Scot.American Inv. - SAINTS Half-year results
01/08/2023 07:00
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RNS Number : 7961H Scottish American Investment Co PLC 01 August 2023
RNS Announcement
The Scottish American Investment Company P.L.C. (SAINTS)
Legal Entity Identifier: 549300NF03XVC5IFB447
Regulated Information Classification: Interim Financial Report.
The following is the unaudited Interim Financial Report for the six months to
30 June 2023 which was approved by the Board on 31 July 2023.
Results for the six months to 30 June 2023 and appointment of Deputy Manager
Results
¾ SAINTS' assets have delivered a strong positive return over the first
six months of 2023, broadly keeping pace with equities. SAINTS' net asset
value total return (borrowings at fair value) was 7.8% over the first six
months of 2023, whilst global equities* returned 7.9% over the same period.
¾ Over the past five years the Company has outperformed both global
equities and its sector, delivering a net asset value total return (borrowings
at fair value) of 73.0% against the market's* total return of 56.7% and the
sector's unweighted average net asset value total return of 50.0%.(†)
¾ The Company has declared a second interim dividend of 3.45p.
¾ SAINTS' revenues per share over the period were 7.64p compared to
7.78p for the equivalent period last year. The reduction in the Company's
revenues is principally due to exchange rate movements and property sales,
with the Company's equity holdings generally continuing to show dividend
growth in local currency terms, helped by the Managers' emphasis on
dependability.
¾ SAINTS' global equity portfolio outperformed global equities over the
period despite the narrow leadership in equity markets.
¾ Despite a rising interest rate environment SAINTS' bond investments
delivered a positive total return, as to a lesser extent did property. SAINTS'
infrastructure equities fell back slightly.
¾ To satisfy market demand the Company issued £7.7m of shares over the
period at a premium to Net Asset Value.
¾ The Board and the Managers are optimistic about SAINTS' long term
prospects for growth.
* FTSE All-World Index (in sterling terms)
† Source: Morningstar/Baillie Gifford and relevant underlying service
providers. See disclaimer at end of this announcement.
Appointment of Deputy Manager
¾ The Board is pleased to announce the appointment of Ross Mathison as
Deputy Manager of SAINTS with immediate effect. Ross is an investment manager
in Baillie Gifford's Global Income Growth team. This appointment reflects his
close involvement in the management of SAINTS and Baillie Gifford's team based
approach.
Pausing to look back: the long term case for dividend growth rather than yield
With SAINTS celebrating its 150th anniversary this year, we have been pausing
to look back. Baillie Gifford was appointed investment manager by the Board in
2004. Financial markets were recovering from the dot com crash, the UK was
still in the EU, and China was on its way to becoming a major driver of global
growth after joining the World Trade Organisation in 2001.
As managers we inherited a portfolio which had focused on preserving yield,
and which had become heavily skewed towards the UK: almost 70% of the equity
portfolio was invested in London-listed stocks. We began a gradual process of
moving the portfolio in a different direction. Focusing on growth rather
than yield. And more expansive in terms of embracing investment opportunities
globally.
At the time, SAINTS' competitors could essentially be regarded as the peer
group of UK Equity Income funds. So, what happened next? The accompanying
chart shows the income and capital growth delivered by SAINTS since 2004,
compared with 26 such funds which are still going today. Of these 26, we were
particularly interested in the 20 funds which, back in 2004, yielded more than
4%. These yield-focused funds had an average dividend yield of 4.7%, which was
approximately a quarter higher than SAINTS' yield in 2004, which was 3.8%.
The results can be seen in the chart. Despite its lower starting yield, SAINTS
shareholders have received, over the period, more income than investments in
the average high-yielding fund. Not by a wide margin, but a little bit more,
despite starting at a significantly lower yield. The growth in dividends from
SAINTS has surpassed the gap in starting yield, to the point that over the
entire period, total income from SAINTS has been a little higher.
More strikingly, there is a stark difference in capital growth. SAINTS'
shareholders have seen their capital grow by many multiples of the
higher-yielding, UK-focused funds. An investment of £10,000 in 2004 delivered
£24,000 of capital growth at SAINTS, compared with £5,300 for those
yield-seeking funds.
Adding both income and capital growth, SAINTS' shareholders have seen their
initial investment grow by 4.6x, whereas an investor in the average
higher-yielding UK income fund would have seen their initial investment grow
by 2.8x.
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We draw three conclusions from these numbers:
· A focus on dividend growth, rather than yield, does not mean
shareholders receive less income than high-yielding strategies, over the
long-term.
· These outcomes give credence to our belief that investing in
companies that can compound their dividends relentlessly higher over long
periods of time - the SAINTS approach - results in much higher capital growth.
Relentless compounding of dividends requires relentless compounding of
earnings. And relentless compounding of earnings drives share price
appreciation, resulting in capital growth.
