REG - Scot.American Inv. - Annual Financial Report
05/03/2025 07:00
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RNS Number : 3437Z Scottish American Investment Co PLC 05 March 2025
The Scottish American Investment Company P.L.C. ('SAIN')
Legal Entity Identifier: 549300NF03XVC5IFB447
Regulated Information Classification: Annual Financial and Audit Reports
Annual Report and Financial Statements
Further to the statement of audited annual results announced to the Stock
Exchange on 13 February 2025, The Scottish American Investment Company P.L.C.
("SAINTS" or "the Company") announces that the Company's Annual Report and
Financial Statements for the year ended 31 December 2024, including the Notice
of Annual General Meeting, to be held on 8 April 2025, has today been posted
to shareholders and submitted electronically to the National Storage Mechanism
where it will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
It is also available on the SAINTS page of the Baillie Gifford website at:
saints-it.com (http://www.saints-it.com) (as is the statement of audited
annual results announced by the Company on 13 February 2025).
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The SAINTS Directors confirm that, to the best of their 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;
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; and
¾ the Annual Report and Financial Statements taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Principal and Emerging Risks relating to the Company
As explained on pages 68 and 69 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 and emerging risks facing the Company
including those that would threaten its business model, future performance,
regulatory compliance, solvency or liquidity. There have been no significant
changes to the principal risks during the year. A description of these risks
and how they are being managed or mitigated is set out below. On pages 46 to
49 of the Annual Report and Financial Statements, an upwards arrow, dash or
downwards arrow has been included to show if the risk level has increased, not
changed or decreased since it was reported in last year's Annual Report and
Financial Statements.
The Board considers geopolitical concerns including the war in Ukraine,
China/US tensions and the conflict in the Middle East and macroeconomic
concerns (including inflation and interest rates) to be factors which
exacerbate existing areas of risk as categorised and further explained below.
What is the risk? How is it managed? Current assessment of risk
Financial risk: The Company's assets consist mainly of listed securities and The Board has, in particular, considered the impact of heightened market Risk level: High
its principal and emerging risks are therefore market related and include volatility from macroeconomic factors, including inflation, continued high
market risk (comprising currency risk, interest rate risk and other price interest rates and geopolitical concerns. To mitigate this risk at each Board This risk is considered to have increased. Although macroeconomic risks such
risk), liquidity risk and credit risk. An explanation of those risks and how meeting the Manager provides an investment policy paper which includes a as inflation have reduced, the prospect of market volatility remains from
they are managed is contained in note 18 to the Financial Statements on pages detailed explanation of significant stock selection decisions and the overall deteriorating geopolitical stability.
97 to 102 of the Annual Report and Financial Statements. 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.
The value of the Company's investment portfolio and its income stream would be
affected by any currency movements, but the Board believes the nature and
diversification of the Company's equity portfolio moderates such risks.
What is the risk? How is it managed? Current assessment of risk
Investment strategy risk: Pursuing an investment strategy to fulfil the To mitigate this risk, the Board regularly reviews and monitors the Company's Risk level: High
Company's objective which the market perceives to be unattractive or objective and investment policy and strategy; the investment portfolio and its
inappropriate, or the ineffective implementation of an attractive or performance; the level of discount/premium to net asset value at which the This risk is considered to be stable as there are signs that the market's
appropriate strategy, may lead to reduced returns for shareholders and, as a shares trade; and movements in the share register and raise any matters of appetite for investment risk, and willingness to pay for future growth, is
result, a decreased demand for the Company's shares. This may lead to the concern with the Managers. recovering despite ongoing macroeconomic and geopolitical concerns. Lower
Company's shares trading at a widening discount to their net asset value. inflation has improved the achievement of real dividend growth over the
shorter term.
What is the risk? How is it managed? Current assessment of risk
Discount risk: The discount/premium at which the Company's shares trade The Board monitors the level of discount/premium at which the shares trade and Risk level: High
relative to its net asset value can change. The risk of a widening discount is the Company has authority to buy back its existing shares when deemed by the
that it may undermine investor confidence in the Company. Board to be in the best interests of the Company and its shareholders. The Company's shares began the year trading at a premium and moved to a
discount early in January 2024 where it remained for the rest of the year. The
Company's shares traded at an average discount of 6.2% since moving to a
discount and it bought back 1,665,185 shares. No shares were issued.
What is the risk? How is it managed? Current assessment of risk
Climate and governance risk: Perceived problems on Environmental, Social and This is mitigated by the Investment Managers' strong ESG stewardship and Risk level: Moderate
Governance ('ESG') matters in an investee company could lead to that company's engagement policies, and the Board's own ESG policy, which is available to
shares being less attractive to investors, adversely affecting its share view on the Managers' website: saints-it.com (http://www.saints-it.com) , both The Investment Manager and Property Manager continued to employ strong ESG
price, in addition to potential valuation issues arising from any direct of which have been adopted by the Company, and which are fully integrated into stewardship and engagement policies.
impact of the failure to address the ESG weakness on the operations or the investment process as well as the extensive up-front and ongoing due
management of the investee company (for example in the event of an industrial diligence which the Investment Manager undertakes on each investee company.
accident or spillage). Environmental factors are also of significant The due diligence conducted by the Investment Manager and Property Manager
importance in relation to the property investments as, for example, flood risk includes assessment of the risks inherent in climate change (see page 70 of
or the use of deleterious materials could reduce the attractiveness of a the Annual Report and Financial Statements). The Directors have considered the
property and potentially its valuation and rental income prospects. Repeated impact of climate change on the Financial Statements of the Company and this
failure by the Investment Manager and Property Manager to identify ESG is included in note 1 to the Financial Statements on pages 92 to 93 of the
weaknesses in investee companies or property investments, could lead to the Annual Report and Financial Statements.
