. The income contribution from equities was strong relative to 2013, augmented by special dividends received early in the year, and the total return reasonable in absolute terms. However, the geographic positioning of the equity portfolio was the major influence on SAINTS' investment returns relative to the comparative index, and is discussed in detail below.

As well as the performance of the assets, the fair value NAV is affected by any changes in the market value of SAINTS' debenture borrowings. In 2014 this rose, leading to a negative impact of 1.6% on the Company's NAV. The rise in the value of the debenture reflects the rally in the gilt market on recent deflationary concerns in the UK, and an expectation that interest rates will rise later than had previously been expected. The debenture borrowings effectively fund the property portfolio and various bond investments which both performed well in 2014. Full detail on the performance of the portfolio is provided below.

The last few years have been a period of transition for SAINTS as the bond portfolio, which served the Company so well subsequent to the global financial crisis in both income and capital terms, has been reduced in favour of equities and the real long-term growth that such exposure provides. The shift from the high-yielding bond portfolio to relatively lower-yielding equities has been a headwind for income growth. However, we believe that through increased equity exposure, and the refinement of our approach, the long-term potential for growth of both income and capital for SAINTS' shareholders has been enhanced.

Equities

Over the year an average of 81.5% of the portfolio was invested in equities. Expressed as a percentage of shareholders' funds the figure was 101.8%. The total return on equity investments for the year was 4.3%.

Despite the unsettling backdrop of 2014, including significant oil price volatility and unrest in both the Ukraine and the Middle East, global equity markets in aggregate made solid progress in 2014, with the FTSE All World index posting a total return of 11.3%. Behind this headline figure however were notably divergent performances from equity markets around the world. Signs of continued economic improvement in the United States drove local indices to new highs, with leadership from the technology sector, significantly outperforming the rest of the world. In contrast the UK, continental Europe, and developed Asia markets remained broadly unchanged albeit for contrasting reasons. In the UK encouraging signs of economic growth were offset by challenges in key sectors of oil and gas, retail and pharmaceuticals, while in Europe and Japan a persistent failure to reignite growth and inflation hindered stockmarket progress. The performance of Emerging Markets indices varied widely, but in aggregate they posted solid returns, driven in part by low valuations relative to the rest of the world.

There was a larger number of equity transactions in 2014 than in recent years as we have sought to increase the level and dependability of the equity portfolio's income stream while also improving the capital return potential. To this end we have focused on increasing the portfolio's exposure to stocks which offer an attractive and dependable yield and solid growth prospects; a powerful combination of characteristics which directly supports SAINTS' objective of real growth in the dividend. At the same time we have de-emphasized high-yielding but lower growth stocks, and have placed greater demands, in terms of growth and capital return potential, on stocks which offer a lower income stream to the portfolio.

During 2014 we purchased 17 new holdings for the equity portfolio. A number of the new holdings are from the consumer sector, and are stocks that offer an attractive and dependable yield today along with attractive growth prospects. We bought into Coca-Cola attracted by its capital-light operating model, growth opportunities around the world, and its exemplary dividend growth record. We also purchased shares in Pepsico whose dominant market share in snacks and strong free cash flows should underpin steady long-term earnings growth. In the tobacco sector we took positions in Reynolds American, the US tobacco company, which is successfully focusing on a smaller number of key brands to drive profitability, and British American Tobacco, for its global portfolio and positioning in smoking substitution products. We also made investments in the shares of less well-known companies in the consumer sector such as Dia, a leading discount store operator in emerging markets, AVI, a leading South African staple foods company which has a rapidly-growing shoe retail business, and Kimberley Clark de Mexico, the dominant Mexican supplier of nappies, tissues, and other paper based personal hygiene products. All of these stocks offer dependable yields well above that of the global market average and have strong cash flow growth outlooks.

In the Chinese consumer sector we purchased shares in Anta Sports, the leading domestic sportswear company, and Want Want, a major manufacturer of rice crackers and flavoured milks to the domestic market. Both of these companies benefit from family ownership, high market shares, and strong growth prospects, and also offer above-average yields despite their exciting prospective growth profiles. These purchases in China were funded by the complete sale of the Baillie Gifford Greater China Fund which has offered SAINTS broad exposure to the Chinese economy, but is not managed towards any income target.

