## Annual Report for the year ended 31 December 2023 ## Smithson Investment Trust plc Smithson Investment Trust plc  Annual Report for the year ended 31 December 2023 ## Small & ## Mid Cap ## Investments ## That ## Have 6th Floor 125 London Wall London ## Superior EC2Y 5AS ## Operating E smithson@fundsmith.co.uk ## Numbers W www.smithson.co.uk 267708 Smithson pp001.qxp 26/02/2024 13:05 Page 1 ## Contents 1 ## 1 2 ### Governance Report ### Strategic Report 32 Board of Directors 2 Key Information 33 Report of the Directors 3 Performance Highlights 37 Corporate Governance Report 5 Chairman’s Statement 41 Statement of Directors’ 9 Investment Manager’s Review Responsibilities 16 Investment Portfolio 42 Audit Committee Report 17 Investment Objective, Policy and 45 Management Engagement Committee Investment Methodology Report 20 Sustainability and ESG 47 Directors’ Remuneration Report 21 Business Review 23 Risk Management 26 Viability Statement 27 Non-Financial Information ## 3 4 | Financial Statements | Further Information | | | --- | --- | --- | | 51 Independent Auditor’s Report | 75 Shareholder Information* | | | 58 Statement of Comprehensive Income | 76 Alternative Investment Fund Managers | | | 59 Statement of Financial Position | | Directive Disclosures* | | 60 Statement of Changes in Equity | 78 Alternative Performance Measures | | | 61 Statement of Cash Flows | 80 Glossary of Terms* | | | 62 Notes to the Financial Statements | 83 How to Invest* | | 85 Company Information* * Unaudited Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 2 ## 2 Key Information Strategic Report Investment Objective 2. Don’t overpay The Investment Manager seeks to invest in SMID sized companies ## Smithson Investment Trust plc (the that exhibit strong profitability that is sustainable over time and generate substantial cash flow that can be reinvested back into the ## “Company”) aims to provide business. Its strategy is not to overpay when buying the shares of ## shareholders with long term growth in such companies and then do as little dealing as possible in order to minimise the expenses of the Company, allowing the investee ## value through exposure to a diversified companies’ returns to compound for shareholders with minimum ## portfolio of shares issued by listed or interference. ## traded companies. 3. Do nothing The Company’s investment policy is to invest in shares issued by small The Investment Manager looks to avoid companies that are heavily and mid (“SMID”) sized companies with a market capitalisation (at leveraged or forced to rely upon debt in order to provide an adequate the time of initial investment) of between £500 million and £15 billion return, as well as sectors and industries that innovate very quickly on a long-term, global basis. The Company’s approach is to be a and are rapidly changing. It instead focuses on companies that have long-term investor in its chosen stocks. It will not adopt short-term exhibited an ability to continue outperforming competitors and will trading strategies. It will pursue its investment policy by investing in look for companies that rely heavily on intangible assets in approximately 25 to 40 companies. 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 Investment Approach are unattractive. This will then facilitate the compounding of the 1. Buy good companies Company's investments over time as the companies continue to The Investment Manager focuses on investing in those companies reinvest their cash flows. it believes can compound in value over many years. It seeks to achieve this by selecting companies that have an established track Company Policies record of success, such as having already established a dominant market share in their niche product or service or having brands or • Long term capital growth patents which others would find difficult, if not impossible, to The Company is focused on long term capital growth and overall replicate. The Investment Manager believes such SMID sized return rather than seeking any particular level of dividend. The companies tend to out-perform large companies and that there is Company will only declare dividends to the extent required to also an investment opportunity to take advantage of greater maintain the Company’s tax status as an investment trust. discrepancies between the share price and valuation of SMID sized • No hedging companies, in part due to lighter research coverage and less The Company will not use derivatives for currency hedging or for any information being available on them. SMID sized companies tend other purpose. to have higher expected returns but also higher expected risk, defined as price volatility (a measure of how much a company’s • No gearing price moves over time), when compared to larger companies. The Company will not employ leverage save that it is permitted to However, adding a small and mid cap portfolio to a large cap use short term banking facilities to raise funds for liquidity purposes portfolio can raise expected returns without increasing risk, due to or for discount management purposes including the purchase of its the different risk and return characteristics that SMID sized own shares. Any such borrowing will be limited to 15 per cent. of the companies provide. Company’s net asset value. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust ## Performance Highlights 3 ### Strategic Report | | At 31 December 2023 | At 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%** | | | For the year ended 31 December 2023 % change^{2} | For the year ended 31 December 2022 % change^{2} | For the period from Company’s listing on 19 October 2018 to 31 December 2023 % 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%** | Source: Bloomberg This report contains terminology that may be unfamiliar to some readers. The Glossary at the back of this Annual Report gives definitions for frequently used terms. ### 5 Year Record | At 31 December | 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%** | $^{1}$ 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. 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 ## 4 Performance Highlights Strategic Report 1 Total return performance against NAV for the period from the Company’s listing on 19 October 2018 to 31 December 2023 Net Asset Value total return performance against MSCI World SMID Cap Index for the period from the Company’s listing on 2 19October 2018 to 31 December 2023 2200 2200 2000 2000 1800 1800 1600 1600 1400 1400 1200 1200 1000 1000 1 Source: Bloomberg 800 2 Figures rebased to 1000 as at date of Company’s listing | 800 600 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Launch Launch Nov-18 Nov-18 | Dec-18 Dec-18 Jan-19 Jan-19 | Feb-19 Feb-19 Mar-19 Mar-19 | Apr-19 Apr-19 | May-19 May-19 Jun-19 Jun-19 Jul-19 Jul-19 | Aug-19 Aug-19 | Sep-19 Sep-19 Oct-19 Oct-19 | Nov-19 Nov-19 Dec-19 Dec-19 | Jan-20 Jan-20 Feb-20 Feb-20 Mar-20 Mar-20 | Apr-20 Apr-20 | May-20 May-20 Jun-20 Jun-20 Jul-20 Jul-20 | Aug-20 Aug-20 | Sep-20 Sep-20 Oct-20 Oct-20 Nov-20 Nov-20 | Dec-20 Dec-20 Jan-21 Jan-21 | Feb-21 Feb-21 Mar-21 Mar-21 | Apr-21 Apr-21 | May-21 May-21 Jun-21 Jun-21 Jul-21 Jul-21 | Aug-21 Aug-21 | Sep-21 Sep-21 Oct-21 Oct-21 Nov-21 Nov-21 | Dec-21 Dec-21 | Jan-22 Jan-22 Feb-22 Feb-22 Mar-22 Mar-22 | Apr-22 Apr-22 | May-22 May-22 Jun-22 Jun-22 Jul-22 Jul-22 | Aug-22 Aug-22 | Sep-22 Sep-22 Oct-22 Oct-22 Nov-22 Nov-22 | Dec-22 Dec-22 Jan-23 Jan-23 | Feb-23 Feb-23 Mar-23 Mar-23 | Apr-23 Apr-23 | May-23 May-23 Jun-23 Jun-23 Jul-23 Jul-23 | Aug-23 Aug-23 | Sep-23 Sep-23 Oct-23 Oct-23 Nov-23 Nov-23 | Dec-23 Dec-23 | | | | Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share price NAV MSCI World SMID NAV | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | **Smithson** Investment Trust ## Chairman's Statement 5 ### Strategic Report ![img-0.jpeg](img-0.jpeg) #### 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 Company 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 at 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 amounting 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 Index 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 that 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 share 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 Board 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% Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 # Smithson Investment Trust 6 ## Chairman's Statement ### Strategic Report 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 capitalisation 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 average 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 shareholders 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 therefore a market problem rather than being specific to the Company. This decision additionally reflects the Company's strong 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson**^{}[] Investment Trust ## Chairman's Statement 7 ### Strategic Report 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 surviving 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 8 ## 8 Chairman’s Statement Strategic Report Annual General Meeting (“AGM”) and Shareholder Outlook Engagement Our portfolio manager concludes his review by stating that the team The Company will hold its AGM on 25 April 2024. My fellow directors ended the year with significant optimism for the future, reflecting and I are keen to meet with shareholders, and we encourage their view that the portfolio positioning is the best they believe it has shareholders to come to the meeting. May I remind shareholders, ever been, and that the interest rate cycle is almost certainly at its whether or not they are able to attend the AGM in person, that you peak. The Board shares that optimism. are welcome, at any time, to submit any questions you may have for the Board at smithsonchairman@fundsmith.co.uk. Please submit The Board is pleased that our portfolio manager and his team proxy votes in respect of the resolutions to be proposed at the AGM, remain focused on the things they can control and remain resolute irrespective of whether you intend to attend the AGM. in maintaining their investment approach. The stra tegy of identifying and owning high quality companies that are capable of sustainable Simon Barnard, the Company’s portfolio manager, will give a growth and that can compound in value over many years, has been presentation at the AGM which will be recorded and made available shown to work well over the long term through different economic on the Company’s website after the meeting. Simon and members conditions. of his team will also be able to answer questions from shareholders at the AGM. A light lunch will be provided after the meeting. The Board continues to have confidence that the Company’s Investment Manager can execute the strategy successfully, and the We encourage shareholders to visit the Company’s website where Board believes that as the Company offers investors exposure to more information is available on the Company. 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 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 9 ## Investment Manager’s Review 9 Strategic Report 5 Total Return 1 January 2023 to 31 December Launch to 31 December 2023 2023 Cumulative Annualised % % % 1 Smithson NAV +13.3 +59.8 +9.4 Smithson Share Price +8.2 +41.5 +6.9 Small and Midcap 2 Equities +9.1 +47.2 +7.7 3 UK Bonds +5.6 -4.9 -1.0 4 | Cash | +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). | | The Investment Manager’s Review was first published as a letter to We are pleased to have generated a NAV return of 13.3% during a shareholders on 26 January 2024 and is incorporated as published relatively volatile period for the market, and in doing so, to have within the Company’s Strategic Report as it continues to be an outperformed the reference index. accurate assessment of the Company’s investment performance during the year to 31 December 2023. 2023 saw the 5th anniversary of the launc h of the Smithson Investment Trust and over the last five years Smithson is the best Dear Fellow Shareholder, performing trust in the Association of In vestment Companies Global Smaller Companies sector and is more than 20 percentage points The performance of Smithson Investment T rust (‘Smithson’), along 1 ahead of the average performance of the sector . Further, while the with comparators, is laid out below. In 2023 the Net Asset Value per NAV compound return of 9.4% is ahead of our reference index, given share (NAV) of the Company increased by 13.3% and the share price the current low point in the market we would hope for greater increased by 8.2%. Over the same period , the MSCI World Small and absolute performance in the future should the market provide the Mid-Cap Index (‘SMID’), our reference index, increased by 9.1%. backdrop to achieve this. I also provide the performance of UK bonds and cash for comparison. 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. 1 NAV performance over five years to 31.12.2023 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 10 ## 10 Investment Manager’s Review Strategic Report 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 0% every other option, as you will never have time to do everythin Financial Crisis Euro debt crisis Brexit Covid Growth 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 sell-off -2% 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 -4% investments very carefully. -6% It was Peter Lynch who coined the word ‘diworsification’ to describe the problem with including different assets of dubious qualit y with the -8% 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. -10% The new companies we invested in this year were Graco, Exponent, Oddity, Croda and Clorox and those we sold to facilitate this we re -12% Domino’s Pizza Group, Rightmove and Masimo. -14% -16% -18% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Morningstar Investment Trust All ex Alternative Assets - weighted average discount (5 day Mov. Av.) 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 11 ## Investment Manager’s Review 11 Strategic Report Graco – pronounced Gray-co after the founding Gray brothers – is a also provides ingredients for life sciences, including being the US company which designs, manufactures and markets systems number one provider of a key component for mRNA delivery and equipment to measure and dispense fluid and powdered systems, which are finding many new applications since their materials. Founded in 1926, it is the market leader in technology well-publicised use for Covid vaccines. It is their leading market and expertise for the management of fluids and coatings in both positions in niches such as these, where they produce small but industrial and commercial applications. We were attracted by its critical components for larger, high value products that makes Croda stable operating margin of over 25% and high return on invested so interesting to us. 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 One particular area of success over the last five years was investing to the fact that its products are of very high quality and are sold in high quality companies that were going through what we call a under brands which are trusted by customers to help solve ‘glitch’ in their business. This includes companies like Equifax, the manufacturing problems, increase productivity, conserve energy, US credit data bureau, which we bought in the aftermath of a major save material, control environmental emissions and reduce labour cyber-attack which compromised over 150 million consumer costs. We also feel we were provided a good entry point in terms of records. Despite the large amounts of capital spent by management valuation as worries about a recession in the US, had caused share to improve the security of the company after the attack, and the price weakness. recent headwinds due to lower mortgage origination, it has still proven to be one of our best performing investments. 