Smithson Inv.Trust - Annual Financial Report

SMITHSON INVESTMENT TRUST PLC

LEI: 52990070BDK2OKX5TH79

RESULTS ANNOUNCEMENT

Audited results for the year ended 31 December 2024

Performance Highlights

Source: Bloomberg

This report contains terminology that may be unfamiliar to some readers. The Glossary at the back of this Annual Report gives definitions for frequently used terms.

5 Year Record

1 These are Alternative Performance Measures ("APMs"). Definitions of these, together with how these measures have been calculated, are disclosed below where it is made clear how these APMs relate to figures disclosed and calculated under IFRS.

2 Total returns are stated in GBP sterling.

3 MSCI World SMID Cap Index £Net. Source: www.msci.com.

Total return performance against NAV for the period from the Company's listing on 19 October 2018 to 31 December 2024¹

Net Asset Value total return performance against MSCI World SMID Cap Index for the period from the Company's listing on 19 October 2018 to 31 December 2024²

1 Source: Bloomberg

2 Figures rebased to 1000 as at date of Company's listing

Chairman's Statement

Introduction

I am pleased to present the Annual Report of Smithson Investment Trust plc (the "Company") for the year ended 31 December 2024.

This is the sixth Annual Report since the Company's IPO in October 2018, and my first as the Chairman of the Board. I was delighted to be appointed shortly after the year-end as I believe strongly in the Company's strategy and the investment process adopted by the Investment Manager.

Investment performance

The Company's NAV per share increased by 2.1% during the year, compared to the MSCI World SMID Cap Index total return of 11.5%, a disappointing 12 month performance. Over the same period the Company's share price rose by 4.9%.

In the period from inception to 31 December 2024 the Company's net asset value (NAV) per share has increased by 63.2%, an annualised return of +8.2%, similar to the return of +8.3% per annum from the MSCI World SMID Cap Index over the same period. The Company's NAV per share performance in its first three years to the end of 2021 was exceptional, with an annualised return of +23.4% well ahead of the Index, but over the last three years the performance has not been as strong and has lagged the Index with poor years in 2022 and 2024.

The actions being taken to address this are discussed in the Investment Manager's Review, and I am looking forward to leading the Board and supporting the Investment Manager in the present challenging global investment markets and geopolitical backdrop.

Investment policy

The small and mid-sized listed companies' sector offers excellent opportunities for an active fund manager to deliver strong returns to investors.

For the 20 years to December 2020 the annualised return from global small and mid-sized companies outperformed the return from large companies by 2.7 percentage points. Combining this trend with the ability for an active manager to select the best names from within the small and mid-sized sector and the potential for strong long-term returns is clear.

In the period since the Company's launch, however, the trend has reversed. Since the end of 2018 the MSCI World Index has returned +120%, whilst the MSCI World SMID Cap Index has returned +79%. Whether or not this overall trend reverts, the concentration of investment flows into the world's largest companies and the focus of investor attention on these businesses, together with the lower level of focus from analysts on smaller companies, means that there are many good smaller companies with attractive valuations for an active manager to take advantage of.

The Investment Manager will only invest in good companies - those which can sustain a high return on capital employed, with profit that is reflected in cash flow, and that have strong growth potential so that the cash generated can be reinvested at high rates of return.

The Investment Manager will not overpay and will therefore only invest in companies whose valuations are attractive because they do not reflect the value of future cashflows. Even the highest quality companies can reach a valuation at which they are no longer attractive investments.

The Investment Manager will then "do nothing" hoping to hold the investments for a long period of time to allow the compounding of the reinvestment of cash at good rates of return to take effect. As the Investment Manager explains in the investment review, this can be more difficult with smaller companies whose businesses tend to be less well established than larger companies, and the Investment Manager will look to divest when the value of a holding reaches its potential, or the outlook for the business and markets change adversely.

As noted above, the Company's investment performance from inception to 31 December 2024 was similar to the global small-mid cap index. Performance over the last three years has knocked the longer-term record.

The Investment Manager has reflected on the performance of the last three years and has made some adjustments to the investment management team and the investment process in order to return the Company to the sustained long-term performance the Board believe it is capable of delivering.

An additional Board proposal to help in this regard is to amend the Company's investment policy so that the portfolio manager may invest in any company that, at the time of initial investment, has a market capitalisation within the range of the constituents of the MSCI World SMID Cap Index. Under the current investment policy, the portfolio manager is restricted to investing in companies that, at the time of initial investment, have a market capitalisation of between £500 million and £15 billion. At the year end the market capitalisation range of the Company's reference index was $64 million to $67.4 billion. The Board believes that this change will remove an unnecessary restriction and will ensure that the portfolio manager's stock universe is made up of the same sized companies as the comparator index. Shareholders will be asked to approve the change through a resolution that will be proposed at the AGM.

Discount

The Company's shares, which had traded at a premium to NAV for the vast majority of the period from launch in 2018 through to the end of 2021, started trading at a discount in early 2022, and have continued to do so throughout 2023 and 2024. The discount at the beginning of the year was 11.5% but narrowed to 9.1% by the year end.

The Board believes that investors are best served when the Company's share price trades close to the Company's NAV per share. The share price is affected by the interaction of supply and demand, and by general investor sentiment which reflects a number of factors which has, over the last three years, been more negative than positive. The Company's investment performance over the last three years has also been a factor.

The Board has sought to mitigate the discount through a share buy back programme that started in 2022. In that year, the Company bought back 5.7 million shares, 3.2% of the total shares that were in issue. The buyback programme was increased in 2023 when the Company bought back 11.7 million shares and was increased again in 2024 when the Company bought back 29.2 million shares. The Company has therefore bought back more than 25% of the shares in issue before the programme started. Buying shares back at a discount is accretive to NAV per share, and added 2.4% to the NAV per share during the year.

During 2024 the Company utilised nearly all the authority to buy back shares granted by shareholders at the 2024 AGM and accordingly secured additional authority at the general meeting convened in January 2025 to cover the period up until the next AGM.

The Board will continue to take action to mitigate the discount.

Continuation vote

The Company's shares traded at an average discount of 11.5% over the year. Since this exceeds 10%, the Directors, as outlined in the Interim Report, will propose an ordinary resolution at the Annual General Meeting (AGM) in April, seeking shareholder approval for the Company's continuation. The Board recommends unanimously that shareholders vote in favour of the resolution.

Results and dividends

The Company has returned a revenue profit of £4.4 million in the year ended 31 December 2024 (2023: £3.0 million) and now has a positive accumulated balance on its revenue account for the first time. In order to retain its investment trust status, the Company is therefore required to pay a dividend. The Board will accordingly propose an ordinary resolution at the AGM, that a dividend of 0.58 pence per share be paid on 2 May 2025 to shareholders on the register on the record date of 4 April 2025.

This marks the Company's first-ever dividend payment. However, given the nature of its investments, shareholders should not anticipate a substantial annual dividend in the future.

Governance and Board composition

I joined the Board as a non-executive Director and Chairman on 27 January 2025, succeeding Diana Dyer Bartlett. Diana will continue as a non-executive Director and will take on the role of Chair of the Audit Committee replacing Lord St John of Bletso who has retired from the Board. On behalf of the Board, I would like to thank Anthony for his service as a Director of the Company since inception, and to thank Diana for her service as Chair of the Board since February 2022.

All Directors will stand for election or re-election at the AGM. Details of the Directors' background and experience are provided in the Company's published accounts.

Shareholders should be aware that I was appointed to the Board during a closed period, a period when directors are not allowed to transact in the Company's shares. I intend to buy shares in the Company in the near future.

The Board reviews its composition on a regular basis, having regard to corporate governance requirements as well as the experience and skill sets of its members. Having recently appointed me, the Board is now intending to expand to five members as set out in the Corporate Governance section of this Report.

Annual General Meeting and shareholder engagement

The Company will hold its AGM on 23 April 2025. The notice of the Annual General Meeting will be posted to shareholders along with this Annual Report and a copy will also be made available on the Company's website at www.smithson.co.uk. My fellow Directors and I are keen to meet with shareholders, and we encourage shareholders to come to the meeting and to stay for the light lunch which is to be held afterwards. Shareholders are reminded that, whether or not they are able to attend the AGM in person, they are welcome, to submit any questions they may have for the Board, at any time, by emailing smithsonchairman@fundsmith.co.uk. Please submit proxy votes in respect of the resolutions to be proposed at the AGM, irrespective of whether you intend to attend the AGM.

Simon Barnard, the Company's portfolio manager, will give a presentation at the AGM which will be recorded and made available on the Company's website after the meeting. Simon and members of his team will also be able to answer questions from shareholders at the AGM.

We encourage shareholders to visit the Company's website where more information is available on the Company.

Outlook

The new financial year has started positively with the Company's NAV up 5.9%, 4.8% ahead of the comparator index, for the period from 1 January 2025 to 28 February 2025. The NAV from inception to 28 February 2025 is up 72.8%, 6.9% ahead of the comparator index.

The Board is pleased that the Company's Investment Manager and his team remain focused on the things they can control and remain resolute in applying a systematic and disciplined focus to find exciting opportunities for attractive long-term investment.

The Board believes that the strategy of identifying and owning high quality small and mid-sized companies that are capable of sustainable growth and that can compound in value over many years, will perform well for investors over the long term and through different economic conditions.

