THE SCOTTISH INVESTMENT TRUST PLC
132ND ANNUAL REPORT & ACCOUNTS
31 OCTOBER 2019
ii
The Scottish Investment Trust PLC | Annual Report 2019
Objective of The Scottish
Investment Trust PLC
To provide investors, over the longer term, with
above-average returns through a diversified
portfolio of international equities and to achieve
dividend growth ahead of UK inflation.
Our High Conviction,
Global Contrarian Investment
Approach
We are contrarian investors.
We believe markets are driven by cycles of
emotion rather than dispassionate calculation. This
creates profitable investment opportunities.
We take a different view from the crowd. We seek
undervalued, unfashionable companies that are
ripe for improvement. We are prepared to be
patient.
We back our judgement and run a portfolio of our
best ideas, selected on a global basis.
Our portfolio is unlike any benchmark or index and
we fully expect to have differentiated performance.
Our approach will not always be in fashion but we
believe it delivers above-average returns over the
longer term, by which we mean at least five years.
Cover painting:
Sand and Shallows, the Bay at the Back of the Ocean, Iona by Sarah Carrington
The Scottish Investment Trust PLC | Annual Report 2019
iii
01
Contents
2
Year at a Glance
3 Chairman’s Statement
6 Board of Directors
8 Manager’s Review
12
The Investment Team
14
Strategic Report
19
Financial Summary
20
List of Investments
22 Distribution of Assets
24
Ten Year Record
Directors’ Report
26 Responsibility Statement
27 Corporate Governance Report
34 Report of the Audit Committee
36 Directors’ Remuneration Report
Financial Statements
38
Independent Auditor’s Report
47
Income Statement
48 Balance Sheet
49 Statement of Comprehensive Income and Statement of Changes in Equity
50 Cash Flow Statement
51 Accounting Policies
53 Notes to the Financial Statements
Additional Information
68
Investor Information
71
Financial Calendar and Useful Addresses
72 Glossary
Annual General Meeting
74 Notice of Annual General Meeting
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The Scottish Investment Trust PLC | Annual Report 2019
Year at a Glance
31 October 2019
1.0%
Share price total return†§
MSCI ACWI 11.2%
MSCI UK All Cap 5.8%
7.5%
Increase in regular dividend
per share
CPI 1.5%
3x
Dividend reserves
(regular dividend)
31 October 2018: 3x
8.1%
Share price discount to
NAV*§ (cum-income)
31 October 2018: 8.3%
4th Quartile
AIC Global peer group
(one year share price total return)
31 October 2018: 2nd quartile
36 years
of consecutive increase in
regular dividend
51
Number of
listed holdings
31 October 2018: 50
1%
Gearing§
31 October 2018: 0%
† 2018: Share price total return 1.9%; NAV total return 1.1%; MSCI ACWI 3.4%; MSCI UK All Cap -1.3%
§ Alternative Performance Measures (please refer to Glossary on page 72).
* NAV with borrowings at market value.
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0.5%NAV* total return†§MSCI ACWI 11.2%MSCI UK All Cap 5.8%20.0%Increase in total dividendper share CPI 1.5%22%Portfolio turnover rateYear to 31 October 2018: 18%0.58%Ongoing charges figure§31 October 2018: 0.52% The Scottish Investment Trust PLC | Annual Report 2019
03
Chairman’s Statement
A growing following
A focus in recent years has been to highlight the merits
of the Company as an attractive and differentiated
investment vehicle for the long-term investor. Individual
investors are increasingly willing to self-select their
investments through online platforms and our aim has
been to build an identity with those investors.
We believe that a consistent, growing dividend is an
important consideration for many long-term investors.
Our contrarian approach has allowed the Company to
deliver a step change increase in the regular dividend
in recent years and we aim to continue to grow this
dividend ahead of UK inflation. The Scottish is one of the
highest yielding trusts in its peer group and is recognised
as a ‘Dividend Hero’ by the AIC.
The team continues to create thoughtful and insightful
content which is available on the Company’s website and
is shared on social media. As ever, I would encourage
those of you who have not already done so to follow us
on social media, where you can find the most up-to-date
news and articles, and you can subscribe to our monthly
email via the website.
We have set out to communicate our distinct identity
to investors and are pleased to have attracted a loyal
following who relate to our way of investing. We were
delighted to be voted ‘Best Investment Trust’ in the
Shares Awards 2019. This is the second consecutive year
that the Company has won this award, sponsored by
Shares Magazine.
Income and dividend
Over the past year, earnings per share rose by 14.4% to
29.8p (2018: 26.0p).
The Board recommends a final dividend of 6.9p which,
if approved, will mean that the total regular dividend for
the year will increase by 7.5% to 22.8p and will be the
36th consecutive year of regular dividend increase.
The Board’s target is to declare three quarterly interim
dividends of 5.7p for the year to 31 October 2020 and
recommend a final dividend of at least 5.7p for approval
by shareholders at the Annual General Meeting in 2021.
The final dividend will be reviewed in accordance with
the Board’s desire to continue the long track record of
annual dividend increases and the aim of the Company
to provide dividend growth ahead of UK inflation over
the longer term.
Performance
The Company delivered a modest total return during the
twelve months to 31 October 2019.
The share price total return was +1.0% and the net asset
value per share (NAV) total return (with borrowings at
market value) was +0.5%. The Company does not have
a formal benchmark but, by way of comparison, the
sterling total return of the international MSCI All Country
World Index (ACWI) was +11.2% while the UK based
MSCI UK All Cap Index total return was +5.8%.
This was not a fruitful year for our contrarian approach
as cheap money continued to distort investor attitude
to risk and reward. This situation looks increasingly
stretched and we believe that it will correct over time. A
key tenet of our philosophy is to invest in the knowledge
that cycles still exist and that, when the trends inevitably
change, it will prove a source of surprise to markets. The
Manager seeks to position the portfolio to prepare for
a change in consensual thinking. Cycles can represent
both a threat to wealth (if investments are bought too
near the top) and an opportunity to build wealth (if
investments are bought near the trough).
Accordingly, the portfolio is invested in a contrarian
manner, focusing on out-of-favour stocks, often in
unloved areas of the market. Our logic is that there is a
better long-term balance between risk and reward when
the expectations for an investment’s earnings power and
future valuation are low.
This philosophy itself has been unfashionable in recent
years, to the extent that the valuation gap between the
cheapest and most expensive stocks and the widely
divergent views about their prospects is reminiscent
of the dotcom era. Then, the ‘cheap stocks’ bounced
back after the ‘tech mania’ had passed and the Manager
anticipates a similar period of mean reversion ahead.
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The Scottish Investment Trust PLC | Annual Report 2019
Chairman’s Statement (continued)
Our income reserve remains substantial at 70.5p,
equivalent to around three times the targeted
annual dividend. As I have previously mentioned,
our portfolio is not explicitly invested for income and
the Board recognises that there may be occasions
when the portfolio does not necessarily fully cover
the requirements of the regular dividend. While it is
currently academic, I would like to remind shareholders
that we consider this reserve could be drawn upon in
future, if required.
As I have previously outlined, following a step-change
in our regular dividend, the Company does not intend
to routinely pay discretionary special dividends.
However, as the income generated during the year was
substantial and we see no need to add significantly
to revenue reserve this year, the Board recommends
a special dividend of 7.45p. The total dividend for the
year, if approved, will increase by 20.0% to 30.25p.
Discount, share buybacks and ongoing
charges
The Company follows a policy that aims, in normal
market conditions, to maintain the discount to NAV
(with borrowings at market value) at or below 9%. The
average discount over the year was 8.9%.
During the year, 3.3m shares were purchased for
cancellation at an average discount of 9.4% and a
cost of £27.0m. In the previous year, 2.3m shares were
purchased.
The ongoing charges figure (OCF) for the year under
review of 0.58% (2018: 0.52%) remains favourable
compared with other actively-managed investment
vehicles. As a self-managed investment trust, the OCF
represents the ongoing costs of running the Company
as a proportion of net assets.
Gearing
At 31 October 2019, gearing was 1% (31 October 2018:
0%). The Company continually reviews opportunities to
deploy gearing and it is our expectation that borrowings
will be utilised, over time, for the long-term benefit of
shareholders.
Board composition
Russell Napier will retire as a Director and not stand for
re-election at the AGM. The Company has benefitted
immeasurably from Russell’s knowledge and experience
over the last ten years. The Board and I would like to
extend our gratitude to Russell for his outstanding
contribution.
We welcome Neil Rogan to the Board, following his
appointment as a non-executive director in September
2019. Neil is an investment management specialist who
brings extensive experience from his long career in the
industry. Neil will stand for election at the AGM.
Outlook
Broadly speaking, the uncertain issues outlined in my
previous outlook statements remain unresolved.
However, a significant new development was that the
US Federal Reserve, which sets the benchmark for the
global cost of money, was forced to abandon efforts to
‘normalise’ interest rates.
The cost of money remains too low as policy makers
continue to grapple with the ramifications of the financial
crisis of more than a decade ago. In August, close to
a quarter of the global stock of government bonds
offered negative yields, meaning that, if purchased at
the prevailing price and held to maturity, the investor
was guaranteed to lose money. Around the same time,
a Danish bank made headlines by offering the world’s
first negative interest rate mortgage. It is uncertain if this
more mainstream adoption of negative interest rates will
prove transient or become the norm. However, one thing
that is abundantly clear is that the long-term implications
are not well understood.
Cheap money has exacerbated wealth inequality and
created a wider schism between the ‘haves’ and the
‘have nots’ in society. The Brexit vote and the election of
Donald Trump were amongst the first salvos in a popular
rebellion against the economic status quo and there
seems to be an increasing number of these episodes of
popular rage, as we have seen in France, Hong Kong,
Spain and Chile. To appease this discontent, fiscal
largesse is on the increase, with austerity on the wane.
Politics and political considerations will continue to have
an impact on markets with the most notable being the
Sino-US trade discussions, the 2020 US Presidential
election and, as I write, the result of the UK general
election and subsequent state of the Brexit negotiations.
The potential impact of Brexit is reviewed regularly
by the Company. As a global investment trust with a
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The Scottish Investment Trust PLC | Annual Report 2019
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Chairman’s Statement (continued)
diversified portfolio of international equities, it is unlikely
that the Company’s business model or operations
will be adversely impacted as a direct result of Brexit.
Generally speaking, politicians seem motivated to
resolve international disputes, but they obviously have
to sell those solutions to their respective domestic
audiences.
In the stockmarket, various trends resulting from
cheap money, such as the substantial divergence of
stock valuations, seem over-extended and, given our
contrarian stance, we believe that the Company remains
well placed for the future.
James Will
Chairman
13 December 2019
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The Scottish Investment Trust PLC | Annual Report 2019
Board of Directors
James Will
Appointed to the Board in May
2013 and became Chairman
in January 2016. Chair of the
Nomination Committee.
James is a former Chairman of law firm Shepherd and
Wedderburn LLP where he was a senior corporate
partner, heading its financial sector practice. He has
experience of working with companies in a wide
range of industry sectors including financial services,
technology, energy and life sciences. He is Chair of Asia
Dragon Trust plc and a director of Herald Investment
Trust plc.
Shares held: 10,000* Fees: £60,000
*On 3 May 2019, 2,000 shares were transferred to Mr Will
for nil consideration following the conclusion of matters
in relation to an Executry and Trust in which Mr Will was
involved. As a result, Mr Will’s shareholding increased from
8,000 to 10,000 shares.
Russell Napier
Appointed to the Board in
July 2009.
Russell has worked in the investment business for
30 years and has been writing on global macro
strategy for institutional investors since 1995. He is
author of Anatomy of The Bear: Lessons From Wall
Street’s Four Great Bottoms and The Solid Ground
investment report. He is founder and course director
of the Practical History of Financial Markets course at
The University of Edinburgh and co-founder of the
investment research portal ERIC. He is a director of
Mid Wynd International Investment Trust PLC and a
member of the investment advisory committees of
three fund management companies.
Shares held: 14,000 Fees: £32,500
Jane Lewis
Appointed to the Board in
December 2015. Chair of the
Remuneration Committee.
Jane is an investment trust specialist who, until August
2013, was a director of corporate finance and broking
at Winterflood Investment Trusts. Prior to this, she
worked at Henderson Global Investors and Gartmore
Investment Management Limited in investment trust
business development and at WestLB Panmure as
an investment trust broker. She is Chair of Invesco
Perpetual UK Smaller Companies Investment Trust PLC
and a director of BlackRock World Mining Trust plc,
BMO Capital and Income Investment Trust PLC and
Majedie Investments PLC.
Shares held: 1,000 Fees: £32,500
Mick Brewis
Appointed to the Board in
December 2015.
Mick is an experienced investor who was a partner at
Baillie Gifford for 21 years, heading the North American
equities team and having global asset allocation
responsibilities. Prior to that he managed UK equity
portfolios at the firm. He has a non-executive advisory
role with Castlebay Investment Partners and is a trustee
of the National Library of Scotland Foundation.
Shares held: 10,000 Fees: £32,500
Karyn Lamont
Appointed to the Board in
October 2017. Chair of the Audit
Committee.
Karyn is a chartered accountant and former audit
partner at PwC. She has over 25 years of experience
and provided audit and other services to a range
of clients across the UK’s financial services sector
including a number of investment trusts. Her specialist
knowledge includes financial reporting, audit and
controls, risk management, regulatory compliance and
governance. She is a director of The North American
Income Trust plc, The Scottish American Investment
Company P.L.C., Scottish Building Society and iomart
Group plc.
Shares held: 2,500 Fees: £37,500
Neil Rogan
Appointed to the Board in
September 2019.
Neil has broad experience of investment companies
both as an investment manager and as a non-executive
director. He was Head of Global Equities at Gartmore
with sole responsibility for Gartmore Global Focus
Fund. At Jardine Fleming Investment Management
and Fleming Investment Management, he was the lead
manager of Fleming Far Eastern Investment Trust for
many years. He is Chair of both Murray Income Trust
PLC and Invesco Asia Trust plc.
Shares held: 6,000 Fees: £4,578 (annualised £32,500)
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The Scottish Investment Trust PLC | Annual Report 2019
Manager’s Review
One evening in September 2007, whilst on holiday, a
flickering TV caught my attention. I was stunned to see a
report that concerns about the financial strength of
Northern Rock had dramatically escalated. Rather than
accept the reassurances of the authorities, people were
queuing around the block to withdraw their money.
Admittedly, I had been worried for some time about the
debt-funded party that had characterised the previous
few years of economic activity but, to me, this was a
tangible sign that we had reached the peak of that cycle.
I had no exact knowledge of what would happen next
but I reasoned that anything that had come to depend
on easy money was shortly going to be in difficulty.
As it turned out, money markets and credit conditions
continued to deteriorate, which culminated, a year later,
in the bankruptcy of Lehman Brothers. Looking back,
there are two factors that I continue to find surprising.
The first is how bad things got. I would not have
predicted, in 2007, the de facto bankruptcy of the
Western banking system within a year. The second is how
the markets initially reacted to the downturn in the cycle.
As credit markets froze and the US headed for recession,
the markets’ ‘animal spirits’ decided that emerging
markets could ‘decouple’ from developed markets.
Further, as emerging markets required a lot of raw
materials, the logic was extended such that commodity
prices could also ‘decouple’. Accordingly, for about nine
months ‘decoupling’ became the hottest investment
theme, culminating most memorably in the oil price
hitting a high of around $146 per barrel in July 2008. By
the end of that year, as economic activity ground to a
halt, the oil price was close to $40 which showed that
decoupling was always a fanciful notion. Nevertheless,
had investors correctly predicted the outcome of these
events and acted accordingly in September 2007, they
still would have endured a very uncomfortable nine
months before their investment decisions came good.
I mention this because it seems that the recently failed
IPO of WeWork is a similarly significant event for the
‘unicorn’ party and, perhaps, loss making ventures in
general. A unicorn is the term given to private, recently
started businesses that have an implied valuation of over
$1bn. WeWork was one of the biggest unicorns of all,
with an implied valuation of $47bn (for context, a well
known company of similar market capitalisation is BMW).
Many unicorns present themselves as technology based
disrupters but actually operate at vast losses in low
margin, cyclical industries with revenue growth only
sustained through a subsidised user experience. In effect,
these companies require a constant supply of new
capital to sustain their business models.
I cannot say with certainty what the ramifications will be
of the bursting of this ‘disruption’ bubble but, as I have
expressed before, my view is that this particular
investment theme has been one of the more egregious
by-products of a cheap money environment. I think, if the
mood is starting to turn away from these sorts of
investments, that the unloved but cheap areas of the
market will find favour.
The portfolio
Our gold miners, in aggregate, provided our largest
gains during the year. Newcrest Mining (+£12.2m total
return), Barrick Gold (+£8.2m) and Newmont Goldcorp
(+£7.6m) appreciated as the gold price increased and
investors were encouraged by a recent wave of mergers
between the big miners and a greater focus on efficiency
and capital discipline. Gold is perceived as a safe haven
at times of market turbulence but, for us, a more
attractive feature is the fact that it acts as a currency which
is not susceptible to the devaluing effect that loose
monetary policy and unfunded government spending
has on paper money.
Returns from the retail sector were, overall, not as
pleasing. Strong gains came from US-based Target
(+£7.7m), which reaped the reward of a programme to
optimise its operations for both online and in-store
transactions. We believe this type of ‘multi-channel’
approach is most likely to prosper given the poor
economics of online-only sales. UK supermarket Tesco
(+£4.3m) also performed well as it continued to make
significant strides towards rebuilding profitability.
However, US department store operator Macy’s
(-£13.2m) was a source of disappointment as a stumble
in the turnaround plan wiped out the strong gains from
the previous year. We had hoped that Gap (-£9.6m)
could unlock value by splitting the business in order to
focus on distinct brands but this was undermined by
weak sales in its most profitable brand. Marks & Spencer
(-£6.9m) performed poorly as it entered into a venture
with online food retailer Ocado.
Among our health care holdings, GlaxoSmithKline
(+£5.4m) and Roche (+£4.0m) performed well as they
advanced plans to reinvigorate their pipeline of drugs.
Pfizer (-£2.5m), meanwhile, gave back some of its
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The Scottish Investment Trust PLC | Annual Report 2019
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Manager’s Review (continued)
previous gains as it transforms from health conglomerate
to a company focused on innovative pharmaceuticals.
In financials, the subdued yield environment was
particularly disadvantageous for our Japanese banks
Mitsubishi UFJ Financial (-£2.3m) and Sumitomo
Mitsui Financial (-£2.0m). Solid returns came from
emerging markets focused lender Standard Chartered
(+£4.5m), which resumed share buybacks in a sign of
progress with its turnaround plan, but we substantially
reduced our holding when it became apparent to us that
protests in Hong Kong would be longstanding.
Among our oil holdings, we continue to see exceptional
value in the oil majors, which now have the whip hand
when procuring services, but Exxon Mobil (-£2.5m) and
Royal Dutch Shell (-£2.0m) retreated on concerns about
a slower global economy. We sold National Oilwell
Varco (-£4.1m) and Diamond Offshore Drilling (-£2.3m)
as our analysis showed it would be several years before
they again enjoyed pricing power.
