Smithson Inv.Trust - Annual Financial Report

SMITHSON INVESTMENT TRUST PLC

RESULTS ANNOUNCEMENT

The full Report and Accounts for the period from incorporation on 14 August 2018 to 31 December 2019 ("Report and Accounts") can be found on the Company's website at https://www.smithson.co.uk/documents-analysis.

Financial Highlights

Strategic Report

Source: Bloomberg

This report contains terminology that may be unfamiliar to some readers. The Glossary in the Report and Accounts gives definitions for frequently used terms.

¹ These are Alternative Performance Measures ("APMs"). Definitions of these and other APMs used in the Report and Accounts, together with how these measures have been calculated are disclosed in the Report and Accounts.

² Total returns are stated in GBP sterling.

Chairman's Statement

Introduction

I am pleased to present the first report and accounts of Smithson Investment Trust plc (the "Company") for the period from incorporation on 14 August 2018 to 31 December 2019. I am delighted to be able to tell you that the Company has had an outstanding first reporting period. The Company commenced trading on the London Stock Exchange's Main Market on 19 October 2018 and subsequently entered the FTSE 250 Index in December 2018.

Performance

The Company's net asset value per share rose from £10 on the Company's initial public offering ("IPO") to £12.55 on 31 December 2019, an annualised net asset value total return of 20.8%. This compares with the Company's reference index, the MSCI World SMID Index which rose by 9.7% over the same period. The share price also rose from £10 to £12.98 at 31 December 2019, an annualised share price total return of 24.2%. The Company's share price has traded at a premium to net asset value throughout the period. The average premium in the period was 3.6% and at 31 December 2019 the premium was 3.4%.

The Company held 29 investments at 31 December 2019, having made thirty new investments and one outright disposal during the period. The proceeds from share issues during the period have therefore been, for the most part, invested in the same securities, with small changes in relative weightings. As I reported at the interim stage, this accords with the Investment Manager's stated mantra of buying good companies, not overpaying and then doing nothing. Further details about our investment objective and our investment policy are explained in the Strategic Report of the Report and Accounts.

In line with our stated investment policy, all the Company's investments were in listed companies and the Company had no borrowings or derivatives. At 31 December 2019 the Company held cash balances totalling £31.6 million, representing 2.2% of total assets.

Simon Barnard, our Investment Manager, has reported on the performance in detail in his Investment Manager's Report which follows.

Share Issuance

At the time of the Company's IPO, we issued 82.25 million new ordinary shares, raising £822.5 million, representing the largest flotation of an investment trust in the history of the London Stock Exchange. As Fundsmith paid all the issue costs associated with the flotation, all of this money has been deployed by the Company. During the period, and in response to strong demand for the Company's shares, a further £376.7 million net of costs was raised through the issuance of 32.3 million shares, representing 39.2% of the Company's issued share capital at the time of the IPO. For the benefit of shareholders, shares are only issued at a premium to net asset value to ensure that these do not have a dilutive effect. The share issues during the period generated £8.7 million in net premium which is effectively incremental value for all shareholders.

Since the period end and up to 24 February 2020, being the latest practicable date before publication of the Report and Accounts, a further 3,755,000 shares have been issued, raising a net amount of £49.8 million. This brings the total shares issued to 36 million since the IPO up to 24 February 2020, raising net proceeds of £426.5 million. This means that shares have now been issued in the secondary market with a value of more than half of that raised at the time of the IPO. This is a testament to the excellent performance of the Company in this period. As at 24 February 2020 (the latest practicable date before the publication of the Report and Accounts), the Company's market capitalisation was £1.57 billion with a share price of £13.30.

The issuance of shares was under the arrangements established at the time of the Company's IPO. The Company's placing programme was fully utilised during the period and the available general authority to issue shares is now near exhaustion. At the forthcoming AGM, shareholders will be asked to grant the Company authorities to issue new shares, enabling the Directors to continue creating further shareholder value. The share issuance programme also promotes liquidity in the Company's shares and helps to avoid an excessive share price premium to net asset value developing.  We are recommending the approval of resolutions seeking authority to issue up to 40 million ordinary shares pursuant to a placing programme as well as two further resolutions giving the Board authority to issue up to a further 20% of the issued share capital at the latest practicable date before publication of the Report and Accounts. If the two resolutions relevant to the placing programme are approved by shareholders, a prospectus in connection with the Placing Programme is intended to be published on 31 March 2020.

The Company has decided to launch the new Placing Programme to satisfy market demand and to enable the Company to raise additional capital in the period from 31 March 2020 to 30 March 2021 (inclusive) should the Board determine that market conditions are appropriate. The Placing Programme is intended to be flexible and may have a number of closing dates in order to provide the Company with the ability to issue and allot Placing Shares pursuant to a number of placings over a period of time (each a "Placing").  

The Placing Programme is conditional on shareholders' approval of the relevant Annual General Meeting resolutions, which would grant the Board the authority to allot and issue up to 40 million shares pursuant to the Placing Programme on a non-pre-emptive basis. It is also conditional on the approval of the Prospectus by the FCA. The Directors intend that shares issued pursuant to the Placing Programme will only be issued at a premium to the prevailing net asset value per ordinary share and therefore any issue will be accretive to the prevailing net asset value. For more details please see the Explanatory Notes to the Notice of Annual General Meeting.