Outside of the consumer sector we made investments in a number of growing companies with capital-light businesses which consequently generate exceptional cash flows which we believe will lead to strong dividend growth and dependability. We bought shares in WPP, the global advertising agency, as we are impressed by its leading positioning in digital media. We took a position in Deutsche Börse, the European stock exchange, as we expect it to benefit from increasing volumes of exchange-traded derivatives. Edenred, the French-listed global provider of voucher solutions to governments and businesses, was purchased for its cash flow characteristics and growth potential in several markets around the world. We also took a small position in Herbalife, the global nutrition company.

Sandvik, the Swedish engineering company, was purchased for the portfolio as we are optimistic that the new management team will be successful in raising the company's profitability and cash flows towards those of its peer Atlas Copco, also held by SAINTS. We took a position in Sonic Healthcare, the leading Australian medical testing company which has interesting international expansion opportunities as well as a robust and cash-generative domestic business. Finally, we purchased shares of the Bank of China Hong Kong, attracted by its strong position in the Hong Kong market, attractive Asian trade-driven growth prospects and undemanding valuation.

In addition to the sale of the Baillie Gifford Greater China Fund noted above, 20 equity holdings were disposed of over the course of the year. As a result of a review of the lower-yielding stocks in the portfolio we disposed of the positions in Monsanto, Baidu, Solera, Moody's and eBay. In the first half of the year we sold a number of holdings in the oil and gas sector, namely Penn West Exploration, Seadrill and Lukoil. In the insurance sector we disposed of Catco and Lancashire Holdings. The pricing in Catco's reinsurance markets continues to be pressured by competing capital flows and therefore after receiving a large special dividend in the early part of the year we decided to sell. Lancashire Holdings was sold after the resignation of the founder, whose underwriting track record and leadership were key components of our investment case. In China we sold the positions in the two expressway companies held by the Trust, Sichuan Expressway and Zhejiang Expressway, the former on concerns regarding the capital intensity of its growth plans, and the latter on limited potential for future growth. In Japan we disposed of Mitsui, Hikari Tsushin and Nippon Prologis, all on valuation grounds. Imperial Tobacco was sold following the announcement it was to acquire brands that we consider to be weak in the US market. Jeronimo Martins was sold as competitive pressure in its eastern European business has intensified. We exited the position in Ecofin Water and Power opportunities on a review of the Company's investment portfolio which showed less diversification, and greater concentration in the oil and gas sector, than we had hoped for at purchase.

Finally, we disposed of two holdings that entered the portfolio as a result of corporate actions: Verizon, which was received as a result of our holding in Vodafone when the company sold its stake in Verizon Wireless; and Akastor, a spin out from Aker Solutions, which contained the lower-quality businesses of the parent company, and which we had been keen for them to dispose of in order to increase profitability. We also have continued to work with the board of Cambium Global Timberland to bring about an orderly wind-up of that fund.

These transactions left the portfolio with 89 equity holdings at the year end, providing diversified exposure to a broad range of industries and countries. The most notable change in our allocation to industrial sectors over the course of the year was a reduction to the portfolio's oil and gas position, while the portfolio's exposure to the consumer goods sector was increased as we continued to find stocks that offer growth, income and dependability in this area. At the regional level our exposures to Developed Asia and Europe were increased modestly, funded by reductions to investment in the UK, emerging markets and Japan.

In 2014 the investment returns of the equity portfolio of 4.3% lagged the performance of the comparative index, primarily because of the below-index exposure to the low-yielding US market and therefore also the US dollar, in favour of the UK and sterling income-paying assets. The exposure to the Eurozone was also unhelpful due to the weakness of the Euro relative to sterling. The portfolio's exposures to Developed Asia and Emerging Markets contributed positively to relative performance. Looking at the sectors and industries in which we invested, the portfolio benefited particularly from its telecommunications exposure, but lost ground in financials and consumer services where our focus on dependable growth caused us to underperform the broader sectors. Indeed, more generally the increased appetite for risk across global markets, particularly in the US, has led many higher-yielding consistent growth stocks to perform less well than lower-yielding growth areas of the markets.

At the stock level the range of returns across the portfolio was broad. The strongest contributors to relative performance were Provident Financial, the UK lender, TSMC, the Taiwanese semiconductor foundry, Norsk Hydro, the Norwegian aluminium company and new holding AVI, the South African food manufacturer. Conversely Jeronimo Martins, Brasil Insurance, Cambium Global Timberland, Rio Tinto and Aker Solutions detracted most from returns, albeit several of these made healthy contributions to the portfolio's income stream for the year. Generally across the portfolio dividend growth has been reliable, and a number of the portfolio companies such as Hiscox, Progressive and Catco returned excess cash to shareholders as special dividends over the course of the year.

