Final Results

RNS Number : 8352C

Scottish American Investment Co PLC

13 February 2020

 

The Scottish American Investment Company P.L.C.

RNS Announcement: Results

Legal Entity Identifier code: 549300NF03XVC5IFB447

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

12 February 2020.

 Results for the year to 31 December 2019

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

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

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

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

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

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

12 February 2020

SAINTS' objective is to deliver real dividend growth by increasing capital and growing income. Its policy is to invest mainly in equity markets, but other investments may be held from time to time including bonds, property and other asset classes.

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

Past performance is not a guide to future performance. SAINTS is a listed UK company. As a result, the value of its shares and any income from those shares is not guaranteed and could go down as well as up. You may not get back the amount you invested. As SAINTS invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. You can find up to date performance information about SAINTS on the SAINTS page of the Managers' website www.saints-it.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

For further information please contact:

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

Tel: [phone]

James Budden, Baillie Gifford & Co  

Tel: [phone] or 07507 201208

Mark Knight, Four Communications

Tel: [phone] or 07803 758810

 

Chairman's Statement

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

Overview

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

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

Dividend and Inflation

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

Revenues

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

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

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

Total Return Performance

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

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

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

Borrowings and debt refinancing

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

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

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

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

Environmental, Social and Governance (ESG)

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

Outlook

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

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

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

Issuance

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

The Board

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

AGM

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

Peter Moon

Chairman

12 February 2020

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

Past performance is not a guide to future performance.

Managers' Review

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

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

Progress during 2019

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

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

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

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

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

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

Equity Portfolio

What we look for

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

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

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

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

Theory and practice

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

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

ANTA Sports Products	Chinese sportswear and footwear
Partners Group	Swiss alternative asset manager
Kering	French luxury goods holding company
B3 S.A.	Brazilian stock and derivative exchange
Cochlear	Australian hearing implant business

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

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

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

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

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

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

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

Governance and Sustainability

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

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

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

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

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

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

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

Property and other investments

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

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

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

Looking forward

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

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

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

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

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

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

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

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

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

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

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

James Dow

Toby Ross

Baillie Gifford & Co

12 February 2020

 

Income Statement

	For the year ended 31 December 2019			For the year ended 31 December 2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains/(losses) on investments - securities	-	95,135	95,135	-	(31,218)	(31,218)
Net gains on investments - property	-	619	619	-	3,181	3,181
Currency losses	-	(56)	(56)	-	(159)	(159)
Income (note 2)	22,950	-	22,950	21,743	-	21,743
Management fees	(1,047)	(1,945)	(2,992)	(926)	(1,720)	(2,646)
Other administrative expenses	(1,247)	-	(1,247)	(1,073)	-	(1,073)
Net return before finance costs and taxation	20,656	93,753	114,409	19,744	(29,916)	(10,172)
Finance costs of borrowings	(1,970)	(3,659)	(5,629)	(1,986)	(3,688)	(5,674)
Net return on ordinary activities before taxation	18,686	90,094	108,780	17,758	(33,604)	(15,846)
Tax on ordinary activities	(1,590)	363	(1,227)	(1,528)	464	(1,064)
Net return on ordinary activities after taxation	17,096	90,457	107,553	16,230	(33,140)	(16,910)
Net return per ordinary share (note 4)	11.87p	62.81p	74.68p	11.75p	(23.99p)	(12.24p)

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

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

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

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

 

Balance Sheet

	At 31 December 2019		At 31 December 2018
	£'000	£'000	£'000	£'000
Non-current assets
Investments - securities	591,664		476,497
Investments - property	84,800		83,500
Deferred expenses	207		-
		676,671		559,997
Current assets
Debtors	1,501		1,739
Cash and cash equivalents	7,457		7,464
	8,958		9,203
Creditors
Amounts falling due within one year	(3,211)		(3,046)
Net current assets		5,747		6,157
Total assets less current liabilities		682,418		566,154
Creditors
Amounts falling due after more than one year		(81,930)		(82,701)
Net assets		600,488		483,453
Capital and reserves
Share capital		36,880		35,233
Share premium account		52,535		27,694
Capital redemption reserve		22,781		22,781
Capital reserve		470,949		380,492
Revenue reserve		17,343		17,253
Shareholders' funds		600,488		483,453
Net asset value per ordinary share		407.1p		343.0p
Ordinary shares in issue (note 7)*		147,520,943		140,930,943

