TIDMSSON
RNS Number : 7512E
Smithson Investment Trust PLC
15 March 2022
SMITHSON INVESTMENT TRUST PLC
LEI: 52990070BDK2OKX5TH79
RESULTS ANNOUNCEMENT
Audited results for the year ended 31 December 2021
Financial Highlights
At At
31 December 31 December
2021 2020
Net assets GBP3,367,070,000 GBP2,331,950,000
Net asset value ("NAV") per ordinary
share ("share") 1,961.0p 1,648.9p
Share price 2,020.0p 1,710.0p
Share price premium to NAV(1) 3.0% 3.7%
------------------------------------- ---------------- ----------------
For the period
from
Company's listing
on
For the year For the year 19 October 2018
ended ended to
31 December 31 December 31 December
2021 2020 2021
% change(2) % change(2) % change(2)
NAV total return per
share(1) +18.9% +31.4% +96.1%
Share price total return(1) +18.1% +31.7% +102.0%
Benchmark total return +17.8% +12.2% +47.8%
Ongoing charges ratio(1) 1.0% 1.0% 1.0%
---------------------------- ------------ ------------ -----------------
Source: Bloomberg
This report contains terminology that may be unfamiliar to some
readers. The Glossary in the Annual Report gives definitions for
frequently used terms.
3 Year Record
At 31 December 2021 2020 2019
Net assets GBP3,367,070,000 GBP2,331,950,000 GBP1,437,305,000
NAV per ordinary share 1,961.0p 1,648.9p 1,255.2p
Share price 2,020.0p 1,710.0p 1,298.0p
Share price premium
to NAV(1) 3.0% 3.7% 3.4%
Year ended 31 December
NAV total return per
share +18.9% +31.4% +33.2%
Share price total
return +18.1% +31.7% +29.8%
Benchmark total return +17.8% +12.2% +21.9%
Ongoing charges ratio 1.0% 1.0% 1.0%
----------------------- ---------------- ---------------- ----------------
1 These are Alternative Performance Measures ("APMs").
Definitions of these and other APMs used in the Annual Report,
together with how these measures have been calculated, are
disclosed in the Annual Report.
2 Total returns are stated in GBP sterling.
Chairman's Statement
Introduction
I am pleased to present our third Annual Report and my first as
Chairman.
Performance
The Company's net asset value (NAV) per share total return for
the year was +18.9% outperforming the MSCI World SMID Index by 1.1%
points. The Company's annualised NAV per share total return since
inception is +23.4% compared with the +13.0% return from the index
with dividends reinvested.
The Company's shares traded at a premium to its NAV throughout
2021 reflecting the continued demand from investors. The premium at
the end of the year was 3.0%, slightly narrower than the 3.7% at
the end of the previous year, and the Company's share price
therefore increased by 18.1% during 2021, slightly lower than the
increase in the NAV per share. The annualised share price return
total return since inception is +24.5%, slightly higher than the
annualised increase in NAV per share.
The Company's market capitalisation at the end of 2021 was
GBP3.5 billion and it is a member of the FTSE 250 index.
Capital Structure
The Company was floated on the premium list of the London Stock
Exchange ("LSE") on 19 October 2018, breaking the record for the
largest IPO of an investment trust in the history of the LSE with
funds raised exceeding GBP822 million. The Company raised a further
GBP531 million net of costs during 2021, taking the total amount
raised since the IPO to GBP1,305 million net of costs.
The Board monitors the level of premium to NAV at which the
Company's shares trade and has a regular share issuance programme
to manage the premium. Shares are only issued at a premium to net
asset value which creates additional value for shareholders net of
all issue costs. The average premium to the prevailing net asset
value at which new shares were issued during the year was 2.65% and
the net premium on share issues amounted to approximately GBP6.8
million.
Since the year end and up to 10 March 2022, a further 5,235,000
ordinary shares have been issued, raising GBP89.8 million net of
costs. This brings the total net funds raised since the Company's
IPO in October 2018 to GBP1,395 million.
In view of the continuing strong demand for the Company's
shares, shareholders will be asked, at the forthcoming Annual
General Meeting, to grant the Company authorities to issue up to a
further 20% of the issued share capital as at the latest
practicable date before publication of the Annual Report. This will
enable the Directors to continue to create further shareholder
value and help manage the level of any share price premium. Any
such issues will be on a non pre-emptive basis.
Results and Dividends
The Company's total return after tax for the year was GBP503.7
million (2020: GBP496.5 million), equivalent to 316.2p per share
(2020: 396.7p) comprising a capital return of GBP512.1 million
(2020: GBP499.4 million), equivalent to 321.5p per share (2020:
399.3p) and a revenue loss of GBP8.4 million (2020: loss of GBP2.9
million) equivalent to a loss of 5.3p per share (2020: loss of
2.3p).
The revenue losses, which are netted against capital gains
reported in the total returns, arise because the Company's dividend
income is lower than its operating expenditure, all of which is
charged to revenue, rather than a percentage being allocated to the
capital reserve. This reflects the Company's objective of focusing
on capital growth which means that its accounting policy is not
designed to facilitate maximisation of revenue reserves and
dividend payments.
In accordance with the Company's policy, a dividend is not
proposed by the Board.
Whilst the position will be kept under review, there is no
current intention to change the policy, even if losses continue to
be reported in revenue reserves. It should not be expected that the
Company will pay a significant annual dividend and it is likely
that no interim dividends will be declared, but the Board intends
to declare such annual dividends as are necessary to maintain the
Company's UK investment trust status.
Investment Approach
In common with all funds managed by Fundsmith, the Company has a
simple, focused strategy of investing in high-quality, listed
company shares, seeking not to overpay for those shares and then
holding them as long term investments; the Company does not use
derivatives and has no borrowings.
As a closed-end investment vehicle focusing on capital growth,
the Company is free to focus its energies on pursuing its strategy
without having the limiting factors of funding client redemptions,
dividend payments (other than a minimum to maintain investment
trust status) or gearing concerns. The Company expects to hold
between 25-40 investments; at year end, it held 31 investments.
During the year it made two new investments and divested two. The
Company has a strong balance sheet of highly liquid
investments.
The composition of the portfolio at 31 December 2021 is shown
below, and the Investment Manager's Review explains the investment
performance and the evolution of the portfolio in detail.
The Investment Manager's Review also includes an overview of how
the Investment Manager considers Environmental, Social and
Governance ("ESG") and other sustainability issues when
implementing its investment strategy and how the Company has
discharged its governance duties in respect of investee
companies.
Fundsmith is a signatory to the FRC's 'UK Stewardship Code
2020'. A copy of Fundsmith's Stewardship Policy, UK Stewardship
Report 2020, and a statement setting out the Company's approach to
the integration of ESG factors is integrated into the investment
process are available on the Company's website at
www.smithson.co.uk.
Investment Policy
The Board held a strategy session in November with the
Investment Manager and the Company's advisers to review the
investment objective and policy, the evolution of the investible
universe and the portfolio since the IPO, the stock selection
criteria, and communications with shareholders. One of the
conclusions from the review is that we should make a change to
clarify the investment policy.
The proposed change clarifies that the market capitalisation
range of GBP500 million to GBP15 billion applies at the time of the
initial investment in a company. We also propose to remove the
stated expectation with respect to the average market
capitalisation of companies in the portfolio as the Board considers
that, as the Company's investments have prospered in the time they
have been held, this is no longer appropriate.
The revised investment policy which will not affect, in any way,
how the Company's investments are managed, is set out below.
"The Company's investment policy is to invest in shares issued
by small and mid-sized listed or traded companies globally with a
market capitalisation (at the time of initial investment) of
between GBP500 million to GBP15 billion."
The amended investment policy will apply, subject to shareholder
approval (which is required by the Listing Rules as these changes
are considered material), with effect from the Company's Annual
General Meeting to be held on Wednesday, 3 May 2022; the FCA has
already approved these proposed changes. Full details of the
proposed amendments are set out in the Notice of Meeting that
accompanies this Annual Report. The Board unanimously recommends
that shareholders vote in favour of this resolution.
Governance
On 15 February 2022 it was announced that Mark Pacitti, the
Chair of the Board from the Company's IPO in October 2018, would
step down as a director at the end of February 2022, and I took
over as Chairman of the Board. On behalf of the Board, I would like
to thank Mark for his contribution, as Chairman, to the success of
the Company since its IPO.
Following my appointment as Chairman, Lord St John of Bletso
replaced me as Chair of the Audit Committee.
Jeremy Attard-Manche joined the Board on 1 March 2022 and is
Chair of the Management Engagement Committee.
We will all stand for election or re-election at the AGM, and
details on our background and experience are given in the Annual
Report.
Annual General Meeting ("AGM") and Shareholder Engagement
The Company will hold its AGM on 3 May 2022. My fellow Directors
and I are keen to meet with shareholders. However, we recognise
that many of our shareholders will not yet feel confident to attend
shareholder meetings, given the ongoing risk of contracting
COVID-19. I would therefore like to remind shareholders that they
are welcome, at any time, to submit any questions they may have
either to the Board at smithsonchairman@fundsmith.co.uk or to the
Investment Manager at smithson@fundsmith.co.uk.
At the AGM, shareholders will hear a presentation by Simon
Barnard our Investment Manager, which will also be made available
on the Company's website at www.smithson.co.uk after the meeting.
Simon Barnard will also be present in person at the AGM to address
any questions. In addition, we would encourage shareholders to
visit our website at www.smithson.co.uk where more information is
available and which is regularly updated.
Outlook
Since the start of this year the world's stock markets have
experienced significant falls. Both the Company's NAV and share
price have fallen by more than the MSCI World SMID Cap Index, which
we use as a comparator for the Company. Nevertheless, the
annualised rate of return from the Company's IPO to the end of
February was 14.9% compared with the comparator index return of
10.0%.
At the end of February the Company's shares traded at a discount
to NAV of 1.5%, having consistently traded at a premium throughout
2021. At the outbreak of COVID-19 in early 2020, the Company's
shares traded at a discount to NAV for a brief period. The Board
will monitor the current situation and in the event that the
discount persists, the Board will look to take appropriate
action.
The last two months have clearly been very challenging for
investors, but the Investment Manager and the Board encourage
shareholders to take a long term perspective on their investment.
We face unprecedented times with the recent invasion of Ukraine
which raises a spectrum of uncertain variables. Fortunately, the
Company's portfolio has low exposure to that region.
The Investment Manager focuses on investing in companies it
believes can compound in value over many years. Owning high quality
companies with sustainable growth is a strategy that has been shown
to work over the long term, through several economic cycles, and
the Board has confidence that the Investment Manager can execute
the strategy successfully.
The Company continues to offer investors exposure to some of the
best companies available in the small to mid cap sector and the
Board believes that the long-term investor will be well
rewarded.
Diana Dyer Bartlett
Chairman
14 March 2022
Investment Manager's Review
The Investment Manager's review was first published as a letter
to shareholders on 7 February 2022 and is incorporated as published
within the Company's Strategic Report as it continues to be an
accurate assessment of the Company's investment performance during
the year to 31 December 2021.
Dear Fellow Shareholder,
The performance of Smithson, along with comparators, is laid out
below. In 2021 the Net Asset Value per share (NAV) of the Company
increased by 18.9% after fees and the share price increased by
18.1%. Over the same period, the MSCI World Small and Mid Cap Index
('Index'), our reference index, increased by 17.8%, leading to an
outperformance for the shares of 0.3%. While this is a very small
degree of outperformance, particularly compared to recent years, we
remain satisfied by the absolute gain in value for the fund over
the year. We would caution that it is not possible to outperform
the Index by a significant amount every year, and from time to
time, there will also be years of underperformance. We have
provided below the performance of UK bonds and cash for
comparison.
Launch to 31.12.21
--------------- ----------------------
Total Return(5)
01.01.21
to 31.12.21 Cumulative Annualised
% % %
----------------- --------------- ---------- ----------
Smithson NAV(1) +18.9 +96.1 +23.4
Smithson Share
Price +18.1 +102.0 +24.5
Small and Midcap
Equities(2) +17.8 +47.8 +13.0
UK Bonds(3) -4.5 +5.9 +1.8
Cash(4) +0.1 +1.4 +0.4
----------------- --------------- ---------- ----------
(1) Source: Bloomberg, starting NAV 1000.
(2) MSCI World SMID Cap Index, GBP Net source: www.msci.com.
(3) Bloomberg/Barclays Bond Indices UK Govt 5-10 yr, source:
Bloomberg.
(4) Month GBP Interest Rate source: Bloomberg.
(5) Alternative Performance Measure.
Smithson shares traded at an average premium to NAV of 2.2%
during the year and at no time did they trade at a discount. During
the year, a total of 30.3 million new shares in the Company were
issued, for gross proceeds of GBP534 million, which were invested
both in existing holdings and the new positions discussed below.
New shares were issued at an average premium to NAV of 2.65%, so
the process remained accretive to existing shareholders on a per
share basis.
The Ongoing Charge Figure was 0.96%, including the Annual
Management Fee of 0.9%. All dealing, costs and taxes amounted to
just 0.02% (2 basis points) of NAV in the period, resulting in a
Total Cost of Investment (TCI) of 0.98%.
Our portfolio only holds high quality companies - more on which
later - but included in these are a number of high growth companies
which naturally have higher ratings than the market average. This
means that in a year when US 10 year treasury yields increased by
66%, from 0.91% to 1.51%, we should theoretically have
underperformed the broader Index. This is because high interest
rates reduce the value of the future earnings of these companies
once discounted back at the higher rates. The slower growing
companies in the Index are less affected by this phenomenon, which
is why many commentators have been discussing a stock market
'rotation' into lower rated companies, or 'value' stocks.
What enabled the portfolio to keep up with the Index then? The
answer is that on this occasion there were a number of companies
that performed well for individual reasons. It is also the case
that sometimes financial theory proves to be just that, a theory,
which doesn't actually play out perfectly in the financial markets,
driven as they are by millions of fallible, emotional people.
Indeed, our highest rated company was one of the best performers
last year, up over 30%. This also serves to remind us that 'highly
rated' does not automatically equate to 'expensive' - it always
depends on what you are getting for the price. Having said all
this, we still consider ourselves fortunate to have outperformed in
this environment, and if this trend of increasing interest rate
expectations persists, we may not continue to be so lucky.