Earnings and Dividends

As I reported at the interim stages, the Company's principal objective is to provide shareholder returns through long-term capital appreciation rather than income. It should not therefore be expected that the Company will pay a significant annual dividend and it is likely that no interim dividends will be declared, but the Board intends to declare such annual dividends as are necessary to maintain the Company's UK investment trust status.

The Company's revenue earnings for the period were £0.26 million, equivalent to 0.26p per share. In accordance with the above policy, the Directors are not recommending a dividend and therefore all earnings will be retained in the Company for reinvestment. As the primary objective of the Company is capital growth, it should not necessarily be assumed that any dividends will be paid in future years. For the avoidance of doubt, the Directors do not intend to use the capital reserve to pay dividends.

Corporate Governance

The Company started trading in October 2018 and has adopted the good practices and governance recommendations which are relevant to it wherever possible and has complied as appropriate with the AIC Corporate Governance Code 2016 throughout the period. New UK and AIC Corporate Governance Codes have been published effective for accounting periods commencing after 1 January 2019. However the Company has adopted and complied as appropriate with these codes early as best practice. However, one recommendation is that the Company should appoint a senior independent director. In view of the small size of the Board, we have elected not to do this. Shareholders are welcome to contact any of the three Directors if they have any issues they wish to raise.

Annual General Meeting ("AGM")

A warm welcome is extended to shareholders to attend the Company's first Annual General Meeting to be held at 1.00 pm on Monday, 30 March 2020 at Barber-Surgeons' Hall, Monkwell Square, Wood Street, London EC2Y 5BL. The Notice of Meeting accompanies this Report and Accounts.

The Directors believe that all the resolutions to be put to the meeting are in the best interests of shareholders. The Directors will vote in favour of all the resolutions to be put to the AGM and the Directors recommend that shareholders support all the resolutions.

In addition to the formal business of the meeting, our Investment Manager, Simon Barnard will make a presentation which I am sure the attendees will find very interesting. My colleagues and I hope to see a number of shareholders attending and look forward to meeting you then.

For all shareholders unable to attend the AGM, a video of the Investment Manager's presentation will be available to access from the Company's website and I can also be contacted at smithsonchairman@fundsmith.co.uk.

Outlook

Your Board believes that the investment case for global small and mid cap equities remains compelling for capital growth in the medium to long term, despite the potential effect of macroeconomic factors such as Brexit, US elections and Coronavirus on the markets in the short term. The Investment Manager will continue to seek attractive investment opportunities for any further capital raised.

Mark Pacitti

Chairman

26 February 2020

Business Review

This Strategic Report in the Report and Accounts 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.

Business Model

The Company is registered in England and Wales and is an externally managed investment trust; its shares are premium listed on the Official List and traded on the main market of the London Stock Exchange. Its focus of investment is globally listed or traded small to mid sized companies. It was established by its Investment Manager, Fundsmith LLP and listed on 19 October 2018. It 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 in the Report and Accounts. The Company has no executive directors, employees or internal operations.

Investment Objective and Policy

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

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 investment) of between £500 million to £15 billion (although the Company expects that the average market capitalisation of the companies in which it invests to be approximately £7 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.

Hedging policy

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

The Company will not use derivatives for purposes of currency hedging or for 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):

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 out‑competing 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 what 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.

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.

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 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. Please refer to the APM section and Glossary of the Report and Accounts for definitions of these terms and an explanation of how they are calculated.

Net asset value total return against the benchmark

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 benchmark index.

The Company's net asset value per share at 31 December 2019 was £12.55. The net asset value total return for the year was 33.2% and the annualised net asset return for the period from listing on 19 October 2018 to 31 December 2019 was 20.8%. The Board considers the most important comparator to be the MSCI World SMID Index measured on a net, sterling adjusted basis. The returns generated by the MSCI World SMID Index over the same periods were 21.9% and 9.7% respectively, thus the Company outperformed the benchmark by 11.3 percentage points for the year ended 31 December 2019 and 11.1 percentage points annualised for the period from the Company's listing to the period 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.

During the period from the Company's listing on 19 October 2018 to 31 December 2019, the share price total return was 29.8%, outperforming the MSCI World SMID Index reference benchmark by 18 percentage points.

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

The Board undertakes a regular review of the level of premium/discount. During the period since listing, the Company's shares have consistently traded at a premium to net asset value. The Board seeks to generate value for shareholders through the issuance of shares at a premium to net asset value. To this end, during the period from listing on 19 October 2018 to 31 December 2019 the Company issued 32.3 million new ordinary shares generating a premium to net asset value of approximately £8.7 million net of costs. The making and timing of any share issuance and/or buy-back is at the discretion of the Board.

As at 31 December 2019, the premium of the Company's share price to the net asset value per share was 3.4% and the average premium to net asset value for the period from listing on 19 October 2018 to 31 December 2019 was 3.6%.

The Directors intend to seek renewal of their authority to allot shares or to buy back shares at each annual general meeting with a view to managing the premium/ discount as well as creating further shareholder value.

If after the end of the fourth financial year of the Company's existence (being 31 December 2022) or any subsequent year, the Company's shares have traded, on average, at a discount in excess of 10 per cent. of net asset value per share in any such year, the Directors will consider proposing a special resolution at the Company's next annual general meeting that the Company ceases to continue in its present form. If such a vote is proposed and passed, the Board will be required to formulate proposals to be put to shareholders within four months to wind up or otherwise reconstruct the Company, having regard to the liquidity of the Company's underlying assets. Any such proposals may incorporate arrangements which enable investors who wish to continue to be exposed to the Company's investment portfolio to maintain some or all of their existing exposure.

