THE SCOTTISH INVESTMENT TRUST PLC | 134TH ANNUAL REPORT
THE SCOTTISH INVESTMENT TRUST PLC
134TH ANNUAL REPORT
31 OCTOBER 2021
The Scottish Investment Trust PLC | Annual Report 2021
Objective of The Scottish
Investment Trust PLC
To provide investors, over the longer term, with
above-average returns through a diversified
portfolio of international equities and to achieve
dividend growth ahead of UK inflation.
Objective of The Scottish
Investment Trust PLC
Cover painting:
Up and Over by Kirsty Wither
The Scottish Investment Trust PLC | Annual Report 2021
iii
Contents
2
Year at a Glance
3
Chairman’s Statement
6
Board of Directors
7
Manager’s Review
11
The Investment Team
12
Strategic Report
18
Financial Summary
19
List of Investments
21
Distribution of Assets
23
Ten Year Record
Directors’ Report
24
Responsibility Statement
25
Corporate Governance Report
32
Report of the Audit Committee
34
Directors’ Remuneration Report
Financial Statements
37
Independent Auditors’ Report
43
Income Statement
44
Balance Sheet
45
Statement of Comprehensive Income
46
Statement of Changes in Equity
47
Cash Flow Statement
48
Accounting Policies
51
Notes to the Financial Statements
Additional Information
65
Investor Information
67
Useful Addresses
68
Glossary
Annual General Meeting
70
Notice of Annual General Meeting
The Scottish Investment Trust PLC | Annual Report 2021
01
02
The Scottish Investment Trust PLC | Annual Report 2021
Year at a Glance
15.9%
NAV* total return†§
MSCI ACWI 29.5%
24.3%
Share price total return†§
MSCI ACWI 29.5%
£670.7m
Total assets
31 October 2020: £662.9m
3rd Quartile
AIC Global peer group
(one year share price total return)
31 October 2020: 4th quartile
22.78p
Revenue return
per share
31 October 2020: 21.70p
0.56%
Ongoing charges figure§
31 October 2020: 0.52%
3.6%
Share price discount to
NAV*§ (cum-income)
31 October 2020: 9.9%
6%
Gearing§
31 October 2020: 0%
51
Number of
listed holdings
31 October 2020: 59
Revenue reserve
2.7x
Regular dividend
31 October 2020: 2.6x
† 2020: Share price total return -12.0%; NAV total return -10.6%; MSCI ACWI 5.0%.
§ Alternative Performance Measures (please refer to Glossary on pages 68 and 69).
* NAV with borrowings at market value.
31 October 2021
38 years
of consecutive increase in
regular dividend
24.40p
Regular dividend
per share
31 October 2020: 23.20p
The Scottish Investment Trust PLC | Annual Report 2021
03
Chairman’s Statement
Future of the Company
Following a review of investment management
arrangements, and a recommendation from the
Board, shareholders approved on 9 December
2021 the proposal that JPMorgan Funds Limited
(‘JPMF’) be appointed as the Company’s manager
and the Company adopt a new investment strategy
(the ‘Investment Management Change’) ahead of a
proposed combination of assets with JPMorgan Global
Growth & Income plc (‘JGGI’). It is anticipated that
the Investment Management Change will take place
around 21 January 2022, shortly before the upcoming
Annual General Meeting, and that the combination
with JGGI (‘the Combination’) will be undertaken at the
end of the first quarter of 2022.
If completed, the Combination with JGGI will mark
a significant shift for The Scottish which has largely
maintained the same structure since it was established
in 1887. The investment landscape has changed
considerably since that time, particularly in recent
years, and the proposed changes offer a number of
attractions to shareholders which are set out below
under ‘Result of Review’.
Performance
The share price total return for the year was +24.3%
and the net asset value per share (NAV) total return
(with borrowings at market value) was +15.9%.
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
+29.5%.
A recovery in economic prospects from the depths of
the pandemic helped to drive absolute gains in the
period. The environment has generally not favoured a
contrarian approach in recent years and performance
has lagged the comparator index.
Income and dividend
Over the past year, earnings per share increased by
5.0% to 22.8p (2020: 21.7p).
Businesses have begun the process of resuming
dividend distributions that were paused in response to
the pandemic. The Company plans for any disruptions
by maintaining a large revenue reserve, built during
times when income generation is more abundant.
Accordingly, 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
66.1p per share, equivalent to more than two and a half
times the regular dividend.
The Board recommends a final dividend of 7.0p which,
if approved, will mean that the total regular dividend for
the year will increase by 5.2% to 24.4p.
The current dividend policy will remain unchanged until
the Combination is implemented, although the timing
of any dividend payments may vary from previous years.
The Board intends to announce a dividend in respect
of the first quarter to 31 January 2022 of 6.1p, equal
to a quarter of the previous year’s total dividend. It is
expected that a final interim dividend will be paid prior
to the Combination becoming effective. It is anticipated
that the changes in the portfolio to align it more closely
with JGGI’s, following the appointment of JPMF, will
result in a lower level of income. As a result, a greater
proportion of the Company’s revenue reserve may be
utilised for these dividends.
Discount, share buybacks and ongoing
charges
The Company follows a policy that aims, in normal
market conditions, to maintain the share price discount
to NAV (with borrowings at market value) at or below
9%. This policy was temporarily suspended in the
weeks preceding the announcement of the result of the
investment management review on 20 October 2021.
The discount at 31 October 2021 was 3.6% and the
average discount over the year was 10.2%. During the
period, 6.7m shares were purchased for cancellation at
an average discount of 10.9% and a cost of £48.4m. In
the previous year, 1.0m shares were purchased.
The ongoing charges figure (OCF) for the year under
review was 0.56% (2020: 0.52%).
Gearing
Gearing was increased over the year and finished the
period at 6%.
Result of Review
Earlier this year, your Board announced its intention
to undertake a review of the Company’s investment
management arrangements. The Board announced
on 20 October 2021 that it had agreed heads of terms
with JPMorgan Global Growth & Income plc and JGGI’s
manager, JPMorgan Funds Limited, for a combination
of the assets of the Company with JGGI by means of a
section 110 scheme of reconstruction.
In reaching this decision, the Board noted a number of
attractions to a combination with JGGI:
04
The Scottish Investment Trust PLC | Annual Report 2021
Strong historic investment performance: Over the
five years ended 31 October 2021, the NAV total
return of JGGI was 13.65% per annum representing
outperformance of 1.39% per annum against the MSCI
All Country World Index in sterling.
Style-agnostic: The JGGI investment strategy is
agnostic as between value and growth, focusing purely
on the best total return opportunities. This affords the
investment manager the flexibility to tilt the portfolio
further towards, or further away from, value stocks or
growth stocks as it sees fit, in a manner which is not
possible under the Company’s current investment
strategy.
Deeply resourced capability: JPMorgan Chase & Co
(Asset and Wealth Management) is one of the leading
global asset managers with assets under management
of USD3.0 trillion as at 30 September 2021, and the
JGGI investment management team is supported by
over 80 in-house research analysts located globally. The
Board believes this highlights the increasing difficulties
faced by a self-managed company with limited
resources, such as the Company, to have the required
depth of research to pursue a global equity mandate,
and therefore the benefits of the Combination with
JGGI.
Attractive dividend: JGGI has a distribution policy
which targets aggregate dividends in each financial
year representing at least 4% of JGGI’s NAV at the end
of the preceding financial year. The expected dividends
of 16.96 pence per JGGI share in respect of the 12
months from 1 July 2021 represent a yield of 3.8%
based on the closing JGGI share price of 441 pence on
30 November 2021.
Expected substantial uplift for shareholdings in the
Company: The Company’s shareholders are expected
to benefit from a re-rating of their investment in
the Company. The Company’s shares traded at an
average discount to NAV (cum income, debt at fair
value) of 10.4% in the three months preceding the
announcement of the Company’s strategic review on
2 June 2021. In contrast, JGGI traded at an average
premium to NAV (cum income, debt at fair value) of
2.5% over the same time period. As at close of business
on 30 November 2021, JGGI’s shares traded at a 1.9%
premium to NAV (cum income, debt at fair value). Since
announcement of the Company’s proposal to appoint
JPMF as the Company’s AIFM and undertake the
Combination, the Company’s discount has narrowed
from 12.6% (as at 19 October 2021) to 3.8% (as at 30
November 2021).
Scale: The combined company will have net assets
in excess of £1.2 billion (based on valuations as at
30 November 2021), creating a leading investment
vehicle for global equity investing that delivers an
attractive dividend yield. The scale of the combined
company should improve secondary market liquidity
for the Company’s shareholders and will achieve cost
efficiencies.
Low ongoing charges: JGGI will benefit from a new
scaled annual management charge (‘AMC’) agreed
between JGGI and JPMF. By way of illustration, based
on valuations as at 30 November 2021, this new AMC
would result in an initial weighted average AMC of
0.49% of net assets and forecast ongoing charges of
0.56% in the 12 months following implementation of the
Combination. For the avoidance of doubt, during the
period of JPMF’s appointment as the Company’s AIFM
up until implementation of the Combination, JPMF will
be entitled to receive a management fee payable by the
Company quarterly at a rate equivalent to 0.55% per
annum on net assets.
Leading investment trust platform: JPMorgan Asset
Management (UK) Limited (‘JPMAM’) is one of the
leading managers of closed-ended vehicles in the
UK, managing 20 investment companies with an
aggregate market cap in excess of £13.4 billion (as at 30
November 2021). JGGI benefits from JPMAM’s extensive
investment company management and marketing
resources.
Contribution from J.P. Morgan Asset Management:
JPMAM has agreed to make a costs contribution
in respect of the Combination equivalent to the
management fees payable by the enlarged vehicle in
respect of the eight month period immediately following
completion of the Combination.
Timescale
It is anticipated that it may be a number of months
before the Combination can formally proceed, due to
the additional complexities inherent in a self-managed
investment vehicle such as the Company. The Board,
JGGI and JPMF agreed that the process should be
effected in two stages, with the Company initially
appointing JPMF (which will delegate to JPMorgan
Asset Management (UK) Limited (‘JPMAM’)) to manage
its portfolio and adopting a new investment strategy
substantially identical to that of JGGI.
The Investment Management Change, the first stage
in this process, was approved by shareholders at the
General Meeting on 9 December. This will take effect
on or around 21 January 2022 from which point the
Company will be managed by JPMF and JPMAM
in a comparable fashion to JGGI. It is expected that
realignment of the portfolio will occur around the date
of JPMF’s appointment. It is also expected that company
secretarial and administration functions will also move
across to JPMAM as part of the Investment Management
Change.
The Combination, the second stage, will proceed as
and when the Company has taken all steps necessary
to allow it to be placed into liquidation in an orderly
fashion. At that time, the scheme of reconstruction will
take place and the Company's shareholders will have
their shareholdings in the Company replaced with
shares in the newly enlarged JGGI.
Chairman’s Statement (continued)
The Scottish Investment Trust PLC | Annual Report 2021
05
Chairman’s Statement (continued)
While the two stages of the process are inextricably
linked, so that support for the appointment of JPMF as
the Company's manager is also likely to imply support
for the Combination, the latter will be the subject of
separate shareholder votes at general meetings of
the Company to be held in the first quarter of 2022. It
is currently anticipated that the Combination will be
undertaken at the end of the first quarter of 2022.
Debtholders
The Company currently has both secured bonds and
perpetual debenture stock. Implementation of the
Combination is conditional on the approval of the
secured bond holders and the Board continues to liaise
with the trustee of the bonds in seeking to obtain the
approval of the underlying holders as soon as possible.
The Board intends to repay the perpetual debenture
stock following implementation of the Combination (if
approved).
Dividends following the Combination
Under JGGI’s current distribution policy, at the start
of each financial year the company announces the
distribution it intends to pay to shareholders in the
forthcoming year in quarterly instalments. In aggregate,
JGGI’s current intention is to pay dividends totalling
at least 4% of the NAV of JGGI as at the end of the
preceding financial year. Where the target dividend
is likely to result in a dividend yield that is materially
out of line with the wider market, the JGGI board may
choose to set the target dividend at a different level
that is more in-line with the wider market and other
global income trusts and funds.
For the avoidance of doubt, the Company’s current
dividend policy will not change up until the effective
date of the Combination. Following implementation
of the Combination, the above JGGI dividend policy
(which includes the ability to pay dividends out
of capital) will apply to all new JGGI shares held
by the Company’s shareholders. Whilst the JGGI
policy differs from the approach adopted by the
Company historically (which has focused on payment
of dividends from earnings, as supplemented by
revenue reserves), your Board believes the ability to
pay dividends out of capital can offer tangible benefits
to shareholders, including allowing the investment
manager to retain full flexibility and control over
stock picking without sacrificing high conviction
opportunities in the pursuit of yield, and offering the
ability to smooth dividend payments through low yield
environments.
Annual General Meeting (‘AGM’)
The Board continues to monitor the impact of the
Covid-19 pandemic upon the arrangements for the
Company’s AGM. The Board was disappointed that the
AGM in 2020 was restricted to following the minimum
legal requirements for an AGM but believes it was in the
best interests of shareholders.
At present, the intention is to hold the Company’s AGM
on Tuesday, 1 February 2022 at 10.30am at The Royal
College of Physicians of Edinburgh, 9 Queen Street,
Edinburgh, EH2 1JQ. Should there be a change of
circumstances, shareholders will be notified in the usual
way through an announcement.