Bonds

Our bond investments performed well in aggregate over the course of 2014, posting a total return of 10%. At the end of the year the portfolio consisted of three holdings: the Athena Debt Opportunities Fund, a portfolio of structured debt instruments managed by investment firm Prytania; an index-linked bond issued by the government of Brazil; and Semper Finance, a floating rate note linked to the rental income on a portfolio of German residential and social housing units which we expect to be redeemed at par in the first quarter of 2015. During the year we sold the small position in Venezuelan government bonds and reduced the Athena Debt Opportunities Fund position. As a result of market movements and these sales the bond portfolio represented 5.8% of the total portfolio at the end of 2014, compared to 6.7% at the end of 2013.

Direct Property

The direct property investments are managed by OLIM Property Limited, a specialist property manager. The portfolio consists of 18 commercial properties in a variety of locations across the United Kingdom. The total return was 13.6%.

Rental income from the property portfolio was £3.7m which was approximately 16% more than the amount received in 2013 as a result of both portfolio additions and rental income growth. Four properties were purchased during the year, and two sold. These transactions, along with a capital gain on the properties held throughout the year, took the capital value of the property portfolio to £47.9m by the year end, representing approximately 11% of the total portfolio. We intend to make further investments in 2015 if suitable properties can be found.

Despite property's strong performance in 2014, we and OLIM believe that commercial property valuations are attractive. The average yield on the properties that SAINTS owns is 7.4% and we expect this rental income to grow broadly in line with inflation over the medium to long term.

Outlook

We are encouraged by the economic progress made by the US, UK and certain other markets in 2014. However, such progress brings closer the prospect of tightening monetary conditions including the withdrawal of quantitative easing, which is likely to hinder significant acceleration in economic growth. The recent drop in the oil price, if sustained, may stimulate consumer demand but will of course challenge the earnings and capital expansion plans of oil and gas companies globally, as well as reflationary efforts of governments around the world.

Against such a backdrop, whilst it seems likely that while economic activity may continue to grow at a modest but accelerating rate, we are unlikely to enjoy rapid nominal GDP or earnings growth in the near future. Valuations, while perhaps sustainable, are not low and therefore financial market returns are likely to be positive but not exceptional. We believe that SAINTS is positioned well for such an environment, and believe that our focus on investment in strong companies which can grow cash flows and dividends sustainably will serve the progression of the Company's dividends and capital well. We also believe that SAINTS portfolio should prove resilient if economic or political challenges were to intensify.

Finally, you will note that this year the consumer price index (CPI) has been shown alongside the retail price index (RPI) for comparison with the dividend. The primary difference between RPI and CPI is the calculation methodology of the two measures; RPI is calculated using an arithmetic mean, while CPI uses a geometric mean which more accurately reflects price increases experienced by consumers. Basket composition and weightings also play a small role; for example RPI includes mortgage costs. As a result of these differences RPI is structurally higher than CPI and is more volatile. While RPI was the principal measure of inflation for many years, CPI replaced RPI as the UK's official inflation measure in 2003, and the Office for National Statistics no longer classifies RPI as a National Statistic. We therefore believe that it is CPI against which SAINTS' success in achieving its objective of real growth in the dividend should be measured. Over the past decade, SAINTS' dividend has grown in real terms against both RPI and CPI.

Dominic Neary

Baillie Gifford & Co

19 February 2015

Past performance is not a guide to future performance

Asset Allocation

	At 31 December 2014 %		At 31 December 2013 %
Quoted equities	81.1		83.6
Bonds	5.8		6.7
Direct property	11.2		9.2
Net liquid assets	1.9		0.5
Total assets	100.0		100.0

Performance Attribution

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Global equities	101.8	100.0	4.3	11.3
Bonds	7.8		10.0
Direct property	13.6		13.6
Deposits	1.7		-
Debenture at book value	(24.9)		6.8
Portfolio total return (debenture at book value)			5.2	11.3
Other items*			(0.7)
Fund total return (debenture at book value)			4.5	11.3
Adjustment for change in fair value of debenture			(1.6)
Fund total return (debenture at fair value)			2.9	11.3

*    Includes Baillie Gifford and OLIM management fees.

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

Past performance is not a guide to future performance.

