abrdn Equity Income - Annual Financial Report
30/11/2023 07:00
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RNS Number : 1148V abrdn Equity Income Trust plc 30 November 2023
abrdn Equity Income Trust plc Annual Financial Report
for the year ended 30 September 2023
Legal Entity Identifier (LEI): 21380015XPT7BZISSQ74
Investment Objective
To provide shareholders with an above average income from their equity
investment, while also providing real growth in capital and income
Website
Up to date information can be found on the Company's website:
abrdnequityincome.com
Performance Highlights
Net asset value total return per Ordinary share(A) Share price total return per Ordinary share(A)
Year ended 30 September 2023 Year ended 30 September 2023
+1.8% +11.4%
Year ended 30 September 2022 -7.6% Year ended 30 September 2022 -7.8%
Revenue return per Ordinary share Discount to net asset value(A)
Year ended 30 September 2023 As at 30 September 2023
23.43p 0.2%
Year ended 30 September 2022 25.51p As at 30 September 2022 8.8%
Dividend per Ordinary share Ongoing charges ratio(A)
Year ended 30 September 2023 Year ended 30 September 2023
22.80p 0.94%
Year ended 30 September 2022 22.70p Year ended 30 September 2022 0.91%
(A) Considered to be an Alternative Performance Measure.
Highlights
30 September 2023 30 September 2022 % change
Capital
Net asset value per Ordinary share 314.6p 331.8p -5.2%
Ordinary share price 314.0p 302.5p 3.8%
Reference Index capital return(C) 4,127.2 3,763.5 9.7%
Discount of Ordinary share price to net asset value(A) 0.2% 8.8%
Total assets £170.8m £182.5m -6.4%
Shareholders' funds £149.9m £157.5m -4.8%
Gearing
Net gearing(A) 11.3% 15.0%
Earnings and Dividends
Revenue return per Ordinary share 23.43p 25.51p -8.2%
Total dividends for the year 22.80p 22.70p 0.4%
Dividend yield(A) 7.3% 7.5%
Expenses
Ongoing charges ratio(AB) 0.94% 0.91%
(A) Considered to be an Alternative Performance Measure.
(B) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis.
(C) FTSE All-Share Index
For further information, please contact:
Helen Mattia
Evan Bruce-Gardyne
abrdn Fund Managers Limited
0131 372 2200
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise. Investors may not get back the amount they originally invested.
Chair's Statement
It is a great pleasure to present a full year report to you for the first time as Chair, having assumed the role at the Annual General Meeting in February 2023, following the retirement of Mark White.
While the Company's Net Asset Value ("NAV") made progress in the first quarter
of the financial year, calendar 2023 has proved to be more challenging. The
combination of political and financial turmoil, 40 year-high inflation and
rising interest rates have made for a difficult backdrop for small and mid-cap
companies, especially those with a focus on the domestic UK economy. The key
highlights for the financial year to 30 September 2023 are:
· A 23(rd) consecutive year of dividend growth. The dividend for
the year is, once again, covered by earnings.
· A sharp and sustained closing of the discount from around 10%
this time last year to around par today. Although the Company bought back
shares at the beginning of the year, the Company has been trading at a premium
during the year and has issued shares in order to meet the excess demand.
· A material increase in the proportion of the Company's shares
held by execution-only platforms (such as interactive investor and Hargreaves
Lansdown), who typically act on behalf of private shareholders. In the year
under review, the ten largest buyers of the Company's shares were all
platforms and those ten large buyers now collectively own over 65% of the
Company's shares on behalf of their various customers. This reaffirms the
Board's view that there remains demand for income mandates from private
investors.
Please see below for the Company's performance against it's Key Performance
Indicators.
Earnings
Gross income generated by the Company's investments in the financial year to
30 September 2023 was £12.6 million (2022: £13.5 million). The costs of
managing the portfolio, including administration costs, were down 7.3%,
largely driven by management fees being down almost 10%. At the same time,
interest costs attributable to the revenue account were up from £149,000 to
£401,000, reflecting the increase in the cost of debt, as interest rates have
risen. After tax, the income of the Company was £11.1 million, down from
£12.2 million last year.
