T
H
E
S
C
O
T
T
S
H
I
I
N
V
E
S
T
M
E
N
T
T
R
U
S
T
P
L
C
|
1
3
3
R
D
A
N
N
U
A
L
R
E
P
O
R
T
THE SCOTTISH INVESTMENT TRUST PLC
133RD ANNUAL REPORT
31 OCTOBER 2020
ii
The Scottish Investment Trust PLC | Annual Report 2020
Objective of The Scottish
Objective of The Scottish
Investment Trust PLC
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:
Silver Birch Gathering, Rannoch by Julian Mason
The Scottish Investment Trust PLC | Annual Report 2020
iii
01
Contents
2
Year at a Glance
3 Chairman’s Statement
6 Board of Directors
8 Manager’s Review
12
14
21
22
The Investment Team
Strategic Report
Financial Summary
List of Investments
24 Distribution of Assets
26
Ten Year Record
Directors’ Report
28 Responsibility Statement
29 Corporate Governance Report
37 Report of the Audit Committee
39 Directors’ Remuneration Report
Financial Statements
42
Independent Auditors’ Report
50
Income Statement
51 Balance Sheet
52 Statement of Comprehensive Income
53 Statement of Changes in Equity
54 Cash Flow Statement
55 Accounting Policies
57 Notes to the Financial Statements
Additional Information
72
75
Investor Information
Financial Calendar and Useful Addresses
76 Glossary
Annual General Meeting
78 Notice of Annual General Meeting
02
The Scottish Investment Trust PLC | Annual Report 2020
Year at a Glance
31 October 2020
-12.0%
Share price total return†§
MSCI ACWI 5.0%
MSCI UK All Cap -20.6%
9.9%
Share price discount to
NAV*§ (cum-income)
31 October 2019: 8.1%
£662.9m
Total assets
0%
Gearing§
4th Quartile
AIC Global peer group
(one year share price total return)
31 October: 2019 £762.0m
31 October 2019: 1%
31 October 2019: 4th quartile
Revenue reserve
2.6x
Regular dividend
31 October 2019: 3.1x
37 years
of consecutive increase in
regular dividend
59
Number of
listed holdings
31 October 2019: 51
† 2019: Share price total return 1.0%; NAV total return 0.5%; MSCI ACWI 11.2%; MSCI UK All Cap 5.8%
§ Alternative Performance Measures (please refer to Glossary on page 76).
* NAV with borrowings at market value.
-10.6%NAV* total return†§MSCI ACWI 5.0%MSCI UK All Cap -20.6%21.70pRevenue returnper share31 October 2019: 29.75p0.52%Ongoing charges figure§31 October 2019: 0.58%23.20pRegular dividendper share 31 October 2019: 22.80p The Scottish Investment Trust PLC | Annual Report 2020
03
Chairman’s Statement
pays scant regard to valuation, and is an anathema to
our value-focused style of investing. To have kept pace
with global markets this year, our portfolio would have
required a proportionately large exposure to a very
small number of companies that we believe are greatly
overvalued and a lot less exposure to the names which
we consider offer the best potential for long-term gains.
This influence, unfortunately, has been a hallmark of
markets during the five years since we adopted our
contrarian approach and has become greater in more
recent years. The result is an extreme divergence
between the most and least expensive parts of the
market. Such extremes have, historically, proved
unsustainable and we believe that a new phase for
markets is overdue, one that may favour those who, like
us, do not follow the crowd.
Notwithstanding our lack of exposure to what we
consider irrationally priced momentum driven
investments, there were two particularly advantageous
decisions made during the year. The first was our
Manager’s decision to take pre-emptive action to
preserve capital at the onset of the Covid-19 crisis by
selling out of some of the companies we believed would
be most impacted. The second was a large exposure
to gold miners, which participated strongly in the
recovery. Unfortunately, the benefits of these decisions
were masked in the second half of the year as markets
rewarded stocks deemed impervious to the challenges
facing the real economy, such as information technology
stocks. In contrast we invested in companies we
believed would be less impacted by the travails of the
real economy, but were considered dull in the feverish
monetary environment created by central bank support,
which has fuelled momentum investing.
Our contrarian approach explicitly aims to take a
different view from other managers and invest without
regard to index composition in order to avoid the
herding around popular investments that is an inherent
trait of active management. We therefore expect our
portfolio, and its returns, to be unlike any index.
Comparator index change
Reflecting our expectation that our portfolio, and its
returns, will be unlike any index, the Company has for
many years had two comparator indices, the MSCI All
Country World Index (ACWI) and the MSCI UK All Cap
index. The Board has however now come to the view
that it would be helpful to the Manager, shareholders
and the Board itself for the Company to move to a
single comparator index in order to better judge the
Company’s performance. The most recent financial
year has shown how difficult it is to assess performance
against two comparator indices.
The Board considered a number of different indices as a
new single comparator. As a high conviction contrarian
There have been many momentous periods for markets
in the long history of the Company and 2020 will no
doubt be counted as among the most noteworthy.
Stockmarket movements have been nearly as
extraordinary as the events that swept the world. Fear
and euphoria made their mark in equal measure,
resulting in a period of significant volatility. The health
and economic costs are still being counted, although,
for the year under review, the significant interventions
by governments and central banks have largely defined
outcomes for equity investors.
During the financial year, markets boomed even as
the pandemic initially raged, fell precipitously as the
developed world ‘locked down’ their economies and
then boomed again as support measures were judged
to have averted the worst of the economic catastrophe.
The Company’s portfolio held up well during the
market sell-off but lagged considerably during both
periods of market strength as momentum and growth
companies soared irrespective of valuation.
Taken as a whole, it has been a challenging year for
our contrarian approach. Seldom, if ever, has the
dispersion of returns between growth and value names
been so stark and, within this context, performance has
been disappointing. While our performance relative to
global indices has lagged in recent periods, we believe
that this dispersion has created an opportunity to buy
unloved, but robust, companies at attractive prices.
Performance
Amid this challenging environment, the share price
total return was -12.0% and the net asset value per
share (NAV) total return (with borrowings at market
value) was -10.6%. 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 5.0% while the UK
based MSCI UK All Cap Index total return was -20.6%.
This leaves us strongly ahead of the UK comparator
and well behind the global index.
Global markets continued this year to be dominated
by a momentum style of investing which seemingly
04
The Scottish Investment Trust PLC | Annual Report 2020
Chairman’s Statement (continued)
fund, with a strong income ethos, there is no obvious
single index to choose. The Board however concluded
that shareholders are looking for performance to be
measured against global markets. Accordingly, while
it might appear counter-intuitive in view of this year’s
performance against the global index, the Board
decided that the Company will henceforth compare
performance against the MSCI All Country World
Index as the sole comparator. While we always note
performance for the year, I would remind shareholders
that we assess progress over the longer term and we
continue to expect to deliver above-average returns
over an investment cycle.
Investing through the cycle
Our contrarian investment approach is grounded in
the observation that stockmarket trends are frequently
pushed to extremes, leading to their eventual reversal.
What starts as an attractive opportunity is chased until
the potential for further upside is eliminated and the
potential for a fall becomes high. This process can
transform great companies into bad investments. In a
similar vein, companies can become so unloved that
their improvement goes unnoticed, creating excellent
investment opportunities.
It is already clear that this period marks an acute
disparity between the out of favour ‘value’ areas of the
market and the well-loved ‘growth’ segments. Although
this is one of the largest recorded divergences, it is
difficult to know what the precise trigger will be for
a reversal. However, in a nutshell, once a particular
investment becomes overly consensual, and thus
overcrowded, the rotation out of those investments into
other parts of the market can be swift and dramatic.
Standing apart from consensual trends during such
times is discomforting, particularly during a cycle as
long as this one. For us however the alternative is much
more uncomfortable – owning stocks that are priced for
perfection. Consequently, we continue to advocate a
value-driven approach.
Income and dividend
Over the past year, earnings per share fell by 27.1% to
21.7p (2019: 29.8p). The decline was driven by reduced
dividend receipts as many businesses, including some
in which we invest, opted to curtail dividend payments
to safeguard their financial health.
As I have previously mentioned, our portfolio is not
explicitly invested for income and the Board recognises
that there will be occasions when the portfolio does not
necessarily fully cover the requirements of the regular
dividend.
The precise causes of disruptions are often a surprise.
The fact that they can and do occur is not. The
Company prepares for these scenarios by building
a substantial revenue reserve during more plentiful
periods, which can be drawn down in less fruitful times.
This approach serves us well in the current environment
and the Company will utilise a small portion of its
reserve in this financial year to cover the regular
dividend. The revenue reserve remains substantial at
60.8p, equivalent to more than 2.5 times the targeted
annual dividend for the year to 31 October 2021.
The Board recognises the importance of dividend
income to many shareholders and our intent with regard
to dividends remains unchanged. The Board aims to
maintain the Company’s long track record of annual
regular dividend increases and also its objective to
provide regular dividend growth ahead of UK inflation
over the longer term.
Accordingly, the Board recommends a final dividend of
6.1p which, if approved, will mean that the total regular
dividend for the year will increase by 1.8% to 23.2p. If
approved, this will be the 37th year of annual regular
dividend increases.
The Board’s target is to declare three quarterly interim
dividends of 5.8p for the year to 31 October 2021 and
recommend a final dividend of at least 5.8p for approval
by shareholders at the Annual General Meeting in 2022.
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.
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 discount at which the share price traded to NAV
over the year was more volatile than normal, reflecting
the periods of extreme market dislocation, but finished
the year at 9.9%.
The average discount over the year was 10.0%. During
the period, 1.0m shares were purchased for cancellation
at an average discount of 10.6% and a cost of £7.3m. In
the previous year, 3.3m shares were purchased.
The ongoing charges figure (OCF) for the year under
review of 0.52% (2019: 0.58%) 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
As the Covid-19 pandemic looked certain to severely
weaken the economy, the Company reduced gearing
The Scottish Investment Trust PLC | Annual Report 2020
05
Chairman’s Statement (continued)
from its 31 October 2019 level of 1% to a net cash
position of around 5%. In other words, we held all of
our borrowings and an additional 5% of net assets in
cash. This move was designed to shelter funds from a
market decline and to preserve firepower for a period
of sustained recovery.
As funds were deployed to take advantage of the
recovery, gearing was increased and ended the year at
0%. It is our belief that there will be further compelling
recovery opportunities and we continually assess
when to deploy gearing for the long-term benefit of
shareholders.
Amendments to the Articles of Association
The global pandemic highlighted challenges in
companies' ability to hold shareholder meetings
which complied with their Articles of Association.
Fortunately, the government introduced temporary
legislation which permitted companies to meet their
obligations in this regard by holding virtual meetings
and by restricting the ability of shareholders to
attend. To avoid any such difficulties in the future, at
the forthcoming Annual General Meeting (AGM), the
Company will be seeking shareholder approval to
amend its articles to allow for virtual, hybrid and/or
physical meetings to be held at the discretion of the
Directors. A number of other non-substantive changes
are also proposed. Further details can be found in the
Corporate Governance Report on page 35.
Annual General Meeting (AGM)
The Company's 133rd Annual General Meeting will be
held at the offices of Dickson Minto W.S., 16 Charlotte
Square, Edinburgh EH2 4DF at 10.30am on Tuesday,
2 February 2021. Full details of the business to be
conducted at the AGM are given on page 35.
In light of the restrictions on travel and social
gatherings and as permitted by recent temporary
legislation the AGM will, for the first time in its history,
be held as a closed meeting and shareholders will not
be able to attend in person. Shareholders' views are
important and the Board encourages shareholders to
vote on the resolutions within the Notice of AGM.
The Board always welcomes questions from our
shareholders at the AGM. This year, to ensure that we
are able to respond to any questions you may have for
either the Board or the Manager, please send these
via email to info@thescottish.co.uk or in writing to the
Company's registered office.
challenges to come, not least managing the current
wave of Covid, but we believe the reaction to the
vaccine newsflow demonstrates the potential for
recovery in beaten down and overlooked areas should
the good news be sustained.
During the pandemic, the Company has successfully
operated with roles performed at home. If required, the
Company can continue to operate on this basis for a
further extended period.
The drama around the US presidential election was
emblematic of Donald Trump’s tenure, but apparent
President-elect Joe Biden is likely to bring a more
diplomatic approach to the role. That said, President
Trump clearly galvanised a substantial portion of the
population and his better than anticipated showing
perhaps suggests that the populist tendencies of recent
years could be a durable trend.
At the time of writing, Brexit negotiations remain
ongoing and have proven fractious. Although we
continually review the potential effects of Brexit, we
remain of the view that it will not have a material
adverse impact on the Company’s business model or
operations.
While it is certainly premature to look beyond the
impact of the virus, eventually attention will turn to how
we deal with the long-term effects of the ‘whatever
it takes’ fiscal and monetary response. While these
measures were undoubtedly necessary to avoid more
lasting damage to jobs and businesses, we have now
entered a new era in economic policymaking. It has
become obvious, especially to those who wish to
control the levers of power, that governments can
borrow without regard to the tax-base as interest rates
remain very low. Borrowing and spending money is
popular.
Central banks have directly or indirectly communicated
a greater tolerance for inflation, which may prove an
unstoppable development once it becomes apparent.
This, combined with the eventual prospect of higher
rates of interest, may favour our investment style over
others.
The divergence of valuations within markets has
reached new extremes, a position that we believe
is unsustainable and likely to reverse. This favours
a contrarian approach which seeks out mispriced
investments that have been overlooked. We believe that
the Company is well placed for the future.
Outlook
The course of the pandemic remains a matter of
serious concern to markets and recent news about
vaccines has been well received. Clearly there will be
James Will
Chairman
11 December 2020
06
The Scottish Investment Trust PLC | Annual Report 2020
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: 10,352* Fees: £32,500
*8,456 held personally, 1,896 by members of his family.
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
Jane Lewis
Appointed to the Board in
December 2015. Chair of the
Remuneration Committee and
Senior Independent Director.