A representative of JP Morgan Asset Management will
give a presentation at the forthcoming AGM on the
Company’s new investment strategy.
The Company’s in-house team
Pending the Investment Management Change
around 21 January 2022, the Company’s investment
management team will continue to manage the
portfolio in line with the Company’s current investment
strategy.
The Board and I are grateful for the considerable
efforts of the whole ‘Scottish’ in-house team over both
recent years and during the period of the investment
management review and would like to place on record
our deep gratitude to them. All team members are
dedicated, enthusiastic and professional and have
worked hard in every aspect of their respective roles
to deliver for shareholders. The last few years have,
however, been a challenging period during which to
manage money with a contrarian approach.
Outlook
The economy, and investment markets, appear to
be at a delicate point as the world emerges from
the pandemic and attempts are made to unwind the
massive stimulus programmes that helped avert greater
fallout. The economy remains in a state of flux, with the
after-effects of the pandemic disruption to industry
colliding with a resurgence in demand. Pinch points
within supply chains are evident across many sectors,
potentially slowing the economic recovery. Inflation
is an obvious consequence, and the world appears
to be adjusting to the notion that this could be more
persistent than some had initially believed.
Notwithstanding the various challenges that the current
environment holds, we are optimistic for the future and
we believe that shareholders will be well served by the
new arrangements.
James Will
Chairman
17 December 2021
06
The Scottish Investment Trust PLC | Annual Report 2021
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 Senior Independent 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
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, which she left in 2016. 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: £40,000
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.
The Scottish Investment Trust PLC | Annual Report 2021
07
Manager’s Review
This year represented a microcosm of the longer term
fortunes of our investment strategy. Relative to wider
markets our results were not as strong as we would have
hoped, although the portfolio did record an absolute gain.
Our holdings enjoyed a brief but notable period of strong
returns as confidence built in the prospects for ‘reopening’
which raised our hopes of a sustained turn in market
leadership. We have applied our contrarian philosophy
consistently over the last five years in the belief that, when
cycles ultimately change, it would prove rewarding.
However, we were, once again, left jilted at the
metaphorical altar as the prospects for economic growth
slowed in the summer.
The scale of economic stimulus remained extraordinary
but investors became concerned that this stimulus was
likely to be scaled back due to a pronounced pick up in the
rate of inflation. A wall of money has been created which
had been largely confined to speculative activities but has
now clearly filtered into the ‘real’ world. How this issue is
addressed will have an important bearing on markets in
future years.
The portfolio
Portfolio activity was concentrated in the early part of the
period, as increased confidence in the outlook allowed an
acceleration towards ideas best placed for the recovery
phase, taking advantage of discounted valuations in the
process. Several new positions were established, replacing
some of the more defensive investments taken at the
outset of the pandemic to shield capital.
Exposure to the financials sector was increased, including a
new investment in US bank Wells Fargo (+£9.8m total
return). Wells Fargo is focused on major operational
improvement and its potential for success had not been
credited, in our view. As the economic outlook improved,
many banks were able to reclaim some of the significant
reserves that were set aside earlier in the pandemic to
absorb anticipated credit losses. This tailwind lifted most of
our banks, including Banco Santander (+£5.0m), Lloyds
Banking (+£3.1m), JPMorgan Chase (+£2.8m), First
Horizon National (+£2.4m), Intesa Sanpaolo (+£2.3m),
Mitsubishi UFJ Financial (+£2.0m). Only Brazilian bank
Itaú Unibanco (-£1.0m) recorded a loss as local markets
fared less well.
Investments in insurers Aegon (+£4.5m), AIG (+£3.4m)
and Aviva (+£1.4m) were bolstered by progress with
efforts to streamline each of those businesses alongside
hardening prices for general insurance.
The reopening of the economy supported greater demand
for energy, and good gains were recorded across our
investments in this sector. Energy majors Exxon Mobil
(+£8.0m), Royal Dutch Shell (+£7.3m), BP (+£7.3m),
TotalEnergies (+£6.6m) and Chevron (+£2.2m) were all
buoyed by higher energy prices. This improved backdrop
also supported energy services companies such as
Halliburton (+£6.2m) and Helmerich & Payne (+£2.0m).
Among communication services stocks, BT (+£5.4m) was
boosted by the regulatory clarity that emerged from
Ofcom’s review of the fibre market. There was also a solid
gain for South African multinational MTN (+£5.2m), which
is moving past legacy challenges. Further gains came from
Australian operator Telstra (+£2.4m) and Germany’s
Deutsche Telekom (+£1.0m) while, in the US, Verizon
Communications (-£1.2m) recorded a loss. The positive
return for French media agency Publicis (+£1.4m) was
supported by an inflection in cyclical and secular growth
trends.
There were solid gains within the retail sector where we see
a number of successful business transformations underway,
including US fashion house and retailer Capri (+£3.8m), UK
based DIY group Kingfisher (+£3.2m), US retailer Target
(+£1.5m), and French supermarket chain Carrefour
(+£1.2m). We made a well timed divestment of Tesco
(+£2.6m), as the group had largely fulfilled its turnaround
ambitions.
Consumer stocks linked to social activities were lifted by
easing pandemic restrictions. US theme park operator Six
Flags Entertainment (+£1.3m) saw a strong recovery in
demand as its properties reopened. Easing lockdowns also
helped Brazilian brewer Ambev (+£1.3m) which saw
robust growth in beer volumes. Meanwhile, Japanese
beverages conglomerate Kirin (-£1.2m) dipped amid a
slower reopening of the domestic economy.
We reduced our exposure to tobacco during the year,
though retained investments in Altria (+£1.9m) and Philip
Morris International (+£0.9m) where discounted
valuations suggested that durable cash flows and a
transition to lower risk products were not yet recognised.
Within the healthcare sector, Pfizer (+£2.0m) has been
instrumental in the Covid 19 response and has received a
substantial boost to cash flow from its vaccine. Efforts to
reinvigorate growth and improve operations helped US
biopharmaceutical major Gilead Sciences (+£1.4m) and
French health group Sanofi (+£1.1m).
08
The Scottish Investment Trust PLC | Annual Report 2021
Manager’s Review (continued)
Our holdings in gold miners were a notable
disappointment. Soaring inflation would, ordinarily, be a
favourable backdrop for gold. Despite that, gold prices
were swayed by other market forces over the short run of
this financial year. Barrick Gold (-£14.5m), Newmont
(-£7.5m), Newcrest Mining (-£4.3m), AngloGold Ashanti
(-£3.6m) and Gold Fields (-£1.4m) all recorded declines.
UK engineering services group Babcock International
(+£1.7m), which plays a critical role in the UK’s defence
capabilities, is restoring its balance sheet and profitability
under new leadership. US industrial equipment group
General Electric (+£0.9m) rose as its operational
turnaround gained momentum. Meanwhile, East Japan
Railway (-£1.2m) declined as passenger volumes in Japan
remained curtailed by the pandemic.
Valedictory
This is the final Manager’s Review for the company in self
managed form. One of the benefits of having occupied
the same building since 1889 is access to my
predecessors’ musings which catalogue, with an investor’s
eye, the history of the modern world. There are many
lessons to draw but perhaps the most striking is that
change is constant. With that in mind, the proposed
combination with JPMorgan Global Growth & Income
heralds a new era for shareholders of The Scottish
Investment Trust.
It has been an honour and privilege to serve the
Company in various roles over the past 18 years. I have
always enjoyed my interactions with shareholders over
the years, whether in person, over a cup of coffee at the
AGM, or in writing and I would be delighted to hear from
any of you who wish to remain in touch. Additionally, it
has been tremendous working with such a dedicated and
enthusiastic in house team. I am grateful to them, and the
Board, for their support as a niche investment offering
was created. This attempted to preserve the very best
elements of the self managed model but, at the same
time, making the essential changes to ensure the
Company was relevant for the modern era. However, the
time has come for the Company to start a new chapter.
The team and I wish the Company every success for the
future.
Alasdair McKinnon
Manager
17 December 2021
The Scottish Investment Trust PLC | Annual Report 2021
09
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.
Improving
Reluctant
Pessimistic
Underestimated
Overlooked
Challenged
OPERATING PERFORMANCE
ugly
ducklings
positive potential
change
is afoot
overlooked progress
more
to come
underappreciated
prospects
MARKET SENTIMENT
Categorisation of Investments
10
The Scottish Investment Trust PLC | Annual Report 2021
Manager’s Review (continued)
Contribution
%
Equity portfolio (ungeared)
+14.4
Gearing
+1.7
Total equities
+16.1
Other income and currency
-0.2
Buybacks
+0.8
Expenses
-0.8
Interest charges
-0.6
Change in market value of borrowings
+0.7
Change in pension surplus
-0.1
NAV with borrowings at market value total return
+15.9
NAV Absolute Performance Attribution
Year to 31 October 2021
Top Ten Gains and Losses
Year to 31 October 2021
Gains
£m
Wells Fargo
9.8
Exxon Mobil
8.0
Royal Dutch Shell
7.3
BP
7.3
TotalEnergies
6.6
Halliburton
6.2
BT
5.4
MTN
5.2
Banco Santander
5.0
Aegon
4.5
Losses
£m
Barrick Gold
-14.5
Newmont
-7.5
Newcrest Mining
-4.3
AngloGold Ashanti
-3.6
Cheesecake Factory
-2.9
Gold Fields
-1.4
East Japan Railway
-1.2
Verizon Communications*
-1.2
Kirin
-1.2
Itaú Unibanco
-1.0
*sold during the year.
The Scottish Investment Trust PLC | Annual Report 2021
11
The Investment Team
Alasdair McKinnon
Manager
Alasdair joined the Company in 2003 and became
Manager in 2015. He has 22 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.
James Webb
Investment Manager
James joined the Company as an Investment Manager
in 2020. He has 9 years of investment experience.
He graduated MA with Honours in Economics and
International Relations from the University of Aberdeen.
James is a CFA® charterholder.
Igor Malewicz
Investment Analyst
Igor joined the Company in 2017. He graduated MA
with Honours in Economics and Finance and MSc in
Petroleum, Energy Economics and Finance, both from
the University of Aberdeen.
Martin Robertson
Deputy 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.
Mark Dobbie
Investment Manager
Mark joined the Company in 2000 and became
an Investment Manager in 2011. He has 11 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.
12
The Scottish Investment Trust PLC | Annual Report 2021
Strategic Report
Business Model and Status
This section should be read in conjunction with the
Chairman's Statement on pages 3 to 5 which sets out
important information about the future of the Company.
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 the MSCI
All Country World Index, the composition of the
index 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 index.
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 19 and 20
and detailed analysis of the spread of investments
by geographic region and industry sector is shown
on page 21. A further analysis of changes in asset
distribution by industry sector over the year, including
the sources of gains/losses, is shown on page 22.
Attribution of NAV performance is shown on page 10.
At the year end, the number of listed holdings was 51
(2020: 59). The top ten holdings comprised 34.5% of
total assets (2020: 39.5%).
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 7
to 9.
The Scottish Investment Trust PLC | Annual Report 2021
13
Manager’s Review (continued)
Additional limitations on borrowings
Under the Company’s Articles of Association, the
Directors control the borrowings of the Company and
its subsidiary to ensure that the aggregate amount of
borrowings does not, unless approved by an ordinary
resolution of shareholders, exceed the aggregate of
the reserves excluding unrealised capital profits of the
Company and its subsidiary, 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 the
consequences of Brexit, Scottish independence and
the global pandemic;
• Investment portfolio and performance – the
Company becomes unattractive due to the 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
29 to 30 and in note 16 to the accounts on pages 59 to
64 and on internal controls in the Report of the Audit
Committee on page 32.
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 index.
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 pages 68 and 69.
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 7 to 9.
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 7.0p
payable on 11 February 2022. With the interim
dividends each of 5.8p already paid in May, August
and November 2021, this makes a total of 24.4p for
the year. Based on 66,173,178 shares in issue at 31
October 2021, the final dividend will cost £4.632m. The
total dividend for the year will cost £16.195m.
Share capital
General
The Company had 66,173,178 shares of 25p each in
issue on 31 October 2021 (2020: 72,896,247). Since the
year end, the Company has not bought back any shares.
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.
Strategic Report (continued)
14
The Scottish Investment Trust PLC | Annual Report 2021
Rights to the capital of the Company on winding up
Shareholders would be entitled to the assets of the
Company in the event of a winding up (after the
Company’s other liabilities had been satisfied).
Voting
On a show of hands, every shareholder present in
person or by proxy has one vote and on a poll every
member present in person or by proxy has one vote for
each share.
Transfer
There are no restrictions concerning the holding
or transfer of shares in the Company and there are
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 2021, the Company bought back
for cancellation a total of 6,723,069 shares of 25p each
representing 9.2% of shares in issue at 31 October
2020, at a cost of £48,411,000.