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 Report and Accounts. The Directors regard the ongoing charges ratio as a measure of the regular recurring costs of running an investment company. Expressed as a percentage of average net asset value, the annualised ongoing charges ratio for the period was 1.0%.

Investment Portfolio

Investments held as at 31 December 2019

Investment Manager's Review

Dear Fellow Shareholders,

2019 provided very favourable conditions for the investments of your Company. From the low point in December 2018, global stock markets rallied strongly during the early part of the year. As noted in our interim report, this was likely the result of the pause in interest rate increases, and a subsequent rate decrease by the US Federal Reserve. Markets made little progress during the summer as negative headlines regarding US and China trade negotiations continued to foster uncertainty regarding global trade and future economic growth. However, sentiment picked up again from October to December as global economic data points began to stabilise and market participants started to imagine a possible improvement in economic growth in 2020. It is impossible to know at this stage whether this will actually come to pass, although there is a reasonable chance, given 2019 was the worst year for global economic growth in a decade. The year culminated in a loudly trumpeted US China trade deal in December, although we suspect the actual substance of this deal will likely be immaterial in the context of global trade flows.

2019 was also the third year of the US presidential term, which has historically benefited from a very positive equity performance - an average of 17.8% since 1927 (measured by the S&P500 index*). The theory goes that after US midterm elections, which tend to favour the party in opposition (as it did in 2018), the power of the President is stymied to such an extent that stock markets can now rely on US policy 'certainty', given that nothing is now likely to change. Moreover, since presidents like to be re‑elected, in the third year of a first term president we can usually expect some focus on policies which will benefit the US economy, like tax cuts, for example. With the globalised nature of stock markets, and the very significant weight the US carries within them, these effects are also likely to impact other regional markets. As the MSCI World Small and Mid Cap (SMID) Index, our reference index, was up 21.9% for the year, it appears that this theory continues to be of some use.

The obvious question one might now ask, is what does the historic data suggest for equity performance in the fourth and final year of the US Presidential term? This time, the answer is: it depends. A re‑elected Republican President, usually considered pro-business, tends to result in above average stock market performance in the fourth year. However, a newly elected Democrat, usually considered pro-regulation, has historically resulted in a lower than average year for equities. We are not in the business of forecasting election outcomes and so will leave that and the prediction of global macro events to others. Instead, we will continue to invest in the best companies we can find at reasonable valuations and let the macroeconomic tide ebb and flow around us.

The performance of the Company, along with comparators, is laid out below. In 2019 the net asset value per share (NAV) of the Company increased by 33.2% and the share price increased by 29.8%, both markedly outperforming the reference equity index. We also provide the performance of UK bonds and cash for comparison.

* S&P500 Total Return Index 31/12/1927-31/12/2015

¹ Source: Bloomberg, starting NAV 1,000.

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

³ Bloomberg/Barclays Bond Indices UK Govt 5-10 year source: Bloomberg

⁴ Month £ LIBOR Interest Rate source: Bloomberg

Since the Company's launch in October 2018, the NAV has increased by 25.5% and the share price by 29.8%. The outperformance against the reference index over this time period was 13.7% and 18.0% respectively. While this is a very pleasing result, we continue to caution that the 14 month period since launch is still relatively short. Having said that, we are very content with the operating performance of the companies in the portfolio and as such remain confident in the prospects for the Company.

Smithson shares traded at an average premium of 3.6% since launch and 3.1% for 2019 and did not trade at a discount at any point. During the period since launch, a total of 32.3 million new shares in the Company were issued, for net proceeds of £376.7 million, which were invested in existing holdings. So long as new shares are issued when the share price is trading at a premium to NAV, this process is accretive on a per share basis and is therefore beneficial to existing shareholders (because more cash is received by the Company for the new shares, than is 'given away' in underlying share of NAV).

While the result of this process is that the Company becomes larger, we feel this issuance process can continue for several years before the performance of the Company is affected by its increased size. As a closed-ended fund, we will never be forced to liquidate positions to meet investor redemptions. However, if the size of the Company is starting to have an impact on the way we wish to run it, we will request that the Board of the Company stop issuing new shares.

We continue to invest only in good companies. To illustrate this we include the table below, which shows the average operating metrics of the companies in the portfolio against those in the MSCI World Small and Mid Cap Index.

Data for the MSCI World SMID Cap Index is shown ex-financials, with weightings as at 31 December 2019.

Data for MSCI World SMID Cap Index is on a weighted average basis, using last available reported financial year figures as at 31 December 2019

Data for Smithson portfolio is on a weighted average basis, ex-cash, using last available reported financial year figures as at 31 December 2019

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

^# LTM (Last Twelve Months) ROCE for Smithson excludes Rightmove, which had a return of >1000%. Including Rightmove, the weighted average ROCE would be 76%.

As can be seen above, the average Return On Capital Employed of our companies, a measure of the efficiency with which capital within a company is being used and a key metric indicating the quality of a company, is more than twice the level of the index. Gross margin, the difference between selling price and the cost of products, is double the average of the companies in the index and the average operating profit margin is four times that of the index. Along with cash conversion (how much profit is turned into cash each year) and interest cover (how many times profits covers debt interest payments), these figures provide no doubt that we own good companies.