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 Interestingly, we feel we may have just been given a similar quickly and profitably through operating leverage as they need more opportunity with Clorox. The US household goods company suffered staff to bill more hours. As is often the case in human capital a cyber-attack in August which closed down its operation systems businesses, the humans tend to take the ma jority of the returns at for a few days and resulted in the shares falling over 30% from the the expense of the business (think in vestment banks). However, recent peak. We started buying the company’s shares once the Exponent is different. It was founded in 1967 in California as Failure attack had been contained and we believe it has given us a rare Associates, which is appropriate as it focuses on highly technical opportunity to buy a high quality consumer staples company within areas across a broad range of scientific disciplines, often in our market capitalisation range at a very attractive valuation. Clorox response to disasters or litigation. For instance, they did produces branded goods from bleach to cat litter with a track record investigative work for the Challenger shuttle explosion, the Piper of strong profitability and steady growth. Regarding the prior point Alpha oil platform disaster, the 9/11 World Trade Centre collapse, on diversification, it is also quite different to anything else we the Exxon Valdez oil spill, Samsung’s exploding tablets, and the currently own in the portfolio, in fact in numerical terms it has the preliminary fire investigation into Grenfell Tower. They have lowest historical correlation with the fund of any company in our assembled the largest group of PhD scientists in the industry for Investible Universe. this purpose and are the clear number one player, able to command Oddity is another atypical investment for us but one which we believe healthy fees for such specialist projects which do not get passed has substantial opportunity for growth. It is the first ever IPO we have straight on to the employees. They are mainly being used to defend taken part in, and we did not do so lightly. We got to know the companies against litigation (which also tends to be price management several months before the IPO as we were approached insensitive) or by companies wishing to investigate their own directly by the company after they had been made aware that the products before launch, such as autonomous driving systems. business exhibited much of what we look for in a high quality, growing Croda is a UK company and the first chemical ingredients company company. We were extremely impressed by the track record as well we have bought. Founded in 1925 it wasn’t until after WWII that the as the potential opportunity for the company. Oddity is a beauty and company moved into cosmetics and fragrances, and now only wellness company which creates its own brands and products to sell produces substances from natural and renewable resources, unlike direct to consumers online. So far, the company has launched two some competitors which still use refined fossil fuels. The company brands, Il Makiage and SpoiledChild, both of which have been the Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 12 ## 12 Investment Manager’s Review Strategic Report fastest growing online brands in history, and now sell more online by an activist investor who, after several meetings with us than large established beauty brands such as MAC. Traditionally appeared quite sensible, but whom the management team there has been a large knowledge gap between consumers and chose to oppose. The final straw came with a profit warning only beauty experts, requiring consumers to interact with a trained a few weeks after management had reassured us that salesperson to match the myriad of beauty products to their needs everything was ‘fine’. This ultimately led to us losing faith and we and show them how to apply them at home. The large established felt we could no longer trust them to be good stewards of your cosmetics companies haven’t so far made strong attempts to sell capital. products to new customers online (refill purchases are obviously easier) but Oddity has been able to build AI technology using data Despite these changes our strategy remains the same: from their users - 1bn datapoints from 40m users - to ‘learn’ how to • Buy good companies match the right products to consumers with inputs including online • Don’t overpay questionnaires and, increasingly, selfie photos. Their 90% skin match • Do nothing accuracy compared to 80% in-store equivalent has generated over 4m customers, with more than half of revenue now coming from To demonstrate that we are still buying good companies, I include repeat customers. This is not only a strong indication of the value of the table below, which is the weighted average operating metrics of their service but is also much more profitable. We expect to see very our owned companies over the last 12 months compared to the high annual revenue growth for the next few years as the company’s reference Index. technology is several years ahead of established competitors and addresses such an enormous potential market. Smithson LTM Figures Investment Trust MSCI WSMID | Rightmove was one company we sold to facilitate these new | | | # | | | --- | --- | --- | --- | --- | | | | ROIC 59% | | 10% | | investments. OnTheMarket, a weak thir | d tier competitor to | Gross Margin 61% 34% | | | | Rightmove, was recently acquired by the much larger US company | | Operating Profit Margin 24% 6% | | | | CoStar, which has a history of competing aggressively in the new | | Cash Conversion 97% 71% | | | Interest Cover 34x 8x 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 Source: Fundsmith expensive competition before it’s over. We therefore sold our holding Data for the MSCI World SMID Cap Index is shown ex-financials, with of Rightmove soon after the bid was announced. weightings as at 31.12.2023. We sold other businesses where we had doubts about management 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. actions. Domino’s Pizza Group had caused us consternation for Data for Smithson is on a weighted average basis, ex-cash, using last some time due to the fairly regular turnover of its senior available reported financial year figures as at 31.12.2023. management team. During the period of our ownership we counted Interest cover (EBIT ÷ net interest) data for Smithson and MSCI World SMID four CEOs and four CFOs, and along with mediocre performance for Cap Index is done on a median average basis. many of those years, our patience eventually wore out. # ROIC for Smithson includes Verisign (835% ROIC). Excluding Verisign the ROIC is 26%. Masimo is another where we were disappointed by management action, although this team has stayed in place as the CEO is the The table shows that our portfolio companies remain superior to founder and a large shareholder. The company has a fantastic those in the Index on every metric, most of which are significantly core business selling best in class sensors to hospitals but in excess of that observed for the Index. The ROIC is particularly high management decided to branch out into consumer medical at 59% although this does include Verisign, with a ROIC of 835%, devices, and bought an audio equipment business selling without which the average ROIC would be 26%. Both of these speakers, headphones and home theatre systems because of average figures are higher than the 43% and 23% of last year. All its access to retail outlets. The situation was further complicated other metrics are broadly similar to 2022 except the cash Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust ## Investment Manager’s Review 13 ### Strategic Report 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 lower 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 Total 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 Enterprises was also disappointing in the period. This was primarily due to 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 # Smithson Investment Trust 14 ## Investment Manager's Review ### Strategic Report 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 year 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 Executive Chairman. Things are now starting to move further in the right direction, both in the terms of the new contracts being signed 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'. | Sector | 31 December 2023 (%) | 31 December 2022 (%) | | --- | --- | --- | | 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 longer 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 to 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. | Country of Listing | 31 December 2023 (%) | 31 December 2022 (%) | | --- | --- | --- | | 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 15 ## Investment Manager’s Review 15 Strategic Report The table above illustrates how the regional exposure in terms of We end this year with significant optimism for the future. Not only is country of listing has changed over the cour se of the year. The USA portfolio positioning the best we believe it has ever been, but the is still the largest country exposure and has actually increased subject of much of my commentary over the last couple of years, thanks to the US listed acquisitions mentioned earlier . The UK the interest rate cycle, is almost certainly at its peak. The upward exposure is smaller due to the sale of Rightmove and Domino’s movement in interest rates has been the strongest negative force Pizza Group, offset by the purchase of Croda. Aside from the halving against the relative performance of small and mid-cap equities and of the Danish weighting after Simcorp exited the portfolio, other it is perhaps worth observing that over the two years since rates differences are somewhat limited, being mostly caused by stock started increasing, the MSCI World Small and Mid-cap index has market movements during the year. underperformed the MSCI World Large cap index by over 10%. Wewait to see what effect falling rates might have. The geographical weighting that we pay most attention to though, is the economic exposure of our companies, measured by the origin We thank you once more for your support of Smithson and look of revenue. This year, North America increased with the new ahead to a bright future in the coming years. 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 Simon Barnard those companies generate revenue in emerging markets, shown by Fundsmith LLP the EMEA and Latin America lines below. Investment Manager 31 December 31 December 2023 2022 26 February 2024 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 16 ## Investment Portfolio ### Strategic Report #### 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** | Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 17 ## Investment Objective, Policy and Investment Methodology 17 Strategic Report Investment Objective The Company is to be taken to have power to influence significantly if it exercises or controls the exercise of The Company’s investment objective is to provide shareholders with 20percent. or more of the voting rights of that body corporate; long term growth in value through exposure to a diversified portfolio and of shares issued by listed or traded companies. (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 Investment Policy corporate that issued them and represent more than The Company’s investment policy is to invest in shares issued by 10 per cent. of the shares issued by that body corporate. small and mid-sized listed or traded companies globally with a market capitalisation (at the time of initial in vestment) of between The Company may also invest cash held for working capital £500 million and £15 billion. The Company’s approach is to be a purposes and awaiting investment in cash deposits and money long-term investor in its chosen shares. It will not adopt short-term market funds. trading strategies. Accordingly, it will pursue its investment policy by investing in approximately 25 to 40 companies as follows: For the purposes of the investment policy , certificates representing certain shares (for example, depositary interests) will be deemed to (a) the Company can invest up to 10 per cent. in value of its gross be shares. assets (as at the time of investment) in shares issued by any single body; Hedging Policy (b) not more than 20 per cent. in value of its gross assets (as at The Company will not use portfolio management techniques such the time of investment) can be in deposits held with a single as interest rate hedging and credit default swaps. body. This limit will apply to all uninvested cash (except cash The Company will not use derivatives for purposes of currency representing distributable income or credited to a distribution hedging or for any other purpose. account that the depositary holds); (c) not more than 20 per cent. in value of its gross assets (as at Borrowing Policy the time of investment) can consist of shares issued by the same group. When applying the limit set out in (a) this provision The Company has the power to borrow using short-term banking would allow the Company to invest up to 10 per cent. in the facilities to raise funds for short-term liquidity purposes or for shares of two group member companies (as at the time of discount management purposes including the purchase of its own investment); shares, provided that the maximum gearing represented by such borrowings shall be limited to 15 per cent. of the net asset value at (d) the Company’s holdings in any combination of shares or the time of drawdown of such borrowings. The Company may not deposits issued by a single body must not exceed 20 per cent. otherwise employ leverage. 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). Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 18 ## 18 Investment Objective, Policy and Investment Methodology Strategic Report Investment Methodology and Management difficult for competitors to replicate, and companies reliant on Process intangible assets require more equity and are less reliant on debt as banks are less willing to lend against such assets. The Investment Manager seeks to apply the investment methodology and management process summarised below (to the The Investment Manager believes such companies will resist the extent appropriate given the nature of a relevant investment rule of mean reversion that states returns will revert to the average opportunity): over time as new capital is attracted to business activities which earn above average returns. They can do this because their most Not attempting market timing important assets are intangible and difficult for a competitor to The Investment Manager will not attempt to manage the percentage replicate. Since stock markets typically value companies on the invested in equities in the Company’s portfolio to reflect any view of assumption that their returns will regress to the mean, businesses market levels, timing or developments. The Investment Manager’s whose returns do not do so can become undervalued. This presents unwillingness to make investment decisions on the basis of market an opportunity for the Company. timing is one factor that will prevent the Company from investing in sectors that are highly cyclical. The Investment Manager will seek businesses which have growth potential. The Investment Manager views growth potential as the Seeking high-quality businesses with specific characteristics ability of a company to be able to reinvest at least a portion of its and intangible assets excess cash flow back into the business to grow, whilst generating In the Investment Manager’s view, a high-quality business is one a high return on the cash thus reinvested. Over time, this should which can sustain a high return on operating capital employed and compound their shareholders’ wealth by generating more than a which generates substantial cash flow, as opposed to only creating pound of stock-market value for each pound reinvested. accounting earnings. If it also reinvests some of this cash back into the business at its high returns on capital, the Investment Manager The Investment Manager is interested in growth that is driven believes the cash flow will then compound over time, along with the through either increases in volume or increases in price and will value of the Company’s investment. prefer a mixture of both. The ability to increase product prices above the rate of inflation is the most profitable way to grow and The Investment Manager will not just look for a current high rate of demonstrates that the company has a healthy competitive position return, but will seek a sustainable high rate of return. selling products or services which are strongly desired by their Fundamentally, such companies need to demonstrate the ability to customers. However, growth through price alone can build a shelter continue competing against all other companies which are trying to under which competitors can flourish, eventually resulting in take a share of their profits. This can come in many forms, but the cheaper competition gaining significant market share. On the other Investment Manager will look for companies that rely on intangible hand, growth through additional unit volumes almost always assets such as one or more of the following: brand names; patents; requires more cost, in both manufacturing capacity and materials customer relationships; distribution networks; installed bases of used to produce the products, as well as transportation to get them equipment or software which provide a captive market for services, to customers. Increasing scale in this way will eventually make a spares and upgrades; or dominant market shares. company’s market position more difficult to compete against, The Investment Manager will generally seek to avoid companies that however, unlike growing through price alone, with the further benefit rely on tangible assets such as buildings or manufacturing plants, that volume growth can sometimes continue indefinitely. as it believes well-financed competitors can easily replicate and The Company will only invest in companies that earn a high return compete with such businesses. In many instances, such on their capital on an unleveraged basis and do not require competitors are able to become better than the original simply by borrowed money to function. The Investment Manager will avoid installing the latest technology in their new factory. Banks are quite sectors such as banks and real estate which require significant keen to lend against the collateral of tangible assets, and such levels of debt in order to generate a reasonable shareholder return companies tend to be more heavily leveraged as a result. The given their returns on unlevered equity investment are low. Investment Manager believes that intangible assets are much more Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 19 ## Investment Objective, Policy and Investment Methodology 19 Strategic Report 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 20 ## 20 Sustainability and ESG Strategic Report ESG Integration Stewardship Investment process Active ownership, or stewardship (see Fundsmith’s 2022 Smithson Investment Trust aims to be a long-term, buy-and-hold Stewardship Report at www.smithson.co.uk/documents), is also an investor, building a portfolio of high-quality companies that will important component of our risk management process after we generate superior, risk-adjusted returns over the long term. As a invest in a business. Regularly engaging with investee companies long-term investor, developing a detailed understanding of the to promote a long-term mindset for capital allocation and business, its industry, and the variety of risks and opportunities that appropriate controls over ESG related risk is a powerful tool in may influence the performance of the companies we invest in is protecting the long-term value of our investment. For many essential. Assessment of the risks associated with the business’s companies, improving ESG performance and minimising the environmental and social performance, as well as the quality of negative impacts they may have on the environment/society can be corporate governance, known as “ESG” factors, is a fully integrated a factor in strengthening their busine ss model and outperforming component of our pre-investment research; poor ESG performance competition. We use engagement to understand management’s can generate significant, negative impacts on the financial perspective, assess their handling of a variety of issues and to raise performance of the company as well as increase its risk profile, concerns we may have regarding their approach or outcomes, when particularly over the long term. appropriate. We also ensure we use our proxy votes to protect and enhance the value of our investments, supporting or opposing the Smithson builds an investable universe of, as we define them, “good company when necessary. The investment management team companies”. Good companies are those that can generate a assess votes and engagements on a case-by-case basis themselves sustainably high return on invested capital over the full business and don’t outsource the decision to other departments or use any cycle and have the ability to reinvest these returns to generate advisory services. We use both engagement and proxy voting to consistent growth. As long-term investors, fully analysing the support decisions that benefit the sustainability of returns and long- sustainability of the company’s returns and its growth potential is a term performance of the business. central tenet of our research process. Detailed financial analysis of the business is, of course, a large component of this assessment, This approach is used by all of the strategies Fundsmith operates, but fully analysing the variety of risks and opportunities posed by and is described in more detail in the Fundsmith Responsible non-financial performance plays an important role. Over-exposure Investment Policy, published as part of being a signatory to the UN to ESG risks, such as reputational damage, negative consumer Principles of Responsible Investment. (see Fundsmith’s Responsible sentiment, fines, increased taxes or disruption to a company’s Investment Policy at www.smithson.co.uk/documents). supply chain can significantly affect a business’s ability to sustain high returns over the long term. Hence, management teams that During the year to 31 December 2023, 379 votes were cast by the allocate capital with the sustainability of long-term returns in mind, Investment Manager of which 90% were voted in favour of the will typically have better performance from an ESG perspective. resolution and 10% against. Of the 379 votes cast, 49 related to management remuneration and the Investment Manager voted Many of the worst environmentally and socially performing against the company management on 51% of these. 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust # Business Review 21 # Strategic Report The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 to provide information to shareholders to assess how the Directors have performed their duty to promote the success of the Company. The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. # Purpose, Strategy and Business Model The Company is registered in England and Wales and is an externally managed investment trust; its shares are 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 Company has delegated its operational activities to specialised third party service providers who are overseen by the Board of non-executive Directors. Details regarding the Company's key third party service providers are included in the Management Engagement Committee Report. The Company has no executive directors, employees or internal operations. # Key Performance Indicators ("KPI") The Company's Board of Directors meets regularly and reviews performance against a number of key measures, as follows: - Net asset value total return against the MSCI World SMID Cap Index measured on a net sterling adjusted basis; - Share price total return; - Premium/discount of share price to net asset value per share; and - Ongoing charges ratio. The KPI measures are Alternative Performance Measures ("APMs"). Please refer to the APM section and Glossary 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 during 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 22 ## Business Review ### Strategic Report #### 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 whether to propose a continuation vote at the Annual General Meeting. Further information concerning the Board’s decision on a continuation vote 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. $^{1}$ 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 23 ## Risk Management 23 Strategic Report Risk Management • The Board receives quarterly reports from the Investment Manager’s Compliance officer and the Depositary on any The Board is responsible for the ongoing identification, evaluation matters of regulatory concern and developments; and management of emerging and principal risks faced by the Company and the Board has established a process for the regular • The company secretary briefs the Board on forthcoming review of these risks and their mitigation. The Board believes that legislation/regulatory change that might impact on the effective risk management contributes to the safeguarding of Company. The auditor also provides technical updates on shareholder value and successful operation of the Company and matters such as developments in accounting standards and therefore assesses and manages, where possible or appropriate, regulatory and corporate governance changes and best the risks faced by the Company. This process accords with the UK practice; and Corporate Governance Code, the FRC Guidance on Risk • The Company is a member of the AIC, which provides regular Management, Internal Control and Related Financial and Business technical updates as well as drawing members’ attention to Reporting and the AIC Code of Corporate Governance and a forthcoming industry/regulatory issues and advising on description follows below. compliance obligations. • 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 Principal Risks controls are performed are charted on a risk heat map and The Directors have carried out a robust assessment of the principal reviewed by the Board along with a risk appetite statement that risks facing the Company, including those that would threaten its reflects the Board’s relative level of risk tolerance and business model, future performance, solvency and liquidity. establishes key triggers necessitating Board management. A review of the risk procedures and controls in place at the 1. Investment objective and policy risks Investment Manager and other key service providers is The Company's investment objective may become unattractive to performed. Emerging risks, such as the war in the Middle East investors or its investment policy may not be successful in and impact on supply chains from disruption to shipping generating returns for investors. through the Suez Canal are discussed as part of this process and this should ensure that emerging (as well as known) risks The Company is dependent upon the Investment Manager’s are adequately identified and, so far as practicable, mitigated. successful implementation of the Company’s investment policy and ultimately on its ability to create an investment portfolio capable of The market and economic impacts of the war in Ukraine and generating attractive returns. Failure to do so may mean the the Middle East continue to be monitored by the Board. The Company becomes unattractive to investors. Investment Manager and other key service providers gave updates throughout the year on operational resilience and The Company is not constrained on weightings in any sector or portfolio exposure and impacts. geography. This may lead to the Company having significant Each Director brings external knowledge of the investment exposure to portfolio companies from certain business sectors or company sector (and financial services generally), trends, based in certain geographies. Greater concentrations of threats as well as strategic insight; investments in any one sector or geography may lead to greater volatility in the Company’s investments and may adversely affect • The Investment Manager advises the Board at quarterly Board performance. This may be exacerbated by the small number of meetings on industry trends, providing insight on future investments held at any time. challenges in the markets in which the Company operates/ invests. The Company’s broker regularly reports to the Board Mitigation on markets, the investment company sector and the Company’s The Investment Manager has a proven and extensive track record, peer group; and the Board undertakes a review of the performance of the Company and its transactions at each quarterly Board meeting. The Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 24 ## Risk Management 24 Strategic Report Investment Manager spreads the investment risk over a portfolio of Further details on Market and Financial Instrument risk are investments in accordance with the Company’s investment policy, disclosed in note 15 to the financial statements. and at the year end the Company held investments in 33 companies with details of the geographic and sector weightings given in the 3. Outsourcing risks Investment Manager’s Review. The Company has outsourced all its operations to third party service providers. Failure by any service provider to carry out its obligations 2. Market risks in accordance with the terms of its appointment could result in Price movements, economic and stock market conditions may have negative implications for the Company. Such failures could include a negative impact on the Company’s portfolio and its ability to cyber breaches or other IT failures, fraud (including unauthorised identify and execute suitable investments that might generate payments by the administrator), poor record keeping and loss of acceptable returns. Market conditions may also restrict the supply assets and failure to collect all the Company’s dividend income. of suitable investments at a price the Investment Manager Cyber incidents are becoming increasingly common and may cause considers may generate acceptable returns. disruption and impact business operations, po tentially resulting in financial losses, theft, interference with the ability to calculate the If conditions (such as those experienced as a consequence of the Net Asset Value or additional operating costs. When selecting or COVID-19 pandemic or the current conflicts in Ukraine and Middle reviewing investments, the Investment Manager evaluates the East) affecting the investment market ne gatively impact the price prospects and risks, including climate change risks, that could affect at which the Company is able to buy or dispose of its assets, this these