Annual Financial Report
The Scottish American Investment Company P.L.C.
Legal Entity Identifier: 549300NF03XVC5IFB447
Regulated Information Classification: Annual Financial and Audit Reports
Annual Financial Report
This is the Annual Financial Report of The Scottish American Investment Company P.L.C. as required to be published under DTR 4 of the UKLA Listing Rules.
The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 31 December 2017 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2016 and 2017; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2016 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 December 2017 will be delivered to the Registrar in due course.
The Annual Report and Financial Statements for the year ended 31 December 2017, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM and is also available on SAINTS page of the Baillie Gifford website at: www.saints-it.com
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 2018
Chairman's Statement
The Company's objective is to deliver real dividend growth by increasing capital and growing income. An increased dividend of 11.1p (2016 - 10.825p) will extend the Company's record of raising its dividend to thirty eight consecutive years.
Overview
Markets made further strong progress during the year, helped by continued and accelerating economic growth in both developed markets and elsewhere. 'Elsewhere' of course has been an important part of the mix, as emerging markets' share of the global economy continued to grow and many markets including China regained their momentum. This positive backdrop helped companies grow their earnings, and the happy combination of economic and earnings growth improved market sentiment.
There have of course been serious concerns in the background, notably geopolitical risk relating to Korea, itself linked to the unpredictability of US policy. Less dramatically, as in recent years two principal concerns have continued to bubble away in the background. The first is what happens when all this growth triggers further interest rate rises. The second is whether ten years of quantitative easing has stretched valuations to the point where a correction is likely to occur.
For investors based in the UK, the continued uncertainties around Brexit have also been prominent, although less so in the context of global markets. It is important to stress the international nature of SAINTS' equity portfolio, both in terms of listing but also economic focus. SAINTS' global approach provides the widest access to opportunities in equity markets and earlier sales of stocks with a domestic UK focus have been helpful.
The principal protection against the broader market concerns lies in the Manager's stock-driven approach which emphasises the importance of both income dependability and real growth. Dependability and quality of income should prove their worth if rising interest rates or an economic wild card cause problems for more indebted companies with less resilient cashflows. Growing cashflows on the other hand facilitate growing distributions, both from the companies which we own and to you in turn as shareholders of SAINTS.
The Company's investment in property has again made a significant contribution to both income and to overall returns. Within the property portfolio there has been carefully planned progress in reducing exposure to any falls in UK consumer spending.
Total Return Performance
Your Company's investments have performed well over the year. SAINTS' net asset value total return (capital and income) for the year was 18.8% and the share price total return was 17.2%. The total return from the global equity market was 13.8%. Whilst it is encouraging that returns have exceeded the very strong returns of equities generally over the year, both the Managers and your Board have a long-term perspective and so we do not believe that it is generally helpful to dwell on the comparison of performance against any equity index over short periods. As stressed last year, the Company's portfolio of investments differs markedly from the make up of the global equity index against which performance is often compared. This differentiated portfolio is necessary and appropriate in order for the Company to deliver a high and growing yield and service its borrowings.
Nonetheless it is worth observing that the equity portfolio has outperformed in a period when other approaches with a different balance between current income and future growth have struggled. As in previous years, returns have been helped by the sound operational performance of the companies in which the portfolio is invested. It is also notable that the Company's equity, property and bond investments all contributed to growth in both income and capital. The principal contributors to and detractors from performance and the changes to the equity, property and bond investments are explained in more detail in the Managers' Review below.
Revenues
Earnings per share have increased by 8% to 11.33p and investment income has risen to £20.5m. Income has been helped by earnings and dividend progression from the Company's equity investments and also by increased revenues from both property and bonds where attractive new opportunities have been identified. In addition roughly half of the Company's earnings come from overseas and in 2017 currency movements boosted the sterling value of these earnings. Both managers (Baillie Gifford and, for the Company's property investments, OLIM) continue at the Board's request to emphasise supporting the dependability and the future growth of the Company's dividend in line with its objective.
Dividend and Inflation
A final dividend of 2.825p is recommended which will take the full year dividend to 11.1p per share, 2.5% higher than the 2016 dividend of 10.825p.
The recommended dividend is fully covered by this year's earnings. The Company has built up revenue reserves in the past and the Board has deemed it prudent to modestly augment those reserves this year, whilst also recommending a dividend which reinforces its progressive dividend policy. The ability to smooth dividend progression is a key advantage of investment trusts and, whilst the Board has great confidence in the long term prospects of the Company's investments, we also believe that a measured approach is appropriate, particularly given uncertainties around exchange rates and the path of the UK economy.
This year's increase, whilst slightly below the annual rate of inflation of 3% as measured by CPI, extends the Company's record of annual dividend increases to thirty eight years. Over the last ten year period the Company's dividends have increased at well over the rate of inflation, as shown on the first chart on page 1 of the Annual Report and Financial Statements.
Borrowings
SAINTS' borrowings take the form of a single £80m debenture which is due for repayment in April 2022. During 2017, the borrowings mainly funded a range of higher yielding commercial property and, to a much lesser extent, some fixed income investments.
The book value of the debenture is £83.4m which, at the year end, was equivalent to approximately 17% of shareholders' funds. The estimated market or fair value of the debenture was £97.8m, a decrease from the previous year's value of £103.2m. The market value of the Company's borrowings will continue to fall over the coming years as the redemption date approaches.
Outlook
Last year I suggested that the longer-term implications of both Brexit and President Trump's victory would take a while to emerge and that inflation was likely to pick up in the UK during 2017. Not particularly heroic predictions but as it happens correct thus far. Whether inflation persists at its current level is less clear, due to a combination of some weakness in the domestic economy and action by the Bank of England on the one hand and a strengthening oil price on the other. The likelihood of continued economic growth around the world seems strong, although the outlook for the UK economy is less positive. In addition the concerns relating to valuations and rising interest rates mentioned earlier make share price progress less than certain, as has been demonstrated recently.
The Board and the Managers remain alert to both potential opportunities and challenges. It is important that the Company's future income prospects depend principally on the cashflows of our equity investments and the strength of property covenants and length of leases, all of which are explained further in the Managers' report, rather than on the level of markets. As a Board, we remain of the view that an approach anchored in fundamental analysis of growth and dependability of income is a firm foundation for the future. Your Board is fully supportive of and confident in the Managers' approach, and this confidence has been strengthened by another year of encouraging operational performance. We continue to believe that the portfolio as a whole is well placed to support the growth of the Company's dividend over time.
Issuance
The Company has raised over £9 million from new issuance at a premium to Net Asset Value in order to satisfy investor demand over the year. This indicates that the merits of the Company's approach are increasingly appreciated. It also serves the interests of current shareholders by reducing costs per share and helping to further improve liquidity.
The Board and the Managers
There have been no changes to the Board over the year and as Chairman I have been extremely pleased with the manner in which those Board members who have joined more recently have bedded in, combining well with the valued contribution of longer standing members.
