TIDMSMT
RNS Number : 6956A
Scottish Mortgage Inv Tst PLC
25 May 2023
Scottish Mortgage Investment Trust PLC (SMT)
Legal Entity Identifier: 213800G37DCS3Q9IJM38
Regulated Information Classification: Annual Financial and Audit
Reports
Annual Report and Financial Statements
Further to the preliminary statement of audited annual results
announced to the Stock Exchange on 17 May 2023, Scottish Mortgage
Investment Trust PLC ("the Company") announces that the Company's
Annual Report and Financial Statements for the year ended 31 March
2023, including the Notice of Annual General Meeting, has today
been posted to shareholders and submitted electronically to the
National Storage Mechanism where it will shortly be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
It is also available on the Company page of the Baillie Gifford
website at: www.scottishmortgage.com (as is the preliminary
statement of audited annual results announced by the Company on 17
May 2023).
Responsibility Statement of the Directors in respect of the
Annual Financial Report
The Directors confirm that, to the best of their knowledge:
3/4 the Company Financial Statements set out in the Annual
Report and Financial Statements, which have been prepared in
accordance with United Kingdom Accounting Standards, comprising FRS
102, give a true and fair view of the net return of the Company;
and
3/4 the Strategic Report set out in the Annual Report and
Financial Statements 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 it faces.
In the case of each Director in office at the date the
Directors' Report is approved:
3/4 so far as the Director is aware, there is no relevant audit
information of which the Company's Auditors are unaware; and
3/4 they have taken all the steps that they ought to have taken
as a Director in order to make themselves aware of any relevant
audit information and to establish that the Company's Auditors are
aware of that information.
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company's position and performance, business model and
strategy.
Principal and Emerging Risks relating to the Company
As explained on page 55 of the Annual Report and Financial
Statements, there is a process for identifying, evaluating and
managing the risks faced by the Company on a regular basis. The
Directors have carried out a robust assessment of the principal and
emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. A description of these risks and how they are being
managed or mitigated is set out below.
The Board considers heightened macroeconomic and geopolitical
concerns to be factors which exacerbate
existing risks, rather than being new emerging risks. Their
impact is considered within the relevant risks. There have been no
significant changes to the principal risks during the year other
than cyber security risk having moved from emerging to principal
risks.
Changes in risk level over the year are indicated as
follows:
Increasing risk Decreasing risk No change
Financial Risk - the Company's assets consist mainly of listed
securities and its principal risks are therefore market-related and
include market risk (comprising currency risk, interest rate risk
and other price risk), liquidity risk and credit risk. An
explanation of those risks and how they are managed is contained in
note 19 to the Financial Statements on pages 87 to 95 of the Annual
Report and Financial Statements. The Board has, in particular,
considered the impact of heightened market volatility during the
Covid-19 pandemic and over recent months due to macroeconomic
factors such as higher inflation and interest rates, and
geopolitical concerns, including the Russia-Ukraine war and
heightened tensions between China and both the US and Taiwan. The
Board also considers the commercial impact of changes in regulatory
posture in local market jurisdictions. To mitigate these risks, the
Board considers at each meeting various metrics including portfolio
concentration, regional and industrial sector weightings, top and
bottom stock contributors to performance and contribution to
performance by industrial sector. The Managers provide the
rationale for stock selection decisions and both the investment
strategy and portfolio risk are formally considered in detail at
least annually.
Private Company Investments - the Company's risk could be
increased by its investment in private company investments. These
assets may be more difficult to buy or sell, so changes in their
valuations may be greater than for listed investments. To mitigate
this risk, the Board considers the private company investments in
the context of the overall investment strategy and provides
guidance to the Managers on the maximum exposure to private company
investments. The investment policy limits the amount which may be
invested in private companies to 30 per cent. of the total assets
of the Company, measured at time of purchase. See page 40 of the
Annual Report and Financial Statements.
Investment Strategy Risk - pursuing an investment strategy to
fulfil the Company's objective which the market perceives to be
unattractive or inappropriate, or the ineffective implementation of
an attractive or appropriate strategy, may lead to reduced returns
for shareholders and, as a result, a decreased demand for the
Company's shares. This may lead to the Company's shares trading at
a widening discount to their net asset value. To mitigate this
risk, the Board regularly reviews and monitors the Company's
objective and investment policy and strategy; the investment
portfolio and its performance, the level of premium/discount to net
asset value at which the shares trade and movements in the share
register.
Climate and Governance Risk - as investors place increased
emphasis on Environmental, Social and Governance (ESG) issues,
perceived problems on ESG matters in an investee company could lead
to that company's shares being less attractive to investors,
adversely affecting its share price, in addition to potential
valuation issues arising from any direct impact of the failure to
address the ESG weakness on the operations or management of the
investee company (for example in the event of an industrial
accident or spillage). Repeated failure by the Managers to identify
ESG weaknesses in investee companies could lead to the Company's
own shares being less attractive to investors, adversely affecting
its own share price. This is mitigated by the Investment Manager's
strong ESG stewardship and engagement policies which are available
to view on the Managers' website, bailliegifford.com, and have been
reviewed and endorsed by the Company, and have been fully
integrated into the investment process as well as the extensive
up-front and ongoing due diligence which the Investment Manager
undertakes on each investee company. This due diligence includes
assessment of the risks inherent in climate change. See page 46 of
the Annual Report and Financial Statements. An explanation of how
these policies are applied in the context of Scottish Mortgage's
long term investment approach is available at scottishmortgage.com
.