One might then ask, if interest rates are so obviously on the
rise, and this so obviously creates a more favourable environment
for value companies rather than quality or growth companies,
shouldn't we adapt our strategy to buy the companies which stand to
benefit? Well, no. Owning high quality companies with sustainable
growth is a winning strategy over the long term, has been shown to
work through several economic cycles, and is one which we know we
can execute successfully. Whilst other managers may be able to run
a value strategy, we believe it is inherently more difficult, as
you cannot hold value companies for the long term if all you are
doing is owning a poor quality company at a low price, which you
hope will re-rate in the future. If this does happen (there is no
guarantee), you then have to sell the company to find another such
investment, and so on. This means that unlike our strategy, time is
not your friend, because the longer you are holding the company and
waiting for it to re-rate, the lower your annualised returns
become, and if you're particularly unlucky, the worse the company
becomes. On the other hand, it matters less if it takes more time
for the market to appreciate the value of the type of companies we
hold in our strategy, because the highest quality companies are
constantly getting better, or at the very least bigger, owing to
their growth. So, once we have found the right companies, all we
have to do is wait. We think that patience is one of our
competitive advantages, because with the
strategy we employ, it tends to pay off.
Imagine a dog walker crossing a field, their dog wildly
zigzagging around them. We would relate the companies we own to the
walker, clear in direction and making steady progress across the
field, while the daily market price is like the dog, moving back
and forth quite randomly. Now, the current economic storm may well
send the dog cowering for cover, but given enough time, we know
that the price and value will eventually meet again, just as the
dog and walker will ultimately leave the field together. We also
know that, as well as making constant progress, a high quality
company, if it trips during the storm, will rise again and keep
going. Low quality, value companies on the other hand, may never
get back up.
Of course, interest rates are on the rise because central banks
are trying to contain inflation, which many fear may not be
transitory, as first thought. It is worth mentioning that we do not
fear moderate inflation, which by itself would likely not cause a
significant problem for our companies. This is owing to a couple of
reasons. First, the companies we own have high gross margins, and
therefore low raw material costs. They also tend to have low
capital requirements, which allows them to generate high returns on
that capital. As inflation affects both the cost of raw materials
and the cost of plant and equipment, those that spend less as a
proportion of revenue on these items will be relatively less
impacted by cost inflation. On top of this, the market structure
and competitive positioning of many of our companies mean that they
would also be in a position to raise the prices charged to their
customers should the costs of the business increase. This is not
necessarily something we want them to do unilaterally; as a market
leader raising prices can often create an 'umbrella' under which
competitors can flourish by charging slightly lower prices while
still maintaining a good margin. But if inflation is creating a
cost issue for the whole industry, it is comforting to know that
our companies have the market power to increase prices should it
become necessary.
To highlight some of the individual companies responsible for
the fund outperformance, the top five contributors are listed
below.
Contribution
Country %
--------------------- --------------- ------------
Fortinet United States 4.2%
Nemetschek Germany 1.9%
Equifax United States 1.8%
Domino's Pizza Group United Kingdom 1.7%
AO Smith United States 1.6%
--------------------- --------------- ------------
Fortinet is a cyber security company specialising in firewall
appliances and security software. The shares have been strong ever
since the SolarWinds hacking attack was discovered in December
2020, after which many corporate technology departments made clear
their intention to increase spending on cyber security. This has
been reflected in the growth of Fortinet's revenue, which at 33% in
the last reported quarter, was the fastest since 2016, and has
resulted in the share price increasing by over 140% during the
year.
Nemetschek sells software for construction design and
entertainment. There were concerns regarding the construction
industry during the initial stages of the pandemic, but by the
middle of last year it became apparent that industry growth was as
strong as ever. This development also benefitted AO Smith, at the
bottom of the list, given it sells residential and commercial water
heaters and boilers, which are also somewhat affected by the
construction industry cycle.
Equifax is a credit bureau which supplies consumer credit
details to banks and other lenders, as well as social security data
to employers. As 2021 progressed, it became clear that mortgage and
other loan applications would remain strong and a high number of
workers would be hired in the US economy. This meant that the
demand for Equifax services accelerated to a growth of 26% by the
mid-point of the year, and after a strong year in 2020, revenue was
42% ahead of the pre-pandemic level in mid-2019.
Almost all the share price performance in Domino's Pizza Group
came at the end of the year. For some time, the management of the
company has been at odds with its franchisees, who were requesting
more investment by the company into menu and technology development
and a reduction in food costs. This was hampering the growth of the
company, as many franchise owners were refusing to open new
restaurants until their demands were met. This issue was finally
resolved in December, when management reached an agreement with the
franchisee association, providing some of what they demanded, in
return for a commitment to open new restaurants. This was taken
well by the market, sending the shares up 22% in one day, and we
are optimistic that the deal could further unlock the potential of
the attractive UK market.
The five worst detractors to performance are below.
Contribution
Country %
---------------- -------------- ------------
Sabre United States -1.4%
Ambu Denmark -1.0%
IPG Photonics United States -0.9%
Simcorp Denmark -0.9%
Paycom Software United States -0.3%
---------------- -------------- ------------
Sabre, the provider of software to the travel industry, had a
strong start to the year as countries began lifting COVID-19
restrictions.
However, that proved to be short lived, as the Delta and then
Omicron variants caused travel restrictions to be reimposed, to
which the shares reacted negatively.
Ambu, which manufactures medical devices including single-use
endoscopes, often required for COVID-19 treatment, underperformed
in 2021 after an extremely strong performance in 2020. Although we
continue to like the long-term outlook for the company, it was
always quite unlikely that profits were going to match the
extraordinary levels of the prior year, despite further infection
waves.
The manufacturer of industrial lasers, IPG Photonics, had a
successful year in 2021 after a weak 2020, with reported revenue up
26% year to date. Unfortunately, as ever, this improved operating
environment was anticipated ahead of time by the stock market,
meaning that once better profitability arrived, it was not actually
enough to please the market. Similarly, Paycom was another victim
of high market expectations. Despite strong revenue growth,
currently running at 24%, this was regarded as a disappointment at
the most recently reported results.
Simcorp, on the other hand, has simply struggled to sign many
new clients this year. As a producer of asset management software,
each deal it signs tends to be large, so it often requires a series
of face-to-face meetings for clients to feel comfortable taking on
a new licence. This has proven to be difficult to arrange given the
restrictions in different countries in 2021, and so sales have
slowed.
We added two new companies to the portfolio during the year,
namely Rollins and Wingstop. Rollins is a US-based pest control
business with strong margins and returns on capital. The organic
growth of the business, whilst not high at around 4.5%, is
supplemented by acquisitions of other small pest control
businesses, such that the overall revenue growth of the company has
averaged 9% over the last few years. Unlike in the UK, houses and
businesses in many parts of the world require frequent attendance
by pest control professionals to keep them comfortable, and in some
cases, habitable. This leads to highly repeatable revenue, as many
customers pay for the services on a monthly subscription basis. The
company has had significant family ownership since its foundation
73 years ago and, given the consistent sound management, we expect
little to change for the next several decades.
Wingstop is somewhat different. This is a fast-growing
franchised chicken wing restaurant and delivery business. It was
founded in Texas, in 1994, with the intention to make chicken wings
the main course of a meal, rather than just a starter or side dish.
Aside from the food (we recommend the Louisiana Rub wings), the key
to the continued growth of this business is the excellent returns
of 70% that franchisees are able to generate on their investment in
new restaurants after three years. This has created an enormous
pipeline of new units waiting to be built, which should underpin
double digit growth for the company for years to come.
We also sold two companies during the period. One is a
biotechnology business based in the UK, called Abcam. This is a
company that has been undergoing a change in strategy over the last
couple of years, and which is set to continue for some time. Abcam
has identified several markets with high growth potential which
are, some closely and some loosely, related to its core business of
producing and distributing antibodies for medical research. While
we do not disagree with the strategy to enter new markets, it
brings elevated risk given the large amount of spending required to
conduct R&D and acquire companies in these new areas, and the
uncertain paybacks on those investments. It is this uncertainty,
combined with a high valuation at the time of our sale, that led us
to divest the company. It remains one that we will continue to
watch with interest as it progresses through its
transformation.
The second company to be sold was Chr. Hansen, the reason being
very similar to the one for Abcam. There is little wrong with its
core business of producing cultures and enzymes for food
processing, although declining growth will eventually become an
issue in this division. However, it is the expansion into other
areas that concerns us, particularly as the company has far less of
a competitive advantage in the new markets than it does in its
original business.
The result of these trading actions is shown below, with a
breakdown of the portfolio in terms of sector and geography at the
end of the period. The median year of foundation of the companies
in the portfolio at the year end was 1973, similar to last
year.
Sector
Information Technology 44%
Industrials 22%
Healthcare 11%
Consumer Discretionary 9%
Consumer Staples 5%
Communication Services 5%
Financials 3%
Cash - Uninvested 1%
----------------------- ---
Information Technology stayed roughly constant at a 44%
weighting over the year. The reason for the apparently large
allocation to Information Technology remains the same as outlined
in previous reports, which is that this broad MSCI-designated
sector actually encompasses a large number of diverse businesses
and end markets. One example is IPG Photonics, discussed earlier,
which produces lasers for raw material processing and
manufacturing, and which we would class as part of the industrial
exposure of the portfolio. During the year, the industrials weight
increased by 2%, due to the addition of Rollins to the portfolio.
Healthcare decreased by 1% partly due to the sale of Abcam, while
Consumer Discretionary increased slightly after the addition of
Wingstop to the portfolio. Chr Hansen is classed as a Materials
company, and so we no longer have exposure to this sector.
Country of Listing
USA 47%
UK 21%
Australia 7%
Switzerland 7%
Germany 6%
Denmark 5%
Italy 4%
New Zealand 2%
Cash 1%
------------ ---
The USA continues to be the largest country weighting by listing
and in fact increased by 3% from the end of 2020 partly due to the
portfolio additions. The UK remains a large weighting, although it
did decrease slightly from a year ago. The reason we have a large
exposure to UK companies is because several high-quality businesses
we have found happen to be listed in the UK and, perhaps due to
generally depressed valuations in the UK market, still appear to be
reasonably valued.
Source of Revenue
Europe 38%
North America 38%
Asia Pacific 19%
Eurasia, Middle East, Africa 3%
Latin America 2%
----------------------------- ---
Most importantly though, the real geographical exposure for the
portfolio is where the revenue our companies generate actually
originates. This always appears more evenly distributed, with North
America and Europe at similar levels, along with quite a high
exposure to Asia Pacific, which encompasses Australia and New
Zealand. Although we only invest in companies listed in developed
markets, they do sometimes generate revenue from emerging markets,
which is why you see regions such as the Middle East and Latin
America represented here.
As we discuss in every report, our three part strategy is to buy
good companies, not overpay for those companies, and then "do
nothing", or trade as little as possible. In order to demonstrate
that we do indeed buy good companies, we include the table below,
which is the weighted average operating metrics of our owned
companies over the last 12 months compared to the Index.
Smithson
Investment
LTM Figures Trust MSCI SMID
------------------------ ----------- ---------
ROCE 33% 8%
Gross Margin 67% 34%
Operating Profit Margin 24% 1%
Cash Conversion 112% 88%
Interest Cover 35x 5x
------------------------ ----------- ---------
Data for the MSCI World SMID Cap Index is shown ex-financials,
with weightings as at 31.12.2021.
Data for MSCI World SMID Cap Index is on a weighted average
basis, using last available reported financial year figures as at
31.12.21.
Data for Smithson is on a weighted average basis, ex-cash, using
last available reported financial year figures as at 31.12.21.
Interest cover (EBIT ÷ net interest) data for Smithson and MSCI
World SMID Cap Index is done on a median average basis.
You can see from this table that the companies we own are far
superior in quality to the average in the Index. Not only are
returns on capital employed substantially higher, but the margins
are sometimes multiples of those found in the Index, likely because
of the difficult operating environment that has been suffered over
the last couple of years. Finally, the interest cover is high
because the majority of our companies actually have a surplus of
cash, and no debt.
Further, our companies have been able to grow strongly during
the year. The weighted average growth of free cash flow (the cash
produced after paying for everything except dividends and growth
capital) for the companies in the portfolio was 21% in 2021.
The second part of the strategy, of not overpaying for these
great companies, can be assessed by looking at the average free
cash flow yield (the free cash flow divided by the market
capitalisation) of the portfolio. At the end of 2021 this was 2.0%,
down from 2.9% a year earlier, and compares to the Index at 2.5%.
The decline was a combination of share price appreciation and
portfolio changes but also note that the figure is based on the
last reported full financial year results for the companies, many
of which might be representing the more difficult 2020 rather than
2021. While it may seem that the portfolio is more 'expensive' than
the Index, the companies we own are far higher quality and are
likely growing much faster. When put this way, it would seem
bizarre if they were not more highly rated than the Index average
(although this can, and does, sometimes happen).
Finally, we then try to "do nothing". In 2021 our portfolio
turnover, not counting the investment of share issuance proceeds,
was 9.5%. In other words, this indicates an average holding period
of just over 10 years for each of our positions, which broadly fits
with the way we think about the investment cases for each
company.
We are often asked about our approach to Environmental, Social
and Governance (ESG) issues. This consideration really begins at
the earliest stages of our research when we are identifying
companies which can potentially sustain strong margins and returns
on invested capital long into the future. Clearly, companies that
are causing ongoing damage to the environment and society, or are
poorly governed, are unlikely to prosper over the long term or
appear attractive to us as an investment.
The main issue that we face in assessing small and medium sized
companies in this regard, is that many are not as advanced as most
large cap companies in their reporting capabilities. For example,
only 59% of our portfolio companies are currently able to report
greenhouse gas emissions. Of those that do, the picture is a
relatively positive one, with average scope 1 and 2 emissions per
company of 37,000 tonnes per year, compared to the MSCI World
average of around 4.6 million tonnes. Taking into account the
different size of companies, our holdings emit on average 14 tonnes
per year for every one million pounds of revenue they generate. The
equivalent number for the MSCI World is around 84,000 tonnes (yes,
6000 times more). Within the portfolio, Rightmove has the lowest
emissions at only 300 tonnes per year, understandable given it
operates an online business, while Geberit, the toilet flushing
systems and sanitaryware manufacturer, is the highest emitter at
206,000 tonnes. Many of our companies, including Ambu, MSCI and
Verisk, have committed to significantly reducing their emissions,
some to net zero, while others, such as Domino's Pizza Group and
Temenos, are now linking management pay to ESG measures.