Source: Baillie Gifford

Thirty largest equity holdings at 31 December 2014

Name	Business	2014 Value £'000	2014 % of total assets	2013 Value %
Rio Tinto	Mining	8,817	2.1	10,012
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	8,010	1.9	7,454
Total	Integrated oil company	7,885	1.8	8,854
Hiscox	Property and casualty insurance	7,423	1.7	5,610
Coca Cola	Beverage manufacturer	7,126	1.7	-
Roche Holdings	Pharmaceuticals	6,781	1.6	4,780
Analog Devices	Integrated circuits	6,588	1.5	5,688
AVI	Staple foods manufacturer	6,571	1.5	-
SK Telecom	Mobile telecommunication services	6,301	1.5	5,291
Deutsche Boerse	Securities exchange owner/operator	6,275	1.5	-
Pepsico	Snack and beverage manufacturer	6,062	1.4	-
Provident Financial	Loans and credit cards	5,825	1.4	3,839
Johnson and Johnson	Pharmaceuticals and healthcare products	5,698	1.3	3,649
Want Want	Snacks and milk-based products	5,583	1.3	-
Aviva	Investment and life assurance	5,363	1.2	2,473
United Parcel Service	Courier services	5,357	1.2	4,767
Amlin	Property and casualty insurance	5,344	1.2	11,165
China Mobile	Mobile telecommunication services	5,273	1.2	4,393
Partners Group	Asset management	5,089	1.2	3,521
McDonald's	Fast food restaurants	5,055	1.2	4,221
Capita	Business process outsourcing	5,041	1.2	3,884
Japan Residential Investment Company	Japanese residential property fund	5,016	1.2	5,625
Edenred	Voucher programme outsourcer	4,963	1.2	-
Svenska Handelsbanken	Banking	4,917	1.1	4,861
Linear Technology	Integrated circuits	4,913	1.1	4,619
M6-Metropole TV	Television broadcasting	4,804	1.1	5,525
Brambles	Pallet pool operator	4,765	1.1	2,602
Kraft Foods Group	Branded food and beverages	4,712	1.1	3,817
New York Community Bankcorp	Banking	4,659	1.1	4,619
Sumitomo	Trading conglomerate	4,554	1.1	2,908
		174,770	40.7	124,177

Management fee arrangements

In order to comply with the Alternative Investment Fund Managers Directive ('AIFMD'), the Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager ('AIFM') with effect from 1 July 2014. Baillie Gifford & Co Limited was also appointed Company Secretary with effect from the same date. The Investment Management Agreement with Baillie Gifford & Co has been terminated and the Company has entered into a new agreement with Baillie Gifford & Co Limited. The management fee and notice period are unchanged under these new arrangements. Baillie Gifford & Co Limited has delegated investment management services to Baillie Gifford & Co; therefore the Company's portfolio continues to be managed by 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 property portfolio subject to a minimum quarterly fee of £6,250.

The details of the management fees are as follows:

	2014 £'000		2013 £'000
Investment management fee	1,703		1,743
Property management fee	239		194
	1,942		1,937

Principal Risks and Uncertainties

As an investment trust, the Company invests in equities and makes other investments so as to secure its investment objective of increasing capital and growing income in order to deliver real dividend growth. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to a variety of risks that cause short term variation in the Company's net assets and could result in either a reduction in the Company's net assets or a reduction in the profits available for dividend.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent reduction in the Company's net assets or its profits available for dividend rather than to minimise the short term volatility.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board reviews and agrees policies for managing these risks and the Company's Investment Manager both assesses the exposure to market risk when making individual investment decisions and monitors the overall level of market risk across the investment portfolio on an ongoing basis.

Details of the Company's investment portfolio are shown in note 9 of the Annual Report and Financial Statements. Details of derivative financial instruments outstanding at the balance sheet date are shown below.

Currency Risk

Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

The Investment Manager monitors the Company's exposure to foreign currencies and reports to the Board on a regular basis. The Investment Manager assesses the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Forward currency contracts are used periodically to limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments. Where appropriate, they are used also to achieve the portfolio characteristics that assist the Company in meeting its investment objectives. Cash amounts received in foreign currencies are converted to sterling on a regular basis.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

At 31 December 2014	Investments £'000	Cash and deposits £'000	Forward currency contracts £'000	Debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	127,689	-	(10,262)	-	168	117,595
Euro	39,925	65	(4,813)	-	365	35,542
Hong Kong dollar	26,037	-	-	-	-	26,037
Swiss franc	15,451	-	-	-	-	15,451
Other overseas currencies	67,045	-	-	-	165	67,210
Total exposure to currency risk	276,147	65	(15,075)	-	698	261,835
Sterling	144,890	9,912	15,184	(85,361)	(2,654)	81,971
	421,037	9,977	109	(85,361)	(1,956)	343,806

*    Includes net non-monetary assets of £26,000.

