The principal risks and uncertainties facing the business of The Scottish Investment Trust PLC (the Company) are as follows:
Investment and market price risk
The holding of securities and investing activities involve certain inherent risks. Events may occur which affect the value of investments. The Company holds a portfolio which is well diversified across industrial and geographical areas to help minimise these risks. It may also use derivatives. From time to time, the Company may wish to use such instruments in order to protect against a specific risk or to facilitate a change in investment strategy such as the movement of funds from one area to another. No such transaction may take place without the prior authorisation of the Company’s board.
Interest rate risk
The Company finances its operations through a combination of investment realisations, retained revenue reserves, debenture stocks and secured bonds. All debenture stocks and secured bonds are at fixed rates. The Company has undrawn short-term multicurrency credit facilities which can be drawn at variable rates of interest. Details of interest rates on financial assets and on financial liabilities are included in the Company’s annual report and accounts which may be accessed in Reports & Accounts.
Almost all of the Company’s assets comprise listed securities which represent a ready source of funds. The maturity profile of the Company’s borrowings is set out in the Company’s annual report and accounts which may be accessed in Reports & Accounts.
Foreign currency risk
Approximately 70% of the Company’s assets are invested overseas which gives rise to a currency risk. From time to time, specific hedging transactions are undertaken. The Company’s overseas income is subject to currency movements. Foreign dividend income may be hedged by forward sales of currency. The currency profile of the Company’s monetary assets and liabilities is set out in the annual report and accounts which is available in Reports & Accounts.
The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. The amounts shown in the Company’s balance sheet under debtors and cash and deposits represent the maximum exposure to credit risk.
These and other risks facing the Company are reviewed regularly by the audit committee and the board.
Details of the Company’s key risks are also set out in the Company’s annual report and accounts, which may be accessed in Reports & Accounts.