Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Smithson Investment Trust plc

6th Floor

125 London Wall

London

EC2Y 5AS

Small &

Mid Cap

Investments

That

Have

Superior

Operating

Numbers

Annual Report

for the year ended 31 December 2023

E smithson@fundsmith.co.uk

W www.smithson.co.uk

1

Strategic Report

2 Key Information

3 Performance Highlights

5 Chairman’s Statement

9 Investment Manager’s Review

16 Investment Portfolio

17 Investment Objective, Policy and

Investment Methodology

20 Sustainability and ESG

21 Business Review

23 Risk Management

26 Viability Statement

27 Non-Financial Information

2

Governance Report

32 Board of Directors

33 Report of the Directors

37 Corporate Governance Report

41 Statement of Directors’

Responsibilities

42 Audit Committee Report

45 Management Engagement Committee

Report

47 Directors’ Remuneration Report

3

Financial Statements

51 Independent Auditor’s Report

58 Statement of Comprehensive Income

59 Statement of Financial Position

60 Statement of Changes in Equity

61 Statement of Cash Flows

62 Notes to the Financial Statements

4

Further Information

75 Shareholder Information*

76 Alternative Investment Fund Managers

Directive Disclosures*

78 Alternative Performance Measures

80 Glossary of Terms*

83 How to Invest*

85 Company Information*

Contents

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

* Unaudited

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2

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Investment Objective

Smithson Investment Trust plc (the

“Company”) aims to provide

shareholders with long term growth in

value through exposure to a diversiﬁed

portfolio of shares issued by listed or

traded companies.

The Company’s investment policy is to invest in shares issued by small

and mid (“SMID”) sized companies with a market capitalisation (at

the time of initial investment) of between £500 million and £15 billion

on a long-term, global basis. The Company’s approach is to be a

long-term investor in its chosen stocks. It will not adopt short-term

trading strategies. It will pursue its investment policy by investing in

approximately 25 to 40 companies.

Investment Approach

1. Buy good companies

The Investment Manager focuses on investing in those companies

it believes can compound in value over many years. It seeks to

achieve this by selecting companies that have an established track

record of success, such as having already established a dominant

market share in their niche product or service or having brands or

patents which others would find difficult, if not impossible, to

replicate. The Investment Manager believes such SMID sized

companies tend to out-perform large companies and that there is

also an investment opportunity to take advantage of greater

discrepancies between the share price and valuation of SMID sized

companies, in part due to lighter research coverage and less

information being available on them. SMID sized companies tend

to have higher expected returns but also higher expected risk,

defined as price volatility (a measure of how much a company’s

price moves over time), when compared to larger companies.

However, adding a small and mid cap portfolio to a large cap

portfolio can raise expected returns without increasing risk, due to

the different risk and return characteristics that SMID sized

companies provide.

2. Don’t overpay

The Investment Manager seeks to invest in SMID sized companies

that exhibit strong profitability that is sustainable over time and

generate substantial cash flow that can be reinvested back into the

business. Its strategy is not to overpay when buying the shares of

such companies and then do as little dealing as possible in order

to minimise the expenses of the Company, allowing the investee

companies’ returns to compound for shareholders with minimum

interference.

3. Do nothing

The Investment Manager looks to avoid companies that are heavily

leveraged or forced to rely upon debt in order to provide an adequate

return, as well as sectors and industries that innovate very quickly

and are rapidly changing. It instead focuses on companies that have

exhibited an ability to continue outperforming competitors and will

look for companies that rely heavily on intangible assets in

industries such as information technology, health care and

consumer goods. The Company’s investments will be long-term and

the Investment Manager will not be forced to act when market prices

are unattractive. This will then facilitate the compounding of the

Company's investments over time as the companies continue to

reinvest their cash flows.

Company Policies

• Long term capital growth

The Company is focused on long term capital growth and overall

return rather than seeking any particular level of dividend. The

Company will only declare dividends to the extent required to

maintain the Company’s tax status as an investment trust.

• No hedging

The Company will not use derivatives for currency hedging or for any

other purpose.

• No gearing

The Company will not employ leverage save that it is permitted to

use short term banking facilities to raise funds for liquidity purposes

or for discount management purposes including the purchase of its

own shares. Any such borrowing will be limited to 15 per cent. of the

Company’s net asset value.

Strategic Report

Key Information

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3

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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

1 These are Alternative Performance Measures (“APMs”). Definitions of these, together with how these measures have been calculated, are disclosed on pages 78 to 79 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.

For the period from

Company’s listing on

For the year ended For the year ended 19 October 2018 to

31 December 2023 31 December 2022 31 December 2023

% change

2

% change

2

% change

2

NAV total return per share

1

+13.3% -28.1% +59.8

Share price total return

1

+8.2% -35.2% +41.5

Comparator index total return

3

+9.1% -8.7% +47.2

Ongoing charges ratio

1

0.9% 0.9% 1.0%

At At

31 December 2023 31 December 2022

Net assets £2,551,938,000 £2,417,967,000

Net asset value (“NAV”) per ordinary share (“share”) 1,598.0p 1,410.7p

Share price 1,415.0p 1,308.0p

Share price discount to NAV

1

11.5% 7.3%

At 31 December 2023 2022 2021 2020 2019

Net assets £2,551,938,000 £2,417,967,000 £3,367,070,000 £2,331,950,000 £1,437,305,000

NAV per ordinary share 1,598.0p 1,410.7p 1,961.0p 1,648.9p 1,255.2p

Share price 1,415.0p 1,308.0p 2,020.0p 1,710.0p 1,298.0p

Share price (discount)/

premium to NAV

1

(11.5)% (7.3)% 3.0% 3.7% 3.4%

Year ended 31 December

NAV total return

per share

1

+13.3% -28.1% +18.9% +31.4% +33.2%

Share price total return

1

+8.2% -35.2% +18.1% +31.7% +29.8%

Comparator index total

return

3

+9.1% -8.7% +17.8% +12.2% +21.9%

Ongoing charges ratio

1

0.9% 0.9% 1.0% 1.0% 1.0%

Performance Highlights

Strategic Report

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

1 Source: Bloomberg

2 Figures rebased to 1000 as at date of Company’s listing

Total return performance against NAV for the period from the Company’s listing on 19 October 2018 to 31 December 2023

1

Share price NAV

Launch

Nov-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

Jul-20

Aug-20

Sep-20

Oct-20

Nov-20

Dec-20

Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Jul-21

Aug-21

Sep-21

Oct-21

Nov-21

Dec-21

Jan-22

Feb-22

Mar-22

Apr-22

May-22

Jun-22

Jul-22

Aug-22

Sep-22

Oct-22

Nov-22

Dec-22

Jan-23

Feb-23

Mar-23

Apr-23

May-23

Jun-23

Jul-23

Aug-23

Sep-23

Oct-23

Nov-23

Dec-23

800

1000

1200

1400

1600

1800

2000

2200

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 2023

2

MSCI World SMID NAV

Launch

Nov-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

Jul-20

Aug-20

Sep-20

Oct-20

Nov-20

Dec-20

Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Jul-21

Aug-21

Sep-21

Oct-21

Nov-21

Dec-21

Jan-22

Feb-22

Mar-22

Apr-22

May-22

Jun-22

Jul-22

Aug-22

Sep-22

Oct-22

Nov-22

Dec-22

Jan-23

Feb-23

Mar-23

Apr-23

May-23

Jun-23

Jul-23

Aug-23

Sep-23

Oct-23

Nov-23

Dec-23

600

800

1000

1200

1400

1600

1800

2000

2200

4

Strategic Report

Performance Highlights

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 4

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Introduction

I am pleased to present the Annual Report of Smithson Investment

Trust plc (the “Company”) for the year ended 31 December 2023.

This is our fifth Annual Report since the inception of the C

ompany

in October 2018, and as five years is probably the minimum period

one could regard as being “long term”, it is appropriate to comment

on the Company’s performance over this period.

The Company’s Net Asset Value (“NAV”) per share has increased by

59.8%, an annualised rate of 9.4%. This represents an

outperformance compared with the Company’s reference index, the

MSCI World SMID Index, which has returned 47.2% over the same

period, an annualised rate of 7.7%. As the Investment Manager

points out in his report, this is the best performance of any

investment trust included within the AIC Global Smaller

Companiessector.

Investors in the Company hold shares which are traded on the

London Stock Exchange, and the price of the Company’s shares has,

since early in 2022, lagged below the NAV per share. This discount

widened during 2023 with the share price a

t the end of the year

11.5% lower than the NAV per share. This has adversely affected

the return that shareholders have been able to realise, with the

share price return over the period since inception amountin

g to

41.5%, an annualised return of 6.9%.

Performance in 2023

The Company’s NAV per share increased by 13.3% in the year,

outperforming the MSCI World SMID Inde

x by 4.2 percentage points.

This is a pleasing “return to form

” after the underperformance in

2022 – which is the only calendar year in which the Company has

underperformed the Index – and one which I hope provides

shareholders with confidence in the future. No investment strategy

can be expected to outperform in all market conditions, and although

the underperformance in 2022 was significant, it was short lived, and

reflected the combination of rising interest rates and the

characteristics of the portfolio at tha

t time. The Investment Manager’s

report discusses the performance

, the lessons learned in 2022 and

the action taken since then.

As I noted above, 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. The

discount, which at the beginning of the year was 7.3%, widened to

11.5% at the end of the year. This reduced the shar

e price total return

in 2023 to 8.2%, 0.9 percentage points lower than the Index return.

The Board’s actions in response to the discount are summarised

below.

Capital

The Company was floated on the premium list of the London Stock

Exchange (“LSE”) on 19 October 2018, breaking the record for the

largest IPO of an investment trust in the history of the LSE with funds

raised exceeding £822 million. The Company is a member of the

FTSE 250 index, and with 159.7 million shares in issue, the

Company’s market capitalisation at the end of 2023 was

£2.26billion.

For much of the period from inception through to March 2022 high

demand resulted in the Company’s shares trading at a premium to

net asset value. During this time, the Boar

d oversaw the issue of

new shares regularly to meet demand and to manage the premium.

When the Company’s shares started trading at a discount the Board,

in consultation with its advisers and the Investment Manager, took

action to mitigate the discount through the use of share buy backs.

During 2023 the Company bought back 11,715,000 shares at a

cost, including stamp duty and dealing charges of £159.3 million,

representing 6.8% of the shares outstanding at the start of the year.

Since the buyback programme commenced in early 2022 the

Company has bought back 19,065,000 shares representing 10.8%

5

Strategic Report

Chairman’s Statement

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 5

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

of the shares outstanding before the programme started. This is one

of the largest buyback programmes in the investment trust sector.

With the widening of the discount in the first half of 2023, the

Company increased its rate of buybacks in the secondhalf.

The buybacks in 2023 were at an average discount to NAV of 10.8%

and, since the start of the programme, at an average discount to

NAV of 10.2%. The buybacks are accretive for remaining

shareholders, and in 2023 generated approximately £18.0 million

of NAV accretion, equivalent to around 82.5% of the Company’s

2023 fees and expenses. As the Investment Manager’s fees are

based on the Company’s market capitalisa

tion rather than its net

asset value, the discount also reduced the investment management

fees during theyear.

While the programme has not sustainably reduced the discount, we

cannot of course say for certain what would have happened to the

Company’s share rating if we had not bought back shares; and we

have in any event secured NAV accretion, reduced share price

volatility and provided reassurance to the Company’s shareholders

and the wider market that the Board is cognisant of the need for a

proactive buyback policy. Discounts are a common problem across

the entire investment trust industry and the a

verage discount in the

AIC Global Smaller Companies sector widened to 13.6% at 31

December 2023.

As at 31 December 2022, the Company’s distributable reserves

available to fund share buybacks were £196.7 million. The Board

concluded that it was prudent to create further distributable

reserves to ensure there is no technical impediment to prevent the

Board from being able to continue to undertake share buybacks

when they feel they are appropriate. The Board therefore called a

General Meeting on 6 February 2023 at which shareholders passed

a special resolution to reduce the Company’s share premium

account and create £500 million additional distributable reserves.

The capital reduction was sanctioned by the High Court and

completed in March.

The Board intends to continue with its current programme of regular

market purchases while the shares trade at a material discount. All

shares purchased are held in Treasury and will only be reissued at

a premium to net asset value, net of all costs. Resolutions to replace

the existing authorities granted by shar

eholders to the Board to allot

new shares and buy back shares will accordingly be proposed at the

forthcoming Annual General Meeting.

Continuation Vote

The average discount in 2023 was 10.7%, in excess of the 10%

threshold requiring the Directors to consider whether to propose a

continuation vote at the Annual General Meeting.

The Directors, together with the Company’s advisers, and the

Investment Manager, have discussed this and concluded that it

would not be appropriate to put a continuation vote to the AGM.

Inmaking this decision, the Board noted that the level of discount

predominantly reflects broader market conditions and the fact that

the Company’s discount, albeit higher than the Board would like, is

lower than the average of its peers. This is ther

efore a market

problem rather than being specific to the Company. This decision

additionally reflects the Company’s str

ong NAV performance over

both the short and long term (both in absolute terms and relative to

the comparator index) as well as the Board’s confidence in the

future prospects of the Company.

Results and Dividends

The Company’s total profit after tax for the year was £293 million,

comprising a capital profit of £290 million and a revenue profit after

tax of £3 million.

The revenue profit after tax arises because the Company’s dividend

income in the year net of the withholding tax suffered was higher

than its operating expenditure. All the Company’s operating

expenditure (other than those expenses of a capital nature) is

charged to revenue, rather than a percentage being allocated to the

capital reserve. This reflects the Company’s objective of focusing on

capital growth which means that its accounting policy is not

designed to facilitate maximisation of revenue reserves and

dividend payments.

The Company’s cumulative revenue reserves were negative at

31December 2023, and therefore a dividend is not proposed by

the Board.

6

Chairman’s Statement

Strategic Report

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

The Company has never paid a dividend, and it should not be

expected that the Company will pay a significant annual dividend

and it is likely that no interim dividends will be declared. The Board

intends to declare such annual dividends as are necessary to

maintain the Company’s UK investment trust status.

Investment Approach

In common with all funds managed by Fundsmith, the Company has

a simple, focused strategy of investing in high-quality, listed

company shares, seeking not to overpay for those shares and then

holding them as long-term investments; the Company does not use

derivatives and has no borrowings.

The Company expects to hold between 25 and 40 investments; at

the year-end it held 33. The composition of the portfolio at

31 December 2023 is shown on page 16, and the Investment

Manager’s Review explains the investment approach, and the

performance and evolution of the portfolio in detail. Whilst the

Investment Manager has made adjustments to the portfolio in the

current year, the investment approach is unchanged.

Governance

The Board comprises four independent, non-executive directors.

Following Denise Hadgill’s appointment in June 2022, the Board

comprises two women and two men and accordingly meets the

gender diversity targets recommended for FTSE 250 listed

companies. The Company has a small Board which is appropriate

for the nature of its activities and as the Company was only formed

in 2018, its Board succession plan has not yet reached maturity.

As such, there has not yet been an appropriate opportunity to

appoint an ethnic minority Director to meet the FCA’s targets for

FTSE 250 listed companies. The Board has resolved that it is not in

shareholders’ best interests to increase the Board size simply to

achieve this target. Nevertheless, the Board recognises the benefit

of diversity and it hopes to be fully compliant with the FCA’s

guidelines when it makes its next Board appointment.

All Directors will stand for re-election at the AGM and details on our

background and experience are given on page 32.

Sustainability and Environment, Social and

Governance Considerations (“ESG”)

In recognition of investor interest in ESG matters the Board held a

meeting to review the Investment Manager’s approach to

responsible investment and how sustainability (including ESG

factors) is incorporated into the investment process. The Investment

Manager’s stewardship responsibilities were also discussed.

Whilst ESG matters are routinely reported by investment trusts,

there are a few observations I would make about how Fundsmith

approaches the area slightly differently. Firstly, the focus is on

whether an investee company’s business model is sustainable and

is capable of survivin

g economic cycles over the long term – which

includes, but is much broader than, a review of ESG factors.

Secondly the approach to stewardship is distinct. With a relatively

small portfolio of investments to oversee, the Investment Manager

is able to engage more regularly with all of the Company’s investee

company boards. Furthermore, there is no outsourcing of voting to

outside agencies or indeed to other Fundsmith departments; the

investment management team does it all itself. The people looking

after our money are therefore actively engaged in all aspects of

stewarding our investments. I personally find that most reassuring.

Fundsmith’s Stewardship Report 2022 is available on the Company’s

website, and Fundsmith’s application to remain a signatory to the

FRC’s Stewardship Code was approved in August 2023.

A statement from the Investment Manager’s on its Responsible

Investment policy and its application to the Company is included on

page 20.

7

Strategic Report

Chairman’s Statement

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8

Annual General Meeting (“AGM”) and Shareholder

Engagement

The Company will hold its AGM on 25 April 2024. My fellow directors

and I are keen to meet with shareholders, and we encourage

shareholders to come to the meeting. May I remind shareholders,

whether or not they are able to attend the AGM in person, that you

are welcome, at any time, to submit any questions you may have for

the Board at 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. A light lunch will be provided after the meeting.

We encourage shareholders to visit the Company’s website where

more information is available on the Company.

Outlook

Our portfolio manager concludes his review by stating that the team

ended the year with significant optimism for the future, reflecting

their view that the portfolio positioning is the best they believe it has

ever been, and that the interest rate cycle is almost certainly at its

peak. The Board shares that optimism.

The Board is pleased that our portfolio manager and his team

remain focused on the things they can control and remain resolute

in maintaining their investment approach. The stra

tegy of identifying

and owning high quality companies that are capable of sustainable

growth and that can compound in value over many years, has been

shown to work well over the long term through different economic

conditions.

The Board continues to have confidence that the Company’s

Investment Manager can execute the strategy successfully, and the

Board believes that as the Company offers investors exposure to

some of the best companies available globally in the small and

mid-cap sector, the long-term investor will be well rewarded.

Diana Dyer Bartlett

Chairman

26 February 2024

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Chairman’s Statement

Strategic Report

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 8

9

Investment Manager’s Review

Strategic Report

The Investment Manager’s Review was first published as a letter to

shareholders on 26 January 2024 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 2023.

Dear Fellow Shareholder,

The performance of Smithson Investment T

rust (‘Smithson’), along

with comparators, is laid out below. In 2023 the Net Asset Value per

share (NAV) of the Company increased by 13.3% and the share price

increased by 8.2%. Over the same period

, the MSCI World Small and

Mid-Cap Index (‘SMID’), our reference index, increased by 9.1%.

I also provide the performance of UK bonds and cash for

comparison.

Total Return

5

1 January 2023

to 31 December Launch to 31 December 2023

2023 Cumulative Annualised

% % %

Smithson NAV

1

+13.3 +59.8 +9.4

Smithson Share Price +8.2 +41.5 +6.9

Small and Midcap

Equities

2

+9.1 +47.2 +7.7

UK Bonds

3

+5.6 -4.9 -1.0

Cash

4

+4.6 +7.5 +1.4

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 pages 78 to 79).

We are pleased to have generated a NAV return of 13.3% during a

relatively volatile period for the market, and in doing so, to have

outperformed the reference index.

2023 saw the 5th anniversary of the launc

h of the Smithson

Investment Trust and over the last five years Smithson is the best

performing trust in the Association of In

vestment Companies Global

Smaller Companies sector and is more than 20 percentage points

ahead of the average performance of the sector

1

. Further, while the

NAV compound return of 9.4% is ahead of our reference index, given

the current low point in the market we would hope for greater

absolute performance in the future should the market provide the

backdrop to achieve this.

We are disappointed that the share price performance of Smithson

has lagged the NAV performance durin

g the last couple of years.

