Collective Wisdom Witan Investment Trust plc Annual Report 2020 W i t a n I n v e s t m e n t T r u s t p l c A n n u a l R e p o r t 2 0 2 0 y t i l i b a t p a d A e c n a l a b l u f e r a C S R E G A N A M D E T N E L A T s e v i t c e p s r e p e l p i t l u M e c n e i r e p x E G N I K N I H T T N E D N E P E D N I C W o i l l s e d c o t i m v e STRATEGIC REPORT Company overview Our investment policy Witan invests primarily in listed companies across global equity markets, using a multi-manager approach. The Company’s actively managed portfolio covers a broad range of markets and sectors, offering a distinctive way for investors to access the opportunities created by global economic growth. Our purpose is to achieve significant growth in our investors’ wealth by investing in global equity markets, using a multi-manager approach. Our objective is to achieve an investment total return exceeding that of the Company’s benchmark(1) over the long term, together with growth in the dividend ahead of inflation. Where to find us Our website has a full range of information about Witan and regular commentary about investment markets. Find us online @ www.witan.com (1) Witan’s benchmark is 85% Global (MSCI All Country World Index) and 15% UK (MSCI UK IMI Index). STRATEGIC REPORT Financial highlights 01 02 Our investment approach 04 Key performance indicators 06 What we do 08 Chairman’s Statement 12 CEO’s review of the year 20 Responsible investment 26 Meet the managers 32 Forty largest investments 34 Classification of investments 35 38 Section 172: engaging with our Principal risks and uncertainties stakeholders 40 Corporate and operational structure 41 Costs 42 Viability Statement CORPORATE GOVERNANCE 44 Board of directors 46 Corporate Governance 56 Report of the Audit Committee 59 Directors’ Remuneration Report 71 75 Directors’ Report Statement of Directors’ Responsibilities FINANCIAL STATEMENTS 76 Independent Auditor’s Report to the members of Witan Investment Trust plc 85 Consolidated Statement of Comprehensive Income 86 Consolidated and Individual Statements of Changes in Equity 87 Consolidated and Individual Balance Sheets 88 Consolidated and Individual Cash Flow Statements 89 Notes to the Financial Statements Other Financial Information 111 (unaudited) 113 Additional Shareholder Information 116 Contacts The Annual Report is intended to help shareholders assess the Company’s strategy. It contains certain forward-looking statements. These are made by the directors in good faith based on information available to them up to the time of their approval of this report. Such statements should be treated with caution due to the inherent uncertainties, including economic and business risks, underlying any such forward-looking information. Financial highlights To read more about our KPIs see pages 4 and 5 (1) Source: Morningstar. (2) Source: Morningstar. See also MSCI for conditions of use (www.msci.com). (3) Alternative performance measure (see page 114). I S T R A T E G C R E P O R T Key data 230.5p S H A R E P R I C E 2 0 2 0 2 01 9 : 2 3 1 . 5 p 236.0p N AV P E R O R D I N A RY S H A R E (D E B T AT FA I R VA LU E)(3) 2 01 9 : 2 3 3 . 1 p 2.4% D I S C O U N T (N AV I N C LU D I N G I N C O M E , D E B T AT FA I R VA LU E)(3) 2 01 9 : 0 .7 % 5.45p D I V I D E N D P E R S H A R E 2 01 9 : 5 . 3 5 p Total return performance S H A R E P R I C E TOTA L R E T U R N (1)(3) N AV TOTA L R E T U R N (1)(3) W I TA N B E N C H M A R K (1) M S C I ACW I I N D E X (2) M SCI U K I M I I N D EX(2) 1 year % return 5 years % return 10 years % return 2.7 66.6 183.8 4.2 69.5 156.1 9.5 74.2 141.7 13.2 -11.7 97.4 189.5 25.4 65.6 A high conviction yet well-diversified portfolio Percentage of total funds 34% 19% N O RT H A M E R I CA U N I T E D K I N G D O M 12% AS I A 5% JA PA N 17% E U R O P E 13% OT H E R , I N C LU D I N G I N V ES T M E N T C O M PA N I ES To read more about our diversified portfolio see pages 32-34 SECTOR BREAKDOWN OF THE PORTFOLIO(4) 15.0% Information Technology 13.2% Industrials 11.9% Consumer Staples 10.5% Investment Companies 10.0% Consumer Discretionary 9.8% Healthcare 9.6% Communication Services 9.5% Financials 7.6% Materials 3.0% Other (4) Numbers are rounded and may not sum to 100. COMPANY SIZE BREAKDOWN OF THE PORTFOLIO 76.3% Large Cap 10.8% Mid Cap 2.4% Small Cap 10.5% Investment Companies Source: BNP Paribas as at 31 December 2020. Witan Investment Trust plc Annual Report 2020 01 CORPORATE GOVERNANCEFINANCIAL STATEMENTS Our investment approach Talent Experience We search for the best fund managers worldwide, choosing managers to complement each other, not to cover all styles. Our managers are active investors and construct concentrated portfolios focusing on their best ideas. This high level of conviction produces portfolios which are differentiated from their benchmarks which they aim to outperform. Founded in 1909, we have a long track record of producing capital and income growth. We have invested through challenging economic cycles, wars and political crises, helping put contemporary events into perspective. Since the adoption of the current multi-manager strategy in 2004, shareholders have enjoyed a share price total return of 449% versus 314% for Witan’s benchmark and 175% for the MSCI UK Index. Collective Wisdom 02 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Independence Adaptable Witan is an independent and self- managed investment company – dedicated to sustainable growth in its shareholders’ wealth. Witan’s employees are solely focused on the success of the Company. Our independence means we simply seek, without pre-set constraints, to select the best managers available, in the interest of our shareholders. Our multi-manager strategy allows us to respond to changes in long-term trends either by changing managers and investment style or investing via our specialist portfolio with managers who have expert knowledge of particular sectors or regions. Using gearing and derivatives we can also adapt our portfolio to short-term opportunities or to manage risk. A one-stop shop for global equity investment, offering growth in capital and income. We search for the best managers around the world to create a portfolio diversified by region, investment sector and individual company level. Our multi-manager approach also reduces the potential risks arising from reliance on a single manager. Our highly experienced Board of directors and Executive have many years’ collective experience of both managing assets, selecting managers and of delivering sound, independent governance. Witan Investment Trust plc Annual Report 2020 03 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Key performance Key performance indicators indicators The financial key performance indicators (‘KPIs’) below are monitored as significant measures of longer-term success. With respect to non-financial measures, details of the Company’s policies and compliance in relation to the UK Corporate Governance Code are set out in the Corporate Governance Statement on pages 46 to 55. KPI OUTCOME Share price total return vs. benchmark(1) TOTAL RETURN PERFORMANCE (%) TOTAL RETURN PERFORMANCE (%) Definition The Company seeks at least 2% p.a. long-term outperformance in the share price total return +40 +30 +20 +10 0 -10 -20 The share price total return was 2.7%, 6.8% behind the benchmark’s +9.5%. Over five years, the share price total return was 10.7% p.a. compared with 11.7% p.a. for the benchmark. 2011 2020 -6.8% Price total return Benchmark total return IN 2020 NAV total return vs. benchmark(1) TOTAL RETURN PERFORMANCE (%) TOTAL RETURN PERFORMANCE (%) Definition The Company seeks at least 2% p.a. long-term outperformance in NAV total return, debt at fair value +30 +25 +20 +15 +10 +5 0 -5 -10 -15 The NAV total return in 2020 was +4.2%, 5.3% behind the benchmark’s +9.5%. Over five years, the NAV total return was 11.1% p.a. compared with 11.7% p.a. for the benchmark. 2011 2020 Net asset value Benchmark -5.3% IN 2020 Dividend growth(1) DIVIDEND PER SHARE GROWTH (%) DIVIDEND PER SHARE GROWTH (%) Definition The Company seeks to grow its dividend ahead of the rate of inflation +6.0 +5.0 +4.0 +3.0 +2.0 +250 +208 +167 +125 +84 2010 2020 The dividend increased by 1.9% in 2020 to 5.45 pence. The increase was 1.3% ahead of the year-end inflation rate. This was Witan’s 46th successive year of dividend increases. Over the past five years, Witan’s dividend has grown by a total of 60%, compared with an 8.8% rise in the UK Consumer Price Index. +1.9% CPI inflation % Dividend growth % IN 2020 04 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT KPI OUTCOME Net contribution from borrowings(1) CONTRIBUTION FROM BORROWINGS (% OF NAV) CONTRIBUTION FROM BORROWINGS (% of NAV) Definition Gearing to contribute to returns, after interest costs +2.5 +2.0 +1.5 +1.0 +0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 In 2020, gearing detracted 0.4% from returns before interest costs and 0.8% including interest costs. Gearing was a drag on returns in the first quarter mostly offset by the benefit in the balance of the year, when markets rose. Over the longer term, gearing has contributed significantly to Witan’s returns. 2011 2020 Cost Net contribution -0.8% IN 2020 Discount/premium to NAV(1) DISCOUNT/PREMIUM TO NAV PER SHARE DISCOUNT/PREMIUM TO NAV PER SHARE Definition Achieve a sustainable low discount or a premium to NAV, taking account of market conditions +2.0 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 -12.0 2011 2020 In 2020, the year-end discount was 2.4%, compared with 0.7% at the end of 2019. 2020’s average discount of 6.0% was higher than in 2019 (2.8%). A number of sector peers saw similar or greater widening moves, although our own performance in the early months of the year also contributed. In response, the Company bought 7.4% of the shares into treasury, at an average discount of 7.4%. -2.4% AT YEAR END Ongoing Charges Figure (‘OCF’)(1) Definition Achieve an OCF as low as possible, consistent with choosing the best available managers ONGOING CHARGES AS % OF AVERAGE NET ASSETS ONGOING CHARGES AS % OF NET AVERAGE ASSETS 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 In 2020, the OCF was 0.78% (2019: 0.79%) excluding performance fees and 0.82% (2019: 0.87%) including them. Further details of costs are set out on page 41. 0.78% 2011 2020 IN 2020 Excluding performance fees Including performance fees (0.82% INCLUSIVE OF PERFORMANCE FEES) (1) Alternative Performance Measures The financial statements (on pages 85 to 110) set out the required statutory reporting measures of the Company’s financial performance. In addition, the Board assesses the Company’s performance against a range of criteria which are viewed as particularly relevant for investment trusts, which are summarised in the key performance indicators on pages 4 to 5. Definitions of the terms used are set out on page 114. A reconciliation of the NAV per ordinary share (debt at par value) to the NAV per ordinary share (debt at fair value) is shown in note 18 on page 108. Witan Investment Trust plc Annual Report 2020 05 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS STRATEGIC REPORT What we do Portfolio structure Witan is an investment trust which aims to grow shareholders’ wealth and outperform its benchmark through active investment primarily in listed individual companies across a broad spread of global equity markets. We select our strategic asset allocation and structure our portfolio to offer our shareholders a broad range of investment opportunities using a variety of approaches. Our portfolio is continuously monitored and adjusted when considered appropriate. Core portfolio Global 75% (1) 65% +/- 5% UK 10% +/- 5% Managers employ a range of approaches to select from a broad universe of high-quality companies throughout the world. The core portfolio includes companies with enduring cash flows, underappreciated growth prospects or undervalued, often cyclical businesses. Meet the Managers see pages 26 to 31 Specialist portfolio 25% (1) Managers able to deliver superior growth through specialist regional or sectoral expertise. Direct holdings in collective funds. Actively managed with no fixed allocation. Provides exposure to specialist asset classes and other opportunities including Emerging Markets, Climate Change, Private Equity and Life Sciences. (1) Indicative allocation +/- 10%. Underpinned by: Disciplined risk management see pages 35 to 37 06 06 Witan Investment Trust plc Annual Report 2020 I S T R A T E G C R E P O R T Choosing our managers Capital allocation Value creation The Executive team works closely with the Board to select third-party managers from across the world. The team uses a variety of networks, databases and comprehensive due diligence to identify and interview potential managers. Shortlisted managers present to the Board, which takes the final decision on appointment. What we look for from our managers People Talented and accountable investment leadership, committed to serving their clients’ interests Process High-conviction portfolio construction, using clear and simple processes, with analysis taking account of secular change Portfolio Investments characterised by long-term growth in sustainable cash flows and the integration of ESG principles Performance Potential for material outperformance over the long term, after fees The Executive team seeks to add to performance by varying the use of gearing and a range of additional levers to adapt to different conditions. We aim to generate total returns which exceed the benchmark over the long term. Capital allocation framework The Company seeks to set gearing at levels appropriate for market conditions, borrowing more when markets are attractively valued and less when returns are expected to be poorer. Witan uses derivatives as transparent, cost- effective tools for efficient portfolio management and to help control risk. Outperformance of benchmark 6/10 years to 31/12/2020 NAV total return over past ten years 156.1% vs 141.7% for benchmark to 31/12/2020 Dividend growth over past ten years 9.6% p.a. For more information, see pages 26 to 31 For more information, see pages 16 and 17 Commitment to responsible investment see pages 20 and 21 Witan Investment Trust plc Annual Report 2020 07 07 CORPORATE GOVERNANCEFINANCIAL STATEMENTS Chairman’s Statement Recovering strongly from the pandemic Highlights Full-year NAV total return of 4.2%. The benchmark returned 9.5% Portfolio restructured to reflect a more global outlook and a new benchmark Second half performance turnaround: 22% total return, ahead of the new benchmark’s 12% Ten-year NAV total return of 156%, compared with 142% for the benchmark Share price discount to NAV 2.4% at year end (2019: 0.7%) Dividend increased by 1.9% to 5.45 pence, more than double that paid in 2010 and an unbroken run of increases since 1974 Intention to use reserves to support and grow the dividend while cover rebuilds Andrew Ross Chairman 2020 will forever be associated with the COVID-19 pandemic, and I would first like to take this opportunity to express my deep sympathy to those affected and gratitude to those in the front line of the fights against the disease, before I turn my attention to how Witan has fared in the past year. At the start of 2020, Witan changed its benchmark strategic asset allocation to reflect the increasing growth opportunities in the US and faster growing regions of the world, relative to those in the UK and Europe. This entailed an increase in the North America weight of our benchmark from 25% to 51% and a reduction in the combined weights for the UK and Europe from 50% to approximately 30%. However, on valuation grounds, we decided, wrongly with the benefit of hindsight, to phase these changes in gradually, meaning our portfolio remained underrepresented in the US which outperformed and overrepresented in the UK and Europe which underperformed during the sharp falls in the first quarter. In addition, some of our managers’ portfolios were exposed to cyclical recovery stocks that had started to perform well at the end of 2019 and were underweight in the technology stocks that subsequently led the market for much of 2020, particularly during the early reactions to the pandemic. Our use of gearing, which is so often a positive for Witan, amplified the losses. This perfect storm of negative factors created a significant performance shortfall which, while short-lived, was atypical of what we and our shareholders expect. Our Chief Executive provided shareholders with a detailed explanation of these events 08 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Although implementing the transition in our benchmark was complicated by the changed economic environment, we have taken decisive action to restructure our portfolio to reflect the changed opportunities, while retaining established managers expected to perform well for Witan in the future. 2020 will certainly not go down as a good year for Witan. However, we pressed on with our plans during the exceptionally difficult conditions early in the year and since the early summer there has been a consistent and significant recovery in performance. SUSTAINABILITY AND ESG We have made further strides this year in formalising and deepening our engagement on Environmental, Social and Governance (‘ESG’) issues with our investment managers and other service providers. This reflects your Board’s belief that investing in well-managed companies with sustainable, growing businesses is the foundation for achieving good returns for shareholders as well as a better future for the planet and its people. In February 2020, we became a signatory to the UN-supported Principles for Responsible Investment (‘PRI’), seen as a code of best practice on ESG issues. in June 2020. The conclusion was that we were appropriately positioned for how the world looked in January but suffered from the unforeseen reversal of market fortunes resulting from the pandemic. Against this turbulent background, we were conducting a review of our managers to enact the change to our strategic asset allocation mentioned above. In August, we appointed two US-based global managers, following a detailed review of a broad range of highly talented managers, most of whom are not readily available to individual investors in the UK. However, timing is all in investment and it was important to avoid compounding the earlier period of underperformance by making these changes at the wrong moment. Consequently, we phased in an increased share of assets under management to managers with greater exposure to US stocks and the technology sector while retaining some managers who had underperformed but were expected to recover. The net effect was to reduce our exposure to the UK and continental Europe, while increasing our exposure to managers seeking growth opportunities globally, with a less cyclical approach. half of the year showed a 22.2% total return, well ahead of the 11.8% return on our benchmark, with outperformance in every month from June onwards. As a result, our total return for the full year was a gain of 4.2% and, although there is more to do, we recovered most of the earlier shortfall against the benchmark index, which returned 9.5%. Our share price total return was 2.7%, reflecting a slightly wider discount than at the end of 2019. Encouragingly, following this reshaping of the portfolio, there has been a welcome and significant recovery in Witan’s performance (discussed in more detail on page 13). Unlike the sudden pandemic- linked underperformance during February and March, the recovery was steady and persistent, through up and down months for the markets. Whereas at mid-year our total return of -14.7% was 12.6% behind our benchmark, the second Taking a longer-term perspective, Witan has invested with a multi-manager approach since 2004. Over this period, we have beaten the returns on our benchmark and raised the dividend significantly faster than the rate of inflation. Over the ten years to the end of 2020, Witan achieved a NAV total return of 156.1% and a share price total return of 183.8%, both of which exceeded the benchmark’s 141.7% return. Witan Investment Trust plc Annual Report 2020 09 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSSince the early summer there has been a consistent and significant recovery in performance Chairman’s Statement continued WITAN’S DIVIDEND PER SHARE COMPARED WITH THE UK CONSUMER PRICE INDEX +6.0 +5.0 +4.0 +3.0 +2.0 2010 CPI inflation % Dividend growth % All our investment managers are also themselves direct signatories to the PRI. Although the pandemic was not itself an ESG issue, it demonstrated the potential costs from unforeseen external shocks. In doing so, it indirectly underlined the importance of businesses taking proper account of the already foreseeable risks to their sustainability, such as regulation, technological obsolescence, and environmental risks, many of which are covered by adherence to the PRI. Further details of our activity on ESG matters during the year are set out on pages 22 to 25. 2020 DIVIDEND A fourth interim dividend of 1.43 pence was declared in February 2021, payable on 31 March 2021. As a result, the dividend for the year increased by 1.9% to 5.45 pence per share (2019: 5.35 pence), ahead of the 0.6% rate of UK inflation at the year end. This is a lower rate of increase than the 9.6% annual rate over the past ten years, because our revenue earnings fell sharply during the year. This was principally due to the exceptional negative impact of the COVID-19 pandemic on Company profits and dividends. +250 +208 +167 +125 +84 2020 One of the advantages of the investment trust structure is that trusts can use previously retained revenue earnings to sustain their own dividends to shareholders when there are fluctuations in dividends from the underlying investments. Accordingly, we used £19m of our revenue reserves to absorb the shortfall in current year revenue, after a decade during which these reserves had risen from £41m to £71m. The Board expects portfolio dividends to grow in coming years and it is the Company’s intention to continue to make use of these retained earnings to increase the dividend to shareholders annually while cover is rebuilt. If necessary, realised capital reserves could also be used, as part of a defined path towards our dividends once again being fully funded by revenue earnings. We have increased the dividend every year for the last 46 years, with the latest dividend being two and a half times that paid in 2010. The chart to the left shows the dividend’s growth over the past ten years, compared with inflation. BOARD CHANGES Our previous Chairman, Harry Henderson, stood down at the AGM in 2020 after 32 years of service to Witan shareholders, 17 of them as Chairman. His was an outstanding tenure and I know that he was particularly sorry not to be able to say farewell in person at the AGM, owing to the pandemic-related restrictions on public meetings. At the meeting, he was elected by shareholders as Honorary President of the Company. Richard Oldfield also stood down at the 2020 AGM, after nine years on the Board, serving as Chairman of the Remuneration and Nomination Committee since 2018. His investment and managerial experience and advice were of great value to the Company and will be sorely missed. Paul Yates succeeded him as Chairman of the Remuneration and Nomination Committee. We welcomed Rachel Beagles as a director of the Company in July 2020. Rachel is an experienced investment company director and was, until recently, chair of the Association of Investment Companies. Finally, as scheduled in the Company’s succession plans, our Senior Independent Director, Tony Watson, is standing down at the AGM in 2021, having been a director since 2006 and Senior Independent Director since 2008. His deep experience in investment management and as a listed company director have been of great value to Witan and he leaves with our thanks. The Board has appointed Suzy Neubert to be his successor as Senior Independent Director. 10 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORTInvesting in well-managed companies with sustainable, growing businesses is the foundation for achieving good returns for shareholders as well as a better future forthe planet and its people AGM Our 113th Annual General Meeting this year will have to be organised remotely, as in 2020, due to continued government guidelines on the holding of public gatherings. Formal notice of the meeting will be sent to shareholders when the Annual Report is published. Andrew Ross Chairman 10 March 2021 Following these and the other changes in recent years, the Board will consist of eight directors, representing a broad diversity in background, experience, gender and other factors. This satisfies the primary need to have the requisite balance of skills to oversee the Company’s affairs while fully meeting formal corporate governance guidelines on diversity. In terms of length of service on the Board, there is a balance to be struck between stability and change. Six of Witan’s seven non-executive directors have been appointed within the past one to five years, while Suzy Neubert, our new Senior Independent Director, has nine years’ service on the Board, providing an essential element of continuity. With effect from this year, all directors will stand for election each year. Stay in touch The Company maintains a website (www.witan.com), to enable investors to keep up to date with developments at Witan and to make informed decisions when considering Witan shares for their investment portfolios. The website is regularly refreshed with new information and includes Investor Disclosure and Key Information Documents. Any investor who would like to be kept informed by email of developments at Witan (including factsheets and newsletters) can register on the Company’s website (www.witan.com) or by sending their details to contact@witan.co.uk. Witan Investment Trust plc Annual Report 2020 11 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CEO’s review of the year Andrew Bell CEO 2021 - a year of reopening and recovery A ROLLERCOASTER YEAR, DEFINED BY THE PANDEMIC 2020 was dominated by the impact of the COVID-19 pandemic, both its direct effect on human health and wellbeing and the consequences of the measures taken by governments seeking to bring the outbreak under control. Enforced shutdowns of wide swathes of the economy were unprecedented, leading to the deepest recession many countries had ever seen. The initial reaction to the pandemic shutdowns in February, with no precedent to act as a guide, was a synchronous collapse in equity markets amid signs of financial distress in government bond and credit markets. Equity markets began 2020 expecting a broadening of economic growth. The US Federal Reserve had cut rates in 2019, an earlier growth slowdown seemed to have run its course and the UK General Election result appeared to promise an end to the eternal squabbling over Brexit. These hopes were turned on their heads as lockdowns spread. In the resulting equity market fallout, the worst hit were the cyclical sectors that had prospered at the end of 2019, whose hopes of better times in 2020 were dashed. The market panic subsided at the end of March through central banks promising sufficient liquidity to limit the risk that the collapse in economic activity would lead to widespread bankruptcies and by governments acting to sustain personal and corporate incomes, through ‘furlough’ pay schemes and tax concessions. Although markets subsequently stabilised, there was a marked divergence between the companies seen as benefiting from lockdowns (in sectors such as internet communications, computing, online activity and healthcare) and ‘COVID losers’ such as the retail, leisure and travel sectors. Economies began to recover during the summer, although the level of activity remained below pre-pandemic levels owing to the sustained restrictions on movement. However, unprecedentedly low interest rates and, late in the year, positive news on the efficacy of vaccines encouraged investors to look through the immediate problems towards a potentially strong growth rebound during 2021. Consequently, there was a divergence between the widespread falls in economic activity in 2020 and the significant gains made by most equity markets. Global equities finished the year with advances, led by 15-16% rises in the US and Asian indices, regions where economic growth had held up better and there was greater representation of technology stocks. The poorest performers were Europe, with a rise of 12 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT greatest weakness. In the second, there was a significant bounce in absolute performance and in the second half we outperformed very strongly. During the early months of 2020, a review of our existing managers’ suitability for our new asset allocation was underway, along with a search for additional global managers. This led to changes which reduced our exposure to the UK and Europe as well as the appointment of two new global managers in August. Whilst the departing managers had underperformed, this was not the primary reason for their removal, as explained on page 15. We retained some managers who, at the time, had underperformed (e.g. Artemis, Lansdowne) where the prospects for recovery appeared well- founded and where they were expected to adapt to a changing investment landscape. They have contributed to the subsequent rebound in Witan’s absolute returns and relative performance against our equity benchmark. As noted in the Chairman’s Statement, at the interim stage our total return was behind our benchmark. There was a significant turnaround in the second half (discussed in more detail on page 16 below) which turned the first half loss into a full-year gain in both net asset value and share price total return terms. As noted earlier, the total return for the full year was a gain of 4.2% compared with the benchmark index return of 9.5%. The outperformance in each month from June onwards supports the conclusion that the first quarter fall was anomalous, caused by exceptional circumstances and that the combination of retained and new managers has set a positive direction for shareholder returns in the future. 8%, and the UK, which declined by 12%. Both were affected by the sector mix in the indices and, in the case of the UK, investors were held back by Brexit concerns, which were only mitigated late in the year with the UK/EU free trade deal. WITAN’S 2020 PERFORMANCE At the start of 2020, Witan reduced the UK proportion in its benchmark asset allocation and simplified the overseas component (previously a composite of four indices) to a single, global index. This change entailed a doubling of the North American weight (from 25% to 51%) and a reduction in the weights for the UK (from 30% to 19%) and Europe (from 20% to 12%). As set out in the Chairman’s Statement, the decision not to put these changes immediately into effect proved costly. We and our external managers had seen better value in other markets than the US. However, evolving circumstances during the pandemic favoured renewed US outperformance, helped by its significant weighting in internet stocks, benefiting from remote working, and other online services. The UK and Europe, where our managers’ portfolios were over-represented, lagged the US, particularly the UK where the sector mix of the market and the continued Brexit uncertainty were significant headwinds. Poor portfolio performance was amplified by gearing, which we were, in retrospect, too slow to reduce. The first quarter was the period of Witan Investment Trust plc Annual Report 2020 13 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSThe combination of retained and new managers has set a positive direction for shareholder returns in the future CEO’s review of the year continued OUTLOOK The pandemic upended all personal plans and economic forecasts early in 2020 and reminded us that humankind, even though apparently the planet’s dominant species, can be humbled by one of the smallest. For many, the costs of COVID have been severe and sometimes, at the human level, irreversible. Many businesses, aspects of society and livelihoods have suffered from the unforeseen events of 2020. Although developments in public health and improved treatments enabled societies to cope up to a point in 2020, it is the extraordinary speed with which modern science has developed effective vaccines that gives hope for 2021 to be a new start for damaged economies and people’s quality of life. The timing of economies fully emerging from the renewed restrictions in place at the end of 2020 remains uncertain. Nonetheless, it seems increasingly likely that 2021 will see a gradual but consistent reopening of activity, particularly in the sectors such as hospitality, leisure and travel that depend on human interactions that cannot be replicated in an armchair. There is likely to be pent-up demand in these areas. There will inevitably be permanent damage to many businesses as well as a reassessment of the spare capacity needed (for example in healthcare) to respond to the unexpected. In the UK’s case, the economy will also need to adapt to the agreed new trading arrangements with the EU and the rest of the world. Another feature that seems likely to remain for some years is financial repression – interest rates being held at rates that offer virtually no return and, after inflation, will be loss-making. Substantial increases in public debt have been taken on to combat the pandemic, with the current political debate (and the new US Administration) focused on growth rather than retrenchment as the means to shrink the debt relative to the size of the economy. With governments seemingly able to lean on their central banks to buy government bonds at record low interest rates, an expansion in government spending seems in prospect, to incorporate priority areas such as infrastructure, decarbonisation, and health. The resulting boost to economic growth may well help spread NAV PER SHARE RECONCILIATION 9.4 233.1 4.0 -0.4 1.1 -2.6 -2.0 -0.8 -5.8 236.0 250.0 240.0 e r a h s r e p e c n e P 230.0 220.0 210.0 200.0 190.0 End 2019 NAV Portfolio gains Portfolio income Returns from use of gearing Uplift from buybacks Change in value of debt Expenses (inc. tax) Finance costs Dividends paid End 2020 NAV the recovery in corporate fortunes and stock markets to include some of the cyclical sectors which were depressed during 2020. At some stage, the balance between spending plans and the markets’ willingness to finance them will reach a limit and interest rates will rise, but this does not seem to be imminent. In this environment, the potential for fixed-coupon bonds to protect wealth against even modest rises in inflation seems questionable. Equities have become by default the only area where prospective long- term returns appear positive, but the main indices are not lowly valued and include some companies where the hopes for growth appear very high and may not always be fulfilled. A year ago, as markets were plunging in the early weeks of the pandemic, we said that for contrarians the signals were shifting from red to green, as expectations became increasingly depressed. Although areas of the equity market still have the scope to exceed expectations, this appears less likely of markets as a whole than a year ago, particularly as many of 2020’s high-profile winners are also significant index components. Accordingly, greater selectivity in stock selection may be warranted as well as greater scepticism of the near- universal assumption that interest rates can be indefinitely suppressed. PERFORMANCE DRIVERS OF WITAN’S GROWTH IN NET ASSET VALUE DURING 2020 The financial statements on pages 85 to 110 set out the required statutory reporting measures of the Company’s financial performance. The chart above shows the contributions (in pence per share) attributable to the various components of investment performance and costs, which together add up to the small rise from the starting NAV for the year of 233.1 pence to the year-end NAV of 236.0 pence, after the payment of dividends to shareholders. A breakdown of the relative performance attribution in 2020 (based on the Company’s financial statements) is shown in the table opposite. The third-party managers, in aggregate, lagged their benchmarks during the early part of the year but recovered most of their relative shortfall from June onwards. Gearing detracted 0.4% from returns in the year, 0.8% after taking account of the mostly fixed interest charges. A larger negative impact during the first quarter, when markets fell abruptly, was mostly recouped due to the subsequent use of gearing as markets recovered. Gearing averaged 10% during the year and ended the year at 12.3%. 14 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT A BREAKDOWN OF THE PERFORMANCE ATTRIBUTION IN 2020 (%) Net asset value total return Benchmark total return 4.2 Portfolio total return (gross) 9.5 Benchmark total return Relative investment performance Investment management costs Investment contribution Gearing impact Borrowing costs Gearing contribution Effect of changed fair value of debt Share buybacks Other contributors 6.5 9.5 -3.0 -0.5 -0.4 -0.4 -1.1 0.5 Other operating costs and tax -0.4 Relative performance(1) -5.3 (1) N.B. Figures may not sum due to rounding. PORTFOLIO STRUCTURE AND MANAGER PERFORMANCE During 2020, contracts with four of the ten external managers in place at the start of the year were terminated. Three (two investing in Europe and one in the UK market) reflected the change to a simplified and more global asset allocation from the start of 2020. The fourth (a global value manager) reflected our assessment of the accelerated economic changes in the wake of the pandemic, which were felt to be more favourable to adaptable, quality and growth investment styles and less supportive of systematic cyclical or mean reversion approaches. We appointed two new global managers in August: Jennison, seeking out companies with exceptional growth prospects, and WCM, with a focus on high-quality companies with strong culture and increasing competitive advantages. They were funded with smaller allocations initially, to which we have gradually added, as relative valuations between growth stocks and the rest of the market were at an historic extreme during the summer. -3.5 -0.8 -0.6 -0.4 -5.3 INVESTMENT MANAGERS’ PERFORMANCE Investment manager Mandate Appointment date £m %(1) Manager Benchmark Manager Benchmark Witan assets managed as at 31.12.20 Performance in 2020 % Performance since appointment(2) % Core Jennison Lansdowne Lindsell Train Veritas WCM Artemis Specialist Matthews GQG Global Global Global Global Global 31.08.20 104.8 14.12.12 426.1 31.12.19 298.4 11.11.10 407.9 31.08.20 208.0 UK 06.05.08 141.3 Asia inc. Japan 20.02.13 124.8 EM 16.02.17 135.9 4.8 19.4 13.6 18.6 9.5 6.4 5.7 6.2 Witan Direct Holdings 19.03.10 224.4 10.2 Latitude GMO Global 31.03.18 Climate Change 05.06.19 58.3 66.8 2.6 3.1 (1) Percentage of Witan’s investments managed. (2) The percentages are annualised where the date of appointment was more than one year ago. n/a 0.2 13.3 11.0 n/a 0.2 26.3 31.6 13.4 6.9 37.4 n/a 13.2 13.2 13.2 n/a (11.7) 16.4 15.0 9.5 13.2 13.2 12.4 15.1 13.3 13.7 13.4 8.7 11.0 14.0 11.4 10.5 32.0 Witan Investment Trust plc Annual Report 2020 8.9 13.5 13.2 11.7 8.9 4.6 9.6 8.9 9.2 13.0 14.6 15 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CEO’s review of the year continued was achieved by Artemis, our remaining specialist UK manager, whose +0.2% portfolio return was well ahead of the fall of 12% in the MSCI UK IMI Index. This followed the strong recovery they had enjoyed in 2019 after several years of underperformance. Veritas +11% and Lindsell Train +13.3% were, respectively, slightly behind and slightly ahead of their benchmark at the year end, having outperformed in the turbulent first half. Matthews’ 26% return in Asia was 10% ahead of the regional benchmark, while GQG Partners’ 32% return was over double the return on the emerging markets benchmark. Lansdowne’s 0.2% total return was well adrift of the 13% global index return owing to exposure to the underperforming UK market and to sectors, such as airlines, that were badly hit by the pandemic. However, their portfolio significantly outperformed in the second half, recovering from a 22% loss at the end of June. Jennison and WCM both outperformed in the short period since they were appointed. DIRECTLY HELD INVESTMENTS The return on the portfolio of directly managed investment company investments (+13.4%) was ahead of Witan’s benchmark return of 9.5%, with positive news from most of the larger holdings fuelling a strong recovery from a weak first half. The main holdings are listed in the UK, but the underlying exposure is principally global. At the year end, half the portfolio was in listed private equity vehicles. The largest holding, Apax Global Alpha, had a 2020 total return of 19%, from a portfolio of growth companies, concentrated in the technology and healthcare sectors. Princess Private Equity’s price fell in the early stages of the pandemic, as it suspended its dividend while it assessed the funding needs of its portfolio. We doubled our holding and the price subsequently rebounded, as the net asset value recovered, and the dividend was reinstated. Electra Private Equity, a smaller holding, suffered from the concentration of its portfolio in two UK companies exposed to the recurrent pandemic shutdowns. Better news on the portfolio enabled the share to double from its lows but it still fell sharply during the year. The second largest portfolio holding is Syncona, a company specialising in founding and funding innovative life science companies. The shares performed strongly, rising 19% during the year. For a number of years, we have had a holding in the BlackRock World Mining Trust, which gives Witan additional exposure to the commodity mining sector. Demand was strong in 2020, due (among other factors) to growth in China and the expansion of demand for copper due to growth in electrification. The shares’ total return (having been down 40% in March) was +47% at the year end and we took the opportunity to trim our exposure. The other material holding is in the Schroder Real Estate Investment Trust, a company investing in UK commercial property. Although the net asset value return was fairly resilient (down 5%) sentiment was adversely impacted by a reduction in its dividend, concerns over Brexit and the impact on the sector of increased working from home and trading restrictions in the restaurant and retail sectors. As a result, despite relatively low exposure to the London office and retail segments, the discount to NAV widened and the share price total return was -26%. The portfolio held 9.2% of assets at the start of the year and was 10.2% of the investment portfolio at the end of 2020. GEARING ACTIVITY DURING 2020 Under its Articles of Association, the Company may borrow up to 100% of the adjusted total of shareholders’ funds. However, the Board’s longstanding policy is not to allow gearing (as defined on page 114) to rise more than 20%, other than temporarily in exceptional circumstances. Where appropriate the Company may hold a net cash position. Following a review of the Company’s long-term gearing requirements and a decline in market borrowing costs, the decision was made in April to repay the Two small externally managed portfolios were increased during the year. We added £15m to the Latitude global portfolio at the start of April. The portfolio (2.6% of assets at the year end) subsequently recovered strongly in absolute terms, albeit lagging the global index benchmark. We added a total of £25m to the GMO Climate Change Fund holding in April and June, taking advantage of the setback to its renewable energy and other holdings as an indirect effect of the fall in oil prices. The fund, with 3.1% of assets at the year end, delivered a return of over 37% during 2020, well ahead of the 13% benchmark return. The third-party managers implement mandates set by the Company. Each manager’s mandate, benchmark, investment style and date of appointment are shown on pages 26 to 31. The returns during the year and since their appointment are set out in the table on page 15. This shows that, since inception, all the principal current managers have outperformed their benchmarks (although this was not the case for some of the managers dropped during the year). Although Witan’s overall performance is the primary focus, monitoring individual managers’ performance is an important check. In 2020, four of the six principal third-party managers in place for the full year outperformed their benchmarks, as did the directly managed portfolio of investment companies. A particularly strong relative performance 16 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORTFour out of the six managers in place for the full year outperformed DIVIDEND AND REVENUE PERFORMANCE IN 2020 The Company has already paid three quarterly dividends of 1.34 pence per share in respect of 2020. The Board has also declared a fourth interim dividend of 1.43 pence per share, to be paid to shareholders on 31 March 2021, making a total distribution for the year of 5.45 pence (2019: 5.35 pence), entailing the use of £19.0m of revenue reserves. This represents an increase of 1.9%, ahead of the 0.6% UK rate of consumer price inflation in the year to December 2020. 