Annual Financial Report
The Scottish American Investment Company P.L.C.
Legal Entity Identifier: 549300NF03XVC5IFB447
Regulated Information Classification: Annual Financial and Audit Reports
Annual Financial Report
This is the Annual Financial Report of The Scottish American Investment Company P.L.C. as required to be published under DTR 4 of the UKLA Listing Rules.
The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 31 December 2018 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2017 and 2018; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2017 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 December 2018 will be delivered to the Registrar in due course.
The Annual Report and Financial Statements for the year ended 31 December 2018, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM and is also available on SAINTS page of the Baillie Gifford website at: www.saints-it.com
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.
Baillie Gifford & Co Limited
Company Secretary
1 March 2019
Chairman's Statement
The Company's objective is to deliver real dividend growth by increasing capital and growing income. An increased dividend of 11.5p (2017: 11.1p) will extend the Company's record of raising its dividend to thirty nine consecutive years.
Overview
Markets made good progress for much of the year driven by continued growth in corporate profits and the global economy, both of which were notably strong. However, all of these gains were given up in the final quarter when a number concerns came to the fore and tipped the balance of market sentiment, causing dramatic falls. For the year as a whole therefore global equities lost ground. Concerns included the deteriorating prospects for economic growth, the effects of rising interest rates and the outlook for corporate profits, all of which were intertwined with geopolitical risk and the prospect of an escalating trade war.
Whilst the economic background is a factor which can affect companies' prospects as well as market sentiment, neither it nor the short-term gyrations of the market will drive SAINTS' ability to achieve its objective over time. The Managers have continued to focus on investing in companies which can deliver both growing cashflows and dependable dividends, and the property managers have also continued to prioritise both dependability and the prospects of income growth. Overall this approach has worked well over the year.
Dividend and Inflation
A final dividend of 2.925p is recommended which will take the full year dividend to 11.5p per share, 3.6% higher than the 2017 dividend of 11.1p. This year's increase is significantly above the annual rate of inflation of 2.1% as measured by CPI. Over the last ten years the Company's dividends have increased at well above the rate of inflation. The recommended dividend is fully covered by this year's earnings and permits a further addition to the Company's revenue reserves.
Revenues
Earnings per share have increased by 3.7% to 11.75p and investment income has risen to £21.7 m. Income from equities has been helped by operational progress at many of the Company's investments and by related increases in dividends. The rents from the Company's property investments have also increased modestly, helped by the high proportion of rents which are linked to inflation. Against this, the Company has reduced its investments in fixed income holdings, a move which the Board believes will be helpful to returns and revenue growth in the long-term but which has reduced the overall growth in revenues for the year.
Both managers (Baillie Gifford and, for the Company's property investments, OLIM) continue at the Board's request to emphasise supporting the dependability and the future growth of the Company's dividend in line with its objective.
Total Return Performance
Over the year your investment in SAINTS delivered a share price total return of -1.6% and the net asset value total return (capital and income) was -2.4%. Global Equities fell 3.4% over 2018. It is encouraging that, having outperformed a strong market last year, the Trust has more than held its own in the end-of-year downturn. As always however we would caution against reading too much into short term relative performance. The Managers and your Board have a long-term perspective and the Company's portfolio of investments differs markedly from the make-up of the global equity index against which performance is often compared. This differentiated portfolio is necessary and appropriate in order for the Company to deliver a high and growing income stream, as well as to deliver real growth in the Company's capital.
Nonetheless, it is worth highlighting that the Company's property investments have delivered both a high income and capital growth in a year when many parts of the property market have struggled. This is a notable outcome of the property managers' emphasis on strength of covenant and the consequent evolution of the portfolio away from the retail sector, and this latter shift should increase the resilience of the portfolio to any further weakness from the UK consumer. Pleasingly, SAINTS' equities held up relatively well in the troubled last quarter. And, as in previous years, returns over 2018 have been helped by the sound operational performance of the companies in which the portfolio is invested. The principal contributors to and detractors from performance and the changes to the equity, property and bond investments are explained in more detail in the Managers' Review.
Borrowings
SAINTS' borrowings take the form of a single £80m debenture which is due for repayment in April 2022. During 2018, the borrowings continued to fund a range of higher yielding commercial property and, to a much lesser extent, some fixed income investments.
The book value of the debenture is £82.7m which, at the year end, was equivalent to approximately 17.1% of shareholders' funds. The estimated market or fair value of the debenture was £92.0m, a decrease from the previous year's value of £97.8m. The market value of the Company's borrowings will continue to fall over the coming years as the redemption date approaches.
Outlook
Last year I suggested that the likelihood of continued economic growth around the world seemed strong, but that concerns relating to valuations and rising interest rates made share price progress less than certain. This year the opposite may be the case, both because economic growth is likely to slow as the cycle progresses and trade wars loom large and because recent falls make equity valuations appear more reasonable. Appearances may be deceptive however, particularly if corporate earnings growth slows dramatically from the strong levels of 2018.
Wild cards such as Brexit, the extent of any slowdown in China, international trade relations and the broader geopolitical risk around China and the US make predictions challenging as quite different outcomes are entirely possible. Against this uncertain background, the Board and the Managers continue to view it as a strength that the Company's underlying investments are closely aligned with its long-term objectives. Holdings in companies which maintain dividends in troubled times, and which also grow cashflows and dividends ahead of inflation over the long term, should help SAINTS to do the same, and the resilience shown by the property portfolio also bodes well for the future.
The Board and the Managers remain alert to both potential opportunities and challenges. In the current environment the Managers are correctly focussed on the resilience and dependability of the Company's holdings, as well as their long-term growth potential, as is explained further in their report. As a Board, we remain of the view that a long-term approach based on investing for sustainable growth is the best route to achieving SAINTS' aim of growing the dividend over time. We have great confidence in the Managers' approach, and this confidence has been strengthened by another year of generally encouraging operational performance from the holdings in the portfolio.
Issuance
The Company has raised over £18 million from new issuance at a premium to net asset value in order to satisfy investor demand over the year. This is some way above the level of issuance last year and indicates that the merits of the Company's approach are increasingly appreciated. It also serves the interests of current shareholders by reducing costs per share and helping to further improve liquidity.
The Board and the Managers
Dame Mariot Leslie joined the Board on 1 January 2019, as announced in November 2018. As was also announced, Lord Kerr will be retiring from the Board at the forthcoming AGM and, subject to shareholders' approval, Karyn Lamont will be appointed as a Director.
The Board, and I personally, would like to reiterate our thanks to Lord Kerr for his considerable contribution to the Board over many years. His commitment to the Company has been unwavering and his insight has proved to be invaluable. We wish him all the best. We are delighted that Mariot has joined the Board and that Karyn will do so shortly. We are confident that their knowledge and abilities will be of great benefit to SAINTS in the years ahead. The Board has asked Lord Macpherson to take on the role of senior non-executive director from Lord Kerr after the AGM and I am pleased to say that he has accepted.
These changes are part of an ongoing Board refreshment exercise which will take the number of Directors to six. The Board believes that the pace of change should be measured, so that careful succession planning can allow a desirable mix of old and new hands, and also of knowledge, experience and background, on the Board. It is worth highlighting that after Karyn's appointment men and women will be equally represented on the Board, for the first time in our 136 year history.
Toby Ross and James Dow have completed their first full year as joint managers of the Company, and the Board is very pleased with their achievements and application over the year.
AGM
The AGM will be held at 11am on Thursday 4 April 2019 at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh. The Managers will make a presentation on the investment portfolio and there will also be an opportunity to ask questions. The Directors and the Managers look forward to meeting you there.
Peter Moon
Chairman
19 February 2019
For a definition of terms see the Glossary of Terms and Alternative Performance Measures in Note 10.
Past performance is not a guide to future performance..
Managers' Review
As detailed in the Investment Approach section, SAINTS aims to deliver real growth in both income and capital to its shareholders over the long term. We tend to consider these outputs over periods of five years or longer, consistent with the Company's time horizon.
In this section we provide a review of the progress that the Company has made towards these longer-term goals during 2018, after another strong year of operational performance from our investments. We also outline how the company is positioned at the end of 2018, both in terms of where we are finding growth, and how we are ensuring the income stream is truly diversified. Finally, we set out our outlook for the years ahead.
