Scot.American Inv. - SAINTS' Annual Results to 31 Dec 2023
15/02/2024 07:00
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RNS Number : 1961D Scottish American Investment Co PLC 15 February 2024
RNS Announcement
The Scottish American Investment Company P.L.C.
Legal Entity Identifier: 549300NF03XVC5IFB447
Regulated Information Classification: Additional regulated information
required to be disclosed under the applicable laws and regulations.
The following is the results announcement for the year to 31 December 2023
which was approved by the Board on 14 February 2024.
Results for the year to 31 December 2023 and Board and Manager updates
¾ Dividend - The full year dividend, including a recommended final dividend
of 3.80p, is 14.10p per share. This is 2% higher than the 2022 dividend,
extending the Company's record of dividend increases to fifty consecutive
years. This year's increase is modest when set against last year's 9% increase
and, whilst inflation has moderated somewhat since last year, does not match
the annual rate of inflation of 4% as measured by CPI over 2023.
¾ Revenues - Income was £30m (2022 - £30m) and earnings per share were
13.48p (2022 - 13.82p).
¾ Total return(*) - SAINTS delivered a strong absolute return over the
year: its share price total return was 8.2% and the net asset value total
return (capital and income with borrowing at fair) was 11.8%. However, SAINTS'
returns did not keep up with global equities(†) which returned 15.7% over
2023. SAINTS' share price return has, in common with investment trusts
generally, been affected by a broadening of discounts.
¾ In a year when the market's returns were driven by a handful of large US
technology companies SAINTS' relative performance has been affected by both
its focus on equities which pay dividends and its investments in diversifying
assets which enhance the portfolio's yield. Both are features which the Board
regards as intrinsic strengths of SAINTS in its pursuit of its objectives over
the long term.
¾ SAINTS aims to grow its dividend ahead of inflation over the long term.
Over the past ten years SAINTS has increased its dividend at an annualised
rate of 3.3% per annum, which compares with UK CPI of 2.9%.
¾ SAINTS also aims to deliver attractive returns over the long term -
SAINTS' NAV total return (with borrowings at fair value) has exceeded that of
both global equities generally and that of the global equity income sector
over the past five and ten years.
¾ Outlook - The Board remains of the view that a long-term approach based
on investing globally for sustainable growth is the best route to achieving
SAINTS' aims. In addition, we are encouraged that the Managers have continued
to find new and attractive opportunities. We retain great confidence in the
Managers, and this confidence has been further strengthened by the operational
performance of SAINTS' holdings over the past year.
Board update
In April 2023, it was announced that Bronwyn Curtis would not be seeking
re-election to the Board in 2024. It remains her intention not to do so, and
she will step down at the conclusion of this year's AGM. At the Board's
request, Dame Mariot Leslie has agreed, subject to her re-election as a
Director, to take over as Senior Independent Director following Bronwyn's
retirement.
Manager update
Toby Ross is today stepping back from his role as manager of SAINTS to
concentrate on his other responsibilities at Baillie Gifford. The Board thanks
Toby for his significant contribution to SAINTS in recent years, and looks
forward to continuing to work with James Dow as manager and Ross Mathison as
deputy manager in the coming years.
* See Glossary of Terms and Alternative Performance Measures at
the end of this announcement.
† As measured by the total return of the FTSE All-World Index (in
sterling terms).
Source: Morningstar/LSEG/Baillie Gifford and relevant underlying index
providers
14 February 2024
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 £224 billion under management and advice as at 14 February
2024.
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 saints-it.com
(http://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 Ross Mathison, Managers, The Scottish American Investment
Company P.L.C.
Tel: 0131 275 2000
James Budden, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
Chairman's statement
SAINTS' objective is to deliver real dividend growth by increasing capital and
growing income. The Board is recommending a final dividend which will bring
the total dividends for the year to 14.10p per share, an increase of 2% over
the previous year. The Company continues to meet its objective of growing
dividends ahead of inflation over the long term, and the recommended dividend
will also extend the Company's record of raising its dividend to fifty
consecutive years.
Overview
2023 has been a strange year for the world and in investment markets.
Macroeconomics and geopolitics have remained to the fore, but the intense
focus on inflation and the path of interest rates, and on whether the landing
will be hard or soft, has meant that economic news which seems bad has often
been taken by the market as good. A war is raging in Europe, yet the vagaries
of US and European politics have tested the strength of Western support, even
as the crisis in the Middle East has diverted attention elsewhere. Tensions
with and challenges within China continue to have far reaching effects, from
onshoring in the US to heightened fears over the future of Artificial
Intelligence ('AI'). And at the coalface, companies have had to contend with
rising debt costs, a banking crisis in the US, customers with falling real
wages and the prospect of faltering demand.
However, whilst there have been many causes of concern, as envisaged a year
ago economies have continued to grow. Central banks may have been slow to
respond to the inflationary threat. But they have subsequently shown admirable
independence in doing what is necessary to bring inflation under control.
Inflationary pressures have subsided, and interest rate expectations have
moved downwards, providing some support in the final months of the year both
to equity and property prices. The market has climbed the proverbial wall of
worry, helped by earnings which, collectively and thus far, have continued to
rise. But the pattern of performance within the market has been unusual: its
gains have been highly concentrated, driven by a handful of very large
technology companies in the US which are taken as being in an AI sweetspot,
augmented by beneficiaries of strong energy prices and high interest rates.
In this environment, SAINTS' emphasis on steady earnings growth and
dependability has stood the Company in good stead in terms of both the
operational performance of its holdings and its absolute NAV performance.
But unsurprisingly its NAV returns have not kept pace with the market and, in
the context of a widening of discounts across the investment trust sector,
SAINTS' share price has not kept pace with its NAV over the year.
For the long term investor, however, it is the underlying growth and the
growth prospects of SAINTS' holdings which are of most importance. And here
the Managers' Review (below) tells an encouraging story.
Given the long-term nature of the Company's objectives, it is worth
emphasising both SAINTS' successful record of raising its dividend ahead of
inflation over the long term, and the strong total returns it has delivered.
In particular, as SAINTS' 150th anniversary year draws to a close, the Board
and the managers are pleased that 2023 marked the fiftieth successive year of
dividend growth for SAINTS' shareholders.
Dividend and Inflation
The Board recommends a final dividend of 3.80p which will take the full year
dividend to 14.10p per share, 2% higher than the 2022 dividend of 13.82p. This
year's increase is modest when set against last year's 9% increase and, whilst
inflation has moderated since last year, does not match the annual rate of
inflation of 4% as measured by CPI over 2023.
It remains the Company's objective to deliver real dividend growth over the
long term, and over the last ten years the Company's dividends have in the
round increased at a rate (3.3% per annum) which has been above the rate of
inflation (2.9% per annum).
Revenues
Whilst investment income has remained steady at £30m, earnings per share
dipped to 13.48p over the year, a decrease of 2.5%. Operational performance of
the holdings has been generally encouraging. Equity income has fallen a
little, due to a reduction in special dividends during the year.
Infrastructure dividends grew healthily, while income from bonds dropped back
due to a combination of exchange rates and divestments to fund property
purchases. Rental income from property was a little lower, as the property
managers made a number of sales with a view to reinvesting the proceeds to
enhance the quality, dependability and lease length of the portfolio: to this
end, the purchase of the M23 Pease Pottage motorway service area, which was
completed after the year end, is a welcome addition to the portfolio. Despite
all that, and modest share issuance, revenues per share before tax were
broadly in line with last year. However, there was an increase in the rate of
taxation during the year, which was partly due to withholding taxes on
dividends, and partly a function of a higher corporation tax rate in the UK.
This increase in taxation largely accounts for the slight drop in earnings per
share.
Both managers (Baillie Gifford and, for the Company's property investments,
OLIM) continue to focus on supporting the dependability and the future growth
of the Company's dividend in line with its objective.
