Annual Financial Report

RNS Number : 6281Q

Scottish American Investment Co PLC

01 March 2016

 

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 2015 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 2015 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 2015 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

1 March 2016

Chairman's Statement

The Company aims to deliver real dividend growth. An increased dividend of 10.70p (10.50p) will maintain the Company's long record of growing dividends in real terms over time.

Overview

2015 was a year of modest progress at best for most investment markets and asset classes.

Throughout the year, markets attempted to scale the proverbial wall of worry. Whilst economic news was encouraging in some areas, in the United States in particular, there were marked disappointments elsewhere. Markets were concerned at various points about both weaker than expected Chinese growth on the one hand, and the consequences of eventual normalisation of monetary policy in the Western world on the other. Geo-political risks - in particular, turbulence in the Middle East and Ukraine - and longer term concerns about debt levels, productivity growth and valuations were also ever present and concern about our risk of leaving the EU rose after the Election and is still rising.

The Company navigated these choppy waters in a steady fashion, helped by both our long term, low turnover approach and our focus on company potential rather than the concerns of the day. Equities remain at the core of SAINTS' investments and, collectively, the companies owned again performed well operationally. This in turn helped both their share prices and the progression of their dividends. The Company's investments in property also continued to perform well.     

Revenues

The Company reported at the interim stage that investment income and earnings per share had been slightly below the levels of the corresponding period in the previous year, and as anticipated then the same has been true for the year as a whole. In 2015 (and 2014), investment income and earnings per share were £18.6m (£18.8m) and 10.47p (10.51p) per share respectively. Income was held back in part by a decision to reshape the property portfolio to extend the overall duration of its leases, with an accompanying fall in yield, and partly by a reduction in income from special dividends. More encouragingly, and more importantly for long term income progression, the ordinary dividends earned within the equity portfolio grew at a healthy rate and the proportion of property rents which are linked to inflation increased. Both managers (Baillie Gifford and, for the Company's property investments, OLIM) continued at the Board's request to place increasing emphasis on supporting the dependability and the future progression of the Company's dividend in line with its objective.

Dividend and Inflation

A final dividend of 2.70p is recommended which will take the full year dividend to 10.70p per share, 1.9% higher than the 2014 dividend of 10.50p and also ahead of inflation as measured by both the Consumer Prices Index (CPI, 0.2%) and Retail Prices Index (RPI, 1.2%).

As last year, we are showing dividend progression against both RPI and CPI. In future, we will show dividend progression against CPI which has been the UK Government's official measure of inflation for some time. On either measure though, the Company has increased its dividend well ahead of inflation over the last ten years.

The recommended dividend is largely, but not fully, covered by this year's earnings. The Company has built up revenue reserves in the past with a view to facilitating the smooth progression of dividends. The Board has taken into account both these reserves and the overall performance of and prospects for the Company's investments in recommending a dividend which reflects the Company's aim of delivering real dividend increases over the long term and reinforces its progressive dividend policy. SAINTS has increased its dividend for over 35 consecutive years.

Total Return Performance

The Company's net asset value (NAV) total return (capital and income) for the year was 5.9% and the share price total return was 9.2%: the total return from the global equity market was 4.1%.

As I emphasised last year, the Company's portfolio of investments differs markedly from the make up of the global equity index against which total return performance is often compared. These differences are necessary and appropriate in order for the Company to achieve its objectives, deliver a higher yield than global equities and service its borrowings. It is therefore not generally helpful to dwell on the comparison of performance against any benchmark, particularly over short term periods.

It is none-the-less pleasing that, in a year in which markets generally struggled to make progress, the Company was able to deliver a significant positive return. This return was driven chiefly by the strong performance of the Company's equity investments, and in particular that of certain financial holdings, as well as by avoiding some troubled areas. In my statement last year I mentioned the oil price as a factor that would be significant over the coming year, and the Company's limited equity exposure in this area has certainly been helpful. Returns were also helped by another good year for the Company's property investments, which benefitted from attractive yields and some further strengthening of capital values. The principal contributors to and detractors from performance are explained in more detail in the Manager's report.

Borrowings

SAINTS' borrowings take the form of a single £80m debenture which is due for repayment in April 2022.  During 2015, the borrowings mainly funded a range of higher yielding commercial property and bond investments.

The book value of the debenture is £84.7m which, at the year end, was equivalent to approximately 24% of shareholders' funds.  The estimated market or fair value of the debenture was £103.6m, a decrease from the previous year's value of £105.9m.  Whilst the market value of the Company's borrowings will continue to be influenced by prevailing interest rates, over the coming years we continue to expect declines in both the debenture's book and market values as it approaches its final redemption value of £80m.

Outlook

Many of the market concerns which I mentioned above remain germane, and they will continue to potentially affect both the operational environment for companies and market sentiment. Whilst it is probable that Western recovery will compensate for slowing growth elsewhere, it is not certain. Political risk close to home also remains a potential de-stabilising factor, both in relation to the forthcoming vote on Britain's future relationship with the EU, and the potential downside were we to vote to Leave.