Progress During 2018
2018 was a good year for SAINTS' income growth, though the capital performance this year was weaker than it has been in recent years. Income growth from the equity portfolio was strong, but the capital return offset this and across the year the equity portfolio delivered modestly negative total returns. The property portfolio delivered a strong positive return. The small fixed income portfolio generated a negative return. The Company's NAV at fair value produced a total return of -2.4% during the year and total income from investments was £21.7m, a 6.2% increase on the prior year.
The biggest driver of returns in any one year will be the performance of the equity portfolio, and 2018 was no exception. As explained in the Investment Approach section on page 10 of the Annual Report and Financial Statements, we aim to invest the bulk of the Company's net assets in equities. History tells us this is the best asset class for delivering real income and capital growth over the long term. 2018 was a year of two halves both for SAINTS, and for broader equity markets. Generally markets were strong in the first half of the year, buoyed by strong corporate earnings; and then weaker in the second half of the year, as worries around the potential effect of new trade barriers spread, and consumer confidence deteriorated. Across the year, global equity markets fell by 3.4%, and the Company's equity portfolio delivered a very similar performance.
Our starting point when choosing equities for your portfolio is always to look for where we can see significant potential for profit growth, as we believe this is typically what will drive capital and dividend growth over the long run. Sometimes our analysis is that growth rates in the future will be higher than in the recent past, and it is striking that several of the strongest performers in 2018 were businesses where the acceleration in growth that we were hoping for began to be more visible to the outside world.
These investments all benefit from new, technology-enabled business models that allow companies to sell more useful products to a wider range of customers. For instance, Edenred, the French vouchers business, has seen double digit growth in its most mature markets, as it has rolled out its mobile-based vouchers for employees and restaurants, cutting a huge amount of administrative grit from the process. Microsoft's cloud businesses, including Azure, have delivered astonishing growth rates, as businesses have adopted these software products and used them to improve the way they work. Less dramatically, Wolters Kluwer's growth rate continues to accelerate as their portfolio of products steadily shifts towards digital solutions that help doctors, accountants and lawyers do their jobs more efficiently.
All three of these businesses delivered strong positive returns during the year, and dividend increases of between 8% and 37%. Because they are delivering real benefits to customers, in each case we think the long-term growth drivers are relatively immune to the ups and downs of the global economy. The focus of our research continues to be on finding these businesses where we can have high levels of confidence in the long-term outlook, and where the drivers of success are to some extent within the control of the management teams.
We don't always get these judgements right. A common factor in several of the investments that we sold during the year was that we lost faith in management's ability to steer their businesses through increasingly challenging end markets. In some cases this loss of confidence was exacerbated by unplanned management changes. Examples of this included WPP Group, Continental, Pandora, Pearson and Dia. In each case the specific circumstances were different, but we felt our investment case no longer held, and that we should move on. We will continue to be demanding of the managers we invest alongside on your behalf.
The overall dividend income from the equity portfolio grew by 11%. Local currency dividend growth was robust, and SAINTS also benefitted from larger holdings in equities thanks to the proceeds of issuance, and purchases of equities during the year, funded by sales of property and bonds. At the end of the year, equities represented 80% of the portfolio.
The property portfolio also had a positive year, generating income of £5.1m, and a total return of 10.6%.
The directly-held property portfolio is managed on SAINTS' behalf by OLIM Property Ltd. The wider UK commercial property market delivered healthy returns in 2018, though some sectors such as high street retail showed signs of real stress. However SAINTS' portfolio has little exposure to the weakest areas, as OLIM have correctly predicted these areas of stress and moved the portfolio out of them some time ago. Meanwhile the smaller commercial properties in the portfolio performed particularly well. As in 2017, the biggest contributor to returns was the caravan park in New Romney, a long-standing holding which is a great fit for SAINTS objectives, and where the appraisal value increased by another 15% during the year. Overall rental income for the portfolio was flat, reflecting the benefit of inflation-linked increases in rents, offset by modest net sales of property during the year following the large purchases made in 2017.
The Company's small fixed income portfolio had a weaker year, following a very strong 2017. The Alibaba Convertible which was purchased in 2016 has performed strongly for SAINTS since purchase, thanks to the rapid growth of Alibaba's core business. We think Alibaba's long-term prospect are still exciting, however, Alibaba's share price weakened in the second half of 2018, which reduced the conversion value of our bond. For the fixed income portfolio as a whole, interest income was £1.2m, and the total return was -5.9%.
Equity Portfolio
Revisiting our Growth Buckets
The end of the year is a good opportunity to step back and look at the portfolio. As last year we will look through the lens of our growth 'buckets'. We think these buckets are more useful than looking at the countries where your holdings happen to be listed. We insist that every company we invest in has the potential to deliver multi-year growth in dividends in real terms, meaning ahead of UK CPI inflation. But businesses can deliver growth in different ways. Our buckets are a subjective way of answering the question 'what type of growth opportunity is this?'
By far the biggest portion of the portfolio's capital remains invested in Compounding Machines (around 69%). This is our label for cash-generative businesses where the competitive position is well-established, and where the growth opportunity typically comes from steady expansion of their franchises over a period of many years. This enduring compounding of earnings and dividends should be immensely rewarding for shareholders over the long term. During the year, a new purchase made in this bucket was Cullen/Frost. It is a regional bank based in Texas with a strong long-term credit record. We expect it to steadily expand its loan book in Texas and potentially other states. Another prime example is Coca-Cola. During the year, Coke made good progress expanding into new soft drink categories, while re-invigorating its core business in carbonated cola by introducing no-sugar varieties. This should extend the company's exceptional long-term record of compounding earnings and dividends. By their nature, these sorts of businesses should be resilient dividend payers, and having the bulk of our clients' capital invested in them helps to achieve our aim of generating a dependable income stream.
Profitability Transformation opportunities represent around 10% of the portfolio. In these companies we are typically looking to benefit from a turnaround in the fortunes of what we consider a strong core business that has been under-managed. A notable new addition to this part of the portfolio in 2018 was GlaxoSmithKline. We believe that new CEO Emma Walmsley, together with a strong team she has assembled around her, is making some long overdue, radical changes to the company's research and development efforts. These changes should significantly improve the prospects of the company's pharmaceuticals business.
The Exceptional Revenue Opportunities bucket represents businesses with the potential for rapid sales growth. Often these companies are still in the process of carving out a dominant competitive position. For instance, Anta Sports, the Chinese sportswear business which has been a holding for several years, is currently finalising the acquisition of a collection of international sportswear brands by buying a company called Amer. These brands should drive rapid expansion of Anta's revenues in the years ahead and we are excited about Anta's prospects under the continued leadership of its founder, Mr Ding. Such rapid growth companies currently account for around 12% of the portfolio.
Finally, while most of the companies in the portfolio don't require heavy re-investment of their earnings to grow, we do own a few capital-intensive businesses. Here, our case for cash flow and dividend growth is typically based on a re-ordering of strategic priorities by the management and board. Usually the process should free up more cash and a larger part of this should be returned to shareholders as dividends. We call such investment cases Capital Decisions. With no changes in these holdings during the year, they remain around 9% of the portfolio.
These weights represent the output of our bottom-up stock picking, rather than the result of an asset allocation decision, or a conscious 'target'. However, we do think hard about the distribution of investments across these four buckets, to ensure this distribution is consistent with our twin objectives in managing the portfolio. We believe that having the bulk of our clients' capital invested in steadily growing Compounding Machines ensures a resilient, growing base for the income stream. Meanwhile, the other buckets provide the potential for accelerated growth in capital and income from a range of different sources.
The discussion above hopefully indicates a lot of continuity with our commentary in previous years. Our stock-picking approach remains unchanged, largely because our objectives have not changed; and turnover of around 14% remains consistent with our 5+ year investment horizon.
Different Lenses on Diversification
Although these buckets provide information about the characteristics of the businesses in which we tend to invest, they arguably do not reveal much about the portfolio's level of diversification. It would be possible, for example, for the companies in our Compounding Machines bucket to be the same sorts of businesses, selling to the same types of customers, and exposed to a common set of risks. That could make it difficult to meet our objective, because our income stream could end up being highly concentrated.