Total Return Performance
SAINTS delivered a strong absolute return over the year: its share price total
return was 8.2% and the net asset value total return (capital and income with
borrowing at fair) was 11.8%. However, SAINTS' returns did not keep up with
global equities (as measured by the total of return of the FTSE All-World
Index in sterling terms) which returned 15.7% over 2023. As mentioned above,
SAINTS' share price return has, in common with investment trusts generally,
been affected by a broadening of discounts.
There were two principal reasons why SAINTS' NAV return did not keep pace with
the market, both of which relate to features which the Board regard as
intrinsic strengths of SAINTS. The first is the nature of its equity
portfolio, which is built for and has delivered dependability and growth in
income and capital over the long term. Many of the large technology related
companies which have dominated market returns over the year do not sit well
with this approach, and so SAINTS has not owned them. Consequently, the equity
portfolio, which accounts for the major part of your Company's assets, has
lagged the market.
The second reason relates to SAINTS' diversification of assets and in
particular to its property investments. These bring benefits in terms of
diversifying sources of return, spreading risk and boosting revenues, but will
not always keep pace with equities. This year, they have not done so, and the
return from the property portfolio has been negative.
The Managers and your Board have a long-term perspective and we would
therefore encourage shareholders to assess your Company's performance over the
long term. SAINTS has delivered a strong NAV return of 84.5% over the past
five years, handsomely outperforming the 72.7% average return of the Global
equity income sector and the 77.8% return of global equities as measured by
the Company's benchmark. It is noteworthy also that SAINTS' property holdings
have returned 39.2% over the past five years, outperforming the property
sector more generally.
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
In recent years SAINTS' long term borrowings have been refinanced and modestly
increased at advantageous interest rates. The cost of these borrowings in just
under 3% per annum.
The book value of the total borrowings is £94.7m which, at the year end, was
equivalent to approximately 10.1% of shareholders' funds. The estimated market
or fair value of the borrowings was £68.2m, an increase from the previous
year's value of £65.5m.
Environmental, Social and Governance (ESG)
It is important to emphasise that the Board of SAINTS recognises the
importance of considering Environmental, Social and Governance (ESG) factors
when making investments, and in acting as a responsible steward of capital. We
consider that Board oversight of such matters is an important part of our
responsibility to shareholders, and SAINTS' ESG Policy is available to view on
the Company's website (saints-it.com).
The Board has been strongly supportive of Baillie Gifford's approach and of
their constructive engagement with the companies you own, and with potential
holdings, in relation to crucially important challenges including climate
change. The Board is also supportive of OLIM's approach in relation to
property, and in particular of its consideration of environmental factors
including climate change in assessing the suitability of SAINTS' investments.
I would encourage shareholders to read SAINTS' annual Stewardship Report which
can also be accessed on the Company's website (saints-it.com). There is also
further detail in the Managers' Review.
Issuance and buybacks
Over the year the Company has raised £8.3m from new share issuance, at a
premium to net asset value prevailing from time to time in order to satisfy
investor demand. This is the ninth year in a row when the Company has been
able to issue shares. Such issuance serves the interests of existing
shareholders by enhancing net asset value, reducing costs per share and
helping further to improve liquidity. No shares were bought back during the
year.
The Board and the Managers
In April 2023, it was announced that Bronwyn Curtis would not be seeking
re-election to the Board in 2024. It remains her intention not to do so, and
she will step down at the conclusion of this year's AGM. We thank her for her
wise contribution over many years of service as a Director and, more recently,
as the Senior Independent Director. At the Board's request, Dame Mariot Leslie
has agreed, subject to her re-election as a Director, to take over as Senior
Independent Director following Bronwyn's retirement.
The Board, assisted by external consultants, conducted a recruitment exercise
during 2023 and in November were pleased to announce Padmesh Shukla will be
joining the Board on 20 February 2024. Padmesh is the Chief Investment Officer
of the Transport For London Pension Fund, and has over 25 years of investment
experience, including 12 years in his current role at TFL. He was formerly
head of Climate Change Financing at the London Development Agency, and prior
to that he had worked at the World Bank, as a Researcher at Harvard and in
real estate. He is currently a member of the Church of England Pensions
Investment Committee. His appointment will fall to be ratified by shareholders
at the AGM in 2024.
It was announced at the beginning of August that Ross Mathison had become
deputy manager of SAINTS. Toby Ross is today stepping back from his role as
manager of SAINTS to concentrate on his other responsibilities at Baillie
Gifford. The Board thanks Toby for his significant contribution to SAINTS in
recent years, and looks forward to continuing to work with James Dow as
manager and Ross Mathison in the coming years.
Outlook
The coming year will be full of political uncertainty, with voters in
countries representing half the world's population going to the polls.
However, in my view, commentators tend to overemphasise the role of politics
in economic performance. Of course, there are occasional outliers - France
in 1981 and the UK in the autumn of 2022 come to mind - but poor policy
choices are generally corrected sooner than later. And independent central
banks, and the rule of law, provide a degree of protection. The recent
resilience of the world economy has been encouraging. But the full force of
higher interest rates has yet to work its way through the system. As it does,
growth could become more challenging and corporate results may fall below
expectations. Whether the landing is soft or hard, it is likely to be a year
in which pricing power and balance sheet strength are of growing importance.
At the same time, both the changing world and entrenched competitive
advantages will continue to present opportunities for secular growth at the
company level. And lower valuations will provide buying opportunities across
asset classes.
As a Board, we believe a 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. As we look ahead, we also take
considerable comfort from the nature of SAINTS' investments, and from the
managers' emphasis on quality, on dependability and on growth far out into the
future. We are encouraged that, as is outlined further in the Managers'
Review, Baillie Gifford have continued to find new and attractive
opportunities, and we also believe that both the quality and duration of
SAINTS' property portfolio have been enhanced over the past year.
SAINTS has been working for individual investors for 150 years. It is built
to help shareholders' income keep pace with inflation, as well as providing
capital growth. And it is built for resilience.
AGM
The AGM will be held at 11.30am on Thursday 4 April 2024 at Baillie Gifford's
offices at Calton Square, 1 Greenside Row, Edinburgh. The meeting will be
followed by a presentation from the managers. Shareholders are cordially
invited to attend the meeting and presentation.
I would remind shareholders that they are able to submit proxy voting forms
before the applicable deadline and also to direct any questions or comments
for the Board in advance of the meeting through the Company's Managers, either
by emailing trustenquiries@bailliegifford.com or calling 0800 917 2112
(Baillie Gifford may record your call).
Finally, my fellow Directors and I send you all our very best wishes for the
year ahead.
Lord Macpherson of Earl's Court
Chairman
14 February 2024
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement
Source: LSEG/Morningstar/Baillie Gifford and relevant underlying index
providers. See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
Managers' review
During the past few years it seems that some parts of the media have become,
for want of a better word, hysterical. Even the financial press, which used to
be renowned for walking a line between dry and tedious, has often joined the
fray of shouty headlines and breathless articles. This is understandable.
Technology has disrupted the business models of traditional media channels.
In a digital world, whoever conjures the most shocking headlines will gather
the most clicks. And whoever accumulates the most clicks might be able to keep
their jobs.
The headlines blaring at investors at the start of 2023 were alarming.
Inflation was proving "untameable", central banks were hiking "too
aggressively", and an economic "hard landing" was certain. Investor
confidence declined, and stock markets fell. By March, the mood had
changed. Inflation seemed to be peaking. Many of the grim predictions at the
start of the year, like crashing house prices and tumbling profits, were
swiftly forgotten. In their place appeared two words promising great riches:
"Artificial Intelligence". The stock market began a triumphant rise, which
would continue until the summer.
Gloom then returned. Economic data looked "hot", and inflation seemed
persistent. Stocks fell. By November, behold! The data looked more
friendly. Fears of war between the US and China, which had generated dire
forecasts only months earlier, now receded. The stock market began another
charge upwards, buoyed by a new hope: interest rate reductions. Stock indices
reached new heights at the dawn of 2024. "Time to buy!" was the headline.
