REG - Smithson Inv.Trust - Annual Financial Report
06/03/2025 07:15
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RNS Number : 5500Z Smithson Investment Trust PLC 06 March 2025
SMITHSON INVESTMENT TRUST PLC
LEI: 52990070BDK2OKX5TH79
RESULTS ANNOUNCEMENT
Audited results for the year ended 31 December 2024
Performance Highlights
31 December 2024 31 December 2023
Net assets £2,129,897,000 £2,551,938,000
Net asset value ("NAV") per ordinary share ("share") 1,631.8p 1,598.0p
Share price 1,484.0p 1,415.0p
Share price discount to NAV(1) 9.1% 11.5%
For the period from
Company's listing on
For the year ended For the year ended 19 October 2018 to
31 December 2024 31 December 2023 31 December 2024
% change(2) % change(2) % change(2)
NAV total return per share(1) +2.1% +13.3% +63.2%
Share price total return(1) +4.9% +8.2% +48.4%
Comparator index total return +11.5% +9.1% +64.2%
Ongoing charges ratio(1) 0.9% 0.9% 1.0%
Source: Bloomberg
This report contains terminology that may be unfamiliar to some readers. The
Glossary at the back of this Annual Report gives definitions for frequently
used terms.
5 Year Record
At 31 December 2024 2023 2022 2021 2020
Net assets £2,129,897,000 £2,551,938,000 £2,417,967,000 £3,367,070,000 £2,331,950,000
NAV per ordinary share 1,631.8p 1,598.0p 1,410.7p 1,961.0p 1,648.9p
Share price 1,484.0p 1,415.0p 1,308.0p 2,020.0p 1,710.0p
Share price (discount)/
premium to NAV(1) (9.1)% (11.5)% (7.3)% 3.0% 3.7%
Year ended 31 December
NAV total return
per share(1) +2.1% +13.3% (28.1)% +18.9% +31.4%
Share price total return(1) +4.9% +8.2% (35.2)% +18.1% +31.7%
Comparator index total return(3) +11.5% +9.1% (8.7)% +17.8% +12.2%
Ongoing charges ratio(1) 0.9% 0.9% 0.9% 1.0% 1.0%
1 These are Alternative Performance Measures ("APMs"). Definitions of these,
together with how these measures have been calculated, are disclosed below
where it is made clear how these APMs relate to figures disclosed and
calculated under IFRS.
2 Total returns are stated in GBP sterling.
3 MSCI World SMID Cap Index £Net. Source: www.msci.com.
Total return performance against NAV for the period from the Company's listing
on 19 October 2018 to 31 December 2024(1)
Net Asset Value total return performance against MSCI World SMID Cap Index for
the period from the Company's listing on 19 October 2018 to 31 December
2024(2)
1 Source: Bloomberg
2 Figures rebased to 1000 as at date of Company's listing
Chairman's Statement
Introduction
I am pleased to present the Annual Report of Smithson Investment Trust plc
(the "Company") for the year ended 31 December 2024.
This is the sixth Annual Report since the Company's IPO in October 2018, and
my first as the Chairman of the Board. I was delighted to be appointed shortly
after the year-end as I believe strongly in the Company's strategy and the
investment process adopted by the Investment Manager.
Investment performance
The Company's NAV per share increased by 2.1% during the year, compared to the
MSCI World SMID Cap Index total return of 11.5%, a disappointing 12 month
performance. Over the same period the Company's share price rose by 4.9%.
In the period from inception to 31 December 2024 the Company's net asset value
(NAV) per share has increased by 63.2%, an annualised return of +8.2%, similar
to the return of +8.3% per annum from the MSCI World SMID Cap Index over the
same period. The Company's NAV per share performance in its first three years
to the end of 2021 was exceptional, with an annualised return of +23.4% well
ahead of the Index, but over the last three years the performance has not been
as strong and has lagged the Index with poor years in 2022 and 2024.
The actions being taken to address this are discussed in the Investment
Manager's Review, and I am looking forward to leading the Board and supporting
the Investment Manager in the present challenging global investment markets
and geopolitical backdrop.
Investment policy
The small and mid-sized listed companies' sector offers excellent
opportunities for an active fund manager to deliver strong returns to
investors.
For the 20 years to December 2020 the annualised return from global small and
mid-sized companies outperformed the return from large companies by 2.7
percentage points. Combining this trend with the ability for an active manager
to select the best names from within the small and mid-sized sector and the
potential for strong long-term returns is clear.
In the period since the Company's launch, however, the trend has reversed.
Since the end of 2018 the MSCI World Index has returned +120%, whilst the MSCI
World SMID Cap Index has returned +79%. Whether or not this overall trend
reverts, the concentration of investment flows into the world's largest
companies and the focus of investor attention on these businesses, together
with the lower level of focus from analysts on smaller companies, means that
there are many good smaller companies with attractive valuations for an active
manager to take advantage of.
The Investment Manager will only invest in good companies - those which can
sustain a high return on capital employed, with profit that is reflected in
cash flow, and that have strong growth potential so that the cash generated
can be reinvested at high rates of return.
The Investment Manager will not overpay and will therefore only invest in
companies whose valuations are attractive because they do not reflect the
value of future cashflows. Even the highest quality companies can reach a
valuation at which they are no longer attractive investments.
The Investment Manager will then "do nothing" hoping to hold the investments
for a long period of time to allow the compounding of the reinvestment of cash
at good rates of return to take effect. As the Investment Manager explains in
the investment review, this can be more difficult with smaller companies whose
businesses tend to be less well established than larger companies, and the
Investment Manager will look to divest when the value of a holding reaches its
potential, or the outlook for the business and markets change adversely.
As noted above, the Company's investment performance from inception to 31
December 2024 was similar to the global small-mid cap index. Performance over
the last three years has knocked the longer-term record.
The Investment Manager has reflected on the performance of the last three
years and has made some adjustments to the investment management team and the
investment process in order to return the Company to the sustained long-term
performance the Board believe it is capable of delivering.
An additional Board proposal to help in this regard is to amend the Company's
investment policy so that the portfolio manager may invest in any company
that, at the time of initial investment, has a market capitalisation within
the range of the constituents of the MSCI World SMID Cap Index. Under the
current investment policy, the portfolio manager is restricted to investing in
companies that, at the time of initial investment, have a market
capitalisation of between £500 million and £15 billion. At the year end the
market capitalisation range of the Company's reference index was $64 million
to $67.4 billion. The Board believes that this change will remove an
unnecessary restriction and will ensure that the portfolio manager's stock
universe is made up of the same sized companies as the comparator index.
Shareholders will be asked to approve the change through a resolution that
will be proposed at the AGM.
Discount
The Company's shares, which had traded at a premium to NAV for the vast
majority of the period from launch in 2018 through to the end of 2021, started
trading at a discount in early 2022, and have continued to do so throughout
2023 and 2024. The discount at the beginning of the year was 11.5% but
narrowed to 9.1% by the year end.
The Board believes that investors are best served when the Company's share
price trades close to the Company's NAV per share. The share price is affected
by the interaction of supply and demand, and by general investor sentiment
which reflects a number of factors which has, over the last three years, been
more negative than positive. The Company's investment performance over the
last three years has also been a factor.
The Board has sought to mitigate the discount through a share buy back
programme that started in 2022. In that year, the Company bought back 5.7
million shares, 3.2% of the total shares that were in issue. The buyback
programme was increased in 2023 when the Company bought back 11.7 million
shares and was increased again in 2024 when the Company bought back 29.2
million shares. The Company has therefore bought back more than 25% of the
shares in issue before the programme started. Buying shares back at a discount
is accretive to NAV per share, and added 2.4% to the NAV per share during the
year.
During 2024 the Company utilised nearly all the authority to buy back shares
granted by shareholders at the 2024 AGM and accordingly secured additional
authority at the general meeting convened in January 2025 to cover the period
up until the next AGM.
The Board will continue to take action to mitigate the discount.
Continuation vote
The Company's shares traded at an average discount of 11.5% over the year.
Since this exceeds 10%, the Directors, as outlined in the Interim Report, will
propose an ordinary resolution at the Annual General Meeting (AGM) in April,
seeking shareholder approval for the Company's continuation. The Board
recommends unanimously that shareholders vote in favour of the resolution.
Results and dividends
The Company has returned a revenue profit of £4.4 million in the year ended
31 December 2024 (2023: £3.0 million) and now has a positive accumulated
balance on its revenue account for the first time. In order to retain its
investment trust status, the Company is therefore required to pay a dividend.
