Scottish American Investment P L C : Annual Report and Financial Statements 31 December 2022

THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C.

SAINTS

Income again and again

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Annual Report and Financial Statements 31 December 2022

Contents

1. Objective
   Strategic Report
2. Chairman's Statement

1. One Year Summary
2. Five Year Summary
3. Business Review

1. Investment Approach

1. Managers' Review

1. Investment Changes
2. Performance Attribution

1. Distribution of Portfolio
2. List of Investments

1. Property Portfolio
2. Classification of Investments
3. Ten Year Record
   Governance Report
4. Directors and Management

1. Directors' Report

1. Corporate Governance Report

1. Audit Committee Report

1. Directors' Remuneration Report

1. Statement of Directors' Responsibilities

Financial Report

1. Independent Auditor's Report

1. Income Statement
2. Balance Sheet
3. Statement of Changes in Equity
4. Cash Flow Statement
5. Notes to the Financial Statements
   Shareholder Information

1. Cost-effectiveWays to Buy and Hold Shares in SAINTS
2. Communicating with Shareholders
3. Further Shareholder Information

1. Dividend Dates for 2023
2. Analysis of Shareholders
3. Notice of Annual General Meeting

75 Glossary of Terms and Alternative Performance Measures

77 Sustainable Finance Disclosure Regulation

Investor Disclosure Document

The UK Alternative Investment Fund Managers Regulations require certain information to be made available to investors prior to their investment in the Company. The Company's Investor Disclosure Document is available for viewing atsaints-it.com.

Notes

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Investment trusts are UK public listed companies and as such comply with the requirements of the UK Listing Authority. They are not authorised or regulated by the Financial Conduct Authority.

SAINTS currently conducts its affairs, and intends to continue to conduct its affairs, so that the Company's Ordinary Shares can qualify to be considered as a mainstream investment product and can be recommended by Independent Financial Advisers (IFAs) to ordinary retail investors in accordance with the rules of the Financial Conduct Authority (FCA) in relation to non-mainstream investment products.

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you reside in the UK and you are in any doubt as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 immediately. If you are outside the UK, you should consult an appropriately authorised financial adviser.

If you have sold or otherwise transferred all of your ordinary shares in The Scottish American Investment Company P.L.C., please forward this document, together with any accompanying documents, but not your personalised Form of Proxy, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was or is being effected for delivery to the purchaser or transferee.

Objective

SAINTS aims to deliver real dividend growth by increasing capital and growing income.

Year to 31 December 2022	Dividend 13.82p	Yield 2.7%

Ten Year Summary

Dividend versus Inflation	150
(figures rebased to 100	140
at 31 December 2012)
	SAINTS dividend	130
	CPI	120
		110
		100
			13		15	16		18	19	20
		12	14	17	21	22
Share Price Total Return	400

(figures rebased to 100 at 31 December 2012)

Share price total return*

300

200

100

12

13

14

15

16

17

18

19

20

21

22

Premium/(Discount)* 10%

(plotted as at month end dates) Premium/(discount)

5%

(after deducting0%

borrowings at fair value)

(5%)

Premium/(discount)
(after deducting	(10%)
borrowings at	(15%)
book value)
12	13	14	15	16	17	18	19	20	21	22

Source: Refinitiv/Baillie Gifford and relevant underlying index providers. See disclaimer on page 74.

• Alternative performance measure, see Glossary of Terms and Alternative Performance Measures on pages 75 and 76.

Past performance is not a guide to future performance.

The Scottish American Investment Company P.L.C. 01

Strategic Report

Strategic Report

This Strategic Report, which includes pages 2 to 24 and incorporates the Chairman's Statement, has been prepared in accordance with the Companies Act 2006.

Chairman's Statement

Lord Macpherson of

Earl's Court, Chairman

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 13.82p per share, an increase of 9% 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 forty nine consecutive years.

Overview

2022 has been another difficult year for the world, a period in which equity, bond and property markets have all been weak. As the challenges from Covid-19 receded those arising from the Russian invasion of Ukraine increased. The economic recovery from the worst of the pandemic has been more tentative than expected, in large part due to resurgent inflation. With hindsight, central banks were too sanguine about inflationary pressures in 2021, and the energy price shock arising from the Russian invasion pushed inflation to levels not seen in 40 years. As a result, central banks have had to raise interest rates much higher than expected a year ago. The retreat from globalisation has continued, with trade barriers increasing as countries seek to protect their supply chains in the face of greater geopolitical risks. Closer to home, political missteps eroded confidence though as the year drew to a close there were signs of greater calm and stability.

On the positive side, industrialised economies have shown extraordinary adaptability in the face of the energy shock. Oil and gas prices have fallen recently, creating a more benign outlook for inflation. And the world economy is set to grow in 2023.

Against this background, I am pleased to report that SAINTS has continued to perform well. The refinancing of the Company's long term debt at a rate pre-arranged two years earlier has significantly reduced borrowing costs, and the Company's earnings per share have risen at a rate which has enabled the Board to recommend a very significant increase in the dividend. Furthermore, SAINTS' NAV total return (with borrowings at fair) has exceeded that of the global equity market, despite the managers deliberately eschewing many companies such as those in the energy sector which have been short term beneficiaries of the war in Ukraine, but which they do not believe will support the achievement of SAINTS' objective over time.

More importantly however, 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.