companies. If the Investment Manager fails to identify risks may have a material adverse effect on the Company’s business and or liabilities associated with investee companies adequately, this results of operations. could give rise to an investee company not fitting the Company’s investment policy or unexpected losses and adverse performance. Interest rate movements may affect the level of income receivable The rapid spread of infectious disease such as the COVID-19 on cash deposits and the interest payable both by the Company and pandemic, and measures introduced to combat its spread, could by investee companies on their borrowings. In addition, where the cause disruption to the operations of the Company and its key Company invests in high growth investee companies, any increase service providers. in interest rates may compress the growth of such companies and therefore affect their valuations. As such, interest rate fluctuations Mitigation may reduce the Company’s returns. The Company has appointed experienced service providers, each of whom has a service agreement. The Board reviews the performance The Company’s ordinary shares are denominated in pounds sterling of the Investment Manager and Depositary at each quarterly Board while the majority of the Company’s investments are denominated meeting and the performance of all key service providers is reviewed in a currency other than pounds sterling. The Company does not annually by the Management Engagement Committee. Cyber risk hedge its currency exposures and changes in exchange rates may management questions are incorporated in this review to confirm lead to depreciation in the Company’s net asset value. the existence and application of cyber security controls and procedures. The Company’s key service providers confirm Mitigation periodically to the Board that they have in place business continuity The Company’s investment policy and the fact that it will not use plans and procedures to mitigate the impact on the Company of a hedging instruments to mitigate interest rate or foreign currency risk disruption in service. is clearly explained in the Owner’s Manual (which can be found on the Company’s website at www.smithson.co.uk). The Investment The procedures of the AIFM, depositary and custodian are reviewed Manager has a proven and extensive track record and reports and tested by their external auditors and such reports on the service regularly to the Board on market de velopments. The Investment providers’ control environment are made available to clients. These Manager’s policy is to hold investments for the long term and not reports are also reviewed by the Audit Committee and where any look at market timing issues. control failures are identified, the key service provider is required to Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 25 ## Risk Management 25 Strategic Report 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust 26 # Viability Statement Strategic Report # 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 by the "Going Concern" provision. The Company's investment policy is to buy good companies, not overpay and then do nothing. The Smithson Owner's Manual, a copy of which can be found on the Company's website at www.smithson.co.uk states "We will only invest in the equity of companies which we believe can compound in value over many years, if not decades, where we can remain a happy owner, safe in the knowledge that in 5 to 10 years' time our investment is likely to be worth significantly more than what we paid for it". When selecting or reviewing investments, the Investment Manager evaluates the prospects and risks which could affect investee companies over at least a 5 to 10 year period with a view to them being good long-term investments capable of generating the Company's required returns. The Board therefore believes that 10 years is the most appropriate time horizon to adopt for the Viability Statement. In reviewing the Company's viability, the Board considered the Company's business model, the principal 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 27 ## Non-Financial Information 27 Strategic Report 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 The benefits of engagement with the Company’s How the Company, the Manager and the Company Stakeholders Secretary engage with the Company’s Stakeholders Investors Regular communication with existing and The Chairman, Investment Manager and Broker meet prospective shareholders ensures that the Board is with shareholders on a regular basis. The Board also cognisant of investor priorities and addresses any receives written policies on governance and concerns raised. stewardship from some of its larger investors and, at its quarterly meetings, receives feedback from the Clear communication of the Company’s strategy and Investment Manager and Broker on meetings they the performance against the Company’s objective have attended with investors. The Directors take into can help maintain demand for the Company’s account the proxy voting agencies’ guidelines to shares and promote an investor base that is assess the voting recommendations published to interested in a long-term holding in the Company. 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 28 ## Non-Financial Information 28 Strategic Report Who? Why? How? Stakeholder group The benefits of engagement with the Company’s How the Company, the Manager and the Company Stakeholders 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. Investment Manager The Investment Manager is the most significant The Board receives regular reports from the service provider of the Company, and a description Investment Manager, discusses the portfolio at each of its role can be found in the Report of the Directors Board meeting as well as maintaining a constructive on page 33. dialogue between meetings. The reports from the Investment Manager include compliance and risk Engagement with the Company’s Investment management reports. Manager is necessary to review whether it is achieving the Company’s objective and adhering to A representative of the Investment Manager also the Company's policies and to understand the attends each quarterly Board meeting and most ad Company's risks and opportunities. 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 29 ## Non-Financial Information 29 Strategic Report Who? Why? How? Stakeholder group The benefits of engagement with the Company’s How the Company, the Manager and the Company Stakeholders Secretary engage with the Company’s Stakeholders Other Key Service The Board has outsourced all its operations to the The Board receives regular reporting from key service Providers Investment Manager and other key service providers providers. In addition, on a periodic basis, key service such as the fund administrator, depositary and providers are invited to present at Management custodian, registrar, broker and company secretary. Engagement Committee or Board meetings at which To ensure the smooth operation of the Company, the any concerns can be discussed. Board engages with such key service providers and The Board also seeks assurance of high standards of monitors their performance to ensure they are governance from its service providers including delivering their services in line with their contractual reviewing whether they maintain appropriate disaster obligations. recovery plans as well as policies on whistleblowing, Reporting from the Company’s broker, auditor and tax evasion, human rights, modern slavery and bribery Company Secretary alerts the Board to proposed as part of its service provider annual review. changes in regulations and market practice. This The Management Engagement Committee reviews the helps the Board plan and manage risks as well as performance of service providers and receives complying with relevant regulations. feedback from the Investment Manager and Company Secretary on their interaction with service providers. The Board periodically reviews the market rates for services provided, to ensure that the Company continues to receive high quality services at a competitive cost. Investee Companies The Investment Manager focuses on investing in The Investment Manager regularly engages with the those companies it believes can compound in value management of the investee companies and updates over the long term. the Board on the outcome of such engagement at each Board meeting, along with details of its As a long-term investor, engagement with investee stewardship responsibilities. companies helps develop a detailed understanding of how sustainable their business models are and The Board periodically reviews Fundsmith’s policy on the variety of risks and opportunities that may Responsible Investment and its Stewardship reports, influence their performance, including ESG matters both of which can be found on the Company’s website and their impact on local communities and the at www.smithson.co.uk. 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 30 ## Non-Financial Information 30 Strategic Report During the year, the Board took account of stakeholder engagement Company Culture and Values in the following decision-taking: Corporate culture for an externally-managed investment trust refers • In response to the emergence of the discount, the Chairman, to the beliefs and behaviours that determine how the Directors Investment Manager and Broker discussed the discount interact with one another and how the Board manages relationships management policy with some of the Company’s larger with shareholders and key service providers, such as the appointed shareholders. Following such meetings, the Board, in investment manager. The culture is defined by the values which are consultation with its advisers increased its rate of buying back set out below. The s172 report included in this Strategy and shares. The main aim was to provide increased market liquidity, Business Review provides further details of how the Board has dampen share price volatility at the same time as gaining some operated in this regard. NAV accretive benefit. The Board is mindful that it is overseeing the management of a • At the last AGM, one shareholder voted against the substantial investment portfolio on behalf of investors. In many reappointment of the Chairman to note their discontent with cases, the investment in the Company may represent a large the fact that the Board does not yet have an ethnic minority proportion of an individual’s savings. As all the Directors are director. This represented more than 20% of the votes cast and invested in the Company, the Directors’ interests are aligned with as a consequence, a consultation exercise was conducted with those of fellow shareholders in this regard. some of the larger shareholders. Following the consultation, it was agreed that greater disclosure regarding the Company’s Our approach to governing the Company is therefore underpinned succession planning and diversity policies would be provided by our determination to do the right thing for our shareholders. Key in the annual report. These can be found in the Corporate to this is having a constructive relationship with them, through Governance Report. regular updates, half-yearly and annual reports, and the opportunity to meet with them at the Annual General Meeting. We also believe Taskforce for Climate Related Financial Disclosures (“TCFD”) in having strong relationships with our key service providers, one The Company notes the TCFD recommendations on climate related based on mutual trust and respect, with constructive challenge financial disclosures. The Company is an investment company and, when required. Below is a summary of the Board’s most important as such, it is exempt from the Listing Rules requirement to report values: against the TCFD framework. High Standards Disclosure concerning Greenhouse Gas Emissions (“GHG”) for The Directors want to ensure the success of the Company and the year ended 31 December 2023 generate long term value for its shareholders. To this end the Board The Company is an investment trust, with neither employees nor will seek to adopt high standards of corporate governance and premises, nor has it any financial or operational control of the assets encourage best practice in all its activities. This approach extends which it owns. It has no greenhouse gas emissions to report from to the Company’s dealings with its stakeholders including its operations, nor does it have responsibility for any other emissions shareholders, the Investment Manager and other service providers. producing sources under the Companies Act 2006 (Strategic Reports and Directors’ Reports) Regulations 2013 or the Honesty and Integrity Companies (Directors’ Report) and Limited Liability Partnerships The Board seeks to comply with all relevant laws and regulations which (Energy and Carbon Report) Regulations 2018, including those apply to investment companies and has zero tolerance to bribery and within the Company’s underlyin g investment portfolio. corruption or any other fraudulent behaviour. The Board further expects the same standards to be applied by its service providers. Consequently, the Company consumed less than 40,000 kWh of energy during the year in respect of which the Directors’ Report is Transparency and accountability prepared and therefore is exempt from the disclosures required The Board encourages clarity and transparency in its Board under the Streamlined Energy and Carbon R eporting criteria. discussions and in communications with its stakeholders. The Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp002-pp032.qxp 26/02/2024 13:00 Page 31 ## Non-Financial Information 31 Strategic Report Board seeks to work with all service providers in a collaborative Dividend policy manner while at the same time recognising that the Board’s role The Company’s intention is to look for overall return rather than involves exercising oversight and challenge. The Board further seeking any particular level of dividend. The Company will comply | recognises that it is accountable to shareholders and will endeavour | with the investment trust rules r | egarding distributable income which | | --- | --- | --- | | to give a fair, balanced and understandable overview of the | state that 85% of recognised income should be distributed to | | | Company’s performance to this end. | shareholders. | | Any dividends and distributions will be at the discretion of the Board. Integrity and Ethics Subject to the Companies Act, the Company may, by ordinary Modern Slavery disclosure resolution, declare a final dividend to be paid to members of the Due to the nature of the Company’s business, being a company that Company according to their rights and interests in the profits of the does not offer goods or services to customers, the Board considers Company available for distribution, but no dividend shall be declared there are no relevant disclosures with regard to the Modern Slavery in excess of the amount recommended by the Board. The Company Act 2015 in relation to the Company’s own operations. The Board does not intend to pay any interim dividends. considers the Company’s supply chains, dealing predominately with Were the Company to be in a position to pay a dividend, then it may, professional advisers and service providers in the financial services subject to complying with all relevant criteria and with the approval industry, to be low risk in this regard. of the shareholders by ordinary resolution, choose to offer Anti-bribery and corruption shareholders a scrip dividend alternative or may establish a scrip The Company takes a zero-tolerance approach to bribery and dividend scheme