As announced in the summer Dominic Neary has moved on from Baillie Gifford, and the Board would like to reiterate our warm thanks and appreciation to him for his considerable contribution to SAINTS in recent years. The Board is however very pleased to have James Dow and Toby Ross as joint managers of the Company and confident in their ability to continue the investment approach which they helped to develop. The joint appointment reflects Baillie Gifford's team-based approach and the Board looks forward to a continued fruitful and productive working relationship with the Managers.
AGM
The AGM will be held at 11am on Thursday 5 April 2018 at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh. The Managers will make a presentation on the investment portfolio and there will also be an opportunity to ask questions. The Directors and the Managers look forward to meeting you there.
Peter Moon
Chairman
15 February 2018
For a definition of terms see Glossary of Terms, note 10.
Past performance is not a guide to future performance.
Managers' Review
As detailed in the Investment Approach section, SAINTS aims to deliver real growth in both income and capital to its shareholders over the long term. In this section we provide a review of:
¾ the progress the Company has made towards these long-term goals during 2017;
¾ how the portfolio has changed over the year, and some context for these changes; and
¾ our outlook as Managers for the Company.
Progress During 2017
2017 has been a strong year for SAINTS, with income and capital growth delivered by every part of the portfolio - equities, property and fixed income. The Company's NAV at fair value produced a total return of 18.8% during the year and total income from investments was £20.5m, a 10% increase on the prior year.
The biggest driver of returns during the year was strong growth from the equity portfolio. As explained in the Investment Approach section on page 9 of the Annual Report and Financial Statements, we aim to invest the bulk of the Company's net assets in equities, as history tells us this is the best asset class for delivering real income and capital growth over the long term. In 2017, global equity markets rose healthily, returning 13.8%, and the Company's equity portfolio also performed strongly, returning 15.5%.
We believe that the key driver of both capital and dividend growth from shares is each company's ability to grow its profits. It is therefore no surprise that the stocks that had the biggest impact on the Company's returns over recent years have been companies which delivered the most impressive profit growth. For instance Partners Group, the Swiss alternative asset manager, has seen its operating profits more than double over the last three years, which has allowed its dividend to grow by a similar amount. This is a helpful reminder of the importance of growth for a long-term income investor - and it is for this reason that one of the first questions we ask of any potential investment is how much earnings growth we think the business can deliver over the long term.
The five companies whose returns had the biggest impact in 2017 were an eclectic group. As well as Partners Group, the list includes French luxury goods conglomerate Kering, Taiwanese semiconductor foundry TSMC, Chinese footwear business Anta Sports, and British insurer Hiscox. These businesses all operate in very different industries, are listed on different stock exchanges, and the drivers of their growth are diverse. However, one thing that unites them is that they all have management teams with long tenure, who take a long-term approach towards the businesses they run. All of them saw strong growth in 2017, and raised their dividends by 12% or more as a result. The overall dividend income from the equity portfolio grew by 3%. Local currency dividend growth was robust, and the portfolio's exposure to non-sterling dividend payers was an additional tailwind as the pound depreciated during the year. These factors more than offset the impact of modest net sales of equities (discussed below).
The property portfolio also had a positive year, generating income of £5.1m, and a total return of 13.7%. The directly-held property portfolio is managed on SAINTS' behalf by OLIM Property Ltd. The wider UK commercial property market delivered healthy returns in 2017, but SAINTS' portfolio of smaller commercial properties performed particularly well. Indeed, all but two of the properties in the portfolio increased in value during the year. The biggest contributor was the caravan park in New Romney, a long-standing holding whose value increased by 15% during the year. Overall rental income grew by 27%, reflecting the effect of net purchases during the year, inflation-linked rent increases across much of the portfolio, and some changes to the portfolio's mix.
The Company's fixed income portfolio also delivered good returns during the year, due to three specific assets. The Alibaba Convertible which was purchased in 2016 rose in value along with Alibaba's share price, as Chinese businesses and consumers used its platform to transact an ever-wider range of goods and services. The Brazilian inflation-linked bond benefitted as the economy started to recover from a recession. Lastly, many of the credit assets owned by the Athena Debt Opportunities Fund saw their value increase during the year, in a buoyant credit market. For the fixed income portfolio as a whole, interest income was £1.4m, and the total return was 30.1%.
How The Portfolio Has Changed
Equity Portfolio
The overall shape of the equity portfolio is very similar to that at the end of last year. The full portfolio is shown below. The most striking feature is that its core continues to be the 'compounding machines', which remain around two-thirds of the equity portfolio. These are typically businesses whose competitive position is strong, and where our investment case is based on steady growth through exploiting this advantage. We believe that having a large weighting in these well-established, cash-generative franchises makes a lot of sense for underpinning the dependable, growing income stream we seek to deliver.
Many of the names that make up this income stream have been held for 5-10 years, but some have changed. For example, this year we bought new holdings in AJ Gallagher, the insurance broker, and Wolters Kluwer, the specialist information provider. These are people and information businesses, and as such, they can grow organically without significant capital investment. This means that alongside their opportunities to grow profits there is plenty of cash available for dividends, together with bolt-on acquisitions which help to steadily expand their franchises.
Some companies have left this bucket as competitors recognised their value and acquired them. Reynolds American, which has made a significant contribution to the Company's capital and income stream over recent years, was bought by British American Tobacco (which we also hold), while agricultural chemicals business Syngenta was acquired by Sinochem. In a few cases we felt our investment case had weakened. We sold Capita in May, faced with growing questions about management effectiveness which made us doubt both the long-term growth outlook and the security of the dividend.
The story in our 'profitability transformation' bucket is very similar. These are businesses where we expect growth will come from a significant improvement in margins and returns. Such companies have accounted for around 10% of the equity portfolio over recent years, though this is an outcome of the team's flow of ideas rather than a deliberate intention. During the year we bought new holdings such as Philips Lighting, a pioneer in LED lighting systems, which was spun out of Dutch industrial conglomerate Royal Philips in 2016; and Li & Fung, the world's largest sourcing agent, where we are backing the management team's new strategy to help customers by speeding up their sourcing processes. We sold German food equipment business GEA Group, where execution had fallen short of our expectations. In the cases of British insurer Aviva and Taiwanese electronics manufacturer Asustek, we exited after reviewing the investment cases and concluding that their longer-term growth prospects were not strong enough to justify a place in the portfolio.
The portfolio's weighting in 'exceptional revenue opportunities' increased quite significantly during 2017. This is partly due to strong capital growth from holdings such as National Instruments, Anta Sports, Cochlear and Alphabet. We have identified several new ideas where we expect both strong revenue growth and a meaningful income contribution. These purchases included Albemarle, the lithium producer and processor, which has established a dominant position in a market that is growing rapidly with the growth of electric vehicles. Another is Man Wah, the leading Chinese furniture manufacturer and retailer. We did not sell any holdings from this part of the portfolio during the year.