The Board continues to have confidence that the Company's Investment Manager can execute this strategy successfully, and the Board believes that as the Company offers investors exposure to some of the best companies available in the small and mid-cap sector, the long-term investor will be well rewarded.

Mike Balfour

Chairman

5 March 2025

Investment Manager's Review

The Investment Manager's Review was first published as a letter to shareholders on 27 January 2025 and is incorporated as published within the Company's Strategic Report as it continues to be an accurate assessment of the Company's investment performance during the year to 31 December 2024.

Dear Fellow Shareholder,

The performance of Smithson Investment Trust ('Smithson'), along with comparators, is laid out below. In 2024 the Net Asset Value per share (NAV) of the Company increased by 2.1% and the share price increased by 4.9%. Over the same period, the MSCI World Small and Mid Cap Index ('SMID'), our reference index, increased by 11.5%. We also provide the performance of UK bonds and cash for comparison.

¹Source: Bloomberg, starting NAV 1000.

²MSCI World SMID Cap Index, £ Net source: www.msci.com.

³Bloomberg/Barclays Bond Indices UK Govt 5-10 yr, source: Bloomberg.

⁴Month £ Interest Rate source: Bloomberg.

⁵Alternative Performance Measure (see below).

After a strong market sell-off in the last few days of the year, our final performance for 2024 can only be described as mediocre. It will also be marked down as the second time since inception in 2018 that we have finished the year behind our reference index.

Despite expectations at the end of 2023 that interest rates were close to peaking for this cycle, they actually increased again during 2024, with US 10 year bond yields rising from 3.9% at the start of the year to 4.5% by the end, exacerbated by comments from the Federal Reserve in December that interest rate cuts in 2025 will be less than expected. While it is tempting to point out again the headwind to strategy performance that this creates (causing the larger future profits of our faster growing and more highly rated companies to be discounted more by the higher interest rates), not everything can be blamed on this.

As described later in more detail, our individual performance detractors were not particularly severe, with no single position detracting as much as our worst performer in 2023, a year in which the portfolio generated a double digit return and outperformed the benchmark by four percentage points. Instead, it was a lack of outstanding winners getting the portfolio motoring; the top performer this year would have ranked only 5th on last year's hit list. However, big winners were definitely out there, even in the small and mid-cap sector, which again underperformed the large cap sector, this time by 11% over the year.

What to do? This year's performance has prompted us to expend time and thought on potential improvements and as a result we have made incremental changes to our process. To become world class in any endeavour requires not only a relentless high effort, but the focus of that effort into a singular area of expertise. And, like a magnifying glass focusing the sun's energy onto a single spot, the more effective the focus, the brighter your result.

Thus, the primary change to our process is to focus ever closer on the specific areas where we think the best long term returns will reside, with the exclusion of all distractions. We are already fortunate to have the luxury to ignore any area of the market that we don't think will provide sustainable long term returns and can therefore remove the noise of such things as meme stocks, unprofitable companies, fluctuating commodities (including bitcoin) and all other highly volatile diversions. But while we were concentrating on companies of £500 million to £15 billion in market capitalisation, we now believe our attention should be placed into businesses in the lower half of this range, driven by the fact that many of our companies have grown quite large during our period of ownership. It makes intuitive sense to us that a good small company has a much greater probability of increasing in value multiple times than a large one. You will notice the first change in the portfolio to directly address this described below.

Further, we believe that if we can find small companies which are improving their profitability by serving long term growth areas within our typical sectors of technology, industrials, consumer and healthcare, there will be plenty of future 'multiple bagger' investments presented to us. We have identified many such growth areas including the electrification of industry and transport, energy infrastructure construction and maintenance, space and aerospace industry suppliers, AI deployment and data centre construction, healthcare diagnostics and small pharmaceutical and biotechnology company research and development. Other recent changes in the portfolio have originated from these avenues of discovery.

This year, we have also made the first addition to the investment management team, with Kurran Aujla joining as an analyst. Will Morgan recently left the company.

Of course, the overarching investment strategy, proven over decades, of buying good companies, not overpaying and then holding as long as we can to allow our investments to compound in value, remains unchanged. To demonstrate the quality of the companies in the portfolio, the table below outlining their average operating metrics shows that they remain far superior to the average company in the Index.

Source: Fundsmith

Data for the MSCI World SMID Cap Index is shown ex-financials, with weightings as at 31.12.2024.

Data for MSCI World SMID Cap Index is on a weighted average basis, using last available reported financial year figures as at 31.12.2024.

Data for Smithson is on a weighted average basis, ex-cash, using last available reported financial year figures as at 31.12.2024.

Interest cover (EBIT ÷ net interest) data for Smithson and MSCI World SMID Cap Index is done on a median average basis.

# Return On Invested Capital for Smithson excludes Verisign which now has a negative balance of invested capital after share buybacks.

Not overpaying for these companies can be assessed by looking at the average free cash flow yield (the free cash flow divided by the market capitalisation) of the portfolio. This has increased to 3.3% from 2.8% this time last year. Over the last twelve months, the growth in free cash flow for our companies was 45% on a weighted average basis, although this includes several companies rebounding in profitability from a low point induced by the pandemic. The median average figure, which in this case is likely more instructive, was 22%.

Regarding our holding period, while our ambition is to maintain our positions for many years, this is particularly difficult with small companies, for three main reasons:

1)      management teams, particularly those which are founder-led, are able to and sometimes prone to abruptly change the capital allocation strategy of the company;

2)      the niche markets in which small companies operate can quickly shift in terms of demand trends or competitive dynamics, exacerbated by some companies having exposure to just a single market;

3)      the more volatile share prices of small capitalisation companies relative to large capitalisation ones can lead to more frequent valuation extremes in the former group.

All of the divestments made from the portfolio this year can be explained by one or more of the issues listed above. This trading activity, as well as new additions to the portfolio, meant that discretionary portfolio turnover (excluding share buybacks), was 35.9% compared to 27.2% in 2023. We believe this is a reasonable level given the necessity to take more frequent action when managing a portfolio of smaller capitalisation companies and remains well below the average turnover for all actively managed equity funds, which tends to be above 60%, according to Morningstar.

Costs of all dealing, including taxes, amounted to 0.03% (3 basis points) of NAV in the period, similar to the 0.03% incurred in 2023. The Ongoing Charge Figure was 0.86% of NAV, compared with 0.87% in 2023. This includes the Management Fee of 0.9%, applied to the market capitalisation of the Trust, which was lower than the NAV during the year. Combined, this means the Total Cost of Investment in the Trust was 0.89% of NAV (2023: 0.90%).

In terms of portfolio changes, having explained the purchases during the first half year of HMS Networks, Choice Hotels, Inficon, Reply and Melexis and the sales of IPG Photonics, Temenos and Domino's Pizza Enterprises in the interim report, I shall simply comment here on those changes that were made in the second half of 2024.

We bought a position in Monotaro, which is an online MRO (maintenance and repair organisation) based in Japan selling all the products that businesses need to run, except for raw materials. For example, products sold include safety clothing, tools, spare parts and office furniture. Monotaro is the largest online reseller in Japan, with around 15% market share, but currently only 20% of the Japanese domestic MRO market is online. This provides a good path to growth and we expect revenue to grow at around 15% a year as most of the marginal growth in the industry accrues to Monotaro as the largest player, supported by its broad product selection and strong online presence. Further, the company was founded as a JV by the US company WW Grainger, which still holds a 50% stake, and which was so impressed with Monotaro's technology that it has licenced it for use in its own US online business.

We also acquired a position in Medpace, a US company that provides outsourced research and development and drug trial services to small pharmaceutical and biotechnology companies. This is an attractive market being the fastest growing part of the pharmaceutical industry. These small companies typically opt for full service contracts given a lack of internal infrastructure, and such contracts often carry the highest margins, making Medpace one of the fastest growing, highest margin and highest return contract research organisations in the industry. The company has only grown organically to date (i.e. with no acquisitions), and continues to be run by the founder. It is also currently trading on a lower than average rating due to market concerns regarding the post-pandemic funding environment for biotechnology companies, although weak funding environments have proven to be short lived when they occurred in the past.

These new positions were funded by selling out of three existing holdings. TechnologyOne, a company which had increased in share price by five times during our period of ownership, had become the highest rated company in the portfolio and was trading at a valuation we could no longer justify. We also sold out of Fortinet, which, after having increased in share price by four times since we acquired it in 2020, had become very large at over $60bn in market capitalisation, making it an appropriate source of capital with which to acquire smaller companies. Finally, Cognex was sold as its exposure to deteriorating economic conditions in China and the global autos sector was causing the business to struggle, while it appears the market still had high hopes for the company, given it was trading on a lofty multiple.

To discuss in more detail the fund performance, let's start with what went wrong. The top five detractors to performance are shown below.

Source: Northern Trust

Temenos, a Swiss banking software company, caused us much frustration over the first few months of the year. We now believe that the company will require more investment in the short and medium term to fix a badly managed transition to a Software-as-a-Service (SaaS) business model, which will likely place pressure on both margins and returns over the coming years. We therefore sold the company in the first half.