Despite these uncertainties, the Company is well placed to continue to meet its objectives over time. Whilst capital values will fluctuate, the global nature of the Company's investments, including many of those listed in the UK, helps both the mitigation of risk and the search for reward. The Board remains confident that the income producing power of the Company's investments will progress over time. Coupled with the Company's strong revenue and capital reserves and the encouraging overall prospects for dividend growth generally, this leaves SAINTS well placed to continue to increase its own dividend ahead of inflation in the future.

Issuance

I am pleased to report that the Company has issued a modest amount of shares to satisfy market demand over the past year. The Board believes that it is helpful to grow the Company as this benefits existing shareholders, not least by spreading the Company's fixed costs over a greater number of shares. In addition, over time issuance may help to maintain and indeed improve the liquidity of your Company's shares. On the other hand, it is important that such issuance does not dilute the interests of existing shareholders in the assets of the Company.

It is the Directors' firm intention only to issue shares at a price which is at or above the net asset value (NAV) with the debenture valued at book value, which the Board believes to be the prudent measure when determining the price at which to issue shares.  This year an additional annual resolution is being proposed which (together with the customary annual share issuance resolutions) is intended to increase the prospects of share issuance by guarding the Company against an inadvertent technical regulatory breach associated with the issuance process. My fellow Directors and I would strongly encourage shareholders to support the resolution and reiterate that the Board's intention is only to issue shares on a basis which protects or increases shareholder value. The technicalities of this proposal are explained in more detail in the Directors' Report.

The Board

I have decided to step down from the Board of SAINTS at the conclusion of the forthcoming AGM. I have been proud to serve as your Chairman since 2001, which has been an eventful period for markets and for the Investment Trust industry. I would like to take this opportunity to thank you as shareholders, and also my colleagues on the Board and our associates at Baillie Gifford, for your much valued support.

I am very pleased to announce that Peter Moon has agreed to take over as Chairman. Peter joined the Board in 2005, and was chief investment officer of The Universities Superannuation Scheme Limited until 2009. His broad experience in the investment management industry, as well as his clear views on the Company and how it can best serve the interests of you our shareholders, make him ideally qualified for this role. My fellow directors and I look forward to a continuing period of success for the Company under his leadership.

AGM

At the AGM the Company is proposing to amend the Articles in order to increase the limit on Directors' fees. It is not the Directors' intention to increase the quantum of Directors' fees for 2016. However, fees are close to the current limits when you factor in the Audit Chair additional remuneration, and so an increase is being proposed in order to provide some headroom for future increases should they become necessary. Further information on this resolution can be found in the Directors' Report on page 23 of the Annual Report and Financial Statements.

The AGM will be held at 11am on Monday 4 April at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh. The Manager 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

17 February 2016

Managers' Review

Overview

The investment result in 2015 was pleasing with the NAV per share rising by 1.6% to 247.5p from 243.7p on the fair value measure. The total return, which includes both capital movements and income receipts, was 5.9%. Total income for the year was £18.6m leading to earnings per share of 10.47p, which compare to £18.8m and 10.51p for 2014 respectively.

The portfolio was fully invested through the year with the major part being invested in shares of companies listed on world stockmarkets. The revenue contribution from equities fell modestly as compared to 2014 primarily as a result of a lower contribution from special dividends. Rental income rose thanks to net additions to the directly-held property portfolio, while the revenue contribution from bonds fell with a net reduction to the asset class exposure. Both the equity and property portfolios contributed positively to the strong total return result recorded for the year, modestly offset by poor performance from the bond portfolio.

Whilst being largely driven by the performance of the Company's assets, SAINTS' fair value NAV is also affected by any changes in the market value of its debenture borrowings. In 2015 this fell, leading to a positive impact of 0.9% on the Company's NAV. The fall in the value of the debenture reflects the rise in UK interest rate expectations as the Bank of England's commentary suggested that the beginning of a normalisation of rates is drawing closer. The debenture borrowings effectively fund the property portfolio and various bond investments which generated a modestly positive return in aggregate. Full detail on the performance of the portfolio is provided below.

SAINTS aims to provide an above-average, dependable and growing income stream to shareholders. We believe that the Company's strategy of allocating the majority of its assets to global equity markets, with a strong emphasis on investment in companies with growing and dependable cash flows and dividend streams, will generate a resilient and growing income stream for shareholders over the long term alongside attractive capital growth.

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 101.0%. Total revenue from the equity portfolio was £13.7m.

The modest positive total return from global equity markets in aggregate for 2015 belies both the divergent performances experienced across different regions and industry groups, and some periods of significant volatility. For example, while consumer sectors experienced double digit gains on optimism for sustained developed market demand, continued weakness in the oil price led to the global oil and gas sector falling by over 15% as profits fell, balance sheets became challenged and capital expenditure programmes were curtailed. The regional dispersion of returns was on a similar scale, with increased quantitative easing driving Japanese equities to post a return of over 17%, while emerging markets fell by nearly 10% on a combination of the deceleration in the Chinese economy, and the sustained strength of the US dollar; in particular the potential impact of the latter on Emerging Market sovereign debt servicing requirements. Chinese equities in particular experienced a roller-coaster ride, as concerns of a property bubble early in the year were superseded by the government's stockmarket support, before fear of the impact of falling economic growth rates took control of investor sentiment in the latter part of the year.