For the long-term investor, who is earnestly attempting to grow their capital
and income over a period of many years, this hysteria is unhelpful. It is
rather like trying to hold a conversation at a dinner-party while being
repeatedly interrupted by a drunken guest, who veers endlessly between loud
euphoria and wallowing self-pity. An unfortunate distraction.
Over the multi-year periods that matter to serious savers and investors, stock
prices and dividends tend largely to follow company earnings. The key task for
portfolio managers, therefore, is to identify companies with strong prospects
of growing their earnings over many years. These prospects are unlikely to be
affected by the monthly mood swings of the media. It is a job best done when
sober.
We keep this long-term perspective in mind when we look back at 2023. In the
headlines it was a year of enormous ups and downs. But what about the
investments in SAINTS' portfolio? Did they largely deliver in-line with our
long-term expectations for their growth in earnings and dividends?
The short answer is: yes. The more nuanced answer is that some grew faster
while others saw earnings fall. But in almost every case we are satisfied that
their long-term growth remains on-track. We expect this to drive continued
compounding in capital and dividends in the years ahead. Here are some of the
highlights.
Equity portfolio highlights
The total return from the equity portfolio(†) last year was 13.9%.
One of the standouts from the portfolio was Atlas Copco, the global compressor
and industrial tool business, based in Sweden. This well-managed company is
religiously focused on innovation to drive growth, and it is always on the
look-out for strong niche businesses to acquire. Revenues in 2023 increased
22%, of which 8% came from acquisitions. Operating profit grew 23% and
earnings per share rose by more than 30%. The dividend was raised by 22%,
while maintaining a prudent payout ratio below 50%. Some of the strength in
Atlas's growth last year was cyclical, and we would not expect the company to
continue growing at these rates every single year. But taking a longer-term
perspective, we note that over the past five years the company has compounded
its earnings higher at an average rate of 10% a year, while the dividend has
grown by 12% a year. This is exactly the sort of inflation-busting growth
that drives real capital and dividend appreciation for SAINTS' shareholders,
over the long-term. It's exactly the reason we invest almost 100% of SAINTS'
NAV in growing companies that pay dividends, and take a long-term mindset
amidst the noise of the markets.
Other strong performers in the equity portfolio last year included Watsco, the
heating, ventilation and air conditioning distributor, and Fastenal, the
industrial equipment distributor. Again, both are companies with terrific
track records of entrepreneurship and growth, which have compounded their
earnings and dividends at inflation-beating rates for many years. They
continued to deliver in 2023, and we remain optimistic about their potential
for continued growth in the years to come.
Novo Nordisk, the Danish pharmaceutical company, was another highlight of the
year. Its pioneering medicine for appetite control, which its scientists
have spent years investigating, whilst running clinical trials of thousands of
patients to establish that it is both effective and safe, has resulted in
significant earnings growth at the company. Since our investment in 2016 for
SAINTS, it has been a strong performer. Earnings have broadly doubled, as
has its dividend, meaning compound growth of about 10% per year. In 2023
there was a continued flow of good data from its clinical trials, showing
reduced risk of heart attacks for patients. This data is likely to drive
continued uptake of its new medicine, and revenue and profit growth in the
years ahead.
Our natural inclination is to let winners run, to capture the true benefits of
compounding. But we are also mindful of diversification, so we trimmed the
Novo Nordisk holding a little during the year, to prevent it from dominating
the portfolio. It remains a large holding however, and we look forward with
optimism to its continued growth.
Of the almost 60 holdings in the equity portfolio, we estimate that about a
dozen saw a reduction in profits compared with 2022. In most of these cases
our investigations suggest the root cause was cyclical and short-term in
nature. For example, Sonic Healthcare, the lab testing company, and Roche,
the pharmaceutical company, both saw their earnings drop in 2023. In both
cases this was due partly to the wind-down of emergency COVID testing, which
had lifted their profits in the past couple of years. The waning of this
temporary boost does not undermine our view that both companies have good
long-term potential for earnings and dividends growth over the next 10 years.
Not all of our investments will, of course be successful. We try hard to
be patient, as long-term managers, but sometimes it becomes apparent that our
investment case is simply wrong, and that growth is not materialising to the
extent we hoped. In these cases we will divest, and put the capital to work
in better companies. A small number of holdings had a weak 2023 that could not
be excused by any cyclical headwind. In some cases our review of them led to a
re-evaluation of their future prospects. During the year we divested from six
holdings.
One of them was Want Want, the Chinese rice cracker and soft drink
manufacturer. It had been a disappointing investment, with low earnings growth
over a number of years. At first we thought this was due to temporary input
cost pressure, impacting margins, and we patiently maintained our investment
while the company put in place a number of actions to restore profits and
growth. Over time, however, we recognised a more concerning issue. The Board
seemed to have become too focused on short-term profits, which had made the
company slow to recognise changing consumer preferences in China. It had
resisted a shift towards modern distribution channels, and had failed to
develop key new products. After visiting the company in China during 2023, and
seeing limited prospects for change, we sold the position.
We also sold SAINTS' holding in Cullen Frost, the US regional bank. When we
invested several years ago our hope had been that continued growth in the
population of Texas, which like most 'SunBelt' states is experiencing steady
inflows of people, combined with the bank's huge deposit base and strong
brand, would allow Cullen Frost to grow its loan book and earnings
substantially. But progress has been frustratingly slow, with intense
competition in the local market. At the start of 2023 the fragility of the
US banking system was highlighted by a series of local bank runs. Cullen Frost
was not directly affected, but it changed our view of the risk-reward ratio:
limited growth, with the potential for the equity to be wiped out. We moved
on.
National Instruments was the third complete sale. This followed a very
attractive bid for the company, which caused the share price to shoot up. We
saw little advantage in waiting for the deal to complete, so divested from the
shares. It was a similar story at Silicon Motion, where the share price rose
following an acquisition approach. The bid then became mired in regulatory
issues and we decided to divest, even though the share price was somewhat
below the bid price. The bid was later withdrawn and the share price fell,
so this has turned out to be a profitable decision.
The fifth divestment was Linea Directa, the Spanish insurance company. The
shares have proven to be highly illiquid since we invested two years ago,
which meant we struggled to make this into the size of holding we envisaged.
With no plan in sight from the company to help improve liquidity, we decided
to divest the holding.
Finally, Rio Tinto. This has been a longstanding holding, even by SAINTS'
standards, dating back to the days of RTZ in the 1980s. The company has a
terrific competitive position in its core business, built around the low-cost
iron ore mines of western Australia. The past decade has been especially
strong for its earnings and dividend growth, with rising demand from Chinese
customers combined with limited new supply, driving the price of iron ore
higher. But in the past few years we have started to see the outlook
deteriorate. Mining companies, including Rio Tinto, are starting to invest
huge sums to bring on new mines, while demand in China risks plateauing as
parts of its economy mature. At the same time, the cost of mining is
starting to rise sharply. Iron ore is used in steel mills, and the
production of steel unfortunately results in huge emissions of carbon
dioxide. As steel mills are changing to meet environmental goals, iron ore
mines need to follow suit. A prime example is Rio Tinto's investment in a
new mine in Guinea, where the output is more suited to low-carbon steel
production. Following a series of governance failings over the years, we are
concerned about the company's ability to manage this investment, in a country
that is fraught with political, environmental and social risks. Our
expectation is that the next decade is likely to see the company's margins,
profits and dividend growth all put under serious pressure. We divested from
the shares.
New purchases
The great attraction of long-term equity investing, at least when done with
sobriety, is the endless stream of opportunities to invest shareholders' funds
in companies with strong prospects for growth. During the year we looked at
many different names, each with its own attractions. In five cases we took
the opportunity to invest in a new holding where we believe the long-term
results could be very rewarding. Often we invested at a time when the markets
felt miserable and others were selling the shares and driving the price lower.