· It shows the benefits of investing globally. Of course, many
UK-listed companies are global businesses, tapping into growth in other parts
of the world. But the much wider universe of global opportunities provides
much better odds of finding those relentless compounders of earnings and
dividends.
Note that we have assumed, in our calculations, that investors were choosing
to receive and consume their income, rather than reinvesting it into new
shares of SAINTS (or their UK income fund). If we crunched these numbers
again, but assumed reinvestment of dividends into new shares, we suspect the
gap in outcomes would be even wider: given SAINTS' much stronger capital
growth. We know that many SAINTS shareholders reinvest their dividends into
new SAINTS shares.
Long-term compounders
Around 2013, Baillie Gifford expanded the team managing SAINTS. This gave us
the resource to search the world for even more of the dividend compounders we
seek. It also gave us an opportunity to stop and think about our investment
approach. We decided to double-down. SAINTS leaned further into growth, and
away from higher-yielding equities.
Looking back on the companies that were owned within the portfolio in 2013 -
many of which are still held today - we can see several examples of the growth
stocks that have underpinned SAINTS' income and capital growth. The table
below shows the ten best-performing holdings that we have held continuously
for the past decade. (There have been other strong performers purchased
since 2013, but here we are focussing on decade-long performance):
Company cumulative cagr cagr cagr cagr pa to cagr cagr cagr
Total return GBP Sales EPS PE Share price Div addition Total return local Total return GBP
Apple 1820% 10% 14% 12% 28% 2% 32% 34%
Microsoft 1312% 10% 13% 11% 25% 1% 28% 30%
TSMC 715% 16% 20% (1%) 18% 1% 28% 30%
Analog Devices 545% 16% 20% 1% 18% 2% 18% 20%
Partners Group 466% 15% 14% (1%) 13% 2% 16% 19%
Atlas Copco 403% 8% 9% 7% 16% 3% 21% 18%
McDonald's 373% (2%) 7% 4% 12% 2% 15% 17%
Rio Tinto 281% 3% 6% 1% 7% 4% 14% 14%
Pepsi 260% 3% 5% 3% 8% 2% 12% 14%
UPS 234% 6% 11% (3%) 8% 2% 11% 13%
Source: Bloomberg and Baillie Gifford. Period 30 June 2013 to 30 June 2023
Some of the returns here are extraordinary. Investments such as Apple,
Microsoft, TSMC, Analog Devices, Partners Group and Atlas Copco have all
delivered share price appreciation better than 15% per annum, in local
currency terms. After we add dividends into the equation, total returns have
been even higher: 20 or 30% per annum in some cases. That means $1,000
invested ten years ago is worth about $11,800 today, in the example of
Microsoft.
The foundation-stone beneath the total returns of these companies has been
their strong revenue and earnings growth. By focusing on companies that we
have judged likely to compound their earnings relentlessly higher at
attractive rates - some 20% per annum in the case of TSMC and Analog Devices
for example - we have found that share price appreciation has broadly
followed. Sometimes this capital growth has been turbo-charged by expansion in
the PE multiple, for example in the case of Apple. But the more important
thing has been not to over-pay, risking PE compression that offsets the
earnings growth. This way, the earnings growth has been more likely to
translate into share price and capital growth.
Looking back today, in 2023, we believe more strongly than ever in our
approach: focusing on growing companies that pay resilient dividends which
should compound relentlessly away alongside their profit growth, all in the
pursuit of strong income and capital growth for SAINTS shareholders. By
looking globally for these companies, rather than narrowing our horizons to
the particular island on which we happen to be based, we dramatically raise
our odds of finding the next Atlas Copcos and Apples of the world. Over the
long-term, we believe the laws of compounding make this approach highly likely
to deliver better results than a value-oriented, yield-based approach to
investing.
Interim Management Report
Market commentary
Markets went down, up and occasionally sideways in the first half of 2023. It
might be tempting to dismiss this as the usual gyrations of share prices and
sentiment. But there are longer-term forces at play in recent market
movements, which are worth commenting on here to help SAINTS shareholders
understand what is happening.
The world economy is currently in a period of transition. The 2010s were an
environment of low inflation and low interest rates. During the recent past we
have seen inflation spike to levels not seen for many years, and central banks
including the Bank of England attempt to wrestle inflation under control by
continuously raising short-term borrowing rates. This has had, and will
continue to have, knock-on effects in the broader economy. At times the market
has plunged into despondency about the potential for recession, whilst at
other times it has been euphoric about the prospect of inflation peaking and
interest rates stabilising.