At the AGM on 2 February 2021, authority was granted
to repurchase up to 14.99% of shares in issue on that
date. The number of shares authorised for repurchase
was 10,578,569. Share buybacks from the date of
the AGM to the Company’s year-end amounted to
4,397,664 shares or 6.23% out 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
As shareholders will be aware, the Board recently
concluded a review of the Company’s investment
management arrangements. The outcome of this
review was a recommendation by the Board that
the Company’s assets be combined with those of
JPMorgan Global Growth & Income PLC (‘JGGI’) by
means of a section 110 scheme of reconstruction
(the ‘Scheme’). Upon completion of the combination
of the assets and the allotment of JGGI shares to
shareholders, the implementation of the Scheme will,
subject to shareholder approval at general meetings,
result in the voluntary liquidation of the Company.
The outcome of the general meetings to place the
Company into liquidation represents a material
uncertainty in the context of the preparation of these
financial statements. Notwithstanding this, 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 29), 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 and resultant global macro-
economic uncertainty, in relation to the Company’s
Strategic Report (continued)
Discount to NAV*
5 Years to 31 October 2021
0
3
6
9
12
15
18
Oct 16
Oct 17
Oct 18
Oct 19
Oct 21
Oct 20
%
0
3
6
9
12
15
18
%
Discount to Cum-Income NAV
* with borrowings at market value
Source: The Company
Discount to Ex-Income NAV
The Scottish Investment Trust PLC | Annual Report 2021
15
Strategic Report (continued)
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 2021, 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 would be able to continue in operation
and meet its liabilities as they fall due over the five year
period of this viability assessment.
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;
(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, all of which are fundamental to the success of
the Company, the Directors have focused attention on
ensuring the following robust mechanisms protect their
interests:
Stakeholder
Engagement in year
Shareholders
Employees
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.
As a result of the review of investment management arrangements and the resultant decision
to recommend the Combination with JGGI, the Board has had greater engagement with
shareholders during the year by way of the publication of regulatory announcements, thereby
ensuring that shareholders remained apprised of developments. Subsequent to the year end a
circular was sent to shareholders setting out the proposed transaction and the rationale for the
Board’s decision. The circular also included notice of a general meeting of the Company whereat
shareholders were invited to vote on the proposed change of AIFM. Shareholders voted in favour
of the change of AIFM at the general meeting which took place on 9 December 2021.
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 held a closed
AGM in 2021. 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. An Employee Handbook is provided to all staff. 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 potentially far-reaching implications of the investment management review for
employees, the Board kept staff informed of developments insofar as was reasonably practicable.
Since the outbreak of the global pandemic, provision has been made to ensure that employees
are able to work safely and effectively from home.
16
The Scottish Investment Trust PLC | Annual Report 2021
Strategic Report (continued)
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 – Review of investment management
arrangements
During the year, the Board undertook a review of the
investment management arrangements. As announced
in June 2021, the Board appointed Stanhope
Consulting to assist it in this review. Proposals were
invited from established fund management groups,
with the experience of managing listed closed-ended
funds, designed to deliver, over the longer term,
above index returns through a diversified global
portfolio of attractively valued companies with good
earnings prospects and sustainable dividend growth.
A large number of proposals were received and these
were reviewed alongside the Company’s current
management arrangements.
Following a detailed review of all proposals, the Board
concluded that a combination of the assets of the
Company with JGGI by means of a section 110 scheme
of reconstruction would be in the best interests of the
Company and its shareholders as a whole. In reaching
this decision, the Board took into consideration the
implications for the Company’s other key stakeholders,
including its employees and third party service
providers.
The Chairman’s Statement on page 4 explains the
benefits to shareholders of this decision.
Principal decision 2 – 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 £16.195m to shareholders during the year to
31 October 2021.
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 29 and in
note 16 on page 60.
Performance comparators
The Company does not have a formal benchmark.
Performance is reviewed in the context of returns
achieved by a broad basket of international equities
through the MSCI All Country World Index (ACWI). The
portfolio is not modelled on any index.
Management
The Board has appointed the Company’s wholly-owned
subsidiary, S.I.T. Savings Limited, as its Alternative
Stakeholder
Engagement in year
Community &
Environment
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.
Key Service
Providers
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.
The Company continued to monitor its key service providers during the year to ensure that service
levels are maintained and that business continuity processes continue to operate effectively.
The Scottish Investment Trust PLC | Annual Report 2021
17
Strategic Report (continued)
Investment Fund Manager (AIFM). On 9 December
2021, shareholders approved the appointment of
JPMorgan Funds Limited as the Company’s AIFM, such
appointment to take effect on or around 21 January
2022.
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.
Substantial shareholdings
At 31 October 2021, the Company had been informed
of the following notifiable interest in its voting rights:
Shares
%
held
1607 Capital Partners, LLC
3,785,706
5.7
Analysis of share register at 31 October 2021
Category of holder
Share capital
%
Individuals
86.0
Investment companies
4.0
Pension funds
4.0
Other
6.0
Total
100.0
Company’s directors and employees
The table below shows the breakdown of Directors and
employees.
31 October 2021
31 October 2020
Male
Female
Male
Female
Directors
3
2
3
2
Senior Manager
1
0
1
0
Employees
5
4
5
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 15 to 16
and 30.
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.
Environmental, social and governance (ESG)
considerations are inextricably linked with the risks and
returns of an investment and, accordingly, are integral
to our investment process.
ESG and due diligence on new investments
We do not apply prescriptive criteria but instead
consider the circumstances of each situation, as part
of our process of conducting research on potential
investee companies.
For each investment, analysis of material ESG risks
relating to the company, or sector, forms part of
the overall assessment of risk. Where material risks
are recognised, we identify and record any specific
mitigations in place. In the absence of sufficient
mitigating factors, the potential investment would be
rejected.
If our analysis identifies ESG shortcomings which are
insufficient to deter investment, we will engage with the
company to highlight these as an area meriting action.
ESG and existing investments
When we have an ESG concern pertaining to an existing
investment, we will first consider the impact on the long
term sustainability of our investment case. Depending on
our conclusion, we will either engage with the company
to encourage an appropriate resolution of the issue or
sell the investment. We may use our voting powers to
further voice our opinion should the need arise.
Voting powers
We review resolutions put to general meetings of
investee companies and, wherever practicable, will vote,
usually by proxy. In voting on its shareholdings, the
Company normally supports management, but will vote
against resolutions which are considered damaging to
shareholders’ rights or interests.
Modern Slavery
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.
Anti-bribery and corruption
The Company has a zero tolerance policy towards
bribery and corruption and a commitment to carry out
business fairly, honestly and openly. The Company has an
Anti-Bribery and Corruption Policy with which all staff are
required to comply.
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
17 December 2021
18
The Scottish Investment Trust PLC | Annual Report 2021
Oct 16
Oct 17
Oct 18
Oct 19
Oct 21
Oct 20
NAV* and Share Price against Comparator Indices
Total Return – 5 years to 31 October 2021
*with borrowings at market value
Chart data source: Bloomberg and the Company
MSCI ACWI
Share Price
NAV
90
110
130
150
170
190
210
90
110
130
150
170
190
210
Financial Summary
2021
2020
Change
%
Total return
%
NAV with borrowings at market value
851.1p
755.5p
12.6
15.9§
NAV with borrowings at amortised cost
886.3p
793.6p
11.7
14.7§
Ex-income NAV with borrowings at market value§
845.1p
750.9p
12.5
Ex-income NAV with borrowings at amortised cost
880.3p
789.0p
11.6
Share price
820.0p
681.0p
20.4
24.3
Discount to NAV with borrowings at market value§
3.6%
9.9%
MSCI ACWI
27.6
29.5
£’000
£’000
Equity investments
620,106
581,235
Pension surplus
414
1,161
Net current assets
50,231
80,542
Total assets
670,751
662,938
Long-term borrowings at amortised cost
(84,105)
(84,013)
Pension scheme deferred tax on surplus
(145)
(406)
Shareholders’ funds
586,501
578,519
Earnings per share
22.78p
21.70p
5.0
Regular dividend per share (2021: proposed final 7.00p)
24.40p
23.20p
5.2
UK Consumer Prices Index – annual inflation
4.2
Year’s High & Low
Year to
31 October 2021
Year to
31 October 2020
High
Low
High
Low
NAV with borrowings at market value
914.1p
755.5p
924.0p
705.2p
Closing share price
827.0p
681.0p
841.0p
557.0p
Discount to NAV with borrowings at market value
14.9%
3.6%
25.8%
5.9%
§ Alternative Performance Measures (please refer to Glossary on pages 68 and 69).
The Scottish Investment Trust PLC | Annual Report 2021
19
List of Investments
As at 31 October 2021
Listed Equities
Holding
Country
Market
value
£’000
Cumulative
weight
%
Newcrest Mining
Australia
29,760
Newmont
US
28,436
Barrick Gold
Canada
25,598
Wells Fargo
US
24,634
Exxon Mobil
US
22,381
BT
UK
20,774
Royal Dutch Shell
UK
20,672
Halliburton
US
20,565
Banco Santander
Spain
19,844
TotalEnergies
France
18,704
37.3
BP
UK
18,298
East Japan Railway
Japan
17,139
AIG
US
16,353
Gilead Sciences
US
15,991
Kingfisher
UK
14,184
Mitsubishi UFJ Financial
Japan
14,143
AngloGold Ashanti
South Africa
13,920
Sanofi
France
13,899
United Utilities
UK
13,888
Kirin
Japan
13,482
61.7
Gold Fields
South Africa
12,484
Six Flags Entertainment
US
12,420
MTN
South Africa
11,650
Cheesecake Factory
US
11,326
Helmerich & Payne
US
11,115
Ambev
Brazil
10,975
Intesa Sanpaolo
Italy
10,886
Pfizer
US
10,275
Carrefour
France
10,230
Aegon
Netherlands
9,773
79.6
Lloyds Banking
UK
9,299
Babcock International
UK
9,167
General Electric
US
9,113
Itaú Unibanco
Brazil
8,987
Publicis
France
7,484
Altria
US
7,466
First Horizon
US
7,230
Aviva
UK
7,065
KPN
Netherlands
6,237
Whitbread
UK
6,211
92.3
20
The Scottish Investment Trust PLC | Annual Report 2021
As at 31 October 2021
Listed Equities
Holding
Country
Market
value
£’000
Cumulative
weight
%
Bristol-Myers Squibb
US
5,965
Hennes & Mauritz
Sweden
5,423
Bayer
Germany
5,218
Adecco
Switzerland
4,945
AT&T
US
4,845
Tele2
Sweden
4,384
Philip Morris International
US
3,585
Royal Mail
UK
3,036
PageGroup
UK
2,881
CCR
Brazil
2,827
99.2
Capri
US
2,564
Total listed equities
617,731
99.6
Unlisted
Holding
Country
Market
value
£’000
Cumulative
weight
%
Heritable property and subsidiary
UK
2,375
Total unlisted
2,375
0.4
Total equities
620,106
100.0
The 10 largest holdings have an aggregate market value of £231,368,000
List of Investments (continued)
Listed Equities by Category
(Market Value Weighted)
more to come
2%
ugly ducklings
47%
change is afoot
51%
The Scottish Investment Trust PLC | Annual Report 2021
21
Distribution of Assets
31 October
2021
%
31 October
2020
%
UK
19.1
15.6
Europe (ex UK)
17.4
13.5
North America
35.7
36.6
Latin America
3.4
0.4
Japan
6.7
7.9
Asia Pacific (Ex Japan)
4.4
10.8
Middle East & Africa
5.7
2.9
Pension surplus
0.1
0.2
Net current assets
7.5
12.1
Total assets
100.0
100.0
by Region
Allocation of Total Assets
31 October
2021
%
31 October
2020
%
Energy
16.7
4.9
Materials
16.4
22.9
Industrials
7.3
0.9
Consumer Discretionary
7.8
1.9
Consumer Staples
6.8
15.7
Health Care
7.6
14.5
Financials
19.5
5.0
Information Technology
–
–
Communication Services
8.2
13.0
Utilities
2.1
8.9
Real Estate
–
–
Pension surplus
0.1
0.2
Net current assets
7.5
12.1
Total assets
100.0
100.0
by Sector
Distribution of Total Assets
Total equities
92.4%
Pension surplus
0.1%
Net current assets
7.5%
Allocation of Shareholders’ Funds
%
Total equities
105.7
Pension surplus
0.1
Net current assets
8.5
Borrowings at amortised cost
-14.3
Provisions for liabilities
0.0
Shareholders’ funds
100.0
22
The Scottish Investment Trust PLC | Annual Report 2021
Changes in Shareholders’ Funds
31 October
2020
£m
Net
purchases
(sales)
£m
31 October
2021
£m
Gains/
(losses)
£m
Dividend
income
£m
Total
return
£m
Total equities
581.2
(23.8)
620.1
62.7
19.6
82.3
Pension surplus
1.2
–
0.4
Net current assets
80.5
(29.1)
50.2
Total assets
662.9
(52.9)
670.7
Borrowings at amortised cost
(84.0)
(0.1)
(84.1)
Provision for liabilities
(0.4)
–
(0.1)
Shareholders’ funds
578.5
(53.0)
586.5
by Sector
31 October
2020
£m
Net
purchases
(sales)
£m
Gains/
(losses)
£m
31 October
2021
£m
Energy
32.7
42.8
36.2
111.7
Materials
151.7
(7.7)
(33.8)
110.2
Industrials
6.0
43.3
(0.2)
49.1
Consumer Discretionary
12.8
33.9
5.4
52.1
Consumer Staples
103.7
(62.1)
4.1
45.7
Health Care
95.8
(46.0)
1.6
51.4
Financials
32.9
62.2
35.5
130.6
Information Technology
–
–
–
–
Communication Services
86.3
(44.5)
13.6
55.4
Utilities
59.3
(45.7)
0.3
13.9
Real Estate
–
–
–
–
Total equities
581.2
(23.8)
62.7
620.1
Distribution of Assets (continued)
Changes in Asset Distribution
The Scottish Investment Trust PLC | Annual Report 2021
23
Ten Year Growth Record
Year to
31 October
Earnings
per share
Regular
dividend per
share1
Consumer
Prices
Index
Share
price
Share
price
total
return
NAV (debt at
amortised
cost) total
return
NAV (debt at
market
value) total
return
MSCI ACWI4
total return
2011
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
2012
96.6
108.2
102.6
106.0
108.4
109.2
108.4
108.8
2013
107.9
111.5
104.9
133.4
139.4
135.2
138.9
134.4
2014
92.6
115.4
106.2
132.3
141.4
137.3
140.3
145.5
2015
128.0
120.2
106.1
134.5
146.6
142.7
146.0
150.7
2016
173.9
129.8
107.1
170.2
190.5
185.3
189.0
194.5
2017
185.5
192.3
110.3
186.5
214.9
206.4
209.8
220.3
2018
209.3
203.8
112.9
182.5
218.9
207.2
212.0
227.8
2019
239.3
219.2
114.6
178.5
221.2
210.7
213.1
253.3
2020
174.6
223.1
115.4
150.7
194.6
189.4
190.5
265.8
2021
183.3
234.6
120.2
181.4
241.8
217.4
220.7
344.2
Ten year return per annum
6.2%
8.9%
1.9%
6.1%
9.2%
8.1%
8.2%
13.2%
Five year return per annum
1.1%
12.6%
2.3%
1.3%
4.9%
3.2%
3.2%
12.1%
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.