US-listed Home Depot is a DIY retailer with a very strong culture of service
and innovation. It has a well-established brand with consumers and is building
out its service in the professional trade, which we expect to grow earnings
and dividends over the next 5 to 10 years. The stock market has been fretting
about the impact of high interest rates on the US housing market, and by
implication the company's sales. But having followed the company for over 20
years, we know this is easily over-played. Most US homeowners take 30-year
fixed rate mortgages, so the housing market is less sensitive to rates than
one might think. We see this as an opportunity to invest in long-term growth
at an attractive share price, and accordingly took a holding in the shares.
Coloplast is a Danish manufacturer of ostomy, incontinence, urology and wound
care products, with significant European and global market shares. Its product
engineering strengths in adhesives technology, combined with a mindset of
continuous innovation, have enabled the company to develop profitable niche
positions in markets with good prospects of continued compounding: we are
hopeful that earnings and dividends will grow at an attractive rate for a very
long time. A strong commitment to the dividend alongside this growth make it a
good fit for the portfolio.
French-listed Eurofins Scientific is a global lab business focused on testing
related to food and the environment. Over the past three decades, the company
has invested relentlessly in an industry-leading, internally developed
technology platform and created a global network of labs. Combined with
structural market growth, due to factors such as regulation, we expect this to
provide solid foundations for its earnings and dividend growth, with rising
returns on capital, during the next decade and beyond.
Texas Instruments is the world's largest supplier of 'analog chips': the
semiconductors that deal with real-world inputs such as sound, temperature and
power. Its dominant position is built on its low-cost business model, which
allows it to produce these chips at scale and price them competitively. Over
the years it has built up a huge library of designs and many of these chips
are still in production after decades on the market, providing the company
with very long-lived and profitable revenue streams. In the decade ahead, we
expect growth to be driven by secular trends such as the digitisation of
industrial and automotive functions, the ongoing building of datacenters and
the energy transition. The company is well-managed, it has a strong balance
sheet, and is committed to paying a progressive dividend. The market has been
worrying about the short-term impact on margins of the company's planned
capacity expansion, which has led to a decline in the valuation multiple
applied to the earnings. We took this as an opportunity to invest SAINTS'
capital.
UK-listed Diageo is the world's largest spirits maker, with a dominant
position in the US market, and a broad portfolio of brands that are recognised
and sold globally including Johnnie Walker, Gordon's and Smirnoff. Our
research over the years has highlighted its world-leading marketing and
brand-building capabilities. We expect global consumption of spirits to grow
steadily in the next decade as consumers modify their behaviour to drink 'less
but better'. And thanks to Diageo's expertise in marketing and brand-building,
we believe the company should be able to capture a large share of this growth.
Combined with a clear commitment to pay a resilient and steadily growing
dividend, we believe it can deliver many years of steady compound growth. The
shares have de-rated due to fears of a short-term inventory overhang in the
spirits industry, following post-COVID restocking by bars and restaurants.
We took this as an opportunity to invest in the company.
Challenges
Although the equity portfolio performed well operationally in 2023, in two
respects it fell short. First, we must acknowledge that the total return was
behind global equity markets, as measured by the FTSE All-World Index (in
sterling terms). This can be explained by the large weight in the index of a
small number of technology-related companies, which delivered very large share
price appreciation during 2023. An example is Nvidia, the semiconductor
manufacturer, which has a strong position in the market for AI ('Artificial
Intelligence') computing and whose share price rose dramatically last year.
SAINTS' strategy is focused on the steady, long-term compounding of earnings
and dividends. Some of these large technology companies, such as Microsoft
and Apple, are an excellent fit with this philosophy. We also have a number
of investments which should benefit from the growth expected in Artificial
Intelligence, including Microsoft but also names such as TSMC, the
semiconductor manufacturer that produces most of Nvidia's chips. However, some
of the largest tech companies see wild swings in profits from year to year,
and many of them do not pay dividends. We do not invest in such companies,
even if this means that in some years we miss out on their share price
appreciation. We believe that over the long-term SAINTS' approach will still
perform well in terms of its core objective: growing shareholders capital and
income ahead of inflation, with resilience across cycles.
Secondly, we must also observe that dividends from the equity portfolio were
broadly unchanged during last year. Of the £23.0m of dividend revenue in
the year, revenue from the equity portfolio was essentially flat at £21.5m.
(The remaining £1.5m of dividends was from the infrastructure equity
portfolio.) Of course, we would prefer it if revenue grew every year. But
in 2023 there was a notable absence of special dividends paid by the
portfolio's holdings. Typically, these account for about 5% of equity
portfolio revenue, with the other 95% coming from 'ordinary' regular
dividends. In 2023 there were remarkably few special dividends paid out,
perhaps a function of economic uncertainty. The result was that, although
the portfolio's ordinary dividends grew at a mid-single digit rate, the
absence of special dividends resulted in total dividends remaining flat,
year-over-year. Our expectation is that, going forward, normal growth will
resume. Indeed, it may even accelerate a touch in 2024, assuming special
dividends return.
In summary, as headlines blared and markets gyrated in 2023, the vast majority
of the holdings in SAINTS' equity portfolio continued to deliver solid
compounding of earnings. We made five new investments during the year, while
divesting from six others. Total return performance fell a little short of
global markets during the year, although it remained strong in absolute terms.
Dividend income was flat, but we are sanguine about this one-year pause given
that the principal underlying cause was the timing of special dividends.
We continue the sober, but ultimately very rewarding work of searching the
world for exceptional companies where we see strong prospects for long-term
growth.
Other investments
One of the advantages of the investment trust structure is the ability,
certainly for SAINTS, to borrow at attractive, fixed rates over long periods
of time. We can then invest this funding in low-risk assets where we expect
the return to substantially beat the cost of borrowing. This generates
additional capital returns and income for shareholders.
SAINTS currently has borrowings totalling £95m. We believe this is prudent
within the context of the gross assets of the Company, which are around
£1bn. The average cost of borrowing is 3%, and the borrowings on average
will not mature until some time in the 2040s. The proceeds are invested in a
mixture of property, fixed income and infrastructure-related assets where over
time we expect returns to significantly beat the cost of borrowing.
Infrastructure portfolio
SAINTS invests in infrastructure assets through listed equity vehicles. In the
short-term these investments sometimes behave like equities, but over the
long-term we expect their performance to be dominated by the performance of
the underlying infrastructure assets. The portfolio proved resilient in 2023,
despite the headwind of sharply rising interest rates. The total return during
the year was 3%.
One notable standout was Greencoat UK Wind, the windfarm owner and operator,
which raised its distribution by 12% thanks to elevated power prices. The
portfolio's holding in Terna, the Italian grid operator, was another
highlight: its ongoing capital investments to connect renewable energy sources
formed a bedrock for growth in its regulated asset base, leading to rising
earnings and in turn to dividend growth of 8%. We see a similar growth
opportunity at Exelon, a new purchase for the infrastructure portfolio, which
owns grid infrastructure in mostly left-leaning States in the northeast of the
US: renewable upgrades should drive growth in its regulated asset base and its
future dividends.
The year was more challenging for Chinese toll road operator Jiangsu
Expressway, which owns most of the major routes north of Shanghai. Over time
we expect traffic growth in and out of Shanghai to drive revenue and earnings
growth at the company. But last year it faced a slowing local economy, and it
merely held its dividend flat rather than delivering the growth we were hoping
for.
Broadly-speaking, however, it was a solid year for the infrastructure
portfolio.
Property portfolio
The property portfolio invests in a small number of directly held assets. The
portfolio had a challenging year. The total return was -1.8%.
Given the circumstances - a combination of rising interest rates and a
weakening economy - it is perhaps not surprising that property prices
generally fell last year. SAINTS' portfolio has not been immune from this, and
the performance of the portfolio has been comparable to that of the broader
commercial property sector. This is due in part to its focus on strong
covenants, long leases and inflation linked rents. The manager, OLIM, has
rightly steered clear of many of the structurally-challenged areas of the
market, notably the office market, which has faced both cyclical challenges as
well as over-supply due to changing working practices.