2020’s dividend is two and a half times the dividend paid for 2010, the dividend per share having risen by 150% compared with 20% for the UK CPI and 43% dividend growth for the UK market (Source: Refinitiv/DataStream). Company’s 6.125% 2025 Secured Bonds early. This entailed paying a premium of £21.6m to the £64.3m principal value. With short-term borrowings costing under 1%, the interest savings (at current interest rates) over the period to the bonds’ originally scheduled maturity are expected to be between £3.1m and £3.9m p.a. so the eventual net cost of the early repayment is expected to be between zero and 0.3% of net assets. The benefits are greater flexibility in the management of gearing, with short-term borrowings repayable at will, and the option to take advantage of low long- term interest rates to fix borrowing costs for the longer term, should an appropriate opportunity arise in coming years. Gearing varied between 4% and 15%, averaging 10% for the year. Gearing was cut back in March to reduce portfolio risk given the significant uncertainty in the early stages of the pandemic. It was increased early in the second half, as the prospects for markets improved in response to progress on COVID-19 vaccines and Brexit. This proved helpful to returns, recouping most of the cost from being geared when the markets plunged at the start of the pandemic. At the end of 2019, net gearing (the total value of borrowings less cash) was 11.0% of net assets. At the end of 2020, gearing (on the same basis) was 12.3%. STRUCTURE OF BORROWINGS The Company has fixed-rate borrowings of £155m, consisting of: Secured Notes 2035 3.29% Secured Notes 2045 3.47% Secured Notes 2051 2.39% Secured Notes 2054 2.74% £21m £54m £50m £30m The Company has a £125m one-year borrowing facility, providing additional flexibility over the level of gearing, as well as enabling the Company to borrow in currencies other than sterling, if deemed appropriate. The drawn balance was £109m at the end of 2020. The average interest rate on the Company’s fixed- rate borrowings is 3.0% (2019: 3.8%). The average interest rate, including short-term borrowings, is currently 2.0% (2019: 3.4%). Witan will either invest its borrowings fully or neutralise their effect with cash balances according to its assessment of the markets. The Company’s third-party managers are not permitted to borrow within their portfolios but may hold cash. DERIVATIVES ACTIVITY DURING 2020 The Company from time to time makes use of derivatives for reasons of efficient portfolio management, to take advantage of tactical opportunities presented by market volatility or to manage portfolio risks. Only simple, liquid exchange- traded index contracts are used. During the first half of 2020, equity index futures contracts were used to facilitate the process of shifting Witan’s portfolio towards a more global asset allocation. The combined weight of the UK and Europe in the new benchmark is approximately 30% compared with 50% before, while the US benchmark weight increased from 25% to approximately 50%. The principal investments were purchases of US Equity Index futures to increase exposure to the US market pending increased allocations to global active managers and sales of UK and European equity index futures pending the liquidation of specialist geographical portfolios. Equity index futures were also used in the tactical management of gearing. There were no derivatives positions in place at the end of the year. There was a realised capital gain on index futures during the year of £4.9m, as shown in the cash flow statement on page 88 (2019: £3.5m). Witan Investment Trust plc Annual Report 2020 17 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CEO’s review of the year continued Revenue earnings per share fell by almost 50% to 3.1 pence per share in 2020. This was principally due to the widespread and unprecedented cuts in portfolio dividends (sometimes under regulatory pressure) as companies took defensive action in response to the pandemic. Witan’s adoption of a more global asset allocation and changes in external managers also contributed to the portfolio having a lower yield, albeit with better expected growth prospects. However, the Company had previously taken advantage of strong revenue growth to add to revenue reserves in nine out of the ten years between 2009 and 2019, in addition to increasing the dividend per share over the period by more than 9.6% p.a. At the end of 2019, revenue reserves had reached £71m (after deducting the fourth interim dividend payment). The purpose of such reserves is to enable income payments to shareholders to be supported during leaner times, such as the year just passed. The Board has reviewed the prospects for portfolio dividend growth in 2021 and future years and, recognising the importance for many shareholders of a reliable and growing income, it is the intention to use revenue reserves to bridge the gap between portfolio revenue earnings and the dividends paid to shareholders. Rebuilding dividend cover will take more than one year but, although forecasting after the events of the past year should be undertaken with caution, the Board anticipates dividend Adaptability Careful balance TALENTED MANAGERS Multiple perspectives C W o l i l s e d c t o i m v e I N D E P E N D E N T T H I N K I N G Experience 18 WITAN DISCOUNT TO NET ASSET VALUE (%) 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 Dec 20 Source: Refinitiv pence per share full-year payment for 2020. The fourth payment (in March 2022) will be a balancing amount, reflecting the difference between the three quarterly dividends already paid and the payment decided for the full year. WITAN’S SHARES IN THE MARKET – LIQUIDITY AND DISCOUNTS Witan is a member of the FTSE 250 Index, with a market capitalisation of over £1.8bn. The Board has always paid attention to discount-related issues and has, over many years, made significant use of share buybacks, when Witan’s shares have stood at a discount, as well as being prepared to issue shares at a premium to NAV to meet demand from investors. Both actions are accretive to NAV, provide liquidity in the market and help to moderate discount volatility. cover improving each year, after allowing for continued annual dividend growth, albeit at a more moderate pace than over the past decade. If necessary, a modest contribution from retained capital reserves would be made, as part of a defined path towards dividends being covered from portfolio income received. 2021 DIVIDENDS The first three quarterly payments for 2021 (in June, September and December) will, in the absence of unforeseen circumstances, be paid at a rate of 1.36 pence per share (2020: 1.34 pence), being approximately one quarter of the 5.45 WITAN INVESTMENT TRUST DISCOUNT TREND The discount trend during the past five years is illustrated in the chart above. After staying in a range around 2% in 2017-18, the discount widened during the first half of 2019 before recovering as UK political uncertainties reduced towards the year end. 2020 proved to be a more challenging year, owing to uncertainty relating to the pandemic and the lack of a Brexit deal until late in the year. There was also understandable investor concern at Witan’s weak performance during the period of volatile markets early in the year, the reasons for which Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORTIt is the intention to use revenue reserves to bridge the gap between portfolio revenue earnings and the dividends paid to shareholders WITAN RELATIVE AND ABSOLUTE PERFORMANCE IN 2020 110 105 100 95 90 85 80 75 70 65 Dec 19 Mar 20 Jun 20 Sep 20 Dec 20 NAV total return Relative to benchmark Source: Refinitiv are discussed elsewhere in this report. The discount is, amongst other things, akin to an opinion poll and, after Witan was wrong-footed by the economic effects of the pandemic, demand for the shares was reduced for a while and the discount widened accordingly. As in the political sphere, opinion polls are not always correct, with Witan’s performance improving consistently from May onwards, leading to seven consecutive months of outperformance, shown in the chart of absolute and relative performance in 2020 (see above). Nonetheless, as the discount remained persistently wide (along with that of a number of other trusts in the sector) the Company bought back shares consistently and in significant amounts. In total, Witan bought 64.3m shares into treasury (7.4% of the total at the start of the year) at an average discount of 7.4%. This directly added 1.1p per share to the net asset value for remaining shareholders, helping to limit then reduce the discount, which closed the year at 2.4%. This was wider than the 0.7% discount at the end of 2019 but below the average discount during the year of 6.0% (2019: 2.8%). Discounts are affected by many factors outside the Company’s control but where it is in shareholders’ interests (taking account of market conditions), the Company is prepared to buy back shares at a discount to NAV or to issue shares (though only at a premium). It remains a long-term objective to create sustainable liquidity in Witan’s shares at or near to asset value and the robust actions taken during the volatile conditions of 2020 are evidence of this continuing commitment. Andrew Bell Chief Executive Officer 10 March 2021 Witan Investment Trust plc Annual Report 2020 19 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible investment Our policy We believe that investing in well-managed companies with sustainable, growing businesses is the foundation for achieving good returns for shareholders as well as for a better future for the planet and its people. Our expectation of our managers is that they will consider all factors when seeking to maximise returns while taking proper account of the associated risks. Witan is a signatory to the UN-supported Principles for Responsible Investment (‘PRI’) and is committed to incorporating the principles into our investment process. We seek to collaborate with other investors on environmental, social and governance (‘ESG’) issues, to engage with policymakers (primarily via the AIC) and are members of the Institutional Investors Group on Climate Change. Witan takes its fiduciary responsibilities seriously and our membership of these organisations complements our portfolio which is largely comprised of well-managed businesses with sustainable cash flows. In addition to the clear social and environmental benefits of good corporate behaviour, we believe that incorporation of sound ESG policies benefits Witan’s shareholders financially. The Company has a broad investment universe and aims to increase the potential for long-term success by minimising exposure to companies which are at risk of disruption, litigation, regulation, or loss of business as a result of poor ESG practices. The Witan Executive team monitors the characteristics of Witan’s portfolio to identify, among other things, any ESG risks which may arise. The Executive team also scrutinises the ESG policies of our managers, reviews and assesses the implementation of these policies at annual ESG-focused meetings with investment managers and reports to the Board on its findings. Witan does not preclude managers from owning specific companies or those in certain sectors, although some managers may choose not to invest in a sector for ESG and/or financial reasons. We believe these investment choices are 20 best left to our managers, with our role being to ensure that they work within a proper ESG framework and have a clear rationale for owning any company. Typically, our portfolio will consist of high-quality companies with sustainable cash flows, those with underestimated growth prospects and some businesses which are more cyclical in nature. These companies tend to exhibit superior or improving ESG characteristics even though there is no guarantee that ESG incidents will be avoided entirely. Where negative ESG issues do occur, managers should engage with the company concerned, encourage positive change, and vote shares accordingly. Managers should not own companies if they conclude that management has failed to take ESG factors into consideration. STEWARDSHIP AND THE EXERCISE OF VOTING POWERS Under our multi-manager structure, the fiduciary duty for the maintenance of high standards of corporate governance falls, in the first instance, to the Company’s appointed investment managers. Furthermore, under Principle 2 of the PRI, Witan has committed to be an ‘active owner and incorporate ESG issues into our ownership policies and practices’. The Board therefore expects its managers to engage with investee companies and to vote shares. Voting and engagement records are reported to the Board at regular intervals. Managers who fail to meet these high standards are unlikely to be appointed or retained to invest money on behalf of Witan shareholders. Witan monitors the stewardship policies of its investment managers including specifically in respect of the UK Stewardship Code, where applicable. Whilst the Company’s investment managers are apprised of the Company’s approach to the stewardship of its assets and the importance of sound corporate governance, they use their discretion according to their knowledge of the relevant circumstances. The investment managers report their compliance with the UK Stewardship Code, or equivalent legislation, to the Witan Audit Committee each year. The Company’s Executive management maintains regular contact with the management of the investment companies held in the Direct Holdings portfolio. Aside from regular updates, engagement has included, but is not limited to, specific issues with underlying portfolio companies, the manager’s ESG policy and its integration into the investment company’s ESG framework, discount or premium management, distribution/dividend policy and other balance sheet management issues. Witan will engage with management and boards where it identifies issues which it considers fall short of best practice and will vote according to the interests of Witan shareholders and considering all factors including ESG issues. Witan’s Executive management provides an annual report to the Audit Committee in compliance with the UK Stewardship Code. Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Witan’s approach to integration of the Principles for Responsible Investment Integration into investment decision-making Our portfolio is the result of our external investment managers’ investment decisions. Our expectation is that our managers will consider and integrate ESG into their investment analysis and investment decision- making. All our external managers have ESG policies and are signatories to the PRI. Responsibility Both Witan’s Board and Executive consider our investment managers’ approach to ESG and any stock-specific ESG issues. The Witan Executive is a small team and all members of the investment and operations team are involved in the due diligence and monitoring of our managers. At the manager level, we expect the investment decision-makers who manage our portfolio to consider ESG issues. Our approach Collaboration Given Witan’s multi-manager approach, we believe we are well-positioned to collaborate with others within the investment management industry to improve both our and others’ understanding and approach to the integration of ESG issues into investment decision-making. In 2019 Witan became a member of the Institutional Investors Group on Climate Change, whose purpose is to encourage investor collaboration on climate change. Monitoring Witan monitors our managers through annual due diligence and expects investment managers to report on any ESG issues which have arisen in their portfolio. Witan subscribes to Sustainalytics and RepRisk, global due diligence databases on ESG and business conduct risks, which allows the Witan Executive to identify and monitor any ESG risks in the portfolio. Engagement The Board encourages the Company’s investment managers to engage with companies and to vote shares and in doing so expects ESG issues to be considered. Witan Investment Trust plc Annual Report 2020 21 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible investment continued Responsible investment in practice The Witan Executive assesses each of the Company’s external managers’ ESG credentials and reports its findings to the Board as part of a standing agenda item at least annually, through the following: > Annual ESG-focused due diligence meetings with the investment managers. > Monitoring the portfolio and investigating any ESG incidents. > Encouraging manager engagement with investee companies which fall short of best practice. > Periodic reporting of ESG compliance by the investment managers. > Review of manager voting and engagement records. > Engagement with management of collective investments within the Direct Holdings portfolio. Witan delegates authority to our managers to vote our shareholdings. In 2020, our managers voted at 553 meetings which represented 98.4% of applicable meetings and on 98.2% of agenda items. The breakdown of votes can be found below: VOTING SUMMARY 93.4% With management 6.0% Against management 0.6% Abstain CARBON DISCLOSURE Witan’s Executive team monitors the ESG characteristics of the portfolio(1) on an ongoing basis. One measure of a portfolio’s environmental characteristics is its asset- weighted average Carbon Intensity, measured in metric tonnes of CO2 per million US dollars of revenue. Witan’s portfolio Carbon Intensity score is 156 compared with 165 for the benchmark. Witan’s portfolio has also achieved a Low Carbon Designation according to Morningstar analysis. To receive this designation, the portfolio must demonstrate low carbon-risk scores (indicating low levels of risk from the transition to a low-carbon economy) and low levels of fossil-fuel exposure as measured by Sustainalytics/ Morningstar. The chart below shows the portfolio (and benchmark) weightings in companies which are classified by Sustainalytics as having varying levels of carbon risk. The portfolio is overweight companies with negligible and low carbon-risk scores which together make up c.73% of Witan’s portfolio relative to 69% of the benchmark. Companies considered of medium risk represent 27% of Witan’s portfolio versus 29% for the benchmark. The portfolio has virtually no exposure to companies designated as high risk. (1) Excludes holdings in Investment Companies where the data is not readily available. CARBON RISK CATEGORISATION OF VOTES AGAINST MANAGEMENT 20.7% Capital management 35.3% Director related 19.2% Compensation 11.7% Routine/Business 6.8% Corporate 2.2% Social/Human rights 0.5% Health, safety, environmental 3.6% Other 40 35 30 25 20 15 10 5 0 Negligible Low Medium High Severe Portfolio Benchmark 22 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Case study: factoring ESG into an investment decision Company Tesco Country UK Sector Consumer services Witan had minimal exposure to Tesco before an inspirational new CEO was appointed in 2014. Under previous management, the company had become bloated and complacent following years of expansion. It had experienced an accounting scandal, was being criticised for exploiting its dominant market share and was regularly condemned for its environmental impact and for poor working practices, especially in its supply chain. These ESG issues were chipping away at the fabric of the business with customer satisfaction and brand value in decline, allowing discount retailers, such as Aldi and Lidl, to eat away at Tesco’s margins and negatively impacting the value of the company. Witan’s managers identified an opportunity to invest as Tesco’s new management launched a turnaround plan in 2015 to regain competitiveness and rebuild trust with a focus on strong corporate governance. Tesco also set out a bold scheme to address issues in the competitive landscape, the workforce, environmental management, packaging and food waste and supply chain management, with notable targets: > To achieve zero wastage of food safe for human consumption > Reduce excess packaging via its Remove, Reduce, Reuse or Recycle initiative > Demand sustainable farming and fishing standards from its supply chain > Pledge to respect Human Rights across the supply chain > Reduce carbon emission by 60% by 2025 and 100% by 2050 > Promote diversity and inclusion so that management better reflects the diversity of the workforce > Address health, safety and wellbeing of staff > Offer greater healthy choices in its affordable own brand ranges > Price matching to remain competitive and to reinforce customer loyalty Since the investment was made, our managers have monitored the company’s performance against these targets by regular engagement with management. To date, Tesco is successfully progressing towards these targets. Non-financial key performance indicators including staff, customer and supplier satisfaction levels, have increased materially over the last five years, while the financial position has improved markedly. Witan Investment Trust plc Annual Report 2020 23 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible investment continued Case study: responding to an ESG incident Company LG Chem Country South Korea Sector Materials Witan is satisfied that the manager reacted swiftly to engage with the company, which has reassessed health and safety policy at all its facilities. There has been senior level management commitment to focus on and improve ESG matters. The company remains well regarded by the investment manager and the unfortunate events of 2020 appear to be at odds with the long-term track record of a company which is at the forefront of the transition to a low-carbon economy. LG Chem’s products are used in a variety of applications including plastics and polymers as well as technological solutions such as semiconductors, mobile devices, energy storage solutions, electric vehicle batteries and OLED screens which are all critical to the transition to a low-carbon economy. ESG incident/concern: > Three health and safety accidents in May 2020 at plants in India and South Korea > Witan Executive was alerted to these incidents by RepRisk and by the manager responsible for this investment, as part of its monthly compliance reporting MANAGER ENGAGEMENT Witan engaged with the investment manager on each occasion and sought details of their engagement with LG Chem. We requested their analysis of the likely impact on the company’s reputational standing, the measures it was taking to eradicate such incidents and their assessment of the long-term investment case for the company. The manager has engaged with LG Chem on numerous occasions this year either directly or in coordination with other investors. The manager is satisfied that the company, which has publicly committed to expand its environmental safety ‘Global Standard’ worldwide, has taken steps to address safety issues. The manager continues to engage with LG Chem and describes the company as “one of the key enablers for the global electric vehicle industry, thanks to its industry-leading EV battery capability, and the stock is still very much undervalued against its growth potential”. 24 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT COMPANY CULTURE AND ESG We have found that when the quality of the management is strong, the social and environmental standing of the company tends to be positive and sincere. In our experience, a healthy corporate culture goes beyond just ESG issues and is a good indicator of a company’s quality and earnings potential. We dig into each aspect of ESG to identify potential issues to inform our assessment of the materiality of short, medium and long-term risks. We feel that companies with strong cultures do better in the long run. How is a strong culture defined? Well, that varies by company and sector. For example, an aggressive culture may not be ideal for a bank but it can be a positive for a tech company competing in an innovative environment. The other part is the quality of the management. Can you trust what management is telling you? Are there any red flags, unethical or illegal behaviour? These are all factors we consider and naturally they are key to ESG risks. ESG EXAMPLE I can’t name the company, but in one particular case our research revealed a serious lack of checks and balances within the governance of a company. The management had somehow gained credibility with investors because it had once partnered with Amazon. We heard reports of employees going months without pay and that employees had been posing as customers when investors toured the company. It was mind-blowing. We stayed away from the investment and the stock subsequently lost 95% of its value. Q&A with a manager – integrating ESG into the investment process ANALYSIS OF ESG FACTORS We see ESG analysis as a natural part of the risk assessment process of investing. We have always focused on forward-looking quality, so naturally we have to understand the long-term sustainability of earnings in a business and the potential threats to that sustainability. We view the assessment of ESG risks as a material component of that process and therefore chose not to have a separate ESG team working in a silo. Instead, both our traditional and non-traditional analysts work together to identify potential ESG risks and weigh their materiality to the investment thesis. This approach integrates ESG into our long- term risk assessment for a company, but also lets the non-traditional team retain a focus on what we view as a key part of ESG, the culture and management of a company. Manager GQG Interviewee Polyana da Costa, Partner, Senior Investment Analyst Mandate Emerging markets GQG’S TEAM We have a team of 15 traditional and non-traditional analysts. Within the investment team, amongst others we have former journalists. We have at least two pairs of eyes on any portfolio company and often that includes one of our non-traditional team members with a background in investigative journalism. Both teams obviously consider the long-term risks in their analysis, including ESG risks, but the non-traditional analysts focus on digging deeper on specific issues. This capacity for targeted investigation is well suited to ESG research as it can add much- needed context to the selective sustainability disclosures published by companies. Witan Investment Trust plc Annual Report 2020 25 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Meet the managers Selected for their expertise and experience We choose managers who are experts in their particular field. We aim to identify individuals or teams who have a high degree of intellectual rigour and sound judgement to enable them to select good companies. This should be supported by a sufficient level of confidence to combine these investments into concentrated portfolios which are differentiated from the benchmark they are aiming to outperform. These characteristics should enable Witan to benefit from each manager’s successful investment decisions. The Board and the Executive team select managers and adjust allocations to create a combined portfolio which is expected to deliver long-term outperformance, while the multi- manager structure helps reduce overall risk. Our managers tend to have a long- term outlook with low portfolio turnover and a focus on company fundamentals rather than short-term trends. Whilst there is no ‘typical’ Witan manager, a common factor tends to be a focus on growth in corporate cash flow over the long term. Performance of each manager since appointment is shown on page 15. Andrew Bell Chief Executive Officer, Witan Investment Trust James Hart Investment Director, Witan Investment Trust 26 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Core GLOBAL GLOBAL 2020 performance(1) Jennison Associates, LLC 12.4% MSCI ACWI 8.9% 4.8% Witan assets 2019: N/A Name: Mark Baribeau Style: Companies with exceptional growth prospects Benchmark: MSCI ACWI Inception date: 31/08/2020 UNPRI signatory: Yes (1) Part year - appointed in August 2020. JENNISON ASSOCIATES, LLC Mark Baribeau, Head of Global Equities at Jennison Associates, seeks to invest in a portfolio of market-leading companies with innovative business models, positively inflecting growth rates, and long-term competitive advantages. Mark, along with co-portfolio manager Tom Davis and a team of global sector analysts, employs a high conviction, concentrated approach that is sector, region and country-agnostic. The team invests in a select group of companies with innovative and disruptive businesses that are driving structural shifts in their respective industries. They also look for companies with defensible business models and attractive product offerings, supported by secular demand trends. The portfolio typically has between 35 and 45 holdings and securities must meet stringent standards in order to remain or earn a place in the portfolio. 2020 performance LANSDOWNE Lansdowne Partners 0.2% MSCI ACWI 13.2% 19.4% Witan assets 2019: 17.6% Name: Peter Davies Style: Concentrated, benchmark- independent investment in developed markets Benchmark: MSCI ACWI Inception date: 14/12/2012 UNPRI signatory: Yes Founded in 1998, Lansdowne Partners has evolved to become one of the UK’s pre-eminent investment management boutiques. The Long Only Developed Markets Strategy, managed by Peter Davies and Jonathon Regis, combines a detailed thematic approach with rigorous company analysis to identify an adaptable portfolio positioned for underappreciated or contrarian trends. The two lead managers benefit from the support provided by a team of experienced and insightful analysts who tend to focus on key sectors of interest to the team. The high-conviction portfolio is the result of detailed company-specific research, allied with an appreciation of global thematic developments. The team is willing to make significant adjustments to the portfolio to reflect its view of the changing investment landscape. Witan Investment Trust plc Annual Report 2020 27 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Meet the managers continued Core GLOBAL GLOBAL 2020 performance(1) LINDSELL TRAIN 2020 performance VERITAS Andy Headley, Head of Global Strategies at Veritas, uses a number of research methods to help identify industries and companies that are well-positioned to benefit from medium-term growth, regardless of where they are located. The aim is to generate excellent real returns and minimise the risk of permanent capital loss. Potential investments are analysed from an absolute basis rather than relative to any benchmark or index. This equity portfolio follows a Global Focus strategy, investing with a disciplined approach to valuation in ‘quality’ mid to large capitalisation companies. It typically contains fewer than 30 stocks, chosen with a highly selective and rigorous approach, and is focused on a handful of investment themes. Veritas 11.0% MSCI ACWI 13.2% 18.6% Witan assets 2019: 15.7% Name: Andy Headley Style: Real return objective from high-quality companies Benchmark: MSCI ACWI Inception date: 11/11/2010 UNPRI signatory: Yes Lindsell Train 13.3% MSCI ACWI 13.2% 13.6% Witan assets 2019: 7.6% Name: Nick Train and Michael Lindsell Style: Long-term growth from sustainable business models and/or resonant brands Benchmark: MSCI ACWI Inception date: 01/09/2010(1) UNPRI signatory: Yes (1) Lindsell Train managed a UK portfolio from 01/09/10 until 31/12/19. Lindsell Train, headed by Nick Train and Michael Lindsell, is guided by four investment beliefs: investors undervalue durable, cash-generative business franchises; concentration can reduce risk; transaction costs are a ‘tax’ on returns; and dividends matter even more than you think. These tenets have led to the creation of a high-conviction portfolio of 15 to 20 stocks which they describe as “rare and beautiful assets” with a focus on those businesses with truly sustainable business models and/or established resonant brands. In building the portfolio they focus on companies demonstrating long-term durability in cash and profit generation. Lindsell Train Limited is a small company, with 19 staff looking after over £23bn of client assets. This small size allows the two founders and their team the freedom to concentrate on investment issues. The ownership structure allows the partners to focus on long-term performance rather than short-term market ‘noise’. This clear sense of purpose and single-minded pursuit of investment excellence is a key distinguishing feature of Lindsell Train’s approach. 28 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Core GLOBAL THE UK 2020 performance(1) WCM INVESTMENT MANAGEMENT 2020 performance ARTEMIS Based in Laguna Beach, California, WCM is an independent asset management firm that runs focused portfolios, comprised of high-quality businesses with growing economic moats, aligned with strong, adaptable corporate cultures, and supported by durable global tailwinds. The portfolio is concentrated in 30-40 high- conviction investments with the objective of securing long-term excess return and downside protection. As an active manager, WCM believes that their investee companies have meaningful structural advantages which, when allied with a ‘buy and manage’ low turnover approach, will allow long-term outperformance of the relevant benchmark. Artemis 0.2% MSCI UK IMI -11.7% 6.4% Witan assets 2019: 7.1% Name: Derek Stuart Style: Recovery/special situations Benchmark: MSCI UK IMI Inception date: 06/05/2008 UNPRI signatory: Yes WCM 13.4% MSCI ACWI 8.9% 9.5% Witan assets 2019: N/A Name: Mike Trigg Style: High-quality companies with strong culture and increasing competitive advantage Benchmark: MSCI ACWI Inception date: 31/08/2020 UNPRI signatory: Yes (1) Part year - appointed in August 2020. Derek Stuart, manager of Artemis’s UK Special Situations strategy, aims to achieve superior long-term growth by looking for unrecognised growth potential in companies, often those that are unloved or out of favour. The strategy, which favours smaller and medium-sized companies, identifies hidden value within ‘problem investments’, which can be companies in need of new management or refinancing or are suffering from investor indifference. The focus on those companies which can help themselves rather than relying on a change in the business climate aims to avoid ‘value traps’ and other risks associated with a ‘special situations’ strategy. The Artemis team places great emphasis on personal knowledge of management teams and meets with them regularly. This helps them understand what can be achieved and how aligned management are with shareholders. The portfolio typically has fewer than 50 holdings. Witan Investment Trust plc Annual Report 2020 29 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Meet the managers continued Specialist ASIA EMERGING MARKETS 2020 performance MATTHEWS 2020 performance GQG Matthews Asia 26.3% MSCI Asia Pacific Free 16.4% 5.7% Witan assets 2019: 9.0% Name: Yu Zhang Style: Quality companies with dividend growth Benchmark: MSCI Asia Pacific Free Inception date: 20/02/2013 UNPRI signatory: Yes Matthews is the largest Asia-only investment specialist in the USA. Its 40-person investment team, based in San Francisco, travels extensively across Asia to unearth investment opportunities in markets as diverse as Japan, China, Vietnam and India. Matthews’ long-term investment philosophy is based on the view that only active management can identify companies whose potential is yet to be fully recognised and that bottom-up, stock-specific research is required to build a portfolio of companies with strong business models and quality management at reasonable valuations. The Asia Dividend strategy relies on the principle that the payment of dividends can be an important signal regarding a company’s capital allocation, business quality and corporate governance. This disciplined investment process focuses on a company’s ability and willingness to pay and, more importantly, grow dividends over time. GQG 31.6% MSCI Emerging Markets 15.0% 6.2% Witan assets 2019: 5.1% Name: Rajiv Jain Style: High-quality companies with attractively priced growth prospects Benchmark: MSCI Emerging Markets Inception date: 16/02/2017 UNPRI signatory: Yes GQG Partners’ Emerging Markets Equity strategy seeks to invest in high-quality companies with attractively priced future growth prospects. Portfolio manager Rajiv Jain focuses primarily on high-quality, large-cap companies in emerging market economies and employs a fundamental investment process to evaluate each business. The resulting portfolio, which is constructed without reference to benchmark country weights, seeks to limit downside risk while providing attractive returns to long-term investors over a full market cycle. The current portfolio of 60 stocks is diversified across 13 markets and four continents. GQG Partners’ portfolio aims to participate in the growth that emerging economies promise to deliver over the long term, while avoiding some of the risks that are often associated with individual countries and stocks within their investment universe. 30 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Specialist SPECIALIST Specialist portfolio This is typically up to 25% of Witan’s portfolio and includes sector and regional specialists (e.g. Asia and Emerging Markets) as well as holdings in specialist collective investments. This part of the portfolio falls under three headings. 1. Regional Specialists. A total of 11.9% was invested with GQG (Emerging Markets) and Matthews (Asia Pacific) at the end of 2020. Details of these managers are given on page 30 (opposite). 2. Direct Holdings. Up to 10% of Witan’s assets may be invested by Witan’s Executive team in specialist collective funds with the objective of outperforming Witan’s equity benchmark. This portfolio is actively managed with no fixed allocation. More capital is invested when opportunities arise and the allocation falls when there is a shortage of attractive opportunities. Investments are made in investment companies which focus on specialist areas viewed as generators of superior returns or undervalued asset categories, which may be outside the scope of investment for our core equity investment managers. These could include Life sciences, commodities, Private Equity, Real Estate, Debt, alternative assets and innovative technologies. Direct Holdings (10.2%)(1) LIFE SCIENCES: Syncona (2.4%) A healthcare investment company focused on founding, building and funding a portfolio of global leaders in innovative life sciences. Aims to deliver transformational treatments to patients and strong risk-adjusted returns for shareholders. PRIVATE EQUITY: Apax Global Alpha (2.8%) Offers exposure to an extensive portfolio of private equity investments in growing sectors. Princess Private Equity (1.8%) Provides shareholders with exposure to a portfolio of investments in private companies managed by the Swiss-based Partners Group. Electra (0.6%) Deeply discounted private equity fund following a realisation strategy which aims to crystallise value for shareholders in the near term. COMMODITIES: BlackRock World Mining (1.8%) A diversified fund investing in mining and metal assets worldwide, principally via quoted securities, as well as royalties and physical metals. REAL ESTATE: Schroder Real Estate (0.6%) A diversified portfolio of UK commercial real estate trading at deep discount to NAV. Aims to provide an attractive and growing level of income as well as capital growth. CREDIT: NB Distressed Debt (0.3%) A portfolio of distressed, stressed and special situations investments. The fund, which focuses on senior debt backed by hard assets, is currently in realisation. 3. Smaller specialist mandates. A further 5.8% of assets was invested (at the end of 2020) in smaller mandates to third party managers viewed as having potential to add value, which are in specialist or newly established investment areas. GMO Climate Change (3.1%) Latitude (2.6%) Seeks to deliver high total returns by investing primarily in companies which are positioned to benefit from efforts to curb or mitigate the long-term effects of global climate change. Latitude manages a concentrated, yet diverse, portfolio of global market-leading businesses which are attractively positioned within their industries and can sustainably grow their intrinsic value. (1) All percentages of Witan’s total portfolio. NB may not sum due to rounding Witan Investment Trust plc Annual Report 2020 31 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Forty largest investments Top 40 investments: Company 01 GMO Climate Change Specialist fund investing in companies which benefit from efforts to curb or mitigate the effects of climate change 02 Apax Global Alpha Investment company offering exposure to private equity investments in the Technology, Services, Healthcare and Consumer sectors 03 Syncona Healthcare fund focused on founding, building and funding a portfolio of innovative life science companies 04 Taiwan Semiconductor The world’s largest dedicated semiconductor foundry 05 BlackRock World Mining Diversified fund investing in mining and metal assets worldwide 06 Princess Private Equity Investment company providing exposure to a portfolio of private equity investments 07 Unilever 08 Alphabet 09 Tesco Multi-national consumer goods company with food, home care and personal care divisions The holding company for Google The UK’s largest supermarket and convenience store chain with a financial services subsidiary 10 Charter Communications US cable telecommunications company offering broadcasting, internet, voice, entertainment and business services 11 MercadoLibre 12 Heineken 13 Diageo 14 BT 15 PayPal 16 Nintendo 17 Safran Online trading site for Latin American businesses and individuals to buy and sell products, services, vehicles and real estate The world’s second largest brewer offering premium brand and zero-alcohol beers UK-based global leader in spirits and liqueurs. Also owner of the Guinness beer brand. Home, work and mobile telecoms services provider offering broadband, TV and internet products and networked IT services Technology platform offering online, digital and mobile payment solutions to consumers and merchants Gaming console company which develops, manufactures and sells video game hardware and software Supplies aerospace and defence systems with a focus on aircraft engines, propulsions systems and ancillary services 18 ArcelorMittal Manufactures steel for use in the construction, transportation, packaging, clean energy and extractive industries 19 London Stock Exchange Operates international equity, bond and derivatives markets and provides indexing and financial data services 20 Flutter Entertainment Provides global mobile, online and physical gambling services via PaddyPower, Betfair, FanDuel, FoxBet and other brands Top 20 £m 66.8 60.1 51.6 42.7 39.4 38.3 37.7 32.1 27.8 26.7 25.1 24.1 23.3 22.6 22.3 22.0 21.5 20.6 20.5 % of portfolio 3.1 2.8 2.4 2.0 1.8 1.8 1.7 1.5 1.3 1.2 1.2 1.1 1.1 1.1 1.0 1.0 1.0 1.0 1.0 20.4 0.9 645.6 30.0 The top ten holdings represent 19.6% of the total portfolio (2019: 15.3%). The full portfolio is not listed because it contains over 300 companies. A full list of the portfolio with a three month lag can be found at www.witan.com/about-witan/portfolio/ 32 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Top 40 investments: Company 21 Walt Disney Global entertainment company with operations in media networks, theme parks, studio entertainment and direct-to-consumer networks and channels 22 Canadian Pacific Railway Transcontinental railway providing freight and container services across its network in Canada and the United States 23 Airbus Manufacturer of commercial and military aircraft, defence electronics and other aerospace-related services 24 Thermo Fisher Scientific Offers medical products and services to the pharmaceutical and biotech industry, hospitals and research & diagnostic organisations 25 Intuit Develops and markets business and financial software solutions 26 Intercontinental Exchange Operates global commodities and financial products markets 27 Smurfit Kappa 28 Vinci 29 Applied Materials 30 Tencent 31 Fiserv 32 Barclays 33 Microsoft 34 Relx Manufactures consumer, retail, e-commerce and industrial packaging, container boards, corrugated containers and other paper-based packaging products A global leader in construction and concessions management with expertise in building, civil, hydraulic and electrical engineering Develops, manufactures, markets and services semiconductor fabrication equipment and related spare parts for the semiconductor industry Chinese technology conglomerate offering internet-related services including social media, entertainment, e-commerce, artificial intelligence and other technologies 17.2 0.8 Provides integrated information management and e-commerce systems and services Financial services provider engaged in retail, corporate and investment banking, credit cards and wealth management Operating systems, server applications, business and consumer applications, software development tools and internet software Global provider of information and analytics for professional and business customers across industries 35 Freeport-McMoRan World’s largest copper producer with diverse asset base and significant reserves of copper, gold, molybdenum and cobalt 36 BAE Systems 37 Shiseido Manufactures military aircraft, surface ships, submarines, radar, avionics, communications, electronics and guided weapon systems Global premium brand cosmetics, beauty, fragrance and personal care company 38 Electra Private Equity Private equity fund following a realisation strategy balancing the timing of returning cash to shareholders with maximisation of value Chinese provider of internet infrastructure, electronic commerce, online financial and internet content services Offers healthcare products and insurance services to employers and individuals across the US and selected other markets 39 Alibaba 40 UnitedHealth Top 40 Witan Investment Trust plc Annual Report 2020 £m 19.3 18.8 18.7 18.2 18.1 18.0 17.8 17.6 17.3 % of portfolio 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8 16.1 16.1 15.7 15.6 15.3 15.2 14.9 14.6 14.5 14.5 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 979.1 45.4 33 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Classification of investments at 31 December 2020 North America % United Kingdom % Continental Europe % Asia Pacific (ex Japan) % Japan % Latin America % Other % Total 2020 % Energy Energy Materials Materials Industrials Capital Goods Consumer Discretionary Commercial & Professional Services Transportation Automobiles & Components Consumer Durables & Apparel Consumer Services Retailing Consumer Staples Food & Staples Retailing Healthcare Food, Beverages & Tobacco Household & Personal Products Healthcare Equipment & Services Pharmaceuticals, Biotechnology & Life Sciences Financials Banks Information Technology Diversified Financial Services Insurance Software & Services Technology Hardware & Equipment Semiconductors & Semiconductor Equipment Communication Services Communication Services Media & Entertainment Utilities Utilities Real Estate Real Estate Investment Companies(1) Investment Companies Total 2020 Total 2019 0.1 0.1 1.9 1.9 0.9 0.3 1.8 3.0 0.4 0.8 - 1.5 2.7 0.2 1.9 0.2 2.3 4.6 2.1 6.7 0.8 1.1 - 1.9 6.6 0.5 2.7 9.8 0.1 5.0 5.1 0.1 0.1 - - - - 0.3 0.3 1.7 1.7 2.2 1.2 1.1 4.5 - 0.2 0.3 0.1 0.6 1.3 1.7 1.8 4.8 - 0.5 0.5 1.9 2.5 0.2 4.6 0.3 0.2 - 0.5 1.0 0.5 1.5 0.3 0.3 0.1 0.1 - - 0.2 0.2 2.7 2.7 3.5 - 1.2 4.7 0.4 1.1 1.0 - 2.5 0.1 2.3 0.1 2.5 0.1 0.4 0.5 0.8 - - 0.8 0.5 0.0 0.5 1.0 - 0.6 0.6 0.3 0.3 0.8 0.8 - - 33.6 23.5 19.5 26.3 16.7 21.1 0.0 0.0 0.8 0.8 0.2 0.0 0.2 0.4 0.5 0.4 0.3 1.3 2.5 - 0.8 - 0.8 1.0 0.7 1.7 0.3 0.2 0.6 1.1 0.1 0.6 2.0 2.7 0.2 1.1 1.3 0.1 0.1 0.3 0.3 - - 11.7 12.5 - - - - 0.4 - 0.1 0.5 - 0.2 0.1 - 0.3 - - 1.3 1.3 0.2 0.2 0.4 - 0.3 0.1 0.4 - 0.5 0.1 0.6 - 1.1 1.1 - - 0.1 0.1 - - 4.8 5.2 - - 0.2 0.2 - - - - - - - 1.2 1.2 - 0.0 - 0.0 - - - - - - - - - - - - - - - - - - - - 1.4 0.4 0.3 0.3 0.3 0.3 - - - - 0.1 - - - 0.1 - - 0.1 0.1 - - - 0.6 - 0.1 0.7 0.3 - - 0.3 - - - - - - - 0.9 0.9 7.6 7.6 7.2 1.5 4.4 13.2 1.4 2.7 1.7 4.1 10.0 1.6 6.8 3.5 11.9 5.9 3.9 9.8 4.4 4.1 1.0 9.5 7.8 1.9 5.3 15.0 1.3 8.3 9.6 0.8 0.8 1.3 1.3 10.5 10.5 12.3 11.0 10.5 10.5 100.0 100.0 (1) Investment Companies are included under the heading of Other because the underlying geographic exposure is not readily identifiable. 