In terms of what we are paying for these companies, the weighted average free cash flow yield (the free cash flow generated by the companies divided by their market value) of the portfolio is 3.4%. We estimate that the free cash flow yield of the reference index is 3.5%, which suggests that we own significantly better companies than the index average, for a similar valuation. At the end of 2018 this figure was 4.2% for both the Company's portfolio and the benchmark, indicating that the companies became more highly rated during the course of 2019, something that we note cannot continue indefinitely.

In the latter half of 2019, for the first time, we decided to add a new company to the portfolio, as well as sell an existing holding. Both of these are discussed below. This led to discretionary portfolio turnover for the year, excluding the investment of proceeds from new shares issued, of 6.1%, although for the period since launch this averages to 4.0%. This low level of trading meant that costs were again kept to a minimum, with an ongoing charges ratio for 2019 of 1.0% (including the Management Fee of 0.9%). After adding all dealing, commission and taxes, again excluding the investment of proceeds from new shares issued, the annualised Total Cost of Investment (TCI) was 1.04%.

In July 2019 we initiated a position in Fevertree Drinks plc, a producer of premium carbonated mixers including tonics, gingers and cola, which it sells predominantly in the UK, Europe and the US. This is a company we have admired for some time. In the UK, which still accounts for over 50% of the business, it dominates the premium tonic market with 90% market share, despite many 'copy-cat' products having been launched. Or put another way, it is almostten times the size of all its UK competitors put together. In the US they have a fledgling business which is growing rapidly, at around 30% a year, and they have recently signed a domestic bottling contract and national distribution agreements to galvanise the position. As in the UK, they appear to have already stolen a march on other competitors in the market, and we believe the US is an opportunity which could be several times the size of the UK market. On top of this, it also has an established business in Europe (Spain is one of the largest consumers of gin in the world) and a growing presence in Australia and Canada which could also become meaningful to the group.

What attracted us to the company was its strong market positions, current and potential growth rates and impressive history of profitability and returns on capital. However, at the time of the Company's IPO we felt that the valuation was not attractive enough for inclusion in the portfolio.

We continued to watch the company closely and in the subsequent months from September 2018 until acquiring our first shares in July 2019, the share price declined by 47%. At the same time, the free cash flow generated by the company was more than double what it had been a year earlier and progress in its international businesses had been excellent.

The most likely reason for this significant share price decline was slowing growth in the UK market. It seems reasonable to us that the UK should now be considered a mature market for premium mixers and that this slower growth (likely around 3%) should be expected to continue. After the year end, the shares took another leg down in January 2020 when the company announced that further sales weakness was expected in the UK market until mid-2020 and that it would have to reduce prices in the US as they had reached inappropriate levels. After we conducted further investigation, both of these issues appeared to be of a short-term nature to us, and we used the price decline as an opportunity to buy more shares. Only time will tell if this assumption is correct.

In September 2019 we decided to sell one of our holdings, namely CDK Global. This is a US company that produces software to help car dealers run their business, and one which we have written about in previous reports. The decision to sell was due to two reasons. First, the change of CEO in November 2018 had subsequently led to a material change in strategy, with management selling the prior designated 'growth' business of digital advertising, to focus on the lower growth core software business. This gave us some concern over future capital allocation given the large capacity for cash deployment from the balance sheet, coupled with a new CEO who has a history of making expensive acquisitions. Second, the remaining business wasn't quite as good as we had previously thought it was. We believed initially that the core business would continue to grow with the launch of a new dealer management software, called DriveFlex. What we learned from the new management team, was that this product still lacked the required investment, and as such wouldn't be ready for full commercial launch for another two years (after significant further development cost). The combination of these issues, the full extent of which we learned with the last reported results in August and by speaking directly to the management at that time, gave us the realisation that we were more confident in the long-term outlook of the other 29 companies in the portfolio than in CDK Global. We therefore made the decision to sell the company and deploy the proceeds into other existing positions.

To discuss some of the events which have affected the portfolio since launch, we have set out the top five contributors and top five detractors to NAV performance below.

ANSYS, the US simulation software company, was the top contributor to performance, rising 80% over the period after announcing several major business wins, which served to demonstrate the increasing use of simulation software in product design and development.

Halma is a UK conglomerate of companies which manufacture safety equipment and environmental sensors, which we value for its ability to continually invest incremental capital at very attractive rates of return by adding more small companies to its group each year. This makes it a very rare breed in the corporate world - a good acquirer. 2019 provided more progress, demonstrated by the excellent results released in both June and November, driving further gains in the share price.

The strong performance of Rightmove, the UK online property advertising company, may come as a surprise to many of you, if the regular conversations we have had with our shareholders are anything to go by. This company is very often a talking point, because many are worried that it has been one of our largest holdings during a period of considerable uncertainty in the UK political environment and housing market. We believe such concerns come from a degree of misunderstanding about the Rightmove business model. Rightmove charges UK estate agents a fixed monthly subscription fee irrespective of the number or value of the houses advertised. This, of course, means that no matter how many houses are being advertised or sold, and no matter what is happening to UK house prices, Rightmove still receives the same monthly fee. In fact, this fee actually tends to go up over time, as Rightmove is able to sell additional digital 'products' to estate agents, such as buyer mapping and lead generation software. Ultimately what this means, is that Rightmove's earnings are not as exposed to the vagaries of the UK housing market as most believe. This provided us with an interesting opportunity in early 2019, as the original Brexit deadline approached, and passed, and the valuation of Rightmove became subsequently depressed amid general UK economic concerns. We added meaningfully to our holding during this time, making it the largest position in the portfolio, in our belief that even if the UK housing market took a turn for the worse, Rightmove's revenue model, and dominance of its market niche, would remain resilient. In the end, this resilience was not tested under a hard Brexit scenario, and Rightmove's valuation has subsequently recovered toward more reasonable levels for what remains an excellent company.