Despite this challenging backdrop the equity portfolio achieved a strong positive return of 7.0%, as the portfolio's investee companies generally reported strong operating and financial updates. For example WPP, the leading global media agency and one of the portfolio's largest holdings, posted strong results despite a slow backdrop for some of their big customers. These results, and the company's strong balance sheet and cash flow characteristics led the board to increase the interim dividend by over 30%. Amongst our European holdings the Spanish bank Bankinter reported significant improvements in their lending margins, credit costs, fee income and capital base, and as a result tripled its dividend compared to that of 2014. In Mexico Kimberly Clark de Mexico has experienced volume growth despite putting through some notable price increases across its portfolio of consumer hygiene products. This sales and margin growth alongside their cost savings programme running ahead of plan led to earnings growth of over 20%. In China sportswear company Anta Sports continued to gain share in its marketplace and grew its earnings and dividends by 20% running counter to more general concerns over Chinese growth. In the technology sector tech heavyweights Microsoft and SAP have been able to grow earnings and dividends at a double digit rate primarily thanks to strength in their cloud businesses.

We look to invest in companies with attractive cash flow growth characteristics that will see them grow their ordinary dividends strongly and sustainably into the future. When companies accumulate excess cash on the balance sheet it is often preferable to return it to shareholders in the form of a special dividend rather than to raise the ordinary dividend to an unsustainable level. This was the case for a number of SAINTS' equity holdings in 2015 when special dividends from, for example, Hiscox, Atlas Copco, Admiral, Amlin, Anta Sports, AVI and Svenska Handelsbanken, contributed notably to the revenue account. The largest contribution was from insurer Hiscox which experienced a very strong year in its Lloyds and reinsurance franchises, as well as continued growth in its international operations. This led to the payment of a special dividend in addition to 7% growth in the ordinary dividend. It should be noted however that the overall contribution of special dividends to the portfolio was lower than the exceptional levels of last year.

Of course while some companies like to return excess cash to shareholders in the form of special dividends, others look to spend it on acquisitions. SAINTS' equity portfolio was on the receiving end of a number of such cash allocations during the year, with the announced acquisitions of Amlin, BG Group, Rexam, and the non-beer assets of China Resources Enterprise supporting the portfolio's capital return.

The equity portfolio total return exceeded that of the comparative index by over 3%, driven by stock selection, with a broadly neutral impact from asset allocation whether considering the returns from a geographic or industrial sector allocation perspective. In particular the Company's holdings in the UK and North America strongly outperformed the broader local indices. Looking at the sectors and industries in which the portfolio was invested, non-bank financial holdings were an area of particular strength against an effectively flat global financial sector.

At the stock level the range of returns across the equity portfolio was unsurprisingly broad. The strongest contributors to relative performance were Amlin, Hiscox and Anta Sports as their share prices responded to the positive developments noted above. Reynolds American, the tobacco company, and Deutsche Börse, the financial exchanges operator, were also top contributors to relative performance. Conversely Want Want China Holdings and Rio Tinto detracted most from returns. Want Want China, despite growing gross margins, reported disappointing sales of its beverages after a cooler than normal summer, and as a result operating margins fell, the dividend was cut, and the share price fell sharply. Rio Tinto was a casualty of price weakness in the hard commodities sector on falling Chinese demand, although it did nonetheless continue to contribute strongly to the revenue account.

In the 2014 Annual Report I discussed the evolution of the equity portfolio into a form that is designed to support more directly SAINTS' intention to deliver dependable real dividend growth over time. In 2015 we continued this transition; increasing the portfolio's exposure to stocks which offer the powerful combination of a dependable income stream, an attractive yield and solid growth prospects while de-emphasizing high-yielding but lower growth stocks, and placing greater demands, in terms of growth and capital return potential, on stocks which offer a lower income stream to the portfolio. Notwithstanding these changes, equity portfolio turnover in 2015 was around 21%, only slightly above our long-term expectation for average annual turnover of around 20% and thus at a level which is broadly consistent with our investment horizon of at least five years.

Perhaps the most notable transactions for the equity portfolio in 2015 were in the banking sector where we initiated positions in UOB in Singapore, Bankinter in Spain, and Mitsui Sumitomo Trust Holdings in Japan. We believe that each of these banks have solid balance sheets and that, aided by their strong local market positions, each has the potential for loan book growth and margin expansion. These purchases were funded from the complete sales of HSBC and a small position in Itau Unibanco, the Brazilian bank, and we believe that the growth and income dependability of the portfolio's banking exposure has been significantly improved as a result of these transactions.

Elsewhere in financials we bought shares in two UK-listed companies: Admiral and Prudential. We admire Admiral's capital-light business model and resulting cash generation, and are optimistic for growth in its European and US business, while Prudential has an exciting long-term opportunity to be a leading participant in the growth in Asian savings and investment products.