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

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

Statement of Changes in Equity

For the year ended 31 December 2019

		Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2019		35,233	27,694	22,781	380,492	17,253	483,453
Shares issued		1,647	24,841	-	-	-	26,488
Net return on ordinary activities after taxation		-	-	-	90,457	17,096	107,553
Dividends paid in the year (note 5)		-	-	-	-	(17,006)	(17,006)
Shareholders' funds at 31 December 2019		36,880	52,535	22,781	470,949	17,343	600,488

For the year ended 31 December 2018

		Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2018		33,994	10,744	22,781	413,632	16,787	497,938
Shares issued		1,239	16,950	-	-	-	18,189
Net return on ordinary activities after taxation		-	-	-	(33,140)	16,230	(16,910)
Dividends paid in the year (note 5)		-	-	-	-	(15,764)	(15,764)
Shareholders' funds at 31 December 2018		35,233	27,694	22,781	380,492	17,253	483,453

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

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

Cash Flow Statement

	Year Ended 31 December 2019		Year Ended 31 December 2018
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	108,780		(15,846)
Net (gains)/losses on investments - securities	(95,135)		31,218
Net gains on investments - property	(619)		(3,181)
Currency losses	56		159
Finance costs of borrowings	5,629		5,674
Overseas withholding tax	(1,214)		(1,053)
Changes in debtors and creditors	183		(828)
Other non-cash changes	3		(83)
Cash from operations		17,683		16,060
Interest paid		(6,400)		(6,400)
Net cash inflow from operating activities		11,283		9,660
Cash flows from investing activities
Acquisitions of investments	(125,115)		(85,572)
Disposals of investments	104,399		78,216
Net cash outflow from investing activities		(20,716)		(7,356)
Cash flows from financing activities
Equity dividends paid (note 5)	(17,006)		(15,764)
Shares issued (note 7)	26,488		18,189
Net cash inflow from financing activities		9,482		2,425
Increase in cash and cash equivalents		49		4,729
Exchange movements		(56)		(159)
Cash and cash equivalents at 1 January (note 9)		7,464		2,894
Cash and cash equivalents at 31 December* (note 9)		7,457		7,464

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

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

 

*       

Asset Allocation

	At 31 December 2019 %		At 31 December 2018 %
Quoted equities	84.7		79.9
Bonds	2.0		4.3
Direct property	12.4		14.7
Net liquid assets	0.9		1.1
Total assets	100.0		100.0

 