The 'capital decisions' bucket tends to feature businesses which we view as exceptional operators in industries where there is some natural capital intensity. For instance, the mining industry is by its nature a capital intensive business but Rio Tinto's operating philosophy has been transformed over recent years, and it is now much more focused on generating cash than growing volumes for their own sake. This change in philosophy has attractive implications for its dividend growth. Admiral, the car insurance company, is another case in point. We view it as one of the best capital allocators in the insurance industry. We believe both businesses will grow significantly over time by investing their capital more thoughtfully and effectively than their peers.
For many capital-intensive businesses there is a constant trade-off between dividends and growth, and so we tend to hold the management teams of such businesses to a particularly high standard. During the year our confidence dropped in the capital allocation strategy at both SK Telecom and New York Community Bancorp. As a result we sold the shares. This leaves the portfolio with less invested in capital-intensive businesses than we have had in recent years.
In summary, the stock-picking philosophy behind the portfolio has not changed. We continue to find new opportunities and challenge our existing holdings, but portfolio turnover of around 20% is consistent with our 5+ year investment time horizon. Equities still represent the bulk of SAINTS' total investment portfolio. The proportion has reduced slightly during the year from 83% to 79%, as we used equities to fund some new property purchases during the year.
Property Portfolio
At the end of 2017 the portfolio consisted of 20 commercial properties across the United Kingdom and was valued at £85m, with a yield of 6.3%. This represents 14.6% of the total investment portfolio - a modest increase from the prior year as net investments were made into the portfolio. The properties are chosen by OLIM for their ability to generate a dependable stream of income, with a goal of matching inflation over the long run.
There was a greater level of turnover in the portfolio than in the previous year, with four properties purchased, partly funded by the sales of six holdings. The largest of the purchases was a data centre in Milton Keynes for £15.2m. The property is leased to TalkTalk until December 2047 and, as is typical for the properties that SAINTS invests in, the 6.4% income stream has RPI-linked rental increases. SAINTS also bought a warehouse leased to Bookers in Southend in July (for £8.3m), and an Aldi supermarket in Denbigh (with two adjoining properties, for £5.8m). The prices realised for properties sold in 2017 were in aggregate 14% higher than the valuations they were carried at for the end of 2016.
One notable change in the portfolio is that the exposure to pubs and restaurants has been reduced from 34% to 22% of the value of the property element of the portfolio, as OLIM have taken advantage of healthy valuations of some properties, and have become more cautious on the outlook for certain tenants in the sector. The manager believes that the overall effect of the new purchases and sales has been to make SAINTS' property portfolio more resilient, particularly if British consumers come under more pressure in the coming years.
Fixed Income Portfolio
The fixed income portfolio remains small at around 6% of SAINTS' total investment portfolio. There were two new purchases. Aryzta is a Swiss manufacturer and distributor of frozen baked goods, where we were able to buy the perpetual debt at an attractive yield of 8%. We expect this bond to be called by the company at some point in the next few years. We also bought a small position in a 2026 Argentine government bond, taking the view that moderating inflation and economic reform in Argentina should lead to strong real returns from this bond. These purchases were partly funded by a reduction to the holding in the Alibaba convertible bought last year, which has performed extremely well as discussed above.
Looking Forward
We began this report by repeating SAINTS' objectives, and we end by stating our confidence that the investments are well-positioned to meet these in future. The equity portfolio generates over two-thirds of the Company's income, and we continue to invest in businesses which we expect to deliver both real capital growth and dependable dividends. We were impressed this year by the operating performance of many of the companies in the portfolio, and we remain optimistic about their longer-term prospects.
We deliberately construct the equity portfolio to benefit from a wide range of company-specific growth drivers, rather than a small number of macro-economic themes. We think this diversity helps to build a resilient income stream that should grow in a wide range of different scenarios, even if it makes it hard for us to generalise about the outlook. We are encouraged by the continued flow of new ideas we are seeing for the equity portfolio. One of the great benefits of an unconstrained global universe is that, even though there are areas of the stock market where valuations arguably look stretched, we have been able to continue finding attractive new opportunities.
The property portfolio now has a weighted average unexpired lease length of over 17 years, with almost 80% of the income stream benefiting from either RPI-linked or fixed rental increases. This makes it well-placed to continue providing a dependable stream of income that grows in line with inflation. UK interest rates are now starting to rise gently, and we would expect the future returns from the property portfolio to be dominated by the income stream, rather than real capital growth. We believe the potential returns from the specific fixed income investments that the portfolio holds remain compelling.
In short, we believe that the investments across all parts of the portfolio are the right ones to support SAINTS' long-term aims.
James Dow
Toby Ross
Baillie Gifford & Co
15 February 2018
For a definition of terms see Glossary of Terms, note 10.
Past performance is not a guide to future performance
Asset Allocation
|
|
At 31 December 2017 % |
|
At 31 December 2016 % |
|
Quoted equities |
79.6 |
|
82.8 |
|
Bonds |
5.7 |
|
5.0 |
|
Direct property |
14.6 |
|
11.8 |
|
Net liquid assets |
0.1 |
|
0.4 |
|
Total assets |
100.0 |
|
100.0 |
Performance Attribution
|
Portfolio Breakdown |
Average allocation |
Total return# |
||
|
SAINTS % |
Benchmark % |
SAINTS % |
Benchmark % |
|
|
Global equities |
93.2 |
100.0 |
15.5 |
13.8 |
|
Bonds |
6.8 |
|
30.1 |
|
|
Direct property |
16.3 |
|
13.7 |
|
|
Deposits |
1.6 |
|
- |
|
|
Debenture at book value |
(17.8) |
|
6.8 |
|
|
Portfolio total return (debenture at book value) |
|
|
17.6 |
13.8 |
|
