REG - Scot.Mort Inv Tst - Annual Financial Report
02/06/2025 17:15
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RNS Number : 0943L Scottish Mortgage Inv Tst PLC 02 June 2025
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 Final Results announced to the Stock Exchange on 22 May 2025,
Scottish Mortgage Investment Trust PLC ("the Company") announces that the
Company's Annual Report and Financial Statements for the year ended 31 March
2025, 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:
scottishmortgage.com (http://www.scottishmortgage.com/) (as are the Final
Results announced by the Company on 22 May 2025).
Responsibility Statement of the Directors in respect of the Annual Financial
Report
The Directors consider that the Annual Report and accounts, 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.
We confirm to the best of our knowledge:
· the Company 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
· 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.
In the case of each Director in office at the date the Directors' report is
approved:
· so far as the Director is aware, there is no relevant audit
information of which the Company's Auditors are unaware; and
· 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.
Principal and Emerging Risks relating to the Company
As explained on page 66 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.
There have been no significant changes to the principal risks during the year.
↑ Increasing Risk ↓ Decreasing Risk ↔ No Change
What is the risk? How is it managed? Current assessment of risk
Financial risk The Company's assets consist mainly of listed securities and its principal The Board has, in particular, considered the impact of heightened ↑ This risk is considered to have increased. The prospect of heightened market
risks are therefore market related and include market risk (comprising macroeconomic and geopolitical concerns, including trade wars, the ongoing volatility remains from deteriorating geopolitical stability such as trade
currency risk, interest rate risk and other price risk), liquidity risk and Russia-Ukraine war, and the conflict in the Middle East. The Board also wars, the ongoing RussiaUkraine war, and continuing hostilities in the Middle
credit risk. An explanation of those risks and how they are managed is considers the commercial impact of changes in regulatory posture in local East.
contained in note 19 to the Financial Statements on pages 100 to 109 of the market jurisdictions. The Board considers at each meeting various metrics
Annual Report and Financial Statements. 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 risks are
formally considered in detail at least annually.
Private company investments The Company's risk could be increased by its investment in private company The Board considers the private company investments in the context of the ↔ This risk is seen as stable. In periods of market volatility the Private
securities. These investments may be more difficult to buy or sell, overall investment strategy and provides guidance to the Managers on the Company Valuations Group will perform trigger analyses and, if appropriate,
assessment of their value is more subjective than for investments listed on a maximum exposure to private company investments. The investment policy limits revalue the relevant investments, as described in the report on page 86 of the
recognised stock exchange and their valuations may be perceived to be more the amount which may be invested in private companies to 30 per cent. of the Annual Report and Financial Statements. The Managers consider market
volatile or out of date. total assets of the Company, measured at time of purchase (see page 45 of the understanding of the valuations process to have improved.
Annual Report and Financial Statements). The Managers have a robust valuation
methodology, which is applied consistently. The Managers' valuation process
involves a revaluation of each of the private company investments every
3 months and additional valuations are carried out in response to trigger
events to ensure the investments are carried at fair value. The valuation
process is overseen by the Private Companies Valuations Group at Baillie
Gifford which is independent from the portfolio managers and which takes
advice from an independent third party (S&P Global). The valuations are
subject to review and challenge by the Board every 6 months and are subject
to scrutiny annually by the external Auditor. The Managers have endeavoured
to improve market understanding of the valuation process.
Investment strategy risk Pursuing an investment strategy to fulfil the Company's objective which the The Board regularly reviews and monitors the Company's objective and ↑ This risk is considered to have increased. The market appetite for growth
market perceives to be unattractive or inappropriate, or the ineffective investment policy and strategy, the investment portfolio and its performance, investing is considered to have deteriorated over recent months as investors
implementation of an attractive or appropriate strategy, may lead to reduced the level of discount/premium to net asset value at which the shares trade and shift to assets perceived to be safe or offering insulation from market
returns for shareholders and, as a result, a decreased demand for the movements in the share register. volatility. Despite a significant increase in buybacks the discount of the
Company's shares. This may lead to the Company's shares trading at a widening share price to net asset value has widened over the year.
discount to their net asset value.
Climate and governance risk As investors place increased emphasis on Environmental, Social and Governance This is mitigated by the Managers' strong ESG stewardship and engagement ↔ This risk in considered to be stable. The Managers continue to employ strong
('ESG') issues, perceived problems on ESG matters in an investee company could policies which are available to view on the Managers' website ESG stewardship and engagement policies.
lead to that company's shares being less attractive to investors, adversely bailliegifford.com
affecting its share price, in addition to potential valuation issues arising (https://www.bailliegifford.com/en/uk/individual-investors/) and have been
from any direct impact of the failure to address the ESG weakness on the reviewed and endorsed by the Company and fully integrated into the investment
operations or management of the investee company (for example in the event of process, as well as the extensive up-front and ongoing due diligence which the
an industrial accident or spillage). Repeated failure by the Managers to Managers' undertake on each investee company. This due diligence includes
identify ESG weaknesses in investee companies could lead to the Company's own assessment of the risks inherent in climate change (see page 56 of the
shares being less attractive to investors, adversely affecting its own share Annual Report and Financial Statements). An explanation of how these policies
price. In addition, the valuation of investments could be impacted by climate are applied in the context of Scottish Mortgage's long term investment
change due to climate-related operational challenges or changes in end demand. approach is available at scottishmortgage.com
(https://www.scottishmortgage.com/en/uk/individual-investors) .