We seek to guard against such concentrations of risk in three ways. Firstly, we cap the contribution that any one stock can make to the equity portfolio's income stream at 5%. This ensures that it does not become too reliant on the decisions of a handful of company boards, or idiosyncratic risks. Our 10 largest income contributors account for around 30% of the equity portfolio's expected income. (For comparison, the 10 largest income contributors in the UK stock market account for just under half of its income.)
Secondly, we seek to find suitable investments across a wide range of different industries, each on quite different cycles. No industry represents more than 8% of the equity portfolio's expected income stream. Furthermore, even within those industries, we are generating income from a range of quite different businesses.
For instance, we expect to generate around 8% of the portfolio's income from banks, based on our current holdings and our forecast dividends from each of them. But the five banks that make up this income are each operating in very different markets and as such should be exposed to different credit cycles. At Singapore's United Overseas Bank, growth is based on facilitating trade between South-East Asian countries. Svenska Handelsbanken's growth is being driven by rolling out an entrepreneurial business model across Northern Europe. Cullen/Frost, mentioned earlier, is growing in Texas and surrounding states. What our banks do have in common though is strong management teams, often with a founding family or foundation involved, providing a steadying influence. But their credit risks are very different.
Income breakdown by industry
|
|
At 31 December 2018 % |
|
Banks |
8 |
|
Financial Services |
8 |
|
Pharmaceuticals & Biotechnology |
7 |
|
Beverages |
6 |
|
Support Services |
6 |
|
Personal Goods |
6 |
|
Other |
60 |
Source: Baillie Gifford & Co, Bloomberg, IBES. Based on equity portfolio as at December 2018.
Totals may not sum due to rounding.
We also try to think imaginatively about risks which might affect a large number of companies we invest in, even if they are operating in quite different industries. Our primary lens for looking at these questions is the potential risk to the portfolio's overall income stream. With this in mind, we consider the impact that a broad-based economic slowdown might have on those companies in the portfolio where the board has a pay-out-ratio-based dividend policy (meaning the dividend is set as a percentage of the earnings). After reviewing these holdings during the year, we made a few adjustments to holding sizes where we felt the earnings might fall meaningfully if the global economy slowed sharply, and where the dividend could be reduced due to a payout based policy. These companies are not a large part of the portfolio, but in pursuit of a resilient dividend stream for SAINTS' shareholders it is important we keep a tight rein on any holding where there is a question about dividend resilience, however small.
We also considered the impact that a period of higher inflation might have on the different businesses we invested in, and which of those businesses might be affected by a sharp increase in US tariffs. These exercises prompted reconsiderations of our investment cases, and again cases changes to the portfolio. For example, while we admire the growth opportunity ahead of Challenger, the Australian annuities provider, an in-depth review raised questions around how robust their investments might be in turbulent markets, and how resilient the dividend was likely to be during a period of stress - especially as this was a business with a pay-out ratio based policy. We therefore sold the holding over the course of 2018.
We are confident that the sources of the portfolio's income are diverse. We regularly test this assumption and will continue seeking new ways of doing this in future. We aim to ensure that SAINTS' dividends are resilient 'through thick and thin'. Ensuring portfolio diversification is an important part of this.
Property Portfolio
At the end of 2018 the portfolio consisted of 17 commercial properties across the United Kingdom and was valued at £83.5m, with a prospective yield of 6.1%. This represents 14.7% of the total investment portfolio - roughly the same proportion as at the end of 2017. The properties are chosen by OLIM for their ability to generate a dependable stream of income, with a goal of matching inflation over the long run.
There were no purchases during the year, but five smaller properties were sold in the first half of 2018, including a Prezzo restaurant in Bishop's Stortford, pubs in Sale and Torquay, and two retail units in Denbigh (adjoining the Aldi supermarket which has been retained). There were two reasons for these sales. Firstly, the purchases made in 2017 were always intended to be partly funded by sales of existing holdings, which largely took place this calendar year. In aggregate, these sales were made at a 4.4% premium to the valuations they were carried at in December 2017.
Secondly, these sales had the effect of reducing SAINTS' exposure to more discretionary consumer spending in the UK. This is continuing the trend of recent years, and reflects OLIM's caution on the outlook for the domestic UK consumer. Indeed, the portion of SAINTS' property portfolio in pubs and restaurants has fallen from over 40% in 2010 to less than 20% today, and all of the shops except our Aldi warehouse have been sold over recent years. The proceeds have been recycled into properties like the Data Centre purchased in 2017, where OLIM believe that we benefit from a very attractive lease and covenant. Over 80% of SAINTS' properties now have RPI-linked or fixed price increases, and the average duration of leases is over 16 years. The manager therefore believes that SAINTS' current portfolio is positioned to be resilient, particularly if British consumers come under more pressure in the coming years.
Fixed Income Portfolio
The fixed income portfolio now stands at around 4% of SAINTS' total investment portfolio. The only notable change was the sale of the small position we held in Argentine government debt. Our investment case had been based on an expectation that a reforming government would get inflation under control, but by the second half of 2018 a currency collapse sent inflation sharply higher. There are likely to be further changes in this part of the portfolio in 2019, as the Alibaba Convertible will convert to equity in July 2019. We are also considering what role the Athena Debt Opportunities Fund should play for SAINTS in the future, after ten years of solid performance for the Company.
Looking Forward
We said last year that SAINTS' equity portfolio is constructed to benefit from a wide range of company-specific growth drivers, rather than a small number of macro-economic views. In this report we've aimed to show that the same remains true today. We continue to believe that equities are the best asset class for meeting SAINTS' dual objectives over the long-run, and over 70% of the Company's income now comes from the equity portfolio. We think that we will maximise our chances of delivering these objectives by investing in companies that we judge are highly likely to deliver both dependable dividends and real earnings and capital growth, while thinking sensibly about diversification at the portfolio level.
This diversification is one reason that we are not overly concerned about the impact of 'Brexit' on SAINTS. Around 15% of the equity portfolio is invested in businesses that are listed in the UK, but many of those are businesses where the major driver of growth is outside the UK - for instance, Prudential is demerging its remaining UK business, to better focus on providing life and health insurance for its Asian customers. We therefore have relatively little exposure to the domestic British economy in the equity portfolio; and as noted earlier, under OLIM's stewardship the property portfolio has become steadily more focused on properties where they believe the tenants should be resilient for many years to come. If there is a risk to the outlook for the company's earnings, it may come from a scenario where the UK's departure from the EU goes much better than expected. This could prompt a significant appreciation in sterling, which would in turn reduce the value of the Company's foreign dividends, which are a substantial source of income. Continued underlying dividend growth, and a significant amount of sterling income from our properties should both help, but nonetheless growing earnings in this scenario might be a challenge.
However, one of the great benefits of SAINTS's strong revenue reserves is that the trust has a strong buffer to ride out any volatility in the earnings, should it materialise. This means that as managers, we do not need to spend too much time attempting to predict the path of currencies, or political developments. We can instead focus our efforts on picking the best dividend and growth investments we can find globally, from the huge and eclectic global opportunity set that SAINTS has by virtue of being a global income growth trust. We believe we have a strong process for uncovering such opportunities for SAINTS, and we start 2019 with a healthy pipeline of potential new ideas. The task is exciting, and choppy markets throw up opportunities for the patient investor.
We are grateful for your continued support, and look forward to helping SAINTS deliver on its objectives for years to come.
James Dow
Toby Ross
Baillie Gifford & Co
19 February 2019
For a definition of terms see Glossary of Terms and Alternative Performance Measures in Note 10.