Other items* |
|
|
(0.8) |
|
|
Fund total return (debenture at book value) |
|
|
16.8 |
13.8 |
|
Adjustment for change in fair value of debenture |
|
|
2.0 |
|
|
Fund total return (debenture at fair value) |
|
|
18.8 |
13.8 |
* 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
|
List of Investments at 31 December 2017 |
|
Name |
Business |
|
Value £'000 |
% of |
|
Coca Cola |
Beverage manufacturer |
|
11,968 |
2.1 |
|
Johnson and Johnson |
Pharmaceuticals and healthcare products |
|
11,946 |
2.1 |
|
Prudential |
Life insurer |
|
10,874 |
1.9 |
|
CH Robinson |
Delivery and logistics |
|
10,850 |
1.9 |
|
Deutsche Boerse |
Securities exchange owner/operator |
|
10,563 |
1.8 |
|
Procter & Gamble |
Household product manufacturer |
|
10,511 |
1.8 |
|
Partners Group |
Asset management |
|
10,319 |
1.8 |
|
Fastenal |
Distribution and sales of industrial supplies |
|
9,942 |
1.7 |
|
Sonic Healthcare |
Laboratory testing |
|
9,475 |
1.6 |
|
Anta Sports Products |
Sportswear manufacturer and retailer |
|
9,378 |
1.6 |
|
Hiscox |
Property and casualty insurance |
|
9,239 |
1.6 |
|
AVI |
Staple foods manufacturer |
|
8,995 |
1.5 |
|
Admiral |
Car insurance |
|
8,625 |
1.5 |
|
Analog Devices |
Integrated circuits |
|
8,620 |
1.5 |
|
Cochlear |
Hearing aids |
|
8,357 |
1.4 |
|
Pepsico |
Snack and beverage manufacturer |
|
8,354 |
1.4 |
|
Microsoft |
Computer software |
|
8,289 |
1.4 |
|
McDonald's |
Fast food restaurants |
|
8,222 |
1.4 |
|
Edenred |
Voucher programme outsourcer |
|
8,150 |
1.4 |
|
Total |
Integrated oil company |
|
8,101 |
1.4 |
|
Taiwan Semiconductor Manufacturing |
Semiconductor manufacturer |
|
8,014 |
1.4 |
|
United Parcel Service |
Courier services |
|
7,868 |
1.4 |
|
Experian |
Credit scoring and marketing services |
|
7,614 |
1.3 |
|
Scottish & Southern Energy |
Electricity utility |
|
7,603 |
1.3 |
|
WPP |
Advertising agency |
|
7,547 |
1.3 |
|
Kering |
Luxury brand conglomerate |
|
7,441 |
1.3 |
|
Rio Tinto |
Mining |
|
7,321 |
1.3 |
|
British American Tobacco |
Cigarette manufacturer |
|
7,299 |
1.3 |
|
Atlas Copco |
Engineering |
|
7,241 |
1.2 |
|
China Mobile |
Mobile telecommunication services |
|
7,075 |
1.2 |
|
Nestlé |
Food producer |
|
6,940 |
1.2 |
|
National Instruments |
Electronic test and measurement systems |
|
6,885 |
1.2 |
|
Dia |
Discount supermarkets |
|
6,844 |
1.2 |
|
Apple |
Computer technology |
|
6,547 |
1.1 |
|
Kimberly-Clark de México |
Paper-based household products |
|
6,403 |
1.1 |
|
Bankinter |
Corporate and retail bank |
|
6,211 |
1.1 |
|
Pandora |
Manufactures handmade jewellery |
|
6,075 |
1.0 |
|
Alphabet Class A |
Online search engine |
|
5,984 |
1.0 |
|
United Overseas Bank |
Commercial banking |
|
5,980 |
1.0 |
|
Dolby Laboratories |
Multimedia software |
|
5,696 |
1.0 |
|
Sumitomo Mitsui Trust Holdings |
Trust bank and investment manager |
|
5,692 |
1.0 |
|
Brambles |
Pallet pool operator |
|
5,685 |
1.0 |
|
Continental |
Tyres and automotive parts manufacturer |
|
5,635 |
1.0 |
|
Sandvik |
Engineering |
|
5,632 |
1.0 |
|
Want Want |
Snacks and milk-based products |
|
5,548 |
1.0 |
|
SAP |
Business software developer |
|
5,496 |
0.9 |
|
Novo Nordisk |
Pharmaceutical company |
|
5,487 |
0.9 |
|
Wolters Kluwer |
Information services and solutions provider |
|
5,466 |
0.9 |
|
Svenska Handelsbanken |
Banking |
|
5,435 |
0.9 |
|
B3 S.A. |
Securities exchange owner/operator |
|
5,313 |
0.9 |
|
Hong Kong Exchanges and Clearing |
Securities exchange owner/operator |
|
5,299 |
0.9 |
|
MTN Group |
South African wireless telecom company |
|
5,286 |
0.9 |
|
Albemarle |
Producer of speciality and fine chemicals |
|
5,244 |
0.9 |
|
Man Wah |
Sofa designer and manufacturer |
|
5,182 |
0.9 |
|
Ambev |
Brewing |
|
5,157 |
0.9 |
|
Pearson |
Educational publisher |
|
5,065 |
0.9 |
|
Roche Holdings |
Pharmaceuticals |
|
4,806 |
0.8 |
|
Zenkoku Hosho |
Speciality finance |
|
4,782 |
0.8 |
|
Challenger |
Investment management company |
|
4,677 |
0.8 |
|
Greencoat UK Wind |
UK wind farms |
|
4,548 |
0.8 |
|
Aberforth Split Level Income Trust |
UK small-cap equities fund |
|
4,434 |
0.8 |
|
Arthur J Gallagher |
Insurance broker |
|
4,428 |
0.8 |
|
Apache |
Oil exploration and production |
|
4,157 |
0.7 |
|
Philips Lighting |
Light manufacturing company |
|
4,041 |
0.7 |
|
Doric Nimrod Air Two |
Aircraft leasing |
|
3,801 |
0.6 |
|
Li & Fung |
Supply chain management services company |
|
3,237 |
0.6 |
|
WPP Aunz |
Advertising agency |
|
2,562 |
0.4 |
|
Cambium Global Timberland |
Forestry investment fund |
|
1,146 |
0.2 |
|
Terra Catalyst Fund |
Fund of European property funds |
|
265 |
- |
|
D Carnegie |
Swedish housing developer |
|
1 |
- |
|
Total Equities |
|
|
462,873 |
79.6 |
|
Direct Property |
|
|
|
|
|
Direct Property |
See table below |
|
84,950 |
14.6 |
|
Bonds |
|
|
|
|
|
Euro denominated |
Aryzta Finance 4.5% 2019 Perpetual |
|
4,731 |
0.8 |
|
US dollar denominated |
Alibaba Convertible 5.75% 2019 |
6,963 |
|
|
|
|
Athena Debt Opportunities Fund |
12,130 |
19,093 |
3.3 |
|
Argentinian peso denominated |
Argentina 15.5% 17/10/2026 |
|
1,556 |
0.3 |
|
Brazilian real denominated |
Brazil CPI Linked 15/05/2045 |
|
7,392 |
1.3 |
|
Total Bonds |
|
|
32,772 |
5.7 |
|
Total Investments |
|
|
580,595 |
99.9 |
|
Net Liquid Assets |
|
|
771 |
0.1 |
|
Total Assets |
|
|
581,366 |
100.0 |
|
(before deduction of debenture) |
|
|
|
|
* Delisted
|
Property Portfolio |
|
Location |
Type |
Tenant |
2017 Value £'000 |
|
2017 % of total assets |
|
2016 Value £'000 |
|
Basingstoke |
Warehouse |
G4S Cash Solutions (UK) Ltd |
3,450 |
|
0.6 |
|
3,300 |
|
Beccles† |
Restaurant |
Prezzo Limited |
- |
|
- |
|
1,300 |
|
Biggleswade |
Warehouse |
Quest Automotive Products UK Limited |
4,800 |
|
0.8 |
|
4,400 |
|
Bishop's Stortford |
Restaurant |
Prezzo Limited |
1,250 |
|
0.2 |
|
1,500 |
|
Blandford Forum† |
Restaurant |
Prezzo Limited |
- |
|
- |
|
1,100 |
|
Cleethorpes |
Public House |
Stonegate Pub Company Limited |
900 |
|
0.2 |
|
750 |
|
Crawley |
Petrol Station and Convenience Store |
Co-operative Food Stores Limited |
3,750 |
|
0.6 |
|
3,600 |
|
Denbigh* |
Supermarket |
Aldi Stores Limited Peacocks Stores Limited Poundland Retail Limited |
5,900 |
|
1.0 |
|
- |
|
Dundee |
Public House |
JD Weatherspoon Plc |
1,300 |
|
0.2 |
|
1,250 |
|
Earley |
Public House |
Spirit Pub Company (Managed) Limited |
3,250 |
|
0.6 |
|
3,000 |
|
Inverness† |
Warehouse |
Brake Brothers Limited |
- |
|
- |
|
2,750 |
|
Kenilworth |
Nursing Home |
Care UK Community Partnerships Limited |
7,200 |
|
1.2 |
|
6,800 |
|
Leicester† |
Car Showroom |
Sytner Properties Limited |
- |
|
- |
|
3,450 |
|
Luton |
Public House |
Stonegate Pub Company Limited |
3,150 |
|
0.5 |
|
2,500 |
|
Milton Keynes* |
Data Centre |
TalkTalk Communications Limited |
16,000 |
|
2.8 |
|
- |
|
New Romney |
Holiday Village |
Park Resorts Ltd |
11,500 |
|
2.0 |
|
10,000 |
|
Newport Pagnell |