The chart below shows the average trust sector discount over the

last 15 years and one can see that not even in the depths of the

financial crisis in 2008/09 did trust discounts get to the same level

as that reached in 2023.

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

1

NAV performance over five years to 31.12.2023

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 9

10

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Smithson is not immune to this, and we believe that despite the r

egular share buybacks conducted by the Board, our discount has been

exacerbated by this market phenomenon. This sector discount is a clear indic

ator of the recent bear market in equities, and so long as our

performance continues to be satisfactory, there is one key fac

tor in the eventual resolution of this situation: time. I believe there will come

a future period, unknowable in advance, when market sentiment allows Smithson to once more trade at a premium.

It has been a busy 12 months, taking advantage of low prices during the w

eak market to improve and diversify the portfolio. After these

actions, we are unashamedly enthusiastic about what we now own

. The portfolio is without doubt in the best shape it has been since

inception and I am excited to share the changes with you, but first I must explain our state of mind.

Our lifetime is finite. This is known by all but accepted by f

ew, outside of possibly those who have received a terminal medical diagnosis.

Idon’t wish to be morbid but only to emphasise the point that what you do with your time in any given moment is an active choice t

o exclude

every other option, as you will never have time to do everythin

g. It is the same for constructing a concentrated portfolio. As there are only

a certain number of companies we can hold at any given moment we have to exclude the tens of thousands of other companies we could

own. Which is a good thing, because just as one ought to be highly selective as to how to spend one’s time, it makes us choose our

investments very carefully.

It was Peter Lynch who coined the word ‘diworsification’ to describe the problem with including different assets of dubious qualit

y with the

sole intention of increasing diversification. We have not done this. We believe every one of the companies we have acquired to be of v

ery

high quality, and we have funded these purchases with companies we felt were below the average quality in the portfolio.

The new companies we invested in this year were Graco, Exponent, Oddity, Croda and Clorox and those we sold to facilitate this we

re

Domino’s Pizza Group, Rightmove and Masimo.

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Financial Crisis Euro debt crisis Brexit Covid Growth

sell-off

Morningstar Investment Trust All ex Alternative Assets - weighted average discount (5 day Mov. Av.)

Investment Manager’s Review

Strategic Report

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 10

11

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Graco – pronounced Gray-co after the founding Gray brothers – is a

US company which designs, manufactures and markets systems

and equipment to measure and dispense fluid and powdered

materials. Founded in 1926, it is the market leader in technology

and expertise for the management of fluids and coatings in both

industrial and commercial applications. We were attracted by its

stable operating margin of over 25% and high return on invested

capital of 40%. These metrics have been achieved over a long

period of time, and we hope will continue lon

g into the future, thanks

to the fact that its products are of very high quality and are sold

under brands which are trusted by customers to help solve

manufacturing problems, increase productivity, conserve energy,

save material, control environmental emissions and reduce labour

costs. We also feel we were provided a good entry point in terms of

valuation as worries about a recession in the US, had caused share

price weakness.

Exponent took the fund into a new sector of consulting. This industry

can be highly competitive and doesn’t often have the ability to grow

quickly and profitably through operating leverage as they need more

staff to bill more hours. As is often the case in human capital

businesses, the humans tend to take the ma

jority of the returns at

the expense of the business (think in

vestment banks). However,

Exponent is different. It was founded in 1967 in California as Failure

Associates, which is appropriate as it focuses on highly technical

areas across a broad range of scientific disciplines, often in

response to disasters or litigation. For instance, they did

investigative work for the Challenger shuttle explosion, the Piper

Alpha oil platform disaster, the 9/11 World Trade Centre collapse,

the Exxon Valdez oil spill, Samsung’s exploding tablets, and the

preliminary fire investigation into Grenfell Tower. They have

assembled the largest group of PhD scientists in the industry for

this purpose and are the clear number one player, able to command

healthy fees for such specialist projects which do not get passed

straight on to the employees. They are mainly being used to defend

companies against litigation (which also tends to be price

insensitive) or by companies wishing to investigate their own

products before launch, such as autonomous driving systems.

Croda is a UK company and the first chemical ingredients company

we have bought. Founded in 1925 it wasn’t until after WWII that the

company moved into cosmetics and fragrances, and now only

produces substances from natural and renewable resources, unlike

some competitors which still use refined fossil fuels. The company

also provides ingredients for life sciences, including being the

number one provider of a key component for mRNA delivery

systems, which are finding many new applications since their

well-publicised use for Covid vaccines. It is their leading market

positions in niches such as these, where they produce small but

critical components for larger, high value products that makes Croda

so interesting to us.

One particular area of success over the last five years was investing

in high quality companies that were going through what we call a

‘glitch’ in their business. This includes companies like Equifax, the

US credit data bureau, which we bought in the aftermath of a major

cyber-attack which compromised over 150 million consumer

records. Despite the large amounts of capital spent by management

to improve the security of the company after the attack, and the

recent headwinds due to lower mortgage origination, it has still

proven to be one of our best performing investments.

Interestingly, we feel we may have just been given a similar

opportunity with Clorox. The US household goods company suffered

a cyber-attack in August which closed down its operation systems

for a few days and resulted in the shares falling over 30% from the

recent peak. We started buying the company’s shares once the

attack had been contained and we believe it has given us a rare

opportunity to buy a high quality consumer staples company within

our market capitalisation range at a very attractive valuation. Clorox

produces branded goods from bleach to cat litter with a track record

of strong profitability and steady growth. Regarding the prior point

on diversification, it is also quite different to anything else we

currently own in the portfolio, in fact in numerical terms it has the

lowest historical correlation with the fund of any company in our

Investible Universe.

Oddity is another atypical investment for us but one which we believe

has substantial opportunity for growth. It is the first ever IPO we have

taken part in, and we did not do so lightly. We got to know the

management several months before the IPO as we were approached

directly by the company after they had been made aware that the

business exhibited much of what we look for in a high quality, growing

company. We were extremely impressed by the track record as well

as the potential opportunity for the company. Oddity is a beauty and

wellness company which creates its own brands and products to sell

direct to consumers online. So far, the company has launched two

brands, Il Makiage and SpoiledChild, both of which have been the

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

fastest growing online brands in history, and now sell more online

than large established beauty brands such as MAC. Traditionally

there has been a large knowledge gap between consumers and

beauty experts, requiring consumers to interact with a trained

salesperson to match the myriad of beauty products to their needs

and show them how to apply them at home. The large established

cosmetics companies haven’t so far made strong attempts to sell

products to new customers online (refill purchases are obviously

easier) but Oddity has been able to build AI technology using data

from their users - 1bn datapoints from 40m users - to ‘learn’ how to

match the right products to consumers with inputs including online

questionnaires and, increasingly, selfie photos. Their 90% skin match

accuracy compared to 80% in-store equivalent has generated over

4m customers, with more than half of revenue now coming from

repeat customers. This is not only a strong indication of the value of

their service but is also much more profitable. We expect to see very

high annual revenue growth for the next few years as the company’s

technology is several years ahead of established competitors and

addresses such an enormous potential market.

Rightmove was one company we sold to facilitate these new

investments. OnTheMarket, a weak thir

d tier competitor to

Rightmove, was recently acquired by the much larger US company

CoStar, which has a history of competing aggressively in the new

markets it enters. Even if Rightmove with its dominant number one

position wins this war, there could well be a few years of bitter and

expensive competition before it’s over. We therefore sold our holding

of Rightmove soon after the bid was announced.

We sold other businesses where we had doubts about management

actions. Domino’s Pizza Group had caused us consternation for

some time due to the fairly regular turnover of its senior

management team. During the period of our ownership we counted

four CEOs and four CFOs, and along with mediocre performance for

many of those years, our patience eventually wore out.

Masimo is another where we were disappointed by management

action, although this team has stayed in place as the CEO is the

founder and a large shareholder. The company has a fantastic

core business selling best in class sensors to hospitals but

management decided to branch out into consumer medical

devices, and bought an audio equipment business selling

speakers, headphones and home theatre systems because of

its access to retail outlets. The situation was further complicated

by an activist investor who, after several meetings with us

appeared quite sensible, but whom the management team

chose to oppose. The ﬁnal straw came with a proﬁt warning only

a few weeks after management had reassured us that

everything was ‘ﬁne’. This ultimately led to us losing faith and we

felt we could no longer trust them to be good stewards of your

capital.

Despite these changes our strategy remains the same:

• Buy good companies

• Don’t overpay

• Do nothing

To demonstrate that we are still buying good companies, I include

the table below, which is the weighted average operating metrics of

our owned companies over the last 12 months compared to the

reference Index.

Smithson

LTM Figures Investment Trust MSCI WSMID

ROIC 59%

#

10%

Gross Margin 61% 34%

Operating Profit Margin 24% 6%

Cash Conversion 97% 71%

Interest Cover 34x 8x

Source: Fundsmith

Data for the MSCI World SMID Cap Index is shown ex-financials, with

weightings as at 31.12.2023.

Data for MSCI World SMID Cap Index is on a weighted average basis, using

last available reported financial year figures as at 31.12.2023.

Data for Smithson is on a weighted average basis, ex-cash, using last

available reported financial year figures as at 31.12.2023.

Interest cover (EBIT ÷ net interest) data for Smithson and MSCI World SMID

Cap Index is done on a median average basis.

# ROIC for Smithson includes Verisign (835% ROIC). Excluding Verisign the

ROIC is 26%.

The table shows that our portfolio companies remain superior to

those in the Index on every metric, most of which are significantly

in excess of that observed for the Index. The ROIC is particularly high

at 59% although this does include Verisign, with a ROIC of 835%,

without which the average ROIC would be 26%. Both of these

average figures are higher than the 43% and 23% of last year. All

other metrics are broadly similar to 2022 except the cash

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

conversion, which is lower than the 101% recorded last year. As

explained in the 2022 report, cash flow has been depressed for

many of our companies due to the re-build of inventory after supply

chains returned to normal following the Covid pandemic. This is

already starting to improve and will likely continue to do so in 2024.

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

. While the valuation currently

appears expensive, with the free cash flow yield of the portfolio now

at 2.4%, the method we have traditionally used to calculate it is very

backward looking, with the valuation for many companies being

generated by 2022 cash flows due to the timing of their reports. As

mentioned above, this includes a significant period when cash flow

was depressed. Adjusting the measure to use only 2023 cash flows

would put the portfolio free cash flow yield at around 2.8%, which

we think is more indicative of the current position, bearing in mind

we expect more progress on free cash flow normalisation in 2024.

Further, a couple of our companies are still recovering from specific

issues which have completely depleted their free cash flow, so

should these companies start producing cash again next year, as

appears likely, it would potentially take the portfolio free cash flow

yield back above 3%.

In terms of ‘doing nothing’, there was some trading activity as

discussed earlier. This meant that discretionary portfolio turnover,

excluding share buybacks, was 27.2% compared to 48.5% in 2022.

Excluding the sale and reinvestment of the proceeds from the

Simcorp bid, over which we had no choice, the turnover was 15.4%.

Despite the changes made to the portfolio, this is much lower than

last year and still far below the average turnover for actively

managed equity funds, which tends to be above 60%, according to

Morningstar.

Costs of dealing, including taxes, amounted to 0.03% (3 basis

points) of NAV in the period, slightly lo

wer than the 0.03% incurred

in 2022, although both figures round to the same number. The

Ongoing Charge Figure was 0.87% of NAV, compared with 0.91% in

2022. 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 T

otal Cost of Investment

in the Trust was 0.90% of NAV (2022: 0.94%).

To review in more detail the fund performance in 2023, I highlight

the largest detractors of performance below.

Country Contribution %

Sabre United States -1.5%

Masimo United States -1.2%

Paycom Software United States -0.7%

Cognex United States -0.5%

Domino’s Pizza Enterprises Australia -0.5%

Source: Northern Trust

Sabre, travel software company, was the largest detractor in 2023

for two reasons. First, during the course of the year it became

apparent that travel industry volumes, whilst still recovering, were

growing slower than the rates seen in 2021 and 2022. Second,

Sabre took on significant debt during the pandemic and the

company’s profitability was therefore impacted by the sharp rise in

interest rates. We continue to believe that the travel industry will

keep growing, which will in turn enable the company to reduce its

debt over time to the benefit of our equity investment.

Our issues with Masimo have been outlined above and although we

made money on the position over our period of ownership, having

sold shares at much higher levels during the pandemic, we

unfortunately lost money on the remaining holding during the course

of this year.

Paycom, the US company providing human resources management

software, underperformed after management reduced its guidance

for revenue growth this year. With revenue tied to the number of

employees enrolled in its software, the weaker US jobs market over

the last 12 months provided a more difficult backdrop for the

company’s short term growth.

Cognex, the US factory and warehouse automation company,

suffered declining revenue and earnings throughout the year as its

largest customers held back on building or upgrading their

manufacturing and logistics facilities. Consumer electronics was a

sector particularly hard hit. As we see no fundamental issues with

the company or its competitive position, we continue to hold as we

wait for the expected upturn to arrive in the coming years.

The performance of Domino’s Pizza Ent

erprises was also disappointing

in the period. This was primarily due t

o the fiscal half year results,

released in February, indicating weaker sales after prices and delivery

charges had been increased to offset cost inflation. Consumer price

sensitivity was noted in Japan and Germany particularly. Fortunately,

the company’s performance was much improved in the second half of

its fiscal year, so management now appear to be resolving the issue.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

The top five contributors to performance are shown below.

Country Contribution %

Simcorp Denmark 2.0%

Nemetschek Germany 1.8%

Temenos Switzerland 1.8%

Qualys United States 1.6%

Recordati Italy 1.2%

Source: Northern Trust

Simcorp, the asset management software company, was the biggest

contributor to performance in the y

ear thanks to the share price

moving up 38% in one day in April after the company was bid for by

Deutsche Börse. The acquisition was completed in October.

We found that several companies whose share prices had been weak

in 2022, despite the underlying businesses continuing to perform

well, saw their price rebound in 2023. Nemetschek, the construction

and media software company, up 66%, and Qualys, the cybersecurity

software company, up 75%, were both examples of this.

Temenos, the bank software provider, is a company which did not

perform as expected in 2022 but where fundamentals improved in

2023 after the CEO was replaced by the Ex

ecutive Chairman. Things

are now starting to move further in the right direction, both in the

terms of the new contracts being si

gned with large international

bank customers, and the underlying operating metrics of the

business, including cash flow conversion.

Recordati’s share price rose steadily through the year, with the

healthcare company posting double digit organic sales and profit

growth, with improvement in both its rare disease and primary care

drugs. This was bolstered by the acquisition of commercialisation

rights for two urology drugs from GSK. It now expects 2023 results

to come at the high end of its original guidance range, and to exceed

the mid term targets it previously disclosed.

An honourable mention also goes to Verisk, just outside the list, as

it is an interesting example of a company with an attractive core

business, in this case insurance data analytics, surrounded by much

poorer performing ancillary divisions (often built up, as it was in this

case, through acquisition). 2022 was the year when management

finally decided to sell the underperforming businesses, leaving

shareholders with a much higher quality asset by the end of 2023.

The market rewarded this action with a rerating in the company’s

valuation over the course of the year.

The 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 1967 – our smaller companies are far from being

deemed ‘start-ups’.

31 December 31 December

2023 2022

Sector (%) (%)

Industrials 36% 23%

Information Technology 28% 38%

Healthcare 12% 15%

Consumer Discretionary 10% 13%

Consumer Staples 8% 4%

Financials 3% 3%

Materials 2% –

Communication Services – 3%

Cash 1% 1%

Source: Northern Trust

The changes are immediately obvious, with Information Technology

for the first time since inception no lon

ger being the largest sector

weighting. Instead, the top position is now occupied by Industrials

after the acquisition of Graco and Exponent, and the

re-classification by MSCI of Paycom from Information Technology to

Industrials and Sabre from Information Technology to Consumer.

Healthcare has decreased slightly due t

o the sale of Masimo while

Consumer Staples has almost doubled in size from the addition of

Clorox. The decline of Communication Services to zero is due to the

sale of Rightmove.

31 December 31 December

2023 2022

Country of Listing (%) (%)

USA 45% 40%

UK 14% 17%

Italy 10% 10%

Switzerland 8% 6%

Germany 7% 6%

Australia 5% 7%

Denmark 4% 8%

Sweden 3% 2%

New Zealand 3% 3%

Cash 1% 1%

Source: Northern Trust

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

The table above illustrates how the regional exposure in terms of

country of listing has changed over the cour

se of the year. The USA

is still the largest country exposure and has actually increased

thanks to the US listed acquisitions mentioned earlier

. The UK

exposure is smaller due to the sale of Rightmove and Domino’s

Pizza Group, offset by the purchase of Croda. Aside from the halving

of the Danish weighting after Simcorp exited the portfolio, other

differences are somewhat limited, being mostly caused by stock

market movements during the year.

The geographical weighting that we pay most attention to though,

is the economic exposure of our companies, measured by the origin

of revenue. This year, North America increased with the new

additions, to once more become the largest exposure, with the

decrease in UK and Danish exposure now making Europe number

two on the list. The other entries are broadly unchanged from last

year. While Smithson only invests in developed markets, some of

those companies generate revenue in emerging markets, shown by

the EMEA and Latin America lines below.

31 December 31 December

2023 2022

Source of Revenue (%) (%)

North America 41% 36%

Europe 34% 39%

Asia Pacific 19% 19%

Eurasia, Middle East, Africa 4% 4%

Latin America 2% 2%

Source: Fundsmith

We end this year with significant optimism for the future. Not only is

portfolio positioning the best we believe it has ever been, but the

subject of much of my commentary over the last couple of years,

the interest rate cycle, is almost certainly at its peak. The upward

movement in interest rates has been the strongest negative force

against the relative performance of small and mid-cap equities and

it is perhaps worth observing that over the two years since rates

started increasing, the MSCI World Small and Mid-cap index has

underperformed the MSCI World Large cap index by over 10%.

Wewait to see what effect falling rates might have.

We thank you once more for your support of Smithson and look

ahead to a bright future in the coming years.

Simon Barnard

Fundsmith LLP

Investment Manager

26 February 2024

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Investments held as at 31 December 2023

Security Country of incorporation Fair value £’000 % of investments

Recordati Italy 137,613 5.4

Moncler Italy 115,399 4.5

Temenos Switzerland 112,228 4.4

Diploma UK 104,305 4.1

Verisign USA 103,158 4.1

Geberit Switzerland 101,250 4.0

Fortinet USA 100,558 4.0

Verisk Analytics USA 94,036 3.7

Ambu Denmark 93,674 3.7

Qualys USA 92,780 3.7

Top 10 Investments 1,055,001 41.6

Equifax USA 91,029 3.6

MSCI USA 88,702 3.5

Fevertree Drinks UK 88,231 3.5

Nemetschek Germany 88,105 3.5

Rational Germany 85,968 3.4

Graco USA 79,374 3.1

Fisher & Paykel Healthcare New Zealand 77,700 3.0

Addtech Sweden 74,438 2.9

Sabre USA 74,205 2.9

Domino's Pizza Enterprises Australia 73,423 2.9

Top 20 Investments 1,876,176 73.9

Exponent USA 71,898 2.8

Spirax-Sarco Engineering UK 66,305 2.6

Clorox USA 65,220 2.6

Cognex USA 63,807 2.5

IDEX USA 63,158 2.5

Croda UK 61,340 2.4

Rollins USA 55,985 2.2

Halma UK 53,014 2.1

Technology One Australia 50,111 2.0

IPG Photonics USA 45,142 1.8

Oddity Israel 38,782 1.5

Paycom Software USA 24,706 1.0

HMS Networks AB Sweden 3,309 0.1

Total Investments 2,538,953 100.0

16

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Strategic Report

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Strategic Report

Investment Objective, Policy and Investment Methodology

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Investment Objective

The Company’s investment objective is to provide shareholders with

long term growth in value through exposure to a diversified portfolio

of shares issued by listed or traded companies.