Spirax Group, the industrial business based in the UK, has been a victim of slowing global industrial production growth over the last couple of years, which has continued falling, down from 1.5% in August to 0.9% now. All regions have slowed but there was particular weakness in China due to its struggling property market having knock-on effects across its economy. Further to this, Spirax's peristaltic pumps business has a large exposure to the biopharma business which has been weak since the pandemic-stimulated boost faded away. Still, the latest trading statement showed some acceleration in group revenue growth, with all business units now growing again, which we take as a positive early sign of recovery.

Domino's Pizza Enterprises, the Australian Domino's franchisor also performed poorly during the year. This is a company that had performed very well until 2021, after which mis-execution in several markets, including Japan and Germany, led to underperformance. While management has set out a plan to recover sales in these markets, we believe that given the amount of time this turnaround might take, our shareholders' capital would be better deployed in other opportunities, and we sold the position. Interestingly, the company's supervisory Board appeared to share our impatience and recently parted ways with the long serving CEO.

Fevertree is the UK producer of premium tonics and mixers. While its margins have been recovering from the logistics and raw material cost squeeze it suffered in recent years, its overall demand environment has become weaker over the last 12 months due to declining alcohol consumption, particularly the gin market in the UK, its largest and most profitable market.

Qualys is a US company providing cyber security software and its order growth has been held back recently by the macroeconomic uncertainty leading to reductions in corporate IT budgets. We expect this to be temporary and for orders to recover once corporate budgets start growing again. Indeed, in the latest results, billings growth rebounded to 14%, sending the share price up 16% at the time of the report. As it happens, there was also bid speculation reported on the same date, causing the shares to jump a further 10% by the end of the day.

The top five contributors to performance are shown below.

Source: Northern Trust

Fortinet, the US cybersecurity company performed extremely well this year, up 55% in share price terms, after results in Q2 and Q3 positively surprised the market. In particular, the growth rate of bookings started reaccelerating in Q2 after a substantial slowdown over the last couple of years. This news sent the share price up 25% in a single day, which once more demonstrates that equity returns are anything but linear.

Fisher & Paykel Healthcare, the medical device company based in New Zealand, had a much better year as its demand recovered from the post-Covid lull it had experienced over the last couple of years, propelling the share price to new highs.

Addtech, the diversified Swedish industrial business, has only been in the portfolio for 3 years but over that time its share price has more than doubled. Earnings results over the last 12 months continued to be better than expected, primarily due to its strategy of frequently acquiring small, profitable companies at low multiples of earnings.

TechnologyOne, the software company based in Australia, continued its strong share price performance as the business managed to maintain the mid-teens revenue growth it has achieved since 2022. This is a result of a successful transition to Software-as-a-Service (SaaS) for its Enterprise Resource Planning (ERP) software, which has proven popular with institutional clients such as universities and the UK government.

Diploma is an industrial distribution business that has performed so well over the last few years that it has grown into our largest holding. This has been achieved through an admirable ability by management to maintain organic growth in the mid single digit range despite the slowing global industrial production, while also adding new companies to the group which have significantly outperformed management's initial expectations, thus proving to be extremely good value acquisitions.

The current positioning of the fund is shown below, with a breakdown of the portfolio in terms of sector and geography at the end of the period. The median year of foundation of the companies in the portfolio at the year end was 1965 - our companies may be small, but they are not unproven.

Source: Northern Trust

The Industrials sector weighting has increased over the year due to the outperformance of several of our industrial companies, including Addtech and Diploma mentioned already, but also with notable performances from Rational and Verisk. The Information Technology sector declined in weight due to the sale of IPG Photonics, Temenos, TechnologyOne and Fortinet, and despite the addition of HMS Networks, Inficon, Reply and Melexis. Healthcare was the only other notable mover, increasing in weight due to the addition of Medpace.

Source: Northern Trust

The table above illustrates how the regional exposure in terms of country of listing has changed during the year. The USA is the largest country exposure and increased further due to the outperformance of the country relative to other developed markets in 2024. The other countries to change meaningfully are Switzerland, after the acquisition of Inficon, Australia, after the sale of Dominos Pizza Enterprises and TechnologyOne and Japan, with Monotaro being our first direct exposure to the country.

The geographical weighting that we pay most attention to though is the economic exposure of our companies, measured by the origin of revenue (below). Here, one can see that portfolio changes have meant that the exposure to North America now more closely matches the listed weighting, as our US based acquisitions have more domestic exposure as a proportion of their business than the ones which were sold. The exposure to Europe has decreased in line with this change while the exposure to emerging markets was little changed.

Source: Fundsmith

In closing, the performance of the portfolio this year is far from what we expect. But with a systematic and disciplined focus on where we hope to find exciting opportunities and an incessant determination to leave no stone unturned in our pursuit of attractive long term investments, we feel confident about the future of the Trust and appreciate your continued support.

Simon Barnard

Fundsmith LLP

Investment Manager

5 March 2025

Investment Portfolio

Investments held as at 31 December 2024

Investment Objective, Policy and Investment Methodology

Investment Objective

The Company's investment objective is to provide shareholders with long term growth in value through exposure to a diversified portfolio of shares issued by listed or traded companies.

Investment Policy

As at the date of this Annual Report, the Company's investment policy (including defined terms) is as set out in its IPO prospectus dated 17 September 2018.

The Company's investment policy is to invest in shares issued by small and mid-sized listed or traded companies globally with a market capitalisation (at the time of initial investment) of between £500 million and £15 billion. The Company's approach is to be a long-term investor in its chosen shares. It will not adopt short-term trading strategies. Accordingly, it will pursue its investment policy by investing in approximately 25 to 40 companies as follows:

(a)     the Company can invest up to 10 per cent. in value of its gross assets (as at the time of investment) in shares issued by any single body;

(b)     not more than 20 per cent. in value of its gross assets (as at the time of investment) can be in deposits held with a single body. This limit will apply to all uninvested cash (except cash representing distributable income or credited to a distribution account that the depositary holds);

(c)     not more than 20 per cent. in value of its gross assets (as at the time of investment) can consist of shares issued by the same group. When applying the limit set out in (a) this provision would allow the Company to invest up to 10 per cent. in the shares of two group member companies (as at the time of investment);

(d)     the Company's holdings in any combination of shares or deposits issued by a single body must not exceed 20 per cent. in value of its gross assets (as at the time of investment);

(e)     the Company must not acquire shares issued by a body corporate and carrying rights to vote at a general meeting of that body corporate if the Company has the power to influence significantly the conduct of business of that body corporate (or would be able to do so after the acquisition of the shares). The Company is to be taken to have power to influence significantly if it exercises or controls the exercise of 20 per cent. or more of the voting rights of that body corporate; and

(f)     the Company must not acquire shares which do not carry a right to vote on any matter at a general meeting of the body corporate that issued them and represent more than 10 per cent. of the shares issued by that body corporate.

The Company may also invest cash held for working capital purposes and awaiting investment in cash deposits and money market funds.

For the purposes of the investment policy, certificates representing certain shares (for example, depositary interests) will be deemed to be shares.

Proposed Changes to the Investment Policy

As required by the UK Listing Rules, any material changes to the Company's Investment Policy as set out above will require the approval of shareholders by way of an ordinary resolution at a general meeting and the approval of the FCA.

The Directors are proposing an amendment to the Company's Investment Policy in a resolution at the Annual General Meeting of shareholders on 23 April 2025. For more information, please see the Chairman's Statement above.

Hedging Policy

The Company will not use portfolio management techniques such as interest rate hedging and credit default swaps.

Additionally, derivatives will not be used for currency hedging or any other purpose.

Borrowing Policy

The Company has the power to borrow using short-term banking facilities to raise funds for short-term liquidity purposes or for discount management purposes including the purchase of its own shares, provided that the maximum gearing represented by such borrowings shall be limited to 15 per cent. of the net asset value at the time of drawdown of such borrowings. The Company may not otherwise employ leverage.

Investment Methodology and Management Process

The Investment Manager seeks to apply the investment methodology and management process summarised below (to the extent appropriate given the nature of a relevant investment opportunity):

Not attempting market timing

The Investment Manager will not attempt to manage the percentage invested in equities in the Company's portfolio to reflect any view of market levels, timing or developments. The Investment Manager's unwillingness to make investment decisions on the basis of market timing is one factor that will prevent the Company from investing in sectors that are highly cyclical.

Seeking high-quality businesses with specific characteristics and intangible assets

In the Investment Manager's view, a high-quality business is one which can sustain a high return on operating capital employed and which generates substantial cash flow, as opposed to only creating accounting earnings. If it also reinvests some of this cash back into the business at its high returns on capital, the Investment Manager believes the cash flow will then compound over time, along with the value of the Company's investment.

The Investment Manager will not just look for a current high rate of return, but will seek a sustainable high rate of return. Fundamentally, such companies need to demonstrate the ability to continue competing against all other companies which are trying to take a share of their profits. This can come in many forms, but the Investment Manager will look for companies that rely on intangible assets such as one or more of the following: brand names; patents; customer relationships; distribution networks; installed bases of equipment or software which provide a captive market for services, spares and upgrades; or dominant market shares.

The Investment Manager will generally seek to avoid companies that rely on tangible assets such as buildings or manufacturing plants, as it believes well-financed competitors can easily replicate and compete with such businesses. In many instances, such competitors are able to become better than the original simply by installing the latest technology in their new factory. Banks are quite keen to lend against the collateral of tangible assets, and such companies tend to be more heavily leveraged as a result. The Investment Manager believes that intangible assets are much more difficult for competitors to replicate, and companies reliant on intangible assets require more equity and are less reliant on debt as banks are less willing to lend against such assets.