34 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Principal risks and uncertainties The directors have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency, liquidity or reputation. These risks, and the actions taken to mitigate them, are set out below. Risks are inherent in investment and corporate management. It is important to identify important risks and ways to control or avoid them. Witan Investment Services Limited (‘WIS’) has a Risk Committee in order to monitor compliance with its risk management and reporting obligations as Witan’s Alternative Investment Fund Manager (‘AIFM’). The Company maintains a framework of the key risks, with the policies and processes devised to monitor, manage and mitigate them where possible. Its detailed risk map is reviewed regularly by the Audit Committee and the WIS Risk Committee, which report on pertinent issues to their respective Boards. The guiding principles remain watchfulness, proper analysis, prudence and a clear system of risk management. Where appropriate, the Witan and WIS Boards meet jointly to cover matters of common interest. The WIS Board consists of seven non-executive directors and one executive director who are also directors of Witan, and one executive director who is a Company employee. Other than the risks associated with the COVID-19 pandemic, the Board’s policy on risk management has not materially changed during the course of the reporting period and up to the date of this report. The Company’s key risks fall broadly under the following categories: Increased Unchanged Reduced Market and investment portfolio RISK MITIGATION Investment risk. As an equity fund, a key risk of investing is a general fall in equity prices and investment income, which could be exacerbated by gearing and the risks associated with the performance of its investment managers and changes in Witan’s share price rating. Other risks are the portfolio’s exposure to country, currency, industrial sector and stock-specific factors (including those relating to the sustainability of the business model taking account of environmental, social and governance factors). Macro topics such as Brexit, pandemic outbreaks (e.g. COVID-19), trade wars and regional conflict can all be expected to lead to market volatility. The Board seeks to manage these risks through: a broadly diversified equity benchmark; appropriate asset allocation decisions; selecting competent managers and regularly monitoring their performance, awareness of emerging risks and the robustness of their processes for taking account of those risks; paying attention to key economic and political events; engagement with shareholders and other stakeholders; active management of risk, whether to preserve capital or capitalise on opportunities; the application of relevant policies on gearing and liquidity; and share buybacks and issuance to respond to market supply and demand. During the year, Andrew Bell (the Chief Executive Officer (‘CEO’)) managed the overall business and the investment portfolio in accordance with limits determined by the Board and its AIFM, on which the CEO reports at each Board meeting. The Board also regularly reviews investment strategy and performance, supported by comprehensive management information and analysis. Witan Investment Trust plc Annual Report 2020 35 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal risks and uncertainties continued Operational and cyber RISK MITIGATION Many of the Company’s financial systems are outsourced to third parties, principally BNP Paribas Securities Services (‘BNPSS’). Disruption to their accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position. BNPSS, as the Company’s Depositary, has a key responsibility for monitoring such issues on behalf of the Company. The Board and AIFM monitor the Depositary as well as its other suppliers. Details of the Board’s monitoring and control processes are explained further in the Corporate Governance Statement on pages 46 to 55. Compliance and regulatory change RISK MITIGATION The Company breaches compliance/ regulatory requirements or fails to assess the impact. The Board takes its regulatory responsibilities very seriously and compliance issues and potential regulatory changes are regularly reviewed by the Board and its AIFM. Details of the Company’s corporate governance policies are set out in the Corporate Governance Statement on pages 46 to 55. The Board conducts an annual assessment of the effectiveness of its governance processes. There is also a three-yearly independent external review, the most recent of which was in 2020. See page 53 for further details. Following the closure of the Company’s savings plans, the risks associated with the holding of and accounting for client assets has been substantially reduced and will be eliminated in future. Operational and regulatory risks are regularly reviewed by Witan’s Audit Committee and WIS’s Risk Committee. WIS is subject to its own operating rules and regulations and is regulated by the Financial Conduct Authority (‘FCA’). The Company has established a modus operandi for the effective coordination of its responsibilities and those of WIS, as its AIFM. Operationally, the multi-manager structure is robust, as the investment managers, the custodian and the fund accountants keep their own records which are regularly reconciled. The depositary, the AIFM and the Board provide additional checks and safeguards. Management monitors the activities of all third parties and reports any significant issues to the Board. Accounting, taxation and legal RISK MITIGATION The Company must comply with sections 1158-59 of the Corporation Tax Act 2010 (‘CTA’). A breach could result in the Company losing investment trust status and, as a consequence, capital gains realised would be subject to corporation tax. The Company must comply with the provisions of the Companies Act 2006 (‘Companies Act’) and with the UK Listing Authority’s Listing Rules and Disclosure Rules (‘UKLA Rules’). A breach of the Companies Act could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company’s shares which would itself constitute a breach of the provisions of the CTA. The accounting requirements are monitored by the CEO and AIFM and the Company carefully monitors compliance with the applicable rules. These requirements offer significant protection for shareholders. The Board receives reports from the CEO, the AIFM, the Company Secretary and the Company’s professional advisers to enable it to ensure compliance with all applicable rules. WIS is authorised and regulated by the FCA to act as the AIFM for Witan. 36 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Liquidity RISK MITIGATION The Company’s portfolio of securities might not be realisable. The Company’s portfolio consists mainly of readily realisable securities. The Company and its AIFM regularly review liquidity needs (for example, operational costs, loan servicing and repayment, shareholder dividends and share buybacks) relative to the Company’s portfolio income and the value and tradeability of the Company’s assets. Most of the likely liquidity requirements are foreseeable (for example, timetabled loan payments and dividends) while others (such as share buybacks) are subject to the Company’s discretion. The Board is satisfied that unexpected liquidity needs are not significant and could readily be met without compromising normal portfolio management. COVID-19 – Global pandemic RISK MITIGATION The COVID-19 pandemic has given rise to unprecedented challenges for businesses across the globe and the Board has taken into consideration the risks, both investment and operational, posed to the Company by the crisis. The Board and the WIS Executive maintain close oversight of the Company’s portfolio and monitor the investment income flows from its investee companies. The Board monitors the effects of COVID-19 on the operations of the Company and its service providers to ensure that they continue to be appropriate, effective and properly resourced. Witan Investment Trust plc Annual Report 2020 37 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Section 172: engaging with our stakeholders The following ‘Section 172’ disclosure, which is required by the Companies Act 2006 and the AIC Code, as explained on page 50, describes how the directors have had regard to the views of the Company’s stakeholders in their decision-making. Who? Why? How? What? STAKEHOLDER GROUP THE BENEFITS OF ENGAGEMENT WITH OUR STAKEHOLDERS HOW THE BOARD AND WIS EXECUTIVE ENGAGED WITH OUR STAKEHOLDERS WHAT WERE THE KEY TOPICS OF ENGAGEMENT? WHAT ACTIONS WERE TAKEN, INCLUDING Outcomes and actions PRINCIPAL DECISIONS? Investors External managers Service providers Employees Clear communication of our strategy and the Company’s performance against our objective can help the share price trade at a narrower discount or a premium to its net asset value, which benefits shareholders. New shares may be issued at a premium to NAV to meet demand without dilution to existing shareholders. Increasing the size of the Company can benefit liquidity as well as spread costs. WIS, on behalf of the Board, completes a programme of investor relations throughout the year. Key mechanisms of engagement included: AGM The Company’s website which hosts reports, monthly factsheets, video interviews with the external managers, CEO, Investment Director and regular market commentary Online newsletters One-on-one meetings with professional investors with either the CEO, Investment Director or Chairman Group meetings with professional investors with our external managers As Witan has a multi-manager approach, engagement with our managers is necessary to evaluate their performance against their stated strategy and benchmark and to understand any risks or opportunities this may present to the Company. This also helps ensure that investment management costs are closely monitored and remain competitive. Witan ensures that all managers are paid in accordance with their terms of trade. The WIS Executive meets with the Company’s external managers throughout the year and receives monthly performance and compliance reporting. This provides the opportunity for both the manager and WIS Executive to explore and understand how and why the relationship has performed and what may be expected in the future. Each manager also presents annually to the Board of directors, providing the opportunity for the manager and Board to reinforce their mutual understanding of what is expected from all parties. Witan and WIS contract with third parties for other services including: custodian, depositary, investment accounting & administration, company secretary. To ensure the third parties to whom we have outsourced services complete their roles diligently and correctly is necessary for the Company’s success. Witan pays all service providers in accordance with their terms of business and is a signatory to the Prompt Payments Code. Attract and retain talent to ensure the Company has the resources to successfully implement its strategy and manage third- party relationships. The WIS Operations team engages regularly with all service providers both in one-to-one meetings and via regular written reporting. This regular interaction provides an environment where topics, issues and business development needs can be dealt with efficiently and collegiately. The Audit Committee reviews annually a summary of the contracts of all service providers to further reinforce the overview of the Company’s service providers at the corporate level. All employees of the Company sit in one open-plan office with the CEO, facilitating interaction and engagement. During periods of remote working, the WIS Executive holds regular video meetings to update and share information. As well as the CEO, the Investment Director, Director of Operations and Director of Marketing report to the Board at each meeting. Given the small number of employees, engagement is at an individual level rather than as a group. Key topics of engagement with investors on an ongoing basis are the strategy of the Company, performance versus our KPIs and objective, and the selection and monitoring of our external managers. Impact of market volatility following the emergence of COVID-19 The WIS Executive held regular meetings with shareholders on the performance of the Company throughout the year and provided updates via RNS, the Company’s website and newsletters on performance of the Company as well as the usual financial reports and monthly factsheets Impact of dividend cuts on the Company’s revenues and the See page 10 in the Chairman’s Statement and page 18 in the Company’s dividends CEO’s Review for the Board’s comments on the dividend policy Changes to the portfolio structure and managers following the See page 9 in the Chairman’s Statement and page 51 in change to the benchmark in January 2020 Corporate Governance Share price performance and the widening of the Company’s The Company increased the rate of share buybacks. See page 19 and wider investment trust sector discounts in the CEO’s Review The integration of ESG into the Company’s investment processes Report on voting and case studies; refer to pages 22 to 25 Key topics of engagement with the external managers on an ongoing basis are portfolio composition, performance, outlook and The impact of COVID-19 on their business and strategy All managers successfully implemented remote working with business updates. Portfolio structure changes no adverse impact on service delivery S.W. Mitchell, Crux, Pzena and Heronbridge’s mandates were terminated; Jennison and WCM were appointed. See page 15 in the CEO’s Review and page 51 in Corporate Governance The integration of ESG into each manager’s investment processes See page 22 in Responsible investment for a report on manager activity in 2020 The impact of Brexit upon their business and the portfolio No specific action required Impact of COVID-19 and restrictions on service providers All service providers successfully implemented remote working with no adverse impact on service delivery The impact of Brexit upon their own business and any expected No specific action required impact on Witan COVID-19 restricted employees to working from home Existing system functionality allowed all employees to move to remote working during lockdown restrictions without detriment to productivity or service to stakeholders Performance and compensation of employees is decided See the Remuneration Report on pages 59 to 70 by the Remuneration Committee with the CEO Debt holders To communicate and demonstrate a strong financial position that supports the financing arrangements. The WIS Executive provides regular financial covenant compliance validation and financial reports to the stakeholders. Decision to repay 6.125% 2025 Secured Bonds early in April 2020 A reduction in the annual weighted average cost of borrowing was realised. See pages 16 and 17 in the CEO’s review 38 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT objective can help the share price trade at a narrower discount or a premium to its net asset value, which benefits shareholders. AGM New shares may be issued at a premium to NAV to meet demand without dilution to existing shareholders. Increasing the size of the Company can benefit liquidity as well as spread costs. The Company’s website which hosts reports, monthly factsheets, video interviews with the external managers, CEO, Investment Director and regular market commentary Online newsletters One-on-one meetings with professional investors with either the CEO, Investment Director or Chairman Group meetings with professional investors with our external managers External managers As Witan has a multi-manager approach, The WIS Executive meets with the Company’s external managers engagement with our managers is necessary throughout the year and receives monthly performance and to evaluate their performance against their compliance reporting. This provides the opportunity for both the stated strategy and benchmark and to manager and WIS Executive to explore and understand how and understand any risks or opportunities this why the relationship has performed and what may be expected may present to the Company. This also in the future. Each manager also presents annually to the Board helps ensure that investment management of directors, providing the opportunity for the manager and Board costs are closely monitored and remain to reinforce their mutual understanding of what is expected from competitive. Witan ensures that all managers all parties. are paid in accordance with their terms of trade. Service providers Witan and WIS contract with third parties The WIS Operations team engages regularly with all service for other services including: custodian, providers both in one-to-one meetings and via regular written depositary, investment accounting & reporting. This regular interaction provides an environment where administration, company secretary. To topics, issues and business development needs can be dealt with ensure the third parties to whom we have efficiently and collegiately. outsourced services complete their roles diligently and correctly is necessary for the Company’s success. Witan pays all service providers in accordance with their terms of business and is a signatory to the Prompt Payments Code. The Audit Committee reviews annually a summary of the contracts of all service providers to further reinforce the overview of the Company’s service providers at the corporate level. Company has the resources to successfully CEO, facilitating interaction and engagement. During periods of implement its strategy and manage third- remote working, the WIS Executive holds regular video meetings to party relationships. update and share information. As well as the CEO, the Investment Director, Director of Operations and Director of Marketing report to the Board at each meeting. Given the small number of employees, engagement is at an individual level rather than as a group. Who? Why? How? STAKEHOLDER GROUP THE BENEFITS OF ENGAGEMENT WITH OUR STAKEHOLDERS HOW THE BOARD AND WIS EXECUTIVE ENGAGED WITH OUR STAKEHOLDERS What? WHAT WERE THE KEY TOPICS OF ENGAGEMENT? Outcomes and actions WHAT ACTIONS WERE TAKEN, INCLUDING PRINCIPAL DECISIONS? Investors Clear communication of our strategy and WIS, on behalf of the Board, completes a programme of investor the Company’s performance against our relations throughout the year. Key topics of engagement with investors on an ongoing basis are the strategy of the Company, performance versus our KPIs and objective, and the selection and monitoring of our external managers. Key mechanisms of engagement included: Impact of market volatility following the emergence of COVID-19 The WIS Executive held regular meetings with shareholders on the performance of the Company throughout the year and provided updates via RNS, the Company’s website and newsletters on performance of the Company as well as the usual financial reports and monthly factsheets Impact of dividend cuts on the Company’s revenues and the See page 10 in the Chairman’s Statement and page 18 in the Company’s dividends CEO’s Review for the Board’s comments on the dividend policy Changes to the portfolio structure and managers following the See page 9 in the Chairman’s Statement and page 51 in change to the benchmark in January 2020 Corporate Governance Share price performance and the widening of the Company’s The Company increased the rate of share buybacks. See page 19 and wider investment trust sector discounts in the CEO’s Review The integration of ESG into the Company’s investment processes Report on voting and case studies; refer to pages 22 to 25 Key topics of engagement with the external managers on an ongoing basis are portfolio composition, performance, outlook and business updates. The impact of COVID-19 on their business and strategy All managers successfully implemented remote working with Portfolio structure changes no adverse impact on service delivery S.W. Mitchell, Crux, Pzena and Heronbridge’s mandates were terminated; Jennison and WCM were appointed. See page 15 in the CEO’s Review and page 51 in Corporate Governance The integration of ESG into each manager’s investment processes See page 22 in Responsible investment for a report on manager activity in 2020 The impact of Brexit upon their business and the portfolio No specific action required Impact of COVID-19 and restrictions on service providers All service providers successfully implemented remote working with no adverse impact on service delivery The impact of Brexit upon their own business and any expected No specific action required impact on Witan Employees Attract and retain talent to ensure the All employees of the Company sit in one open-plan office with the COVID-19 restricted employees to working from home Existing system functionality allowed all employees to move to remote working during lockdown restrictions without detriment to productivity or service to stakeholders Performance and compensation of employees is decided See the Remuneration Report on pages 59 to 70 by the Remuneration Committee with the CEO Debt holders To communicate and demonstrate a strong The WIS Executive provides regular financial covenant financial position that supports the financing compliance validation and financial reports to the stakeholders. Decision to repay 6.125% 2025 Secured Bonds early in April 2020 A reduction in the annual weighted average cost of borrowing was realised. See pages 16 and 17 in the CEO’s review arrangements. Witan Investment Trust plc Annual Report 2020 39 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate and operational structure Witan is an investment trust with a Premium Listing on the London Stock Exchange. It has a single, wholly owned subsidiary, Witan Investment Services Limited (‘WIS’) which acts as the Company’s Alternative Investment Fund Manager (‘AIFM’). The overwhelming majority of the portfolio is in segregated accounts, held in custody by the Company’s depositary. The operations of the custodian and the safeguarding of the Company’s assets are supervised by the depositary. OPERATIONAL MANAGEMENT ARRANGEMENTS In addition to the appointment of third-party investment managers, Witan and WIS contract with third parties for other services, including: > > > > BNP Paribas Securities Services London Branch for depositary services, custody, investment accounting and administration; Frostrow Capital LLP for company secretarial services; RepRisk and Sustainalytics for ESG monitoring of its investment holdings; and specialist advice on regulatory compliance issues and, as required, procure legal, investment consulting, financial and tax advice. The service quality and value received from major service providers are reviewed regularly by the Board. The contracts governing the provision of all services are formulated with legal advice and stipulate clear objectives and guidelines for the service required. STAFFING The Company’s policy towards its employees is to attract and retain staff with the skills and expertise required to manage the affairs of an investment trust company. Details of the Company’s remuneration policies and required disclosures are set out in the Directors’ Remuneration Report on pages 59 to 70. Employees and those who seek to work at Witan are treated equally regardless of gender, marital status, colour, race, religion or ethnic origin. The Company has six direct employees, three men and three women. The Board currently consists of eight non-executive directors (five men and three women) and the Chief Executive Officer, Andrew Bell, who is an employee. Following the AGM, the number of non-executive directors will be seven (four men and three women). Given its outsourced model and the small number of direct employees, the Group has no employment-related specific policies in respect of environmental or social and community affairs. However, as described elsewhere, an increased focus on environmental, social and governance issues has been formalised by the Company’s membership of the Institutional Investors Group on Climate Change since July 2019 and its becoming a signatory to the UN- supported Principles for Responsible Investment from February 2020. WITAN INVESTMENT SERVICES WIS is authorised and regulated by the Financial Conduct Authority. It is authorised to act as Witan’s AIFM, to provide marketing services and to give investment advice to professional investors. WIS’s principal activities are acting as Witan’s AIFM, providing executive management services to the Board of Witan and communicating information about the Company to the market. WIS’s operational objectives for 2020 were: > > > to fulfil its responsibilities as Witan’s AIFM; to provide suitable advice to the Boards of its corporate clients; and to reduce the net operating costs for Witan. In 2020, WIS’s principal sources of income were the fees (as AIFM or Executive Manager and for marketing services) paid by Witan and Witan Pacific Investment Trust plc. The main costs incurred were staff costs and professional advice to ensure compliance with regulatory and accounting obligations. Following a review, the Board of Witan Pacific took the decision to change its investment management arrangements. Prior to the review, WIS indicated its readiness to cease its executive services role at a time to be mutually agreed with Witan Pacific. This took place in September 2020. WIS fully supported, and assisted in the review and was pleased with the outcome of the process. 40 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT Costs INVESTMENT MANAGEMENT FEES Each of the third-party managers is entitled to a management fee, based on the assets under management. The agreements can be terminated on one to three months’ notice. The base fee rates for managers in place at the end of 2020 range from 0.30% to 0.65% per annum. The weighted average base fee was 0.51% as at 31 December 2020 (2019: 0.53%). One manager, of 6% of Witan’s portfolio, has a performance-related fee, which is subject to capping in any particular year. Witan takes care to ensure the competitiveness of the fees it pays. Most of the fee structures incorporate a ‘taper’ whereby the average fee rate reduces as the portfolio grows. The Company’s investment managers may use services which are paid for, or provided by, various brokers. They may place business, including transactions relating to the Company, with those brokers. Under the requirements of MiFID II, broker-provided services (other than the execution of transactions) must either be minor non-monetary benefits or, for research received by investment managers and charged to the Company, separately accounted for. ONGOING CHARGES AND COSTS The Company’s established measure of the costs of operation is the Ongoing Charges Figure (‘OCF’). This represents the recurring costs of operating the business (principally the investment management fees paid to our external managers as well as the Company’s fixed and variable overhead costs), as a percentage of net assets. This is calculated in accordance with the AIC’s guidelines and provides a consistent basis for the comparison of costs from one year to the next and relative to other investment companies. The EU PRIIPS regulations, which are applicable to UK Investment Companies, mandate the preparation of a Key Information Document (‘KID’) calculated on a formulaic basis, which contains a different measure of costs from the OCF, averaged over longer periods rather than specific to one year. The other principal differences between the OCF and the KID measure are the inclusion of transaction costs, borrowing costs and the underlying costs of holdings in other collective investments. The Company’s investment performance is reported after all costs, however measured. The OCF was 0.78% in 2020 (2019: 0.79%). When performance fees due to third- party managers are included, the OCF was 0.82% in 2020 (2019: 0.87%). The sole manager with a performance fee structure significantly outperformed during 2020. This has generated a provision for a performance fee for that manager (which has a lower base fee than comparable managers). The main cost headings within the OCF are set out below. The figures for transaction costs, borrowing costs and the pro rata ongoing charges of underlying funds are also included in the table, for easy reference. The Company exercises strict scrutiny and control over costs. The Board believes that the OCF during the year represents good value for money for shareholders, taking account of longer-term performance. ANALYSIS OF COSTS Category of cost Investment management base fees (note 4, page 93) Other expenses (excluding loan arrangement and one-off costs) Less expenses relating to the subsidiary (those expenses not relating to the operation of the investment company) Ongoing Charges Figure (including investment management base fees) Investment management performance fees (note 4, page 93) Ongoing Charges Figure (including performance fees) Pro rata ongoing charges of underlying funds(1) Portfolio transaction costs including costs relating to manager changes Interest costs Total costs including transaction costs, borrowing costs and underlying fund costs 2020 % of average net assets 2020 £m 2019 % of average net assets 2019 £m 8.70 0.51 10.09 0.53 4.91 0.28 6.61 0.34 (0.15) (0.01) (1.46) (0.08) 13.46 0.78 15.24 0.79 0.58 0.04 1.54 0.08 14.04 0.82 16.78 0.87 4.34 18.38 3.58 6.43 0.25 1.07 0.21 0.37 3.33 20.11 2.75 8.74 0.17 1.04 0.14 0.46 28.39 1.65 31.6 1.64 (1) This cost represents an estimate of the pro rata attributable fees charged by the managers of the external specialist collective funds held within the portfolio. See page 31 for more details on these holdings. N.B. Figures may not sum due to rounding. Witan Investment Trust plc Annual Report 2020 41 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Viability Statement In accordance with the UK Corporate Governance Code, the Board has assessed the prospects of the Company over a longer period than the 12 months required by the ‘going concern’ provision. The Company’s current position and prospects are set out in the Chairman’s and Chief Executive Officer’s reports and the Strategic Report. The principal risks are set out on pages 35 to 37. As well as considering the principal risks on pages 35 to 37 and the financial position of the Company, the Board has made the following assumptions in considering the Company’s longer- term viability: > > > > > The Company’s remit of investing in the securities of global listed companies will continue to be an activity to which investors will wish to have exposure. Investors will continue to want to invest in closed-ended investment trusts. The performance of the Company will continue to be satisfactory. The Board is able to replace any of the current investment managers when it considers it appropriate to do so. The Company will continue to have access to adequate capital when required. The Company will continue to be able to fund share buybacks when required. The Company bought back 64.3m ordinary shares in 2020 at a cost of £122.5m and experienced no problem with liquidity in doing so. It had shareholders’ funds in excess of £1.9bn at the end of 2020. Based on the results of its review, and taking into account the long-term nature of the Company and its financing, the Board has a reasonable expectation that the Company will be able to continue its operations and meet its expenses and liabilities as they fall due for the foreseeable future, taken to mean at least the next five years. The Board has chosen this period because, whilst it has no information to suggest this judgement will need to change in the coming five years, forecasting over longer periods is imprecise. The Board’s long-term view of viability will, of course, be updated each year in the Annual Report. The Board has considered the Company’s financial position and its ability to liquidate its portfolio and meet its expenses as they fall due and notes the following: > > > > > The portfolio consists of investments traded on major international stock exchanges and there is a spread of investments. In normal conditions, the current portfolio could be liquidated to the extent of more than 87% within five trading days and there is no expectation that the nature of the investments held will be materially different in future. The closed-ended nature of the Company means that, unlike an open-ended fund, it does not need to realise investments when shareholders wish to sell their shares. The Board has considered the viability of the Company under various scenarios, including periods of acute stock market and economic volatility such as experienced in 2020, and concluded that it would expect to be able to ensure the financial stability of the Company through the benefits of having a diversified portfolio of listed and realisable assets. As illustrated in note 14 to the accounts, the Board has considered price sensitivity risk (the sensitivity of the profit after taxation for the year and the value of the shareholders’ funds to changes in the fair value of the Group’s investments) and foreign currency sensitivity (the sensitivity to changes in key exchange rates to which the portfolio is exposed). In addition to its cash balances, which were £35m at 31 December 2020 (2019: £44m), the Company has a short-term bank facility which can be used to meet its liabilities, and fixed-rate financing in the form of secured notes and cumulative preference shares. With the exception of the short-term facility, this financing will remain in place until at least 2035. Details of the Company’s current and non-current liabilities are set out in note 13 to the accounts. The expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments currently foreseen which would alter that position. 42 Witan Investment Trust plc Annual Report 2020 STRATEGIC REPORT GOING CONCERN In light of the conclusions drawn in the foregoing statement on liquidity risk on page 37 and the Viability Statement, the Company has adequate financial resources to continue in operational existence for at least the next 12 months. Therefore, the directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. In reviewing the position as at the date of this report, the Board has considered the guidance on this matter issued by the Financial Reporting Council. APPROVAL This report was approved by the Board of directors on 10 March 2021 and is signed on its behalf by: Andrew Ross Chairman 10 March 2021 Andrew Bell Chief Executive Officer Witan Investment Trust plc Annual Report 2020 43 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 3. 6. 9. Board of directors Board of directors 2. 5. 8. 1. 4. 7. Key to membership of Board and committees Chairman of the Board or a Committee. Members of the Audit Committee which is chaired by Mr Perry. Members of the Remuneration and Nomination Committee which is chaired by Mr Yates. Director of Witan Investment Services Limited. 1. Andrew Ross CHAIRMAN Date of appointment May 2019. Career & background Previously chief executive of Cazenove Capital Management which, in 2013, was acquired by Schroders, where he became global head of Wealth Management until 2019. Prior to this, chief executive of HSBC Asset Management (Europe) Limited and managing director of James Capel Investment Management. Skills & expertise Andrew has substantial experience in senior leadership roles as CEO and chairman in investment management and wealth management businesses. He has overseen three different multi- manager businesses and under his tenure the businesses he led significantly grew and prospered. External appointments Non-executive director at Polar Capital Holdings plc; senior adviser to Schroders Wealth Management. 6. Jack Perry NON-EXECUTIVE DIRECTOR Date of appointment January 2017. Career & background Previously chief executive of Scottish Enterprise and a former Managing Partner and Regional Industry Leader of Ernst & Young LLP. Served on the boards of FTSE 250 and other public and private companies and is a member of the Institute of Chartered Accountants of Scotland. Skills & expertise Jack is chairman of two other listed investment companies and has developed an understanding of the needs of all stakeholders. His experience as a senior audit partner and subsequently in service on numerous audit committees has enabled him to be an effective Audit Committee Chairman. External appointments Chairman of European Assets Trust PLC and ICG-Longbow Senior Secured UK Property Debt Investments Limited. 44 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE 2. Andrew Bell CEO 3. Rachel Beagles NON-EXECUTIVE DIRECTOR 4. Gabrielle Boyle NON-EXECUTIVE DIRECTOR 5. Suzy Neubert NON-EXECUTIVE DIRECTOR Date of appointment February 2010. Date of appointment July 2020. Date of appointment August 2019. Date of appointment April 2012. Career & background Previously Head of Research at Rensburg Sheppards and an equity strategist and Co-Head of the Investment Trusts team at BZW and CSFB. Prior to the City, he worked for Shell in Oman, leaving to take a Sloan Fellowship at the London Business School. Career & background Previously a managing director and co-head of pan-European banks equity research and sales at Deutsche Bank. Since 2003 she has worked as a non-executive director in the investment company, asset management, charity and social housing sectors. Skills & expertise Andrew’s roles prior to joining Witan have given him valuable experience of economic and geopolitical events and how they influence equity markets, along with considerable knowledge and experience of the investment trust sector. External appointments Chairman of The Diverse Income Trust plc. Skills & expertise Rachel has extensive knowledge and understanding of the equity markets from her experience in research and sales. She is an experienced non-executive director of investment trusts and has recently retired as chairman of the Association of Investment Companies. External appointments Non-executive director of the Association of Investment Companies and Gresham House plc. Career & background Senior Fund Manager and Head of Research at Troy Asset Management since 2011. She is the Senior Fund Manager for the Trojan Global Equity Fund and the Electric & General Investment Fund. Skills & expertise Gabrielle has over 30 years’ experience in fund management and has managed global equity portfolios since 2001 and European portfolios since 1998. With this background she brings knowledge of investing through market cycles and understanding of the skills required of fund managers. External appointments Investment director and Head of Research at Troy Asset Management. Career & background Previously Global Head of Distribution at J O Hambro Capital Management. Prior to that, managing director of Equity Markets at Merrill Lynch Securities in London following roles in equity research and sales. She is a qualified barrister. Skills & expertise Suzy’s 31 years’ experience in sales and marketing roles on both the sell and buy sides of financial services has given her a thorough understanding of equity markets. Her role at J O Hambro provided her with insight into the distribution of funds to institutions and private wealth managers. 