Investment Policy

The 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 in

vestment) 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.

Hedging Policy

The Company will not use portfolio management techniques such

as interest rate hedging and credit default swaps.

The Company will not use derivatives for purposes of currency

hedging or for any other purpose.

Borrowing Policy

The Company has the power to borrow using short-term banking

facilities to raise funds for short-term liquidity purposes or for

discount management purposes including the purchase of its own

shares, provided that the maximum gearing represented by such

borrowings shall be limited to 15 per cent. of the net asset value at

the time of drawdown of such borrowings. The Company may not

otherwise employ leverage.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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.

Investment Objective, Policy and Investment Methodology

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Strategic Report

Investment Objective, Policy and Investment Methodology

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.

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20

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

ESG Integration

Investment process

Smithson Investment Trust aims to be a long-term, buy-and-hold

investor, building a portfolio of high-quality companies that will

generate superior, risk-adjusted returns over the long term. As a

long-term investor, developing a detailed understanding of the

business, its industry, and the variety of risks and opportunities that

may influence the performance of the companies we invest in is

essential. Assessment of the risks associated with the business’s

environmental and social performance, as well as the quality of

corporate governance, known as “ESG” factors, is a fully integrated

component of our pre-investment research; poor ESG performance

can generate significant, negative impacts on the financial

performance of the company as well as increase its risk profile,

particularly over the long term.

Smithson builds an investable universe of, as we define them, “good

companies”. Good companies are those that can generate a

sustainably high return on invested capital over the full business

cycle and have the ability to reinvest these returns to generate

consistent growth. As long-term investors, fully analysing the

sustainability of the company’s returns and its growth potential is a

central tenet of our research process. Detailed financial analysis of

the business is, of course, a large component of this assessment,

but fully analysing the variety of risks and opportunities posed by

non-financial performance plays an important role. Over-exposure

to ESG risks, such as reputational damage, negative consumer

sentiment, fines, increased taxes or disruption to a company’s

supply chain can significantly affect a business’s ability to sustain

high returns over the long term. Hence, management teams that

allocate capital with the sustainability of long-term returns in mind,

will typically have better performance from an ESG perspective.

Many of the worst environmentally and socially performing

businesses are automatically excluded from the Smithson

investable universe, simply due to their unsustainable business

models. Industries we find to be unable to sustain a high return on

invested capital and are therefore unlikely to invest in, include oil

and gas, energy, metals and mining, utilities, and aerospace and

defence, among others.

Stewardship

Active ownership, or stewardship (see Fundsmith’s 2022

Stewardship Report at www.smithson.co.uk/documents), is also an

important component of our risk management process after we

invest in a business. Regularly engaging with investee companies

to promote a long-term mindset for capital allocation and

appropriate controls over ESG related risk is a powerful tool in

protecting the long-term value of our investment. For many

companies, improving ESG performance and minimising the

negative impacts they may have on the environment/society can be

a factor in strengthening their busine

ss model and outperforming

competition. We use engagement to understand management’s

perspective, assess their handling of a variety of issues and to raise

concerns we may have regarding their approach or outcomes, when

appropriate. We also ensure we use our proxy votes to protect and

enhance the value of our investments, supporting or opposing the

company when necessary. The investment management team

assess votes and engagements on a case-by-case basis themselves

and don’t outsource the decision to other departments or use any

advisory services. We use both engagement and proxy voting to

support decisions that benefit the sustainability of returns and long-

term performance of the business.

This approach is used by all of the strategies Fundsmith operates,

and is described in more detail in the Fundsmith Responsible

Investment Policy, published as part of being a signatory to the UN

Principles of Responsible Investment. (see Fundsmith’s Responsible

Investment Policy at www.smithson.co.uk/documents).

During the year to 31 December 2023, 379 votes were cast by the

Investment Manager of which 90% were voted in favour of the

resolution and 10% against. Of the 379 votes cast, 49 related to

management remuneration and the Investment Manager voted

against the company management on 51% of these.

Sustainability and ESG

Strategic Report

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Strategic Report

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 t

o the time of their approval of

this report and such statements should be treated with caution due

to the inherent uncertainties, including both economic and business

risk factors, underlying any such forward-looking information.

Purpose, Strategy and Business Model

The Company is registered in England and Wales and is an externally

managed investment trust; its shares are premium listed on the

Official List and traded on the main market of the London Stock

Exchange. It was established by its Investment Manager, Fundsmith

LLP and listed on 19 October 2018.

The purpose of the Company is to provide a vehicle for investors to

gain exposure to a portfolio of small and mid-sized listed or traded

companies globally, through a single investment.

The Company’s strategy is to create value for shareholders by

addressing its investment objective. Please see page 17 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 C

ompany 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 on pages 78 to 82 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 2023 was

1,598.0p and it reported a total profit after tax for the year of

£293.3million (2022: £967.7 million loss), comprising a capital profit

of £290.3 million (2022: £972.0 million loss) and a revenue profit of

£3.0 million (2022: revenue profit of £4.4 million) (see financial

statements on pages 58 to 61). The net asset value total return for

the year to 31 December 2023 was 13.3%

1

and the annualised net

asset return for the period from listing on 19 October 2018 to 31

December 2023 was 9.4%

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 9.1% and 7.7% respectively, thus the Company

outperformed the comparator index by 4.2 percentage points for the

year ended 31December 2023 and outperformed the Index by 1.7

percentage points, annualised for the period from the Company’s

listing to the year end.

A full description of performance durin

g the period under review is

contained in the Investment Manager’s Review.

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 on pages 78 to 79.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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 2023 was

8.2%

1

and the annualised share price total return for the period from

listing on 19 October 2018 to 31 December 2023 was 6.9%

1

,

underperforming the MSCI World SMID Cap Index comparator index

by 0.9 percentage points and 0.8 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 2023, the discount of the

Company’s share price to the net asset value per share was 11.5%

1

,

and the average discount to net asset value for the year to

31 December 2023 was 10.7%. 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 11.7 million ordinary shares

at an average discount to the prevailing net asset value of 10.8%,

for a cost of £159.3 million (see page 60). Together, repurchases

generated a benefit to net asset value per share of approximately

£18.0 million net of costs. 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 2023 of 10.7% was in excess of the 10% threshold

requiring the Directors to consider whe

ther to propose a continuation

vote at the Annual General Meeting. Further information concerning

the Board's decision on a continuation vot

e is given in the Chairman’s

Statement.

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% (2022: 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.

Strategic Report

Business Review

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

on pages 78 to 79.

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23

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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, such as the war in the Middle East

and impact on supply chains from disruption to shipping

through the Suez Canal are discussed as part of this process

and this should ensure that emerging (as well as known) risks

are adequately identified and, so far as practicable, mitigated.

The market and economic impacts of the war in Ukraine and

the Middle East continue to be monitored by the Board. 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 Risks

The Directors have carried out a robust assessment of the principal

risks facing the Company, including those that would threaten its

business model, future performance, solvency and liquidity.

1. Investment objective and policy risks

The Company'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.

The Company is not constrained on weightings in any sector or

geography. This may lead to the Company having significant

exposure to portfolio companies from certain business sectors or

based in certain geographies. Greater concentrations of

investments in any one sector or geography may lead to greater

volatility in the Company’s investments and may adversely affect

performance. This may be exacerbated by the small number of

investments held at any time.

Mitigation

The Investment Manager has a proven and extensive track record,

and the Board undertakes a review of the performance of the

Company and its transactions at each quarterly Board meeting. The

Risk Management

Strategic Report

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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 33 companies

with details of the geographic and sector weightings given in the

Investment Manager’s Review.

2. 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. Market conditions may also restrict the supply

of suitable investments at a price the Investment Manager

considers may generate acceptable returns.

If conditions (such as those experienced as a consequence of the

COVID-19 pandemic or the current conflicts in Ukraine and Middle

East) affecting the investment market ne

gatively impact the price

at which the Company is able to buy or dispose of its assets, this

may have a material adverse effect on the Company’s business and

results of operations.

Interest rate movements may affect the level of income receivable

on cash deposits and the interest payable both by the Company and

by investee companies on their borrowings. In addition, where the

Company invests in high growth investee companies, any increase

in interest rates may compress the growth of such companies and

therefore affect their valuations. As such, interest rate fluctuations

may reduce the Company’s returns.

The Company’s ordinary shares are denominated in pounds sterling

while the majority of the Company’s investments are denominated

in a currency other than pounds sterling. The Company does not

hedge its currency exposures and changes in exchange rates may

lead to depreciation in the Company’s net asset value.

Mitigation

The Company’s investment policy and the fact that it will not use

hedging instruments to mitigate interest rate or foreign currency risk

is clearly explained in the Owner’s Manual (which can be found on

the Company’s website at www.smithson.co.uk). The Investment

Manager has a proven and extensive track record and reports

regularly to the Board on market de

velopments. The Investment

Manager’s policy is to hold investments for the long term and not

look at market timing issues.

Further details on Market and Financial Instrument risk are

disclosed in note 15 to the financial statements.

3. Outsourcing risks

The Company has outsourced all its operations to third party service

providers. Failure by any service provider to carry out its obligations

in accordance with the terms of its appointment could result in

negative implications for the Company. Such failures could include

cyber breaches or other IT failures, fraud (including unauthorised

payments by the administrator), poor record keeping and loss of

assets and failure to collect all the Company’s dividend income.

Cyber incidents are becoming increasingly common and may cause

disruption and impact business operations, po

tentially 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.

The rapid spread of infectious disease such as the COVID-19

pandemic, and measures introduced to combat its spread, could

cause disruption to the operations of the Company and its key

service providers.

Mitigation

The Company has appointed experienced service providers, each of

whom has a service agreement. 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 AIFM, 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

Strategic Report

Risk Management

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25

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

explain and provide assurance to the Company on any impact or

potential risk to the Company and its mitigation.

4. Key individuals risk

Fundsmith LLP is responsible for managing the Company’s

investments. The Investment Manager relies on key individuals to

identify and select investment opportunities and to manage the

day-to-day affairs of the Company. There can be no assurance as to

the continued service of these key individuals at the Investment

Manager, and the departure of any of these from the Investment

Manager without adequate replacement may have a material

adverse effect on the Company’s business prospects and results of

operations.

Mitigation

The Investment Manager has a remuneration policy in place seeking

to incentivise key individuals to take a long-term view. Additionally,

the Company’s key individuals are significantly invested in the

Company (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.

5. Regulatory risks

The Company benefits from the current exemption for investment

trusts from UK tax on chargeable gains. Any change to HMRC’s rules

or the taxation of investee companies could affect the Company’s

ability to provide returns to shareholders.

Mitigation

The Investment Manager and the company secretary monitor

proposed changes to tax rules and report to the Board thereon.

Risk Management

Strategic Report

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26

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Viability Statement

In accordance with the Association of Investment Companies Code

of Corporate Governance (the “AIC Code”) and the Listing Rules, the

Directors have assessed the prospects of the Company over a longer

period than the 12 months required b

y the “Going Concern”

provision. The Company’s investment policy is to buy good

companies, not overpay and then do no

thing. The Smithson Owner’s

Manual, a copy of which can be found on the Company’s website at

www.smithson.co.uk states “We will only invest in the equity of

companies which we believe can compound in value over many

years, if not decades, where we can remain a happy owner, safe in

the knowledge that in 5 to 10 years’ time our investment is likely to

be worth significantly more than what we paid for it”. When selecting

or reviewing investments, the Investment Manager evaluates the

prospects and risks which could affect investee companies over at

least a 5 to 10 year period with a view to them being good long-term

investments capable of generating the Company’s required returns.

The Board therefore believes that 10 years is the most appropriate

time horizon to adopt for the Viability Statement.

In reviewing the Company’s viability, the Board considered the

Company’s business model, the principal risks and uncertainties,

including the economic and market conditions, higher inflation and

interest rates 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 2023 the Company had net

assets of £2,552 million of which £2,539 million was held in listed

investments and £16.6 million in cash (see Statement of Financial

Position). At 31 December 2023, 93.2% of the Company’s portfolio

could be liquidated within 30 days. The Board therefore has

substantial options to meet the Company's continuing obligations

as well as supporting the Company's buyback programme.

Where the Company’s share price trades during a financial year at an

average discount to net asset value of more than 10%, and in

circumstances where the Company was under performing,

shareholders would be given the opportunity to vote against the

Company’s continuation in its present form. During 2023, the

average discount to net asset value was 10.7%. However the

Directors together with the Company’s advisers and the Investment

Manager, have discussed this and concluded that it would not be

appropriate to put a continuation vote to the AGM for the reasons set

out in the Chairman's Statement.

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.

26

Strategic Report

Viability Statement

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Section 172 and Non-financial Disclosures

Engaging with the Company’s Stakeholders

The following disclosures are required under section 172 of the Com

panies Act 2006 “s172”) and endorsed by the AIC Code. They describe

how the Directors promoted the success of the Company for the bene

fit 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, takin

g into account the interests of all its stakeholders. It is ultimately responsible

for the direction, management, performance and long-term sustainable succe

ss 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 gr

oup

during the decision-making process.

When considering the Company’s purpose, vision and values, together w

ith its strategic priorities, the Board aims for its decisions to be

fair and take account of the interests of the key stakeholder groups, t

ogether 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 w

ith stakeholders during the year ended 31 December 2023.

Who? Why? How?

Stakeholder group

Investors

The benefits of engagement with the Company’s

Stakeholders

How the Company, the Manager and the Company

Secretary engage with the Company’s Stakeholders

Regular communication with existing and

prospective shareholders ensures that the Board is

cognisant of investor priorities and addresses any

concerns raised.

Clear communication of the Company’s strategy and

the performance against the Company’s objective

can help maintain demand for the Company’s

shares and promote an investor base that is

interested in a long-term holding in the Company.

The Chairman, Investment Manager and Broker meet

with shareholders on a regular basis. The Board also

receives written policies on governance and

stewardship from some of its larger investors and, at

its quarterly meetings, receives feedback from the

Investment Manager and Broker on meetings they

have attended with investors. The Directors take into

account the proxy voting agencies’ guidelines to

assess the voting recommendations published to

shareholders ahead of AGM. This is a helpful tool to

understand investors’ 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.

Strategic Report

Non-Financial Information

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Who? Why? How?

Stakeholder group

Investment Manager

How the Company, the Manager and the Company

Secretary engage with the Company’s Stakeholders

Shareholders are encouraged to attend the

Company’s AGM where they can question the Board

and its 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.

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.

The Investment Manager is the most significant

service provider of the Company, and a description

of its role can be found in the Report of the Directors

on page 33.

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 policies and to understand the

Company's risks and opportunities.

The Board receives regular reports from the

Investment Manager, discusses the portfolio at each

Board meeting as well as maintaining a constructive

dialogue between meetings. The reports from the

Investment Manager include compliance and risk

management reports.

A representative of the Investment Manager also

attends each quarterly Board 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 on page 45.

The benefits of engagement with the Company’s

Stakeholders

Strategic Report

Non-Financial Information

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Who? Why? How?

Stakeholder group

Investee Companies

The benefits of engagement with the Company’s

Stakeholders

How the Company, the Manager and the Company

Secretary engage with the Company’s Stakeholders

The Board has outsourced all its operations to the

Investment Manager and other key service providers

such as the fund administrator, depositary and

custodian, registrar, broker and company secretary.

To ensure the smooth operation of the Company, the

Board engages with such key service providers and

monitors their performance to ensure they are

delivering their services in line with their contractual

obligations.

Reporting from the Company’s broker, auditor and

Company Secretary alerts the Board to proposed

changes in regulations and market practice. This

helps the Board plan and manage risks as well as

complying with relevant regulations.

The Board receives regular reporting from key service

providers. In addition, on a periodic basis, key service

providers are invited to present at Management

Engagement Committee or Board meetings at which

any concerns can be discussed.

The Board also seeks assurance of high standards of

governance from its service providers including

reviewing whether they maintain appropriate disaster

recovery plans as well as policies on whistleblowing,

tax 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.

Other Key Service

Providers

The Investment Manager regularly engages with the

management of the investee companies and updates

the Board on the outcome of such engagement at

each Board meeting, along with details of its

stewardship responsibilities.

The Board periodically reviews Fundsmith’s policy on

Responsible Investment and its Stewardship reports,

both of which can be found on the Company’s website

at www.smithson.co.uk.

The Investment Manager focuses on investing in

those companies it believes can compound in value

over the long term.

As a long-term investor, engagement with investee

companies helps develop a detailed understanding

of how sustainable their business models are and

the variety of risks and opportunities that may

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 Company does have

such responsibilities through its investment

portfolio.

Strategic Report

Non-Financial Information

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 29

30

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

During the year, the Board took account of stakeholder engagement

in the following decision-taking:

• In response to the emergence of the discount, the Chairman,

Investment Manager 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 last AGM, one shareholder voted against the

reappointment of the Chairman to note their discontent with

the fact that the Board does not yet have an ethnic minority

director. This represented more than 20% of the votes cast and

as a consequence, a consultation exercise was conducted with

some of the larger shareholders. Following the consultation, it

was agreed that greater disclosure regarding the Company’s

succession planning and diversity policies would be provided

in the annual report. These can be found in the Corporate

Governance Report.

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 Listing Rules requirement to report

against the TCFD framework.

Disclosure concerning Greenhouse Gas Emissions (“GHG”) for

the year ended 31 December 2023

The Company is an investment trust, with neither employees nor

premises, nor has it any financial or operational control of the assets

which it owns. 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 underlyin

g investment portfolio.

Consequently, the Company consumed less than 40,000 kWh of

energy during the year in respect of which the Directors’ Report is

prepared and therefore is exempt from the disclosures required

under the Streamlined Energy and Carbon R

eporting 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 appointed

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. As all the Directors are

invested in the Company, the Directors’ interests are aligned with

those of fellow shareholders in this regard.

Our approach to governing the Company is therefore 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

Strategic Report

Non-Financial Information

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 30

31

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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. The Company will comply

with the investment trust rules r

egarding distributable income which

state that 85% of recognised income should be distributed to

shareholders.

Any dividends and distributions will be at the discretion of the Board.

Subject to the Companies Act, the Company may, by ordinary

resolution, declare a final dividend to be paid to members of the

Company according to their rights and interests in the profits of the

Company available for distribution, but no dividend shall be declared

in excess of the amount recommended by the Board. The Company

does not intend to pay any interim dividends.

Were the Company to be in a position to pay a dividend, then it may,

subject to complying with all relevant criteria and with the approval

of the shareholders by ordinary resolution, choose to offer

shareholders a scrip dividend alternative or may establish a scrip

dividend scheme that would allow shareholders to receive ordinary

shares instead of a cash dividend.

Strategic Report

The Strategic Report set out in the Annual Report was approved by

the Board of Directors on the 26 February 2024.

On behalf of the Board

Diana Dyer Bartlett

Chairman

26 February 2024

Strategic Report

Non-Financial Information

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 31

32

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Governance Report

Board of Directors

The directors who held office at the date of this report are:

Diana Dyer Bartlett

(Chairman)

Appointed 14 September 2018

Diana Dyer Bartlett was Chairman of the Audit Committee from

the Company’s IPO in 2018 until 1 March 2022 when she was

appointed Chairman of the Board. After qualifying as a

chartered accountant with Deloitte Haskins & Sells, Diana

spent five years in investment banking with Hill Samuel Bank.

Since then, she has held a number of roles as finance director

of various venture capital and private equity backed

businesses and listed companies involved in software,

financial services, renewable energy and coal mining. Shewas

also company secretary of Tullett Prebon plc and Collins

Stewart Tullett plc. Diana is currently a non-executive director

and Chairman of the Audit Committee of Mid Wynd

International Investment Trust plc and Sc

hroder British

Opportunities Trust plc.