Focusing on social impact, there are not many helpful statistics
to provide in this area, although one we do look at is gender
equality in boardrooms. Within our portfolio companies, women make
up 26% of boards on average. This is still a long way short of what
one would hope for, but it is at least comparable to the global
average of 28%.
Our most frequent engagement with companies regarding ESG is in
the area of corporate governance. Unusually for portfolio managers,
or so we are told, all the proxy votes for our companies are
researched, assessed and voted for by ourselves. We do not have a
separate team to handle these decisions. We do not subscribe to nor
receive recommendations from external proxy voting services. A
meaningful amount of our time each year is spent reading about,
thinking and discussing with companies their corporate governance
structure, especially elements such as remuneration policy. We
believe that this, in particular, is a critical component to the
success of our investments. As Charlie Munger, the Vice President
of Berkshire Hathaway, famously said, "show me the incentive and I
will show you the outcome".
It will come as no surprise that the targets we prefer to see
reflected in management remuneration policies include simple
metrics that will build underlying value in the enterprise over
time, such as return on capital employed and growth in free cash
flow. What we find incredible, is the number of targets that are
included in remuneration policies which require outcomes over which
management should have little to no control.
Take total shareholder return (TSR) as an example. This is the
return to investors from their shareholding, taking into account
the share price movement plus any capital returns in the form of
dividends and buybacks. On the face of it, this looks sensible, as
one could make the argument that it is closely linking together the
fortunes of the company management and its investors. While this is
true, what are the managers actually meant to be able to do about
it? Think back to the example of the walker and the dog and ponder
how much control anyone can have, moment to moment, over a frantic
dog let loose in a field. And yet management's compensation,
sometimes a lot of it, is tied to the random meanderings of that
dog over very specific timeframes. What effect must this have on
their actions? At best, managers will conclude correctly that they
have little control over the share price and so it will incentivise
them to do nothing more than improve the underlying fundamentals of
the business, which is what we wanted them to do in the first
place. But at worst, managers may actually decide that they will
try to control this key determinant of their compensation (and can
you blame them?). This can lead to short termism by managers,
bearing in mind that many of them won't be around for that long:
the accountancy firm PwC found that CEOs of the largest 2,500
companies in the world had a median tenure of only 5 years. In
practice, this could mean a host of perverse outcomes, from cutting
long term product development costs to boost current margins, a
spending spree on hastily evaluated acquisitions or, at an extreme,
corporate accounting so aggressive that it becomes plainly
deceptive. And if you think all this sounds like a misdirection of
management focus, wait until you hear about the current trend of
management being remunerated based on relative TSR, that is, the
shareholder return compared to that of other companies. Don't get
us started on that one.
Hopefully this serves to illustrate that our voting of corporate
governance proxies is far from a rubber-stamping exercise. In fact,
of the 340 votes we cast in 2021, 41 related to management
remuneration, and we voted against the company management on 34% of
these. For the vast majority of our votes made against management,
we had already debated the policy in question with representatives
from the supervisory boards of those companies, so that they were
able to put across their reasoning as much as we could our own.
We are not always the bad guys though. We do want to support the
management teams who we think are being appropriately paid for
doing an excellent job, given that we view them as our partners in
these long-term investments. In fact, in one instance, we voted in
favour of the management remuneration policy, despite the shares
being one of our worst performers, and also despite so many of our
peers voting against them that the shareholder vote didn't actually
pass at the AGM.
Why did we buck the trend on this one? The company in question
was Sabre, and the 2020 remuneration policy initially required
management to hit certain revenue and profit targets to achieve
their targeted pay out. However, when the pandemic hit, it quickly
became obvious that this would now be impossible. Because of this,
the supervisory board, pragmatically in our view, changed
management's targets to ones more appropriate to the situation.
These included significant cost cutting and maintaining the
liquidity and financial flexibility of the company throughout the
pandemic, while also capping management pay outs to 50% of the
prior totals, given the austerity now required by the company.
Clearly, this was an adjustment from targets that could no longer
provide an incentive, to ones that induced management to behave in
a manner that was most pertinent to the company at that time. This
was perfectly logical to us and so we will never know exactly why
other investors voted against it, but our suspicion is that some
third party voting services automatically recommended a vote
against simply because the 'goalposts' were moved during the term
of the policy. Another reason we choose to think for ourselves.
To leave you with a final thought, as we write this at the start
of the new year, major equity indices such as the S&P 500 and
Nasdaq are already heading into correction territory from their
highs at the end of 2021. It is at times like these that it's worth
remembering what you are hoping to achieve from investing over the
long term (which is our aim, and we hope yours too). When markets
turn down, it will always be tempting to sell investments that are
still in profit to "lock in the gains", but it is not something we
would advise, unless the investment in question is particularly
overvalued. The reason is that long term compounding investments,
such as those we seek for the portfolio, are extremely hard to
find.
To sell a rare investment in which you still have confidence
regarding the long term outcome, to avoid a short term decline
which you cannot be confident in, makes no sense to us. Ultimately,
we believe that whatever the macroeconomic environment, the secret
to investment success is always to focus patiently on the long term
result. Because after all, that's what you end up with.
We are pleased that Smithson has had a successful year and thank
you once again for your continued support.
Simon Barnard
Fundsmith LLP
Investment Manager
14 March 2022
Investment Portfolio
Investments held as at 31 December 2021
Country of Fair value %
Security incorporation GBP'000 of investments
--------------------------- --------------- ---------- ---------------
Rightmove UK 178,251 5.3
Fortinet USA 159,984 4.8
Fevertree Drinks UK 154,791 4.6
Domino's Pizza Group UK 140,128 4.2
Equifax USA 140,110 4.2
Temenos Switzerland 137,618 4.1
Sabre USA 136,348 4.1
Recordati Italy 132,387 4.0
ANSYS USA 130,679 3.9
Verisk Analytics USA 127,186 3.8
--------------------------- --------------- ---------- ---------------
Top 10 Investments 1,437,482 43.0
-------------------------------------------- ---------- ---------------
Verisign USA 123,472 3.7
Technology One Australia 122,861 3.7
Nemetschek Germany 120,964 3.6
Halma UK 107,345 3.2
AO Smith USA 106,917 3.2
Simcorp Denmark 104,161 3.1
Qualys USA 103,019 3.1
IPG Photonics USA 102,714 3.1
Cognex USA 98,632 3.0
Domino's Pizza Enterprises Australia 96,545 2.9
--------------------------- --------------- ---------- ---------------
Top 20 Investments 2,524,112 75.6
-------------------------------------------- ---------- ---------------
MSCI USA 90,462 2.7
Rational Germany 89,574 2.7
Masimo USA 89,254 2.7
Geberit Switzerland 80,693 2.4
Fisher & Paykel Healthcare New Zealand 72,356 2.2
Diploma UK 68,618 2.1
Ambu Denmark 68,438 2.0
Wingstop USA 68,207 2.0
Paycom Software USA 63,490 1.9
Rollins USA 62,754 1.9
Spirax-Sarco Engineering UK 61,192 1.8
--------------------------- --------------- ---------- ---------------
Total Investments 3,339,150 100.0
-------------------------------------------- ---------- ---------------
Investment Objective, Policy and Investment Methodology
Investment Objective
The Company's investment objective is to provide shareholders
with long term growth in value through exposure to a diversified
portfolio of shares issued by listed or traded companies.
Investment Policy
The following investment policy wording is subject to
shareholder approval at the Company's AGM. Further details on the
proposed changes to the investment policy are given in the
Chairman's Statement.
The Company's investment policy is to invest in shares issued by
small and mid-sized listed or traded companies globally with a
market capitalisation (at the time of initial investment) of
between GBP500 million to GBP15 billion. The Company's approach is
to be a long-term investor in its chosen shares. It will not adopt
short-term trading strategies. Accordingly, it will pursue its
investment policy by investing in approximately 25 to 40 companies
as follows:
(a) the Company can invest up to 10 per cent. in value of its
gross assets (as at the time of investment) in shares issued by any
single body;
(b) not more than 20 per cent. in value of its gross assets (as
at the time of investment) can be in deposits held with a single
body. This limit will apply to all uninvested cash (except cash
representing distributable income or credited to a distribution
account that the depositary holds);
(c) not more than 20 per cent. in value of its gross assets (as
at the time of investment) can consist of shares issued by the same
group. When applying the limit set out in (a) this provision would
allow the Company to invest up to 10 per cent. in the shares of two
group member companies (as at the time of investment);
(d) the Company's holdings in any combination of shares or
deposits issued by a single body must not exceed 20 per cent. in
value of its gross assets (as at the time of investment);
(e) the Company must not acquire shares issued by a body
corporate and carrying rights to vote at a general meeting of that
body corporate if the Company has the power to influence
significantly the conduct of business of that body corporate (or
would be able to do so after the acquisition of the shares). The
Company is to be taken to have power to influence significantly if
it exercises or controls the exercise of 20 per cent. or more of
the voting rights of that body corporate; and
(f) the Company must not acquire shares which do not carry a
right to vote on any matter at a general meeting of the body
corporate that issued them and represent more than 10 per cent. of
the shares iss ued by that body corporate.
The Company may also invest cash held for working capital
purposes and awaiting investment in cash deposits and money market
funds.
For the purposes of the investment policy, certificates
representing certain shares (for example, depositary interests)
will be deemed to be shares.
Hedging Policy
The Company will not use portfolio management techniques such as
interest rate hedging and credit default swaps.
The Company will not use derivatives for purposes of currency
hedging or for any other purpose.
Borrowing Policy
The Company has the power to borrow using short-term banking
facilities to raise funds for short-term liquidity purposes or for
discount management purposes including the purchase of its own
shares, provided that the maximum gearing represented by such
borrowings shall be limited to 15 per cent. of the net asset value
at the time of drawdown of such borrowings. The Company may not
otherwise employ leverage.
Investment Methodology and Management Process
The Investment Manager seeks to apply the investment methodology
and management process summarised below (to the extent appropriate
given the nature of a relevant investment opportunity):
Seeking high-quality businesses with specific characteristics
and intangible assets
In the Investment Manager's view, a high-quality business is one
which can sustain a high return on operating capital employed and
which generates substantial cash flow, as opposed to only creating
accounting earnings. If it also reinvests some of this cash back
into the business at its high returns on capital, the Investment
Manager believes the cash flow will then compound over time, along
with the value of the Company's investment.
The Investment Manager will not just look for a current high
rate of return, but will seek a sustainable high rate of return.
Fundamentally, such companies need to demonstrate the ability to
continue competing against all other companies which are trying to
take a share of their profits. This can come in many forms, but the
Investment Manager will look for companies that rely on intangible
assets such as one or more of the following: brand names; patents;
customer relationships; distribution networks; installed bases of
equipment or software which provide a captive market for services,
spares and upgrades; or dominant market shares.
The Investment Manager will generally seek to avoid companies
that rely on tangible assets such as buildings or manufacturing
plants, as it believes well-financed competitors can easily
replicate and compete with such businesses. In many instances, such
competitors are able to become better than the original simply by
installing the latest technology in their new factory. Banks are
quite keen to lend against the collateral of tangible assets, and
such companies tend to be more heavily leveraged as a result. The
Investment Manager believes that intangible assets are much more
difficult for competitors to replicate, and companies reliant on
intangible assets require more equity and are less reliant on debt
as banks are less willing to lend against such assets.
The Investment Manager believes such companies will resist the
rule of mean reversion that states returns will revert to the
average over time as new capital is attracted to business
activities which earn above average returns. They can do this
because their most important assets are intangible and difficult
for a competitor to replicate. Since stock markets typically value
companies on the assumption that their returns will regress to the
mean, businesses whose returns do not do so can become undervalued.
This presents an opportunity for the Company.
The Investment Manager will seek businesses which have growth
potential. The Investment Manager views growth potential as the
ability of a company to be able to reinvest at least a portion of
its excess cash flow back into the business to grow, whilst
generating a high return on the cash thus reinvested. Over time,
this should compound their shareholders' wealth by generating more
than a pound of stock-market value for each pound reinvested.
The Investment Manager is interested in growth that is driven
through either increases in volume or increases in price and will
prefer a mixture of both. The ability to increase product prices
above the rate of inflation is the most profitable way to grow and
demonstrates that the company has a healthy competitive position
selling products or services which are strongly desired by their
customers. However, growth through price alone can build a shelter
under which competitors can flourish, eventually resulting in
cheaper competition gaining significant market share. On the other
hand, growth through additional unit volumes almost always requires
more cost, in both manufacturing capacity and materials used to
produce the products, as well as transportation to get them to
customers. Increasing scale in this way will eventually make a
company's market position more difficult to compete against,
however, unlike growing through price alone, with the further
benefit that volume growth can sometimes continue indefinitely.
The Company will only invest in companies that earn a high
return on their capital on an unleveraged basis and do not require
borrowed money to function. The Investment Manager will avoid
sectors such as banks and real estate which require significant
levels of debt in order to generate a reasonable shareholder return
given their returns on unlevered equity investment are low.
While the Investment Manager favours companies that are able and
willing to spend cash on the research and development of their
products to create important intangible assets such as patents and
manufacturing efficiency, it will avoid industries that innovate
very quickly and are subject to rapid technological change.
Innovation is often sought by investors, but does not always
produce lasting value for them and can have high capital costs.
Avoiding overpaying for shares
The Company will only invest in shares where the Investment
Manager believes the valuation is attractive. The Investment
Manager will estimate the free cash flow of every company after tax
and interest, but before dividends and other distributions, and
after adding back any discretionary capital expenditure which is
not needed to maintain the business. The Investment Manager aims to
invest only when free cash flow per share as a percentage of a
company's share price (the "free cash flow yield") reflects value
relative to long-term interest rates and when compared with the
free cash flow yields of other investment candidates both within
and outside the Company's portfolio. The Investment Manager will
buy securities that it believes will grow and compound in value,
which bonds cannot, at yields that are similar to or better than
the Company would get from a bond.
Buying and holding
The Company will seek to be a long-term, buy-and-hold investor.
The Investment Manager believes this will facilitate the
compounding of the Company's investments over time as the investee
companies continue to reinvest their cash flows. The Investment
Manager, however, will continually test its original views against
new information it may discover while regularly reviewing the news
and results concerning the investee companies. The resulting low
level of dealing activity also minimises the frictional costs of
trading, a cost which is often overlooked by investors as it is not
normally disclosed as part of the costs of running funds.