Japanese electronic goods companies Sony (-£2.5m)
and Nintendo (-£1.3m) were both sold during the period
having successfully revived their fortunes. Despite
recording losses during this reporting period, they were
very fruitful investments over our holding period.
In telecommunications, our new holdings made modest
gains AT&T (+£0.6m), Deutsche Telekom (+£0.6m),
KPN (+£0.3m), Orange (+£0.6m), Tele2 (+£0.6m) and
Telstra (+£0.3m). Their defensive characteristics and
attractive dividends are complemented by a shifting
regulatory cycle which may incentivise investment in next
generation networks. Among our pre-existing
telecommunications holdings, China Mobile (-£2.3m)
declined, not helped by its Hong Kong listing, while BT
(+£1.8m) advanced as investors anticipated a more
benign environment.
BHP (+£4.8m), a diversified miner, was aided by high
iron ore prices and a focus on capital discipline which has
helped fuel a meaningful recovery in cash flows. As this
improvement seemed more fully appreciated by
investors, we sold our holding during the year.
UK water and waste services company United Utilities
(+£3.6m) recorded solid gains as the regulatory
backdrop eased, defensive assets found favour with
investors and, perhaps most importantly, investors
sensed the chance of an unfavourable political
environment had diminished.
Outlook
The stockmarket remains strong but the global economy
seems to be slowing. Markets continue to dance to a
cheap money tune but recently have shown less appetite
for profitless growth at inflated valuations. We think this
new mood will spread to other areas of the market where
investors have been prepared to accept ever fancier
valuations for ‘certain’ growth. We cannot be precise on
when this will happen but we do know that ‘sure’ things
almost always disappoint and that paying a steep price is
a bad starting point.
There has been much talk of a recession lately, but the
reality is that, outwith the US, most of the world is already
enduring sluggish conditions. Most of our holdings are in
the unloved and out-of-favour parts of the market and,
arguably, many are already priced for a recession. We
think this gives scope to defy low expectations and thus
to generate long term gains.
A global recession is a possibility but politicians are alive
to this threat. President Trump seems keen to sign a
watered down trade deal with China, with one eye on his
re-election, while the US Federal Reserve has not only cut
interest rates but has again started to inject money into
the financial system in a QE-like manner.
We think the Brexit fog is starting to lift and we believe
that the combination of a cheap currency and depressed
UK stocks relative to other parts of the world could be an
interesting opportunity.
I have previously noted that, as contrarian investors, we
actively seek unfashionable investments that we believe
have underappreciated potential. Where expectations
are low there can be significant scope for positive
surprises and this is where we believe the best balance
between risk and reward exists.
Alasdair McKinnon
Manager
13 December 2019
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The Scottish Investment Trust PLC | Annual Report 2019
Manager’s Review (continued)
Our approach
To apply our approach, we divide the stocks in which we
invest into three categories.
First, we have those that we describe as ugly ducklings
– unloved shares that most investors shun. These
companies have endured an extended period of poor
operating performance and, for the majority, the near-
term outlook continues to appear uninspiring. However,
we see their out-of-favour status as an opportunity and
can foresee the circumstances in which these
investments will surprise on the upside.
The second category consists of companies where
change is afoot. These companies have also endured a
long period of poor operating performance but have
recently demonstrated that their prospects have
significantly improved. However, other investors continue
to overlook this change for historical reasons.
In our third category, more to come, we have
investments that are more generally recognised as good
businesses with decent prospects. However, we see an
opportunity as we believe there is scope for further
improvement that is not yet fully recognised.
Categorisation of Investments
more
to come
underappreciated
prospects
change
is afoot
overlooked progress
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Challenged
Overlooked
Underestimated
OPERATING PERFORMANCE
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The Scottish Investment Trust PLC | Annual Report 2019
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Manager’s Review (continued)
NAV Absolute Performance Attribution
Year to 31 October 2019
Equity portfolio (ungeared)
Gearing
Total equities
Other income and currency
Buybacks
Expenses
Interest charges
Change in market value of borrowings
Change in pension liability
NAV with borrowings at market value total return
Top Ten Gains and Losses
Year to 31 October 2019
Performance†
%
Gains
£m
Performance†
%
47.6
40.8
29.7
32.8
18.5
12.8
13.5
23.7
24.5
25.1
12.2
Macy's
8.2
7.7
7.6
5.4
4.8
4.5
4.3
4.3
4.0
Gap
Marks & Spencer
National Oilwell Varco*
Sony*
Pfizer
Exxon Mobil
Diamond Offshore Drilling*
Mitsubishi UFJ Financial
China Mobile
-53.7
-38.8
-33.0
-37.5
-9.4
-13.0
-21.9
-10.9
-44.6
-12.4
Newcrest Mining
Barrick Gold
Target
Newmont Goldcorp
GlaxoSmithKline
BHP*
Standard Chartered
Tesco
PepsiCo
Roche
* Sold during the year.
Contribution
%
+2.5
+0.0
+2.5
+0.0
+0.3
-0.8
-0.5
-1.0
0.0
+0.5
Losses
£m
-13.2
-9.6
-6.9
-4.1
-2.5
-2.5
-2.5
-2.3
-2.3
-2.3
† Total return on investment, taking into account both capital returns and entitlement to dividends declared, for the
period the investment was held during the year.
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The Scottish Investment Trust PLC | Annual Report 2019
The Investment Team
Alasdair McKinnon
Manager
Sarah Monaco
Investment Manager
Alasdair joined the Company in 2003 and became
Manager in 2015. He has 20 years of investment
experience. He graduated MA with Honours in
Economic and Social History from the University of
Edinburgh and MSc in Investment Analysis (with
distinction) from the University of Stirling. Alasdair is a
CFA® charterholder and an Associate of the UK Society
of Investment Professionals.
Sarah joined the Company in 2000 and became an
Investment Manager in 2002. She has 17 years of
investment experience. She graduated with a Master
of Business Administration from the University of
Edinburgh and previously gained a BA in Commerce.
Sarah also has broader investor relations experience
and a Post Graduate CIM Diploma in Marketing. Sarah is
a member of the CFA Institute.
Martin Robertson
Deputy Manager
Igor Malewicz
Investment Analyst
Igor joined the Company in 2017. He graduated MA
with Honours in Economics and Finance and MSc in
Petroleum, Energy Economics and Finance, both from
the University of Aberdeen.
Martin joined the Company in 2004 and became
Deputy Manager in 2015. He has over 30 years of
investment experience. He is a graduate of both
Dundee and Edinburgh universities gaining a BSc with
Honours in Civil Engineering and a Master of Business
Administration, respectively. Martin is a member of
the CFA Institute and an Associate of the UK Society of
Investment Professionals.
Mark Dobbie
Investment Manager
Mark joined the Company in 2000 and became
an Investment Manager in 2011. He has 9 years
of investment experience. He also has extensive
knowledge of the operation of investment trusts,
including valuation and performance analytics, from
previous roles with the Company. Mark is a CFA®
charterholder.
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13
Manager’s Review (continued)
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The Scottish Investment Trust PLC | Annual Report 2019
Strategic Report
Business Model and Status
The Company is a self-managed global growth
investment trust and is an investment company
within the meaning of the Companies Act 2006. HM
Revenue & Customs has approved the Company as an
investment trust under Sections 1158 and 1159 of the
Corporation Tax Act 2010. The Company continues to
satisfy the conditions for such approval. The Company
is registered in Scotland and its registered office is 6
Albyn Place, Edinburgh EH2 4NL.
Investment objective and policy
The Company’s objective is to provide investors, over
the longer term, with above-average returns through
a diversified portfolio of international equities and to
achieve dividend growth ahead of UK inflation.
In order to achieve this objective, the Company invests
in an integrated global portfolio constructed through
an investment process whereby assets are primarily
allocated on the basis of the investment merits of
individual stocks rather than those of regions, sectors
or themes.
The Company’s portfolio is actively managed and
typically will contain 50 to 100 listed international
equity investments. The portfolio is widely diversified
both by industrial sector and geographic location of
investments in order to spread investment risk.
Whilst performance is compared against major global
and UK indices, the composition of indices has no
influence on investment decisions or the construction
of the portfolio. As a result, it is expected that the
Company’s investment portfolio and performance may
deviate from the comparator indices.
Since the Company’s assets are invested globally and
without regard to the composition of any index, there
are no restrictions on maximum or minimum exposures
to specific geographic regions, industry sectors or
unlisted investments. However, such exposures are
reported in detail to, and monitored by, the Board at
each Board meeting in order to ensure that adequate
diversification is maintained.
Liquidity and long-term borrowings are managed
with the aim of improving returns to shareholders. In
pursuing its investment objective, from time to time
the Company will hold certain financial instruments
comprising equity and non-equity shares, fixed income
securities, interests in limited partnerships, structured
products and cash and liquid resources. The Company
may use derivatives, other than in relation to the sale
of index futures, for hedging or tactical investment
purposes. The Company may only sell index futures
for efficient portfolio management purposes. For the
avoidance of doubt, any derivative instrument may only
be used with the prior authorisation of the Board.
The Company has the ability to enter into contracts
to hedge against currency risks on both capital and
income.
The Company’s investment activities are subject to the
following limitations and restrictions:
• under the Company’s Articles of Association, up to
40% of the Company’s total assets on the last audited
balance sheet may be used to make investments of
up to a maximum of 8% of the value of total assets in
any one company, at the time the investment is made.
Thereafter, individual investments may not exceed 3%
of the value of total assets, at the time the investment
is made;
• the levels of gearing and gross gearing are monitored
closely by the Board and the Manager. The Board
currently limits gearing to 20%. While gearing will be
employed in a typical range of 0% to 20%, the
Company retains the ability to lower equity exposure
to a net cash position if deemed appropriate;
• the Company has a policy not to invest more than
15% of total assets in other listed closed-ended
investment funds; and
• the Company may not make investments in respect of
which there is unlimited liability except that the
Company may sell index futures for efficient portfolio
management purposes.
Investment policy – implementation
During the year under review, the assets of the
Company were invested in accordance with the
Company’s investment policy.
A full list of holdings is disclosed on pages 20 and 21
and detailed analysis of the spread of investments
by geographic region and industry sector is shown
on page 22. A further analysis of changes in asset
distribution by industry sector over the year, including
the sources of appreciation/depreciation, is shown on
page 23. Attribution of NAV performance is shown on
page 11.
At the year end, the number of listed holdings was 51
(2018: 50). The top ten holdings comprised 37.0% of
total assets (2018: 33.8%).
Details of the extent to which the Company’s objective
has been achieved and how the investment policy
was implemented are provided in the Chairman’s
Statement on pages 3 to 5 and the Manager’s Review
on pages 8 to11.
Additional limitations on borrowings
Under the Company’s Articles of Association, the
Directors control the borrowings of the Company and
its subsidiaries to ensure that the aggregate amount of
borrowings does not, unless approved by an ordinary
resolution of shareholders, exceed the aggregate of
the reserves excluding unrealised capital profits of the
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The Scottish Investment Trust PLC | Annual Report 2019
15
Strategic Report (continued)
Company and its subsidiaries, as published in the latest
accounts. In addition, the Directors are authorised to
incur temporary borrowings in the ordinary course of
business of up to 10% of the Company’s issued share
capital. Such temporary borrowings are to be for no
longer than six months.
Principal risks and uncertainties
The principal risks and uncertainties facing the Company
are considered under the following categories:
• Strategic – the level of investor appetite for the
Company declines resulting in divestment or the
Company’s objective is challenged by significant
external events such as regulatory change, global
financial instability and the uncertainties around
Brexit and Scottish independence;
• Investment portfolio and performance – the
Company becomes unattractive due to level of
relative performance, whether against peers or
global market trends;
• Financial – failure to set and monitor appropriate
policies and controls in relation to market risk, credit
risk and liquidity risk;
• Operational – specific focus on the potential failure
of the Company’s third party service providers’
systems, including vulnerability to cyber attack or
loss of key personnel; and
• Tax, legal and regulatory – compliance with existing
requirements and the ability to identify and respond
to the continued volume of change in this area.
These and other risks facing the Company are reviewed
regularly by the Audit Committee and the Board.
Further information on risks and their mitigation is
detailed in the Corporate Governance Report on pages
30 and 31 and in note 16 to the accounts on pages 61
to 66 and on internal controls in the Report of the Audit
Committee on page 34.
Performance
Management provides the Board with detailed
information on the Company’s performance at every
Board meeting. Performance is measured in comparison
with the Company’s peers and comparator indices.
Key Performance Indicators
The Directors use the following Key Performance
Indicators (KPIs) and a number of Alternative
Performance Measures (APMs) in order to assess the
Company's success in achieving its objectives. These
KPIs and APMs are viewed by the Board to be the most
appropriate long term measures to enable investors to
gain an understanding of the Company's business.
• NAV total return;
• NAV total return against comparators;
• NAV and share price total return against peers;
• discount with debt at market value;
• dividend growth against UK inflation; and
• ongoing charges figure.
Definitions of the APMs can be found in the Glossary on
page 72.
Future Developments
The main trends and factors likely to affect the future
development, performance and position of the
Company’s business are set out in the Chairman’s
Statement on pages 3 to 5 and the Manager’s Review
on pages 8 to 11.
Dividends
The Board may declare dividends, including interim
dividends, but no dividend is payable in excess of the
amount recommended by the Directors. The Company
updated its Articles of Association in 2019 to allow
distribution of its capital profits.
The Directors recommend a final dividend of 6.9p and
a special dividend of 7.45p payable on 14 February
2020. With the interim dividends each of 5.3p already
paid in May, August and November 2019, this makes
a total of 30.25p for the year. Based on 73,893,508
shares in issue at 31 October 2019, the final and special
dividend will cost £10.604m. The total dividend for the
year will cost £22.573m.
Share capital
General
The Company had 73,893,508 shares of 25p each in
issue on 31 October 2019 (2018: 77,184,578). Since
the year end, the Company has bought back 50,000
shares for cancellation. The rights attaching to shares
in the Company are set out in the Company’s Articles
of Association which may be amended by the passing
of a special resolution of shareholders, that is, by the
approval of a majority of not less than 75% of votes cast.
The Financial Conduct Authority rules in relation to
non-mainstream investment products do not apply to
the Company.
Rights to the capital of the Company on winding up
Shareholders would be entitled to the assets of the
Company in the event of a winding up (after the
Company’s other liabilities had been satisfied).
Voting
On a show of hands, every shareholder present in
person or by proxy has one vote and on a poll every
member present in person or by proxy has one vote for
each share.
Transfer
There are no restrictions concerning the holding
or transfer of shares in the Company and there are
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16
The Scottish Investment Trust PLC | Annual Report 2019
Strategic Report (continued)
no special rights attaching to any of the shares. The
Company is not aware of any agreements between
shareholders which might result in any restriction on
the transfer of shares or their voting rights.
Deadlines for exercising voting rights
If a shareholder wishes to appoint a proxy to attend,
speak and vote at a meeting on their behalf, a valid
appointment is made when the form of proxy (together,
where relevant, with a notarially certified copy of the
power of attorney or other authority under which the
form of proxy is signed) is received by the Company’s
registrar not less than 48 hours before the start of the
meeting or the adjourned meeting at which the proxy
is appointed to vote (or, in the case of a poll taken
more than 48 hours after it is demanded, no later than
24 hours before the time appointed for taking the poll).
In calculating these time periods, no account is taken of
any day or part thereof that is not a working day.
Discount control policy
The Company’s policy aims, in normal market
conditions, to maintain the discount to cum-income
NAV at or below 9%. In calculating the NAV for the
purposes of this policy, the Company’s borrowings are
taken at their market value so as to ensure that future
repurchases of shares will take into account changes
in the value of the borrowings brought about by
movements in long-term interest rates. During the year
ended 31 October 2019, the Company bought back
for cancellation a total of 3,291,070 shares of 25p each
representing 4.3% of shares in issue at 31 October
2018, at a cost of £26,978,000.
At the AGM on 7 February 2019, authority was granted
to repurchase up to 14.99% of shares in issue on that
date. The number of shares authorised for repurchase
was 11,502,977. Share buybacks from the date of
the AGM to the Company’s year end amounted to
2,844,162 shares or 3.71% percentage points of the
14.99% authority.
Discount to NAV*
5 Years to 31 October 2019
%
0
3
6
9
12
15
18
%
0
3
6
9
12
15
18
Oct 14
Oct 15
Oct 16
Oct 17
Oct 18
Oct 19
* with borrowings at market value
Discount to Cum-Income NAV
Discount to Ex-Income NAV
Source: The Company
Holding in listed closed-ended investment
fund
Company holdings include one investment in a listed
closed-ended investment fund of £13.1m: 1.7% of total
assets (2018: £12.5m: 1.6%). This comprised solely of
an investment in British Land, a UK property fund. The
Company has a policy not to invest more than 15% of
total assets in other listed closed-ended investment funds.
Unlisted portfolio
The Company’s unlisted holdings were valued at £1.5m
(0.2% of shareholders’ funds). These comprise the
Company’s office property and subsidiary.
Viability statement
The Directors have assessed the prospects of the
Company for a period of five years. The Board believes
this time period is appropriate having consideration
for the Company’s principal risks and uncertainties
(outlined on pages 30 and 31); its portfolio of
liquid listed international equity investments and
cash balances; and its ability to achieve the stated
dividend policy and to cover interest payments on the
Company’s debt.
In making this assessment, the Directors have
considered detailed information provided at Board
meetings which includes the Company’s balance sheet,
gearing level, share price discount, asset allocation,
income and operating expenses.
Based on the above, the Board confirms it has a
reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they
fall due over the five year period of this assessment.
Investment risk
The investment portfolio is diversified over a range
of industries and regions in order to spread risk. The
Company has a long-term policy of borrowing money
to invest in equities in the expectation that this will
improve returns but, should stockmarkets fall, such
borrowings would magnify losses. The Company can
buy back and cancel its own shares. All other things
being equal, this would have the effect of increasing
gearing. Investment risk is considered in more detail in
the Corporate Governance Report on page 30 and in
note 16 on page 62.
Performance comparators
The Company does not have a formal benchmark.
Performance is reviewed in the context of returns
achieved by a broad basket of UK equities through the
MSCI UK All Cap Index and of international equities
through the MSCI All Country World Index (ACWI). The
portfolio is not modelled on any index.
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The Scottish Investment Trust PLC | Annual Report 2019
17
Strategic Report (continued)
Management
The Board has appointed the Company’s wholly-owned
subsidiary, S.I.T. Savings Limited, as its Alternative
Investment Fund Manager (AIFM).
Day-to-day management of the Company is delegated
to the Company’s executive management which
reports directly to the Board.
The Board has appointed Maitland Administration
Services (Scotland) Limited to provide company
secretarial, administration and accounting services to
the Company.
Substantial shareholdings
At 31 October 2019, the Company had been informed
of the following notifiable interest in its voting rights:
Wells Capital Management Inc.
4,924,836
Shares
%
held
6.7
There have been no changes notified to the Company
in respect of the above interest, and no new interests
notified, since 31 October 2019.
Analysis of share register at 31 October 2019
Category of holder
Individuals
Investment companies
Pension funds
Other
Total
Share
capital
%
82.9
5.5
4.8
6.8
100.0
Company’s directors and employees
The table below shows the breakdown of Directors and
employees.