The Investment Manager believes such companies will resist the rule of mean reversion that states returns will revert to the average over time as new capital is attracted to business activities which earn above average returns. They can do this because their most important assets are intangible and difficult for a competitor to replicate. Since stock markets typically value companies on the assumption that their returns will regress to the mean, businesses whose returns do not do so can become undervalued. This presents an opportunity for the Company.

The Investment Manager will seek businesses which have growth potential. The Investment Manager views growth potential as the ability of a company to be able to reinvest at least a portion of its excess cash flow back into the business to grow, whilst generating a high return on the cash thus reinvested. Over time, this should compound their shareholders' wealth by generating more than a pound of stock-market value for each pound reinvested.

The Investment Manager is interested in growth that is driven through either increases in volume or increases in price and will prefer a mixture of both. The ability to increase product prices above the rate of inflation is the most profitable way to grow and demonstrates that the company has a healthy competitive position selling products or services which are strongly desired by their customers. However, growth through price alone can build a shelter under which competitors can flourish, eventually resulting in cheaper competition gaining significant market share. On the other hand, growth through additional unit volumes almost always requires more cost, in both manufacturing capacity and materials used to produce the products, as well as transportation to get them to customers. Increasing scale in this way will eventually make a company's market position more difficult to compete against, however, unlike growing through price alone, with the further benefit that volume growth can sometimes continue indefinitely.

The Company will only invest in companies that earn a high return on their capital on an unleveraged basis and do not require borrowed money to function. The Investment Manager will avoid sectors such as banks and real estate which require significant levels of debt in order to generate a reasonable shareholder return given their returns on unlevered equity investment are low.

While the Investment Manager favours companies that are able and willing to spend cash on the research and development of their products to create important intangible assets such as patents and manufacturing efficiency, it will avoid industries that innovate very quickly and are subject to rapid technological change. Innovation is often sought by investors, but does not always produce lasting value for them and can have high capital costs.

Avoiding overpaying for shares

The Company will only invest in shares where the Investment Manager believes the valuation is attractive. The Investment Manager will estimate the free cash flow of every company after tax and interest, but before dividends and other distributions, and after adding back any discretionary capital expenditure which is not needed to maintain the business. The Investment Manager aims to invest only when free cash flow per share as a percentage of a company's share price (the "free cash flow yield") reflects value relative to long-term interest rates and when compared with the free cash flow yields of other investment candidates both within and outside the Company's portfolio. The Investment Manager will buy securities that it believes will grow and compound in value, which bonds cannot, at yields that are similar to or better than the Company would get from a bond.

Buying and holding

The Company will seek to be a long-term, buy-and-hold investor. The Investment Manager believes this will facilitate the compounding of the Company's investments over time as the investee companies continue to reinvest their cash flows. The Investment Manager, however, will continually test its original views against new information it may discover while regularly reviewing the news and results concerning the investee companies. The resulting low level of dealing activity also minimises the frictional costs of trading, a cost which is often overlooked by investors as it is not normally disclosed as part of the costs of running funds.

Business Review

The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 to provide information to shareholders to assess how the Directors have performed their duty to promote the success of the Company.

The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Purpose, Strategy and Business Model

The Company is registered in England and Wales and is an externally managed investment trust; its shares are listed on the Official List and traded on the main market of the London Stock Exchange. It was established by its Investment Manager, Fundsmith LLP and listed on 19 October 2018.

The purpose of the Company is to provide a vehicle for investors to gain exposure to a portfolio of small and mid-sized listed or traded companies globally, through a single investment.

The Company's strategy is to create value for shareholders by addressing its investment objective. Please see above for the investment objective and approach.

The Company is an alternative investment fund ("AIF") under the alternative investment fund managers' directive ("AIFMD") and has appointed Fundsmith LLP as its alternative investment fund manager ("AIFM").

As an externally managed investment trust the Company has delegated its operational activities to specialised third party service providers who are overseen by the Board of non-executive Directors. Details regarding the Company's key third party service providers are included in the Management Engagement Committee Report. The Company has no executive Directors, employees or internal operations.

Key Performance Indicators ("KPI")

The Company's Board of Directors meets regularly and reviews performance against a number of key measures, as follows:

·        Net asset value total return against the MSCI World SMID Cap Index measured on a net sterling adjusted basis;

·        Share price total return;

·        Premium/discount of share price to net asset value per share; and

·        Ongoing charges ratio.

The KPI measures are Alternative Performance Measures ("APMs"). Please refer to the APM section and Glossary in the full Annual accounts for definitions of these terms and an explanation of how they are calculated.

Net asset value total return against the comparator index

The Directors regard the Company's net asset value total return as being the overall measure of value delivered to shareholders over the long term. The Investment Manager's investment style is such that performance is likely to deviate from that of the comparator index.

The Company's net asset value per share at 31 December 2024 was 1,631.8p and it reported a total loss after tax for the year of £8.1 million (2023: £293.3 million profit), comprising a capital loss of £12.5 million (2023: £290.3 million profit) and a revenue profit of £4.4 million (2023: revenue profit of £3.0 million) (see below financial statements). Buying shares back at a discount was accretive to NAV per share during the year. The net asset value total return for the year to 31 December 2024 was 2.1%¹ and the annualised net asset value for the period from listing on 19 October 2018 to 31 December 2024 was 8.2%¹. The Board considers the MSCI World SMID Cap Index measured on a net, sterling-adjusted basis, to be the most appropriate comparator to the Company's performance. The returns generated by the MSCI World SMID Cap Index over the same periods were 11.5% and 8.3% respectively, thus the Company underperformed the comparator index by 9.4 percentage points for the year ended 31 December 2024 and underperformed the Index by 0.1 percentage points, annualised for the period from the Company's listing to the year end.

A full description of performance during the period under review is contained in the Investment Manager's Review.

Share price total return

The Directors also regard the Company's share price total return to be a key indicator of performance.

The share price total return for the year to 31 December 2024 was 4.9%¹ and the annualised share price total return for the period from listing on 19 October 2018 to 31 December 2024 was 6.6%¹, underperforming the MSCI World SMID Cap Index comparator index by 6.6 percentage points and 1.7 percentage points respectively. Further detail is given in the following section.

Premium/discount of share price to net asset value per share

The Board undertakes a regular review of the level of premium/discount. At the 31 December 2024, the discount of the Company's share price to the net asset value per share was 9.1%¹, and the average discount to net asset value for the year to 31 December 2024 was 11.5%. During the year the Company's shares consistently traded at a discount to the net asset value. The Board seeks to manage the premium/discount and generate value for shareholders through the issue of shares at a premium to net asset value or repurchase of shares at a discount to net asset value. To this end, the Company repurchased 29.2 million ordinary shares at an average discount to the prevailing net asset value of 11.4%, for a cost of £413.9 million. Together, repurchases generated a benefit to net asset value per share of approximately £50.9 million. The decision and timing of any share issuance and/or buy-back is at the discretion of the Board.

The average discount of the Company's share price to net asset value per share in 2024 of 11.5% was in excess of the 10% threshold requiring the Directors to consider whether to propose a continuation vote at the Annual General Meeting. Accordingly, the Board will propose a resolution at the Annual General Meeting that the Company continues to be an investment trust.

Ongoing charges ratio

The Directors monitor the Company's expenditure at each board meeting and review the ongoing charges ratio disclosed in the Interim and Annual Reports. Expressed as a percentage of average net asset value, the annualised ongoing charges ratio for the year was 0.9% (2023: 0.9%)¹. The Board seeks to manage and where possible to improve the ongoing charges ratio and to this end the Management Engagement Committee regularly reviews its service provider fee rates. As part of this process, during 2024, the Management Engagement Committee secured a reduction in the ongoing fees payable to the Depositary and the administrator.

¹These are APMs. Definitions of these and other APMs used in the Annual Report, together with how these measures have been calculated, are disclosed below.

Risk Management

Risk Management

The Board is responsible for the ongoing identification, evaluation and management of emerging and principal risks faced by the Company and the Board has established a process for the regular review of these risks and their mitigation. The Board believes that effective risk management contributes to the safeguarding of shareholder value and successful operation of the Company and therefore assesses and manages, where possible or appropriate, the risks faced by the Company. This process accords with the UK Corporate Governance Code, the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting and the AIC Code of Corporate Governance and a description follows below.

·                 The Board maintains and regularly reviews a matrix of risks faced by the Company and controls in place to mitigate those risks. The impact and probability of those risks occurring after controls are performed are charted on a risk heat map and reviewed by the Board along with a risk appetite statement that reflects the Board's relative level of risk tolerance and establishes key triggers necessitating Board management. A review of the risk procedures and controls in place at the Investment Manager and other key service providers is performed.

·        Emerging risks, including macro economic emerging risks that are considered to be significant, are discussed as part of this process and as part of the Investment Manager's reviews and, so far as is practicable, are mitigated.

The market and economic impacts of political and geopolitical risks such as conflicts between Russia and Ukraine and in the Middle East, as well as the results of relevant national elections continue to be monitored by the Board with a focus on those that may impact the performance of companies in which the Company invests. The Investment Manager and other key service providers gave updates throughout the year on operational resilience and portfolio exposure and impacts.