Company's own shares being less attractive to investors, adversely affecting
its own share price.
What is the risk? How is it managed? Current assessment of risk
Regulatory risk: Failure to comply with applicable legal and regulatory To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Risk level: Low
requirements such as the tax rules for investment companies, the FCA Listing Compliance departments provide regular reports to the Audit Committee on
Rules and the Companies Act could lead to suspension of the Company's Stock Baillie Gifford's monitoring programmes. Major regulatory change could impose This risk is considered to be unchanged. All control procedures were working
Exchange listing, financial penalties, a qualified audit report or the Company disproportionate compliance burdens on the Company. In such circumstances effectively and there were no material regulatory changes that have impacted
being subject to tax on capital gains. Changes to the regulatory environment representation is made to ensure that the special circumstances of investment the Company during the year.
could negatively impact the Company. 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.
What is the risk? How is it managed? Current assessment of risk
Custody and depositary risk: Safe custody of the Company's assets may be To mitigate this risk, the Board receives six-monthly reports from the Risk level: Low
compromised through control failures by the Depositary, including cyber Depositary confirming safe custody of the Company's assets held by the
security incidents. Custodian. Cash and portfolio holdings are independently reconciled to the This risk is considered to be unchanged. All control procedures were working
Custodian's records by the Managers. The Custodian's internal controls effectively.
assurance 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.
What is the risk? How is it managed? Current assessment of risk
Operational risk: Failure of Baillie Gifford's systems or those of other third To mitigate this risk, Baillie Gifford has a comprehensive business continuity Risk level: Low
party service providers could lead to an inability to provide accurate plan which facilitates continued operation of the business in the event of a
reporting and monitoring or a misappropriation of assets. service disruption or major disaster. The Audit Committee reviews Baillie This risk is considered to be unchanged. All control procedures were working
Gifford's Report on Internal Controls and reports by other key third party effectively.
providers are reviewed by Baillie Gifford on behalf of the Board and a summary
of the key points is reported to the Audit Committee and any concerns
investigated. The other key third party service providers have not experienced
significant operational difficulties affecting their respective services to
the Company.
What is the risk? How is it managed? Current assessment of risk
Leverage risk: The Company may borrow money for investment purposes (sometimes To mitigate this risk, all borrowings require the prior approval of the Board Risk level: Low
known as 'gearing' or 'leverage'). If the investments fall in value, any and leverage levels are discussed by the Board and Managers at every meeting
borrowings will magnify the extent of this loss. If loan covenants are and covenant levels are monitored regularly. Details of the Company's current This risk is considered to be unchanged. The Company has long term
breached, the Company may have to sell investments to repay borrowings. The borrowings can be found in note 12 on page 99 of the Annual Report and borrowings in place in form of its loan notes, which have maturity dates in
Company can also make use of derivative contracts. Financial Statements. The majority of the Company's investments are in quoted 2036, 2045 and 2049.
securities that are readily realisable. Further information on leverage can be
found on page 116 and the glossary of terms and alternative performance
measures on pages 122 to 124 of the Annual Report and Financial Statements.
What is the risk? How is it managed? Current assessment of risk
Political risk: Political change in areas in which the Company invests or may Political developments are closely monitored and considered by the Board and Risk level: High
invest may have practical consequences for the Company. Managers. The Board continues to assess the potential consequences for the
Company's future activities including those which may arise from growing This risk is considered to be increasing as governments and consumers around
protectionism. The Board also remains watchful of broader geopolitical the world continue to assess the impact of heightened geopolitical tensions
tensions and the associated potential for armed conflict. The Board considers and conflicts as well as challenging macroeconomic conditions.
the nature and diversification of the Company's investments provides a good
degree of protection against such political risks.
What is the risk? How is it managed? Current assessment of risk
Cyber security risk: A cyber attack on Baillie Gifford's network or that of a To mitigate this risk, the Audit Committee reviews Reports on Internal Risk level: Moderate
third party service provider could impact the confidentiality, integrity or Controls published by Baillie Gifford and other third party service providers.
availability of data and systems. Emerging technologies, including AI and Baillie Gifford's Business Risk Department report to the Audit Committee on This risk is considered to be increasing due to recent indications that the
quantum computing capabilities, may introduce new, and increase existing the effectiveness of information security controls in place at Baillie Gifford continuation of geopolitical tensions and an observed increase in malign cyber
information security risks that impact operations. and its business continuity framework. Cyber security due diligence is activity. Emerging technologies, including AI, could potentially increase
performed by Baillie Gifford on third party service providers which includes a information security risks. In addition, service providers operate a hybrid
review of crisis management and business continuity frameworks. approach of remote and office working, thereby increasing the potential of a
cyber security threat.
Emerging risks: As explained on pages 68 and 69 of the Annual Report and
Financial Statements, the Board has regular discussions on principal risks and
uncertainties, including any risks which are not an immediate threat but could
arise in the longer term. The Board considers that the key emerging risks
arise from the interconnectedness of global economies and the related exposure
of the investment portfolio to external and emerging threats such as
escalating geopolitical tensions, cyber security risks including developing AI
and quantum computing capabilities, and new coronavirus variants or similar
public health threats. This is mitigated by the Board discussing at each Board
meeting global economic and geopolitical factors and how these might impact
the Company. The Board also considers the Investment Managers' close links to
the investee companies and its ability to ask questions on contingency plans.
The Investment Manager believes the impact of such events may be to slow
growth rather than to invalidate the investment rationale. The Managers
monitor certain emerging risks and have established a group to manage the
response to any future events that might result in heightened levels of market
volatility. Regular exercises are carried out to test the Managers' response
to various scenarios.
Baillie Gifford & Co Limited
Company Secretaries
5 March 2025
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