But what does it all mean for SAINTS' investments? Our belief is that the
companies in the equity portfolio are much better-placed to continue growing
their earnings and dividends than the average company in the stock market,
despite the challenges that come with higher inflation and higher interest
rates. For one thing, SAINTS' holdings have notably low levels of debt. This
means that while other companies may struggle mightily in the next few years
as they roll over their debt at significantly higher interest rates, this is
unlikely to be much of a drag on profit growth for the companies in SAINTS'
portfolio. Indeed some of SAINTS' holdings, such as Netease and Cognex, have
net cash balance sheets and will see their earnings rise as they earn higher
rates of interest.
We can also observe that SAINTS' holdings earn unusually high returns on
equity, compared with the average company. This is essentially a reflection
of the strong value they offer to their customers, which in turn helps them to
pass on cost inflation where appropriate. We have seen this play out in some
of their financial results since the start of the year. For example
Coca-Cola recently reported revenue growth of 11% year over year.
These are some of the factors that give us confidence that, in this brave new
world of higher interest rates, the impact on growth across SAINTS' equity
portfolio will, hopefully, be relatively muted. Of course if economies fall
into recession, growth may slow a little. But even then we might be hopeful
that nominal growth in their dividends would continue. The typical SAINTS
holding pays out perhaps half of its earnings as dividends. This means that
even if these earnings fall, there is a large cushion that allows SAINTS'
companies to look through the cycle and increase their dividends. We saw
this during the past six months at TSMC, which despite forecasting a decline
in sales of 10% this year due to the semiconductor cycle, said it foresees
strong growth in its business in the medium-term and announced an increase in
its dividend of 9%.
Performance
Over the first half of 2023, the equity portfolio delivered positive returns
of approximately 8%, broadly in line with global equity markets.
Interestingly, three of the top five contributors to performance were
industrial companies: Watsco (the US distributor of air conditioning
equipment), Fastenal (the US distributor of industrial parts) and
French-listed Schneider Electric (automation and power management equipment).
"Interestingly" because, as mentioned above, investors have been worrying
about the impact of rapidly rising interest rates on the economy and the risks
of recession. But the results published by these companies have been far more
resilient than the market anticipated.
Apart from these industrial names, Novo Nordisk was another strong contributor
to performance over the past 6 months, on the back of excellent operational
performance. Sales for Q1 2023, announced in May, were 25% higher than the
previous year as its appetite suppressants continue to see rapidly rising
demand from patients who are battling obesity.
Two Chinese holdings were the main drag on performance: furniture manufacturer
Man Wah and sportswear company Anta Sports. Both published muted results in
the period, affected by a disappointing rebound in the Chinese economy so far
this year following the end of the strict lockdown policy last December. Our
view is that in both cases their long-term growth prospects have not been
markedly impacted, simply delayed, and their balance sheets and cash-flows
remain very healthy.
Beyond the equity portfolio, we saw solid performance from SAINTS' investments
in property, infrastructure equities, and bonds. These are funded out of
SAINTS' prudent borrowings with an average cost of 3%.
Perhaps most notable was the property portfolio, managed by OLIM, which
delivered a positive contribution to performance over the period as rental
income more than offset a decline in capital values. The latest valuation,
conducted externally by Savills, resulted in a handful of the properties being
modestly marked down due to rising interest rates and falling market values
for commercial property across the UK. But if we look at the 12 properties
which were owned by SAINTS at the start of the year, and compare their values
with the latest market valuation at 30 June 2023, we see that in aggregate
their total value fell by only 2.4%, from £66.75m to £65.15m. This is a
notable performance in a very difficult market for commercial property. If we
add the two new properties purchased during the past six months (a hotel in
Ringwood and an Aldi supermarket in Gosport) the total property portfolio has
grown from £66.75m to £79.55m. Their rental income comfortably beats the
cost of SAINTS' modest borrowings.
Investments and divestments
Two new equity holdings were added to the portfolio in the first half of the
year: Coloplast and Eurofins.
Coloplast is a Danish-listed leading 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 in earnings and dividends.
French-listed Eurofins Scientific is a laboratory business focused on a wide
variety of testing related to food and the environment. Structural growth
drivers of its business include expanding regulation and increased penetration
of testing in developing countries. What makes us particularly enthusiastic
about Eurofins is the distinctive vision of its founder, CEO and largest
shareholder, Gilles Martin, who is resolutely focused on the long-term. Over
the past three decades, the company has invested relentlessly in an
industry-leading, internally developed technology platform and created a large
global network of labs. We expect the combination of these two factors to
provide solid foundations for growth and increasing returns on capital in the
next decade and beyond.
So far this year, we have divested from four equity holdings: National
Instruments, Silicon Motion, Linea Directa, and Cullen Frost.
National Instruments is an American manufacturer of hardware and software for
lab researchers which has received a takeover bid at a price of $53 per share.
We believe that the offer price is attractive and represents a healthy return
on the fund's book cost, so we sold our position.
Silicon Motion, likewise, received a takeover offer. As we had received the
final dividend and there was still uncertainty over the Chinese regulators'
willingness to approve the deal, we decided to divest our position and put the
capital to work in new ideas.