This resulted in the Company's earnings per share being 23.43 pence, which was
8.2% lower than last year. Despite this decline, the dividend for the year is
covered by the earnings for the second consecutive year.
Our Portfolio Manager is focused on delivering increased earnings in order to
extend the 23-year track record of dividend growth, which we intend to be
covered by the revenue earnings in the financial year. Please see the
Portfolio Manager's Review for more detail on the sources of the performance
and income.
Dividends
As a result of the earnings performance the Board is declaring a fourth
interim dividend for 2023 of 5.7 pence per share which will be paid on 8
January 2024 to shareholders on the Register on 8 December 2023 with an
associated ex-dividend date of 7 December 2023. This takes the total dividend
for the year to 22.80 pence per share, and the 23rd consecutive annual
dividend increase declared by the Company. At the time of writing, the Company
is trading on a yield of 7.6%, among the highest in the AIC UK Equity Income
sector. In setting the level of the fourth interim dividend the Board balanced
the desire to ensure that the dividend continues to grow and that revenue
reserves were replenished.
After payment of the fourth interim dividend, and based on current shares in
issue, 0.56 pence per share will be transferred to revenue reserves which will
be increased to 15.61 pence per share.
The Board is committed to maintaining and extending its track record of
dividend growth. We therefore expect that, in the absence of any adverse
circumstances, in the coming financial year we will extend our track record to
24 consecutive years of dividend growth by paying a dividend of at least 22.90
pence per share. We believe that we are in a position to do this because we
are confident that the portfolio should deliver net earnings that will cover
this cost except for unforeseen circumstances. We expect that the first three
interim dividends will be 5.7 pence per share, payable in March, June and
September and the fourth interim will be at least 5.8 pence per share payable
in January. Once again, we have tasked the Portfolio Manager with delivering
net revenue earnings to be able to cover this level of distribution.
Results
On a more disappointing note, the NAV total return of the Company for the
financial year to 30 September 2023 was 1.8% (2022: -7.6%) and the share price
total return was 11.4% (2022: -7.8%). The FTSE All-Share Index delivered a
total return of 13.8% (2022: -4.0%) over the same period. More detailed
information on capital performance can be found in the Portfolio Manager's
Review and generally relate to the continued outperformance of large-cap
stocks which only comprise 52.6% of our portfolio. Whilst UK equity markets
remain undervalued, there is an opportunity for re-rating that recognises the
underlying value of our portfolio. The Board remains focused on improving
performance and growing the dividend.
Premium & Discount
The Company share price started the year trading on a discount of 8.8% and
closed the year on a discount of 0.2%. The Board was pleased to note the
market's positive reaction to the announcement of the full year results in
December 2022. The day before the results were announced the Company's share
price was trading on a discount of around 10%; within a week the share price
was trading at around par. Crucially, the rerating of the Company's share
price has been maintained.
This meant that the Company has moved from buying back shares in the first two
months of the financial year , to re-issuing shares from treasury. In October
2022 and November 2022, the Company bought back 100,417 Ordinary shares or
0.21% of the opening issued share capital in the year at a weighted discount
of 10.1%.
In August 2023 the Company issued 275,000 shares in the market, from treasury,
for the first time since January 2016 at a weighted premium of 1.1%. The Board
will only issue shares when it considers that the premium is sustained and
sufficient to ensure that, net of commission and reasonable market movements,
the issuance will be NAV accretive to existing shareholders. We are very
pleased that we are in a position to continue to issue shares and over the
year, the net number of shares in issue increased by 174,583 with a value of
just over £547,000. We hope to be able to continue to grow the Company in
this way. Since the year end, the Company has issued a further 135,000
shares from treasury.
Through its buy back and issuance approach, the Board aims to try to reduce
any volatility in the discount and indeed in the premium to ensure that
shareholders have, as far as possible, confidence that the share price will
broadly reflect the value of the underlying assets.