The Board will accordingly propose an ordinary resolution at the AGM, that a
dividend of 0.58 pence per share be paid on 2 May 2025 to shareholders on the
register on the record date of 4 April 2025.
This marks the Company's first-ever dividend payment. However, given the
nature of its investments, shareholders should not anticipate a substantial
annual dividend in the future.
Governance and Board composition
I joined the Board as a non-executive Director and Chairman on 27 January
2025, succeeding Diana Dyer Bartlett. Diana will continue as a non-executive
Director and will take on the role of Chair of the Audit Committee replacing
Lord St John of Bletso who has retired from the Board. On behalf of the Board,
I would like to thank Anthony for his service as a Director of the Company
since inception, and to thank Diana for her service as Chair of the Board
since February 2022.
All Directors will stand for election or re-election at the AGM. Details of
the Directors' background and experience are provided in the Company's
published accounts.
Shareholders should be aware that I was appointed to the Board during a closed
period, a period when directors are not allowed to transact in the Company's
shares. I intend to buy shares in the Company in the near future.
The Board reviews its composition on a regular basis, having regard to
corporate governance requirements as well as the experience and skill sets of
its members. Having recently appointed me, the Board is now intending to
expand to five members as set out in the Corporate Governance section of this
Report.
Annual General Meeting and shareholder engagement
The Company will hold its AGM on 23 April 2025. The notice of the Annual
General Meeting will be posted to shareholders along with this Annual Report
and a copy will also be made available on the Company's website at
www.smithson.co.uk. My fellow Directors and I are keen to meet with
shareholders, and we encourage shareholders to come to the meeting and to stay
for the light lunch which is to be held afterwards. Shareholders are reminded
that, whether or not they are able to attend the AGM in person, they are
welcome, to submit any questions they may have for the Board, at any time, by
emailing smithsonchairman@fundsmith.co.uk. Please submit proxy votes in
respect of the resolutions to be proposed at the AGM, irrespective of whether
you intend to attend the AGM.
Simon Barnard, the Company's portfolio manager, will give a presentation at
the AGM which will be recorded and made available on the Company's website
after the meeting. Simon and members of his team will also be able to answer
questions from shareholders at the AGM.
We encourage shareholders to visit the Company's website where more
information is available on the Company.
Outlook
The new financial year has started positively with the Company's NAV up 5.9%,
4.8% ahead of the comparator index, for the period from 1 January 2025 to 28
February 2025. The NAV from inception to 28 February 2025 is up 72.8%, 6.9%
ahead of the comparator index.
The Board is pleased that the Company's Investment Manager and his team remain
focused on the things they can control and remain resolute in applying a
systematic and disciplined focus to find exciting opportunities for attractive
long-term investment.
The Board believes that the strategy of identifying and owning high quality
small and mid-sized companies that are capable of sustainable growth and that
can compound in value over many years, will perform well for investors over
the long term and through different economic conditions.
The Board continues to have confidence that the Company's Investment Manager
can execute this strategy successfully, and the Board believes that as the
Company offers investors exposure to some of the best companies available in
the small and mid-cap sector, the long-term investor will be well rewarded.
Mike Balfour
Chairman
5 March 2025
Investment Manager's Review
The Investment Manager's Review was first published as a letter to
shareholders on 27 January 2025 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 2024.
Dear Fellow Shareholder,
The performance of Smithson Investment Trust ('Smithson'), along with
comparators, is laid out below. In 2024 the Net Asset Value per share (NAV) of
the Company increased by 2.1% and the share price increased by 4.9%. Over the
same period, the MSCI World Small and Mid Cap Index ('SMID'), our reference
index, increased by 11.5%. We also provide the performance of UK bonds and
cash for comparison.
Total Return(5)
1 January 2024
to 31 December Launch to 31 December 2024
2024
%
Cumulative Annualised
% %
Smithson NAV(1) +2.1 +63.2 +8.2
Smithson Share Price +4.9 +48.4 +6.6
Small and Midcap
Equities(2) +11.5 +64.2 +8.3
UK Bonds(3) -2.3 -7.0 -1.2
Cash(4) +5.1 +12.9 +2.0
(1) Source: Bloomberg, starting NAV 1000.
(2) MSCI World SMID Cap Index, £ Net source: www.msci.com.
(3) Bloomberg/Barclays Bond Indices UK Govt 5-10 yr, source: Bloomberg.
(4) Month £ Interest Rate source: Bloomberg.
(5) Alternative Performance Measure (see below).
After a strong market sell-off in the last few days of the year, our final
performance for 2024 can only be described as mediocre. It will also be marked
down as the second time since inception in 2018 that we have finished the year
behind our reference index.
Despite expectations at the end of 2023 that interest rates were close to
peaking for this cycle, they actually increased again during 2024, with US 10
year bond yields rising from 3.9% at the start of the year to 4.5% by the end,
exacerbated by comments from the Federal Reserve in December that interest
rate cuts in 2025 will be less than expected. While it is tempting to point
out again the headwind to strategy performance that this creates (causing the
larger future profits of our faster growing and more highly rated companies to
be discounted more by the higher interest rates), not everything can be blamed
on this.
As described later in more detail, our individual performance detractors were
not particularly severe, with no single position detracting as much as our
worst performer in 2023, a year in which the portfolio generated a double
digit return and outperformed the benchmark by four percentage points.
Instead, it was a lack of outstanding winners getting the portfolio motoring;
the top performer this year would have ranked only 5th on last year's hit
list. However, big winners were definitely out there, even in the small and
mid-cap sector, which again underperformed the large cap sector, this time by
11% over the year.
What to do? This year's performance has prompted us to expend time and thought
on potential improvements and as a result we have made incremental changes to
our process. To become world class in any endeavour requires not only a
relentless high effort, but the focus of that effort into a singular area of
expertise. And, like a magnifying glass focusing the sun's energy onto a
single spot, the more effective the focus, the brighter your result.
Thus, the primary change to our process is to focus ever closer on the
specific areas where we think the best long term returns will reside, with the
exclusion of all distractions. We are already fortunate to have the luxury to
ignore any area of the market that we don't think will provide sustainable
long term returns and can therefore remove the noise of such things as meme
stocks, unprofitable companies, fluctuating commodities (including bitcoin)
and all other highly volatile diversions. But while we were concentrating on
companies of £500 million to £15 billion in market capitalisation, we now
believe our attention should be placed into businesses in the lower half of
this range, driven by the fact that many of our companies have grown quite
large during our period of ownership. It makes intuitive sense to us that a
good small company has a much greater probability of increasing in value
multiple times than a large one. You will notice the first change in the
portfolio to directly address this described below.
Further, we believe that if we can find small companies which are improving
their profitability by serving long term growth areas within our typical
sectors of technology, industrials, consumer and healthcare, there will be
plenty of future 'multiple bagger' investments presented to us. We have
identified many such growth areas including the electrification of industry
and transport, energy infrastructure construction and maintenance, space and
aerospace industry suppliers, AI deployment and data centre construction,
healthcare diagnostics and small pharmaceutical and biotechnology company
research and development. Other recent changes in the portfolio have
originated from these avenues of discovery.
This year, we have also made the first addition to the investment management
team, with Kurran Aujla joining as an analyst. Will Morgan recently left the
company.
Of course, the overarching investment strategy, proven over decades, of buying
good companies, not overpaying and then holding as long as we can to allow our
investments to compound in value, remains unchanged. To demonstrate the
quality of the companies in the portfolio, the table below outlining their
average operating metrics shows that they remain far superior to the average
company in the Index.
LTM Figures Smithson MSCI
Investment WSMID
Trust
ROIC 26%(#) 8%
Gross Margin 62% 30%
Operating Profit Margin 25% 8%
Cash Conversion 104% 80%
Interest Cover 61x 5x
Source: Fundsmith
Data for the MSCI World SMID Cap Index is shown ex-financials, with weightings
as at 31.12.2024.
Data for MSCI World SMID Cap Index is on a weighted average basis, using last
available reported financial year figures as at 31.12.2024.
Data for Smithson is on a weighted average basis, ex-cash, using last
available reported financial year figures as at 31.12.2024.
Interest cover (EBIT ÷ net interest) data for Smithson and MSCI World SMID
Cap Index is done on a median average basis.