Ten Year Record
Year to
31 October
Earnings
per
share
p
Regular
dividend
per share
p1
Total
expenses
£’000
Ongoing
charges
figure
%
Total
assets
£’000
Share-
holders’
funds
£’000
Buybacks
£’000
NAV
(debt at
amortised
cost)
p
Share
price
p
cum-
income
%
ex-
income
%
NAV
(debt at
amortised
cost) total
return
%
2011
12.43
10.40
4,443
0.71
708,972
598,870
19,339
524.2
452.0
9.6
8.2
(0.0)
2012
12.01
11.25
4,632
0.79
734,801
628,244
11,121
561.6
479.0
9.8
8.6
9.2
2013
13.41
11.60
5,110
0.75
857,545
750,818
10,139
682.7
603.0
9.8
8.6
23.8
2014
11.51
12.00
4,887
0.68
841,189
734,293
11,308
679.5
598.0
9.6
8.7
1.5
2015
15.91
12.50
4,900
0.52
840,005
733,056
15,426
694.3
608.0
10.1
8.6
3.9
2016
21.62
13.50
4,080
0.49
935,934
849,017
59,944
881.2
769.5
10.0
8.1
29.9
2017
23.06
20.00
3,517
0.49
845,199
760,371
135,1883
956.8
843.0
8.8
6.8
11.4
2018
26.02
21.20
3,254
0.52
800,478
715,312
19,602
926.8
825.0
8.3
7.2
0.4
2019
29.75
22.80
4,133
0.58
761,993
676,793
26,978
915.9
807.0
8.1
6.6
1.7
2020
21.70
23.20
3,415
0.52
662,938
578,519
7,334
793.6
681.0
9.9
9.3
(10.1)
2021
22.78
24.40
3,451
0.56
670,751
586,501
48,411
886.3
820.0
3.6
3.0
14.7
Discount to NAV2
24
The Scottish Investment Trust PLC | Annual Report 2021
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
Financial Statements unless they are satisfied that they
give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for
that 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;
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
17 December 2021
The Scottish Investment Trust PLC | Annual Report 2021
25
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
comprises the whole Board, with the exception of the
Chairman, who 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 2021;
• it has approved the 2021 Annual Report and
Financial Statements as a fair, balanced and
understandable assessment of the Company’s
position and future prospects as at 31 October 2021;
• 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 and also in light of the
material uncertainty in relation to going concern
arising from the proposed section 110 scheme
of reconstruction. Notwithstanding the material
uncertainty in relation to going concern, the Audit
Committee has recommended to the Board that the
Financial Statements continue to be prepared on a
going concern basis. Further information is given in
the Going concern statement on page 28;
• 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 32 and 33.
Independent auditors
The Board proposes the continuing re-appointment
of PricewaterhouseCoopers LLP as auditors.
PricewaterhouseCoopers LLP has expressed its
willingness to be re-appointed auditors to the
26
The Scottish Investment Trust PLC | Annual Report 2021
James Will*
5
5
–
–
2
2
3
3
Jane Lewis
5
5
3
3
2
2
3
3
Mick Brewis
5
5
3
3
2
2
3
3
Karyn Lamont
5
5
3
3
2
2
3
3
Neil Rogan
5
5
3
3
2
2
3
3
Company. The re-appointment is subject to shareholder
approval at the Annual General Meeting to be held
on 1 February 2022 and resolutions concerning
PricewaterhouseCoopers LLP’s re-appointment and
remuneration will be submitted to that meeting.
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 34 to 36.
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 Financial Statements.
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 27
and 28.
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 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.
In addition to the scheduled meetings, the review of
the investment management arrangements which took
place during the year resulted in a significant number of
additional Board meetings.
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.
Corporate Governance Report (continued)
* Whilst not a member of the Audit Committee, James Will was invited to, and attended, the three Audit Committee meetings held during the year.
Audit
Remuneration
Nomination
Board
Committee
Committee
Committee
Held Attended
Held Attended
Held
Attended
Held
Attended
The Scottish Investment Trust PLC | Annual Report 2021
27
When making new appointments, the Board takes into
account other demands on potential candidates’ time
and prior to appointment any significant commitments
are disclosed with an indication of the time involved.
In the year under review the Board assessed the time
commitment of each individual Director on external
appointments. Each Director’s aggregate time
commitment is discussed with him or her as part of the
annual appraisal process.
In the year under review, all Directors were considered
to have sufficient time to commit to their respective
roles on the Board, taking account of their external
appointments.
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.
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
Corporate Governance Report (continued)
28
The Scottish Investment Trust PLC | Annual Report 2021
Board members and will ensure appointments are made
on the basis of merit against objective criteria.
The structure, size and composition of the Board
of Directors are reviewed at least annually by the
Nomination Committee ensuring an appropriate
balance of skills, experience, independence and
knowledge. In considering new appointments to the
Board, the Committee recognises the benefits of
diversity on the Board, including gender, 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 Covid-19 pandemic initially had a significant
impact on world stockmarkets; however, with greater
knowledge around the virus, the widespread roll-
out of a number of vaccines and the economic
stimulus provided by governments around the world,
stockmarkets have largely recovered.
The Directors have considered the implications of
the pandemic in determining the Company’s going
concern assessment and viability statement.
The Board’s investment strategy together with the
Company’s financial position provide sufficient
diversification, liquidity and resilience to withstand 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.
The Company's staff and those of its third party service
providers have continued to work remotely for the
majority of 2021. 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 Board considered, and sought advice on, the
appropriateness of continuing to prepare the Financial
Statements on a going concern basis. Notwithstanding
the material uncertainty in relation to going concern
surrounding the implementation of the proposed
scheme of reconstruction (the ‘Scheme’), the Board
concluded that it remained appropriate to continue to
prepare the Financial Statements on a going concern
basis. In reaching this conclusion the Board came
to the view that, as the Scheme was contingent on
shareholder approval and the Company is considered
solvent in all other regards, there is no irrevocable path
to liquidation and thus going concern remained the
most appropriate basis for preparation.
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 risks associated with
the implementation of the Scheme, as well as the risks
associated with the ongoing pandemic. 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 pages 14 and 15.
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 2021 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 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.
Corporate Governance Report (continued)
The Scottish Investment Trust PLC | Annual Report 2021
29
Corporate Governance Report (continued)
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.
This section should be read in conjunction with the
Chairman's Statement on pages 3 to 5 which sets out
the potential risks associated with the implementation of
the Scheme.
Principal risks
Mitigation
Tax, legal and regulatory
The Company is required to comply with a range of
legislation and regulation and may be impacted by
changes in the external environment.
The Company 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.
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 the consequences of Brexit;
Scottish independence; and the various risks arising
from the global pandemic.
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.
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 the comparator index and peer
group performance over discrete periods.
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.
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 a
future macro-economic event.
The threat of cyber attack has become more prevalent
across all sectors.
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.
Financial
The Company’s normal business activities are exposed
to market risk (including market price risk, foreign
currency risk and interest rate risk), liquidity risk and
credit risk.
The 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.
30
The Scottish Investment Trust PLC | Annual Report 2021
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 page 32.
Further information on risks is detailed in note 16 to
the accounts on pages 59 to 64.
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 70 and which is posted
to shareholders at least 20 working days prior to the
meeting.
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 represents 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 undertakes an in-depth review
of the Company’s strategy annually to consider these
and other matters. Our track record demonstrates that
we are prepared to make changes when necessary
to remain successful, as evidenced by the outcome
of the recent review of investment management
arrangements. Further details on the review can be
found in the Chairman’s Statement on pages 3 to 5 and
in the Strategic Report on page 16.
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 35.
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 Scottish Investment Trust PLC | Annual Report 2021
31
the gearing parameters set by the Board in relation to
borrowings.
The Company’s maximum limits and actual leverage
levels are shown below:
Leverage exposure
Gross
method
Commitment
method
Maximum limit (AIFM)
200%
200%
Maximum limit (Board)
120%
120%
Actual at 31 October 2021
106%
114%
Annual General Meeting
The Company’s 134th Annual General Meeting will be
held at the Royal College of Physicians of Edinburgh,
11 Queen Street, Edinburgh EH2 1JQ at 10.30am on
Tuesday 1 February 2022.
The Board considers that the resolutions to be
proposed at the AGM are all in the best interests of
the Company and of the shareholders as a whole and
recommends that shareholders vote in favour of them.
Resolutions 1 to 10 are self-explanatory.
Resolution 11 - Renewal of authority to purchase shares
This resolution, set out in the Notice of AGM on page
70, seeks to renew the authority to purchase shares until
1 May 2023. 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 9,919,359
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 - Authority to call General Meetings on 14
days' clear notice
This resolution, set out in the Notice of AGM on
page 70, seeks shareholder authority to call general
meetings, other than the AGM, on 14 clear days’ notice.
The approval will be effective until the Company’s next
AGM. The Board will utilise this authority to provide
Corporate Governance Report (continued)
flexibility when merited and would not use it as a
matter of course.
Resolutions 11 and 12 will be proposed as special
resolutions that require 75% of votes cast to be in
favour in order to be passed.
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 2021 were
26.8 tonnes of CO2e (2020: 21.0 tonnes CO2e). This
equates to 0.07 tonnes of CO2e (2020: 0.06 tonnes of
CO2e) per square metre.
Reflecting the size of its operations, the Company is
therefore formally categorised as a lower energy user
under the HMRC Environmental Reporting Guidelines
March 2020 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 15 and 16.
Board Approval of Report
The Directors’ Report on pages 24 to 36, 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 28, have been approved
by the Board. The Strategic Report on pages 12 to 17
includes information relating to: Future Developments,
Dividends, Share capital and Discount control policy
(including share buybacks).
There have been no significant post-balance sheet
events, with the exception of that referred to in note 18
on page 64.
The Corporate Governance Report was approved by
the Board and signed on its behalf by:
Maitland Administration Services Limited
Company Secretary
17 December 2021
32
The Scottish Investment Trust PLC | Annual Report 2021
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
25. 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.
In light of the outcome of the review of the investment
management arrangements, the Committee
considered the appropriateness of continuing to
prepare the Financial Statements on a going concern
basis. Notwithstanding the material uncertainty
in relation to going concern surrounding the
implementation of the Scheme, the Committee
concluded that it remained appropriate for the
Financial Statements to continue to be prepared on a
going concern basis.
The Company has continued to monitor the risks
associated with the ongoing Covid-19 pandemic.
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.
We specifically discuss the implications of the outcome
of the investment management review and of the
Covid-19 pandemic for our going concern assessment
and viability statement in more detail on pages 28 and
14 to 15 respectively.
The Committee also asked the Company’s auditor to
pay particular attention to the valuation and ownership
of investments and recognition of income, as in 2020.
The Scottish Investment Trust PLC | Annual Report 2021
33
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 48.
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 2021. The Committee is of the
opinion that PwC have performed satisfactorily 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 second 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 £40,560 (2020: £39,000)
and £8,535 (2020: £7,500), 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 determine
the level of audit fees, 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
17 December 2021
Report of the Audit Committee (continued)
34
The Scottish Investment Trust PLC | Annual Report 2021
Directors’ Remuneration Report
This report has been prepared in accordance with
the requirements of section 421 of the Companies
Act 2006 incorporating The Large and Medium-
Sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 and the
Directors’ Remuneration Report Regulations 2002. An
ordinary resolution for the approval of the Directors’
Remuneration Report will be put to shareholders at the
AGM on 1 February 2022.
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.