Not attempting market timing
The Investment Manager will not attempt to manage the percentage
invested in equities in the Company's portfolio to reflect any view
of market levels, timing or developments. The Investment Manager's
unwillingness to make investment decisions on the basis of market
timing is one factor that will prevent the Company from investing
in sectors that are highly cyclical.
Business Review
The Strategic Report has been prepared in accordance with the
Companies Act 2006 (Strategic Report and Directors' Report)
Regulations 2013 to provide information to shareholders to assess
how the Directors have performed their duty to promote the success
of the Company.
The Strategic Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
their approval of this report and such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such
forward-looking information.
Purpose, Strategy and Business Model
The Company is registered in England and Wales and is an
externally managed investment trust; its shares are premium listed
on the Official List and traded on the main market of the London
Stock Exchange. It was established by its Investment Manager,
Fundsmith LLP and listed on 19 October 2018.
The purpose of the Company is to provide a vehicle for investors
to gain exposure to a portfolio of small and mid-sized listed or
traded companies globally, through a single investment.
The Company's strategy is to create value for shareholders by
addressing its investment objective, which is to provide
shareholders with long-term growth in value through exposure to a
diversified portfolio of shares issued by listed or traded
companies.
The Company is an alternative investment fund ("AIF") under the
alternative investment fund managers' directive ("AIFMD") and has
appointed Fundsmith LLP as its alternative investment fund manager
("AIFM").
As an externally managed investment trust the Company has
delegated its operational activities to specialised third party
service providers who are overseen by the Board of non-executive
Directors. Details regarding the Company's key third party service
providers are included in the Management Engagement Committee
Report. The Company has no executive directors, employees or
internal operations.
Key Performance Indicators ("KPI")
The Company's Board of Directors meets regularly and reviews
performance against a number of key measures, as follows:
-- Net asset value total return against the MSCI World SMID Cap
Index measured on a net sterling adjusted basis;
-- Share price total return;
-- Premium/discount of share price to net asset value per share; and
-- Ongoing charges ratio.
The KPI measures are Alternative Performance Measures ("APM").
Please refer to the APM section and Glossary for definitions of
these terms and an explanation of how they are calculated.
Net asset value total return against the benchmark
The Directors regard the Company's net asset value total return
as being the overall measure of value delivered to shareholders
over the long term. The Investment Manager's investment style is
such that performance is likely to deviate from that of the
benchmark index.
The Company's net asset value per share at 31 December 2021 was
GBP19.61. The net asset value total return for the year to 31
December 2021 was 18.9% and the annualised net asset return for the
period from listing on 19 October 2018 to 31 December 2021 was
23.4%. The Board considers the MSCI World SMID Cap Index measured
on a net, sterling-adjusted basis, to be the most appropriate
comparator to the Company's performance. The returns generated by
the MSCI World SMID Cap Index over the same periods were 17.8% and
13.0% respectively, thus the Company outperformed the benchmark by
1.1 percentage points for the year ended 31 December 2021 and 10.4
percentage points annualised for the period from the Company's
listing to the period end.
A full description of performance during the period under review
is contained in the Investment Manager's Review.
Share price total return
The Directors also regard the Company's share price total return
to be a key indicator of performance.
The share price total return for the year to 31 December 2021
was 18.1% and the annualised share price total return for the
period from listing on 19 October 2018 to 31 December 2021 was
24.5%, outperforming the MSCI World SMID Cap Index reference
benchmark by 0.3 percentage points and 11.5 percentage points
respectively.
Premium/discount of share price to net asset value per share
The Board undertakes a regular review of the level of
premium/discount. During the year the Company's shares have
consistently traded at a premium to net asset value. The Board
seeks to generate value for shareholders through the issuance of
shares at a premium to net asset value. To this end, during the
year to 31 December 2021 the Company issued 30,277,000 million new
ordinary shares generating a premium to net asset value of
approximately GBP6.8 million net of costs. The making and timing of
any share issuance and/or buy-back is at the discretion of the
Board.
As at 31 December 2021, the premium of the Company's share price
to the net asset value per share was 3.0% and the average premium
to net asset value for the year to 31 December 2021 was 2.2%.
The Directors intend to seek renewal at each Annual General
Meeting of their authority to allot shares or to buy back shares
with a view to managing the premium/discount as well as creating
further shareholder value. Shares will only be issued at a premium
to net asset value and bought back at a discount to net asset
value.
If, after the end of the fourth financial year of the Company's
existence (being 31 December 2022) or any subsequent year, the
Company's shares have traded, on average, at a discount in excess
of 10 per cent. of net asset value per share in any such year, the
Directors will consider proposing a special resolution at the
Company's next Annual General Meeting that the Company ceases to
continue in its present form. If such a vote is proposed and
passed, the Board will be required to formulate proposals to be put
to shareholders within four months to wind up or otherwise
reconstruct the Company, having regard to the liquidity of the
Company's underlying assets. Any such proposals may incorporate
arrangements which enable investors who wish to continue to be
exposed to the Company's investment portfolio to maintain some or
all of their existing exposure.
Ongoing charges ratio
The Directors monitor the Company's expenditure at each board
meeting and review the ongoing charges ratio disclosed in the
Interim and Annual Reports. The Directors regard the ongoing
charges ratio as a measure of the regular recurring costs of
running an investment company. Expressed as a percentage of average
net asset value, the annualised ongoing charges ratio for the year
was 1.0% (2020: 1.0%). The Board seeks to manage and where possible
to improve the ongoing charges ratio and to this end the Management
Engagement Committee regularly reviews its service provider fee
rates.
Risk Management
Risk Management
The Board is responsible for the ongoing identification,
evaluation and management of emerging and principal risks faced by
the Company and the Board has established a process for the regular
review of these risks and their mitigation. This process accords
with the UK Corporate Governance Code, the FRC Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting and the AIC Code of Corporate Governance and a
description follows below.
-- The Board maintains and regularly reviews a matrix of risks
faced by the Company and controls in place to mitigate those risks.
The impact and probability of those risks occurring after controls
are performed are charted on a risk heat map and reviewed by the
Board along with a risk appetite statement that reflects the
Board's relative level of risk tolerance and establishes key
triggers necessitating Board management. An annual formal review of
the risk procedures and controls in place at the Investment Manager
and other key service providers is performed. Emerging risks are
actively discussed as part of this process and this should ensure
that emerging (as well as known) risks are adequately identified
and, so far as practicable, mitigated.
The continuing impact from the COVID-19 pandemic and associated
market and outsourcing risks and the ongoing economic impact of
measures introduced to combat its spread continue to be monitored
by the Board. The Investment Manager and other key service
providers gave updates throughout the year on operational
resilience and the Board was satisfied that they continue to have
the ability to operate effectively whether within an office or
remote working environment. The Board and Investment Manager also
continue to monitor the political situation in Ukraine and its
market and economic impact for any potential risks posed to the
Company and portfolio.
-- Eac h Director brings external knowledge of the investment
company sector (and financial services generally), trends, threats
as well as strategic insight;
-- The Investment Manager advises the Board at quarterly Board
meetings on industry trends, providing insight on future challenges
in the markets in which the Company operates/ invests. The
Company's broker regularly reports to the Board on markets, the
investment company sector and the Company's peer group;
-- The company secretary briefs the Board on forthcoming
legislation/regulatory change that might impact on the Company. The
auditor also provides updates which are relevant to the Company;
and
-- The Company is a member of the AIC, which provides regular
technical updates as well as drawing members' attention to
forthcoming industry/regulatory issues and advising on compliance
obligations.
Principal Risks
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 and
liquidity.
1. Investment objective and policy risks
The Company may not achieve its investment objective.
The Company is dependent upon the Investment Manager's
successful implementation of the Company's investment policy and
ultimately on its ability to create an investment portfolio capable
of generating attractive returns.
The Company is not constrained on weightings in any sector or
geography. This may lead to the Company having significant exposure
to portfolio companies from certain business sectors or based in
certain geographies. Greater concentrations of investments in any
one sector or geography may lead to greater volatility in the
Company's investments and may adversely affect performance. This
may be exacerbated by the small number of investments held at any
time.
Mitigation
The Investment Manager has a proven and extensive track record,
and the Board undertakes a review of the performance of the Company
and its transactions at each quarterly Board meeting. The
Investment Manager spreads the investment risk over a portfolio of
investments in accordance with the Company's investment policy, and
at the year end the Company held investments in 31 companies with
details of the geographic and sector weightings given in the
Investment Manager's Review.
2. Market risks
Price movements and stock market conditions may have a negative
impact on the Company's portfolio and its ability to identify and
execute suitable investments that might generate acceptable
returns. Market conditions may also restrict the supply of suitable
investments at a price the Investment Manager considers may
generate acceptable returns.
If conditions (such as those experienced as a consequence of the
COVID-19 pandemic or the current conflict in Ukraine) affecting the
investment market negatively impact the price at which the Company
is able to buy or dispose of its assets, this may have a material
adverse effect on the Company's business and results of
operations.
Interest rate movements may affect the level of income
receivable on cash deposits and the interest payable both by the
Company and by investee companies on their borrowings. In addition,
where the Company invests in high growth investee companies, any
increase in interest rates may compress the growth of such
companies and therefore affect their valuations. As such, interest
rate fluctuations may reduce the Company's returns.
The Company's ordinary shares are denominated in pounds sterling
while the majority of the Company's investments are denominated in
a currency other than pounds sterling. The Company does not hedge
its currency exposures and changes in exchange rates may lead to
depreciation in the Company's net asset value.
Mitigation
The Company's investment policy and the fact that it will not
use hedging instruments to mitigate interest rate or foreign
currency risk is clearly explained in the Owner's Manual (which can
be found on the Company's website at www.smithson.co.uk). The
Investment Manager has a proven and extensive track record and
reports regularly to the Board on market developments. The
Investment Manager's policy is to hold investments for the long
term and not look at market timing issues.
Further details on Market and Financial Instrument risk are
disclosed in note 15 to the financial statements.
3. Outsourcing risks
The Company has outsourced all its operations to third party
service providers. Failure by any service provider to carry out its
obligations in accordance with the terms of its appointment could
result in negative implications for the Company. Such failures
could include cyber breaches or other IT failures, fraud (including
unauthorised payments by the administrator), poor record keeping
and loss of assets and failure to collect all the Company's
dividend income. Cyber incidents are becoming increasingly common
and may cause disruption and impact business operations,
potentially resulting in financial losses, theft, interference with
the ability to calculate the Net Asset Value or additional
operating costs. If the Investment Manager fails to identify risks
or liabilities associated with investee companies adequately, this
could give rise to an investee company not fitting the Company's
investment policy or unexpected losses and adverse performance. The
rapid spread of infectious disease such as the COVID-19 pandemic,
and measures introduced to combat its spread, could cause
disruption to the operations of the Company and its key service
providers.
Mitigation
The Company has appointed experienced service providers, each of
whom has a service agreement, and the performance of the key
service providers is reviewed annually by the Management Engagement
Committee. Cyber risk management questions were incorporated in
this review. The Company's key service providers report
periodically to the Board on their business continuity plans and
procedures. The Board monitors the adequacy of controls in place at
the key service providers and their planned response to an extended
period of disruption, to ensure that the impact to the Company is
limited. Each key service provider was asked to present reports on
their actions and responses, all of which were entirely
satisfactory, and there was no noticeable change in any of the key
services provided. The Board continues to monitor the Company's key
service providers to ensure there is no negative impact on the
Company from the ongoing COVID-19 pandemic control measures.
The procedures of the AIFM, depositary and custodian are
reviewed by their external auditors and such reports made available
to clients. These reports are also reviewed by the Management
Engagement Committee.
4. Key individuals risk
Fundsmith LLP is responsible for managing the Company's
investments. The Investment Manager relies on key individuals to
identify and select investment opportunities and to manage the
day-to-day affairs of the Company. There can be no assurance as to
the continued service of these key individuals at the Investment
Manager, and the departure of any of these from the Investment
Manager without adequate replacement may have a material adverse
effect on the Company's business prospects and results of
operations.
Mitigation
The Investment Manager has a remuneration policy in place
seeking to incentivise key individuals to take a long term view.
Additionally, the Company's key individuals are significantly
invested in the Company, therefore their interests and the
Company's shareholders are more aligned. Finally, the Investment
Manager has plans in place to ensure continuity in the event of the
departure of key individuals.
5. Regulatory risks
The Company benefits from the current exemption for investment
trusts from UK tax on chargeable gains. Any change to HMRC's rules
or the taxation of investee companies could affect the Company's
ability to provide returns to shareholders.
Mitigation
The Investment Manager and the company secretary monitor
proposed changes to tax rules and report to the Board thereon.
Viability Statement
Viability Statement
In accordance with the UK Corporate Governance Code and the
Listing Rules, the Directors have assessed the prospects of the
Company over a longer period than the 12 months required by the
"Going Concern" provision. The Company's investment policy is to
buy good companies, not overpay and then do nothing. The Smithson
Owner's Manual, a copy of which can be found on the Company's
website at www.smithson.co.uk states "We will only invest in the
equity of companies which we believe can compound in value over
many years, if not decades, where we can remain a happy owner, safe
in the knowledge that in 5 to 10 years' time our investment is
likely to be worth significantly more than what we paid for it".
When selecting or reviewing investments, the Investment Manager
evaluates the prospects and risks which could affect investee
companies over at least a 5 to 10 year period with a view to them
being good long term investments capable of generating the
Company's required returns. The Board therefore believes that 10
years is the most appropriate time horizon to adopt for the
Viability Statement.
In reviewing the Company's viability, the Board considered the
Company's business model, the principal risks and uncertainties,
including the issues arising from the COVID-19 pandemic, and its
present and expected financial position. The Company is a closed
end fund which invests in listed or traded global securities which
are inherently liquid. It does not intend to borrow (except in
short term circumstances to manage a discount) nor will it use
derivatives in any hedging operation. It receives dividend income
from its investment portfolio with which it settles its operating
expenses. Any shortfall in income available to settle expenses
could be met by the Company's cash balances or by realising
investments; the Board receives regular reports from the Investment
Manager to confirm the average time to liquidate any investment
position. The Board therefore has substantial options to manage the
Company's ongoing solvency.