We invested in Linea Directa, a Spanish motor insurance company, only two
years ago. However, the shares have proven to be highly illiquid, which meant
we struggled to make this into the size of holding we envisaged. With no plan
in sight to help improve liquidity, we decided to divest the holding.
Following a string of runs at US regional banks earlier this year, we decided
that the risk facing Cullen Frost had turned unfavourably asymmetric, and we
divested the holding to preserve capital.
ESG
We believe that investing sustainably is critical if we are to achieve our
long-term objectives of delivering a dependable income and growing income and
capital in real terms over the long term. In addition to the regular
monitoring of our holdings and scoring potential new portfolio candidates
using our Impact Ambition and Trust framework, our ESG analyst delved deep
into two particular issues over the past few months: water management in
Chile, and palm oil.
The water management report was to help us assess our investment in Albemarle,
the world's largest lithium producer, and the potential risks to its growth
prospects from water management around its operations in Chile. For a few
weeks our analyst became a hydrogeologist, talking to academics, experts and
NGOs to try and assess the impact of the company's practices in one of the
world's most arid regions. His conclusion was that whilst lithium mining has
some impact, the reduced water availability that has been observed in Chile in
the past few years is more likely to be a function of the 13-year drought
currently underway in the country, combined with much-larger water consumption
by copper mining and agriculture. We will use this research to encourage
Albemarle to expand their efforts to reduce water use and expand the
monitoring of their impact on water in the area.
Palm oil, and the deforestation sometimes associated with its production, is
another important issue with potential implications for our investments. Palm
oil is in some ways a victim of its own success, with a broadening range of
uses leading to global production rising fivefold over the past thirty years
and making it the most used vegetable oil in the world. Advocates of palm oil
point to the fact that it represents 36% of food oil globally but takes up
less than 9% of land dedicated to that food oil production. Critics counter
that not all land is created equal and palm oil production often replaces
tropical forest with high carbon stock and richer biodiversity. Several of
SAINTS' investments including Procter & Gamble, L'Oréal and PepsiCo are
significant users of palm oil so we need to understand this particular issue.
Our research has highlighted a few important points. Much progress has been
made in terms of sustainability certification and many companies are now
dedicating resources to ensure their palm oil is grown sustainably. On the
other hand, a large number of small independent suppliers, combined with a lot
of intermediary processing steps, make traceability and transparency very
challenging, and a key area for companies to address. This has helped us to
have more informed discussions with our companies - indeed we raised it with
Procter & Gamble while visiting them in Cincinnati last month - and this
has helped us to establish a set of measures and policies we expect our
holdings to adopt, if they have not already done so.
Outlook
After reflecting back on the occasion of SAINTS' 150th, we take several
lessons forward. One is the rewards from focusing on long-term dividend growth
rather than short-term dividend yield. Another is the expansion of
opportunities afforded by a global portfolio. A third is the exceptional
returns that outstanding companies can generate for SAINTS shareholders.
This year, as every year, the gyrations of markets and economies creates a
great deal of uncertainty and speculation. But for the long-term investor in
great companies, faced with opportunities such as Coloplast or Eurofins or
indeed any of the investments within SAINTS' portfolio, we see the potential
for many years of continued resilient income together with attractive growth
in capital.
We are proud to be managers of SAINTS, and the trust put in us by the Board.
We hope that in the decade ahead, as in the nearly two-decades past, we can
continue to earn that trust by delivering attractive returns to SAINTS
shareholders.
Baillie Gifford & Co
31 July 2023
See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared in
accordance with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of
important events during the first six months, their impact on the Financial
Statements and a description of principal risks and uncertainties for the
remaining six months of the year); and
c) the Interim Financial Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of
related party transactions and changes therein).
By order of the Board
Lord Macpherson of Earl's Court
Chairman
31 July 2023
Income Statement (unaudited)
For the six months ended For the six months ended For the year ended
30 June 2023 30 June 2022 31 December 2022 (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on sales of investments - securities - 17,939 17,939 - 1,586 1,586 - 12,200 12,200
Gains on sales of investments - property - - - - 607 607 - 2,042 2,042
Changes in fair value of investments - securities - 38,544 38,544 - (105,210) (105,210) - (92,291) (92,291)
Changes in fair value of investments - property - (2,167) (2,167) - 1,543 1,543 - (7,156) (7,156)
Currency (losses)/gains - (39) (39) - 71 71 - 192 192
Income - dividends and interest 14,493 - 14,493 14,486 - 14,486 25,488 - 25,488
Income - rent and other 2,348 - 2,348 2,412 - 2,412 4,555 - 4,555
Management fees (note 3) (514) (1,542) (2,056) (494) (1,481) (1,975) (980) (2,940) (3,920)
Other administrative expenses (634) - (634) (574) - (574) (1,257) - (1,257)
Net return before finance costs and taxation 15,693 52,735 68,428 15,830 (102,884) (87,054) 27,806 (87,953) (60,147)
Finance costs of borrowings (354) (1,061) (1,415) (565) (1,695) (2,260) (921) (2,763) (3,684)
Net return on ordinary activities before taxation 15,339 51,674 67,013 15,265 (104,579) (89,314) 26,885 (90,716) (63,831)
Tax on ordinary activities (1,811) 506 (1,305) (1,562) 429 (1,133) (2,540) 790 (1,750)
Net return on ordinary activities after taxation 13,528 52,180 65,708 13,703 (104,150) (90,447) 24,345 (89,926) (65,581)
Net return per ordinary share (note 4) 7.64p 29.46p 37.10p 7.78p (59.16p) (51.38p) 13.82p (51.04p) (37.22p)
Note:
Dividends paid and payable per share
(note 5) 6.75p 6.65p 13.82p
The accompanying notes below are an integral part of the Financial Statements.