SAINTS' 150th Anniversary

This year, SAINTS reaches the one hundred and fiftieth anniversary of its formation in 1873. And, consistent with the Company's focus on the long term, it is perhaps useful to provide some historical perspective. In that year, for example, the Emperors of Russia, Austro-Hungary and Germany formed an alliance to stand against radical thinking. It might be easier to list what remains constant rather than what has changed since then, but amongst other things those three Empires and those of Britain and Japan have passed into history, as have the Third Reich and the USSR. There have been two world wars, a cold war, hyperinflation, a depression and numerous financial crashes, and immeasurable human suffering, much of it arising from conflict, famine and disease.

Yet over these one hundred and fifty years the world has made immense progress, in everything from the advent and spread of modern democracy, to a dramatic increase in life expectancy and the many benefits of human and technological progress. The US has grown to be the world's most powerful country, and it and almost every other country have industrialised. Of course, progress brings its own challenges, some of which relate to global and other inequalities and some to our planet and its climate. But we should hang on to the fact that economies generally grow. And the key point for SAINTS is that throughout its history it has been able to take advantage of opportunities to invest globally in order to support and benefit from the tailwinds of economic, technological and even societal progress, and from geopolitical change, and to weather each storm and setback which has arisen.

It is also worth emphasising that SAINTS is particularly well equipped to navigate stormy seas, both because of its structure and also because of its managers' focus on selecting individual investments to provide dependability and growth. We very much hope that SAINTS' 150th anniversary year will also be its 50th successive year of dividend growth. Indeed, the dividend has not been reduced year-on-year since 1938. The prudent use of revenue reserves has been an important part of this success, but so too has investing in companies and other assets which provide an income which is resilient in tough times and grows above inflation over the long term.

To mark SAINTS' 150th anniversary, and to help provide the benefit of perspective which I mentioned above, the Board and Baillie Gifford have commissioned a short history of SAINTS. We expect this to be available, in both electronic and hard copy form, by late May/early June. If you would like to receive a copy, either by email or in physical form, please request a copy using the following link: bailliegifford.com/SAINTS150.

02 Annual Report 2022

Strategic Report

Dividend and Inflation

The Board recommends a final dividend of 3.67p which will take the full year dividend to 13.82p per share, 9% higher than the 2021 dividend of 12.675p.

The strong growth in SAINTS' revenues over the past year has enabled this greatly increased dividend to be covered by earnings. Whilst significant, the rate of increase does not match the annual rate of inflation of 10.5% as measured by CPI. 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 (3.5% per annum) which has been well above the rate of inflation (2.7% per annum).

We would mention also that the Board does not necessarily expect to exceed or match the level of the previous quarter's dividend in each successive quarter. It is quite possible, therefore, that not all dividends next year will match or exceed this year's final dividend.

Revenues

Earnings per share have risen to 13.82p over the year, an increase of 8.1%, and investment income has risen to £30m. Income from equities has been helped by operational progress at many of the Company's investments and by increases in their dividends, as well as by movements in exchange rates. The sale of four properties and the purchase of one led to a reduction in rental income.

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

In a challenging year your investment in SAINTS delivered a share price total return of negative 3.5% and the net asset value total return (capital and income with borrowing at fair) was negative 3.7%. Although a positive return would have been preferable, in the circumstances this is a creditable result. Although as always we would caution against reading too much into short term performance, it is worth noting a number of positive features over the year. Firstly, the share price and net asset value returns once again exceeded that from global equities which was negative 7.3% over 2022. And secondly, the performance of SAINTS' investments in equity, property, infrastructure, and fixed income investments all compared favourably with that of their respective asset classes.

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 SAINTS to deliver a high and growing income stream, as well as growth in the Company's assets. We would therefore encourage shareholders to assess your Company's

performance over the long term. SAINTS remains at the top of its sector in terms of share price total returns over the past five years and has also outperformed equities as measured by its global equity benchmark over the past three, five and ten years.

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 and Debt Refinancing

During the course of 2022, the larger part of the Company's borrowings were refinanced at a rate agreed some two years earlier and so, in an environment when interest rates have been rising, the cost of the Company's borrowings has fallen very significantly.

At the start of the year SAINTS' borrowings took the form of a single £80m debenture, and a further £15m of borrowing which had been added in 2021. The debenture dated from a time when the prevailing interest rates were much higher than today, and bore a coupon of 8%. The £80m debenture matured in April 2022 and, as previously announced, the Company issued £80m of long-term private placement debt to refinance its long-term borrowings. At this time, the overall cost of the Company's borrowings, including the additional £15m raised in 2021, fell to just below 3% per annum. The refinancing of the Company's long-term debt appears well timed and, in the Board's judgement, the Company is now well placed to use its borrowings to enhance returns and support its dividend.

The book value of the total borrowings is £94.7m which, at the year end, was equivalent to approximately 11.2% of shareholders' funds. The estimated market or fair value of the borrowings was £65.5m, a decrease from the previous year's value of £97.4m due to the general increase in interest rates and bond yields.

Environmental, Social and Governance (ESG)

I have already alluded to some of the challenges which the world is facing and, in this context, 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 the Board has recently reviewed and strengthened its ESG Policy which is available to view on the Company's website (saints-it.com).

The Board has been strongly supportive of the Managers' approach, and of their constructive engagement with the companies you own over the course of the pandemic, and in their engagement with holdings and potential holdings in relation to other areas including climate change. 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, which includes a section on investing sustainably.

The Scottish American Investment Company P.L.C. 03