Further details on the Remuneration Committee are
given on page 26. Details of the terms of Directors’
appointments and their duration are shown on page 27.
Policy on Directors’ fees
On 31 October 2021, 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 2021 and
this policy therefore applied for the period up to 31
October 2021. This approval is 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 2024. 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. No change in the level of Directors’
fees is proposed for the year ending 31 October 2022.
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 2022
£
Actual fees for
the year to
31 October 2021
£
Chairman
60,000
60,000
Audit Committee Chair
40,000
40,000
Non-executive Director
32,500
32,500
Annual statement
The level of Directors’ fees was unchanged during the
financial year, with the exception of that paid to the
Audit Committee Chair, which 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.
Directors’ emoluments (audited)
Year to
31 October
2021
£
Change
over prior
year
%
Year to
31 October
2020
£
James Will 1
60,000
–
60,000
Russell Napier
(retired 4 February 2020)
–
-100.0
8,481
Jane Lewis
32,500
–
32,500
Mick Brewis
32,500
–
32,500
Karyn Lamont 2
40,000
6.7
37,500
Neil Rogan
32,500
–
32,500
Total
197,500
-2.9
203,481
1 Chairman
2 Audit Committee Chair
As all the Directors are non-executive and their fees
are payable quarterly with no performance-based
element, there is no correlation between the Directors’
fees and the employees’ remuneration. The Company
is of the view, therefore, that it is not necessary to
directly consult with employees when drawing up the
Remuneration Report.
The Scottish Investment Trust PLC | Annual Report 2021
35
The Board considers that the existing regular
opportunities for staff members to raise concerns
or suggested improvements, including in respect of
staff rewards and incentives, are 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. 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 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 2021
31 October 2020
James Will
10,000
10,000
Jane Lewis
2,500
2,500
Mick Brewis
10,000
10,000
Karyn Lamont
2,500
2,500
Neil Rogan
10,352
10,352
There were no changes in the Directors’ interests
between 31 October and 16 December 2021.
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.
Relative importance of Directors’ fees
2021
£’000
2020
£’000
%
Change
Directors’ fees
198
203
-2.5
Expenses
3,451
3,415
1.1
Staff costs
1,274
1,210
5.3
Dividends paid and
proposed
16,195
16,924
-4.3
Directors’ fees as a percentage of:
2021
%
2020
%
Expenses
5.7
6.0
Staff costs
15.5
16.8
Dividends paid and proposed
1.2
1.2
Further details of the Company’s expenses and staff
costs can be found in notes 2 and 3, respectively, on
page 51 and of dividends paid and proposed on page
43.
Directors’ Remuneration Report (continued)
SIT – Share Price (Total Return)
MSCI UK All Cap Index (Total Return)
00
5
0
5
00
5
0
100
125
150
175
200
225
250
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
36
The Scottish Investment Trust PLC | Annual Report 2021
Directors’ Remuneration Report (continued)
In accordance with the Companies (Directors’
Remuneration Policy and Directors’ Remuneration
Report) Regulations 2019 the table below sets out
the annual percentage change of each Director’s
remuneration compared to the annual percentage
change of the average remuneration of the Company’s
employees, calculated on a full-time equivalent basis
and the performance of the Company over the same
preceding financial year.
Percentage
change on
prior year
James Will
–
Jane Lewis
–
Mick Brewis
–
Karyn Lamont
6.7
Neil Rogan
–
Average remuneration of employees*
14.6
NAV total return
15.9
* calculated on a full-time equivalent basis
The voting to approve the Directors’ Remuneration
Policy at the Company’s AGM held on 2 February 2021
was as follows:
Votes cast
For
%
For
Votes cast
Against
%
Against
Votes
Withheld
Approve Directors’
Remuneration
Policy
14,238,672
80.8 3,386,712
19.2
195,667
The voting to approve the Directors’ Remuneration
Report at the Company’s AGM held on 2 February 2021
was as follows:
Votes cast
For
%
For
Votes cast
Against
%
Against
Votes
Withheld
Approve Directors’
Remuneration
Report
14,367,624
81.4 3,293,147
18.6
159,087
The Directors’ Remuneration Report was approved by
the Board and signed on its behalf by:
Jane Lewis
Chair of the Remuneration Committee
17 December 2021
The Scottish Investment Trust PLC | Annual Report 2021
37
Report on the audit of the Financial Statements
Opinion
In our opinion, The Scottish Investment Trust PLC’s Financial Statements:
• give a true and fair view of the state of the Company’s affairs as at 31 October 2021 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, which comprise: the Balance Sheet as
at 31 October 2021; the Income Statement, the Statement of Comprehensive Income, the Statement of Changes in
Equity and the Cash Flow Statement 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.
Other than those disclosed in the Directors' Report, we have provided no non-audit services to the Company or its
controlled undertakings in the period under audit.
Material uncertainty related to going concern
In forming our opinion on the Financial Statements, which is not modified, we have considered the adequacy of
the disclosure made in section (a) of the Accounting Policies to the Financial Statements concerning the Company’s
ability to continue as a going concern. The Board concluded its review of the future investment management
arrangements of the Company and announced on 20 October 2021 that it had agreed heads of terms with
JPMorgan Global Growth & Income plc (“JGGI”) and JGGI’s manager, JPMorgan Funds Limited, for a combination
of the assets of the Company with JGGI by means of a section 110 scheme of reconstruction. The liquidation of the
Company is not imminent as the scheme has not been approved by the shareholders of the Company and JGGI.
These conditions, along with the other matters explained in section (a) of the Accounting Policies to the Financial
Statements, indicate the existence of a material uncertainty which may cast significant doubt about the Company's
ability to continue as a going concern. The Financial Statements do not include the adjustments that would result if
the Company were unable to continue as a going concern.
In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the Financial Statements is appropriate.
Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going concern basis
of accounting included:
• obtaining and evaluating the Directors' going concern assessment, which reflects conditions up to the point of
approval of the Annual Report.
• reviewing the heads of terms agreement with JGGI and JGGI’s manager, JPMorgan Funds Limited.
• reviewing the minutes of the Board.
• assessing the disclosures presented in the Annual Report in relation to the scheme of reconstruction and
its impact on the going concern assessment by reading the other information, including Principal Risks and
Uncertainties, the Viability Statement set out in the Strategic Report and the Going Concern Statement in the
Basis of Accounting, and assessing its consistency with the Financial Statements and the evidence we obtained in
our audit.
Independent Auditors’ Report
to the members of The Scottish Investment Trust PLC
38
The Scottish Investment Trust PLC | Annual Report 2021
Independent Auditors’ Report (continued)
In relation to the Directors’ reporting on how they have applied the UK Corporate Governance Code, other than
the material uncertainty identified in section (a) of the Accounting Policies to the Financial Statements, we have
nothing material to add or draw attention to in relation to the Directors’ statement in the Financial Statements about
whether the Directors considered it appropriate to adopt the going concern basis of accounting, or in respect of the
Directors’ identification in the Financial Statements of any other material uncertainties to the Company’s ability to
continue to do so over a period of at least twelve months from the date of approval of the Financial Statements.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the
relevant sections of this report.
Our audit approach
Context
The Company 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.
Overview
Audit scope
• 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.
Key audit matters
• Material uncertainty related to going concern (see Material uncertainty section above)
• Valuation and existence of listed investments
• Income from listed investments
Materiality
• Overall materiality: £5,865,000 (2020: £5,700,000) based on 1% of net assets.
• Performance materiality: £4,398,000.
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.
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.
In addition to going concern, described in the Material uncertainty related to going concern section above, we
determined the matters described below to be the key audit matters to be communicated in our report. This is not a
complete list of all risks identified by our audit.
Consideration of impact of the material uncertainty around going concern is a new key audit matter this year.
Considerations of the impact of Covid-19, which was a key audit matter last year, is no longer included because of
the reduced uncertainty of the impact of Covid-19 in the current year as markets and economies continue to recover.
Otherwise, the key audit matters below are consistent with last year.
The Scottish Investment Trust PLC | Annual Report 2021
39
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.
Valuation and existence of listed investments
Refer to page 32 (Report of the Audit Committee), page
48 (Accounting Policies) and page 56 (Notes to the
Financial Statements). The investment portfolio at the
year-end comprised listed equity investments valued at
£618 million. We focused 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.
Independent Auditors’ Report (continued)
Key audit matters
How our audit addressed the key audit matter
Income from listed investments
Refer to page 32 (Report of the Audit Committee), page
48 (Accounting Policies) and page 51 (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”).
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
that the allocation and presentation of dividend income
between the revenue and capital return columns of the
Income Statement are 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.
40
The Scottish Investment Trust PLC | Annual Report 2021
Independent Auditors’ Report (continued)
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality
in determining the scope of our audit and the nature and extent of our testing of account balances, classes of
transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall
materiality, amounting to £4,398,000 for the Company Financial Statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk
assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£293,000 (2020: £285,000) as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
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 our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain
opinions and matters as described below.
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 2021 is consistent with the Financial Statements and has been
prepared in accordance with applicable legal requirements.
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.
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.
Corporate governance statement
The Listing Rules require us to review the Directors’ statements in relation to going concern, longer-term viability and
that part of the corporate governance statement relating to the Company’s compliance with the provisions of the UK
Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate
governance statement as other information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the Financial Statements and our knowledge obtained
during the audit, and, except for the matters reported in the section headed ‘Material uncertainty related to going
concern’, we have nothing material to add or draw attention to in relation to:
Overall materiality
£5,865,000 (2020: £5,700,000).
How we determined it
1% of net assets.
Rationale for benchmark
We believe that net assets is the primary measure used by the shareholders in assessing
applied
the performance of the entity, and is a generally accepted auditing benchmark.
The Scottish Investment Trust PLC | Annual Report 2021
41
Independent Auditors’ Report (continued)
• The Directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being managed or mitigated;
• The Directors’ statement in the Financial Statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them, and their identification of any material uncertainties to the
Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the
Financial Statements;
• The Directors’ explanation as to their assessment of the Company’s prospects, the period this assessment covers
and why the period is appropriate; and
• The Directors’ 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 its assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.
Our review of the Directors’ statement regarding the longer-term viability of the Company was substantially less in
scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their
statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance
Code; and considering whether the statement is consistent with the Financial Statements and our knowledge and
understanding of the Company and its environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements
of the corporate governance statement is materially consistent with the Financial Statements and our knowledge
obtained during the audit:
• The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and
understandable, and provides the information necessary for the members to assess the Company's position,
performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal
control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when 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.
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
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 12), and we
considered the extent to which non-compliance might have a material effect on the Financial Statements. We also
42
The Scottish Investment Trust PLC | Annual Report 2021
Independent Auditors’ Report (continued)
considered those laws and regulations that have a direct impact on 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
of inappropriate journal entries to increase income or to overstate the value of investments and increase the net asset
value of the Company. 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 Board and 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. We are less likely to become aware of
instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected
in the Financial Statements. 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.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing
complete populations. We will often seek to target particular items for testing based on their size or risk characteristics.
In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the
sample is selected.
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 obtained 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. The period of
total uninterrupted engagement is two years, covering the years ended 31 October 2020 and 31 October 2021.
Allan McGrath (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
17 December 2021
The Scottish Investment Trust PLC | Annual Report 2021
43
Income Statement
Income Statement
For the year to 31 October 2021
Notes
Revenue
£’000
2021
Capital
£’000
Total
£’000
Revenue
£’000
2020
Capital
£’000
Total
£’000
Net gains/(losses) on investments held at
fair value through profit or loss
8
–
62,732
62,732
–
(78,698)
(78,698)
Net (losses)/gains on currencies
–
(1,037)
(1,037)
–
818
818
Income
1
21,761
–
21,761
21,737
–
21,737
Expenses
2
(2,350)
(1,101)
(3,451)
(2,346)
(1,069)
(3,415)
Net Return before
Finance Costs and Taxation
19,411
60,594
80,005
19,391
(78,949)
(59,558)
Interest payable
5
(1,732)
(3,217)
(4,949)
(1,732)
(3,217)
(4,949)
Return on Ordinary
Activities before Tax
17,679
57,377
75,056
17,659
(82,166)
(64,507)
Tax on ordinary activities
6
(2,169)
(81)
(2,250)
(1,673)
–
(1,673)
Return attributable to Shareholders
15,510
57,296
72,806
15,986
(82,166)
(66,180)
Return per share (basic and fully diluted)
22.78p
84.15p
106.93p
21.70p (111.52)p
(89.82)p
Weighted average number of
shares in issue during the year
68,089,959
73,677,432
Notes
2021
£’000
2020
£’000
Dividends paid and proposed
7
First interim 2021: 5.80p (2020: 5.70p)
3,875
4,207
Second interim 2021: 5.80p (2020: 5.70p)
3,850
4,204
Third interim 2021: 5.80p (2020: 5.70p)
3,838
4,168
Final 2021: 7.00p (2020: 6.10p)
4,632
4,345
Total 2021: 24.40p (2020: 23.20p)
16,195
16,924
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.