Directors
Senior Manager
Employees
31 October 2019 31 October 2018
Male Female
Male Female
4
1
4
2
0
5
3
1
5
2
0
3
Environmental, Social and Governance
Policy
When investments are made, the primary objective is
to achieve the best investment return while allowing
for an acceptable degree of risk. In pursuing this
objective, various factors that may impact on the
performance are considered and these may include
environmental, social and governance issues.
As an investment trust, the Company does not
provide goods or services in the normal course of
business, nor does it have customers. Accordingly,
the Directors consider that the Company does not
fall within the scope of the Modern Slavery Act 2015
and that there are no disclosures to be made in
respect of human rights or community issues.
Bribery Act 2010
The Company has a zero tolerance policy towards
bribery and a commitment to carry out business fairly,
honestly and openly.
Criminal Finances Act 2017
The Company has a zero tolerance policy to tax
evasion and the facilitation of tax evasion.
The Strategic Report was approved by the Board and
signed on its behalf by:
James Will
Chairman
13 December 2019
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The Scottish Investment Trust PLC | Annual Report 2019
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The Scottish Investment Trust PLC | Annual Report 2019
19
Financial Summary
NAV with borrowings at market value
NAV with borrowings at amortised cost
Ex-income NAV with borrowings at market value§
Ex-income NAV with borrowings at amortised cost
Share price
Discount to NAV with borrowings at market value§
MSCI ACWI
MSCI UK All Cap Index
Equity investments
Net current assets
Total assets
Long-term borrowings at amortised cost
Pension liability
Shareholders’ funds
Earnings per share
Regular dividend per share (2019: proposed final 6.90p)
Special dividend per share
Total dividend per share
UK Consumer Prices Index – annual inflation
2019
2018
Change
%
Total return
%
878.5p
915.9p
864.2p
901.6p
807.0p
8.1%
900.1p
926.8p
888.9p
915.5p
825.0p
8.3%
£’000
£’000
687,820
717,547
74,173
82,931
761,993
800,478
(83,921)
(83,829)
(1,279)
(1,337)
676,793
715,312
29.75p
22.80p
7.45p
26.02p
21.20p
4.00p
30.25p
25.20p
(2.4)
(1.2)
(2.8)
(1.5)
(2.2)
+8.9
+1.0
+0.5§
+1.7§
+1.0
+11.2
+5.8
+14.4
+7.5
+20.0
+1.5
§ Alternative Performance Measures (please refer to Glossary on page 72).
Year’s High & Low
NAV with borrowings at market value
Closing share price
Discount to NAV with borrowings at market value
Year to
31 October 2019
Year to
31 October 2018
High
930.6p
843.0p
10.1%
Low
812.9p
748.0p
7.0%
High
991.8p
902.0p
10.7%
Low
844.9p
771.0p
6.2%
NAV* and Share Price against Comparator Indices
Total Return – 5 years to 31 October 2019
180
160
140
120
100
80
Oct 14
MSCI ACWI
Share Price
NAV
MSCI UK All Cap
180
160
140
120
100
80
Oct 15
Oct 16
Oct 17
Oct 18
Oct 19
*with borrowings at market value
Chart data source: Bloomberg and the Company
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The Scottish Investment Trust PLC | Annual Report 2019
List of Investments
As at 31 October 2019
Listed Equities
Holding
Newcrest Mining
Tesco
Target
Newmont Goldcorp
Barrick Gold
BT
Pfizer
Royal Dutch Shell
Roche
ING
GlaxoSmithKline
Japan Tobacco
United Utilities
East Japan Railway
PepsiCo
Kirin
Exxon Mobil
China Mobile
Gap
Chevron
Total
Royal Bank of Scotland
Marks & Spencer
Verizon Communications
British Land
BNP Paribas
Telstra
Deutsche Telekom
Macy's
Carrefour
Sumitomo Mitsui Financial
Orange
BASF
AT&T
Adecco
KPN
Mitsubishi UFJ Financial
Intesa SanPaolo
Bank of Kyoto
TGS Nopec Geophysical
Country
Australia
UK
US
US
Canada
UK
US
UK
Switzerland
Netherlands
UK
Japan
UK
Japan
US
Japan
US
China
US
US
France
UK
UK
US
UK
France
Australia
Germany
US
France
Japan
France
Germany
US
Switzerland
Netherlands
Japan
Italy
Japan
Norway
Market
value
£’000
37,565
35,539
33,699
31,256
30,534
28,548
24,048
22,402
19,677
18,599
18,040
18,002
17,661
17,598
17,067
16,516
16,501
16,104
14,752
14,358
13,735
13,613
13,455
13,342
13,101
12,967
12,515
11,501
10,970
10,176
9,631
9,524
8,746
8,475
7,211
6,850
6,505
6,468
5,757
5,714
Cumu lative
weight
%
41.0
65.2
83.4
94.3
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The Scottish Investment Trust PLC | Annual Report 2019
21
Cumu lative
weight
%
Market
value
£’000
5,508
5,455
5,111
5,030
4,717
3,815
2,098
1,957
1,486
1,236
1,185
686,320
99.8
Market
value
£’000
1,500
1,500
687,820
Cumu lative
weight
%
0.2
100.0
List of Investments (continued)
As at 31 October 2019
Listed Equities
Holding
KDDI
Vinci
Lloyds Banking
Hess
Tele2
Bank of Ireland
Baker Hughes
BP
Tourmaline Oil
Freehold Royalties
Standard Chartered
Total listed equities
Unlisted
Country
Japan
France
UK
US
Sweden
Ireland
US
UK
Canada
Canada
UK
Holding
Heritable property and subsidiary
Country
UK
Total unlisted
Total equities
The 10 largest holdings have an aggregate market value of £281,867,000.
Listed Equities by Category
(Market Value Weighted)
more to come
4%
change is afoot
20%
ugly ducklings
76%
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The Scottish Investment Trust PLC | Annual Report 2019
Distribution of Assets
Distribution of Total Assets
Allocation of Total Assets
by Sector
Energy
Materials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Information Technology
Communication Services
Utilities
Real Estate
Net current assets
Total assets
31 October
2019
%
31 October
2018
%
Net current assets
9.7%
11.1
14.2
4.0
9.5
12.8
8.1
11.2
–
15.4
2.3
1.7
9.7
100.0
17.9
9.5
3.3
14.6
7.2
9.1
18.8
–
5.9
1.7
1.6
10.4
100.0
by Region
UK
Europe (ex UK)
North America
Japan
Asia Pacific (Ex Japan)
Net current assets
Total assets
31 October
2019
%
31 October
2018
%
22.6
19.1
29.5
10.4
8.7
9.7
24.5
14.8
34.5
10.7
5.1
10.4
100.0
100.0
Allocation of Shareholders’ Funds
Total equities
Net current assets
Borrowings at amortised cost
Pension liability
Shareholders’ funds
Total equities
90.3%
%
101.6
11.0
-12.4
-0.2
100.0
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The Scottish Investment Trust PLC | Annual Report 2019
23
Distribution of Assets (continued)
Changes in Asset Distribution
by Sector
Energy
Materials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Information Technology
Communication Services
Utilities
Real Estate
Total equities
31 October
2018
£m
143.3
76.4
26.6
117.1
57.7
72.6
150.2
–
47.3
13.8
12.5
Net
purchases
(sales)
£m
(39.9)
0.5
2.0
(17.1)
35.6
(14.9)
(58.2)
–
69.9
1.0
–
717.5
(21.1)
Appreciation
(depreciation)
£m
(18.9)
31.2
1.7
(27.1)
4.0
4.1
(6.9)
–
(0.1)
2.8
0.6
(8.6)
31 October
2019
£m
84.5
108.1
30.3
72.9
97.3
61.8
85.1
–
117.1
17.6
13.1
687.8
Changes in Shareholders’ Funds
Total equities
Net current assets
Total assets
Borrowings at amortised cost
Pension liability
Shareholders’ funds
Dividend
income
£m
27.9
Total
return
£m
19.3
31 October
2018
£m
Net
purchases
(sales)
£m
717.5
(21.1)
82.9
(7.9)
800.4
(29.0)
(83.8)
(0.1)
(1.3)
–
31 October
2019
£m
Appreciation
(depreciation)
£m
(8.6)
687.8
74.2
762.0
(83.9)
(1.3)
715.3
(29.1)
676.8
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The Scottish Investment Trust PLC | Annual Report 2019
Ten Year Record
Earnings
per
share
p
Regular
dividend
per share
p1
Total
expenses
£’000
Ongoing
charges
figure
%
Total
assets
£’000
Share-
holders’
funds
£’000
Year to
31 October
Buybacks
£’000
NAV
(debt at
amortised
cost)
p
Share
price
p
Discount to NAV2
ex-
income
%
cum-
income
%
NAV
(debt at
amortised
cost) total
return
%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
10.62
9.60
4,139
0.78
696,971
587,675
13,776
465.6
410.0
10.26
10.05
4,284
0.72
740,140
630,367
36,046
533.7
469.3
12.43
10.40
4,443
0.71
708,972
598,870
19,339
524.2
452.0
12.01
11.25
4,632
0.79
734,801
628,244
11,121
561.6
479.0
13.41
11.60
5,110
0.75
857,545
750,818
10,139
682.7
603.0
11.51
12.00
4,887
0.68
841,189
734,293
11,308
679.5
598.0
15.91
12.50
4,900
0.52
840,005
733,056
15,426
694.3
608.0
21.62
13.50
4,080
0.49
935,934
849,017
59,944
881.2
769.5
23.06
20.00
3,517
0.49
845,199
760,371 135,1883
956.8
843.0
26.02
21.20
3,254
0.52
800,478
715,312
19,602
926.8
825.0
2019
29.75 22.80
4,133
0.58 761,993 676,793
26,978
915.9
807.0
10.1
10.0
9.6
9.8
9.8
9.6
10.1
10.0
8.8
8.3
8.1
8.9
9.0
8.2
8.6
8.6
8.7
8.6
8.1
6.8
7.2
6.6
17.6
17.0
(0.0)
9.2
23.8
1.5
3.9
29.9
11.4
0.4
1.7
Ten Year Growth Record
Year to
31 October
Earnings
per share
Regular
dividend
per share1
Consumer
Prices
Index
Share
price
total
return
NAV
(debt at
amortised
cost) total
return
NAV
(debt at
market
value)
total return
MSCI UK
All Cap
Index
total return
MSCI
ACWI4
total return
100.0
117.1
115.1
124.8
160.4
162.7
168.6
219.2
247.3
251.9
100.0
117.0
117.0
127.7
158.1
160.6
166.9
216.8
241.4
242.4
100.0
116.7
114.0
123.5
158.3
159.9
166.4
215.4
239.1
241.6
100.0
116.7
118.0
129.4
158.9
159.6
163.1
183.1
207.9
205.1
100.0
117.6
117.0
127.3
157.3
170.3
176.3
227.6
257.8
266.6
Share
price
100.0
114.5
110.2
116.8
147.1
145.9
148.3
187.7
205.6
201.2
100.0
96.6
117.0
113.1
126.3
108.4
149.8
203.6
217.1
245.0
100.0
104.7
108.3
117.2
120.8
125.0
130.2
140.6
208.3
220.8
100.0
103.2
108.4
111.2
113.6
115.1
115.0
116.1
119.5
122.2
280.1
237.5
124.2
196.8
254.5
246.5
242.9
217.0
296.4
10.9%
9.0%
2.2%
7.0%
9.8%
9.4%
9.3%
8.1%
11.5%
20.9%
13.7%
1.5%
6.2%
9.4%
9.0%
8.7%
6.3% 11.7%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Ten year
return
per annum
Five year
return
per annum
1. Excluding special dividends of 1.80p in 2013, 3.50p in 2015, 9.00p in 2016, 5.00p in 2017, 4.00p in 2018 and 7.45p in 2019.
2. Discount to NAV with borrowings at market value.
3. Includes Aviva repurchase of £90,255,000.
4. MSCI ACWI is the MSCI All Countries World Index.
177350 SIT AnRep19 PRINT.indd 24
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The Scottish Investment Trust PLC | Annual Report 2019
25
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26
The Scottish Investment Trust PLC | Annual Report 2019
Responsibility Statement
b) the Strategic Report includes a fair review of the
development and performance of the business
and the position of the Company together with a
description of the principal risks and uncertainties
the Company faces; and
c) the Annual Report and Financial Statements, taken
as a whole, are fair, balanced and understandable
and provide the information necessary for
shareholders to assess the Company’s position,
performance, business model and strategy.
The Responsibility Statement was approved by the
Board and signed on its behalf by:
James Will
Chairman
13 December 2019
The Directors are responsible for preparing the Annual
Report and the Financial Statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare
Financial Statements for each financial year. Under that
law the Directors have elected to prepare the Financial
Statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law),
including FRS 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland”. Under
company law the Directors must not approve the
accounts unless they are satisfied that they give a true
and fair view of the state of affairs of the Company and
of the profit or loss of the Company for that period. In
preparing these Financial Statements, the Directors are
required to:
• select suitable accounting policies and then apply
them consistently;
• make judgments and accounting estimates that are
reasonable and prudent;
• state whether applicable UK Accounting Standards
have been followed, subject to any material
departures disclosed and explained in the Financial
Statements; and
• prepare the Financial Statements on the going
concern basis unless it is inappropriate to presume
that the Company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position
of the Company and enable them to ensure that the
Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding
the assets of the Company and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the Company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of Financial Statements may differ from
legislation in other jurisdictions.
The Board of Directors confirms that to the best of its
knowledge:
a) the Financial Statements, prepared in accordance
with United Kingdom Generally Accepted
Accounting Practice, give a true and fair view of the
assets, liabilities, financial position and return of the
Company;
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The Scottish Investment Trust PLC | Annual Report 2019
27
Corporate Governance Report
Introduction
The Board is committed to implementing high levels
of corporate governance within the Company in
order to safeguard the interests of its shareholders, to
manage the risks that the Company faces and to ensure
the efficient and effective running of the Company.
Sound governance is at the heart of the Board’s efforts
to ensure that the Company continues to meet its
investment objective. The following statement reports
on how the Board, supported by the committees that
it has established, has continued to achieve these aims
over the course of the year.
Statement of compliance
The Board has reviewed the principles set out in the
UK Corporate Governance Code (revised 2018), which
can be found at www.frc.org.uk and the Association of
Investment Companies Code of Corporate Governance
by reference to the AIC Corporate Governance Guide
for Investment Companies (published in February 2019),
both of which can be found at www.theaic.co.uk The
Board has not adopted early the revised UK Corporate
Governance Code published in July 2018, which first
applies to the Company for its financial year commencing
1 November 2019, but has complied with the UK
Corporate Governance Code published in April 2016.
The Board believes that the way the Company is
governed is consistent with the principles of the UK
Corporate Governance Code and that the Company
has complied with its provisions, except that:
there is no senior independent director;
•
the Chairman is a member of the Audit Committee;
•
and
the annual evaluation of the Board has not been
externally facilitated.
•
The Board considers that, as all Directors are
independent and non-executive, there is no
compelling case for appointing a senior independent
director. The Board further considers that the Chairman
is independent in character and judgement and,
therefore, that there is no reason for James Will
not to be a member of the Audit Committee. An
external consultant has been engaged to facilitate the
evaluation of the Board in 2020.
Directors’ independence
A Director’s tenure of office will normally be for up
to nine years, except that the Board may determine
otherwise if it is considered that the continued service
on the Board of an individual Director is in the best
interests of the Company and its shareholders. The
Chairman’s tenure of office will also normally be for
up to nine years, except that the Board may determine
otherwise if it is considered that the continued service
on the Board of a Chairman, who has in addition
served a period of time as a Director, is in the best
interests of the Company and its shareholders. In
such circumstances, the Chairman may serve up to an
aggregate twelve years as an officer of the Company.
The Board believes that each Director is independent
in character and judgement and that there are no
relationships with the Company or its employees which
might compromise this independence.
Board committees
The Board has established three committees: Audit,
Remuneration and Nomination. Each of the committees
has written terms of reference which are reviewed at
least annually and clearly define their responsibilities
and duties. The terms of reference for these
committees are available on the Company’s website
www.thescottish.co.uk
•
•
•
Audit Committee
The Audit Committee comprises the whole Board and
is chaired by Karyn Lamont. It has reviewed the matters
within its terms of reference and reports as follows:
it has approved the Financial Statements for the
•
year to 31 October 2019;
it has reviewed the effectiveness of the Company’s
internal controls and risk management;
it has reviewed the need for a separate internal
audit function;
it has recommended to the Board that a resolution
be proposed at the AGM for the appointment of the
external auditor and it has considered the proposed
terms of their engagement;
it has satisfied itself as to the independence of the
external auditor and agreed that any non-audit
services provided by the auditor must be approved
by the Audit Committee in advance;
it has satisfied itself that the Strategic Report is
consistent with the Financial Statements; and
it has reviewed the Company’s procedures for
handling allegations from whistleblowers.
•
•
•
Further details are set out in the Report of the Audit
Committee on pages 34 and 35.
Independent auditor
The Company conducted an Audit Committee led
tender of its audit services during the year under review
to coincide with the end of the five year rotation cycle
of the current audit partner of Deloitte LLP. The result
of the tender process, described more fully on page
35, was that the Board proposes the appointment of
PricewaterhouseCoopers LLP as auditor for the financial
year ending 31 October 2020. PricewaterhouseCoopers
LLP has expressed its willingness to be appointed
auditor to the Company. The appointment is subject to
shareholder approval at the Annual General Meeting to
be held on 4 February 2020 and resolutions concerning
PricewaterhouseCoopers LLP’s appointment and
remuneration will be submitted to that meeting.
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The Scottish Investment Trust PLC | Annual Report 2019
Corporate Governance Report (continued)
Remuneration Committee
The Board has appointed a Remuneration Committee
to recommend pay and conditions for the Board and
employees. The Committee is chaired by Jane Lewis.
Further details of Directors’ remuneration are included in
the Directors’ Remuneration Report on pages 36 and 37.
The Company aims to provide levels of employee
remuneration which reward responsibility and
achievement and are comparable with other fund
management organisations operating in Scotland.
Remuneration is reviewed annually.
Every employee is entitled to a salary and other
benefits including a contributory pension scheme. In
addition, there is a discretionary performance-related
bonus scheme. For all staff, bonuses payable
depend, inter alia, on individual performance and the
Company’s short and medium term performance in
both absolute and relative terms. Any other metrics that
are considered appropriate may be taken into account.
Nomination Committee
There is a Nomination Committee comprising the
whole Board. The Committee is chaired by James Will.
The Committee meets at least annually to review the
structure, size and composition of the Board.
The Nomination Committee is responsible for
nominating, for the approval of the Board, candidates
to fill Board vacancies as and when they arise. The
Committee will evaluate the skills, experience,
independence, knowledge and diversity of the
Board and, subject to the aforementioned, prepare a
description of the role and capabilities required to fulfil
the appointment.
When Board positions become available as a result of
retirement or resignation, the Committee will ensure
that a diverse group of candidates is considered. In
order to recruit relevant candidates, the identification
of such candidates may be carried out in conjunction
with the Board by an independent firm of consultants.
This was the process followed with respect to the
appointment of Neil Rogan. If such a process is not
used, the Committee will disclose the reasons in the
Corporate Governance Report or the Directors’ Report
in the next Annual Report and Accounts.