Over the course of the year, the manager made a number of sales and new
purchases to avoid the worst of these headwinds and further bolster the
resilience and rental growth prospects of the portfolio going forward. It is
worth noting that by the end of 2023, SAINTS' property portfolio was
essentially spread across three sectors, all of whose prospects appear
structurally sound: hotels and holiday homes; supermarkets; and
industrials. The tenants in these properties are the likes of Aldi, Tesco
and Premier Inn (Whitbread), and the leases and covenants are of good
quality. We remain optimistic that long-term returns from this portfolio
will beat the cost of borrowing.
Bond portfolio
The bond portfolio had a strong year. The total return was 9.5%.
Readers may wonder how bond holdings can play a role in SAINTS, given the
Company's focus on inflation-beating growth. However, as the almost 10%
return from the bond portfolio showed last year, the right names can deliver
good real returns, substantially beating the cost of SAINTS' borrowings, as
well as being as a useful diversifier.
The highlight here was the strength of SAINTS' emerging market sovereign bond
holdings. The history of defaults among many emerging market countries is
surprisingly good. Large economies such as Brazil are sufficiently diverse
and robust that, as long as their institutions manage them with sufficient
fiscal prudence, which of course we monitor, there is unlikely to be any
serious risk of the government defaulting on its debt. Despite this, these
sovereign bonds often trade at very high yields, far in excess of the risk of
default and SAINTS' cost of borrowing.
In our view, the real risk with these bonds is not defaults, but inflation.
Emerging markets are prone to bouts of rising prices, which can devalue their
currency significantly. Which in turn can mean that a (say) 8% yield in local
currency can over time become much less valuable in Sterling. For this
reason, we often prefer to invest in US dollar or Euro-denominated sovereign
bonds from these countries. These still pay attractive yields but without the
same currency risk.
In 2023, SAINTS earned attractive yields from its portfolio of these bonds,
whilst also enjoying some capital appreciation. At the start of the year
markets had been worrying about inflation in many emerging economies. But
central banks in these countries often proved far swifter to raise rates
during 2022 than, by comparison, the Bank of England and US Federal Reserve.
Perhaps their history of inflation made EM central banks a little more alert
at the wheel, when inflation started to rise. This drove good results in 2023
as inflation was tamed, and their sovereign bond prices rose accordingly.
ESG
In previous years we have written about the importance of environmental,
social and governance factors when investing in companies for the long-term.
The odds of returns compounding are significantly reduced if companies ignore
their impacts on wider stakeholders. Companies whose operations result in
significant damage to the environment, for example, run a real risk of
regulation hurting their future earnings, or some of their customers simply
abandoning them. We pay close attention to this for every SAINTS' holding,
indeed we evaluate these risks using our own in-house developed framework, to
help avoid such problems and to maximise the odds of long-term growth.
Earlier, we mentioned the case of Rio Tinto. One of the factors influencing
our decision to divest was a lack of confidence in its ability to deal with
the many risks of investing large sums in Guinea, a country with many
governance challenges, for a project with significant reputational risk if its
environmental and social impacts are not well-managed. We also noted the
significant cost of changing its products, which currently result in large
carbon emissions by its customers.
On the positive side, our research into Novo Nordisk continues to suggest it
is a company which operates with very high standards, and well-equipped to
manage its impacts on stakeholders. As a healthcare company producing a new
drug that is in high demand, Novo Nordisk will undoubtedly be subject to a
high level of scrutiny in the years ahead. For it to deliver the growth we
expect of it, we are keen to see the management and Board continuing to
operate to the highest standard. Speaking to observers of the company in the
healthcare industry, this certainly appears to be the case. We will continue
to engage with the senior management team to stress the importance of setting
a very high bar in terms of business practices - for example around pricing,
and data privacy of patients - so that the company maximises the odds of
delivering its potential growth in the years ahead.
SAINTS in the year ahead
Shareholders may well have noted that SAINTS' earnings in 2023 did not quite
cover the recommended full-year dividend. The earnings per share were 13.48p
while the dividend is to be 14.10p, meaning the coverage ratio is 96%. One
of the factors in the Board's thinking, gaining comfort with paying a slightly
uncovered dividend, was the outlook for 2024 and beyond.
In the equity portfolio, we expect continued steady compounding in earnings
and dividends from the vast majority of SAINTS' equity investments. It is
difficult to predict the exact figure in any one year, but as a rule of thumb
we seek companies which have the prospect of growing their earnings and
dividends, on average over long periods of time, by 10% a year. Of course,
some do better and some do worse, and sometimes we will make portfolio
upgrades which weigh on near-term income: our experience has been that for
long-term success it is far better to swap a troubled 5% yielder for a strong
2% yielder, and swallow the short-term hit to income in pursuit of the
long-term gain. All of this said and done, we believe the equity portfolio
should be able to deliver dividend growth well ahead of UK inflation.
The macroeconomic outlook for 2024 is opaque. There are hopes that Chinese
consumer spending will bounce back at some point, but that was the hope at the
start of 2023, and in fact sentiment deteriorated last year. The US economy
looks stronger, but sceptics are warning that we have yet to see the full
impact of inflation and rate rises on business and households. Europe
meanwhile looks sluggish, but trading may well improve if rates show clearer
signs of peaking.
SAINTS' holdings have been selected for their structural growth potential
across cycles, not as 'plays' on the economy. So whatever the economic
outcomes in 2024, we are hopeful of continued growth in the earnings of the
portfolio. Microsoft for example has just reported very strong growth year
on year, driven by uptake of its AI products. Novo Nordisk has just upgraded
its growth estimate for 2024. And so on. Even if the global economy proves
troublesome in 2024, it is worth remembering that our equity holdings have
prudent payout ratios, meaning they should have still ample capacity to
deliver dividend growth, even if their earnings growth proves a bit soggy.
In conclusion we are optimistic that revenues will grow in 2024, and that
moving forward earnings growth will restore coverage of the dividend while
supporting continued growth in returns to shareholders. Whatever the next set
of headlines in the media, euphoric or despondent, we believe SAINTS owns a
diverse portfolio of strong, well-managed, growing companies, with the
potential to help the Company meet its core objectives: growing capital and
income ahead of inflation, and extending its record of 50 consecutive years of
increases in the dividend.
James Dow
Toby Ross
Ross Mathison
Baillie Gifford & Co
14 February 2024
* NAV per share with borrowings at fair value
† The equity portfolio here corresponds to the global equity portfolio noted
below.