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: 2,500 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 and the
OG Bursary Fund.
Shares held: 10,000 Fees: £32,500
The Scottish Investment Trust PLC | Annual Report 2020
07
08
The Scottish Investment Trust PLC | Annual Report 2020
Manager’s Review
Markets have continued to reward past winners, leaving
the unloved parts of the market, where we prefer to invest,
in their shadow.
Before we consider the portfolio over the last year, I want
to reflect on the position in which we find ourselves now.
On one hand there is reason for us to be optimistic. The
divergence in the performance and valuation of the most
loved companies and those that are unloved, has seldom
been more extreme. As contrarian stock pickers, that
excites us and offers the potential to buy attractive
companies at a good price. Certain areas of the market
look especially cheap but, on the whole, there are
companies in almost all sectors that go unrewarded
despite their incumbent market positions, durability and
cash generation. That is where our opportunity lies.
On the other hand, we continue to worry about the
overextended valuations accorded to previous ‘winners’.
These can appear to offer the prospect of perpetual
growth. We understand why this finds favour with some
but, in contrast, we are wary of paying a fancy valuation for
a company that is priced as if nothing will ever go wrong.
In our view the margin of error is diminished and the
potential for disappointment large.
Scott McNealy, then CEO of Sun Microsystems, one of the
‘winners’ in the dotcom boom, famously lambasted his
own investors after the crash. He asked those who had
paid a multiple of 10 times sales for his company’s shares,
“what were you thinking?”. As he pointed out, at this
valuation the payback period is likely to be unfathomably
long. Having worked through that era, I never thought I
would witness similar conditions, but here we are. Like
then, the ‘fear of missing out’ has become one of the
hottest investment themes. Indeed, the proportion of
companies trading at 10 times sales or greater is near to
that seen at the height of the dotcom boom.
The root cause of such exuberance is, like then, too much
cheap money creating a febrile atmosphere. In the period
we have seen an electric truck maker, without a product in
production, soar in valuation to become one of the biggest
companies in the world. The share price quickly crashed
when it was revealed that the promotional video
purporting to show the vehicle in action was filmed using a
mocked-up truck rolling down a slope.
Our view is that a large proportion of market participants
do not make discerning value judgements. This allows
momentum to build for extended periods. There is
tremendous pressure on many to perform in a similar
manner to markets (or benchmarks), while passive
investment products explicitly target such an outcome.
Success breeds confidence which breeds inflows which
breeds momentum. All we can say is that, without valuation
support, when markets turn, as they always do, the virtuous
circle quickly becomes vicious.
I remember from my formative investing experiences how
easy it was to be wowed by a good story and a stock chart
pointing to the sky. On occasion, I even found myself
parroting some of these stock-hype narratives. This is what
happens in a crowd – members tell each other what they
think they are meant to say. Given the exceptional length of
the current investment cycle, many professional investors
have never experienced a period where growth and
momentum investments are not the only game in town. As
a result, sceptics (such as ourselves) are in short supply, so
that the possibility of a change in trends is widely ignored.
For value-orientated investors the current market drivers
can be viewed as a potential positive because of the
opportunity they provide. The arithmetic of indices
determines that they will struggle to increase if the
speculative bubble in the most popular part of the market
starts to deflate, potentially allowing the unloved names to
outperform. Wavering equity markets would also almost
certainly push central banks to redouble efforts in order to
prop them up and, as after the dotcom crash, the
unintended consequence of this would be to provide
substantial liquidity to the, currently unfashionable, areas of
markets where we invest.
The portfolio
Gold typically offers shelter from the devaluing effects of
unfettered money printing, so the period provided a
favourable backdrop for our two largest gold mining
investments Newmont (+£18.8m total return) and Barrick
Gold (+£16.9m). Production challenges held back
Newcrest Mining (-£1.2m), but we believe there are
interesting growth opportunities that are being overlooked.
Exposure to the sector was increased with the addition of
two South African listed miners Gold Fields (+£4.6m) and
AngloGold Ashanti (+£1.3m) that are working to
substantially improve operating performance.
US retailer Target (+£4.6m) performed well as efforts to tilt
its business model towards online sales and convenient
store formats bolstered sales and profitability, an approach
that served particularly well during the pandemic. Tesco
(-£1.8m) declined despite taking positive steps towards
divesting its overseas operations and refocusing on
growing profitability in its core UK market. Many traditional
retailers have found their operations severely crimped, of
The Scottish Investment Trust PLC | Annual Report 2020
09
Manager’s Review (continued)
course, and those that had not sufficiently advanced their
transformations were sold early in the year, including Gap
(+£0.2m), Macy’s (-£0.1m) and Marks & Spencer
(-£1.0m). We added a holding in US fashion group Capri
(-£0.1m), which is undergoing a turnaround of its strong
but underperforming brands.
PepsiCo (£0.0m) continues to benefit from plans to
enhance growth and profitability, while Japanese
beverages group Kirin (-£2.1m) declined as the closure of
the hospitality sector hampered sales. Brazilian brewing
giant Ambev (-£0.4m) is a new holding and we expect it
to participate in a recovery in consumption.
We made a timely reduction in our energy holdings,
leaving only oil majors with the greatest ability to
withstand oil price volatility. Their comparative strength
did not shield them from the weak operating environment,
however, and Royal Dutch Shell (-£10.8m), Exxon Mobil
(-£5.7m), Chevron (-£5.2m) and Total (-£5.1m) all declined
in value. We took the opportunity to purchase oil services
group Halliburton (-£0.5m) at a discounted valuation to
take advantage of its strong position within the sector and
recovery potential.
We also scaled down our investments in banks, in advance
of the pandemic, in anticipation of a more challenging
lending environment. We retained a small exposure to
strong franchises that have scope to rebound as the
economy improves including NatWest (-£4.1m), ING
(-£3.8m), Lloyds Banking (-£2.3m) and BNP Paribas
(-£1.6m). Later in the period, we added JPMorgan Chase
(-£0.5m), Banco Santander (+£0.1m) and First Horizon
(+£0.1m). We also established a position in Dutch life
insurer Aegon (-£0.1m) which is undergoing a
transformation under new leadership. Meanwhile, we
completely sold UK real estate trust British Land (-£5.6m)
as lockdowns looked set to place considerable strain on
tenants.
East Japan Railway (-£5.2m) declined as passenger
volumes were severely curtailed by lockdown measures,
though we see rebound potential as well as longer term
value in the company’s property assets.
Within the health care sector, Roche (+£1.9m) and
GlaxoSmithKline (-£4.0m) continue to make progress
in their transitions to a new generation of innovative
medicines. New holdings were established in Bristol-
Myers Squibb (-£0.3m), Sanofi (-£1.3m) and Gilead
Sciences (-£3.5m) where we believe the market has
misjudged the potential for these businesses to transform
and grow. Gilead has become famous for its Covid-19
treatment remdesivir, though we believe that value lies
elsewhere in the business.
BT (-£13.8m) was a notable disappointment as tentative
efforts to revive the business were overshadowed by the
additional headwind of Covid-19. More broadly,
telecoms were lacklustre despite increased reliance on
communications infrastructure during lockdowns. KPN
(-£0.6m), AT&T (-£2.1m), Telstra (-£2.1m), Orange
(-£2.6m) and China Mobile (-£3.3m) all fell in value.
We took new positions in several tobacco firms including
Altria (-£1.2m), British American Tobacco (-£0.8m),
Philip Morris International (-£0.4m) and KT&G (-£0.5m)
where we believe that the durability of cash flows has
been underappreciated by the market. Our longer-
standing investment in Japan Tobacco fell in value
(-£2.5m).
Among utilities, United Utilities (+£0.7m) gained on the
back of stabilising regulatory and political environment.
We also added two US utilities, Duke Energy (-£1.2m)
and Dominion Energy (-£0.2m), as we concluded that
the potential for asset growth is not fully reflected in their
discounted valuations versus peers.
Outlook
Great uncertainty remains but it seems as if a return to
some form of normality will occur next year, even if the
various vaccines do not make their anticipated impact.
That said, the recent rapid spread of Covid-19 in
numerous countries indicates that restrictions may remain
part of life for some time.
Government and central bank support have been crucial
to supporting economies and stockmarkets. We believe
this will continue and expect its beneficiaries to be more
broadly spread if a sustainable recovery is evident in the
real economy. The out of favour stocks that we prefer
have lagged the stockmarket recovery to date but still
offer excellent long term investment opportunities for
patient investors. This is a positive environment for
contrarian investors.
Alasdair McKinnon
Manager
11 December 2020
10
The Scottish Investment Trust PLC | Annual Report 2020
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.for further
improvement that is not yet fully recognised.
Categorisation of Investments
more
to come
underappreciated
prospects
change
is afoot
overlooked progress
T
N
E
M
T
N
E
S
I
T
E
K
R
A
M
i
g
n
v
o
r
p
m
I
t
n
a
t
c
u
e
R
l
c
i
t
s
i
m
i
s
s
e
P
ugly
ducklings
positive potential
Challenged
Overlooked
Underestimated
OPERATING PERFORMANCE
The Scottish Investment Trust PLC | Annual Report 2020
11
Manager’s Review (continued)
NAV Absolute Performance Attribution
Year to 31 October 2020
Equity portfolio (ungeared)
Gearing
Total equities
Other income and currency
Buybacks
Expenses
Interest charges
Change in market value of borrowings
Change in pension liability/surplus
NAV with borrowings at market value total return
Top Ten Gains and Losses
Year to 31 October 2020
Performance†
%
60.3
55.7
57.9
54.9
9.6
9.4
58.3
3.8
1.1
7.5
Gains
£m
18.8
16.9
4.6
4.6
1.9
1.3
0.9
0.7
0.2
0.1
BT
Royal Dutch Shell
Exxon Mobil
British Land*
East Japan Railway
Chevron
Total
Natwest
GlaxoSmithKline
ING
Newmont
Barrick Gold
Target
Gold Fields
Roche
Anglogold Ashanti
Heritable property and subsidiary
United Utilities
Gap*
Tourmaline Oil*
* Sold during the year.
Contribution
%
-8.8
-0.7
-9.5
+0.1
+0.1
-0.7
-0.5
+0.1
-0.2
-10.6
Performance†
%
Losses
£m
-49.3
-13.8
-60.5
-10.8
-44.8
-54.9
-43.4
-37.4
-38.2
-43.6
-23.3
-30.6
-5.7
-5.6
-5.2
-5.2
-5.1
-4.1
-4.0
-3.8
† 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.
12
The Scottish Investment Trust PLC | Annual Report 2020
The Investment Team
Alasdair McKinnon
Manager
Sarah Monaco
Investment Manager
Alasdair joined the Company in 2003 and became
Manager in 2015. He has 21 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 18 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
James Webb
Investment Manager
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.
James joined the Company as an Investment Manager
in 2020. He has 8 years of investment experience.
He graduated MA with Honours in Economics and
International Relations from the University of Aberdeen
and holds the CFA UK’s Investment Management
Certificate.
Igor Malewicz
Investment Analyst
Mark Dobbie
Investment Manager
Mark joined the Company in 2000 and became
an Investment Manager in 2011. He has 10 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.
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.
The Scottish Investment Trust PLC | Annual Report 2020
13
Manager’s Review (continued)
14
The Scottish Investment Trust PLC | Annual Report 2020
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.
The Company has a premium listing on the London
Stock Exchange, within the Financial Services sector,
and is identified by the TIDM or ticker symbol ‘SCIN’.
The Company’s ISIN is GB00007826091 and SEDOL is
0782609.
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 22 and 23
and detailed analysis of the spread of investments
by geographic region and industry sector is shown
on page 24. A further analysis of changes in asset
distribution by industry sector over the year, including
the sources of gains/losses, is shown on page 25.
Attribution of NAV performance is shown on page 11.
At the year end, the number of listed holdings was 59
(2019: 51). The top ten holdings comprised 39.5% of
total assets (2019: 37.0%).
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
to 11.
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
The Scottish Investment Trust PLC | Annual Report 2020
15
Strategic Report (continued)
resolution of shareholders, exceed the aggregate of
the reserves excluding unrealised capital profits of the
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,
Scottish independence and the global pandemic;
• 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 – 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
33 to 34 and in note 16 to the accounts on pages 66 to
69 and on internal controls in the Report of the Audit
Committee on page 37.
Performance
Management provides the Board with detailed
information on the Company’s performance at every
Board meeting. Performance is assessed in comparison
with the Company’s peers and the comparator indices.
During the financial year, the Board received regular
updates from the management team, in response to
and in order to more closely monitor market volatility
and macro-economic uncertainty caused by the global
pandemic.
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.
Due to the contrarian nature of the Company's
investment strategy, no formal targets are set for the
KPIs and APMs referred to above.
Definitions of the APMs can be found in the Glossary
on page 76.
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 6.1p
payable on 12 February 2021. With the interim
dividends each of 5.7p already paid in May, August
and November 2020, this makes a total of 23.2p for
the year. Based on 72,896,247 shares in issue at 31
October 2020, the final dividend will cost £4.447m. The
total dividend for the year will cost £17.026m.
Share capital
General
The Company had 72,896,247 shares of 25p each in
issue on 31 October 2020 (2019: 73,893,508). Since
the year end, the Company has bought back 545,747
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
16
The Scottish Investment Trust PLC | Annual Report 2020
Strategic Report (continued)
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
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 2020, the Company bought back
for cancellation a total of 997,261 shares of 25p each
representing 1.3% of shares in issue at 31 October
2019, at a cost of £7,334,000.
At the AGM on 4 February 2020, authority was granted
to repurchase up to 14.99% of shares in issue on that
Discount to NAV*
5 Years to 31 October 2020
%
0
3
6
9
12
15
18
%
0
3
6
9
12
15
18
Oct 15
Oct 16
Oct 17
Oct 18
Oct 19
Oct 20
* with borrowings at market value
Discount to Cum-Income NAV
Discount to Ex-Income NAV
Source: The Company
date. The number of shares authorised for repurchase
was 11,067,642. Share buybacks from the date of the
AGM to the Company’s year-end amounted to 937,261
shares or 1.27 percentage points of the 14.99%
authority.