44
The Scottish Investment Trust PLC | Annual Report 2021
Balance Sheet
As at 31 October 2021
2021
2020
Notes
£’000
£’000
£’000
£’000
Fixed Assets
Investments
8
620,106
581,235
Non-current Assets
Pension surplus
4
414
1,161
620,520
582,396
Current Assets
Debtors
10
5,663
7,188
Cash and cash equivalents
8
45,670
75,981
51,333
83,169
Creditors: liabilities falling due within one year
11
(1,102)
(2,627)
Net Current Assets
50,231
80,542
Total Assets less Current Liabilities
670,751
662,938
Creditors: liabilities falling due after more than one year
Long-term borrowings at amortised cost
12
(84,105)
(84,013)
Provisions for Liabilities
Pension scheme deferred tax on surplus
4
(145)
(406)
Net Assets
586,501
578,519
Capital and Reserves
Called-up share capital
13
16,543
18,224
Share premium account
14
39,922
39,922
Other reserves:
Capital redemption reserve
14
54,318
52,637
Capital reserve
14
431,959
423,402
Revenue reserve
14
43,759
44,334
Shareholders’ Funds
586,501
578,519
Net Asset Value per share with borrowings at amortised
cost (basic and fully diluted)
886.3p
793.6p
Number of shares in issue at year end
66,173,178
72,896,247
The Financial Statements on pages 43 to 64 were approved by the Board of Directors and were signed on its behalf by:
James Will
Chairman
17 December 2021
The accompanying notes are an integral part of this statement.
The Scottish Investment Trust PLC | Annual Report 2021
45
Statement of Comprehensive
Income
For the year to 31 October 2021
Notes
Revenue
£’000
2021
Capital
£’000
Total
£’000
Revenue
£’000
2020
Capital
£’000
Total
£’000
Return attributable to shareholders
15,510
57,296
72,806
15,986
(82,166)
(66,180)
Actuarial losses relating to pension scheme
4
(268)
(498)
(766)
(412)
(764)
(1,176)
Pension scheme deferred tax on surplus
4
91
170
261
(142)
(264)
(406)
Total comprehensive income/(loss) for the year
15,333
56,968
72,301
15,432
(83,194)
(67,762)
Total comprehensive income/(loss) per share
22.52p
83.66p 106.18p
20.95p (112.92)p (91.97)p
46
The Scottish Investment Trust PLC | Annual Report 2021
Statement of Changes in Equity
For the year to 31 October 2021
Notes
2021
£’000
2020
£’000
Opening balance
578,519
676,793
Total comprehensive income
72,301
(67,762)
Dividends
7
(15,908)
(23,178)
Share buybacks
(48,411)
(7,334)
Closing balance
586,501
578,519
The accompanying notes are an integral part of this statement.
The Scottish Investment Trust PLC | Annual Report 2021
47
Cash Flow Statement
For the year to 31 October 2021
2021
2020
Notes
£’000
£’000
Operating activities
Net revenue before finance costs and taxation
19,411
19,391
Expenses charged to capital
(1,101)
(1,069)
(Increase)/decrease in accrued income
(184)
278
Decrease in other payables
(99)
(60)
Decrease in other receivables
1
158
Net return from other finance income and pension
contributions
4
(19)
(3,616)
Tax on investment income
6
(2,284)
(1,637)
Cash flows from operating activities
15,725
13,445
Investing activites
Purchases of investments
(308,774)
(178,725)
Disposals of investments
332,196
203,970
Cash flows from investing activities
23,422
25,245
Cash flows before financing activities
39,147
38,690
Financing activities
Dividends paid
(15,908)
(23,178)
Share buybacks
(48,693)
(7,052)
Interest paid
5
(4,857)
(4,857)
Cash flows used in financing activities
(69,458)
(35,087)
Net movement in cash and cash equivalents
(30,311)
3,603
Cash and cash equivalents at the beginning of year
75,981
72,378
Cash and cash equivalents at the end of year*
45,670
75,981
*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.
48
The Scottish Investment Trust PLC | Annual Report 2021
Accounting Policies
A summary of the principal accounting policies is set out
in paragraphs (a) to (m) 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 28) under the historical
cost convention, modified to include the revaluation of
investments at fair value.
On 2 June 2021, the Board announced its plan to
undertake a review of the future investment management
arrangements of the Company. On 20 October 2021, the
Board concluded its review and announced that it had
agreed heads of terms with JPMorgan Global Growth &
Income plc (‘JGGI’) and JGGI’s manager, JPMorgan
Funds Limited (‘JPMF’), for a combination of the assets of
the Company wth JGGI by means of a section 110
scheme of reconstruction (the ‘Scheme’). The liquidation
of the Company is not imminent as the Scheme has not
been approved by the shareholders of the Company and
JGGI, but does represent a material uncertainty which
may cast doubt on the Company's ability to continue as a
going concern. If the shareholders approve the Scheme
the Company will be liquidated after the assets have
been transferred. If the shareholders do not approve the
Scheme it is expected that the Company would continue
as a going concern.
The Financial Statements do not include the adjustments
that would result if the Company was unable to continue
as a going concern. In arriving at the decision on the
basis of preparation, the Board has considered the
financial position of the Company, its cashflow and
liquidity position as well as the uncertainty surrounding
the outcome of the Scheme. The Board concluded that,
as the Scheme is contingent on shareholder approval
and the Company is considered solvent in all other
regards, there is no irrevocable path to liquidation and
thus going concern remains the most appropriate basis
for preparation.
If it were not appropriate to prepare the Financial
Statements on a going concern basis of accounting then
adjustments would be required to reclassify all assets as
current, a provision for further liabilities including
liquidation costs would be made and investments would
need to be restated to include costs associated with their
sale. The Company’s perpetual debenture stocks, which
would be repaid on the event of the Scheme being
successful, would be reclassified as a current liability. The
Company’s defined benefit pension scheme would move
to a buy-out basis and would continue to be accounted
for under existing defined benefit accounting until
settlement. In the Directors’ opinion the impact of these
adjustments on the Financial Statements is not expected
to be significant.
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.
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.
The Scottish Investment Trust PLC | Annual Report 2021
49
Accounting Policies (continued)
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
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.
50
The Scottish Investment Trust PLC | Annual Report 2021
Accounting Policies (continued)
(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 52 to 54.
(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.
(l) Debtors
Debtors include sales for future settlement, other
debtors and pre-payments and accrued income in the
ordinary course of business. If collection is expected in
one year or less, they are classified as current assets. If
not, they are presented as non-current assets.
(m) Creditors
Creditors include purchases for future settlements,
interest payable, share buyback costs and accruals in
the ordinary course of business. Creditors are classified
as creditors – amounts due within one year, if payment
is due within one year or less. If not, they are presented
as creditors – amounts due after more than one year.
Statement of estimation uncertainty
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.
There have been no significant judgements, estimates,
or assumptions for the year.
The Scottish Investment Trust PLC | Annual Report 2021
51
Notes to the Financial Statements
For the year to 31 October 2021
1. Income
2021
£’000
2020
£’000
UK dividends including special dividends of £96,000 (2020: £nil)
4,343
5,098
Overseas dividends including special dividends of £nil (2020: £342,000)
17,412
16,423
Rental Income*
3
–
Deposit interest
3
216
21,761
21,737
* Rental income was received from the lease of 4 Wemyss Place Mews during the year to 31 October 2021.
2. Expenses
2021
£’000
2020
£’000
Staff costs (note 3)
1,274
1,210
Directors’ fees
198
203
Auditors’ remuneration for audit services
41
39
Auditors’ remuneration for other assurance services
9
7
Investment and accounting services
217
199
Professional fees, marketing and research costs
819
822
Company secretarial and administration fee
166
183
Office expenses
213
297
Depositary, custody and bank charges
180
164
Other expenses
334
291
3,451
3,415
3. Staff costs
2021
£’000
2020
£’000
Remuneration
1,100
960
Social security costs
139
172
Pensions and post-retirement benefits
35
78
1,274
1,210
The average monthly number of persons employed during the year was:
2021
Number
2020
Number
Investment
5
5
Administration
5
5
10
10
Details of the Directors’ remuneration are noted on pages 34 to 36.
52
The Scottish Investment Trust PLC | Annual Report 2021
Notes to the Financial Statements (continued)
4. Pension scheme
The Company’s defined benefit pension scheme, based
on final salary, closed to future accrual on 30 September
2015. Members of the defined benefit pension scheme
were enrolled in the Company’s defined contribution
scheme on 1 October 2015. The assets of the scheme
are held separately from those of the Company.
The scheme is under the control of trustees and is
administered by XPS Pensions Group.
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.
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 of £1,161,000 which, as at 31 October 2021,
had reduced to £414,000. This surplus has created
a deferred tax liability of £145,000 (2020: £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 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 £54,000
(2020: £51,000). There were no outstanding payments
due at either 31 October 2021 or 2020.
The Scottish Investment Trust PLC | Annual Report 2021
53
Notes to the Financial Statements (continued)
4. Pension scheme (continued)
The major assumptions used for the actuarial
valuation of the final salary scheme were:
2021
%
2020
%
2019
%
2018
%
2017
%
Rate of increase in salaries
–
2.9
3.2
3.2
3.2
Rate of increase in pensions in payment
3.6
3.4
3.4
3.6
3.5
Discount rate
1.8
1.7
2.5
3.3
3.2
Inflation – RPI
3.4
2.9
3.0
3.4
3.2
– CPI
2.5
2.0
2.0
2.4
2.2
Life expectancies on retirement at age 60 are:
Retiring today – males
26.8
26.4
26.4
26.5
26.7
– females
29.3
28.5
28.9
28.6
28.6
Retiring in 20 years’ time – males
28.2
27.9
27.9
28.1
28.2
– females
30.8
30.1
30.4
30.2
30.3
The fair value of the scheme assets and the
present value of the scheme liabilities were:
2021
£’000
2020
£’000
2019
£’000
2018
£’000
2017
£’000
Equities
4,420
4,672
4,803
8,072
7,913
Bonds
7,092
3,029
2,379
3,437
4,992
With-profit policies
–
–
301
301
288
Cash
298
4,562
1,830
265
1,180
Total fair value of assets
11,810
12,263
9,313
12,075
14,373
Present value of scheme liabilities
(11,396)
(11,102)
(10,592)
(13,412)
(15,464)
Net pension asset/(liability)
414
1,161
(1,279)
(1,337)
(1,091)
Reconciliation of the opening and closing balances of the present value of the scheme assets
2021
£’000
2020
£’000
Fair value of scheme assets at beginning of year
12,263
9,313
Interest income on scheme assets
206
223
Returns on assets, excluding interest income
(398)
299
Contributions by employer
–
3,643
Benefits paid
(261)
(1,215)
Fair value of scheme assets at end of year
11,810
12,263
Reconciliation of the opening and closing balances of the present value of the scheme liabilities
2021
£’000
2020
£’000
Liabilities at beginning of year
11,102
10,592
Interest cost
187
250
Actuarial losses
368
1,475
Benefits paid
(261)
(1,215)
Liabilities at end of year
11,396
11,102
54
The Scottish Investment Trust PLC | Annual Report 2021
Notes to the Financial Statements (continued)
4. Pension scheme (continued)
Analysis of amount chargeable to
operating profit during the year
2021
£’000
2020
£’000
2019
£’000
2018
£’000
2017
£’000
Analysis of amount credited/(charged) to other finance income
Interest income return on assets
206
223
324
428
476
Interest on liabilities
(187)
(250)
(371)
(457)
(576)
Net return
19
(27)
(47)
(29)
(100)
Movement in surplus/(deficit) during year
Surplus/(deficit) at beginning of year
1,161
(1,279)
(1,337)
(1,091)
(3,272)
Movement in year:
Current service cost
–
–
(539)
–
–
Contributions for year
–
3,643
411
399
455
Net return from other finance income
19
(27)
(47)
(29)
(100)
Actuarial (losses)/gains in Statement of
Comprehensive Income
(766)
(1,176)
233
(616)
1,826
Surplus/(deficit) at end of year
414
1,161
(1,279)
(1,337)
(1,091)
Deferred tax on surplus
145
406
–
–
–
The Scottish Investment Trust PLC | Annual Report 2021
55
Notes to the Financial Statements (continued)
5. Interest payable
2021
£’000
2020
£’000
On secured bonds and debentures
4,857
4,857
Amortisation of secured bonds issue expenses
92
92
4,949
4,949
6. Tax on ordinary activities
2021
£’000
2020
£’000
Taxation
UK corporation tax at 19.00% (2020: 19.00%)
–
–
Overseas tax
2,169
1,673
Overseas tax on capital gains
81
–
Total tax
2,250
1,673
The tax charge for the year is lower than that resulting from applying the standard rate of corporation tax in the UK.
2021
£’000
2020
£’000
Return on ordinary activities before tax
75,056
(64,507)
Corporation tax at 19.00% (2020: 19.00%)
14,261
(12,256)
Effects of:
Non-taxable capital returns
(11,722)
14,797
Finance costs and expenses charged to capital
(820)
(814)
Non-taxable dividends
(4,134)
(4,089)
Unutilised expenses
2,415
2,362
Capital gains tax on realised gains
81
–
Overseas tax
2,169
1,673
2,250
1,673
Deferred tax
No deferred tax asset has been recognised on unrelieved expenses (2020: nil) as the Company does not expect to
have future profits to offset those expenses.