Each Director brings external knowledge of the investment company sector (and financial services generally), trends, threats as well as strategic insight;

·        The Investment Manager advises the Board at quarterly Board meetings on industry trends, providing insight on future challenges in the markets in which the Company operates/invests. The Company's broker regularly reports to the Board on markets, the investment company sector and the Company's peer group;

·        The Board receives quarterly reports from the Investment Manager's Compliance officer and the depositary on any matters of regulatory concern and developments;

·        The Company Secretary briefs the Board on forthcoming legislation/regulatory change that might impact on the Company. The auditor also provides technical updates on matters such as developments in accounting standards and regulatory and corporate governance changes and best practice; and

·        The Company is a member of the AIC, which provides regular technical updates as well as drawing members' attention to forthcoming industry/regulatory issues and advising on compliance obligations.

Principal and Emerging Risks

The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. Any emerging risks identified as part of the Audit Committees risk assessment, and that are considered to be significant will be recorded in the Company's risk registers either separately as a risk category or as part of current identified risks.

Investment Objective & Policy Risks

·                 The Company's investment objective may become unattractive to investors or its investment policy may not be successful in generating returns for investors.

·                 The Company is dependent upon the Investment Manager's successful implementation of the Company's investment policy and ultimately on its ability to create an investment portfolio capable of generating attractive returns. Failure to do so may mean the Company becomes unattractive to investors. This could lead to a situation in which the continuation vote was not approved by shareholders at the Company's AGM.

·                 The Company may have significant exposure to portfolio companies from certain business sectors or geographical regions. Greater concentrations of investments in any one sector or geography may lead to greater volatility in the Company's investments and may adversely affect performance. This may be exacerbated by the small number of investments held at any time.

Mitigation

·                 The Investment Manager has a proven and extensive track record, and the Board undertakes a review of the performance of the Company and its transactions at each quarterly Board meeting. The Investment Manager spreads the investment risk over a portfolio of investments in accordance with the Company's investment policy, and at the year end the Company held investments in 34 companies with details of the geographic and sector weightings given in the Investment Manager's Review.

Market Risks

·                 Price movements, economic and stock market conditions may have a negative impact on the Company's portfolio and its ability to identify and execute suitable investments that might generate acceptable returns.

·                 If conditions (such as those experienced as a consequence of the current conflicts in Ukraine and Middle East) affecting the investment market negatively impact the price at which the Company is able to buy or dispose of its assets, this may have a material adverse effect on the Company's business and results of operations.

·                 Interest rate movements may affect the level of income receivable on cash deposits and the interest payable and by investee companies on their borrowings. In addition, where the Company invests in high growth investee companies, any increase in interest rates may compress the growth of such companies and therefore affect their valuations. As such, interest rate fluctuations may reduce the Company's returns.

·                 The Company's ordinary shares are denominated in pounds sterling while the majority of the Company's investments are denominated in a currency other than pounds sterling. The Company does not hedge its currency exposures and changes in exchange rates may lead to depreciation in the Company's net asset value.

Mitigation

·                 The Company's investment policy and the fact that it will not use hedging instruments to mitigate interest rate or foreign currency risk is clearly explained in the Owner's Manual (which can be found on the Company's website at www.smithson.co.uk).

·                 The Investment Manager has a proven and extensive track record and reports regularly to the Board on market developments. The Investment Manager's policy is to hold investments for the long term and not look at market timing issues.

·                 Further details on Market and Financial Instrument risk are disclosed in note 15 to the financial statements.

Outsourcing Risks

·        The Company has outsourced all its operations to third party service providers. Failure by any service provider to carry out its obligations in accordance with the terms of its appointment could result in negative implications for the Company.

·                 Such failures could include cyber breaches or other IT failures, fraud (including unauthorised payments by the administrator), poor record keeping and loss of assets and failure to collect all the Company's dividend income.

·                 Cyber incidents are becoming increasingly common and may cause disruption and impact business operations, potentially resulting in financial losses, theft, interference with the ability to calculate the Net Asset Value or additional operating costs.

·                 When selecting or reviewing investments, the Investment Manager evaluates the prospects and risks, including climate change risks, that could affect these companies.

·                 If the Investment Manager fails to identify risks or liabilities associated with investee companies adequately, this could give rise to an investee company not fitting the Company's investment policy or unexpected losses and adverse performance.

·        Inadequate business continuity and disaster recovery arrangements at key third party service providers could cause significant disruptions to the operation of the Company's business.

Mitigation

·                 The Company has appointed experienced service providers, each of whom has a service agreement. The Board reviews the performance of the Investment Manager and depositary at each quarterly Board meeting and the performance of all key service providers is reviewed annually by the Management Engagement Committee. Cyber risk management questions are incorporated in this review to confirm the existence and application of cyber security controls and procedures. The Company's key service providers confirm periodically to the Board that they have in place business continuity plans and procedures to mitigate the impact on the Company of a disruption in service.

·                 The procedures of the depositary and custodian are reviewed and tested by their external auditors and such reports on the service providers' control environment are made available to clients. These reports are also reviewed by the Audit Committee and where any control failures are identified, the key service provider is required to explain and provide assurance to the Company on any impact or potential risk to the Company and its mitigation.

Key Individuals Risk

·        Fundsmith LLP is responsible for managing the Company's investments. The Investment Manager relies on key individuals to identify and select investment opportunities and to manage the day-to-day affairs of the Company. There can be no assurance as to the continued service of these key individuals at the Investment Manager, and the departure of any of these from the Investment Manager without adequate replacement may have a material adverse effect on the Company's business prospects and results of operations.

Mitigation

·                 The Investment Manager has a remuneration policy in place seeking to incentivise key individuals to take a long-term view. Additionally, the Company's key individuals are significantly invested in the Company (see note 17 to the financial statements). Finally, the Investment Manager has plans in place to ensure continuity in the event of the departure of key individuals.

Regulatory Risk

·        The Company benefits from the current exemption for investment trusts from UK tax on chargeable gains. Any change to HMRC's rules or the taxation of investee companies could affect the Company's ability to provide returns to shareholders.

Mitigation

·        The Investment Manager and the Company Secretary monitor proposed changes to tax rules and report to the Board thereon.

Viability Statement

Viability Statement

In accordance with the Association of Investment Companies Code of Corporate Governance (the "AIC Code") and the UK Listing Rules, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the "Going Concern" provision. The Company's investment policy is to buy good UK companies, not overpay and then do nothing. The Smithson Owner's Manual, a copy of which can be found on the Company's website at www.smithson.co.uk states "We will only invest in the equity of companies which we believe can compound in value over many years, if not decades, where we can remain a happy owner, safe in the knowledge that in 5 to 10 years' time our investment is likely to be worth significantly more than what we paid for it". When selecting or reviewing investments, the Investment Manager evaluates the prospects and risks which could affect investee companies over at least a 5 to 10 year period with a view to them being good long-term investments capable of generating the Company's required returns. The Board therefore believes that 10 years is the most appropriate time horizon to adopt for the Viability Statement.

In reviewing the Company's viability, the Board considered the Company's business model, the principal and emerging risks and uncertainties, including the economic and market conditions, current and anticipated inflation and interest rates and economic impacts arising from the continuing wars in Ukraine and the Middle East, and its present and expected financial position. The Company is a closed-end fund which invests in listed or traded global securities which are inherently liquid. It does not intend to borrow (except in short term circumstances to manage a discount) nor will it use derivatives in any hedging operation. It receives dividend income from its investment portfolio with which it settles its operating expenses. Any shortfall in income available to settle expenses could be met by the Company's cash balances or by realising investments. The Board receives regular reports from the Investment Manager to confirm the average time to liquidate any investment position. At 31 December 2024 the Company had net assets of £2,130 million of which £2,127 million was held in listed investments and £3.0 million in cash (see Statement of Financial Position). The Board therefore has substantial options to meet the Company's continuing obligations as well as supporting the Company's buyback programme.

As the Company's shares traded during 2024 at an average discount of more than 10%, shareholders will be given the opportunity to vote on the Company's continuation in its present form at the forthcoming AGM. At the 2024 AGM, a similar resolution for the Company to continue in its present form was approved by 90% of the votes cast. Given the performance of the Company and feedback from stakeholders, including the Company's broker and major shareholders, the Board has no reason to believe that the continuation vote will not be approved.

The Company benefits from certain tax benefits relating to its status as an investment trust. Any change to such taxation arrangements would inevitably affect the attractiveness of an investment in the Company and consequently its viability as an effective investment vehicle. At the time of consideration, no such changes in taxation arrangements are planned.

The Directors have assumed that:

·                 the Board will not change the Company's investment objective of providing shareholders with long-term growth in value;

·        the performance of the Company will continue to be satisfactory such that the shareholders will want the Company to continue in existence; and

·        the Board will continue to manage the Company's business to ensure it retains its status as an investment trust.

Based on the results of this review, the Directors have formed a reasonable expectation that the Company will continue in its operations and meet its expenses and liabilities as they fall due over the next 10 years.