In the consumer sector we purchased Kimberly-Clark de Mexico, the dominant Mexican supplier of nappies, tissues and other paper-based personal hygiene products which offers a high yield and exciting long-term growth prospects. We also purchased shares in Procter and Gamble on the expectation that their return to a focus on efficiency and consumer-driven product development will sustainably reinvigorate earnings growth at the firm.

In the North American industrials sector we added CH Robinson and Fastenal to the portfolio. CH Robinson is a capital-light freight transportation broker which continues to gain market share despite its leading position in offering services to its wide range of customers. Fastenal is a distributor of low cost, but essential, fastenings to an array of manufacturing businesses across the US and we believe that recent investments in sales force and technology will drive sales growth acceleration which will flow through to earnings, cash flow and dividends.

Other sectors where we made notable changes were basic materials and telecommunications. In basic materials we sold the positions in Norsk Hydro and China Shenhua Energy in recognition of the significant impact the Chinese slowdown will have on their businesses despite their leading industry positions. In telecommunications we took a small holding in MTN, a pan-African telecoms company with its attractive Mobile Money platform which has the potential to become the continent's de facto payments system over time. Total Access Communications in Thailand and Vodafone were sold to fund this purchase. Frustratingly, the Nigerian government imposed a large fine on MTN shortly after we bought shares in the company. The fine was for failing to comply with mobile phone SIM card registration requirements, and we await the outcome of the company's response and negotiations with government. We believe this should be a one-off issue, and that MTN's long-term growth prospects remain exciting. However, these events do illustrate the political and regulatory risks that some companies face. When we think the opportunities are exceptional, we are willing to accept these risks as part of a well-diversified portfolio such as that of SAINTS.

The portfolio ended 2015 with a slightly lower number of equity holdings compared to the end of 2014. The modest concentration of the equity portfolio reflects in part the ongoing reduction in exposure to lower-yielding stocks that no longer meet our requirements, such as Amazon, Nintendo, Quanta Services, IHS, Samsung Electronics, Novozymes and Herbalife. It also reflects deliberate increases in the position sizes of stocks that offer our target combination of an above average yield, a dependable income stream and strong cash flow and dividend growth prospects. While the allocation to different industrial sectors and geographic regions is driven entirely from the bottom up by allocating the appropriate amount of capital to the shares of companies which best serve SAINTS' objective, changes in our exposure may be of interest. In 2015 the most notable changes in allocation to industrial sectors were the reductions to the basic materials and telecommunications sectors in favour of industrials and consumer goods. Regionally the allocations to North America and Developed Asia increased modestly while exposure to emerging markets was reduced. The current equity portfolio is diversified across a broad range of industries and countries, and remains appropriately diversified for current market conditions.

Bonds

The total return result from our small allocation to bonds was disappointing, posting a decline of 16%. The income contribution was £0.9m. We made one new investment for the bond portfolio by taking a small position in bonds of Enquest, the North Sea oil operator, following the company's bonds' response to the fall in the oil price. While the fall in the oil price does present challenges to the company we believe the board and management team are making the appropriate operational and financing decisions in the prevailing environment, and remain confident in the bonds' covenants. In addition to the Enquest position, at the end of the year the portfolio consisted two other holdings, both of which were reduced over the course of the year: the Athena Debt Opportunities Fund, a portfolio of structured debt instruments managed by investment firm Prytania; and an index-linked bond issued by the government of Brazil. The sterling value of the latter was impacted negatively during the year by both concerns over the health of the Brazilian economy, and by the fall in the Brazilian real. During the year the Semper Finance floating rate note matured and was redeemed at par. As a result of market movements and these transactions the allocation to bonds fell to 3.8% of total assets from 5.8% at the end of 2014.

Direct property

The direct property investments are managed by OLIM Property Limited, a specialist property manager. The portfolio consists of 21 commercial properties in a variety of locations across the United Kingdom.  The total return was 10.8%.

Rental income from the property portfolio was £4.0m which was an increase on the amount received in 2014 as a result of both portfolio additions and rental income growth. Seven properties were purchased during the year, and four sold. These transactions, along with market valuation movements, took the capital value of the property portfolio to £56.0m at the year end, representing 12.9% of the total portfolio.

Over 50% of the rental income is RPI-linked and the average unexpired lease length is now over 17 years, up from 15.5 years as at the end of 2014. The average yield on the properties that SAINTS owns is 6.9%. We expect rental income to grow broadly in line with inflation over the medium to long-term and believe that the portfolio's valuation is attractive given the quality of the portfolio and a supportive market environment.

Outlook

Looking forward there are good reasons for optimism across many markets, but also significant risks that have the potential to derail the outlook for global growth. We do however expect an ongoing decoupling of the trajectory of developed market economies versus those of emerging markets, as while the US has deleveraged the most following the 2007-2009 crisis, China has not yet begun the process. While developed markets' economic data remain broadly positive, the momentum has fallen away of late, and there has been a further sharp downturn in emerging market economies and world trade over the last 6 months.