that would allow shareholders to receive ordinary corruption and is committed to acting professionally, fairly and with shares instead of a cash dividend. integrity in all its business dealings and relationships wherever it operates. The Company’s policy and the procedures that implement Strategic Report it are designed to support that commitment. A summary of the Company’s anti-bribery and corruption policy can be found on the The Strategic Report set out in the Annual Report was approved by Company’s website at www.smithson.co.uk. the Board of Directors on the 26 February 2024. Prevention of the facilitation of tax evasion On behalf of the Board 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 Diana Dyer Bartlett Company’s website at www.smithson.co.uk. Chairman Employees, human rights and community issues 26 February 2024 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 # Smithson Investment Trust 32 ## Board of Directors ### 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 Schroder 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, BscSc, 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust # Report of the Directors 33 # Governance Report 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 Companies Act 2006 (the "Act"). Its shares are listed on the premium segment of the Official List and traded on the main market 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 Company accruing daily, but payable monthly in arrears. The Investment 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, Depository 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. Depository services are conducted by Northern Trust Investor Services Limited, a separate UK incorporated entity established by the Northern Trust Company to provide depository services to UK companies. The Depository 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 # Smithson Investment Trust 34 ## Report of the Directors ### Governance Report 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 office, 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 | | | --- | --- | --- | --- | --- | | | No of shares | % of issued share capital | No of shares | % of issued share 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson**^{}[] Investment Trust # Report of the Directors 35 ## Governance Report ### 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 transfer 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust 36 # Report of the Directors Governance Report 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 AGM. 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 authority 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 meeting. 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 section 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 cash, 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 37 ## Corporate Governance Report 37 Governance Report The Corporate Governance Report forms part of the Report of the or other executive directors and therefore has no need to consider Directors. the remuneration of executive directors. The Listing Rules and the Disclosure Guidance and Transparency In addition, the Company does not have any internal operations and Rules of the UK Listing Authority r equire listed companies to disclose therefore does not maintain an internal audit function. However, the how they have applied the principles and complied with the Audit Committee considers the need for such a function at least provisions of the UK Corporate Governance Code, as issued by the annually (see page 43 for further information). Financial Reporting Council (“FRC”) in 2018 (“UK Code”). The Chair of the Board should not be a member of the Audit The UK Code can be viewed on the FRC’s website (www.frc.org.uk). Committee per the UK Code. However, the AIC Code permits the The Board has also considered the Principles and Provisions of the Chair to be a member of, but not chair the Audit Committee if they Association of Investment Companies Code of Corporate were independent on appointment. The Chairman was independent Governance, as issued in 2019 (“the AIC Code”). The AIC Code is on appointment, and in view of the size of the Board, the Directors available on the AIC website (www.theaic.co.uk). It includes an feel it is appropriate for the Chairman to be a member of the Audit explanation of how the AIC Code adapts the Principles and Committee. Provisions set out in the UK Code to make it relevant for investment companies. The Board The Financial Reporting Council which issues the UK Code, has The Board has overall responsibility for the effective stewardship for confirmed that, by following the AIC Code, boards of investment the Company’s affairs. Its primary responsibility is to promote the companies will meet their obligations under LR 9.8 .6 of the Listing long-term sustainable success of the Company, generate value for Rules. The Board therefore considers that as an investment shareholders and have regard to stakeholder interests. It also company, reporting against the Principles and Provisions of the AIC establishes the Company’s purpose, values and strategy, and Code provides more relevant information to shareholders and meets satisfies itself that these and its culture are aligned. It has a number its obligations under the UK Code and associated disclosure of matters formally reserved for its approval including strategy, requirements under LR 9.8.6 of the Listing Rules. investment policy, gearing, treasury matters, dividend and corporate governance policy. The Board approves the financial statements, The Board considers that the Company has complied with the revenue budgets and reviews the performance of the Company. recommendations of the AIC Code except for the provisions relating A copy of the matters reserved to the Board is available from the to the appointment of a senior independent director and the need company secretary or on the Company’s website at for Remuneration and Nomination committees. www.smithson.co.uk. Full and timely information is provided to the Board to enable the Board to function effectively and to allow As the Board is small in number, having just four Board members, Directors to discharge their responsibilities. 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 All of the Directors will offer themselves for election or re-election a whole. Shareholders are invited to contact any of the Directors, at each Annual General Meeting and explanations for why their if they have any concerns which they wish to raise. The Audit appointment or continued appointment is appropriate is included Committee Chairman is responsible for leading the performance in the explanatory notes to the Notice of Annual General Meeting. review of the Chairman instead of a senior independent director and Summary biographical details of the Directors are set out the Board as a whole is responsible for agreeing the succession plan on page 32. for the Chairman. The Board as a whole f ulfils the function of the Nomination Committee and the Remuneration Committee and All Directors have access to the advice of the company secretary, therefore has not reported further in respect of these provisions. who is responsible for advising the Board on all governance matters. Both the appointment and removal of the company secretary is a The UK Code additionally includes provisions relating to the role of matter for the whole board. the chief executive, executive directors’ remuneration and the need for an internal audit function. The Company has no chief executive Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 38 ## 38 Corporate Governance Report Governance Report Board Diversity – Gender and Ethnic Background (b) Table for reporting on ethnic background The Board considers the balance of skills, knowledge, diversity Number of (including gender and ethnicity) and experience, amongst other Number of Percentage senior factors when reviewing its composition and appointing new Board of the positions on members Board the Board Directors and encourages applications from candidates from a broad range of background and experience and will seek to appoint White British or other the most suitable candidate. The Board has considered White (including minority the recommendations of the McGregor-Smith and the white groups) 4 100% 2 Mixed Multiple Hampton-Alexander reviews as well as the Parker review, but does Ethnic Groups – – – not consider it appropriate to establish targets or quotas in Asian/Asian British – – – these regards. Black/African/ According to new requirements of the Listing Rules LR 9.8.6 R(9) Caribbean/Black British – – – and (11) (applicable for periods from 1 April 2022), the Company is Other ethnic group, including Arab – – – required to include a statement in the annual report setting out Not specified/ whether it has met the following targets on board diversity as at 31 prefer not to say – – – December 2023, the Company’s chosen reference date: 1) At least 40% of individuals on its board are women; The rules only recognise the role s of Chairman, Chief Executive (CEO); Senior Independent Director and Chief Financial Officer (CFO) 2) At least one of the senior board positions is held by a woman; as senior board positions. The Board considers the CEO and CFO and positions are not relevant to the Company as it is an externally 3) At least one individual on its board is from a minority ethnic managed investment company with no executive management. background. However, the Board considers the Chair of the Audit Committee to be a senior board position and the above disclosure is made on The following tables set out the pre scribed format for information in this basis. accordance with the requirements of LR 9 Annex 2. The Listing Rules require disclosure of an explanation of the (a) Table for reporting on gender identity or sex Company’s approach to collecting the data used for the purposes of making the disclosures. The Company Secretary circulated the Number of Number of Percentage senior above tables to each director to complete individually and collated Board of the positions on the responses for inclusion in the annual report. members Board the Board Men 2 50% 1 The above table confirms that whilst the Board has met the targets Women 2 50% 1 on gender diversity, it has not yet done so on ethnic minority Not specified/ diversity. This is because the Company is a young company, having prefer not to say – – – 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 39 ## Corporate Governance Report 39 Governance Report not have any operations or employees, the Board does not consider Board Evaluation it to be in shareholders’ best interests to extend the size of the Board A formal annual performance appraisal process is performed on the in order to meet all diversity targets. The Board recognises the Board, the Committees, the individual Directors and the Company’s benefits of having diverse representation reflecting wider society main service providers. During the year, the Board commissioned within the Board and, when making appointments, welcomes an evaluation of its performance, effectiveness, processes and applications from everyone regardless of age, gender, ethnicity, governance compared to best practice. This was conducted by sexual orientation, belief or disability. external evaluation consultants, Fletcher Jones, who are independent of the Company and the Directors. Meeting Attendance The evaluation was conducted through a programme of both open The number of ordinary course scheduled Board and Committee and closed-ended questions and personal interviews with each of meetings held during the year to 31 December 2023, and each the Directors. Feedback on the Board and Committees’ Director’s attendance, is shown below: effectiveness was also obtained from key service providers including the Investment Manager, company secretary and broker. The Total number of meetings during the tenure/attendance evaluation also considered the Board and Committees’ composition Management size and skillset and the Directors’ performance including their roles Audit Engagement Board Committee Committee in chairing committees. The evaluation of the discharge of the specific responsibilities of the committees was undertaken Number of ordinary internally by the Board. The results of the e valuation were reviewed course meetings held 4 3 2 by the Chairman and discussed with the Board. Diana Dyer Bartlett 4/4 3/3 2/2 Lord St John of Bletso 4/4 3/3 2/2 The conclusions of the performance e valuation were positive and Jeremy Attard-Manche 4/4 3/3 2/2 demonstrated that the Directors were operating effectively and Denise Hadgill 4/4 3/3 2/2 showed the necessary commitment to the effective fulfilment of their duties. The Board also considered the evaluation conclusions In addition, Board and Committee ad-hoc meetings were held to deal on the composition of the Board and Committees, in terms of skill with administrative matters and the formal approval of documents. set and broader diversity considerations, which have been added to its succession planning discussions. Any future director Directors’ Tenure and Performance Appraisal appointments will take into consideration the evaluation recommendations on desirable knowledge and skillsets. It is the Board’s policy that all Directors, including the Chairman, will normally have their tenure limited to nine years from their first Based upon the conclusions of the appraisal on Directors’ appointment to the Board, except when the Board may determine performance and effectiveness, the Board recommends that each otherwise if it is considered that the continued participation on the of the Directors should be re-elected as a Director at the Board of an individual Director, or the Chairman, is in the best interests forthcoming AGM. Furthermore, the Board is satisfied, having of the Company and its shareholders. This is also subject to the considered each Director’s experience and the nature of, and Director’s re-election by shareholders at each Annual General Meeting. anticipated demands on their time by their other business commitments including other investment trusts, that each Director The Board has formulated a succession plan to promote regular is able to commit the time required to fulfil their responsibilities as refreshment and diversity, whilst maintaining stability and continuity a Director of the Company. 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 40 ## 40 Corporate Governance Report Governance Report Directors’ Independence Management Engagement Committee The Board has established a Management Engagement Committee The Board consists of four non-executive Directors, each of whom which was chaired during the year by Mr Attard-Manche. The is independent of the Investment Manager. No member of the Board Committee consists of all the Directors. A report of the Management is a Director of another investment company managed by the Engagement Committee is included in this Annual Report and sets Investment Manager. Accordingly, the Board considers that all the out the role and responsibilities of the Management Engagement Directors are independent and there are no relationships or Committee. 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 Nomination Committee and Remuneration Committee Chairman or the Board before they are accepted, having regard to The Board as a whole fulfils the f unction of the Nomination potential conflicts of interest and the time commitment involved. 