Lord St John of Bletso

(Audit Committee Chairman)

Appointed 14 September 2018

Lord St John has been an active Member of the House of Lords

since 1978. He serves as non-executive Chairman of Strand

Hanson Ltd, Integrated Diagnostics Holdings Plc and Yellow

Cake plc. Healso serves as a non-executive director of Gulf

Marine Services plc. He has advisory roles with GeoBear

Engineering, Bell Technologies and Betway. He worked for

almost 20 years in the City with Natwest Securities, Smith New

Court and Merrill Lynch. Hequalified and practised as a lawyer

in South Africa after graduating with BA, BsocSc, Bproc and

LLM degrees.

Jeremy Attard-Manche

(Management Engagement Committee Chairman)

Appointed 1 March 2022

Mr Attard-Manche was a partner at Tell Investments, which he

jointly founded in 2002, and managed three Cayman-registered

hedge funds, with total assets under management of c. EUR 1

billion. Prior to this, he worked at James Capel and then held a

number of roles with Merrill Lynch including Managing Director

responsible for all hedge fund distribution in Europe (including

cash, equity-linked and prime brokerage products) and as head

of the London-based team of Pan European specialist and

generalist research salesmen. He is a non-executive Director

of RQ Ratings Ltd, Evan Evans Group Ltd and a Managing

Trustee of the Plan with Grace Trust.

Denise Hadgill

Appointed 1 June 2022

Mrs Hadgill was formerly a Managing Director at BlackRock and

Head of the UK Product Specialist Group and prior to this, a UK

Equity Fund Manager at Schroder Investment Management

Limited. She is a non-executive director and Chair of the

Investment Committee of PG Mutual, a non-executive director

of Henderson Diversified Income Trust plc, and a non-executive

director of Chelverton UK Dividend Trust plc and its wholly

owned subsidiary, SDV 2025 ZDP plc.

All of the directors are members of the Audit Committee and

the Management Engagement Committee.

267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 32

33

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Governance Report

Report of the Directors

The Directors present their report on the affairs of the Company,

together with the audited financial statements and the Independent

Auditor’s Report for the year to 31 December 2023. The Corporate

Governance Report on pages 37 to 40 forms part of this report.

Disclosures relating to performance, future developments and

viability and risk management can be found in the Strategic Report

on pages 2 to 31 and are incorporated in this report by reference.

Legal and Taxation Status

The Company is registered as a public limited company in England

and Wales (Registered Number 11517636) and is an investment

company within the terms of Section 833 of the C

ompanies Act

2006 (the “Act”). Its shares are listed on the premium segment of

the Official List and traded on the main mark

et of the London Stock

Exchange. The Company is an approved investment trust under

sections 1158 and 1159 of the Corporation Tax Act 2010 and

Part2 Chapter 1 of Statutory Instrument 2011/2999. The Directors

are of the opinion that the Company has conducted its affairs so as

to be able to retain such approval.

Investment Management

The Company’s investments are managed by Fundsmith LLP. Simon

Barnard and Will Morgan are the day-to-day fund managers and

Terry Smith oversees their activities as Chief Investment Officer.

Fundsmith’s services are provided pursuant to an agreement

entered into on 17 September 2018 and include, amongst other

things, advising on how monies are invested or divested, how rights

conferred by the investments should be exercised, how income

should be collected and on market trends etc. The Investment

Manager fulfils the regulatory role of AIFM.

The Investment Manager is entitled to receive a fee from the

Company which is an amount equal to 1/365 multiplied by 0.9% of

the market capitalisation of the Com

pany accruing daily, but payable

monthly in arrears. The Inv

estment Management Agreement may

be terminated by either party on twelve months’ notice.

The Management Engagement Committee has reviewed the

continuing appointment of the Investment Manager. Further details

of the review and conclusions are provided at the Management

Engagement Committee Report.

Fund Administration, Depositary and Custody

Responsibility for the Company’s fund administration, cash

monitoring and processing transactions of the Company’s

investments is with Northern Trust Global Services SE. Depositary

services are conducted by Northern Trust Investor Services Limited,

a separate UK incorporated entity established by the Northern Trust

Company to provide depositary services to UK companies. The

Depositary provides the following services:

• safekeeping and custody of the Company’s custodial

investments and cash;

• processing of transactions and foreign exchange services;

• taking reasonable care to ensure that the Company is managed

in accordance with the AIFMD, the FUND sourcebook and the

Company’s articles of association in relation to the net asset value

per share and the application of income of the Company; and

• monitoring the Company’s compliance with investment

restrictions and leverage limits set in its offering documents.

Results and Dividends

The Company reported (see page 58) a total profit after tax for the

year of £293.3 million (2022: £967.7 million loss), comprising a

capital profit of £290.3 million (2022: £972.0 million loss) and a

revenue profit of £3.0 million (2022: revenue profit of £4.4 million).

The Company had prior year revenue losses of £6.6 million and

therefore at 31 December 2023 the Company’s Revenue Reserve

was a loss of £3.6 million. The Directors did not pay an interim

dividend and are not proposing a final dividend for the period ended

31 December 2023 (2022: same).

This is consistent with the Company’s policy of focusing on long-term

capital growth and only declaring dividends to the extent required

to maintain the Company’s tax status as an investment trust.

Going Concern

The Directors have adopted the going concern basis in preparing

the financial statements. The following is a summary of the

Directors’ assessment of the going concern status of the Company,

which included consideration of the principal and any emerging risks

and impact of the macroeconomic backdrop such as uncertainty

267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 33

over inflation and higher interest rates and the continuing wars in

Ukraine and the Middle East. The Going Concern assessment

should be read in conjunction with the Viability Statement.

The Directors have a reasonable expectation that the Company has

adequate resources to continue in operational existence for at least

twelve months from the date of this document. In reaching this

conclusion, the Directors have considered the liquidity of the

Company’s portfolio of investments as well as its cash position,

income and expense flows. The Company’s net assets at

31 December 2023 were £2.552 million (2022: £2,418 million).

As reported on pages 58 to 61, at 31 December 2023, the Company

held £2,539 million in listed investments (2022: £2,394 million)

and had cash of £16.6 million (2022: £24.6 million). The Company

has no borrowings. The Company had dividend income net of

withholding taxes of £25.0 million in the year to 31 December 2023

(2022: £27.6 million). The total revenue operating expenses for the

year ended 31 December 2023 were £21.8 million (2022:

£23.5million) and the Company had a revenue profit of £3.0 million

(2022: profit of £4.4 million). Therefore, at the date of approval of

this document, based on the aggregate of investments and cash

held, the Company has substantial options to meet the Company's

continuing obligations as well as supporting the Company's buyback

programme.

Leverage

For the purposes of the Alternative Investment Fund Managers

(AIFM) Directive, leverage is any method which increases the

Company’s exposure to the build up of systemic risk or disorderly

markets, including the borrowing of cash and the use of derivatives.

The Company did not employ any leverage during the year ended

31December 2023.

Financial Instruments

The Company’s financial instruments comprise its investment

portfolio, cash balances and debtors and creditors that arise directly

from its operations such as sales and purchases awaiting

settlement and accrued income. The financial risk management

objectives and policies arising from its financial instruments and

the exposure of the Company to risk are disclosed in note 15 to the

financial statements and the Company’s hedging policy on page 17.

Directors’ Indemnities and Directors’ and Officers’

Liability Insurance

The Directors and officers of the Company are entitled to be

indemnified against all losses and liabilities which they may sustain

in the execution of the duties of their off

ice, except to the extent that

such an indemnity is not permitted by sections 232 or 234 of the

Companies Act. Subject to sections 205(2) to (4) of the Companies

Act, the Company may provide a Director with funds to meet their

expenditure in defending any civil or criminal proceedings brought

or threatened against them in relation to the Company.

The Company may also provide a Director with funds to meet

expenditure incurred in connection with proceedings brought by a

regulatory authority. There were no claims under any indemnities

during the year (2022: same).

The Company’s Directors are covered by Directors’ and Officers’

Liability insurance.

Investment Manager’s Interests

As at 31 December 2023, Terry Smith and other founder partners

and key employees of the Investment Manager directly or indirectly

and in aggregate, held 1.7% (2022: 1.7%) of the issued share

capital of the Company.

Significant Interests

As at the year end and at 22 February 2024 (the latest practicable

date before publication of the Annual Report), the following investors

had declared a notifiable interest in the Company’s voting rights:

31 December 2023 22 February 2024

% of % of

issued issued

No of share No of share

shares capital shares capital

Brewin Dolphin Limited 7,041,512 4.40% 7,041,512 4.46%

Rathbones* 5,739,467 3.59% 5,739,467 3.62%

* Rathbone Investment Management Ltd and Rathbone Investment Management

International Ltd

34

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Governance Report

Report of the Directors

267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 34

35

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Governance Report

Report of the Directors

Share Capital and Voting Rights

As at 22 February 2024 (the latest practicable date before

publication of the Annual Report) the Company’s issued share

capital consisted of 177,107,958Ordinary Shares, carrying one vote

each. There are 19,065,000 million treasury shares in issue.

Therefore, the total voting rights in the Company as at 22 February

2024 (the latest practicable date before publication of the Annual

Report) were 158,042,958.

The holders of the ordinary shares are entitled to receive, and to

participate in, any dividends declared in relation to the ordinary

shares. On a winding-up or a return of capital by the Company, the

holders of ordinary shares are entitled to all of the Company’s

remaining net assets after satisfaction of the Company’s liabilities.

The ordinary shares carry the right to receive notice of, attend and

vote at general meetings of the Company. The consent of the

holders of ordinary shares is required for the variation of any rights

attached to the ordinary shares. Holders of ordinary shares have

one vote per share held.

There are no restrictions concerning the transf

er of securities in the

Company, no special rights with regard to control attached to

securities, no restrictions on voting rights, and no agreements

between holders of securities regarding their transfer which are

known to the Company.

The Board is not aware of any significant agreements that take

effect, alter or terminate upon a change of control of the Company

following a takeover bid, nor any agreements with the Company and

its Directors for compensation for loss of office that occurs because

of a takeover bid.

During the year, the Company bought back to hold in Treasury

11.7 million ordinary shares at a total cost of £159.3 million. The

average discount to the prevailing net asset value at which these

new shares were purchased was 10.8%. The share buybacks

represented 6.8% of the Company’s issued share capital at the start

of the year. For more details, please see the Statement of Changes

in Equity in the financial statements.

In the period from 31 December 2023 to 22 February 2024, (the

latest practicable date before publication of the Annual Report), a

further 1,650,000 ordinary shares have been bought back at an

aggregate net cost of £23.0 million. The average discount at which

these shares were purchased was 11.7%.

Charitable and Political Donations

There were no charitable or political donations made during the year

to 31 December 2023 (2022: nil).

Board Appointments, Re-election and Removal

All appointments to the Board and re-elections of Directors and

removal of Board members are carried out in accordance with the

Companies Act and the Company’s Articles of Association.

In accordance with best practice and developing Corporate

Governance, Directors stand for re-election on an annual basis.

Annual General Meeting

The Company’s Annual General Meeting (“AGM”) will be held

at 1.00 pm on 25 April 2024 at the Max Rayne Auditorium,

The Royal Society of Medicine, 1 Wimpole Street, Westminster,

London W1G 0AE. The Notice of AGM will be sent to all shareholders

entitled to receive such notice.

The Board supports the principle that the AGM be used to

communicate with private investors. It is the intention that the full

Board will attend the AGM and the Chairman will chair the meeting.

Shareholders can attend the AGM where they will have opportunity

to question the Chairman, the Board and representatives of the

Investment Manager.

Only members on the register of members of the Company as at

close of business on 23 April 2024 (or two days before any

adjourned meeting, excluding non-business days) will be entitled to

vote at the AGM. Any proxy must be lodged with the Company’s

registrars or submitted to CREST by 1.00 p.m. or at least 48 hours,

excluding non-business days, before any adjourned meeting.

Shareholders will hear a presentation by the Investment Manager

Simon Barnard, which will also be made available on the Company’s

website at www.smithson.co.uk after the meeting.

Special resolutions dealing with the disapplication of pre-emption

rights on the allotment of shares, the repurchase of shares, and to

convene general meetings other than annual general meetings on

no less than 14 days’ notice will be put to the AGM.

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36

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Authority to issue shares

At the Annual General Meeting held on 27 April 2023, the Board

was granted authority to issue a total of up to 34,071,590 ordinary

shares (being 20% of the ordinary shares in issue as at 22 February

2023, the latest practicable date before publication of the Notice

of AGM), without pre-emption rights. Since the 2023 AGM,

noordinary shares have been issued under the authorities granted.

The authorities expire at the 2024 A

GM. The Board intends to seek

authority to issue without pre-emption rights, up to a further 20%

of its issued share capital as at 22 February 2024 (the latest

practicable date before publication of the Notice of AGM) at the

forthcoming Annual General Meeting. Shares will only be issued at

a premium to the then prevailing net asset value.

Authority to buy back shares

The Board was granted authorit

y at the 2023 Annual General

Meeting, to buy back up to 25,536,657 ordinary shares,

representing 14.99% of the ordinary shares in issue as at

22 February 2023, the latest practicable date before publication of

the Notice of AGM. 11.7 million ordinary shares were bought back

during the year to 31 December 2023 and 1,650,000 since the year

end up to the date of this report. The Board recommends that a new

authority to purchase up to 23,690,639 ordinary shares which

represents 14.99% of the ordinary shares in issue at 22 February

2024 (the latest practicable date before publication of the Notice

of AGM) be granted and a resolution to that effect will be put to the

AGM. Any ordinary shares purchased will either be cancelled or, if

the Directors so determine, held in treasury. Shares will only be

bought back at a discount to the then prevailing net asset value.

Convening General Meetings

The Board seeks shareholder approval for the Company to hold

General Meetings (other than the Annual General Meeting) at

14 clear days’ notice. The Company will only use this shorter notice

period where it is merited by the purpose of the mee

ting.

Recommendation

The Board considers that all the resolutions put forward at the AGM

are in the best interests of the shareholders as a whole. Accordingly,

the Board unanimously recommends to the shareholders that they

vote in favour of the resolutions to be proposed at the forthcoming

AGM as the Directors intend to do in respect of their own beneficial

holdings. The explanatory notes to the Notice of AGM describe each

resolution and explain the reasons for the Board’s recommendation.

Information to be disclosed in accordance with

Listing Rule 9.8.4

Listing Rule (“LR”) 9.8.4 requires the Company to include certain

information in a single identifiable sec

tion of the Annual Report or

a cross reference table indicating where the information is set out.

The Directors confirm that there are no disclosures to be made in

this regard, other than in accordance with LR 9.8.4(7) relating to

details of the allotment of shares for c

ash, the information of which

is detailed on page 70 under Share Capital.

Events after the Reporting Period

Since 31 December 2023 and up to 22 February 2024, (the latest

practicable date before publication of the Annual Report), the

Company has bought back 1,650,000 ordinary shares for a total

cost of £23.0 million.

Auditor Information

Each of the Directors at the date of the approval of this report

confirms that:

(i) so far as the Director is aware, there is no relevant audit

information of which the Company’s auditor is unaware; and

(ii) the Director has taken all steps that he/she ought to have taken

as a Director to make himself/herself aware of any relevant

information and to establish that the Company’s auditor is

aware of that information.

This confirmation is given and should be interpreted in accordance

with the provisions of Section 418 of the Companies Act 2006.

In accordance with Section 489 of the Companies Act 2006,

aresolution to re-appoint Deloitte LLP as the Company’s auditor will

be put forward at the forthcoming Annual General Meeting.

On behalf of the Board

Diana Dyer Bartlett

Chairman

26 February 2024

Governance Report

Report of the Directors

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37

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Governance Report

Corporate Governance Report

The Corporate Governance Report forms part of the Report of the

Directors.

The Listing Rules and the Disclosure Guidance and Transparency

Rules of the UK Listing Authority r

equire listed companies to disclose

how they have applied the principles and complied with the

provisions of the UK Corporate Governance Code, as issued by the

Financial Reporting Council (“FRC”) in 2018 (“UK Code”).

The UK Code can be viewed on the FRC’s website (www.frc.org.uk).

The Board has also considered the Principles and Provisions of the

Association of Investment Companies Code of Corporate

Governance, as issued in 2019 (“the AIC Code”). The AIC Code is

available on the AIC website (www.theaic.co.uk). It includes an

explanation of how the AIC Code adapts the Principles and

Provisions set out in the UK Code to make it relevant for investment

companies.

The Financial Reporting Council which issues the UK Code, has

confirmed that, by following the AIC Code, boards of investment

companies will meet their obligations under LR 9.8

.6 of the Listing

Rules. The Board therefore considers that as an investment

company, reporting against the Principles and Provisions of the AIC

Code provides more relevant information to shareholders and meets

its obligations under the UK Code and associated disclosure

requirements under LR 9.8.6 of the Listing Rules.

The Board considers that the Company has complied with the

recommendations of the AIC Code except for the provisions relating

to the appointment of a senior independent director and the need

for Remuneration and Nomination committees.

As the Board is small in number, having just four Board members,

the Board does not consider that it is necessary to appoint a senior

independent director as the role can be performed by the Board as

a whole. Shareholders are invited to contact any of the Directors,

if they have any concerns which they wish to raise. The Audit

Committee Chairman is responsible for leading the performance

review of the Chairman instead of a senior independent director and

the Board as a whole is responsible for agreeing the succession plan

for the Chairman. The Board as a whole f

ulfils the function of the

Nomination Committee and the Remuneration Committee and

therefore has not reported further in respect of these provisions.

The UK Code additionally includes provisions relating to the role of

the chief executive, executive directors’ remuneration and the need

for an internal audit function. The Company has no chief executive

or other executive directors and therefore has no need to consider

the remuneration of executive directors.

In addition, the Company does not have any internal operations and

therefore does not maintain an internal audit function. However, the

Audit Committee considers the need for such a function at least

annually (see page 43 for further information).

The Chair of the Board should not be a member of the Audit

Committee per the UK Code. However, the AIC Code permits the

Chair to be a member of, but not chair the Audit Committee if they

were independent on appointment. The Chairman was independent

on appointment, and in view of the size of the Board, the Directors

feel it is appropriate for the Chairman to be a member of the Audit

Committee.

The Board

The Board has overall responsibility for the effective stewardship for

the Company’s affairs. Its primary responsibility is to promote the

long-term sustainable success of the Company, generate value for

shareholders and have regard to stakeholder interests. It also

establishes the Company’s purpose, values and strategy, and

satisfies itself that these and its culture are aligned. It has a number

of matters formally reserved for its approval including strategy,

investment policy, gearing, treasury matters, dividend and corporate

governance policy. The Board approves the financial statements,

revenue budgets and reviews the performance of the Company.

A copy of the matters reserved to the Board is available from the

company secretary or on the Company’s website at

www.smithson.co.uk. Full and timely information is provided to the

Board to enable the Board to function effectively and to allow

Directors to discharge their responsibilities.

All of the Directors will offer themselves for election or re-election

at each Annual General Meeting and explanations for why their

appointment or continued appointment is appropriate is included

in the explanatory notes to the Notice of Annual General Meeting.

Summary biographical details of the Directors are set out

on page 32.

All Directors have access to the advice of the company secretary,

who is responsible for advising the Board on all governance matters.

Both the appointment and removal of the company secretary is a

matter for the whole board.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Board Diversity – Gender and Ethnic Background

The Board considers the balance of skills, knowledge, diversity

(including gender and ethnicity) and experience, amongst other

factors when reviewing its composition and appointing new

Directors and encourages applications from candidates from a

broad range of background and experience and will seek to appoint

the most suitable candidate. The Board has considered

the recommendations of the McGregor-Smith and the

Hampton-Alexander reviews as well as the Parker review, but does

not consider it appropriate to establish targets or quotas in

these regards.