At 31 December 2013	Investments £'000	Cash and deposits £'000	Forward currency contracts £'000	Debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	131,762	-	(9,661)	-	197	122,298
Euro	34,497	71	(5,824)	-	121	28,865
Brazilian real	18,692	725	-	-	89	19,506
Japanese yen	17,541	-	-	-	116	17,657
Other overseas currencies	72,706	-	-	-	61	72,767
Total exposure to currency risk	275,198	796	(15,485)	-	584	261,093
Sterling	150,850	3,160	15,622	(85,931)	(2,412)	81,289
	426,048	3,956	137	(85,931)	(1,828)	342,382

*    Includes net non-monetary assets of £33,000.

Currency Risk Sensitivity

At 31 December 2014, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had a similar but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2013.

	2014 £'000		2013 £'000
US dollar	5,880		6,115
Euro	1,777		1,443
Hong Kong dollar	1,302		794
Swiss franc	773		557
Other overseas currencies	3,360		4,145
	13,092		13,054

Interest Rate Risk

Interest rate movements may affect directly:

¾   the fair value of any investments in fixed interest rate securities;

¾   the level of income receivable on cash deposits;

¾   the fair value of any fixed-rate borrowings; and

¾   the interest payable on any variable rate borrowings which the Company may take out.

Interest rate movements may also have an impact upon the market value of investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on fair value and cashflows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.

The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.

The Company may finance part of its activities through borrowings at approved levels. The amount of any such borrowings and the approved levels are monitored and reviewed regularly by the Board.

Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, if any, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value.

The interest rate risk profile of the Company's financial assets and liabilities at 31 December is shown below.

Financial Assets	2014			2013
	Fair value £'000	Weighted average interest rate	Weighted average fixed rate period	Fair value £'000	Weighted average interest rate	Weighted average fixed rate period
Fixed rate:
US bonds	-	-	-	2,065	14.1%	15 years
Floating rate:
Brazilian bonds (interest rate linked   to Brazilian CPI)	10,184	10.7%	n/a	9,696	11.0%	n/a
Euro bonds (interest rate linked to   Euribor)	3,198	6.0%	n/a	3,070	17.4%	n/a
Fixed Interest Collective Investment Funds:
US dollar denominated fund	11,661	0.5%	n/a	13,786	0.4%	n/a

Financial Liabilities		2014 £'000		2013 £'000
The interest rate risk profile of the Company's financial liabilities at 31 December was:
Fixed rate - sterling		85,361		85,931
The maturity profile of the Company's financial liabilities at 31 December was:
In more than five years - 8 years (2013 - 9 years)	85,361		85,931

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond yields as at 31 December 2014 would have decreased total net assets and total return on ordinary activities by £1,354,000 (2013 - £1,397,000) and would have increased the net asset value per share (with debenture at fair value) by 3.6p (2013 - 3.7p). A decrease of 100 basis points would have had an equal but opposite effect.

Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets.

The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies.

Other Price Risk Sensitivity

A full list of the Company's investments is shown on pages 15 to 18 of the Annual Report and Financial Statements. In addition, a list of the 30 largest equity holdings together with various analyses of the portfolio by asset class and industrial sector are contained in the Strategic Report.

101.2% of the Company's net assets are invested in quoted equities. A 5% increase in quoted equity valuations at 31 December 2014 would have increased total assets and total return on ordinary activities by £17,306,000 (2013 - £17,797,000). A decrease of 5% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Company's holdings in direct property and unlisted investments, which are not considered to be readily realisable, amount to 12.3% of total assets at 31 December 2014 (2013 - 10.4%). The Company has the power to take out borrowings, which give it access to additional funding when required.

The Board gives guidance to the Investment Managers as to the maximum amount of the Company's resources that should be invested in any one holding and to the maximum aggregate exposure to any one entity (see investment policy on page 6 of the Annual Report and Financial Statements). The Board also sets parameters for the degree to which the Company's net assets are invested in quoted equities.