7. Ben Rogoff NON-EXECUTIVE DIRECTOR 8. Tony Watson SENIOR INDEPENDENT DIRECTOR 9. Paul Yates NON-EXECUTIVE DIRECTOR Date of appointment October 2016. Date of appointment February 2006; Senior Independent Director February 2008. Date of appointment May 2018. Career & background Lead manager of Polar Capital Technology Trust plc since 2006 and a fund manager of Polar Capital Global Technology Fund and Polar Capital Automation and Artificial Intelligence Fund. He has been a technology specialist for 23 years. Skills & expertise As a highly experienced listed equities fund manager, Ben has deep understanding of the analysis process required for investing in public companies. His knowledge of the technology sector particularly enables him to identify the risks from disruption not just to the sector but in general. Ben applies this knowledge to his questioning and monitoring of Witan’s external managers. External appointments Director, Technology at Polar Capital. Career & background Executive career in the investment management industry, most recently as chief executive of Hermes Fund Managers Limited. Skills & expertise Tony’s previous roles as chief investment officer and chief executive officer of large asset managers including Hermes give him valuable insight into strategy and asset allocation. He is also an experienced non-executive director having served on the boards of some of the UK’s largest companies including Vodafone and Lloyds. Career & background Previously CEO of UBS Global Asset Management (UK) Limited and held a number of global roles at UBS prior to retiring in 2007. Skills & expertise Paul‘s prior roles give him wide experience of the fund management business including equity management, marketing, people and business management. Paul also offers investment trust experience having sat on four other trust boards. External appointments Chairman of the Advisory Board of 33 St James’s Limited, non-executive director of Fidelity European Trust PLC and Capital Gearing Trust plc. Witan Investment Trust plc Annual Report 2020 45 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance This statement forms part of the Directors’ Report on pages 71 to 74. Effective governance CHAIRMAN’S INTRODUCTION I am pleased to report below on the Board’s approach to corporate governance. The Board is responsible for effective governance of the Company and we take our responsibilities under the UK Corporate Governance Code very seriously. The UK Listing Authority’s Disclosure Guidance and Transparency Rules (the ‘Disclosure Rules’) require listed companies to disclose how they have applied the principles and complied with the provisions of the UK Corporate Governance Code (‘Corporate Governance Code’), as issued by the Financial Reporting Council (‘FRC’). The Corporate Governance Code issued in July 2018 was applicable to the Company in the year under review. The Corporate Governance Code can be viewed at www.frc.org.uk. The related Code of Corporate Governance (the ‘AIC Code’), issued by the Association of Investment Companies (‘AIC’), provides specific corporate governance guidelines to investment companies. The FRC has confirmed that AIC member companies who report against the AIC Code will be meeting their obligations in relation to the Corporate Governance Code and the associated disclosure requirements of the Disclosure Rules. The AIC Code that was issued in February 2019 was applicable to the Company in the year under review. The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the Corporate Governance Code to make them relevant for investment companies. Andrew Ross Chairman 10 March 2021 46 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE COMPLIANCE Board and director independence The Board has considered the Principles and Provisions of the AIC Code. The AIC Code addresses the Principles and Provisions set out in the Corporate Governance Code, as well as setting out additional Provisions on issues that are of specific relevance to the Company. The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the FRC provides more relevant information to shareholders. The Company has complied with the Principles and Provisions of the AIC Code during the year ended 31 December 2020 except as set out below: > The Corporate Governance Code (Provisions 25 and 26) includes provisions relating to the need for an internal audit function. The Company does not have an internal audit function, for reasons that are explained on page 55. The Principles of the AIC Code The AIC Code is made up of 17 Principles supported by 35 Provisions. Details of how the Company has applied the Principles and Provisions are set on the following pages. 1 BOARD LEADERSHIP AND COMPOSITION The role of the Board The role of the Board is to promote the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society. The Board is collectively responsible for the success of the Company. Its role is to provide leadership within a framework of controls that enable risk to be assessed and managed. The Board sets the Company’s strategic aims (subject to the Company’s Articles of Association and to such approval of the shareholders in general meeting as may be required from time to time) and ensures that the necessary resources are in place to enable the Company’s objectives to be met. The Board is responsible in particular for the overall delivery of performance to shareholders through setting an appropriate investment objective, ensuring that proper resources are applied to the management of the Company’s portfolio and the monitoring, control and mitigation of the associated risks. For details of our managers, pages 26 to 31 Witan Investment Trust plc Annual Report 2020 At 31 December 2020 the Board was composed of eight independent non-executive directors and one executive director, the CEO. The Board is therefore independent of the Company’s executive management. All the directors are wholly independent of the Company’s various investment managers. In the opinion of the Board, each of the directors is independent in character and judgement and there are no relationships or circumstances relating to the Company that are likely to affect their judgement. Two of the directors, Mr Watson and Mr Bell, have been on the Board for nine years or more and in April 2021 Ms Neubert will also have been on the Board for nine years. Mr Watson intends to retire from the Board at the AGM in 2021. Mr Bell, who is the CEO of Witan, is an executive director but is independent of the Company’s appointed fund managers and other service providers. His long service is beneficial to the Company. The Board considers that Ms Neubert is, and has been since her appointment, an independent non-executive director. She is now the longest-standing non-executive director. Given the number of experienced directors who have retired in a relatively short space of time, the Board has asked her to stay on as Senior Independent Director. Those directors who have served on the Board for more than nine years stand for re-election by the shareholders each year and will do so for as long as they continue to serve on the Board. The Board is firmly of the view that length of service does not of itself impair a director’s ability to act independently; rather, a director’s longer perspective can add value to the deliberations of a well-balanced investment trust company board. Independence stems from the willingness to make decisions that may conflict with the interests of management; this is a function of confidence, integrity and judgement. The Board will continue to take account of length of service in its succession planning, as one of a number of factors, including the need to maintain a proper balance of diversity, skills and experience. Mr Ross, the Chairman of the Company, is considered to be independent. He does not have any relationships that might create a conflict of interest between the Chairman’s interests and those of shareholders. The non-executive directors, led by the SID, meet without the Chairman present annually to appraise the Chairman’s performance, and on other occasions as necessary. 47 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance continued Board commitments The Chairman When considering new appointments, the Board takes into account other demands on directors’ time. Prior to appointment, new directors are asked to disclose any existing significant commitments with an indication of the time involved. Additional external appointments require the prior approval of the Remuneration and Nomination Committee on behalf of the Board, with the reasons for permitting significant appointments explained in the Annual Report. Company’s purpose, values and strategy The Board assesses the basis on which the Company generates and preserves value over the long term. The Strategic Report describes how opportunities and risks to the future success of the business have been considered and addressed, the sustainability of the Company’s business model and how its governance contributes to the delivery of its strategy. The Company’s investment objective and investment policy are set out on the inside front cover. Culture The Board seeks to establish and maintain a corporate culture characterised by fairness in its treatment of employees and service providers, whose efforts are collectively directed towards delivering returns to shareholders in line with the Company’s purpose and objectives. It is the Board’s belief that this contributes to the greater success of the Company, as well as being an appropriate way to conduct relations between parties engaged in a common purpose. 2 DIVISION OF RESPONSIBILITIES The Board The Board normally consists of eight directors, including the CEO, which is considered to be an appropriate number. This ensures that no one individual or small group of individuals dominates the Board’s decision-making. Details of the directors are set out on pages 44 to 45. They demonstrate a broad range of skills and experience, gained overseas as well as in the UK, which are relevant to the strategy of the Company. There are currently nine directors on the Board, although Mr Watson will stand down at the AGM in April 2021. Mr Ross was appointed as Chairman of the Company in April 2020 following the retirement from the Board of Mr Henderson. He was appointed to the Board in May 2019, with the intention that he should be appointed as Chairman of the Company. The Chairman’s primary role is to provide leadership to the Board, assuming responsibility for its overall effectiveness in directing the Company. The Chairman is responsible for: > > > > > > > > taking the chair at general meetings and Board meetings, conducting meetings effectively and ensuring all directors are involved in discussions and decision-making; setting the agenda for Board meetings and ensuring the directors receive accurate, timely and clear information for decision-making; taking a leading role in determining the Board’s composition and structure; overseeing the induction of new directors and the development of the Board as a whole; leading the annual Board evaluation process and assessing the contribution of individual directors; supporting and also challenging the Chief Executive Officer and other suppliers where necessary; ensuring effective communications with shareholders and, where appropriate, other stakeholders; and engaging with shareholders to ensure that the Board has a clear understanding of shareholder views. Senior Independent Director Mr Watson was appointed as the Senior Independent Director (‘SID’) in February 2008. As noted above, he intends to retire from the Board at the AGM in April 2021 and the Board has appointed Ms Neubert to take his place. The SID serves as a sounding board for the Chairman and acts as an intermediary for other directors and shareholders. The SID is responsible for: > > > > > > working closely with and supporting the Chairman; leading the annual assessment of the performance of the Chairman; holding meetings with the other directors without the Chairman being present, on such occasions as necessary; carrying out succession planning for the Chairman’s role; working with the Chairman, other directors and shareholders to resolve major issues; and being available to shareholders and other directors to address any concerns or issues they feel have not been adequately dealt with through the usual channels of communication (i.e. through the Chairman or the CEO). 48 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Director responsibilities The Chief Executive Officer (‘CEO’) The Board is responsible for determining the strategic direction of the Company and for promoting its success. At least one of its meetings each year is devoted entirely to reviewing overall strategy and progress is monitored throughout the year. The Chief Executive Officer and the AIFM monitor investment performance and all associated matters. The Chief Executive Officer reports to each Board meeting, at which investment performance, asset allocation, gearing, marketing and investor relations are usually key agenda items. Matters specifically reserved for decision by the full Board have been defined. These include decisions relating to strategy and management; structure and capital; financial reporting and controls; internal controls; contracts with third parties; communication; Board membership and other appointments; Board and employee remuneration; delegations of authority; corporate governance matters; and Company policies. There is an agreed procedure for directors, in the furtherance of their duties, to take independent professional advice, if necessary, at the Company’s expense. The directors have access to the advice and services of the Company’s Executive team, AIFM and the Company Secretary, through its appointed representative, who are responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. Board Committees The Board has established an Audit Committee and a Remuneration and Nomination Committee. The Board has chosen to combine the roles of remuneration and nomination in one Committee. The memberships of the Audit Committee and the Remuneration and Nomination Committee are set out on pages 44 to 45. The roles and responsibilities of the Committees are described in the Report of the Audit Committee on page 56 and in the Directors’ Remuneration Report on pages 59 to 60. Every year the Board reviews its composition and the composition of its two Committees. The Board’s Remuneration and Nomination Committee oversees this process. Further details are given on page 53 under Board evaluation. The CEO is responsible to the Board and the AIFM for the overall management of the Company including investment performance, business development, shareholder relations, marketing, investment trust industry matters, administration and unquoted investments. The duties of the CEO include leading on investment strategy and asset allocation, on the selection and monitoring of the investment managers and their terms of reference and on the use of derivatives. The Board, in conjunction with the AIFM, sets limits on matters such as asset allocation, gearing and investment in derivatives, within which the CEO has discretion. The CEO reports to each meeting of the Board. His reports include confirmation that the Board’s investment limits and restrictions, and those which govern the Company’s tax status as an investment trust, have been adhered to. The CEO and his team monitor the share price and the discount/ premium to net asset value on a daily basis and he reports to every Board meeting on this subject. Where appropriate, the Board makes use of share buybacks (at a discount) and issuance (at a premium) to add to the net asset value per share and achieve a sustainable low discount (or a premium) to net asset value. In addition to his responsibilities for the overall management of the Company, the CEO manages the Direct Holdings portfolio. A maximum of 10% of the Company’s gross assets (at the time of purchase) may be invested in specialist funds within this portfolio and there are restrictions on the number, size and type of investments that may be made. Up to a further 2.5% may be allocated to newly established or smaller third-party managers that are viewed as having potential to add value to the overall portfolio. The Board’s Remuneration and Nomination Committee reviews the performance of and the contractual arrangements with the CEO. The CEO is responsible to the Board for reviewing the performance and the contractual arrangements of his staff. The Board’s Remuneration and Nomination Committee oversees this process. Witan Investment Trust plc Annual Report 2020 49 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance continued Stakeholder engagement The AIC Code requires directors to explain their statutory duties as stated in sections 171–177 of the Companies Act 2006. Under section 172, directors have a duty to promote the success of the Company for the benefit of its members as a whole and in doing so have regard to the consequences of any decisions in the long term, as well as having regard to the Company’s stakeholders amongst other considerations. The Board’s report on its compliance with section 172 of the Companies Act is contained within the Strategic Report on pages 38 to 39. The Board is responsible for ensuring that workforce policies and practices are in line with the Company’s purpose and values and support its culture. The Remuneration and Nomination Committee advises the Board in respect of policies on remuneration-related matters. Since the Company has only six employees including the CEO, the Board considers that the CEO, who is also a director, is best-placed to engage with the workforce. In accordance with the Company’s whistleblowing policy, members of staff who wish to discuss any matter with someone other than the CEO are able to contact the Audit Committee Chairman, or in his absence another member of the Audit Committee. Shareholder engagement The Chairman is responsible for ensuring that there is effective communication with the Company’s shareholders. He works closely with the CEO and there is regular liaison with the Company’s stockbroker. There is a process in place for analysing and monitoring the shareholder register and a programme for meeting or speaking with the institutional investors and with private client stockbrokers and advisers. In addition to the CEO, the Chairman, or the SID, expects to be available to meet the larger shareholders and the Chairman of the Remuneration and Nomination Committee is available to discuss remuneration matters. In normal circumstances, the Company encourages attendance at its annual general meeting (‘AGM’) as a forum for communication with individual shareholders. The Notice of the AGM and related papers are sent to shareholders at least 20 working days before the meeting. The Chairman, the CEO, the Chairman of the Audit Committee and the Chairman of the Remuneration and Nomination Committee all expect to be present at the AGM and to answer questions from shareholders as appropriate. The CEO makes a presentation to the meeting. Details of the proxy votes received in respect of each resolution are made available to shareholders. In the event of a significant (defined as 20% or more) vote against any resolution proposed at the AGM, the Board would consult shareholders in order to understand the reasons for this and consider appropriate action to be taken, reporting to shareholders within six months. In the circumstances of the COVID-19 pandemic, the Company was unable to hold a physical AGM in 2020 and, in anticipation that the same will apply this year, special arrangements are being made for this year’s AGM, as explained in the Notice of AGM. Arrangements will be put in place to ensure that shareholders can question the Board despite being unable to attend the AGM in person. The directors may be contacted through the Company Secretary at the address shown on page 116. While the CEO and his team expect to lead on preparing and effecting communications with investors, all major corporate issues are put to the Board or, if time is of the essence, to a Committee thereof. The Board places importance on effective communication with investors and approves a marketing programme each year to enable this to be achieved. Copies of the Annual Report and the Half Year Report are circulated to shareholders and, where possible, to investors through other providers’ products and nominee companies (or written notification is sent when they are published online). In addition, the Company publishes a monthly factsheet and its net asset value per share is released daily. All this information is readily accessible on the Company’s website (www.witan.com). A Key Information Document, prepared in accordance with EU rules, is also published on the Company’s website. The Company belongs to the Association of Investment Companies which publishes information to increase investors’ understanding of the sector. 50 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Board meetings The CEO (who is a director), other representatives of the Company’s Executive team and the AIFM and a representative of the Company Secretary expect to be present at all meetings. The primary focus at Board meetings is a review of investment performance and associated matters such as gearing, asset allocation, attribution analysis, marketing and investor relations, peer group information and industry issues. The Board devotes two days each year to meetings with the Company’s investment managers and each investment manager sends representatives at least once a year. The Chairman seeks to encourage open debate within the Board and a supportive and co-operative relationship with the Executive team and with the Company’s investment managers, advisers and other service providers. Number of meetings A J S Ross R A Beagles A L C Bell G M Boyle S E G A Neubert J S Perry B C Rogoff A Watson P T Yates The number of formal meetings during the year of the Board and its Committees, and the attendance of the individual directors at those meetings, is shown in the table alongside. H M Henderson R J Oldfield Board Audit Committee Remuneration and Nomination Committee 14 14 6/6 14 13 12 13 13 14 13 4/5 5/5 4 4(1) - 4(1) - – 4 – 4 4 1/1(1) – 3 2/2 - 2(1) - 2/2 – – – 3 1/1 1/1 The Board normally meets about ten times a year. Additional meetings were held in 2020 due to the change of Chairman in April 2020, the decision to redeem the Secured Bonds in May and the appointment of two new fund managers. All the then directors attended the AGM in April and the Board’s ‘Strategy Day’ in June. (1) Not a member of the Committee but in attendance by invitation for all or part of the meetings. Increasing global portfolios allocation What happened How The Company appointed Jennison Associates and WCM Investment Management (both of whom are based in the US) to manage segregated global portfolios in August 2020. Why The new global asset allocation that Witan introduced from January 2020 incorporated greater exposure than before to faster growing parts of the world and economic sectors. The appointments represented an important further stage in implementing that policy, providing a degree of specialism that complements the approach of the other managers. The Board and the Executive team considered Witan’s asset allocation and portfolio exposure and made the decision to increase the allocation to global portfolios. They discussed the desired attributes and style of the managers before a long list of managers was created. The long list was sourced from a wide network of resources including managers already monitored by the Witan Executive team, an investment manager database, managers known to Witan’s directors and additional names provided by a consultant. The Executive team completed a comprehensive due diligence process which included a review of submitted proposals and interviews with each of the potential managers on the long list. The long list was discussed and evaluated at length in terms of investment proposition, process, performance, organisation and individual managers, with the Executive team selecting a shortlist. Each short-listed manager presented to a joint meeting of the Board and the Executive team. Following these meetings and a review of the due diligence completed by the Executive team, the Board made the decision to appoint Jennison and WCM Investment Management. Witan Investment Trust plc Annual Report 2020 51 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance continued Conflicts of interest Relationship with other service providers The Board’s actions taken to identify and manage conflicts of interest are set out in the Directors’ Report. The Company has no significant shareholders. A number of nominee companies are the registered holders of significant numbers of shares, but these represent beneficial holdings by a very large number of retail investors who invest through the nominees’ platforms. Relationship with the AIFM and fund managers The Company manages its own operations through the Board and that of its AIFM. Each investment manager runs a discrete investment portfolio within the terms of their investment management contract. Shares are held by the Company’s custodian/depositary. The CEO leads on the selection and monitoring of the investment managers and their terms of reference, which are approved by the Board and the AIFM. The individual investment managers are each appointed to manage a discrete portfolio in accordance with guidelines which limit, for example, the markets in which they can invest, the maximum size of each investment and the amount of cash that may be held in normal circumstances. They are not allowed to invest in unquoted securities, to gear the portfolio, to sell stocks short or to use derivatives. The investment managers take decisions on individual investments and are responsible for effecting transactions on the best available terms. The Company and the AIFM receive monthly confirmation from each investment manager that it has carried out its duties in accordance with its investment mandate. The Board scrutinises the performance of the investment managers at each meeting and discusses their performance with each manager at least once a year. The directors consider it appropriate for the full Board to do this rather than delegating this to a committee, as it is considered appropriate for all directors to be aware of the managers’ performance. The Audit Committee reviews the contractual relationships with the investment managers at least annually. Further information on the investment managers’ fees is contained within the Strategic Report on page 41. The Board has delegated a wide range of activities to external agents, in addition to the various investment managers. These services include global custody (which includes the safeguarding of the assets), investment administration, management and financial accounting, Company Secretarial and certain other administrative requirements and registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of the services offered, including the control systems in operation in so far as they relate to the affairs of the Company. Further information on the service providers is contained within the Strategic Report on page 40. The Board receives and considers reports and information from these contractors as required. The CEO and the AIFM are responsible for monitoring and evaluating the performance of the Company’s service providers. The Board’s Audit Committee oversees this process together with the WIS Risk Committee; they review the contractual relationships at least annually. 3 SUCCESSION AND EVALUATION Appointments to the Board The Board’s Remuneration and Nomination Committee oversees the recruitment process. The Remuneration and Nomination Committee reviews the length of service of each director each year and makes recommendations to the Board when it considers that a new director should be recruited. All the independent non-executive directors are asked to contribute to the process and to consider serving on the sub-committee appointed to draw up the shortlist of candidates. The process generally includes the use of a firm of non-executive director recruitment consultants or open advertising. The work of the Remuneration and Nomination Committee during the year is set out in the Committee’s report on pages 59 to 70. New directors are appointed for an initial term ending three years from the date of their first annual general meeting after appointment, with the expectation that they will serve a minimum of two three-year terms. There is no absolute limit to the period for which a director may serve, although the continuation of directors’ appointments is contingent on satisfactory performance evaluation and re-election at annual general meetings. Directors’ appointments are reviewed formally by the Board ahead of their submission for re-election. None of the non-executive directors has a contract of service and a non-executive director may resign by notice in writing to the Board at any time. The Board’s tenure and succession policy seeks to ensure that the Board is well-balanced and refreshed regularly by the appointment of new directors with the skills and experience necessary, in particular, to replace those lost by directors’ retirements. Directors must be able to demonstrate their commitment to the Company, including in terms of time. The Board seeks to encompass past and current experience of areas relevant to the Company’s objective and operations, the most important being investment management, finance, marketing, financial services, risk management, custody and settlement, and investment banking. 52 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Board evaluation The Board has established a process to evaluate its performance annually. This process is based on open discussion and seeks to assess the strengths and weaknesses of the Board and its Committees. The Chairman leads on applying the conclusions of the evaluation. The Chairman reviews with each director his or her individual performance, contribution and commitment to the Company. The SID leads the annual evaluation of the Chairman and reviews the conclusions with him. The Board’s Remuneration and Nomination Committee oversees this process. The Board is aware of Provision 21 of the Corporate Governance Code, which states that evaluation of the boards of FTSE 350 companies should be externally facilitated at least every three years, and has complied with this provision every three years since it was first introduced, except in 2019 when the Board considered it more appropriate to defer an externally facilitated evaluation until 2020 when Mr Ross had taken over as Chairman. The Board stated in the 2019 Annual Report its intention to appoint an external organisation to facilitate its evaluation in 2020 and appointed Lintstock to carry out an evaluation programme in the autumn of 2020. Lintstock did not have any other connection with the Company. The Board reviewed their report in February 2021 and the Chairman is leading on implementing those changes recommended by the report that the Board considered should be made. The report did not identify any material weaknesses or concerns. For details of our managers, pages 26 to 31 Whilst the roles and contributions of longer-serving directors are subject to rigorous review, the Board is strongly of the view that length of service is only one factor and that shareholders benefit from having directors with diverse backgrounds and a longer perspective of the Company’s history and its place in the savings market. Directors newly appointed to the Board are provided with an introductory programme covering the Company’s strategy, policies and operations, including those outsourced to third parties. Thereafter, directors are given, on a regular and ongoing basis, key information on the Company’s investment portfolios, financial position, internal controls and details of the Company’s regulatory and statutory obligations (and changes thereto). The directors are encouraged to attend industry and other seminars, conferences and courses, if necessary at the Company’s expense, and to participate generally in industry events. A log of directors’ training is maintained and reviewed each year by both the Remuneration and Nomination Committee and the Audit Committee. Board diversity The Company supports the objectives of improving the performance of corporate boards by encouraging the appointment of the best people from a range of differing perspectives and backgrounds. The Company recognises the benefits of diversity (of which gender and ethnicity are two aspects) on the Board and takes this into account in its Board appointments. The Company is committed to ensuring that its director search processes actively seek men and women with the right qualifications so that appointments can be made, on the basis of merit, against objective criteria from a diverse selection of candidates. The Board actively considers diversity during director searches. Following the AGM, the Board will consist of five men and three women, including one of colour. The Company’s employees, including the CEO, consist of three men and three women. The Company is committed to facilitating equal opportunity and has readily embraced flexible working arrangements for existing staff. Election and re-election by shareholders New directors stand for election by the shareholders at the annual general meeting that follows their appointment. Thereafter, all directors stand for re-election each year in accordance with the Corporate Governance Code. The Company’s Articles of Association require directors to stand for re-election at least every three years, and those who have served for more than nine years to stand for re-election annually. Following the AGM in April 2021, there will be two directors with service of more than nine years: Mr Bell (the CEO) and Ms Neubert, who will become the Senior Independent Director. The directors’ biographies on pages 44 to 45 and the notes to the Notice of AGM set out the specific reasons why each director’s contribution is, and continues to be, important to the Company’s long-term sustainable success. Witan Investment Trust plc Annual Report 2020 53 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance continued Tenure of the Chairman The Board’s policy is that the Chairman should not normally remain in post beyond nine years from the date of his/her first appointment to the Board. However, this period may be extended for a limited time to facilitate effective succession planning and the development of a diverse board, particularly in those cases where the Chairman was an existing non-executive director on appointment as Chairman. The Board considers that the policy provides a balance between the need for Board continuity as well as regular refreshment and diversity. 4 AUDIT, RISK AND INTERNAL CONTROL The Statement of Directors’ Responsibilities on page 75 describes the directors’ responsibility for preparing this Annual Report. The work of the Audit Committee is set out in the Committee’s report on pages 56 to 58. The principal risks and details of how they are managed are set out on pages 35 to 37. Internal control The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process accords with the Corporate Governance Code guidance, is subject to regular review by the Audit Committee and was fully in place during the year under review and up to the date of this Annual Report. The Board remains responsible for the Company’s system of internal control and has charged the Audit Committee with conducting an annual review of the effectiveness of the system, covering all the controls, including financial, operational and compliance controls and risk management systems. This review takes into account points raised during the year in the regular appraisal of specific areas of risk. However, such a system is designed to manage rather than eliminate the risks of failure to achieve the Company’s business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. In accordance with Principle O and Provision 28 of the Corporate Governance Code, the Board reviews the Company’s business risks at least once a year. These are analysed and recorded in a risk map, which the Audit Committee reviews at each meeting. It is also reviewed and challenged regularly by the Board. Emerging risks are added to the matrix as soon as identified, together with any mitigating actions required. The key risks which pose the greatest potential risks to shareholders are set out on pages 35 to 37. The Company receives from its main contractors formal reports which detail the steps taken to monitor the areas of risk and which report the details of any known internal control failures. The Committee believes that these processes allow it to identify emerging risks on a timely basis. As described elsewhere, the management of Witan’s portfolio is outsourced to a number of third-party investment managers around the world. There are currently eight such investment managers as well as the Direct Holdings portfolio which is managed by the CEO. The CEO has responsibility (under delegation from the Board and the AIFM) for a number of aspects of the management of the portfolio, including asset allocation, gearing and investment in derivatives. The Board has set guidelines in respect of each of these aspects within which he may operate. The CEO reports to the Board regularly on each of these areas, as well as on the overall performance of the Company and other matters of significance. The in-house Executive management team of Witan and WIS is responsible for managing and controlling the relationships with the third-party managers. The management team receives monthly reports on investment and compliance matters from each manager. During 2020, the investment managers were asked to provide detailed information on their operational structures and systems. Each year, the Board also receives reports on their internal controls from its investment managers; in most cases these include a report from the relevant company’s auditors on the control policies and procedures in operation. The CEO makes regular reports to the Board on the performance of and activity within the Direct Holdings portfolio. In addition, the portfolio’s performance is independently measured, along with those of the third-party managers. The Company’s subsidiary, WIS, is authorised and regulated by the Financial Conduct Authority to act as the Company’s AIFM from July 2014. The compliance structures required for these activities, including a compliance manual and a compliance monitoring programme, have been put into place. The Company has a formal policy for staff to raise in confidence any concerns about possible improprieties, whether in matters of financial reporting or otherwise, for appropriate independent investigation. Its staff comprises only six people (including the CEO), who are well known to and have frequent formal and informal contact with the members of the Board. 54 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE The Company does not have an internal audit function. Through WIS, the AIFM, it delegates the management of its investments and most of its other operations to third parties and employs only a small staff. The investment managers and certain other key contractors are subject to external regulation and most have compliance and internal audit functions of their own. The Company’s investments are held on its behalf by a global custodian appointed by the depositary. A specialist firm of investment accountants and administrators is responsible for investment administration, for maintaining accounting records and for preparing financial accounts, management accounts and other management information. In addition, the Board receives an annual report on the investment administrator’s internal controls, including a report from the investment administrator’s auditor on the control policies and procedures in operation. The investment performance of the investment managers, both individually and collectively, is measured for Witan by a company that is independent of all the investment managers. The corporate Company Secretary has well- established experience in servicing investment trusts. The appointment of these and other professional contractors provides a clear separation of duties and a structure of internal controls that is balanced and robust. The Board and the AIFM will continue to monitor its system of internal control in order to provide assurance that it operates as intended and the directors will review at least annually whether a function equivalent to an internal audit is needed. 5 REMUNERATION The Directors’ Remuneration Report on pages 59 to 70 details the process for determining the directors’ remuneration and sets out the amounts payable. It reports on the Company’s compliance with the provisions of the AIC Code relating to remuneration and also a number of provisions from the UK Corporate Governance Code that have not been included in the AIC Code, as most investment trusts do not have executive directors. Andrew Ross Chairman 10 March 2021 Witan Investment Trust plc Annual Report 2020 55 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Report of the Audit Committee STATEMENT BY THE CHAIRMAN OF THE COMMITTEE COMPOSITION AND RESPONSIBILITIES OF THE COMMITTEE As Chairman of the Audit Committee (the ‘Committee’), I am pleased to present the Report of the Committee for the year ended 31 December 2020. The members of the Committee are appointed by the Board. There are normally three members of the Committee. I was appointed as Chairman of the Committee in May 2018, having been a member of the Committee since February 2017. Mr Watson and Mr Yates, who were appointed to the Committee in 2006 and 2018, respectively, were members of the Committee throughout the year. Mr Watson will retire from the Board at the AGM in April 2021. In anticipation of this, the Board has appointed Mrs Beagles to the Committee. The Board has taken note of the requirements that the Committee as a whole should have competence relevant to the sector in which the Company operates and that at least one member of the Committee should have recent and relevant financial experience. The Board is satisfied that the Committee is properly constituted in both respects. I am a Chartered Accountant and was previously a partner at Ernst & Young. The other Committee members have a combination of financial, investment and other relevant experience gained throughout their careers. Details of our qualifications and experience are given on pages 44 to 45. The role of the Committee is to assist the directors in protecting shareholders’ interests through fair, balanced and understandable reporting, ensuring effective internal controls and maintaining an appropriate relationship with the Group’s auditor. The Committee’s role and responsibilities are set out in its terms of reference, which comply with the UK Corporate Governance Code. The terms of reference are available on request from the Company Secretary and can be seen on the Company’s website (www.witan.com). In summary, the Committee is responsible for: > monitoring the integrity of the Company’s financial statements, including consideration of the Company’s accounting policies and significant reporting judgements; > > > > > ensuring the application of the Company’s internal financial and regulatory compliance controls and risk management systems using external consultants where appropriate; the appointment, reappointment and removal of the external auditor and approving the remuneration and terms of engagement of the external auditor; reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process; developing and implementing policy on the engagement of the external auditor to supply non-audit services; and reporting to the Board on how it has discharged its duties. MEETINGS OF THE COMMITTEE The Committee held four meetings during 2020 and also met in February 2021. Meetings are usually attended, by invitation, by the Chairman of the Company, members of management, relevant external advisers and, twice a year, the auditors. I report to the Board after each meeting on the main matters discussed at the meeting. 