The total column of this 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 the above statements derive from continuing
operations.
A Statement of Comprehensive Income is not required as all gains and losses of
the Company have been reflected in the above statement.
Balance Sheet (unaudited)
At 30 June At 31 December
2023 2022
£'000 (audited)
£'000
Non-current assets
Investments - securities 919,024 869,837
Investments - property 79,550 66,750
998,574 936,587
Current assets
Debtors 3,886 3,213
Cash and deposits 2,682 4,184
6,568 7,397
Creditors
Amounts falling due within one year:
Other creditors and accruals (2,654) (2,596)
Net current assets 3,914 4,801
Total assets less current liabilities 1,002,488 941,388
Creditors
Amounts falling due after more than one year:
Loan notes (note 7) (94,721) (94,714)
Net assets 907,767 846,674
Capital and reserves
Share capital 44,551 44,188
Share premium account 185,559 178,189
Capital redemption reserve 22,781 22,781
Capital reserve 635,994 583,814
Revenue reserve 18,882 17,702
Shareholders' funds 907,767 846,674
Net asset value per ordinary share* 509.4p 479.0p
Ordinary shares in issue (note 8) 178,205,943 176,750,943
* 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 (unaudited)
For the six months ended 30 June 2023
Share premium account Capital redemption reserve
Share capital £'000 £'000 Capital reserve * Revenue reserve Shareholders'
£'000 £'000 £'000 funds
£'000
Shareholders' funds at 1 January 2023 44,188 178,189 22,781 583,814 17,702 846,674
Shares issued 363 7,370 - - - 7,733
Net return on ordinary activities after taxation - - - 52,180 13,528 65,708
Dividends paid (note 5) - - - - (12,348) (12,348)
Shareholders' funds at 30 June 2023 44,551 185,559 22,781 635,994 18,882 907,767
For the six months ended 30 June 2022
Share premium account Capital redemption reserve
Share capital £'000 £'000 Capital reserve * Revenue reserve Shareholders'
£'000 £'000 £'000 funds
£'000
Shareholders' funds at 1 January 2022 43,900 172,576 22,781 673,740 17,188 930,185
Shares issued 175 3,434 - - - 3,609
Net return on ordinary activities after taxation - - - (104,150) 13,703 (90,447)
Dividends paid (note 5) - - - - (11,666) (11,666)
Shareholders' funds at 30 June 2022 44,075 176,010 22,781 569,590 19,225 831,681
* The Capital Reserve balance at 30 June 2023 includes
investment holding gains of £317,109,000 (30 June 2022 - gains of
£276,512,000).
The accompanying notes below are an integral part of the Financial Statements.
Cash Flow Statement (unaudited)
Six months to Six months to
30 June 30 June
2023 2022
£'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation 67,013 (89,314)
Net (gains)/losses on investments - securities (56,483) 103,624
Net losses/(gains) on investments - property 2,167 (2,150)
Currency losses/(gains) 39 (71)
Finance costs of borrowings 1,415 2,260
Overseas withholding tax (1,291) (1,140)
Changes in debtors (687) (130)
Changes in creditors 73 571
Other non-cash changes 80 120
Cash from operations 12,326 13,770
Interest paid (1,422) (3,368)
Net cash inflow from operating activities 10,904 10,402
Cash flows from investing activities
Acquisitions of investments - securities (68,321) (38,252)
Acquisitions of investments - property (14,967) (8,239)
Disposals of investments - securities 75,535 36,174
Disposals of investments - property - 3,589
Net cash outflow from investing activities (7,753) (6,728)
Cash flows from financing activities
Equity dividends paid (12,348) (11,666)
Shares issued 7,734 3,609
Loan notes drawn down - 80,000
Debenture stock repaid - (80,000)
Costs of issuance of debt - (16)
Net cash outflow from financing activities (4,614) (8,073)
Decrease in cash and cash equivalents (1,463) (4,399)
Exchange movements (39) 71
Cash and cash equivalents at start of period* 4,184 11,263
Cash and cash equivalents at end of period* 2,682 6,935
* Cash and cash equivalents represent cash at bank and
short term money market deposits repayable on demand.