Section 172 and Non-financial Disclosures

Engaging with the Company's Stakeholders

The following disclosures are required under section 172 of the Companies Act 2006 "s172") and endorsed by the AIC Code. They describe how the Directors promoted the success of the Company for the benefit of its members as a whole and have had regard to the interests of the Company's stakeholders in their decision making.

The Board sets the Company's strategy and objectives, taking into account the interests of all its stakeholders. It is ultimately responsible for the direction, management, performance and long-term sustainable success of the Company. A good understanding of the Company's stakeholders and regular engagement enables the Board to consider the potential impact of strategic decisions on each stakeholder group during the decision-making process.

When considering the Company's purpose, vision and values, together with its strategic priorities, the Board aims for its decisions to be fair and take account of the interests of the key stakeholder groups, together with the impact of its operations on the community and environment through its investment activities.

Set out below is an explanation of how the Board approaches stakeholder engagement: why we engage and how we go about it. Below this table is also a summary of the material engagements we have had with stakeholders during the year ended 31 December 2024.

During the year, the Board took account of stakeholder engagement in the following decision-taking:

·        In response to the level of discount of the Company's share price to Net Asset Value, the Chairman and Broker discussed the discount management policy with some of the Company's larger shareholders. Following such meetings, the Board, in consultation with its advisers increased its rate of buying back shares. The main aim was to provide increased market liquidity, dampen share price volatility at the same time as gaining some NAV accretive benefit.

·        At the 2024 AGM the Directors proposed and authority was granted to buy back up to 23,568,470 ordinary shares, representing 14.99% of the ordinary shares in issue as at 4 March 2024, the latest practicable date before publication of the Notice of AGM. This authority was substantially utilised by December 2024. Following shareholders' feedback on the buyback programme and after consultation with the Company's advisors, the Board issued in December 2024 a notice of General Meeting to propose that authority be granted by shareholders for the Company to purchase a further 19,390,761 ordinary shares, representing 14.99% of the ordinary shares in issue if the existing buy-back authority was utilised in full and no new shares were issued. This authority was duly granted on 17 January 2025.

·        During 2023, the Company's share price traded at an average discount to the NAV of more than 10%. Following engagement with shareholders, the Board agreed, in consultation with its advisers, to put forward an ordinary resolution at the 2024 AGM in favour of continuation although it was not required to do so. The resolution was subsequently passed with 90% of the votes cast in favour. The Board has since resolved that, where such circumstances arise in the future, the Board will automatically put such a vote to shareholders at the following AGM.

·        During the year, the Board undertook a review of the Company's broking arrangements and following this review appointed J.P. Morgan Cazenove as the Company's broker.

·        During the year, the Management Engagement Committee undertook a review of the Company's service providers and following this secured a reduction in the ongoing costs of the administrator and depositary.

Active Ownership

Active ownership is an important component of Fundsmith's risk management process after it invests in a business. The portfolio manager regularly engages with investee companies to promote a long-term mindset for capital allocation and appropriate controls across the suite of risks the investee company may face. Fundsmith uses engagement to understand management's perspective, assess their handling of a variety of issues and to raise any concerns regarding their approach or outcomes, when appropriate. Fundsmith also uses its proxy votes to protect and enhance the value of the Company's investments, supporting or opposing the investee company when necessary. The investment management team assesses votes and engagements on a case-by-case basis themselves and doesn't outsource the decision to other departments or use any advisory services. Fundsmith uses both engagement and proxy voting to support decisions that benefit the long-term performance of the business.

During the year to 31 December 2024, 406 votes were cast by the Investment Manager of which 97% were voted in favour of the resolution and 3% against. Of the 406 votes cast, 30 related to management remuneration and the Investment Manager voted against the company management on 40% of these. For more information on Fundsmith's approach, see Fundsmith's 2023 Stewardship Report at www.smithson.co.uk/documents.

Taskforce for Climate Related Financial Disclosures ("TCFD")

The Company notes the TCFD recommendations on climate related financial disclosures. The Company is an investment company and, as such, it is exempt from the UK Listing Rules requirement to report against the TCFD framework.

Disclosure concerning Greenhouse Gas Emissions ("GHG") for the year ended 31 December 2024

The Company is an investment trust, with neither employees nor premises, and the Company has no financial or operational control of the investee companies' underlying assets. It has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Reports and Directors' Reports) Regulations 2013 or the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, including those within the Company's underlying investment portfolio.

Consequently, the Company consumed less than 40,000 kWh of energy during the year in respect of which the Report of the Directors is prepared and therefore is exempt from the disclosures required under the Streamlined Energy and Carbon Reporting criteria.

Company Culture and Values

Corporate culture for an externally-managed investment trust refers to the beliefs and behaviours that determine how the Directors interact with one another and how the Board manages relationships with shareholders and key service providers, such as the Investment Manager. The culture is defined by the values which are set out below. The s172 report included in this Strategy and Business Review provides further details of how the Board has operated in this regard.

The Board is mindful that it is overseeing the management of a substantial investment portfolio on behalf of investors. In many cases, the investment in the Company may represent a large proportion of an individual's savings. All the Directors are invested in the Company, with the exception of the Chairman, and as such, their interests are aligned with those of fellow shareholders in this regard. It is the intention that the Chairman, following their recent appointment, to purchase shares once the Company is out of the closed period.

Our approach to governing the Company is underpinned by our determination to do the right thing for our shareholders. Key to this is having a constructive relationship with them, through regular updates, half-yearly and annual reports, and the opportunity to meet with them at the Annual General Meeting. We also believe in having strong relationships with our key service providers, one based on mutual trust and respect, with constructive challenge when required. Below is a summary of the Board's most important values:

High Standards

The Directors want to ensure the success of the Company and generate long term value for its shareholders. To this end the Board will seek to adopt high standards of corporate governance and encourage best practice in all its activities. This approach extends to the Company's dealings with its stakeholders including shareholders, the Investment Manager and other service providers.

Honesty and Integrity

The Board seeks to comply with all relevant laws and regulations which apply to investment companies and has zero tolerance to bribery and corruption or any other fraudulent behaviour. The Board further expects the same standards to be applied by its service providers.

Transparency and accountability

The Board encourages clarity and transparency in its Board discussions and in communications with its stakeholders. The Board seeks to work with all service providers in a collaborative manner while at the same time recognising that the Board's role involves exercising oversight and challenge. The Board further recognises that it is accountable to shareholders and will endeavour to give a fair, balanced and understandable overview of the Company's performance to this end.

Integrity and Ethics

Modern Slavery disclosure

Due to the nature of the Company's business, being a company that does not offer goods or services to customers, the Board considers there are no relevant disclosures with regard to the Modern Slavery Act 2015 in relation to the Company's own operations. The Board considers the Company's supply chains, dealing predominately with professional advisers and service providers in the financial services industry, to be low risk in this regard.

Anti-bribery and corruption

The Company takes a zero-tolerance approach to bribery and corruption and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships wherever it operates. The Company's policy and the procedures that implement it are designed to support that commitment. A summary of the Company's anti-bribery and corruption policy can be found on the Company's website at www.smithson.co.uk.

Prevention of the facilitation of tax evasion

In response to the Criminal Finances Act 2017, the Board has adopted a zero-tolerance approach to the criminal facilitation of tax evasion. A summary of the Company's policy can be found on the Company's website at www.smithson.co.uk.

Employees, human rights and community issues

The Board recognises the requirement to provide information about employees, human rights and community issues. As the Company has no employees, all its Directors are non-executive and all its functions are outsourced, there are no disclosures to be made in respect of employees, human rights and community issues. As at the date of this report the Company had four Directors, of whom two are male and two are female. The Board's policy on diversity is contained in the Corporate Governance Report of the Annual Report.

Dividend policy

The Company's intention is to look for overall return rather than seeking any particular level of dividend, however, the Company will comply with the investment trust rules which require the Company to distribute the majority of its revenue profit after tax.

Any dividends and distributions will be at the discretion of the Board. Subject to the Companies Act, the Company may, by ordinary resolution, declare a final dividend to be paid to members of the Company according to their rights and interests in the profits of the Company available for distribution, but no dividend shall be declared in excess of the amount recommended by the Board. The Company does not intend to pay any interim dividends.

When the Company is in a position to pay a dividend, then it may, subject to complying with all relevant criteria and with the approval of the shareholders by ordinary resolution, choose to offer shareholders a scrip dividend alternative or may establish a scrip dividend scheme that would allow shareholders to receive ordinary shares instead of a cash dividend.

Strategic Report

The Strategic Report set out in the Annual Report was approved by the Board of Directors.

On behalf of the Board

Mike Balfour

Chairman

5 March 2025

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom adopted international accounting standards. The financial statements also comply with International Financial Reporting Standards (IFRSs) as issued by the IASB.. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing these financial statements, International Accounting Standard 1 require that the Directors have:

·        selected suitable accounting policies and then applied them consistently;

·        made judgements and accounting estimates that are reasonable and prudent;

·        presented information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·        provided additional disclosures when compliance with the specific requirements in IFRS were insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance; and

·        prepared the financial statements on a going concern basis.

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 financial statements are published on the Company's website at www.smithson.co.uk. The Investment Manager has delegated authority for the maintenance and integrity of the website on behalf of the Company. The work carried out by the auditor does not involve consideration of the maintenance and integrity of the website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider 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.