# Return On Invested Capital for Smithson excludes Verisign which now has a
negative balance of invested capital after share buybacks.
Not overpaying for these 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. This has increased to 3.3% from 2.8% this time last year.
Over the last twelve months, the growth in free cash flow for our companies
was 45% on a weighted average basis, although this includes several companies
rebounding in profitability from a low point induced by the pandemic. The
median average figure, which in this case is likely more instructive, was 22%.
Regarding our holding period, while our ambition is to maintain our positions
for many years, this is particularly difficult with small companies, for three
main reasons:
1) management teams, particularly those which are founder-led, are
able to and sometimes prone to abruptly change the capital allocation strategy
of the company;
2) the niche markets in which small companies operate can quickly
shift in terms of demand trends or competitive dynamics, exacerbated by some
companies having exposure to just a single market;
3) the more volatile share prices of small capitalisation companies
relative to large capitalisation ones can lead to more frequent valuation
extremes in the former group.
All of the divestments made from the portfolio this year can be explained by
one or more of the issues listed above. This trading activity, as well as new
additions to the portfolio, meant that discretionary portfolio turnover
(excluding share buybacks), was 35.9% compared to 27.2% in 2023. We believe
this is a reasonable level given the necessity to take more frequent action
when managing a portfolio of smaller capitalisation companies and remains well
below the average turnover for all actively managed equity funds, which tends
to be above 60%, according to Morningstar.
Costs of all dealing, including taxes, amounted to 0.03% (3 basis points) of
NAV in the period, similar to the 0.03% incurred in 2023. The Ongoing Charge
Figure was 0.86% of NAV, compared with 0.87% in 2023. This includes the
Management Fee of 0.9%, applied to the market capitalisation of the Trust,
which was lower than the NAV during the year. Combined, this means the Total
Cost of Investment in the Trust was 0.89% of NAV (2023: 0.90%).
In terms of portfolio changes, having explained the purchases during the first
half year of HMS Networks, Choice Hotels, Inficon, Reply and Melexis and the
sales of IPG Photonics, Temenos and Domino's Pizza Enterprises in the interim
report, I shall simply comment here on those changes that were made in the
second half of 2024.
We bought a position in Monotaro, which is an online MRO (maintenance and
repair organisation) based in Japan selling all the products that businesses
need to run, except for raw materials. For example, products sold include
safety clothing, tools, spare parts and office furniture. Monotaro is the
largest online reseller in Japan, with around 15% market share, but currently
only 20% of the Japanese domestic MRO market is online. This provides a good
path to growth and we expect revenue to grow at around 15% a year as most of
the marginal growth in the industry accrues to Monotaro as the largest player,
supported by its broad product selection and strong online presence. Further,
the company was founded as a JV by the US company WW Grainger, which still
holds a 50% stake, and which was so impressed with Monotaro's technology that
it has licenced it for use in its own US online business.
We also acquired a position in Medpace, a US company that provides outsourced
research and development and drug trial services to small pharmaceutical and
biotechnology companies. This is an attractive market being the fastest
growing part of the pharmaceutical industry. These small companies typically
opt for full service contracts given a lack of internal infrastructure, and
such contracts often carry the highest margins, making Medpace one of the
fastest growing, highest margin and highest return contract research
organisations in the industry. The company has only grown organically to date
(i.e. with no acquisitions), and continues to be run by the founder. It is
also currently trading on a lower than average rating due to market concerns
regarding the post-pandemic funding environment for biotechnology companies,
although weak funding environments have proven to be short lived when they
occurred in the past.
These new positions were funded by selling out of three existing holdings.
TechnologyOne, a company which had increased in share price by five times
during our period of ownership, had become the highest rated company in the
portfolio and was trading at a valuation we could no longer justify. We also
sold out of Fortinet, which, after having increased in share price by four
times since we acquired it in 2020, had become very large at over $60bn in
market capitalisation, making it an appropriate source of capital with which
to acquire smaller companies. Finally, Cognex was sold as its exposure to
deteriorating economic conditions in China and the global autos sector was
causing the business to struggle, while it appears the market still had high
hopes for the company, given it was trading on a lofty multiple.
To discuss in more detail the fund performance, let's start with what went
wrong. The top five detractors to performance are shown below.
Country Contribution %
Temenos Switzerland -1.3%
Spirax Group UK -1.3%
Domino's Pizza Enterprises Australia -1.2%
Fevertree Drinks UK -1.1%
Qualys United States -1.0%
Source: Northern Trust
Temenos, a Swiss banking software company, caused us much frustration over the
first few months of the year. We now believe that the company will require
more investment in the short and medium term to fix a badly managed transition
to a Software-as-a-Service (SaaS) business model, which will likely place
pressure on both margins and returns over the coming years. We therefore sold
the company in the first half.
Spirax Group, the industrial business based in the UK, has been a victim of
slowing global industrial production growth over the last couple of years,
which has continued falling, down from 1.5% in August to 0.9% now. All regions
have slowed but there was particular weakness in China due to its struggling
property market having knock-on effects across its economy. Further to this,
Spirax's peristaltic pumps business has a large exposure to the biopharma
business which has been weak since the pandemic-stimulated boost faded away.
Still, the latest trading statement showed some acceleration in group revenue
growth, with all business units now growing again, which we take as a positive
early sign of recovery.
Domino's Pizza Enterprises, the Australian Domino's franchisor also performed
poorly during the year. This is a company that had performed very well until
2021, after which mis-execution in several markets, including Japan and
Germany, led to underperformance. While management has set out a plan to
recover sales in these markets, we believe that given the amount of time this
turnaround might take, our shareholders' capital would be better deployed in
other opportunities, and we sold the position. Interestingly, the company's
supervisory Board appeared to share our impatience and recently parted ways
with the long serving CEO.
Fevertree is the UK producer of premium tonics and mixers. While its margins
have been recovering from the logistics and raw material cost squeeze it
suffered in recent years, its overall demand environment has become weaker
over the last 12 months due to declining alcohol consumption, particularly the
gin market in the UK, its largest and most profitable market.
Qualys is a US company providing cyber security software and its order growth
has been held back recently by the macroeconomic uncertainty leading to
reductions in corporate IT budgets. We expect this to be temporary and for
orders to recover once corporate budgets start growing again. Indeed, in the
latest results, billings growth rebounded to 14%, sending the share price up
16% at the time of the report. As it happens, there was also bid speculation
reported on the same date, causing the shares to jump a further 10% by the end
of the day.
The top five contributors to performance are shown below.
Country Contribution %
Fortinet United States 1.6%
Fisher & Paykel Healthcare New Zealand 1.4%
Addtech Sweden 1.0%
TechnologyOne Australia 0.9%
Diploma UK 0.9%
Source: Northern Trust
Fortinet, the US cybersecurity company performed extremely well this year, up
55% in share price terms, after results in Q2 and Q3 positively surprised the
market. In particular, the growth rate of bookings started reaccelerating in
Q2 after a substantial slowdown over the last couple of years. This news sent
the share price up 25% in a single day, which once more demonstrates that
equity returns are anything but linear.
Fisher & Paykel Healthcare, the medical device company based in New
Zealand, had a much better year as its demand recovered from the post-Covid
lull it had experienced over the last couple of years, propelling the share
price to new highs.
Addtech, the diversified Swedish industrial business, has only been in the
portfolio for 3 years but over that time its share price has more than
doubled. Earnings results over the last 12 months continued to be better than
expected, primarily due to its strategy of frequently acquiring small,
profitable companies at low multiples of earnings.
TechnologyOne, the software company based in Australia, continued its strong
share price performance as the business managed to maintain the mid-teens
revenue growth it has achieved since 2022. This is a result of a successful
transition to Software-as-a-Service (SaaS) for its Enterprise Resource
Planning (ERP) software, which has proven popular with institutional clients
such as universities and the UK government.
Diploma is an industrial distribution business that has performed so well over
the last few years that it has grown into our largest holding. This has been
achieved through an admirable ability by management to maintain organic growth
in the mid single digit range despite the slowing global industrial
production, while also adding new companies to the group which have
significantly outperformed management's initial expectations, thus proving to
be extremely good value acquisitions.
The current positioning of the fund 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 1965 - our companies may be small, but they are not unproven.