List of Investments at 31 December 2019

Name	Business	Value £'000	% of total assets
Coca Cola	Beverage manufacturer	18,789	2.8
Roche Holdings	Pharmaceuticals	17,916	2.6
Procter & Gamble	Household product manufacturer	17,514	2.6
Deutsche Boerse	Securities exchange owner/operator	16,217	2.4
Fastenal	Distribution and sales of industrial supplies	15,217	2.2
Sonic Healthcare	Laboratory testing	15,125	2.2
Microsoft	Computer software	14,867	2.2
Pepsico	Snack and beverage manufacturer	14,688	2.2
Edenred	Voucher programme outsourcer	14,597	2.1
B3 S.A.	Securities exchange owner/operator	14,254	2.1
Nestlé	Food producer	14,088	2.1
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	13,977	2.0
Admiral	Car insurance	13,768	2.0
Partners Group	Asset management	13,140	1.9
Experian	Credit scoring and marketing services	12,425	1.8
GlaxoSmithKline	Pharmaceuticals, vaccines and consumer healthcare	12,034	1.8
Prudential	Life insurer	12,019	1.8
CH Robinson	Delivery and logistics	11,951	1.7
United Parcel Service	Courier services	11,729	1.7
Analog Devices	Integrated circuits	10,691	1.6
Atlas Copco	Engineering	10,450	1.5
Kuhne + Nagel	Worldwide freight forwarder	10,253	1.5
Anta Sports Products	Sportswear manufacturer and retailer	10,112	1.5
McDonald's	Fast food restaurants	9,641	1.4
Total	Integrated oil company	9,565	1.4
Kering	Luxury brand conglomerate	9,164	1.3
Wolters Kluwer	Information services and solutions provider	9,081	1.3
Schneider Electric	Electrical power products	8,882	1.3
AVI	Staple foods manufacturer	8,811	1.3
Novo Nordisk	Pharmaceutical company	8,805	1.3
Greencoat UK Wind	UK wind farms	8,446	1.3
United Overseas Bank	Commercial banking	8,444	1.2
Watsco	Distributes air conditioning, heating and refrigeration equipment	8,432	1.2
British American Tobacco	Cigarette manufacturer	8,391	1.2
Kimberly-Clarke De México	Paper-based household products	8,249	1.2
Apple	Computer technology	8,183	1.2
Sandvik	Engineering	7,587	1.1
Hiscox	Property and casualty insurance	7,545	1.1
Carsales.com	Online marketplace for classified car advertisements	7,472	1.1
Sumitomo Mitsui Trust Holdings	Trust bank and investment manager	7,465	1.1
Name	Business	Value £'000	% of total assets
Rio Tinto	Mining	7,294	1.1
Want Want	Snacks and milk-based products	6,877	1.0
China Mobile	Mobile telecommunication services	6,829	1.0
Cochlear	Hearing aids	6,806	1.0
Cullen/Frost Bankers	Provides banking services throughout the state of Texas	6,609	1.0
Hong Kong Exchanges and Clearing	Securities exchange owner/operator	6,353	0.9
Svenska Handelsbanken	Banking	6,150	0.9
Ambev	Brewing	6,077	0.9
SAP	Business software developer	6,036	0.9
Bankinter	Corporate and retail bank	5,942	0.9
National Instruments	Electronic test and measurement systems	5,937	0.9
Albemarle	Producer of speciality and fine chemicals	5,887	0.9
Amadeus IT Group	Technology provider for the travel industry	5,708	0.8
Man Wah	Sofa designer and manufacturer	5,617	0.8
Pernod Ricard	Global spirits manufacturer	5,488	0.8
Dolby Laboratories	Multimedia software	5,418	0.8
USS	Second-hand car auctioneer	5,341	0.8
Arthur J Gallagher	Insurance broker	5,258	0.8
Aberforth Split Level Income Trust	UK small-cap equities fund	4,162	0.6
Doric Nimrod Air Two	Aircraft leasing	1,797	0.3
WPP	Advertising agency	1,561	0.2
Cambium Global Timberland	Forestry investment fund	726	0.1
Terra Catalyst Fund*	Fund of European property funds	265	0.0
Total Equities		578,122	84.7
Direct Property		84,800	12.4
Direct Property	See table below
Bonds
US dollar denominated	First Quantum Minerals 7.25% 2023	2,851	0.4
	Netflix 5.375% 2029	3,774	0.6
		6,625	1.0
Brazilian real denominated	Brazil CPI Linked 15/05/2045	6,917	1.0
Total Bonds		13,542	2.0
Total Investments		676,464	99.1
Net Liquid Assets (including deferred expenses)		5,954	0.9
Total Assets		682,418	100.0
(before deduction of debenture)

*      Delisted.

Property Portfolio

Location	Type	Tenant	2019 Value £'000		2019 %  of total assets		2018 Value £'000
Basingstoke	Warehouse	G4S Cash Solutions (UK) Ltd	3,300		0.5		3,500
Biggleswade	Warehouse	Quest Automotive Products UK Limited	5,700		0.8		5,200
Cleethorpes	Public House	Stonegate Pub Company Limited	850		0.1		1,000
Crawley	Petrol Station and Convenience   Store	Co-operative Group Food Limited	3,750		0.5		3,750
Denbigh	Supermarket	Aldi Stores Limited	5,150		0.7		5,000
Dundee*	Public House	JD Wetherspoon Plc	-		-		1,300
Earley	Public House	Spirit Pub Company (Managed) Limited	2,900		0.4		3,200
Kenilworth	Nursing Home	Care UK Community Partnerships   Limited	7,200		1.1		7,200
Luton	Public House	Stonegate Pub Company Limited	3,400		0.5		3,400
Milton Keynes	Data Centre	TalkTalk Communications Limited	15,500		2.3		16,700
New Romney	Holiday Village	Park Resorts Ltd	16,300		2.4		13,200
Newport Pagnell	Car Showroom	Pendragon Plc	3,200		0.5		4,000
Otford	Public House	Spirit Pub Company (Managed) Limited	1,950		0.3		2,100
Pagham	Convenience Store	Co-operative Group Food Limited	1,200		0.2		1,300
Portsmouth*	Public House	JD Wetherspoon Plc	-		-		2,600
Prestatyn	Public House	Stonegate Pub Company Limited	1,400		0.2		1,800
Southend-on-Sea	Warehouse	Giant Booker Limited	8,000		1.2		8,250
Taunton†	Bowling Alley	Mitchells & Butlers Retail (No.2) Limited	5,000		0.7		-
			84,800		12.4		83,500

*       Sold during the year.