The Company benefits from certain tax benefits relating to its
status as an investment trust. Any change to such taxation
arrangements would inevitably affect the attractiveness of an
investment in the Company and consequently its viability as an
effective investment vehicle.
The Directors have assumed that:
-- the Board will not change the Company's investment objective
of providing shareholders with long-term gr owth in value;
-- the performance of the Company will continue to be
satisfactory such that the shareholders will want the Company to
continue in existence. (The Board will consider putting a
continuation vote to shareholders if in any year after 2022 the
Company's share price trades at an average discount of 10% or more
to net asset value); and
-- the Board will continue to manage the Company's business to
ensure it retains its status as an investment trust.
Based on the results of this review, the Directors have formed a
reasonable expectation that the Company will continue in its
operations and meet its expenses and liabilities as they fall due
over the next 10 years.
Non-Financial Information
Section 172 of Companies Act 2006 Statement
During the period under review, the Board discharged its duty
per section 172 of the Companies Act 2006, to promote the success
of the Company for the benefit of its members as a whole and having
regard to the interests of stakeholders. The Board performed its
role as outlined in the schedule of matters reserved for the Board
and taking into account the interests of the key stakeholders
identified in the map below.
Company Culture and Values
Culture
The culture of the Company is set by the Board and is based on
the values set out below. The Board seeks to apply these values in
all its dealings with its stakeholders and encourages the same
values to be adopted by its key service providers.
Values
High Standards
The Directors want to ensure the success of the Company and
generate long term value for its shareholders. To this end the
Board will seek to adopt high standards of corporate governance and
encourage best practice in all its activities. This approach
extends to the Company's dealings with its stakeholders including
shareholders, the Investment Manager and other service
providers.
Honesty and Integrity
The Board seeks to comply with all relevant laws and regulations
which apply to investment companies and has zero tolerance to
bribery and corruption or any other fraudulent behaviour. The Board
further expects the same standards to be applied by its service
providers.
Transparency and accountability
The Board encourages clarity and transparency in its Board
discussions and in communications with its stakeholders. The Board
seeks to work with all service providers in a collaborative manner
while at the same time recognising that the Board's role involves
exercising oversight and challenge. The Board further recognises
that it is accountable to shareholders and will endeavour to give a
fair, balanced and understandable overview of the Company's
performance to this end.
Company Sustainability and Stakeholders
As part of its work to evaluate its principal risks, the Board
identified its key stakeholders which can be summarised as follows:
investors, Investment Manager, other key service providers and
investee companies.
The Board is cognisant of the need to foster the Company's
business relationships with investors, suppliers and other key
stakeholders through its stakeholder management activities as
described below.
Stakeholder Management
Investors
Communications are key to establishing a meaningful relationship
with our shareholders. The Company publishes monthly fact sheets
and reports on its financial performance at the half year and year
end, all of which are available on the Company's website. An
Owners' Manual can be downloaded from the website which provides an
understanding of the Investment Manager's goals and how they are to
be achieved.
The Company raised GBP822 million in its initial public offering
("IPO") in October 2018, which was the largest amount that had been
raised by any investment trust Initial Public Offering ('IPO') on
the London Stock Exchange to that date. Since IPO the Company has
raised a further GBP1,395 million net proceeds from new ordinary
share issues including GBP531 million in the year to 31 December
2021 and a further GBP89.8 million since the year end. The net
premium above net asset value raised from the ordinary share
issues, which is effectively incremental value to the Company and
shareholders, was GBP21.6 million. During the year, the Company's
share price has continued to grow, from GBP17.10 to GBP20.20 at 31
December 2021, a share price total return of 18.1%. At the same
time the Company's shares have continued to attract strong investor
demand and the share price has traded at a premium to net asset
value with an average premium of 2.2% and a premium at the period
end of 3.0%. As a result, under the Company's share issuance
programme during the year, the approximate net premium to NAV on
share issues was GBP6.8 million (GBP21.6 million since IPO). The
Board is seeking to renew its authority to issue shares at the
Company's AGM to continue to create value for shareholders. The
Board is mindful that there should be an active, liquid market in
the Company's shares. As a closed-ended fund listed on the Premium
segment of the main market, shareholders should always be able to
exit through the stock market. The Board recognises the importance
of shareholders being able to sell at a price not disadvantageous
to them and the premium/discount to net asset value at which the
Company's shares trade is monitored at all times.
The Board encourages communications with its Investment Manager
and key service providers to be open and transparent, with all
parties working together in a collaborative manner at the same time
as the Board exercising oversight and challenge (further
information can be found in the Business Review section, describing
the Key Performance Indicators). The Board believes that effective
risk management contributes to the safeguarding of shareholder
value and successful operation of the Company and therefore
assesses and manages, where possible or appropriate, the risks
faced by the Company.
The Company and Investment Manager are seeking to promote an
investor base that is interested in a long-term holding in the
Company. The Board, through the Company's broker and the Investment
Manager, maintains regular contact with shareholders and welcomes
shareholders to attend the first in person AGM since the IPO and
the lifting of COVID-19 restrictions. It is the intention that the
full Board will attend the forthcoming AGM and the Chairman will
chair the meeting. Shareholders have the opportunity to attend the
AGM where they can question the Board and representatives of the
Investment Manager. The Chairs of the Board's committees would also
normally attend the AGM, to engage with shareholders on significant
matters related to their areas of responsibility. However due to
the continuing restrictions on public gatherings at the time of the
Company's AGM in April 2021, shareholders were not able to attend.
Instead, the Board invited questions from shareholders directly to
the Chairman and Investment Manager. Presentations and press
articles with the investment manager were made available through
the Company's website.
In addition, in order to mitigate future restrictions on
meetings, the Board took the decision to propose a resolution that
was passed by Shareholders at the AGM, to allow meetings to be held
as Hybrid meetings, enabling shareholders to participate and engage
with the Board and Investment Manager through virtual technology as
well as in person, which accords with the Board's view that the AGM
is an opportunity to communicate with investors.
The Directors welcome the views of all shareholders and place
considerable importance on maintaining open dialogue with them.
Shareholders wishing to contact the Chairman, or any other member
of the Board, may do so at anytime by writing to the company
secretary. Alternatively, the Chairman can be emailed at the
following address: smithsonchairman@fundsmith.co.uk.
Shareholder feedback is discussed in Board meetings with the
broker and Investment Manager, whether received directly to the
Board or through the Investment Manager and broker's shareholder
meetings and the Board is pleased that the feedback received
remained positive throughout the period. The Board also received a
number of questions on the Company's performance and strategy ahead
of the AGM which were either addressed in the manager's
presentation or responded to directly. The Company's shareholder
engagement strategy and details of shareholder communications can
be found in the Annual Report.
In addition to this, the Investment Manager engages with
shareholders at regular webinars, where questions are received and
answered. The majority of the questions are around the fundamentals
of the investees and whether they continue to be congruent with the
Company's investment philosophy. In all cases it is noted that this
is the case, with specific attention paid towards regular meetings
with the investees' executive management and ensuring that
investment criteria are being met in all areas.
Investment Manager
As explained above, the Company's business model is such that it
has no employees and relies on services provided by third party
service providers to manage the Company's operations. The
Investment Manager is the most significant service provider of the
Company and a description of its role can be found in the Annual
Report.
The Board receives regular reports from the Investment Manager,
discusses the portfolio at each Board meeting as well as
maintaining a constructive dialogue between meetings. Additionally,
the Board held a strategy session in November at which the Board
and Investment Manager discussed in detail the performance of the
Company's portfolio of investments and the investible universe for
the Company. The Board and Investment Manager along with the broker
also discussed at the strategy session the investment trust market
and the Company's position within it, the Company's investment
policy and capacity as well as discussing shareholder engagement
strategies. A representative of the Investment Manager also attends
each quarterly Board meeting and most ad hoc meetings.
The Investment Manager's remuneration is based on the market
capitalisation of the Company which aligns the manager's interests
with those of shareholders. Furthermore, partners and employees of
the Investment Manager are significantly invested in the Company as
disclosed in note 17 of the financial statements; further aligning
the Investment Manager's interests with those of the shareholders.
The Investment Manager paid costs of GBP5.1 million in respect of
the Company's IPO and the Placing Programme prospectus issued in
2020. This means that shareholder's investment was not discounted
by the cost of the IPO and that the Company only gains from its
ordinary share issues, as prospectus costs were met. This is
unusual for investment trusts and is a testament to the
relationship which the Company enjoys with its Investment
Manager.
The Management Engagement Committee reviews the performance of
the Investment Manager, its remuneration and the discharge of its
contractual obligations at least annually. Further detail on the
Committee's activities and recommendations can be found in the
Management Engagement Committee Report.
Other key service providers
In ensuring the smooth operation of the Company, the Board also
monitors the performance of other key service providers such as the
fund administrator, depositary and custodian (please see the
Management Engagement Committee Report) and maintains regular
contact through direct reports at Board meetings or through the
company secretary to ensure there is open dialogue and good
relationship management at the Board level. Additionally, in view
of the operational challenges and restrictions caused by the
COVID-19 pandemic, the Board received (and continues to receive)
regular updates and assurance on the operational effectiveness of
its key service providers, taking this feedback into consideration
when assessing the Company's risks. The Board was pleased to note
there was no significant impact to the Company and its service
providers continued to operate effectively.
In maintaining the Company's reputation and high standards of
business conduct, the Board is provided with regular reports from
the Company's broker and company secretary who alert the Board to
recent and proposed changes in regulation and market practice, as
well as any likely reputational threats which, in turn, influence
the Board's decision making process. The Company's corporate
values, established to manage its business relationship with its
stakeholders, are stated above and the Company's approach on
anti-bribery and prevention of tax evasion can be found below and
on the Company's website at www.smithson.co.uk. The Board also
seeks assurance of high standards from its service providers as
regards governance including whistleblowing, tax evasion, and
bribery as part of its service provider annual review. The Board
also periodically reviews the market rates for services provided,
to ensure that the Company continues to receive high quality
service at a competitive cost and during the year secured a
reduction in the brokerage charges relating to new issues of
shares. This will increase the net premium arising on all new share
issues to the benefit of shareholders. Additionally, the Board has
agreed with Northern Trust further revisions to the fee rates
agreed in 2020 to the benefit of the Company in respect of the
depositary, custody and administration services received, effective
1 January 2022.
Investee companies
As an investment trust with no trading activity and an
outsourced business model, the Company has no direct social,
community or environment responsibilities. However, the Company
does have such responsibilities through its investment portfolio.
The Company is a long-term investor (please see Owner's Manual at
the Company's website at www.smithson.co.uk) and the Investment
Manager's Review sets out how the Investment Manager considers ESG
matters and explains and summarises their approach and engagement
with investee companies. Fundsmith are signatories of the United
Nations Principles for Responsible Investment and their ESG
approach is overseen by the Fundsmith Stewardship and
Sustainability Committee, on which the Company's manager, Simon
Barnard, sits. The Board is satisfied that the Investment Manager
is actively managing ESG risks and is diligent in its stewardship
responsibilities.
The Company recognises the increased interest in reporting on
ESG matters and supports the Association of Investment Companies
("AIC") initiative to provide information on investment companies'
ESG practices in a centralised database and accordingly has
submitted its own commentary in that regard and shareholders can
access the statement on the Company's information page of the AIC
website (www.theaic.co.uk) and on the Company's website at
www.smithson.co.uk.
Conclusion
The Board is mindful of the directors' duties as described by
section 172 of the Companies Act 2006 in considering the interests
of stakeholders when deliberating all important decisions.
Dividend Policy
The Company's intention is to look for overall return rather
than seeking any particular level of dividend. The Company will
comply with the investment trust rules regarding distributable
income which states that 85% of recognised income be distributed to
shareholders, but does not expect significant income from the
shares in which it invests.
Any dividends and distributions will be at the discretion of the
Board. Subject to the Companies Act, the Company may, by ordinary
resolution, declare a final dividend to be paid to members of the
Company according to their rights and interests in the profits of
the Company available for distribution, but no dividend shall be
declared in excess of the amount recommended by the Board. The
Company does not intend to pay any interim dividends.
Were the Company to be in a position to pay a dividend, then it
may, subject to complying with all relevant criteria and with the
approval of the shareholders by ordinary resolution, choose to
offer shareholders a scrip dividend alternative or may establish a
scrip dividend scheme that would allow shareholders to receive
ordinary shares instead of a cash dividend.
Environmental Matters
The Company is an investment company. As such, it does not have
any physical assets, property, employees or operations of its own.
The Company does not provide goods or services in the normal course
of its business and nor does it have customers. In consequence, the
Company has no greenhouse gas emissions to report from its
operations. As the Company has no material operations and therefore
has little energy use, it falls below the 40,000kWh of energy use
threshold for reporting under the Companies (Directors' Report) and
Limited Liability Partnership (Energy and Carbon Report)
Regulations 2018 or Streamlined Energy and Carbon Reporting
criteria. The Investment Manager evaluates environmental matters
concerning investee companies as summarised in the Investment
Manager's Review.
Exercise of Voting Powers and Stewardship Code
The Company and the Investment Manager support the UK
Stewardship Code issued by the Financial Reporting Council. Voting
on investee company shareholder resolutions is undertaken by the
Investment Manager. A copy of Fundsmith's Stewardship Policy, its
Proxy Voting Policy and a report on its voting at investee
shareholder meetings in 2020 and the first half of 2021 can be
found on the Company's website at www.smithson.co.uk.
Modern Slavery Disclosure
Due to the nature of the Company's business, being a company
that does not offer goods or services to customers, the Board
considers there are no relevant disclosures with regard to the
Modern Slavery Act 2015 in relation to the Company's own
operations. The Board considers the Company's supply chains,
dealing predominately with professional advisers and service
providers in the financial services industry, to be low risk in
this regard.
Anti-bribery and Corruption
The Company takes a zero-tolerance approach to bribery and
corruption and is committed to acting professionally, fairly and
with integrity in all its business dealings and relationships
wherever it operates. The Company's policy and the procedures that
implement it are designed to support that commitment. A summary of
the Company's anti-bribery and corruption policy can be found on
the Company's website at www.smithson.co.uk.
Prevention of the Facilitation of Tax Evasion
In response to the Criminal Finances Act 2017, the Board has
adopted a zero-tolerance approach to the criminal facilitation of
tax evasion. A summary of the Company's policy can be found on the
Company's website at www.smithson.co.uk.