56 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE In summary, the main matters arising in relation to 2020 were: RISK > > > > > > > > > Following the issue of the Chartered Governance Institute’s updated model terms of reference, the Committee reviewed and amended its terms of reference to ensure its duties are carried out in accordance with best practice. Assessment of the controls to ensure the ownership, valuation and liquidity of investments: this includes assessing management reports on the controls and procedures of external managers and the external custodian/administrator and the review of the audit work performed. No significant issues were identified. As part of the Committee’s detailed review of the financial statements, particular attention was paid to the key areas of the existence and valuation of assets; recognition of revenue; determination of the fair value of own debt and the appropriateness of the discount rate used to assign a present value to that debt; and the reasonableness of the scenarios envisaged in developing the sensitivity analysis for each significant risk. Interim and year-end reporting, in light of the requirements of the Code of Corporate Governance issued by the AIC and FRC guidance to audit committees on key developments for annual reports and non-financial reporting. The Committee agreed the process, timing and responsibility for compliance. The Committee agreed to recommend to the Board that it should approve the Half Year and Annual Reports. A variety of specific matters including whistleblowing, anti-money laundering compliance, data and IT systems security and business continuity. As explained elsewhere in this report (see page 40), the Company makes extensive use of third-party service providers, who are overseen by the WIS Executive. The Committee approves the programme of oversight and reviews the results. In light of the relative simplicity of the operations and the use of independent external consultants, who report directly to the Committee, to advise on regulatory compliance and adherence to internal procedures, it was concluded that no internal audit function was required (see page 55). The Committee updated its policy on non-audit services provided by the external auditor. The Committee has worked with the Risk Committee of WIS, the Company’s subsidiary, to ensure WIS’ compliance with Financial Conduct Authority (‘FCA’) regulations. Particular topics in 2020 included monitoring the implementation of the regulations contained within the Client Assets Sourcebook (‘CASS’) of the FCA. The Committee also monitored the work required to ensure the Company’s compliance with new legislation, including the AIC Code and the Shareholder Rights Directive. Management has identified (Strategic Report pages 35 to 37) six main areas of potential risk: market and investment portfolio; operational and cyber; compliance and regulatory change; accounting, taxation and legal; liquidity; and COVID-19, and has set out the actions taken to evaluate and manage these risks. The Committee also monitors newly emerging risks that arise from time to time (e.g. Brexit from 2016 and the COVID-19 virus outbreak in 2020) to ensure that the implications for the Company are properly assessed and mitigating controls introduced where necessary. The auditor has also detailed three key audit matters in its report: valuation and existence of investments; occurrence and completeness of investment income; and going concern; and has set out the work it has performed to satisfy itself that these have been properly reflected in the financial statements. The Committee has monitored the controls designed to mitigate the risks associated with these matters during the year, including reviewing management’s risk report at each meeting and requiring amendments to both risks and mitigating actions as appropriate. The Committee considers that management has carried out a robust assessment of the emerging and principal risks facing the Company and has taken appropriate action to mitigate those risks. There were no significant areas of material judgement or unadjusted errors. GOING CONCERN AND VIABILITY The Committee has assessed the information, forecasts and assumptions underlying the Viability and Going Concern Statements on pages 42 and 43 and recommended to the Board that they are appropriate. This assessment included a review of the scenario analysis set out on page 42. EXTERNAL AUDIT Grant Thornton UK LLP (‘Grant Thornton’) was appointed as statutory auditor in 2016. In accordance with the current legislation, the Company will need to re-tender for new auditors at least every ten years and has to change its auditor after 20 years. The audit partner is Marcus Swales. The auditor is required to rotate the principal engagement partner every five years and, accordingly, this will be Mr Swales’ final year as audit partner. Grant Thornton have proposed that Paul Flatley should be appointed as his successor, provided shareholders approve the continued appointment of Grant Thornton. The Committee is satisfied that Mr Flatley has the appropriate experience. Accordingly, the Committee considers that the Company has complied with the provisions of the Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 during the financial year. The Committee reviews the scope and effectiveness of the audit process, including agreeing the auditor’s assessments of materiality, and monitors the auditor’s independence and objectivity. Witan Investment Trust plc Annual Report 2020 57 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Report of the Audit Committee continued EFFECTIVENESS OF THE COMMITTEE In assessing its own effectiveness, the Committee has reviewed the report produced by Lintstock as part of its review of the Board (see page 53) and will implement the recommendations from that report. The Committee considers that its approach is comprehensive and appropriate, that it focuses on the right issues and is managed well. APPROVAL This report was approved by the Committee on 10 March 2021 and is signed on its behalf by: Jack Perry Chairman of the Audit Committee 10 March 2021 The Committee has reviewed the FRC’s Audit Quality Review report for Grant Thornton and discussed the findings with the audit partner to determine if any of the indicators in that report had particular relevance to this year’s audit of the Company. The Committee discussed the audit plan. It challenged the auditor’s assessment of the key audit matters and was satisfied that these had been adequately identified. The auditor was not instructed to look at any additional specific areas. The final audit findings report was discussed and agreed with the auditor. The Committee is satisfied that it implemented sufficiently robust processes to deliver a high-quality audit. As part of their audit work, Grant Thornton carried out a review of the design and effectiveness of relevant controls in place at BNP Paribas Securities Services related to financial reporting and specific line items such as the valuation of the portfolio and completeness of investment income. They did not discover any significant issues. In addition, Grant Thornton has been appointed to provide an assurance report on client assets in accordance with the FCA’s CASS report to the FCA in respect of WIS, to be completed by the end of April 2021. FINANCIAL STATEMENTS The Board has requested the Committee to confirm that in its opinion the Board can make the required statement that the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. The Committee has given this confirmation on the basis of its review of the whole document, underpinned by involvement in the planning for its preparation, review of the processes to assure the accuracy of factual content. NON-AUDIT SERVICES The Committee has previously agreed that non-audit fees cannot be more than 70% of the average audit fees for the last three years. The Company’s policy on non-audit services was updated during the year to comply with the FRC Revised Ethical Standard 2019. Any new engagement with Grant Thornton for any non-audit service must, if material, be tendered and any appointment approved in advance by the Committee. The Committee assesses each service individually, having considered the cost-effectiveness of the service and the impact on the auditor’s independence. Grant Thornton did not provide any non-audit services to the Company other than the CASS report, for which their fees are £25,000, and a review of the interim financial statements (£3,000). The ratio of audit to non-audit work in the year was 71:29. The Committee considered that it was in the interests of the Company to appoint Grant Thornton for this work as it would not be cost-effective to appoint another firm. 58 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Directors’ Remuneration Report CHAIRMAN’S STATEMENT I am pleased to present my first report as Chairman of the Remuneration and Nomination Committee (the ‘Committee’) since my appointment in April 2020 following the retirement of Richard Oldfield from the Board. The Committee and I thank Richard for his work as Chairman over the last two years. The Committee deals with both nominations and remuneration- related matters. Reports on both aspects of the Committee’s work are covered below. The Committee’s roles and responsibilities are set out in its terms of reference, which are available on request from the Company Secretary and can be found on the Company’s website (www. witan.com). These were updated during 2020 to reflect current best practice. NOMINATIONS The Committee has responsibility for reviewing the effectiveness and composition of the Board and for overseeing the recruitment process for non-executive directors. Mrs Beagles was appointed to the Board on 1 July 2020. A Committee of the Board, including members of this Committee and Mr Watson, the SID, undertook a search for a new director. The Committee considered the skills and experience required of the new director and identified, from a list of independent external candidates, the person it considered to be most suitable to fill the vacancy. The Board confirmed the Committee’s choice of candidate and the appointment was made. During the year, the Committee reviewed the composition of the Board and its Committees, using a skills matrix, and in particular considered the actions required as a result of Mr Watson’s retirement in April 2021. The Committee recommended to the Board that there was no immediate need to appoint another director to the Board to replace Mr Watson; that Ms Neubert should be appointed as the Senior Independent Director; and that Mrs Beagles should be appointed as a member of the Audit Committee. The Board approved these recommendations. The Board has seen a number of experienced directors retire in a relatively short space of time and has, therefore, asked Ms Neubert, the longest-standing non-executive director, to stay on as Senior Independent Director. This will also provide for improved spacing of future retirements from the Board. A report on the Board’s evaluation of itself and its Committees is set out on page 53. The Board’s policy on diversity is set out on page 53. REMUNERATION The remainder of this report covers the remuneration-related activities of the Committee for the year ended 31 December 2020. It sets out the remuneration policy and remuneration details for the non-executive and executive directors of the Company. It has been prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the ‘Regulations’) and the requirements of the Association of Investment Companies. The report is split into three main areas: this statement from me as Chairman of the Committee; an annual report on remuneration; and a policy report. The annual report on remuneration provides details of remuneration during the financial year ended 31 December 2020 and other information required by the Regulations. It will be subject to an advisory vote at the AGM on 28 April 2021. Witan Investment Trust plc Annual Report 2020 59 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued The Company’s existing remuneration policy was subject to a binding shareholder vote at the AGM in 2019 and took effect from 1 January 2019. No changes were made to the remuneration policy existing at that time. The Committee is required to submit its remuneration policy to a shareholder vote every three years and, accordingly, will next be putting a resolution to approve the remuneration policy to shareholders at the AGM to be held in 2022. The Companies Act 2006 requires the auditor to report to shareholders on certain parts of the Directors’ Remuneration Report and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with the Regulations. The parts of the annual report on remuneration that are subject to audit are indicated in the report. Role of the Committee The remuneration-related role of the Committee is twofold. First, it has a role in respect of executive remuneration, assisting the directors in determining the remuneration policy for the Chief Executive Officer (‘CEO’) and evaluating his performance, as well as assisting the CEO in determining the remuneration arrangements for the Company’s staff. Secondly, the Committee considers the remuneration of the non-executive directors and has delegated responsibility for determining the remuneration of the Chairman. The Committee considers the need to appoint external remuneration consultants when necessary. The Committee consists of three non-executive directors, including its Chairman, who are appointed by the Board. I have been a member of the Committee since May 2018 and was appointed as Chairman in April 2020 following the retirement from the Board of Mr Oldfield, the previous Chairman of the Committee. Ms Neubert and Mr Ross were appointed as members of the Committee in April 2020 following the retirement from the Board of Mr Henderson, who had previously served on the Committee. As part of its annual work, the Committee reviewed the non- executive directors’ fees in February 2021. The Committee’s recommendation, to which the Board agreed, was that non- executive directors’ fees should not be increased at this time. With effect from 1 April 2020, directors’ fees have been: Chairman of the Company Chairman of the Audit Committee Chairman of the Remuneration and Nomination Committee Senior Independent Director Other non-executive directors Prior to 1 April 2020, the fees were: Chairman of the Company Chairman of the Audit Committee Chairman of the Remuneration and Nomination Committee Senior Independent Director Other non-executive directors £ 68,500 45,000 42,000 42,000 36,000 £ 60,000 39,000 36,500 36,500 31,500 The aggregate non-executive directors’ fees following the 2021 AGM will amount to £305,500 per annum (2020: £335,600). The Company’s Articles of Association currently limit the aggregate fees payable to the non-executive directors to £450,000 per annum following approval by shareholders at the AGM in April 2020. The Committee’s programme is to meet formally at least twice a year and on such other occasions as required. The Committee held three meetings during the year, during which it addressed all the matters under its remit. Paul Yates Chairman of the Remuneration and Nomination Committee 10 March 2021 60 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE ANNUAL REPORT ON REMUNERATION An ordinary resolution for the approval of this section of the report (together with the Chairman’s Statement on pages 59 to 60) will be put to members at the forthcoming AGM. The following section sets out the executive director’s and the non-executive directors’ remuneration for the year ended 31 December 2020. The information provided on pages 61 to 64 of this report (other than the total shareholder return performance graph) has been audited by Grant Thornton UK LLP. Single total figure table for the year (audited) Non-executive directors The following table shows the single figure of remuneration of the non-executive directors for the financial year ended 31 December 2020, together with the comparative figures for 2019: A J S Ross (appointed 2 May 2019; Chairman since 29 April 2020) R A Beagles (appointed 1 July 2020) G M Boyle (appointed 16 August 2019) S E G A Neubert J S Perry B C Rogoff A Watson P T Yates H M Henderson (retired 29 April 2020) R J Oldfield (retired 29 April 2020) Total 31 December 2020 Fees and total remuneration £(1) (2) 31 December 2019 Fees and total remuneration £(1) (2) 56,600 18,000 34,900 34,900 43,500 34,900 40,600 38,900 20,700 12,600 20,900 – 11,800 31,500 39,000 31,500 36,500 31,500 60,000 36,500 335,600 299,200 (1) The non-executive directors are not entitled to any variable payments or benefits. No taxable benefits were paid in the year, although all reasonably incurred business expenses will be met. (2) Non-executive directors’ fees were last increased with effect from 1 April 2020. CEO The following table shows a single total figure of remuneration in respect of qualifying services for the financial year ended 31 December 2020 for the CEO, Mr Bell, together with the comparative figures for 2019. Aggregate emoluments are shown in the last column of the table. Base pay(1) £ Benefits(2) £ Annual bonus(3) benefits £ Long-Term Bonus(3) £ Pension-related benefits £ Total(4) £ 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 A L C Bell 308,424 300,900 30,847 27,743 77,106 151,351 - 80,891 30,842 30,090 447,219 590,975 (1) Mr Bell is entitled to hold outside appointments and to retain any fees payable, subject to receiving the Board’s permission. During 2020, in addition to the base salary set out above, Mr Bell received £28,666 (2019: £26,690) in respect of his directorship of The Diverse Income Trust plc. (2) Taxable benefits include life assurance and health insurance. (3) Mr Bell’s service agreement provides that he is eligible to receive a bonus of up to 170% of his basic salary. The cash bonus arrangement consists of three separate elements: (i) Discretionary bonus For a description of the terms of the discretionary bonus (including the performance measures), please see the policy report. The Committee reviewed Mr Bell’s performance against the performance criteria, described on page 68, over the preceding year at its meeting in February 2021 to determine the appropriate level of the discretionary bonus that is payable for that year. Following that review, the Committee recommended, and the Board agreed, that Mr Bell should receive a discretionary bonus equal to 25% (compared with the maximum of 40%) of his basic salary, (£77,106), in respect of the financial year ended 31 December 2020 (2019: 32%, £96,288). (ii) One-year Bonus For a description of the terms of the One-year Bonus (including the performance measures), please see the policy report. The Company underperformed its benchmark in 2020 (net asset value debt at par, excluding the effect of share buybacks) and therefore no bonus will be paid to Mr Bell based on the Company’s financial performance for the year ended 31 December 2020 (2019: outperformed, £55,063). (iii) Long-Term Bonus For a description of the terms of the Long-Term Bonus (including the performance measures), please see the policy report. In summary, Mr Bell is eligible to receive up to 90% of his basic annual salary by reference to the Company’s performance over the previous three financial years. The level of bonus is determined by reference to the performance against the benchmark, where performance in line with benchmark generates a bonus rising on a straight-line basis to a full bonus where the benchmark is exceeded by an average of 2.5% per annum. The Company has underperformed its benchmark over the three financial years to 31 December 2020 (net asset value debt at par, excluding the effect of share buybacks) and therefore no Long-Term Bonus will be paid to Mr Bell (2019: outperformed by 0.75%, £80,891). (4) Mr Bell’s total fixed and variable remuneration in respect of the year ended 31 December 2020 was £370,113 and £77,106, respectively, (2019: £358,733 and £232,242, respectively). (5) Employer’s national insurance contributions of £46,729 (2019: £45,539) were paid in respect of Mr Bell’s remuneration for the year. Witan Investment Trust plc Annual Report 2020 61 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued Payment of the discretionary bonus will be partly deferred in accordance with the current policy, with 60% paid in March 2021 and the remaining 40% paid on a deferred basis in three equal instalments in March 2022, 2023 and 2024, subject to continued employment. Scheme interests awarded during the financial year No directors were awarded any interest over shares in the Company during the financial year ended 31 December 2020 (2019: nil). Payments to past directors No payments were made to former directors of the Company during the financial year ended 31 December 2020 (2019: £nil). Payments for loss of office No loss of office payments were made to any person who has previously served as a director of the Company at any time during the financial year ended 31 December 2020 (2019: £nil). Statement of directors’ shareholdings (audited) The interests of the CEO and the non-executive directors (including connected persons) in the Company’s ordinary shares are shown in the table below. No share options or other share- based awards, with or without performance measures, were awarded to the CEO or to any non-executive director. There are no requirements or guidelines for the CEO or the non-executive directors to own shares in the Company. Ordinary shares of held as at 31 December 2020 Ordinary shares held as at 31 December 2019 A J S Ross R A Beagles A L C Bell G M Boyle S E G A Neubert J S Perry B C Rogoff A Watson P T Yates 250,000 42,073 850,000 28,683 52,793 79,760 42,740 125,105 25,245 150,000 -(1) 700,000 - 51,542 77,324 21,630 125,105 25,245 (1) Mrs Beagles did not own any shares at the date of her appointment, 1 July 2020. Since the year end, Ms Neubert has bought a further 299 shares. There have not been any other changes in the directors’ interests since the year end. None of the directors had an interest in the Company’s preference shares. Total shareholder return performance graph The Company is required to present a graph comparing the Company’s share price with a single broad equity market index. The Company has compared the share price total return against (i) a UK market index, namely the MSCI UK IMI Index (‘MSCI UK Index’), because the Company’s shares are listed on the UK market, and also (ii) a global index, namely the MSCI All Country World Index (‘MSCI ACWI’), because the Company invests across a broad spread of global equity markets. The performance of the Company’s benchmark is also shown. 300 250 200 150 100 50 31/12/2 010 31/12/2 011 31/12/2 012 31/12/2 013 31/12/2 014 31/12/2 015 31/12/2 016 31/12/2 017 31/12/2 018 31/12/2 019 31/12/2 0 2 0 Price Benchmark MSCI ACWI MSCI UK The line graph above sets out the Company’s ten-year total shareholder return performance relative to the MSCI UK Index and the MSCI ACWII (sterling adjusted). This line graph assumes a notional investment of £100 into the indices on 31 December 2010 and the reinvestment of all income, excluding dealing expenses. CEO remuneration table Year ended 31 December CEO single figure of total remuneration £ Annual discretionary and One-year Bonus payout against maximum % Long-Term Bonus against maximum % 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 447,219 590,975 497,881 658,906 493,811 593,431 544,514 486,802 400,535 314,160 31.2 62.9 50.0 87.5 40.0 95.2 76.2 95.0 86.5 40.0 0.0 29.9 12.4 89.0 54.4 100.0 100.0 64.2 13.7 n/a 62 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Annual percentage change in remuneration of directors and employees for the year ended 31 December 2020 The table below shows how the percentage change in the directors’ salaries, benefits and bonuses between 2019 and 2020 compares with the percentage change in each of those components of pay for the Group’s employees taken as a whole: CEO % Chairman % Salary and fees All taxable benefits 2.5 6.7 Annual bonuses (discretionary and One-year Bonus) (49.1) Long-Term Bonus Total (100.0) (25.2) 10.6 n/a n/a n/a 10.6 Percentage increase/(decrease) in remuneration for 2020 compared with remuneration for 2019 Chairman of Audit Committee % Chairman of Remuneration and Nomination Committee % 11.5 n/a n/a n/a 11.5 11.3 n/a n/a n/a 11.3 SID % 11.3 n/a n/a n/a 11.3 Other directors % Employees % 10.7 n/a n/a n/a 10.7 2.9 1.6 (15.7) n/a (0.7) The decrease in the CEO’s bonuses in 2020 is principally due to the underperformance of the Company in 2020, which resulted in the One-year Bonus and Long-Term Bonus not being paid in respect of 2020 (see note 3(ii) and (iii) on page 61), whereas they were paid in respect of 2019. The fees of the non-executive directors were increased with effect from 1 April 2020. The previous increase was effective from 1 April 2017 (see page 60). Relative importance of spend on pay Spend Fees of non-executive directors Remuneration paid to or receivable by all employees of the Group (including the CEO) in respect of the year(1) 2020 £’000 336 2019 £’000 Difference £’000 299 37 1,115 1,312 (197) Dividends paid to shareholders in respect of the year ended 31 December 2020 44,814 46,623 (1,809) Share buybacks(2) Total payments to shareholders NAV per ordinary share (debt at fair value) 122,484 53,582 68,902 167,298 100,205 67,093 236.0p 233.1p 1.2% Includes any accruals for future payment of the CEO’s Long-Term Bonus, subject to performance being sustained and his continued employment with the Company. (1) (2) Share buyback activity was at a high level during the year, reflecting the level of the discount during the year (see also comments on page 18). Statement of implementation of remuneration policy The remuneration policy for the CEO, as detailed in the policy section of the report, was agreed by shareholders at the 2019 AGM and implemented with effect from 1 January 2019. The fees for non-executive directors were last increased with effect from 1 April 2020. Witan Investment Trust plc Annual Report 2020 63 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued Consideration by the directors of matters relating to directors’ remuneration The Board as a whole sets the fees that are payable to the non-executive directors and it has appointed the Committee to consider matters relating thereto. The Committee also considers the remuneration of the CEO and makes a recommendation on this to the Board for its approval. The Company is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there are substantial votes against resolutions in relation to directors’ remuneration, the reasons for any such vote will be sought and any actions in response will be detailed in future Directors’ Remuneration Reports. There were no substantial shareholder votes against the resolutions at the AGMs in 2020 or 2019. The Committee was not provided with any external advice or services, during the financial year ended 31 December 2020, in respect of the fees payable to the non-executive directors or the remuneration payable to the CEO. The Committee assesses the workload and responsibilities of the non-executive directors and reviews, from time to time, the fees paid to non-executive directors of other investment trust companies. REMUNERATION POLICY The Company reports on its remuneration policy in accordance with the Regulations each year and is required to submit its remuneration policy to a shareholder vote every three years. An ordinary resolution for the approval of the current policy was put to members at the AGM on 1 May 2019 and passed by the members. This policy took effect from 1 January 2019. No changes were made to the policy. The policy will apply for a further three years until the AGM in 2022, when it will next be voted on by shareholders. The table below sets out the members of the Committee who were present during any consideration of the CEO’s remuneration, and shows the number of meetings attended by each non-executive director: The policy is set out below. Non-executive directors All the directors are non-executive, with the exception of the CEO. New directors are appointed for an initial term ending three years from the date of their first annual general meeting after appointment and with the expectation that they will serve a minimum of two three-year terms. The continuation of directors’ appointments is contingent on satisfactory performance evaluation and re-election at annual general meetings. Non- executive directors’ appointments are reviewed formally every three years by the Board as a whole. Each of the non-executive directors has a letter of appointment which sets out the terms on which they provide their services. A non-executive director may resign by notice in writing to the Board at any time; there are no set notice periods. Name P T Yates S E G A Neubert A J S Ross H M Henderson R J Oldfield Number of meetings attended 3 2/2 2/2 1/1 1/1 Statement of shareholder voting At the AGMs held on 29 April 2020 and 1 May 2019, respectively, ordinary resolutions to approve the Directors’ Remuneration Report for the year ended 31 December 2019 and to approve the remuneration policy were passed on a show of hands. The proxy votes in each case were as follows: Votes for Votes against Votes at proxies’ discretion Votes withheld Approval of Directors’ Remuneration Report Total votes cast (excluding votes withheld) 202,489,730 7,914,862 733,035 942,597 211,137,627 95.9% 3.7% 0.4% – 100% Approval of remuneration policy(1) 58,299,945 1,497,230 198,920 248,390 59,996,095 97.2% 2.5% 0.3% – 100% (1) Figures adjusted to take account of the sub-division of each ordinary share of 25p into five ordinary shares of 5p on 28 May 2019. 64 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Remuneration policy for non-executive directors The following table provides a summary of the key elements of the remuneration of the non-executive directors. Purpose Operation Fees Fees payable to the directors should reflect their responsibilities as directors and the time committed to the Company’s affairs and should be sufficient to enable candidates of high calibre to be recruited. There are no performance-related elements and no fees are subject to clawback provisions. Non-executive directors are to be remunerated in the form of fees, payable monthly in arrears, to the director personally. There are no long-term incentive schemes or pension arrangements and the fees are not specifically related to their performance, either individually or collectively. The Committee determines the level of fee at its discretion. The fees are reviewed each year, although such review will not necessarily result in any increase in the fees. Proposed increases in fees are determined in the light of increases in inflation and in the returns to the Company’s shareholders, and a comparison with the fees paid to the directors of other investment trusts of a similar size, structure and investment objective. The Chairman of the Board, the Chairmen of the Board’s Committees and the Senior Independent Director are paid higher fees than the other non-executive directors in recognition of their more onerous roles (see below). With effect from 1 April 2020, the Chairman’s fee is £68,500 and each non-executive director’s annual base fee is £36,000. Additional fees are payable as follows: > Chairman of Audit Committee £9,000. > Chairman of Remuneration and Nomination Committee £6,000. > Senior Independent Director £6,000. The maximum amount of fees, in aggregate, that may be paid to non-executive directors in any financial year is £450,000 following approval by shareholders at the AGM in April 2020. Witan Investment Trust plc Annual Report 2020 65 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued Remuneration policy for the CEO (and any future executive directors) Currently, the Company operates with one executive director, the CEO. This policy applies to the CEO, but would also be applied to any other executive director appointed by the Company. Executive director remuneration is set at market-competitive levels, with the majority of any variable pay (bonus amounts) contingent on the attainment of audited outperformance of the Company’s benchmark, in accordance with the Company’s objective. Any discretionary bonus is dependent on annual appraisal by the Remuneration and Nomination Committee and Board against a range of financial and corporate governance criteria. Purpose and link to strategy Operation and clawback Maximum opportunity Base salary Base salary is set at market-competitive levels in order to recruit and retain an executive director of a suitably high calibre. The level of pay reflects a number of factors including individual experience, expertise and pay appropriate to the position. Benefits-in- kind Offering market- competitive level of benefits-in-kind to help recruit or retain an executive director of a suitably high calibre. Base salary is reviewed annually and fixed for 12 months. The CEO’s salary was increased to £308,424 per annum with effect from 1 January 2020. Year-on-year salary increases for any executive director will not exceed 10% per annum other than in times of abnormal inflation or other exceptional circumstances, in which case the increase will not exceed 20%. An executive director may be eligible to receive a range of benefits including some or all of: > private medical insurance for the executive director and their family; > death in service insurance; > business-related expenses. The maximum benefit that can be offered or paid to an executive director is: > private medical insurance provided on a family basis; > death in service insurance of four times base salary; > business-related expenses. Performance measures Not applicable Not applicable Where benefits are sourced through third-party providers, the expense will reflect the cost of the provision of the benefits from time to time but will be kept under review by the Committee. The CEO currently receives a cash payment, equal to 10% of base salary, in lieu of pension contributions. Not applicable The maximum cash payment in lieu of pension contributions is 10% of base salary, which is the same as the pension contribution rate applicable to other staff. Pension Offering market- competitive levels of guaranteed cash earnings to help recruit or retain an executive director of a suitably high calibre. 66 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Purpose and link to strategy Operation and clawback Maximum opportunity Performance measures The maximum cash bonus payable to any executive director is 40% of base salary. Please see note 1 on page 68 for details of the performance measures applicable to the CEO’s discretionary bonus. Discretionary bonus The purpose of the bonus arrangements is to incentivise the CEO to maximise the Company’s performance and its return to shareholders. The CEO is eligible to receive a discretionary bonus of up to 40% of basic annual salary. The Committee will review the CEO’s performance against the performance criteria to determine the appropriate level of bonus payable in respect of the preceding year. The Committee may change the terms of this bonus or reduce any bonus payment that would otherwise be payable in order to comply with any relevant current or future regulations, including the FCA Remuneration Code. See note 2 on page 68 for the operation of deferral, malus and clawback. One-year Bonus The purpose of the bonus arrangements is to incentivise the CEO to maximise the Company’s performance and its return to shareholders. The CEO is eligible to receive a bonus of up to 40% of base salary by reference to the performance of the Company over the previous financial year. The maximum cash bonus payable to any executive director is 40% of base salary. Please see note 1 on page 68 for details of the performance measures applicable to the CEO’s One-year Bonus. The Committee may change the terms of this bonus or reduce any bonus payment that would otherwise be payable in order to comply with any relevant current or future regulations, including the FCA Remuneration Code. See note 2 on page 68 for the operation of deferral, malus and clawback. Long-Term Bonus The purpose of the bonus arrangements is to incentivise the CEO to maximise the Company’s performance and its return to shareholders. The CEO is eligible to receive a bonus of up to 90% of base salary by reference to the performance of the Company over the previous three financial years. The maximum cash bonus payable to any executive director is 90% of base salary. Please see note 1 on page 68 for details of the performance measures applicable to the CEO’s Long-Term Bonus. The Committee may, with shareholder approval as appropriate, change the terms of this bonus or reduce any bonus payment that would otherwise be payable in order to comply with any relevant current or future regulations, including the FCA Remuneration Code. See note 2 on page 68 for the operation of deferral, malus and clawback. Witan Investment Trust plc Annual Report 2020 67 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued Notes: 1. Performance measures Mr Bell’s service agreement, as amended, provides that he is eligible to receive a bonus of up to 170% of his basic annual salary, two elements of which, totalling a maximum of 130% of salary, are calculated by reference to the performance of the Company. The cash bonus arrangement consists of three separate elements as set out below: (i) Discretionary bonus Each year Mr Bell is eligible to receive, at the absolute discretion of the Committee, a cash bonus of up to 40% of his basic annual salary. The Committee has determined a number of criteria that it takes into account on which to judge his performance and based on which it agrees the amount of the discretionary bonus. These include the management and administration of the Company, Witan’s compliance with evolving best practice in corporate sustainability (covering environmental, social and governance issues) and reporting to the Board, shareholders and other stakeholders. (ii) One-year Bonus Each year Mr Bell is eligible to receive an additional cash bonus of up to 40% of his basic annual salary. The bonus will be determined by the Company’s net asset value per share total return performance over the previous financial year (debt at par, excluding the effect of share buybacks or issuance) relative to its benchmark. Outperformance of the benchmark by 3.0% or more will generate a bonus of the full 40%. No bonus is payable if performance is in line with or below that of the benchmark. Relative performance of between nil and 3.0% will generate a pro rata bonus. (iii) Long-Term Bonus Mr Bell is eligible to receive a Long-Term Bonus each year of up to 90% of his basic annual salary by reference to the Company’s performance over the previous three financial years. The Long-Term Bonus will be determined by reference to the Company’s net asset value per share total return (debt at par, excluding the effect of share buybacks or issuance) relative to its benchmark, as set out in the Company’s audited annual accounts for the applicable financial years. Compounded average annual outperformance of the benchmark by 2.5% per annum or more will generate a bonus of the full 90%. No bonus is payable if performance is in line with or below that of the benchmark. Relative performance of between nil and 2.5% per annum will generate a pro rata bonus. The Long-Term Bonus will be halved if, despite outperformance of the benchmark over the relevant three financial years, the Company’s net asset value total return per share is negative over that period. 2. Deferral, malus and clawback 2.1 Deferral All bonuses are subject to deferral in terms of payment. 60% of any bonus will be paid in March following the performance year end (‘First Bonus Payment Date’). 40% of any bonuses will be payable on a deferred basis over the following three years, in equal instalments on each anniversary of the First Bonus Payment Date. 2.2 Malus Malus (where bonuses that have yet to be paid are forfeited) may be applied by the Remuneration and Nomination Committee where: (a) there has been material misstatement or error that causes an award to vest at a higher level than would otherwise have been the case; (b) there has been a material failure in risk management; (c) there has been serious misconduct that has resulted or could result in dismissal. 2.3 Clawback Any bonus will be subject to a clawback period of two years after it has been paid, whereby the CEO will be required to pay back part or all of any bonus already received. Clawback may be applied by the Remuneration and Nomination Committee where: (a) there has been material misstatement or error that causes an award to vest at a higher level than would otherwise have been the case; (b) there has been a material failure in risk management; (c) there has been serious misconduct that has resulted or could result in dismissal. 3. Legacy plans The Committee reserves the right to make remuneration payments and payments for loss of office that are not in line with the policy set out above (i) where the terms of such a payment were agreed before the policy came into effect or at a time when the relevant individual was not a director of the Company and (ii) in the opinion of the Committee, such a payment is not in consideration of the individual becoming a director of the Company. For these purposes, payments include the Committee making awards of variable remuneration. 4. Differences in the Company’s remuneration policies for directors and employees The remuneration policy for the executive director differs principally from that for employees in that the executive director’s remuneration is more heavily weighted towards variable pay so that a greater proportion of his pay is related to the Company’s performance and the value created for shareholders. Principles and approach to recruitment and internal promotion of directors Non-executive directors (1) Remuneration of non-executive directors should reflect the specific circumstances of the Company and the duties and responsibilities of the non-executive directors. It should provide appropriate compensation for the experience and time committed to the proper oversight of the affairs of the Company. (2) Non-executive directors are not eligible to receive bonuses, pension benefits, share options or other benefits. (3) The total remuneration of the non-executive directors is determined by the provisions of the Company’s Articles of Association and by shareholder resolution. 68 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE (4) The basic non-executive director’s fee will be paid to each non-executive director, with a higher fee per annum for the Chairman of the Company. An additional fee per annum will be paid to the Chairman of each of the Audit and the Remuneration and Nomination Committees and to the Chairman of any other Committees that the Company forms; and to the Senior Independent Director. Executive directors (1) When hiring a new executive director, or promoting to the Board from within the Group, the Committee will offer a package that is sufficient to retain and motivate and, if relevant, attract the right talent whilst paying no more than is necessary. (2) Ordinarily, remuneration for a new executive director will be in line with the policy set out in the table. (3) The maximum level of variable pay that may be awarded to a new director on recruitment or on promotion to the Board shall be limited to 170% of base salary (calculated at the date of grant, excluding any buy-out awards – see below). (4) The Committee may, where it considers it to be in the best interests of the Company and shareholders, offer an additional cash payment to an executive director in order to replace awards which would be foregone by the individual on leaving his/her previous employment (i.e. buy-out arrangements) which will be intended to mirror forfeited awards as far as possible by reflecting the value, nature, time horizons and performance measures. Letters of appointment/service contract Non-executive directors’ letters of appointment The non-executive directors all have letters of appointment, which may be inspected at the Company’s registered office. None of the non-executive directors is subject to any notice period. All continuing non-executive directors are required to stand for re-election by the shareholders at least every three years. The initial period of appointment is two terms of three years. All reasonably incurred expenses will be met. Mrs Beagles will stand for election and all other directors, with the exception of Mr Watson who will retire, are proposed for re-election at the AGM in April 2021. CEO’s service contract The CEO’s service contract with the Company may be inspected at the Company’s registered office. The CEO’s service agreement dated 3 February 2010, as amended, provided in 2020 for a salary of £308,424 (2019: £300,900) per annum. The salary remains at £308,424 for 2021. Mr Bell’s appointment may be terminated by either party on the giving or receiving of not less than nine months’ written notice. Please see ‘Policy on payment for loss of office’ below for further details of the CEO’s service contract. Illustration of application of remuneration policy The chart below shows an indication of the values of the CEO’s remuneration that would be received by the CEO, in accordance with this remuneration policy, for the year ending 31 December 2021 at three direct levels of performance: > minimum performance, i.e. fixed salary, taxable benefits and payment in lieu of pension contributions, with no bonus payout; > on-target performance, i.e. fixed pay plus bonus payments assuming a 50% payout of each of the discretionary, One-year and Long-Term Bonuses; and > maximum performance, i.e. fixed pay plus bonus payments assuming 100% payout of each of the discretionary, One-year and Long-Term Bonuses. 