Each of the Directors confirm that, to the best of their knowledge:

·        the financial statements, which have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and net return of the Company for the year ended 31 December 2024; and

·        the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Mike Balfour

Chairman

5 March 2025

Financial Statements

Statement of Comprehensive Income

The Company does not have any income or expenses which are not included in the (loss)/return for the year.

All of the (loss)/return and total comprehensive income for the year is attributable to the owners of the Company.

The "Total" column of this statement represents the Company's Income Statement, prepared in accordance with International Financial Reporting Standards (IFRS). The "Revenue" and "Capital" columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies (AIC).

All items in the above statement derive from continuing operations.

The accompanying notes are an integral part of these financial statements.

Statement of Financial Position

The financial statements were approved by the Board on 5 March 2025 and were signed on its behalf by:

Mike Balfour

Director

The accompanying notes are an integral part of these financial statements.

Smithson Investment Trust plc - Company Registration Number 11517636 (Registered in England and Wales)

Statement of Changes in Equity

For the year ended 31 December 2024

For the year ended 31 December 2023

^#On 28 February 2023, High Court approval was obtained to reduce the Company's share premium by £500 million. The capital reduction, resulted in a corresponding increase in the Company's distributable reserves.

* Distributable reserve.

The accompanying notes are an integral part of these financial statements.

Statement of Cash Flows

Dividends and interest received in cash during the year amounted £27,841,000 and £623,000 (2023: £30,292,000 and £755,000), respectively.

The accompanying notes are an integral part of these financial statements.

Notes to the Financial Statements

1.Accounting policies

Smithson Investment Trust plc is a company incorporated on 14 August 2018 in the United Kingdom under the Companies Act 2006.

The financial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).

(a) Accounting convention

The financial statements have been prepared under the historical cost convention (modified to include investments at fair value through profit or loss) on a going concern basis and in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as issued by the International Accounting Standards Board (IASB) and with the Statement of Recommended Practice ("SORP") 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies ("AIC") in November 2014 (and updated in July 2022). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. As during 2024 the Company's shares traded at an average discount of more than 10%, shareholders will be given the opportunity to vote on the Company's continuation in its present form at the forthcoming AGM. At the 2024 AGM shareholders, 90% of the votes cast were in favour of continuation. In considering the going concern of the Company, the Board have considered the performance of the Company since inception, the proposed amendment to the Company's investment policy, feedback from stakeholders, including the Company's broker and major shareholders and the Board is satisfied that it is appropriate to adopt the going concern basis of accounting in preparing the financial statements for at least 12 months from the date of approval of these financial statements (see above for further details on going concern). The Company is a UK listed company with a predominantly UK shareholder base. The results and the financial position of the Company are expressed in sterling, which is the functional and presentational currency of the Company. The accounting policies have been disclosed consistently and in line with Companies Act 2006.

(b) Critical accounting judgements and sources of estimation uncertainty

The Board confirms that no significant accounting judgements or estimates have been applied to the financial statements and therefore there is not a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

(c) Presentation of the Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010.

(d) Income

Income from investments (other than capital dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend, or where no ex-dividend date is quoted, when the Company's right to receive payment is established. Special dividends are credited to capital or revenue, according to the circumstances.

Interest receivable on cash at bank is recognised on an accruals basis.

(e) Expenses

All expenses, other than those of a capital nature, are charged to the revenue account. Expenses of a capital nature are charged to the capital account. Revenue and capital expenses are recognised on an accruals basis.

(f) Investments

Investments in equity instruments are classified upon initial recognition as financial assets measured at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are valued at fair value. For listed investments, this is deemed to be bid market price. Gains and losses arising from changes in fair value are included in net profit or loss for the year as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve.

Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Statement of Comprehensive Income.

The Company derecognises a financial asset only when the contractual right 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 capital in the Statement of Comprehensive Income.

(g) Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at rates of exchange ruling at the date of the Statement of Financial Position or at the related forward contract rate. Transactions in foreign currency are converted to sterling at the rate ruling at the date of the transaction. Differences in the sterling equivalent value arising between the transaction date and the settlement or payment date are included as exchange gains or losses in the capital account or the revenue account depending on whether the underlying transaction is of a capital or revenue nature.

(h) Cash and cash equivalents

Cash and cash equivalents comprise cash and demand deposits which are readily convertible to a known amount of cash and are subject to insignificant risk of changes in value.

(i) Equity dividends

Interim dividends are recognised at their ex-dividend date. Final dividends are not recognised until approved by shareholders in the Annual General Meeting.

(j) Other receivables and other payables

Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated at their amortised cost, which is the same as fair value.

Financial assets held at amortised cost are reviewed for impairment using the expected credit loss model. Given the nature of the Company's short-term receivables, no credit losses have occurred to date and no credit losses are currently expected to occur in the future.

(k) Nature and purpose of reserves

Share capital

This represents nominal value of the issued share capital.

Share premium account

This account represents share premium that arises on the issue of new shares.

Capital reserve

This reserve reflects any:

·        gains or losses on the disposal of investments

·        foreign exchange gains and losses of a capital nature;

·        the increases and decreases in the fair value of investments which have been recognised in the capital account; and

·        expenses which are capital in nature.

The capital reserve may be distributed by way of dividends. However, any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve and are non-distributable.

Revenue reserve

This reserve reflects all income and expenditure recognised in the revenue account and is distributable by way of dividend.

Treasury shares

Treasury shares are recognised at cost as a deduction from equity shareholders' funds. Subsequent consideration received for the sale of such shares is also recognised in equity, with any difference between the sale proceeds and the original cost being taken to share premium account. No gain or loss is recognised in the financial statements on transactions in treasury shares.

(l) Taxation

The charge for taxation is based upon the revenue for the year and is allocated according to the marginal basis between revenue and capital using the Company's effective rate of corporation tax for the accounting year.

Deferred taxation is recognised in respect of all timing differences that have originated, but not reversed, relating to transactions or events that result in an obligation to pay more or a right to pay less tax in future, that have occurred at the Statement of Financial Position date. Deferred tax is measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying temporary differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

(m) Adoption of new and revised standards

At the date of authorisation of these financial statements the following standards and amendments to standards, which have not been applied in these financial statements, were in issue, but will be effective in the future accounting periods.

·        Amendment to IAS 21 'Lack of Exchangeability' (effective for annual reporting periods beginning on or after 1 January 2025).

·        Amendment to IFRS 9 and IFRS 7 'Classification and Measurement of Financial Instruments' (effective for annual reporting periods beginning on or after 1 January 2026).

·        Amendment to Annual improvements to IFRS - Volume 11 (effective for annual reporting periods beginning on or after 1 January 2026).

·        Amendment to IFRS 18 'Presentation and Disclosures in Financial Statements' (effective for accounting periods beginning on or after 1 January 2027).

·        Amendment to IFRS 19 'Subsidiaries without Public Accountability: Disclosures' (effective for accounting periods beginning on or after 1 January 2027).

The Company does not believe that there will be a material impact on the financial statements or the amounts reported from the adoption of these standards.

In the current financial year the Company has applied the following interpretations and amendments to standards:

·        Amendments to IAS 1, IFRS 16, IAS 17, IAS 7 and IFRS 7 (effective for accounting periods beginning on or after 1 January 2024).

There is no material impact on the financial statements or the amounts reported from the adoption of these amendments to the standards.

2. Dividend income

3.Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business being the investment business. The Company's objective is to be an investment for investors seeking increasing capital growth and income over the long term. The accounting policies of the operating segment, which operates in the UK, are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on total profit before tax, which is shown in the Statement of Comprehensive Income. A geographical split of the portfolio can be seen in the Strategic Report.

4.Investment management fee

As at 31 December 2024, an amount of £1,430,000 (2023: £1,599,000) was payable to the Investment Manager. Details of the terms of the Investment Management Agreement are provided in the Company's published annual accounts.

5. Other expenses

Transaction costs on investments held at fair value through profit or loss represent such costs incurred on both purchases and sales of those investments. Transaction costs on purchases amounted to £368,000 (2023: £505,000) and on sales amounted to £268,000 (2023: £145,000).

No non-audit fees were paid during the year to Deloitte LLP by the Company (2023: nil).

6.Taxation

(a) Analysis of tax charge in the year

(b)The tax charge for the year is lower than the standard rate of corporation tax in the UK of 25%. The differences are explained below:

* With effect from 1 April 2023, the main rate of corporation tax increased from 19% to 25%, therefore the hybrid rate of 23.52% was used for 2023.

As at 31 December 2024, the Company had unrecognised tax losses of £124.3 million (2023: £104.2 million) carried forward. Due to the Company's status as an investment trust and the intention to continue to meet the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on capital gains and losses arising on the revaluation or disposal of investments.

7. Return per share

Return per ordinary share is as follows:

Return per share is calculated based on returns for the year and the weighted average number of 145,572,236 ordinary shares in issue from 1 January 2024 to 31 December 2024 (2023: 165,863,972).

8.Dividends

(a)Dividends paid in the year

No dividends were paid during the year to 31 December 2024 (2023: nil).

(b) Dividends payable in respect of the financial year, which is the basis on which the requirements of s1158-1159 of the Corporation Tax Act 2010 are considered

1 Based on the 126,224,987 ordinary shares ranking for dividend on 3 March 2025 (the latest practicable date before publication of the annual Report).]