The accompanying notes below are an integral part of the Financial Statements.
Performance Attribution for the Six Months to 30 June 2023 (unaudited)
Average allocation Average allocation Benchmark † Total return Total return Benchmark †
SAINTS % SAINTS %
Portfolio breakdown % %
Global Equities 94.5 100.0 8.5 7.9
Infrastructure Equities 2.8 (0.8)
Bonds 4.5 4.5
Direct Property 8.1 0.2
Deposits 0.7 -
Borrowings at book value (10.6) 1.5
Portfolio Total Return (borrowings at book value) 7.9
Other items* (0.1)
Fund Total Return (borrowings at book value) 7.8
Adjustment for change in fair value of borrowings -
Fund Total Return (borrowings at fair value) 7.8
The above returns are calculated on a total returns basis with net income
reinvested.
Source: Baillie Gifford and relevant underlying index providers.
* Includes Baillie Gifford and OLIM management fees.
† See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
Twenty Largest Equity Holdings at 30 June 2023 (unaudited)
Value % of total
Name Business £'000 assets *
Novo Nordisk Pharmaceutical company 36,801 3.7
Watsco Distributes air conditioning, heating and refrigeration equipment 34,254 3.4
Microsoft Computer software 34,063 3.4
Fastenal Distribution and sales of industrial supplies 29,800 3.0
Procter & Gamble Household product manufacturer 27,738 2.8
Taiwan Semiconductor Manufacturing Semiconductor manufacturer 26,589 2.7
Apple Consumer technology 25,509 2.5
Pepsico Snack and beverage company 25,383 2.5
United Parcel Service Courier services 24,616 2.5
Sonic Healthcare Laboratory testing 22,501 2.2
Analog Devices Integrated circuits 22,433 2.2
Roche Pharmaceuticals and diagnostics 21,973 2.2
Atlas Copco Engineering 21,836 2.2
Deutsche Boerse Securities exchange owner/operator 21,172 2.1
Schneider Electric Electrical power products 20,854 2.1
Coca Cola Beverage company 18,608 1.8
Experian Credit scoring and marketing services 18,294 1.8
Nestlé Food producer 17,802 1.8
Edenred Voucher programme outsourcer 17,665 1.8
Wolters Kluwer Information services and solutions provider 17,255 1.7
485,146 48.4
* Before deduction of borrowings.
Notes to the Condensed Financial Statements (unaudited)
1 The condensed Financial Statements for the six months to 30 June 2023
comprise the statements set out above together with the related notes below.
They have been prepared in accordance with FRS 104 'Interim Financial
Reporting' and the AIC's Statement of Recommended Practice issued in November
2014 and updated in July 2022 with consequential amendments and have not been
audited or reviewed by the Auditor pursuant to the Auditing Practices Board
Guidance 'Review of Interim Financial Information'. The Financial Statements
for the six months to 30 June 2023 have been prepared on the basis of the same
accounting policies as set out in the Company's Annual Report and Financial
Statements at 31 December 2022.
Going Concern
The Directors have considered the nature of the Company's principal risks and
uncertainties, as set out on the inside front cover, together with its current
position. The Board has, in particular, considered macroeconomic and
geopolitical concerns, including the Russia-Ukraine conflict, increased
inflation and interest rates but does not believe the Company's going concern
status is affected. In addition, the Company's investment objective and
policy, its assets and liabilities and projected income and expenditure,
together with the Company's dividend policy, have been taken into
consideration and it is the Directors' opinion that the Company has adequate
resources to continue in operational existence for the foreseeable future. The
Company's assets, the majority of which are investments in quoted securities
which are readily realisable, exceed its liabilities significantly. All
borrowings require the prior approval of the Board. Gearing levels and
compliance with borrowing covenants are reviewed by the Board on a regular
basis. The Company has no short term borrowings. The redemption dates for the
Company's loan notes are June 2036, April 2045 and April 2049. Accordingly,
the Directors consider it appropriate to adopt the going concern basis of
accounting in preparing these Financial Statements and confirm that they are
not aware of any material uncertainties which may affect the Company's ability
to continue to do so over a period of at least twelve months from the date of
approval of these Financial Statements.
2 The financial information contained within this Interim Financial Report
does not constitute statutory accounts as defined in sections 434 to 436 of
the Companies Act 2006. The financial information for the year ended 31
December 2022 has been extracted from the statutory accounts which have been
filed with the Registrar of Companies. The Auditor's Report on those accounts
was not qualified, and did not contain statements under sections 498(2) or (3)
of the Companies Act 2006.