Sector 31 December 31 December
2024 2023
(%) (%)
Industrials 42% 36%
Information Technology 20% 28%
Healthcare 13% 12%
Consumer Discretionary 11% 10%
Consumer Staples 8% 8%
Financials 4% 3%
Materials 2% 2%
Cash - 1%
Source: Northern Trust
The Industrials sector weighting has increased over the year due to the
outperformance of several of our industrial companies, including Addtech and
Diploma mentioned already, but also with notable performances from Rational
and Verisk. The Information Technology sector declined in weight due to the
sale of IPG Photonics, Temenos, TechnologyOne and Fortinet, and despite the
addition of HMS Networks, Inficon, Reply and Melexis. Healthcare was the only
other notable mover, increasing in weight due to the addition of Medpace.
Country of Listing 31 December 31 December
2024 2023
(%) (%)
USA 50% 45%
UK 16% 14%
Italy 9% 10%
Germany 7% 7%
Switzerland 5% 8%
New Zealand 4% 3%
Sweden 3% 3%
Denmark 3% 4%
Japan 2% -
Belgium 1% -
Australia - 5%
Cash - 1%
Source: Northern Trust
The table above illustrates how the regional exposure in terms of country of
listing has changed during the year. The USA is the largest country exposure
and increased further due to the outperformance of the country relative to
other developed markets in 2024. The other countries to change meaningfully
are Switzerland, after the acquisition of Inficon, Australia, after the sale
of Dominos Pizza Enterprises and TechnologyOne and Japan, with Monotaro being
our first direct exposure to the country.
The geographical weighting that we pay most attention to though is the
economic exposure of our companies, measured by the origin of revenue (below).
Here, one can see that portfolio changes have meant that the exposure to North
America now more closely matches the listed weighting, as our US based
acquisitions have more domestic exposure as a proportion of their business
than the ones which were sold. The exposure to Europe has decreased in line
with this change while the exposure to emerging markets was little changed.
Source of Revenue 31 December 31 December
2024 2023
(%) (%)
North America 51% 41%
Europe 27% 34%
Asia Pacific 17% 19%
Eurasia, Middle East, Africa 3% 4%
Latin America 2% 2%
Source: Fundsmith
In closing, the performance of the portfolio this year is far from what we
expect. But with a systematic and disciplined focus on where we hope to find
exciting opportunities and an incessant determination to leave no stone
unturned in our pursuit of attractive long term investments, we feel confident
about the future of the Trust and appreciate your continued support.
Simon Barnard
Fundsmith LLP
Investment Manager
5 March 2025
Investment Portfolio
Investments held as at 31 December 2024
Security Country of Fair value %
incorporation
£'000
of investments
Diploma UK 115,514 5.3
Verisign USA 103,194 4.9
Rational Germany 94,541 4.4
Verisk Analytics USA 91,858 4.3
Moncler Italy 87,428 4.1
Fisher & Paykel Healthcare New Zealand 84,674 4.0
Choice Hotels USA 83,275 3.9
MSCI USA 79,819 3.8
Geberit Switzerland 79,809 3.8
Clorox USA 79,602 3.7
Top 10 Investments 899,714 42.2
Graco USA 76,701 3.6
Spirax-Sarco Engineering UK 75,934 3.6
Recordati Italy 75,632 3.6
Equifax USA 73,939 3.5
Sabre USA 62,485 2.9
Qualys USA 61,351 2.9
Halma UK 61,240 2.9
Ambu Denmark 61,231 2.9
IDEX USA 60,613 2.8
Exponent USA 59,443 2.8
Top 20 Investments 1,568,283 73.7
Rollins USA 59,161 2.8
Oddity Israel 53,933 2.5
Paycom Software USA 52,732 2.5
Nemetschek Germany 50,711 2.4
HMS Networks AB Sweden 47,136 2.2
Croda UK 40,720 1.9
Fevertree Drinks UK 40,007 1.9
Reply Spa Italy 36,668 1.7
Medpace USA 33,831 1.6
Monotaro Japan 33,568 1.6
Inficon Switzerland 32,016 1.5
Doximity USA 30,283 1.4
Addtech Sweden 25,070 1.2
Melexis Belgium 22,922 1.1
Total Investments 2,127,041 100.0
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
As at the date of this Annual Report, the Company's investment policy
(including defined terms) is as set out in its IPO prospectus dated 17
September 2018.
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 £500 million and £15 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 issued 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.
Proposed Changes to the Investment Policy
As required by the UK Listing Rules, any material changes to the Company's
Investment Policy as set out above will require the approval of shareholders
by way of an ordinary resolution at a general meeting and the approval of the
FCA.
The Directors are proposing an amendment to the Company's Investment Policy in
a resolution at the Annual General Meeting of shareholders on 23 April 2025.
For more information, please see the Chairman's Statement above.
Hedging Policy
The Company will not use portfolio management techniques such as interest rate
hedging and credit default swaps.
Additionally, derivatives will not be used for currency hedging or 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):
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.
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.
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 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. Please see above for the investment objective and
approach.
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 ("APMs"). Please refer
to the APM section and Glossary in the full Annual accounts for definitions of
these terms and an explanation of how they are calculated.
Net asset value total return against the comparator index
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 comparator index.
The Company's net asset value per share at 31 December 2024 was 1,631.8p and
it reported a total loss after tax for the year of £8.1 million (2023:
£293.3 million profit), comprising a capital loss of £12.5 million (2023:
£290.3 million profit) and a revenue profit of £4.4 million (2023: revenue
profit of £3.0 million) (see below financial statements). Buying shares back
at a discount was accretive to NAV per share during the year. The net asset
value total return for the year to 31 December 2024 was 2.1%(1) and the
annualised net asset value for the period from listing on 19 October 2018 to
31 December 2024 was 8.2%(1). 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 11.5% and 8.3% respectively,
thus the Company underperformed the comparator index by 9.4 percentage points
for the year ended 31 December 2024 and underperformed the Index by 0.1
percentage points, annualised for the period from the Company's listing to the
year 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 2024 was 4.9%(1) and
the annualised share price total return for the period from listing on 19
October 2018 to 31 December 2024 was 6.6%(1), underperforming the MSCI World
SMID Cap Index comparator index by 6.6 percentage points and 1.7 percentage
points respectively. Further detail is given in the following section.
Premium/discount of share price to net asset value per share
The Board undertakes a regular review of the level of premium/discount. At the
31 December 2024, the discount of the Company's share price to the net asset
value per share was 9.1%(1), and the average discount to net asset value for
the year to 31 December 2024 was 11.5%. During the year the Company's shares
consistently traded at a discount to the net asset value. The Board seeks to
manage the premium/discount and generate value for shareholders through the
issue of shares at a premium to net asset value or repurchase of shares at a
discount to net asset value. To this end, the Company repurchased 29.2 million
ordinary shares at an average discount to the prevailing net asset value of
11.4%, for a cost of £413.9 million. Together, repurchases generated a
benefit to net asset value per share of approximately £50.9 million. The
decision and timing of any share issuance and/or buy-back is at the discretion
of the Board.
The average discount of the Company's share price to net asset value per share
in 2024 of 11.5% was in excess of the 10% threshold requiring the Directors to
consider whether to propose a continuation vote at the Annual General Meeting.
Accordingly, the Board will propose a resolution at the Annual General Meeting
that the Company continues to be an investment trust.
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.
Expressed as a percentage of average net asset value, the annualised ongoing
charges ratio for the year was 0.9% (2023: 0.9%)(1). 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. As part of this process, during 2024, the Management Engagement
Committee secured a reduction in the ongoing fees payable to the Depositary
and the administrator.
(1) These are APMs. Definitions of these and other APMs used in the Annual
Report, together with how these measures have been calculated, are disclosed
below.
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. 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. 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. A
review of the risk procedures and controls in place at the Investment Manager
and other key service providers is performed.
· Emerging risks, including macro economic emerging risks
that are considered to be significant, are discussed as part of this process
and as part of the Investment Manager's reviews and, so far as is practicable,
are mitigated.
The market and economic impacts of political and geopolitical risks such as
conflicts between Russia and Ukraine and in the Middle East, as well as the
results of relevant national elections continue to be monitored by the Board
with a focus on those that may impact the performance of companies in which
the Company invests. The Investment Manager and other key service providers
gave updates throughout the year on operational resilience and portfolio
exposure and impacts.
