Annual Financial Report

Monks Investment Trust PLC

16 July 2024

 

The Monks Investment Trust PLC ('MNKS')

Legal Entity Identifier: 213800MRI1JTUKG5AF64

Regulated Information Classification: Annual Financial and Audit Reports

Annual Report and Financial Statements

Further to the preliminary statement of audited annual results announced to the Stock Exchange on 2 July 2024, The Monks Investment Trust PLC ("the Company") announces that the Company's Annual Report and Financial Statements for the year ended 30 April 2024, including the Notice of Annual General Meeting, has today been posted to shareholders and submitted electronically to the National Storage Mechanism where it will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

It is also available on the Company's page of the Baillie Gifford website at: www.monksinvestmenttrust.co.uk (as is the preliminary statement of audited annual results announced by the Company on 2 July 2024).

Arrangements for the Annual General Meeting (AGM)

The Annual General Meeting of the Company will be held at The Royal Institution, 21 Albemarle Street, London W1S 4BS on Tuesday, 10 September 2024, at 11.30am. To accurately reflect the views of shareholders of the Company, the Board intends to hold the AGM voting on a poll, rather than on a show of hands as has been customary. The Board encourages all shareholders to complete and return the form of proxy enclosed with the Annual Report to ensure that your votes are represented at the meeting (whether or not you intend to attend in person). Shareholders are recommended to monitor the Company's website, www.monksinvestmenttrust.co.uk, where any updates will be posted.

Should shareholders have questions for the Board or the Managers or any queries as to how to vote, they are welcome as always to submit them by email to [e-mail] or call 0800 917 2112. Baillie Gifford may record your call.

Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements

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

¾    the Financial Statements set out in the Annual Report and Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and net return of the Company;

¾    the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

¾    the Strategic Report set out in the Annual Report and Financial Statements 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 (as also set out below).

Principal and Emerging Risks relating to the Company

As explained on pages 62 and 63 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, regulatory compliance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below.

An upwards arrow, level arrow or downwards arrow has been included to show if the risk level has increased, not changed, or decreased since it was last reported in last year's Annual Report and Financial Statements. The Board considers geopolitical tensions including hostilities in Ukraine and Gaza, and macroeconomic factors such as the interest rate environment, to be factors which exacerbate existing risks, rather than discrete risks, within the context of an investment trust. Their impact is considered within the relevant risks.