Source: Baillie Gifford and LSEG
List of investments as at 31 December 2023
Name Business 2023 2023
Value % of total
£'000 Assets
Global equities
Novo Nordisk Pharmaceutical company 41,383 4.0
Watsco Distributes air conditioning, heating and refrigeration equipment 37,466 3.6
Microsoft Computer software 37,315 3.6
Fastenal Distribution and sales of industrial supplies 31,673 3.1
Partners Group Asset management 28,093 2.7
Taiwan Semiconductor Manufacturing Semiconductor manufacturer 27,554 2.7
Atlas Copco Engineering 25,916 2.5
Procter & Gamble Household product manufacturer 25,916 2.5
Apple Consumer technology 25,128 2.4
Pepsico Snack and beverage company 23,086 2.2
Schneider Electric Electrical power products 22,822 2.2
Deutsche Boerse Securities exchange owner/operator 22,716 2.2
Analog Devices Integrated circuits 22,145 2.2
Carsales.com Online marketplace for classified 21,546 2.1
car advertisements
United Parcel Service Courier services 20,942 2.0
Roche Pharmaceuticals and diagnostics 20,701 2.0
Sonic Healthcare Laboratory testing 19,894 1.9
Wolters Kluwer Information services and solutions provider 19,113 1.9
Admiral Car insurance 19,091 1.9
Experian Credit scoring and marketing services 18,829 1.8
Coca Cola Beverage company 17,655 1.7
Intuit Software 17,425 1.7
Nestlé Food producer 17,007 1.7
Edenred Voucher programme outsourcer 15,649 1.5
B3 S.A. Securities exchange owner/operator 15,509 1.5
L'Oréal Cosmetics 14,857 1.4
Arthur J Gallagher Insurance broker 14,513 1.4
McDonald's Fast food restaurants 13,703 1.3
Anta Sports Sportswear manufacturer and retailer 12,995 1.3
Kuehne + Nagel Worldwide freight forwarder 12,650 1.2
United Overseas Bank Commercial banking 12,253 1.2
Cisco Systems Data networking equipment 11,299 1.1
Valmet Manufacturer of pulp and paper machinery 10,754 1.0
SAP Business software developer 10,465 1.0
NetEase Online gaming company 10,127 1.0
Coloplast Manufacturer of medical products 9,942 1.0
Albemarle Producer of speciality and fine chemicals 9,627 0.9
T. Rowe Price Fund manager 9,144 0.9
Starbucks Coffee retailer 9,129 0.9
Amadeus IT Group Technology provider for the travel industry 8,918 0.9
Texas Instruments Semiconductor supplier 8,847 0.9
Medtronic Medical devices company 8,735 0.9
USS Second-hand car auctioneer 8,703 0.8
Diageo International drinks company 8,067 0.8
Dolby Laboratories Multimedia software 8,060 0.8
Hong Kong Exchanges and Clearing Securities exchange owner/operator 7,739 0.8
Midea Group Appliance manufacturer 7,321 0.7
Kering Luxury brand conglomerate 7,194 0.7
Cognex Industrial automation 6,904 0.7
AVI Staple foods manufacturer 6,880 0.7
Pernod Ricard Global spirits manufacturer 6,853 0.7
Man Wah Sofa designer and manufacturer 6,843 0.7
TCI Producer of health-food products 6,333 0.6
Fevertree Drinks Producer of premium mixer drinks 5,748 0.6
GlaxoSmithKline Pharmaceuticals, vaccines and 5,430 0.5
consumer healthcare
Home Depot Home improvement retailer 4,640 0.5
Hargreaves Lansdown UK retail savings and investment platform 4,612 0.4
Eurofins Laboratory testing provider 4,581 0.4
Total global equities 888,440 86.3
Infrastructure equities
Greencoat UK Wind UK wind farms 10,258 1.0
Terna Electricity grid operator 5,993 0.6
BBGI Global Infrastructure PFI/PPP fund 5,561 0.5
Assura Primary healthcare property group 3,535 0.3
Jiangsu Expressway Tollroad operator 2,938 0.3
Exelon Grid and utility operator 869 0.1
Total Infrastructure equities 29,154 2.8
Direct Property See table below 66,350 6.4
Bonds
Euro denominated Ivory Coast 6.625% 2048 1,421 0.1
US dollar denominated Netflix 5.375% 2029 5,766 0.6
FMG Resources 6.125% 2032 4,390 0.4
Brazil 7.125% 20/01/2037 1,884 0.2
Dominican Republic 5.875% 30/01/2060 1,837 0.2
First Quantum Minerals 6.875% 2026 1,737 0.2
Mexico 5.75% 12/10/2110 1,591 0.1
First Quantum Minerals 7.5% 2025 1,341 0.1
Mercadolibre 3.125% 2031 981 0.1
19,527 1.9
Brazilian real denominated Brazil CPI Linked 15/05/2045 5,721 0.6
Dominican peso denominated Dominican Republic 9.75% 05/06/2026 731 0.1
Indonesian rupiah denominated Indonesia 9% 15/03/2029 3,161 0.3
Indonesia 7.375% 15/05/2048 2,054 0.2
5,215 0.5
Mexican peso denominated Mexico IL 4% 15/11/2040 3,184 0.3
Peruvian sol denominated Peru 6.15% 12/08/2032 2,067 0.2
Total Bonds 37,866 3.7
Total Investments 1,021,810 99.2
Net Liquid Assets 8,102 0.8
Total Assets (before deduction of borrowings) 1,029,912 100.0
Property portfolio
Location Type Tenant 2023 2023 2022
Value % of total assets Value
£'000 £'000
Biggleswade Warehouse Sherwin-Williams UK Limited 5,700 0.5 6,500
Crawley* Petrol Station and Convenience Store Co-operative Group Food Limited - - 3,300
Denbigh Supermarket Aldi Stores Limited 4,800 0.5 5,300
Earley Public House Spirit Pub Company (Managed) Limited (Greene King) 2,600 0.2 2,700
Gosport† Supermarket Aldi Stores Limited 5,550 0.5 -
Holyhead Hotel Premier Inn Hotels Limited 6,550 0.6 6,900
Kenilworth* Nursing Home Care UK Community Partnerships Limited - - 5,000
New Romney Holiday Village Park Resorts Limited 19,250 1.9 19,250
Otford Public House Spirit Pub Company (Managed) Limited (Greene King) 1,700 0.2 1,750
Pagham* Convenience Store Co-operative Group Food Limited - - 1,150
Prestatyn* Public House Stonegate Pub Company Limited - - 1,100
Ringwood† Hotel Premier Inn Hotels Limited 8,650 0.8 -
Southend-on-Sea Warehouse Booker Limited 7,900 0.8 9,400
Taunton Bowling Alley Mitchells & Butlers Retail (No.2) Limited (sublet to Hollywood Bowl) 3,650 0.4 4,400
66,350 6.4 66,750
(†) Purchased during the year.
* Sold during the year.
Performance attribution
For the year to 31 December 2023
Portfolio breakdown Average allocation Average allocation Total return* Total return
SAINTS Benchmark SAINTS Benchmark
% % % %
Global equities 94.3 100.0 13.9 15.7
Infrastructure equities 2.9 3.0
Bonds 4.5 9.5
Direct property 8.3 (1.8)
Cash at bank 0.5 -
Borrowings at book value (10.5) 3.0
Portfolio total return (borrowings at book value) 13.0
Other items(†) (0.5)
Fund total return (borrowings at book value) 12.5
Adjustment for change in fair value of borrowings (0.7)
Fund total return (borrowings at fair value) 11.8
* Alternative performance measure - see Glossary of Terms and
Alternative Performance Measures at the end of this announcement.
† Includes Baillie Gifford and OLIM Property Limited management fees.
Source: Baillie Gifford and relevant underlying index providers. See
disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
Income statement
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - securities - 91,351 91,351 - (80,091) (80,091)
Losses on investments - property - (6,054) (6,054) - (5,114) (5,114)
Currency gains - 32 32 - 192 192
Income 30,078 - 30,078 30,043 - 30,043
Management fees (1,031) (3,094) (4,125) (980) (2,940) (3,920)
Other administrative expenses (1,268) - (1,268) (1,257) - (1,257)
Net return before finance costs and taxation 27,779 82,235 110,014 27,806 (87,953) (60,147)
Finance costs of borrowings (711) (2,134) (2,845) (921) (2,763) (3,684)
Net return on ordinary activities before taxation 27,068 80,101 107,169 26,885 (90,716) (63,831)
Tax on ordinary activities (3,108) 977 (2,131) (2,540) 790 (1,750)
Net return on ordinary activities after taxation 23,960 81,078 105,038 24,345 (89,926) (65,581)
Net return per ordinary share 13.48p 45.63p 59.11p 13.82p (51.04p) (37.22p)
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 these statements derive from continuing
operations.
A Statement of Comprehensive Income is not required as there is no other
comprehensive income.
The accompanying notes below are an integral part of the Financial Statements.
