TIDMSAIN
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
3/4 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.
3/4 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%.
3/4 The Company has declared a second interim dividend of 3.45p.
3/4 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.
3/4 SAINTS' global equity portfolio outperformed global equities
over the period despite the narrow leadership in equity
markets.
3/4 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.
3/4 To satisfy market demand the Company issued GBP7.7m of
shares over the period at a premium to Net Asset Value.
3/4 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
3/4 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
GBP10,000 in 2004 delivered GBP24,000 of capital growth at SAINTS,
compared with GBP5,300 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.
http://www.rns-pdf.londonstockexchange.com/rns/7961H_1-2023-7-31.pdf
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):
cumulative cagr cagr
Total return cagr cagr cagr cagr pa to cagr Total return Total return
Company GBP Sales EPS PE Share price Div addition local 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 GBP66.75m to GBP65.15m. 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 GBP66.75m to GBP79.55m. 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 31 December
At 30 June 2022
2023 (audited)
GBP'000 GBP'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 Capital Capital
premium redemption reserve Revenue Shareholders'
Share capital account reserve * reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Capital Capital
premium redemption reserve Revenue Shareholders'
Share capital account reserve * reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP317,109,000 (30 June 2022 - gains of
GBP276,512,000).
The accompanying notes below are an integral part of the
Financial Statements.
Cash Flow Statement (unaudited)
Six months Six months
to to
30 June 30 June
2023 2022
GBP'000 GBP'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 Total return Total return
SAINTS Benchmark SAINTS Benchmark
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 GBP'000 assets *
=================================== ====================================== ======== ==========
Novo Nordisk Pharmaceutical company 36,801 3.7
Distributes air conditioning, heating
Watsco and refrigeration equipment 34,254 3.4
Microsoft Computer software 34,063 3.4
Distribution and sales of industrial
Fastenal 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
Information services and solutions
Wolters Kluwer 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 GBP500m 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 GBP6,250.
The agreement can be terminated on three months' notice.
4 Net Return per Ordinary Share
Six months Six months
to 30 June to 30 June
2023 2022
GBP'000 GBP'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 Six months
to 30 June to 30 June
2023 2022
GBP'000 GBP'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.
As at 30 June 2023 Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'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
================================== ======== ======== ======== ================
As at 31 December 2022 Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'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
GBP94,721,000 (31 December 2022 - GBP94,714,000) and the fair value
was GBP62,760,000 (31 December 2022 - GBP65,549,000). The debt
comprises long-term private placement loan notes: GBP15 million
with a coupon of 2.23% issued during 2021 and GBP80 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
GBP7,733,000 (31 December 2022 - GBP5,901,000). 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 ++ 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) GBP907,767,000 GBP846,674,000
Add: book value of borrowings GBP94,721,000 GBP94,714,000
Less: fair value of borrowings (GBP62,760,000) (GBP65,549,000)
=============================================== =============== ===============
Shareholders' funds (borrowings at fair value) GBP939,728,000 GBP875,839,000
=============================================== =============== ===============
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 GBP235 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 . 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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