Past performance is not a guide to future performance
Asset Allocation
|
|
At 31 December 2018 % |
|
At 31 December 2017 % |
|
Quoted equities |
79.9 |
|
79.6 |
|
Bonds |
4.3 |
|
5.7 |
|
Direct property |
14.7 |
|
14.6 |
|
Net liquid assets |
1.1 |
|
0.1 |
|
Total assets |
100.0 |
|
100.0 |
Performance Attribution
|
Portfolio Breakdown |
Average allocation |
Total return# |
||
|
SAINTS % |
Benchmark % |
SAINTS % |
Benchmark % |
|
|
Global equities |
93.1 |
100.0 |
(3.4) |
(3.4) |
|
Bonds |
5.3 |
|
(5.9) |
|
|
Direct property |
16.5 |
|
10.6 |
|
|
Deposits |
1.6 |
|
- |
|
|
Debenture at book value |
(16.5) |
|
6.8 |
|
|
Portfolio total return (debenture at book value) |
|
|
(3.1) |
(3.4) |
|
Other items* |
|
|
(0.3) |
|
|
Fund total return (debenture at book value) |
|
|
(3.4) |
(3.4) |
|
Adjustment for change in fair value of debenture |
|
|
1.0 |
|
|
Fund total return (debenture at fair value) |
|
|
(2.4) |
(3.4) |
* Includes Baillie Gifford and OLIM management fees.
# The above returns are calculated on a total return basis with net income reinvested.
Past performance is not a guide to future performance.
Source: Baillie Gifford and relevant underlying index providers.
|
List of Investments at 31 December 2018 |
|
Name |
Business |
|
Value £'000 |
% of |
|
Coca Cola |
Beverage manufacturer |
|
14,616 |
2.6 |
|
Deutsche Boerse |
Securities exchange owner/operator |
|
12,440 |
2.2 |
|
Procter & Gamble |
Household product manufacturer |
|
12,115 |
2.1 |
|
Fastenal |
Distribution and sales of industrial supplies |
|
11,901 |
2.1 |
|
CH Robinson |
Delivery & logistics |
|
11,848 |
2.1 |
|
Edenred |
Voucher programme outsourcer |
|
11,377 |
2.0 |
|
Microsoft |
Computer software |
|
11,323 |
2.0 |
|
Anta Sports Products |
Sportswear manufacturer and retailer |
|
10,889 |
1.9 |
|
Sonic Healthcare |
Laboratory testing |
|
10,709 |
1.9 |
|
Admiral |
Car insurance |
|
10,580 |
1.9 |
|
Wolters Kluwer |
Information services and solutions provider |
|
10,406 |
1.8 |
|
Experian |
Credit scoring and marketing services |
|
10,054 |
1.8 |
|
Analog Devices |
Integrated circuits |
|
9,973 |
1.8 |
|
McDonald's |
Fast food restaurants |
|
9,793 |
1.7 |
|
Roche Holdings |
Pharmaceuticals |
|
9,424 |
1.7 |
|
Pepsico |
Snack and beverage manufacturer |
|
9,262 |
1.6 |
|
B3 S.A. |
Securities exchange owner/operator |
|
8,819 |
1.6 |
|
Prudential |
Life insurer |
|
8,580 |
1.5 |
|
GlaxoSmithKline |
Pharmaceuticals, vaccines and consumer healthcare |
|
8,579 |
1.5 |
|
Total |
Integrated oil company |
|
8,493 |
1.5 |
|
Taiwan Semiconductor Manufacturing |
Semiconductor manufacturer |
|
8,434 |
1.5 |
|
Hiscox |
Property and casualty insurance |
|
8,222 |
1.4 |
|
AVI |
Staple foods manufacturer |
|
8,143 |
1.4 |
|
Partners Group |
Asset management |
|
7,833 |
1.4 |
|
China Mobile |
Mobile telecommunication services |
|
7,696 |
1.4 |
|
Nestlé |
Food producer |
|
7,684 |
1.4 |
|
United Parcel Service |
Courier services |
|
7,090 |
1.3 |
|
RPM International |
Sealants, coatings and adhesives manufacturers |
|
6,879 |
1.2 |
|
Apple |
Computer technology |
|
6,861 |
1.2 |
|
Kering |
Luxury brand conglomerate |
|
6,781 |
1.2 |
|
Scottish & Southern Energy |
Electricity utility |
|
6,775 |
1.2 |
|
National Instruments |
Electronic test and measurement systems |
|
6,619 |
1.2 |
|
Sumitomo Mitsui Trust Holdings |
Trust bank and investment manager |
|
6,459 |
1.1 |
|
Kimberly-Clarke De México |
Paper-based household products |
|
6,428 |
1.1 |
|
Bankinter |
Corporate and retail bank |
|
6,250 |
1.1 |
|
Greencoat UK Wind |
UK wind farms |
|
6,162 |
1.1 |
|
Arthur J Gallagher |
Insurance broker |
|
6,157 |
1.1 |
|
Cochlear |
Hearing aids |
|
6,130 |
1.1 |
|
Svenska Handelsbanken |
Banking |
|
6,009 |
1.1 |
|
Albemarle |
Producer of speciality and fine chemicals |
|
5,681 |
1.0 |
|
Hong Kong Exchanges and Clearing |
Securities exchange owner/operator |
|
5,631 |
1.0 |
|
Atlas Copco |
Engineering |
|
5,590 |
1.0 |
|
Sandvik |
Engineering |
|
5,540 |
1.0 |
|
United Overseas Bank |
Commercial banking |
|
5,521 |
1.0 |
|
Rio Tinto |
Mining |
|
5,462 |
1.0 |
|
Novo Nordisk |
Pharmaceutical company |
|
5,300 |
0.9 |
|
Signify NV |
Light manufacturing company |
|
5,285 |
0.9 |
|
Brambles |
Pallet pool operator |
|
5,278 |
0.9 |
|
Ambev |
Brewing |
|
4,915 |
0.9 |
|
Want Want |
Snacks and milk-based products |
|
4,838 |
0.9 |
|
Dolby Laboratories |
Multimedia software |
|
4,793 |
0.8 |
|
British American Tobacco |
Cigarette manufacturer |
|
4,521 |
0.8 |
|
Alphabet Class A |
Online search engine |
|
4,517 |
0.8 |
|
SAP |
Business software developer |
|
4,417 |
0.8 |
|
Cullen/Frost Bankers |
Provides banking services throughout the state of Texas |
|
4,337 |
0.8 |
|
Johnson and Johnson |
Pharmaceuticals and healthcare products |
|
4,014 |
0.7 |
|
Zenkoku Hoshu |
Speciality finance |
|
3,900 |
0.7 |
|
Apache |
Oil exploration and production |
|
3,493 |
0.6 |
|
Aberforth Split Level Income Trust |
UK small-cap equities fund |
|
3,366 |
0.6 |
|
Man Wah |
Sofa designer and manufacturer |
|
3,091 |
0.5 |
|
Li & Fung |
Supply chain management services company |
|
2,761 |
0.5 |
|
Doric Nimrod Air Two |
Aircraft leasing |
|
2,747 |
0.5 |
|
WPP |
Advertising agency |
|
1,686 |
0.3 |
|
Cambium Global Timberland |
Forestry investment fund |
|
1,411 |
0.2 |
|
Terra Catalyst Fund* |
Fund of European property funds |
|
265 |
- |
|
Total Equities |
|
|
452,153 |
79.9 |
|
Direct Property |
|
|
|
|
|
Direct Property |
See table below |
|
83,500 |
14.7 |
|
Bonds |
|
|
|
|
|
Euro denominated |
Aryzta Finance 4.5% 2019 Perpetual |
|
4,637 |
0.8 |
|
US dollar denominated |
Alibaba Convertible 5.75% 2019 |
5,855 |
|
|
|
|
Athena Debt Opportunities Fund |
7,982 |
13,837 |
2.5 |
|
Brazilian real denominated |
Brazil CPI Linked 15/05/2045 |
|
5,870 |
1.0 |
|
Total Bonds |
|
|
24,344 |
4.3 |
|
Total Investments |
|
|
559,997 |
98.9 |
|
Net Liquid Assets |
|
|
6,157 |
1.1 |
|
Total Assets |
|
|
566,154 |
100.0 |
|
(before deduction of debenture) |
|
|
|
|
* Delisted
|
Property Portfolio |
|
Location |
Type |
Tenant |
2018 Value £'000 |
|
2018 % of total assets |
|
2017 Value £'000 |
|
Basingstoke |
Warehouse |
G4S Cash Solutions (UK) Ltd |
3,500 |
|
0.6 |
|
3,450 |
|
Biggleswade |
Warehouse |
Quest Automotive Products UK Limited |
5,200 |
|
0.9 |
|
4,800 |
|
Bishop's Stortford* |
Restaurant |
Prezzo Limited |
- |
|
- |
|
1,250 |
|
Cleethorpes |
Public House |
Stonegate Pub Company Limited |
1,000 |
|
0.2 |
|
900 |
|
Crawley |
Petrol Station and Convenience Store |
Co-operative Food Stores Limited |
3,750 |
|
0.7 |
|
3,750 |
|
Denbigh† |
Supermarket |
Aldi Stores Limited |
5,000 |
|
0.9 |
|
5,900 |
|
Dundee |
Public House |
JD Weatherspoon Plc |
1,300 |
|
0.2 |
|
1,300 |
|
Earley |
Public House |
Spirit Pub Company (Managed) Limited |
3,200 |
|
0.6 |
|
3,250 |
|
Kenilworth |
Nursing Home |
Care UK Community Partnerships Limited |
7,200 |
|
1.3 |
|
7,200 |
|
Luton |
Public House |
Stonegate Pub Company Limited |
3,400 |
|
0.6 |
|
3,150 |
|
Milton Keynes |
Data Centre |
TalkTalk Communications Limited |
16,700 |
|
2.9 |
|
16,000 |
|
New Romney |
Holiday Village |
Park Resorts Ltd |
13,200 |
|
2.3 |
|
11,500 |
|
Newport Pagnell |
Car Showroom |
Pendragon Plc |
4,000 |
|
0.7 |
|
4,000 |
|
Otford |
Public House |
Spirit Pub Company (Managed) Limited |
2,100 |
|
0.4 |
|
2,250 |
|
Pagham |
Convenience Store |
Co-operative Food Stores Limited |
1,300 |
|
0.2 |
|
1,300 |
|
Portsmouth |
Public House |
JD Weatherspoon Plc |
2,600 |
|
0.5 |
|
2,600 |
|
Prestatyn |
Public House |
Stonegate Pub Company Limited |
1,800 |
|
0.3 |
|
1,600 |
|
Sale* |
Public House |
Stonegate Pub Company Limited |
- |
|
- |
|
750 |
|
Southend-on-Sea |
Warehouse |
Giant Booker Limited |
8,250 |
|
1.4 |
|
8,600 |
|
Torquay* |
Public House |
Mitchells & Butlers Retail Limited |
- |
|
- |
|
1,400 |
|
|
|
|
83,500 |
|
14.7 |
|
84,950 |
* Property sold during the year.