Each 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 Board receives quarterly reports from the Investment
Manager's Compliance officer and the depositary on any matters of regulatory
concern and developments;
· The Company Secretary briefs the Board on forthcoming
legislation/regulatory change that might impact on the Company. The auditor
also provides technical updates on matters such as developments in accounting
standards and regulatory and corporate governance changes and best practice;
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 and Emerging Risks
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 and liquidity. Any emerging risks
identified as part of the Audit Committees risk assessment, and that are
considered to be significant will be recorded in the Company's risk registers
either separately as a risk category or as part of current identified risks.
Investment Objective & Policy Risks
· The Company's investment objective may
become unattractive to investors or its investment policy may not be
successful in generating returns for investors.
· 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. Failure to do so may mean the Company
becomes unattractive to investors. This could lead to a situation in which the
continuation vote was not approved by shareholders at the Company's AGM.
· The Company may have significant exposure
to portfolio companies from certain business sectors or geographical regions.
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 34 companies with details of the geographic and
sector weightings given in the Investment Manager's Review.
Market Risks
· Price movements, economic 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.
· If conditions (such as those experienced
as a consequence of the current conflicts in Ukraine and Middle East)
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 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.
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.
· When selecting or reviewing investments,
the Investment Manager evaluates the prospects and risks, including climate
change risks, that could affect these companies.
· 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.
· Inadequate business continuity and disaster recovery
arrangements at key third party service providers could cause significant
disruptions to the operation of the Company's business.
Mitigation
· The Company has appointed experienced
service providers, each of whom has a service agreement. The Board reviews the
performance of the Investment Manager and depositary at each quarterly Board
meeting and the performance of all key service providers is reviewed annually
by the Management Engagement Committee. Cyber risk management questions are
incorporated in this review to confirm the existence and application of cyber
security controls and procedures. The Company's key service providers confirm
periodically to the Board that they have in place business continuity plans
and procedures to mitigate the impact on the Company of a disruption in
service.
· The procedures of the depositary and
custodian are reviewed and tested by their external auditors and such reports
on the service providers' control environment are made available to clients.
These reports are also reviewed by the Audit Committee and where any control
failures are identified, the key service provider is required to explain and
provide assurance to the Company on any impact or potential risk to the
Company and its mitigation.
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 (see note 17 to the financial statements). Finally, the
Investment Manager has plans in place to ensure continuity in the event of the
departure of key individuals.
Regulatory Risk
· 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 Association of Investment Companies Code of Corporate
Governance (the "AIC Code") and the UK 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 UK 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 and emerging risks and uncertainties, including
the economic and market conditions, current and anticipated inflation and
interest rates and economic impacts arising from the continuing wars in
Ukraine and the Middle East, 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. At 31 December 2024 the Company had net assets of £2,130 million
of which £2,127 million was held in listed investments and £3.0 million in
cash (see Statement of Financial Position). The Board therefore has
substantial options to meet the Company's continuing obligations as well as
supporting the Company's buyback programme.
As the Company's shares traded during 2024 at an average discount of more than
10%, shareholders will be given the opportunity to vote on the Company's
continuation in its present form at the forthcoming AGM. At the 2024 AGM, a
similar resolution for the Company to continue in its present form was
approved by 90% of the votes cast. Given the performance of the Company and
feedback from stakeholders, including the Company's broker and major
shareholders, the Board has no reason to believe that the continuation vote
will not be approved.
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. At the time of consideration, no
such changes in taxation arrangements are planned.
The Directors have assumed that:
· the Board will not change the Company's
investment objective of providing shareholders with long-term growth in value;
· the performance of the Company will continue to be
satisfactory such that the shareholders will want the Company to continue in
existence; 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.
Section 172 and Non-financial Disclosures
Engaging with the Company's Stakeholders
The following disclosures are required under section 172 of the Companies Act
2006 "s172") and endorsed by the AIC Code. They describe how the Directors
promoted the success of the Company for the benefit of its members as a whole
and have had regard to the interests of the Company's stakeholders in their
decision making.
The Board sets the Company's strategy and objectives, taking into account the
interests of all its stakeholders. It is ultimately responsible for the
direction, management, performance and long-term sustainable success of the
Company. A good understanding of the Company's stakeholders and regular
engagement enables the Board to consider the potential impact of strategic
decisions on each stakeholder group during the decision-making process.
When considering the Company's purpose, vision and values, together with its
strategic priorities, the Board aims for its decisions to be fair and take
account of the interests of the key stakeholder groups, together with the
impact of its operations on the community and environment through its
investment activities.
Set out below is an explanation of how the Board approaches stakeholder
engagement: why we engage and how we go about it. Below this table is also a
summary of the material engagements we have had with stakeholders during the
year ended 31 December 2024.
Who? Why? How?
Stakeholder group The benefits of engagement with the Company's Stakeholders How the Company, the Manager and the Company Secretary engage with the
Company's Stakeholders
Investors Regular communication with existing and prospective shareholders ensures that The Chairman, Investment Manager and Broker meet with shareholders on a
the Board is cognisant of investor priorities and addresses any concerns regular basis. The Board also receives written policies on governance and
raised. stewardship from some of its larger investors and, at its quarterly meetings,
receives feedback from the Investment Manager and Broker on meetings they have
Clear communication of the Company's strategy and the performance against the attended with investors. The Directors take into account the proxy voting
Company's objective can help maintain demand for the Company's shares and agencies' guidelines to assess the voting recommendations published to
promote an investor base that is interested in a long-term holding in the shareholders ahead of the AGM. This is a helpful tool to understand investors'
Company. views on certain resolutions.
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.
Shareholders are encouraged to attend the Company's AGM where they can
question the Board and representatives of the Investment Manager. The Chairs
of the Board's Committees will also normally attend the AGM, to engage with
shareholders on significant matters related to their areas of responsibility.
Should in any financial year, the Company's share price trade at an average
discount to its NAV of greater than 10%, shareholders will be given the
opportunity to vote on the continuation of the Company in its present form at
the next AGM. If the continuation resolution is not 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.
Shareholders are invited to contact the Chairman, or any other member of the
Board at any time by writing to the Company Secretary. Alternatively, the
Chairman can be emailed at the following address:
smithsonchairman@fundsmith.co.uk.
Investment Manager The Investment Manager is the most significant service provider of the The Board receives regular reports from the Investment Manager, discusses the
Company, and a description of its role can be found in the Report of the portfolio at each Board meeting as well as maintaining a constructive dialogue
Directors in the published Annual Accounts. between meetings. The reports from the Investment Manager include compliance
and risk management reports.
Engagement with the Company's Investment Manager is necessary to review
whether it is achieving the Company's objective and adhering to the Company's A representative of the Investment Manager also attends each quarterly Board
policies and to understand the Company's risks and opportunities. meeting and most ad hoc meetings.
Additionally, the Board holds a strategy session at which the Board and
Investment Manager discuss key issues outside the normal Board reporting
framework.
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 in
the Company's published annual accounts.
Other Key Service Providers The Board has outsourced all its operations to the Investment Manager and The Board receives regular reporting from key service providers. In addition,
other key service providers such as the fund administrator, depositary and on a periodic basis, key service providers are invited to present at
custodian, registrar, broker and Company Secretary. To ensure the smooth Management Engagement Committee or Board meetings at which any concerns can be
operation of the Company, the Board engages with such key service providers discussed.
and monitors their performance to ensure they are delivering their services in
line with their contractual obligations. The Board also seeks assurance of high standards of governance from its
service providers including reviewing the external audits of their internal
Reporting from the Company's broker, auditor and Company Secretary alerts the control environments where appropriate, and ascertaining whether they maintain
Board to proposed changes in regulations and market practice. This helps the appropriate disaster recovery plans as well as policies on whistleblowing, tax
Board plan and manage risks as well as complying with relevant regulations. evasion, human rights, modern slavery and bribery as part of its service
provider annual review.
The Management Engagement Committee reviews the performance of service
providers and receives feedback from the Investment Manager and Company
Secretary on their interaction with service providers. The Board periodically
reviews the market rates for services provided, to ensure that the Company
continues to receive high quality services at a competitive cost.
Investee Companies The Investment Manager focuses on investing in those companies it believes can The Investment Manager regularly engages with the management of the investee
compound in value over the long term. companies and updates the Board on the outcome of such engagement at each
Board meeting, along with details of its stewardship responsibilities.
As a long-term investor, engagement with investee companies helps develop a
detailed understanding of how sustainable their business models are and the The Board periodically reviews Fundsmith's policy on Responsible Investment
variety of risks, including emerging risks, and opportunities that may and its Stewardship reports.
influence their performance, including ESG matters and their impact on local
communities and the environment.