Clearly the primary concern is for the orderly management of the Chinese slowdown and the importance of avoiding an all-out recession or a financial crisis. While not a given, the administration is showing signs of a commitment to avoiding these scenarios, and therefore our central case is a reasonably controlled slowdown rather than economic collapse. Somewhat counter-intuitively we do fear the implications of the US economy posting growth significantly above current expectations. While the accompanying demand would benefit global trade growth, more rapid rate rises and dollar strength would exacerbate the already significant challenges for emerging markets. The implications for developed market-listed corporates with emerging markets exposure could present a challenge to broad stockmarket progression.

Such concerns continue to be reflected in downgrades to earnings expectations around the world. Similarly, divergent stockmarket performance has now at least partially discounted the decoupling of developed and emerging market economies with a significant spread between, for example, the US and emerging markets valuation ratios. Should the developed world be unable to avoid the impact of emerging economies' weakness we may see broad developed market stock indices come under pressure as a result of this valuation discrepancy.

SAINTS however does not own broad stock market indices. The portfolio is actively managed and very different from conventional equity benchmarks. We cannot control the future of the global economy, but we can ensure that we invest in companies the fortunes of which depend far more on features such as competitive advantage, product cycles, market share gains and pricing power than they do on the macroeconomic outlook. Further, our dividend-oriented focus on sustainable growth in cash flow generation guides us towards companies which should fare relatively well, in both strong growth environments and, perhaps more importantly, through more challenging economic times.

Turning finally to the outlook for income, the long-term income story for equities is attractive relative to other asset classes. We therefore believe SAINTS, with its focus on investment in dividend-paying equities with dependable and sustainable growth opportunities, is well placed to capitalise on this long-term income opportunity.

Dominic Neary

Baillie Gifford & Co

17 February 2016

Past performance is not a guide to future performance

Asset Allocation

	At 31 December 2015 %		At 31 December 2014 %
Quoted equities	82.9		81.1
Bonds	3.9		5.8
Direct property	12.9		11.2
Net liquid assets	0.3		1.9
Total assets	100.0		100.0

Performance Attribution

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Global equities	101.0	100.0	7.0	4.1
Bonds	6.0		(16.0)
Direct property	15.4		10.8
Deposits	1.5		-
Debenture at book value	(23.9)		6.8
Portfolio total return (debenture at book value)			6.0	4.1
Other items*			(1.0)
Fund total return (debenture at book value)			5.0	4.1
Adjustment for change in fair value of debenture			0.9
Fund total return (debenture at fair value)			5.9	4.1

*    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 2015

Name	Business	2015 Value £'000	2015 % of total assets	2014 Value £'000
WPP	Advertising agencies	9,914	2.3	3,812
Hiscox	Property and casualty insurance	9,645	2.2	7,423
Coca Cola	Beverage manufacturer	8,761	2.0	7,126
Deutsche Böerse	Securities exchange owner/operator	8,218	1.9	6,275
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	7,806	1.8	8,010
Kimberley-Clarke de Mexico	Paper-based household products	7,288	1.7	154
Analog Devices	Integrated circuits	6,945	1.6	6,588
Reynolds American	Cigarette manufacturer	6,817	1.6	4,390
Pepsico	Snack and beverage manufacturer	6,774	1.6	6,062
Japan Residential Investment Company	Japanese residential property fund	6,750	1.6	5,016
McDonald's	Fast food restaurants	6,742	1.6	5,055
Partners Group	Asset management	6,680	1.6	5,089
Capita	Business process outsourcing	6,652	1.5	5,041
Fastenal	Distribution and sales of industrial supplies	6,614	1.5	-
Admiral	Car insurance	6,591	1.5	-
Total	Integrated oil company	6,521	1.5	7,885
Linear Technology	Integrated circuits	6,491	1.5	4,913
Procter & Gamble	Household product manufacturer	6,483	1.5	-
Roche Holdings	Pharmaceuticals	6,376	1.5	6,781
Microsoft	Computer software	6,185	1.4	4,051
Johnson and Johnson	Pharmaceuticals and healthcare products	5,919	1.4	5,698
Provident Financial	Loans and credit cards	5,827	1.3	5,825
New York Community Bankcorp	Banking	5,822	1.3	4,659
Rio Tinto	Mining	5,818	1.3	8,817
United Parcel Service	Courier services	5,755	1.3	5,357
Aviva	Investment and life assurance	5,712	1.3	5,363
Sonic Healthcare	Laboratory testing	5,693	1.3	3,661
Aberforth Geared Income Trust	UK small-cap equities fund	5,621	1.3	4,427
Want Want	Snacks and milk-based products	5,566	1.3	5,583
Anta Sports Products	Sportswear manufacturer and retailer	5,513	1.3	3,088
		201,499	46.5	146,149

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

·      Dividend per share;

·      Earnings per share;

·      The movement in net asset value per ordinary share (after deducting debentures at fair value) compared to the benchmark;

·      The movement in the share price;

·      The premium/discount (after deducting debentures at fair value); and

·      Ongoing charges.