Employees, Human Rights and Community Issues
The Board recognises the requirement to provide information
about employees, human rights and community issues. As the Company
has no employees, all its Directors are non-executive and all its
functions are outsourced, there are no disclosures to be made in
respect of employees, human rights and community issues. As at the
date of this report the Company had three Directors, of whom two
are male and one is female. The Board's policy on diversity is
contained in the Corporate Governance Report of the Annual
Report.
Strategic Report
The Strategic Report set out in the Annual Report was approved
by the Board of Directors on the 14 March 2022.
On behalf of the Board
Diana Dyer Bartlett
Chairman
14 March 2022
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and 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 the Directors
have elected to prepare the financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and International Financial
Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board (IASB). 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 the profit or loss of the Company for that year. In
preparing these financial statements, International Accounting
Standard 1 require that the Directors have:
-- selected suitable accounting policies and then applied them consistently;
-- made judgements and accounting estimates that are reasonable and prudent;
-- presented information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provided additional disclosures when compliance with the
specific requirements in IFRS were insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and financial
performance; and
-- prepared the financial statements on a going concern basis.
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 also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The financial statements are published on the Company's website
at www.smithson.co.uk. The Investment Manager has delegated
authority for the maintenance and integrity of the website on
behalf of the Company. The work carried out by the auditor does not
involve consideration of the maintenance and integrity of the
website and, accordingly, the auditor accepts no responsibility for
any changes that have occurred to the financial statements since
they were initially presented on the website. Visitors to the
website need to be aware that legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors consider that the Annual Report, 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.
Each of the Directors confirm that, to the best of their
knowledge:
-- the financial statements, which have been prepared in
accordance with applicable accounting standards, give a true and
fair view of the assets, liabilities, financial position and net
return of the Company for the year ended 31 December 2021; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces .
On behalf of the Board
Diana Dyer Bartlett
Chairman
14 March 2022
Independent Auditor's Report
Report on the audit of the financial statements
1. Opinion In our opinion the financial statements of Smithson
Investment Trust plc (the 'company'):
* give a true and fair view of the state of the
company's affairs as at 31 December 2021 and of its
profit for the year then ended;
* have been properly prepared in accordance with United
Kingdom adopted international accounting standards
and International Financial Reporting Standards
(IFRSs) as issued by the International Accounting
Standards Board (IASB); and
* have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
* the S tatement of Comprehensive Income;
* the Statement of Financial Position;
* the Statement of Changes in Equity;
* the Statement of Cash Flows; and
-- the related notes 1 to 18.
The financial reporting framework that has been applied in their
preparation is applicable law, United Kingdom adopted international
accounting standards and IFRSs as issued by the IASB.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We confirm that we have not
provided any non-audit services prohibited by the FRC's Ethical
Standard to the company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matter that we identified in
the current year was:
* Valuation and ownership of Investments
Within this report, key audit matters are
identified as follows:
* Newly identified
* Increased level of risk
* Similar level of risk
* Decreased level of risk
------------------- -------------------------------------------------
Materiality The materiality that we used in the current
year was GBP33.6m which was determined on
the basis of 1% of net assets as at 31 December
2021.
------------------- -------------------------------------------------
Scoping Audit work to respond to the risks of material
misstatement are performed directly by the
audit engagement team.
------------------- -------------------------------------------------
Significant changes There were no significant changes in our approach
in in the current year.
our approach
------------------- -------------------------------------------------
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors' assessment of the company's
ability to continue to adopt the going concern basis of accounting
included:
-- Obtaining an understanding of relevant controls in place in
preparing the revenue projections;
-- Asses sing liquidity and the ability of the Managers to trade
in the investment portfolio (within the normal spreads) in order to
cover operational expenditure as it falls due;
-- Assessing management's revenue account projections for the
subsequent 12 month period from the date of signing the financial
statements (from March 2022) for reasonableness;
-- Assessing any other market altering factors such as COVID-19
by looking at the operational impact and business continuity plans;
and
-- Assessing the going concern disclosures included within the financial statements.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
company's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
In relation to the reporting on how the company has applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors' statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
5.1. Valuation and ownership of Investments
Key audit matter description As an investment entity, the Company holds
investments of GBP3,339m as at 31 December
2021 (2020: GBP2,280m) which has increased
by 46% from the prior year. These represent
the most quantitatively significant financial
statement line on the statement of financial
position.
There is a risk that investments may not
be valued correctly or may not represent
the property of the company. This may result
in a material misstatement within the investments
held at fair value through profit or loss.
Investments are valued by the fund administrator
on behalf of the company.
Refer to note 1f to the financial statements
for the accounting policy on investments
and details of the investments are disclosed
in note 9 to the financial statements.
The valuation and ownership of investments
is included in the Audit Committee report
as a significant reporting matter in the
Annual Report.
---------------------------- ------------------------------------------------------------
How the scope of our We performed the following procedures to
audit responded to the address the valuation and ownership of
key audit matter investments key audit matter:
* We assessed the service auditor report of the
administrator to obtain an understanding of the
relevant controls over the valuation and ownership of
investments and adopt a controls reliance approach ov
er investment valuation.
* We independently valued 100% of the investment
portfolio to the closing bid prices published by an
independent pricing source.
* We confirmed the ownership of 100% of investments at
the year-end date by obtaining independent third
party confirmations directly from the custodian.
In addition, we performed the following
procedures to address whether the investment
portfolio was actively traded and designated
with the correct fair value hierarchy:
* We identified investments that were not actively
traded and considered indicators of impairment;
* We assessed the post year-end volume of trade data,
the number ofdays where no trades occurred and also
the bid-ask spreads on investment holdings that were
not traded out within 10 business days from the year
end; and
* We tested the completeness and accuracy of
disclosures in relation to fair value measurements
and liquidity risk.
---------------------------- ------------------------------------------------------------
Key observations Based on the work performed we concluded
that the valuation and ownership of investments
is appropriate.
---------------------------- ------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality GBP33.6m (2020: GBP23.3m)
--------------------------- ---------------------------------------------
Basis for determining 1% (2020: 1%) of net assets
materiality
--------------------------- ---------------------------------------------
Rationale for the benchmark Net assets has been chosen as a benchmark
applied as it is the most relevant benchmark for
investors and is a key driver of shareholder
value. The increase in materiality year
on year arose principally from the increase
in the company's net assets.
--------------------------- ---------------------------------------------
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was set at 65% of
materiality for the 2021 audit (2020: 65%). In determining
performance materiality, we considered the following factors:
a. no significant changes in business structure and operations;
b. our experience from previous audits has indicated a low number of corrected and uncorrected misstatements identified in prior periods; and
c. the inherent risk in the Company's operating environment
caused by the uncertainty and volatility brought about by the
COVID-19 pandemic.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP0.67m (2020:
GBP0.47m), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also report to
the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the
Company and its environment, including internal control and
assessing the risks of material misstatement. Audit work to respond
to the risks of material misstatement was performed directly by the
audit engagement team.
7.2. Our consideration of the control environment
As part of our risk assessment, we assessed the control
environment in place at the fund administrator, Northern Trust to
the extent relevant to our audit. As part of this we relied upon
the controls report of the administrator and adopted a controls
reliance approach with respect to the valuation of investments.
7.3. Our consideration of climate related risks
In planning our audit, we have considered the potential impact
of climate change on the Company's business and its financial
statements. The Company continues to develop its assessment of the
potential impacts of environmental, social and governance ("ESG")
related risks, including climate change, as outlined in the Annual
Report. As a part of our audit, we held discussions to understand
the process of identifying climate-related risks, the determination
of mitigating actions and the impact on the Company's financial
statements. We performed our own qualitative risk assessment of the
potential impact of climate change on the Company's account
balances and classes of transactions and did not identify any
additional risks of material misstatement.
8. Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
11.1. Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the na ture of the industry and sector, control environment
and business performance including the design of the company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- results of our enquiries of management and the audit
committee about their own identification and assessment of the
risks of irregularities;
-- any matters we identified having obtained and reviewed the
company's documentation of their policies and procedures relating
to:
-- identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
-- detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
-- the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team
regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the valuation and
ownership of investments. In common with all audits under ISAs
(UK), we are also required to perform specific procedures to
respond to the risk of management override.
We also obtained an understanding of the legal and regulatory
framework that the company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the UK Companies Act, Listing Rules and tax
legislation given the company's qualification as an Investment
Trust.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
company's ability to operate or to avoid a material penalty.
11.2. Audit response to risks identified
As a result of performing the above, we identified the valuation
and ownership of investments as key audit matter related to the
potential risk of fraud. The key audit matters section of our
report explains the matter in more detail and also describes the
specific procedures we performed in response to the key audit
matter.
In addition to the above, our procedures to respond to risks
identified included the following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess complia nce with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management and the audit committee concerning
actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance,
reviewing internal audit reports and reviewing correspondence with
HMRC and the FCA; and
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members, and
remained alert to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act
2006
In our opinion the part of the directors' remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements .
In the light of the knowledge and understanding of the company
and its environment obtained in the course of the audit, we have
not identified any material misstatements in the strategic report
or the directors' report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
-- the directors' statement with regards to the appropriateness
of adopting the going concern basis of accounting and any material
uncertainties identified set out in the Annual Report;
-- the directors' explanation as to its assessment of the
company's prospects, the period this assessment covers and why the
period is appropriate set out in the Annual Report;
-- the directors' statement on fair, balanced and understandable
set out in the Annual Report;
-- the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out in the
Annual Report;
-- the section of the annual report that describes the review of
effectiveness of risk management and
internal control systems set out in the Annual Report ; and
-- the section describing the work of the audit committee set out in the Annual Report.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting
records
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- we ha ve not received all the information and explanations we require for our audit; or
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the financial statements are not in agreement with the
accounting records and returns. We have nothing to report in
respect of these matters.
14.2. Directors' remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors' remuneration have
not been made or the part of the directors' remuneration report to
be audited is not in agreement with the accounting records and
returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit committee, we were
re-appointed by the Board on 24 July 2019 to audit the financial
statements for the year ending 31 December 2019 and subsequent
financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 3
years, covering the years ending 31 December 2019 to 31 December
2021.
15.2. Consistency of the audit report with the additional report
to the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Chris Hunter CA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Edinburgh, United Kingdom
14 March 2022
Statement of Comprehensive Income
For the year ended For the year ended
31 December 2021 31 December 2020
--------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ----- -------- ------- -------- -------- ------- --------
Income from investments
held at fair
value through profit
or loss 2 21,638 - 21,638 16,054 - 16,054
Gains on investments
held at fair value
through profit or
loss 9 - 513,312 513,312 - 500,734 500,734
Foreign exchange gains/(losses) (25) (565) (590) 15 (785) (770)
Investment management
fees 4 (25,884) - (25,884) (16,148) - (16,148)
Other expenses and
transaction costs 5 (1,583) (639) (2,222) (1,402) (584) (1,986)
-------------------------------- ----- -------- ------- -------- -------- ------- --------
Profit/(loss) before
tax (5,854) 512,108 506,254 (1,481) 499,365 497,884
-------------------------------- ----- -------- ------- -------- -------- ------- --------
Tax 6 (2,540) - (2,540) (1,388) - (1,388)
-------------------------------- ----- -------- ------- -------- -------- ------- --------
Profit/(loss) for
the year (8,394) 512,108 503,714 (2,869) 499,365 496,496
-------------------------------- ----- -------- ------- -------- -------- ------- --------
Return/(loss) per
share (basic and diluted)
(p) 7 (5.27) 321.50 316.23 (2.29) 399.28 396.99
-------------------------------- ----- -------- ------- -------- -------- ------- --------
The Company does not have any income or expenses which are not
included in the profit for the year.
All of the profit and total comprehensive income for the year is
attributable to the owners of the Company.
The "Total" column of this statement represents the Company's
Income Statement, prepared in accordance with International
Financial Reporting Standards (IFRS). The "Revenue" and "Capital"
columns are supplementary to this and are prepared under guidance
published by the Association of Investment Companies (AIC).
All items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of these financial
statements.
Statement of Financial Position
As at As at
31 December 31 December
2021 2020
Notes GBP'000 GBP'000
------------------------------------------- ----- ------------ ------------
Non-current assets
Investments held at fair value through
profit or loss 9 3,339,150 2,279,938
------------------------------------------- ----- ------------ ------------
Current assets
Receivables 10 1,203 6,432
Cash and cash equivalents 32,081 50,046
------------------------------------------- ----- ------------ ------------
33,284 56,478
------------------------------------------- ----- ------------ ------------
Total assets 3,372,434 2,336,416
------------------------------------------- ----- ------------ ------------
Current liabilities
Trade and other payables 11 (5,364) (4,466)
------------------------------------------- ----- ------------ ------------
Total assets less current liabilities 3,367,070 2,331,950
------------------------------------------- ----- ------------ ------------
Equity attributable to equity shareholders
Share capital 12 1,717 1,414
Share premium 13 2,126,997 1,595,894
Capital reserve 1,249,362 737,254
Revenue reserve (11,006) (2,612)
------------------------------------------- ----- ------------ ------------
Total equity 3,367,070 2,331,950
------------------------------------------- ----- ------------ ------------
Net asset value per share (p) 14 1,961.0 1,648.9
------------------------------------------- ----- ------------ ------------
The financial statements were approved by the Board on 14 March
2022 and were signed on its behalf by:
Diana Dyer Bartlett
Chairman
The accompanying notes are an integral part of these financial
statements.
Smithson Investment Trust plc - Company Registration Number
11517636 (Registered in England and Wales)
Statement of Changes in Equity
For the year ended 31 December 2021
Share Share Capital* Revenue*
Capital Premium Reserve Reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----- -------- --------- --------- -------- ---------
Balance at 1 January
2021 1,414 1,595,894 737,254 (2,612) 2,331,950
Issue of new shares
on secondary market 303 533,918 - - 534,221
Costs on new share issues
on secondary market - (2,815) - - (2,815)
Profit/(loss) for the
year - - 512,108 (8,394) 503,714
-------------------------- ----- -------- --------- --------- -------- ---------
Balance at 31 December
2021 12 1,717 2,126,997 1,249,362 (11,006) 3,367,070
-------------------------- ----- -------- --------- --------- -------- ---------
For the year ended 31 December 2020
Share Share Capital* Revenue*
Capital Premium Reserve Reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----- -------- --------- -------- -------- ---------
Balance at 1 January
2020 1,145 1,198,014 237,889 257 1,437,305
Issue of new shares
on secondary market 269 399,880 - - 400,149
Costs on new share issues
on secondary market - (2,000) - - (2,000)
Profit/(loss) for the
year - - 499,365 (2,869) 496,496
-------------------------- ----- -------- --------- -------- -------- ---------
Balance at 31 December
2020 12 1,414 1,595,894 737,254 (2,612) 2,331,950
-------------------------- ----- -------- --------- -------- -------- ---------
* Distributable reserve.