You may note from the above that often the opportunity to buy very good businesses at cheap valuations arises when there is a "glitch" in the company's normal operations or environment. Providing we are convinced that it is only a glitch, and not an existential threat, we will seize these opportunities as we did in the case of Rightmove. It illustrates how good investments can result from not focusing on the immediate situation and by ignoring popular mis-conceptions and anecdotal evidence.

Paycom is a US provider of human resources (HR) software which allows employees to perform many HR processes themselves by interacting with the software, rather than with a human HR manager. The company is seeing exceptional growth due to the cost savings and HR productivity that its clients achieve after adopting the software. The reason the company is not at the top of the above list, which it might well have been given its performance, is that at the time of launch, the shares were trading at a valuation which we thought was approaching the upper end of what we were comfortable paying. It was therefore initiated as a smaller position in the portfolio, with the hope that we would get a chance to make the position larger at a later point. However, from the end of 2018 up to the point of writing, the shares have almost tripled in price. Having only a small initial position was therefore a mistake on our part and serves as another reminder why our investment process has 'don't overpay' as the second tenet after 'buy good companies'.

Masimo, a US medical device company, again had a strong performance in the first half of the year after very positive results were published during the period. Improving relations between the US and Mexico further helped sentiment, as Masimo manufactures many of its products in Mexico.

CDK Global, discussed above, was unfortunately a significant detractor to performance prior to it being sold.

Chr. Hansen shares reacted very negatively after the company pre-announced disappointing results, indicating that growth rates for 2019 would be lower than we previously expected. Further disappointment came in October when it announced annual results which showed a sharp slowing of revenue growth in the fourth quarter, which the management attributed to difficult sales in emerging markets. The guidance for 2020 was not particularly rosy either, with further low growth expected. However, the company has several potential growth opportunities from new product areas and partnerships which have yet to come to fruition. As there is still some uncertainty regarding this future growth, the company remains the smallest position in the portfolio while we monitor its progress.

Sabre, the provider of booking software to the travel industry, suffered during the year as Lion Air and Ethiopian Airlines, operators of the 737 MAX aircraft which suffered devastating crashes, and Jet Airways, the now bankrupt Indian airline, were all major customers and will represent a significant loss of business as fewer passengers from those airlines are booked through its systems. It was interesting to note a more positive earnings release from the company in October which highlighted, after a few quarters of declining operating margins, that they appear to have increased in the third quarter of 2019. Whether this is the end of the recent negative trend for margins, we don't yet know. However, it was well received by the market, and helped Sabre shares to post a positive return during 2019, although combined with weakness at the end of 2018, the return was negative for the period since launch.

Fevertree Drinks was purchased during a period in which its share price was declining, and which continued after our acquisition - further proof in our view that market timing is very difficult - and so detracted from overall performance.

Finally, Check Point, a US security software company, posted disappointing revenue growth numbers during 2019 as competitors appeared to be taking some of its market share. The company claims that this is an issue with its sales force, rather than its products, which it is now in the process of addressing. We will continue to monitor the company closely to determine if these changes are having the desired effect, although it may take some months for this to become apparent.

We have provided a breakdown of the portfolio in terms of sector and geography at the end of the period below. The median year of foundation of the companies in the portfolio at the year end was 1972.

The only meaningful difference between these tables and those shown in the half year results are accounted for by the sale of CDK Global and the purchase of Fevertree Drinks. These actions have reduced the weighting in Information Technology by 3.5% and introduced a holding in Consumer Staples for the first time. Further, the weight in the USA has reduced by around 5% (3.5% of which was accounted for by CDK Global) and the weight in the UK has increased by 4.5% (3.9% of which was Fevertree Drinks). The reason for the apparently large allocation to Information Technology remains the same as outlined in previous reports, simply that this broad MSCI designated sector actually encompasses a large number of diverse businesses and end markets.

Similarly, the reason for the significant exposure to North America remains the same as before, namely that this is the region where we have found the largest number of interesting companies with an attractive combination of quality, growth and valuation. Depending on how Brexit plays out, and the effect that has on the valuation of UK companies, we might see the currently elevated weighting to the UK market change over the course of 2020. This was increased in 2019 as a consequence of high quality UK companies trading on attractive valuations due to what others perceive as heightened political uncertainty. As an aside, we would argue that there is always political uncertainty, so we believe it is best to simply own the companies that are as insulated from this as possible.

The table below shows where the revenue of our companies has been generated in aggregate, which is the measure of geographic diversity that we feel is the most relevant.

A noticeable feature of the table above is that, despite the US being the largest geographical weighting according to where our companies are listed, the largest geographical weighting by where the revenue of the companies is generated is actually Europe. Combined with the significant amount of revenue coming from Asia, we think this justifies our focus on revenue as the key measure of geographic diversity in the portfolio. Simply looking at the country of listing would be somewhat misleading, when the reality is a much broader exposure to revenue from across the Americas, Europe and Asia.