The Committee will consider candidates on merit and
against objective criteria having regard to the benefits
of diversity, including gender.
Board and committee meetings
The Board has adopted a schedule of matters reserved
for the Board which includes investment strategy,
accounting and financial controls, dividends and
announcements, capital structure (including share
buybacks), gearing and major contracts.
The Board has appointed the Company’s wholly-owned
subsidiary, S.I.T. Savings Limited, as its Alternative
Investment Fund Manager (AIFM). Day-to-day
management of the Company is delegated to the
Company’s executive management, which reports
directly to the Board.
Prior to each Board meeting, Directors are provided
with a comprehensive set of papers giving detailed
information on the Company’s transactions, financial
position and performance.
On an annual basis the Board normally meet five times,
the Audit Committee three times, the Remuneration
Committee twice and the Nomination Committee at
least once. Attendance at the scheduled and additional
meetings throughout the year is shown in the table below.
Directors’ time commitments
The Company has a policy of ensuring that all non-
executive directors of the Company have sufficient time
to commit to the respective duties and responsibilities
applicable to their particular Board roles.
When making new appointments, the Board takes into
account other demands on potential candidates’ time
and prior to appointment any significant commitments
are disclosed with an indication of the time involved.
In the year under review the Board assessed the time
commitment of each individual Director on external
appointments. Each Director’s aggregate time
commitment is discussed with him or her as part of the
annual appraisal process.
In the year under review, all Directors were considered
to have sufficient time to commit to their respective
roles on the Board, taking account of their external
appointments.
James Will
Russell Napier
Jane Lewis
Mick Brewis
Karyn Lamont
Neil Rogan (appointed 10 September 2019)
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Held Attended
Held Attended
Held Attended
Held Attended
5
5
5
5
5
1
5
5
5
5
5
1
3
3
3
3
3
1
3
3
3
3
3
1
2
2
2
2
2
1
2
2
2
2
2
1
2
2
2
2
2
1
2
2
2
2
2
1
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The Scottish Investment Trust PLC | Annual Report 2019
29
Corporate Governance Report (continued)
If at any time any Director wishes to accept an
additional significant external appointment, the prior
approval of the Board is first required. In considering
whether to grant such approval, the Board will
in particular consider the Director’s other time
commitments and any potential conflicts of interest.
Biographical details for each of the Directors, including
their significant external appointments, can be found on
page 6.
Board and Directors’ performance appraisal
The performance of each Director was assessed and
appraised by the Nomination Committee during
the year. The Chairman’s performance was assessed
and appraised in his absence by the other Directors.
The review and assessment by the Nomination
Committee of each Director’s performance as well
as the performance of the Board as a whole and of
its committees followed completion by each of the
Directors of a written questionnaire. The appraisals and
assessments considered, amongst other criteria, the
balance of skills of the Board, training and development
requirements, the contribution of individual Directors
and the overall effectiveness of the Board and its
committees.
Following this process it was concluded that the
performance of each Director, the Chairman, the Board
and its committees continues to be effective and that
each Director and the Chairman remain committed to
the Company.
Appointment and re-election of Directors
The Company’s policy on the appointment of Directors
is shown on the Company’s website,
www.thescottish.co.uk
New Directors receive an induction from the Company’s
Manager and the Company Secretary on joining the
Board, and all Directors will receive other relevant
training as necessary.
All Directors are appointed for initial three year terms,
renewable every three years, subject to the Company’s
policy for all Directors to stand for re-election annually.
Each of the Directors has made a valuable and effective
contribution to the Company and the Board therefore
recommends that shareholders vote in favour of their
re-election and election in the case of Neil Rogan.
Directors’ letters of appointment will be available for
inspection at the AGM.
The Company’s Articles of Association provide that
any Director or other officer of the Company may be
indemnified out of the assets of the Company against
any liability incurred by him or her as a Director or
other officer of the Company to the extent permitted
by law. The Company entered into deeds of indemnity
in favour of each Director (other than Karyn Lamont
and Neil Rogan) on 26 August 2016 and in favour of
Karyn Lamont and Neil Rogan on their appointments.
The deeds cover any liabilities that may be incurred
by a Director in respect of any act or omission (alleged
or otherwise) in the exercise of his or her powers or in
respect of his or her duties in relation to the Company
(including any liabilities arising from negligence,
default or breach of trust or duty). The Directors are not
indemnified in respect of liabilities to the Company,
any regulatory or criminal fines, any costs incurred in
connection with criminal proceedings in which the
Director is convicted or civil proceedings brought by
the Company in which judgement is given against him/
her. In addition, the indemnity does not apply to any
liability to the extent that it is recovered from another
person (pursuant to the Directors' and officers' liability
insurance policy which is maintained by the Company
or otherwise).
The Board has direct access to the advice and services
of the Company Secretary, who is responsible for
ensuring that Board procedures are followed and
that applicable regulations are complied with. The
Company Secretary is also responsible for ensuring
timely delivery of information and reports to the Board
and for compliance with the Company’s statutory
obligations.
There is a procedure for Directors to seek independent
professional advice at the expense of the Company.
Diversity policy
The Company recognises the need to consider the
diversity of its staff and its Board of Directors. As a
general principle, the Company will show no bias for
age, gender, race, sexual orientation, marital status,
religion, nationality, ethnic or national origins, or
disability in considering the appointment of staff or
Board members and will ensure appointments are
made on the basis of merit against objective criteria.
The structure, size and composition of the Board
of Directors are reviewed at least annually by the
Nomination Committee ensuring an appropriate
balance of skills, experience, independence and
knowledge. In considering new appointments to
the Board, the Committee recognises the benefits
of diversity on the Board, including gender. The
Committee will consider both male and female
candidates and ensure appointments are made on
the basis of merit against objective criteria. As all
appointments will be based on merit and in view of the
small size of the Board, the Board does not consider it
appropriate to set diversity targets.
The Board currently consists of four male and two
female Directors.
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The Scottish Investment Trust PLC | Annual Report 2019
Corporate Governance Report (continued)
Conflicts of interest
The Companies Act 2006 requires that a director of a
company must avoid a situation in which he or she has,
or might have, an interest that conflicts, or may conflict,
with the interests of the company. Each Director submits
a list of potential conflicts prior to each meeting. The
other Board members consider these and recommend
whether or not each potential conflict should be
authorised.
Going concern
The accounts of the Company have been prepared on
a going concern basis. It is the opinion of the Directors
that, as most of the Company’s assets are readily
realisable and exceed its liabilities, it is expected that the
Company will continue in operational existence for the
foreseeable future. The viability statement, under which
the Directors assess the prospects of the Company over
a longer period, is contained on page 16.
Internal controls and risk management
The Directors acknowledge that they are responsible
for the Company’s systems of internal control and
for reviewing their effectiveness on an annual basis.
A process has been implemented for identifying,
evaluating and managing risks faced by the Company.
This process has been in place throughout the year
ended 31 October 2019 and up to the date that the
Financial Statements were approved.
The risk management process and systems of internal
control are designed to manage rather than eliminate
the risk of failure to achieve the Company’s objective.
It should be recognised that such systems can only
provide reasonable, not absolute, assurance against
material mis-statement or loss.
The Board considers the following as the principal risks
and uncertainties faced by the Company:
Principal risks
Mitigation
Strategic
Risks in relation to the level of investor appetite
for the Company, which may decline, resulting in
disinvestments from the Company, pressure on the
discount and declining economies of scale. The
Company needs to remain alert to any challenges from
the external environment, such as potential regulatory
changes which impact the investment trust sector more
widely; global financial markets which impact on the
stability of the banking system; and the uncertainties
around Brexit and Scottish independence.
Investment portfolio and performance
The holding of securities and investing activities
involve certain inherent risks, principally in relation to
market risk.
A contrarian investment approach is a distinctive style
that may deviate from comparator indices and peer
group performance over discrete periods.
Financial
The Company’s normal business activities are exposed
to market risk (including market price risk, foreign
currency risk and interest rate risk), liquidity risk and
credit risk.
The Board has an annual strategy day to focus on the
overall business model and any material changes
required to ensure the ongoing attractiveness
of the Company. This also considers the annual
marketing plan, taking into account advice from
external advisers on key messages as well as the most
impactful communication channels. The Company
has a regular programme of engagement with key
institutional investors and with platform providers in
relation to retail investors. Quarterly board meetings
review developments in the external environment
and specifically in relation to the performance of the
Company and take action as required.
Company performance is monitored at each Board
meeting, including investment performance.
The Manager seeks to maintain a diversified portfolio.
The contrarian investment approach is explained in our
shareholder communications and through meetings
with media and the investor community.
The Company holds a portfolio which is diversified
across industrial and geographical areas. Most assets
are held in listed securities and are therefore readily
realisable. All debenture stocks and secured bonds are
at fixed rates. Only approved counterparties are used
and within agreed limits.
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The Scottish Investment Trust PLC | Annual Report 2019
31
Corporate Governance Report (continued)
Principal risks
Mitigation
Operational
Failure of the Company’s or third party service
providers’ systems could result in a misappropriation
of assets or an inability to report to shareholders. There
could be a possible impact on reputation if any such
events were to occur. The Company is also exposed
to the operational risk that one or more of its service
providers may not provide the required level of service.
The threat of cyber attack has become more prevalent
across all sectors.
Tax, legal and regulatory
The Company is required to comply with a range of
legislation and regulation and may be impacted by
changes in the external environment.
The Company monitors the performance of its service
providers, whether internal (S.I.T Savings Limited is the
Company’s AIFM) or external (custody and depositary,
company secretarial, administration and accounting
services) through regular meetings and review of
available internal control reports.
The Company employs internal and external resource
to ensure compliance with relevant legislation and
regulation and the Board receives periodic reports on
any issues and potential changes.
These and other risks facing the Company, including
Brexit, are reviewed regularly by the Audit Committee
and the Board. As a global investment trust with a
diversified portfolio of international equities, it is
unlikely the Company’s business model or operations
will be adversely impacted as a direct result of Brexit.
Further information on risks is detailed in note 16 to the
accounts on page 61.
Relations with shareholders
The Company recognises the value of good
communication with its shareholders. Management
meets regularly with private client stockbrokers, wealth
managers and the Company’s major institutional
shareholders. The Board receives regular briefings from
the Company’s broker. Annual and Interim Reports and
newsletters are sent to shareholders during the year
and are posted on the Company’s website.
The Annual General Meeting of the Company is the
main forum at which shareholders can ask questions
of the Board and management. All shareholders
are encouraged to attend the AGM and to vote on
the resolutions which are contained in the Notice
of Meeting on page 74 and which is posted to
shareholders at least 21 days prior to the meeting.
Shareholders who cannot attend the AGM are
encouraged to vote by proxy on the resolutions. Proxy
voting figures are given after each resolution has
been voted on and are published after the end of the
meeting.
Any shareholder who wishes to ask a question at
another time should write to the Chairman at 6 Albyn
Place, Edinburgh EH2 4NL.
Corporate governance and stewardship
Management reviews resolutions put to general
meetings of the companies in which the Company
invests and, wherever practicable, will cast its vote,
usually by proxy. In voting on its shareholdings,
the Company will normally support management.
The Company votes against resolutions which are
considered to damage shareholders’ rights or
economic interests.
Alternative Investment Fund Managers (AIFM)
Directive – Leverage
For the purposes of the AIFM Directive, leverage
is any method which increases the Company’s
exposure, including the borrowing of cash and the
use of derivatives. It is expressed as a percentage of
the Company’s exposure to its net asset value and is
calculated on a gross and commitment method.
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 netting 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.
The leverage limits are set by the AIFM and approved
by the Board. The AIFM is also required to comply with
the gearing parameters set by the Board in relation to
borrowings.
The Company’s maximum limits and actual leverage
levels are shown below:
Leverage exposure
Maximum limit (AIFM)
Maximum limit (Board)
Actual at 31 October 2019
Gross
method
Commitment
method
200%
200%
20%
0%
20%
12%
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The Scottish Investment Trust PLC | Annual Report 2019
Corporate Governance Report (continued)
The Strategic Report on pages 14 to 17 includes
information relating to: Future Developments, Dividends,
Share capital and Discount control policy (including share
buybacks).
There have been no significant post-balance sheet events.
The Corporate Governance Report was approved by the
Board and signed on its behalf by:
Maitland Administration Services (Scotland) Limited
Company Secretary
13 December 2019
Annual General Meeting
The Company’s 132nd AGM will be held at The Royal
College of Physicians of Edinburgh, 11 Queen Street,
Edinburgh, EH2 1JQ on Tuesday 4 February 2020 at
10.30am.
The Board considers that the resolutions to be proposed
at the AGM are all in the best interests of the Company
and of the shareholders as a whole and recommends that
shareholders vote in favour of them.
Resolutions 1 to 10 are self-explanatory.
Resolution 11 - Renewal of authority to purchase shares
This resolution, set out in the Notice of AGM on page 74,
seeks to renew the authority to purchase shares until 4
May 2021. The principal reasons for such purchases are
to enhance the NAV of the shares by purchasing shares
for cancellation at prices which, after allowing for costs,
improve the NAV for remaining shareholders and to allow
implementation of the Company’s discount control policy.
The maximum number of shares which may be purchased
pursuant to this authority shall be 11,069,141 or, if less,
14.99% of the aggregate issued capital of the Company
on the date of passing of the resolution.
Under the Listing Rules of the UK Listing Authority, the
maximum price that may be paid on the exercise of the
authority must not exceed the higher of (i) 105% of the
average market value of a share for the five business
days immediately preceding the date of purchase and
(ii) the higher price of the last independent trade and the
highest current independent bid. The minimum price
which may be paid is 25p per share.
Resolution 11 will be proposed as a special resolution
that requires to be passed by a three-quarters majority of
votes cast at the AGM.
Carbon emissions
The Company’s carbon emissions result predominantly
from its consumption of electricity at its single office.
Using Defra/DECC’s GHG conversion factors for company
reporting 2015, emissions for the year to October 2019
were 25.0 tonnes of CO2e (2018: 27.7 tonnes CO2e). This
equates to 0.07 tonnes of CO2e (2018: 0.08 tonnes of
CO2e) per square metre.
The Directors’ Report on pages 26 to 37, which includes
the Responsibility Statement, the Corporate Governance
Report, the Report of the Audit Committee and the
Directors’ Remuneration Report, and the Going concern
statement on page 30, have been approved by the Board.
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The Scottish Investment Trust PLC | Annual Report 2019
33
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34
The Scottish Investment Trust PLC | Annual Report 2019
Report of the Audit Committee
The Audit Committee has written terms of reference
which are shown on the Company’s website. Its duties
include risk assessment; reviewing internal controls,
the Company’s accounting policies and Financial
Statements prior to their release; and the Company’s
procedures on whistleblowing. The Committee is
also responsible for all aspects of the Company’s
relationship with its external auditor including:
• reviewing the scope and effectiveness of the annual
audit, including the independence and objectivity
of the external auditor;
•
•
the appointment, remuneration and terms of
engagement of the external auditor; and
the level of non-audit work, if any, carried out by the
external auditor.
Annual Report
The Audit Committee reviews the Annual Report
and Accounts to ensure it is fair, balanced and
understandable.
The Committee also reviews the Interim Report.
Internal controls
The Company does not have an internal audit function
as the Audit Committee believes that the Company’s
straightforward structure and small number of
employees do not warrant such a function. This is
reviewed by the Committee annually.
The Committee is responsible for ensuring that
the Company has in place an effective system of
internal controls designed to maintain the integrity of
accounting records and to safeguard the Company’s
assets. The Committee has applied the UK Corporate
Governance Code by establishing a continuous
process for identifying, evaluating and managing the
significant risks the Company faces.
In compliance with the UK Corporate Governance
Code, the Committee reviews the effectiveness of the
Company’s system of internal controls at six-monthly
intervals.
The Committee’s monitoring covers all controls,
including financial, operational and compliance
controls and risk management. It is based principally
on reviewing reports from management and
considering whether significant risks are identified,
evaluated, managed and controlled, and whether
any significant weaknesses are promptly remedied
or require more extensive monitoring. During the
course of its review of the system of internal controls,
the Committee has not identified, nor been advised
of, any material failings or weaknesses. Therefore a
confirmation in respect of necessary actions has not
been considered appropriate.
The Committee and management also monitor
the controls and risk management of Maitland and
Northern Trust. Maitland provide company secretarial,
administration and accounting services to the
Company and Northern Trust provide custody and
depositary services.
The Committee recognises that such systems can only
provide reasonable, but not guaranteed, assurance
against material misstatement or loss.
Significant issues
The Committee considers the risks that may have
an impact on the Company’s Financial Statements.
The Committee asked the Company’s auditor to pay
particular attention to the valuation and ownership
of investments and recognition of income. The
Committee reviewed and challenged the results of the
audit with the external auditors noting there were no
disagreements.
The valuation and ownership of the Company’s
investments are risks. Investments are valued in
accordance with the accounting policy on page 51.
The prices of all investments are agreed by Maitland
with an independent source and the ownership of
each investment agreed through confirmation received
from the Company’s independent global custodian,
Northern Trust.
The incomplete or inaccurate recognition of income
in the Financial Statements are also risks. Internal
control systems are in place to ensure income is fully
accounted for. The Board is provided with information
on the Company’s income account at each meeting.
Auditor
Assessment
To fulfill its responsibility regarding the independence
and objectivity of the external auditor, the Committee
reviewed the external auditor’s audit plan, which
includes a description of their arrangements to
manage independence, and a report from the external
auditor on the conclusion of the audit, setting out why
they remain independent and the extent of any non-
audit services provided.
The fees for audit and non-audit services were
£33,075 (2018: £31,500) and £5,945 (2018:
£16,200), respectively. Non-audit services include:
tax compliance £nil (2018: £10,500) and assurance
services £5,945 (2018: £5,700).
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35
Report of the Audit Committee (continued)
All costs for non-audit services are considered to be
appropriate relative to fees paid for audit services. An
engagement letter is issued for all non-audit work and
subsequently reviewed by the Audit Committee to
ensure that the independence and objectivity of the
auditor is not compromised by the provision of non-
audit services.
The Company has complied with the provisions of the
Statutory Audit Services for Larger Companies Market
Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilites) Order
2014.
To assess the effectiveness of the external auditor
and the audit process, the Committee reviewed and
considered the audit plan and the audit findings
report on conclusion of its work as well as the Audit
Committee chair meeting with Deloitte LLP during
the year. The external auditor attended the Audit
Committee meeting in December to present the results
of its audit work. Feedback on the performance of
the audit team was obtained from management and
Maitland and the Committee also considered the Audit
Quality Inspection Report on Deloitte LLP issued by the
FRC in July 2019.
Deloitte LLP was first appointed external auditor to the
Company in 2002. The audit partner responsible for the
audit is rotated at least every five years in accordance
with professional and regulatory standards in order
to protect independence and objectivity. The current
audit partner is in the fifth (and final) year of his rotation
cycle with the Company. Deloitte LLP has confirmed
that they believe they are independent within the
meaning of professional and regulatory requirements
and that the objectivity of the audit partner and staff
is not impaired. Having carried out the assessment
described above, the Committee is satisfied that the
external auditor remains independent and effective for
the purpose of this year’s audit.
