RNS Announcement
The Scottish American Investment Company P.L.C.
Legal Entity Identifier: 549300NF03XVC5IFB447
Regulated Information Classification: Additional regulated information required to be disclosed under the applicable laws and regulations.
The following is the results announcement for the year to 31 December 2023 which was approved by the Board on 14 February 2024.
Results for the year to 31 December 2023 and Board and Manager updates
¾ Dividend – The full year dividend, including a recommended final dividend of 3.80p, is 14.10p per share. This is 2% higher than the 2022 dividend, extending the Company’s record of dividend increases to fifty consecutive years. This year’s increase is modest when set against last year’s 9% increase and, whilst inflation has moderated somewhat since last year, does not match the annual rate of inflation of 4% as measured by CPI over 2023.
¾ Revenues – Income was £30m (2022 – £30m) and earnings per share were 13.48p (2022 – 13.82p).
¾ Total return* – SAINTS delivered a strong absolute return over the year: its share price total return was 8.2% and the net asset value total return (capital and income with borrowing at fair) was 11.8%. However, SAINTS’ returns did not keep up with global equities† which returned 15.7% over 2023. SAINTS’ share price return has, in common with investment trusts generally, been affected by a broadening of discounts.
¾ In a year when the market’s returns were driven by a handful of large US technology companies SAINTS’ relative performance has been affected by both its focus on equities which pay dividends and its investments in diversifying assets which enhance the portfolio’s yield. Both are features which the Board regards as intrinsic strengths of SAINTS in its pursuit of its objectives over the long term.
¾ SAINTS aims to grow its dividend ahead of inflation over the long term. Over the past ten years SAINTS has increased its dividend at an annualised rate of 3.3% per annum, which compares with UK CPI of 2.9%.
¾ SAINTS also aims to deliver attractive returns over the long term – SAINTS’ NAV total return (with borrowings at fair value) has exceeded that of both global equities generally and that of the global equity income sector over the past five and ten years.
¾ Outlook – The Board remains of the view that a long-term approach based on investing globally for sustainable growth is the best route to achieving SAINTS’ aims. In addition, we are encouraged that the Managers have continued to find new and attractive opportunities. We retain great confidence in the Managers, and this confidence has been further strengthened by the operational performance of SAINTS’ holdings over the past year.
Board update
In April 2023, it was announced that Bronwyn Curtis would not be seeking re-election to the Board in 2024. It remains her intention not to do so, and she will step down at the conclusion of this year’s AGM. At the Board’s request, Dame Mariot Leslie has agreed, subject to her re-election as a Director, to take over as Senior Independent Director following Bronwyn’s retirement.
Manager update
Toby Ross is today stepping back from his role as manager of SAINTS to concentrate on his other responsibilities at Baillie Gifford. The Board thanks Toby for his significant contribution to SAINTS in recent years, and looks forward to continuing to work with James Dow as manager and Ross Mathison as deputy manager in the coming years.
* See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
† As measured by the total return of the FTSE All-World Index (in sterling terms).
Source: Morningstar/LSEG/Baillie Gifford and relevant underlying index providers
14 February 2024
SAINTS’ objective is to deliver real dividend growth by increasing capital and growing income. Its policy is to invest mainly in equity markets, but other investments may be held from time to time including bonds, property and other asset classes.
The Company is managed by Baillie Gifford, the Edinburgh based fund management group with around £224 billion under management and advice as at 14 February 2024.
Past performance is not a guide to future performance. SAINTS is a listed UK company. As a result, the value of its shares and any income from those shares is not guaranteed and could go down as well as up. You may not get back the amount you invested. As SAINTS invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. You can find up to date performance information about SAINTS on the SAINTS’ page of the Managers’ website saints-it.com. Neither the contents of the Company’s website nor the contents of any website accessible from hyperlinks on the Company’s website (or any other website) is incorporated into, or forms part of, this announcement.
For further information please contact:
James Dow and Ross Mathison, Managers, The Scottish American Investment Company P.L.C.
Tel: 0131 275 2000
James Budden, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
Chairman’s statement
SAINTS’ objective is to deliver real dividend growth by increasing capital and growing income. The Board is recommending a final dividend which will bring the total dividends for the year to 14.10p per share, an increase of 2% over the previous year. The Company continues to meet its objective of growing dividends ahead of inflation over the long term, and the recommended dividend will also extend the Company’s record of raising its dividend to fifty consecutive years.
Overview
2023 has been a strange year for the world and in investment markets. Macroeconomics and geopolitics have remained to the fore, but the intense focus on inflation and the path of interest rates, and on whether the landing will be hard or soft, has meant that economic news which seems bad has often been taken by the market as good. A war is raging in Europe, yet the vagaries of US and European politics have tested the strength of Western support, even as the crisis in the Middle East has diverted attention elsewhere. Tensions with and challenges within China continue to have far reaching effects, from onshoring in the US to heightened fears over the future of Artificial Intelligence (‘AI’). And at the coalface, companies have had to contend with rising debt costs, a banking crisis in the US, customers with falling real wages and the prospect of faltering demand.