Holdings in listed closed-ended investment
funds
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 £2.4m
(0.4% of shareholders’ funds). These comprise the
Company’s office property and subsidiary company.
Viability statement
The Directors have assessed the prospects of the
Company for a period of five years. The Board believes
this time period continues to be most appropriate as
it aligns with the Company’s strategy to deliver above-
average returns over the longer term, being at least five
years.
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 (or premium),
asset allocation, income and operating expenses.
Consideration was also given to the principal risks
and uncertainties faced by the Company (outlined in
more detail on page 33), its portfolio of liquid listed
international equity investments and cash balances, as
well as its ability to achieve the stated dividend policy
and to cover the interest payments on the Company's
debt.
The Board has also considered the implications of the
global pandemic in 2020 and resultant global macro-
economic uncertainty, in relation to the Company’s
investment position, its future income streams, its
gearing covenants and its ability to continue trading
operationally.
The Company was in a resilient financial position as at
31 October 2020, with a strong asset-backed balance
sheet and a flexible team capable of adapting to
different working patterns. If necessary, the Company
would be able to withstand continuing market volatility,
reduced asset values and income streams and a
depressed macro-economic outlook for a considerable
period of time.
Based on the above, and notwithstanding a more
uncertain macro-economic outlook this year, 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 viability assessment.
The Scottish Investment Trust PLC | Annual Report 2020
17
Strategic Report (continued)
Stakeholder relations (s.172 Statement)
In performing its duties, the Board applies the following
key principles of section 172 of the Companies Act
2006, being those relevant to the Company as a listed
investment company to all its decision making:
(a) the likely consequences of any decision in the long
term;
(b) the interests of the Company’s employees;
(c) the need to foster the Company’s business
relationships with suppliers, customers and others;
(d) the impact of the Company’s operations on the
community and the environment;
Stakeholder
Engagement in year
(e) the desirability of the Company maintaining a
reputation for high standards of business conduct;
and
(f) the need to act fairly as between members of the
Company.
As the Board considers that the Company in fact has
relatively few external stakeholders, the key groups
being its shareholders, its employees and key service
providers, the Directors have focused attention on
ensuring the following robust mechanisms protect their
interests:
Shareholders
Employees
Key Service
Providers
The Board recognises the importance of communications with shareholders. The primary modes
of communication are the interim and annual reports which are designed to provide shareholders
with a full understanding of the Company's activities and performance.
The Company's Annual General Meeting in February 2020 was held in person. The Company also
engages with shareholders and potential shareholders via its website, social media and a regular
newsletter.
Under normal circumstances, the Board welcomes the opportunity to meet with shareholders
at the Annual General Meeting and to respond to any questions that may be raised. Due to the
unprecedented circumstances arising from the global pandemic, the Company will be holding
a closed AGM in 2021; however, shareholders are welcome to submit questions ahead of the
AGM or at any time throughout the year via email to info@thescottish.co.uk or by writing to the
Chairman at the Company’s registered office.
The Company is fortunate to benefit from a group of long-serving, experienced staff. The team
works closely with the Board in defining and implementing strategy to meet the Company’s
objective. In light of the small number of employees, there is regular formal and informal
interaction between the Board and staff. In addition, an Employee Handbook is provided to all
staff. The handbook, which is reviewed annually, sets out key policies and procedures to ensure
the well-being of all employees. The Company has also established a whistleblowing policy which
enables concerns to be raised and investigated in a confidential manner.
As a result of the global pandemic, provision has been made to ensure that employees are able
to work safely and effectively from home. Appropriate adaptations have been made to the office
space to create a Covid-safe working environment for employees' return in due course.
As a company with a listing on the Premium Segment of the London Stock Exchange, the Board
is mindful of the importance of ensuring compliance with appropriate corporate legislation and
the rules and regulations of the Financial Conduct Authority insofar as they relate to the Company
and its wholly owned subsidiary, S.I.T. Savings Limited.
There is a robust oversight framework in place to evaluate the performance of key service
providers, including Maitland (who provide company secretarial and administration services)
as well as our custodian and depositary. The Board and management maintain regular
communication with senior personnel at key service providers to provide feedback, ensure open
communications and to develop and maintain long-term collaborative partnerships.
There was enhanced dialogue between the Company and its key service providers during the
year to monitor their responses to the Covid-19 pandemic and to ensure that business continuity
processes were operating effectively.
18
The Scottish Investment Trust PLC | Annual Report 2020
Strategic Report (continued)
Stakeholder
Engagement in year
Community &
Environment
As stated in the Chairman’s Statement, in pursuing the Company’s objectives, various factors that
may impact on the performance are considered and these may include environmental, social
and governance issues. The consideration of ESG factors is an important part of the investment
process as the Company believes that poor practices can have an impact on the value of
investments and potential investments. In a broader context, the Company's operations create
employment, aid economic growth, as well as generating tax revenues and wealth, thereby
benefitting the community, economy and environment more generally.
Principal Decisions
We set out below some examples of how the Board
has had regard to the matters set out in section 172(1)
(a)-(f) when discharging its section 172 duty and the
effect of that on decisions taken by us. We define
principal decisions as both those that are material to
the Company, but also those that are significant to
any of our key stakeholders. In making the following
principal decisions, the Board considered the relevant
impact on stakeholders as well as the need to maintain
a reputation for high standards of business conduct.
Principal decision 1 – Dividend declarations
Each year, in conjunction with advice from the Manager,
the Board makes an assessment of the strength of the
Company’s income, forecast revenue, revenue reserve
and future prospects relative to uncertainties in the
external environment and makes decisions about the
payment of dividends. Despite the uncertainties arising
from the global pandemic and having reviewed a range
of metrics, the Board approved and declared dividends
totalling £17.026m to shareholders during the year to
31 October 2020.
Principal decision 2 – Comparator index change
As part of the Board’s annual review of the Company’s
strategy, it considered the ongoing appropriateness
of the two comparator indices which it had been using
to assess performance. Taking into account feedback
from some shareholders and the views of the current
Directors, it was concluded that it would be better
to move to a single comparator index, the MSCI All
Country World Index. The Board believes that this will
provide shareholders with a clear comparison of the
Company’s performance against global markets, as well
as providing direction to the Manager on how we will be
assessing performance in the future.
Principal decision 3 – Elimination of the actuarial deficit
in the Company’s defined benefit pension scheme
Following completion of the latest triennial valuation
of the Company's defined benefit pension scheme,
the Board gave consideration to the options around
the future funding of the scheme. As a result of its
deliberations, the Board approved a one-off contribution
of £3,220,000 to the Company’s Retirement Benefits
Scheme to eliminate the remaining actuarial deficit after
deduction of regular payments in the year. In reaching
this decision, the Board considered the effects on key
stakeholders including employees, shareholders and the
Company as a whole. Further information is provided in
note 4 to the financial statements.
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 33 and in
note 16 on page 66.
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.
As explained in the Chairman’s Statement on page 3,
with effect from 1 November 2020 the Company will
henceforth compare performance against the MSCI All
Country World Index as the sole comparator.
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 Limited to provide company secretarial,
administration and accounting services to the Company.
Northern Trust acts as custodian and depositary.
The Scottish Investment Trust PLC | Annual Report 2020
19
investments. Prescriptive criteria are not applied;
however, the Manager considers the circumstances of
each situation.
If an ESG concern pertaining to an existing investment
is identified the Manager would initially consider if
engagement with the investee company would give
rise to a satisfactory resolution. Depending on the
conclusion, the Manager will either engage with the
company to encourage resolution of the issue or sell
the investment.
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
11 December 2020
Strategic Report (continued)
Substantial shareholdings
At 31 October 2020, the Company had been informed
of the following notifiable interest in its voting rights:
Wells Capital Management Inc.
4,924,836
Shares
%
held
6.8
On 4 November 2020, Wells Capital Management
Inc. informed the Company that it no longer held a
notifiable interest in its voting rights. On the same date,
1607 Capital Partners, LLC informed the Company of
its interest in 3,785,706 shares, being 5.2% of the share
capital as at 31 October 2020.
Analysis of share register at 31 October 2020
Category of holder
Individuals
Investment companies
Pension funds
Other
Total
Share
capital
%
82.6
5.2
5.7
6.5
100.0
Company’s directors and employees
The table below shows the breakdown of Directors and
employees.
Directors
Senior Manager
Employees
31 October 2020 31 October 2019
Male Female
Male Female
3
1
5
2
0
5
4
1
4
2
0
5
Purpose, Culture and Stakeholders
Reflecting the time the Board has spent considering
these areas during the year, our stakeholder
responsibilities and approach to purpose, culture and
values are reviewed in more detail on pages 17 to 18
and 34.
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.
The consideration of ESG factors is an important part
of the investment process as the Board and Manager
believe that poor practices can have an impact on the
value of the Company's investments and/or potential
20
The Scottish Investment Trust PLC | Annual Report 2020
The Scottish Investment Trust PLC | Annual Report 2020
21
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
Pension surplus
Net current assets
Total assets
Long-term borrowings at amortised cost
Pension scheme deferred tax on surplus
Pension liability
Shareholders’ funds
2020
755.5p
793.6p
750.9p
789.0p
681.0p
9.9%
2019
878.5p
915.9p
864.2p
901.6p
807.0p
8.1%
Change
%
-14.0
-13.4
-13.1
-12.5
-15.6
+3.2
-23.0
Total return
%
-10.6§
-10.1§
-12.0
+5.0
-20.6
£’000
581,235
1,161
80,542
662,938
(84,013)
(406)
–
578,519
£’000
687,820
–
74,173
761,993
(83,921)
–
(1,279)
676,793
29.75p
22.80p
7.45p
30.25p
-27.1
+1.8
-23.3
+0.7
Earnings per share
Regular dividend per share (2020: proposed final 6.10p)
Special dividend per share
Total dividend per share
UK Consumer Prices Index – annual inflation
§ Alternative Performance Measures (please refer to Glossary on page 76).
21.70p
23.20p
–
23.20p
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 2020
Year to
31 October 2019
High
924.0p
841.0p
25.8%
Low
705.2p
557.0p
5.9%
High
930.6p
843.0p
10.1%
Low
812.9p
748.0p
7.0%
NAV* and Share Price against Comparator Indices
Total Return – 5 years to 31 October 2020
200
180
160
140
120
100
80
200
180
160
140
120
100
80
MSCI ACWI
Share Price
NAV
MSCI UK All Cap
Oct 15
Oct 16
Oct 17
Oct 18
Oct 19
Oct 20
*with borrowings at market value
Chart data source: Bloomberg and the Company
22
The Scottish Investment Trust PLC | Annual Report 2020
List of Investments
As at 31 October 2020
Listed Equities
Holding
Newmont
Barrick Gold
Newcrest Mining
Pfizer
Japan Tobacco
Roche
United Utilities
Severn Trent
Duke Energy
Gilead Sciences
BT
Kirin
KT & G
Tesco
Sanofi
GlaxoSmithKline
Verizon Communications
China Mobile
PepsiCo
Gold Fields
Bristol-Myers Squibb
Deutsche Telekom
Target
Telstra
Carrefour
Altria
Chevron
Anglogold Ashanti
Total
Orange
National Grid
JPMorgan Chase
British American Tobacco
KPN
AT&T
BP
KDDI
East Japan Railway
Royal Dutch Shell
Aegon
Country
US
Canada
Australia
US
Japan
Switzerland
UK
UK
US
US
UK
Japan
South Korea
UK
France
UK
US
China
US
South Africa
US
Germany
US
Australia
France
US
US
South Africa
France
France
UK
US
UK
Netherlands
US
UK
Japan
Japan
UK
Netherlands
Market
value
£’000
49,475
47,034
35,884
22,254
21,209
21,041
17,515
16,031
16,029
15,201
14,135
13,939
13,830
13,365
13,278
13,176
12,584
12,037
11,443
11,176
10,849
9,961
9,948
9,803
9,316
9,206
8,600
8,163
7,862
6,630
6,548
6,063
5,996
5,974
5,956
5,603
5,301
5,046
4,829
4,267
Cumu lative
weight
%
45.0
67.2
82.8
92.3
The Scottish Investment Trust PLC | Annual Report 2020
23
List of Investments (continued)
Market
value
£’000
3,907
3,431
3,169
3,059
3,005
2,856
2,805
2,581
2,539
2,461
2,425
1,925
1,602
1,557
1,303
1,286
928
869
595
578,860
Market
value
£’000
2,375
2,375
581,235
Cumu lative
weight
%
97.4
99.6
Cumu lative
weight
%
0.4
100.0
As at 31 October 2020
Listed Equities
Holding
Tele2
Exxon Mobil
Dominion Energy
First Horizon
Banco Santander
Philip Morris International
Capri
Bank of Kyoto
Ambev
Sumitomo Mitsui Financial
Halliburton
NatWest
Mitsubishi UFJ Financial
ING
Lloyds Banking
BNP Paribas
Adecco
Intesa Sanpaolo
Standard Chartered
Total listed equities
Unlisted
Country
Sweden
US
US
US
Spain
US
US
Japan
Brazil
Japan
US
UK
Japan
Netherlands
UK
France
Switzerland
Italy
UK
Holding
Heritable property and subsidiary
Total unlisted
Total equities
The 10 largest holdings have an aggregate market value of £261,673,000.