The one, five and ten year records of the KPIs are shown on pages 4, 5 and 19 of the Annual Report and Financial Statements.

In addition to the above, the Board considers peer group comparative performance.

Future Developments of the Company

The outlook for the Company for the next 12 months is set out in the Chairman's Statement and Managers' Report above.

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') 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 property portfolio subject to a minimum quarterly fee of £6,250.

The details of the management fees are as follows:

	2015 £'000		2014 £'000
Investment management fee	1,691		1,703
Property management fee	281		239
	1,972		1,942

Principal Risks

As explained on pages 25 and 26 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The principal risks associated with the Company are as follows:

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 17 to the Financial Statements on pages 45 to 49 of the Annual Report and Financial Statements. To mitigate this risk, at each Board meeting the Manager provides an investment policy paper which includes a detailed explanation of significant stock selection decisions and the overall rationale for holding the current portfolio.  Consideration is given to portfolio movements and the top and bottom contributors to performance.  The investment approach is considered in detail at the annual Strategy Meeting.

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. To mitigate this risk, 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. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes, and procedures are in place to ensure adherence to the Transparency Directive with reference to inside information.

Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber hacking. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Internal Audit Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

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. To mitigate this risk, Baillie Gifford has 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. To mitigate this risk, the Board monitors the level of premium/discount and the Company has authority to issue new shares and buy back its existing shares when deemed by the Board to be in the best interests of the Company and its 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. To mitigate this risk, 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 18 on page 49 of the Annual Report and Financial Statements and the Glossary of Terms on page 58 of the Annual Report and Financial Statements.

Political Risk - the Board is aware that the proposed UK Referendum on its membership of the European Union introduces elements of political uncertainty which may have practical consequences for the Company and its Managers.  Developments will be closely monitored and considered by the Board and the Managers.

Viability Statement

In accordance with provision C2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, the Directors have assessed the prospects of the Company over a minimum period of five years. The Directors believe this to be appropriate as it reflects the longer term investment strategy of the Company in terms of both investment horizon and income growth, and to be a period during which, in the absence of any adverse change to the regulatory environment and to the tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing SAINTS nor to the controls in place to effectively mitigate those risks. Moreover, the Directors do not reasonably envisage any change in strategy or any events which would prevent the Company from operating over a minimum period of five years.

In considering the viability of the Company, the Directors have conducted a robust assessment of each of the principal risks and uncertainties detailed on pages 7 and 8 of the Annual Report and Financial Statements and in particular the impact of market risk where a significant fall in global equities markets would adversely impact the value of the investment portfolio. The Directors have also considered the Company's leverage comprising a fixed term Debenture which has a nominal value of £80m and is redeemable at par in 2022, its income and expenses and dividend policy having undertaken a review of revenue projections over a five year period and its liquidity in the context of the majority of its investments being listed equities which are readily realisable and so capable of being sold to provide funding if required. In addition, all of the key operations required by the Company are outsourced to third party service providers and it is reasonably considered that alternative providers could be engaged at relatively short notice.

Based on the Company's processes for monitoring revenue projections, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years as a minimum.

Going Concern

In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk.  An explanation of these risks and how they are managed is contained in note 17 to the Financial Statements.  The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. The Company has no short term borrowings and the redemption date for the Company's debenture is April 2022. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future.

Financial Instruments

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 2015	Investments £'000	Cash and deposits £'000	Forward currency contracts £'000	Debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	120,737	25	(8,141)	-	167	112,788
Euro	36,679	-	(708)	-	375	36,346
Hong Kong dollar	23,255	101	-	-	-	23,356
Swiss franc	20,934	-	-	-	-	20,934
Other overseas currencies	70,107	-	-	-	286	70,393
Total exposure to currency risk	271,712	126	(8,849)	-	828	263,817
Sterling	160,156	3,273	8,649	(84,756)	(2,686)	84,636
	431,868	3,399	(200)	(84,756)	(1,858)	348,453

*    Includes net non-monetary assets of £27,000.

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.

Currency Risk Sensitivity

At 31 December 2015, 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 2014.

	2015 £'000		2014 £'000
US dollar	5,639		5,880
Euro	1,817		1,777
Hong Kong dollar	1,168		1,302
Swiss franc	1,047		773
Other overseas currencies	3,520		3,360
	13,191		13,092

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	2015			2014
	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:
UK bonds	1,735	23.8%	n/a	-	-	-
Floating rate:
Brazilian bonds (interest rate linked   to Brazilian CPI)	6,336	11.8%	n/a	10,184	10.7%	n/a
Euro bonds (interest rate linked to   Euribor)	-	-	-	3,198	6.0%	n/a
Fixed Interest Collective Investment Funds:
US dollar denominated fund	8,583	1.0%	n/a	11,661	0.5%	n/a

Financial Liabilities		2015 £'000		2014 £'000
The interest rate risk profile of the Company's financial liabilities at 31 December was:
Fixed rate - sterling		84,756		85,361
The maturity profile of the Company's financial liabilities at 31 December was:
In more than five years - 7 years (2014 - 8 years)	84,756		85,361

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond yields as at 31 December 2015 would have decreased total net assets and total return on ordinary activities by £829,000 (2014 - £1,354,000) and would have increased the net asset value per share (with debenture at fair value) by 3.3p (2014 - 3.6p). 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.