Loan refinancing
During the financial year, the Company renewed its £30 million revolving
credit facility with the Royal Bank of Scotland International Limited for
three years, expiring in June 2026 ("the Facility"). £21 million was drawn
down at the year-end (2022: £25 million). Under the terms of the Facility,
the Company also has the option to increase the level of the commitment from
£30 million to £40 million at any time, subject to the Lender's credit
approval. The Board and Manager are very aware of the impact of the increase
in the cost of borrowing as a result of rising interest rates. The Board
considers the impact of these increased costs versus the financial benefit of
gearing the portfolio. The Board continues to believe in the long-term
benefits of gearing, one of the tools available to closed-end investment
companies.
Management Agreement
The management fee structure that prevailed during the year was introduced in
2019 and during the year the Board undertook a review of the agreement and
concluded that it was no longer competitive when compared to other similar
investment trusts in the sector. Accordingly, the Board negotiated a revision
to the fee structure with the Manager. The new agreement does away with the
tiered fee structure of 0.65% on the first £175 million of net assts and
replaces it with a flat fee of 0.55% on net assets and took effect on 1
October 2023. Based on the net assets at the year-end of £149.9 million, the
change represents a reduction in the fee of 15.4%. The Board considers that
this makes the fee structure more competitive when compared to the other
similar investment trusts in the sector.
Change of Auditor
The Board, led by the Audit Committee, undertook an audit tender in 2023 with
a view to appointing a new auditor for the financial year starting on 1
October 2023. KPMG has been the Company's auditors for six years and the Board
concluded that it was appropriate to test the market. The Board had noted that
the audit fee for the Company had risen significantly over the last few years.
The Board is aware of a general trend of rising audit fees across the industry
and discussed this with KPMG in order to gain an understanding as to the
likely future fees. The audit tender attracted strong interest and resulted in
the proposed appointment of Johnston Carmichael LLP for the financial year
ending 30 September 2024.
Manager
During the year, the Board has continued its focus on the revenue account and
maintained its direction to the Portfolio Manager that the revenue account
should cover a dividend greater than 22.80 pence per share. Despite the
challenging markets, the Board was encouraged that the revenue account
surpassed the planned dividend for the year but has encouraged the Portfolio
Manager to concentrate on this. The Board believes that the continued
appointment of the Manager remains in the best interest of the Company's
shareholders as a whole.
The Board
The Board has continued to evolve in the last 12 months. Mark White retired at
the AGM in February 2023 and I assumed the role of Chair, with Mark Little
succeeding me as Chair of the Audit Committee. Jeremy Tigue has announced
that, after nine years on the Board, he does not intend to stand for
re-election at the Company's AGM in February 2024 and consequently the Board
undertook a recruitment process over the summer, and after a thorough search,
we were delighted to invite Nick Timberlake to join the Board. Nick joined the
Board on 1 August 2023. He has extensive experience as an investment trust
fund manager and is already making a significant contribution.
Following the conclusion of the AGM, Caroline Hitch will replace Jeremy as the
Senior Independent Director and Nick Timberlake will replace Caroline as Chair
of the Remuneration & Management Engagement Committee.
I would like to thank Jeremy for his invaluable contribution to the Board and
the Company over the last nine years.
Online Shareholder Presentation
In order to encourage as much interaction as possible with our shareholders,
we will be hosting an Online Shareholder Presentation, which will be held at
11:30 am on Friday, 26 January 2024. At this event there will be a
presentation from the Portfolio Manager followed by an opportunity to ask live
questions to the Portfolio Manager and me. The online presentation is being
held ahead of the AGM to allow shareholders sufficient time to submit their
proxy votes after the presentation but prior to the AGM should they so wish.
Full details on how to register for the online event can be found on the
Company's website at abrdnequityincome.com.
Annual General Meeting ("AGM")
This year's Annual General Meeting ("AGM") will be held at wallacespace
Spitalfields, 15-25 Artillery Lane, London, E1 7HA on Tuesday, 20 February
2024 at 11:30 am. The meeting will include a presentation by the Portfolio
Manager and will be followed by lunch. This is a good opportunity for
shareholders to meet the Board and the Manager and the Board encourages you to
attend. The Notice of the Meeting is contained in the Annual Report.