Country
UK
Listed Equities by Category
(Market Value Weighted)
more to come
3%
change is afoot
60%
ugly ducklings
37%
24
The Scottish Investment Trust PLC | Annual Report 2020
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
Pension surplus
Net current assets
Total assets
by Region
UK
Europe (ex UK)
North America
Latin America
Japan
Asia Pacific (Ex Japan)
Middle East & Africa
Pension surplus
Net current assets
Total assets
31 October
2020
%
31 October
2019
%
Net current assets
12.1%
Pension surplus
0.2%
4.9
22.9
0.9
1.9
15.7
14.5
5.0
–
13.0
8.9
–
0.2
12.1
11.1
14.2
4.0
9.5
12.8
8.1
11.2
–
15.4
2.3
1.7
–
9.7
100.0
100.0
31 October
2020
%
31 October
2019
%
15.6
13.5
36.6
0.4
7.9
10.8
2.9
0.2
22.6
19.1
29.5
–
10.4
8.7
–
–
12.1
100.0
9.7
100.0
Total equities
87.7%
%
100.5
0.2
13.9
-14.5
-0.1
100.0
Allocation of Shareholders’ Funds
Total equities
Pension surplus
Net current assets
Borrowings at amortised cost
Provisions for liabilities
Shareholders’ funds
The Scottish Investment Trust PLC | Annual Report 2020
25
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
2019
£m
84.5
108.1
30.3
72.9
97.3
61.8
85.1
–
117.1
17.6
13.1
687.8
Net
purchases
(sales)
£m
(19.7)
5.7
(18.4)
(62.6)
20.7
45.7
(37.4)
–
–
45.4
(7.3)
(27.9)
Gains/
(losses)
£m
(32.1)
37.9
(5.9)
2.5
(14.3)
(11.7)
(14.8)
–
(30.8)
(3.7)
(5.8)
(78.7)
31 October
2020
£m
32.7
151.7
6.0
12.8
103.7
95.8
32.9
–
86.3
59.3
–
581.2
Changes in Shareholders’ Funds
Total equities
Pension surplus
Net current assets
Total assets
Borrowings at amortised cost
Provision for liabilities
Shareholders’ funds
31 October
2019
£m
Net
purchases
(sales)
£m
31 October
2020
£m
687.8
(27.9)
581.2
–
74.2
–
6.0
1.2
80.5
762.0
(21.9)
662.9
(83.9)
(0.1)
(1.3)
–
(84.0)
(0.4)
676.8
(22.0)
578.5
Gains/
(losses)
£m
(78.7)
Dividend
income
£m
Total
return
£m
19.9
(58.8)
26
The Scottish Investment Trust PLC | Annual Report 2020
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
%
10.26
10.05
4,284
0.72
740,140
630,367
36,046
533.7
469.3
10.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
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
29.75
22.80
4,133
0.58
761,993
676,793
26,978
915.9
807.0
2020
21.70 23.20
3,415
0.52 662,938 578,519
7,334
793.6
681.0
Ten Year Growth Record
NAV
(debt at
amortised
cost) total
return
%
17.0
(0.0)
9.2
23.8
1.5
3.9
29.9
11.4
0.4
1.7
(10.1)
9.0
8.2
8.6
8.6
8.7
8.6
8.1
6.8
7.2
6.6
9.3
9.6
9.8
9.8
9.6
10.1
10.0
8.8
8.3
8.1
9.9
Year to
31 October
Earnings
per share
Regular
dividend per
share1
Consumer
Prices
Index
100.0
121.2
117.1
130.7
112.2
155.1
210.7
224.8
253.6
290.0
100.0
103.5
111.9
115.4
119.4
124.4
134.3
199.0
210.9
226.9
100.0
105.0
107.8
110.1
111.6
111.4
112.4
115.8
118.6
120.3
Share
price
total
return
100.0
98.3
106.5
137.0
138.9
144.0
187.2
211.2
215.1
217.4
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
100.0
109.2
135.2
137.2
142.7
185.3
206.4
207.2
210.7
100.0
97.6
105.8
135.6
137.0
142.5
184.5
204.8
207.0
208.1
100.0
101.1
110.8
136.1
136.7
139.7
156.9
178.1
175.7
185.9
100.0
99.5
108.2
133.7
144.7
149.9
193.5
219.2
226.6
251.9
Share
price
100.0
96.3
102.1
128.5
127.4
129.6
164.0
179.6
175.8
172.0
211.5
230.8
121.2
145.1
191.2
189.4
185.9
147.7
264.4
7.8%
8.7%
1.9%
3.8%
6.7%
6.6%
6.4%
4.0%
10.2%
6.4%
13.2%
1.7%
2.3%
5.8%
5.8%
5.5%
1.1%
12.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
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.
The Scottish Investment Trust PLC | Annual Report 2020
27
28
The Scottish Investment Trust PLC | Annual Report 2020
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
11 December 2020
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;
The Scottish Investment Trust PLC | Annual Report 2020
29
Corporate Governance Report
Introduction
The Board prioritises the highest principles of
corporate governance within its own workings and
throughout the Company’s operations. The following
Corporate Governance Report provides more
information on: how the Company has responded to
the expectations of the updated governance standards;
and how the Board, supported by the committees
that it has established and the executive management
team, has continued to achieve its strategic aims over
the course of the year.
Statement of compliance
The Board has reviewed the principles set out in both
the UK Corporate Governance Code (revised in July
2018), which can be found at www.frc.org.uk, and the
Association of Investment Companies Code of Corporate
Governance (published in February 2019), which can be
found at www.theaic.co.uk
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 in full.
Directors’ independence
A Director’s maximum 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 maximum tenure of office will also
normally be for up to nine years. However, 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.
Following review during the year, 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
their 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 is chaired by Karyn Lamont and,
for the period to 16 September 2020, it comprised the
whole Board. In order to comply with the UK Corporate
Governance Code the Chairman of the Board stepped
down from the Committee on that date; however, he
may attend Committee meetings by invitation as an
observer. The Committee 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 2020;
• it has approved the 2020 Annual Report and
Financial Statements as a fair, balanced and
understandable assessment of the Company’s
position and future prospects as at 31 October 2020;
• it has considered the Company’s going concern and
future viability assessments, particularly in the context
of the continuing macro-economic uncertainty arising
from the global pandemic this year;
• it has reviewed the effectiveness of the Company’s
internal controls and risk management during the
financial year;
• 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 re-appointment
of the external auditors and it has considered the
proposed terms of their engagement;
• it has satisfied itself as to the independence of the
external auditors and agreed that any non-audit
services provided by the auditors 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 37 and 38.
Independent auditors
The Board proposes the re-appointment of
PricewaterhouseCoopers LLP as auditors for
the financial year ending 31 October 2021.
PricewaterhouseCoopers LLP has expressed its
willingness to be re-appointed auditors to the
Company. The re-appointment is subject to shareholder
approval at the Annual General Meeting to be held
on 2 February 2021 and resolutions concerning
PricewaterhouseCoopers LLP’s re-appointment and
remuneration will be submitted to that meeting.
30
The Scottish Investment Trust PLC | Annual Report 2020
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 39 to 41.
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.
Given the size and scale of the Company’s operations,
the Remuneration Committee has deemed that the
utilisation of a remuneration consultant is not necessary.
Nomination Committee
The Board has formed a Nomination Committee,
membership of which comprises 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, prepares 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
as a matter of policy. In order to recruit relevant
candidates, the identification of such candidates may
be carried out in conjunction with an independent
firm of consultants. 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 and ethnicity. The Board’s
diversity policy is discussed in more detail on pages 31
and 32.
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 is shown in the table below. Ad hoc
Board meetings are also held as and when required.
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.
James Will
Russell Napier¹
Jane Lewis
Mick Brewis
Karyn Lamont
Neil Rogan
Board
Held Attended
Audit
Committee
Held Attended
Remuneration
Committee
Held Attended
Nomination
Committee
Held Attended
5
1
5
5
5
5
5
1
5
5
5
5
3
1
3
3
3
3
3
1
3
3
3
3
2
1
2
2
2
2
2
1
2
2
2
2
1
–
1
1
1
1
1
–
1
1
1
1
¹ Retired from the Board with effect from 4 February 2020.
The Scottish Investment Trust PLC | Annual Report 2020
31
Corporate Governance Report (continued)
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.
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 also assessed
and appraised in his absence by the other Directors, led
by the Senior Independent Director.
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 an appraisal form and one-to-one
appraisals of each Director by the Chairman (and, in
the case of the Chairman, by the Senior Independent
Director). 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.
The services of Lintstock, an external consultant,
were also utilised as part of this exercise. The process
involved the completion of a questionnaire by each
Director and an interview with a representative from
Lintstock.
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.
Directors’ letters of appointment are available by
request to the Company's registered office.
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 constitute qualifying third party indemnity
provisions and were in place throughout the financial
year and at the date of approval of these Financial
Statements.
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
32
The Scottish Investment Trust PLC | Annual Report 2020
Corporate Governance Report (continued)
knowledge. In considering new appointments to the
Board, the Committee recognises the benefits of
diversity on the Board, including gender, ethnicity,
experience and background. 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 formal
diversity targets.
The Board currently consists of three male and two
female Directors. This exceeds the recommendation of
the ‘Women on Boards’ review by Lord Davies. Whilst
the Board does not currently have the same levels of
ethnic diversity, this will be kept under review by the
Nomination Committee.
Conflicts of interest
The Companies Act 2006 and the 2018 version of the
UK Corporate Governance Code require that the
Board manages potential conflicts of interest. Individual
directors are required to avoid situations 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.
Covid-19 pandemic
The speed and scale of the spread of the global
pandemic in the early months of 2020 took all
countries, markets and commentators by surprise.
There remains uncertainty as to whether, and the
extent to which, the virus which caused the pandemic
will continue to affect global travel, trade, investment,
markets and international relations.
The immediate implications for the Company are less
visibility of future income streams and greater volatility
in underlying asset values and markets.
The Directors have considered these in determining
the Company’s going concern assessment and viability
statement this year.
The Board’s investment strategy together with the
Company’s financial position provide sufficient
diversification, liquidity and resilience to withstand
either a continuation of the macro-economic conditions
at the time the exercises were completed or a further
macro-economic downturn.
The Board closely monitors market analysis of the
pandemic and best practice guidance to ensure that
it has the best advice available in forming related
judgements.
As a result of the restrictions imposed by the
government, the Company's staff and those of its third
party service providers have been working remotely for
the majority of 2020. Notwithstanding this, the business
continuity arrangements have all functioned efficiently,
resulting in no noticeable variations in either service
levels or the Company's ability to operate effectively.
Going concern
The Financial Statements 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 and for at least the
next 12 months from the date of signing these Financial
Statements.
In concluding that the adoption of the going concern
basis of accounting is appropriate, the Directors, and
specifically the Audit Committee members, have given
due consideration to the enhanced risks and potentially
extended period of uncertainty posed by the Covid-19
pandemic, as discussed in the section above. The
Board and the Company’s executive management
monitor developments closely and are confident that
the going concern basis remains appropriate.
The viability statement, under which the Directors
assess the prospects of the Company over a longer
period, can be found on page 16. That statement also
discusses the reviews undertaken by the Board this
year in the context of the global pandemic and related
macro-economic uncertainty in more detail.
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.
The Board confirms that an ongoing process is in
place for identifying, evaluating and managing the
significant risks faced by the Company in accordance
with the Financial Reporting Council's 'Guidance on Risk
Management, Internal Control and Related Financial
and Business Reporting' issued in September 2014. This
process has been in place throughout the year ended
31 October 2020 and up to the date that the Financial
Statements were approved.
The Directors confirm that they have undertaken a
robust assessment of emerging and principal risks
facing the Company during the year, including
those that would threaten its business model, future
performance or liquidity. The Company maintains a risk
matrix which sets out the risks facing the Company, the
likelihood and potential impact of each risk and the
controls established to mitigate those risks. The risk
matrix is reviewed by the Audit Committee and Board
on a regular basis throughout the year.
The Scottish Investment Trust PLC | Annual Report 2020
33
Corporate Governance Report (continued)
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; the uncertainties around Brexit and Scottish
independence; and the various risks arising from the
global pandemic.
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.
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.
These risks are magnified by the heightened risk of
either a continuation of the global pandemic, or future
macro-economic event, following the events of 2020.
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 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
keeps shareholders and investors informed with
regular communications. 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.
The Company monitors the performance of its service
providers, whether internal (S.I.T Savings Limited is
the Company’s AIFM) or external (such as: custody
and depositary, company secretarial, administration
and accounting services) through regular meetings
and review of available internal control reports. The
Company and each of its third party providers has
adapted to new business continuity procedures
designed to facilitate remote working whilst
maintaining the operational standards required for the
Company to continue to operate effectively.
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.
34
The Scottish Investment Trust PLC | Annual Report 2020
Corporate Governance Report (continued)
These and other risks facing the Company, are
reviewed regularly by the Audit Committee and the
Board.
Details of the main features of the Company's internal
control and risk management systems in relation to the
financial reporting process are included in the Audit
Committee Report on page37.
Further information on risks is detailed in note 16 to
the accounts on pages 66 to 69.
Relations with shareholders
The Company recognises the value of good
communication with its shareholders. Management
engages with private client stockbrokers, wealth
managers and the Company’s major institutional
shareholders. The Board receives regular briefings
from the Company’s broker on these themes and
activity in the Company’s share register. Annual
and Half-Year 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 normally encouraged to attend the AGM and to
vote on the resolutions which are contained in the
Notice of Meeting on page 78 and which is posted
to shareholders at least 20 working days prior to the
meeting.
As this year’s AGM will be a closed meeting, all
shareholders 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.
Corporate Purpose, Values and Culture
The Board has determined that the Company’s purpose
is as set out in its established objective which 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”. This objective and the Company’s
high conviction, global contrarian investment approach
represent the Company’s purpose as envisaged by the
UK Corporate Governance Code.
The Company is an independent, self-managed
investment trust and its values and culture reflect that
independence. The Board always strives to focus on
delivering long term returns for shareholders. In doing
this, the Board, while recognising the Company’s
distinctive heritage, aims to ensure that the Company
always remains at the forefront of best practice,
whether in relation to investment approach, operational
excellence, shareholder communication or cost
efficiency. The Board has an annual strategy meeting to
consider these and other matters and our track record
shows that we are prepared to make changes when
they are necessary to remain successful.