A deferred tax liability of £145,000 (2020: £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
2021
£’000
2020
£’000
Dividends paid on shares recognised in the financial year:
Previous year final of 6.10p per share (2019: 6.90p)
4,345
5,098
Previous year special of Nil per share (2019: 7.45p)
–
5,501
Three interims each of 5.80p per share (2020: 3 interims each of 5.70p)
11,563
12,579
15,908
23,178
56
The Scottish Investment Trust PLC | Annual Report 2021
Notes to the Financial Statements (continued)
8. Investments
2021
£’000
2020
£’000
Investments listed on a recognised investment exchange
617,731
578,860
Unlisted investments
2,025
2,025
Subsidiary undertaking (note 9)
350
350
620,106
581,235
Listed
in UK
£’000
Listed
overseas
£’000
Unlisted
£’000
Total
£’000
Opening book cost
129,965
454,288
358
584,611
Opening unrealised (losses)/gains
(28,943)
23,550
2,017
(3,376)
Opening valuation
101,022
477,838
2,375
581,235
Movements in the year:
Purchases at cost
74,307
232,286
–
306,593
Sales – proceeds
(82,731)
(247,723)
–
(330,454)
Profits on investments in the year
32,879
29,853
–
62,732
Closing valuation
125,477
492,254
2,375
620,106
Closing book cost
117,843
453,320
358
571,521
Closing unrealised gains
7,634
38,934
2,017
48,585
Closing valuation
125,477
492,254
2,375
620,106
The Company received £330,454,000 (2020: £209,171,000) from investments sold in the year. The book cost of
these investments when they were purchased was £319,298,000 (2020: £260,654,000). 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 £647,000 (2020:
£466,000), comprising commissions, government stamp duty and other fees. In the year to 31 October 2021 the
portfolio turnover rate was 48% (2020: 26%).
Unlisted investments include heritable property valued at £2,025,000 (2020: £2,025,000). The property was valued
on an open market basis by Ryden LLP, chartered surveyors, on 7 September 2021. The valuation was 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 came up with a
benchmark capital rate which can be supported for the property itself.
The wholly-owned subsidiary is held at cost at a value equal to the total share capital of S.I.T. Savings Limited.
The Scottish Investment Trust PLC | Annual Report 2021
57
Notes to the Financial Statements (continued)
8. Investments (continued)
Cash and cash equivalents
Financial assets – cash and deposits
Fixed
£’000
2021
Floating
£’000
Total
£’000
Fixed
£’000
2020
Floating
£’000
Total
£’000
Sterling
15,000
20,940
35,940
50,000
17,781
67,781
US dollar
–
9,730
9,730
–
8,200
8,200
15,000
30,670
45,670
50,000
25,981
75,981
The maximum maturity period for fixed rate deposits outstanding at the year end was 3 days (2020: 7 days). The
weighted average fixed interest rate at the year end was 0.00% (2020: 0.02%). 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
Principal activities
Country of
incorporation
Description of
shares held
Proportion of
nominal value of
issued shares and
voting rights held
S.I.T. Savings Limited
AIFM
UK
Ordinary
100%
The financial statements 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. This is in line with s405 of the Companies Act 2006.
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
2021
£’000
2020
£’000
Amounts due from brokers
3,459
5,201
Overseas tax recoverable
920
886
Prepayments and accrued income
1,284
1,101
5,663
7,188
11. Creditors: liabilities falling due within one year
2021
£’000
2020
£’000
Amounts due to brokers
597
1,741
Other creditors
505
886
1,102
2,627
12. Creditors: liabilities falling due after more than one year
2021
2020
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
4% Perpetual Debenture Stock
350
558
350
515
4¼% Perpetual Debenture Stock
700
1,185
700
1,093
5% Perpetual Debenture Stock
1,009
2,010
1,009
1,855
5¾% Secured Bonds due 17 April 2030
82,046
103,685
81,954
108,311
84,105
107,438
84,013
111,774
58
The Scottish Investment Trust PLC | Annual Report 2021
Notes to the Financial Statements (continued)
12. Creditors: liabilities falling due after more than one year (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 £107.4m (2020: £111.8m) has the effect of decreasing the year end NAV per share from 886.3p to 851.1p
(2020: decreasing from 793.6p to 755.5p).
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
Allotted, called-up and fully paid
2021
2020
Shares of 25p
£16,543,295
£18,224,062
Number of shares in issue
66,173,178
72,896,247
6,723,069 shares were repurchased in the stockmarket during the year to 31 October 2021 (2020: 997,261).
No shares were repurchased from 1 November to 16 December 2021.
14. Reserves
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
At 1 November 2020
39,922
52,637
423,402
44,334
Net losses on currencies
–
–
(1,037)
–
Gains on investments in the year
–
–
62,732
–
Share buybacks
–
1,681
(48,411)
–
Actuarial losses relating to pension scheme
–
–
(498)
(268)
Pension scheme deferred tax on surplus
–
–
170
91
Expenses and interest charged to capital
–
–
(4,318)
–
Capital gains tax
–
–
(81)
–
Return attributable to shareholders
–
–
–
15,510
Dividends paid
–
–
–
(15,908)
At 31 October 2021
39,922
54,318
431,959
43,759
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
At 1 November 2019
39,922
52,387
513,930
52,080
Net gains on currencies
–
–
818
–
Losses on investments in the year
–
–
(78,698)
–
Share buybacks
–
250
(7,334)
–
Actuarial losses relating to pension scheme
–
–
(764)
(412)
Pension scheme deferred tax on surplus
–
–
(264)
(142)
Expenses and interest charged to capital
–
–
(4,286)
–
Return attributable to shareholders
–
–
–
15,986
Dividends paid
–
–
–
(23,178)
At 31 October 2020
39,922
52,637
423,402
44,334
The Scottish Investment Trust PLC | Annual Report 2021
59
Notes to the Financial Statements (continued)
15. Analysis of changes in net debt during the year
1 November
2020
£’000
Cash flows
£’000
Non-cash
movements*
£’000
31 October
2021
£’000
Cash
25,981
4,689
–
30,670
Short-term deposits
50,000
(35,000)
–
15,000
Long-term borrowings at amortised cost
(84,013)
–
(92)
(84,105)
(8,032)
(30,311)
(92)
(38,435)
*Amortisation of secured bonds’ issue expenses.
16. Financial instruments
Summary of financial assets and financial liabilities by category
The Company’s financial assets and financial liabilities at the balance sheet date are as follows. The Accounting Policies
on page 48 explain how the various categories of financial instrument are measured.
2021
£’000
2020
£’000
Financial assets
Financial assets at fair value through profit and loss:
Fixed asset investments – designated as such on initial recognition
620,106
581,235
Current assets:
Debtors
5,663
7,188
Cash and short-term deposits
45,670
75,981
51,333
83,169
671,439
664,404
Financial liabilities
Creditors: liabilities falling due within one year
Amounts due to brokers
(597)
(1,741)
Other creditors
(505)
(886)
(1,102)
(2,627)
Creditors: liabilities falling due after more than one year
Long-term borrowings at amortised cost
(84,105)
(84,013)
(85,207)
(86,640)
60
The Scottish Investment Trust PLC | Annual Report 2021
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 28 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 the MSCI ACWI, the composition of the
index 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 index. 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 84% 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 2021
61
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 2021 and
31 October 2020 are shown below.
2021
US $
£’000
Euro
£’000
Other
£’000
Debtors (amounts due from brokers, dividends receivable and accrued income)
3,631
702
1,049
Creditors (amounts due to brokers)
–
–
–
Cash
9,730
–
–
Foreign currency exposure on net monetary items
13,361
702
1,049
Equity investments at fair value through profit and loss
259,823
102,274
130,157
Total net foreign currency exposure
273,184
102,976
131,206
2020
US $
£’000
Euro
£’000
Other
£’000
Debtors (amounts due from brokers, dividends receivable and accrued income)
5,522
198
987
Creditors (amounts due to brokers)
(811)
(932)
–
Cash
8,200
–
–
Foreign currency exposure on net monetary items
12,911
(734)
987
Equity investments at fair value through profit and loss
244,924
64,005
168,908
Total net foreign currency exposure
257,835
63,271
169,895
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 2021
US $
£’000
Euro
£’000
Other
£’000
Maximum
20,855
–
–
Minimum
1,717
–
–
Year to 31 October 2020
US $
£’000
Euro
£’000
Other
£’000
Maximum
49,970
–
–
Minimum
8,200
–
–
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 2021. 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.
2021
2020
US $
£’000
Euro
£’000
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
784
412
769
261
Capital return
27,318
10,298
25,703
6,234
Return attributable to shareholders
28,102
10,710
26,472
6,495
62
The Scottish Investment Trust PLC | Annual Report 2021
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 57. Details of interest rates on financial liabilities are included
in note 12 on page 57.
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.
Within
one year
£’000
2021
More than
one year
£’000
Total
£’000
Within
one year
£’000
2020
More than
one year
£’000
Total
£’000
Exposure to floating interest rates
Cash
30,670
–
30,670
25,981
–
25,981
Exposure to fixed interest rates
Short-term deposits
15,000
–
15,000
50,000
–
50,000
Long-term borrowings
–
(84,105)
(84,105)
–
(84,013)
(84,013)
Total exposure
45,670
(84,105)
(38,435)
75,981
(84,013)
(8,032)
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:
2021
£’000
2020
£’000
Return attributable to shareholders
–
(11)
A 5% increase in interest rates would result in an equal and opposite effect on the above amounts.
The Scottish Investment Trust PLC | Annual Report 2021
63
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 57. 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:
2021
2020
Less than
three
months
£’000
Three to
twelve
months
£’000
More
than
one year
£’000
Total
£’000
Less than
three
months
£’000
Three to
twelve
months
£’000
More
than one
year
£’000
Total
£’000
Long term borrowings
–
–
82,046
82,046
–
–
81,954
81,954
Interest on long term
borrowings
–
4,763
40,311
45,074
–
4,763
45,073
49,836
Amount due to brokers
597
–
–
597
1,741
–
–
1,741
Other creditors and accruals
320
–
–
320
701
–
–
701
Total exposure
917
4,763 122,357 128,037
2,442
4,763 127,027 134,232
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 (2020: 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.
64
The Scottish Investment Trust PLC | Annual Report 2021
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 48.
2021
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets at fair value through profit and loss
617,731
–
2,375
620,106
2020
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets at fair value through profit and loss
578,860
–
2,375
581,235
There were no transfers between Level 1 & 2 during the year (2020: same).
Reconciliation of Level 3 fair value measurements of financial assets
Fair value
through
profit
and loss
2021
£’000
Fair value
through
profit
and loss
2020
£’000
Balance at 31 October 2020
2,375
1,500
Purchase costs
–
–
Sales proceeds
–
–
Total profit: in profit and loss
–
875
Balance at 31 October 2021
2,375
2,375
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 34 and 35. 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 2021 the net amount received from S.I.T. Savings Limited was £3,358
(2020 net amount paid: £1,667) in relation to expenses. At 31 October 2021 the net amount due to S.I.T. Savings
Limited was £15,065 (2020: £10,501). The net amount receivable from S.I.T. Savings Limited was £15,634 (2020:
£13,860).
18. Subsequent events
On 9 December, shareholders voted at a General Meeting to approve the appointment of JPMorgan Funds Limited as
the Company’s Alternative Investment Fund Manager, such appointment to take effect on or around 21 January 2022.
Details of shares repurchased since the year end are disclosed in note 13 on page 58.
The Scottish Investment Trust PLC | Annual Report 2021
65
Investor Information
Combination with JGGI
Earlier this year, your Board announced its intention
to undertake a review of the Company’s investment
management arrangements. The Board announced
on 20 October 2021 that it had agreed heads of terms
with JPMorgan Global Growth & Income plc and JGGI’s
manager, JPMorgan Funds Limited, for a combination
of the assets of the Company with JGGI by means of a
section 110 scheme of reconstruction. On 9 December
2021, shareholders approved the appointment of
JPMorgan Funds Limited as the Company’s manager.
For further details please refer to the Chairman’s
statement on pages 3 to 5.
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
2020/21:
Record
Payment
Dividends
Amount
XD date
date
date
Third Interim 2021
5.80p
30/9/21
1/10/21
1/11/21
Second Interim 2021
5.80p
1/7/21
2/7/21
2/8/21
First Interim 2021
5.80p
8/4/21
9/4/21
10/5/21
Final 2020
6.10p
14/1/21
15/1/21
12/2/21
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:
GB0007826091
SEDOL:
0782609
Ticker:
SCIN
LEI:
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
66
The Scottish Investment Trust PLC | Annual Report 2021
Investor Information (continued)
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.
Shareholders’ meetings
All investors are welcome to attend the Annual General
Meeting and other general meetings. Investors who hold
share certificates are entitled to attend and vote at the
AGM and other general meetings. Notices of meetings
and proxy cards, which include attendance and voting
instructions, are sent to their registered address.
Investors who hold shares through a third party, such as
a broker or share dealing platform, should contact their
provider to arrange their voting. 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 Royal College of Physicians
of Edinburgh, 11 Queen Street, Edinburgh EH2 1JQ on
Tuesday, 1 February 2022 at 10.30am. Should there be a
change of circumstances, shareholders will be notified in
the usual way through an announcement.
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
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
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.