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 Investment Manager can try to influence
investee companies' policies where it considers there is scope for
improvement.
During the year, the Board took account of stakeholder engagement in the
following decision-taking:
· In response to the level of discount of the Company's share
price to Net Asset Value, the Chairman and Broker discussed the discount
management policy with some of the Company's larger shareholders. Following
such meetings, the Board, in consultation with its advisers increased its rate
of buying back shares. The main aim was to provide increased market liquidity,
dampen share price volatility at the same time as gaining some NAV accretive
benefit.
· At the 2024 AGM the Directors proposed and authority was
granted to buy back up to 23,568,470 ordinary shares, representing 14.99% of
the ordinary shares in issue as at 4 March 2024, the latest practicable date
before publication of the Notice of AGM. This authority was substantially
utilised by December 2024. Following shareholders' feedback on the buyback
programme and after consultation with the Company's advisors, the Board issued
in December 2024 a notice of General Meeting to propose that authority be
granted by shareholders for the Company to purchase a further 19,390,761
ordinary shares, representing 14.99% of the ordinary shares in issue if the
existing buy-back authority was utilised in full and no new shares were
issued. This authority was duly granted on 17 January 2025.
· During 2023, the Company's share price traded at an average
discount to the NAV of more than 10%. Following engagement with shareholders,
the Board agreed, in consultation with its advisers, to put forward an
ordinary resolution at the 2024 AGM in favour of continuation although it was
not required to do so. The resolution was subsequently passed with 90% of the
votes cast in favour. The Board has since resolved that, where such
circumstances arise in the future, the Board will automatically put such a
vote to shareholders at the following AGM.
· During the year, the Board undertook a review of the
Company's broking arrangements and following this review appointed J.P. Morgan
Cazenove as the Company's broker.
· During the year, the Management Engagement Committee
undertook a review of the Company's service providers and following this
secured a reduction in the ongoing costs of the administrator and depositary.
Active Ownership
Active ownership is an important component of Fundsmith's risk management
process after it invests in a business. The portfolio manager regularly
engages with investee companies to promote a long-term mindset for capital
allocation and appropriate controls across the suite of risks the investee
company may face. Fundsmith uses engagement to understand management's
perspective, assess their handling of a variety of issues and to raise any
concerns regarding their approach or outcomes, when appropriate. Fundsmith
also uses its proxy votes to protect and enhance the value of the Company's
investments, supporting or opposing the investee company when necessary. The
investment management team assesses votes and engagements on a case-by-case
basis themselves and doesn't outsource the decision to other departments or
use any advisory services. Fundsmith uses both engagement and proxy voting to
support decisions that benefit the long-term performance of the business.
During the year to 31 December 2024, 406 votes were cast by the Investment
Manager of which 97% were voted in favour of the resolution and 3% against. Of
the 406 votes cast, 30 related to management remuneration and the Investment
Manager voted against the company management on 40% of these. For more
information on Fundsmith's approach, see Fundsmith's 2023 Stewardship Report
at www.smithson.co.uk/documents.
Taskforce for Climate Related Financial Disclosures ("TCFD")
The Company notes the TCFD recommendations on climate related financial
disclosures. The Company is an investment company and, as such, it is exempt
from the UK Listing Rules requirement to report against the TCFD framework.
Disclosure concerning Greenhouse Gas Emissions ("GHG") for the year ended 31
December 2024
The Company is an investment trust, with neither employees nor premises, and
the Company has no financial or operational control of the investee companies'
underlying assets. It has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions producing
sources under the Companies Act 2006 (Strategic Reports and Directors'
Reports) Regulations 2013 or the Companies (Directors' Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018, including
those within the Company's underlying investment portfolio.
Consequently, the Company consumed less than 40,000 kWh of energy during the
year in respect of which the Report of the Directors is prepared and therefore
is exempt from the disclosures required under the Streamlined Energy and
Carbon Reporting criteria.
Company Culture and Values
Corporate culture for an externally-managed investment trust refers to the
beliefs and behaviours that determine how the Directors interact with one
another and how the Board manages relationships with shareholders and key
service providers, such as the Investment Manager. The culture is defined by
the values which are set out below. The s172 report included in this Strategy
and Business Review provides further details of how the Board has operated in
this regard.
The Board is mindful that it is overseeing the management of a substantial
investment portfolio on behalf of investors. In many cases, the investment in
the Company may represent a large proportion of an individual's savings. All
the Directors are invested in the Company, with the exception of the Chairman,
and as such, their interests are aligned with those of fellow shareholders in
this regard. It is the intention that the Chairman, following their recent
appointment, to purchase shares once the Company is out of the closed period.
Our approach to governing the Company is underpinned by our determination to
do the right thing for our shareholders. Key to this is having a constructive
relationship with them, through regular updates, half-yearly and annual
reports, and the opportunity to meet with them at the Annual General Meeting.
We also believe in having strong relationships with our key service providers,
one based on mutual trust and respect, with constructive challenge when
required. Below is a summary of the Board's most important 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.
Integrity and Ethics
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 four Directors, of whom
two are male and two are female. The Board's policy on diversity is contained
in the Corporate Governance Report of the Annual Report.
Dividend policy
The Company's intention is to look for overall return rather than seeking any
particular level of dividend, however, the Company will comply with the
investment trust rules which require the Company to distribute the majority of
its revenue profit after tax.
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.
When the Company is 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.
Strategic Report
The Strategic Report set out in the Annual Report was approved by the Board of
Directors.
On behalf of the Board
Mike Balfour
Chairman
5 March 2025
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 United Kingdom adopted international
accounting standards. The financial statements also comply with International
Financial Reporting Standards (IFRSs) as issued by the 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 2024; 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
Mike Balfour
Chairman
5 March 2025
Financial Statements
Statement of Comprehensive Income
For the year ended For the year ended
31 December 2024
31 December 2023
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Income from investments held
at fair value through profit or loss 2 28,699 - 28,699 31,116 - 31,116
(Losses)/gains on investments
held at fair value through profit or loss 9 - (11,179) (11,179) - 291,600 291,600
Foreign exchange losses (72) (668) (740) (136) (656) (792)
Investment management fees 4 (18,505) - (18,505) (20,280) - (20,280)
Other expenses and transaction costs 5 (1,546) (636) (2,182) (1,532) (650) (2,182)
(Loss)/profit before tax 8,576 (12,483) (3,907) 9,168 290,294 299,462
Tax 6 (4,205) - (4,205) (6,144) - (6,144)
(Loss)/profit for the year 4,371 (12,483) (8,112) 3,024 290,294 293,318
(Loss)/return per share 7 3.00 (8.57) (5.57) 1.82 175.02 176.84
(basic and diluted) (p)
The Company does not have any income or expenses which are not included in the
(loss)/return for the year.
All of the (loss)/return 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
Notes As at 31 December 2024 As at 31 December 2023
£'000 £'000
Non-current assets
Investments held at fair value through profit or loss 9 2,127,041 2,538,953
Current assets
Trade and other receivables 10 5,080 1,851
Cash and cash equivalents 3,036 16,579
8,116 18,430
Total assets 2,135,157 2,557,383
Current liabilities
Trade and other payables 11 (5,260) (5,445)
Total assets less current liabilities 2,129,897 2,551,938
Equity attributable to equity shareholders
Share capital 12 1,771 1,771
Share premium 13 1,719,487 1,719,487
Capital reserve 407,893 834,305
Revenue reserve 746 (3,625)
Total equity 2,129,897 2,551,938
Net asset value per share (p) 14 1,631.8 1,598.0
The financial statements were approved by the Board on 5 March 2025 and were
signed on its behalf by:
Mike Balfour
Director
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 2024
Notes Share Share Capital Revenue Total
Capital Premium Reserve(*) Reserve(*) £'000
£'000 £'000 £'000 £'000
Balance at 1 January 2024 1,771 1,719,487 834,305 (3,625) 2,551,938
Ordinary shares bought back and held in treasury - - (411,747) - (411,747)
Costs on buybacks - - (2,182) - (2,182)
(Loss)/profit for the year - - (12,483) 4,371 (8,112)
Balance at 31 December 2024 12 1,771 1,719,487 407,893 746 2,129,897
For the year ended 31 December 2023
Notes Share Share Capital Revenue Total
Capital Premium Reserve(*) Reserve(*) £'000
£'000 £'000 £'000 £'000
Balance at 1 January 2023 1,771 2,219,487 203,358 (6,649) 2,417,967
Ordinary shares bought back and held in treasury - - (158,506) - (158,506)
Costs on buybacks - - (841) - (841)
Transfer of share premium(#) - (500,000) 500,000 - -
Profit for the year - - 290,294 3,024 293,318
Balance at 31 December 2023 12 1,771 1,719,487 834,305 (3,625) 2,551,938
(#) On 28 February 2023, High Court approval was obtained to reduce the
Company's share premium by £500 million. The capital reduction, resulted in a
corresponding increase in the Company's distributable reserves.