The Managers utilise data sourced from a third-party provider to map the
carbon footprint of the portfolio. This analysis estimates that the carbon
intensity of Scottish Mortgage is 82.6% less than the index albeit that is
based on only 68.6% of the value of the Company's equity portfolio which
reports on carbon emissions and other carbon related characteristics
(see page 56 of the Annual Report and Financial Statements).
Discount risk The discount/premium at which the Company's shares trade relative to its net The Board monitors the level of discount/ premium at which the shares trade ↑ This risk is seen as increased. £1.71 billion of shares were bought back in
asset value can change. The risk of a widening discount is that it may and the Company has authority to buyback its existing shares when deemed by the year (representing 13.3% of the issued share capital at the start of the
undermine investor confidence in the Company. the Board to be in the best interests of the Company and its shareholders. The period). Although the average discount was lower than the previous year at
Company announced on 15 March 2024 that it would allocate at least £1 billion 9.7% (2024 - 16.2%), the discount has widened over the year.
for share buybacks over a two year period. Over the year to 31 March 2025 the
Company bought back £1.71 billion shares representing 13.3% of the shares in
issue at the start of the period.
Regulatory risk Changes to the regulatory environment could negatively impact the Company. Baillie Gifford's Business Risk, Internal Audit and Compliance Departments ↔ This risk is considered to be stable. All control procedures are working
Failure to comply with applicable legal and regulatory requirements such as provide regular reports to the Audit Committee on Baillie Gifford's effectively. There have been no material regulatory changes in the year.
the tax rules for investment trust companies, the FCA Listing Rules and the monitoring programmes. Major regulatory change could impose disproportionate
Companies Act could lead to suspension of the Company's Stock Exchange compliance burdens on the Company. In such circumstances representation is
listing, financial penalties, a qualified audit report or the Company being made to ensure that the special circumstances of investment trusts are
subject to tax on capital gains. 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 The Board receives six monthly reports from the Depositary confirming safe ↔ This risk is considered to be stable. All control procedures are working
failures by the Depositary, including cyber security incidents. custody of the Company's assets held by the Custodian. Cash and portfolio effectively.
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 internal controls
assurance 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 Baillie Gifford has a comprehensive business continuity plan which facilitates ↔ This risk is considered to be stable. All control procedures are working
providers could lead to an inability to provide accurate reporting continued operation of the business in the event of a service disruption or effectively.
and monitoring or a misappropriation of assets. major disaster. 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 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.
Cyber security risk A cyber attack on Baillie Gifford's network or that of a third party service The Audit Committee reviews Reports on Internal Controls published by Baillie ↔ This risk is seen as elevated but stable due to the continuation of
provider could impact the confidentiality, integrity or availability of data Gifford and other third party service providers. Baillie Gifford's Business geopolitical tensions that could lead to more cyber attacks. Emerging
and systems. Risk Department report to the Audit Committee on the effectiveness of technologies, including AI, could potentially increase information security
information security controls in place at Baillie Gifford and its business risks. In addition, service providers operate a hybrid approach of remote and
continuity framework. Cyber security due diligence is performed by Baillie office working, thereby increasing the potential of a cyber security threat.
Gifford on third party service providers which includes a review of crisis
management and business continuity frameworks.
Leverage risk The Company borrows money for investment purposes, sometimes known as All borrowings require the prior approval of the Board and leverage levels are ↔ This risk is considered to be stable. During the year to 31 March 2025
'gearing' or 'leverage'. If the investments fall in value, borrowings will discussed by the Board and Managers at every meeting. Covenant levels are gearing increased from 11% to 13% although gross gearing (before deducting
magnify the impact of this loss. If borrowing facilities are not renewed, the monitored regularly. Details of the Company's borrowings can be found in Notes cash balances) remained unchanged at 13%. The Company has undrawn revolving
Company may have to sell investments to repay borrowings. 11 and 12 on pages 96 and 97 of the Annual Report and Financial Statements. credit facilities of US$100 million.
The majority of the Company's investments are in quoted securities that are
readily realisable. Further information on leverage can be found on page 115
of the Annual Report and Financial Statements and the Glossary of terms and
Alternative Performance Measures on pages 119 to 121 of the Annual Report and
Financial Statements.
Political risk Political change in areas in which the company invests or may invest may have Political developments are closely monitored and considered by the Board. The ↑ This risk is seen as increasing as deteriorating geopolitical stability
practical consequences for the company. Board continues to assess the potential consequences for the Company's future increases the prospect of further trade conflict and sanctions.
activities including those that may arise from geopolitical tensions and
constitutional change. The Board believes that the Company's global portfolio
partially helps to mitigate such political risks.
Emerging risks As explained on page 66 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 (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 threats. 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
2 June 2025
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