The Board and the investment team prioritise extensive
discussion of investment proposals, whether potential
buy or sell decisions. There is a collegiate approach
and a willingness to take a contrarian position to
established thinking or valuations.
The Board is committed to following high standards of
corporate governance and always seeks to operate with
integrity, transparency and respect in everything that it
does.
The Board is mindful of the importance of employee
engagement in building and maintaining the desired
culture and values throughout the Company. Further
information on employee engagement is set out on
page 40.
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 Scottish Investment Trust PLC | Annual Report 2020
35
Corporate Governance Report (continued)
The Company’s maximum limits and actual leverage
levels are shown below:
Leverage exposure
Maximum limit (AIFM)
Maximum limit (Board)
Actual at 31 October 2020
Gross
method
Commitment
method
200%
200%
20%
0%
20%
15%
Annual General Meeting
The Company's 133rd Annual General Meeting will be
held at the offices of Dickson Minto W.S., 16 Charlotte
Square, Edinburgh EH2 4DF at 10.30am on Tuesday,
2 February 2021. As explained in the Chairman’s
Statement on page 5, this will be a closed meeting and
shareholders will not be able to attend in person.
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 11 are self-explanatory.
Resolution 12 - Renewal of authority to purchase shares
This resolution, set out in the Notice of AGM on page
78, seeks to renew the authority to purchase shares until
2 May 2022. The principal rationale for such purchases
is to reduce the discount between the Company’s share
price and net asset value. This is achieved through
the Company purchasing shares for cancellation at
prices which, after allowing for costs, improve the NAV
for remaining shareholders, in line with the Board’s
discount control policy.
The maximum number of shares which may be
purchased pursuant to this authority shall be 10,845,339
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 Financial Conduct
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 12 will be proposed as a special resolution
that requires a three-quarters majority of votes cast at
the AGM in order to be passed.
Articles of Association (the 'New Articles') in order to
update the Company's current Articles of Association
(the 'Existing Articles'). The proposed amendments
being introduced in the New Articles primarily relate
to changes in law and regulation and developments
in market practice since the Existing Articles were
adopted, and principally include provisions enabling
the Company to hold shareholder meetings using
electronic means (as well as physical shareholder
meetings or hybrid meetings).
The New Articles permit the Company to hold
shareholder meetings on a virtual basis, whereby
shareholders are not required to attend the meeting
in person at a physical location but may instead attend
and participate using electronic means. A shareholder
meeting may be virtual-only if attendees participate
only by way of electronic means, or may be held on a
hybrid basis whereby some attendees attend in person
at a physical location and others attend remotely
using electronic means. This should make it easier for
the Company's shareholders to attend shareholder
meetings if the Board elects to conduct meetings
using electronic means. Amendments have been made
throughout the New Articles to facilitate the holding of
hybrid or virtual-only shareholder meetings.
The Board is also taking the opportunity to make
some additional minor or technical amendments to
the Existing Articles, including: (i) the inclusion of
a procedure in the event an insufficient number of
Directors are re-elected at an annual general meeting
of the Company; and (ii) removing the requirement
for the Company to place advertisements in national
newspapers when dealing with untraced shareholders.
These changes reflect modern best practice and are
intended to relieve certain administrative burdens on
the Company.
A copy of the New Articles, together with a copy
showing all of the proposed changes to the Existing
Articles, will be available for inspection on the
Company's website, www.thescottish.co.uk.
Streamlined Energy and Carbon Reporting
The Company’s carbon emissions result predominantly
from its consumption of electricity at its single
freehold office in Edinburgh. Using Defra/DECC’s
GHG conversion factors for company reporting 2015,
emissions for the year to 31 October 2020 were
21.0 tonnes of CO2e (2019: 25.0 tonnes CO2e). This
equates to 0.06 tonnes of CO2e (2019: 0.07 tonnes of
CO2e) per square metre.
Resolution 13 -
Resolution 13, which will be proposed as a special
resolution, seeks shareholder approval to adopt new
Reflecting the size of its operations, the Company is
therefore formally categorised as a lower energy user
under the HMRC Environmental Reporting Guidelines
36
The Scottish Investment Trust PLC | Annual Report 2020
March 2019 and is not required to make the additional detailed
disclosures of energy and carbon information, and specifically its
annual energy usage, intensity ratio and methodologies, as set
out within those guidelines.
Stakeholder Engagement
The Board gives regular consideration to the need to foster good
relationships with all of its key stakeholders. Details of stakeholder
engagement undertaken during the financial year is set out in the
Strategic Report on pages 17 and 18.
Board Approval of Report
The Directors’ Report on pages 28 to 41, 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 32, have been
approved by the Board. The Strategic Report on pages 14 to 19
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 Limited
Company Secretary
11 December 2020
The Scottish Investment Trust PLC | Annual Report 2020
37
Report of the Audit Committee
The Audit Committee has written terms of reference
which are shown on the Company’s website. The
Committee’s duties include risk assessment and
oversight; reviewing the internal control environment,
the Company’s accounting policies and its financial
statements prior to their release; ensuring that
the Annual Report presents a fair, balanced and
understandable assessment of the Company’s
performance and prospects; and monitoring the
Company’s procedures on whistleblowing.
The Committee is also responsible for all aspects of
the Company’s relationship with its external auditors
including:
• reviewing the scope and effectiveness of the annual
audit, including the independence and objectivity
of the external auditors;
the appointment, remuneration and terms of
engagement of the external auditors; and
the level of non-audit work, if any, carried out by the
external auditors.
•
•
Composition of the Committee
Membership of the Committee is shown on page
29. The Committee benefits from the Audit Chair
having recent and relevant financial experience.
Additionally, the Committee as a whole has
competence relevant to the financial services sector in
which the Company operates.
Annual Report
The Audit Committee reviews the Annual Report to
ensure that 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 relatively small number of
employees do not warrant such a function at the current
time. 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 and risk management systems 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 and risk
management systems 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 appropriately
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
during the financial year. Therefore, a confirmation
of completion of necessary actions has not been
considered appropriate.
The Committee and management also monitor the
controls and risk management of the Company’s
independent advisers Maitland Administration Services
Limited (“Maitland”) and Northern Trust. Maitland
provides company secretarial, administration and
accounting services to the Company and Northern
Trust provides 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 Company has faced and addressed significant
issues, both operationally and related to its
investments, as a result of the Covid-19 pandemic and
related global market volatility. These are risks not
specific to the Company, its approach or sector of the
economy, and have not impacted on the Company’s
underlying liquidity at any time. To help mitigate these
risks, the executive management team has deployed
new operational procedures to facilitate working from
home. We specifically discuss the implications of the
Covid-19 pandemic for our going concern assessment
and viability statement in more detail on pages 32 and
16 respectively.
A significant issue addressed by the Audit Committee
during the year related to the treatment of a pension
surplus. Under the accounting standard relating to
defined benefit pension schemes, FRS 102, any surplus
shall be recognised by the sponsor to the extent that it
is able to recover the surplus either through reduced
contributions in the future or through refunds from
the plan. After reviewing the scheme rules and taking
appropriate advice, the Committee considered that
the Company has a right to a refund of any surplus and
thus that any pension surplus should be recognised
in full. Subsequently, in making a one-off contribution
to the Company’s defined benefit pension scheme
such that, as at the date of the scheme’s most recent
triennial valuation the actuarial deficit was eliminated,
an accounting surplus was created.
38
The Scottish Investment Trust PLC | Annual Report 2020
Report of the Audit Committee (continued)
The Committee also asked the Company’s newly
appointed auditor to pay particular attention to
the valuation and ownership of investments and
recognition of income, as in 2019. The Committee
reviewed and challenged the results of the audit with
the external auditors; however, there were no material
disagreements.
Investments are valued in accordance with the
accounting policy on page 55.
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.
Auditors
Assessment
To fulfill its responsibility regarding the independence
and objectivity of the external auditors, the Committee
reviewed both the external auditors’ audit plan,
which includes a description of their arrangements to
manage independence, and a report from the external
auditors on the conclusion of the audit, setting out
why they remain independent and the extent of any
approved non-audit services provided.
To assess the effectiveness of the external auditors
and the audit process, the Committee reviewed and
considered the audit plan and the audit findings report
on conclusion of its work. The Audit Committee chair
also met privately with PricewaterhouseCoopers LLP
(“PwC”) during the year. The PwC Engagement Partner
attended the Audit Committee meeting in December
to present the results of their 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 PwC
issued by the FRC in July 2020. The Committee is of the
opinion that PwC have performed satisfactorily since
their appointment during the financial year and have
provided reassurance through the events related to the
global pandemic.
PwC were first appointed external auditors to the
Company at the Annual General Meeting in 2020. 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 therefore
in the first year of his rotation cycle with the Company.
PwC have confirmed that they believe that 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 auditors remain independent
and effective for the purpose of this year’s audit.
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 Responsibilities) Order
2014 throughout the financial year.
Fees paid to the External Auditors
The fees for audit and non-audit services (which
comprised a CASS assurance opinion and debenture
covenant assurances) were £39,000 (2019: £33,075)
and £7,500 (2019: £5,945), respectively.
All costs for non-audit services are considered to be
appropriate relative to fees paid for audit services
and are incurred in accordance with the Committee’s
related policy. 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 auditors is not compromised by the
provision of non-audit services.
Re-appointment of auditors
Resolutions to re-appoint PwC as the Company’s
auditors, and to authorise the Directors to fix their
remuneration, will accordingly be proposed at the
forthcoming Annual General Meeting.
Disclosure of information to auditors
It is the Company’s policy to allow the auditors
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 auditors
are 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 auditors are 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
11 December 2020
The Scottish Investment Trust PLC | Annual Report 2020
39
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. Two ordinary
resolutions, for the approval of the Directors’
Remuneration Report and approval of the Directors’
Remuneration Policy respectively, will be put to
shareholders at the AGM on 2 February 2021.
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,
James Will, Karyn Lamont and Neil Rogan.
Policy on Directors’ fees
On 31 October 2020, the Board consisted of five
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 last approved by
shareholders at the AGM held in February 2018 and
this policy therefore applied for the period up to 31
October 2020. This approval was valid for three years
and therefore the policy will be subject to approval
and adoption by shareholders at the Company’s annual
general meeting to be held in February 2021. Subject to
that approval, the policy will then apply for the financial
year ending 31 October 2021. Any views expressed
by shareholders on Directors’ fees are taken into
consideration by the Board when reviewing the policy.
Directors’ fees were last increased in 2017. The
Remuneration Committee believes that more regular
fee reviews are appropriate and should take into
account factors such as the prevailing rate of inflation
and research carrried out by third parties on the
level of fees paid to the non-executive directors of
the Company’s peers and within the investment trust
industry generally. The Remuneration Committee
believes that any general review of Directors’ fee levels
should be postponed until market conditions stabilise;
however, it has agreed that the fee paid to the Audit
Committee Chair should be increased from £37,500
to £40,000 per annum, with effect from 1 November
2020, to recognise the additional workload and
responsibilities required in that role.
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 2021
£
Actual fees for
the year to
31 October 2020
£
Chairman
Audit Committee Chair
Non-executive Director
60,000
40,000
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
2020
£
Year to
31 October
2019
£
60,000
8,481
32,500
32,500
37,500
32,500
60,000
32,500
32,500
32,500
37,500
4,578
James Will 1
Russell Napier (retired
4 February 2020)
Jane Lewis
Mick Brewis
Karyn Lamont 2
Neil Rogan (appointed 10
September 2019)
Total
203,481
199,578
1 Chairman
2 Audit Committee Chair
40
The Scottish Investment Trust PLC | Annual Report 2020
Directors’ Remuneration Report (continued)
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
directly consult with employees when drawing up the
Remuneration Report.
However, during the financial year the Board also
reviewed the expectations of the latest version of
the UK Corporate Governance Code, published by
the Financial Reporting Council in July 2018, across
the theme of employee engagement. Following that
review, which encompassed the Company’s workforce
policies and practices, the Board concluded that the
existing regular opportunities for staff members to
raise concerns or suggested improvements, including
in respect of staff rewards and incentives, were
sufficient to cover its responsibilities in respect of
employee engagement, given the size of the business
operationally and number of staff appointed.
EU Shareholder Rights Directive II (‘the Directive’)
The Committee has reviewed its responsibilities in
respect of the Directive, which applies to the Company
for the first time this year. The Committee considers
that its governance arrangements and operation of the
Board’s conflicts policy at all times allows any potential
issues, the likelihood of which are low in any case, to be
proactively managed.
Discussion and analysis of the percentage change in
the aggregated Directors’ fixed fees, together with a
comparison with all employee costs, can also be found
below. The Committee is of the opinion that these
disclosures give sufficient information for the purposes
of compliance with the Directive for the first year of
disclosure and given the Directors’ fixed pay structure.
As a UK listed investment company, the requirements
of the Directive do not otherwise apply.
Service contracts
The Directors do not have service contracts. All
Directors retire and seek re-election at the Annual
General Meeting on an annual basis.
Directors’ interests
The interests of the Directors and their families in the
Company’s capital are as follows:
Shares of 25p
31 October 2020 31 October 2019
James Will
Jane Lewis
Mick Brewis
Karyn Lamont
Neil Rogan
Russell Napier (retired
4 February 2020)
10,000
2,500
10,000
2,500
10,352
–
10,000
1,000
10,000
2,500
6,000
32,500
There were no changes in the Directors’ interests
between 31 October and 11 December 2020.
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.
This index has been chosen as it is a common
performance comparator for companies such as The
Scottish Investment Trust PLC.