Audit tender
As noted on page 27, the Committee conducted a
tender of the Company’s audit services during the year
under review to coincide with the end of the five year
rotation cycle of the current audit partner of Deloitte
LLP. Invitations to tender were issued to four audit firms,
resulting in three comprehensive proposals being
submitted and one firm deciding that they were unable
to participate in the process. Three firms were then
invited to make presentations to the Audit Committee
in more detail. In evaluating the firms, the primary
focus was on audit quality, with consideration of the
proposed audit approach and service delivery as well
as the results of external regulatory inspections of the
three firms. Other factors considered were the quality
and experience of the proposed audit team members
as well as the audit firms’ knowledge and experience in
the investment trust sector. Following a robust review
process where each firm was subject to an appropriate
level of challenge, the Board proposes a resolution
at the Annual General Meeting seeking shareholder
approval to appoint PricewaterhouseCoopers LLP as
the Company’s auditor for the financial year ending
31 October 2020. The Committee is satisfied that
PricewaterhouseCoopers LLP is independent and that
sufficient controls are in place to deal with any conflict
of interest, should it arise.
The Board extends it appreciation to Deloitte LLP for
its services as auditor and confirms that there are no
matters in connection with Deloitte LLP ceasing to
hold office as auditor following the 2019 audit which
need to be brought to the attention of shareholders.
A statutory statement from Deloitte LLP confirming
the reasons connected with it ceasing to hold office as
auditor is included as a letter to shareholders.
Appointment of auditor
A resolution to appoint PricewaterhouseCoopers
LLP as the Company’s auditor, and to authorise the
Directors to fix its remuneration, will be proposed at
the forthcoming Annual General Meeting.
Disclosure of information to auditor
It is the Company’s policy to allow the auditor unlimited
access to its records. The Directors confirm that, so
far as each of them is aware, there is no relevant audit
information of which the Company’s auditor is unaware
and they have taken all the steps which they should
have taken as Directors in order to make themselves
aware of any relevant audit 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.
The Report of the Audit Committee was approved by
the Board and signed on its behalf by:
Karyn Lamont
Chair of the Audit Committee
13 December 2019
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36
The Scottish Investment Trust PLC | Annual Report 2019
Directors’ Remuneration Report
This report has been prepared in accordance with
the requirements of section 421 of the Companies
Act 2006 incorporating The Large and Medium-
Sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 and the
Directors’ Remuneration Report Regulations 2002. An
ordinary resolution for the approval of the Directors’
Remuneration Report will be put to shareholders at the
AGM on 4 February 2020.
Remuneration Committee
The Company has a Remuneration Committee, the
terms of reference of which include setting the fees of
the Directors. The full terms of reference are posted on
the Company’s website. The Committee is chaired by
Jane Lewis and the other members are Mick Brewis,
Russell Napier, James Will, Karyn Lamont and Neil
Rogan.
Policy on Directors’ fees
On 31 October 2019, the Board consisted of six
Directors, all of whom are non-executive. Directors’
fees are set by the Remuneration Committee with a
view to attracting and retaining individuals, taking into
account the skills and experience necessary for the
effective stewarding of the Company and the expected
contribution of the Board as a whole in continuing to
achieve the Company’s investment objective. It aims to
be fair and reasonable in relation to similar investment
trusts and other similar sized financial companies.
Fees recommended by the Remuneration Committee
are subject to approval by the Board. The Company’s
Articles of Association provide for a maximum level of
total remuneration of £300,000 in aggregate payable
to Directors in any financial year.
The policy on Directors’ fees was approved at the AGM
held in February 2018 and this policy applied for the
period up to 31 October 2019. This approval is valid for
three years and it is therefore intended that this policy
will apply for the period to 31 October 2020. Any views
expressed by shareholders on Directors’ fees are taken
into consideration by the Board when reviewing the
policy.
The Board may amend the level of remuneration paid
to Directors within the parameters of the Directors’
remuneration policy.
Directors are remunerated exclusively by fixed fees in
cash and do not receive bonuses, share options, long-
term incentives, pension or other benefits. Directors do
not receive exit payments and are not provided with
any compensation for loss of office.
Proposed fees for
the year to
31 October 2020
£
Actual fees for
the year to
31 October 2019
£
Chairman
Audit Committee Chair
Non-executive Director
60,000
37,500
32,500
60,000
37,500
32,500
Annual statement
The level of Directors' fees was unchanged during the
financial year.
Directors’ emoluments (audited)
Year to
31 October
2019
£
Year to
31 October
2018
£
60,000
60,000
—
32,500
32,500
32,500
37,500
4,578
8,375
32,500
32,500
32,500
37,500
–
199,578
203,375
James Will 1
Hamish Buchan (retired
2 February 2018)
Russell Napier
Jane Lewis
Mick Brewis
Karyn Lamont 2
Neil Rogan (appointed
10 September 2019)
1 Chairman
2 Audit Committee Chair
As all the Directors are non-executive and their fees are
payable quarterly with no performance-based element,
there is no correlation between the Directors’ fees and
the employees’ remuneration. The Company is of the
view, therefore, that it is not necessary to consult with
employees when drawing up the Remuneration Report.
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The Scottish Investment Trust PLC | Annual Report 2019
37
Directors’ Remuneration Report (continued)
Service contracts
The Directors do not have service contracts. All
Directors retire and seek re-election annually.
Directors’ interests
The interests of the Directors and their families in the
Company’s capital are as follows:
James Will
Russell Napier
Jane Lewis
Mick Brewis
Karyn Lamont
Neil Rogan
Shares of 25p
31 October 2019
31 October 2018
10,000*
14,000
1,000
10,000
2,500
6,000
8,000
14,000
1,000
10,000
2,500
–
*On 3 May 2019, 2,000 shares were transferred to
Mr Will for nil consideration following the conclusion
of matters in relation to an Executry and Trust in which
Mr Will was involved. As a result, Mr Will’s shareholding
increased from 8,000 to 10,000 shares.
There were no changes in the Directors’ interests
between 31 October and 13 December 2019.
Company performance
The graph below shows the Company’s share price
total return compared to the notional total return of the
MSCI UK All Cap Index (assuming all dividends were
reinvested for both the Company and the Index) over a
10 year period.
275
250
225
200
175
150
125
100
275
250
225
200
175
150
125
100
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
SIT – Share Price (Total Return)
MSCI UK All Cap Index (Total Return)
This index has been chosen as it is a common
performance comparator for companies such as The
Scottish Investment Trust PLC.
Relative importance of Directors’ fees
Directors’ fees
Expenses
Staff costs
Dividends paid and
proposed
2019
£’000
200
4,133
2,106
2018
£’000
203
3,254
1,690
22,573
19,544
Directors’ fees as a percentage of:
Expenses
Staff costs
Dividends paid and proposed
2019
%
4.8
9.5
0.9
%
Change
-1.5
+27.0
+24.6
+15.5
2018
%
6.2
12.0
1.0
Excluding discretionary performance-related bonuses,
pension liability adjustments and the refund of
previously paid expenses, expenses decreased by 0.9%
and staff costs increased by 2.6%.
Further details of the Company’s expenses and staff
costs can be found in notes 2 and 3, respectively,
on page 53 and of dividends paid and proposed on
page 47.
The voting to approve the Directors’ remuneration
policy at the Company’s AGM held on 2 February 2018
was as follows:
Votes cast
For
%
For
Votes cast
Against
%
Against
Votes
Withheld
17,941,084 98.7
98,586
0.5
67,395
Approve Directors’
remuneration
policy
The voting to approve the Directors’ Remuneration
Report at the Company’s AGM held on 7 February 2019
was as follows:
Votes cast
For
Votes cast
Against
%
For
%
Against
Votes
Withheld
22,090,201
96.8
549,988
2.4 639,821
Approve Directors’
Remuneration
Report
The Directors’ Remuneration Report was approved by
the Board and signed on its behalf by:
Jane Lewis
Chair of the Remuneration Committee
13 December 2019
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The Scottish Investment Trust PLC | Annual Report 2019
Independent Auditor’s Report
Opinion
In our opinion the Financial Statements:
• give a true and fair view of the state of the Company’s affairs as at 31 October 2019 and of its return for the year
then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic
of Ireland” and the Statement of Recommended Practice issued by the Association of Investment Companies
“Financial Statements of Investment Trust Companies and Venture Capital Trusts”; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of The Scottish Investment Trust PLC (the ‘Company’) which comprise:
•
•
•
•
•
•
•
the Income Statement;
the Statement of Comprehensive Income;
the Balance Sheet;
the Statement of Changes in Equity;
the Cash Flow Statement;
the Statement of Accounting Policies; and
the related notes 1 to 18.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom
Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in
the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).
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 responsibilities 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 statements 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 the non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
Materiality
Scoping
The key audit matters that we identified in the current year were:
• Valuation and existence of listed investments
• Recognition of investment income
Within this report, any new key audit matters are identified with and any key audit
matters which are the same as the prior year identified with .
The materiality that we used in the current year was £6.7m which was determined on the
basis of 1% of net assets at 31 October 2019.
Our audit was scoped by obtaining an understanding of the entity 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.
Significant changes
in our approach
There were no significant changes in our approach from the prior year.
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The Scottish Investment Trust PLC | Annual Report 2019
39
Independent Auditor’s Report (continued)
Conclusions relating to principal risks, going concern and viability statement
Going concern
We have reviewed the Directors’ statement on page 30 to the financial statements about whether
they considered it appropriate to adopt the going concern basis of accounting in preparing them
and their identification of any material uncertainties to the Company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements.
We considered as part of our risk assessment the nature of the Company, its business model and
related risks including where relevant the impact of Brexit, the requirements of the applicable
financial reporting framework and the system of internal control. We evaluated the Directors’
assessment of the Company’s ability to continue as a going concern, including challenging the
underlying data and key assumptions used to make the assessment, and evaluated the Directors’
plans for future actions in relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation
to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially
inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained
in the evaluation of the Directors’ assessment of the Company’s ability to continue as a going
concern, we are required to state whether we have anything material to add or draw attention to
in relation to:
•
the disclosures on pages 30 and 31 that describe the principal risks and explain how they are
being managed or mitigated;
the Directors' confirmation on page 30 that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its business model,
future performance, solvency or liquidity; or
the Directors’ explanation on page 16 as to how they have assessed the prospects of the
Company, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
•
•
We confirm
that we have
nothing
material to
add or draw
attention to
in respect of
these matters.
We confirm
that we have
nothing
material to
report, add or
draw attention
to in respect of
these matters.
We are also required to report whether the Directors’ statement relating to the prospects of
the Company required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
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 material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect 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 thereon, and we do not provide a separate opinion on these matters.
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The Scottish Investment Trust PLC | Annual Report 2019
Independent Auditor’s Report (continued)
Valuation and existence of listed investments
Key audit
matter
description
Listed investments of £686m (2018: £716m) represent the most significant number on the balance
sheet and is the main driver of the Company’s performance. Listed investments represented 90%
(2018: 88%) of total assets of the Company at 31 October 2019 (see accounting policy (b) and note 8).
There is a risk that the prices quoted in respect of the listed investments held by the Company may
not be reflective of fair value. There is a risk over the recording and custody of listed investments,
and whether listed investments recorded are the property of the Company. We have also identified
valuation of listed investments as a potential fraud risk as incorrect investment prices could result in a
material misstatement of the net asset value of the Company.
The description of the key audit matter above should be read in conjunction with the significant
issues considered by the Audit Committee discussed on page 34.
Valuation and existence of listed investments
How the scope
of our audit
responded to the
key audit matter
We have performed the following procedures to address this key audit matter:
• obtained an understanding of the relevant controls in place and evaluated whether
the design and implementation of controls over the valuation and ownership of listed
investments was appropriate;
• agreed 100% of the bid prices of quoted investments on the investment ledger at year-
end to closing bid prices published by an independent pricing source; and
• agreed 100% of the company’s investment portfolio at the year-end to confirmations
received directly from the depositary.
Key observations Based on the audit procedures performed, we concluded that the valuation and existence of
listed investments are appropriate.
Recognition of investment income
Key audit matter
description
How the scope
of our audit
responded to
the key audit
matter
Dividend income of £27.9m (2018: £25.4m) represented 97% (2018: 98%) of the total income
of the Company (see accounting policies (d) and note 1).
Dividends from equity shares are accounted for on an ex-dividend basis. Overseas dividends
are accounted for on an ex-dividend basis and included gross of withholding tax.
There is a risk that investment income is incomplete and consequently revenue recognised in
the financial statements is misstated.
The description of the key audit matter above should be read in conjunction with the
significant issues considered by the Audit Committee as discussed on page 34.
We have performed the following procedures to address this key audit matter:
• obtained an understanding of the relevant controls in place to evaluate whether the design
and implementation of the controls over investment income are appropriate, including
management’s monitoring of the accuracy and completeness of revenue;
for a sample of listed investments held, agreed the ex-dividend dates and rates for
dividends declared during the year and agreed the amounts recorded within the general
ledger to confirm that the recognition policy has been applied consistently; and
•
• agreed a sample of dividend income receipts to bank statements.
Key observations Based on the audit procedures performed, we concluded that recognition of investment
income is appropriate.
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The Scottish Investment Trust PLC | Annual Report 2019
41
Independent Auditor’s Report (continued)
Our application of 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
£6.7m (2018: £7.1m)
Basis for
determining
materiality
1% (2018: 1%) of net assets
Rationale for the
benchmark applied
Net assets has been chosen as a benchmark as it is considered the most relevant benchmark
for investors and is the key driver of shareholder value.
Net assets £676m
Materiality £6.7m
Net assets
Materiality
Audit Committee
reporting threshold
£135k
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of
£135k (2018: £143k), as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control,
and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatements was
performed directly by the audit engagement team.
As part of our risk assessment, we assessed the control environment in place at the administrator to the extent
relevant to our audit.
Other information
The Directors are responsible for the other information. The other information
comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon.
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.
In connection with our audit of the financial statements, 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
audit or otherwise appears to be materially misstated.
We have nothing to report
in respect of these matters.
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The Scottish Investment Trust PLC | Annual Report 2019
Independent Auditor’s Report (continued)
Other information
If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as
uncorrected material misstatements of the other information include where we
conclude that:
• Fair, balanced and understandable – the statement given by the Directors that
they consider the annual report and financial statements taken as a whole is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company’s position and performance, business model
and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting – the section describing the work of the Audit
Committee does not appropriately address matters communicated by us to the
Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the
parts of the Directors’ statement required under the Listing Rules relating to the
Company’s compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a departure from a relevant provision of the
UK Corporate Governance Code.
Responsibilities of Directors
As explained more fully in the Directors’ Responsibility Statement, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the Directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue
as a going concern disclosing, as applicable, matters related to going concern and using 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.
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 assurance, but is not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement when it exists. 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud, are set
out below.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
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The Scottish Investment Trust PLC | Annual Report 2019
43
Independent Auditor’s Report (continued)
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is
sufficient and appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-
compliance with laws and regulations, our procedures included the following:
• enquiring of management, the administrator and the Audit Committee, including obtaining and reviewing
supporting documentation, concerning the Company’s policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and whether they were aware of any
instances of non-compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or
alleged fraud;
o the internal controls established to mitigate risks related to fraud or non-compliance with laws and
regulations;
• discussing among the engagement team how and where fraud might occur in the financial statements and any
potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following area:
Valuation of investments, as an incorrect investment price could result in a material misstatement in the net asset
value of the Company; and
• obtaining an understanding of the legal and regulatory framework that the Company operates in, focusing on
those laws and regulations that had a direct effect on the financial statements or that had a fundamental effect
on the operations of the Company. The key laws and regulations we considered in this context included the
UK Companies Act and Listing Rules, as well as the company qualification as an Investment Trust under UK tax
legislation.
Audit response to risks identified
As a result of performing the above, we identified valuation of listed investments as a key audit matter. The key
audit matters section of our report explains the matter 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:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance
with relevant laws and regulations discussed above;
• enquiring of management, the administrator and the Audit Committee concerning actual and potential litigation
and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of
material misstatement due to fraud;
• reading minutes of meetings of those charged with governance and reviewing correspondence with HMRC; and
•
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 accounting estimates are
indicative of a potential bias; and evaluating the business rationale of any significant transactions that 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.
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The Scottish Investment Trust PLC | Annual Report 2019
Independent Auditor’s Report (continued)
Report on other legal and regulatory requirements
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:
•
•
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
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 its environment obtained in the course of the
audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
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
We have nothing to report
in respect of these matters.
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.
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 matters.
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The Scottish Investment Trust PLC | Annual Report 2019
45
Independent Auditor’s Report (continued)
Other matters
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on 1 August
2002 to audit the financial statements for the year ending 31 October 2002 and subsequent financial periods. The
period of total uninterrupted engagement including previous renewals and reappointments of the firm is 18 years,
covering the years ending 31 October 2002 to 31 October 2019.
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).
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.
Andrew Partridge CA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Edinburgh, United Kingdom
13 December 2019
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46
The Scottish Investment Trust PLC | Annual Report 2019
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The Scottish Investment Trust PLC | Annual Report 2019
47
Income Statement
Income Statement
For the year to 31 October 2019
Notes
Revenue
£’000
2019
Capital
£’000
Total
£’000
Revenue
£’000
Net losses on investments held at fair
value through profit and loss
Net (losses)/gains on currencies
Income
Expenses
Net Return before
Finance Costs and Taxation
Interest payable
Return on Ordinary
Activities before Tax
8
1
2
5
2018
Capital
£’000
Total
£’000
(14,566)
(14,566)
819
819
–
–
(8,651)
(8,651)
(1,175)
(1,175)
–
–
28,859
–
28,859
25,854
–
25,854
(2,625)
(1,508)
(4,133)
(2,045)
(1,209)
(3,254)†
26,234
(11,334)
14,900
23,809
(14,956)
8,853
(1,732)
(3,217)
(4,949)
(1,732)
(3,217)
(4,949)
24,502
(14,551)
9,951
22,077
(18,173)
3,904
Tax on ordinary activities
6
(1,929)
–
(1,929)
(1,697)
–
(1,697)
Return attributable to Shareholders
22,573
(14,551)
8,022
20,380 (18,173)
2,207
Return per share (basic and fully diluted)
29.75p (19.18)p
10.57p
26.02p (23.20)p
2.82p
Weighted average number of
shares in issue during the year
75,862,506
78,338,201
Dividends paid and proposed
First interim 2019: 5.30p (2018: 5.00p)
Second interim 2019: 5.30p (2018: 5.00p)
Third interim 2019: 5.30p (2018: 5.00p)
Final 2019: 6.90p (2018: 6.20p)
Special 2019: 7.45p (2018: 4.00p)
Notes
7
2019
£’000
4,055
3,996
3,918
5,099
5,505
Total 2019: 30.25p (2018: 25.20p)
22,573
† Includes a refund of previously paid expenses.
2018
£’000
3,931
3,906
3,880
4,758
3,069
19,544
All revenue and capital items in the above statement derive from continuing operations.
The total column of this statement is the profit and loss account of the Company.
The accompanying notes are an integral part of this statement.