According to new requirements of the Listing Rules LR 9.8.6 R(9)

and (11) (applicable for periods from 1 April 2022), the Company is

required to include a statement in the annual report setting out

whether it has met the following targets on board diversity as at 31

December 2023, the Company’s chosen reference date:

1) At least 40% of individuals on its board are women;

2) At least one of the senior board positions is held by a woman;

and

3) At least one individual on its board is from a minority ethnic

background.

The following tables set out the pre

scribed format for information in

accordance with the requirements of LR 9 Annex 2.

(a) Table for reporting on gender identity or sex

Number of

Number of Percentage senior

Board of the positions on

members Board the Board

Men 2 50% 1

Women 2 50% 1

Not specified/

prefer not to say – – –

(b) Table for reporting on ethnic background

Number of

Number of Percentage senior

Board of the positions on

members Board the Board

White British or other

White (including minority

white groups) 4 100% 2

Mixed Multiple

Ethnic Groups – – –

Asian/Asian British – – –

Black/African/

Caribbean/Black British – – –

Other ethnic group,

including Arab – – –

Not specified/

prefer not to say – – –

The rules only recognise the role

s of Chairman, Chief Executive

(CEO); Senior Independent Director and Chief Financial Officer (CFO)

as senior board positions. The Board considers the CEO and CFO

positions are not relevant to the Company as it is an externally

managed investment company with no executive management.

However, the Board considers the Chair of the Audit Committee to

be a senior board position and the above disclosure is made on

this basis.

The Listing Rules require disclosure of an explanation of the

Company’s approach to collecting the data used for the purposes

of making the disclosures. The Company Secretary circulated the

above tables to each director to complete individually and collated

the responses for inclusion in the annual report.

The above table confirms that whilst the Board has met the targets

on gender diversity, it has not yet done so on ethnic minority

diversity. This is because the Company is a young company, having

been formed in 2018 with a Board comprising three Directors.

In2022 the Board size was increased to four Directors with the

appointment of Denise Hadgill, enabling the Board to meet the

gender diversity target whilst also adding to the Board’s skill base.

With such a small Board and the fact that the Company is a young

company which has not had the time to introduce a mature

succession plan the Company has not yet been able to meet the

targets on ethnic minority representation. Given the nature of the

Company’s operations, including the fact that the Company does

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Governance Report

Corporate Governance Report

not have any operations or employees, the Board does not consider

it to be in shareholders’ best interests to extend the size of the Board

in order to meet all diversity targets. The Board recognises the

benefits of having diverse representation reflecting wider society

within the Board and, when making appointments, welcomes

applications from everyone regardless of age, gender, ethnicity,

sexual orientation, belief or disability.

Meeting Attendance

The number of ordinary course scheduled Board and Committee

meetings held during the year to 31 December 2023, and each

Director’s attendance, is shown below:

Total number of meetings during the tenure/attendance

Management

Audit Engagement

Board Committee Committee

Number of ordinary

course meetings held 4 3 2

Diana Dyer Bartlett 4/4 3/3 2/2

Lord St John of Bletso 4/4 3/3 2/2

Jeremy Attard-Manche 4/4 3/3 2/2

Denise Hadgill 4/4 3/3 2/2

In addition, Board and Committee ad-hoc meetings were held to deal

with administrative matters and the formal approval of documents.

Directors’ Tenure and Performance Appraisal

It is the Board’s policy that all Directors, including the Chairman, will

normally have their tenure limited to nine years from their first

appointment to the Board, except when the Board may determine

otherwise if it is considered that the continued participation on the

Board of an individual Director, or the Chairman, is in the best interests

of the Company and its shareholders. This is also subject to the

Director’s re-election by shareholders at each Annual General Meeting.

The Board has formulated a succession plan to promote regular

refreshment and diversity, whilst maintaining stability and continuity

of skills and knowledge on the Board.

Upon joining the Board, all Directors receive an induction and relevant

training is available to Directors on an ongoing basis.

Board Evaluation

A formal annual performance appraisal process is performed on the

Board, the Committees, the individual Directors and the Company’s

main service providers. During the year, the Board commissioned

an evaluation of its performance, effectiveness, processes and

governance compared to best practice. This was conducted by

external evaluation consultants, Fletcher Jones, who are

independent of the Company and the Directors.

The evaluation was conducted through a programme of both open

and closed-ended questions and personal interviews with each of

the Directors. Feedback on the Board and Committees’

effectiveness was also obtained from key service providers including

the Investment Manager, company secretary and broker. The

evaluation also considered the Board and Committees’ composition

size and skillset and the Directors’ performance including their roles

in chairing committees. The evaluation of the discharge of the

specific responsibilities of the committees was undertaken

internally by the Board. The results of the e

valuation were reviewed

by the Chairman and discussed with the Board.

The conclusions of the performance e

valuation were positive and

demonstrated that the Directors were operating effectively and

showed the necessary commitment to the effective fulfilment of

their duties. The Board also considered the evaluation conclusions

on the composition of the Board and Committees, in terms of skill

set and broader diversity considerations, which have been added

to its succession planning discussions. Any future director

appointments will take into consideration the evaluation

recommendations on desirable knowledge and skillsets.

Based upon the conclusions of the appraisal on Directors’

performance and effectiveness, the Board recommends that each

of the Directors should be re-elected as a Director at the

forthcoming AGM. Furthermore, the Board is satisfied, having

considered each Director’s experience and the nature of, and

anticipated demands on their time by their other business

commitments including other investment trusts, that each Director

is able to commit the time required to fulfil their responsibilities as

a Director of the Company.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Directors’ Independence

The Board consists of four non-executive Directors, each of whom

is independent of the Investment Manager. No member of the Board

is a Director of another investment company managed by the

Investment Manager. Accordingly, the Board considers that all the

Directors are independent and there are no relationships or

circumstances which are likely to affect or could appear to affect

their judgement. The Board has additionally adopt

ed a conflicts of

interest policy. Any new external appointments are approved by the

Chairman or the Board before they are accepted, having regard to

potential conflicts of interest and the time commitment involved.

Role of the Chair

The Chair’s main role is to lead the Board. In doing so, the Chair

promotes high standards of governance, ensures the Directors are

provided with sufficient and timely information so that they are able

to discharge their duties, allows each Board member’s views to be

considered and ensures appropriate action is taken. Additionally,

the Chair’s role includes ensuring that each Committee has the

support required to fulfil its duties, overseeing the Board’s

effectiveness reviews and the induction and development of

Directors. The Chair is required to remain independent of the

Investment Manager, whilst providing effective support, challenge

and advice to the Investment Manager. Through direct contact or

through the Company’s broker and Investment Manager, the Chair

receives the views of shareholders and also ensures that the Board

as a whole has a clear understanding of these.

Role of Committees

Audit Committee

The Board has established an Audit Committee which was chaired

during the year by Lord St John of Bletso. The Committee consists

of all the Directors. Mrs Dyer Bartlett was appointed Chairman of

the Company on 1 March 2022 and was independent on

appointment, and therefore entitled to be a member of the Audit

Committee under the AIC Code. A report of the Audit Committee is

included in this Annual Report and sets out the role and

responsibilities of the Audit Committee. The Board considers that

the members of the Audit Committee have the requisite skills and

experience to fulfil the responsibilities of the Audit Committee.

Management Engagement Committee

The Board has established a Management Engagement Committee

which was chaired during the year by Mr Attard-Manche. The

Committee consists of all the Directors. A report of the Management

Engagement Committee is included in this Annual Report and sets

out the role and responsibilities of the Management Engagement

Committee.

Nomination Committee and Remuneration Committee

The Board as a whole fulfils the f

unction of the Nomination

Committee and the Remuneration Committee. The Board considers

its size to be such that it would be unnecessarily burdensome to

establish a separate Nomination Committee. As there are no

executive directors, there is no need for a Remuneration Committee.

The terms of reference of each committee can be found on the

Company’s website at www.smithson.co.uk.

Nominee Share Code

Where shares are held in a nominee company name, the Company

undertakes:

• to provide the nominee company with multiple copies of

shareholder communications upon request; and

• to allow investors holding shares through a nominee company

to attend general meetings, provided the correct authority from

the nominee company is available.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Governance Report

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

2023; 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 ris

ks and

uncertainties that it faces.

On behalf of the Board

Diana Dyer Bartlett

Chairman

26 February 2024

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Statement from the Chairman

I am pleased to present the Audit Committee Report for the year ended

31 December 2023. The Committee met three times during this year

and all members attended each meeting. The Committee also met on

20 February 2024 to consider this report. The Company’s external

auditor attended the meetings to agree the audit plan and to consider

this Annual Report. The Investment Manager attends meetings by

invitation of the Audit Committee, but the Audit Committee also met

the external auditor without the Inv

estment Manager at meetings held

to approve the annual financial statements.

Composition

The Audit Committee comprises all the Directors whose biographies

are set out on page 32. Lord St John of Bletso was Chairman of the

Audit Committee. Mrs Dyer Bartlett who became Chairman of the

Company on 1 March 2022 was independent on appointment, and

therefore entitled to be a member of the Audit Committee under the

AIC Code. The Board is satisfied that the Committee as a whole has

competence relevant to the sector in which the Company operates

and the Committee considers that it has recent and relevant

financial experience. Lord St John of Bletso has chaired a number

of audit committees including that of a VCT and Mrs Dyer Bartlett is

a chartered accountant and audit committee chairman of two other

investment trusts.

Responsibilities

The Committee’s main responsibilities under its terms of

reference are:

1. To review the Company’s Interim and Annual Reports.

Inparticular, the Committee considers whether the financial

statements are fair, balanced and understandable, allowing

shareholders to assess the Company’s investment policy,

position and performance, business model and strategy;

2. To review the risk management and internal control processes

of the Company;

3. To recommend the re-appointment of Deloitte LLP as external

auditor and agree the scope of its work and its remuneration,

reviewing its independence and the effectiveness of the

audit process;

4. To consider any non-audit work to be carried out by the auditor.

The Audit Committee reviews the need for non-audit services

to be performed by the auditor in accordance with the

Company’s non-audit services policy, and authorise such on a

case by case basis having given consideration to the cost

effectiveness of the services and the objectivity of the auditor;

5. To consider the need for an internal audit function; and

6. To review and challenge the assumptions and qualifications in

respect of the Company’s going concern and viability

statements.

Meetings and Business

The Committee met three times during the year under review. The

following matters were dealt with at those meetings:

Financial statements

The Committee has confirmed that, in its opinion, the Board can

make the required statement that this 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. In making

this assessment, the Committee had regard to guidance published

by the Financial Reporting Council. The Committee assessed and

agreed that transactions had been fairly disclosed, performance

measures had been prepared on a consistent basis and were

reflective of the business, there was adequate commentary on the

Company’s strengths and weaknesses and that this Annual Report,

taken as a whole, is consistent with the Board’s view of the

operation of the Company. The Committee has given this

confirmation on the basis of its review of the whole document,

underpinned by involvement in the planning for its preparation and

review of the processes to assure the accuracy of factual content.

Significant reporting matters

The Committee considered key accounting issues, matters and

judgements in relation to the Company’s financial statements and

disclosures relating to:

Valuation and ownership of the Company’s investments

The Committee is responsible for reviewing procedures to confirm

the valuation and existence of investments. Controls are in place to

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

ensure that valuations are appropriate, and existence is verified

through reconciliations undertaken by the Depositary.

Recognition of revenue from investments

The Committee took steps to gain an understanding of the

processes in place to record investment income and transactions.

The Committee sought confirmation that processes were in place

to ensure that all dividend income and recovery of overseas tax is

captured correctly and reflected in the Company’s Financial

Statements.

Accounting policies

The current accounting policies, as set out on pages 62 to 65, have

been applied consistently throughout the period.

Going concern and viability statements

Having reviewed the Company’s financial position, liabilities, buy

back programme, principal risks and prospects and any emerging

risks, the Committee recommended to the Board that it was

appropriate for the Board to prepare the financial statements on the

going concern basis for a period of at least 12 months from the date

of the approval of the financial statements. Further detail is provided

on pages 33 to 34. It further formulated the Viability Statement set

out on page 26 including the appropriate assessment period.

Risk management and internal controls

The Board has overall responsibility for the Company’s risk

management and systems of internal controls and for reviewing

their effectiveness. In common with the majority of investment

trusts, investment management, accounting, company secretarial

and custodial services have been delegated to third parties.

The Board has delegated responsibility to the Audit Committee to

advise on the assessment and management of principal risks as

well as identification of emerging risks. The principal risks, risk

mitigation and procedures to identify emerging risks are

summarised in the Strategic Report. The Committee reviewed the

Company’s schedule of key risks twice during the period and

reviewed a risk appetite statement summarising the Board’s attitude

to its principal risks and to identify when active Board engagement

might be required outside the normal cycle of Board meetings. No

significant control failings or weaknesses were identified in the

Committee’s most recent risk review and no modifications to the

risk mitigation programme were recommended.

A review of the Company’s anti-bribery and corruption policy and its

policy for the prevention of the facilitation of tax evasion was carried

out and it was determined they continued to be appropriate and

reflective of best practice. It also confirmed that appropriate

whistleblowing policies were in place at the Investment Manager and

the other key service providers.

Internal audit

The Audit Committee has considered the need for an internal audit

function and considers that this is not appropriate given the nature

and circumstances of the Company. Separately, the Audit

Committee considered whether there was merit in appointing a firm

of accountants to undertake any internal audit reviews into the

Company’s policies and procedures. It concluded that this would

not add any value on the basis that all the Company’s operations

had been outsourced to third parties and reports were received from

key third parties regarding their processes and procedures.

In

relation to the Investment Manager, fund administrator and

depositary, external audit reports were also received which

confirmed that no issues had been identified with such third parties’

procedures and internal controls. The Audit Committee keeps the

need for an internal function under periodic review.

External Auditor

During the year, the nature and scope of the external audit together

with Deloitte LLP’s audit plan were considered by the Committee.

Subsequent to the year end, the Committee also met with Deloitte LLP

to review the outcome of the audit and the draft 2023 Annual Report.

In order to fulfil the Committee’s responsibility regarding the

independence of the auditor, the Committee considered:

• the senior audit personnel;

• the auditor’s arrangements concerning any potential conflicts

of interest;

• the extent of any non-audit services undertaken by the auditor

on behalf of the Company; and

• the statement by the auditor that they remain independent

within the meaning of the r

egulations and their professional

standards.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

In its review of the effectiveness of the audit process, the Committee

considered:

• the auditor’s fulfilment of the agreed audit plan;

• the level and effectiveness of challenge provided by the auditor;

• the audit quality control arrangements, including the stages of

review of the Annual Report, the time s

pent by the audit partner

and whether any issues identified during the audit had been

dealt with on a timely basis;

• the auditor’s report on the FRC’s Audit Quality Review issued

in July 2023 (and confirmation that there were no significant

developments since that time);

• the auditor’s audit approach taking into account the

requirements in respect of material assumptions;

• the report arising from the audit itself; and

• feedback from the company secretary, the Investment Manager

and the fund administrator on the conduct of the audit.

The Committee was satisfied with the auditor’s independence and

the effectiveness of the audit process, together with the degree of

diligence and professional scepticism brought to bear and that the

auditor provided effective independent challenge in carrying out its

responsibilities.

The Committee confirms that the Company is in compliance with

the requirements of the Statutory Audit Services for Large

Companies Market Investigation (Mandatory Use of Competitive

Tender Processes and Audit Committee Responsibilities) Order

2014. This order relates to the frequency and governance of tenders

for the appointment of the external audit

or and the setting of the

policy on the provision of non-audit services.

Non-audit services

The Company’s policy for the provision of non-audit services by the

auditor is aligned with the Revised Ethical Standards 2019 (the

“Auditing Standards”). The Company’s policy is that the provision of

non-audit services by the auditor is permissible where no conflicts

of interest arise, where the independence of the auditor is not likely

to be impinged by undertaking the work and the quality and the

objectivity of both the non-audit work and audit work will not be

compromised. There were no non-audit services undertaken by the

Company’s auditor during the year under review.

Details of the fees paid to the external auditor for audit services are

set out in note 5 to the financial statements. The Audit Committee

received representations from the external auditor concerning their

independence and considered the external auditor to be independent.

Auditor re-appointment

The auditor to the Company is Deloitte LLP who were engaged on

24 July 2019. The audit partner, Chris Hunt

er, has held the role

since that date and in accordance with partner rotation

requirements will retire as audit partner for the Company after

completion of the 31 December 2023 audit.

The Committee conducted a review of the performance of the

auditor during the year and concluded that performance was

satisfactory and that there were no grounds for change. It also

reviewed the audit fee.

Deloitte LLP have indicated their willingness to continue to act as

auditor to the Company for the forthcoming year and a resolution

for their re-appointment will be proposed at the Annual General

Meeting as well as a resolution to approve the auditor’s

remuneration.

Audit Committee Effectiveness

During the year the Audit Committee reviewed its effectiveness and

concluded that it had discharged all its obligations as set out in the

Audit Committee’s terms of reference in an efficient and effective

manner. The Audit Committee concluded that there were no

changes required to its procedures.

Lord St John of Bletso

Chairman of the Audit Committee

26 February 2024

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Statement from the Chairman

I am pleased to present the Management Engagement Committee

Report for the year ended 31 December 2023.

The Management Engagement Committee met twice during the year

and the attendance by each Director is shown in the table on

page39. The Committee also met on 20 February 2024 to consider

this Report.

Composition

The Committee comprises all the Directors whose biographies are

set out on page 32.

Responsibilities

The Committee’s main responsibilities during the period were:

• to undertake an annual review of the compliance by the

Investment Manager with the Company’s investment policy as

established by the Board and with the Investment Management

Agreement entered into between the Company and the AIFM

and the Investment Manager; and

• to undertake an annual review of the performance of the

Investment Manager and any other key service providers to the

Company other than the external auditor.

Investment Manager

The Company has appointed Fundsmith LLP as the Company’s AIFM

and Investment Manager.

Before the publication of this report, the Management Engagement

Committee reviewed the performance of the Investment Manager

and whether it had fulfilled the t

erms of the Investment

Management Agreement and complied with the Company’s

investment policy. It also received a report and presentation from

the Investment Manager’s Compliance Officer regarding the

Investment Manager’s compliance processes.

The Committee agreed that the Investment Manager has the

required skills and depth of experience to manage the Company’s

investments. The Committee also concluded that the performance

of the Investment Manager was satisfactory, and that the continuing

appointment of the Investment Manager was in the best interests

of shareholders. The Committee agreed that the existing fee

arrangements and other contractual terms remained appropriate

and further aligned the Investment Manager’s interests with those

of the Company’s shareholders.

Other Key Service Providers

The Company’s other key service providers are:

• Depositary (Northern Trust Investor Services Limited)

• Custodian (The Northern Trust Company)

• Administrator (Northern Trust Global Services SE)

• Company secretary (Apex Listed Companies Services

(UK) Limited

• Registrar (Link Group) and

• Broker (Investec Bank plc)

The Committee received feedback on the performance of these

service providers by the Investment Manager and company

secretary and the level of fees is monitored.

The Committee also asked all its key service providers to complete

questionnaires concerning their opera

tions, internal controls,

business continuity plans, policies and procedures and these

questionnaires were reviewed by the Committee.

Following the Committee’s review and analysis, the Committee

concluded that the performance of all the Company’s current key

service providers was satisfactory and that each be retained until

the next review.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Management Engagement Committee

Effectiveness

During the year the Management Engagement Committee reviewed

its effectiveness and concluded that it had discharged all its

obligations as set out in the Management Engagement Committee’s

terms of reference in an efficient and effective manner. The

Management Engagement Committee concluded that there were

no changes required to its procedures.