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

¾   where the Investment Manager makes an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;

¾   the Board regularly receives information from the Investment Manager on the credit ratings of those bonds and other securities in which the Company has invested;

¾   the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Depositary has delegated the custody function to Bank of New York Mellon SA/NV London Branch. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Manager monitors the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;

¾   investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

¾   transactions involving derivatives, structured notes and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest are subject to rigorous assessment by the Investment Manager of the creditworthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board; and

¾   cash is only held at banks that are regularly reviewed by the Managers.

Credit Risk Exposure

The exposure to credit risk at 31 December was:

	2014 £'000	2013 £'000
Bonds	25,044	28,617
Cash and short term deposits	9,977	3,956
Debtors	1,063	1,158
	36,084	33,731

None of the Company's financial assets are past due or impaired.

Fair Value of Financial Assets and Financial Liabilities

The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the balance sheet with the exception of the long term borrowings which are stated at amortised cost in accordance with FRS 26. The fair value (determined as the asking price as traded on an active market) of the debenture stock is shown below.

	2014			2013
	Nominal £'000	Book £'000	Fair £'000	Nominal £'000	Book £'000	Fair £'000
8% debenture stock 2022	80,000	85,361	105,888	80,000	85,931	100,632

Gains and losses on hedges

The following forward currency contracts were open at 31 December:

At 31 December 2014 Currency sold	Currency amount sold	Currency bought	Currency amount bought	Settlement date	Fair value £'000
US dollar	$16,000,000	Sterling	£10,262,187	14/01/15	82
Euro	€6,200,000	Sterling	£4,812,612	14/01/15	27
					109

At 31 December 2013 Currency sold	Currency amount sold	Currency bought	Currency amount bought	Settlement date	Fair value £'000
US dollar	$16,000,000	Sterling	£9,765,000	15/01/14	104
Euro	€7,000,000	Sterling	£5,857,000	15/01/14	33
					137

Realised currency gains/(losses) are taken to the capital reserve and are not reflected in the revenue account unless they are of a revenue nature.

Capital Management

The Company does not have any externally imposed capital requirements. The capital of the Company is the ordinary share capital which is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 6 of the Annual Report and Financial Statements. Shares may be issued and/or repurchased as explained on pages 22 and 23 of the Annual Report and Financial Statements.

Alternative Investment Fund Managers (AIFMD) Directive

In accordance with the AIFM Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM remuneration policy is available from Baillie Gifford & Co Limited on request (see contact details on the back cover) and the numerical remuneration disclosures in respect of the AIFM's first relevant reporting period (year ended 31 March 2016) will be made available in due course.

The Company's maximum and actual leverage levels (see Glossary of Terms on page 59 of the Annual Report and Financial Statements) at 31 December 2014 are shown below:

Leverage

	Gross Method	Commitment Method
Maximum limit	3.00:1	2.00:1
Actual	1.31:1	1.25:1

Investments

At 31 December 2014	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Securities
Listed equities/funds	346,224	1,844	-	348,068
Bonds	-	10,185	14,859	25,044
Total financial asset investments	346,224	12,029	14,859	373,112
Property
Freehold				47,925
				47,925
Total investments				421,037

At 31 December 2013	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Securities
Listed equities/funds	356,042	1,713	-	309,492
Bonds	2,065	9,696	16,856	28,617
Unlisted equities	-	-	43	43
Total financial asset investments	358,107	11,442	16,899	386,448
Property
Freehold				39,600
				39,600
Total investments				426,048

Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with Financial Reporting Standard 29 'Financial Instruments: Disclosures', the tables above provide an analysis all of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value. Property investments are not financial assets and therefore the fair value hierarchy does not apply to these assets.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - investments with quoted prices in an active market;

Level 2 - investments whose fair value is based directly on observable current market prices or is indirectly being derived from market prices; and

Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or are not based on observable market data.

Other Risks

Other risks faced by the Company include the following:

Financial Risk - The Company's assets consist mainly of listed securities and its principal risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk),  liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 18 to the financial statements on pages 46 to 50 of the Annual Report and Financial Statements.

Regulatory risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trusts, the UKLA Listing rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report or to the Company being subject to tax on capital gains. Baillie Gifford's Business Risk & Internal Audit and Compliance departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes.

Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised.

Operational risk - failure of Baillie Gifford's accounting systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. Baillie Gifford have a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board.