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48
The Scottish Investment Trust PLC | Annual Report 2019
Balance Sheet
As at 31 October 2019
Fixed Assets
Investments
Current Assets
Debtors
Cash and cash equivalents
Creditors: liabilities falling due within one year
Net Current Assets
Total Assets less Current Liabilities
Creditors: liabilities falling due after more than one year
Long-term borrowings at amortised cost
Provisions for Liabilities
Pension liability
Net Assets
Capital and Reserves
Called-up share capital
Share premium account
Other reserves:
Capital redemption reserve
Capital reserve
Revenue reserve
Shareholders’ Funds
2019
2018
Notes
£’000
£’000
£’000
£’000
8
10
8
11
12
4
13
14
14
14
14
687,820
717,547
2,459
72,378
74,837
(664)
12,733
83,236
95,969
(13,038)
74,173
761,993
82,931
800,478
(83,921)
(83,829)
(1,279)
676,793
18,474
39,922
52,387
513,930
52,080
676,793
(1,337)
715,312
19,296
39,922
51,565
555,308
49,221
715,312
Net Asset Value per share with borrowings at amortised
cost (basic and fully diluted)
915.9p
926.8p
Number of shares in issue at year end
73,893,508
77,184,578
The Financial Statements on pages 47 to 66 were approved by the Board of Directors and were signed on its behalf by:
James Will
Chairman
13 December 2019
The accompanying notes are an integral part of this statement.
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The Scottish Investment Trust PLC | Annual Report 2019
49
Statement of Comprehensive
Income
For the year to 31 October 2019
Return attributable to shareholders
Actuarial gains /(losses) relating to pension
scheme
Notes
Revenue
£’000
22,573
2019
Capital
£’000
(14,551)
Total
£’000
8,022
Revenue
£’000
20,380
2018
Capital
£’000
(18,173)
Total
£’000
2,207
4
82
151
233
(216)
(400)
(616)
Total comprehensive income for the year
22,655
(14,400)
8,255
20,164
(18,573)
1,591
Total comprehensive income per share
29.86p
(18.98)p
10.88p
25.74p
(23.71)p
2.03p
Statement of Changes in Equity
For the year to 31 October 2019
Opening balance
Total comprehensive income
Dividends
Share buybacks
Closing balance
Notes
7
The accompanying notes are an integral part of this statement.
2019
£’000
715,312
8,255
(19,796)
(26,978)
676,793
2018
£’000
760,371
1,591
(27,047)
(19,603)
715,312
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The Scottish Investment Trust PLC | Annual Report 2019
Cash Flow Statement
For the year to 31 October 2019
Operating activities
Net revenue before finance costs and taxation
Expenses charged to capital
Increase in accrued income
(Decrease)/increase in other payables
(Increase)/decrease in other receivables
Adjustment for pension funding
Tax on investment income
2019
£’000
2018
£’000
26,234
(1,508)
(91)
(135)
(80)
175
(1,929)
23,809
(1,209)
(72)
264
9
(370)
(1,809)
Cash flows from operating activities
22,666
20,622
Investing activites
Purchases of investments
Disposals of investments
Cash flows from investing activities
Cash flows before financing activities
Financing activities
Dividends paid
Share buybacks
Interest paid
(176,213)
(105,183)
196,088
175,216
19,875
70,033
42,541
90,655
(19,800)
(28,742)
(4,857)
(27,047)
(18,451)
(4,857)
Cash flows used in financing activities
(53,399)
(50,355)
Net movement in cash and cash equivalents
(10,858)
40,300
Cash and cash equivalents at the beginning of year
83,236
42,936
Cash and cash equivalents at the end of year*
72,378
83,236
*Cash and cash equivalents represent cash at bank and short-term money market deposits repayable on demand.
The accompanying notes are an integral part of this statement.
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The Scottish Investment Trust PLC | Annual Report 2019
51
Accounting Policies
A summary of the principal accounting policies is set out
in paragraphs (a) to (j) below. All have been applied
consistently throughout the current and the preceding
year.
Interest and other income from non-equity securities,
including debt securities, are recognised on a time
apportionment basis so as to reflect the effective yield
on the securities.
(a) Basis of accounting
The Financial Statements have been prepared in
accordance with Financial Reporting Standard 102 and
with the AIC ’s Statement of Recommended Practice
“Financial Statements of Investment Trust Companies
and Venture Capital Trusts” (SORP). They are also
prepared on a going concern basis (see page 30) under
the historical cost convention, modified to include the
revaluation of investments at fair value. The functional
and presentation currency is pounds sterling, which is
the currency of the environment in which the Company
operates.
(b) Valuation of investments
Listed investments and current asset investments are
valued at fair value through profit and loss. Fair value
is the closing bid or last traded price according to
the recognised convention of the markets on which
they are quoted. Where trading in the securities of
an investee company is suspended, the investment
is valued at the Board’s estimate of its net realisable
value.
Where appropriate, the Directors have adopted the
guidelines issued by the International Private Equity
and Venture Capital Association for the valuation of
unlisted investments. Heritable property is included at
a professional valuation. Depreciation is not charged
on heritable property as it is not material.
Realised surpluses or deficits on the disposal of
investments, permanent impairments in the value of
investments and unrealised surpluses and deficits on
the revaluation of investments are taken to capital
reserve as explained in note (i) below.
Year end exchange rates are used to translate the
value of investments which are denominated in foreign
currencies.
(c) Valuation of debt
The Company’s secured bonds and debentures are held
at amortised cost being the nominal value of the bonds
in issue less the unamortised costs of issue.
(d) Income
Dividends receivable on quoted shares are brought into
account on the ex-dividend date. Dividends receivable
on shares where no ex-dividend date is quoted are
brought into account when the Company’s right to
receive payment is established.
Where the Company elects to receive dividends in the
form of additional shares (scrip dividends) rather than in
cash, the amount of the cash dividend is recognised as
income. Any excess in the value of the shares received
over the amount of the cash is recognised in capital
reserves.
(e) Expenses
All expenses are accounted for on an accruals basis.
Eligible expenses are allocated 65% to capital and 35%
to revenue in line with the Directors’ expectations of the
long-term future returns from the Company’s
investments. Expenses not eligible to be charged to
capital are wholly charged to revenue.
Expenses which are incidental to the acquisition or
disposal of an investment are treated as part of the cost,
or deducted from the sales proceeds, of the investment.
(f) Finance costs
Interest payable is charged 65% to capital and 35% to
revenue in line with the Directors’ expectations of the
long-term future returns from the Company’s
investments.
The discount on, and expenses of issue of, the secured
bonds due 2030 are included in the financing costs of
the issue which are being written off over the life of the
bonds.
(g) Taxation
Current tax is provided at amounts expected to be paid
(or recovered).
Deferred tax is provided in full on timing differences
which result in an obligation at the balance sheet date to
pay more tax, or a right to pay less tax, at a future date.
Timing differences arise from the inclusion of items of
income and expenditure in taxation computations in
periods different from those in which they are included
in the Financial Statements. Deferred tax assets are
recognised to the extent that it is regarded as more
likely than not that they will be recovered. Deferred tax
assets and liabilities are not discounted. The Company
has no deferred tax asset or liability.
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The Scottish Investment Trust PLC | Annual Report 2019
Accounting Policies (continued)
(h) Foreign currency
Transactions denominated in foreign currencies are
recorded in the local currency at actual exchange rates
at the date of the transaction. Assets and liabilities
denominated in foreign currencies at the year end are
reported at the rates of exchange prevailing at the year
end. Any gain or loss arising from a change in exchange
rates subsequent to the date of the transaction is
included as an exchange gain or loss in capital reserve
or in the revenue account depending on whether the
gain or loss is of a capital or revenue nature.
(i) Reserves
(i) Share Premium Account – the surplus of net
proceeds received from the issue of new ordinary
shares over the nominal value of such shares is
credited to this account. The nominal value of the
shares issued is recognised in share capital. This
reserve is non-distributable.
(ii) Capital Redemption Reserve – the nominal value of
the ordinary shares bought back for cancellation was
added to this reserve. This reserve is non-
distributable.
(iii) Capital Reserve – this is a distributable reserve and
the following are accounted for in this reserve:
• gains and losses on the realisation of
•
•
•
investments;
realised and unrealised exchange differences of
a capital nature;
realised and unrealised gains and losses on
transactions undertaken to hedge an exposure
of a capital nature;
the funding of share and secured bond
buybacks;
(j) Pensions
Employer contributions for the defined benefit scheme
are calculated by reference to the triennial actuarial
valuation. Employer contributions for the defined
contribution scheme are a predetermined percentage
of the employee’s salary.
Actuarial gains and losses are recognised in the
Statement of Comprehensive Income.
Further information on the Company’s pension scheme
is contained in note 4 to the Financial Statements on
pages 54 to 56.
Critical accounting estimates and judgements
The preparation of the Financial Statements necessarily
requires the exercise of judgement, both in application
of accounting policies, which are set out above, and
in the selection of assumptions used in the calculation
of estimates. These estimates and judgements are
reviewed on an ongoing basis and are continually
evaluated based on historical experience and other
factors. However, actual results may differ from these
estimates.
The Directors do not believe any accounting
judgements or estimates have been applied to this set
of Financial Statements that have a significant risk of
causing a material adjustment to the carrying amount
of assets and liabilities within the next financial year.
• expenses and interest charged to capital;
•
increases and decreases in the valuation of
investments held at the year end; and
increases and decreases in the valuation of the
pension fund surplus or deficit.
•
(iv) Revenue Reserve – the net profit/loss arising in the
revenue column of the Statement of Comprehensive
Income is added to this reserve. Dividends paid
during the year may be deducted from this reserve.
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The Scottish Investment Trust PLC | Annual Report 2019
53
Notes to the Financial Statements
For the year to 31 October 2019
1. Income
UK dividends including special dividends of £780,000 (2018: £nil)
Overseas dividends including special dividends of £174,000 (2018: £nil)
Deposit interest
2. Expenses
Staff costs (note 3)
Auditor’s remuneration for audit services
Auditor’s remuneration for tax compliance services
Auditor’s remuneration for other assurance services
Investment and accounting services
Professional fees, marketing and scheme administration
Company secretarial and administration fee
Office expenses
Depositary, custody and bank charges
Refund of previously paid expenses
Other expenses
3. Staff costs
Remuneration
Social security costs
Pensions and post-retirement benefits
Pension deficit funding by employer
Pension liability adjustment
The average monthly number of persons employed during the year was:
Investment
Administration
Details of the Directors’ remuneration are noted on pages 36 and 37.
2019
£’000
2018
£’000
5,797
6,435
22,087
18,957
975
462
28,859
25,854
2019
£’000
2,106
2018
£’000
1,690
33
–
6
193
704
191
210
156
–
534
32
10
6
170
475
185
239
182
(535)
800
4,133
3,254
2019
£’000
2018
£’000
1,289
1,432
174
57
411
175
2,106
135
94
399
(370)
1,690
2019
Number
2018
Number
5
5
10
5
4
9
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54
The Scottish Investment Trust PLC | Annual Report 2019
Notes to the Financial Statements (continued)
4. Pension scheme
The Company’s defined benefit pension scheme, based
on final salary, closed to future accrual on 30 September
2015. Members of the defined benefit pension scheme
were enrolled in the Company’s defined contribution
scheme on 1 October 2015. The assets of the scheme
are held separately from those of the Company. The
scheme is under the control of trustees and is
administered by XPS Pensions Group, consulting
actuaries.
The Company operates a defined contribution scheme
under which the Company has agreed to pay
contributions as a percentage of salary, but has no
obligation to pay further contributions. For this scheme,
the amount charged to revenue is the contributions
payable for the year.
The amount charged during the year was £57,000
(2018: £76,000). There were no outstanding payments
due at either 31 October 2019 or 2018.
Actuarial valuations are obtained triennially and are
updated at each balance sheet date. A full actuarial
valuation was carried out as at 31 July 2016 by XPS
Pensions Group which disclosed a scheme deficit of
£6,942,000. The Company has agreed to meet this
deficit over fifteen years and seven months. It should be
noted that this deficit differs from that disclosed by
Financial Reporting Standard 102 (FRS102) which is set
out below and which is the liability required to be shown
in the Financial Statements. The main reason for the
difference is that FRS102 requires future liabilities to be
calculated actuarially using a rate of return based on the
yield from investment grade corporate bonds which is
lower than the expected rate of return on the equities in
which the scheme is invested. The FRS102 liability is
separately disclosed in the balance sheet. The latest
triennial valuation is due as at 31 July 2019 and the
valuation process is currently underway.
For the defined benefit scheme, the amounts charged
against revenue, as part of staff costs, are the actuarial
estimation of ‘current service costs’ (that is, the increase
in scheme liabilities arising from employee service) for
the current accounting period and gains and losses from
settlements (whereby the Company is relieved of a
pension obligation) and from curtailments (whereby the
estimated years of future service are reduced) in the
period. The cost of past service benefits which have
vested are charged against revenue as they arise. Where
such benefits have not vested, costs are accrued until
vesting occurs.
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The Scottish Investment Trust PLC | Annual Report 2019
55
Notes to the Financial Statements (continued)
4. Pension scheme (continued)
The major assumptions used for the actuarial
valuation of the final salary scheme were:
Rate of increase in salaries
Rate of increase in pensions in payment
Discount rate
Inflation – RPI
– CPI
Life expectancies on retirement at age 60 are:
Retiring today – males
– females
Retiring in 20 years’ time – males
– females
The fair value of the scheme assets and the
present value of the scheme liabilities were:
Equities
Bonds
With-profit policies
Cash
Total fair value of assets
2019
%
2018
%
2017
%
2016
%
2015
%
3.2
3.4
2.5
3.0
2.0
26.4
28.9
27.9
30.4
2019
£’000
4,803
2,379
301
1,830
9,313
3.2
3.6
3.3
3.4
2.4
26.5
28.6
28.1
30.2
2018
£’000
8,072
3,437
301
265
3.2
3.5
3.2
3.2
2.2
26.7
28.6
28.2
30.3
3.2
3.7
3.3
3.5
2.5
27.2
29.4
29.5
31.8
3.2
3.8
4.3
3.6
2.8
28.1
30.8
30.2
32.9
2017
£’000
7,913
4,992
288
2016
£’000
7,401
6,181
264
2015
£’000
6,224
5,717
251
1,180
1,976
2,343
12,075
14,373
15,822
14,535
Present value of scheme liabilities
(10,592)
(13,412)
(15,464)
(19,094)
(17,085)
Net pension liability
(1,279)
(1,337)
(1,091)
(3,272)
(2,550)
Reconciliation of the opening and closing balances of the present value of the scheme assets
Fair value of scheme assets at beginning of year
Interest income on scheme assets
Returns on assets, excluding interest income
Contributions by employer
Benefits paid
Settlements
Fair value of scheme assets at end of year
Reconciliation of the opening and closing balances of the present value of the scheme liabilities
Liabilities at beginning of year
Interest cost
Actuarial losses/(gains)
Benefits paid
Settlements
Liabilities at end of year
2019
£’000
2018
£’000
12,075
14,373
324
1,443
411
428
(733)
399
(252)
(2,392)
(4,688)
–
9,313
12,075
2019
£’000
2018
£’000
13,412
15,464
371
1,210
457
(117)
(252)
(2,392)
(4,149)
–
10,592
13,412
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The Scottish Investment Trust PLC | Annual Report 2019
Notes to the Financial Statements (continued)
4. Pension scheme (continued)
Analysis of amount chargeable to
operating profit during the year
Current service cost
Past service cost
Total operating charge
Employee contribution to be set off
Analysis of amount credited to other finance income:
Interest income return on assets
Interest on liabilities
Net return
Movement in deficit during year:
Deficit at beginning of year
Movement in year:
Current service cost
Past service cost
Contributions for year
Net return from other finance income
Actuarial gains/(losses) in Statement of
Comprehensive Income
2019
£’000
2018
£’000
2017
£’000
2016
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
324
(371)
(47)
428
(457)
(29)
476
(576)
(100)
605
(706)
(101)
2015
£’000
358
–
358
(31)
685
(687)
(2)
(1,337)
(1,091)
(3,272)
(2,550)
(2,613)
(539)
–
411
(47)
233
–
–
399
(29)
–
–
455
(100)
–
–
389
(101)
(358)
–
850
(2)
(616)
1,826
(1,010)
(427)
Deficit at end of year
(1,279)
(1,337)
(1,091)
(3,272)
(2,550)
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The Scottish Investment Trust PLC | Annual Report 2019
57
Notes to the Financial Statements (continued)
5. Interest payable
On secured bonds and debentures
Amortisation of secured bonds issue expenses
6. Tax on ordinary activities
Taxation
UK corporation tax at 19.00% (2018: 19.00%)
Overseas tax
Total tax
2019
£’000
4,857
92
2018
£’000
4,857
92
4,949
4,949
2019
£’000
2018
£’000
–
1,929
1,929
–
1,697
1,697
The tax charge for the year is lower than that resulting from applying the standard rate of corporation tax in the UK.
Return on ordinary activities before tax
Corporation tax at 19.00% (2018: 19.00%)
Effects of:
Non-taxable capital returns
Finance costs and expenses charged to capital
Non-taxable dividends
Unutilised expenses
Overseas tax
2019
£’000
9,951
1,891
2018
£’000
3,904
742
1,867
2,612
(898)
(841)
(5,447)
(4,876)
2,587
1,929
1,929
2,363
1,697
1,697
Deferred tax
No deferred tax asset has been recognised on unrelieved expenses as the Company does not expect to have future
profits to offset those expenses.
7. Dividends
Dividends paid on shares recognised in the financial year:
Previous year final of 6.20p per share (2017: 14.50p)
Previous year special of 4.00p per share (2017: 5.00p)
Three interims each of 5.30p per share (2018: three interims each of 5.00p)
2019
£’000
2018
£’000
4,758
3,069
11,400
3,930
11,969
11,717
19,796
27,047
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The Scottish Investment Trust PLC | Annual Report 2019
Notes to the Financial Statements (continued)
8. Investments
Investments listed on a recognised investment exchange
Unlisted investments
Subsidiary undertaking (note 9)
Opening book cost
Opening unrealised appreciation
Opening valuation
Movements in the year:
Purchases at cost
Sales – proceeds
– realised gains on sales
Decrease in unrealised appreciation
Closing valuation
Closing book cost
Closing unrealised appreciation
Closing valuation
2019
£’000
2018
£’000
686,320
716,047
1,150
1,150
350
350
687,820
717,547
Listed
in UK
£’000
Listed
overseas
£’000
Unlisted
£’000
Total
£’000
195,534
453,253
358
649,145
(967)
68,227
1,142
68,402
194,567
521,480
1,500
717,547
33,745
131,406
(66,177)
(120,050)
15,669
20,243
(7,193)
(37,370)
–
–
–
–
165,151
(186,227)
35,912
(44,563)
170,611
515,709
1,500
687,820
178,771
484,852
358
663,981
(8,160)
30,857
1,142
23,839
170,611
515,709
1,500
687,820
Total purchases of equities amounted to £165,151,000 (2018: £116,063,000) and sales were £186,227,000 (2018:
£185,252,000). The purchases at cost and sales proceeds figures include transaction costs of £396,000 (2018:
£287,000), comprising commissions, government stamp duty and other fees.
Unlisted investments include heritable property valued at £1,150,000 (2018: £1,150,000). The property was valued on
an open market basis by Allied Surveyors Scotland PLC, chartered surveyors, on 18 September 2018.