18 companies, within the Scottish Mortgage portfolio, are
currently involved in tackling the climate crisis. An external
provider was engaged to map the carbon footprint of the portfolio.
This analysis estimates that the carbon intensity of Scottish
Mortgage is 95.1% less than the index and is based on 67.2% of the
value of the Company's equity portfolio which reports on carbon
emissions and other carbon related characteristics. See page 46 of
the Annual Report and Financial Statements.
Discount Risk - the discount/premium at which the Company's
shares trade relative to its net asset value can change. The risk
of a widening discount is that it may undermine investor confidence
in the Company. To manage this risk, the Board monitors the level
of discount/premium at which the shares trade and the Company has
authority to buy back its existing shares when deemed by the Board
to be in the best interests of the Company and its
shareholders.
Regulatory Risk - failure to comply with applicable legal and
regulatory requirements such as the tax rules for investment trust
companies, the UKLA Listing Rules and the Companies Act could lead
to suspension of the Company's Stock Exchange listing, financial
penalties, a qualified audit report or the Company being subject to
tax on capital gains. To mitigate this risk, Baillie Gifford's
Business Risk, Internal Audit and Compliance Departments provide
regular reports to the Audit Committee on Baillie Gifford's
monitoring programmes. Major regulatory change could impose
disproportionate compliance burdens on the Company. In such
circumstances representation is made to ensure that the special
circumstances of investment trusts are recognised. Shareholder
documents and announcements, including the Company's published
Interim and Annual Report and Financial Statements, are subject to
stringent review processes and procedures are in place to ensure
adherence to the Transparency Directive and the Market Abuse
Directive with reference to inside information.
Custody and Depositary Risk - safe custody of the Company's
assets may be compromised through control failures by the
Depositary, including cyber security incidents. To mitigate this
risk, the Board receives six monthly reports from the Depositary
confirming safe custody of the Company's assets held by the
Custodian. Cash and portfolio holdings are independently reconciled
to the Custodian's records by the Managers. The Custodian's audited
internal controls reports are reviewed by Baillie Gifford's
Business Risk Department and a summary of the key points is
reported to the Audit Committee and any concerns investigated.
Operational Risk - failure of Baillie Gifford's systems or those
of other third party service providers could lead to an inability
to provide accurate reporting and monitoring or a misappropriation
of assets. To mitigate this risk, Baillie Gifford has a
comprehensive business continuity plan which facilitates continued
operation of the business in the event of a service disruption. The
Audit Committee reviews Baillie Gifford's Report on Internal
Controls and the reports by other key third party providers are
reviewed by Baillie Gifford on behalf of the Board. In the year
under review, the other key third party service providers have not
experienced significant operational difficulties affecting their
respective services to the Company.
Cyber security risk - a cyber attack on Baillie Gifford's
network or that of a third party service provider could
impact the confidentiality, integrity or availability of data
and systems. To mitigate this risk, the Audit Committee
reviews Reports on Internal Controls published by Baillie
Gifford and other third party service providers. Baillie
Gifford's Business Risk Department report to the Audit Committee
on the effectiveness of information security
controls in place at Baillie Gifford and its business continuity
framework. Cyber security due diligence is performed
by Baillie Gifford on third party service providers which
includes a review of crisis management and business continuity
frameworks.
Leverage Risk - the Company may borrow money for investment
purposes sometimes known as 'gearing' or
'leverage'. If the investments fall in value, any borrowings
will magnify the impact of this loss. If borrowing facilities are
not renewed, the Company may have to sell investments to repay
borrowings. To mitigate this risk, all borrowings require the prior
approval of the Board and leverage levels are discussed by the
Board and Managers at every meeting. Covenant levels are monitored
regularly. The majority of the Company's investments are in quoted
securities that are readily realisable. Further information on
leverage can be found on page 101 and in the Glossary of Terms and
Alternative Performance Measures on pages 106 to 108 of the Annual
Report and Financial Statements.
Political Risk - political developments are closely monitored
and considered by the Board. The Board continues to assess the
potential consequences for the Company's future activities
including those that may arise from geopolitical tensions and
constitutional change. The Board believes that the Company's global
portfolio positions the Company to be suitably insulated from such
political risks.
Emerging Risks - the Board has regular discussions on principal
risks and uncertainties, including any risks which are not an
immediate threat but could arise in the longer term. The Board
considers that the key emerging risks arise from the
interconnectedness of the global economy (including factors such as
supply chain constraints and economic sanctions) and the related
exposure of the investment portfolio to societal and financial
implications of an escalation of geopolitical tensions, cyber risk
and coronavirus variants or similar public health threat. These are
mitigated by the Managers' close links to the investee companies
and their ability to ask questions on contingency plans. The
Managers believe the impact of such events may be to impact the
pace of growth rather than to invalidate the investment rationale
over the long term.
Baillie Gifford & Co Limited
Company Secretaries
25 May 2023
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END
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