† Peacocks Stores Limited and Poundland Retail Limited units sold during the year.
Key Performance Indicators
The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:
¾ dividend per share;
¾ earnings per share;
¾ the movement in net asset value per ordinary share (after deducting debentures at fair value) compared to the benchmark;
¾ the movement in the share price;
¾ the premium/discount (after deducting debentures at fair value); and
¾ ongoing charges.
An explanation of these measures can be found in the Glossary of Terms in Note 10.
The one, five and ten year records of the KPIs are shown on pages 4, 5 and 21 of the Annual Report and Financial Statements.
In addition to the above, the Board considers peer group comparative performance.
Future Developments of the Company
The outlook for the Company for the next 12 months is set out in the Chairman's Statement and Managers' Report above.
Related Party Transactions
The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 31 of the Annual Report and Financial Statements.
No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.
Management Fee Arrangements
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary. Baillie Gifford & Co Limited has delegated investment management services to Baillie Gifford & Co. The management of the property portfolio has been delegated to OLIM Property Limited.
The Investment Management Agreement between the AIFM and the Company sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. Compensation fees would only be payable in respect of the notice period if termination were to occur sooner. The annual management fee is 0.45% of total assets less current liabilities, excluding the property portfolio, calculated on a quarterly basis. The Board is of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence on performance.
The Property Management Agreement sets out the matters over which OLIM Property Limited has discretion and those matters which require Board approval. The Property Management Agreement is terminable on three months' notice. The annual fee is 0.5% of the value of the property portfolio, subject to a minimum quarterly fee of £6,250.
The details of the management fees are as follows:
|
|
2018 £'000 |
|
2017 £'000 |
|
|
|
|
|
|
Investment management fee |
2,229 |
|
2,158 |
|
Property management fee |
417 |
|
394 |
|
|
2,646 |
|
2,552 |
Principal Risks
As explained on pages 27 and 28 of the Annual Report and Financial Statements, there is an ongoing process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. There have been no significant changes to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below.
Financial Risk - the Company's assets consist mainly of listed securities and its principal risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 17 to the Financial Statements on pages 51 to 55 of the Annual Report and Financial Statements. To mitigate this risk at each Board meeting the Manager provides an investment policy paper which includes a detailed explanation of significant stock selection decisions and the overall rationale for holding the current portfolio. Consideration is given to portfolio movements and the top and bottom contributors to performance. The investment approach is considered in detail at the annual Strategy Meeting.
Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value. To mitigate this risk, the Board regularly reviews and monitors the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of discount/premium to net asset value at which the shares trade; and movements in the share register.
Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes, and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.
Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit by KPMG LLP.
Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board.
Discount Risk - the discount/premium at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. The Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares when deemed by the Board to be in the best interests of the Company and its shareholders.
Leverage Risk - the Company may borrow money for investment purposes (sometimes known as 'gearing' or 'leverage'). If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. The Company can also make use of derivative contracts. To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found on page 64 of the Annual Report and Financial Statements and the Glossary of Terms and Alternative Performance Measures in Note 10.
Political Risk - political developments will be closely monitored and considered by the Board and Managers. The Board continues to monitor developments as they occur regarding the Government's intention that the UK should leave the European Union, and to assess the potential consequences for the Company's future activities. Whilst there remains considerable uncertainty, the Board believes that the nature and diversification of the Company's assets positions the Company to be suitably insulated from Brexit related risks.
Viability Statement
In accordance with provision C2.2 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a minimum period of five years. The Directors continue to believe this to be appropriate as it reflects the longer term investment strategy of the Company in terms of both investment horizon and income growth, and to be a period during which, in the absence of any adverse change to the regulatory environment and to the tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing SAINTS nor to the controls in place to effectively mitigate those risks. Moreover, the Directors do not envisage any change in strategy or any events which would prevent the Company from operating over a minimum period of five years.
In considering the viability of the Company, the Directors have conducted a robust assessment of each of the principal risks and uncertainties detailed on pages 7 and 8 of the Annual Report and Financial Statements and in particular the impact of market risk where a significant fall in global equities markets would adversely impact the value of the investment portfolio. The Directors have also considered the Company's income and expenses and dividend policy having undertaken a review of revenue projections over a five year period and its liquidity in the context of the majority of its investments being listed equities which are readily realisable and so capable of being sold to provide funding if required. Leverage comprising a fixed term Debenture which has a nominal value of £80m and is redeemable at par in 2022, has also been considered with specific leverage and liquidity stress testing conducted during the year. In addition, all of the key operations required by the Company are outsourced to third party service providers and it is reasonably considered that alternative providers could be engaged at relatively short notice. The Board has specifically considered the market uncertainty arising from the UK's negotiations to leave the European Union and can see no scenario that it believes would affect the going concern status or viability of the Company.
Based on the Company's processes for monitoring revenue projections, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years as a minimum.
Going Concern
In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained below. 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 and the redemption date for the Company's debenture is April 2022. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for at least 12 months from the date of approval of these Financial Statements.
Financial Instruments
As an investment trust, the Company invests in equities and makes other investments so as to secure its investment objective of increasing capital and growing income in order to deliver real dividend growth. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to a variety of risks that cause short term variation in the Company's net assets and could result in either a reduction in the Company's net assets or a reduction in the profits available for dividend.
These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent reduction in the Company's net assets or its profits available for dividend rather than to minimise the short term volatility.
The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.
Market Risk
The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board reviews and agrees policies for managing these risks and the Company's Investment Manager both assesses the exposure to market risk when making individual investment decisions and monitors the overall level of market risk across the investment portfolio on an ongoing basis.
Details of the Company's investment portfolio are shown in note 9 of the Annual Report and Financial Statements.
Currency Risk
Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.
The Investment Manager monitors the Company's exposure to foreign currencies and reports to the Board on a regular basis. The Investment Manager assesses the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.