The accompanying notes are an integral part of these financial
statements.
Statement of Cash Flows
For the year For the year
to to
31 December 31 December
2021 2020
Notes GBP'000 GBP'000
--------------------------------------------- ----- ------------ ------------
Operating activities
Profit before tax 506,254 497,884
Adjustments for:
Gains on investments held at fair value
through profit or loss 9 (513,312) (500,734)
Decrease/(increase) in receivables 592 (484)
Increase in payables 751 771
Overseas taxation paid 6 (2,705) (1,665)
--------------------------------------------- ----- ------------ ------------
Net cash used in operating activities (8,420) (4,228)
--------------------------------------------- ----- ------------ ------------
Investing activities
Purchases of investments 9,11 (673,005) (575,004)
Sale of investments 9 127,272 203,569
--------------------------------------------- ----- ------------ ------------
Net cash used in investing activities (545,733) (371,435)
--------------------------------------------- ----- ------------ ------------
Financing activities
Proceeds from issue of new shares 539,023 396,131
Issue costs relating to new shares (2,835) (1,980)
--------------------------------------------- ----- ------------ ------------
Net cash generated from financing activities 536,188 394,151
--------------------------------------------- ----- ------------ ------------
Net (decrease)/increase in cash and
cash equivalents (17,965) 18,488
Cash and cash equivalents at start of
the year 50,046 31,558
--------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of
the year 15 32,081 50,046
--------------------------------------------- ----- ------------ ------------
Comprised of:
Cash at bank 32,081 50,046
--------------------------------------------- ----- ------------ ------------
Dividends and interest received in cash during the year amounted
to GBP22,197,000 and GBPnil (2020: GBP15,777,000 and GBPnil),
respectively.
The accompanying notes are an integral part of these financial
statements.
Notes to the Financial Statements
1. Accounting policies
Smithson Investment Trust plc is a company incorporated on 14
August 2018 in the United Kingdom under the Companies Act 2006.
The financial statements of the Company have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards (IFRSs) as issued by the
International Accounting Standards Board (IASB).
(a) Accounting convention
The financial statements have been prepared under the historical
cost convention (modified to include investments at fair value
through profit or loss) on a going concern basis and in accordance
with UK-adopted international accounting standards in conformity
with the requirements of the Companies Act 2006 and IFRSs as issued
by the International Accounting Standards Board (IASB) and with the
Statement of Recommended Practice ("SORP") 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' issued by
the Association of Investment Companies ("AIC") in November 2014
(and updated in April 2021). They have also been prepared on the
assumption that approval as an investment trust will continue to be
granted. The Directors believe that it is appropriate to continue
to adopt the going concern basis for preparing the financial
statements for the reasons stated in the Annual Report. The Company
is a UK listed company with a predominantly UK shareholder base.
The results and the financial position of the Company are expressed
in sterling, which is the functional and presentational currency of
the Company. The accounting policies have been disclosed
consistently and in line with Companies Act 2006.
(b) Critical accounting judgements and sources of estimation
uncertainty
The Board confirms that no significant accounting judgements or
estimates have been applied to the financial statements and
therefore there is not a significant risk of a material adjustment
to the carrying amounts of assets and liabilities within the next
financial year.
(c) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust
company, and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive Income.
The net revenue is the measure the Directors believe appropriate in
assessing the Company's compliance with certain requirements set
out in section 1158 of the Corporation Tax Act 2010.
(d) Income
Income from investments (other than capital dividends),
including taxes deducted at source, is included in revenue by
reference to the date on which the investment is quoted
ex-dividend, or where no ex-dividend date is quoted, when the
Company's right to receive payment is established. Special
dividends are credited to capital or revenue, according to the
circumstances.
Interest receivable and payable is recognised on an accruals
basis.
(e) Expenses
All expenses, other than those of a capital nature, are charged
to the revenue account. Expenses of a capital nature are charged to
the capital account. Revenue and capital expenses are recognised on
an accruals basis.
(f) Investments
Investments have been designated upon initial recognition at
fair value through profit or loss. Investments are recognised and
de-recognised at trade date where a purchase or sale is under a
contract whose terms require delivery within the time frame
established by the market concerned, and are initially measured at
fair value. Subsequent to initial recognition, investments are
valued at fair value. For listed investments, this is deemed to be
bid market price. Gains and losses arising from changes in fair
value are included in net profit or loss for the year as a capital
item in the Statement of Comprehensive Income and are ultimately
recognised in the capital reserve.
Transaction costs incurred on the purchase and disposal of
investments are recognised as a capital item in the Statement of
Comprehensive Income.
The Company derecognises a financial asset only when the
contractual right to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity. On
derecognition of a financial asset, the difference between the
asset's carrying amount and the sum of the consideration received
and receivable and the cumulative gain or loss that had been
accumulated in equity is recognised in capital on the Statement of
Comprehensive Income.
(g) Foreign currencies
Monetary assets and liabilities denominated in foreign
currencies are translated into sterling at rates of exchange ruling
at the date of the Statement of Financial Position or at the
related forward contract rate. Transactions in foreign currency are
converted to sterling at the rate ruling at the date of the
transaction. Differences in the sterling equivalent value arising
between the transaction date and the settlement or payment date are
included as exchange gains or losses in the capital account or the
revenue account depending on whether the underlying transaction is
of a capital or revenue nature.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash and demand deposits
which are readily convertible to a known amount of cash and are
subject to insignificant risk of changes in value.
(i) Equity dividends
Interim dividends are recognised in the period in which they are
paid. Final dividends are not recognised until approved by
shareholders in the Annual General Meeting.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest
and are short term in nature and are accordingly stated at their
amortised cost, which is the same as fair value.
Financial assets held at amortised cost are reviewed for
impairment using the credit loss model. Given the nature of the
Company's short-term receivables, no credit losses have occurred to
date and no credit losses are currently expected to occur in the
future.
(k) Nature and purpose of reserves
Share capital
This represents nominal value of the issued share capital.
Share premium account
This account represents share premium that arose on the issue of
new shares.
Capital reserve
This reserve reflects any:
-- gains or losses on the disposal of investments
-- foreign exchange gains and losses of a capital nature;
-- the increases and decreases in the fair value of investments
which have been recognised in the capital account; and
-- expenses which are capital in nature.
The capital reserve may be distributed by way of dividends.
However, any gains in the fair value of investments that are not
readily convertible to cash are treated as unrealised gains in the
capital reserve and are non-distributable.
Revenue reserve
This reserve reflects all income and expenditure recognised in
the revenue account and is distributable by way of dividend.
(l) Taxation
The charge for taxation is based upon the revenue for the year
and is allocated according to the marginal basis between revenue
and capital using the Company's effective rate of corporation tax
for the accounting year.
Deferred taxation is recognised in respect of all timing
differences that have originated, but not reversed, relating to
transactions or events that result in an obligation to pay more or
a right to pay less tax in future, that have occurred at the
Statement of Financial Position date. Deferred tax is measured on
an undiscounted basis and based on enacted tax rates. This is
subject to deferred tax assets only being recognised if it is
considered more likely than not that there will be suitable profits
from which the future reversal of the underlying temporary
differences can be deducted. Timing differences are differences
arising between the Company's taxable profits and its results as
stated in the financial statements which are capable of reversal in
one or more subsequent periods. Due to the Company's status as an
investment trust company, and the intention to continue meeting the
conditions required to obtain approval in the foreseeable future,
the Company has not provided deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
(m) Adoption of new and revised standards
At the date of authorisation of these financial statements the
following standards and amendments to standards, which have not
been applied in these financial statements, were in issue, but not
yet effective.
-- IFRS 17 , 'Insurance contracts' (effective for accounting
periods beginning on or after 1 January 2023).
-- Amendments to IAS1 'Classification of liabilities as current
or non-current' (effective for accounting periods beginning on or
after 1 January 2023).
-- Amendments to IAS 8 'Definition of Accounting Estimates'
(effective for accounting periods on or after 1 January 2023).
-- Amendments to IAS 1 and IFRS Practice Statement 2 'Disclosure
of Accounting Policies' (effective for accounting periods on or
after 1 January 2023).
-- Amendments to IAS 12 'Deferred Tax related to Assets and
Liabilities arising from a Single Transaction' (effective for
accounting periods on or after 1 January 2023).
The Company does not believe that there will be a material
impact on the financial statements or the amounts reported from the
adoption of these standards.
In the current financial year the Company has applied the
following amendments to standards:
IFRS 9, IAS 39, IFRS 7, IFRS 16 and IFRS 4: Interest Rate
Benchmark Reform - phase 2 (amended) (effective for accounting
periods beginning on or after 1 January 2021).
There is no material impact on the financial statements or the
amounts reported from the adoption of these amendments to the
standards.
2. Dividend income
2021 2020
GBP'000 GBP'000
----------------------------- ------- -------
UK dividends 7,119 3,544
Overseas dividends 14,232 12,510
Overseas dividends - special 287 -
----------------------------- ------- -------
Total 21,638 16,054
----------------------------- ------- -------
3. Segmental reporting
The Directors are of the opinion that the Company is engaged in
a single segment of business being the investment business. The
Company's objective is to be an investment for investors seeking
increasing capital growth and income over the long term. The
accounting policies of the operating segment, which operates in the
UK, are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on
total profit before tax, which is shown in the Statement of
Comprehensive Income. A geographical split of the portfolio can be
seen in the Strategic Report.
4. Investment management fee
2021 2020
GBP'000 GBP'000
-------------------------- ------- -------
Investment management fee 25,884 16,148
-------------------------- ------- -------
As at 31 December 2021, an amount of GBP2,576,000 (2020:
GBP1,768,000) was payable to the Investment Manager. Details of the
terms of the Investment Management Agreement are provided in the
Annual Report.
5. Other expenses
2021 2020
------------------------- -------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------- ------- ------- ------- ------- -------
Transaction costs on
investments held at fair
value
through profit or loss - 639 639 - 584 584
Directors' fees 120 - 120 84 - 84
Employer national insurance
contributions 5 - 5 8 - 8
Auditor fees in relation
to audit 36 - 36 36 - 36
Tax compliance fee 20 - 20 23 - 23
Registrar fees 40 - 40 40 - 40
Broker fees 40 - 40 34 - 34
Company secretarial fees 117 - 117 132 - 132
Custody fees 338 - 338 205 - 205
Depositary fees 233 - 233 280 - 280
Postage and printing 28 - 28 59 - 59
Legal fees 25 - 25 39 - 39
Fund administration fees 344 - 344 411 - 411
Other expenses* 237 - 237 51 - 51
---------------------------- ------- ------- ------- ------- ------- -------
Total Expenses 1,583 639 2,222 1,402 584 1,986
---------------------------- ------- ------- ------- ------- ------- -------
* Other expenses include VAT of GBP56,000 as a net debit amount
(2020: GBP80,000 net credit), which includes GBP181,000 recovered
in relation to 2021. (2020: GBP109,000 recovered in relation to
2019).
Transaction costs on fair value through profit or loss
investments represent such costs incurred on both purchases and
sales of those investments. Transaction costs on purchases amounted
to GBP593,000 (2020: GBP509,000) and on sales amounted to GBP46,000
(2020: GBP75,000).
No non-audit fees were paid during the year to Deloitte LLP by
the Company (2020: nil).
6. Taxation
(a) Analysis of tax charge in the year
2021 2020
------------------------- -------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ------- ------- ------- ------- ------- -------
Taxation on ordinary
activities
Irrecoverable overseas
withholding tax 2,540 - 2,540 1,388 - 1,388
----------------------- ------- ------- ------- ------- ------- -------
Total tax 2,540 - 2,540 1,388 - 1,388
----------------------- ------- ------- ------- ------- ------- -------
(b) The tax charge for the year is lower than the standard rate
of corporation tax in the UK of 19%. The differences are explained
below:
2021 2020
--------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------- -------- -------- ------- -------- --------
Profit/(loss) before tax (5,854) 512,108 506,254 (1,481) 499,365 497,884
------------------------------ ------- -------- -------- ------- -------- --------
Corporation tax at standard
rate of 19% (1,112) 97,301 96,189 (281) 94,879 94,598
Effects of non taxable
items:
UK dividends (1,353) - (1,353) (673) - (673)
Overseas dividends (2,759) - (2,759) (2,377) - (2,377)
Net gains on investments
held at fair value through
profit or loss - (97,529) (97,529) - (95,139) (95,139)
Expenses and foreign exchange
losses/(gains) 5 228 233 (4) 260 256
Deferred tax asset not
recognised 5,219 - 5,219 3,335 - 3,335
Total corporation tax - - - - - -
Irrecoverable overseas
withholding tax 2,540 - 2,540 1,388 - 1,388
------------------------------ ------- -------- -------- ------- -------- --------
Total tax 2,540 - 2,540 1,388 - 1,388
------------------------------ ------- -------- -------- ------- -------- --------
As at 31 December 2021, the Company had unrecognised tax losses
of GBP58.9 million (2020: GBP31.4 million) carried forward. Due to
the Company's status as an investment trust and the intention to
continue to meet the conditions required to obtain approval in the
foreseeable future, the Company has not provided deferred tax on
capital gains and losses arising on the revaluation or disposal of
investments.
7. Return per share
Return per ordinary share is as follows:
2021 2020
------------------------- -------------------------
Revenue Capital Total Revenue Capital Total
----------------------------- ------- ------- ------- ------- ------- -------
Profit / (loss) for the
year (GBP'000) (8,394) 512,108 503,714 (2,869) 499,365 496,496
Return / (loss) per ordinary
share (p) (5.27) 321.50 316.23 (2.29) 399.28 396.99
----------------------------- ------- ------- ------- ------- ------- -------
Return per share is calculated based on returns for the year and
the weighted average number of 159,284,761 ordinary shares in issue
from 1 January 2021 to 31 December 2021. (2020: 125,066,574)
8. Dividends
There are no dividends proposed, declared or payable for the
year (2020: nil).