Car Showroom |
Pendragon Plc |
4,000 |
|
0.7 |
|
4,150 |
|
Otford |
Public House |
Spirit Pub Company (Managed) Limited |
2,250 |
|
0.4 |
|
2,100 |
|
Pagham* |
Convenience Store |
Co-operative Food Stores Limited |
1,300 |
|
0.2 |
|
- |
|
Portsmouth |
Public House |
JD Weatherspoon Plc |
2,600 |
|
0.5 |
|
2,500 |
|
Prestatyn |
Public House |
Stonegate Pub Company Limited |
1,600 |
|
0.3 |
|
1,450 |
|
Redditch† |
Warehouse |
Weston Body Hardware Ltd |
- |
|
- |
|
1,500 |
|
Sale |
Public House |
Stonegate Pub Company Limited |
750 |
|
0.1 |
|
650 |
|
Southend-on-Sea* |
Warehouse |
Giant Booker Limited |
8,600 |
|
1.5 |
|
- |
|
Torquay |
Public House |
Mitchells & Butlers Retail Limited |
1,400 |
|
0.2 |
|
1,350 |
|
Winchester† |
Public House |
Fuller Smith & Turner Plc |
- |
|
- |
|
1,600 |
|
|
|
|
84,950 |
|
14.6 |
|
61,000 |
* Property purchased during the year.
† Property sold during the year.
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:
¾ dividend per share;
¾ earnings per share;
¾ the movement in net asset value per ordinary share (after deducting debentures at fair value) compared to the benchmark;
¾ the movement in the share price;
¾ the premium/discount (after deducting debentures at fair value); and
¾ ongoing charges.
An explanation of these measures can be found in the Glossary of Terms in Note 10.
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.
Related Party Transactions
The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 29 of the Annual Report and Financial Statements.
No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.
Management Fee Arrangements
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary. Baillie Gifford & Co Limited has delegated investment management services to Baillie Gifford & Co. The management of the property portfolio has been delegated to OLIM Property Limited.
The Investment Management Agreement between the AIFM and the Company sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. Compensation fees would only be payable in respect of the notice period if termination were to occur sooner. The annual management fee is 0.45% of total assets less current liabilities, excluding the property portfolio, calculated on a quarterly basis. The Board is of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence on performance.
The Property Management Agreement sets out the matters over which OLIM Property Limited has discretion and those matters which require Board approval. The Property Management Agreement is terminable on three months' notice. The annual fee is 0.5% of the value of the property portfolio, subject to a minimum quarterly fee of £6,250.
The details of the management fees are as follows:
|
|
2017 £'000 |
|
2016 £'000 |
|
|
|
|
|
|
Investment management fee |
2,158 |
|
1,919 |
|
Property management fee |
394 |
|
296 |
|
|
2,552 |
|
2,215 |
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 on a regular basis. The Directors have carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below.
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 47 to 51 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.
Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their Net Asset Value. To mitigate this risk, the Board regularly reviews and monitors the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of discount/premium to Net Asset Value at which the shares trade; and movements in the share register.
Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. 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 and the Market Abuse 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 security. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. 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 Business Risk 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 by KPMG LLP.
Operational Risk - failure of Baillie Gifford's 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.
Discount Risk - the discount/premium at which the Company's shares trade relative to its Net Asset Value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. The Board monitors the level of discount/premium at which the shares trade and the Company has authority to 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 (sometimes known as 'gearing' or 'leverage'). 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 on page 60 of the Annual Report and Financial Statements and the Glossary of Terms in Note 10.
Political Risk - political developments will be closely monitored and considered by the Board and the Managers. The Board has noted the Government's intention that the UK should leave the European Union on 29 March 2019. Whilst there remains considerable uncertainty at present, the Board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.
Viability Statement
In accordance with provision C2.2 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a minimum period of five years. The Directors continue to 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 above 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. Specific leverage and liquidity stress testing was conducted during the year. 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 below. 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, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for at least 12 months from the date of approval of these Financial Statements.
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 2017 |
Investments £'000 |
Cash and cash equivalents £'000 |
Debentures £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
US dollar |
156,097 |
48 |
- |
85 |
156,230 |
|
Euro |
72,679 |
39 |
- |
583 |
73,301 |
|
Hong Kong dollar |
35,718 |
- |
- |
- |
35,718 |
|
Australian dollar |
30,756 |
- |
- |
- |
30,756 |
|
Swiss franc |
22,065 |
- |
- |
- |
22,065 |
|
Other overseas currencies |
94,441 |
- |
- |
214 |
94,655 |
|
Total exposure to currency risk |
411,756 |
87 |
- |
882 |
412,725 |
|
Sterling |
168,839 |
2,807 |
(83,428) |
(3,005) |
85,213 |
|
|
580,595 |
2,894 |
(83,428) |
(2,123) |
497,938 |
* Includes net non-monetary assets of £30,000.
|
At 31 December 2016 |
Investments £'000 |
Cash and cash equivalents £'000 |
Forward currency contracts £'000 |
Debentures £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
US dollar |
154,625 |
38 |
(7,600) |
- |
223 |
147,286 |
|
Euro |
48,847 |
35 |
(2,520) |
- |
406 |
46,768 |
|
Hong Kong dollar |
25,626 |
- |
- |
- |
- |
25,626 |
|
Australian dollar |
25,113 |
- |
- |
- |
- |
25,113 |
|
Swiss franc |
23,169 |
- |
- |
- |
- |
23,169 |
|
Other overseas currencies |
80,959 |
- |
- |
- |
274 |
81,233 |
|
Total exposure to currency risk |
358,339 |
73 |
(10,120) |
- |
903 |
349,195 |
|
Sterling |
155,215 |
4,101 |
10,120 |
(84,112) |
(3,009) |
82,315 |
|
|
513,554 |
4,174 |
- |
(84,112) |
(2,106) |
431,510 |
* Includes net non-monetary assets of £27,000.