Balance sheet
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Non-current assets
Investments - securities 955,460 869,837
Investments - property 66,350 66,750
1,021,810 936,587
Current assets
Debtors 3,549 3,213
Cash and cash equivalents 7,340 4,184
10,889 7,397
Creditors
Amounts falling due within one year (2,787) (2,596)
Net current assets 8,102 4,801
Total assets less current liabilities 1,029,912 941,388
Creditors
Amounts falling due after more than one year (94,728) (94,714)
Net assets 935,184 846,674
Capital and reserves
Share capital 44,579 44,188
Share premium account 186,100 178,189
Capital redemption reserve 22,781 22,781
Capital reserve 664,892 583,814
Revenue reserve 16,832 17,702
Shareholders' funds 935,184 846,674
Net asset value per ordinary share* 524.5p 479.0p
Ordinary shares in issue (note 7) 178,315,943 176,750,943
* See Glossary of Terms and Alternative Performance Measures at the end
of this announcement.
The accompanying notes below are an integral part of the Financial Statements.
Statement of changes in equity
For the year ended 31 December 2023
Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve* reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 January 2023 44,188 178,189 22,781 583,814 17,702 846,674
Shares issued 391 7,911 - - - 8,302
Net return on ordinary activities - - - 81,078 23,960 105,038
after taxation
Dividends paid in the year (note 5) - - - - (24,830) (24,830)
Shareholders' funds at 31 December 2023 44,579 186,100 22,781 664,892 16,832 935,184
For the year ended 31 December 2022
Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve* reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 January 2022 43,900 172,576 22,781 673,740 17,188 930,185
Shares issued 288 5,613 - - - 5,901
Net return on ordinary activities after taxation - - - (89,926) 24,345 (65,581)
Dividends paid in the year (note 5) - - - - (23,831) (23,831)
Shareholders' funds at 31 December 2022 44,188 178,189 22,781 583,814 17,702 846,674
* The capital reserve as at 31 December 2023 includes unrealised investment
holding gains of £339,191,000 (31 December 2022 - gains of £280,732,000).
The accompanying notes below are an integral part of the Financial Statements.
Cash flow statement
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Net return on ordinary activities before taxation 107,169 (63,831)
Adjustments to reconcile company profit before tax to net cash flow from
operating activities
(Gains)/losses on investments - securities (91,351) 80,091
Losses on investments - property 6,054 5,114
Currency gains (32) (192)
Finance costs of borrowings 2,845 3,684
Other capital movements
Changes in debtors (340) 507
Change in creditors 204 382
Other non-cash changes 62 239
Taxation
Overseas withholding tax (2,126) (1,761)
Cash from operations 22,485 24,233
Interest paid (2,845) (4,784)
Net cash inflow from operating activities 19,640 19,449
Cash flows from investing activities
Acquisitions of investments - securities (109,728) (74,593)
Acquisitions of investments - property (15,057) (8,239)
Disposals of investments - securities 115,394 62,783
Disposals of investments - property 9,403 11,275
Net cash inflow/(outflow) from investing activities 12 (8,774)
Cash flows from financing activities
Equity dividends (24,830) (23,831)
Shares issued 8,302 5,901
Loan notes drawn down - 80,000
Debenture stock repaid - (80,000)
Costs of issuance of loan notes - (16)
Net cash outflow from financing activities (16,528) (17,946)
Increase/(decrease) in cash and cash equivalents 3,124 (7,271)
Exchange movements 32 192
Cash and cash equivalents at start of year 4,184 11,263
Cash and cash equivalents at end of year 7,340 4,184
The accompanying notes below are an integral part of the Financial Statements.
Notes to the Financial Statements
1. Basis of Accounting
The Financial Statements for the year to 31 December 2023 have been prepared
in accordance with FRS 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 ended 31
December 2023.
2.
2023 2022
£'000 £'000
Income from investments
UK dividends 2,400 3,285
UK interest 174 360
Overseas dividends 20,602 19,487
Overseas interest 2,270 2,356
25,446 25,488
Other income
Deposit interest 151 49
Rental income 4,451 4,475
Other income 30 31
4,632 4,555
Total income 30,078 30,043
Total income comprises:
Dividends from financial assets classified at fair value through profit or 23,002 22,772
loss
Interest from financial assets designated at fair value through profit or loss 2,444 2,716
Interest from financial assets not at fair value through profit or loss 151 49
Other income not from financial assets 4,481 4,506
30,078 30,043
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.
Dealing activity and transaction reporting have been further sub-delegated to
Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.
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 within a shorter notice period. The annual
management fee is 0.45% of the first £500 million of total assets and 0.35%
of the remaining total assets, total assets being the value of all assets held
(excluding the property portfolio) less all liabilities, other than any
liability in the form of debt intended for investment purposes, 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.
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 938 2,814 3,752 884 2,651 3,535
Property management fee 93 280 373 96 289 385
1,031 3,094 4,125 980 2,940 3,920
4.
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Net return per ordinary share 13.48p 45.63p 59.11p 13.82p (51.04p) (37.22p)
Revenue return per ordinary share is based on the net revenue on ordinary
activities after taxation of £23,960,000 (2022 - £24,345,000) and on
177,707,094 (2022 - 176,207,530) 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 £81,078,000 (2022 - net capital loss of £89,926,000), and
on 177,707,094 (2022 - 176,207,530) 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.
2023 2022 2023 2022
£'000 £'000
Amounts recognised as distributions in the year:
Previous year's final (paid 13 April 2023) 3.67p 3.375p 6,487 5,937
First interim (paid 22 June 2023) 3.30p 3.25p 5,861 5,730
Second interim (paid 20 September 2023) 3.45p 3.40p 6,152 5,994
Third interim (paid 15 December 2023) 3.55p 3.50p 6,330 6,170
13.97p 13.525p 24,830 23,831
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
£23,960,000 (2022 - £24,345,000).
2023 2022 2023 2022
£'000 £'000
Dividends paid and payable in respect of the year:
First interim (paid 22 June 2023) 3.30p 3.25p 5,861 5,730
Second interim (paid 20 September 2023) 3.45p 3.40p 6,152 5,994
Third interim (paid 15 December 2023) 3.55p 3.50p 6,330 6,170
Current year's proposed final dividend (payable 11 April 2024) 3.80p 3.67p 6,776 6,487
14.10p 13.82p 25,119 24,381
If approved, the recommended final dividend on the ordinary shares will be
paid on 11 April 2024 to shareholders on the register at the close of business
on 1 March 2024. The ex-dividend date is 29 February 2024. 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 2024.
6. Creditors - amounts falling due after more than one year
2023 2022
£'000 £'000
£15m Series C 2.23% 25 June 2036 14,936 14,931
£40m Series A 3.12% 11 April 2045 39,897 39,892
£40m Series B 3.12% 11 April 2049 39,895 39,891
94,728 94,714
The main covenants for the loan notes which are tested monthly are that net
tangible assets shall not fall below £120,000,000 and gross borrowings shall
not exceed 40% of the Company's adjusted assets.
7. During the year, 1,565,000 (2022 - 1,150,000) shares were issued at a
premium to net asset value raising proceeds of £8,302,000 (2022 -
£5,901,000). At 31 December 2023 the Company had authority to buy back
26,494,966 ordinary shares and to allot 16,110,094 ordinary shares without
application of pre-emption rights in accordance with the authorities granted
at the AGM in April 2023. No shares were bought back during the year.
8. During the year, transaction costs on purchases amounted to £985,000
(2022- £551,000) and £189,000 (2022 - £174,000) respectively.
9.
1 January Cash flows Exchange movement Other 31 December
2023
£'000
£'000
non-cash
2023
£'000
£'000
changes
£'000
Cash and cash equivalents 4,184 3,124 32 - 7,340
Loan notes due in more than one year (94,714) - - (14) (94,728)
(90,530) 3,124 32 (14) (87,388)
1 January Cash flows Exchange movement Cost of issuance* Other 31 December
2022
£'000
£'000
non-cash changes
2022
£'000 £'000
£'000
£'000
Cash and cash equivalents 11,263 (7,271) 192 - - 4,184
Debenture Stock due in less than one year (80,236) 80,000 - - 236 -
Loan notes due in more than one year (14,925) (80,000) - 223 (12) (94,714)
(83,898) (7,271) 192 223 224 (90,530)
*Cost of issuance includes carried forward deferred expenses of £207,000.