Jeremy Attard-Manche

Chairman of the Management Engagement Committee

26 February 2024

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Statement from the Chairman

I am pleased to present the Directors’ Remuneration Report to

shareholders. The law requires the Company’s auditor to audit

certain disclosures provided in this report. Where disclosures have

been audited, they are indicated as such and the auditor’s opinion

is included in its report to shareholders within this Annual Report.

All Directors are non-executive and do not have service contracts

with the Company but are engaged under letters of appointment.

The Directors’ letters of appointment, and the t

erms and conditions

within, are available for inspection on request at the Company’s

registered office.

The Board considers the framework for the remuneration of the

Directors on an annual basis. It reviews the ongoing appropriateness

of the Company’s Remuneration Policy and the individual

remuneration of Directors by reference to the activities of the

Company and comparison with other companies of a similar

structure and size.

During the year, Directors’ remuneration was set at £45,000 to the

Chair of the Board, £40,000 to the Audit Committee Chair, £35,000

to the Management Engagement Committee Chair and £30,000 to

directors.

The Board undertook an evaluation of its remuneration taking into

consideration the latest inflation rates and peer group comparisons

by sector and market capitalisation. The Board noted that the

Directors’ remuneration was below the median remuneration of the

Company’s peer group and that a 5% increase would be appropriate.

Following the review, the Chairman's remuneration increased to

£47,250, the Audit Committee Chair to £42,000, the Management

Engagement Committee Chair to £36,750 and directors to £31,500

with effect from 1 January 2024.

The total fees paid to the Directors for the year to 31 December

2023 are set out in the table below.

Directors’ Remuneration Policy

Set out below is the Directors’ Remuneration Policy which was

approved by shareholders at the 2023 AGM.

The Company’s Remuneration Policy provides that fees payable to

the Directors should reflect the value of the time s

pent by the Board

on the Company’s affairs and the responsibilities borne by the

Directors and should be sufficient to enable candidates of high

calibre to be recruited. Directors are remunerated in the form of fees

payable monthly in arrears, paid to the Dir

ector personally. There

are no long-term incentive schemes, share option schemes or

pension arrangements and the fees are not specifically related to

the Directors’ performance, either individually or collectively.

Directors’ remuneration comprises solely Directors’ fees.

Additionally, there are no benefits in kind, however, Directors are

authorised to claim reasonable expenses from the Company in

relation to the performance of their dutie

s such as expenses

incurred in the course of travel to attend meetings and duties

undertaken. Directors may also earn a pro rata day rate in

connection with extraordinary corporate events or transactions

requiring them to commit significant extra time to the Company.

No additional day rates were charged in 2023 (2022: nil). The

Company does not have any employees.

Whilst the articles allow the Company to establish pension schemes

and similar benefits for the Directors, no such scheme has been

established and there are no plans to establish one.

In accordance with statute, the Remuneration Policy will be

considered by shareholders at the Annual General Meeting at least

once every three years. The Remuneration Policy was approved by

shareholders at the AGM held on 27 April 2023. Accordingly, an

ordinary resolution for the approval of the Remuneration Policy will

be considered by shareholders at the Annual General Meeting in

2026. The provisions set out in the Remuneration Policy apply until

they are next submitted for shareholder approval. In the event of

any proposed material variation to the Remuneration Policy,

shareholder approval will be sought for the proposed new policy

prior to its implementation. The Remuneration Policy sets out the

principles the Company follows in remunerating Directors and the

result of the shareholder vote on the Remuneration Policy is binding

on the Company.

Governance Report

Directors’ Remuneration Report

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48

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Current and Future Policy

Purpose of

Component Director reward Operation

Annual All Directors For services as Determined

director’s non-executive by the

fee Directors Board

of a plc

Expenses All Directors Reimbursement Submission

of expenses of appropriate

incurred in the supporting

performance of documentation

duties

The way in which the Board implemented the Company’s

Remuneration Policy in the year ended 31 December 2023 is set

out below.

(Audited) (Audited)

Fee for the Fee for the

year to year to

31 December 31 December

2023 (£) 2022 (£)

Diana Dyer Bartlett 45,000 44,167

Lord St John of Bletso 40,000 39,167

Jeremy Attard-Manche* 35,000 29,167

Denise Hadgill* 30,000 17,500

Mark Pacitti* – 7,500

Total 150,000 137,501

* Mr Pacitti retired 28 February 2022. Jeremy Attard-Manche and Denise Hadgill

were appointed as a Non-Executive Directors 1 March 2022 and 1 June 2022

respectively.

Annual Percentage Change in Directors’

Remuneration (unaudited)

In accordance with The Companies (Directors’ Remuneration Policy

and Directors’ Remuneration Report) Regulations 2019, the table

below sets out the annual percentage change in Directors’ fees in

respect of each Director.

Year ended Year ended Year ended Year ended

31 December 31 December 31 December 31 December

2023 %* 2022 % 2021 % 2020 %

Diana Dyer

Bartlett 1.8 – 48.1 –

Lord St John

of Bletso 2.1 – 29.6 –

Jeremy

Attard-Manche 20.0 – – –

Denise Hadgill 71.4 – – –

* The increase in fees in 2023 reflects the fact that Diana Dyer Barlett and Lord

StJohn of Bletso were appointed Chairman of the Board and Chairman of the Audit

Committee respectively on 1 March 2022. Jeremy Attard- Manche and Denise

Hadgill were appointed as a Non-Executive Directors 1 March 2022 and 1 June

2022 respectively. The fee applicable to each of these roles was unchanged from

31 December 2022.

No communications have been received from shareholders

regarding Directors’ remuneration. The remuneration for the non-

executive Directors is within the limits set out in the Company’s

Articles of Association. The present limit is £250,000 in aggregate

per annum.

Directors’ Fees and Expenses

The Directors, as at the date of this report, received the fees listed

above. These exclude any employers’ national insurance

contributions. No other forms of remuneration were received by the

Directors and so fees represent the total remuneration of each

Director.

Sums Paid to Third Parties (audited information)

None of the fees referred to in the above table were paid to any third

party in respect of the services provided by any of the Directors.

Loss of Office

The Directors’ letters of appointment specifically exclude any

entitlement to compensation upon leaving office for whatever

reason. Appointment as Director may, at the discretion of either

party, be terminated upon three months’ notice.

Governance Report

Directors’ Remuneration Report

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49

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Share Price Total Return

A performance comparison is required to be presented in this report.

The performance comparison is shown f

or the period since launch

to 31 December 2023. The MSCI World SMID Cap Index, on a net

sterling adjusted basis, has been adopted by the Board as reference

index against which the Company’s performance has been

measured for the period.

Relative Cost of Directors’ Remuneration

The bar chart below shows the comparative cost of Directors’ fees

compared with Company expenses for the year ended 31 December

2023 and comparative for the year to 31 December 2022. During

the year no dividends were paid (2022: same) and the Company

repurchased 11.7 million ordinary shares (2022: 5.7 million) at a

cost of £159.3 million (2022: 74.0 million).

Directors’ Interests in the Company’s Shares as at

31December 2023 (audited)

The beneficial interests of the Directors of the Company (and their

connected parties) at the year end and at the date of this report are

set out below:

No of ordinary shares

31 December 31 December

Director 2023 2022

Diana Dyer Bartlett 10,149 8,886

Lord St John of Bletso 10,000 10,000

Jeremy Attard-Manche 1,250 –

Denise Hadgill 1,111 1,111

Since 31 December 2023, Mrs Hadgill purchased a further 1,467

ordinary shares, a total beneficial interest of 2,578 ordinary shares.

No other changes have been notified at the date of this report.

Shareholder Approval

An ordinary resolution for the approval of the Directors’

Remuneration Report will be put to shareholders annually at the

Company’s Annual General Meeting. This vote is advisory only and

not binding on the Company, nor does it affect the remuneration

payable to any individual Director. However, it does give

shareholders the opportunity to inform the Board of their views on

Directors’ remuneration. Should the resolution fail to be approved

in a year in which the Remuneration Policy was not put to a

shareholder resolution, this will require the Company to put the

Remuneration Policy to shareholders the following year.

The following table sets out the votes received at the last Annual

General Meeting of shareholders, held on 27 April 2023, in respect

of the approval of the Directors’ Remuneration Policy and Directors'

Remuneration Report.

In Favour/

Discretionary Against Withheld

Total Total Total

Votes % Votes % Votes

Directors’

Remuneration

Policy 59,722,212 99.84 98,318 0.16 41,020

Directors’

Remuneration

Report 59,723,242 99.84 96,787 0.16 41,521

MSCI World SMIDShare Price

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Launch

Nov-18

Jan-19

Mar-19

May-19

Jul-19

Sep-19

Nov-19

Jul-22

Sep-22

Nov-22

Jan-20

Mar-20

May-20

May-22

Jul-20

Sep-20

Nov-20

Jan-22

Jan-21

Mar-21

Mar-22

Jul-23

Sep-23

Nov-23

May-23

Jan-23

Mar-23

May-21

Jul-21

Sep-21

Nov-21

£’000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2023

2022

Directors Fees

Company

Expenses

Dividends

Share buybacks

138150

21,826

23,461

00

159,347

73,983

Governance Report

Directors’ Remuneration Report

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50

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Statement

On behalf of the Board and in accordance with Part 2 of Schedule 8

of the Large and Medium-sized Companies and Groups (Accounts

and Reports) (Amendment) Regulations 2013, I confirm that this

report summarises, as applicable, for the year to 31 December 2023:

(i) the major decisions on Directors’ remuneration;

(ii) any substantial changes relating to Directors’ remuneration

made during the period; and

(iii) the context in which the changes occurred and decisions have

been taken.

This report on Directors’ remuneration was approved by the Board

on 26 February 2024 and signed on its behalf by the Chairman.

Diana Dyer Bartlett

Chairman

26 February 2024

Governance Report

Directors’ Remuneration Report

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51

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Financial Statements

Independent Auditor’s Report

Report on the audit of the financial statements

1. Opinion

In our opinion the financial statements of Smithson Investment Trust plc (the ‘company’):

l give a true and fair view of the state of the company’s affairs as at 31 December 2023 and of its profit for the year then ended;

l have been properly prepared in accordance with United Kingdom adopted international accounting standards and International

Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB); and

l have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements which comprise:

l the statement of comprehensive income;

l the statement of financial position;

l the statement of changes in equity;

l the statement of cash flows; and

l the related notes 1 to 18.

The financial reporting framework that has been applied in their preparation is applicable law, United Kingdom adopted international

accounting standards and IFRSs as issued by the IASB.

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities

under those standards are further described in the auditor’s responsibilitie

s for the audit of the financial statements section of our report.

We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial sta

tements

in the UK, including the Financial Reporting Council’s (the ‘FRC’s

’) Ethical Standard as applied to listed public interest entities, and we

have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that we have not provided an

y non-

audit services prohibited by the FRC’s Ethical Standard to the company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit matters The key audit matter that we identified in the current year was:

l Valuation and ownership of investments.

Materiality The materiality that we used in the current year was £25.5m which was determined on the

basis of 1% of net assets as at 31 December 2023.

Scoping Audit work to respond to the risks of material misstatement was performed directly by the

audit engagement team.

Significant changes in our approach There were no significant changes in our approach in the current year

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Independent Auditor’s Report

Financial Statements

4. Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation

of the financial statements is appropriate.

Our evaluation of the directors’ assessment of the company’s abilit

y to continue to adopt the going concern basis of accounting included:

l Obtaining an understanding of relevant controls over management’s process for evaluating the company’s ability to continue as a

going concern;

l Assessing the controls in place that enable the company to continue to operate as an Investment Trust;

l Assessing the performance and position of the company, including its strong cash position, dividend income and management fee

expenses;

l Assessing the risks to the investment portfolio of market altering factors such as inflation, high energy costs and increased interest

rates, by looking at the company’s operational impact and business continuity plans;

l Assessing the company’s ability to cover its expenses for the 12-month period from the date of signing the financial statements,

including the ability of the company to exit underper

forming investments, if needed; and

l Assessing the appropriateness of the disclosures in the financial statements relating to going concern.

Based on the work we have performed, we have not identified any ma

terial uncertainties relating to events or conditions that, individually

or collectively, may cast significant doubt on the company’s ability to continue as a g

oing concern for a period of at least twelve months

from when the financial statements are authorised for issue.

In relation to the reporting on how the company has applied the UK Corporate Governance Code, we have nothing material to add or draw

attention to in relation to the directors’ statement in the f

inancial statements about whether the directors considered it appropriate to

adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this

report.

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements

of the current period and include the most significant assessed risks of ma

terial misstatement (whether or not due to fraud) that we

identified. These matters included those which had the greatest eff

ect on: the overall audit strategy, the allocation of resources in the

audit, and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion ther

eon, and

we do not provide a separate opinion on these matters.

5.1. Valuation and ownership of investments

Key audit matter description As an investment entity, the company holds investments of £2,539m as at 31 December

2023 (2022: £2,394m) . These represent the most quantitatively significant financial

statement line on the statement of financial position.

There is a risk that investments may not be valued correctly or may not represent the

property of the company. This may result in a ma

terial misstatement within the investments

held at fair value through profit or loss and we consider that there is a potential area for

fraud since investment return is a key performance indicator for the company.

Refer to note 1f to the financial statements for the accounting policy on investments and

details of the investments are disclosed in note 9 t

o the financial statements. The valuation

and ownership of investments is included in the Audit Committee Report as a significant

reporting matter on page 42.

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53

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Financial Statements

Independent Auditor’s Report

How the scope of our audit responded We performed the following procedures to address the valuation and ownership of

to the key audit matter investments key audit matter:

l We obtained an understanding of, and tested, relevant controls over the valuation and

ownership of investments; we relied on these controls in our audit approach to investment

valuation;

l We independently valued 100% of the investment portfolio to the closing bid prices

published by an independent pricing source; and

l We confirmed the ownership of 100% of investments at the year-end date by obtaining

independent third-party confirmations directly from the custodian.

Key observations Based on the work performed we concluded that the v

aluation and ownership of investments

is appropriate.

6. Our application of materiality

6.1. Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions

of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work

and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Materiality £25.5m (2022: £24.2m)

Basis for determining materiality 1% (2022: 1%) of net assets

Rationale for the benchmark applied Net assets has been chosen as a benchmark as it is the most relevant benchmark for

investors and is a key driver of shareholder value. The increase in materiality year on year

arose principally from the increase in the company’s net assets.

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54

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Independent Auditor’s Report

Financial Statements

6.2. Performance materiality

We set performance materiality at a level lower than materialit

y to reduce the probability that, in aggregate, uncorrected and undetected

misstatements exceed the materiality for the financial statements as a whole

. Performance materiality was set at 70% of materiality for

the 2023 audit (2022: 70%). In determining performance mat

eriality, we considered the following factors:

a. no significant changes in business structure and operations;

b. our experience from previous audits has indicated a low number of corr

ected and uncorrected misstatements identified in prior periods;

and

c. no significant changes in the company’s operating environment caused by the uncertainty and volatility brought about by inflation

,

high energy costs and increased interest rates.

6.3. Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1.3m (2022: £1.2m), as

well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit C

ommittee

on disclosure matters that we identified when assessing the overall presentation of the financial statements.

7. An overview of the scope of our audit

7.1. Scoping

Our audit was scoped by obtaining an understanding of the company and its environment, including internal control and assessing the

risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit

engagement team.

7.2. Our consideration of the control environment

In assessing the company’s control environment, we considered controls in place a

t the company’s service organisation which acts as

administrator. As part of this we reviewed the System and Organisa

tion Controls (SOC 1) Report of the service organisation and have

taken a controls reliance approach in respect of the controls relatin

g to valuation and ownership of investments. We also reviewed the

controls report of the service organisation in respect of general IT contr

ols. Further, we performed understanding of relevant business

processes and controls that address the risk of material misstatement in financial reporting.

7.3. Our consideration of climate-related risks

In planning our audit, we have considered the potential impact of climate change on the company’s business and its financial sta

tements.

The company continues to develop its assessment of the potential im

pacts of environmental, social and governance (“ESG”) related risks,

including climate change, as outlined on page 30. As a part of our audit, we held discussions to understand the process of identif

ying

climate-related risks, management’s determination of mitigatin

g actions and the impact on the company’s financial statements. We

performed our own qualitative risk assessment of the potential impact of climate change on the company’s account balances and clas

ses

of transactions. We have read the disclosures in relation to c

limate change made in the other information within the annual report and

ascertain whether the disclosures are materially consistent with the financial statements and our knowledge from our audit.

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267708 Smithson pp051-pp057.qxp 26/02/2024 13:02 Page 54

55

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Independent Auditor’s Report

Financial Statements

8. Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor’s

report thereon. The directors are responsible for the o

ther information contained within the annual report.

Our opinion on the financial statements does not cover the other information and

, except to the extent otherwise explicitly stated in our

report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with

the financial statements or our knowledge obtained in the course of the audit, or o

therwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatement

s, we are required to determine whether this gives rise to

a material misstatement in the financial statements themselves. If, based on the w

ork we have performed, we conclude that there is a

material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

9. Responsibilities of directors

As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial

statements and for being satisfied that they give a true and fair v

iew, and for such internal control as the directors determine is necessary

to enable the preparation of financial statements that are free fr

om material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible f

or assessing the company’s ability to continue as a going concern,

disclosing as applicable, matters related to going concern and usin

g the going concern basis of accounting unless the directors either

intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

10. Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of as

surance,

but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it e

xists.

Misstatements can arise from fraud or error and are considered material if

, individually or in the aggregate, they could reasonably be

expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the f

inancial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

11. Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect material misstatements in r

espect of irregularities, including fraud. The extent to which our

procedures are capable of detecting irregularities, including fraud is detailed below.

11.1. Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in r

espect of irregularities, including fraud and non-compliance with laws and

regulations, we considered the following:

l the nature of the industry and sector, control environment and business performance including the design of the company’s

remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;

l results of our enquiries of management, the directors and the Audit Committee about their own identification and assessment of the

risks of irregularities, including those that ar

e specific to the company’s sector;

l any matters we identified having obtained and reviewed the company’s documentation of their policies and procedures relating to:

m identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;

m detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;

m the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

l the matters discussed among the audit engagement team regarding how and where fraud might occur in the financial statements

and any potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incenti

ves that may exist within the organisation for fraud and

identified the greatest potential for fraud in the valuation and o

wnership of investments. In common with all audits under ISAs (UK), we

are also required to perform specific procedures to respond to the risk of management override.

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

We also obtained an understanding of the legal and regulatory framework that the company operates in, focusing on provisions of those

laws and regulations that had a direct effect on the determina

tion of material amounts and disclosures in the financial statements. The

key laws and regulations we considered in this context included the UK C

ompanies Act, Listing Rules, tax legislation, and Association of

Investment Companies SORP.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but

compliance with which may be fundamental to the company’s ability to operate or to avoid a material penalty. This included the

requirements of the United Kingdom’s Financial Conduct Authority (“FCA

”), Alternative Investment Fund Managers Directive, and ESG

Sourcebook.

11.2. Audit response to risks identified

As a result of performing the above, we identified the valuation and o

wnership of investments as a key audit matter related to the potential

risk of fraud. The key audit matters section of our report explains the ma

tter in more detail and also describes the specific procedures

we performed in response to that key audit matter.