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 Role of the Chair executive directors, there is no need for a Remuneration Committee. The Chair’s main role is to lead the Board. In doing so, the Chair promotes high standards of governance, ensures the Directors are The terms of reference of each committee can be found on the provided with sufficient and timely information so that they are able Company’s website at www.smithson.co.uk. to discharge their duties, allows each Board member’s views to be considered and ensures appropriate action is taken. Additionally, Nominee Share Code the Chair’s role includes ensuring that each Committee has the support required to fulfil its duties, overseeing the Board’s Where shares are held in a nominee company name, the Company effectiveness reviews and the induction and development of undertakes: Directors. The Chair is required to remain independent of the • to provide the nominee company with multiple copies of Investment Manager, whilst providing effective support, challenge shareholder communications upon request; and and advice to the Investment Manager. Through direct contact or through the Company’s broker and Investment Manager, the Chair • to allow investors holding shares through a nominee company receives the views of shareholders and also ensures that the Board to attend general meetings, provided the correct authority from as a whole has a clear understanding of these. the nominee company is available. 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 41 ## Statement of Directors’ Responsibilities 41 Governance Report The Directors are responsible for preparing the Annual Report and The financial statements are published on the Company’s website financial statements in accordance with applicable law and at www.smithson.co.uk. The Investment Manager has delegated regulations. authority for the maintenance and integrity of the website on behalf of the Company. The work carried out by the auditor does not involve Company law requires the Directors to prepare financial statements consideration of the maintenance and integrity of the website and, for each financial year. Under that law the Directors have elected to accordingly, the auditor accepts no responsibility for any changes prepare the financial statements in accordance with United that have occurred to the financial statements since they were Kingdom adopted international accounting standards. The financial initially presented on the website. Visitors to the website need to be statements also comply with International Financial Reporting aware that legislation in the UK governing the preparation and Standards (IFRSs) as issued by the IASB.. Under company law the dissemination of financial statements may differ from legislation in Directors must not approve the financial statements unless they are other jurisdictions. 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. The Directors consider that the Annual Report, taken as a whole, In preparing these financial statements, International Accounting isfair, balanced and understandable and provides the information Standard 1 require that the Directors have: necessary for shareholders to assess the Company’s position and performance, business model and strategy. • selected suitable accounting policies and then applied them consistently; Each of the Directors confirm that, to the best of their knowledge: • made judgements and accounting estimates that are • the financial statements, which have been prepared in reasonable and prudent; accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and • presented information, including accounting policies, in a net return of the Company for the year ended 31 December manner that provides relevant, reliable, comparable and 2023; and understandable information; • the Strategic Report includes a fair review of the development • provided additional disclosures when compliance with the and performance of the business and the position of the specific requirements in IFRS were insufficient to enable users Company, together with a description of the principal ris ks and to understand the impact of particular transactions, other uncertainties that it faces. events and conditions on the Company’s financial position and financial performance; and On behalf of the Board • prepared the financial statements on a going concern basis. The Directors are responsible for keeping adequate accounting Diana Dyer Bartlett records that are sufficient to show and explain the Company’s Chairman transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that 26 February 2024 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 42 ## 42 Audit Committee Report Governance Report Statement from the Chairman 4. To consider any non-audit work to be carried out by the auditor. The Audit Committee reviews the need for non-audit services I am pleased to present the Audit Committee Report for the year ended to be performed by the auditor in accordance with the 31 December 2023. The Committee met three times during this year Company’s non-audit services policy, and authorise such on a and all members attended each meeting. The Committee also met on case by case basis having given consideration to the cost 20 February 2024 to consider this report. The Company’s external effectiveness of the services and the objectivity of the auditor; auditor attended the meetings to agree the audit plan and to consider this Annual Report. The Investment Manager attends meetings by 5. To consider the need for an internal audit function; and invitation of the Audit Committee, but the Audit Committee also met the external auditor without the Inv estment Manager at meetings held 6. To review and challenge the assumptions and qualifications in to approve the annual financial statements. respect of the Company’s going concern and viability statements. Composition The Audit Committee comprises all the Directors whose biographies Meetings and Business are set out on page 32. Lord St John of Bletso was Chairman of the The Committee met three times during the year under review. The Audit Committee. Mrs Dyer Bartlett who became Chairman of the following matters were dealt with at those meetings: Company on 1 March 2022 was independent on appointment, and therefore entitled to be a member of the Audit Committee under the Financial statements AIC Code. The Board is satisfied that the Committee as a whole has The Committee has confirmed that, in its opinion, the Board can competence relevant to the sector in which the Company operates make the required statement that this Annual Report, taken as a and the Committee considers that it has recent and relevant whole, is fair, balanced and understandable and provides the financial experience. Lord St John of Bletso has chaired a number information necessary for shareholders to assess the Company’s of audit committees including that of a VCT and Mrs Dyer Bartlett is position and performance, business model and strategy. In making a chartered accountant and audit committee chairman of two other this assessment, the Committee had regard to guidance published investment trusts. by the Financial Reporting Council. The Committee assessed and agreed that transactions had been fairly disclosed, performance Responsibilities measures had been prepared on a consistent basis and were reflective of the business, there was adequate commentary on the The Committee’s main responsibilities under its terms of Company’s strengths and weaknesses and that this Annual Report, reference are: taken as a whole, is consistent with the Board’s view of the 1. To review the Company’s Interim and Annual Reports. operation of the Company. The Committee has given this Inparticular, the Committee considers whether the financial confirmation on the basis of its review of the whole document, statements are fair, balanced and understandable, allowing underpinned by involvement in the planning for its preparation and shareholders to assess the Company’s investment policy, review of the processes to assure the accuracy of factual content. position and performance, business model and strategy; Significant reporting matters 2. To review the risk management and internal control processes The Committee considered key accounting issues, matters and of the Company; judgements in relation to the Company’s financial statements and disclosures relating to: 3. To recommend the re-appointment of Deloitte LLP as external auditor and agree the scope of its work and its remuneration, Valuation and ownership of the Company’s investments reviewing its independence and the effectiveness of the The Committee is responsible for reviewing procedures to confirm audit process; the valuation and existence of investments. Controls are in place to Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 43 ## Audit Committee Report 43 Governance Report ensure that valuations are appropriate, and existence is verified A review of the Company’s anti-bribery and corruption policy and its through reconciliations undertaken by the Depositary. policy for the prevention of the facilitation of tax evasion was carried out and it was determined they continued to be appropriate and Recognition of revenue from investments reflective of best practice. It also confirmed that appropriate The Committee took steps to gain an understanding of the whistleblowing policies were in place at the Investment Manager and processes in place to record investment income and transactions. the other key service providers. The Committee sought confirmation that processes were in place to ensure that all dividend income and recovery of overseas tax is Internal audit captured correctly and reflected in the Company’s Financial The Audit Committee has considered the need for an internal audit Statements. function and considers that this is not appropriate given the nature and circumstances of the Company. Separately, the Audit Accounting policies Committee considered whether there was merit in appointing a firm The current accounting policies, as set out on pages 62 to 65, have of accountants to undertake any internal audit reviews into the been applied consistently throughout the period. Company’s policies and procedures. It concluded that this would not add any value on the basis that all the Company’s operations Going concern and viability statements had been outsourced to third parties and reports were received from Having reviewed the Company’s financial position, liabilities, buy key third parties regarding their processes and procedures. back programme, principal risks and prospects and any emerging In relation to the Investment Manager, fund administrator and risks, the Committee recommended to the Board that it was depositary, external audit reports were also received which appropriate for the Board to prepare the financial statements on the confirmed that no issues had been identified with such third parties’ going concern basis for a period of at least 12 months from the date procedures and internal controls. The Audit Committee keeps the of the approval of the financial statements. Further detail is provided need for an internal function under periodic review. on pages 33 to 34. It further formulated the Viability Statement set out on page 26 including the appropriate assessment period. External Auditor Risk management and internal controls During the year, the nature and scope of the external audit together The Board has overall responsibility for the Company’s risk with Deloitte LLP’s audit plan were considered by the Committee. management and systems of internal controls and for reviewing Subsequent to the year end, the Committee also met with Deloitte LLP their effectiveness. In common with the majority of investment to review the outcome of the audit and the draft 2023 Annual Report. trusts, investment management, accounting, company secretarial and custodial services have been delegated to third parties. In order to fulfil the Committee’s responsibility regarding the independence of the auditor, the Committee considered: The Board has delegated responsibility to the Audit Committee to • the senior audit personnel; advise on the assessment and management of principal risks as well as identification of emerging risks. The principal risks, risk • the auditor’s arrangements concerning any potential conflicts mitigation and procedures to identify emerging risks are of interest; summarised in the Strategic Report. The Committee reviewed the Company’s schedule of key risks twice during the period and • the extent of any non-audit services undertaken by the auditor reviewed a risk appetite statement summarising the Board’s attitude on behalf of the Company; and to its principal risks and to identify when active Board engagement • the statement by the auditor that they remain independent might be required outside the normal cycle of Board meetings. No within the meaning of the r egulations and their professional significant control failings or weaknesses were identified in the standards. Committee’s most recent risk review and no modifications to the risk mitigation programme were recommended. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 44 ## 44 Audit Committee Report Governance Report In its review of the effectiveness of the audit process, the Committee compromised. There were no non-audit services undertaken by the considered: Company’s auditor during the year under review. • the auditor’s fulfilment of the agreed audit plan; 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 • the level and effectiveness of challenge provided by the auditor; received representations from the external auditor concerning their • the audit quality control arrangements, including the stages of independence and considered the external auditor to be independent. review of the Annual Report, the time s pent by the audit partner Auditor re-appointment and whether any issues identified during the audit had been The auditor to the Company is Deloitte LLP who were engaged on dealt with on a timely basis; 24 July 2019. The audit partner, Chris Hunt er, has held the role • the auditor’s report on the FRC’s Audit Quality Review issued since that date and in accordance with partner rotation in July 2023 (and confirmation that there were no significant requirements will retire as audit partner for the Company after developments since that time); completion of the 31 December 2023 audit. • the auditor’s audit approach taking into account the The Committee conducted a review of the performance of the requirements in respect of material assumptions; auditor during the year and concluded that performance was satisfactory and that there were no grounds for change. It also • the report arising from the audit itself; and reviewed the audit fee. • feedback from the company secretary, the Investment Manager and the fund administrator on the conduct of the audit. Deloitte LLP have indicated their willingness to continue to act as auditor to the Company for the forthcoming year and a resolution The Committee was satisfied with the auditor’s independence and for their re-appointment will be proposed at the Annual General the effectiveness of the audit process, together with the degree of Meeting as well as a resolution to approve the auditor’s diligence and professional scepticism brought to bear and that the remuneration. auditor provided effective independent challenge in carrying out its responsibilities. Audit Committee Effectiveness The Committee confirms that the Company is in compliance with During the year the Audit Committee reviewed its effectiveness and the requirements of the Statutory Audit Services for Large concluded that it had discharged all its obligations as set out in the Companies Market Investigation (Mandatory Use of Competitive Audit Committee’s terms of