Currency Risk Sensitivity
At 31 December 2017, 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 2016.
|
|
2017 £'000 |
|
2016 £'000 |
|
US dollar |
7,811 |
|
7,364 |
|
Euro |
3,665 |
|
2,338 |
|
Hong Kong dollar |
1,786 |
|
1,281 |
|
Australian dollar |
1,538 |
|
1,256 |
|
Swiss franc |
1,103 |
|
1,159 |
|
Other overseas currencies |
4,733 |
|
4,062 |
|
|
20,636 |
|
17,460 |
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 the Company's fixed-rate borrowings; and
¾ the interest payable on any variable rate borrowings which the Company may take out.
Interest rate movements may also impact upon the market value of the Company's investments other than its 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 cash flows 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 finances part of its activities through borrowings at approved levels. The amount of 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 fair value of the Company's fixed rate borrowings, 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
|
|
2017 |
2016 |
||||
|
|
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: |
|
|
|
|
|
|
|
Argentinian peso denominated bonds |
1,556 |
15.20% |
9 years |
- |
- |
- |
|
Euro denominated bonds |
4,731 |
5.75% |
1 year |
|
|
|
|
US dollar denominated bonds |
6,963 |
5.75% |
1 year |
7,622 |
5.75% |
2 years |
|
Floating rate: |
|
|
|
|
|
|
|
Brazilian bonds (interest rate linked to Brazilian CPI) |
7,392 |
9.98% |
27 years |
7,568 |
10.4% |
28 years |
|
Fixed Interest Collective Investment Funds: |
|
|
|
|
|
|
|
US dollar denominated fund |
12,130 |
3.1% |
n/a |
10,564 |
2.3% |
n/a |
|
Cash and short term deposits: |
|
|
|
|
|
|
|
Other overseas currencies |
87 |
- |
n/a |
73 |
- |
n/a |
|
Sterling |
2,807 |
0.1% |
n/a |
4,101 |
0.2% |
n/a |
* Based on expected maturity/redemption date.
Financial Liabilities
|
|
2017 £'000 |
2016 £'000 |
||
|
The interest rate risk profile of the Company's financial liabilities at 31 December was: |
||||
|
Fixed rate - sterling |
83,428 |
84,112 |
||
|
The maturity profile of the Company's financial liabilities at 31 December was: |
||||
|
In more than two years, but not more than 5 years |
83,428 |
- |
||
|
In more than five years |
- |
84,112 |
||
Interest Rate Risk Sensitivity
An increase of 100 basis points in bond yields as at 31 December 2017 would have decreased total net assets and total return on ordinary activities by £1,121,000 (2016 - £1,006,000) and would have increased the net asset value per share (with debenture at fair value) by 1.8p (2016 - 2.6p). 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 above. In addition, various analyses of the portfolio by asset class and industrial sector are contained in the Strategic Report of the Annual Report and Financial Statements.
92.9% of the Company's net assets are invested in quoted equities. A 5% increase in quoted equity valuations at 31 December 2017 would have increased total assets and total return on ordinary activities by £23,130,000 (2016 - £21,244,000). A decrease of 5% would have had an equal but opposite effect. 17.1% of the Company's net assets are invested in direct property. A 5% increase in direct property valuations at 31 December 2017 would have increased total assets and total return on ordinary activities by £4,248,000 (2016 - £3,050,000). 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 17.1% of net assets at 31 December 2017 (2016 - 14.6%). 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. Following the internal reorganisation at The Bank of New York, scheduled for 3 April 2018, the custody function will be undertaken by The Bank of New York Mellon (International) Limited. 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:
|
|
2017 £'000 |
2016 £'000 |
|
Bonds |
32,772 |
25,754 |
|
Cash and short term deposits |
2,894 |
4,174 |
|
Debtors and prepayments |
1,222 |
1,116 |
|
|
36,888 |
31,044 |
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.
|
|
2017 |
2016 |
||||
|
|
Nominal £'000 |
Book £'000 |
Fair £'000 |
Nominal £'000 |
Book £'000 |
Fair £'000 |
|
8% debenture stock 2022 |
80,000 |
83,428 |
97,832 |
80,000 |
84,112 |
103,200 |
Gains and Losses on Hedges
There were no forward currency contracts open at 31 December 2017. The following forward currency contracts were open at 31 December 2016:
|
Currency sold |
Currency amount sold |
Currency bought |
Currency amount bought |
Settlement date |
Fair value £'000 |
|
US dollar |
$9,400,000 |
Sterling |
£7,599,892 |
8/2/17 |
11 |
|
Euro |
€2,950,000 |
Sterling |
£2,520,543 |
8/2/17 |
(11) |
|
|
|
|
|
|
- |
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 capital of the Company is its share capital and reserves as set out in notes 13 and 14 together with its borrowings (see note 12 of the Annual Report and Financial Statements). The objective of the Company is to deliver real dividend growth by increasing capital and growing income. The Company's investment policy is set out on page 6 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out on pages 7 and 8 and on pages 25 and 26 of the Annual Report and Financial Statements. The Company has the authority to issue and buy back its shares (see pages 22 and 23 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in notes 13 and 14 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its debenture which are detailed in note 12 of the Annual Report and Financial Statements.
Alternative Investment Fund Managers (AIFM) 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 at www.bailliegifford.com or on request (see contact details on the back cover of the Annual Report and Financial Statements) and the numerical remuneration disclosures in respect of the AIFM's first relevant reporting period (year ended 31 March 2017) are available at www.bailliegifford.com.
The Company's maximum and actual leverage levels (see Glossary of Terms in Note 10) at 31 December 2017 are shown below:
Leverage
|
|
Gross Method |
Commitment Method |
|
Maximum limit |
3.00:1 |
2.00:1 |
|
Actual |
1.20:1 |
1.16:1 |
Investments
|
As at 31 December 2017 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|
Securities |
|
||||
|
Listed equities/funds |
462,608 |
- |
265 |
462,873 |
|
|
Bonds |
- |
20,642 |
12,130 |
32,772 |
|
|
Property |
|
|
|
|
|
|
Freehold |
- |
- |
84,950 |
84,950 |
|
|
Total financial asset investments |
462,608 |
20,642 |
97,345 |
580,595 |
|
|
As at 31 December 2016 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|
Securities |
|
||||
|
Listed equities/funds |
424,881 |
1,919 |
- |
426,800 |
|
|
Other equities |
- |
15,190 |
10,564 |
25,754 |
|
|
Bonds |
|
|
|
|
|
|
Property |
|
|
|
|
|
|
Freehold |
- |
- |
61,000 |
61,000 |
|
|
Total financial asset investments |
424,881 |
17,109 |
71,564 |
513,544 |
|
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 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 - using unadjusted quoted prices for identical instruments in an active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable
(based on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
The valuation techniques used by the Company are explained in the accounting policies on page 40 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, 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 are required to prepare the Financial Statements in accordance with UK Accounting Standards including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. 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 its profit or loss 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;
¾ assess the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern; and
¾ use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
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 comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect 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.