* Distributable reserve.
The accompanying notes are an integral part of these financial statements.
Statement of Cash Flows
Notes For the year ended For the year ended
31 December 2024 31 December 2023
£'000 £'000
Operating activities
(Loss)/profit before tax (3,907) 299,462
Adjustments for:
Losses/(gains) on investments held at
fair value through profit or loss 9 11,179 (291,600)
Increase in receivables (242) (90)
Decrease in payables (230) (70)
Overseas taxation (4,205) (4,334)
Net cash generated from operating activities 2,595 3,368
Investing activities
Purchases of investments 9,11 (423,193) (368,464)
Sale of investments 9,10 819,465 514,316
Net cash generated from investing activities 396,272 145,852
Financing activities
Purchase of shares held in treasury 12 (410,228) (156,389)
Costs relating to buy backs 12 (2,182) (841)
Net cash used in financing activities (412,410) (157,230)
Net decrease in cash and cash equivalents (13,543) (8,010)
Cash and cash equivalents at start of the year 16,579 24,589
Cash and cash equivalents at end of the year 15 3,036 16,579
Comprised of:
Cash at bank 3,036 16,579
Dividends and interest received in cash during the year amounted £27,841,000
and £623,000 (2023: £30,292,000 and £755,000), 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 July 2022). They have also been prepared on the assumption that approval as
an investment trust will continue to be granted. As during 2024 the Company's
shares traded at an average discount of more than 10%, shareholders will be
given the opportunity to vote on the Company's continuation in its present
form at the forthcoming AGM. At the 2024 AGM shareholders, 90% of the votes
cast were in favour of continuation. In considering the going concern of the
Company, the Board have considered the performance of the Company since
inception, the proposed amendment to the Company's investment policy, feedback
from stakeholders, including the Company's broker and major shareholders and
the Board is satisfied that it is appropriate to adopt the going concern basis
of accounting in preparing the financial statements for at least 12 months
from the date of approval of these financial statements (see above for further
details on going concern). 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 on cash at bank 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 in equity instruments are classified upon initial recognition as
financial assets measured 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 in 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 at their ex-dividend date. 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
expected 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 arises 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.
Treasury shares
Treasury shares are recognised at cost as a deduction from equity
shareholders' funds. Subsequent consideration received for the sale of such
shares is also recognised in equity, with any difference between the sale
proceeds and the original cost being taken to share premium account. No gain
or loss is recognised in the financial statements on transactions in treasury
shares.
(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 will be effective in the future
accounting periods.
· Amendment to IAS 21 'Lack of Exchangeability' (effective
for annual reporting periods beginning on or after 1 January 2025).
· Amendment to IFRS 9 and IFRS 7 'Classification and
Measurement of Financial Instruments' (effective for annual reporting periods
beginning on or after 1 January 2026).
· Amendment to Annual improvements to IFRS - Volume 11
(effective for annual reporting periods beginning on or after 1 January 2026).
· Amendment to IFRS 18 'Presentation and Disclosures in
Financial Statements' (effective for accounting periods beginning on or after
1 January 2027).
· Amendment to IFRS 19 'Subsidiaries without Public
Accountability: Disclosures' (effective for accounting periods beginning on or
after 1 January 2027).
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
interpretations and amendments to standards:
· Amendments to IAS 1, IFRS 16, IAS 17, IAS 7 and IFRS 7
(effective for accounting periods beginning on or after 1 January 2024).
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
2024 2023
£'000 £'000
UK dividends 5,865 7,626
Overseas dividends 22,165 20,843
Overseas dividends - special 75 1,836
Bank interest 594 811
Total 28,699 31,116
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
2024 2023
£'000 £'000
Investment management fee 18,505 20,280
As at 31 December 2024, an amount of £1,430,000 (2023: £1,599,000) was
payable to the Investment Manager. Details of the terms of the Investment
Management Agreement are provided in the Company's published annual accounts.
5. Other expenses
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Transaction costs on investments held at fair value through profit or loss - 636 636 - 650 650
Directors' fees 158 - 158 150 - 150
Employer national insurance contributions 12 - 12 13 - 13
Auditor fees in relation to audit 50 - 50 48 - 48
Tax compliance fee 11 - 11 9 - 9
Registrar fees 51 - 51 38 - 38
Broker fees 48 - 48 40 - 40
Company secretarial fees 135 - 135 129 - 129
Custody fees 182 - 182 179 - 179
Depositary fees 224 - 224 235 - 235
Postage and printing 30 - 30 28 - 28
Legal fees 53 - 53 38 - 38
Fund administration fees 336 - 336 364 - 364
Other expenses 256 - 256 261 - 261
Total Expenses 1,546 636 2,182 1,532 650 2,182
Transaction costs on investments held at fair value through profit or loss
represent such costs incurred on both purchases and sales of those
investments. Transaction costs on purchases amounted to £368,000 (2023:
£505,000) and on sales amounted to £268,000 (2023: £145,000).
No non-audit fees were paid during the year to Deloitte LLP by the Company
(2023: nil).
6. Taxation
(a) Analysis of tax charge in the year
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Taxation on ordinary activities
Irrecoverable overseas withholding tax 4,205 - 4,205 6,144 - 6,144
Total tax 4,205 - 4,205 6,144 - 6,144
(b) The tax charge for the year is lower than the standard rate of corporation
tax in the UK of 25%. The differences are explained below:
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Loss)/profit before tax 8,576 (12,483) (3,907) 9,168 290,294 299,462
Corporation tax at standard rate of 25% (2023: 23.52%*) 2,144 (3,121) (977) 2,156 68,277 70,433
Effects of:
UK dividends (1,466) - (1,466) (1,794) - (1,794)
Overseas dividends (5,560) - (5,560) (5,334) - (5,334)
Interest income (149) - (149) (191) - (191)
Net losses/(gains) on investments held at fair value through profit or loss - 2,795 2,795 - (68,584) (68,584)
Expenses disallowed 18 326 344 32 307 339
Deferred tax asset not recognised 5,013 - 5,013 5,131 - 5,131
Total corporation tax - - - - - -
Irrecoverable overseas withholding tax 4,205 - 4,205 6,144 - 6,144
Total tax 4,205 - 4,205 6,144 - 6,144
* With effect from 1 April 2023, the main rate of corporation tax increased
from 19% to 25%, therefore the hybrid rate of 23.52% was used for 2023.
As at 31 December 2024, the Company had unrecognised tax losses of £124.3
million (2023: £104.2 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:
2024 2023
Revenue Capital Total Revenue Capital Total
(Loss)/profit for the year (£'000) 4,371 (12,483) (8,112) 3,024 290,294 293,318
(Loss)/return per ordinary share (p) 3.00 (8.57) (5.57) 1.82 175.02 176.84
Return per share is calculated based on returns for the year and the weighted
average number of 145,572,236 ordinary shares in issue from 1 January 2024 to
31 December 2024 (2023: 165,863,972).
8. Dividends
(a) Dividends paid in the year
No dividends were paid during the year to 31 December 2024 (2023: nil).
(b) Dividends payable in respect of the financial year, which is the basis on
which the requirements of s1158-1159 of the Corporation Tax Act 2010 are
considered
2024 2023
Rate £'000 Rate £'000
Proposed final dividend for the year 0.58p 732(1) - -
1 Based on the 126,224,987 ordinary shares ranking for dividend on 3 March
2025 (the latest practicable date before publication of the annual Report).]
9. Investments held at fair value through profit or loss
All gains and losses arise on investments designated as fair value through
profit or loss which is how the investments are classified upon initial
recognition.
