REG - Pacific Horizon - Annual Financial Report

Pacific Horizon Investment TrustAnnouncement

03/10/2022 11:30

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RNS Number : 5662B  Pacific Horizon Investment Tst PLC  03 October 2022

Pacific Horizon Investment Trust PLC ('PHI')

 

Legal Entity Identifier: VLGEI9B8R0REWKB0LN95

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 16 September 2022, Pacific Horizon Investment Trust PLC
("the Company") announces that the Company's Annual Report and Financial
Statements for the year ended 31 July 2022, 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
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)

It is also available on the Company page of the Baillie Gifford website at:
pacifichorizon.co.uk (http://www.pacifichorizon.co.uk) (as is the preliminary
statement of audited annual results announced by the Company on 16 September
2022).

 

Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements

Each of the Directors, whose names and functions are listed within the
Directors and Managers section of the Annual Report and Financial Statements,
confirm that, to the best of their knowledge:

¾  the Financial Statements, which have been prepared in accordance with
applicable law and United Kingdom  Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) including FRS 102 'The Financial
Reporting Standard applicable in the UK and Republic of Ireland' give a true
and fair view of the assets, liabilities, financial position and net return of
the Company;

¾  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 performance, business model and strategy;
and

¾  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 (as also
set out below).

 

Principal and Emerging Risks relating to the Company

 

As explained on page 32 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, regulatory compliance,
solvency or liquidity. There have been no material changes to the principal
risks during the year other than Climate and Governance Risk being recognised
as a principal risk as opposed to an emerging risk. A description of these
risks and how they are being managed or mitigated is set out below.

 

The Board considers the ongoing Covid-19 pandemic, geopolitical tensions, such
as those arising from the Russian invasion of Ukraine, tensions between the
USA and China regarding tariffs and the impact of Brexit to be factors which
exacerbate existing risks, rather than discrete risks, within the context of
an investment trust. Their impact is considered within the relevant risks.

 

Financial Risk -the Company's assets consist mainly of listed securities
(93.6% of the investment portfolio) and its principal and emerging financial
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 18 to the Financial Statements on pages 56 to 62 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 and geopolitical
concerns. In order to oversee this risk, the Board considers at each meeting
various metrics including regional and industrial sector weightings, top and
bottom stock contributors to performance along with sales and purchases of
investments. Individual investments are discussed with the portfolio manager
together with general views on the various investment markets and sectors. A
strategy session is held annually.

 

Investment Strategy Risk - pursuit of an investment strategy to fulfil the
Company's objective which the market perceives to be unattractive or
inappropriate, or the ineffective implementation of an attractive or
appropriate strategy, may lead to reduced returns for shareholders and, as a
result, a decreased demand for the Company's shares. This may lead to the
Company's shares trading at a widening discount to their net asset value. To
mitigate this risk, the Board regularly reviews and monitors the Company's
objective and investment policy and strategy, the investment portfolio and its
performance, the level of discount/premium to net asset value at which the
shares trade and movements in the share register and raises any matters of
concern with the Managers.

 

Climate and Governance Risk - perceived problems on environmental, social and
governance ('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 Managers' strong ESG stewardship and engagement policies
which are available to view on the Managers' website, bailliegifford.com, and
which have been reviewed and endorsed by the Company, and which have been
fully integrated into the investment process. Due diligence includes
assessment of the risks inherent in climate

change (see page 33 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 breaches of
cyber security. To mitigate this risk, the Audit Committee 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 who also
agree uncertificated unlisted portfolio holdings to confirmations from
investee companies. The Custodian's assured internal controls reports are
reviewed by Baillie Gifford's Business Risk Department and a summary of the
key points is reported to the Audit Committee and any concerns investigated.
In addition, documentary evidence of the existence of assets is subject to
annual external audit.

 

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 (including any disruption resulting from the Covid-19 pandemic) or
major disaster. The Audit Committee reviews Baillie Gifford's Report on
Internal Controls and reports by other key third party providers are reviewed
by Baillie Gifford on behalf of the Board and a summary of the key points is
reported to the Audit Committee and any concerns investigated. The other key
third party service providers have not experienced significant operational
difficulties affecting their respective services to the Company.

 

Leverage Risk - the Company may borrow money for investment purposes. 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. The Company can also make use of derivative
contracts. To mitigate this risk, all borrowings require the prior approval of
the Board and leverage levels are discussed by the Board and Managers at every
meeting. 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 in note 19 on page 62 and the
Glossary of Terms and Alternative Performance Measures on pages 71 and 72 of
the Annual Report and Financial Statements.

 

Political and Associated Economic Risk - the Board is of the view that
political change in areas in which the Company invests or may invest may have
financial consequences for the Company. Political developments are closely
monitored and considered by the Board, for example in respect of tensions
between the USA and

China regarding tariffs and unrest in Hong Kong and repercussions from the
Russian invasion of Ukraine. It monitors portfolio diversification by investee
companies' primary location, to mitigate against the negative impact of
military action or trade barriers. Following the departure of the UK from the
European Union and the subsequent trade agreement between the UK and the
European Union, the Board continues to assess the potential consequences for
the Company's future activities, including those that may arise from further
constitutional change. The Board believes that the Company's portfolio, which
predominantly comprises companies listed on the stock markets of the Asia
Pacific region (excluding Japan) and the Indian Sub-continent, positions the
Company to be suitably insulated from Brexit-related risk.

 

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.

 

Emerging Risks - as explained on page 32 of the Annual Report and Financial
Statements 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 and the related
exposure of the investment portfolio to external and emerging threats such as
the societal and financial implications of an escalation of the Russia-Ukraine
military conflict and the tensions between China and the US, cyber risk and
new coronavirus variants or similar public health threats. This is 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 slow growth rather than to invalidate the investment
rationale over the long term.

 

Baillie Gifford & Co Limited

Company Secretaries

03 October 2022

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