Forward currency contracts are used periodically to limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments. Where appropriate, they are used also to achieve the portfolio characteristics that assist the Company in meeting its investment objectives. Cash amounts received in foreign currencies are converted to sterling on a regular basis.
Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.
|
At 31 December 2018 |
Investments £'000 |
Cash and cash equivalents £'000 |
Debentures £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
US dollar |
174,296 |
60 |
- |
176 |
174,532 |
|
Euro |
70,086 |
47 |
- |
976 |
71,109 |
|
Hong Kong dollar |
34,906 |
- |
- |
- |
34,906 |
|
Swiss franc |
24,941 |
- |
- |
- |
24,941 |
|
Australian dollar |
23,803 |
- |
- |
- |
23,803 |
|
Other overseas currencies |
72,494 |
- |
- |
183 |
72,677 |
|
Total exposure to currency risk |
400,526 |
107 |
- |
1,335 |
401,968 |
|
Sterling |
159,471 |
7,357 |
(82,701) |
(2,642) |
81,485 |
|
|
559,997 |
7,464 |
(82,701) |
(1,307) |
483,453 |
* Includes net non-monetary assets of £32,000.
|
At 31 December 2017 |
Investments £'000 |
Cash and cash equivalents £'000 |
Debentures £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
US dollar |
156,097 |
48 |
- |
85 |
156,230 |
|
Euro |
72,679 |
39 |
- |
583 |
73,301 |
|
Hong Kong dollar |
35,718 |
- |
- |
- |
35,718 |
|
Australian dollar |
30,756 |
- |
- |
- |
30,756 |
|
Swiss franc |
22,065 |
- |
- |
- |
22,065 |
|
Other overseas currencies |
94,441 |
- |
- |
214 |
94,655 |
|
Total exposure to currency risk |
411,756 |
87 |
- |
882 |
412,725 |
|
Sterling |
168,839 |
2,807 |
(83,428) |
(3,005) |
85,213 |
|
|
580,595 |
2,894 |
(83,428) |
(2,123) |
497,938 |
* Includes net non-monetary assets of £30,000.
Currency Risk Sensitivity
At 31 December 2018, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had a similar but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2017.
|
|
2018 £'000 |
|
2017 £'000 |
|
US dollar |
8,727 |
|
7,811 |
|
Euro |
3,555 |
|
3,665 |
|
Hong Kong dollar |
1,745 |
|
1,786 |
|
Swiss franc |
1,247 |
|
1,103 |
|
Australian dollar |
1,190 |
|
1,538 |
|
Other overseas currencies |
3,634 |
|
4,733 |
|
|
20,098 |
|
20,636 |
Interest Rate Risk
Interest rate movements may affect directly:
¾ the fair value of any investments in fixed interest rate securities;
¾ the level of income receivable on cash deposits;
¾ the fair value of the Company's fixed-rate borrowings; and
¾ the interest payable on any variable rate borrowings which the Company may take out.
Interest rate movements may also impact upon the market value of the Company's investments other than its fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.
The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.
The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board.
Movements in interest rates, to the extent that they affect the fair value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value.
The interest rate risk profile of the Company's financial assets and liabilities at 31 December is shown below.
Financial Assets
|
|
2018 |
2017 |
||||
|
|
Fair value £'000 |
Weighted average interest rate |
Weighted average fixed rate period* |
Fair value £'000 |
Weighted average interest rate |
Weighted average fixed rate period* |
|
Fixed rate: |
|
|
|
|
|
|
|
Argentinian peso denominated bonds |
- |
- |
- |
1,556 |
15.20% |
9 years |
|
Euro denominated bonds |
4,637 |
5.75% |
2 years |
4,731 |
5.75% |
1 year |
|
US dollar denominated bonds |
5,855 |
5.75% |
5 months |
6,963 |
5.75% |
1 year |
|
Floating rate: |
|
|
|
|
|
|
|
Brazilian bonds (interest rate linked to Brazilian CPI) |
5,870 |
9.54% |
26 years |
7,392 |
9.98% |
27 years |
|
Fixed Interest Collective Investment Funds: |
|
|
|
|
|
|
|
US dollar denominated fund |
7,982 |
2.5% |
n/a |
12,130 |
3.1% |
n/a |
|
Cash and short term deposits: |
|
|
|
|
|
|
|
Other overseas currencies |
107 |
- |
n/a |
87 |
- |
n/a |
|
Sterling |
7,357 |
0.3% |
n/a |
2,807 |
0.1% |
n/a |
* Based on expected maturity/redemption date.
Financial Liabilities
|
|
2018 £'000 |
2017 £'000 |
||
|
The interest rate risk profile of the Company's financial liabilities at 31 December was: |
||||
|
Fixed rate - sterling |
82,701 |
83,428 |
||
|
The maturity profile of the Company's financial liabilities at 31 December was: |
||||
|
In more than two years, but not more than 5 years |
82,701 |
83,428 |
||
Interest Rate Risk Sensitivity
An increase of 100 basis points in bond yields as at 31 December 2018 would have decreased total net assets and total return on ordinary activities by £799,000 (2017 - £1,121,000) and would have increased the net asset value per share (with debenture at fair value) by 1.3p (2017 - 1.8p). A decrease of 100 basis points would have had an equal but opposite effect.
Other Price Risk
Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets.
The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies.
Other Price Risk Sensitivity
A full list of the Company's investments is shown above. In addition, various analyses of the portfolio by asset class and industrial sector are contained in the Strategic Report of the Annual Report and Financial Statements.
93.5% of the Company's net assets are invested in quoted equities. A 5% increase in quoted equity valuations at 31 December 2018 would have increased total assets and total return on ordinary activities by £22,594,000 (2017 - £23,130,000). A decrease of 5% would have had an equal but opposite effect. 17.3% of the Company's net assets are invested in direct property.
Property Sensitivity Analysis
The valuations of investment properties are sensitive to changes in the assumed significant unobservable inputs. A significant increase/(decrease) in estimated rental values in isolation would result in a significantly higher/(lower) fair value of the properties. A significant increase/(decrease) in the all risks yield in isolation would result in a significantly (lower)/higher fair value.
There are interrelationships between the yields and rental values as they are partially determined by market rate conditions.
The sensitivity of the valuation to changes in the most significant inputs per class of investment property are shown below:
|
Estimated movement in fair value of investment properties at 31 December 2018 arising from: |
Retail and leisure £'000 |
Office £'000 |
Industrial £'000 |
Other £'000 |
Total £'000 |
|
Increase in rental value by 5% |
200 |
150 |
850 |
- |
1,200 |
|
Decrease in rental value by 5% |
(70) |
(175) |
(250) |
- |
(495) |
|
Increase in yield by 0.5% |
3,695 |
1,300 |
1,700 |
600 |
7,295 |
|
Decrease in yield by 0.5% |
(3,145) |
(1,125) |
(1,350) |
(525) |
(6,145) |
|
Estimated movement in fair value of investment properties at 31 December 2017 arising from: |
Retail and leisure £'000 |
Office £'000 |
Industrial £'000 |
Other £'000 |
Total £'000 |
|
Increase in rental value by 5% |
475 |
- |
450 |
- |
925 |
|
Decrease in rental value by 5% |
(170) |
- |
(450) |
- |
(620) |
|
Increase in yield by 0.5% |
3,850 |
1,250 |
1,700 |
650 |
7,450 |
|
Decrease in yield by 0.5% |
(3,075) |
(1,100) |
(1,325) |
(525) |
(6,025) |
This represents the best estimate of a reasonable possible shift in estimated rental values and yield, having regard to historical volatility of the value and yield.
Liquidity Risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Company's holdings in direct property and unlisted investments, which are not considered to be readily realisable, amount to 17.3% of net assets at 31 December 2018 (2017 - 17.1%). The Company has the power to take out borrowings, which give it access to additional funding when required.
The Board gives guidance to the Investment Managers as to the maximum amount of the Company's resources that should be invested in any one holding and to the maximum aggregate exposure to any one entity (see investment policy on page 6 of the Annual Report and Financial Statements). The Board also sets parameters for the degree to which the Company's net assets are invested in quoted equities.