101.0% of the Company's net assets are invested in quoted equities. A 5% increase in quoted equity valuations at 31 December 2015 would have increased total assets and total return on ordinary activities by £17,855,000 (2014 - £17,306,000). 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 15.0% of total assets at 31 December 2015 (2014 - 12.3%). 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:

	2015 £'000	2014 £'000
Bonds	16,654	25,044
Cash and short term deposits	3,399	9,977
Debtors	1,115	1,063
	21,168	36,084

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. The fair value (determined as the asking price as traded on an active market) of the debenture stock is shown below.

	2015			2014
	Nominal £'000	Book £'000	Fair £'000	Nominal £'000	Book £'000	Fair £'000
8% debenture stock 2022	80,000	84,756	103,600	80,000	85,361	105,888

Gains and Losses on Hedges

The following forward currency contracts were open at 31 December:

At 31 December 2015 Currency sold	Currency amount sold	Currency bought	Currency amount bought	Settlement date	Fair value £'000
US dollar	$12,000,000	Sterling	£8,141,373	13/01/16	181
Euro	€960,000	Sterling	£707,738	13/01/16	19
					200

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

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 58 of the Annual Report and Financial Statements) at 31 December 2015 are shown below:

Leverage

	Gross Method	Commitment Method
Maximum limit	3.00:1	2.00:1
Actual	1.26:1	1.25:1

Investments

At 31 December 2015		Level A £'000	Level B £'000	Level C (i) £'000	Level C (ii) £'000	Total £'000
Securities
Listed equities/funds		350,346	1,808	-	-	352,154
Other equities		-	-	6,750*	311†	7,061
Bonds		1,735	6,335	-	8,583	16,653
Total financial asset investments		352,081	8,143	6,750	8,894	375,868
Property
Freehold						56,000
						56,000
Total investments						431,868

*Suspended

†Delisted

At 31 December 2014		Level A £'000	Level B £'000	Level C (i) £'000	Level C (ii) £'000	Total £'000
Securities
Listed equities/funds		346,224	1,844	-	-	348,068
Bonds		-	10,185	-	14,859	25,044
Total financial asset investments		358,107	12,029	-	14,859	373,112
Property
Freehold						47,925
						47,925
Total investments						421,037

Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with FRS 102, 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 A - quoted prices for identical assets in active markets;

Level B - prices of a recent transaction for identical instruments; and

Level C - Valuation techniques that use:

(i) observable market data; or

(ii) non-observable market data.

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

17 February 2016

Income Statement

	For the year ended 31 December 2015			For the year ended 31 December 2014
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains on investments - securities	-	7,038	7,038	-	3,806	3,806
Net gains on investments - property	-	1,643	1,643	-	2,293	2,293
Currency (losses)/gains	-	(272)	(272)	-	17	17
Income (note 2)	18,626	-	18,626	18,782	-	18,782
Management fees	(690)	(1,282)	(1,972)	(680)	(1,262)	(1,942)
Other administrative expenses	(1,137)	-	(1,137)	(949)	-	(949)
Net return before finance costs and taxation	16,799	7,127	23,926	17,153	4,854	22,007
Finance costs of borrowings	(2,028)	(3,767)	(5,795)	(2,041)	(3,790)	(5,831)
Net return on ordinary activities before taxation	14,771	3,360)	18,131	15,112	1,064	16,176
Tax on ordinary activities	(858)	226	(632)	(1,172)	286	(886)
Net return on ordinary activities after taxation	13,913	3,586	17,499	13,940	1,350	15,290
Net return per ordinary share (note 3)	10.47p	2.70p	13.17p	10.51p	1.02p	11.53p

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 2015		At 31 December 2014
	£'000	£'000	£'000	£'000
Fixed assets
Investments - securities	375,868		373,112
Investments - property	56,000		47,925
		431,868		421,037
Current assets
Debtors	1,115		1,063
Cash and deposits	3,399		9,977
	4,514		11,040
Creditors
Amounts falling due within one year	(3,173)		(2,910)
Net current assets		1,341		8,130
Total assets less current liabilities		433,209		429,167
Creditors
Amounts falling due after more than one year		(84,756)		(85,361)
Net assets		348,453		343,806
Capital and reserves
Called up share capital		33,290		33,169
Share premium		1,534		357
Capital redemption reserve		22,781		22,781
Capital reserve		274,038		270,452
Revenue reserve		16,810		17,047
Shareholders' funds		348,453		343,806
Net asset value per ordinary share (debenture at fair value)		247.5p		243.7p
Net asset value per ordinary share (debenture at book value)		261.7p		259.1p
Ordinary shares in issue (note 6)		133,160,943		132,675,943