Premium/Discount volatility - the premium/discount at which the Company's shares trade can change. The Board monitors the level of premium/discount and the Company has authority to issue new shares and to buy back its existing shares when deemed to be in the best interest of all shareholders.

Leverage risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. The Company can also make use of derivative contracts.

All borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found in Note 19 on page 50 of the Annual Report and Financial Statements and the Glossary of Terms on page 59 of the Annual Report and Financial Statements.

Statement of the Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing these financial statements, the Directors are required to:

¾ select suitable accounting policies and then apply them consistently;

¾ make judgements and accounting estimates that are reasonable and prudent;

¾ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

¾ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page on the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed within the Directors and Management section, confirm that, to the best of their knowledge:

¾ the financial statements, which have been prepared in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

¾ the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

Sir Brian Ivory

19 February 2015

Income Statement

	For the year ended 31 December 2014			For the year ended 31 December 2013
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains on investments - securities	-	3,806	3,806	-	30,858	30,858
Currency gains/(losses)	-	17	17	-	(266)	(266)
Income (note 2)	18,782	-	18,782	18,421	-	18,421
Management fees	(680)	(1,262)	(1,942)	(678)	(1,259)	(1,937)
Other administrative expenses	(949)	-	(949)	(958)	-	(958)
Net return before finance costs and taxation	17,153	2,561	19,714	16,785	29,333	46,118
Finance costs of borrowings	(2,041)	(3,790)	(5,831)	(2,052)	(3,812)	(5,864)
Net return on ordinary activities before taxation	15,112	(1,229)	13,883	14,733	25,521	40,254
Tax on ordinary activities	(1,172)	286	(886)	(1,192)	457	(735)
Net return on ordinary activities after taxation	13,940	(943)	12,997	13,541	25,978	39,519
Net return per ordinary share (note 3)	10.51p	(0.72p)	9.79p	10.21p	19.58p	29.79p

Statement of total recognised gains and losses

	For the year ended 31 December 2014 (unaudited)			For the year ended 31 December 2013 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net return on ordinary activities after taxation	13,940	(943)	12,997	13,541	25,978	39,519
Net gains on investments - property	-	2,293	2,293	-	950	950
Total recognised gains and losses for the year	13,940	1,350	15,290	13,541	26,928	40,469
Total recognised gains and losses per ordinary share (note 3)	10.51p	1.02p	11.53p	10.21p	20.29p	30.50p

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

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

Balance Sheet

	At 31 December 2014		At 31 December 2013
	£'000	£'000	£'000	£'000
Fixed assets
Investments - securities	373,112		386,448
Investments - property	47,925		39,600
		421,037		426,048
Current assets
Debtors	1,063		1,158
Cash and deposits	9,977		3,956
	11,040		5,114
Creditors
Amounts falling due within one year	(2,910)		(2,849)
Net current assets		8,130		2,265
Total assets less current liabilities		429,167		428,313
Creditors
Amounts falling due after more than one year		(85,361)		(85,931)
Net assets		343,806		342,382
Capital and reserves
Called up share capital		33,169		33,169
Share premium		357		357
Capital redemption reserve		22,781		22,781
Capital reserve		270,452		269,102
Revenue reserve		17,047		16,973
Shareholders' funds		343,806		342,382
Net asset value per ordinary share (debenture at fair value)		243.7p		247.0p
Net asset value per ordinary share (debenture at book value)		259.1p		258.1p
Ordinary shares in issue (note 6)		132,675,943		132,675,943

Reconciliation of movements in shareholders' funds

For the year ended 31 December 2014

		Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2014		33,169	357	22,781	269,102	16,973	342,382
Total recognised gains and losses		-	-	-	1,350	13,940	15,290
Dividends paid in the year (note 4)		-	-	-	-	(13,866)	(13,866)
Shareholders' funds at 31 December 2014		33,169	357	22,781	270,452	17,047	343,806

For the year ended 31 December 2013

		Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 January 2013		33,169	357	22,781	242,174	16,832	315,313
Total recognised gains and losses		-	-	-	26,928	13,541	40,469
Dividends paid in the year (note 4)		-	-	-	-	(13,400)	(13,400)
Shareholders' funds at 31 December 2013		33,169	357	22,781	269,102	16,973	342,382