In addition to the above, our procedures to respond to risks identified included the following:

l reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant

laws and regulations described as having a direct effect on the financial statements;

l enquiring of management and the Audit Committee concerning actual and potential litigation and claims;

l performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement

due to fraud;

l reading minutes of meetings of those charged with governance; and

l in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other

adjustments; assessing whether the judgements made in making accountin

g estimates are indicative of a potential bias; and evaluating

the business rationale of any significant transactions tha

t are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, and remained

alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Report on other legal and regulatory requirements

12. Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies

Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

l the information given in the strategic report and the directors’ report for the financial year for which the financial statements are

prepared is consistent with the financial statements; and

l the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and it

s environment obtained in the course of the audit, we have not

identified any material misstatements in the strategic report or the directors’ report.

13. Corporate Governance Statement

The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the

Corporate Governance Statement relating to the company’s compliance w

ith the provisions of the UK Corporate Governance Code specified

for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance

Statement is materially consistent with the financial sta

tements and our knowledge obtained during the audit:

l the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material

uncertainties identified set out on pages 33 to 34;

l the directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is

appropriate set out on page 26;

l the directors' statement on fair, balanced and understandable set out on page 41;

Financial Statements

Independent Auditor’s Report

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

l the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 23;

l the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out

on page 43; and

l the section describing the work of the Audit Committee set out on page 41.

14. Matters on which we are required to report by exception

14.1. Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

l we have not received all the information and explanations we require for our audit; or

l adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited

by us; or

l the financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

14.2. Directors’ remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration hav

e not

been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and re

turns.

We have nothing to report in respect of these matter.

15. Other matters which we are required to address

15.1. Auditor tenure

Following the recommendation of the Audit Committee, we were appointed by the Board on 24 July 2019 to audit the financial statement

s

for the year ending 31 December 2019 and subsequent financial periods. The period of total uninterrupted engagement including pr

evious

renewals and reappointments of the firm is 5 years, covering the years ending 31 December 2019 to 31 December 2023.

15.2. Consistency of the audit report with the additional repor

t to the Audit Committee

Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISA

s (UK).

16. Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.

Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them

in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibilit

y to anyone

other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Chris Hunter, CA (Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

Edinburgh, United Kingdom

26 February 2024

Independent Auditor’s Report

Financial Statements

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58

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Statement of Comprehensive Income

For the year ended 31 December 2023 For the year ended 31 December 2022

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 31,116 – 31,116 31,341 – 31,341

Gains/(losses) on investments

held at fair value through proﬁt or loss 9 – 291,600 291,600 – (970,879) (970,879)

Foreign exchange (losses)/gains (136) (656) (792) 147 (399) (252)

Investment management fees 4 (20,280) – (20,280) (21,998) – (21,998)

Other expenses and transaction costs 5 (1,532) (650) (2,182) (1,463) (743) (2,206)

Proﬁt/(loss) before tax 9,168 290,294 299,462 8,027 (972,021) (963,994)

Tax 6 (6,144) – (6,144) (3,670) – (3,670)

Proﬁt/(loss) for the year 3,024 290,294 293,318 4,357 (972,021) (967,664)

Return/(loss) per share

(basic and diluted) (p) 7 1.82 175.02 176.84 2.49 (555.60) (553.11)

The Company does not have any income or expenses which are not included in the return/(loss) for the year.

All of the return/(loss) and total comprehensive income for the y

ear is attributable to the owners of the Company.

The “Total” column of this statement represents the Company’s Income Sta

tement, 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.

Financial Statements

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59

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Statement of Financial Position

As at As at

31 December 2023 31 December 2022

Notes £’000 £’000

Non-current assets

Investments held at fair value through proﬁt or loss 9 2,538,953 2,393,848

Current assets

Trade and other receivables 10 1,851 3,853

Cash and cash equivalents 16,579 24,589

18,430 28,442

Total assets 2,557,383 2,422,290

Current liabilities

Trade and other payables 11 (5,445) (4,323)

Total assets less current liabilities 2,551,938 2,417,967

Equity attributable to equity shareholders

Share capital 12 1,771 1,771

Share premium 13 1,719,487 2,219,487

Capital reserve 834,305 203,358

Revenue reserve (3,625) (6,649)

Total equity 2,551,938 2,417,967

Net asset value per share (p) 14 1,598.0 1,410.7

The financial statements were approved by the Board on 26 February 2024 and were signed on its behalf by:

Diana Dyer Bartlett

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)

Financial Statements

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60

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Statement of Changes in Equity

Financial Statements

For the year ended 31 December 2023

Share Share Capital Revenue

Capital Premium Reserve

*

Reserve

*

Total

Notes £’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.

For the year ended 31 December 2022

Share Share Capital Revenue

Capital Premium Reserve

*

Reserve

*

Total

Notes £’000 £’000 £’000 £’000 £’000

Balance at 1 January 2022 1,717 2,126,997 1,249,362 (11,006) 3,367,070

Issue of new shares 54 93,050 – – 93,104

Costs on new share issues – (560) – – (560)

Ordinary shares bought back and held in treasury – – (73,604) – (73,604)

Costs on buybacks – – (379) – (379)

(Loss)/proﬁt for the year – – (972,021) 4,357 (967,664)

Balance at 31 December 2022 12 1,771 2,219,487 203,358 (6,649) 2,417,967

* Distributable reserve.

The accompanying notes are an integral part of these financial statements.

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61

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Statement of Cash Flows

For the year to For the year to

31 December 2023 31 December 2022

Notes £’000 £’000

Operating activities

Proﬁt/(loss) before tax 299,462 (963,994)

Adjustments for:

(Gains)/losses on investments held at

fair value through proﬁt or loss 9 (291,600) 970,879

(Increase)/decrease in receivables (90) 25

Decrease in payables (70) (1,175)

Overseas taxation (4,334) (4,584)

Net cash generated from operating activities 3,368 1,151

Investing activities

Purchases of investments 9,11 (368,464) (651,473)

Sale of investments 9,10 514,316 624,269

Net cash generated from/(used in) investing activities 145,852 (27,204)

Financing activities

Proceeds from issue of new shares 12 – 93,104

Issue costs relating to new shares 12 – (560)

Purchase of shares held in treasury 12 (156,389) (73,604)

Costs relating to buy backs 12 (841) (379)

Net cash (used in)/generated from ﬁnancing activities (157,230) 18,561

Net decrease in cash and cash equivalents (8,010) (7,492)

Cash and cash equivalents at start of the year 24,589 32,081

Cash and cash equivalents at end of the year 15 16,579 24,589

Comprised of:

Cash at bank 16,579 24,589

Dividends and interest received in cash during the year amounted to £30,292,000 and £755,000 (2022: £31,348,000 and £56,000),

respectively.

The accompanying notes are an integral part of these financial statements.

Financial Statements

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62

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 accord

ance with international accounting standards in conformity with

the requirements of the Companies Act 2006 and Int

ernational 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 con

vention (modified to include investments at fair value

through profit or loss) on a going concern basis and in accordance w

ith UK-adopted international accounting standards in conformity

with the requirements of the Companies Act 2006 and IFRSs as is

sued 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 Companie

s (“AIC”) in November 2014 (and updated in July 2022). They

have also been prepared on the assumption that approval as an inv

estment trust will continue to be granted. The Directors believe

that it is appropriate to continue to adopt the going concern basis f

or preparing the financial statements for the reasons stated on

pages 33 to 34. 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 f

unctional 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 e

stimates have been applied to the financial statements and

therefore there is not a significant risk of a material adjustment t

o 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 com

pany, 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 Comprehensiv

e Income. The net revenue is the measure the Directors

believe appropriate in assessing the Company’s compliance with cer

tain 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.

Notes to the Financial Statements

Financial Statements

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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63

1. Accounting policies (continued)

(f) Investments

Investments in equity instruments are classified upon initial recognition as f

inancial 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 mark

et concerned, and are initially measured at fair value. Subsequent

to initial recognition, investments are valued at fair value. For list

ed 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 inv

estments are recognised as a capital item in the Statement of

Comprehensive Income.

The Company derecognises a financial asset only when the contractual ri

ght to the cash flows from the asset expire, or when it

transfers the financial asset and substantially all the risks and r

ewards of ownership of the asset to another entity. On

derecognition of a financial asset, the difference between the as

set’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 contrac

t rate. Transactions in foreign currency are converted

to sterling at the rate ruling at the d

ate 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 c

apital 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 e

xpected 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.

Notes to the Financial Statements

Financial Statements

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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64

1. Accounting policies (continued)

(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 investment

s 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 dif

ference 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 y

ear 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 transac

tions

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 reve

rsal

of the underlying temporary differences can be deducted. Timing dif

ferences 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 com

pany, 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.

Notes to the Financial Statements

Financial Statements

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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65

1. Accounting policies (continued)

(m) Adoption of new and revised standards

At the date of authorisation of these financial statements the follo

wing 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 IFRS 16 'Leases on sale and leaseback' (effective for accounting periods beginning on or after 1 January

2024).

• Amendment to IAS 1 'Non-current liabilities with covenants' (effec

tive for accounting periods beginning on or after 1 January

2024).

• Amendment to IAS 7 and IFRS 7 'Supplier finance' (effective for accounting periods on or after 1 January 2024 - with

transitional reliefs in the first year).

• Amendments to IAS 21 'Lack of Exchangeability' (effective f

or accounting periods on or after 1 January 2024 - early adoption

is available).

The Company does not believe that there will be a material im

pact on the financial statements or the amounts reported from the

adoption of these standards.

In the current financial year the Company has applied the f

ollowing interpretations and amendments to standards:

• IFRS 17, Amendments to IAS 8, IAS 12, IAS 1 and IFRS Practice Sta

tement 2 (effective for accounting periods beginning on

or after 1 January 2023).

There is no material impact on the financial statements or the amount

s reported from the adoption of these amendments to the

standards.

2. Dividend income

2023 2022

£’000 £’000

UK dividends 7,626 6,603

UK dividends – special – 3,324

Overseas dividends 20,843 16,921

Overseas dividends - special 1,836 4,437

Bank interest 811 56

Total 31,116 31,341

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 policie

s of the

operating segment, which operates in the UK, are the same as those de

scribed 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 s

plit of the

portfolio can be seen in the Strategic Report.

Notes to the Financial Statements

Financial Statements

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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66

4. Investment management fee

2023 2022

£’000 £’000

Investment management fee 20,280 21,998

As at 31 December 2023, an amount of £1,599,000 (2022: £1,659,000) was payable to the Investment Manager. Details of the terms

of the Investment Management Agreement are provided on page 33.

5. Other expenses

2023 2022

Revenue Capital Total Revenue Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

Transaction costs on investments held at fair value

through proﬁt or loss – 650 650 – 743 743

Directors’ fees 150 – – 135 – 135

Employer national insurance contributions 13 – 13 – – –

Auditor fees in relation to audit 48 – 48 47 – 47

Tax compliance fee 9 – 9 (11) – (11)

Registrar fees 38 – 38 44 – 44

Broker fees 40 - 40 40 – 40

Company secretarial fees 129 – 129 93 – 93

Custody fees 179 – 179 190

– 190

Depositary fees 235 – 235 244 – 244

Postage and printing 28 – 28 30 – 30

Legal fees 38 – 38 (23) – (23)

Fund administration fees 364 – 364 360 – 360

Other expenses* 261 – 261 314 – 314

Total Expenses 1,532 650 2,182 1,463 743 2,206

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 £505,000 (2022: £538,000) and on sales amounted to £145,000

(2022: £205,000).

No non-audit fees were paid during the year to Deloitte LLP by the Company (2022: nil).

Notes to the Financial Statements

Financial Statements

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67

6. Taxation

(a) Analysis of tax charge in the year

2023 2022

Revenue Capital Total Revenue Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

Taxation on ordinary activities

Irrecoverable overseas withholding tax 6,144 – 6,144 3,670 – 3,670

Total tax 6,144 – 6,144 3,670 – 3,670

(b)

The tax charge for the year is lower than the standard rate of corporation tax in the UK of 23.52%. The differences are explained

below:

2023 2022

Revenue Capital Total Revenue Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

Proﬁt/(loss) before tax 9,168 290,294 299,462 8,027 (972,021) (963,994)

Corporation tax at standard rate of 23.52%* 2,156 68,277 70,433 1,525 (184,684) (183,159)

Effects of non taxable items:

UK dividends (1,794) – (1,794) (1,886) – (1,886)

Overseas dividends (5,334) – (5,334) (4,058) – (4,058)

Interest income (191) – (191) (11) – (11)

Net (gains)/losses on investments held at

fair value through proﬁt or loss – (68,584) (68,584) – 184,467 184,467

Expenses and foreign exchange losses/(gains) 32 307 339 (28) 217 189

Deferred tax asset not recognised 5,131 – 5,131 4,458 – 4,458

Total corporation tax – – – – – –

Irrecoverable overseas withholding tax 6,144 – 6,144 3,670 – 3,670

Total tax 6,144 – 6,144 3,670 – 3,670

* With effect from 1 April 2023, the main rate of corporation tax increased from 19% to 25%, therefore the hybrid rate of 23.52% has been used.

As at 31 December 2023, the Company had unrecognised tax losses of £104.2 million (2022: £82.4 million) carried forward. Due to the

Company’s status as an investment trust and the intention to continue t

o meet the conditions required to obtain approval in the foreseeable

future, the Company has not provided deferred tax on capital gains and los

ses arising on the revaluation or disposal of investments.

Notes to the Financial Statements

Financial Statements

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68

7. Return per share

Return per ordinary share is as follows:

2023 2022

Revenue Capital Total Revenue Capital Total

Proﬁt/(loss) for the year (£’000) 3,024 290,294 293,318 4,357 (972,021) (967,664)

Return/(loss) per ordinary share (p) 1.82 175.02 176.84 2.49 (555.60) (553.11)

Return per share is calculated based on returns for the year and the weighted average number of 165,863,972 ordinary shares in is

sue

from 1 January 2023 to 31 December 2023 (2022: 174,950,862).

8. Dividends

There are no dividends proposed, declared or payable for the year (2022: nil).

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.

2023 2022

As at 31 December £’000 £’000

Opening book cost 2,353,438 2,162,638

Opening investment holding gains 40,410 1,176,512

Opening fair value at 1 January 2,393,848 3,339,150

Purchases at cost 367,539 651,607

Sales – proceeds (514,034) (626,030)

Gains/(losses) on investments 291,600 (970,879)

Closing fair value at 31 December 2,538,953 2,393,848

Closing book cost at 31 December 2,232,394 2,353,438

Closing unrealised gains at 31 December 306,559 40,410

Valuation at 31 December 2,538,953 2,393,848

The Company received £514,034,000 (2022: £626,030,000) excluding transac

tion costs from investments sold in the year. The book

cost of the investments when they were purchased was £489,233,000 (2022: £461,550,000) 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.

Notes to the Financial Statements

Financial Statements

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69

9. Investments held at fair value through profit or loss (continued)

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 si

gnificance

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 o

wn assumptions in determining the fair value of investments).

Fair value measurements recognised in the Statement of Financial Position

2023

Level 1 Level 2 Level 3 Total

As at 31 December £’000 £’000 £’000 £’000

Investments held at fair value through proﬁt or loss 2,538,953 – – 2,538,953

Total 2,538,953 – – 2,538,953

2022

Level 1 Level 2 Level 3 Total

As at 31 December £’000 £’000 £’000 £’000

Investments held at fair value through proﬁt or loss 2,393,848 – – 2,393,848

Total 2,393,848 – – 2,393,848

10. Trade and other receivables

2023 2022

As at 31 December £’000 £’000

Accrued income 251 182

Overseas tax recoverable – 1,810

Securities sold receivable 1,479 1,761

Other receivables 121 100

1,851 3,853

The above receivables do not carry any interest and are short term in nature. The Directors consider that the carrying values of the

se

receivables approximate their fair value.

Notes to the Financial Statements

Financial Statements

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70

11. Trade and other payables

2023 2022

As at 31 December £’000 £’000

Securities purchased payable 1,474 2,399

Investment management fee payable 1,599 1,659

Payable on repurchase of ordinary shares into treasury 2,117 –

Other payables 255 265

5,445 4,323

12. Share capital

2023 2022

Ordinary Treasury Total Nominal Ordinary Treasury Total Nominal

Shares Shares Shares Value Shares Shares Shares Value

As at 31 December Number Number Number £’000 Number Number Number £’000

Issued, allotted and

fully paid (ordinary

shares of £0.01)

Ordinary shares in

issue at 1 January 171,407,958 5,700,000 177,107,958 1,771 171,697,958 – 171,697,958 1,717

Ordinary shares issued – – – – 5,410,000 – 5,410,000 54

Ordinary shares

bought back and held

in treasury (11,715,000) 11,715,000 – – (5,700,000) 5,700,000 – –

159,692,958 17,415,000 177,107,958 1,771 171,407,958 5,700,000 177,107,958 1,771

During the year ended 31 December 2023, the Company issued no shares (2022: 5,410,000 shares of £0.01 each for a net consideration

of £92,544,000).

During the year ended 31 December 2023, the Company bought back to hold in treasury 11,715,000 shares (31 December 2022:

5,700,000) at an aggregate cost of £159,347,000 (31 December 2022: £73,983,000). At the year end, the Company held 17,415,000

(31 December 2022: 5,700,000) shares in treasury.

Details of the shareholder authorities granted to Directors to is

sue and buy back shares during the year are provided on pages 35 to 36.

13. Share premium account

2023 2022

As at 31 December £’000 £’000

Balance at 1 January 2,219,487 2,126,997

Issue of new shares on secondary market – 93,050

Costs on new share issues on secondary market – (560)

Transfer of share premium (500,000) –

1,719,487 2,219,487

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.

Notes to the Financial Statements

Financial Statements

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71

14. Net asset value per share

As at 31 December 2023 2022

Net asset value £2,551,938,000 £2,417,967,000

Shares in issue (excluding shares held in treasury) 159,692,958 171,407,958

Net asset value per ordinary share 1,598.0p 1,410.7

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 Stra

tegic 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 agree

s policies for

managing each of these risks as summarised below. These policies ha

ve remained substantially unchanged during the current year.

Market price risk

Market price risk arises mainly from uncertainty about future price

s of financial instruments used in the Company’s business. It represents

the potential loss the Company might suffer through holding market positions in the f

ace 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 t

o monitor

adequately the investment performance and status of the busines

s. 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 int

erest

rates. The Company finances its operations through equity and retained profits including capital profits, with no additional financin

g.

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 t

o incur a financial

loss. This is mitigated by the Investment Manager reviewing the cr

edit ratings of broker counterparties and key third party service providers.

The risk attached to dividend flows is mitigated by the Investment Mana

ger’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 whic

h has

a Fitch rating of AA–.

The carrying amounts of financial assets best represents the maximum cr

edit 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 inv

estments

and cash balances.

Notes to the Financial Statements

Financial Statements

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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72

15. Risk management and financial instruments (continued)

At the reporting date, the Company’s financial assets exposed to credit risk amounted to the following:

2023 2022

As at 31 December £’000 £’000

Cash and cash equivalents 16,579 24,589

Receivables 1,851 3,853

18,430 28,442

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 r

espect 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 sterlin

g which is the Company’s functional currency. The key

areas where foreign currency risk could have an impact on the Company are:

• movements in rates that would affect the value of investments, assets and liabilities; and

• movements in rates that would affect the income received.

The Company had the following currency exposures, all of which are included in the Statement of Financial Position at fair value based on

the exchange rates ruling at the year end.

31 December 2023 31 December 2022

Investments Cash Receivables Payables Total Investments Cash Receivables Payables Total

£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Australian Dollar 123,534 – – – 123,534 157,673 – 1,761 (1,761) 157,673

Danish Krone 93,674 – – – 93,674 202,662 507 323 (2,399) 201,093

Euro 427,085 – – – 427,085 387,099 – 346 – 387,445

New Zealand 77,700 – – – 77,700 68,459 – – – 68,459

Dollar

Swedish Krona 77,746 – 1,342 (1,475) 77,613 51,686 – 156 – 51,842

Swiss Franc

213,480 – – – 213,480 149,073 – 985 – 150,058

US Dollar 1,152,540 114 1,479 (1,347) 1,152,786 958,501 110 – – 958,611

2,165,759 114 2,821 (2,822) 2,165,872 1,975,153 617 3,571 (4,160) 1,975,181

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 2023, an exchange rate move of +/-5% (2022: +/-5%) against sterling which is a reasonable approximation of possible

changes would have increased or decreased total net assets and total return by £108,294,000 (2022: £98,759,000).