reference in an efficient and effective Tender Processes and Audit Committee Responsibilities) Order manner. The Audit Committee concluded that there were no 2014. This order relates to the frequency and governance of tenders changes required to its procedures. for the appointment of the external audit or and the setting of the policy on the provision of non-audit services. Lord St John of Bletso Non-audit services Chairman of the Audit Committee The Company’s policy for the provision of non-audit services by the auditor is aligned with the Revised Ethical Standards 2019 (the 26 February 2024 “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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 45 ## Management Engagement Committee Report 45 Governance Report Statement from the Chairman The Committee agreed that the Investment Manager has the required skills and depth of experience to manage the Company’s I am pleased to present the Management Engagement Committee investments. The Committee also concluded that the performance Report for the year ended 31 December 2023. of the Investment Manager was satisfactory, and that the continuing appointment of the Investment Manager was in the best interests The Management Engagement Committee met twice during the year of shareholders. The Committee agreed that the existing fee and the attendance by each Director is shown in the table on arrangements and other contractual terms remained appropriate page39. The Committee also met on 20 February 2024 to consider and further aligned the Investment Manager’s interests with those this Report. of the Company’s shareholders. Composition Other Key Service Providers The Committee comprises all the Directors whose biographies are The Company’s other key service providers are: set out on page 32. • Depositary (Northern Trust Investor Services Limited) Responsibilities • Custodian (The Northern Trust Company) The Committee’s main responsibilities during the period were: • Administrator (Northern Trust Global Services SE) • to undertake an annual review of the compliance by the Investment Manager with the Company’s investment policy as • Company secretary (Apex Listed Companies Services established by the Board and with the Investment Management (UK) Limited Agreement entered into between the Company and the AIFM and the Investment Manager; and • Registrar (Link Group) and • to undertake an annual review of the performance of the • Broker (Investec Bank plc) Investment Manager and any other key service providers to the Company other than the external auditor. 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. Investment Manager The Company has appointed Fundsmith LLP as the Company’s AIFM The Committee also asked all its key service providers to complete and Investment Manager. questionnaires concerning their opera tions, internal controls, business continuity plans, policies and procedures and these Before the publication of this report, the Management Engagement questionnaires were reviewed by the Committee. Committee reviewed the performance of the Investment Manager and whether it had fulfilled the t erms of the Investment Following the Committee’s review and analysis, the Committee Management Agreement and complied with the Company’s concluded that the performance of all the Company’s current key investment policy. It also received a report and presentation from service providers was satisfactory and that each be retained until the Investment Manager’s Compliance Officer regarding the the next review. Investment Manager’s compliance processes. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 46 ## 46 Management Engagement Committee Report Governance Report 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson**^{}[] Investment Trust # Directors' Remuneration Report 47 ## Governance Report ### 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 terms 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 spent 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 Director 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 duties 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 # Smithson Investment Trust 48 ## Directors' Remuneration Report ### Governance Report #### Current and Future Policy | Component | Director | Purpose of reward | Operation | | --- | --- | --- | --- | | Annual director's fee | All Directors | For services as non-executive Directors of a plc | Determined by the Board | | Expenses | All Directors | Reimbursement of expenses incurred in the performance of duties | Submission of appropriate supporting documentation | The way in which the Board implemented the Company's Remuneration Policy in the year ended 31 December 2023 is set out below. | | (Audited) Fee for the year to 31 December 2023 (£) | (Audited) Fee for the year to 31 December 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 31 December 2023 %* | Year ended 31 December 2022 % | Year ended 31 December 2021 % | Year ended 31 December 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 Bartlett 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 49 ## Directors’ Remuneration Report 49 Governance Report Share Price Total Return Directors’ Interests in the Company’s Shares as at 31December 2023 (audited) A performance comparison is required to be presented in this report. The performance comparison is shown f or the period since launch The beneficial interests of the Directors of the Company (and their to 31 December 2023. The MSCI World SMID Cap Index, on a net connected parties) at the year end and at the date of this report are sterling adjusted basis, has been adopted by the Board as reference set out below: index against which the Company’s performance has been No of ordinary shares measured for the period. 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 Relative Cost of Directors’ Remuneration shareholders the opportunity to inform the Board of their views on The bar chart below shows the comparative cost of Directors’ fees Directors’ remuneration. Should the resolution fail to be approved compared with Company expenses for the year ended 31 December in a year in which the Remuneration Policy was not put to a 2023 and comparative for the year to 31 December 2022. During shareholder resolution, this will require the Company to put the the year no dividends were paid (2022: same) and the Company Remuneration Policy to shareholders the following year. repurchased 11.7 million ordinary shares (2022: 5.7 million) at a cost of £159.3 million (2022: 74.0 million). 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. 2,200 2,000 In Favour/ 2023 Discretionary Against Withheld £’000 1,800 2022 Total Total Total 160,000 159,347 Votes % Votes % Votes 1,600 140,000 Directors’ 1,400 Remuneration 120,000 Policy 59,722,212 99.84 98,318 0.16 41,020 1,200 100,000 Directors’ 73,983 Remuneration 1,000 80,000 Report 59,723,242 99.84 96,787 0.16 41,521 60,000 800 40,000 600 23,461 21,826 Launch Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 20,000 | | | 138150 | | 00 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | 0 | | | | | | | Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 | | | | | Company | Dividends | MSCI World SMIDShare Price | | | | | Directors Fees | | | | | Share buybacks | | Expenses 267708 Smithson pp033-pp050.qxp 26/02/2024 13:01 Page 50 ## 50 Directors’ Remuneration Report Governance Report 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp051-pp057.qxp 26/02/2024 13:02 Page 51 ## Independent Auditor’s Report 51 Financial Statements ### 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp051-pp057.qxp 26/02/2024 13:02 Page 52 ## 52 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust # Independent Auditor's Report 53 Financial Statements How the scope of our audit responded to the key audit matter We performed the following procedures to address the valuation and ownership of investments key audit matter: - 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; - We independently valued 100% of the investment portfolio to the closing bid prices published by an independent pricing source; and - 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 valuation 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. | Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp051-pp057.qxp 26/02/2024 13:02 Page 54 ## 54 Independent Auditor’s Report Financial Statements 3 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 ,-#"./-0/#1$'(*2*+ !"#$%&&"#&$'()**(+ ascertain whether the disclosures are materially consistent with the financial statements and our knowledge from our audit. !"#$ %&&"#& %45/#$67++/##""$ ,-#"./-0/#1 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 ."87.#/9:$#;."&;705$ '<2=+ 267708 Smithson pp051-pp057.qxp 26/02/2024 13:02 Page 55 ## Independent Auditor’s Report 55 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp051-pp057.qxp 26/02/2024 13:02 Page 56 ## 56 Independent Auditor’s Report Financial Statements 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; Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust # Independent Auditor's Report 57 Financial Statements - the board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 23; - 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 - 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: - we have not received all the information and explanations we require for our audit; or - adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or - 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 have not been made or the part of the directors' remuneration report to be audited is not in agreement with the accounting records and returns. 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 statements for the year ending 31 December 2019 and subsequent financial periods. The period of total uninterrupted engagement including previous 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 report 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 ISAs (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 responsibility 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 Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 58 ## Statement of Comprehensive Income ### Financial Statements | | Notes | For the year ended 31 December 2023 | | | For the year ended 31 December 2022 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'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 year is attributable to the owners of the Company. The “Total” column of this statement represents the Company’s Income Statement, prepared in accordance with International Financial Reporting Standards (IFRS). The “Revenue” and “Capital” columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. The accompanying notes are an integral part of these financial statements. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust ## Statement of Financial Position 59 ### Financial Statements | | Notes | As at 31 December 2023 £'000 | As at 31 December 2022 £'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) Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 60 ## Statement of Changes in Equity ### Financial Statements #### For the year ended 31 December 2023 | | Notes | Share Capital £'000 | Share Premium £'000 | Capital Reserve* £'000 | Revenue Reserve* £'000 | Total £'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^{a} | | - | (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 | | Notes | Share Capital £'000 | Share Premium £'000 | Capital Reserve* £'000 | Revenue Reserve* £'000 | Total £'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** | $^{a}$ Distributable reserve. The accompanying notes are an integral part of these financial statements. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson**^{}[] Investment Trust ## Statement of Cash Flows 61 ### Financial Statements | | Notes | For the year to 31 December 2023 £'000 | For the year to 31 December 2022 £'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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 62 ## Notes to the Financial Statements ### Financial Statements #### 1. Accounting policies Smithson Investment Trust plc is a company incorporated on 14 August 2018 in the United Kingdom under the Companies Act 2006. The financial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). ##### (a) Accounting convention The financial statements have been prepared under the historical cost convention (modified to include investments at fair value through profit or loss) on a going concern basis and in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as issued by the International Accounting Standards Board (IASB) and with the Statement of Recommended Practice (“SORP”) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued by the Association of Investment Companies (“AIC”) in November 2014 (and updated in July 2022). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The Directors believe that it is appropriate to continue to adopt the going concern basis for 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 functional and presentational currency of the Company. The accounting policies have been disclosed consistently and in line with Companies Act 2006. ##### (b) Critical accounting judgements and sources of estimation uncertainty The Board confirms that no significant accounting judgements or estimates have been applied to the financial statements and therefore there is not a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year. ##### (c) Presentation of the Statement of Comprehensive Income In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The net revenue is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010. ##### (d) Income Income from investments (other than capital dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend, or where no ex-dividend date is quoted, when the Company’s right to receive payment is established. Special dividends are credited to capital or revenue, according to the circumstances. Interest receivable on cash at bank is recognised on an accruals basis. ##### (e) Expenses All expenses, other than those of a capital nature, are charged to the revenue account. Expenses of a capital nature are charged to the capital account. Revenue and capital expenses are recognised on an accruals basis. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp062-pp074.qxp 26/02/2024 13:03 Page 63 ## Notes to the Financial Statements 63 Financial Statements 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp062-pp074.qxp 26/02/2024 13:03 Page 64 ## 64 Notes to the Financial Statements Financial Statements 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust # Notes to the Financial Statements 65 Financial Statements 1. Accounting policies (continued) (m) Adoption of new and revised standards At the date of authorisation of these financial statements the following standards and amendments to standards, which have not been applied in these financial statements, were in issue, but will be effective in the future accounting periods. - Amendment to 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' (effective 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 for accounting periods on or after 1 January 2024 - early adoption is available). The Company does not believe that there will be a material impact on the financial statements or the amounts reported from the adoption of these standards. In the current financial year the Company has applied the following interpretations and amendments to standards: - IFRS 17, Amendments to IAS 8, IAS 12, IAS 1 and IFRS Practice Statement 2 (effective for accounting periods beginning on or after 1 January 2023). There is no material impact on the financial statements or the amounts reported from the adoption of these amendments to the standards. 