What is the risk?	How is it managed?		Current assessment of risk
Investment strategy risk: Pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value.	To mitigate this risk, the Board regularly reviews and monitors: the Company's objective and investment policy and strategy; the investment portfolio and its absolute and relative performance; the level of discount/premium to net asset value at which the shares trade; and movements in the share register, and raises any matters of concern with the Managers.		This risk is considered to be stable as there are signs that the market's appetite for growth stocks, typically held by the Company, is recovering following the recent period of heightened macroeconomic and geopolitical concerns.
What is the risk?	How is it managed?		Current assessment of risk
Financial Risk: The Company's assets consist mainly of listed securities and its principal and emerging financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 19 to the Financial Statements.	In order to oversee this risk, the Board considers at each meeting various metrics including the composition and diversification of the portfolio by geography, industry, growth category and holding size along with sales and purchases of investments. Individual investments are discussed with the portfolio managers together with their general views on the various investment markets and sectors. A strategy meeting is held annually. The Board has, in particular, considered the impact of heightened market volatility owing to macroeconomic and geopolitical concerns. The value of the Company's investment portfolio would be affected by any impact, positively or negatively, on sterling but such impact would be partially offset by the effect of exchange rate movements on the Company's euro and yen denominated borrowings.		This risk is considered to be high but unchanged as a result of heightened macroeconomic and geopolitical concerns which continue to create a challenging environment for businesses, but with some signs that interest rate pressures, for example, may be starting to recede.
What is the risk?	How is it managed?		Current assessment of risk
Discount risk: The discount/premium at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company.	To manage this risk, the Board monitors the level of discount/ premium at which the shares trade and the Company has authority to buy back its existing shares or issue shares (including authority to sell shares held in treasury), when deemed by the Board to be in the best interests of the Company and its shareholders.		The Company's discount remained relatively steady during the year. The Company has been buying back shares for treasury since January 2022 and shareholder feedback indicates that this has been a welcome strategy to maintain liquidity in the Company's shares.
What is the risk?	How is it managed?		Current assessment of risk
Political and associated economic risk: Political change in areas in which the Company invests or may invest may increasingly have practical consequences for the Company.	To mitigate this risk, developments are closely monitored and considered by the Board. The Board has particular regard to macroeconomic and geopolitical tensions and monitors portfolio diversification by revenue stream where appropriate, as well as by investee companies' primary location and considers the potential for negative impacts arising from military action, trade barriers or other political factors.		This risk is increasing as governments and consumers around the world continue to assess the impact of heightened geopolitical tensions and conflicts as well as challenging macroeconomic conditions.
What is the risk?	How is it managed?		Current assessment of risk
Climate and governance risk: Perceived problems on environmental, social and governance ('ESG') matters in an investee company could lead to that company's shares being less attractive to investors, adversely affecting its share price, in addition to potential valuation issues arising from any direct impact of the failure to address the ESG weakness on the operations or management of the investee company (for example in the event of an industrial accident or spillage). Repeated failure by the Managers to identify ESG weaknesses in investee companies could lead to the Company's own shares being less attractive to investors, adversely affecting its own share price.	This is mitigated by the Managers' strong ESG stewardship and engagement policies, which have been endorsed by the Company, and which are fully integrated into the investment process. Further details of the Managers' approach are set out on the Managers' website bailliegifford.com/esg. The Directors have considered the impact of climate change on the Financial Statements of the Company and this is included in note 1a to the Financial Statements.		The Managers continue to embed analysis of ESG factors within the investment process. Although climate activists have recently targeted the Managers' sponsorship of cultural events, media coverage has been balanced and has largely recognised that the objective is not to seek perfection but to focus on materiality and the direction of travel, with the understanding that engagement can encourage responsibility and meaningful change.
What is the risk?	How is it managed?		Current assessment of risk
Regulatory risk: Failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the FCA Listing rules and the Companies Act could lead to the Company being subject to tax on capital gains, suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. Changes to the regulatory environment could negatively impact the Company.	To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Should major regulatory change seem likely to impose disproportionate compliance burdens on the Company, representations are made to the relevant authorities to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes, and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.		All control procedures are working effectively. There have been no material regulatory changes that have impacted the Company during the year.
What is the risk?	How is it managed?		Current assessment of risk
Custody and depositary risk: Safe custody of the Company's assets may be compromised through control failures by the depositary, including breaches of cyber security.	To mitigate this risk, the Board receives six-monthly reports from the depositary confirming safe custody of the Company's assets held by the custodian. Cash and portfolio holdings are independently reconciled to the custodian's records by the Managers who also agree uncertificated unlisted portfolio holdings to confirmations from investee companies. In addition, the existence of assets is subject to annual external audit and the custodian's assured internal controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit Committee and any concerns investigated.		All control procedures are working effectively.
What is the risk?	How is it managed?		Current assessment of risk
Operational risk: Failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets.	To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Audit Committee reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board and a summary of the key points is reported to the Audit Committee and any concerns investigated. The key third party service providers have not experienced significant operational difficulties affecting their respective services to the Company.		All control procedures are working effectively.
What is the risk?	How is it managed?		Current assessment of risk
Leverage risk: The Company may borrow money for investment purposes (sometimes known as 'gearing' or 'leverage'). If the investments fall in value, any borrowings will magnify the impact of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. The Company can also make use of derivative contracts, although it does not currently do so. The use of such contracts may have a gearing effect so as to enhance, or worsen, returns relative to the amount invested in this way.	To mitigate this risk all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. Details of the Company's current borrowing facilities and drawings can be found in notes 11 and 12 of the Financial Statements. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found on page 114 of the Annual Report and Financial Statements and in the Glossary of terms and Alternative Performance Measures.		No significant change in risk level. The Company secured four new tranches of medium-term private placement loan notes during the year, allowing it to lower its use of the higher-cost revolving credit facility.
What is the risk?	How is it managed?		Current assessment of risk
Cyber security risk: A cyber-attack on Baillie Gifford's network or that of a third party service provider could impact the confidentiality, integrity or availability of data and systems.	To mitigate this risk, the Audit Committee reviews Reports on Internal Controls published by Baillie Gifford and other third party service providers. Baillie Gifford's Business Risk Department report to the Audit Committee on the effectiveness of information security controls in place at Baillie Gifford and its business continuity framework. Cyber security due diligence is performed by Baillie Gifford on third party service providers which includes a review of crisis management and business continuity frameworks.		This risk is seen as increasing due to recent indications that the continuation of geopolitical tensions could lead to cyber attacks. Emerging technologies, including AI, could potentially increase information security risks.
What is the risk?
Emerging risks: As explained on page 62 of the Annual Report and Financial Statements, the Board has regular discussions on principal risks and uncertainties, including any risks which are not an immediate threat but could arise in the longer term.

Increasing risk      Decreasing risk    No change

Baillie Gifford & Co Limited

Company Secretaries

16 July 2024

 

END