3 Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie
Gifford & Co, has been appointed by the Company as its Alternative
Investment Fund Manager (AIFM) and Company Secretary. The investment
management function has been delegated to Baillie Gifford & Co. The
management agreement can be terminated on six months' notice. The annual
management fee, calculated quarterly, is 0.45% on the first £500m of total
assets and 0.35% on the remaining total assets, where 'total assets' is
defined as the total value of the assets held, excluding the value of the
property portfolio, less all liabilities (other than any liability in the form
of debt intended for investment purposes).
As AIFM, Baillie Gifford & Co Limited has delegated the management of the
property portfolio to OLIM Property Limited. OLIM receives an annual fee from
SAINTS of 0.5% of the value of the property portfolio, subject to a minimum
quarterly fee of £6,250. The agreement can be terminated on three months'
notice.
4 Net Return per Ordinary Share
Six months to 30 June 2023 Six months to 30 June 2022
£'000 £'000
Revenue return on ordinary activities after taxation 13,528 13,703
Capital return on ordinary activities after taxation 52,180 (104,150)
Total net return 65,708 (90,447)
Weighted average number of ordinary shares in issue 177,095,723 176,051,800
5 Dividends
Six months to 30 June 2023 Six months to 30 June 2022
£'000 £'000
Amounts recognised as distributions in the period:
Previous year's final of 3.67p (2022 - 3.375p), paid 13 April 2023 6,487 5,937
First interim of 3.30p (2022 - 3.25p), paid 22 June 2023 5,861 5,730
12,348 11,667
Amounts paid and payable in respect of the period:
First interim of 3.30p (2022 - 3.25p), paid 22 June 2023 5,861 5,730
Second interim of 3.45p (2022 - 3.40p) 6,148 5,994
12,009 11,724
The second interim dividend was declared after the period end date and
therefore has not been included as a liability in the Balance Sheet.
It is payable on 20 September 2023 to shareholders on the register at the
close of business on 11 August 2023. The ex-dividend date is 10 August 2023.
The Company's Registrar offers a Dividend Reinvestment Plan and the final date
for elections for this dividend is 30 August 2023.
6 Fair Value Hierarchy
The fair value hierarchy used to analyse the basis on which the fair values of
financial instruments held at fair value through the profit or loss account
are measured is described below. Fair value measurements are categorised on
the basis of the lowest level input that is significant to the fair value
measurement.
Level 1 - using unadjusted quoted prices for identical instruments in an
active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that
are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
An analysis of the Company's financial asset investments based on the fair
value hierarchy described above is shown below.
Level 1 Level 2 Level 3 Total
As at 30 June 2023 £'000 £'000 £'000 £'000
Securities
Listed equities 880,897 - - 880,897
Bonds - 38,127 - 38,127
Property
Freehold - - 79,550 79,550
Total financial asset investments 880,897 38,127 79,550 998,574
Level 1 Level 2 Level 3 Total
As at 31 December 2022 £'000 £'000 £'000 £'000
Securities
Listed equities 826,397 - - 826,397
Bonds - 43,440 - 43,440
Property
Freehold - - 66,750 66,750
Total financial asset investments 826,397 43,440 66,750 936,587
There have been no transfers between levels of the fair value hierarchy during
the period. The fair value of listed investments is bid value or, in the case
of holdings on certain recognised overseas exchanges, last traded price. They
are categorised as Level 1 if they are valued using unadjusted quoted prices
for identical instruments in an active market and Level 2 if they do not meet
all these criteria but are, nonetheless, valued using market data. The fair
value of unlisted investments is determined using valuation techniques,
determined by the Directors, based upon observable and/or non-observable data
such as latest dealing prices, stockbroker valuations, net asset values and
other information, as appropriate. The Company's holdings in unlisted
investments are categorised as Level 3 as the valuation techniques applied
include the use of non-observable data.
7 At 30 June 2023, the book value of the borrowings was £94,721,000 (31
December 2022 - £94,714,000) and the fair value was £62,760,000 (31 December
2022 - £65,549,000). The debt comprises long-term private placement loan
notes: £15 million with a coupon of 2.23% issued during 2021 and £80 million
with a coupon of 3.12% issued to refinance the 8% Debenture Stock which
matured on 10 April 2022.
8 At 30 June 2023, the Company had the authority to buy back 26,494,966
ordinary shares and to issue 16,220,094 ordinary shares without application of
pre-emption rights in accordance with the authorities granted at the AGM in
April 2023. During the six months to 30 June 2023, 1,455,000 (31 December 2022
- 1,150,000) shares were issued at a premium to net asset value raising
proceeds of £7,733,000 (31 December 2022 - £5,901,000). No shares were
bought back (31 December 2022 - nil).