To conclude, we wish to thank you for your continued support of the Smithson Investment Trust. We hope that you are happy with your ownership experience so far and that you will become long term shareholders, as we plan to be.

Simon Barnard

Fundsmith LLP

Investment Manager

26 February 2020

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. 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 regularly reviews a risk matrix and an annual formal review of the risk procedures and controls in place at the Investment Manager and other key service providers is performed. This should ensure that emerging (as well as known) risks are adequately identified and, so far as practicable, mitigated. No significant emerging risks have so far been identified.

·          Experienced directors sit on the Audit Committee, each bringing 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 company secretary briefs the Board on forthcoming legislation/regulatory change that might impact on the Company. The auditor also provides updates which are relevant to the Company.

·          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 Risks

The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity.

1. Investment objective and policy risks

The Company may not achieve its investment objective.

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.

The Company is not constrained on weightings in any sector or geography. This may lead to the Company having significant exposure to portfolio companies from certain business sectors or based in certain geographies. 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.

2. Market risks

Market conditions may have a negative impact on the Company's ability to identify and execute suitable investments that might generate acceptable returns. Market conditions may also restrict the supply of suitable investments at a price the Investment Manager considers may generate acceptable returns.

If conditions 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 both by the Company and by investee companies on their borrowings. In addition, where the Company invests in high growth investee companies, any increase in interest rates will compress the growth of such companies and therefore affect their valuations. As such, interest rate fluctuations may reduce returns to investors.

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 pound 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 owners handbook (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.

In respect of Brexit, as the portfolio is invested in global equities, the effect of a trade deal - or lack thereof - will have a relatively limited impact for the portfolio as a whole.

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

3. 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.

Mitigation

The Company has appointed experienced service providers, each of whom has a service agreement and the performance of the key service providers is reviewed annually by the Management Engagement Committee. Cyber risk management questions were incorporated in this review.

The procedures of the depositary and custodian are reviewed by external auditors and such reports made available to clients. These reports are also reviewed by the Management Engagement Committee.

4. Inadequate investment analysis risk

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. Such risks include cyber risk management by investee companies.

Mitigation

The Investment Manager employs qualified and experienced employees who perform the investment analysis and obtain information from quality sources.

5. Key individuals risk

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, therefore their interests and the Company's shareholders are more aligned. Finally, the Investment Manager has plans in place to ensure continuity in the unlikely event of the departure of key individuals.

6. Regulatory risks

A failure to maintain HMRC approval as an investment trust could result in the Company not being able to benefit from the current exemption for investment trusts from UK tax on chargeable gains and could affect the Company's ability to provide returns to shareholders.

Mitigation

The Investment Manager and the company secretary monitor adherence to section 1158 of the Corporation Tax Act 2010 and report to the Board thereon.

Non-Financial Information

Dividend Policy

At least initially, the Company does not anticipate paying any dividends. The Company's intention is to look for overall return rather than seeking any particular level of dividend. The Company will comply with the investment trust rules regarding distributable income but does not expect significant income from the shares in which it invests.

Any dividends and distributions will be at the discretion of the Board. Subject to the Companies Act, the Company may, by ordinary resolution, declare dividends 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.

Were the Company to be 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.

Environmental Matters

The Company is an investment company. As such, it does not have any physical assets, property, employees or operations of its own. The Company does not provide goods or services in the normal course of its business and nor does it have customers. In consequence, the Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other sources of emissions under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

Exercise of Voting Powers and Stewardship Code

The Company and the Investment Manager support the UK Stewardship Code issued by the Financial Reporting Council.

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 modern slavery 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

It is the Company's policy to conduct all of its business in an honest and ethical manner. 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 copy of the 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. The policy can be found on the Company's website.

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 31 December 2019 the Company had three Directors, of whom two are male and one is female. The Board's policy on diversity is contained in the Corporate Governance Report of the Report and Accounts.

Strategic Report

The Strategic Report of the Report and Accounts was approved by the Board of Directors on 26 February 2020.

For and on behalf of the Board

Mark Pacitti

Chairman

26 February 2020

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Report and Accounts 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 International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the Directors 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 (www.smithson.co.uk). The maintenance and integrity of the website is the responsibility of the Investment Manager. 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 Report and Accounts, 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 period ended 31 December 2019; 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

Mark Pacitti

Chairman

26 February 2020

Independent Auditor's Report

Financial Statements

Report on the audit of the financial statements

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.

We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC's Ethical Standard were not provided to the company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

4. Conclusions relating to going concern, principal risks and viability statement

4.1 Going concern

We are also required to report whether the directors' statement relating to the prospects of the Company required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

5.1 Valuation and ownership of listed investments

6. Our application of materiality

6.1 Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

6.2 Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at 65% of materiality for the 2019 audit. In determining performance materiality, we considered our risk assessment, including our assessment of the company's overall control environment, and our past experience of audits of other companies in the sector.

6.3 Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £287,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

7. An overview of the scope of our audit

Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control and assessing the risks of material misstatement through quantitative and qualitative factors relating to each account balance, class of transactions and disclosure. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.

As part of our risk assessment, we assessed the control environment in place at the administrator to the extent relevant to our audit.

8. Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that:

·          Fair, balanced and understandable - the statement given by the directors that they consider the Report and Accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

·          Audit committee reporting - the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or

·          Directors' statement of compliance with the UK Corporate Governance Code - the parts of the directors' statement required under the Listing Rules relating to the company's compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

We have nothing to report in respect of these matters.

9. Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

10. Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance with laws and regulations are set out below.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

11. Extent to which the audit was considered capable of detecting irregularities, including fraud

We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.

11.1 Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following:

·          the nature of the industry and sector, control environment and business performance including the design of the company's remuneration policies, key drivers for directors' remuneration, bonus levels and performance targets;

·          results of our enquiries of management and the audit committee about their own identification and assessment of the risks of irregularities;

·          any matters we identified having obtained and reviewed the company's documentation of their policies and procedures relating to:

·         identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;

·         detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;

·         the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

·          the matters discussed among the audit engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the area of valuation and ownership of listed investments. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory framework that the company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, the Corporation Tax Act 2010, and the Listing Rules.

11.2 Audit response to risks identified

As a result of performing the above, we identified valuation and ownership of listed investments as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter.

In addition to the above, our procedures to respond to risks identified included the following:

·          reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;

·          enquiring of management, the Audit Committee and external legal counsel concerning actual and potential litigation and claims;

·          performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;

·          reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC and the FCA; and

·          in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Report on other legal and regulatory requirements

12. Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

·          the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

·          the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors' report.

13. Matters on which we are required to report by exception

13.1 Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

·          we have not received all the information and explanations we require for our audit; or

·          adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

·          the financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

13.2 Directors' remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made or the part of the directors' remuneration report to be audited is not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

14. Other matters

14.1 Auditor tenure

Following the recommendation of the audit committee, we were appointed by the Directors on 24 July 2019 to audit the financial statements for the period ended 31 December 2019 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 1 year, covering the period endied31 December 2019 only.

14.2 Consistency of the audit report with the additional report to the audit committee

Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).

15. Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Chris Hunter CA (Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

Edinburgh, United Kingdom

26 February 2020

Statement of Comprehensive Income

The Company does not have any income or expenses which are not included in the profit for the period.

All of the profit and total comprehensive income for the period 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 26 February 2020 and were signed on its behalf by:

Mark Pacitti

Chairman

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 period from incorporation on 14 August 2018 to 31 December 2019

* Distributable reserve. The Company's Articles of Association do not permit distributions from the Capital Reserve.

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

Statement of Cash Flows

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 Financial Reporting Standards ("IFRS"). These comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ("IASC") that remain in effect, to the extent that IFRS have been adopted by the European Union.

(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 applicable International Financial Reporting Standards as adopted by the EU ("IFRS") 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 October 2019). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The Directors believe that it is appropriate to continue to adopt the going concern basis for preparing the financial statements for the reasons stated in the Report and Accounts. 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.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

·          Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

·          Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

·          Level 3 inputs are unobservable inputs for the asset or liability.

(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. In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of dividend. Additionally, 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. Income from underwriting commission is recognised as earned.

Interest receivable and payable, management fees, and other expenses are treated on an accruals basis.

(e) Expenses

The management fee is recognised as a revenue item in the Statement of Comprehensive Income. All other expenses are charged to revenue except expenses of a capital nature, which are treated as capital. The Board will, however, keep this under review and an appropriate amendment to this treatment will be made if required.

(f) Investments

Investments have been designated upon initial recognition 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 prices. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve. For any unlisted investments, the fair value will be determined by using valuation techniques. These valuations will maximise the use of observable market data where it is available and with minimal reliance on entity specific estimates. For other investments which do not fit within this criteria the fair value will be determined by the Audit Committee with valuations recommended to the Board of the Company. The Audit Committee will consider the appropriateness of the valuations, models and inputs, using the various valuation methods in accordance with the Company's valuations policy.

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

When a purchase or sale is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

All the investments are defined by IFRS as investments held at fair value through profit or loss. All gains and losses are allocated to the capital return within the Statement of Comprehensive Income as "Gains or losses on investments held at fair value through profit or loss".

All investments are designated upon initial recognition as held at fair value through profit or loss, and are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.

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 on the Statement of Comprehensive Income.

(g) Foreign currencies

Monetary assets and liabilities expressed 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 or, where forward foreign currency contracts have been taken out, at contractual rates and included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is of a capital or revenue nature.

(h) Cash and cash equivalents

Cash and cash equivalents comprises 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 in the period in which they are paid. 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 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

Represents the nominal value of the issued share capital.

Share premium account

The share premium that arose on the issue of new shares.

Capital reserve

This reserve reflects any:

·          gains or losses on the disposal of investments

·          exchange differences of a capital nature;

·          the increases and decreases in the fair value of investments which have been recognised in the capital column of the Statement of Comprehensive Income; and

·          expenses which are capital in nature

Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve.

Revenue reserve

This reserve reflects all income and expenditure recognised in the revenue column of the Statement of Comprehensive Income and is distributable by way of dividend.

(l) Taxation

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

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Statement of Financial Position date 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 not yet effective.

Amendments to IFRS 3 'Definition of Business' (effective for accounting periods on or after 1 January 2020). Amendments to IAS 1 & IAS 8 'Definition of Material' (effective for accounting periods on or after 1 January 2020). IFRS 17, 'Insurance contracts' (effective for accounting periods on or after 1 January 2021).

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.

The following standard effective for the annual periods beginning after 1 January 2019 has not been applied in preparing these financial statements.

IFRS 16 'Leases' specifies accounting for leases and removes the distinction between operating and finance leases. This standard is not applicable to the Company as it has no leases.