†      Purchased during the year.

Notes

1.	The Financial Statements for the year to 31 December 2019 have been prepared in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and on the basis of the accounting policies set out in the Annual Report and Financial Statements for the year ending 31 December 2019.
2.	Income	2019 £'000	2018 £'000
	Income from investments
	UK dividends	3,760	3,333
	Overseas dividends	13,080	12,063
	Overseas interest	736	1,170
		17,576	16,566
	Other income
	Deposit interest	33	19
	Rental income	5,310	5,133
	Other income	31	25
		5,374	5,177
	Total income	22,950	21,743
	Total income comprises
	Dividends from financial assets designated at fair value through profit or loss	16,840	15,396
	Interest from financial assets designated at fair value through profit or loss	736	1,170
	Interest from financial assets not at fair value through profit or loss	33	19
	Other income not from financial assets	5,341	5,158
		22,950	21,743
3.	Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary. Baillie Gifford & Co Limited has delegated investment management services to Baillie Gifford & Co. The management of the property portfolio has been delegated to OLIM Property Limited. The Investment Management Agreement between the AIFM and the Company sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. Compensation fees would only be payable in respect of the notice period if termination were to occur sooner. The annual management fee is 0.45% of total assets less current liabilities, excluding the property portfolio, calculated on a quarterly basis. The Board is of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence on performance. The Property Management Agreement sets out the matters over which OLIM Property Limited has discretion and those matters which require Board approval. The Property Management Agreement is terminable on three months' notice. The annual fee is 0.5% of the value of the property portfolio, subject to a minimum quarterly fee of £6,250.

 

Notes (Ctd)

4.	Net return per ordinary share	2019			2018
		Revenue	Capital	Total	Revenue		Capital	Total
	Net return per ordinary share	11.87p	62.81p	74.68p	11.75p		(23.99p)	(12.24p)
	Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of £17,096,000  (2018 - £16,230,000) and on 144,027,109 (2018 - 138,152,888) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital gain for the financial year of £90,457,000 (2018 - net capital loss of £33,140,000), and on 144,027,109 (2018 - 138,152,888) ordinary shares, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
5.	Ordinary Dividends			2019	2018		2019 £'000		2018 £'000
	Amounts recognised as distributions in the year:
	Previous year's final (paid 11 April 2019)			2.925p	2.825p		4,132		3,848
	First interim (paid 21 June 2019)			2.925p	2.825p		4,185		3,892
	Second interim (paid 20 September 2019)			2.95p	2.85p		4,279		3,953
	Third interim (paid 19 December 2019)			3.00p	2.90p		4,410		4,071
				11.80p	11.40p		17,006		15,764
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £17,096,000 (2018 - £16,230,000).
				2019		2018	2019 £'000		2018 £'000
	Dividends paid and payable in respect of the year:
	First interim (paid 21 June 2019)			2.925p		2.825p	4,185		3,892
	Second interim (paid 20 September 2019)			2.95p		2.85p	4,279		3,953
	Third interim (paid 19 December 2019)			3.00p		2.90p	4,410		4,071
	Current year's proposed final dividend (payable 9 April 2020)			3.00p		2.925p	4,426		4,132
				11.875p		11.50p	17,300		16,048
	If approved at the Annual General Meeting to be held on 2 April 2020, the final dividend of 3.00p will be paid on 9 April 2020 to all shareholders on the register at the close of business on 6 March 2020. The ex-dividend date is 5 March 2020. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 19 March 2020.
6.	The fair value of the 8% Debenture Stock 2022 at 31 December 2019 was £91.02m (2018 - £92.0m).
7.	During the year, 6,590,000 (2018 - 4,955,000) shares were issued at a premium to net asset value raising proceeds of £26,488,000 (2018 - £18,189,000). At 31 December 2019 the Company had authority to buy back 21,166,770 ordinary shares and to allot 8,640,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2019. No shares were bought back during the year.

