Scot.American Inv. - Annual Financial Report
27/02/2024 12:26
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RNS Number : 6429E Scottish American Investment Co PLC 27 February 2024
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 15 February 2024, 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 2023, including the Notice
of Annual General Meeting, 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 15 February 2024).
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 64 and 65 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 42 to
45 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 Russia-Ukraine
conflict, heightened tensions between China and both the US and Taiwan and the
developing situation in the Middle East) and macroeconomic concerns (including
increased inflation and interest rates) to be factors which exacerbate
existing areas of risk as categorised and further explained on the following
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 This risk increased due to increased market volatility as a result of
its principal and emerging risks are therefore market related and include volatility from macroeconomic factors, including increased inflation and heightened geopolitical concerns and macroeconomic factors, including
market risk (comprising currency risk, interest rate risk and other price interest rates, and geopolitical concerns. To mitigate this risk at each Board increased inflation and interest rates.
risk), liquidity risk and credit risk. An explanation of those risks and how meeting the Manager provides an investment policy paper which includes a
they are managed is contained in note 18 to the Financial Statements on pages detailed explanation of significant stock selection decisions and the overall
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 This risk is increased as the market's appetite for investment risk, and
Company's objective which the market perceives to be unattractive or objective and investment policy and strategy; the investment portfolio and its willingness to pay for future growth, has reduced during the recent period of
inappropriate, or the ineffective implementation of an attractive or performance; the level of discount/premium to net asset value at which the heightened macroeconomic and geopolitical concern. Increased inflation has
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 impacted the achievement of real dividend growth over the shorter term.
result, a decreased demand for the Company's shares. This may lead to the concern with the Managers.
Company's shares trading at a widening discount to their net asset value.
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 The Company's shares traded at both a premium and a discount during the year.
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 1,565,000 shares were issued and no shares were bought back during the year.
that it may undermine investor confidence in the Company. Board to be in the best interests of the Company and its shareholders.
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 The Investment Manager and Property Manager continued to employ strong ESG
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 stewardship and engagement policies.
shares being less attractive to investors, adversely affecting its share view on the Managers' website: saints-it.com (http://www.saints-it.com) , both
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
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 66 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 88 to 90 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 All control procedures were working effectively and there were no material
requirements such as the tax rules for investment companies, the FCA Listing Compliance departments provide regular reports to the Audit Committee on regulatory changes that have impacted the Company during the year.
Rules and the Companies Act could lead to suspension of the Company's Stock Baillie Gifford's monitoring programmes. Major regulatory change could impose
Exchange listing, financial penalties, a qualified audit report or the Company disproportionate compliance burdens on the Company. In such circumstances
being subject to tax on capital gains. 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.
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 All control procedures were working effectively.
compromised through control failures by the Depositary, including breaches of Depositary confirming safe custody of the Company's assets held by the
cyber security. Custodian. Cash and portfolio holdings are independently reconciled to the
Custodian's records by the Managers. The Custodian's assured 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.
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 All control procedures were working effectively.
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
Gifford's Report on Internal Controls and reports by other key third party
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 The Company has long term borrowings in place in form of its loan notes, which
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 have maturity dates in 2036, 2045 and 2049.
borrowings will magnify the extent of this loss. If borrowing facilities are and covenant levels are monitored regularly. Details of the Company's current
not renewed, the Company may have to sell investments to repay borrowings. The borrowings can be found in note 12 on page 95 of the Annual Report and
Company can also make use of derivative contracts. Financial Statements. The majority of the Company's investments are in quoted
securities that are readily realisable. Further information on leverage can be
found on page 112 and the glossary of terms and alternative performance
measures on pages 118 to 120 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 This risk is increased as governments and consumers around the world continue
invest may have practical consequences for the Company. Managers. Following the departure of the UK from the European Union and the
subsequent trade agreement between the UK and the European Union, the Board to assess the impact of heightened geopolitical tensions.
continues to assess the potential consequences for the Company's future
activities including those which may arise from further constitutional change.
The Board also remains watchful of broader geopolitical tensions and the
associated potential for armed conflict. The Board considers 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 This risk is seen as increasing due to recent indications that the
third party service provider could impact the confidentiality, integrity or Controls published by Baillie Gifford and other third party service providers. continuation of geopolitical tensions could lead to cyber attacks. Emerging
availability of data and systems. Baillie Gifford's Business Risk Department report to the Audit Committee on technologies, including AI, could potentially increase information security
the effectiveness of information security controls in place at Baillie Gifford risks. In addition, service providers operate a hybrid approach of remote and
and its business continuity framework. Cyber security due diligence is office working, thereby increasing the potential of a cyber security threat.
performed by Baillie Gifford on third party service providers which includes a
review of crisis management and business continuity frameworks.
Emerging risks: As explained on pages 64 and 65 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
27 February 2024
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