In the current financial period the Company has applied an interpretation as follows:

IFRIC 23 'Uncertainty over Income Tax' provides guidance on uncertain income tax treatments and specifies that an entity must consider whether it is probable that the relevant tax authority will accept each tax treatment or group of tax treatments, that it plans to use in its income tax filing. Where deemed to be more than probable, uncertain tax positions should be disclosed in the financial statements of the Company. There is no material impact on the Company in relation to the adoption of this standard.

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 a core 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 at the Investment Manager's Review.

4.Investment management fee

As at 31 December 2019, an amount of £1,124,000 was payable to the Investment Manager.

Details of the terms of the Investment Management Agreement are provided in the Strategic Report of the Report and Accounts.

5. Other expenses

Transaction costs on fair value through profit or loss investments represent such costs incurred on both purchases and sales of those investments. Transaction costs on purchases amounted to £1,417,000 and on sales amounted to £14,000.

In addition to the audit fees paid by the Company disclosed above, fees of £131,700 were paid to Deloitte LLP by the Investment Manager on behalf of the Company for IPO and reporting accounting assistance. Total remuneration paid to Deloitte LLP amounted to £166,700.

6. Taxation

(a) Analysis of tax charge in the period

(b) The tax charge for the period is lower than the standard rate of corporation tax in the UK of 19%. The differences are explained below:

As at 31 December 2019, the Company had unutilised management expenses of £13.9 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 period and the weighted average number of shares in issue during the period from the IPO of the Company on 19 October 2018 to 31 December 2019.

The total revenue and total capital returns per share are based on the weighted average number of shares in issue of 98,209,751 during the period.

The return per share from launch has been disclosed, as all earnings were earned subsequent to the launch. The Directors have decided to disclose this as it better reflects the return generated for shareholders.

8.Dividends

There are no dividends proposed, declared or payable for the period.

9.Investments held at fair value through profit or loss

All investments are designated as fair value through profit or loss on initial recognition, therefore all gains and losses arise on investments designated as fair value through profit or loss.

The Company received £39,302,000 from investments sold in the period. The book cost of the investments when they were purchased was £48,464,000. These investments have been revalued over time until they were sold and unrealised gains/losses were included in the fair value of the investments.

.

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. As at 31 December 2019, £1,405,671,000 of the investment portfolio was classified as level 1.

·         Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc). There are no level 2 investments.

·          Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments). There are no level 3 investments.

Fair value measurements recognised in the Statement of Financial Position

10. 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. Payables

12. Share capital

During the period ended 31 December 2019, the Company issued 114,510,958 shares of £0.01 each for a net consideration of £1,199,159,000. Details of the shareholder authorities granted to Directors to issue and buy back shares during the period are provided in the Notice of Meeting accompanying this Report and Accounts.

13. Share premium account

14. Net asset value per share

The net asset value per share is based on the net assets attributable to equity shareholders of £1,437,305,000 and on 114,510,958 shares in issue at 31 December 2019.

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 of Report and Accounts, involve certain inherent risks. 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 period.

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 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 under 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. 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 amount of financial instruments best represents the maximum exposure to credit risk.

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, assets 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. The Board monitors the Company's risk as described in the Strategic Report of the Report and Accounts.

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 reporting 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 period 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 2019, an exchange rate move of +/-5% against sterling which is a reasonable approximation of possible changes would have increased or decreased total net assets and total return by £53,388,000.

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 £31,558,000 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 2019 the interest rate was 0%.

If the base rate increased by 0.05%, the impact on the profit or loss and net assets would be expected to be a positive £15,779. A decrease of 0.05% would have had an equivalent opposite effect. The calculations are based on the cash balances at the respective period end date and are not representative of the period as a whole.

All current liabilities have no interest rate and are payable within one year.

Other price risk exposure

If the investment valuation had fallen by 10% at 31 December 2019, the impact on profit or loss and net assets would have been negative £140,567,100. An increase of 10% would have had an equivalent opposite effect. The calculations are based on the portfolio valuations as at the respective period end date and are not representative of the period 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 held £31,558,000 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 £1,437,305,000.

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, 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 2019 there were no contingent liabilities or capital commitments.

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 £108,553, is set out in the Directors' Remuneration Report in the Report and Accounts. There were no contracts subsisting during or at the end of the period 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 period 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 Report and Accounts.

Terry Smith and other founder partners and key employees of the AIFM and Investment Manager directly or indirectly and in aggregate, held 2,987,897 shares in the Company amounting to 2.6% of the issued share capital of the Company as at 31 December 2019.

The costs associated with the Company's IPO amounting to £4,893,615 were paid by the Investment Manager.

18.Post-period events

Since the period end up to 24 February 2020, (the latest practicable date before publication of the Report and Accounts), the Company has issued 3,755,000 ordinary shares raising net proceeds of £49.8 million.

19. Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information is derived from the statutory accounts, which will be delivered to the registrar of companies and will be put forward for approval at the Company's Annual General Meeting. The statutory accounts for the period ended 31 December 2019 will be delivered to the registrar of companies.   The auditors have reported on the accounts for the period ended 31 December 2019, their report was unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Report and Accounts for the period ended 31 December 2019 were approved on 26 February 2020.  It will be made available on the Company's website at www.smithson.co.uk

The Report and Accounts will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM

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 30 March 2020 at Barber-Surgeon's Hall, Monkwell Square, Wood Street, London EC2Y 5BL, UK.

26 February 2020

Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

Mermaid House

2 Puddle Dock

London

EC4V 3DB

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