Cash Flow Statement

	Year Ended 31 December 2014		Year Ended 31 December 2013
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		15,957		15,644
Servicing of finance
Interest paid	(6,400)		(6,400)
Net cash outflow from servicing of finance		(6,400)		(6,400)
Taxation
Overseas tax incurred	(857)		(735)
Total tax paid		(857)		(735)
Financial investment
Acquisitions of investments	(108,090)		(76,212)
Disposals of investments	119,232		83,240
Forward currency contracts	14		(35)
Net cash inflow from financial investment		11,156		6,993
Equity dividends paid		(13,866)		(13,400)
Net cash inflow before financing		5,990		2,102
Increase in cash		5,990		2,102
Reconciliation of net cash flow to movement in net debt
Increase in cash		5,990		2,102
Translation difference		31		(166)
Other non-cash changes		570		536
Movement in net debt in the year		6,591		2,472
Net debt at 1 January		(81,975)		(84,447)
Net debt at 31 December		(75,384)		(81,975)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		19,714		46,118
Gains on investments - securities		(3,806)		(30,858)
Currency (gains)/losses		(17)		266
Decrease in accrued income and prepaid expenses		107		354
Increase in other debtors		(70)		(17)
Increase in creditors and prepaid income		61		220
Other non-cash changes		(32)		(439)
Net cash inflow from operating activities		15,957		15,644

Notes

1.     The financial statements for the year to 31 December 2014 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements to 31 December 2013

2.	Income			2014 £'000				2013 £'000
	Income from investments
	Franked investment income			3,295				3,554
	UK unfranked investment income			4				472
	Overseas dividends			10,627				9,445
	Overseas interest			1,089				1,700
				15,015				15,171
	Other income
	Deposit interest			17				12
	Rental income			3,713				3,198
	Other income			37				40
				3,767				3,250
	Total income			18,782				18,421
3.	Returns per ordinary share	2014					2013
		Revenue	Capital		Total		Revenue		Capital	Total
	Net return per ordinary share	10.51p	(0.72p)		9.79p		10.21p		19.58p	29.79p
	Total recognised gains and losses per ordinary share	10.51p	1.02p		11.53p		10.21p		20.29p	30.50p
	Net return per ordinary share is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,675,943 (2013 - 132,675,943) ordinary shares of 25p, being the number of ordinary shares in issue during each year. Total recognised gains and losses per ordinary share is based on the total recognised gains and losses for the year in the Statement of Total Recognised Gains and Losses and on 132,675,943 (2013 - 132,675,943) ordinary shares of 25p, being the number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue.
4.	Ordinary dividends			2014		2013		2014 £'000		2013 £'000
	Amounts recognised as distribution in the year:
	Previous year's final (paid 11 April 2014)			2.60p		2.50p		3,450		3,317
	First interim (paid 27 June 2014)			2.60p		2.50p		3,450		3,317
	Second interim (paid 26 September 2014)			2.625p		2.55p		3,483		3,383
	Third interim (paid 19 December 2014)			2.625p		2.55p		3,483		3,383
				10.45p		10.10p		13,866		13,400

	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 £13,940,000 (2013 - £13,541,000).
	Ordinary dividends	2014	2013	2014 £'000	2013 £'000
	First interim (paid 27 June 2014)	2.60p	2.50p	3,450	3,317
	Second interim (paid 26 September 2014)	2.625p	2.55p	3,483	3,383
	Third interim (paid 19 December 2014)	2.625p	2.55p	3,483	3,383
	Current year's proposed final dividend (payable 10 April 2015)	2.65p	2.60p	3,516	3,450
		10.50p	10.20p	13,932	13,533
	If approved the final dividend of 2.65p will be paid on 10 April 2015 to all shareholders on the register at the close of business on 6 March 2015. The ex-dividend date is 5 March 2015. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 18 March 2015.
5.	The fair value of the 8% Debenture Stock 2022 at 31 December 2014 was £105.9m (2013 - £100.6m).
6.	The Company allotted no shares in the year to 31 December 2014 (2013 - allotted no ordinary shares). At 31 December 2014 the Company had authority to buy back 19,888,123 ordinary shares and to allot 13,267,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2014. No shares were bought back during the year.
7.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2014. The financial information for 2013 is derived from the statutory accounts for 2013 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2013 accounts, their report was unqualified and did not contain a statement under section 495 to 497 of the Companies Act 2006. The statutory accounts for 2014 are unaudited and will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
8.	The Report and Accounts will be available on the Company's website www.saints-it.com† on or around 2 March 2015.

^†           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 -

 

END

 

 

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