Responsibility Statement of the Directors in Respect of the Annual Financial Report
We confirm that to the best of our knowledge:
¾ the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that the issuer and business faces.
We consider 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 position and performance, business model and strategy.
By order of the Board
Peter Moon
15 February 2018
Income Statement
|
|
For the year ended 31 December 2017 |
For the year ended 31 December 2016 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Net gains on investments - securities |
- |
56,191 |
56,191 |
- |
87,566 |
87,566 |
|
Net gains on investments - property |
- |
4,845 |
4,845 |
- |
1,265 |
1,265 |
|
Currency gains/(losses) |
- |
558 |
558 |
- |
(1,084) |
(1,084) |
|
Income (note 2) |
20,484 |
- |
20,484 |
18,630 |
- |
18,630 |
|
Management fees |
(893) |
(1,659) |
(2,552) |
(775) |
(1,440) |
(2,215) |
|
Other administrative expenses |
(1,086) |
- |
(1,086) |
(968) |
- |
(968) |
|
Net return before finance costs and taxation |
18,505 |
59,935 |
78,440 |
16,887 |
86,307 |
103,194 |
|
Finance costs of borrowings |
(2,001) |
(3,715) |
(5,716) |
(2,015) |
(3,741) |
(5,756) |
|
Net return on ordinary activities before taxation |
16,504 |
56,220 |
72,724 |
14,872 |
82,566 |
97,438 |
|
Tax on ordinary activities |
(1,291) |
515 |
(776) |
(933) |
293 |
(640) |
|
Net return on ordinary activities after taxation |
15,213 |
56,735 |
71,948 |
13,939 |
82,859 |
96,798 |
|
Net return per ordinary share (note 3) |
11.33p |
42.24p |
53.57p |
10.46p |
62.16p |
72.62p |
The total column of the income statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as there is no other comprehensive income.
|
Balance Sheet |
|
|
At 31 December 2017 |
At 31 December 2016 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Fixed assets |
|
|
|
|
|
Investments - securities |
495,645 |
|
452,554 |
|
|
Investments - property |
84,950 |
|
61,000 |
|
|
|
|
580,595 |
|
513,554 |
|
Current assets |
|
|
|
|
|
Debtors |
1,222 |
|
1,116 |
|
|
Cash and cash equivalents |
2,894 |
|
4,174 |
|
|
|
4,116 |
|
5,290 |
|
|
Creditors |
|
|
|
|
|
Amounts falling due within one year |
(3,345) |
|
(3,222) |
|
|
Net current assets |
|
771 |
|
2,068 |
|
Total assets less current liabilities |
|
581,366 |
|
515,622 |
|
Creditors |
|
|
|
|
|
Amounts falling due after more than one year |
|
(83,428) |
|
(84,112) |
|
Net assets |
|
497,938 |
|
431,510 |
|
Capital and reserves |
|
|
|
|
|
Share capital |
|
33,994 |
|
33,349 |
|
Share premium account |
|
10,744 |
|
2,131 |
|
Capital redemption reserve |
|
22,781 |
|
22,781 |
|
Capital reserve |
|
413,632 |
|
356,897 |
|
Revenue reserve |
|
16,787 |
|
16,352 |
|
Shareholders' funds |
|
497,938 |
|
431,510 |
|
Net asset value per ordinary share (debenture at fair value) |
|
355.6p |
|
309.2p |
|
Net asset value per ordinary share (debenture at book value) |
|
366.2p |
|
323.5p |
|
Ordinary shares in issue (note 6) |
|
135,975,943 |
|
133,395,943 |
Statement of Changes in Equity
For the year ended 31 December 2017
|
|
|
Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 January 2017 |
|
33,349 |
2,131 |
22,781 |
356,897 |
16,352 |
431,510 |
|
Shares issued |
|
645 |
8,613 |
- |
- |
- |
9,258 |
|
Net return on ordinary activities after taxation |
|
- |
- |
- |
56,735 |
15,213 |
71,948 |
|
Dividends paid in the year (note 4) |
|
- |
- |
- |
- |
(14,778) |
(14,778) |
|
Shareholders' funds at 31 December 2017 |
|
33,994 |
10,744 |
22,781 |
413,632 |
16,787 |
497,938 |
For the year ended 31 December 2016
|
|
|
Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 January 2016 |
|
33,290 |
1,534 |
22,781 |
274,038 |
16,810 |
348,453 |
|
Shares issued |
|
59 |
597 |
- |
- |
- |
656 |
|
Net return on ordinary activities after taxation |
|
- |
- |
- |
82,859 |
13,939 |
96,798 |
|
Dividends paid in the year (note 4) |
|
- |
- |
- |
- |
(14,397) |
(14,397) |
|
Shareholders' funds at 31 December 2016 |
|
33,349 |
2,131 |
22,781 |
356,897 |
16,352 |
431,510 |
* The capital reserve balance as at 31 December 2017 includes investment holding gains of £147,461,000 (2016 - £128,030,000).
|
Cash Flow Statement |
|
|
Year Ended 31 December 2017 |
Year Ended 31 December 2016 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Net return on ordinary activities before taxation |
72,724 |
|
97,438 |
|
|
Net gains on investments - securities |
(56,191) |
|
(87,566) |
|
|
Net gains on investments - property |
(4,845) |
|
(1,265) |
|
|
Currency (gains)/losses |
(558) |
|
1,084 |
|
|
Finance costs of borrowings |
5,716 |
|
5,756 |
|
|
Overseas withholding tax |
(810) |
|
(625) |
|
|
Changes in debtors and creditors |
51 |
|
233 |
|
|
Other non-cash changes |
(25) |
|
(65) |
|
|
Cash from operations |
|
16,062 |
|
14,990 |
|
Interest paid |
|
(6,400) |
|
(6,400) |
|
Net cash inflow from operating activities |
|
9,662 |
|
8,590 |
|
Cash flows from investing activities |
|
|
|
|
|
Acquisitions of investments |
(129,531) |
|
(83,824) |
|
|
Disposals of investments |
123,551 |
|
91,034 |
|
|
Forward currency contracts |
469 |
|
(1,691) |
|
|
Net cash (outflow)/inflow from investing activities |
|
(5,511) |
|
5,519 |
|
Cash flows from financing activities |
|
|
|
|
|
Equity dividends paid |
(14,778) |
|
(14,397) |
|
|
Shares issued |
9,258 |
|
656 |
|
|
Net cash outflow from financing activities |
|
(5,520) |
|
(13,741) |
|
(Decrease)/increase in cash and cash equivalents |
|
(1,369) |
|
368 |
|
Exchange movements |
|
89 |
|
407 |
|
Cash and cash equivalents at 1 January |
|
4,174 |
|
3,399 |
|
Cash and cash equivalents at 31 December* |
|
2,894 |
|
4,174 |
* 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 2017 have been prepared in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and on the basis of the accounting policies set out in the Annual Report and Financial Statements for the year ending 31 December 2017.