Credit Risk
This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:
¾ where the Investment Manager makes an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;
¾ the Board regularly receives information from the Investment Manager on the credit ratings of those bonds and other securities in which the Company has invested;
¾ the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Depositary has delegated the custody function to The Bank of New York Mellon (International) Limited. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Manager monitors the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;
¾ investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;
¾ transactions involving derivatives, structured notes and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest are subject to rigorous assessment by the Investment Manager of the creditworthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board; and
¾ cash is only held at banks that are regularly reviewed by the Managers.
Credit Risk Exposure
The exposure to credit risk at 31 December was:
|
|
2018 £'000 |
2017 £'000 |
|
Bonds |
24,344 |
32,772 |
|
Cash and short term deposits |
7,464 |
2,894 |
|
Debtors and prepayments |
1,739 |
1,222 |
|
|
33,547 |
36,888 |
None of the Company's financial assets are past due or impaired.
Fair Value of Financial Assets and Financial Liabilities
The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the Balance Sheet with the exception of the long term borrowings which are stated at amortised cost. The fair value (determined as the asking price as traded on an active market) of the debenture stock is shown below.
|
|
2018 |
2017 |
||||
|
|
Nominal £'000 |
Book £'000 |
Fair £'000 |
Nominal £'000 |
Book £'000 |
Fair £'000 |
|
8% debenture stock 2022 |
80,000 |
82,701 |
92,000 |
80,000 |
83,428 |
97,832 |
Capital Management
The capital of the Company is its share capital and reserves as set out in notes 13 and 14 together with its borrowings (see note 12 of the Annual Report and Financial Statements). The objective of the Company is to deliver real dividend growth by increasing capital and growing income. The Company's investment policy is set out on page 6 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out on pages 7 and 8 and on pages 27 and 28 of the Annual Report and Financial Statements. The Company has the authority to issue and buy back its shares (see pages 24 and 25 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in notes 13 and 14 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its debenture which are detailed in note 12 of the Annual Report and Financial Statements.
Alternative Investment Fund Managers (AIFM) Directive
In accordance with the AIFM Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM remuneration policy is available at www.bailliegifford.com or on request (see contact details on the back cover of the Annual Report and Financial Statements) and the numerical remuneration disclosures in respect of the AIFM's first relevant reporting period (year ended 31 March 2018) are available at www.bailliegifford.com.
The Company's maximum and actual leverage levels (see the Glossary of Terms and Alternative Performance Measures in Note 10) at 31 December 2018 are shown below:
Leverage
|
|
Gross Method |
Commitment Method |
|
Maximum limit |
3.00:1 |
2.00:1 |
|
Actual |
1.15:1 |
1.17:1 |
Investments
|
As at 31 December 2018 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|
Securities |
|
||||
|
Listed equities/funds |
451,888 |
- |
265 |
452,153 |
|
|
Bonds |
- |
16,362 |
7,982 |
24,344 |
|
|
Property |
|
|
|
|
|
|
Freehold |
- |
- |
83,500 |
83,500 |
|
|
Total financial asset investments |
451,888 |
16,362 |
91,747 |
559,997 |
|
|
As at 31 December 2017 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|
Securities |
|
||||
|
Listed equities/funds |
462,608 |
- |
265 |
462,873 |
|
|
Bonds |
- |
20,642 |
12,130 |
32,772 |
|
|
Property |
|
|
|
|
|
|
Freehold |
- |
- |
84,950 |
84,950 |
|
|
Total financial asset investments |
462,608 |
20,642 |
97,345 |
580,595 |
|
Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with FRS 102 the tables above provide an analysis of these investments based on the fair value hierarchy described below which reflects the reliability and significance of the information used to measure their fair value.
Fair Value Hierarchy
The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:
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).
The valuation techniques used by the Company are explained in the accounting policies on page 44 of the Annual Report and Financial Statements.
Statement of the Directors' Responsibilities in Respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report, and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they are required to prepare the Financial Statements in accordance with UK Accounting Standards including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that year. In preparing these Financial Statements, the Directors are required to:
¾ select suitable accounting policies and then apply them consistently;
¾ make judgements and accounting estimates that are reasonable and prudent;
¾ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements;
¾ assess the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern; and
¾ use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page on the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the Annual Financial Report
We confirm that to the best of our knowledge:
¾ the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that the issuer and business faces; and
¾ we consider the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
By order of the Board
Peter Moon
19 February 2019
Income Statement
|
|
For the year ended 31 December 2018 |
For the year ended 31 December 2017 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Net gains on investments - securities |
- |
(31,218) |
(31,218) |
- |
56,191 |
56,191 |
|
Net gains on investments - property |
- |
3,181 |
3,181 |
- |
4,845 |
4,845 |
|
Currency gains/(losses) |
- |
(159) |
(159) |
- |
558 |
558 |
|
Income (note 2) |
21,743 |
- |
21,743 |
20,484 |
- |
20,484 |
|
Management fees |
(926) |
(1,720) |
(2,646) |
(893) |
(1,659) |
(2,552) |
|
Other administrative expenses |
(1,073) |
- |
(1,073) |
(1,086) |
- |
(1,086) |
|
Net return before finance costs and taxation |
19,744 |
(29,916) |
(10,172) |
18,505 |
59,935 |
78,440 |
|
Finance costs of borrowings |
(1,986) |
(3,688) |
(5,674) |
(2,001) |
(3,715) |
(5,716) |
|
Net return on ordinary activities before taxation |
17,758 |
(33,604) |
(15,846) |
16,504 |
56,220 |
72,724 |
|
Tax on ordinary activities |
(1,528) |
464 |
(1,064) |
(1,291) |
515 |
(776) |
|
Net return on ordinary activities after taxation |
16,230 |
(33,140) |
(16,910) |
15,213 |
56,735 |
71,948 |
|
Net return per ordinary share (note 3) |
11.75p |
(23.99p) |
(12.24p) |
11.33p |
42.24p |
53.57p |
The total column of the income statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as there is no other comprehensive income.
|
Balance Sheet |
|
|
At 31 December 2018 |
At 31 December 2017 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Fixed assets |
|
|
|
|
|
Investments - securities |
476,497 |
|
495,645 |
|
|
Investments - property |
83,500 |
|
84,950 |
|
|
|
|
559,997 |
|
580,595 |
|
Current assets |
|
|
|
|
|
Debtors |
1,739 |
|
1,222 |
|
|
Cash and cash equivalents |
7,464 |
|
2,894 |
|
|
|
9,203 |
|
4,116 |
|
|
Creditors |
|
|
|
|
|
Amounts falling due within one year |
(3,046) |
|
(3,345) |
|
|
Net current assets |
|
6,157 |
|
771 |
|
Total assets less current liabilities |
|
566,154 |
|
581,366 |
|
Creditors |
|
|
|
|
|
Amounts falling due after more than one year |
|
(82,701) |
|
(83,428) |
|
Net assets |
|
483,453 |
|
497,938 |
|
Capital and reserves |
|
|
|
|
|
Share capital |
|
35,233 |
|
33,994 |
|
Share premium account |
|
27,694 |
|
10,744 |
|
Capital redemption reserve |
|
22,781 |
|
22,781 |
|
Capital reserve |
|
380,492 |
|
413,632 |
|
Revenue reserve |
|
17,253 |
|
16,787 |
|
Shareholders' funds |
|
483,453 |
|
497,938 |
|
Net asset value per ordinary share |
|
343.0p |
|
366.2p |
|
Ordinary shares in issue (note 6) |
|
140,930,943 |
|
135,975,943 |
Statement of Changes in Equity
For the year ended 31 December 2018
|
|
|
Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 January 2018 |
|
33,994 |
10,744 |
22,781 |
413,632 |
16,787 |
497,938 |
|
Shares issued |
|
1,239 |
16,950 |
- |
- |
- |
18,189 |
|
Net return on ordinary activities after taxation |
|
- |
- |
- |
(33,140) |
16,230 |
(16,910) |
|
Dividends paid in the year (note 4) |
|
- |
- |
- |
- |
(15,764) |
(15,764) |
|
Shareholders' funds at 31 December 2018 |
|
35,233 |
27,694 |
22,781 |
380,492 |
17,253 |
483,453 |
For the year ended 31 December 2017
|
|
|
Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 January 2017 |
|
33,349 |
2,131 |
22,781 |
356,897 |
16,352 |
431,510 |
|
Shares issued |
|
645 |
8,613 |
- |
- |
- |
9,258 |
|
Net return on ordinary activities after taxation |
|
- |
- |
- |
56,735 |
15,213 |
71,948 |
|
Dividends paid in the year (note 4) |
|
- |
- |
- |
- |
(14,778) |
(14,778) |
|
Shareholders' funds at 31 December 2017 |
|
33,994 |
10,744 |
22,781 |
413,632 |
16,787 |
497,938 |
* The capital reserve balance as at 31 December 2018 includes investment holding gains of £111,702,000 (31 December 2017 - £147,461,000).