However, whilst there have been many causes of concern, as envisaged a year ago economies have continued to grow. Central banks may have been slow to respond to the inflationary threat. But they have subsequently shown admirable independence in doing what is necessary to bring inflation under control. Inflationary pressures have subsided, and interest rate expectations have moved downwards, providing some support in the final months of the year both to equity and property prices. The market has climbed the proverbial wall of worry, helped by earnings which, collectively and thus far, have continued to rise. But the pattern of performance within the market has been unusual: its gains have been highly concentrated, driven by a handful of very large technology companies in the US which are taken as being in an AI sweetspot, augmented by beneficiaries of strong energy prices and high interest rates.
In this environment, SAINTS’ emphasis on steady earnings growth and dependability has stood the Company in good stead in terms of both the operational performance of its holdings and its absolute NAV performance. But unsurprisingly its NAV returns have not kept pace with the market and, in the context of a widening of discounts across the investment trust sector, SAINTS’ share price has not kept pace with its NAV over the year.
For the long term investor, however, it is the underlying growth and the growth prospects of SAINTS’ holdings which are of most importance. And here the Managers’ Review (below) tells an encouraging story.
Given the long-term nature of the Company’s objectives, it is worth emphasising both SAINTS’ successful record of raising its dividend ahead of inflation over the long term, and the strong total returns it has delivered. In particular, as SAINTS’ 150th anniversary year draws to a close, the Board and the managers are pleased that 2023 marked the fiftieth successive year of dividend growth for SAINTS’ shareholders.
Dividend and Inflation
The Board recommends a final dividend of 3.80p which will take the full year dividend to 14.10p per share, 2% higher than the 2022 dividend of 13.82p. This year’s increase is modest when set against last year’s 9% increase and, whilst inflation has moderated since last year, does not match the annual rate of inflation of 4% as measured by CPI over 2023.
It remains the Company’s objective to deliver real dividend growth over the long term, and over the last ten years the Company’s dividends have in the round increased at a rate (3.3% per annum) which has been above the rate of inflation (2.9% per annum).
Revenues
Whilst investment income has remained steady at £30m, earnings per share dipped to 13.48p over the year, a decrease of 2.5%. Operational performance of the holdings has been generally encouraging. Equity income has fallen a little, due to a reduction in special dividends during the year. Infrastructure dividends grew healthily, while income from bonds dropped back due to a combination of exchange rates and divestments to fund property purchases. Rental income from property was a little lower, as the property managers made a number of sales with a view to reinvesting the proceeds to enhance the quality, dependability and lease length of the portfolio: to this end, the purchase of the M23 Pease Pottage motorway service area, which was completed after the year end, is a welcome addition to the portfolio. Despite all that, and modest share issuance, revenues per share before tax were broadly in line with last year. However, there was an increase in the rate of taxation during the year, which was partly due to withholding taxes on dividends, and partly a function of a higher corporation tax rate in the UK. This increase in taxation largely accounts for the slight drop in earnings per share.
Both managers (Baillie Gifford and, for the Company’s property investments, OLIM) continue to focus on supporting the dependability and the future growth of the Company’s dividend in line with its objective.
Total Return Performance
SAINTS delivered a strong absolute return over the year: its share price total return was 8.2% and the net asset value total return (capital and income with borrowing at fair) was 11.8%. However, SAINTS’ returns did not keep up with global equities (as measured by the total of return of the FTSE All-World Index in sterling terms) which returned 15.7% over 2023. As mentioned above, SAINTS’ share price return has, in common with investment trusts generally, been affected by a broadening of discounts.
There were two principal reasons why SAINTS’ NAV return did not keep pace with the market, both of which relate to features which the Board regard as intrinsic strengths of SAINTS. The first is the nature of its equity portfolio, which is built for and has delivered dependability and growth in income and capital over the long term. Many of the large technology related companies which have dominated market returns over the year do not sit well with this approach, and so SAINTS has not owned them. Consequently, the equity portfolio, which accounts for the major part of your Company’s assets, has lagged the market.
The second reason relates to SAINTS’ diversification of assets and in particular to its property investments. These bring benefits in terms of diversifying sources of return, spreading risk and boosting revenues, but will not always keep pace with equities. This year, they have not done so, and the return from the property portfolio has been negative.
The Managers and your Board have a long-term perspective and we would therefore encourage shareholders to assess your Company’s performance over the long term. SAINTS has delivered a strong NAV return of 84.5% over the past five years, handsomely outperforming the 72.7% average return of the Global equity income sector and the 77.8% return of global equities as measured by the Company’s benchmark. It is noteworthy also that SAINTS’ property holdings have returned 39.2% over the past five years, outperforming the property sector more generally.
The principal contributors to and detractors from performance and the changes to the equity, property and bond investments are explained in more detail in the Managers’ Review.
Borrowings
In recent years SAINTS’ long term borrowings have been refinanced and modestly increased at advantageous interest rates. The cost of these borrowings in just under 3% per annum.