Realised gains on sales
Decrease in unrealised appreciation
Net gains on investments
Financial assets – cash and deposits
Sterling
US dollar
Fixed
£’000
2019
Floating
£’000
Total
£’000
10,000
12,449
22,449
–
49,929
49,929
Fixed
£’000
25,000
34,046
2019
£’000
2018
£’000
35,912
68,091
(44,563)
(82,657)
(8,651)
(14,566)
2018
Floating
£’000
Total
£’000
17,955
42,955
6,235
40,281
10,000
62,378
72,378
59,046
24,190
83,236
The maximum maturity period for fixed rate deposits outstanding at the year end was 7 days (2018: 7 days). The
weighted average fixed interest rate at the year end was 0.60% (2018: 1.48%). Floating interest rates vary in relation to
short-term rates in the currencies in which deposits are held.
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59
Notes to the Financial Statements (continued)
9. Subsidiary undertaking
The Company has an investment in the following subsidiary:
Name of undertaking
S.I.T. Savings Limited
Principal activities
Country of
incorporation
Description of
shares held
Proportion of
nominal value of
issued shares and
voting rights held
AIFM
UK
Ordinary
100%
The accounts of this subsidiary have not been consolidated with those of the parent company as, in the opinion of the
Directors, the amounts involved are not material. The Directors are satisfied that the valuation of the subsidiary reflects
and does not exceed the value of the underlying assets.
The registered office of the subsidiary is 6 Albyn Place, Edinburgh, EH2 4NL.
10. Debtors
Amounts due from brokers
Overseas tax recoverable
Prepayments and accrued income
11. Creditors: liabilities falling due within one year
Amounts due to brokers
Other creditors
12. Creditors: liabilities falling due after more than one year
4% Perpetual Debenture Stock
4¼% Perpetual Debenture Stock
5% Perpetual Debenture Stock
2019
£’000
2018
£’000
–
10,445
922
922
1,537
1,366
2,459
12,733
2019
£’000
2018
£’000
–
12,235
664
664
803
13,038
2019
2018
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
350
700
1,009
478
1,015
1,722
350
700
374
795
1,009
1,348
5¾% Secured Bonds due 17 April 2030
81,862
108,325
81,770
101,855
83,921
111,540
83,829
104,372
The secured bonds are secured by a floating charge over the assets of the Company and have a redemption value in
2030 of £82,827,000.
The debenture stocks and secured bonds are stated in the balance sheet at amortised cost. Restating them at market
value of £111.5m (2018: £104.4m) has the effect of decreasing the year end NAV per share from 915.9p to 878.5p
(2018: decreasing from 926.8p to 900.1p).
Market value is the estimated fair value of the Company’s secured bonds and debenture stocks. The current estimated
fair value of the Company’s borrowings is based on the redemption yield of the relevant existing reference gilt plus a
margin derived from the spread of BBB UK corporate bond yields (15 years+) over UK gilt yields (15 years+). The
reference gilt for the secured bonds is the 6% UK Treasury Stock 2028 and the reference gilt for the perpetual
debenture stocks is the longest-dated UK Treasury stock listed in the Financial Times.
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The Scottish Investment Trust PLC | Annual Report 2019
Notes to the Financial Statements (continued)
13. Called-up share capital
Shares of 25p
Number of shares in issue
2019
£18,474,000
73,893,508
2018
£19,296,000
77,184,578
3,291,070 shares were repurchased in the stockmarket during the year to 31 October 2019 (2018: 2,283,880).
50,000 shares were repurchased from 1 November to 11 December 2019.
14. Reserves
At 31 October 2018
Net gains on currencies
Net gains on realisation of investments
Decrease in unrealised appreciation
Share buybacks
Actuarial losses relating to pension scheme
Expenses and interest charged to capital
Return attributable to shareholders
Dividends paid
At 31 October 2019
15. Analysis of changes in net debt during the year
Cash
Short-term deposits
Long-term borrowings at amortised cost
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
39,922
51,565
555,308
49,221
–
–
–
–
–
–
–
–
–
–
–
(1,175)
35,912
(44,563)
822
(26,978)
151
(4,725)
–
–
–
–
–
–
–
–
82
–
–
–
22,573
(19,796)
39,922
52,387
513,930
52,080
31 October
2018
£’000
Cash flows
£’000
Non-cash
movements
£’000
31 October
2019
£’000
24,190
38,188
59,046
(49,046)
–
–
62,378
10,000
(83,829)
–
(92)
(83,921)
(593)
(10,858)
(92)
(11,543)
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61
Notes to the Financial Statements (continued)
16. Financial instruments
Summary of financial assets and financial liabilities by category
The Company’s financial assets and financial liabilities at the balance sheet date are as follows. The Accounting Policies
on page 51 explain how the various categories of financial instrument are measured.
Financial assets
Financial assets at fair value through profit and loss:
Fixed asset investments – designated as such on initial recognition
687,820
717,547
2019
£’000
2018
£’000
Current assets:
Debtors
Cash and short-term deposits
Financial liabilities
Creditors: liabilities falling due within one year
Amounts due to brokers
Other creditors
Creditors: liabilities falling due after more than one year
Long-term borrowings at amortised cost
Provisions for liabilities
Pension liability
2,459
12,733
72,378
83,236
74,837
95,969
762,657
813,516
–
(12,235)
(664)
(803)
(664)
(13,038)
(83,921)
(83,829)
(1,279)
(1,337)
(85,200)
(85,166)
(85,864)
(98,204)
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The Scottish Investment Trust PLC | Annual Report 2019
Notes to the Financial Statements (continued)
16. Financial instruments (continued)
Risk management policies and procedures
As an investment trust, the Company invests in equities and other investments for the long term so as to secure its
investment objective stated on the inside front cover. In pursuing its investment objective, the Company is exposed to
a variety of risks that could result in a reduction in the Company’s net assets and a reduction in the profits available for
dividend.
The main risks include investment and market price risk (comprising foreign currency risk and interest rate risk),
liquidity risk and credit risk. The Directors’ approach to the management of these risks is set out below. The Directors
of the Company and of S.I.T. Savings Limited coordinate the Company’s risk management.
The Company’s policies and processes for managing the risks, and the methods used to measure the risks, which are
set out below, have not changed from those applied in the previous year.
a. Investment and market price risk
The holding of securities and investing activities involve certain inherent risks, principally in relation to market risk. A
contrarian investment approach is a distinctive style that may deviate from comparator indices and peer group
performance over discrete periods. Whilst performance is compared against major global and UK indices, the
composition of indices has no influence on investment decisions or the construction of the portfolio. As a result, it is
expected that the Company’s investment portfolio and performance may deviate from the comparator indices. Events
may occur which affect the value of investments. From time to time, the Company may wish to use derivatives in order
to protect against a specific risk or to facilitate a change in investment strategy such as the movement of funds from
one area to another. No such transaction may take place without the prior authorisation of the Board.
Management of the risk
Company performance is monitored at each Board meeting, including investment performance. The Company holds a
portfolio which is well diversified across industrial and geographical areas to help minimise these risks. The contrarian
investment approach is explained in our shareholder communications and through meetings with media and the
investor community. The levels of gearing and gross gearing are monitored closely by the Board and the Manager. The
Board currently limits gearing to 20%. While gearing will be employed in a typical range of 0% to 20%, the Company
retains the ability to lower equity exposure to a net cash position if deemed appropriate.
b. Foreign currency risk
Approximately 75% of the Company’s assets are invested overseas which gives rise to a currency risk. From time to
time, specific hedging transactions may be undertaken. The Company’s overseas income is subject to currency
movements. The currency profile of the Company’s monetary assets and liabilities is set out below.
Management of the risk
Management monitors the Company’s exposure to foreign currencies on a daily basis, and reports to the Board at
regular intervals. Management measures the risk to the Company of the foreign currency exposure by considering the
effect on the Company’s net asset value and income of a movement in the rates of exchange to which the Company’s
assets, liabilities, income and expenses are exposed.
Foreign currency borrowings and forward currency contracts may be used to limit the Company’s exposure to
anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of
investments or the income received from them. These borrowings and contracts are limited to currencies and amounts
commensurate with the asset exposure to those currencies.
Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial
instruments to mitigate the currency exposure in the period between the time that income is receivable and its receipt.
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63
Notes to the Financial Statements (continued)
16. Financial instruments (continued)
Foreign currency exposure
The fair values of the Company’s monetary items denominated in foreign currencies at 31 October 2019 and
31 October 2018 are shown below.
2019
Debtors (amounts due from brokers, dividends receivable and accrued income)
Creditors (amounts due to brokers)
Cash
Foreign currency exposure on net monetary items
Equity investments at fair value through profit and loss
Total net foreign currency exposure
US $
£’000
211
–
49,929
50,140
Euro
£’000
225
–
–
Other
£’000
1,295
–
–
225
1,295
222,131
107,835
185,743
272,271
108,060
187,038
2018
US $
£’000
Debtors (amounts due from brokers, dividends receivable and accrued income)
10,638
Euro
£’000
185
Other
£’000
1,414
Creditors (amounts due to brokers)
Cash
Foreign currency exposure on net monetary items
Equity investments at fair value through profit and loss
Total net foreign currency exposure
–
(307)
(10,163)
40,281
50,919
–
–
(122)
(8,749)
247,645
88,723
185,114
298,564
88,601
176,365
The above year end amounts are not representative of the exposure to risk during the year, because the levels of
foreign currency exposure may change significantly throughout the year. The maximum and minimum net monetary
assets/(liabilities) amounts for each currency were as follows.
Year to 31 October 2019
Maximum
Minimum
Year to 31 October 2018
Maximum
Minimum
US $
£’000
56,308
39,340
40,281
13,028
Euro
£’000
Other
£’000
–
–
–
–
–
–
–
–
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The Scottish Investment Trust PLC | Annual Report 2019
Notes to the Financial Statements (continued)
16. Financial instruments (continued)
Foreign currency sensitivity
The following table illustrates the sensitivity of the total return for the year and the shareholders’ funds in regard to the
Company’s financial assets and financial liabilities. It assumes a 10% depreciation of sterling against both the US dollar
and the euro at 31 October 2019. These percentages have been determined based on the average market volatility in
exchange rates in the previous twelve months. The sensitivity analysis is based on the Company’s monetary foreign
currency financial instruments held at each balance sheet date.
2019
US $
£’000
Euro
£’000
2018
US $
£’000
Euro
£’000
If sterling had weakened by 10% against the currencies shown,
this would have had the following effect:
Income statement – return on ordinary activities after taxation:
Revenue return
Capital return
Return attributable to shareholders
912
500
27,227
10,806
28,139
11,306
984
29,856
30,840
462
8,861
9,323
A 10% strengthening of sterling against the above currencies would result in an equal and opposite effect on the
above amounts.
In the opinion of the Directors, the above sensitivity analyses are broadly representative of the whole of the current
and comparative years.
c. Interest rate risk
The Company finances its operations through a combination of investment realisations, retained revenue reserves,
debenture stocks and secured bonds. All debenture stocks and secured bonds are at fixed rates. Details of interest
rates on financial assets are included in note 8 on page 58. Details of interest rates on financial liabilities are included
in note 12 on page 59.
Management of the risk
The Company finances part of its activities through borrowings at levels which have been approved and are monitored
by the Board.
Interest rate exposure
The exposure, at the year end, of financial assets and financial liabilities to interest rate risk is shown below.
Exposure to floating interest rates
Cash
Exposure to fixed interest rates
Short-term deposits
Long-term borrowings
Total exposure
Within
one year
£’000
2019
More than
one year
£’000
Total
£’000
Within
one year
£’000
2018
More than
one year
£’000
Total
£’000
62,378
10,000
–
–
62,378
24,190
10,000
59,046
–
–
24,190
59,046
–
(83,921)
(83,921)
–
(83,829)
(83,829)
72,378
(83,921)
(11,543)
83,236 (83,829)
(593)
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65
Notes to the Financial Statements (continued)
16. Financial instruments (continued)
Interest rate sensitivity
If interest rates had decreased by 5%, with all other variables held constant, the return attributable to shareholders as
shown on the Income Statement would have decreased by the amounts shown in the table below:
Return attributable to shareholders
2019
£’000
(49)
2018
£’000
(23)
A 5% increase in interest rates would result in an equal and opposite effect on the above amounts.
d. Liquidity risk
Almost all of the Company’s assets comprise listed securities which represent a ready source of funds. The maturity
profile of the Company’s borrowings is included in note 12 on page 59.
Management of the risk
Liquidity risk is not as significant as the other risks as most of the Company’s assets are investments in quoted equities
and are readily realisable. Management reviews the liquidity of the portfolio when making investment decisions.
e. Credit risk
The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the
Company suffering a loss.
Credit risk exposure
The amounts shown in the balance sheet under debtors and cash and deposits represent the maximum exposure to
credit risk at the current and comparative year ends.
Cash comprises balances held by banks with a satisfactory credit rating (2018: same).
Management of the risk
This risk is managed as follows:
• by dealing only with brokers and banks which have been approved by the Audit Committee and which have credit
ratings assigned by international credit rating agencies; and
• by setting limits on the maximum exposure to any one counterparty at any time, which are reviewed semi-annually
at meetings of the Audit Committee.
f. Capital management policies and procedures
The Company carries on its business as a global growth investment trust. Its objective is to provide investors, over the
longer term, with above-average returns through a diversified portfolio of international equities and to achieve
dividend growth ahead of UK inflation.
The levels of gearing and gross gearing are monitored closely by the Board and management. The Board currently
limits gearing to 20%. While gearing will be employed in a typical range of 0% to 20%, the Company retains the ability
to lower equity exposure to a net cash position if deemed appropriate.
The Board, with the assistance of management, monitors and reviews the structure of the Company’s capital on an
ongoing basis. This review includes the planned level of gearing which will take into account management’s view on
the market, the need to buy back shares for cancellation and the level of dividends.
The Company’s policies and processes for managing capital are unchanged from the previous year.
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The Scottish Investment Trust PLC | Annual Report 2019
Notes to the Financial Statements (continued)
16. Financial instruments (continued)
Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from information other than quoted prices included within Level
1 that are observable for the asset or liability, either directly or indirectly; and
• Level 3 fair value measurements are those derived from valuation techniques not based on observable market data.
Further details on the valuation techniques used for level 3 investments are included in the Company’s accounting
policies on page 51.
Financial assets at fair value through profit and loss
686,320
–
1,500
687,820
2019
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets at fair value through profit and loss
716,047
–
1,500
717,547
There were no transfers between Level 1 & 2 during the year (2018: same).
2018
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Reconciliation of Level 3 fair value measurements of financial assets
Balance at 31 October 2018
Purchase costs
Sales proceeds
Total profit: in profit and loss
Balance at 31 October 2019
Fair value
through
profit
and loss
2019
£’000
1,500
–
–
–
1,500
The table above only includes financial assets. There were no financial liabilities measured at fair value on Level 3 fair
value measurement bases.
17. Related party transactions
Directors’ fees are detailed in the Directors’ Remuneration Report on pages 36 and 37. There were no matters
requiring disclosure under section 412 of the Companies Act 2006.
18. Subsequent events
Since the year end the Board has declared a final dividend of 6.90p per share and a special dividend of 7.45p per
share in respect of the year ended 31 October 2019.
Details of shares repurchased since the year end are disclosed in note 13 on page 60.
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Investor Information
How to invest
You can buy the Company’s shares directly on the
stockmarket through a stockbroker or a share dealing
platform. Your bank, lawyer, accountant or other
professional adviser may also be able to help with this.
More information on ways to invest can be found in the
How to invest section of the Company’s website
www.thescottish.co.uk
Dividends paid
The following dividends have been paid during
2018/19:
Dividends
Amount
XD date
Record
date
Payment
date
Third Interim 2019
5.30p
3/10/19
4/10/19
1/11/19
Second Interim 2019
5.30p
4/7/19
5/7/19
2/8/19
First Interim 2019
Final 2018
Special 2018
5.30p
6.20p
4.00p
11/4/19
12/4/19
10/5/19
17/1/19
18/1/19
15/2/19
17/1/19
18/1/19
15/2/19
Dividend reinvestment
Shareholders who hold share certificates
The default arrangement for shareholders who hold
share certificates is for dividends to be paid out as
income, either by cheque or by direct credit to a bank
account. However, shareholders who would prefer
to have their dividends automatically re-invested
into further purchases of Scottish Investment Trust
shares, can easily arrange this by joining the Dividend
Reinvestment Plan (DRIP).
Details of the DRIP, together with an application form,
can be found in the Shareholder information section
of our website; www.thescottish.co.uk Alternatively, to
receive a DRIP application form and booklet by post,
please telephone our Registrar, Computershare Investor
Services PLC, on 0370 703 0195.
Other Shareholders
If your shares are held elsewhere, you should refer
to your broker or share dealing platform provider for
details of their dividend reinvestment facilities.
Most brokers and platform providers offer a dividend
reinvestment service which enables dividends to be
automatically reinvested to buy more shares.
Please note that dividend reinvestment is usually a
chargeable service; you should establish the cost of any
such facility.
Identifiers
ISIN:
SEDOL:
Ticker:
LEI:
GB0007826091
0782609
SCIN
549300ZL6XSHQ48U8H53
Monitoring your investment
The Company’s share price, together with performance
information, can be found on the Company’s website,
www.thescottish.co.uk
A number of financial websites, such as the Financial
Times, www.ft.com and the London Stock Exchange,
www.londonstockexchange.com carry share price
information. In addition, the share price is published
daily in most quality newspapers.
The Company publishes a daily NAV and a monthly
factsheet on its website. An Interim Report is issued in
June of each year and the Annual Report is distributed
in December.
On the Company’s website www.thescottish.co.uk you
can find our latest News & views as well as educational
videos and guides in the newly launched Learning
hub. There is also an option to subscribe for a monthly
email roundup. Items of interest to our investors
are regularly highlighted on LinkedIn, YouTube and
Twitter @ScotInvTrust
Investor Disclosure Document
In accordance with the Financial Conduct Authority rules
implementing the EU Alternative Investment Fund
Managers Directive (AIFMD), certain information must be
made available to investors before they invest. The
Company’s Investor Disclosure Document can be found
on the Company’s website www.thescottish.co.uk
Key Information Document
In accordance with the EU Packaged Retail and
Insurance-based Investment Products (PRIIP) Regulation,
the Company’s Key Information Document is available on
the Company’s website www.thescottish.co.uk
Personal taxation
Capital Gains Tax (CGT)
For investors who acquired shares prior to 31 March
1982, the cost for CGT purposes may be based on the
price on that date of 41.472p.
Investors who are in any doubt as to their liability for CGT
should seek professional advice.
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69
Retail investors advised by IFAs
The Company currently conducts its affairs so that its
shares can be recommended by Independent Financial
Advisors (IFAs) to retail private investors in accordance
with the Financial Conduct Authority’s (FCA) rules
in relation to non-mainstream pooled investment
producers.
The shares are excluded from the FCA’s restrictions
which apply to non-mainstream investment products
because they are shares in a UK listed investment trust.
Risk warning
Past performance may not be repeated and is not a
guide to future performance. The value of shares and
the income from them can go down as well as up as a
result of market and currency fluctuations. You may not
get back the amount you invest.