As at 31 December 2024 2023
£'000 £'000
Opening book cost 2,232,394 2,353,438
Opening investment holding gains 306,559 40,410
Opening fair value at 1 January 2,538,953 2,393,848
Purchases at cost 421,719 367,539
Sales - proceeds (822,452) (514,034)
(Losses)/gains on investments (11,179) 291,600
Closing fair value at 31 December 2,127,041 2,538,953
Closing book cost at 31 December 1,941,263 2,232,394
Closing unrealised gains at 31 December 185,778 306,559
Valuation at 31 December 2,127,041 2,538,953
The Company received £822,452,000 (2023: £514,034,000) excluding transaction
costs from investments sold in the year. The book cost of the investments when
they were purchased was £713,486,000 (2023: £489,233,000) 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:
· Level 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
2024
Level 1 Level 2 Level 3 Total
As at 31 December £'000 £'000 £'000 £'000
Investments held at fair value through profit or loss 2,127,041 - - 2,127,041
Total 2,127,041 - - 2,127,041
2023
As at 31 December Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through profit or loss 2,538,953 - - 2,538,953
Total 2,538,953 - - 2,538,953
10. Trade and other receivables
As at 31 December 2024 2023
£'000 £'000
Accrued income 345 251
Securities sold receivable 4,466 1,479
Other receivables 269 121
5,080 1,851
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. Trade and other payables
As at 31 December 2024 2023
£'000 £'000
Securities purchased payable - 1,474
Investment management fee payable 1,430 1,599
Payable on repurchase of ordinary shares into treasury 3,636 2,117
Other payables 194 255
5,260 5,445
12. Share capital
2024 2023
As at 31 December Ordinary Treasury Total Nominal Ordinary Treasury Total Nominal
Shares Shares Shares Value Shares Shares Shares Value
Number Number Number £'000 Number Number Number £'000
Issued, authorised,
allotted and
fully paid (ordinary
shares of £0.01)
Ordinary shares in
issue at 1 January 159,692,958 17,415,000 177,107,958 1,771 171,407,958 5,700,000 177,107,958 1,771
Ordinary shares
bought back and held
in treasury (29,165,889) 29,165,889 - - (11,715,000) 11,715,000 - -
130,527,069 46,580,889 177,107,958 1,771 159,692,958 17,415,000 177,107,958 1,771
During the year ended 31 December 2024, the Company issued no shares (2023:
nil).
During the year ended 31 December 2024, the Company bought back to hold in
treasury 29,165,889 shares (31 December 2023: 11,715,000) at an aggregate cost
of £413,929,000 (31 December 2023: £159,437,000). At the year end, the
Company held 46,580,889 (31 December 2023: 17,415,000) shares in treasury.
Details of the shareholder authorities granted to Directors to issue and buy
back shares during the year are provided in the Company's published accounts.
13. Share premium account
As at 31 December 2024 2023
£'000 £'000
Balance at 1 January 1,719,487 2,219,487
Transfer of share premium - (500,000)
1,719,487 1,719,487
On 28 February 2023, High Court approval was obtained to reduce the Company's
share premium by £500 million. The capital reduction resulted in a
corresponding increase in the Company's distributable reserves.
14. Net asset value per share
As at 31 December 2024 2023
Net asset value £2,129,897,000 £2,551,938,000
Shares in issue (excluding shares held in treasury) 130,527,069 159,692,958
Net asset value per ordinary share 1,631.8p 1,598.0p
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:
2024 2023
As at 31 December £'000 £'000
Cash and cash equivalents 3,036 16,579
Receivables 5,080 1,851
8,116 18,430
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.
As at 31 December 2024 2023
£'000 £'000
Australian Dollar - 123,534
Danish Krone 61,231 93,674
Euro 367,902 427,085
Japanese Yen 33,681 -
New Zealand Dollar 84,674 77,700
Swedish Krona 72,207 77,613
Swiss Franc 111,825 213,480
US Dollar 1,062,331 1,152,786
1,793,851 2,165,872
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 2024, an exchange rate move of +/-5% (2023: +/-5%) against
sterling which is a reasonable approximation of possible changes would have
increased or decreased total net assets and total return by £89,693,000
(2023: £108,294,000).
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 £3,036,000 (2023: £16,579,000) 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 2024 the interest rate was 1.8% (2023: 2.8%).
From interest earned on the Company's 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
£15,000 (2023: £83,000). 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% (2023: 20%) at 31 December 2024,
the impact on profit or loss and net assets would have been negative
£425,408,200 (2023: £507,790,600). An increase of 20% (2023: 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.
2024 2023
As at 31 December £'000 £'000
Assets at fair value through profit or loss 2,127,041 2,538,953
Cash and cash equivalents 3,036 16,579
Investment income receivable 345 251
Securities sold receivable 4,466 1,479
Other receivables 269 121
Payables (5,260) (5,445)
Net assets 2,129,897 2,551,938
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 2024 held
£3,036,000 (2023: £16,579,000) 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 £2,129,897,000 (2023:
£2,551,938,000).
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 2024 there were no contingent liabilities or capital
commitments (2023: 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 £157,500 (2022:
£150,000), 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
Company's published Annual Report.
Terry Smith and other founder partners and key employees of the AIFM and
Investment Manager directly or indirectly and in aggregate, held 3,026,672
(2023: 2,710,915) shares in the Company amounting to 2.3% (2023: 1.7%) of the
issued share capital of the Company as at 31 December 2024.
18. Events after the reporting period
Since the year end and up to 3 March 2025 (the latest practicable date before
publication of the Annual Report), the Company has bought back to hold in
treasury 4.3 million ordinary shares at an aggregate cost of £66.0 million.
Alternative Performance Measures ("APMs")
APMs are often used to describe the performance of investment companies
although they are not specifically defined under IFRS. APM calculations for
the Company are shown below. The Board believes that each of the APMs, which
are typically used within the investment trust sector, provide additional
useful information to shareholders in order to assess the Company's
performance between reporting periods and against its peer group.
Discount
The amount, expressed as a percentage, by which the share price is less than
the NAV per ordinary share.
As at 31 December As at 31 December
2024 2023
NAV per ordinary share a 1,631.8p 1,598.0p
Share price b 1,484.0p 1,415.0p
Discount (b-a)/a 9.1% 11.5%
Total return
A measure of performance that includes both income and capital returns. In the
case of share price total return, this takes into account share price
appreciation and dividends paid by the Company. In the case of NAV total
return, this takes into account NAV appreciation (net of expenses) and
dividends paid by the Company.
Year ended 31 December 2024 Share price NAV
Opening at 1 January 2024 a 1,415.0p 1,598.0p
Closing at 31 December 2024 b 1,484.0p 1,631.8p
Total return (b/a)-1 4.9% 2.1%
Year ended 31 December 2023 Share price NAV
Opening at 1 January 2023 a 1,308.0p 1,410.7p
Closing at 31 December 2023 b 1,415.0p 1,598.0p
Total return (b/a)-1 8.2% 13.3%
Period from Company's listing on Share price NAV
19 October 2018 to 31 December 2024
Opening at 19 October 2018 a 1,000.0p 1,000.0p
Closing at 31 December 2024 b 1,484.0p 1,631.8p
Total return (b/a)-1 48.4% 63.2%
Annualised total return 6.6% 8.2%
Annualised total return
The annualised total return for a period is the average return earned on an
investment in the Company's shares for each year in that period, expressed by
reference to either share price or NAV.
Ongoing charges ratio and total cost of investment
Ongoing charges ratio is a measure, expressed as a percentage of average NAV
of the Company over a year, of the regular, recurring annual costs of running
an investment company (see note 4 and note 5 to the financial statements). The
Total Cost of Investment measures cost to investors incurred through the
Company's portfolio investment transaction costs (see note 5) and the
recurring annual costs of running the Company.
Year ended Year ended
31 December 2024 31 December 2023
Ongoing charges ratio £'000 £'000
Average NAV a 2,319,112 2,519,346
Annualised expenses b 20,051 21,812
Ongoing charges ratio (b/a) 0.86% 0.87%
Annualised investment transaction costs c 636 650
Annualised investment transaction costs ratio (c/a) 0.03% 0.03%
Total cost of investment 0.89% 0.90%
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 2024, which will be delivered to the Registrar of Companies.
The auditors have reported on the accounts for the year ended 31 December
2024, 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 2024 was approved by the
Board on 5 March 2025. 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 23 April 2025 at the
Max Rayne 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.
5 March 2025
Secretary and registered office:
Apex Listed Companies Services (UK) Limited
4th Floor
140 Aldersgate St
London
EC1A 4HY
For further information contact:
Apex Listed Companies Services (UK) Limited
Tel: 020 3327 9720
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