Statement of Changes in Equity

For the year ended 31 December 2015

		Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2015		33,169	357	22,781	270,452	17,047	343,806
Shares issued		121	1,177	-	-	-	1,298
Net return on ordinary activities after taxation		-	-	-	3,586	13,913	17,499
Dividends paid in the year (note 4)		-	-	-	-	(14,150)	(14,150)
Shareholders' funds at 31 December 2015		33,290	1,534	22,781	274,038	16,810	348,453

For the year ended 31 December 2014

		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 2014		33,169	357	22,781	269,102	16,973	342,382
Net return on ordinary activities after taxation		-	-	-	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

 

Cash Flow Statement

	Year Ended 31 December 2015		Year Ended 31 December 2014
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	18,131		16,176
Net gains on investments - securities	(7,038)		(3,806)
Net gains on investments - property	(1,643)		(2,293)
Currency losses/(gains)	272		(17)
Finance costs of borrowings	5,795		5,831
Overseas withholding tax	(651)		(857)
(Increase)/decrease in accrued income and prepaid expenses	(57)		107
Increase in other debtors	(85)		(70)
Increase in creditors and prepaid income	63		61
Other non-cash changes	(93)		(32)
Cash from operations		14,694		15,100
Interest paid		(6,400)		(6,400)
Net cash inflow from operating activities		8,294		8,700
Cash flows from investing activities
Acquisitions of investments	(106,814)		(108,090)
Disposals of investments	104,757		119,232
Forward currency contracts	188		14
Net cash outflow/(inflow) from investing activities		(1,869)		11,156
Equity dividends paid	(14,150)		(13,866)
Shares issued	1,298		-
Net cash outflow from financing activities		(12,852)		(13,866)
(Decrease)/increase in cash and cash equivalents		(6,427)		5,990
Exchange movements		(151)		31
Cash and cash equivalents at start of period		9,977		3,956
Cash and cash equivalents at end of period*		3,399		9,977

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

 

*      

Notes

1.     The financial statements for the year to 31 December 2015 have been prepared in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') which the Company has adopted for the financial year to 31 December 2015. FRS 102 has required a change in the treatment of property.  The fair value of investment property and gains and losses on disposal of investment property are recognised as capital items in the Income Statement. Previously these were recognised through the Statement of Total Recognised Gains and Losses. This change in treatment has no impact on net assets.

2.	Income			2015 £'000				2014 £'000
	Income from investments
	Franked investment income			3,666				3,295
	UK unfranked investment income			238				4
	Overseas dividends			10,017				10,627
	Overseas interest			660				1,089
				14,581				15,015
	Other income
	Deposit interest			17				17
	Rental income			4,004				3,713
	Other income			24				37
				4,045				3,767
	Total income			18,626				18,782
3.	Net return per ordinary share	2015					2014
		Revenue	Capital		Total		Revenue		Capital	Total
	Net return per ordinary share	10.47p	2.70p		13.17p		10.51p		1.02p	11.53p
	Net return per ordinary share is based on the net return on ordinary activities after taxation figures of £13,913,000 (2014 - £13,940,000) and on 132,864,655 (2014 - 132,675,943) 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 £3,586,000 (2014 - net capital gain of £1,350,000), and on 132,864,655 (2014 - 132,675,943) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
4.	Ordinary dividends			2015		2014		2015 £'000		2014 £'000
	Amounts recognised as distributions in the year:
	Previous year's final (paid 10 April 2015)			2.65p		2.60p		3,516		3,450
	First interim (paid 26 June 2015)			2.65p		2.60p		3,516		3,450
	Second interim (paid 25 September 2015)			2.675p		2.625p		3,559		3,483
	Third interim (paid 18 December 2015)			2.675p		2.625p		3,559		3,483
				10.65p		10.45p		14,150		13,866

	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 £13,913,000 (2014 - £13,940,000).
	Ordinary dividends	2015	2014	2015 £'000	2014 £'000
	First interim (paid 26 June 2015)	2.65p	2.60p	3,516	3,450
	Second interim (paid 25 September 2015)	2.675p	2.625p	3,559	3,483
	Third interim (paid 18 December 2015)	2.675p	2.625p	3,559	3,483
	Current year's proposed final dividend (payable 5 April 2016)	2.70p	2.65p	3,595	3,516
		10.70p	10.50p	14,229	13,932
	If approved the final dividend of 2.70p will be paid on 5 April 2016 to all shareholders on the register at the close of business on 4 March 2016. The ex-dividend date is 3 March 2016. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 11 March 2016.
5.	The fair value of the 8% Debenture Stock 2022 at 31 December 2015 was £103.6m (2014 - £105.9m).
6.	During the year, 485,000 (2014 - Nil) shares were issued at a premium to net asset value raising proceeds of £1,298,000 (2014 - Nil). At 31 December 2015 the Company had authority to buy back 19,888,123 ordinary shares and to allot 12,782,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2015. 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 2015. The financial information for 2014 is derived from the statutory accounts for 2014 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2014 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 2015 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 4 April 2016.
8.	The Report and Accounts will be available on the Company's website www.saints-it.com† on or around 1 March 2016.

^†           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

 

 

FR UASRRNSAORAR