Notes to the Financial Statements

Financial Statements

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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73

15. Risk management and financial instruments (continued)

Interest rate risk

The majority of the Company’s financial assets are equity share

s and other investments which neither pay interest nor have a maturity

date. The Company’s cash balance of £16,579,000 (2022: £24,589,000) earns int

erest, 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 2023 the int

erest

rate was 2.8% (2022: 1.4%).

From interest earned on the Company's cash balances, an increase or decrease in interest rates of 0.5% would have a positive or ne

gative

impact respectively on the profit or loss and net assets of the C

ompany equating to £83,000 (2022: £123,000). 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% (2022: 20%) at 31 December 2023, the im

pact on profit or loss and net assets would have

been negative £507,790,600 (2022: £478,769,600). An increase of 20% (2022: 20%) would have had an equivalent opposite effect.

The calculations are based on the portfolio valuations as a

t 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 instrument

s, all of which are included in the Statement of Financial Position at fair

value.

2023 2022

As at 31 December £’000 £’000

Assets at fair value through proﬁt or loss 2,538,953 2,393,848

Cash and cash equivalents 16,579 24,589

Investment income receivable 251 182

Securities sold receivable 1,479 1,761

Other receivables 121 100

Payables (5,445) (4,323)

2,551,938 2,416,157

Non-ﬁnancial assets held at fair value

Overseas tax recoverable – 1,810

Net assets 2,551,938 2,417,967

Liquidity risk exposure

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. All pa

yables are due

within three months.

Liquidity risk is not significant as the majority of the Company’s as

sets are investments in quoted securities that are easily and readily

realisable. The Company does not have any borrowing facilities and as at 31 December 2023 held £16,579,000 (2022: £24,589,000)

incash.

Notes to the Financial Statements

Financial Statements

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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74

15. Risk management and financial instruments (continued)

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 lon

g-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

£2,551,938,000 (2022: £2,417,967,000).

The Board, with the assistance of the AIFM, monitors and reviews the br

oad structure of the Company’s capital on an ongoing basis. This

includes a review of the planned level of gearing (if any), the need t

o 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 2023 there were no contingent liabilities or capital commitments (2022: 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 £150,000 (2022: £137,500), is set out in the Directors’ Remuneration Repor

t in

the Annual Report. There were no contracts subsistin

g 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 C

ompany’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 r

emuneration due to the AIFM and Investment Manager are set out

on pages 76 to 77.

Terry Smith and other founder partners and key employees of the AIFM and In

vestment Manager directly or indirectly and in aggregate,

held 2,710,915 (2022: 2,919,112) shares in the Company amounting t

o 1.7% (2022: 1.7%) of the issued share capital of the Company

as at 31 December 2023.

18. Events after the reporting period

Since the year end and up to 22 February 2024 (the latest practicable date before publication of the Annual Report), the Company has

bought back to hold in treasury 1,650,000 ordinary shares at an aggregate cost of £23.0 million.

Notes to the Financial Statements

Financial Statements

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Financial Calendar

31 December Financial Year End

February Final Results Announced

April Annual General Meeting

30 June Half Year End

August Half Year End Results Announced

Annual General Meeting

The Annual General Meeting of Smithson Investment Trust plc will be held on 25 April 2024.

Share Price

The Company’s ordinary shares are listed on the London Stock Exchange. The price is given daily in the Financial Times and other

newspapers.

Change of Address

Communications with shareholders are mailed to the address held on the share register. In the event of a change of address or other

amendment this should be notified to the Company’s Registrar, Link Gr

oup, under the signature of the registered holder. The Registrar’s

address is listed on page 85.

Daily Net Asset Value

The daily net asset value of the Company’s shares can be obtained on the Company’s website at www.smithson.co.uk and is published

daily via the London Stock Exchange.

Profile of the Company’s Ownership

% of ordinary shares held at 31 December 2023

Shareholder Information

Further Information

31 December 2023

● Domestic Institutions/Wealth Managers 72.3%

● Private Stakeholders/Investors 8.18%

● Foreign Institutions 6.23%

● Domestic Brokers 4.13%

● Directors and Investment Manager 1.61%

● Foreign Brokers 2.6%

● Corporate Stakeholders 0.83%

● Unknown 2.11%

● Shareholdings below threshold 2.01%

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Alternative Investment Fund Managers Directive Disclosures

Periodic disclosures

As described in the Company’s Investor Disclosure Document (“IDD”) (which can be found on the Company’s website www.smithson.co.uk)

Fundsmith LLP (“Fundsmith”) and the Company are required to make cer

tain periodic disclosures in accordance with the Alternative

Investment Fund Managers Directive (“AIFMD”). For the purposes of the AIFMD:

• None of the Company’s assets are subject to s

pecial arrangements arising from their illiquid nature.

• The Strategic Report and note 15 to the financial statements set out the risk profile and risk management systems in place. There

have been no changes to the risk management systems in place in the period under review and no breaches of any of the risk limits

set, with no breach expected.

• There are no new arrangements for managing the liquidity of the C

ompany or any material changes to the liquidity management

systems and procedures employed by Fundsmith.

• There have been no changes to the maximum level of leverage that Fundsmith may employ on behalf the Company.

• There have been no changes to Fundsmith’s right of re-use of collateral or any guarantee granted under any leveraging arrangement

(insofar as there continues to be no right of re-use of collateral or any guarantees granted under the leveraging arrangement).

Leverage

For the purposes of the AIFMD, leverage is any method which increase

s the Company’s exposure, including the borrowing of cash and the

use of derivatives. It is expressed as a ratio between the Company’s exposure and its net asset value and can be calculated on a Gr

oss

and a Commitment method. Under the Gross method, exposure repre

sents the sum of the Company’s positions after the deduction of

sterling cash balances, without taking into account any hedging and ne

tting arrangements. Under the Commitment method, exposure is

calculated without the deduction of sterling cash balances and aft

er certain hedging and netting positions are offset against each other.

The table below sets out the current maximum permitted limit and actual level of leverages for the Company:

As a percentage of assets

Gross Commitment

method method

Maximum level of leverage 115% 115%

Actual level at 31 December 2023 Nil Nil

Material changes

There have been no material changes to the inf

ormation set out in the Company’s IDD during the period covered by this Annual Report.

Remuneration disclosure

The AIFM of Smithson Investment Trust plc (Company) is required to make this r

emuneration disclosure to the Company’s investors in

accordance with FUND 3.3.5 R in the FCA Handbook.

The financial year of the Company runs from 1 January to 31 December

, whereas the financial year of the AIFM, Fundsmith LLP (Fundsmith,

or the Firm), runs from 1 April to 31 March. The latest f

inancial year of Fundsmith is the year to 31 March 2023 and the remuneration

figures below relate to that period. The Fundsmith Report and A

ccounts for the year to 31 March 2023 have been independently audited

and filed with Companies House.

Under Fundsmith LLP’s remuneration policy staff receive a basic salar

y, certain benefits (primarily pension contributions which are capped)

and are eligible for an award of an annual discretionary bonus which is based on performance.

Further Information

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77

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Alternative Investment Fund Managers Directive Disclosures

Fundsmith employed an average of 44 staff in the year, with total remuneration, including pension contributions, for those staff of

£15.2million comprising fixed remuneration (salaries and pension contributions) of £5.5 million and v

ariable remuneration of £9.7 million.

The amount of profit awarded to the one Executive Member of the Firm whic

h is treated as remuneration for the purposes of the

Remuneration Codes is not included in the quantitative disclosures above and is not disclosed for individual privacy reasons.

Amounts due to Members of the Firm because of their investment of capital and their o

wnership of the business are not related to individual

or Fund performance and cannot be varied, and therefore are no

t variable remuneration under the Remuneration Codes and are not

included in the quantitative disclosures above.

Fundsmith is subject to the UCITS (SYSC 19E), AIFM (SYSC 19B) and MIFIDPRU (SYSC 19G) Remuneration Codes. The Management

Committee of Fundsmith considers which staff are Material Risk Takers under the

se codes and are therefore within the definition of

Remuneration Code Staff.

There is only one Remuneration Code staff whose remuneration is included in the q

uantitative disclosures above whose actions have a

material impact on the risk profile of Smithson. The AIFM has no

t disclosed the amount of remuneration for this individual for privacy

reasons.

The information above relates to Fundsmith as a whole, is not brok

en down by reference to the Company or the other funds managed by

Fundsmith and does not show the proportion of remuneration which rela

tes to the income Fundsmith earns from the management of the

Company, as this would not reflect the way Fundsmith is organised.

The Management Committee of Fundsmith has identified two primary type

s of risk which could arise within a typical asset management

business from inappropriate remuneration structures:

• incentives related to investment performance, which could give rise t

o a focus on short term investment performance and potentially

increase the risks for the investors; and

• incentives related to sales, which could encourage staff to inappropriately sell a Fund to investors for whom it is unsuitable.

The nature of Fundsmith’s business, the nature of the Funds which it mana

ges, and the nature of its remuneration practices adequately

mitigate these risks.

Fundsmith does not have any practice of remunerating its investment per

sonnel for generating high returns in the short term. Performance

fees are not charged. There is no financial incentive to take risks which are not consistent with the risk profiles of the Funds.

From a sales perspective Fundsmith emphasises the long-term na

ture of the investment proposition in all Fund literature and other

documentation and seeks to ensure that investors understand that the strategy is not appropriate for those seeking short term re

turns.

The sales team’s performance is considered in the light of the net sale

s of the relevant Funds and will therefore be negatively affected if

investors sell their investment.

Further Information

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Further Information

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 tha

t each of the APMs, which are typically used within the investment

trust sector, provide additional useful information to shareholders in or

der 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

Page 2023 2022

NAV per ordinary share a 3 1,598.0p 1,410.7p

Share price b 3 1,415.0p 1,308.0p

Discount (b-a)/a 11.5% 7.3%

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 c

ase of NAV total return, this takes into account NAV appreciation

(net of expenses) and dividends paid by the Company.

Year ended 31 December 2023 Page Share price NAV

Opening at 1 January 2023 a 3 1,308.0p 1,410.7p

Closing at 31 December 2023 b 3 1,415.0p 1,598.0p

Total return (b/a)-1 8.2% 13.3%

Year ended 31 December 2022 Page Share price NAV

Opening at 1 January 2022 a 3 2,020.0p 1,961.0p

Closing at 31 December 2022 b 3 1,308.0p 1,410.7p

Total return (b/a)-1 (35.2)% (28.1)%

Period from Company’s listing on

19 October 2018 to 31 December 2023 Page Share price NAV

Opening at 19 October 2018 a 3 1,000.0p 1,000.0p

Closing at 31 December 2023 b 3 1,415.0p 1,598.0p

Total return (b/a)-1 41.5% 59.8%

Annualised total return 6.9% 9.4%

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.

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79

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 f

inancial statements). The Total Cost of Investment measures cost

to investors incurred through the Company’s portfolio investment transac

tion costs (see note 5) and the recurring annual costs of running

the Company.

Year ended Year ended

31 December 2023 31 December 2022

Ongoing charges ratio Page £’000 £’000

Average NAV a n/a 2,519,346 2,589,777

Annualised expenses b n/a 21,812 23,461

Ongoing charges ratio (b/a) 0.87% 0.91%

Annualised investment transaction costs c n/a 650 743

Annualised investment transaction costs ratio (c/a) 0.03% 0.03%

Total cost of investment 0.90% 0.94%

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Alternative Performance Measures

Further Information

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

AIC

Association of Investment Companies

Alternative Investment Fund or “AIF”

An investment vehicle under AIFMD. Under AIFMD (see below) the Company is classified as an AIF.

Alternative Investment Fund Managers Directive or “AIFMD”

A European Union directive which came into force on 22 July 2013 and has been implemented in the UK.

Annual General Meeting or “AGM”

A meeting held once a year which shareholders can attend and where they can vote on resolutions to be put forward at the meeting and

ask directors questions about the company in which they are invested.

Cash conversion

Ratio of a company’s cash flows to its net profit.

Custodian

An entity that is appointed to safeguard a company’s assets.

Discount

The amount, expressed as a percentage, by which the share price is less than the net asset value per share.

Depositary

Certain AIFs must appoint depositaries under the requirements of AIFMD. A depositary’s duties include, inter alia, safekeeping of the

Company’s assets and cash monitoring. Under AIFMD the depositary is appointed under a strict liability regime.

Dividend

Income receivable from an investment in shares.

Ex-dividend date

The date from which you are not entitled to receive a dividend which has been declared and is due to be paid to shareholders.

Financial Conduct Authority or “FCA”

The independent body that regulates the financial services industry in the UK.

Gearing

A way to magnify income and capital returns, but which can also magnify losses. A bank loan is a common method of gearing.

Gross assets

The Company’s total assets before the deduction of any liabilities.

Glossary of Terms

Further Information

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Glossary of Terms

Further Information

Gross margin

The amount of money a company has left after subtracting all direct costs of producing or purchasing the goods or services it sells.

Index

A basket of stocks which is considered to replicate a particular stock market or sector.

Investment company

A company formed to invest in a diversified portfolio of assets.

Investment trust

An investment company which is based in the UK and which meets certain tax conditions which enables it to be exempt from UK corporation

tax on its capital gains. The Company is an investment trust.

Leverage

An alternative word for “Gearing”.

Under AIFMD, leverage is any method by which the exposure of an AIF is incr

eased through borrowing of cash or securities or leverage

embedded in derivative positions.

Under AIFMD, leverage is broadly similar to gearing, but is expressed as a ra

tio between the assets (excluding borrowings) and the net

assets (after taking account of borrowing). Under the gross method

, exposure represents the sum of the Company’s positions after

deduction of cash balances, without taking account of any hedging or ne

tting arrangements. Under the commitment method, exposure is

calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other.

Liquidity

The extent to which investments can be sold at short notice.

Net assets

An investment company’s assets less its liabilities

Net asset value (NAV) per ordinary share

Net assets divided by the number of ordinary shares in issue (excluding any shares held in treasury)

Ongoing charges ratio

A measure, expressed as a percentage of average net assets, of the regular, recurring annual costs of running an investment company.

Operating profit margin

The ratio of operating income to net sales. It measures profitability on a per-pound basis, after accounting for the variable costs of production

but does not include interest or tax expense.

Ordinary shares

The Company’s ordinary shares of 1p each.

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82

ROIC

Return On Invested Capital is a calculation used to assess a company's efficiency at allocating the capital under its control to profitable

investments.

Portfolio

A collection of different investments held in order to deliver returns to shareholders and to spread risk.

Premium to NAV

The amount, expressed as a percentage, by which the share price is more than the net asset value per share.

Share buyback

A purchase of a company’s own shares. Shares can either be bought back for cancellation or held in treasury.

Share price

The price of a share as determined by a relevant stock market.

Total return

A measure of performance that takes into account both income and capital returns. This may take into account capital gains, dividends,

interest and other realised variables over a given period of time.

Treasury shares

Shares in a company’s own share capital which the company itself owns and which can be sold to investors to raise new funds.

Volatility

A measure of how much a share moves up and down in price over a period of time.

Glossary of Terms

Further Information

Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Investment Platforms

The Company’s shares are traded openly on the London Stock Exchange and can be purchased through a stockbroker or other financial

intermediary. The shares are available through savings plans (inc

luding Investment Dealing Accounts, ISAs, Junior ISAs and SIPPs) which

facilitate both regular monthly investments and lump sum investments in the C

ompany’s shares. There are a number of investment

platforms that offer these facilities. A list of some of them, that is not comprehensive nor constitutes any form of recommendation

, can be

found below:

• AJ Bell Securities Limited

• Albert E Sharp LLP

• Alliance Trust Savings Limited

• Barclays Bank plc

• Hargreave Hale Ltd

• Hargreaves Lansdown Asset Management Limited

• iDealing.com Limited

• Interactive Investor Services Limited

• Shore Capital Stockbrokers Limited

• SVS Securities plc

• The Share Centre

Link Group – Share Dealing Service

A quick and easy share dealing service is available to existing shareholders through the Company’s Registrar, Link Group, to either buy or

sell shares. An online and telephone dealing facility provides an easy to access and simple to use service.

There is no need to pre-register and there are no complicated forms to fill in. The online and telephone dealing service allows y

ou to trade

‘real time’ at a known price which will be given to you at the time you give your instruction.

To deal online or by telephone all you need is your surname, investor code, full postcode and your date of birth. Your investor code c

an be

found on your share certificate. Please have the appropriate doc

uments to hand when you log on or call, as this information will be needed

before you can buy or sell shares.

For further information on this service please contact: www

.linksharedeal.com (online dealing) or 0371 664 0445† (telephone dealing).

† Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom are charged at the applic

able

International rate. Lines are open from 8.00 a.m. to 4.30 p.m. Monday to Friday excluding public holidays in England and Wales.

How to Invest

Further Information

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Risk Warnings

• Past performance is no guarantee of future performance.

• The value of your investment and any income from it may go down as well as up and you may not get back the amount invested. This

is because the share price is determined, in part, by the changing conditions in the r

elevant stock markets in which the Company

invests and by the supply and demand for the Company’s shares.

• As the shares in an investment trust are traded on a stock market, the shar

e price will fluctuate in accordance with supply and demand

and may not reflect the underlying net asset value of the shares; wher

e the share price is less than the underlying value of the assets,

the difference is known as the ‘discount’. For these reasons, in

vestors may not get back the original amount invested.

• Although the Company’s financial statements are denominated in sterlin

g, most of the holdings in the portfolio are currently

denominated in currencies other than sterling and therefore they may be affected by movements in exchange rates. As a result, the

value of your investment may rise or fall with movements in exchange rates.

• Investors should note that tax rates and reliefs may change at any time in the future.

The value of ISA and Junior ISA tax advantages will depend on personal cir

cumstances. The favourable tax treatment of ISAs and Junior

ISAs may not be maintained.

How to Invest

Further Information

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Smithson Investment Trust plc Annual Report for the year ended 31 December 2023

Directors

Diana Dyer Bartlett (Chairman)

Lord St John of Bletso

Jeremy Attard-Manche

Denise Hadgill

Registered Office and Directors’ business

address

6th Floor

125 London Wall

London

EC2Y 5AS

Investment Manager

Fundsmith LLP

33 Cavendish Square

London

W1G 0PW

Broker

Investec Bank plc

30 Gresham Street

London

EC2V 7QP

Legal Advisers

Travers Smith LLP

10 Snow Hill

London

EC1A 2AL

Statutory Auditor

Deloitte LLP

Saltire Court

20 Castle Terrace

Edinburgh

EH1 2DB

Company Secretary

Apex Listed Companies Services (UK) Limited

6th Floor

125 London Wall

London

EC2Y 5AS

Administrator

Northern Trust Global Services SE, UK Branch

50 Bank Street

Canary Wharf

London

E14 5NT

Authorised by the Prudential Regulation A

uthority and regulated

by the Financial Conduct Authorit

y and the Prudential Regulation

Authority.

Depositary

Northern Trust Investor Services Limited

50 Bank Street

Canary Wharf

London

E14 5NT

Authorised and regulated by the Financial Conduct Authority.

Registrar and Receiving Agent

Link Group

10th Floor Central Square

29 Wellington Street

Leeds

LS1 4DL

Registered in England no. 11517636

www.smithson.co.uk