1,000 800 600 400 200 0 £370,000 100% £632,000 22% 10% 10% 58% £894,000 31% 14% 14% 41% Minimum performance On-target performance Maximum performance Fixed pay One-year Bonus Discretionary bonus Long-Term Bonus Policy on payment for loss of office Non-executive directors It is the Company’s policy not to enter into any arrangement with any of the non-executive directors to entitle any of the non- executive directors to compensation for loss of office. CEO (and any future executive directors) The Company’s policy is to agree a notice period for the CEO which would not exceed nine months. The Company may, in its absolute discretion and without any obligation to do so, terminate the CEO’s employment immediately by giving him/her written notice together with a payment of such sum as would have been payable by the Company to the CEO as salary (excluding future bonus accrual) in respect of his/her notice period. The Company may, at its discretion, make the termination payment in instalments over a period of no longer than six months from the termination date and on terms that any payment should be reduced to take account of mitigation by the CEO. If a new executive director is recruited, the Company’s policy regarding payments for loss of office will be the same as for the CEO. Witan Investment Trust plc Annual Report 2020 69 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued Statement of consideration of shareholder views The Company places great importance on communication with its shareholders. The Company had frequent meetings with institutional shareholders and City analysts throughout the year ended 31 December 2020. Due to the COVID-19 pandemic, it was not possible to meet shareholders at the AGM held in 2020 in the usual way, but shareholders were invited to submit questions to the Board. The Company also responded to shareholder enquiries during the year. The Board can confirm that it is not aware of negative views being expressed by shareholders in relation to its policy on directors’ remuneration. Approval This report was approved by the Committee on 10 March 2021 and is signed on its behalf by: Paul Yates Chairman of the Remuneration and Nomination Committee 10 March 2021 If the CEO ceases employment as a result of a ‘good leaver’ reason (i.e. death, ill-health, injury, disability, redundancy, retirement or due to any other circumstance that the Committee at its discretion permits), any bonus payment shall be pro-rated for time and performance. The Committee may, however, taking into account such factors as it considers appropriate, increase the proportion of the relevant bonus that becomes payable. If the CEO ceases employment other than as a ‘good leaver’, or if the CEO gives or receives notice prior to the date that the relevant bonus would otherwise have been paid, the CEO will forfeit any right to receive the relevant bonus for nil consideration unless the Committee, in its absolute discretion, determines otherwise. A change of control of the Company shall not affect the amount of any bonus or the date on which it becomes payable unless the Committee determines otherwise, in which case the Committee shall determine whether the pro-rated performance targets attached to the applicable bonuses have been satisfied at that time. If the Committee determines that the pro-rated performance targets have not been satisfied on the change of control, the applicable bonus shall immediately lapse unless the Committee determines otherwise. To the extent that the Committee determines that the pro-rated performance targets have been satisfied on the change of control, if the CEO ceases to be employed by the Company prior to the date that the applicable bonus would otherwise have been paid to the CEO other than as a result of: > > > a reason which would have justified his/her summary dismissal; his/her cessation of employment without the giving or receiving of notice; or his/her resignation, the applicable bonus shall become payable to the extent determined at the time of the change of control on, or as soon as practicable after, the CEO’s cessation of employment. Statement of consideration of conditions elsewhere in the Company The Committee considers the employment conditions, including salary increases, of employees other than the CEO when setting the CEO’s remuneration. The Company did not consult with employees when drawing up the remuneration policy. Where possible, the Committee benchmarks the remuneration of the employees and the CEO by obtaining details of remuneration paid to employees in comparable roles in other companies. Witan had seven employees during 2020. The ratio of the CEO’s remuneration to the median of the other employees was under 5. We have not reported in any greater detail on this point in order to protect the privacy of individuals. 70 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Directors’ Report STATUTORY INFORMATION ASSETS The directors present the Annual Report of the Group for the year ended 31 December 2020. ACTIVITIES AND BUSINESS REVIEW A review of the business, including future developments, is given in the Strategic Report on pages 1 to 43 including the Chairman’s and Chief Executive’s reports on pages 8 to 19. The directors are required by the Companies Act to prepare a Strategic Report for each financial year, which contains a fair review of the business of the Group during the financial year and the position of the Group at the end of the year and a description of the principal risks and uncertainties facing the Group. This information can be found within the Strategic Report on pages 35 to 37. The DIrectors expect the Company’s principal activities to remain the same in 2021. The Corporate Governance Statement on pages 46 to 55 forms part of this Directors’ Report. At 31 December 2020 the total net assets of the Group were £1,925.2m (2019: £2,051.1m). At this date the net asset value per ordinary share was 240.14p (2019: 236.85p). REVENUE AND DIVIDEND The profit for the year was £46m (2019: £376m). A profit of £26m is attributable to revenue (2019: £53m). The profit for the year attributable to revenue has been applied as follows: Distributed as dividends: First interim of 1.34p per ordinary share (paid on 19 June 2020) Second interim of 1.34p per ordinary share (paid on 18 September 2020) Third interim of 1.34p per ordinary share (paid on 18 December 2020) Fourth interim of 1.43p per ordinary share (payable on 31 March 2021) £’000 11,536 11,099 10,885 11,294 (19,000) 25,814 INVESTMENT POLICY The Company’s investment policy is set out on the inside front cover. Utilisation of the Company’s revenue reserve Company revenue profit available for distribution STATUS Witan Investment Trust plc (the ‘Company’) is incorporated in the United Kingdom and registered in England and Wales and domiciled in the United Kingdom. It is an investment company as defined in section 833 of the Companies Act 2006 and operates as an investment trust in accordance with section 1158 of the Corporation Tax Act 2010. The Company has received confirmation from HM Revenue and Customs that it has been accepted as an approved investment trust with effect from 1 January 2012, provided it continues to meet the eligibility conditions of section 1158 and the ongoing requirements for approved companies in the Investment Trust (Approved Company) (Tax) Regulations 2011. SUBSIDIARY COMPANY The Company has one subsidiary company, Witan Investment Services Limited, which provides marketing services and investment products to the Company. Witan Investment Services Limited is authorised and regulated by the Financial Conduct Authority to act as the Company’s AIFM. ISAs The Company intends to continue to manage its affairs so that its shares fully qualify for the stocks and shares component of an ISA and a Junior ISA. SUBSTANTIAL SHARE INTERESTS As at 31 December 2020, the Company had not been notified of any substantial interests in the Company’s voting rights. There have not been any new holdings notified between the year end and the date of this report. The directors have declared a fourth interim dividend instead of a final dividend in order to ensure that, as in previous years, the distribution is made to shareholders before 5 April. FINANCIAL INSTRUMENTS The Company had no outstanding derivative contracts at 31 December 2020. Note 14 to the financial statements describes the Company’s exposure to price risk, credit risk, liquidity risk and cash flow risk. DIRECTORS The current directors of the Company are shown on pages 44 to 45. All the directors held office throughout the year under review, except Mrs Beagles, who was appointed as a director on 1 July 2020. She will seek election by shareholders at the forthcoming AGM. In accordance with the UK Corporate Governance Code, all the other directors will retire and, being eligible, will seek re-election by shareholders, with the exception of Mr Watson, who will retire but not stand for re-election. The Board has reviewed the performance and commitment of the directors standing for election or re-election and considers that each of them should continue to serve on the Board as they bring wide, current and relevant experience that allows them to contribute effectively to the leadership of the Company. More details are contained within the Notice of AGM. During the year the membership of the Audit Committee comprised Mr Perry (Chairman), Mr Watson and Mr Yates. Mrs Beagles has been appointed as a member of the Committee in anticipation of Mr Watson’s retirement. During the year the membership of the Remuneration and Nomination Committee comprised Mr Oldfield (Chairman) and Mr Henderson, until their retirement on 29 April 2020; Mr Yates, who succeeded to the role of Chairman with effect from 29 April 2020; Mr Ross and Ms Neubert, who were both appointed with effect from 29 April 2020. Witan Investment Trust plc Annual Report 2020 71 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Report continued No director was a party to, or had an interest in, any contract or arrangement with the Company at any time during the year or to the date of this report. With the exception of Mr Bell, no director has or had a service contract with the Company. DIRECTORS’ INDEMNITY The Company’s Articles of Association allow the Company, subject to the provisions of UK legislation, to: DIRECTORS’ INTERESTS The interests of the directors in the share capital of the Company are set out in the Directors’ Remuneration Report on page 62. DIRECTORS’ CONFLICTS OF INTEREST Directors have a duty to avoid situations where they have, or could have, a direct or indirect interest that conflicts, or possibly could conflict, with the Company’s interests. The Companies Act 2006 (the ‘Act’) allows directors of public companies to authorise such conflicts and potential conflicts, where appropriate, but only if the Articles of Association contain a provision to this effect. The Act also allows the Articles of Association to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach of duty. There are two circumstances in which a potential conflict of interest can be permitted: either the situation cannot reasonably be regarded as likely to give rise to a conflict of interest or the matter has been authorised in advance by the directors. The Company’s Articles of Association, which were adopted by shareholders on 1 May 2019, give the directors the relevant authority required to deal with conflicts of interest. Each of the directors has provided a statement of all conflicts of interest and potential conflicts of interest, if any, applicable to the Company. A register of conflicts of interest has been compiled and approved by the Board. The directors have also undertaken to notify the Chairman as soon as they become aware of any new potential conflicts of interest that need to be approved by the Board and added to the register, which is reviewed annually by the Board. It has also been agreed that directors will advise the Chairman and the Company Secretary in advance of any proposed external appointment and new directors will be asked to submit a list of potential situations falling within the conflicts of interest provisions of the Act in advance of joining the Board. The Chairman will then determine whether the relevant appointment causes a conflict or potential conflict of interest and should therefore be considered by the Board. Only directors who have no interest in the matter being considered would be able to participate in the Board approval process. In deciding whether to approve a conflict of interest, directors will also act in a way they consider, in good faith, will be most likely to promote the Company’s success in taking such a decision. The Board can impose limits or conditions when giving authorisation if the directors consider this to be appropriate. The Board believes that its arrangements for the authorisation of conflicts operate effectively. The Board also confirms that its procedures for the approval of conflicts of interest have been followed by all the directors and that there are currently no conflicts of interest. (a) indemnify any person who is or was a director, or a director of any associated company, directly or indirectly against any loss or liability, whether in connection with any proven or alleged negligence, default, breach of duty or breach of trust by him or her, or otherwise, in relation to the Company or any associated company; and (b) purchase and maintain insurance for any person who is or was a director, or a director of any associated company, against any loss or liability or any expenditure he or she may incur, whether in connection with any proven or alleged negligence, default, breach of duty or breach of trust by him or her, or otherwise, in relation to the Company or any associated company. Directors’ and officers’ liability insurance cover is in place in respect of the directors and was in place throughout the year under review. DIRECTORS’ FEES The report on the directors’ remuneration is set out in the Directors’ Remuneration Report on pages 59 to 70. The Company’s Articles of Association currently limit the aggregate fees payable to the non-executive directors to £450,000 per annum. INVESTMENT MANAGERS It is the opinion of the directors that the continuing appointment of the investment managers listed on page 15 is in the interests of the Company’s shareholders as a whole and that the terms of engagement negotiated with them are competitive and appropriate to the investment mandates. The Board and the Company’s AIFM review the appointments of the investment managers on a regular basis and make changes as appropriate. SHARE CAPITAL The Company’s share capital comprises: (a) ordinary shares of 5p nominal value each (‘shares’) At 31 December 2020, there were 1,000,355,000 (2019: 1,000,355,000) ordinary shares of 5p each in issue. During the year, 64,265,148 shares were bought back and are held in treasury and at 31 December 2020 there were 198,641,713 shares held in treasury. These shares do not carry voting rights or the right to receive dividends and thus the number of voting rights was 801,713,287 on a poll. Since the year end, 15,544,013 shares have been bought back and as at 9 March 2021 there were 1,000,355,000 shares in issue of which 214,185,726 were held in treasury. The voting rights of the shares on a poll are one vote for every share held. 72 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE The Company’s Articles of Association permit the Company to purchase its own shares and to fund such purchases from its accumulated realised capital profits. At the AGM in May 2020 a special resolution was passed giving the Company authority, until the conclusion of the AGM in 2021, to make market purchases to be held in treasury of the Company’s ordinary shares up to a maximum of 129,363,989 shares, being 14.99% of the issued ordinary share capital as at 29 April 2020. The Company has bought back 76,832,656 shares between the date of the last AGM and 9 March 2021. The Board is seeking to renew its powers at the forthcoming AGM to buy shares into treasury, for possible reissuance when the shares trade at a premium. The Company makes use of share buybacks, purchasing shares to be held in treasury with the objective of achieving a sustainable low discount (or a premium) to net asset value. Shares are not bought back unless the result is an increase in the net asset value per ordinary share. Shares will only be re-sold from treasury at, or at a premium to, the net asset value per ordinary share. The Company is also seeking to renew shareholder approval to issue shares, up to 10% of the starting total, provided that such shares are issued at, or at a premium to, net asset value. (b) 2.7% preference shares of £1 nominal value each (‘2.7% preference shares’) The 2.7% preference shareholders have no rights to attend and vote at general meetings. At 31 December 2020 there were 500,000 2.7% preference shares in issue. Further details on the preference shares are given in note 17 on page 107. (c) 3.4% preference shares of £1 nominal value each (‘3.4% preference shares’) The 3.4% preference shareholders have no rights to attend and vote at general meetings. At 31 December 2020 there were 2,055,000 3.4% preference shares in issue. Further details on the preference shares are given in note 17 on page 107. At the AGM in 2020 a special resolution was passed giving the Company authority, until the conclusion of the AGM in 2021, to make market purchases for cancellation of the Company’s own 2.7% preference shares and 3.4% preference shares up to a maximum of all those in issue. This authority has not been used. Accordingly, as at 31 December 2020, the Company had valid authority, outstanding until the conclusion of the AGM in 2021, to make market purchases for cancellation of 500,000 2.7% preference shares and 2,055,000 3.4% preference shares. No preference shares were bought back between the year end and the date of this report. The directors intend to seek a fresh authority at the AGM in 2021. There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer which are known to the Company; and no agreements to which the Company is party that might affect its control following a successful takeover bid. INDEPENDENT AUDITOR Resolutions to reappoint Grant Thornton UK LLP as the Company’s auditor and to authorise the Audit Committee to determine their remuneration will be proposed at the forthcoming AGM. Further details are included in the Report of the Audit Committee on pages 56 to 58. DIRECTORS’ STATEMENT AS TO THE DISCLOSURE OF INFORMATION TO THE AUDITOR Each of the directors at the date of approval of this report confirms that: (1) so far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and (2) the director has taken all the steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. LISTING RULE 9.8.4 Listing Rule 9.8.4 requires the Company to include certain information in a single identifiable section of the Annual Report. Details of Mr Bell’s Long-Term Bonus are included in the Directors’ Remuneration Report on page 61. The directors confirm that there are no other disclosures to be made in respect of Rule 9.8.4. ANTI-BRIBERY AND CORRUPTION POLICY The Board has a zero-tolerance approach to instances of bribery and corruption. Accordingly, it expressly prohibits any director or associated persons when acting on behalf of the Company, from accepting, soliciting, paying, offering or promising to pay or authorise any payment, public or private in the UK or abroad to secure any improper benefit for themselves or for the Company. The Board applies the same standards to its service providers in their activities for the Company. A copy of the Company’s Anti-Bribery and Corruption Policy can be found on its website at www.witan.com. The policy is reviewed regularly by the Audit Committee. Witan Investment Trust plc Annual Report 2020 73 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Report continued PREVENTION OF THE FACILITATION OF TAX EVASION ANNUAL GENERAL MEETING During the year, in accordance with the Criminal Finances Act 2017, the Board has adopted a zero-tolerance approach to the criminal facilitation of tax evasion. A copy of the Company’s policy on preventing the facilitation of tax evasion can be found on the Company’s website www.witan.com. The policy is reviewed annually by the Audit Committee. The AGM will be held at 10.00 am on Wednesday 28 April 2021. The formal notice of the AGM is set out in the accompanying circular to shareholders, together with explanations of the resolutions and arrangements for the meeting. Approved by the Board and signed on its behalf by: Frostrow Capital LLP Company Secretary 10 March 2021 COMMON REPORTING STANDARD (‘CRS’) CRS is a global standard for the automatic exchange of information commissioned by the Organisation for Economic Cooperation and Development and incorporated into UK law by the International Tax Compliance Regulations 2015. CRS requires the Company to provide certain additional details to HM Revenue and Customs in relation to certain shareholders. The reporting obligation began in 2016 and is an annual requirement. The Company’s registrar, Computershare Investor Services PLC, has been engaged to collate such information and file the reports with HM Revenue and Customs on behalf of the Company. MODERN SLAVERY ACT 2015 As an investment vehicle, the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the directors consider that the Company is not required to make any anti-slavery or human trafficking statement under the Modern Slavery Act 2015. SECURITIES FINANCING TRANSACTIONS As the Company undertakes securities lending, it is required to report on Securities Financing Transactions (as defined in Article 3 of Regulation (EU) 2015/2365, securities financing transactions include repurchase transactions, securities or commodities lending and securities or commodities borrowing, buy-sell back transactions or sell-buy back transactions and margin lending transactions). In accordance with Article 13 of the Regulation, the Company’s involvement in and exposures related to securities lending as at 31 December 2020 are detailed on pages 111 to 112. GREENHOUSE GAS EMISSIONS The Company has a staff of six employees, operating from small serviced office premises. Accordingly, it does not have any significant greenhouse gas emissions to report from its own operations, nor does it have responsibility for any other emission-producing sources under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013, including those within its underlying investment portfolio. 74 Witan Investment Trust plc Annual Report 2020 CORPORATE GOVERNANCE Statement of Directors’ Responsibilities in respect of the Annual Report, the Directors’ Remuneration Report and the financial statements The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. RESPONSIBILITY STATEMENT We confirm, to the best of our knowledge, that: Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union (‘EU’) and Article 4 of the EU IAS Regulation and have also chosen to prepare the parent company financial statements under IFRSs as adopted by the EU. 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 Group and Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors: > > > properly select and apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and > > the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description (on pages 35 to 37) of the principal risks and uncertainties that they face. We also confirm that the 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. By order of the Board Andrew Ross Chairman 10 March 2021 Andrew Bell Chief Executive Officer 10 March 2021 > make an assessment of the Company’s ability to continue Note to those who access this document by electronic means: as a going concern. 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 Annual Report for the year ended 31 December 2020 has been approved by the Board of Witan Investment Trust plc. Copies of the Annual Report and the Half Year Report are circulated to shareholders and, where possible, to investors through other providers’ products and nominee companies (or written notification is sent when they are published online). It is also made available in electronic format for the convenience of readers. Printed copies are available from the Company’s registered office in London. Witan Investment Trust plc Annual Report 2020 75 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Independent Auditor’s Report to the members of Witan Investment Trust plc for the year ended 31 December 2020 OPINION CONCLUSIONS RELATING TO GOING CONCERN Our opinion on the financial statements is unmodified. We have audited the financial statements of Witan Investment Trust plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2020 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Individual Statements of Changes in Equity, the Consolidated and Individual Balance Sheets, the Consolidated and Individual Cash Flow Statements and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the Group and the parent company to cease to continue as a going concern. A description of our evaluation of management’s assessment of the ability to continue to adopt the going concern basis of accounting, and the key observations arising with respect to that evaluation, is included in the Key Audit Matters section of our report. > > > > the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2020 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and international accounting standards in conformity with the requirements of the Companies Act 2006; Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s and the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. 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. the parent company financial statements have been properly prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and international accounting standards in conformity with the requirements of the Companies Act 2006; and In relation to the Group’s and the parent company’s reporting on how they have applied the UK Corporate Governance Code, 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. the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the financial statements’ section of this report. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 76 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTS OUR APPROACH TO THE AUDIT Materiality Key audit matters KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Scoping Description Audit response OVERVIEW OF OUR AUDIT APPROACH Overall materiality: Group: £19.3 million which represents 1% of the Group’s net assets. Parent company: £19.2 million which represents 1% of the parent company’s net assets. Key audit matters were identified as > > > Valuation and existence of investments measured at fair value through profit or loss (Same as previous year) Occurrence and completeness of investment income (Same as previous year) Going concern (New) Our auditor’s report for the year ended 31 December 2019 did not include any key audit matters that have not been reported as key audit matters in our current year’s report. The Group is made up of two components, the parent and subsidiary, and we have performed full scope audit procedures on both. KAM Disclosures Our results In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit. High t c a p m i t n e m e t a t s l i a c n a n i f l a i t n e t o P Low Investments measured at fair value through profit or loss Investment income Management override of controls Going concern Management fees Performance fees Low Extent of management judgement High Key audit matter Significant risk Other risk Witan Investment Trust plc Annual Report 2020 77 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Independent Auditor’s Report to the members of Witan Investment Trust plc continued for the year ended 31 December 2020 Key Audit Matter – Group and parent How our scope addressed the matter – Group and parent Valuation and existence of investments measured at fair value through profit or loss In responding to the key audit matter, we performed the following audit procedures: The Group’s investment objective is to provide long-term income and capital growth by investing in a diversified portfolio of global equities. > The investment portfolio at £2.2 billion (2019: £2.3 billion) is a significant material balance in the Consolidated balance sheet at year end and the main driver of the Group’s performance. Incorrect asset pricing or a failure to maintain proper legal title of the investments held by the Group could have an impact on the portfolio valuation and therefore, the return generated for shareholders. We therefore identified the valuation and existence of investments measured at fair value through profit or loss as a significant risk, which was one of the most significant assessed risks of material misstatement due to error. > > > assessing whether the Group’s accounting policy for the valuation of investments is in accordance with applicable financial reporting standards and the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (the ‘SORP’) and testing whether management have accounted for valuation in accordance with that policy; independently pricing 100% of the listed equity and fund portfolio by obtaining the relevant bid prices and NAV respectively from independent market information providers and recalculating the total valuation based on the Group’s investment holdings, which was agreed to the holdings at the Balance Sheet date as shown in the Group’s accounting records; testing that investments were actively traded by extracting a report of trading volumes in the week before and after the year end from independent market information providers for the equity investments held; and confirming the existence of investments through agreeing investments held by the Company as at the year-end as per the Balance Sheet to an independent confirmation that we received directly from the Company’s custodian. Relevant disclosures in the Annual Report and Accounts Our results The Group’s accounting policy on investments held at fair value through profit or loss is shown in note 1(h) to the financial statements and related disclosures are included in note 10. Our testing did not identify any material misstatements in the valuation of the Group’s investment portfolio as at the year end or any issues with regards to the existence/Group’s ownership of the underlying investments at the year end. Occurrence and completeness of investment income The Group measures performance on a total return basis and investment income is one of the significant components of this performance measure in the Income Statement. The Company is subject to Investment Trust Company (ITC) regulations and as a result is required to allocate returns between revenue and capital. There is a risk that income recognised in the year may be materially misstated through fraudulent transactions or error due to high volume of transactions. This could also impact the level of distribution required under ITC regulations Further, under International Standard on Auditing (UK) 240 ‘The auditor’s responsibilities relating to fraud in an audit of financial statements’, there is a presumed risk of fraud in revenue recognition which could impact the investment income recognised in the year. The investment income reported by the Group for the year is £36.1 million (2019: £65.0 million) and is a significant material balance in the Consolidated Statement of Comprehensive Income. We therefore identified occurrence and completeness of investment income as a significant risk, which was one of the most significant assessed risks of material misstatement due to fraud. In responding to the key audit matter, we performed the following audit procedures: > > > > assessing whether the Group’s accounting policy for recognition of investment income is in accordance with applicable financial reporting standards and the SORP; obtaining an understanding of the Group’s process for recognising such income in accordance with the Group’s stated accounting policy; testing that income transactions were recognised in accordance with the policy by selecting a sample of quoted investments and agreeing the relevant investment income receivable for those quoted equities to the Group’s records. For the selected investments we also obtained the respective dividend rate entitlements from independent market information providers and checked against the amounts recorded in the Group’s accounting records that are maintained by the administrator. In addition, we agreed the receipt of the dividend income to bank statements; performing, on a sample basis, a search for special dividends on the equity investments held during the year to check whether dividend income attributable to those investments has been properly recognised. We checked the categorisation of special dividends as either revenue or capital receipts. 78 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTS Key Audit Matter – Group and parent How our scope addressed the matter – Group and parent Relevant disclosures in the Annual Report and Accounts Our results The Group’s accounting policy on income, including investment income, is shown in note 1(e) to the financial statements and related disclosures are included in note 2. Our testing did not identify any material misstatements in the amount of revenue recognised during the year. Going concern Under ISA 570 there is an assumption that management will continue to present the financial statements on a going concern basis unless there is an intention to liquidate the business or no longer continue operations. The recent development of macro-economic uncertainties such as Brexit and COVID-19 generally increase the uncertainty around going concern. There is a risk that COVID-19 causes a material impact on the entity’s ability to continue as a going concern. We therefore identified going concern as one of the most significant assessed risks of material misstatement. In responding to the key audit matter, we performed the following audit procedures: > > > Reviewed the appropriateness of company policy and procedures under relevant accounting framework and rationale for why no going concern issues are noted. Reviewed the disclosures concerning the basis of preparation of the financial statements and going concern. Reviewed management’s going concern assessment and conclusions made. In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the Group’s and parent company’s business model including effects arising from COVID-19, we assessed and challenged the reasonableness of estimates made by the directors and the related disclosures and analysed how those risks might affect the Group’s and the parent company’s financial resources or ability to continue operations over the going concern period. Specifically, we performed the following procedures as a result of the recent development of macro-economic uncertainties such as COVID-19 and its potential impact on going concern: > > > > > > Reviewed the income forecasts prepared by management, including the assumptions used and level of headroom available, both in terms of cash resources and compliance with loan covenants. Obtained support for the renewal of the revolving credit facility in November 2020 and obtained an understanding of the liquidity position of the Group. Considered the robustness of the forecasts to potential changes in underlying assumptions. Obtained an understanding of how management has assessed the impact of events/market conditions in relation to COVID-19 in their forecasts. Reviewed disclosures included in the financial statements in relation to the impact of uncertainties such as COVID-19. Reviewed applicable subsequent events and challenged their implications with management. Relevant disclosures in the Annual Report and Accounts Our results The Group’s accounting policy on going concern is shown in note 1(b) to the financial statements. We have nothing to report in addition to that stated in the ‘Conclusions relating to going concern’ section of our report. Witan Investment Trust plc Annual Report 2020 79 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS OUR APPLICATION OF MATERIALITY We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report. Materiality was determined as follows: Materiality measure Group Parent company Materiality for financial statements as a whole We define materiality as the magnitude of misstatement in the financial statements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of these financial statements. We use materiality in determining the nature, timing and extent of our audit work. Materiality threshold £19.3 million which is 1% of the Group’s net assets. £19.2m which is 1% of the parent company’s net assets. Significant judgements made by auditor in determining the materiality In determining materiality, we made the following significant judgements: In determining materiality, we made the following significant judgements: Net assets, which primarily comprise the Group’s investment portfolio, are considered to be the key driver of the Group’s total return performance and form a part of the net asset value calculation. Net assets, which primarily comprise the Company’s investment portfolio, are considered to be the key driver of the Company’s total return performance and form a part of the net asset value calculation. In addition, the Group only invests in liquid investments and so by benchmarking against other entities in the same industry, 1% is considered appropriate. Materiality for the current year is lower than the level that we determined for the year ended 31 December 2019 to reflect the decrease in net asset value in the year from £2.1bn to £1.9bn. In addition, the parent company only invests in liquid investments and so by benchmarking against other entities in the same industry, 1% is considered appropriate. Materiality for the current year is lower than the level that we determined for the year ended 31 December 2019 to reflect the decrease in net asset value in the year from £2.1bn to £1.9bn We set performance materiality at an amount less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality used to drive the extent of our testing Performance materiality threshold £11.6m which is 60% of financial statement materiality. £11.5m which is 60% of financial statement materiality. Significant judgements made by auditor in determining the performance materiality In determining materiality, we made the following significant judgements: In determining materiality, we made the following significant judgements: We set a lower level of materiality at 60% (75% in the year ended 31 December 2019) in determining performance materiality to address the heightened risk of fraud across the market as a result of the COVID-19 pandemic. We set a lower level of materiality at 60% (75% in the year ended 31 December 2019) in determining performance materiality to address the heightened risk of fraud across the market as a result of the COVID-19 pandemic. 80 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSIndependent Auditor’s Report to the members of Witan Investment Trust plc continuedfor the year ended 31 December 2020 Materiality measure Group Parent company Specific materiality We determine specific materiality for one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Specific materiality threshold We determined a lower level of specific materiality for the following areas: We determined a lower level of specific materiality for the following areas: Communication of misstatements to the Audit Committee Threshold for communication Investment income, management fees and performance fees; Investment income, management fees and performance fees; Related party transactions and directors’ remuneration. Related party transactions and directors’ remuneration. We determine a threshold for reporting unadjusted differences to the Audit Committee. £10,000 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £10,000 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements. OVERALL MATERIALITY – GROUP OVERALL MATERIALITY – PARENT COMPANY Net assets £1.9bn FSM £19.3m, 1% PM £11.6m, 60% TFPUM £10,000 Net assets £1.9bn FSM £19.2m, 1% PM £11.6m, 60% TFPUM £10,000 FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements AN OVERVIEW OF THE SCOPE OF OUR AUDIT We performed a risk-based audit that requires an understanding of the Group’s and the parent company’s business and in particular matters related to: Understanding the Group, its components, and their environments, including Group-wide controls > > > the engagement team obtained an understanding of the Group and its environment and assessed the risks of material misstatement at the Group level; obtaining an understanding of relevant internal controls at both the Group and third-party service providers. This included obtaining and reading internal controls reports prepared by the third-party; and service providers on the description, design, and operating effectiveness of the internal controls at the investment manager, custodian and administrator. Identifying significant components The Group audit team evaluated the identified components to assess their significance and determined the planned audit response based on a measure of materiality. Significance was determined as a percentage of the Group’s total assets, revenues and profit before taxation. Witan Investment Trust plc Annual Report 2020 81 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Type of work to be performed on financial information of parent and other components (including how it addressed the key audit matters) > For each component of the audit, (the parent company and the subsidiary, Witan Investment Services Limited) the following approach was undertaken: – audit of the financial information of the component using component materiality (full-scope audit) This ensured all key audit matters were addressed. Performance of our audit > A full scope audit was performed for all components. Changes in approach from previous period > There have not been any changes in the scope of the current year audit from the scope of that of the prior year. OTHER INFORMATION The directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Our opinions on other matters prescribed by the Companies Act 2006 are unmodified In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: > > the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT UNDER THE COMPANIES ACT 2006 In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: > > > > 82 adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSIndependent Auditor’s Report to the members of Witan Investment Trust plc continuedfor the year ended 31 December 2020 CORPORATE GOVERNANCE STATEMENT The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group’s and the parent company’s compliance with the provisions of the UK Corporate Governance Statement specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: > > > > > > the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the Group’s and the parent company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements; the directors’ explanation in the Annual Report as to how they have assessed the prospects of the Group and the parent company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group and the parent company will be able to continue in operation and meet their liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions; the directors’ statement that they consider the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s and the parent company’s performance, business model and strategy; the directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal and emerging risks facing the Group and the parent company (including the impact of Brexit and COVID-19) and the disclosures in the Annual Report that describe the principal risks, procedures to identify emerging risks and an explanation of how they are being managed or mitigated (including the impact of Brexit and COVID-19); the section of the Annual Report that describes the review of the effectiveness of Group’s and the parent company’s risk management and internal control systems, covering all material controls, including financial, operational and compliance controls; and the section of the Annual Report describing the work of the Audit Committee, including significant issues that the Audit Committee considered relating to the financial statements and how these issues were addressed. Responsibilities of directors for the financial statements As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent 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 Group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). Witan Investment Trust plc Annual Report 2020 83 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below: > We obtained an understanding of the legal and regulatory frameworks applicable to the Group and parent company and industry in which it operates. We determined that the following laws and regulations were most significant: applicable financial reporting standards, Companies Act 2006, AIC Code of Corporate Governance, AIC Statement of Recommended Practice 2019 and s1158 & s1159 of the Corporation Tax Act 2010. We enquired of management whether there were any instances of non-compliance with laws and regulations or whether they had any knowledge of actual or suspected fraud. We corroborated the results of our enquiries through our review of board minutes and papers provided to the Audit Committee. We did not identify any matters relating to non-compliance with laws and regulation or matters in relation to fraud. > In assessing the potential risks of material misstatement, we obtained an understanding of: – the Company’s operations, including the nature of its revenue sources, and of its objective and strategy to understand the classes of transactions, account balances, expected financial statement disclosures and business risks that may result in risks of material misstatement; – the Company’s control environment, including the policies and procedures implemented to comply with annual and financial reporting requirements. > We assessed the susceptibility of the Group and parent company’s financial statements to material misstatement, including how fraud might occur. Audit procedures performed by the Group engagement team included: – Determining completeness of journal entries and identifying and testing journal entries, in particular manual journal entries processed at the year end for financial statements preparation; – As per International Standard on Auditing (UK) 240 ‘The auditor’s responsibilities relating to fraud in an audit of financial statements, we also maintained the presumed fraudulent revenue recognition risk for investment income because it is a significant balance in the financial statements. Please refer to the revenue key audit matter for details of work performed. > The engagement partner’s assessment of the appropriateness of the collective competence and capabilities of the engagement team included consideration of the engagement team’s: – understanding of, and practical experience with audit engagements of a similar nature and complexity through appropriate training and participation; – knowledge of the industry in which the Group and parent company operate. Other matters which we are required to address Following the recommendation of the Audit Committee, we were appointed by Witan Investment Trust plc in August 2016 to audit the financial statements for the year ended 31 December 2016 and subsequent financial periods. The period of total uninterrupted consecutive appointments is five years, covering the years ended 31 December 2016 to 31 December 2020. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company and we remain independent of the Group and the parent company in conducting our audit. Our audit opinion is consistent with the additional report to the Audit Committee. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Marcus Swales Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 10 March 2021 84 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSIndependent Auditor’s Report to the members of Witan Investment Trust plc continuedfor the year ended 31 December 2020 Consolidated Statement of Comprehensive Income for the year ended 31 December 2020 Investment income Other income Gains on investments held at fair value through profit or loss Foreign exchange losses on cash and cash equivalents Total income Expenses Management and performance fees Other expenses Profit before finance costs and taxation Finance costs Profit before taxation Taxation Profit attributable to equity shareholders of the parent company Earnings per ordinary share Year ended 31 December 2020 Year ended 31 December 2019 Notes 2 3 10 Revenue return £’000 36,083 604 – – Capital return £’000 Total £’000 Revenue return £’000 Capital return £’000 – – 36,083 65,045 604 2,223 – – Total £’000 65,045 2,223 57,813 57,813 (3,259) (3,259) – – 340,727 340,727 (1,633) (1,633) 36,687 54,554 91,241 67,268 339,094 406,362 4 5 6 7 9 (2,176) (7,103) (9,279) (2,522) (9,108) (11,630) (5,050) (260) (5,310) (6,673) (101) (6,774) 29,461 47,191 76,652 58,073 329,885 387,958 (1,674) (26,815) (28,489) (2,253) (6,485) (8,738) 27,787 20,376 48,163 55,820 323,400 379,220 (1,876) (398) (2,274) (3,028) (369) (3,397) 25,911 3.08p 19,978 45,889 52,792 323,031 375,823 2.37p 5.45p 6.01p 36.77p 42.78p The total column of this statement represents the Group’s Consolidated Statement of Comprehensive Income. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. The Group does not have any other comprehensive income and hence the total profit/(loss), as disclosed above, is the same as the Group’s total comprehensive income. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of Witan Investment Trust plc, the parent company. There are no non-controlling interests. The notes on pages 89 to 110 form part of these financial statements. Witan Investment Trust plc Annual Report 2020 85 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Consolidated and Individual Statements of Changes in Equity for the year ended 31 December 2020 Ordinary share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Other capital reserve £’000 Notes Revenue reserve £’000 Total £’000 50,018 99,251 46,498 1,768,281 87,058 2,051,106 Transactions with owners, recorded directly to equity: Ordinary dividends paid Buybacks of ordinary shares (held in treasury) 8 15 – – – – – – – – – 19,978 25,911 45,889 – (49,303) (49,303) (122,484) – (122,484) Total equity at 31 December 2020 50,018 99,251 46,498 1,665,775 63,666 1,925,208 Ordinary share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Other capital reserve £’000 Notes Revenue reserve £’000 Total £’000 50,018 99,251 46,498 1,768,439 86,900 2,051,106 Transactions with owners, recorded directly to equity: Ordinary dividends paid Buybacks of ordinary shares (held in treasury) 8 15 – – – – – – – – – 20,075 25,814 45,889 – (49,303) (49,303) (122,484) – (122,484) Total equity at 31 December 2020 50,018 99,251 46,498 1,666,030 63,411 1,925,208 Ordinary share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Other capital reserve £’000 Notes Revenue reserve £’000 Total £’000 50,018 99,251 46,498 1,498,832 78,843 1,773,442 Transactions with owners, recorded directly to equity: Ordinary dividends paid Buybacks of ordinary shares (held in treasury) 8 15 – – – – – – – – – 323,031 52,792 375,823 – (44,577) (44,577) (53,582) – (53,582) Total equity at 31 December 2019 50,018 99,251 46,498 1,768,281 87,058 2,051,106 Group Year ended 31 December 2020 Total equity at 31 December 2019 Total comprehensive income: Profit for the year Company Year ended 31 December 2020 Total equity at 31 December 2019 Total comprehensive income: Profit for the year Group Year ended 31 December 2019 Total equity at 31 December 2018 Total comprehensive income: Profit for the year Company Year ended 31 December 2019 Total equity at 31 December 2018 Total comprehensive income: Profit for the year Ordinary share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Other capital reserve £’000 Notes Revenue reserve £’000 Total £’000 50,018 99,251 46,498 1,498,923 78,752 1,773,442 Transactions with owners, recorded directly to equity: Ordinary dividends paid Buybacks of ordinary shares (held in treasury) 8 15 – – – – – – – – – 323,098 52,725 375,823 – (44,577) (44,577) (53,582) – (53,582) Total equity at 31 December 2019 50,018 99,251 46,498 1,768,439 86,900 2,051,106 The notes on pages 89 to 110 form part of these financial statements. 86 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTS Consolidated and Individual Balance Sheets as at 31 December 2020 Non current assets Investments at fair value through profit or loss Right-of-use asset: property Current assets Other receivables Cash and cash equivalents Total current assets Total assets Current liabilities Other payables Bank loans Total current liabilities Total assets less current liabilities Non current liabilities Other payables Deferred tax liability on Indian capital gains Borrowings: Secured debt Group 31 December 2020 £’000 Company 31 December 2020 £’000 Group 31 December 2019 £’000 Company 31 December 2019 £’000 Notes 10 21 11 12 13 12 7 13 2,162,722 2,163,877 2,276,623 2,277,681 315 315 490 490 2,163,037 2,164,192 2,277,113 2,278,171 10,877 36,145 47,022 10,759 35,152 45,911 7,260 44,723 51,983 6,933 43,568 50,501 2,210,059 2,210,103 2,329,096 2,328,672 (18,488) (18,532) (6,641) (6,217) (109,000) (109,000) (50,500) (50,500) (127,488) (127,532) (57,141) (56,717) 2,082,571 2,082,571 2,271,955 2,271,955 (417) (398) (417) (398) (653) – (653) – (153,993) (153,993) (217,641) (217,641) 3.4 per cent. cumulative preference shares of £1 2.7 per cent. cumulative preference shares of £1 13, 17 13, 17 (2,055) (2,055) (500) (500) (2,055) (500) (2,055) (500) Total non current liabilities Net assets Equity attributable to equity holders Ordinary share capital Share premium account Capital redemption reserve Retained earnings: Other capital reserves Revenue reserve Total equity (157,363) (157,363) (220,849) (220,849) 1,925,208 1,925,208 2,051,106 2,051,106 15 50,018 99,251 50,018 99,251 46,498 46,498 50,018 99,251 46,498 50,018 99,251 46,498 16 1,665,775 1,666,030 1,768,281 1,768,439 63,666 63,411 87,058 86,900 1,925,208 1,925,208 2,051,106 2,051,106 Net asset value per ordinary share 18 240.14p 240.14p 236.85p 236.85p The financial statements of Witan Investment Trust plc (registered number 101625) were approved by directors and authorised for issue on 10 March 2021 and were signed on their behalf by: A J S Ross A L C Bell As permitted by section 408 of the Companies Act 2006, the Company has not presented its own income statement. The profit of the Company dealt with in the accounts of the Group amounted to £45,889,000 (2019: profit of £375,823,000). The notes on pages 89 to 110 form part of these financial statements. Witan Investment Trust plc Annual Report 2020 87 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Consolidated and Individual Company Cash Flow Statements for the year ended 31 December 2020 Cash flows from operating activities Dividend income received Interest received Other income received Operating expenses paid Taxation on overseas income Taxation recovered Net cash inflow from operating activities Cash flows from investing activities Purchases of investments Sale of investments Settlement of futures contracts Net cash inflow from investing activities Cash flow from financing activities Equity dividends paid Issue of secured notes net of expenses Buybacks of ordinary shares Repayment of secured bond Interest paid Repayment of lease liability New drawdown/(repayment) of bank loans Net cash outflow from financing activities Decrease in cash and cash equivalents Cash and cash equivalents at the start of the period Effect of foreign exchange rate changes Cash and cash equivalents at the end of the period The notes on pages 89 to 110 form part of these financial statements. Notes Group 2020 £’000 Company 2020 £’000 Group 2019 £’000 Company 2019 £’000 37,152 37,152 64,922 64,922 89 1,142 88 281 156 2,873 152 587 (15,757) (14,733) (18,051) (14,905) (2,233) (2,233) (3,988) (3,988) 485 485 494 494 20,878 21,040 46,406 47,262 (1,687,329) (1,687,329) (971,055) (971,055) 1,859,846 1,859,846 982,575 982,575 4,892 4,892 177,409 177,409 3,543 15,063 3,543 15,063 8 19 19 (49,303) (49,303) (44,577) (44,577) (17) (17) 49,685 49,685 (120,437) (120,437) (53,512) (53,512) (85,750) (85,750) – – (6,529) (6,529) (8,366) (8,366) (70) (70) (89) (89) 19 58,500 58,500 (30,500) (30,500) (203,606) (203,606) (87,359) (87,359) (5,319) (5,157) (25,890) (25,034) 44,723 43,568 72,246 70,235 (3,259) (3,259) (1,633) (1,633) 36,145 35,152 44,723 43,568 88 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTS Notes to the Financial Statements for the year ended 31 December 2020 1 ACCOUNTING POLICIES The financial statements of the Group and parent company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (‘IFRSs’). These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. (a) Basis of preparation The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (the ‘SORP’) issued by the Association of Investment Companies (the ‘AIC’) in October 2019 is consistent with the requirements of the IFRSs, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. Judgements and sources of estimation uncertainty In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not always readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may vary from these estimates. The Directors do not consider that there are any significant estimates or critical judgements in these financial statements. (b) Going concern The financial statements have been prepared on a going concern basis. The Group’s business activities, together with the factors likely to affect its future development and performance, are set out in the Strategic Report on pages 1 to 43. The financial position of the Group as at 31 December 2020 is shown on the Balance Sheet on page 87. The cash flows of the Group for the year ended 31 December 2020 are not untypical and are set out on page 88. (c) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and the entity controlled by the Company (its subsidiary) made up to 31 December each year. In accordance with IFRS 10 the Company has been designated as an investment entity on the basis that: > > > it obtains funds from investors and provides those investors with investment management services; it commits to its investors that its business purpose is to invest solely for returns from capital appreciation and investment income; and it measures and evaluates performance of substantially all of its investments on a fair value basis. The subsidiary of the Company was established for the sole purpose of operating or supporting the investment operations of the Company, and is not itself an investment entity. Therefore, under the principles of IFRS 10, the Company has consolidated its subsidiary as it is a controlled entity that supports the investment activity of the investment entity. Control is achieved where the Company is exposed, or has the right, to variable returns from its investment in the subsidiary and has the ability to affect those returns through its power to direct the relevant activities. Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used by it into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. (d) Presentation of the Statement of Comprehensive Income In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. Additionally, the net revenue is the measure the directors believe appropriate in assessing the Group’s compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010. (e) Income Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities and shares. Interest receivable from cash and short-term deposits is accrued to the end of the period. Stock lending fees and underwriting commission are recognised as earned. Any special dividends are looked at individually to ascertain the reason behind the payment. This will determine whether they are treated as revenue or capital. Where the Group has elected to receive its dividends in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as revenue. Any excess in the value of shares received over the amount of cash dividend foregone is recognised as a gain in the Statement of Comprehensive Income. Witan Investment Trust plc Annual Report 2020 89 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 1 ACCOUNTING POLICIES CONTINUED (h) Investments held at fair value through profit or loss (f) Expenses All expenses and interest payable are accounted for on an accruals basis. Expenses are presented as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fees and finance costs are allocated 25% to revenue and 75% to capital to reflect the Board’s expectations of long-term investment returns. Any performance fees payable are allocated wholly to capital, reflecting the fact that, although they are calculated on a total return basis, they are expected to be attributable largely, if not wholly, to capital performance. When a purchase or sale is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date. All the Group’s investments are defined by IFRSs (see note 1 above) as investments held at fair value through profit or loss. All gains and losses are allocated to the capital return within the Statement of Comprehensive Income as ‘Gains or losses on investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the purchase or sale of investments. (g) Taxation The tax currently payable is based on the taxable profit for the period. The classification and measurement criteria determine if financial instruments are measured at amortised cost, fair value through other comprehensive income, or fair value through profit or loss. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date. In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the ‘marginal basis’. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income then no tax relief is transferred to the capital return column. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise using enacted rates that are expected to apply at the date the deferred tax position is unwound. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Investment assets are classified based on both the business model, and the contractual cash flow characteristics of the financial instruments. This approach determined that all investments are classified and measured at fair value through profit or loss, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. Investments in unit trusts or OEICs are valued at the closing price, the bid price or the single price as appropriate, released by the relevant investment manager. The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been accumulated in equity is recognised in profit or loss. Fair values for unquoted investments, or for investments for which there is only an inactive market, are established by using various valuation techniques. These may include recent arm’s length market transactions, the current fair value of another instrument that is substantially the same, discounted cash flow analysis, option pricing models and reference to similar quoted companies. Where there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, that technique is utilised. The subsidiary company, Witan Investment Services Limited, is held at fair value in the Company balance sheet. This is considered to be the net asset value of the shareholder’s funds, as shown in its balance sheet. (i) Cash and cash equivalents Cash comprises cash in hand and on demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. 90 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 (j) Dividends payable (n) Derivative financial instruments Interim dividends are recognised in the period in which they are paid. Final dividends are not recognised until approved by the shareholders in general meeting. (k) Fixed borrowings All secured bonds and notes are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest- bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method, with the interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future payments over the expected life of the financial liabilities, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. The Group’s activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interest rates. Derivative transactions which the Company may enter into comprise forward exchange contracts (the purpose of which is to manage currency risks arising from the Company’s investing activities), quoted options on shares held within the portfolio, or on indices appropriate to sections of the portfolio (the purpose of which is to provide protection against falls in the capital values of the holdings) and futures contracts appropriate to sections of the portfolio (to provide additional market exposure or to provide protection against falls in the capital values of the holdings). The Company may also write options on shares represented in the portfolio where such options are priced attractively relative to the investment managers’ longer-term expectations for the relevant share prices. The Group does not use derivative financial instruments for speculative purposes. Hedge accounting is not used. (l) Foreign currency translation Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. The use of financial derivatives is governed by the Group’s policies as approved by the Board, which has set written principles for the use of financial derivatives. Foreign currency monetary assets and liabilities that are fair valued and denominated in foreign currencies are re-translated into sterling at the rate ruling on the balance sheet date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income and allocated to the capital return. (m) Adoption of new and revised accounting standards (i) Standards not affecting the reported results nor the financial position The following new and revised Standards and Interpretations are applicable in the current year. Their application has not had any significant impact on the amounts reported in these financial statements. > IAS 1 and IAS 8 Amendments: Definition of Material. The International Accounting Standards Board has refined its definition of ‘material’ and issued practical guidance on applying the concept of materiality. The Company has applied from 1 January 2020. > IFRS 9, IAS 39 and IFRS 7 Amendments: Interest Rate Benchmark Reform. At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not been applied in these financial statements, were in issue but not effective (and in some cases had not yet been adopted). > IAS 39, IFRS 4, 7, 9 and 16 Amendments: Interest Rate Benchmark Reform. The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods. Beyond the information above, it is not practical to provide a reasonable estimate of the effect of these Standards until a detailed review has been completed. Changes in the fair value of derivative financial instruments are recognised in the Statement of Comprehensive Income as they arise. If capital in nature, the associated change in value is presented as a capital item in the Statement of Comprehensive Income. (o) Nature and purpose of reserves Ordinary share capital The ordinary share capital on the balance sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. Share premium account The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising ordinary shares of 5p. Capital redemption reserve The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company’s own shares purchased and cancelled in order to maintain the Company’s capital. Other capital reserves Gains and losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management and performance fees and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve. Revenue reserve This reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve is distributable. Witan Investment Trust plc Annual Report 2020 91 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 1 ACCOUNTING POLICIES CONTINUED (p) Leases A lease is identified at inception of a contract where it conveys rights to control the use of an identified asset for a period of time in exchange for consideration. At commencement, the Company as a lessee recognises a right-of-use asset equal to the lease liability at inception plus any direct costs, and the lease liability is measured at the present value of the unpaid lease payments discounted at the incremental borrowing rate of the Company. Subsequently, the Company as a lessee applies the cost model to the right-of-use asset which is depreciated over the useful life of the right-of-use asset, the lease liability is increased by interest on the outstanding balance and reduced by lease payments paid. A remeasurement of the right-of-use asset and the lease liability occurs when there is a change to the lease contract. The Company has elected not to separate any non-lease element from the lease payments. 2 INVESTMENT INCOME UK dividends from listed investments UK special dividends from listed investments Total UK dividends Overseas dividends from listed investments Overseas special dividends from listed investments Overseas stock dividends from listed investments Total investment income Analysis of investment income by geographical segment: United Kingdom North America Continental Europe Japan Asia Pacific (ex Japan) Latin America Other Total investment income 3 OTHER INCOME Deposit interest Stock lending income Income from the subsidiary company’s third-party business 2020 £’000 2019 £’000 10,549 22,393 104 2,085 10,653 24,478 25,122 39,089 257 51 1,476 2 36,083 65,045 2020 £’000 2019 £’000 10,653 5,840 5,236 1,933 3,764 – 8,657 24,478 7,062 15,053 2,114 8,598 276 7,464 36,083 65,045 2020 £’000 81 281 242 604 2019 £’000 138 557 1,528 2,223 At 31 December 2020 the total value of securities on loan by the Company for stock lending purposes was £83,074,000 (2019: £75,895,000). The maximum aggregate value of securities on loan at any time during the year ended 31 December 2020 was £128,597,000 (2019: £136,105,000). Collateral, revalued on a daily basis at a level equivalent to at least 105% (2019: 105%; 110% for equities) of the market value of the securities lent, was provided against all loans. Collateral in respect of UK securities is usually in the form of Crest DBVs (Delivery by Values); the content of Crest DBVs (Delivery by Values) is subject to a concentration limit of 10%. 92 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 4 MANAGEMENT AND PERFORMANCE FEES Year ended 31 December 2020 Year ended 31 December 2019 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Management fees paid to third-party managers 2,176 6,528 8,704 2,522 7,567 10,089 Performance fees payable to third-party managers – 575 575 – 2,176 7,103 9,279 2,522 1,541 9,108 1,541 11,630 A summary of the terms of the management agreements is given on page 41 in the Strategic Report. 5 OTHER EXPENSES Auditor’s remuneration The analysis of the auditor’s remuneration is as follows: Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Fees payable to the Company’s auditor for other services to the Group: – the audit of the Company’s subsidiary Total audit fees Other services(1): – audit-related services – other assurance services Total non-audit fees Total fees paid 2020 Revenue £’000 2019 Revenue £’000 58 10 68 25 3 28 96 58 10 68 38 5 43 111 (1) These fees relate to the CASS audit for the year ended 31 December 2020 (£25,000) and a review of the interim financial statements (£3,000). The fees for this work were specifically approved by the Audit Committee (see page 58). Witan Investment Trust plc Annual Report 2020 93 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 5 OTHER EXPENSES CONTINUED Auditor’s remuneration (see page 93) Tax advisory services Directors’ fees (see the Directors’ Remuneration Report on pages 59 to 70) Employer’s national insurance contributions on the directors’ fees Employee costs (including executive director’s remuneration): – salaries and bonuses – employer’s national insurance contributions – pension contributions (or payments in lieu thereof) Total employee costs Advisory, consultancy and legal fees Investment accounting fees Company secretarial fees Insurances Occupancy costs – office fees and rates Depreciation on right-of-use asset – leases Bank charges and overseas safe custody fees Depositary fees Marketing expenses Savings scheme expenses (Witan Wisdom and Jump Savings) Other expenses Irrecoverable VAT Total(1) 2020 Revenue £’000 2019 Revenue £’000 96 20 336 35 1,115 160 89 111 121 299 32 1,312 178 87 1,364 1,577 187 307 154 82 77 81 543 128 618 – 796 226 149 339 150 59 88 85 618 133 658 1,237 817 200 5,050 6,673 (1) The total includes costs of £579,000 (2019: £1,876,000) in respect of the subsidiary company’s third party business which are partially offset (2019: partially offset) by the subsidiary company’s income from that business. The analysis relates to the revenue return column of the Statement of Comprehensive Income only. Expenses included in the capital return column of the Statement of Comprehensive Income for 2020 were £260,000 (2019: £101,000). These related to investment advisory costs and costs incurred relating to the change of portfolio managers. The average number of staff employed during the year was as follows: Management, marketing and operational staff of the Company and its subsidiary 6 FINANCE COSTS 2020 7 2019 7 Interest payable on overdrafts and loans repayable within one year Interest payable on secured bonds and notes repayable in more than five years Loss on early repayment of secured bonds (see note 13) Preference share dividends Interest payable on lease liability Year ended 31 December 2020 Year ended 31 December 2019 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 67 199 266 232 695 927 1,518 4,552 6,070 1,930 5,790 7,720 – 83 6 22,064 22,064 – – 83 6 – 84 7 – – – – 84 7 1,674 26,815 28,489 2,253 6,485 8,738 94 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 7 TAXATION 7.1 Analysis of tax charge for the year UK corporation tax at 19% (2019: 19%) Foreign tax suffered Recovery of prior years’ withholding tax Foreign tax recoverable Movement in deferred tax liability on Indian capital gains Total current tax for the year (see note 7.2) 7.2 Factors affecting the current tax charge for the year Year ended 31 December 2020 Year ended 31 December 2019 Revenue £’000 Capital £’000 – 2,575 (485) (214) – 1,876 – – – – 398 398 Total £’000 – Revenue £’000 Capital £’000 – – 2,575 4,262 369 (485) (214) 398 (494) (740) – – – – Total £’000 – 4,631 (494) (740) – 2,274 3,028 369 3,397 The UK corporation tax rate is 19% for the year (2019 – 19%). The tax assessed for the year is lower than that resulting from applying the effective standard rate of corporation tax in the UK. The difference is explained below. Profit before taxation 27,787 20,376 48,163 55,820 323,400 379,220 Corporation tax at 19% (2019: 19%) 5,280 3,871 9,151 10,606 61,446 72,052 Year ended 31 December 2020 Year ended 31 December 2019 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Effects of: Non-taxable UK dividends Non-taxable overseas dividends Withholding tax suffered (2,024) (4,832) 1,876 – – – (2,024) (4,832) 1,876 (4,651) (7,708) 3,028 – – (4,651) (7,708) 369 3,397 Non-taxable gains on investments held at fair value through profit or loss Currency losses not taxable Corporate interest restriction Expenses not deductible for tax Excess management expenses not utilised in year Movement in deferred tax liability on Indian capital gains Preference dividends not deductible in determining taxable profit Current tax charge 7.3 Deferred tax – – 294 – 1,266 – 16 1,876 (10,984) (10,984) 619 619 4,724 5,018 159 2,877 398 16 159 1,611 398 – 398 – – 338 – (64,738) (64,738) 310 913 – 310 1,251 – 1,399 2,069 3,468 – 16 – – – 16 2,274 3,028 369 3,397 The Company is liable to Indian capital gains tax under Section 115 AD of the Indian Income Tax Act 1961. On 1 April 2018, the Indian Government withdrew an exemption from capital gains tax on investments held for 12 months or longer. The Company has recognised a deferred tax liability of £398,000 (2019: £Nil) on capital gains which may arise if Indian investments are sold. Due to the Company’s status as an investment trust, and the intention to continue meeting the conditions required to maintain that status in the foreseeable future, the Company has not provided for any other deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. No provision has been made for deferred tax on income outstanding at the end of the year as this will be covered by unrelieved business charges and eligible unrelieved foreign tax (2019: £Nil). Witan Investment Trust plc Annual Report 2020 95 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 7 TAXATION CONTINUED 7.4 Factors that may affect future tax charges At 31 December 2020, the Company had excess expenses of £273,750,000 (2019: £259,805,000) carried forward. This sum has arisen due to cumulative deductible expenses having exceeded income over the life of the Company. It is considered too uncertain that there will be sufficient taxable profits against which these expenses can be offset and, therefore, in accordance with IAS 12, a deferred tax asset of £52,013,000 (2019: £49,363,000) in respect of unrelieved loan relationship deficit and unrelieved management expenses based on a prospective corporation tax rate of 19% (2019: 19%) has not been recognised. Provided the Company continues to maintain its current investment profile, it is unlikely that the expenses will be utilised and that the Company will obtain any benefit from this contingent asset. 8 DIVIDENDS Amounts recognised as distributions to equity holders in the year: Fourth interim dividend for the year ended 31 December 2019 of 1.825p (2018: 1.55p) per ordinary share First interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share Second interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share Third interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share Refund of unclaimed dividends Fourth interim dividend for the year ended 31 December 2020 of 1.43p (2019: 1.825p) per ordinary share 2020 £’000 2019 £’000 15,783 11,536 11,099 10,885 13,764 10,379 10,276 10,185 – (27) 49,303 44,577 11,294 15,783 Total in respect of the year: Set out below is the total dividend to be paid in respect of the year. This is the basis on which the minimum distribution requirements of section 1158 of the Corporation Tax Act 2010 are considered. Revenue profits available for distribution (Company only) First interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share Second interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share 2020 £’000 2019 £’000 25,814 52,725 (11,536) (10,379) (11,099) (10,276) Third interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share (10,885) (10,185) Fourth interim dividend for the year ended 31 December 2020 of 1.43p (2019: 1.825p) per ordinary share (11,294) (15,783) (Revenue reserves utilised)/revenue retained for the year (Company only) (19,000) 6,102 9 EARNINGS PER ORDINARY SHARE The earnings per ordinary share figure is based on the net profit for the year of £45,889,000 (2019: profit of £375,823,000) and on 841,523,451 ordinary shares (2019: 878,509,015), being the weighted average number of ordinary shares in issue during the year. The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same. Net revenue profit Net capital profit Net total profit 2020 £’000 25,911 19,978 45,889 2019 £’000 52,792 323,031 375,823 Weighted average number of ordinary shares in issue during the year 841,523,451 878,509,015 96 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 Revenue earnings per ordinary share Capital earnings per ordinary share Total earnings per ordinary share 10 INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS 10.1 Analysis of investments held at fair value through profit or loss Listed in the United Kingdom Listed abroad Investment in subsidiary undertaking 10.2 Group changes in investments held at fair value through profit or loss 2020 Pence 3.08 2.37 5.45 2019 Pence 6.01 36.77 42.78 2020 2019 Group £’000 Company £’000 Group £’000 Company £’000 421,258 421,258 599,575 599,575 1,741,464 1,741,464 1,677,048 1,677,048 – 1,155 – 1,058 2,162,722 2,163,877 2,276,623 2,277,681 United Kingdom North America Continental Europe Japan Valuation 31 December 2019 £’000 Purchases £’000 599,575 246,882 527,231 495,472 Investment gains/(losses) £’000 Valuation 31 December 2020 £’000 Cost 31 December 2020 £’000 (57,528) 421,258 396,710 49,289 716,975 562,940 Sales £’000 367,671 355,017 472,424 695,965 794,903 (14,625) 358,861 115,682 37,245 62,836 14,641 31,824 23,945 5,375 52,921 104,732 247,005 31,141 282,750 2,162,722 1,733,756 287,118 82,900 170,700 22,352 211,036 Asia Pacific (ex Japan) 284,901 176,353 246,073 Latin America Other 8,420 268,390 5,646 40,658 6,870 31,673 2,276,623 1,698,221 1,865,043 The above figures do not include the gains/losses on futures positions (see note 10.4). Included in the above figures are purchase costs of £2,410,000 (2019: £2,071,000) and sales costs of £1,170,000 (2019: £674,000). These comprise mainly stamp duty and commission and include £66,000 in respect of changes in portfolio managers (2019: £Nil). The Group received £1,865,043,000 (2019: £981,866,000) from investments sold in the period. The book cost of these investments when they were purchased was £1,938,731,000 (2019: £833,126,000). 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. 10.3 Gains in investments held at fair value through profit or loss Gains on investments Gains on derivatives 2020 £’000 2019 £’000 52,921 337,050 4,892 3,677 57,813 340,727 Witan Investment Trust plc Annual Report 2020 97 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 10 INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS CONTINUED 10.4 Derivatives Gains on futures Open futures contracts 2020 £’000 4,892 2019 £’000 3,677 There were no open contracts as at 31 December 2020 or 31 December 2019. 10.5 Substantial share interests The Company has notified interests in 3% or more of the voting rights of seven of the investee companies, all of which are closed- ended investment funds. The Company holds 13.86% of the shares in issue of Electra Private Equity PLC, which represents £14,590,000 of investments held at fair value through profit or loss. It is the Company’s stated policy to invest no more than 15% of its gross assets in other listed investment companies (including listed investment trusts). 11 OTHER RECEIVABLES Sales for future settlement Taxation recoverable Amounts due from subsidiary Prepayments and accrued income Other debtors 12 OTHER PAYABLES – CURRENT LIABILITIES Purchases for future settlement Preference dividends Outstanding buybacks of ordinary shares Lease liability Amounts due to subsidiary Accruals Other payables – non current liabilities Bonuses payable in more than one year Lease liability payable in more than one year 2020 2019 Group £’000 Company £’000 6,968 1,288 – 2,421 200 6,968 1,288 – 2,421 82 Group £’000 1,771 1,559 – 3,420 510 Company £’000 1,771 1,559 146 3,419 38 10,877 10,759 7,260 6,933 2020 2019 Group £’000 Company £’000 Group £’000 Company £’000 12,066 12,066 1,225 1,225 39 2,117 62 – 39 2,117 62 128 39 70 83 – 39 70 83 – 4,204 4,120 18,488 18,532 5,224 6,641 4,800 6,217 Group £’000 Company £’000 Group £’000 Company £’000 149 268 417 149 268 417 243 410 653 243 410 653 98 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 13 BORROWINGS Financial instruments redeemable other than in instalments are as follows: Amounts falling due within one year: Bank loans Amounts falling due after more than one year: Secured debt: 6.125 per cent. secured bonds due 2025 3.29 per cent. secured notes due 2035 3.47 per cent. secured notes due 2045 2.39 per cent. secured notes due 2051 2.74 per cent. secured notes due 2054 2020 2019 Group £’000 Company £’000 Group £’000 Company £’000 109,000 109,000 50,500 50,500 – – 63,663 63,663 20,884 20,884 20,878 20,878 53,669 53,669 53,657 53,657 49,679 49,679 49,688 49,688 29,761 29,761 29,755 29,755 153,993 153,993 217,641 217,641 2,055,000 3.4 per cent. cumulative preference shares of £1 each (see note 17 on page 107) 2,055 2,055 2,055 2,055 500,000 2.7 per cent. cumulative preference shares of £1 each (see note 17 on page 107) 500 500 500 500 265,548 265,548 270,696 270,696 At the year end, the Company had a £125,000,000 secured and committed multi-currency borrowing facility with BNP Paribas, London Branch (expiring 3 December 2021). The terms of this loan facility contain covenants that total net borrowings do not exceed 20% of the NAV. On 15 December 2000 the Company issued £100,000,000 (nominal) 6.125 per cent. secured bonds due 2025, net of discount and issue costs totalling approximately £2,000,000. The discount and the issue costs were written back over the life of the secured bonds. The nominal value of the remaining secured bonds in issue, £64,290,000, was redeemable on 15 December 2025. This was repaid early in May 2020 at a total cost of £85,750,000, including a premium for early repayment of £22,064,000. During 2015 the Company issued £21,000,000 (nominal) 3.29 per cent. secured notes due 2035 and £54,000,000 (nominal) 3.47 per cent. secured notes due 2045 net of issue costs totalling approximately £528,000. These costs will be written back over the life of the secured notes. During 2017 the Company issued £30,000,000 (nominal) 2.74 per cent. secured notes due 2054 net of issue costs totalling approximately £252,000. These costs will be written back over the life of the secured notes. During 2019 the Company issued £50,000,000 (nominal) 2.39 per cent. secured notes due 2051 net of issue costs totalling approximately £315,000. These costs will be written back over the life of the secured notes. The secured notes are secured by floating charges over all the undertakings and assets of the Company. The security of the charges applies pari passu to the issues. The terms of each of the four secured notes contain covenants that the NAV should at no time be less than £575,000,000 and that total net borrowings do not exceed 25% of the NAV at any time. Witan Investment Trust plc Annual Report 2020 99 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 14 FINANCIAL INSTRUMENTS Risk management policies and procedures As an investment company, Witan invests in equities and other investments for the long term so as to secure its investment objective as stated on the inside front cover. In pursuing its investment objective, the Group is exposed to a variety of risks that could result in either a reduction in the Group’s net assets or a reduction in the profits available for distribution by way of dividends. These risks, market risk (comprising price risk, currency risk and interest rate risk), liquidity risk and credit risk, and the directors’ approach to the management of them, are set out below. The objectives, policies and processes for managing the risks and the methods used to manage the risks, as set out below, have not changed from the previous accounting period, although in some instances additional resources have been allocated to some areas. 14.1 Market risk The fair value of a financial instrument held by the Group may fluctuate due to changes in market prices. This market risk comprises: price risk (see note 14.2), currency risk (see note 14.3) and interest rate risk (see note 14.4). The Board reviews and agrees policies for managing these risks, which policies have remained substantially unchanged from those applying in the year ended 31 December 2019. The investment managers assess the exposure to market risk when making each investment decision and monitor the overall level of market risk on the whole of their investment portfolios on an ongoing basis. 14.2 Price risk Price risks (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the quoted and the unquoted investments. Management of the risk The Board manages the risks inherent in the investment portfolios by regularly reviewing relevant information from the investment managers. The Board meets regularly and at each meeting reviews investment performance. The Board monitors the managers’ compliance with their mandates and also whether each mandate and asset allocation is compatible with the Company’s objective. When appropriate, the Company has the ability to manage its exposure to risk through the controlled use of derivatives. The Group’s exposure to other changes in market prices at 31 December of its quoted equity investments and index futures and investments, was as follows: Investments held at fair value through profit or loss Concentration of exposure to price risks 2020 £’000 2019 £’000 2,162,722 2,276,623 An analysis of the Group’s investment portfolio is shown on page 34. This shows that the greater geographical weighting is to North American companies, with significant exposure also to UK, Asia and Continental Europe. Accordingly, there is a concentration of exposure to those regions, although an investment’s country of domicile or of listing does not necessarily equate to its exposure to the economic conditions in that country. Price risk sensitivity The table on page 101 illustrates the sensitivity of the profit after taxation for the year and the value of the shareholders’ funds to an increase or decrease of 15% in the fair values of the Group’s equity investments (including exposure through futures contracts). This level of change is considered to be reasonably possible based on observation of market conditions and historical trends. The sensitivity analysis is based on the Group’s equities and equity exposure through options and futures at each balance sheet date, with all other variables held constant. The results of these example calculations are significant but not unreasonable, given that most of the Group’s assets are equity investments. 100 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 Changes to the Consolidated Statement of Comprehensive Income Revenue return Capital return – investments 14.3 Currency risk 2020 2019 Increase in fair value £’000 Decrease in fair value £’000 Increase in fair value £’000 Decrease in fair value £’000 – – – – 324,408 (324,408) 341,493 (341,493) 324,408 (324,408) 341,493 (341,493) A proportion of the Group’s assets, liabilities and income is denominated in currencies other than sterling (the Group’s functional currency in which it reports its results). As a consequence, movements in exchange rates affect the sterling value of those items. Management of the risk The investment managers monitor their exposure to currencies as part of their normal investment processes. The Board receives a monthly report on the currency exposures of the entire fund. Income denominated in foreign currencies is converted into sterling on receipt. The Group does not normally use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt. Foreign currency exposure The fair values of the Group’s monetary items that have foreign currency exposure at 31 December are shown below. Where the Group’s equity investments (which are not monetary items) are denominated in a foreign currency, they have been included separately in the analysis so as to show the overall level of exposure. 