2. Dividend income | | 2023 £'000 | 2022 £'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 policies of the operating segment, which operates in the UK, are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on total profit before tax, which is shown in the Statement of Comprehensive Income. A geographical split of the portfolio can be seen in the Strategic Report. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 66 ## Notes to the Financial Statements ### Financial Statements #### 4. Investment management fee | | 2023 £'000 | 2022 £'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 £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'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 | | Depository 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). Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust ## Notes to the Financial Statements 67 ### Financial Statements #### 6. Taxation ##### (a) Analysis of tax charge in the year | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'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 £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'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 to meet the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on capital gains and losses arising on the revaluation or disposal of investments. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 68 ## Notes to the Financial Statements ### Financial Statements #### 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 issue 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. | As at 31 December | 2023 £'000 | 2022 £'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 transaction 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 Smithson Investment Trust # Notes to the Financial Statements 69 Financial Statements 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 significance of the inputs used in making the measurement decision. The following shows the analysis of financial assets recognised at fair value based on: - Level 1 – quoted prices in active markets for identical instruments. - Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.). - Level 3 – significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments). Fair value measurements recognised in the Statement of Financial Position | As at 31 December | 2023 | | | | | --- | --- | --- | --- | --- | | | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | | Investments held at fair value through profit or loss | 2,538,953 | – | – | 2,538,953 | | **Total** | **2,538,953** | **–** | **–** | **2,538,953** | | As at 31 December | 2022 | | | | | --- | --- | --- | --- | --- | | | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'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 | As at 31 December | 2023 £'000 | 2022 £'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 these receivables approximate their fair value. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 # Smithson Investment Trust 70 ## Notes to the Financial Statements ### Financial Statements #### 11. Trade and other payables | As at 31 December | 2023 £'000 | 2022 £'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 | As at 31 December | 2023 | | | | 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Ordinary Shares Number | Treasury Shares Number | Total Shares Number | Nominal Value £'000 | Ordinary Shares Number | Treasury Shares Number | Total Shares Number | Nominal Value £'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 issue and buy back shares during the year are provided on pages 35 to 36. #### 13. Share premium account | As at 31 December | 2023 £'000 | 2022 £'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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson**^{}[] Investment Trust ## Notes to the Financial Statements 71 ### Financial Statements #### 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 Strategic Report. The main risks arising from the Company's financial instruments are market price risk, interest rate risk, liquidity risk, credit risk and currency risk. The Board reviews and agrees policies for managing each of these risks as summarised below. These policies have remained substantially unchanged during the current year. ##### Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets on four scheduled occasions in each year and at each meeting it receives sufficient financial and statistical information to enable it to monitor adequately the investment performance and status of the business. The Board has also established a series of investment parameters, per the Company's investment policy, designed to manage the risk inherent in managing a portfolio of investments. ##### Interest rate risk Interest rate risk is the risk of movements in the value of, or income from, cash balances that arise as a result of fluctuations in interest rates. The Company finances its operations through equity and retained profits including capital profits, with no additional financing. ##### Liquidity risk The Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of cash balances and short-term bank deposits. All payables are due within three months. ##### Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. This is mitigated by the Investment Manager reviewing the credit ratings of broker counterparties and key third party service providers. The risk attached to dividend flows is mitigated by the Investment Manager's research of potential investee companies. The Company's custodian bank is responsible for the collection of income on behalf of the Company. Cash is held with Northern Trust Company which has a Fitch rating of AA-. The carrying amounts of financial assets best represents the maximum credit risk exposure at the Statement of Financial Position date, and the main exposure to credit risk is via the Company's custodian who is responsible for the safeguarding of the Company's investments and cash balances. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 72 ## Notes to the Financial Statements ### Financial Statements #### 15. Risk management and financial instruments (continued) At the reporting date, the Company's financial assets exposed to credit risk amounted to the following: | As at 31 December | 2023 £'000 | 2022 £'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 respect to securities held by the custodian to be delayed or limited. #### Currency risk The income and capital value of the Company's investments and liabilities can be affected by exchange rate movements as some of the Company's assets and income are denominated in currencies other than sterling which is the Company's functional currency. The key areas where foreign currency risk could have an impact on the Company are: - movements in rates that would affect the value of investments, assets and liabilities; and 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 £'000 | Cash £'000 | Receivables £'000 | Payables £'000 | Total £'000 | Investments £'000 | Cash £'000 | Receivables £'000 | Payables £'000 | Total £'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 Dollar | 77,700 | - | - | - | 77,700 | 68,459 | - | - | - | 68,459 | | 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). Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson**^{}[] Investment Trust ## Notes to the Financial Statements 73 ### Financial Statements #### 15. Risk management and financial instruments (continued) ##### Interest rate risk The majority of the Company's financial assets are equity shares and other investments which neither pay interest nor have a maturity date. The Company's cash balance of £16,579,000 (2022: £24,589,000) earns interest, calculated on a tiered basis, depending on the balance held, by reference to the base rate. The level of interest paid fluctuates in line with the base rate. At 31 December 2023 the interest 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 negative impact respectively on the profit or loss and net assets of the Company 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 impact 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 at the respective year end date and are not representative of the year as a whole, as well as the assumption that all other variables remained constant. The Company held the following categories of financial instruments, all of which are included in the Statement of Financial Position at fair value. | As at 31 December | 2023 £'000 | 2022 £'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 payables are due within three months. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are easily and readily realisable. The Company does not have any borrowing facilities and as at 31 December 2023 held £16,579,000 (2022: £24,589,000) in cash. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust 74 Notes to the Financial Statements Financial Statements ## 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 long-term growth in revenue and capital. The Company's capital is its equity share capital and reserves that are shown in the Statement of Financial Position at a total of £2,551,938,000 (2022: £2,417,967,000). The Board, with the assistance of the AIFM, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This includes a review of the planned level of gearing (if any), the need to repurchase or issue equity shares, and the extent to which any revenue in excess of that which is required to be distributed be retained. ## 16. Contingent liabilities As at 31 December 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 Report in the Annual Report. There were no contracts subsisting during or at the end of the year in which a Director of the Company is or was interested and which are or were significant in relation to the Company's business. There were no other material transactions during the year with the Directors of the Company. The Company has no employees. AIFM and Investment Manager – Details of the contract including the remuneration due to the AIFM and Investment Manager are set out on pages 76 to 77. Terry Smith and other founder partners and key employees of the AIFM and Investment Manager directly or indirectly and in aggregate, held 2,710,915 (2022: 2,919,112) shares in the Company amounting to 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson** Investment Trust ## Shareholder Information 75 ### Further Information #### 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 Group, 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 **31 December 2023** ![img-1.jpeg](img-1.jpeg) Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp075-pp082.qxp 26/02/2024 13:03 Page 76 ## 76 Alternative Investment Fund Managers Directive Disclosures Further Information 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp075-pp082.qxp 26/02/2024 13:03 Page 77 ## Alternative Investment Fund Managers Directive Disclosures 77 Further Information 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 # Smithson Investment Trust 78 ## Alternative Performance Measures (“APMs”) ### Further Information APMs are often used to describe the performance of investment companies although they are not specifically defined under IFRS. APM calculations for the Company are shown below. The Board believes that each of the APMs, which are typically used within the investment trust sector, provide additional useful information to shareholders in order to assess the Company’s performance between reporting periods and against its peer group. ### Discount The amount, expressed as a percentage, by which the share price is less than the NAV per ordinary share. | | | Page | As at 31 December 2023 | As at 31 December 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 case 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 **Smithson**^{}[] Investment Trust ## Alternative Performance Measures 79 ### Further Information #### Ongoing charges ratio and total cost of investment Ongoing charges ratio is a measure, expressed as a percentage of average NAV of the Company over a year, of the regular, recurring annual costs of running an investment company (see note 4 and note 5 to the financial statements). The Total Cost of Investment measures cost to investors incurred through the Company's portfolio investment transaction costs (see note 5) and the recurring annual costs of running the Company. | Ongoing charges ratio | Page | Year ended 31 December 2023 £'000 | Year ended 31 December 2022 £'000 | | --- | --- | --- | --- | | Average NAV | a | 2,519,346 | 2,589,777 | | Annualised expenses | b | 21,812 | 23,461 | | **Ongoing charges ratio** | **(b/a)** | **0.87%** | **0.91%** | | Annualised investment transaction costs | c | 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 267708 Smithson pp075-pp082.qxp 26/02/2024 13:03 Page 80 ## 80 Glossary of Terms Further Information 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp075-pp082.qxp 26/02/2024 13:03 Page 81 ## Glossary of Terms 81 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp075-pp082.qxp 26/02/2024 13:03 Page 82 ## 82 Glossary of Terms Further Information 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp083-end.qxp 26/02/2024 13:04 Page 83 ## How to Invest 83 Further Information 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp083-end.qxp 26/02/2024 13:04 Page 84 ## 84 How to Invest Further Information 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. Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp083-end.qxp 26/02/2024 13:04 Page 85 ## Company Information 85 Further Information | Directors | Company Secretary | | --- | --- | | Diana Dyer Bartlett (Chairman) | Apex Listed Companies Services (UK) Limited | | Lord St John of Bletso | 6th Floor | | Jeremy Attard-Manche | 125 London Wall | | Denise Hadgill | London | EC2Y 5AS Registered Office and Directors’ business | address | Administrator | | --- | --- | | 6th Floor | Northern Trust Global Services SE, UK Branch | | 125 London Wall | 50 Bank Street | | London | Canary Wharf | | EC2Y 5AS | London | E14 5NT | Investment Manager | Authorised by the Prudential Regulation A | | uthority and regulated | | --- | --- | --- | --- | | Fundsmith LLP | by the Financial Conduct Authorit | y and the Prudential Regulation | | | 33 Cavendish Square | Authority. | | | London W1G 0PW Depositary Northern Trust Investor Services Limited | Broker | 50 Bank Street | | --- | --- | | Investec Bank plc | Canary Wharf | | 30 Gresham Street | London | | London | E14 5NT | EC2V 7QP Authorised and regulated by the Financial Conduct Authority. Legal Advisers Registrar and Receiving Agent Travers Smith LLP Link Group 10 Snow Hill 10th Floor Central Square London 29 Wellington Street EC1A 2AL Leeds LS1 4DL Statutory Auditor Registered in England no. 11517636 Deloitte LLP www.smithson.co.uk Saltire Court 20 Castle Terrace Edinburgh EH1 2DB Smithson Investment Trust plc Annual Report for the year ended 31 December 2023 267708 Smithson pp083-end.qxp 26/02/2024 13:04 Page 86 This report is printed on Revive 100% White Silk a totally recycled paper produced using 100% recycled waste. Both the paper mill and the print factory have been awarded the ISO 14001 certificate for environmental management and are FSC accredited. The pulp is bleached using a totally chlorine free (TCF) process. ## Annual Report for the year ended 31 December 2023 ## Smithson Investment Trust plc Smithson Investment Trust plc  Annual Report for the year ended 31 December 2023 ## Small & ## Mid Cap ## Investments ## That ## Have 6th Floor 125 London Wall London ## Superior EC2Y 5AS ## Operating E smithson@fundsmith.co.uk ## Numbers W www.smithson.co.uk