220
200
180
160
140
120
100
80
2010
220
200
180
160
140
120
100
80
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
SIT – Share Price (Total Return)
MSCI UK All Cap Index (Total Return)
The Scottish Investment Trust PLC | Annual Report 2020
41
Directors’ Remuneration Report (continued)
Relative importance of Directors’ fees
Directors’ fees
Expenses
Staff costs
Dividends paid and
proposed
2020
£’000
203
3,415
1,210
2019
£’000
200
4,133
2,106
17,026
22,568
Directors’ fees as a percentage of:
Expenses
Staff costs
Dividends paid and proposed
2020
%
6.0
16.8
1.2
%
Change
1.5
(17.4)
(42.5)
(24.6)
2019
%
4.8
9.5
0.9
Further details of the Company’s expenses and staff
costs can be found in notes 2 and 3, respectively, on
page 57 and of dividends paid and proposed on page
50.
The voting to approve the Directors’ remuneration
policy at the Company’s AGM held on 2 February 2018
was as follows:
Votes cast
For
Votes cast
Against
%
For
%
Against
Votes
Withheld
17,941,084 (98.7)
96,586
(0.5)
67,395
Approve Directors’
remuneration
policy
The voting to approve the Directors’ Remuneration
Report at the Company’s AGM held on 4 February 2020
was as follows:
Votes cast
For
Votes cast
Against
%
For
%
Against
Votes
Withheld
21,708,610 (97.6)
149,760
(0.7) 394,667
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
11 December 2020
42
The Scottish Investment Trust PLC | Annual Report 2020
Independent Auditors’ Report
to the members of The Scottish Investment Trust PLC
Report on the audit of the Financial Statements
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 2020 and of its return and cash
flows for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in
the UK and Republic of Ireland”, and applicable law); and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the Financial Statements, included within the Annual Report & Accounts (the “Annual Report”),
which comprise: the Balance Sheet as at 31 October 2020; the Income Statement, the Statement of Comprehensive
Income, the Cash Flow Statement, the Statement of Changes in Equity for the year then ended; the accounting
policies; and the notes to the Financial Statements.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the
Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remained independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the Financial Statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the company.
Other than those disclosed in the Directors’ Report, we have provided no non-audit services to the company in the
period from 1 November 2019 to 31 October 2020.
Our audit approach
Overview
• Overall materiality: £5.7 million, based on 1% of net assets.
• The Group is a self-managed Investment Trust Company. The Company’s wholly-owned
subsidiary S.I.T Savings Limited has been appointed as the AIFM. Maitland Administration
Services Limited has been appointed as the Company Secretary and Administrator.
• We conducted our audit of the Financial Statements using information from the Administrator
to whom the Directors have delegated the provision of the majority of administrative functions.
• We tailored the scope of our audit to ensure that we have performed sufficient and
appropriate work to be able to give an opinion on the Financial Statements as a whole, taking
into account the accounting processes and controls, and the industry in which the Company
operates.
• We obtained an understanding of the control environment in place at the Company and
adopted a fully substantive testing approach using reports obtained from the AIFM.
• Valuation and existence of listed investments.
•
• Considerations of the impact of Covid-19.
Income from listed investments.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
Financial Statements. In particular, we looked at where the Directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions and considering future events that are
inherently uncertain.
The Scottish Investment Trust PLC | Annual Report 2020
43
Independent Auditors’ Report (continued)
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Company and industry, we identified that the principal risks of non-compliance
with laws and regulations related to breaches of section 1158 of the Corporation Tax Act 2010 (see page 61 of
the Annual Report), and we considered the extent to which non-compliance might have a material effect on the
Financial Statements. We also considered those laws and regulations that have a direct impact on the preparation
of the Financial Statements such as the Companies Act 2006. We evaluated management’s incentives and
opportunities for fraudulent manipulation of the Financial Statements (including the risk of override of controls),
and determined that the principal risks were related to posting inappropriate journal entries to increase revenue
(investment income and capital gains) or to increase net asset value, and management bias in accounting estimates.
Audit procedures performed by the engagement team included:
• Discussions with the Administrator, executive management and the Audit Committee, including consideration of
known or suspected instances of non-compliance with laws and regulation and fraud;
• Reviewing relevant meeting minutes, including those of the Audit Committee;
• Assessment of the Company’s compliance with the requirements of section 1158 of the Corporation Tax Act
•
2010, including recalculation of numerical aspects of the eligibility conditions;
Identifying and testing journal entries, in particular year end journal entries posted by the Administrator during
the preparation of the Financial Statements and any journals with unusual account combinations; and
• Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing.
There are inherent limitations in the audit procedures described above and the further removed non-compliance
with laws and regulations is from the events and transactions reflected in the Financial Statements, the less likely we
would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk
of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the
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) identified by the auditors, including 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, and any comments we make on the results of our procedures thereon, 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. This is not a complete list of all risks identified by our audit.
Key audit matters
How our audit addressed the key audit matter
Valuation and existence of listed investments
Refer to page 38 (Report of the Audit Committee), page
55 (Accounting Policies) and page 62 (Notes to the
Accounts).
The investment portfolio at the year-end comprised
listed equity investments valued at £581 million.
We focussed on the valuation and existence of
investments because investments represent the principal
element of the net asset value as disclosed on the
Balance Sheet in the Financial Statements.
We tested the valuation of the listed equity investments
by agreeing the prices used in the valuation to
independent third party sources. No misstatements were
identified by our testing.
We tested the existence of the investment portfolio
by agreeing investment holdings to an independent
custodian confirmation. No differences were identified.
.
44
The Scottish Investment Trust PLC | Annual Report 2020
Independent Auditors’ Report (continued)
Key audit matters
How our audit addressed the key audit matter
Income from listed investments
Refer to page 38 (Report of the Audit Committee), page
55 (Accounting Policies) and page 57 (Notes to the
Financial Statements).
ISAs (UK) presume there is a risk of fraud in income
recognition because of the pressure management may
feel to achieve a certain objective. In this instance, we
consider that ‘income’ refers to all the Company’s income
streams, both revenue and capital (including gains and
losses on investments). As the Company has an income
objective, there might be an incentive to overstate
income. As such, we focussed this risk on the existence/
occurrence of revenue from investments, completeness
of gains/losses from investments and its presentation in
the Income Statement as set out in the requirements of
The Association of Investment Companies’ Statement of
Recommended Practice (the “AIC SORP”).
Considerations of the impact of Covid-19.
Refer to the Chairman’s Statement (page 3), Principal
Risks and Uncertainties (page 33), the Viability Statement
(page 16) and the Going Concern Statement (page 32),
which disclose the impact of the Covid-19 pandemic.
From a small number of cases of an unknown virus in
2019, the Covid-19 viral infection has become a global
pandemic. It has caused disruption to supply chains
and travel, slowed global growth and caused volatility
in global markets and in exchange rates during the first
quarter of 2020 and to date.
We assessed the accounting policy for dividend income
recognition for compliance with accounting standards
and the AIC SORP and performed testing to check that
income had been accounted for in accordance with this
stated accounting policy.
We found that the accounting policies implemented
were in accordance with accounting standards and the
AIC SORP, and that income has been accounted for in
accordance with the stated accounting policy.
The gains/losses on investments held at fair value
comprise realised and unrealised gains/losses. For
unrealised gains and losses, we tested the valuation
of the portfolio at the year-end (see above), together
with testing the reconciliation of opening and closing
investments. For realised gains/losses, we tested a
sample of disposal proceeds by agreeing the proceeds
to bank statements and we re-performed the calculation
of a sample of realised gains/losses.
In addition, we tested the accuracy of dividend receipts
by agreeing the dividend rates from investments to
independent market data. No material misstatements
were identified.
We tested occurrence by testing that all dividends
recorded in the year had been declared in the market
by investment holdings, and we traced a sample of
dividends received to bank statements. Our testing did
not identify any material misstatements.
We also tested the allocation and presentation of
dividend income between the revenue and capital
return columns of the Income Statement in line with the
requirements set out in the AIC SORP by determining
reasons behind dividend distributions. Our procedures
did not identify any material misstatements.
We evaluated the Directors’ assessment of the impact of
the Covid-19 pandemic on the Company by:
• Evaluating the Company’s updated risk assessment
and considering whether it addresses the relevant
threats presented by Covid-19.
• Evaluating management’s assessment of operational
impacts, considering their consistency with other
available information and our understanding of the
business and assessing the potential impact on the
Financial Statements.
The Scottish Investment Trust PLC | Annual Report 2020
45
Independent Auditors’ Report (continued)
Key audit matters
How our audit addressed the key audit matter
Considerations of the impact of Covid-19 (contd.)
The coronavirus impacted global capital markets
significantly from March 2020 onwards.
The Directors have prepared the Financial Statements
of the Company on a going concern basis, and believe
this assumption remains appropriate. This conclusion
is based on the assessment that, notwithstanding the
significant market uncertainties, they are satisfied that
the Company has adequate resources to continue in
operational existence for the foreseeable future and that
the Company and its key third party service providers
have in place appropriate business continuity plans
and will be able to maintain service levels through the
coronavirus pandemic.
We obtained and evaluated the Directors’ going concern
assessment which reflects conditions up to the point of
approval of the Annual Report.
• We obtained evidence to support the key
assumptions and forecasts driving the Directors’
assessment. This included reviewing the Directors’
assessment of the Company’s financial position
and forecasts, their assessment of liquidity and loan
covenant compliance as well as their review of the
operational resilience of the Company and oversight
of key third party service providers.
We assessed the disclosures presented in the
Annual Report in relation to Covid-19 by reading the
other information, including the Principal Risks and
Uncertainties and Viability Statement set out in the
Strategic Report, and assessing its consistency with the
Financial Statements and the evidence we obtained in
our audit.
Our conclusions relating to other information are set out
in the ‘Reporting on other information’ section of our
report.
Our conclusions relating to going concern are set out
in the ‘Conclusions relating to going concern’ section
below.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
Financial Statements as a whole, taking into account the structure of the Company, the accounting processes and
controls, and the industry in which it operates.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually and in aggregate on the Financial Statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
£5.7 million.
1% of net assets.
Rationale for benchmark applied We believe that Net Assets is the primary measure used by the shareholders
in assessing the performance of the entity, and is a generally accepted
auditing benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£285,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
46
The Scottish Investment Trust PLC | Annual Report 2020
Independent Auditors’ Report (continued)
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add
or draw attention to in respect of the Directors’ statement in the
Financial Statements about whether the Directors considered
it appropriate to adopt the going concern basis of accounting
in preparing the Financial Statements and the Directors’
identification of any material uncertainties to the Company’s
ability to continue as a going concern over a period of at
least twelve months from the date of approval of the Financial
Statements.
We are required to report if the Directors’ statement relating
to Going Concern in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit.
We have nothing material to add or to draw
attention to.
However, because not all future events or
conditions can be predicted, this statement is
not a guarantee as to the company’s ability to
continue as a going concern.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the Financial Statements and
our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the Financial
Statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to
the extent otherwise explicitly stated in this report, any form of assurance 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. If we identify an apparent material
inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material
misstatement of 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. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the
UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act
2006 (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain
opinions and matters as described below (required by ISAs (UK) unless otherwise stated).
The Scottish Investment Trust PLC | Annual Report 2020
47
Independent Auditors’ Report (continued)
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic
Report and Directors’ Report for the year ended 31 October 2020 is consistent with the Financial Statements and
has been prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Company and its environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The Directors’ assessment of the prospects of the Company and of the principal risks that would threaten the
solvency or liquidity of the Company
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 32 of the Annual Report 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.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or
mitigated.
• The Directors’ explanation on page 32 of the Annual Report 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 have nothing to report having performed a review of the Directors’ statement that they have carried out a
robust assessment of the principal risks facing the Company and statement in relation to the longer-term viability
of the Company. Our review was substantially less in scope than an audit and only consisted of making inquiries
and considering the Directors’ process supporting their statements; checking that the statements are in alignment
with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the
statements are consistent with the knowledge and understanding of the Company and its environment obtained in
the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the Directors, on page 28, that they consider the Annual Report taken as a whole to
be fair, balanced and understandable, and provides the information necessary for the members to assess
the Company’s position and performance, business model and strategy is materially inconsistent with our
knowledge of the Company obtained in the course of performing our audit.
• The section of the Annual Report on page 29 describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee.
• The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a
departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in
accordance with the Companies Act 2006. (CA06)
48
The Scottish Investment Trust PLC | Annual Report 2020
Independent Auditors’ Report (continued)
Responsibilities for the Financial Statements and the audit
Responsibilities of the Directors for the Financial Statements
As explained more fully in the Responsibility Statement, the Directors are responsible for the preparation of the
Financial Statements in accordance with the applicable framework and for being satisfied that they give a true and
fair view. The Directors are also responsible for such internal control as they 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.
Auditors’ 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 auditors’ 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.
A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not
been received from branches not visited by us; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
•
the Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 4 February 2020
to audit the Financial Statements for the year ended 31 October 2020 and subsequent financial periods. This is
therefore our first year of uninterrupted engagement.
Allan McGrath (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
11 December 2020
The Scottish Investment Trust PLC | Annual Report 2020
49
50
The Scottish Investment Trust PLC | Annual Report 2020
Income Statement
Income Statement
For the year to 31 October 2020
Net losses on investments held at fair
value through profit and loss
Net gains/(losses) on currencies
Income
Expenses
Net Return before
Finance Costs and Taxation
Interest payable
Return on Ordinary
Activities before Tax
Notes
Revenue
£’000
2020
Capital
£’000
Total
£’000
Revenue
£’000
2019
Capital
£’000
Total
£’000
8
1
2
5
–
–
(78,698)
(78,698)
818
818
–
–
(8,651)
(8,651)
(1,175)
(1,175)
21,737
–
21,737
28,859
–
28,859
(2,346)
(1,069)
(3,415)
(2,625)
(1,508)
(4,133)
19,391
(78,949)
(59,558)
26,234
(11,334)
14,900
(1,732)
(3,217)
(4,949)
(1,732)
(3,217)
(4,949)
17,659
(82,166)
(64,507)
24,502
(14,551)
9,951
Tax on ordinary activities
6
(1,673)
–
(1,673)
(1,929)
–
(1,929)
Return attributable to Shareholders
15,986
(82,166)
(66,180)
22,573 (14,551)
8,022
Return per share (basic and fully diluted)
21.70p (111.52)p (89.82)p
29.75p (19.18)p
10.57p
Weighted average number of
shares in issue during the year
73,677,432
75,862,506
Dividends paid and proposed
First interim 2020: 5.70p (2019: 5.30p)
Second interim 2020: 5.70p (2019: 5.30p)
Third interim 2020: 5.70p (2019: 5.30p)
Final 2020: 6.10p (2019: 6.90p)
Special 2020: Nil (2019: 7.45p)
Notes
7
2020
£’000
4,207
4,204
4,168
4,447
–
Total 2020: 23.20p (2019: 30.25p)
17,026
2019
£’000
4,055
3,996
3,918
5,098
5,501
22,568
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.