The Scottish Investment Trust PLC | Annual Report 2021
67
Useful Addresses
Registered Office
6 Albyn Place
Edinburgh EH2 4NL
Telephone: 0131 225 7781
Website:
www.thescottish.co.uk
Email:
info@thescottish.co.uk
Company Registration Number: SC001651
Legal Entity Identifier: 549300ZL6XSHQ48U8H53
Company Secretary
Maitland Administration Services Limited
Hamilton Centre
Rodney Way
Chelmsford CM1 3BY
Depositary
Northern Trust Investor Services Limited
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:
0370 703 0195
Website:
www.investorcentre.co.uk
68
The Scottish Investment Trust PLC | Annual Report 2021
Borrowings at amortised cost is the nominal value of the
Company’s borrowings less any unamortised issue
expenses.
Borrowings at market value is the Company’s estimate
of the ‘fair value’ of its borrowings. The current estimated
fair value of the Company’s borrowings is based on the
redemption yield of the relevant existing reference gilt
plus a margin derived from the spread of BBB UK
corporate bond yields (15 years+) over UK gilt yields
(15 years+). The reference gilt for the secured bonds is
the 6% UK Treasury Stock 2028 and the reference gilt for
the perpetual debenture stocks is the longest-dated UK
Treasury stock listed in the Financial Times.
Discount§ is the difference between the market price of
a share and the NAV, expressed as a percentage of the
NAV.
2021
2020
NAV with borrowings at
market value
a
851.1p
755.5p
Share price
b
820.0p
681.0p
Discount to NAV with
borrowings at market value
(a-b)/a
3.6%
9.9%
Ex-income NAV is the NAV excluding current year
revenue.
Ex-income NAV with
borrowings at market value
2021
£’000
2020
£’000
Net assets
586,501
578,519
Less: Fair value of
borrowings
Plus: Book value of
borrowings
Less: Revenue return
Plus: Dividends paid
(107,438)
84,105
(15,510)
11,563
(111,774)
84,103
(15,986)
12,579
Net assets excluding
current year revenue at
market value
a
559,221
547,351
Number of shares in issue
at year end
b
66,173,178
72,896,247
Ex-income NAV with
borrowings at market
value
a/b
845.1p
750.9p
Ex-income NAV with
borrowings at amortised cost
2021
£’000
2020
£’000
Net assets
586,501
578,519
Less: Revenue return
Plus: Dividends paid
(15,510)
11,563
(15,986)
12,579
Net assets excluding
current year revenue at
amortised cost
a
582,554
575,112
Number of shares in issue
at year end
b
66,173,178
72,896,247
Ex-income NAV with
borrowings at amortised
cost
a/b
880.3p
789.0p
Gearing§ is the true geared position of the Company:
long-term borrowings less net current assets and
pension scheme surplus expressed as a percentage of
shareholders’ funds.
2021
£’000
2020
£’000
Book value of borrowings
Less: Net current assets
Less: Pension scheme
surplus
84,105
(50,231)
(414)
84,013
(80,542)
(1,161)
a
33,460
2,310
Shareholders' funds
b
586,501
578,519
Gearing
a/b
6%
0%
Gross gearing is the geared position if all the
borrowings were invested in equities: borrowings
expressed as a percentage of shareholders’ funds.
2021
£’000
2020
£’000
Book value of borrowings
a
84,105
84,013
Net assets
b
586,501
578,519
Gross gearing
a/b
14%
15%
NAV† is net asset value per share after deducting
borrowings at amortised cost or market value, as stated.
Glossary
† 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 2021
69
† 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.
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.
2021
2020
NAV at start of year
755.5p
878.5p
NAV at end of year
851.1p
755.5p
Effect of dividends*
24.5p
29.6p
NAV at end of year including effect of
dividends
875.6p
785.1p
NAV total return
15.9%
-10.6%
*Assumed reinvested at the time of dividend going
ex-dividend.
Ongoing charges figure§ is the measure of the regular,
recurring costs of the Company expressed as a
percentage of the average daily shareholders’ funds
with borrowings at market value.
2021
£’000
2020
£’000
Expenses
Less: non-recurring projects
3,451
(252)
3,415
(198)
Regular recurring expenses
a
3,199
3,217
Average Shareholders’ Funds
b
568,488
613,380
Ongoing Charges Calculation
a/b
0.56%
0.52%
Portfolio turnover rate is the average of investment
purchases and sales expressed as a percentage of
opening total assets.
Share price total return§ is the measure of how the
Company’s share price has performed over a period of
time, taking into account both capital returns and
entitlement to dividends declared by the Company.
2021
2020
Share price at start of year
681.0p
807.0p
Share price at end of year
820.0p
681.0p
Effect of dividends*
26.3p
29.0p
Share price at end of year including
effect of dividends
846.3p
710.0p
Share price total return
24.3%
-12.0%
*Assumed reinvested at the time of dividend going
ex-dividend.
Total assets means total assets less current liabilities.
Glossary (continued)
70
The Scottish Investment Trust PLC | Annual Report 2021
Notice of Annual General Meeting
Notice is hereby given that the one hundred and thirty-
fourth Annual General Meeting (AGM) of The Scottish
Investment Trust PLC will be held at the Royal College
of Physicians of Edinburgh, 11 Queen Street, Edinburgh
EH2 1JQ, on Tuesday,1 February 2022 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
2021.
2. To approve the Directors’ Remuneration Report for
the year to 31 October 2021.
3. To declare a final dividend of 7.00p per share.
4. To re-elect James Will as a Director.
5. To re-elect Jane Lewis as a Director.
6. To re-elect Mick Brewis as a Director.
7. To re-elect Karyn Lamont as a Director.
8. To re-elect Neil Rogan as a Director.
9. To re-appoint PricewaterhouseCoopers LLP as
auditors.
10. To authorise the Directors to fix the remuneration of
the auditors.
Special Business
Special Resolutions
11. To authorise the Company, in accordance with
section 701 of the Companies Act 2006 (the
‘Act’) and in substitution for any pre-existing such
authority, to make market purchases (within the
meaning of section 693 of the Act) of shares of 25p
each for cancellation, provided that:
a)
the maximum number of shares hereby
authorised to be purchased shall be 9,919,359
or, if less, 14.99% of the aggregate issued
shares on the date this resolution is passed;
b)
the minimum price which may be paid for a
share shall be 25p;
c)
the maximum price (exclusive of expenses)
which may be paid for a share shall be the
higher of:
(i)
105% of the average of market value of a
share for the five business days immediately
preceding the date of purchase; and
(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; and
d)
unless previously varied, revoked or renewed,
the authority hereby conferred shall expire on
1 May 2023, 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.
12. To authorise the Directors to call general meetings
of the Company, other than annual general
meetings, on not less than 14 clear days’ notice.
Maitland Administration Services Limited
Company Secretary
By order of the Board
17 December 2021
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you reside in the UK and you are in any doubt as to the action you should take, you should immediately consult your
stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial
Services and Markets Act 2000. If you reside outside the UK, you should consult an appropriately authorised financial
adviser.
If you have sold or otherwise transferred all of your holding in The Scottish Investment Trust PLC, please forward this
document as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom
the sale or transfer was or is being effected for delivery to the purchaser or transferee.
The Scottish Investment Trust PLC | Annual Report 2021
71
Notice of Annual General Meeting (continued)
Notes
1. A member entitled to attend, speak and vote at the
meeting is entitled to appoint one or more proxies
to attend, speak and vote on his or her behalf. If a
shareholder wishes to appoint more than one proxy,
each proxy must be appointed to exercise rights
attaching to a different share (or shares) held by
the shareholder. In the case of joint holders, where
more than one of the joint holders purports to
appoint a proxy, only the appointment submitted by
the most senior holder will be accepted. The first-
named holder entered in the Company's Register
of Members is considered the most senior for this
purpose. A proxy need not be a member of the
Company but must attend the AGM to represent the
relevant shareholder. Shareholders may not use any
electronic address provided either in this notice or
any related documents, including the proxy form,
to communicate with the Company for any purpose
other than those expressly stated.
2. A proxy may only be appointed using the procedure
set out in these notes and the notes to the proxy
form. Proxy forms and the original or duly certified
copy of the power of attorney or other authority,
if any, under which it is signed or authenticated,
must be lodged with the Company’s Registrars
at Computershare Investor Services PLC, The
Pavilions, 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.
3.
CREST members who wish to appoint a proxy
or proxies through the CREST electronic proxy
appointment service may do so by using the
procedures described in the CREST Manual and
by logging on to the website www.euroclear.
com/CREST. CREST personal members or other
CREST-sponsored members and those CREST
members who have appointed a voting service
provider, should refer to their CREST sponsor or
voting service provider who will be able to take the
appropriate action on their behalf.
4. For a proxy appointment or instruction made using
the CREST service to be valid, the appropriate
CREST message (a ‘CREST Proxy Instruction’)
must be properly authenticated in accordance
with Euroclear UK and International Limited’s
specifications, and must contain the information
required for such instruction, as described in
the CREST manual. The message, regardless
of whether it constitutes the appointment of a
proxy or is an amendment to the instruction given
to a previously appointed proxy must, in order to
be valid, be transmitted so as to be received by
the Company’s registrar (Computershare Investor
Services PLC) (CREST ID number 3RA50) no later
than 48 hours (excluding non-working days) before
the time of the meeting or any adjournment. For this
purpose, the time of receipt will be taken to be the
time (as determined by the time stamp applied to
the message by the CREST Application Host) from
which the Company’s registrar is able to retrieve
the message by enquiry to CREST in the manner
prescribed by CREST. After this time, any change of
instructions to proxies appointed through CREST
should be communicated to the appointee by other
means.
5. CREST members and, where applicable, their CREST
sponsors or voting service provider(s) should note
that Euroclear UK and International Limited does
not make available special procedures in CREST
for any particular message. Normal system timings
and limitations will, therefore, apply in relation
to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to
take (or, if the CREST member is a CREST personal
member, or sponsored member, or has appointed a
voting service provider(s), to procure that his CREST
sponsor or voting service provider(s) take(s)) such
action as shall be necessary to ensure that a message
is transmitted by means of the CREST system by any
particular time. In this connection, CREST members
and, where applicable, their CREST sponsors or
voting system providers are referred, in particular,
to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in regulation
35(5)(a) of the Uncertificated Securities Regulations
2001.
6. The return of a completed proxy form or other
instrument of proxy will not prevent members
attending the AGM and voting in person if they wish.
7. Pursuant to Regulation 41 of the Uncertificated
Securities Regulations 2001 and section 360B of the
Companies Act 2006, the Company specifies that
only registered shareholders whose names appear
on the Company’s Register of Members no later
than 48 hours (excluding non-working days) prior to
the commencement of the AGM or any adjourned
meeting shall be entitled to attend, speak and vote
or be represented at the meeting in respect of the
shares registered in their name at that time. Changes
to the Register of Members after the relevant
deadline shall be disregarded in determining
72
The Scottish Investment Trust PLC | Annual Report 2021
Notice of Annual General Meeting (continued)
the rights of any person to attend and vote at the
meeting.
In the case of joint holders, the vote of the senior
holder tendering a vote will be accepted to the
exclusion of the votes of the other joint holders. The
first-named holder entered in the Company's Register
of Members is considered the most senior for this
purpose.
8. Any person to whom this notice is sent who is
a person nominated under section 146 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.
9. The statement of the rights of shareholders in relation
to the appointment of proxies in Notes 1 and 2 above
does not apply to Nominated Persons. The rights
described in those Notes can only be exercised by
shareholders of the Company.
10. Any person holding 3% or more of the total voting
rights in the Company who appoints a person other
than the Chairman as his proxy will need to ensure
that both he and such third party comply with
their respective disclosure obligations under the
Disclosure Guidance and Transparency Rules.
11. On 16 December 2021 (being the last practicable
date prior to the publication of this notice),
the Company’s issued share capital comprised
66,173,178 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 16
December 2021, the total number of voting rights
exercisable at the AGM was 66,173,178.
12. Shareholders may require the Company to publish,
on its website, without payment, a statement, which
is also passed to the auditor, setting out any matter
relating to the audit of the Company’s accounts,
including the auditor’s report and the conduct of the
audit, which they intend to raise at the meeting.
The Company will be required to do so once it has
received such requests from either (i) members
representing at least 5% of the total voting rights of
the Company or (ii) at least 100 members who have
rights to vote and hold shares in the Company on
which there has been paid up an average sum per
member of at least £100. Such requests must be
made in writing and must state the member’s full
name and address and be sent to the Company’s
registered office at 6 Albyn Place, Edinburgh, EH2
4NL. The Company may not require the members
requesting any such website publication to pay its
expenses in complying with sections 527 or 528 of
the Companies Act 2006.
13. Members meeting the threshold requirements set
out in the Companies Act 2006 have the right to: (a)
require the Company to give notice of any resolution
which can properly be, and is to be, moved at the
meeting pursuant to section 338 of the Companies
Act 2006; and/or (b) include a matter in the business
to be dealt with at the meeting, pursuant to section
338A 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) the answer has already been given on a website
in the form of an answer to a question; or
c) 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 21 January 2022.
19. The final dividend, if approved, will be paid on 11
February 2022 to shareholders registered at the close
of business on 14 January 2022.
20. 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 2021
73
6 ALBYN PLACE | EDINBURGH | EH2 4NL
T: 0131 225 7781 | E: info@thescottish.co.uk
www.thescottish.co.uk
@ScotInvTrust
The Scottish Investment Trust