The Company has a long-term policy of borrowing
money to invest in equities in the expectation that this
will improve returns but should stockmarkets fall, such
borrowings would magnify losses on these investments.
The Company can buy back and cancel its own shares.
All other things being equal, this would have the effect
of increasing gearing.
Investment in the Company is intended as a long-term
investment. Tax rates and reliefs can change in the
future and the value of any tax advantages will depend
on personal circumstances.
Please remember that we are unable to offer individual
investment or tax advice. If you require such advice,
you should consult your professional adviser.
S.I.T. Savings Limited is authorised and regulated by
the Financial Conduct Authority.
The Scottish Investment Trust PLC is a UK public limited
company and complies with the requirements of the
UK Listing Authority. It is not authorised or regulated by
the Financial Conduct Authority.
Investor Information (continued)
Shareholders’ meetings
All investors are welcome to attend the Annual General
Meeting and other general meetings.
Investors who hold share certificates are entitled to attend
and vote at the AGM and other general meetings. Notices
of meetings and proxy cards, which include attendance
and voting instructions, are sent to their registered address.
Investors who hold shares through a third party, such as a
broker or share dealing platform, should contact their
provider to arrange their voting and attendance.
Alternatively, if they have been provided with a Form of
Direction, they can indicate their voting, or intention to
attend, on the form and return it as directed.
If you would like to attend any meeting as a guest please
email us at info@thescottish.co.uk to arrange.
The AGM will be held at the Royal College of Physicians of
Edinburgh, 11 Queen Street, Edinburgh, EH2 1JQ, on
Tuesday 4 February 2020 at 10.30am.
Electronic voting
Shareholders who hold share certificates can submit
proxy votes electronically by following the instructions on
the proxy card.
Electronic communications
Investors who hold share certificates may choose to receive
the Company’s Interim and Annual Reports and other
shareholder communications electronically instead
of by post.
To register, visit the link in the shareholder information
section on the Company’s website,
www.thescottish.co.uk and follow the instructions.
Investors will then be advised by email when an electronic
communication is available.
Other publications
If you would like to receive a monthly email which contains
our newsletter, factsheet and other useful insights please
register your email address at
www.thescottish.co.uk/subscribe More ways of how to
keep in touch with The Scottish can be found overleaf.
The Common Reporting Standard (CRS)
CRS requires financial institutions, including the Company,
to obtain information on individual account holders
which meet certain criteria set out in the legislation and
report it to their local tax authority who may then share
this information with other international tax authorities as
required. You will be asked by the Registrar to complete
and return a tax self-certification form for this purpose.
Further information can be found on HMRC’s website;
www.gov.uk/government/publications/exchange-of-
information-account-holders
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The Scottish Investment Trust PLC | Annual Report 2019
Keeping in Touch
with The Scottish
Newsletter
Together with our Annual Report & Accounts you
also received ‘The Contrarian’, a quarterly
newsletter to investors with our latest thinking on
a variety of investment related subjects and
other key highlights.
If you would like to hear from us more frequently
– there are a number of ways to stay in touch.
Website
Visit www.thescottish.co.uk to keep up-to-date
on performance and portfolio statistics, browse
through our annual and interim reports and
access other key shareholder information.
In our blog, you will find thought provoking
articles from our investment team, weekly
thoughts, commentaries, videos and more.
www.thescottish.co.uk/blog
Monthly email
Sign-up for our monthly email and receive our
factsheet with the latest commentary on
markets and trends, our contrarian thoughts
and insights on a range of investment subjects –
directly to your inbox.
www.thescottish.co.uk/subscribe
Social media
Follow us on social media – be notified about any
new content, highlights from events we are attending,
coverage in the press and other activities. You can
find our social profiles using the information below.
Twitter: @ScotInvTrust
LinkedIn: The Scottish Investment Trust PLC
YouTube: The Scottish Investment Trust PLC
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Keeping in Touch
with The Scottish
Financial Calendar 2020
The Scottish Investment Trust PLC | Annual Report 2019
71
Newsletter
Together with our Annual Report & Accounts you
also received ‘The Contrarian’, a quarterly
newsletter to investors with our latest thinking on
a variety of investment related subjects and
other key highlights.
If you would like to hear from us more frequently
– there are a number of ways to stay in touch.
Website
Visit www.thescottish.co.uk to keep up-to-date
on performance and portfolio statistics, browse
through our annual and interim reports and
access other key shareholder information.
In our blog, you will find thought provoking
articles from our investment team, weekly
thoughts, commentaries, videos and more.
www.thescottish.co.uk/blog
Dividend and interest payments
Final and special for the financial year
to 31 October 2019
First Interim
Second Interim
Third Interim
Final
February 2020
May 2020
August 2020
November 2020
February 2021
Secured bonds
Perpetual debenture stock
17 April, 17 October
30 April, 31 October
Announcement of results
NAV
Interim figures
Final figures
Annual Report & Accounts
Annual General Meeting (AGM)
Daily
June
December
December
4 February 2020
Useful Addresses
Registered Office
6 Albyn Place
Edinburgh EH2 4NL
Telephone: 0131 225 7781
Website: www.thescottish.co.uk
info@thescottish.co.uk
Email:
Company Registration Number: SC001651
Legal Entity Identifier: 549300ZL6XSHQ48U8H53
Company Secretary
Maitland Administration Services (Scotland) Limited
20 Forth Street
Edinburgh EH1 3LH
Depositary
Northern Trust Global Services SE
50 Bank Street
Canary Wharf
London E14 5NT
Custodian
The Northern Trust Company
50 Bank Street
Canary Wharf
London E14 5NT
Auditor
Deloitte LLP
Saltire Court
20 Castle Terrace
Edinburgh EH1 2DB
Actuaries
XPS Pensions Group
40 Torphichen Street
Edinburgh EH3 8JB
The Association of Investment Companies
The Company is a member of The Association of
Investment Companies (AIC) which publishes a number
of useful consumer guides and email updates for
investors interested in investment trust companies.
The AIC
9th Floor
24 Chiswell Street
London EC1Y 4YY
Telephone: 0207 282 5555
Website: www.theaic.co.uk
Shareholders who hold share certificates
For valuations and other details of your investment
or to notify a change of address please contact the
Company’s Registrar:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Helpline:
Website:
0370 703 0195
www.investorcentre.co.uk
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Monthly email
Sign-up for our monthly email and receive our
factsheet with the latest commentary on
markets and trends, our contrarian thoughts
and insights on a range of investment subjects –
directly to your inbox.
www.thescottish.co.uk/subscribe
Social media
Follow us on social media – be notified about any
new content, highlights from events we are attending,
coverage in the press and other activities. You can
find our social profiles using the information below.
Twitter: @ScotInvTrust
LinkedIn: The Scottish Investment Trust PLC
YouTube: The Scottish Investment Trust PLC
72
The Scottish Investment Trust PLC | Annual Report 2019
Glossary
Borrowings at amortised cost is the nominal value of the
Company’s borrowings less any unamortised issue
expenses.
Borrowings at market value is the Company’s estimate
of the ‘fair value’ of its borrowings. The current estimated
fair value of the Company’s borrowings is based on the
redemption yield of the relevant existing reference gilt
plus a margin derived from the spread of BBB UK
corporate bond yields (15 years+) over UK gilt yields
(15 years+). The reference gilt for the secured bonds is
the 6% UK Treasury Stock 2028 and the reference gilt for
the perpetual debenture stocks is the longest-dated UK
Treasury stock listed in the Financial Times.
Discount§ is the difference between the market price of
a share and the NAV, expressed as a percentage of the
NAV.
Ex-income NAV is the NAV excluding current year
revenue.
Gearing§ is the true geared position of the Company:
long-term borrowings less net current assets expressed
as a percentage of shareholders’ funds.
Gross gearing is the geared position if all the
borrowings were invested in equities: borrowings
expressed as a percentage of shareholders’ funds.
NAV† is net asset value per share after deducting
borrowings at amortised cost or market value, as stated.
NAV total return§ is the measure of how the Company’s
NAV has performed over a period of time, taking into
account both capital returns and entitlement to
dividends declared by the Company.
NAV at start of year
NAV at end of year
Effect of dividends*
NAV at end of year including effect of
dividends
NAV total return
2019
2018
900.1p
924.4p
878.5p
900.1p
26.5p
34.5p
904.9p
934.6p
0.5%
1.1%
*Assumed reinvested at the time of dividend going
ex-dividend.
Ongoing charges figure§ is the measure of the regular,
recurring costs of the Company expressed as a
percentage of the average daily shareholders’ funds
with borrowings at market value^.
Expenses
Less: pension liability adjustment
Less: non recurring projects
Regular recurring expenses
Average Shareholders’ Funds^
a
b
2019
£’000
4,133
(175)
(72)
3,886
2018
£’000
3,254
905
(346)
3,813
671,329 727,966
Ongoing charges figure
a/b
0.58%
0.52%
Portfolio turnover rate is the average of investment
purchases and sales expressed as a percentage of
opening total assets.
Share price total return§ is the measure of how the
Company’s share price has performed over a period of
time, taking into account both capital returns and
entitlement to dividends declared by the Company.
Share price at start of year
Share price at end of year
Effect of dividends*
Share price at end of year including
effect of dividends
Share price total return
2019
2018
825.0p
843.0p
807.0p
825.0p
26.5p
34.0p
833.5p
859.0p
1.0%
1.9%
*Assumed reinvested at the time of dividend going
ex-dividend.
Total assets means total assets less current liabilities.
† UK GAAP Measure
§ Alternative Performance Measures (APMs) are measures not defined in FRS 102. The Company believes that APMs provide
shareholders with important information on the Company and are appropriate for an investment trust.
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The Scottish Investment Trust PLC | Annual Report 2019
Notice of Annual General Meeting
(ii) the higher of the price of the last independent
trade and the highest current independent
bid on the trading venue where the purchase
is carried out;
d) unless previously varied, revoked or renewed,
the authority hereby conferred shall expire on
4 May 2021, save that the Company may, prior to
such expiry, enter into a contract to purchase
shares under such authority which will or might
be executed wholly or partly after the expiration
of such authority and may make a purchase of
shares pursuant to any such contract.
All resolutions are ordinary resolutions except
number 11 which is a special resolution.
Maitland Administration Services (Scotland) Limited
Company Secretary
13 December 2019
Map showing location of AGM venue
Map image required
Notice is hereby given that the one hundred and
thirty-second Annual General Meeting (AGM) of The
Scottish Investment Trust PLC will be held at The Royal
College of Physicians of Edinburgh, 11 Queen Street,
Edinburgh EH2 1JQ, on Tuesday 4 February 2020 at
10.30am, for the purpose of transacting the following:
1. To receive and consider the Annual Report and
Accounts for the year to 31 October 2019.
2. To approve the Directors’ Remuneration Report for
the year to 31 October 2019.
3. To declare a final dividend of 6.90p per share.
4. To declare a special dividend of 7.45p per share.
5 To elect Neil Rogan as a Director.
6. To re-elect James Will as a Director.
7. To re-elect Jane Lewis as a Director.
8. To re-elect Mick Brewis as a Director.
9. To re-elect Karyn Lamont as a Director.
10. To appoint PricewaterhouseCoopers LLP as auditor
and to authorise the Directors to fix their
remuneration.
11. To authorise the Company, in accordance with
section 701 of the Companies Act 2006 (the ‘Act’)
and in substitution for any pre-existing such
authority, to make market purchases (within the
meaning of section 693 of the Act) of shares of 25p
each for cancellation, provided that:
a) the maximum number of shares hereby
authorised to be purchased shall be 11,069,141
or, if less, 14.99% of the aggregate issued shares
on the date this resolution is passed;
b) the minimum price which may be paid for a
share shall be 25p;
c) the maximum price (exclusive of expenses)
which may be paid for a share shall be the higher
of:
(i) 105% of the average of market value of a
share for the five business days immediately
preceding the date of purchase; and
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75
Notice of Annual General Meeting (continued)
Notes
1. A member entitled to attend, speak and vote at the
meeting is entitled to appoint one or more proxies
to attend, speak and vote on his or her behalf. If a
shareholder wishes to appoint more than one proxy,
each proxy must be appointed to exercise rights
attaching to a different share (or shares) held by the
shareholder. A proxy need not be a member of the
Company but must attend the AGM to represent the
relevant shareholder. Shareholders may not use any
electronic address provided either in this notice or
any related documents, including the proxy form,
to communicate with the Company for any purpose
other than those expressly stated.
2. A proxy may only be appointed using the procedure
set out in these notes and the notes to the proxy
form. Proxy forms and the original or duly certified
copy of the power of attorney or other authority,
if any, under which it is signed or authenticated,
must be lodged with the Company’s Registrars
at Computershare Investor Services PLC, The
Pavilions, Bridgewater Road, Bristol, BS99 6ZY or
www.eproxyappointment.com, not less than 48
hours (excluding non-working days) before the
meeting or, in the case of a poll taken more than
48 hours after it was demanded, not less than 24
hours, excluding non-working days, before the time
appointed for the taking of the poll. Completion
of the proxy form will not prevent a member from
attending the meeting and voting in person.
3. CREST members who wish to appoint a proxy
or proxies through the CREST electronic
proxy appointment service may do so by
using the procedures described in the CREST
Manual and by logging on to the website
www.euroclear.com/CREST. CREST personal
members or other CREST-sponsored members
and those CREST members who have appointed a
voting service provider, should refer to their CREST
sponsor or voting service provider who will be able
to take the appropriate action on their behalf.
4. For a proxy appointment or instruction made using
the CREST service to be valid, the appropriate
CREST message (a ‘CREST Proxy Instruction’) must
be properly authenticated in accordance with
Euroclear UK and Ireland Limited’s specifications,
and must contain the information required for such
instruction, as described in the CREST manual.
The message, regardless of whether it constitutes
the appointment of a proxy or is an amendment
to the instruction given to a previously appointed
proxy must, in order to be valid, be transmitted
so as to be received by the Company’s registrar
(Computershare Investor Services PLC) (CREST ID
number 3RA50) no later than 48 hours (excluding
non-working days) before the time of the meeting
or any adjournment. For this purpose, the time of
receipt will be taken to be the time (as determined by
the time stamp applied to the message by the CREST
Application Host) from which the Company’s registrar
is able to retrieve the message by enquiry to CREST in
the manner prescribed by CREST. After this time, any
change of instructions to proxies appointed through
CREST should be communicated to the appointee by
other means.
5. CREST members and, where applicable, their CREST
sponsors or voting service provider(s) should note
that Euroclear UK and Ireland Limited does not
make available special procedures in CREST for
any particular message. Normal system timings and
limitations will, therefore, apply in relation to the input
of CREST Proxy Instructions. It is the responsibility
of the CREST member concerned to take (or, if
the CREST member is a CREST personal member,
or sponsored member, or has appointed a voting
service provider(s), to procure that his CREST sponsor
or voting service provider(s) take(s)) such action
as shall be necessary to ensure that a message is
transmitted by means of the CREST system by any
particular time. In this connection, CREST members
and, where applicable, their CREST sponsors or
voting system providers are referred, in particular,
to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation
35(5)(a) of the Uncertificated Securities Regulations
2001.
6. The return of a completed proxy form or other
instrument of proxy will not prevent members
attending the AGM and voting in person if they wish.
7. Pursuant to Regulation 41 of the Uncertificated
Securities Regulations 2001 and section 360B of the
Companies Act 2006, the Company specifies that
only registered shareholders whose names appear
on the Company’s Register of Members no later
than 48 hours (excluding non-working days) prior to
the commencement of the AGM or any adjourned
meeting shall be entitled to attend, speak and vote
or be represented at the meeting in respect of the
shares registered in their name at that time. Changes
to the Register of Members after the relevant
deadline shall be disregarded in determining
the rights of any person to attend and vote at the
meeting.
8. Any person to whom this notice is sent who is a
person nominated under S146 of the Companies
Act 2006 to enjoy information rights (a ‘Nominated
Person’) may, under an agreement between him/her
and the shareholder by whom he/she was nominated,
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The Scottish Investment Trust PLC | Annual Report 2019
Notice of Annual General Meeting (continued)
a) answering the question would interfere unduly
with the preparation for the meeting or involve the
disclosure of confidential information;
b)
c)
the answer has already been given on a website in
the form of an answer to a question; or
it is undesirable in the interests of the Company or
the good order of the meeting that the question be
answered.
15. Any corporation which is a member can appoint one
or more corporate representatives who may exercise
on its behalf all of its powers as a member provided
that they do not do so in relation to the same shares.
16. The Directors’ letters of appointment are available
for inspection at the registered office of the
Company during normal business hours on any
weekday. The register of Directors’ interests
maintained by the Company together with copies
of Directors’ appointment letters will be available at
the place of the AGM from 15 minutes prior to the
commencement of the AGM until the conclusion
thereof. No Director has any service contract with the
Company.
17. Investors whose holdings are in nominee names and
who wish to attend and vote are advised to contact
their nominee before 24 January 2020.
18. The final and special dividends, if approved,
will be paid on 14 February 2020 to shareholders
registered at the close of business on 17 January
2020.
19. This report was sent to the address currently
registered for communications. Any change of
address should be notified to the Company’s
registrar.
have a right to be appointed (or to have someone
else appointed) as a proxy for the Annual General
Meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/
she may, under any such agreement, have a right to
give instructions to the shareholder as to the exercise
of voting rights.
9. The statement of the rights of shareholders in relation
to the appointment of proxies in Notes 1 and 2 above
does not apply to Nominated Persons. The rights
described in those Notes can only be exercised by
shareholders of the Company.
10. Any person holding 3% or more of the total voting
rights in the Company who appoints a person other
than the Chairman as his proxy will need to ensure
that both he and such third party comply with
their respective disclosure obligations under the
Disclosure and Transparency Rules.
11. On 11 December 2019 (being the last practicable
date prior to the publication of this notice), the
Company’s issued share capital comprised
73,843,508. shares (none of which is held in treasury).
Each share carries the right to one vote at a general
meeting of the Company. Accordingly, as at 11
December 2019, the total number of voting rights
exercisable at the AGM was 73,843,508.
12. Shareholders may require the Company to publish,
on its website, without payment, a statement, which
is also passed to the auditor, setting out any matter
relating to the audit of the Company’s accounts,
including the auditor’s report and the conduct of
the audit, which they intend to raise at the meeting.
The Company will be required to do so once it has
received such requests from either (i) members
representing at least 5% of the total voting rights of
the Company or (ii) at least 100 members who have
rights to vote and hold shares in the Company on
which there has been paid up an average sum per
member of at least £100. Such requests must be
made in writing and must state the member’s full
name and address and be sent to the Company’s
registered office at 6 Albyn Place, Edinburgh, EH2
4NL. The Company may not require the members
requesting any such website publication to pay its
expenses in complying with sections 527 or 528 of
the Companies Act 2006.
13. Further information regarding the AGM, including
the information required by section 311A of
the Companies Act 2006 is available from
www.thescottish.co.uk
14. Under section 319A of the Companies Act 2006, the
Company must answer any question relating to the
business being dealt with at the meeting put by a
member attending the meeting unless:
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77
6 ALBYN PLACE | EDINBURGH | EH2 4NL
T: 0131 225 7781 | E: info@thescottish.co.uk
www.thescottish.co.uk
@ScotInvTrust
The Scottish Investment Trust