2020 Receivables (due from brokers, dividends and other income receivable) Cash at bank and on deposit Payables (due to brokers, accruals and other creditors) US$ £’000 1,694 7,871 Euro £’000 4,010 31 (4,001) (2,075) Yen £’000 Other £’000 154 3,640 1 – 500 (4,321) Total foreign currency exposure on net monetary items 5,564 1,966 155 (181) Investments at fair value through profit or loss that are equities 791,813 318,554 100,579 247,369 Total net foreign currency exposure 797,377 320,520 100,734 247,188 2019 Receivables (due from brokers, dividends and other income receivable) Cash at bank and on deposit Payables (due to brokers, accruals and other creditors) Total foreign currency exposure on net monetary items US$ £’000 444 349 (1,536) (743) Euro £’000 700 105 – 805 Yen £’000 636 1 – Other £’000 1,833 587 (380) 637 2,040 Investments at fair value through profit or loss that are equities 571,126 372,561 119,108 356,247 Total net foreign currency exposure 570,383 373,366 119,745 358,287 The above amounts are not necessarily representative of the exposure to risk during the year as levels of foreign currency exposure change significantly throughout the year. Witan Investment Trust plc Annual Report 2020 101 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 14 FINANCIAL INSTRUMENTS CONTINUED Foreign currency sensitivity The following table illustrates the sensitivity of the profit/loss after tax for the year and the Group’s equity in regard to the Group’s monetary financial assets and financial liabilities and the exchange rates for the £/US dollar, £/Euro and £/Japanese yen. The results of these example calculations are significant but not unreasonable in the context of the majority of the Group’s assets being invested overseas. It assumes the following changes in exchange rates: £/US dollar +/- 15% (2019: 15%) £/Euro +/- 15% (2019: 15%) £/Japanese yen +/- 15% (2019: 15%) The sensitivity analysis is based on the Group’s foreign currency financial instruments held at the balance sheet date and takes account of any forward foreign exchange contracts that offset the effects of changes in currency exchange. If sterling had depreciated against the currencies shown, this would have the following effect: Changes to the Consolidated Statement of Comprehensive Income Revenue return Capital return Change to the profit/loss after tax Change to the shareholders’ funds 2020 Euro £’000 US$ £’000 Yen £’000 US$ £’000 2019 Euro £’000 Yen £’000 1,321 693 338 1,879 1,628 332 139,732 56,215 17,749 100,787 65,746 21,019 141,053 56,908 18,087 102,666 67,374 141,053 56,908 18,087 102,666 67,374 21,351 21,351 Yen £’000 If sterling had appreciated against the currencies shown, this would have the following effect: 2020 Euro £’000 US$ £’000 Yen £’000 US$ £’000 2019 Euro £’000 Changes to the Consolidated Statement of Comprehensive Income Revenue return Capital return (976) (512) (250) (1,389) (1,204) (245) (103,280) (41,550) (13,119) (74,495) (48,595) (15,536) Change to the profit/loss after tax (104,256) (42,062) (13,369) (75,884) (49,799) (15,781) Change to the shareholders’ funds (104,256) (42,062) (13,369) (75,884) (49,799) (15,781) 14.4 Interest rate risk Interest rate movements may affect the level of income receivable from fixed interest securities and cash at bank and on deposit. Management of the risk The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Group holds cash balances, partly to meet payments as they fall due but also, when appropriate, to offset the long-term borrowings that it has in place. The Group finances part of its activities through preference shares that do not have redemption dates and through secured bonds and notes that were issued as part of the Company’s planned gearing. 102 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 Interest rate exposure The exposure at 31 December 2020 of financial assets and financial liabilities to interest rate risk is shown by reference to: > > floating interest rates: when the interest rate is due to be re-set; and fixed interest rates: when the financial instrument is due to be repaid. The Group’s exposure to floating interest rates is a net liability of £72,855,000 (2019: £5,777,000). This represents cash holdings minus variable rate borrowing. The Group’s exposure to fixed interest rates on assets is £Nil (2019: £Nil). The Group’s exposure to fixed interest rates on liabilities is £156,548,000 (2019: £220,196,000). This represents fixed rate borrowing. Interest receivable and finance costs are at the following rates: > > > interest received on cash balances, or paid on bank overdrafts and loans, is at margin under/over LIBOR or its foreign currency equivalent (2019: same); the finance charge on the preference shares is at a weighted average interest rate of 3.3% (2019: 3.3%); and the finance charge on the secured notes is at a weighted average interest rate of 2.96% for an average period of 27.0 years (2019: 2.96% for an average period of 27.9 years). The above year-end amounts are not representative of the exposure to interest rates during the year, as the level of exposure changes as investments are made in fixed interest securities, long-term debt is partially redeemed and as the level of cash balances varies during the year. In the context of the Group’s balance sheet, the exposure to interest rate risk is not considered to be material. Interest rate sensitivity Based on the Group’s monetary financial instruments at each balance sheet date, an increase or decrease of 200 basis points in interest rates would decrease or increase revenue after tax by £178,000 (2019: £642,000), capital return after tax by £1,635,000 (2019: £758,000), and total profit after tax and shareholders’ funds by £1,457,000 (2019: £116,000). This level of change is considered to be reasonably possible based on observation of current market conditions. This is not representative of the year as a whole, since the exposure changes as investments are made. In the context of the Group’s balance sheet, the outcome is not considered to be material. 14.5 Liquidity risk This is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities. Management of the risk Liquidity risk is not significant as the majority of the Group’s assets are investments in quoted equities and other quoted securities that are readily realisable. During 2015, the Group issued 3.47 per cent. and 3.29 per cent. secured notes for £54,000,000 and £21,000,000 respectively. During 2017, the Group issued 2.74 per cent. secured notes for £30,000,000. During 2019, the Group issued 2.39 per cent. secured notes for £50,000,000. The Group is able to draw short-term borrowings of up to the sterling equivalent of £125,000,000 from its secured and committed multi-currency borrowing facility with BNP Paribas, London Branch (expiring 3 December 2021). £109,000,000 was drawn down under the facility at 31 December 2020. Witan Investment Trust plc Annual Report 2020 103 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 14 FINANCIAL INSTRUMENTS CONTINUED Liquidity risk exposure Secured bonds(1) Secured notes(1) Preference shares(2) Other creditors and accruals Bank loan and interest payable 2020 2019 Within 1 year £’000 Between 1 and 5 years £’000 More than 5 years £’000 Within 1 year £’000 Between 1 and 5 years £’000 More than 5 years £’000 – – – 3,938 15,751 68,055 4,582 18,327 262,739 4,582 18,327 267,608 83 17,572 109,050 332 815 – 2,555 – – 83 6,017 50,553 332 653 – 2,555 – – 131,287 19,474 265,294 65,173 35,063 338,218 (1) The above figures show interest payable over the remaining terms of each instrument. The figures also include the capital to be repaid. (2) The figures in the ‘More than 5 years’ columns do not include the ongoing annual finance cost of £83,000. The Board gives guidance to the investment managers as to the maximum amount of the Company’s resources that should be invested in any one company. The investment managers may hold cash from time to time but the Group’s overall equity exposure is unlikely to fall below 80% in normal conditions. 14.6 Credit risk The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Group suffering a loss. Management of the risk The risk is managed as follows: > > > > cash at bank is held only with reputable banks with high quality external credit ratings; transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Group of default; investment transactions are carried out with a large number of brokers, whose credit standard is reviewed periodically by the investment managers, and limits are set on the amount that may be due from any one broker; and stock lending transactions are carried out with a number of approved counterparties, the credit ratings of which are reviewed periodically, and limits are set on the amount that may be sent to any one counterparty. Other than stock lending, none of the Company’s financial assets or liabilities is secured by collateral or other credit enhancements. None of the Group’s financial assets is past its due date or impaired. Credit risk exposure The table below summarises the credit risk exposure of the Group as at the year end. Cash Receivables: Sales for future settlement Taxation recoverable Accrued income Other debtors 2020 £’000 2019 £’000 36,145 44,723 6,968 1,288 2,421 200 1,771 1,559 3,420 510 47,022 51,983 14.7 Fair values of financial assets and financial liabilities Except for those financial liabilities measured at amortised cost that are shown below, the financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments and derivatives) or the balance sheet amount is a reasonable approximation of fair value (amounts due from brokers, dividends and interest receivable, amounts due to brokers, accruals, cash at bank and bank overdrafts). 104 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 Financial liabilities measured at amortised cost: Non current liabilities Preference shares Secured bonds Secured notes 2020 2019 Fair value £’000 Balance sheet amount £’000 Fair value £’000 Balance sheet amount £’000 1,354 2,555 1,354 2,555 – – 79,888 63,663 188,077 153,993 171,920 153,978 189,431 156,548 253,162 220,196 The fair values shown above are derived from the offer price at which the securities are quoted on the London Stock Exchange or, in the case of the secured notes, calculating a present value by using a discount rate which reflects the yield on a UK gilt of similar maturity plus a credit spread of 1.20% (2019: 1.10%). Level 1 Financial liabilities The Company’s preference shares are actively traded on a recognised stock exchange. Their fair value has therefore been deemed Level 1. The carrying values are disclosed in note 13. Level 3 Financial liabilities The Company’s secured notes are not traded on a recognised stock exchange and so the fair value is calculated by using a discount rate which reflects the yield on a UK gilt of similar maturity plus a credit spread of 1.20% (2019: 1.10%). Their fair value has therefore been deemed Level 3. The carrying values are disclosed in note 13. Fair value hierarchy disclosures The table below sets out fair value measurements using the IFRS 13 fair value hierarchy. Financial assets and financial liabilities at fair value through profit or loss At 31 December 2020 Equity investments Investments in other funds Total At 31 December 2019 Equity investments Investments in other funds Total Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 2,095,883 – – 2,095,883 – 66,839 2,095,883 66,839 – – 66,839 2,162,722 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 2,235,351 – – 41,272 – – 2,235,351 41,272 2,235,351 41,272 – 2,276,623 Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: Level 1 – valued using quoted prices in an active market for identical assets. Level 2 – valued by reference to valuation techniques using observable inputs other than quoted prices within Level 1. Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data. The valuation techniques used by the Group are explained in the accounting policies in note 1(h). There were no transfers during the year between Level 1 and Level 2. Level 2 Financial assets Level 2 Financial assets refer to investment in GMO Climate Change Fund (2019: MI Somerset Emerging Markets Small Cap Fund, GMO Climate Change Fund and Vanguard Funds FTSE All-World). Level 3 Reconciliation of Level 3 fair value measurement of financial assets There were no Level 3 investments at 31 December 2020 or 31 December 2019. Witan Investment Trust plc Annual Report 2020 105 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 14 FINANCIAL INSTRUMENTS CONTINUED Capital management The Group’s capital management objectives are: > > to ensure that it will be able to continue as a going concern; and to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Group’s total capital employed at 31 December 2020 was £2,190,756,000 (2019: £2,321,802,000) comprising £265,548,000 of debt (2019: £270,696,000) and £1,925,208,000 of equity share capital and other reserves (2019: £2,051,106,000). Gearing The Group’s policy is to manage the effective gearing in the portfolio to be below 20%, other than temporarily in exceptional circumstances. Effective gearing is defined as the difference between shareholders’ funds and the total market value of the investments (including the nominal value (effective underlying exposure) of futures positions which were £Nil at 31 December 2020 (2019: £Nil)) expressed as a percentage of shareholders’ funds. At 31 December 2020 effective gearing was 12.3% (2019: 11.0%); the calculation is set out below: Value of investments per the Balance Sheet Add: Nominal exposure of futures Adjusted gross value of investments (including futures nominal exposure) Shareholders’ funds per the Balance Sheet (A) Excess of gross value of investments over shareholders’ funds (B) Effective gearing (B as a percentage of A) 2020 £’000 2019 £’000 2,162,722 2,276,623 – – 2,162,722 2,276,623 1,925,208 2,051,106 237,514 225,517 12.3% 11.0% The Board monitors and reviews the broad structure of the Group’s capital on an ongoing basis. This review includes: > > > the planned level of gearing, which takes into account the Chief Executive Officer’s view on the market; the opportunity to buy back equity shares, which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount or premium); and the extent to which revenue in excess of that which is required to be distributed should be retained. The Group’s objectives, policies and processes for managing capital are unchanged from the preceding accounting period. The Company is subject to several externally imposed capital requirements: > > > the terms of issue of the Company’s secured bonds and notes require the aggregate amount outstanding in respect of borrowings, measured in accordance with the policies used to prepare the annual financial statements, not to exceed a sum equal to the Company’s capital and reserves at any time (see also note 13 on page 99 for details of other covenants); as a public company, the Company has a minimum issued share capital of £50,000; and in order to be able to pay dividends out of profits available for distribution by way of dividends, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law. These requirements are unchanged since the previous year end and the Company has complied with them. 106 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 15 CALLED UP SHARE CAPITAL Called up and issued: 801,713,287 ordinary shares of 5p each (2019: 865,978,435) Held in treasury: 198,641,713 ordinary shares of 5p each (2019: 134,376,565) Total 1,000,355,000 shares (2019: 1,000,355,000) Group and Company 2020 £’000 Group and Company 2019 £’000 40,086 43,299 9,932 50,018 6,719 50,018 During the year, 64,265,148 ordinary shares were bought back at a cost of £122,484,000 (2019: 25,068,405 shares bought back at a cost of £53,582,000). All of the shares were placed in treasury. Shares held in treasury do not carry a right to receive a dividend. In the event of a poll at a general meeting of the Company, an ordinary shareholder who is present in person or by proxy has one vote for every £0.05 nominal value of shares registered in their name. Accordingly, on a poll, each ordinary shareholder has one vote for every one share held. 16 RESERVES Other capital reserves of £1,665,775,000 (2019: £1,768,281,000) comprises capital reserve arising on investments sold of £1,236,809,000 (2019: £1,465,925,000) and capital reserve arising on revaluation of investments held of £428,966,000 (2019: £302,356,000), inclusive of a provision for Indian capital gains tax. 17 PREFERENCE SHARES Included in non current liabilities is £2,555,000 in respect of issued preference shares as follows: 2,055,000 3.4 per cent. cumulative preference shares of £1 each 500,000 2.7 per cent. cumulative preference shares of £1 each Group and Company 2020 £’000 Group and Company 2019 £’000 2,055 500 2,555 2,055 500 2,555 The 3.4 per cent. and 2.7 per cent. cumulative preference shares constitute a single class and confer the right, in priority to any other class of shares: (i) to receive a fixed cumulative preferential dividend at the respective rates (exclusive of tax credit thereon for payments made prior to 6 April 2016) of 3.4 per cent. and 2.7 per cent. per annum, such dividend being payable half-yearly on 15 January and 15 July in each year, in respect of the 3.4 per cent. cumulative preference shares, and on 1 February and 1 August in each year in respect of the 2.7 per cent. cumulative preference shares; and (ii) to receive repayment of capital at par in a winding up of the Company (but do not confer any further right to participate in profits or assets). The preference shareholders are entitled to receive notices of general meetings of the Company but are not entitled to attend or vote thereat, except on a resolution for the voluntary liquidation of the Company or for any alteration to the objects of the Company set out in its Articles of Association. In the event of a poll at a general meeting of the Company, every member of the Company who is present in person or by proxy and who is entitled to vote thereat, whether an ordinary shareholder or, in the circumstances outlined above, a preference shareholder, has one vote for every £0.05 nominal value of shares registered in their name. Accordingly, on a poll each preference shareholder has 20 votes for every one share held. Witan Investment Trust plc Annual Report 2020 107 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 18 NET ASSET VALUE PER ORDINARY SHARE The net asset value per ordinary share of 240.14p (2019: 236.85p) is based on the net assets attributable to the ordinary shares of £1,925,208,000 (2019: £2,051,106,000) and on the 801,713,287 ordinary shares in issue at 31 December 2020 (2019: 865,978,435). The movements during the year of the net assets attributable to the ordinary shares were as follows: Total net assets at 1 January 2020 Total profit for the year Dividends paid in the year on the ordinary shares (see note 8) Share buybacks Net assets attributable to the ordinary shares at 31 December 2020 £’000 2,051,106 45,889 (49,303) (122,484) 1,925,208 An alternative net asset value per ordinary share can be calculated by deducting from the total assets less current liabilities of the Company, the bonus and leases payable in more than one year, the preference shares and the secured bonds and notes at their market (or fair) values rather than at their par (or book) values. Details of the alternative values of the secured notes and preference shares are set out in note 14.7. The net asset value per ordinary share at 31 December 2020 calculated on this basis is 236.04p (2019: 233.05p) as set out below. 2020 2019 Debt at Balance Sheet amount £’000 Debt at fair value £’000 Debt at Balance Sheet amount £’000 Debt at fair value £’000 Total assets less current liabilities per Balance Sheet 2,082,571 2,082,571 2,271,955 2,271,955 Liabilities at Balance Sheet value/fair value (157,363) (190,246) (220,849) (253,815) 1,925,208 1,892,325 2,051,106 2,018,140 Ordinary shares in issue at 31 December 801,713,287 801,713,287 865,978,435 865,978,435 NAV per share 240.14p 236.04p 236.85p 233.05p 19 RECONCILIATION OF GROUP LIABILITIES ARISING FROM FINANCING ACTIVITIES Opening liabilities from financing activities Adoption of IFRS 16 on a modified retrospective basis Cash flows: Net drawdown/(repayment) of bank loans (Repayment)/issue of secured bonds/notes net of expenses Repayment of lease finance Non-cash: Effective interest Loss on early redemption of secured bonds Modifications to lease liability Interest on lease liability Closing liabilities from financing activities 108 2020 2019 Long-term debt £’000 Short-term debt £’000 Lease liability £’000 Total £’000 Long-term debt £’000 Short-term debt £’000 Lease liability £’000 Total £’000 220,196 50,500 493 271,189 170,413 81,000 – 251,413 – – – 575 575 – – – – – – 58,500 (85,767) – 55 22,064 – – – – – – – – 58,500 – (30,500) (85,767) 49,685 (70) (70) – – (99) 6 55 22,064 (99) 6 – 98 – – – – – – – – – – – (30,500) 49,685 (89) (89) – – – 7 98 – – 7 156,548 109,000 330 265,878 220,196 50,500 493 271,189 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 20 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES At 31 December 2020 and 31 December 2019 there were no capital commitments in respect of securities not fully paid up and no underwriting liabilities. In November 2005 the Company took a lease on office premises at 14 Queen Anne’s Gate, London SW1H 9AA which was renewed most recently in October 2020 for five years to October 2025. 21 LEASE ARRANGEMENTS 21.1 Right-of-use asset: property Opening balance Adoption of IFRS 16 on a modified retrospective basis Modifications during the period Depreciation through profit and loss Closing balance 21.2 Lease liabilities 2020 £’000 490 – (94) (81) 315 2019 £’000 – 575 – (85) 490 At the balance sheet date, the Group had outstanding commitments for the future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year In the second to fifth years inclusive After the fifth year Total undiscounted lease payments at the end of the period At balance sheet date, the Group had a discounted lease liability as follows: Current Non current Total lease liability 21.3 Amounts recognised in the profit/(loss) for the year Depreciation on right-of-use asset Interest on lease liability Modification of lease 21.4 Outflows recognised in the cash flow statement for the year Financing Repayment of lease finance 21.5 Other leasing information 2020 £’000 67 286 - 353 2020 £’000 62 268 330 2019 £’000 89 356 67 512 2019 £’000 83 410 493 2020 £’000 2019 £’000 81 6 (2) 2020 £’000 70 85 7 – 2019 £’000 89 The lease payments represent rentals payable by the Group for its office property. The Company renegotiated the lease on its premises during the year which resulted in a lease modification. A separate lease was not recognised as the modification did not increase the scope of the lease or lease payment. There were no changes to the original lease term as a result of the modified lease. There were changes to the lease liability due to the revised lease payments which were discounted at the Company’s current incremental borrowing rate. The modification led to measurement changes regarding (i) derecognition of a proportion of the right of use asset and lease liability due to the reduced floor space, with any differences accounted for as a capital profit; and (ii) adjustments made to reduce the lease liability due to the modified lease payment with an equivalent adjustment to reduce the right of use asset. Witan Investment Trust plc Annual Report 2020 109 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 22 SUBSIDIARY UNDERTAKING The Company has an investment in the issued ordinary share capital of its wholly-owned subsidiary undertaking, Witan Investment Services Limited, which was incorporated on 28 October 2004, is registered in England and Wales and operates in the United Kingdom. 23 RELATED PARTY TRANSACTIONS DISCLOSURES Balances and transactions between the Company and its subsidiary, which are related parties, amounting to £440,000 have been eliminated on consolidation and are not disclosed in this note. Remuneration of key management personnel The remuneration of the directors, who are the key management personnel of the Company for each of the relevant categories specified in IAS 24 ‘Related Party Disclosures’ is provided in the audited part of the Directors’ Remuneration Report on pages 61 to 64. Directors’ transactions Dividends totalling £153,000 (2019: £258,000) were paid in the year in respect of ordinary shares held by the Company’s directors. 24 SEGMENT REPORTING Operating segments are determined based on internal management reporting of the Group that is reviewed regularly by the ‘Chief Operating Decision Maker’ (who is the Chief Executive Officer) and used to allocate resources and assess their performance. Geographical segments The Group operates in one geographical area, the United Kingdom, and primarily invests in companies listed in the UK and other recognised overseas stock exchanges. Operating segments The Group has two business segments: (i) its activity as an investment trust, which is the business of the parent company, Witan Investment Trust plc, and recorded in the accounts of that company; and (ii) the provision of alternative investment fund manager, executive and marketing management services, which is the business of the subsidiary company, Witan Investment Services Limited, and recorded in the accounts of that company. Each segment is managed separately as they have different objectives. Performance is measured based on segment profit or loss included in the internal management reports that are reviewed by the Chief Executive Officer. Transactions between reportable segments include activities from the provision of alternative investment fund manager, executive and marketing management services. Segment information is measured on the same basis as that used in the preparation of the Group financial statements. 31 December 2020 31 December 2019 External revenue Other revenue Revenue from other operating segments Segment expenses - Management expenses - Other expenses - Finance costs Segment profit/(loss) before taxation 36,445 54,554 - (9,279) (4,725) (28,489) 48,506 Investment trust £’000 Management services £’000 Total £’000 36,445 54,554 242 Investment trust £’000 Management services £’000 65,736 339,094 – - - 1,532 – - 242 - (585) (9,279) (5,310) – (28,489) (11,630) (4,867) (8,738) – (1,907) – (343) 48,163 379,595 (375) 379,220 Total £’000 65,736 339,094 1,532 (11,630) (6,774) (8,738) Segment assets 1,924,053 1,155 1,925,208 2,050,048 1,058 2,051,106 The non current assets are located in the United Kingdom. 25 SUBSEQUENT EVENTS Since the year end, the Board has declared a fourth interim dividend in respect of the year ended 31 December 2020 of 1.43p per ordinary share (see also page 10 and note 8 on page 96). From 1 January to 9 March 2021, 15,554,013 ordinary shares of 5p were bought back for £35.7 million. 110 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTSNotes to the Financial Statements continuedfor the year ended 31 December 2020 Other Financial Information (unaudited) SECURITIES FINANCING TRANSACTIONS The Company engages in Securities Financing Transactions (as defined in Article 3 of Regulation (EU) 2015/2365. Securities financing transactions include repurchase transactions, securities or commodities lending and securities or commodities borrowing, buy-sell back transactions or sell-buy back transactions and margin lending transactions). In accordance with Article 13 of the Regulation, the Company’s involvement in and exposures related to securities lending as at 31 December 2020 are detailed below. GLOBAL DATA The amount of securities on loan as a proportion of total lendable assets and of the Company’s net assets at 31 December 2020 is disclosed below: Stock lending Market value of securities on loan £83,074,000 CONCENTRATION DATA % of lendable assets % of AUM 3.84 3.82 The ten largest collateral issuers across all the securities financing transactions as at 31 December 2020 are disclosed below: Issuer Toyota Motor The Swatch Group LafargeHolcim Tencent Holdings Atlantia Mitsubishi Electric Michelin Netflix BASF France Treasury The top counterparties of each type of securities financing transactions as at 31 December 2020 are disclosed below: Counterparty BNP Paribas HSBC Citigroup Deutsche Bank Witan Investment Trust plc Annual Report 2020 Market value of collateral received £’000 35,758 9,795 8,085 7,075 6,046 5,536 3,706 1,762 1,676 1,646 81,085 Market value of securities on loan £’000 67,375 12,148 3,000 551 83,074 111 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Other Financial Information (unaudited) continued AGGREGATE TRANSACTION DATA The following table discloses a summary of aggregate transaction data related to the collateral received from securities on loan as at 31 December 2020: Counterparty Counterparty country of origin Type Quality Collateral currency Settlement basis Custodian BNP Paribas France Equity Equity Equity Equity Main Market Listing JPY Triparty BNP Paribas Main Market Listing CHF Triparty BNP Paribas Main Market Listing HKD Triparty BNP Paribas Main Market Listing EUR Triparty BNP Paribas Citigroup US Government Bond Investment Grade USD Triparty BNP Paribas Government Bond Investment Grade Government Bond Investment Grade Deutsche Bank Germany Equity Main Market Listing Government Bond Investment Grade HSBC Hong Kong Equity Main Market Listing JPY EUR EUR EUR EUR Triparty BNP Paribas Triparty BNP Paribas Triparty BNP Paribas Triparty BNP Paribas Triparty BNP Paribas Equity Equity Main Market Listing USD Triparty BNP Paribas Main Market Listing HKD Triparty BNP Paribas Government Bond Investment Grade Government Bond Investment Grade Government Bond Investment Grade Government Bond Investment Grade EUR SEK DKK JPY Triparty BNP Paribas Triparty BNP Paribas Triparty BNP Paribas Triparty BNP Paribas Market value of collateral received £’000 41,293 17,881 8,239 5,382 1,391 1,315 459 246 343 7,709 3,094 106 1,843 41 1 1 89,344 All of the collateral is held within segregated accounts. The lending and collateral transactions are on an open basis and can be recalled on demand. Re-use of collateral The funds do not engage in any re-use of collateral. Return and cost The return and cost of engaging in securities lending by the Company and the securities lending agent in absolute terms and as a percentage of overall returns are disclosed below: Total gross amount of securities lending income Direct and indirect costs and fees deducted by securities lending agent % return of the securities lending agent Net securities lending income retained by the fund % return of the fund £375,000 £94,000 25% £281,000 75% 112 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTS Additional Shareholder Information Additional Shareholder Information ALTERNATIVE INVESTMENT FUND MANAGERS’ DIRECTIVE Witan Investment Trust plc is an ‘alternative investment fund’ (‘AIF’) for the purposes of the EU Alternative Investment Fund Managers’ Directive (Directive 2011/61/EU) (the ‘AIFMD’) and the Company has appointed its subsidiary, Witan Investment Services Limited (‘WIS’), to act as its AIFM. WIS is authorised and regulated by the United Kingdom Financial Conduct Authority as a ‘full scope UK AIFM’. The Company is required to make certain disclosures available to investors in accordance with the AIFMD. Those disclosures that are required to be made pre-investment are included within the Investor Disclosure Document (‘IDD’) which can be found on the Company’s website (www.witan.com). There have not been any material changes to the disclosures contained within the IDD since it was last updated in August 2020. The Company and AIFM also wish to make the following disclosures to investors: > > > > > > the investment strategy, geographic and sector investment focus and principal stock exposures are included in the Strategic Report. A list of the top 40 portfolio holdings is included on pages 32 to 33; none of the Company’s assets is subject to special arrangements arising from their illiquid nature; the Strategic Report and note 14 to the accounts set out the risk profile and risk management systems in place. There have been no changes to the risk management systems in place in the period under review and no breaches of any of the risk limits set, with no breach expected; there are no new arrangements for managing the liquidity of the Company or any material changes to the liquidity management systems and procedures employed by the Company; all authorised Alternative Investment Fund Managers are required to comply with the AIFMD Remuneration Code in respect of the AIFM’s remuneration. The relevant disclosures required are contained within the IDD; and information in relation to the Company’s leverage is contained within the IDD. SHAREHOLDER INFORMATION Points of reference Shareholders can follow the progress of their investment through the newspapers. Witan’s share price appears daily in the national press stock exchange listings under ‘Investment Trusts’ or ‘Investment Companies’ and is also included on the Witan website (www.witan.com). The London Stock Exchange Daily Official List (‘SEDOL’) code is BJTRSD3. Dividend A fourth interim dividend of 1.43p per share has been declared, payable on 31 March 2021. The record date for the dividend was 26 February 2021 and the ex-dividend date for the dividend was 25 February 2021 (see pages 10 and 96). Dividend Tax Allowance From April 2019 individuals have an annual £2,000 tax-free allowance on dividend income across an individual’s entire share portfolio. Above this amount, individuals pay tax on their dividend income at a rate dependent on their income tax bracket and personal circumstances. The Company will continue to provide registered shareholders with a confirmation of the dividends it has paid and this should be included with any other dividend income received when calculating and reporting total dividend income received. It is the shareholder’s responsibility to include all dividend income when calculating any tax liability. Capital Gains Tax The calculation of the tax on chargeable gains will depend on your personal circumstances. If you are in any doubt about your personal tax position, you are recommended to contact your professional adviser. Please note that tax assumptions may change if the law changes, and the value of tax relief (if any) will depend upon your individual circumstances. Investors should consult their own tax advisers in order to understand any applicable tax consequences. Beneficial Owners of Shares – Information Rights Beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under section 146 of the Companies Act 2006 should direct all communications to the registered holder of their shares rather than to the Company’s Registrar, Computershare, or to the Company directly. Witan Investment Trust plc Annual Report 2020 113 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Additional Shareholder Information continued DEFINITIONS OF ALTERNATIVE PERFORMANCE MEASURES Benchmark: The Company’s equity benchmark is 85% Global (MSCI All Country World Index) and 15% UK (MSCI UK IMI Index). From 1 January 2017 to 31 December 2019 the benchmark was 30% UK, 25% North America, 20% Asia Pacific, 20% Europe (ex UK) and 5% Emerging Markets. From 1 October 2007 to 31 December 2016 the benchmark was 40% UK, 20% North America, 20% Europe (ex UK) and 20% Asia Pacific. With effect from August 2020, the source for the benchmark index changed to MSCI International, replacing the previous FTSE source. Gearing: The difference between shareholders’ funds and the total market value of the investments (including the face value of futures positions) expressed as a percentage of shareholders’ funds. See page 106. Net asset value per share (debt at par and debt at fair value): This is the value of total assets less all liabilities of the Company. The Net Asset Value, or NAV, per ordinary share is calculated by dividing this amount by the total number of ordinary shares in issue (excluding those shares held in treasury). Please refer to note 18 on page 108. Net asset value total return: Total return on net asset value (‘NAV’), on a debt at fair value to debt at fair value basis, assuming that all dividends paid out by the Company were reinvested, without transaction costs, into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend. Total return calculation Opening cum income NAV per share (pence) (A) Closing cum income NAV per share (pence) (B) Total dividend adjustment factor (1) (C) Adjusted closing cum income NAV per share (B x C = D) Net asset value total return (D/A - 1) Year ended 31 December 2020 Year ended 31 December 2019 233.1 236.1 196.7 233.1 1.028573 1.023620 242.8 4.2% 238.6 21.3% (1) The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at the cum income NAV at the ex-dividend date. Net contribution from borrowing: The estimated percentage contribution to NAV attributable to gearing, net of the cost of gearing, as a percentage of NAV. Ongoing charge: The ongoing charge reflects those expenses of a type which are likely to recur in the foreseeable future, whether charged to capital or revenue as a collective fund, excluding the costs of acquisition and disposal, finance costs and gains or losses arising on investments. The calculation is performed in accordance with the guidelines issued by the AIC. Please refer to page 41. Premium/discount: The amount by which the market price per share is either higher (premium) or lower (discount) than the net asset value per share expressed as a percentage of the net asset value per share. Share price total return: on a last traded price to last traded price basis, assuming that all dividends received were reinvested, without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend. Total return calculation Opening share price (pence) (A) Closing share price (pence) (B) Total dividend adjustment factor (1) (C) Adjusted closing share price (B x C = D) Share price total return (D/A – 1) Year ended 31 December 2020 Year ended 31 December 2019 231.5 230.5 1.03100 237.7 2.7% 194.2 231.5 1.024300 237.1 22.1% (1) The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at the last traded price quoted at the ex-dividend date. 114 Witan Investment Trust plc Annual Report 2020 FINANCIAL STATEMENTS HISTORICAL RECORD 31 December 2010 31 December 2011 31 December 2012 31 December 2013 31 December 2014 31 December 2015 31 December 2016 31 December 2017 31 December 2018 31 December 2019 31 December 2020 Debt at fair value Debt at par value Market price per ordinary share in pence(1) Net asset value per ordinary share in pence(1)(2) Share price (discount)/ premium %(2) Net asset value per ordinary share in pence(1)(3) Share price (discount)/ premium %(3) Earnings per ordinary share in pence(1) Dividends per ordinary share in pence(1) 103.3 90.0 100.6 133.8 150.7 156.0 180.4 215.8 194.2 231.5 115.6 100.7 113.8 143.5 149.8 156.2 187.8 219.2 196.7 233.1 230.5 236.0 (10.7) (10.7) (11.6) (6.8) 0.6 (0.2) (4.0) (1.6) (1.3) (0.7)(4) (2.4)(4) 116.9 103.4 116.4 145.0 152.1 157.7 190.6 222.0 199.0 236.9 240.1 (11.6) (12.9) (13.5) (7.7) (0.9) (1.1) (5.3) (2.8) (2.5) (2.3) 1.90 2.70 2.90 3.10 3.20 3.70 4.40 4.80 5.20 6.01 2.20 2.40 2.60 2.90 3.10 3.40 3.60 4.20 4.70 5.35 (4.2) 3.08 5.45 (1) Comparative figures for the years 2010 – 2018 have been restated due to the sub-division of each ordinary share of 25p into five ordinary shares of 5p each on 28 May 2019. (2) The net asset value per ordinary share is calculated by deducting from the total assets less current liabilities of the Group the fixed borrowings at their fair (or market) values. The share price discount/premium reflects this calculation. (3) The net asset value per ordinary share is calculated by deducting from the total assets less current liabilities of the Group the fixed borrowings at their par (not their market) values. The share price discount/premium reflects this calculation. (4) The average discount to the net asset value, including income, with debt at fair value, in 2020 was 6.0% (2019: 2.8%) (source: Datastream). HOW TO INVEST There are various ways to invest in Witan Investment Trust plc. Witan’s shares can be traded through any UK stockbroker and most share dealing services and platforms that offer investment trusts (including Hargreaves Lansdown, Barclays Smart Investors, Fidelity, Halifax Share Dealing Limited, Interactive Investor and A J Bell), as well as Computershare, the Company’s Registrars. Advisers who wish to purchase Witan shares for their clients can do so via a stockbroker or via a growing number of dedicated platforms (including Seven Investment Management, Transact and Fidelity FundsNetwork). The Company conducts its affairs so that its shares can be recommended by independent financial advisers (‘IFAs’) to retail private investors. The shares are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream pooled investment products because they are shares in a UK-listed investment trust. Witan Investment Trust plc Annual Report 2020 115 STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Contacts REGISTERED OFFICE OF THE COMPANY AND ITS SUBSIDIARY, WITAN INVESTMENT SERVICES LIMITED 14 Queen Anne’s Gate London SW1H 9AA AUDITOR Grant Thornton UK LLP 30 Finsbury Square London EC2A 1AG The Company is a public company limited by shares. STOCKBROKER J.P. Morgan Cazenove 25 Bank Street Canary Wharf London E14 5JP SOLICITORS Dickson Minto W.S. 16 Charlotte Square Edinburgh EH2 4DF Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2EG The Company is a member of: REGISTERED NUMBER Registered as an investment company in England and Wales, Number 101625. COMPANY SECRETARY Frostrow Capital LLP 25 Southampton Buildings London WC2A 1AL Telephone: 020 3008 4910 CUSTODIAN, INVESTMENT ADMINISTRATOR AND DEPOSITARY BNP Paribas Securities Services 10 Harewood Avenue London NW1 6AA REGISTRAR Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Telephone: 0370 707 1408(1) (1) Calls cost no more than calls to geographic numbers (01 or 02) and must be included in inclusive minutes and discount schemes in the same way. Calls from landlines are typically charged up to 9p per minute; calls from mobiles typically cost between 3p and 55p per minute. Calls from landlines and mobiles are included in free call packages. DISABILITY ACT Copies of this Annual Report and other documents issued by Witan Investment Trust plc are available from the Company Secretary. If needed, copies can be made available in a variety of formats, including Braille, audio tape or larger type as appropriate. You can contact our Registrar, Computershare Investor Services PLC, which has installed textphones to allow speech and hearing impaired people who have their own telephone to contact them directly, without the need for an intermediate operator, by dialling 0370 702 0005. Specially trained operators are available during normal business hours to answer queries via this service. Alternatively, if you prefer to go through a ‘typetalk’ operator (provided by The Royal National Institute for Deaf People), you should dial 18001 followed by the number you wish to dial. UNSOLICITED APPROACHES FOR SHARES: WARNING TO SHAREHOLDERS Many companies have become aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas based ‘brokers’ who target UK shareholders offering to sell them what often turn out to be worthless or high-risk shares in US or UK investments. They can be very persistent and extremely persuasive. Shareholders are therefore advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports. Please note that it is very unlikely that either the Company or the Company’s Registrar, Computershare Investor Services PLC, would make unsolicited telephone calls to shareholders and that any such calls would relate only to official documentation already circulated to shareholders and never in respect of investment ‘advice’. Shareholders who suspect they may have been approached by fraudsters should advise the Financial Conduct Authority (‘FCA’) using the share fraud report form at www.fca.org.uk/scams or call the FCA Customer Helpline on 0800 111 6768. You may also wish to call either the Company Secretary or the Registrar at the numbers provided above. 116 Witan Investment Trust plc Annual Report 2020 Printed by Park Communications on FSC® certified paper. Park is an EMAS certified company and its Environmental Management System is certified to ISO 14001. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average, 99% of any waste associated with this production will be recycled. This document is printed on Arcoprint, sourced from well-managed, responsible, FSC® certified forests and other controlled sources. The pulp used in this product is bleached using an elemental chlorine free (ECF) process. W i t a n I n v e s t m e n t T r u s t p l c A n n u a l R e p o r t 2 0 2 0 www.witan.com