9. Investments held at fair value through profit or loss
All investments are designated as fair value through profit or
loss on initial recognition, therefore all gains and losses arise
on investments designated as fair value through profit or loss.
2021 2020
As at 31 December GBP'000 GBP'000
--------------------------------------- --------- ---------
Opening book cost 1,581,420 1,158,602
Opening investment holding gains 698,518 247,069
--------------------------------------- --------- ---------
Opening fair value at 1 January 2,279,938 1,405,671
Purchases at cost 673,172 577,102
Sales - proceeds (127,272) (203,569)
Gains on investments 513,312 500,734
--------------------------------------- --------- ---------
Closing fair value at 31 December 3,339,150 2,279,938
--------------------------------------- --------- ---------
Closing book cost at 31 December 2,162,638 1,581,420
Closing unrealised gain at 31 December 1,176,512 698,518
--------------------------------------- --------- ---------
Valuation at 31 December 3,339,150 2,279,938
--------------------------------------- --------- ---------
The Company received GBP127,272,000 (2020: GBP203,569,000)
excluding transaction costs from investments sold in the year. The
book cost of the investments when they were purchased was
GBP92,593,000 (2020: GBP154,868,000) excluding transaction costs.
These investments have been revalued over time until they were sold
and unrealised gains/losses were included in the fair value of the
investments.
All investments are listed.
Fair value of financial instruments
Under IFRS 13 'Fair Value Measurement' an entity is required to
classify investments using a fair value hierarchy that reflects the
significance of the inputs used in making the measurement
decision.
The following shows the analysis of financial assets recognised
at fair value based on:
-- Lev el 1 - quoted prices in active markets for identical instruments.
-- Level 2 - other significant observable inputs (including
quoted prices for similar investments, interest rates, prepayments,
credit risk, etc.).
-- Level 3 - significant unobservable inputs (including the
Company's own assumptions in determining the fair value of
investments).
Fair value measurements recognised in the Statement of Financial
Position
2021
--------------------------------------
Level 1 Level 2 Level 3 Total
As at 31 December GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- --------- ------- ------- ---------
Investments held at fair value through
profit or loss 3,339,150 - - 3,339,150
--------------------------------------- --------- ------- ------- ---------
Total 3,339,150 - - 3,339,150
--------------------------------------- --------- ------- ------- ---------
2020
--------------------------------------
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- --------- ------- ------- ---------
Investments held at fair value through
profit or loss 2,279,938 - - 2,279,938
--------------------------------------- --------- ------- ------- ---------
Total 2,279,938 - - 2,279,938
--------------------------------------- --------- ------- ------- ---------
10. Receivables
2021 2020
As at 31 December GBP'000 GBP'000
------------------------- ------- -------
Accrued income 247 806
Share issue proceeds - 4,802
Overseas tax recoverable 896 731
Other receivables 60 93
------------------------- ------- -------
1,203 6,432
------------------------- ------- -------
The above receivables do not carry any interest and are short
term in nature. The Directors consider that the carrying values of
these receivables approximate their fair value.
11. Payables
2021 2020
As at 31 December GBP'000 GBP'000
---------------------------------- ------- -------
Securities purchased payable 2,265 2,098
Investment management fee payable 2,576 1,768
Other payables 523 600
---------------------------------- ------- -------
5,364 4,466
---------------------------------- ------- -------
12. Share capital
As at 31 December 2021 2020
-------------------------------- -------------------- --------------------
Issued, allotted and fully paid Number GBP'000 Number GBP'000
-------------------------------- ----------- ------- ----------- -------
Ordinary shares of GBP0.01 each 171,697,958 1,717 141,420,958 1,414
-------------------------------- ----------- ------- ----------- -------
During the year ended 31 December 2021, the Company issued
30,277,000 (2020: 26,910,000) shares of GBP0.01 each for a net
consideration of GBP531,406,000 (2020: GBP398,149,000). Details of
the shareholder authorities granted to Directors to issue and buy
back shares during the year are provided in the Annual Report.
13. Share premium account
2021 2020
As at 31 December GBP'000 GBP'000
---------------------------------------------- --------- ---------
Balance at 1 January 1,595,894 1,198,014
Issue of new shares on secondary market 533,918 399,880
Costs on new share issues on secondary market (2,815) (2,000)
---------------------------------------------- --------- ---------
2,126,997 1,595,894
---------------------------------------------- --------- ---------
14. Net asset value per share
As at 31 December 2021 2020
----------------------------------- ---------------- ----------------
Net asset value GBP3,367,070,000 GBP2,331,950,000
Shares in issue 171,697,958 141,420,958
----------------------------------- ---------------- ----------------
Net asset value per ordinary share 1,961.0p 1,648.9p
----------------------------------- ---------------- ----------------
15. Risk management and financial instruments
The Company's investing activities undertaken in pursuit of its
investment objective, as set out in the Strategic Report, involve
certain inherent risks. The Board monitors the Company's risk as
described in the Strategic Report. The main risks arising from the
Company's financial instruments are market price risk, interest
rate risk, liquidity risk, credit risk and currency risk. The Board
reviews and agrees policies for managing each of these risks as
summarised below. These policies have remained substantially
unchanged during the current year.
Market price risk
Market price risk arises mainly from uncertainty about future
prices of financial instruments used in the Company's business. It
represents the potential loss the Company might suffer through
holding market positions in the face of price movements. The Board
meets on four scheduled occasions in each year and at each meeting
it receives sufficient financial and statistical information to
enable it to monitor adequately the investment performance and
status of the business. The Board has also established a series of
investment parameters, per the Company's investment policy,
designed to manage the risk inherent in managing a portfolio of
investments.
Interest rate risk
Interest rate risk is the risk of movements in the value of, or
income from, cash balances that arise as a result of fluctuations
in interest rates. The Company finances its operations through
equity and retained profits including capital profits, with no
additional financing.
Liquidity risk
The Company's assets comprise mainly readily realisable
securities, which can be sold to meet funding commitments if
necessary. Short-term flexibility is achieved through the use of
cash balances and short-term bank deposits. All payables are due
within three months.
Credit risk
Credit risk is the risk that one party to a financial instrument
will fail to discharge an obligation and cause the other party to
incur a financial loss. This is mitigated by the Investment Manager
reviewing the credit ratings of broker counterparties and key third
party service providers. The risk attached to dividend flows is
mitigated by the Investment Manager's research of potential
investee companies. The Company's custodian bank is responsible for
the collection of income on behalf of the Company. Cash is held
with Northern Trust Company which has a Fitch rating of AA-.
The carrying amounts of financial assets best represents the
maximum credit risk exposure at the Statement of Financial Position
date, and the main exposure to credit risk is via the Company's
custodian who is responsible for the safeguarding of the Company's
investments and cash balances.
At the reporting date, the Company's financial assets exposed to
credit risk amounted to the following:
2021 2020
As at 31 December GBP'000 GBP'000
-------------------------- ------- -------
Cash and cash equivalents 32,081 50,046
Receivables 1,203 6,432
-------------------------- ------- -------
33,284 56,478
-------------------------- ------- -------
All the assets of the Company which are traded on a recognised
exchange are held by Northern Trust, the Company's custodian.
Bankruptcy or insolvency of the custodian may cause the Company's
rights with respect to securities held by the custodian to be
delayed or limited.
Currency risk
The income and capital value of the Company's investments and
liabilities can be affected by exchange rate movements as some of
the Company's assets and income are denominated in currencies other
than sterling which is the Company's functional currency. The key
areas where foreign currency risk could have an impact on the
Company are:
-- movements in rates that would affect the value of
investments, assets and liabilities; and
-- movements in rates that would affect the income received.
The Company had the following currency exposures, all of which
are included in the Statement of Financial Position at fair value
based on the exchange rates ruling at the year end.
31 December 2021 31 December 2020
------------------------------------------------------ ------------------------------------------------------
Investments Cash Receivables Payables Total Investments Cash Receivables Payables Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 - GBP'000
----------- ----------- ------- ----------- -------- --------- ----------- ------- ----------- -------- ---------
Australian
Dollar 219,406 - - - 219,406 155,936 - 2,098 (2,098) 155,936
Danish
Krone 172,599 - 144 - 172,743 138,264 - 210 - 138,474
Euro 342,925 - 167 - 343,092 213,122 - 96 - 213,218
New Zealand
Dollar 72,356 - 2,265 (2,265) 72,356 42,145 - - - 42,145
Swiss Franc 218,311 - 586 - 218,897 143,036 - 425 - 143,461
US Dollar 1,603,229 137 - - 1,603,366 1,083,119 98 - - 1,083,217
----------- ----------- ------- ----------- -------- --------- ----------- ------- ----------- -------- ---------
2,628,826 137 3,162 (2,265) 2,629,860 1,775,622 98 2,829 (2,098) 1,776,451
----------- ----------- ------- ----------- -------- --------- ----------- ------- ----------- -------- ---------
The Company mitigates the risk of loss due to exposure to a
single currency by way of diversification of the portfolio.
Foreign currency sensitivity
At 31 December 2021, an exchange rate move of +/-5% (2020:
+/-5%) against sterling which is a reasonable approximation of
possible changes would have increased or decreased total net assets
and total return by GBP131,493,000 (2020: GBP88,823,000).
Interest rate risk
The majority of the Company's financial assets are equity shares
and other investments which neither pay interest nor have a
maturity date. The Company's cash balance of GBP32,081,000 (2020:
GBP50,046,000) earns interest, calculated on a tiered basis,
depending on the balance held, by reference to the base rate. The
level of interest paid fluctuates in line with the base rate. At 31
December 2020 the interest rate was 0% (2020: 0%).
Should the Company earn interest on its cash balances, an
increase or decrease in interest rates of 0.5% would have a
positive or negative impact respectively on the profit or loss and
net assets of the Company equating to GBP160,000 (2020:
GBP250,000). The calculations are based on the cash balances at the
year end date and are not representative of the year as a
whole.
No current liabilities incur interest and all are payable within
one year.
Other price risk exposure
If the investment valuation had fallen by 20% (2020: 0.05%) at
31 December 2021, the impact on profit or loss and net assets would
have been negative GBP667,830,000 (2020: GBP455,987,600). An
increase of 20% (2020: 20%) would have had an equivalent opposite
effect. The calculations are based on the portfolio valuations as
at the respective year end date and are not representative of the
year as a whole, as well as the assumption that all other variables
remained constant.
The Company held the following categories of financial
instruments, all of which are included in the Statement of
Financial Position at fair value.
2021 2020
As at 31 December GBP'000 GBP'000
--------------------------------------- --------- ---------
Assets at fair value through profit or
loss 3,339,150 2,279,938
Cash and cash equivalents 32,081 50,046
Investment income receivable 247 806
Share issue proceeds - 4,802
Overseas tax recoverable 896 731
Other receivables 60 93
Payables (5,364) (4,466)
--------------------------------------- --------- ---------
3,367,070 2,331,950
--------------------------------------- --------- ---------
Liquidity risk exposure
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities. All
payables are due within three months.
Liquidity risk is not significant as the majority of the
Company's assets are investments in quoted securities that are
easily and readily realisable. The Company does not have any
borrowing facilities and as at 31 December 2021 held GBP32,081,000
(2020: GBP50,046,000) in cash.
Capital management policies and procedures
The Company's capital management objectives are to ensure that
it will be able to continue as a going concern, and to provide
long-term growth in revenue and capital.
The Company's capital is its equity share capital and reserves
that are shown in the Statement of Financial Position at a total of
GBP3,367,070,000 (2020: GBP2,331,950,000).
The Board, with the assistance of the AIFM, monitors and reviews
the broad structure of the Company's capital on an ongoing basis.
This includes a review of the planned level of gearing (if any),
the need to repurchase or issue equity shares, and the extent to
which any revenue in excess of that which is required to be
distributed be retained.
16. Contingent liabilities
As at 31 December 2021 there were no contingent liabilities or
capital commitments (2020: nil).
17. Related party transactions
IAS 24 'Related party disclosures' requires the disclosure of
the details of material transactions between the Company and any
related parties. Accordingly, the disclosures required are set out
below:
Directors - The remuneration of the Directors totalling
GBP120,000 (2020: GBP84,000), is set out in the Directors'
Remuneration Report in the Annual Report. There were no contracts
subsisting during or at the end of the year in which a Director of
the Company is or was interested and which are or were significant
in relation to the Company's business. There were no other material
transactions during the year with the Directors of the Company. The
Company has no employees.
AIFM and Investment Manager - Details of the contract including
the remuneration due to the AIFM and Investment Manager are set out
in the Annual Report.
Terry Smith and other founder partners and key employees of the
AIFM and Investment Manager directly or indirectly and in
aggregate, held 3,073,866 (2020: 3,063,180) shares in the Company
amounting to 1.7% (2020: 2.2%) of the issued share capital of the
Company as at 31 December 2021.
18. Events after the reporting period
Since the year end and up to 10 March 2022 (the latest practical
date before publication of the Annual Report), the Company has
issued 5,235,000 ordinary shares raising net proceeds of GBP89.8
million.
19. Financial information
This announcement does not constitute the Company's statutory
accounts. The financial information is derived from the statutory
accounts for the year ended 31 December 2021, which will be
delivered to the Registrar of Companies after being put forward for
adoption at the Company's Annual General Meeting. The auditors have
reported on the accounts for the year ended 31 December 2021, their
report was unqualified and did not include a statement under
Section 498(2) or (3) of the Companies Act 2006.
The Annual Report for the year ended 31 December 2021 was
approved by the Board on 14 March 2022. It will be made available
on the Company's website at www.smithson.co.uk
The Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
This announcement contains regulated information under the
Disclosure Rules and Transparency Rules of the FCA.
20. Annual general meeting
The Annual General Meeting will be held at 1.00 p.m. on 3 May
2022 at the Guy Whittle Auditorium, The Royal Society of Medicine,
1 Wimpole Street, Westminster, London W1G 0AE. Details of the
meeting are available in the Notice of Meeting published on the
Company's website www.smithson.co.uk.
14 March 2022
Secretary and registered office:
Sanne Fund Services (UK) Limited
6th Floor
125 London Wall
London
EC2Y 5AS
For further information contact:
Sanne Fund Services (UK) Limited
Tel: 020 3327 9720
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