9 Related Party Transactions
There have been no transactions with related parties during the first six
months of the current financial year that have materially affected the
financial position or the performance of the Company during that period and
there have been no changes in the related party transactions described in the
last Annual Report and Financial Statements that could have had such an effect
on the Company during that period.
10 The Interim Financial Report will be available on the SAINTS page of the
Managers' website: saints-it.com (http://www.saints-it.com/) ‡ on or around
15 August 2023.
Principal Risks and Uncertainties
The principal risks facing the Company are financial risk, investment strategy
risk, climate and governance risk, regulatory risk, custody and depositary
risk, operational risk, discount risk, leverage risk, political risk, cyber
security risk and emerging risks. An explanation of these risks and how they
are managed is set out on pages 8 to 10 of the Company's Annual Report and
Financial Statements for the year to 31 December 2022 which is available on
the Company's website: saints-it.com.
The principal risks and uncertainties have not changed since the date of that
report.
Glossary of Terms and Alternative Performance Measures (APM)
Total Assets
Total assets less current liabilities, before deduction of all borrowings.
Net Asset Value
Net Asset Value (NAV) is the value of total assets less liabilities (including
borrowings). The NAV per share is calculated by dividing this amount by the
number of ordinary shares in issue.
Net Asset Value (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.
30 June 31 December
2023 2022
Shareholders' funds (borrowings at book value) £907,767,000 £846,674,000
Add: book value of borrowings £94,721,000 £94,714,000
Less: fair value of borrowings (£62,760,000) (£65,549,000)
Shareholders' funds (borrowings at fair value) £939,728,000 £875,839,000
Shares in issue 178,205,943 176,750,943
Net Asset Value per ordinary share (borrowings at fair value) 527.3p 495.5p
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's share price is
rarely the same as its NAV. When the share price is lower than the NAV per
share it is said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the share price is
higher than the NAV per share, this situation is called a premium.
30 June 30 June 31 December 31 December
2023 2023 2022 2022
NAV (book) NAV (fair) NAV (book) NAV (fair)
Closing NAV per share 509.4p 527.3p 479.0p 495.5p
Closing share price 522.0p 522.0p 508.0p 508.0p
Premium/(discount) 2.5% (1.0%) 6.1% 2.5%
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.
30 June 30 June 30 June 31 December 31 December 31 December
2023 2023 2023 2022 2022 2022
NAV (book) NAV (fair) share price NAV (book) NAV (fair) share 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) 509.4p 527.3p 522.0p 479.0p 495.5p 508.0p
Dividend adjustment factor* (c) 1.013742 1.012896 1.013027 1.027330 1.026941 1.027687
Adjusted closing NAV per share/share price (d = b x c) 516.4p 534.1p 528.8p 492.1p 508.8p 522.1p
Total return (d ÷ a)-1 7.8% 7.8% 4.1% (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, as appropriate, at the ex-dividend
date.
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.
Performance Attribution (APM)
Analysis of how the Company achieved its performance relative to its
benchmark.
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other public company, an
investment trust can borrow money to invest in additional investments for its
portfolio. The effect of the borrowing on the shareholders' assets is called
'gearing'. If the Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same. But if the value of
the Company's assets falls, the situation is reversed. Gearing can therefore
enhance performance in rising markets but can adversely impact performance in
falling markets.
Gearing represents borrowings at book less cash and cash equivalents expressed
as a percentage of shareholders' funds.
Potential gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
Equity gearing is the Company's borrowings adjusted for cash, bonds and
property expressed as a percentage of shareholders' funds.
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers (AIFM) Directive,
leverage is any method which increases the Company's exposure, including the
borrowing of cash and the use of derivatives. It is expressed as 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.
‡ 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.
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.
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford
& Co, is appointed as investment managers and secretaries to SAINTS.
Baillie Gifford & Co, the Edinburgh based fund management group has around
£235 billion under management and advice as at 31 July 2023.
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 Budden, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
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.
Sustainable Finance Disclosure Regulation ('SFDR')
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 The Scottish American Investment Company
P.L.C. is marketed in the EU by the AIFM, BG & 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 Governance and Sustainable
Principles and Guidelines as its policy on integration of sustainability risks
in investment decisions.
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 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.
More detail on the Managers' approach to sustainability can be found in the
Governance and Sustainability Principles and Guidelines document, available
publicly on the Baillie Gifford website (bailliegifford.com).
Taxonomy Regulation
The Taxonomy Regulation establishes an EU-wide framework of criteria for
environmentally sustainable economic activities in respect of six
environmental objectives. It builds on the disclosure requirements under SFDR
by introducing additional disclosure obligations in respect of Alternative
Investment Funds that invest in an economic activity that contributes to an
environmental objective. The Company does not commit to make sustainable
investments as defined under SFDR. As such, the underlying investments do not
take into account the EU criteria for environmentally sustainable economic
activities.
- ends -
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