9.Investments held at fair value through profit or loss

All gains and losses arise on investments designated as fair value through profit or loss which is how the investments are classified upon initial recognition.

The Company received £822,452,000 (2023: £514,034,000) excluding transaction costs from investments sold in the year. The book cost of the investments when they were purchased was £713,486,000 (2023: £489,233,000) excluding transaction costs. These investments have been revalued over time until they were sold and unrealised gains/losses were included in the fair value of the investments.

All investments are listed.

Fair value of financial instruments

Under IFRS 13 'Fair Value Measurement' an entity is required to classify investments using a fair value hierarchy that reflects the significance of the inputs used in making the measurement decision.

The following shows the analysis of financial assets recognised at fair value based on:

·        Level 1 - quoted prices in active markets for identical instruments.

·        Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.).

·        Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments).

Fair value measurements recognised in the Statement of Financial Position

10. Trade and other receivables

The above receivables do not carry any interest and are short term in nature. The Directors consider that the carrying values of these receivables approximate their fair value.

11. Trade and other payables

12. Share capital

During the year ended 31 December 2024, the Company issued no shares (2023: nil).

During the year ended 31 December 2024, the Company bought back to hold in treasury 29,165,889 shares (31 December 2023: 11,715,000) at an aggregate cost of £413,929,000 (31 December 2023: £159,437,000). At the year end, the Company held 46,580,889 (31 December 2023: 17,415,000) shares in treasury.

Details of the shareholder authorities granted to Directors to issue and buy back shares during the year are provided in the Company's published accounts.

13. Share premium account

On 28 February 2023, High Court approval was obtained to reduce the Company's share premium by £500 million. The capital reduction resulted in a corresponding increase in the Company's distributable reserves.

14.Net asset value per share

15.Risk management and financial instruments

The Company's investing activities undertaken in pursuit of its investment objective, as set out in the Strategic Report, involve certain inherent risks. The Board monitors the Company's risk as described in the Strategic Report. The main risks arising from the Company's financial instruments are market price risk, interest rate risk, liquidity risk, credit risk and currency risk. The Board reviews and agrees policies for managing each of these risks as summarised below. These policies have remained substantially unchanged during the current year.

Market price risk

Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets on four scheduled occasions in each year and at each meeting it receives sufficient financial and statistical information to enable it to monitor adequately the investment performance and status of the business. The Board has also established a series of investment parameters, per the Company's investment policy, designed to manage the risk inherent in managing a portfolio of investments.

Interest rate risk

Interest rate risk is the risk of movements in the value of, or income from, cash balances that arise as a result of fluctuations in interest rates. The Company finances its operations through equity and retained profits including capital profits, with no additional financing.

Liquidity risk

The Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of cash balances and short-term bank deposits. All payables are due within three months.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. This is mitigated by the Investment Manager reviewing the credit ratings of broker counterparties and key third party service providers. The risk attached to dividend flows is mitigated by the Investment Manager's research of potential investee companies. The Company's custodian bank is responsible for the collection of income on behalf of the Company. Cash is held with Northern Trust Company which has a Fitch rating of AA-.

The carrying amounts of financial assets best represents the maximum credit risk exposure at the Statement of Financial Position date, and the main exposure to credit risk is via the Company's custodian who is responsible for the safeguarding of the Company's investments and cash balances.

At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:

All the assets of the Company which are traded on a recognised exchange are held by Northern Trust, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited.

Currency risk

The income and capital value of the Company's investments and liabilities can be affected by exchange rate movements as some of the Company's assets and income are denominated in currencies other than sterling which is the Company's functional currency. The key areas where foreign currency risk could have an impact on the Company are:

·        movements in rates that would affect the value of investments, assets and liabilities; and

·        movements in rates that would affect the income received.

The Company had the following currency exposures, all of which are included in the Statement of Financial Position at fair value based on the exchange rates ruling at the year end.

The Company mitigates the risk of loss due to exposure to a single currency by way of diversification of the portfolio.

Foreign currency sensitivity

At 31 December 2024, an exchange rate move of +/-5% (2023: +/-5%) against sterling which is a reasonable approximation of possible changes would have increased or decreased total net assets and total return by £89,693,000 (2023: £108,294,000).

Interest rate risk

The majority of the Company's financial assets are equity shares and other investments which neither pay interest nor have a maturity date. The Company's cash balance of £3,036,000 (2023: £16,579,000) earns interest, calculated on a tiered basis, depending on the balance held, by reference to the base rate. The level of interest paid fluctuates in line with the base rate. At 31 December 2024 the interest rate was 1.8% (2023: 2.8%).

From interest earned on the Company's cash balances, an increase or decrease in interest rates of 0.5% would have a positive or negative impact respectively on the profit or loss and net assets of the Company equating to £15,000 (2023: £83,000). The calculations are based on the cash balances at the year end date and are not representative of the year as a whole.

No current liabilities incur interest and all are payable within one year.

Other price risk exposure

If the investment valuation had fallen by 20% (2023: 20%) at 31 December 2024, the impact on profit or loss and net assets would have been negative £425,408,200 (2023: £507,790,600). An increase of 20% (2023: 20%) would have had an equivalent opposite effect. The calculations are based on the portfolio valuations as at the respective year end date and are not representative of the year as a whole, as well as the assumption that all other variables remained constant.

The Company held the following categories of financial instruments, all of which are included in the Statement of Financial Position at fair value.

Liquidity risk exposure

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. All payables are due within three months.

Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are easily and readily realisable. The Company does not have any borrowing facilities and as at 31 December 2024 held £3,036,000 (2023: £16,579,000) in cash.

Capital management policies and procedures

The Company's capital management objectives are to ensure that it will be able to continue as a going concern, and to provide long-term growth in revenue and capital.

The Company's capital is its equity share capital and reserves that are shown in the Statement of Financial Position at a total of £2,129,897,000 (2023: £2,551,938,000).

The Board, with the assistance of the AIFM, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This includes a review of the planned level of gearing (if any), the need to repurchase or issue equity shares, and the extent to which any revenue in excess of that which is required to be distributed be retained.

16. Contingent liabilities

As at 31 December 2024 there were no contingent liabilities or capital commitments (2023: nil).

17. Related party transactions

IAS 24 'Related party disclosures' requires the disclosure of the details of material transactions between the Company and any related parties. Accordingly, the disclosures required are set out below:

Directors - The remuneration of the Directors totalling £157,500 (2022: £150,000), is set out in the Directors' Remuneration Report in the Annual Report. There were no contracts subsisting during or at the end of the year in which a Director of the Company is or was interested and which are or were significant in relation to the Company's business. There were no other material transactions during the year with the Directors of the Company. The Company has no employees.

AIFM and Investment Manager - Details of the contract including the remuneration due to the AIFM and Investment Manager are set out in the Company's published Annual Report.

Terry Smith and other founder partners and key employees of the AIFM and Investment Manager directly or indirectly and in aggregate, held 3,026,672 (2023: 2,710,915) shares in the Company amounting to 2.3% (2023: 1.7%) of the issued share capital of the Company as at 31 December 2024.

18. Events after the reporting period

Since the year end and up to 3 March 2025 (the latest practicable date before publication of the Annual Report), the Company has bought back to hold in treasury 4.3 million ordinary shares at an aggregate cost of £66.0 million.

Alternative Performance Measures ("APMs")

APMs are often used to describe the performance of investment companies although they are not specifically defined under IFRS. APM calculations for the Company are shown below. The Board believes that each of the APMs, which are typically used within the investment trust sector, provide additional useful information to shareholders in order to assess the Company's performance between reporting periods and against its peer group.

Discount

The amount, expressed as a percentage, by which the share price is less than the NAV per ordinary share.

Total return

A measure of performance that includes both income and capital returns. In the case of share price total return, this takes into account share price appreciation and dividends paid by the Company. In the case of NAV total return, this takes into account NAV appreciation (net of expenses) and dividends paid by the Company.

Annualised total return

The annualised total return for a period is the average return earned on an investment in the Company's shares for each year in that period, expressed by reference to either share price or NAV.

Ongoing charges ratio and total cost of investment

Ongoing charges ratio is a measure, expressed as a percentage of average NAV of the Company over a year, of the regular, recurring annual costs of running an investment company (see note 4 and note 5 to the financial statements). The Total Cost of Investment measures cost to investors incurred through the Company's portfolio investment transaction costs (see note 5) and the recurring annual costs of running the Company.

19. Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information is derived from the statutory accounts for the year ended 31 December 2024, which will be delivered to the Registrar of Companies. The auditors have reported on the accounts for the year ended 31 December 2024, their report was unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 31 December 2024 was approved by the Board on 5 March 2025.  It will be made available on the Company's website at www.smithson.co.uk

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FCA.

20. Annual general meeting

The Annual General Meeting will be held at 1.00 p.m. on 23 April 2025 at the Max Rayne Auditorium, The Royal Society of Medicine, 1 Wimpole Street, Westminster, London W1G 0AE. Details of the meeting are available in the Notice of Meeting published on the Company's website www.smithson.co.uk.

5 March 2025

Secretary and registered office:

Apex Listed Companies Services (UK) Limited

4th Floor

140 Aldersgate St

London

EC1A 4HY

For further information contact:

Apex Listed Companies Services (UK) Limited

Tel: 020 3327 9720