Annual Financial Report

Pacific Horizon Investment Tst PLC

17 October 2023

 

Pacific Horizon Investment Trust PLC ('PHI')

Legal Entity Identifier: VLGEI9B8R0REWKB0LN95

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 6 October 2023, Pacific Horizon Investment Trust PLC ("the Company") announces that the Company's Annual Report and Financial Statements for the year ended 31 July 2023, 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 page of the Baillie Gifford website at: pacifichorizon.co.uk (as is the preliminary statement of audited annual results announced by the Company on 6 October 2023).

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

Each of the Directors, whose names and functions are listed within the Directors and Managers section of the Annual Report and Financial Statements, confirm that, to the best of their knowledge:

¾    the 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 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 page 71 of the Annual Report and Financial Statements there is a 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. There have been no material changes to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below.

The Board considers the heightened macroeconomic and geopolitical concerns to be factors which exacerbate existing risks, rather than being new emerging 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
Financial Risk: The Company's assets consist mainly of listed securities (93.6% of the investment portfolio) 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 18 to the Financial Statements on pages 104 to 111.	The Board has, in particular, considered the impact of heightened market volatility during recent months due to macroeconomic factors such as higher inflation and interest rates and geopolitical concerns. In order to oversee this risk, the Board considers at each meeting various metrics including regional and industrial sector weightings, top and bottom stock contributors to performance along with sales and purchases of investments. Individual investments are discussed with the portfolio manager together with general views on the various investment markets and sectors. A strategy session is held annually.		This risk is increasing due to increased market volatility as a result of heightened macroeconomic and geopolitical concerns.
What is the risk?	How is it managed?		Current assessment of risk
Investment strategy risk: Pursuit of 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 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 increasing as the market's appetite for growth stocks, typically held by the Company, has decreased during the recent period of heightened macroeconomic and geopolitical concern.
What is the risk?	How is it managed?		Current assessment of risk
Political and associated economic financial risk: The Board is of the view that political change in areas in which the Company invests or may invest may have financial consequences for the Company.	Political developments are closely monitored and considered by the Board, for example in respect of tensions between the USA and China regarding tariffs and unrest in Hong Kong and repercussions from the Russian invasion of Ukraine. It monitors portfolio diversification by investee companies' primary location, to mitigate against the negative impact of military action or trade barriers. The Board believes that the Company's portfolio, which predominantly comprises companies listed on the stock markets of the Asia Pacific region (excluding Japan) and the Indian Sub-continent, partially helps to mitigate such political risks.		This risk is increasing due to the ongoing Russia-Ukraine military conflict and tensions between China and the US.
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, when deemed by the Board to be in the best interests of the Company and its shareholders.		The Company's discount widened during the year.
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 suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains.	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. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made 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 Audit Committee 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 private portfolio holdings to confirmations from investee companies. 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. The Audit Committee reviews Baillie Gifford's Report on Internal Controls and 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 other 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. 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.	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. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found on page 118 and the Glossary of Terms and Alternative Performance Measures on pages 123 and 124 of the Annual Report and Financial Statements.		The Company's revolving loan facility remains undrawn.
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 are available to view on the Managers' website, bailliegifford.com, and which have been reviewed and endorsed by the Company, and which have been fully integrated into the investment process. Due diligence includes assessment of the risks inherent in climate change (see page 55 of the Annual Report and Financial Statements).		The Investment Manager continues to employ strong ESG stewardship and engagement policies.
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. 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.		All control procedures are working effectively.
What is the risk?	How is it managed?		Current assessment of risk
Emerging risk: As explained on page 71 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. The Board considers that the key emerging risks arise from the interconnectedness of global economies and the related exposure of the investment portfolio to external and emerging threats such as escalating geopolitical tensions, cyber security risks including developing AI and quantum computing capabilities, and new coronavirus variants or similar public health threats.	This is mitigated by the Managers' close links to the investee companies and their ability to ask questions on contingency plans. The Managers believe the impact of such events may be to slow growth rather than to invalidate the investment rationale over the long term.		No change in emerging risks.

Increasing risk      Decreasing risk    No change

Baillie Gifford & Co Limited

Company Secretaries

17 October 2023

 

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