The Scottish Investment Trust PLC | Annual Report 2020
51
Balance Sheet
As at 31 October 2020
Fixed Assets
Investments
Non-current Assets
Pension surplus
Current Assets
Debtors
Cash and cash equivalents
2020
2019
Notes
£’000
£’000
£’000
£’000
8
4
10
8
7,188
75,981
83,169
581,235
687,820
1,161
582,396
–
687,820
2,459
72,378
74,837
(664)
80,542
662,938
74,173
761,993
(84,013)
(83,921)
(406)
–
578,519
18,224
39,922
52,637
423,402
44,334
578,519
–
(1,279)
676,793
18,474
39,922
52,387
513,930
52,080
676,793
Creditors: liabilities falling due within one year
11
(2,627)
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 scheme deferred tax on surplus
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
12
4
4
13
14
14
14
14
Net Asset Value per share with borrowings at amortised
cost (basic and fully diluted)
793.6p
915.9p
Number of shares in issue at year end
72,896,247
73,893,508
The Financial Statements on pages 50 to 70 were approved by the Board of Directors and were signed on its behalf by:
James Will
Chairman
11 December 2020
The accompanying notes are an integral part of this statement.
52
The Scottish Investment Trust PLC | Annual Report 2020
Statement of Comprehensive
Income
For the year to 31 October 2020
Notes
Revenue
£’000
2020
Capital
£’000
Total
£’000
Revenue
£’000
2019
Capital
£’000
Total
£’000
Return attributable to shareholders
15,986
(82,166)
(66,180)
22,573
(14,551)
8,022
Actuarial (losses)/gains relating to pension
scheme
Pension scheme deferred tax on surplus
4
4
(412)
(764)
(1,176)
(142)
(264)
(406)
82
–
151
233
–
–
Total comprehensive income for the year
15,432
(83,194)
(67,762)
22,655
(14,400)
8,255
Total comprehensive income per share
20.95p (112.92)p (91.97)p
29.86p
(18.98)p
10.88p
The Scottish Investment Trust PLC | Annual Report 2020
53
Statement of Changes in Equity
For the year to 31 October 2020
Opening balance
Total comprehensive income
Dividends
Share buybacks
Closing balance
Notes
7
The accompanying notes are an integral part of this statement.
2020
£’000
676,793
(67,762)
(23,178)
(7,334)
578,519
2019
£’000
715,312
8,255
(19,796)
(26,978)
676,793
54
The Scottish Investment Trust PLC | Annual Report 2020
Cash Flow Statement
For the year to 31 October 2020
Operating activities
Net revenue before finance costs and taxation
Expenses charged to capital
Decrease/(increase) in accrued income
(Decrease)/increase in other payables
Decrease/(increase) in other receivables
Adjustment for pension funding
Tax on investment income
Cash flows from operating activities
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
Notes
2020
£’000
2019
£’000
19,391
(1,069)
278
(60)
158
(3,616)
(1,637)
26,234
(1,508)
(91)
(135)
(80)
175
(1,929)
13,445
22,666
(178,725)
(176,213)
203,970
196,088
25,245
19,875
38,690
42,541
(23,178)
(7,052)
(4,857)
(19,800)
(28,742)
(4,857)
3
6
5
Cash flows used in financing activities
(35,087)
(53,399)
Net movement in cash and cash equivalents
3,603
(10,858)
Cash and cash equivalents at the beginning of year
72,378
83,236
Cash and cash equivalents at the end of year*
75,981
72,378
*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.
The Scottish Investment Trust PLC | Annual Report 2020
55
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.
(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) and in accordance
with the Companies Act 2006. They are also prepared on
a going concern basis (see page 32) under the historical
cost convention, modified to include the revaluation of
investments at fair value. 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 and for at least the next 12 months
from the date of signing these financial
statements. The functional and presentation currency is
pounds sterling, which is the currency of the environment
in which the Company operates. The Company has
chosen to apply the provisions of Sections 11 and 12 of
FRS 102 in full in respect of the financial instruments.
(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.
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.
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.
Staff costs, investment and accounting services and
research costs 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
Where expenses are allocated between capital and
revenue, any tax relief obtained in respect of those
expenses is allocated between capital and revenue on
the marginal method and the Company’s effective rate
of corporation tax for the accounting period.
Current tax is provided at amounts expected to be paid
(or recovered).
Deferred tax is provided in full on timing differences
56
The Scottish Investment Trust PLC | Annual Report 2020
Accounting Policies (continued)
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.
(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 – the amount of the capital reserve
that is distributable is complex to determine and is
not necessarily the full amount of the reserve as
disclosed within these Financial Statements. 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;
• 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.
(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 58 to 60.
(k) Cash and cash equivalents
Cash and cash equivalents may comprise cash
(including short term deposits which are readily
convertible to a known amount of cash and are subject
to an insignificant risk of change in value) as well as
cash equivalents.
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.
The Scottish Investment Trust PLC | Annual Report 2020
57
Notes to the Financial Statements
For the year to 31 October 2020
1. Income
UK dividends including special dividends of £nil (2019: £780,000)
Overseas dividends including special dividends of £342,000 (2019: £174,000)
Deposit interest
2. Expenses
Staff costs (note 3)
Directors’ fees
Auditors’ remuneration for audit services
Auditors’ remuneration for other assurance services
Investment and accounting services
Professional fees, marketing and research costs
Company secretarial and administration fee
Office expenses
Depositary, custody and bank charges
Other expenses
3. Staff costs
Remuneration
Social security costs
Pensions and post-retirement benefits
Pension deficit funding by employer
Pension liability adjustment
2020
£’000
2019
£’000
5,098
5,797
16,423
22,087
216
975
21,737
28,859
2020
£’000
1,210
203
2019
£’000
2,106
200
39
7
199
822
183
297
164
291
33
6
193
704
191
210
156
334
3,415
4,133
2020
£’000
960
172
78
–
–
2019
£’000
1,289
174
57
411
175
1,210
2,106
The net interest expense for the current year is now included within pensions and post-retirement benefits. In the prior
year this expense was shown along with a reversal of the pension deficit funding by the employer within the pension
liability adjustment line. These amendments have been made to better reflect the requirements of FRS 102.
The average monthly number of persons employed during the year was:
Investment
Administration
Details of the Directors’ remuneration are noted on pages 39 and 41.
2020
Number
2019
Number
5
5
10
5
5
10
58
The Scottish Investment Trust PLC | Annual Report 2020
Notes to the Financial Statements (continued)
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.
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 £51,000
(2019: £57,000). There were no outstanding payments
due at either 31 October 2020 or 2019.
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.
Actuarial valuations are obtained triennially and are
updated at each balance sheet date. A full actuarial
valuation was carried out as at 31 July 2019 by XPS
Pensions Group which disclosed a scheme deficit of
£3,699,000. 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.
Furthermore, in October 2020, the Company made a
one-off contribution of £3,220,000 such that the pension
scheme was in a net surplus position as at 31 October
2020. This surplus has created a deferred tax liability of
£406,000 which would be incurred at source and only if
any funds were returned to the Company. For the
avoidance of doubt, this deferred tax liability does not
form part of the Company’s taxation.
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
The Scottish Investment Trust PLC | Annual Report 2020
59
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
2020
%
2019
%
2018
%
2017
%
2016
%
2.9
3.4
1.7
2.9
2.0
26.4
28.5
27.9
30.1
2020
£’000
4,672
3,029
–
4,562
12,263
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
2017
£’000
7,913
4,992
288
2016
£’000
7,401
6,181
264
1,180
1,976
12,075
14,373
15,822
Present value of scheme liabilities
Net pension asset/(liability)
(11,102)
(10,592)
(13,412)
(15,464)
(19,094)
1,161
(1,279)
(1,337)
(1,091)
(3,272)
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
Benefits paid
Settlements
Liabilities at end of year
2020
£’000
2019
£’000
9,313
12,075
223
299
3,643
(1,215)
324
1,443
411
(252)
–
(4,688)
12,263
9,313
2020
£’000
2019
£’000
10,592
13,412
250
1,475
371
1,210
(1,215)
(252)
–
(4,149)
11,102
10,592
60
The Scottish Investment Trust PLC | Annual Report 2020
Notes to the Financial Statements (continued)
4. Pension scheme (continued)
Analysis of amount chargeable to
operating profit during the year
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
Contributions for year
Net return from other finance income
Actuarial (losses)/gains in Statement of
Comprehensive Income
Surplus/(deficit) at end of year
Deferred tax on surplus
2020
£’000
2019
£’000
2018
£’000
2017
£’000
2016
£’000
223
(250)
(27)
324
(371)
(47)
428
(457)
(29)
476
(576)
(100)
605
(706)
(101)
(1,279)
(1,337)
(1,091)
(3,272)
(2,550)
–
3,643
(27)
(539)
411
(47)
–
399
(29)
–
455
(100)
–
389
(101)
(1,176)
233
(616)
1,826
(1,010)
1,161
(1,279)
(1,337)
(1,091)
(3,272)
406
–
–
–
–
The Scottish Investment Trust PLC | Annual Report 2020
61
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% (2019: 19.00%)
Overseas tax
Total tax
2020
£’000
4,857
92
2019
£’000
4,857
92
4,949
4,949
2020
£’000
2019
£’000
–
1,673
1,673
–
1,929
1,929
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% (2019: 19.00%)
Effects of:
Non-taxable capital returns
Finance costs and expenses charged to capital
Non-taxable dividends
Unutilised expenses
Overseas tax
2020
£’000
(64,507)
(12,256)
2019
£’000
9,951
1,891
14,797
1,867
(814)
(898)
(4,089)
(5,447)
2,362
1,673
1,673
2,587
1,929
1,929
Deferred tax
No deferred tax asset has been recognised on unrelieved expenses (2019: nil) as the Company does not expect to
have future profits to offset those expenses.
A deferred tax liability of £406,000 was created on the pension scheme as a result of the Company’s one-off
contribution, in October 2020, of £3,220,000. This charge would be incurred at source and only if any funds were
returned to the Company (see note 4 for further details). For the avoidance of doubt, this deferred tax liability relates
to the pension scheme and does not form part of the Company’s taxation.
7. Dividends
Dividends paid on shares recognised in the financial year:
Previous year final of 6.90p per share (2018: 6.20p)
Previous year special of 7.45p per share (2018: 4.00p)
Three interims each of 5.70p per share (2019: three interims each of 5.30p)
2020
£’000
2019
£’000
5,098
5,501
4,758
3,069
12,579
11,969
23,178
19,796
62
The Scottish Investment Trust PLC | Annual Report 2020
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 (losses)/gains
Opening valuation
Movements in the year:
Purchases at cost
Sales – proceeds
(Losses)/profits on investments in the year
Closing valuation
Closing book cost
Closing unrealised (losses)/gains
Closing valuation
2020
£’000
2019
£’000
578,860
686,320
2,025
1,150
350
350
581,235
687,820
Listed
in UK
£’000
Listed
overseas
£’000
Unlisted
£’000
Total
£’000
178,771
484,852
358
663,981
(8,160)
30,857
1,142
23,839
170,611
515,709
1,500
687,820
36,484
144,800
(54,347)
(154,824)
–
–
181,284
(209,171)
(51,726)
(27,847)
875
(78,698)
101,022
477,838
2,375
581,235
129,965
454,288
358
584,611
(28,943)
23,550
2,017
(3,376)
101,022
477,838
2,375
581,235
The Company received £209,171,000 (2019: £186,227,000) from investments sold in the year. The book cost of
these investments when they were purchased was £260,654,000 (2019: £148,943,000). These investments have
been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of
the investments. The purchases at cost and sales proceeds figures include transaction costs of £466,000 (2019:
£396,000), comprising commissions, government stamp duty and other fees. In the year to 31 October 2020 the
portfolio turnover rate was 26% (2019: 22%).
Unlisted investments include heritable property valued at £2,025,000 (2019: £1,150,000). The property was valued
on an open market basis by Ryden LLP, chartered surveyors, on 31 October 2020. The valuation has been made in
accordance with the RICS Valuation – Global Standards 2020 (The Red Book) with the latest edition having taken
effect from 31 January 2020. The report is also fully compliant with the International Valuation Standards (IVS) issued
by the International Valuation Standards Council (IVSC). The basis of value is market value: the estimated amount
for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in
an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently
and without compulsion. Taking the comparable sales evidence into consideration, the valuer has come up with
a benchmark capital rate which can be supported for the property itself. Ryden’s agency department are involved
in several ongoing similar property disposals and acquisitions and, notwithstanding the ongoing pandemic and
associated recession, transactions are concluding and the market is still performing, albeit at a slower pace than in
the pre-Covid economy.
The wholly owned subsidiary is held at a value equal to the total share capital of S.I.T. Savings Limited.
The disclosure of gains on investments has been amended to comply with the requirements of the AIC Statement of
Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts' (updated in
October 2019).