The book value of the total borrowings is £94.7m which, at the year end, was equivalent to approximately 10.1% of shareholders’ funds. The estimated market or fair value of the borrowings was £68.2m, an increase from the previous year’s value of £65.5m.
Environmental, Social and Governance (ESG)
It is important to emphasise that the Board of SAINTS recognises the importance of considering Environmental, Social and Governance (ESG) factors when making investments, and in acting as a responsible steward of capital. We consider that Board oversight of such matters is an important part of our responsibility to shareholders, and SAINTS’ ESG Policy is available to view on the Company’s website (saints-it.com).
The Board has been strongly supportive of Baillie Gifford’s approach and of their constructive engagement with the companies you own, and with potential holdings, in relation to crucially important challenges including climate change. The Board is also supportive of OLIM’s approach in relation to property, and in particular of its consideration of environmental factors including climate change in assessing the suitability of SAINTS’ investments. I would encourage shareholders to read SAINTS’ annual Stewardship Report which can also be accessed on the Company’s website (saints-it.com). There is also further detail in the Managers’ Review.
Issuance and buybacks
Over the year the Company has raised £8.3m from new share issuance, at a premium to net asset value prevailing from time to time in order to satisfy investor demand. This is the ninth year in a row when the Company has been able to issue shares. Such issuance serves the interests of existing shareholders by enhancing net asset value, reducing costs per share and helping further to improve liquidity. No shares were bought back during the year.
The Board and the Managers
In April 2023, it was announced that Bronwyn Curtis would not be seeking re-election to the Board in 2024. It remains her intention not to do so, and she will step down at the conclusion of this year’s AGM. We thank her for her wise contribution over many years of service as a Director and, more recently, as the Senior Independent Director. At the Board’s request, Dame Mariot Leslie has agreed, subject to her re-election as a Director, to take over as Senior Independent Director following Bronwyn’s retirement.
The Board, assisted by external consultants, conducted a recruitment exercise during 2023 and in November were pleased to announce Padmesh Shukla will be joining the Board on 20 February 2024. Padmesh is the Chief Investment Officer of the Transport For London Pension Fund, and has over 25 years of investment experience, including 12 years in his current role at TFL. He was formerly head of Climate Change Financing at the London Development Agency, and prior to that he had worked at the World Bank, as a Researcher at Harvard and in real estate. He is currently a member of the Church of England Pensions Investment Committee. His appointment will fall to be ratified by shareholders at the AGM in 2024.
It was announced at the beginning of August that Ross Mathison had become deputy manager of SAINTS. Toby Ross is today stepping back from his role as manager of SAINTS to concentrate on his other responsibilities at Baillie Gifford. The Board thanks Toby for his significant contribution to SAINTS in recent years, and looks forward to continuing to work with James Dow as manager and Ross Mathison in the coming years.
Outlook
The coming year will be full of political uncertainty, with voters in countries representing half the world’s population going to the polls. However, in my view, commentators tend to overemphasise the role of politics in economic performance. Of course, there are occasional outliers – France in 1981 and the UK in the autumn of 2022 come to mind – but poor policy choices are generally corrected sooner than later. And independent central banks, and the rule of law, provide a degree of protection. The recent resilience of the world economy has been encouraging. But the full force of higher interest rates has yet to work its way through the system. As it does, growth could become more challenging and corporate results may fall below expectations. Whether the landing is soft or hard, it is likely to be a year in which pricing power and balance sheet strength are of growing importance. At the same time, both the changing world and entrenched competitive advantages will continue to present opportunities for secular growth at the company level. And lower valuations will provide buying opportunities across asset classes.
As a Board, we believe a long-term approach based on investing globally for sustainable growth is the best route to achieving SAINTS’ aim of growing the dividend ahead of inflation over time. As we look ahead, we also take considerable comfort from the nature of SAINTS’ investments, and from the managers’ emphasis on quality, on dependability and on growth far out into the future. We are encouraged that, as is outlined further in the Managers’ Review, Baillie Gifford have continued to find new and attractive opportunities, and we also believe that both the quality and duration of SAINTS’ property portfolio have been enhanced over the past year.
SAINTS has been working for individual investors for 150 years. It is built to help shareholders’ income keep pace with inflation, as well as providing capital growth. And it is built for resilience.
AGM
The AGM will be held at 11.30am on Thursday 4 April 2024 at Baillie Gifford’s offices at Calton Square, 1 Greenside Row, Edinburgh. The meeting will be followed by a presentation from the managers. Shareholders are cordially invited to attend the meeting and presentation.
I would remind shareholders that they are able to submit proxy voting forms before the applicable deadline and also to direct any questions or comments for the Board in advance of the meeting through the Company’s Managers, either by emailing trustenquiries@bailliegifford.com or calling 0800 917 2112 (Baillie Gifford may record your call).
Finally, my fellow Directors and I send you all our very best wishes for the year ahead.
Lord Macpherson of Earl’s Court
Chairman
14 February 2024