10. The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2023 or 2022 but is derived
from those accounts. Statutory accounts for 2022 have been delivered to the
registrar of companies, and those for 2023 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 saints-it.com (http://www.saints-it.com) (‡) on or around
27 February 2024.
Glossary of Terms and Alternative Performance Measures ('APM')
An alternative performance measure is a financial measure of historical or
future financial performance, financial position, or cash flows, other than a
financial measure defined or specified in the applicable financial reporting
framework.
Total Assets
This is the Company's definition of Adjusted Total Assets, being the total
value of all assets held less all liabilities (other than liabilities in the
form of borrowings).
Net Asset Value
Net Asset Value (NAV) is the value of total assets less liabilities (including
borrowings). Net asset value can be calculated on the basis of borrowings
stated at book value and fair value. An explanation of each basis is provided
below. The net asset value per share is calculated by dividing this amount by
the number of ordinary shares in issue excluding any shares held in treasury.
Net Asset Value (Borrowings at Book Value)
Borrowings are valued at adjusted net issue proceeds. Book value approximates
amortised cost.
Net Asset Value (Borrowings 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 2023 31 December 2022
Shareholders' funds (borrowings at book value) £935,184,000 £846,674,000
Add: book value of borrowings £94,728,000 £94,714,000
Less: fair value of borrowings (£68,155,000) (£65,549,000)
Shareholders' funds (borrowings at fair value) £961,757,000 £875,839,000
Shares in issue at year end 178,315,943 176,750,943
Net asset value per ordinary share (borrowings at fair value) 539.4p 495.5p
Premium/(discount) (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.
2023 2023 2022 2022
NAV (book) NAV (fair) NAV (book) NAV (fair)
Closing NAV per share 524.5p 539.4p 479.0p 495.5p
Closing share price 535.0p 535.0p 508.0p 508.0p
Premium/(discount) 2.0% (0.8%) 6.1% 2.5%
Ongoing Charges (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a
percentage of the average net asset value (with borrowings 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 2023 31 December 2022
Investment management fee £4,125,000 £3,920,000
Other administrative expenses £1,268,000 £1,257,000
Total expenses (a) £5,393,000 £5,177,000
Average daily cum-income net asset value (b) £928,722,000 £877,093,000
(with borrowings at fair value)
Ongoing charges (a) ÷ (b) (expressed as a percentage) 0.58% 0.59%
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.
2023 2023 2023 2022 2022 2022
NAV NAV Share NAV NAV Share
(book) (fair) price (book) (fair) price
Opening NAV per share/share price (a) 479.0p 495.5p 508.0p 529.7p 528.4p 541.0p
Closing NAV per share/share price (b) 524.5p 539.4p 535.0p 479.0p 495.5p 508.0p
Dividend adjustment factor* (c) 1.027628 1.026683 1.027273 1.027330 1.026941 1.027687
Adjusted closing NAV per share/ (d) = (b) x (c) 539.0p 553.8p 549.6p 492.1p 508.8p 522.1p
share price
Total return (d) ÷ (a) -1 12.5% 11.8% 8.2% (7.1%) (3.7%) (3.5%)
* 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 cum income NAV/share price at the ex-dividend date.
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.
Potential gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
31 December 2023 31 December 2022
Borrowings at book value £94,728,000 £94,714,000
Shareholders' funds £935,184,000 £846,674,000
Potential gearing 10% 11%
Equity gearing is the Company's borrowings adjusted for cash, bonds and
property expressed as a percentage of shareholders' funds.
31 December 2023 31 December 2022
Borrowings at book value £94,728,000 £94,714,000
Less: cash and cash equivalents (£7,340,000) (£4,184,000)
Less: bond investments (£37,866,000) (£43,440,000)
Less: direct property investments (£66,350,000) (£66,750,000)
Adjusted borrowings (£16,828,000) (£19,660,000)
Shareholders' funds £935,184,000 £846,674,000
Equity gearing (2%) (2%)
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers (AIFM)
Regulations, leverage is any method which increases the Company's exposure,
including the borrowing of cash and the use of derivatives. It is expressed as
a 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.
Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a
direct impact in the UK due to Brexit, however, it applies to third-country
products marketed in the EU. As SAINTS is marketed in the EU by the AIFM,
Baillie Gifford & Co Limited, via the National Private Placement Regime
('NPPR') the following disclosures have been provided to comply with the
high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's ESG Principles and Guidelines
as its policy on integration of sustainability risks in investment decisions.
Baillie Gifford & Co believes that a company cannot be financially
sustainable in the long run if its approach to business is fundamentally out
of line with changing societal expectations. It defines 'sustainability' as a
deliberately broad concept which encapsulates a company's purpose, values,
business model, culture, and operating practices.
Baillie Gifford & Co's approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their marketplace. To do this it looks beyond current financial
performance, undertaking proprietary research to build up an in-depth
knowledge of an individual company and a view on its long-term prospects. This
includes the consideration of sustainability factors (environmental, social
and/or governance matters) which it believes will positively or negatively
influence the financial returns of an investment.
The likely impact on the return of the portfolio from a potential or actual
material decline in the value of investment due to the occurrence of an
environmental, social or governance event or condition will vary and will
depend on several factors including but not limited to the type, extent,
complexity and duration of an event or condition, prevailing market conditions
and existence of any mitigating factors.
Whilst consideration is given to sustainability matters, there are no
restrictions on the investment universe of the Company, unless otherwise
stated within in its Investment Objective & Policy. Baillie Gifford &
Co can invest in any companies it believes could create beneficial long-term
returns for investors. However, this might result in investments being made in
companies that ultimately cause a negative outcome for the environment or
society.
More detail on the Investment Managers' approach to sustainability can be
found in the ESG Principles and Guidelines document, available publicly on the
Baillie Gifford website bailliegifford.com.
The underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities established under the EU
Taxonomy Regulation.
Third Party Data Provider Disclaimer
No third party data provider ('Provider') makes any warranty, express or
implied, as to the accuracy, completeness or timeliness of the data contained
herewith nor as to the results to be obtained by recipients of the data.
No Provider shall in any way be liable to any recipient of the data for any
inaccuracies, errors or omissions in the index data included in this
document, regardless of cause, or for any damages (whether direct or indirect)
resulting therefrom. No Provider has any obligation to update, modify or amend
the data or to otherwise notify a recipient thereof in the event that any
matter stated herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability
whatsoever to you, whether in contract (including under an indemnity), in tort
(including negligence), under a warranty, under statute or otherwise, in
respect of any loss or damage suffered by you as a result of or in connection
with any opinions, recommendations, forecasts, judgements, or any other
conclusions, or any course of action determined, by you or any third party,
whether or not based on the content, information or materials contained
herein.
FTSE Index Data
Source: London Stock Exchange Group plc and its group undertakings
(collectively, the 'LSE Group'). © LSE Group 2024. FTSE Russell is a trading
name of certain of the LSE Group companies. 'FTSE®' 'Russell®', 'FTSE
Russell®', is/are a trade mark(s) of the relevant LSE Group companies and
is/are used by any other LSE Group company under license. All rights in the
FTSE Russell indexes or data vest in the relevant LSE Group company which owns
the index or the data. Neither LSE Group nor its licensors accept any
liability for any errors or omissions in the indexes or data and no party may
rely on any indexes or data contained in this communication. No further
distribution of data from the LSE Group is permitted without the relevant LSE
Group company's express written consent. The LSE Group does not promote,
sponsor or endorse the content of this communication.
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
gov.uk/government/publications/exchange-of-information-account-holders.
‡ 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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