The Scottish Investment Trust PLC | Annual Report 2020
63
Notes to the Financial Statements (continued)
Cash and cash equivalents
Financial assets – cash and deposits
Sterling
US dollar
Fixed
£’000
2020
Floating
£’000
Total
£’000
Fixed
£’000
2019
Floating
£’000
Total
£’000
50,000
17,781
67,781
10,000
12,449
22,449
–
8,200
8,200
–
49,929
49,929
50,000
25,981
75,981
10,000
62,378
72,378
The maximum maturity period for fixed rate deposits outstanding at the year end was 7 days (2019: 7 days). The
weighted average fixed interest rate at the year end was 0.02% (2019: 0.60%). Floating interest rates vary in relation to
short-term rates in the currencies in which deposits are held.
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
2020
£’000
5,201
886
1,101
7,188
2020
£’000
1,741
886
2,627
2019
£’000
–
922
1,537
2,459
2019
£’000
–
664
664
2020
2019
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
350
700
1,009
515
1,093
1,855
350
700
1,009
478
1,015
1,722
5¾% Secured Bonds due 17 April 2030
81,954
108,311
81,862
108,325
84,013
111,774
83,921
111,540
64
The Scottish Investment Trust PLC | Annual Report 2020
Notes to the Financial Statements (continued)
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 £111.8m (2019: £111.5m) has the effect of decreasing the year end NAV per share from 793.6p to 755.5p
(2019: decreasing from 915.9p to 878.5p).
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.
13. Called-up share capital
Shares of 25p
Number of shares in issue
2020
£18,224,062
72,896,247
2019
£18,474,000
73,893,508
997,261 shares were repurchased in the stockmarket during the year to 31 October 2020 (2019: 3,291,070).
545,747 shares were repurchased from 1 November to 10 December 2020.
14. Reserves
At 1 November 2019
Net gains on currencies
Losses on investments in the year
Share buybacks
Actuarial losses relating to pension scheme
Pension scheme deferred tax on surplus
Expenses and interest charged to capital
Return attributable to shareholders
Dividends paid
At 31 October 2020
At 1 November 2018
Net losses on currencies
Losses on investments in the year
Share buybacks
Actuarial gains relating to pension scheme
Expenses and interest charged to capital
Return attributable to shareholders
Dividends paid
At 31 October 2019
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
39,922
52,387
513,930
52,080
–
–
818
(78,698)
250
(7,334)
(764)
(264)
(4,286)
–
–
–
(412)
(142)
–
–
–
15,986
(23,178)
39,922
52,637
423,402
44,334
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
39,922
51,565
555,308
49,221
–
–
(1,175)
(8,651)
822
(26,978)
151
(4,725)
–
–
–
82
–
–
–
22,573
(19,796)
39,922
52,387
513,930
52,080
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The Scottish Investment Trust PLC | Annual Report 2020
65
Notes to the Financial Statements (continued)
15. Analysis of changes in net debt during the year
Cash
Short-term deposits
Long-term borrowings at amortised cost
*Amortisation of secured bonds’ issue expenses.
16. Financial instruments
Summary of financial assets and financial liabilities by category
1 November
2019
£’000
Cash flows
£’000
Non-cash
movements*
£’000
31 October
2020
£’000
62,378
(36,397)
10,000
40,000
–
–
25,981
50,000
(83,921)
–
(92)
(84,013)
(11,543)
3,603
(92)
(8,032)
The Company’s financial assets and financial liabilities at the balance sheet date are as follows. The Accounting Policies
on page 55 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
581,235
687,820
2020
£’000
2019
£’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
7,188
2,459
75,981
72,378
83,169
74,837
664,404
762,657
(1,741)
(886)
(2,627)
–
(664)
(664)
(84,013)
(83,921)
(86,640)
(84,585)
66
The Scottish Investment Trust PLC | Annual Report 2020
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.
Please refer to the Corporate Governance Report on page 32 regarding the Company’s risk as a result of Covid-19.
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 82% 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.
The Scottish Investment Trust PLC | Annual Report 2020
67
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 2020 and
31 October 2019 are shown below.
2020
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
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
5,522
(811)
8,200
12,911
Euro
£’000
198
(932)
–
Other
£’000
987
–
–
(734)
987
244,924
64,005
168,908
257,835
63,271
169,895
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
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 2020
Maximum
Minimum
Year to 31 October 2019
Maximum
Minimum
US $
£’000
49,970
8,200
US $
£’000
56,308
39,340
Euro
£’000
Other
£’000
–
–
–
–
Euro
£’000
Other
£’000
–
–
–
–
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 2020. 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.
2020
US $
£’000
Euro
£’000
2019
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
769
25,703
26,472
261
6,234
6,495
912
500
27,227
10,806
28,139
11,306
68
The Scottish Investment Trust PLC | Annual Report 2020
Notes to the Financial Statements (continued)
16. Financial instruments (continued)
Foreign currency sensitivity (continued)
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 63. Details of interest rates on financial liabilities are included
in note 12 on page 63.
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
2020
More than
one year
£’000
Total
£’000
Within
one year
£’000
2019
More than
one year
£’000
Total
£’000
25,981
50,000
–
–
25,981
62,378
50,000
10,000
–
–
62,378
10,000
–
(84,013)
(84,013)
–
(83,921)
(83,921)
75,981
(84,013)
(8,032)
72,378
(83,921)
(11,543)
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
A 5% increase in interest rates would result in an equal and opposite effect on the above amounts.
2020
£’000
(11)
2019
£’000
(49)
The Scottish Investment Trust PLC | Annual Report 2020
69
Notes to the Financial Statements (continued)
16. Financial instruments (continued)
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 63. The contractual maturities of the financial
liabilities at the year end, based on the earliest date on which payment can be required, are as follows:
2020
2019
Less than
three
months
£’000
Three to
twelve
months
£’000
More
than
one year
£’000
Less than
three
months
£’000
Three to
twelve
months
£’000
More
than one
year
£’000
Total
£’000
Total
£’000
Cash
Exposure to fixed interest rates
Short-term deposits
Long-term borrowings
–
–
1,741
701
–
81,954
81,954
4,763
45,073
49,836
–
–
–
–
1,741
701
Total exposure
2,442
4,763 127,027 134,232
–
–
–
479
479
–
81,862
81,862
4,763
49,836
54,599
–
–
–
–
–
479
4,763 131,698 136,940
The following debenture stocks do not have a fixed repayment date and are, as a result, not shown in the above table:
4% Perpetual Debenture Stock, 4.25% Perpetual Debenture Stock and 5% Perpetual Debenture Stock.
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 (2019: 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.
70
The Scottish Investment Trust PLC | Annual Report 2020
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.
The investments in level 3 relate to the heritable property and the subsidiary (please see note 8 for information on
the valuation of these investments). Further details on the valuation techniques used for level 3 investments are also
included in the Company’s accounting policies on page 55.
Financial assets at fair value through profit and loss
578,860
–
2,375
581,235
2020
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets at fair value through profit and loss
686,320
–
1,500
687,820
There were no transfers between Level 1 & 2 during the year (2019: same).
2019
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 2019
Purchase costs
Sales proceeds
Total profit: in profit and loss
Balance at 31 October 2020
Fair value
through
profit
and loss
2020
£’000
Fair value
through
profit
and loss
2019
£’000
1,500
1,500
–
–
875
–
–
–
2,375
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 39 and 41. There were no matters
requiring disclosure under section 412 of the Companies Act 2006. S.I.T. Savings Limited is a wholly owned subsidiary
of the Company. During the year to 31 October 2020 the net amount paid to S.I.T. Savings Limited was £1,667 (2019:
nil) in relation to expenses. At 31 October 2020 the net amount due to S.I.T. Savings Limited was £10,501 (2019:
£14,011). The net amount receivable from S.I.T. Savings Limited was £13,860 (2019: £14,812).
18. Subsequent events
Since the year end the Board has declared a final dividend of 6.10p per share in respect of the year ended 31 October
2020.
Details of shares repurchased since the year end are disclosed in note 13 on page 64.
The Scottish Investment Trust PLC | Annual Report 2020
71
72
The Scottish Investment Trust PLC | Annual Report 2020
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
2019/20:
Dividends
Amount
XD date
Record
date
Payment
date
Third Interim 2020
5.70p
1/10/20
2/10/20
2/11/20
Second Interim 2020
5.70p
2/7/20
3/7/20
First Interim 2020
Final 2019
Special 2019
5.70p
6.90p
7.45p
9/4/20
14/4/20
16/1/20
17/1/20
14/2/20
16/1/20
17/1/20
14/2/20
3/8/20
7/5/20
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 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.
The Scottish Investment Trust PLC | Annual Report 2020
73
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
Under normal circumstances, all investors are welcome
to attend the Annual General Meeting and other general
meetings. As explained in the Chairman’s Statement on
page 5, the AGM in February 2021 will be a closed meeting
and shareholders will not be able to attend in person.
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. Alternatively, if they have
been provided with a Form of Direction, they can indicate
their voting instructions on the form and return it as
directed.
The AGM will be held at the offices of Dickson Minto W.S.,
16 Charlotte Square, Edinburgh EH2 4DF, on Tuesday 2
February 2021 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
74
The Scottish Investment Trust PLC | Annual Report 2020
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
The Scottish Investment Trust PLC | Annual Report 2020
75
Financial Calendar 2021
Dividend and interest payments
Final and special for the financial year
to 31 October 2020
First Interim
Second Interim
Third Interim
Final
February 2021
May 2021
August 2021
November 2021
February 2022
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
2 February 2021
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 Limited
Hamilton Centre
Rodney Way
Chelmsford CM1 3BY
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
Independent Auditors
PricewaterhouseCoopers LLP
Atria One
144 Morrison Street
Edinburgh EH3 8EX
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
76
The Scottish Investment Trust PLC | Annual Report 2020
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.
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
2020
£’000
3,415
–
(198)
3,217
2019
£’000
4,133
(175)
(72)
3,886
613,380 671,329
Ongoing Charge Calculation
a/b
0.52%
0.58%
Discount§ is the difference between the market price of
a share and the NAV, expressed as a percentage of the
NAV.
For the current year, the pension liability adjustment is
no longer being deducted from expenses in the
calculation provided above.
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
2020
2019
807.0p
825.0p
681.0p
807.0p
29.0p
26.5p
710.0p
833.5p
-12.0%
1.0%
*Assumed reinvested at the time of dividend going
ex-dividend.
Total assets means total assets less current liabilities.
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
2020
2019
878.5p
900.1p
755.5p
878.5p
29.6p
26.5p
785.1p
904.9p
-10.6%
0.5%
*Assumed reinvested at the time of dividend going
ex-dividend.
† 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.
The Scottish Investment Trust PLC | Annual Report 2020
77
78
The Scottish Investment Trust PLC | Annual Report 2020
Notice of Annual General Meeting
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
(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
2 May 2022, 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.
13. That the Articles of Association produced to the
meeting and signed by the chairman of the meeting
for the purposes of identification be approved
and adopted as the Articles of Association of the
Company in substitution for, and to the exclusion of,
the existing Articles of Association with effect from
the conclusion of the meeting.
As explained in the Chairman’s Statement on page
5, this will be a closed meeting and shareholders will
not be able to attend in person.
Maitland Administration Services Limited
Company Secretary
11 December 2020
Notice is hereby given that the one hundred and thirty-
third Annual General Meeting (AGM) of The Scottish
Investment Trust PLC will be held at the offices of Dickson
Minto W.S., 16 Charlotte Square, Edinburgh EH2 4DF, on
Tuesday 2 February 2021 at 10.30am, for the purpose of
transacting the following:
Ordinary Resolutions
1. To receive and consider the Annual Report and
Financial Statements for the year to 31 October
2020.
2. To approve the Directors’ Remuneration Report for
the year to 31 October 2020.
3. To approve the Directors’ Remuneration Policy.
4. To declare a final dividend of 6.10p per share.
5. To re-elect James Will as a Director.
6. To re-elect Jane Lewis as a Director.
7. To re-elect Mick Brewis as a Director.
8. To re-elect Karyn Lamont as a Director.
9. To re-elect Neil Rogan as a Director.
10. To re-appoint PricewaterhouseCoopers LLP as
auditors.
11. To authorise the Directors to fix the remuneration of
the auditors.
Special Resolutions
12. 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 10,845,339
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;
The Scottish Investment Trust PLC | Annual Report 2020
79
Notice of Annual General Meeting (continued)
Notes
1. Given the risks posed by the spread of Covid-19
and in accordance with the Company's articles
of association, the Corporate Insolvency and
Governance Act 2020 and government guidance,
the Annual General Meeting (AGM) will be closed
and shareholders will not be able to attend in
person.. Shareholders are therefore strongly
encouraged to register their votes in advance
by submitting proxy forms in advance to the
Company's Registrar in accordance with the
procedure set out in these notes.
2. 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.
3. 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, Bridgwater 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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
80
The Scottish Investment Trust PLC | Annual Report 2020
Notice of Annual General Meeting (continued)
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.
9. 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,
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.
10. 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.
11. 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.
12. On 10 December 2020 (being the last practicable
date prior to the publication of this notice),
the Company’s issued share capital comprised
72,350,500 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 10
December 2020, the total number of voting rights
exercisable at the AGM was 72,350,500
13. 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.
14. Further information regarding the AGM, including
the information required by section 311A of the
Companies Act 2006 is available from
www.thescottish.co.uk
15. 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:
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.
16. 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.
17. 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.
18. Investors whose holdings are in nominee names and
who wish to attend and vote are advised to contact
their nominee before 22 January 2021.
19. The final dividend, if approved, will be paid on 12
February 2021 to shareholders registered at the close
of business on 15 January 2021.
20. A copy of the proposed new articles of association
of the Company, together with a copy showing all
of the proposed changes to the existing articles of
association, will be available for inspection on the
Company's website, www.thescottish.co.uk.
21. This report was sent to the address currently
registered for communications. Any change of
address should be notified to the Company’s
registrar.
The Scottish Investment Trust PLC | Annual Report 2020
81
6 ALBYN PLACE | EDINBURGH | EH2 4NL
T: 0131 225 7781 | E: info@thescottish.co.uk
www.thescottish.co.uk
@ScotInvTrust
The Scottish Investment Trust