Notes (Ctd)

8.			Transaction costs incurred on the purchase and sale of investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the year, transaction costs on purchases and sales amounted to £392,000 (2018 - £193,000) and £82,000 (2018 - £204,000) respectively. Of the gains on sales during the year of £13,630,000 (2018 - gains of £7,722,000) a net gain of £13,943,000 (2018 - gain of £19,352,000) was included in investment holding gains at the previous year end.
9.
				1 January 2019 £'000	Cash Flows £'000	Exchange Movement £'000			Other non-cash changes £'000		31 December 2019 £'000
			Cash and cash equivalents	7,464	49	(56)			-		7,457
			Debenture Stock due in more than one year	(82,701)	-	-			771		(81,930)
			Total	(75,237)	49	(56)			771		(74,473)
10.			The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
11.			The Report and Accounts will be available on the SAINTS page of the Managers' website www.saints-it.com‡ on or around 2 March 2020.
12.			Glossary of Terms and Alternative Performance Measures (APM) Total Assets Total assets less current liabilities, before deduction of all borrowings. Net Asset Value Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue. Net Asset Value (Debentures at Book Value) Borrowings are valued at adjusted net issue proceeds. Book value approximates amortised cost. Net Asset Value (Debentures at Fair Value) (APM) Borrowings are valued at an estimate of their market worth. This indicates the cost to the Company of repaying its borrowings under current market conditions. It is a widely reported measure across the investment trust industry. 31 December 2019 31 December 2018 Shareholders' funds (debenture at book value) £600,488,000  £483,453,000  Add: book value of debenture £81,930,000  £82,701,000  Less: fair value of debenture (£91,024,000) (£92,000,000) Shareholders' funds (debenture at fair value) £591,394,000  £474,154,000  Shares in issue at year end 147,520,943  140,930,943  Net Asset Value per ordinary share (debenture at fair value) 400.9p  336.4p
12.			Glossary of Terms and Alternative Performance Measures (APM) (Ctd) Discount/Premium (APM) As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium. Ongoing Charges (APM) The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies. A reconciliation from the expenses detailed in the Income Statement above is provided below.
								31 December 2019				31 December 2018
			Investment management fee					£2,992,000				£2,646,000
			Other administrative expenses					£1,247,000				£1,073,000
			Total expenses (a)					£4,239,000				£3,719,000
			Average daily cum-income net asset value (with debt at fair value) (b)					£549,105,000				£489,544,000
			Ongoing charges (a)÷(b) (expressed as a percentage)					0.77%				0.76%
			Performance Attribution (APM) Analysis of how the Company achieved its performance relative to its benchmark. Total Return (APM) The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.
						2019 NAV (book)		2019 NAV (fair)		2019 Share price	2018 NAV (book)		2018 NAV (fair)	2018 Share price
		Opening NAV per share/share price			(a)	343.0p		336.4p		351.0p	366.2p		355.6p	368.0p
		Closing NAV per share/share price			(b)	407.1p		400.9p		426.0p	343.0p		336.4p	351.0p
		Dividend adjustment factor*			(c)	1.030459		1.031180		1.030751	1.031195		1.031807	1.031624
		Adjusted closing NAV per share/share price			(d=b x c)	419.5p		413.4p		439.1p	353.7p		347.1p	362.1p
		Total return			(d÷a)-1	22.3%		22.9%		25.1%	(3.4%)		(2.4%)	(1.6%)
			* The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at the last traded price quoted at the ex-dividend date.

12.	Glossary of Terms and Alternative Performance Measures (APM) (Ctd)
	Gearing (APM) At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. Gearing represents borrowings at book less cash and cash equivalents expressed as a percentage of shareholders' funds. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. Equity gearing is the Company's borrowings adjusted for cash, bonds and property expressed as a percentage of shareholders' funds.
	Leverage (APM) For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. Active Share (APM) Active share, a measure of how actively a portfolio is managed, is the percentage of the listed equity portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

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Automatic Exchange of Information In order to fulfil its legal obligations under UK tax legislation relating to the automatic exchange of information, The Scottish American Investment Company P.L.C. is required to collect and report certain information about certain shareholders. The legislation requires investment trust companies to provide personal information to HMRC on certain investors who purchase shares in investment trusts. Accordingly, The Scottish American Investment Company P.L.C. will have to provide information annually to the local tax authority on the tax residencies of a number of non-UK based certificated shareholders and corporate entities. Shareholders, excluding those whose shares are held in CREST, who come on to the share register will be sent a certification form for the purposes of collecting this information.

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

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

‡    Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

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