|
||
|
2. |
Income |
2017 £'000 |
2016 £'000 |
|
Income from investments |
|
|
|
|
UK dividends |
3,243 |
3,176 |
|
|
UK interest |
- |
157 |
|
|
|
Overseas dividends |
10,648 |
10,316 |
|
|
Overseas interest |
1,426 |
873 |
|
|
|
15,317 |
14,522 |
|
|
Other income |
|
|
|
|
Deposit interest |
10 |
64 |
|
|
Rental income |
5,120 |
4,021 |
|
|
Other income |
37 |
23 |
|
|
|
5,167 |
4,108 |
|
|
Total income |
20,484 |
18,630 |
|
|
Total income comprises |
|
|
|
|
Dividends from financial assets designated at fair value through profit or loss |
13,891 |
13,492 |
|
|
Interest from financial assets designated at fair value through profit or loss |
1,426 |
1,030 |
|
|
Interest from financial assets not at fair value through profit or loss |
10 |
64 |
|
|
Other income not from financial assets |
5,157 |
4,044 |
|
|
|
20,484 |
18,630 |
|
3. |
Net return per ordinary share |
2017 |
2016 |
||||||||||||||||||||||||||||||
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||||||||||||||||||||||||||||
| Net return per ordinary share |
11.33p |
42.24p |
53.57p |
10.46p |
62.16p |
72.62p |
|||||||||||||||||||||||||||
|
|
Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of £15,213,000 (2016 - £13,939,000) and on 134,296,614 (2016 - 133,291,026) 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 £56,735,000 (2016 - net capital gain of £82,859,000), and on 134,296,614 (2016 - 133,291,026) ordinary shares, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue. |
||||||||||||||||||||||||||||||||
|
4. |
Ordinary dividends |
2017 |
2016 |
2017 £'000 |
2016 £'000 |
||||||||||||||||||||||||||||
| Amounts recognised as distributions in the year: |
|
|
|
|
|||||||||||||||||||||||||||||
| Previous year's final (paid 12 April 2017) |
2.725p |
2.70p |
3,635 |
3,595 |
|||||||||||||||||||||||||||||
| First interim (paid 23 June 2017) |
2.725p |
2.70p |
3,644 |
3,598 |
|||||||||||||||||||||||||||||
| Second interim (paid 22 September 2017) |
2.75p |
2.70p |
3,694 |
3,602 |
|||||||||||||||||||||||||||||
| Third interim (paid 18 December 2017) |
2.80p |
2.70p |
3,805 |
3,602 |
|||||||||||||||||||||||||||||
|
|
|
11.00p |
10.80p |
14,778 |
14,397 |
||||||||||||||||||||||||||||
|
|
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 £15,213,000 (2016 - £13,939,000). |
||||||||||||||||||||||||||||||||
|
|
|
2017 |
2016 |
2017 £'000 |
2016 £'000 |
||||||||||||||||||||||||||||
| Dividends paid and payable in respect of the year: |
|
|
|
|
|||||||||||||||||||||||||||||
| First interim (paid 23 June 2017) |
2.725p |
2.70p |
3,644 |
3,598 |
|||||||||||||||||||||||||||||
| Second interim (paid 22 September 2017) |
2.75p |
2.70p |
3,694 |
3,602 |
|||||||||||||||||||||||||||||
| Third interim (paid 18 December 2017) |
2.80p |
2.70p |
3,805 |
3,602 |
|||||||||||||||||||||||||||||
| Current year's proposed final dividend (payable 12 April 2018) |
2.825p |
2.725p |
3,841 |
3,635 |
|||||||||||||||||||||||||||||
|
11.10p |
10.825p |
14,984 |
14,437 |
||||||||||||||||||||||||||||||
|
|
If approved the final dividend of 2.825p will be paid on 12 April 2018 to all shareholders on the register at the close of business on 9 March 2018. The ex-dividend date is 8 March 2018. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 20 March 2018. |
||||||||||||||||||||||||||||||||
|
5. |
The fair value of the 8% Debenture Stock 2022 at 31 December 2017 was £97.8m (2016 - £103.2m). |
||||||||||||||||||||||||||||||||
|
6. |
During the year, 2,580,000 (2016 - 235,000) shares were issued at a premium to net asset value raising proceeds of £9,258,000 (2016 - £656,000). At 31 December 2017 the Company had authority to buy back 19,996,051 ordinary shares and to allot 10,759,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2017. No shares were bought back during the year. |
||||||||||||||||||||||||||||||||
|
7. |
Transaction costs incurred on the purchase and sale of investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the year, transaction costs on purchases amounted to £2,027,000 (2016 -£390,000) and transaction costs on sales amounted to £254,000 (2016 - £47,000). |
||||||||||||||||||||||||||||||||
|
8. |
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 2016. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the Registrar of Companies. The auditor has reported on the 2016 accounts; the report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and (iii) did not contain a statement under sections 498 (2) or 498(3) of the Companies Act 2006. The statutory accounts for 2017 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. |
||||||||||||||||||||||||||||||||
|
9. |
The Report and Accounts will be available on the SAINTS page of the Managers' website www.saints-it.com‡ on or around 1 March 2018 |
||||||||||||||||||||||||||||||||
|
10. |
Glossary of Terms Total Assets Total assets less current liabilities, before deduction of all borrowings. Net Asset Value Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue. Net Asset Value (Debentures at Fair Value) Borrowings are valued at an estimate of their market worth. Net Asset Value (Debentures at Book Value) Borrowings are valued at adjusted net issue proceeds.
Discount/Premium As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium. Total Return The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. Ongoing Charges The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies. The percentage is lower than the ongoing charges stated in the Company's Key Information Document which has been calculated as prescribed by relevant regulation and are required to include the cost of borrowings. |
||||||||||||||||||||||||||||||||
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Gearing At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. Gearing represents borrowings at book less cash and cash equivalents expressed as a percentage of shareholders' funds. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. Equity gearing is the Company's borrowings adjusted for cash, bonds and property expressed as a percentage of shareholders' funds. Leverage For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. Active Share Active share, a measure of how actively a portfolio is managed, is the percentage of the listed equity portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index. |
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