|
Cash Flow Statement |
|
|
Year Ended 31 December 2018 |
Year Ended 31 December 2017 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Net return on ordinary activities before taxation |
(15,846) |
|
72,724 |
|
|
Net losses/(gains) on investments - securities |
31,218 |
|
(56,191) |
|
|
Net gains on investments - property |
(3,181) |
|
(4,845) |
|
|
Currency losses/(gains) |
159 |
|
(558) |
|
|
Finance costs of borrowings |
5,674 |
|
5,716 |
|
|
Overseas withholding tax |
(1,053) |
|
(810) |
|
|
Changes in debtors and creditors |
(828) |
|
51 |
|
|
Other non-cash changes |
(83) |
|
(25) |
|
|
Cash from operations |
|
16,060 |
|
16,062 |
|
Interest paid |
|
(6,400) |
|
(6,400) |
|
Net cash inflow from operating activities |
|
9,660 |
|
9,662 |
|
Cash flows from investing activities |
|
|
|
|
|
Acquisitions of investments |
(85,644) |
|
(129,531) |
|
|
Disposals of investments |
78,288 |
|
123,551 |
|
|
Forward currency contracts |
- |
|
469 |
|
|
Net cash outflow from investing activities |
|
(7,356) |
|
(5,511) |
|
Cash flows from financing activities |
|
|
|
|
|
Equity dividends paid |
(15,764) |
|
(14,778) |
|
|
Shares issued |
18,189 |
|
9,258 |
|
|
Net cash inflow/(outflow) from financing activities |
|
2,425 |
|
(5,520) |
|
Increase/(decrease) in cash and cash equivalents |
|
4,729 |
|
(1,369) |
|
Exchange movements |
|
(159) |
|
89 |
|
Cash and cash equivalents at 1 January |
|
2,894 |
|
4,174 |
|
Cash and cash equivalents at 31 December* |
|
7,464 |
|
2,894 |
* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.
|
Notes |
|
1. |
The Financial Statements for the year to 31 December 2018 have been prepared in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and on the basis of the accounting policies set out in the Annual Report and Financial Statements for the year ending 31 December 2018. |
||
|
2. |
Income |
2018 £'000 |
2017 £'000 |
|
Income from investments |
|
|
|
|
UK dividends |
3,333 |
3,243 |
|
|
Overseas dividends |
12,063 |
10,648 |
|
|
|
Overseas interest |
1,170 |
1,426 |
|
|
|
16,566 |
15,317 |
|
|
Other income |
|
|
|
|
Deposit interest |
19 |
10 |
|
|
Rental income |
5,133 |
5,120 |
|
|
Other income |
25 |
37 |
|
|
|
5,177 |
5,167 |
|
|
Total income |
21,743 |
20,484 |
|
|
Total income comprises |
|
|
|
|
Dividends from financial assets designated at fair value through profit or loss |
15,396 |
13,891 |
|
|
Interest from financial assets designated at fair value through profit or loss |
1,170 |
1,426 |
|
|
Interest from financial assets not at fair value through profit or loss |
19 |
10 |
|
|
Other income not from financial assets |
5,158 |
5,157 |
|
|
|
21,743 |
20,484 |
|
|
|
||
|
3. |
Net return per ordinary share |
2018 |
2017 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net return per ordinary share |
11.75p |
(23.99p) |
(12.24p) |
11.33p |
42.24p |
53.57p |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of £16,230,000 (2017 - £15,213,000) and on 138,152,888 (2017 - 134,296,614) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital loss for the financial year of £33,140,000 (2017 - net capital gain of £56,735,000), and on 138,152,888 (2017 - 134,296,614) ordinary shares, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
4. |
Ordinary dividends |
2018 |
2017 |
2018 £'000 |
2017 £'000 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amounts recognised as distributions in the year: |
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Previous year's final (paid 12 April 2018) |
2.825p |
2.725p |
3,848 |
3,635 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| First interim (paid 22 June 2018) |
2.825p |
2.725p |
3,892 |
3,644 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Second interim (paid 21 September 2018) |
2.85p |
2.75p |
3,953 |
3,694 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Third interim (paid 19 December 2018) |
2.90p |
2.80p |
4,071 |
3,805 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
11.40p |
11.00p |
15,764 |
14,778 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £16,230,000 (2017 - £15,213,000). |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
2018 |
2017 |
2018 £'000 |
2017 £'000 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid and payable in respect of the year: |
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| First interim (paid 22 June 2018) |
2.825p |
2.725p |
3,892 |
3,644 |
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| Second interim (paid 21 September 2018) |
2.85p |
2.75p |
3,953 |
3,694 |
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| Third interim (paid 19 December 2018) |
2.90p |
2.80p |
4,071 |
3,805 |
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| Current year's proposed final dividend (payable 11 April 2019) |
2.925p |
2.825p |
4,122 |
3,841 |
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|
11.50p |
11.10p |
16,038 |
14,984 |
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If approved the final dividend of 2.925p will be paid on 11 April 2019 to all shareholders on the register at the close of business on 8 March 2019. The ex-dividend date is 7 March 2019. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 21 March 2019. |
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5. |
The fair value of the 8% Debenture Stock 2022 at 31 December 2018 was £92.0m (2017 - £97.8m). |
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6. |
During the year, 4,955,000 (2017 - 2,580,000) shares were issued at a premium to net asset value raising proceeds of £18,189,000 (2017 - £9,258,000). At 31 December 2018 the Company had authority to buy back 20,397,783 ordinary shares and to allot 13,607,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2018. No shares were bought back during the year. |
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7. |
Transaction costs incurred on the purchase and sale of investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the year, transaction costs on purchases and sales amounted to £193,000 (2017 -£2,027,000) and £204,000 (2017 - £254,000) respectively. Of the gains on sales during the year of £7,722,000 (2017 - gains of £41,605,000) a net gain of £19,352,000 (2017 - gain of £24,861,000) was included in investment holding gains at the previous year end. |
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8. |
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017. The financial information for 2017 is derived from the statutory accounts for 2017 which have been delivered to the Registrar of Companies. The auditor has reported on the 2017 accounts; the report was |
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9. |
The Report and Accounts will be available on the SAINTS page of the Managers' website www.saints-it.com‡ on or around 1 March 2019. |
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10. |
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 (Debentures at Fair Value) (APM) Borrowings are valued at an estimate of their market worth. Net Asset Value (Debentures at Book Value) Borrowings are valued at adjusted net issue proceeds. Book value approximates amortised cost.
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. Ongoing Charges (APM) The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt 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. 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.
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Net Asset Value
* 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 at the ex-dividend date.
Share Price
† 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 last traded price quoted at the ex-dividend date. Gearing (APM) At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. 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 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.
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FTSE Index Data
Source: FTSE International Limited ('FTSE') © FTSE 2019. 'FTSE®' is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or data underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication.
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Automatic Exchange of Information
In order to fulfil its legal obligations under UK tax legislation relating to the automatic exchange of information, The Scottish American Investment Company P.L.C. is required to collect and report certain information about certain shareholders. The legislation requires investment trust companies to provide personal information to HMRC on certain investors who purchase shares in investment trusts. Accordingly, The Scottish American Investment Company P.L.C. will have to provide information annually to the local tax authority on the tax residencies of a number of non-UK based certificated shareholders and corporate entities. Shareholders, excluding those whose shares are held in CREST, who come on to the share register will be sent a certification form for the purposes of collecting this information. |
For further information, please see HMRC's Quick Guide: Automatic Exchange of Information - information for account holders https://www.gov.uk/government/publications/exchange-of-information-account-holders.
‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
- ends -
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