Outlook
I described last year as "challenging" at the start of this report. I suspect
this situation will persist well into 2024. Economically, the Office for
Budget Responsibility ("OBR") has downgraded forecast growth of the UK economy
to 0.7% in the coming year which does not suggest much prospect of robust
earnings growth. The fact that UK equities are already undervalued relative to
other markets might provide some downside protection. This filters through
to the sector, where investment trusts are trading at discounts not widely
seen for over ten years. The announced reduction in employee National
Insurance contributions is welcome, but unlikely to be the catalyst to kick
start the recovery the economy needs. On top of that, politically we must
expect that by the time we report on the 2024 earnings we will either have had
or be about to have a General Election. A change of government seems almost
inevitable but, whatever its hue, how it will address the fiscal issues is far
from clear.
Against that gloomy background, one can see some glimmers of hope. The latest
inflation numbers for the UK, announced on 15 November show, as expected, a
marked downward trend to 4.6% and there is a possibility that this will
continue over the next few months as the impact of the energy prices increases
last winter, cease to have a bearing on the calculations. That , in turn,
could mean that the next move in interest rates, when it happens (and we are
not expecting it to be soon), might be downwards. Both these changes should
boost confidence, particularly if they are sustained. From the perspective
of the Company, these could be excellent conditions for our Manager's
approach, where the Focus on Change process helps our Portfolio Manager
identify those stocks that are, in his view, mispriced by the market. This
holds out the prospect of some capital growth to accompany the focus on
delivering a growing and covered dividend for the 24th consecutive year.
I would like to close this statement by thanking my fellow Board members, the
Manager and all our service providers that support the Company in delivering
an attractive yield to our shareholders.
Thank you to our shareholders for your continued commitment.
Sarika Patel
Chair
29 November 2023
Portfolio Manager's Review
Market Review
UK equities staged a recovery over the 12 months to 30 September 2023 as
investors responded positively to signs of stabilising politics, peaking
inflation and the continued avoidance of economic recession.
The period began with a resolution to the political uncertainty that followed
the resignation of Liz Truss in October 2022. The arrival of Rishi Sunak as
Prime Minister allowed bond markets to stabilise on the expectation of
responsible fiscal policy, thereby restoring investor confidence in the UK's
outlook.
With political turmoil fading from view, the market turned its attention
towards inflation and its impact on monetary policy and economic growth. In
the UK, consumer price inflation peaked at a 40-year high of 11.1% in October
2022, before falling back to 4.6% in October 2023. The Bank of England's
decision to hold rates at 5.25% in September, following 14 successive rate
hikes since December 2021, raised hopes that monetary policy had tightened
sufficiently to curb inflationary pressures. Tightness in the labour market is
a particular focus for policymakers in gauging underlying inflationary
pressure, with average weekly earnings growing at 8.1% in the year to August.
The view Economists predicted that interest rates would remain elevated
monetary policy is unlikely to loosen until wage growth decelerates was
reflected in the Bank of England's description of the likely profile of future
interest rates as "Table Mountain".
During the period, the transmission of higher rates to the global economy
became clearer, with various fragilities becoming exposed. In March, Silicon
Valley Bank and Credit Suisse both collapsed, prompting intervention from
financial regulators to limit the contagion across the global financial
system. In May, markets became rattled by the prospect of a US government debt
default, further compounding the damage to bond markets, although Congress
ultimately approved an eleventh-hour increase of the debt ceiling. In August,
investors reacted badly to signs of growing stress in the Chinese housing
market after years of excessive borrowing and overbuilding, with some large
developers on the edge of default. In the UK, the impact of higher rates on
housing activity and house prices was less acute, reflecting the reduction in
household sector leverage since the 2008 financial crisis. Third quarter GDP
data revealed that economic activity remains subdued, although recession
continues to be avoided despite higher interest rates; a scenario that many
economists would have dismissed as unlikely at the start of the year.
Although the FTSE All-Share Index returned 13.8% over the period, there were
significant variations in performance within the UK market. The FTSE 100 index
produced a total return of 14.7%, reflecting investors' preference for larger,
more liquid stocks during nervous market conditions. The more
domestically-orientated FTSE 250 and Small Cap indices lagged, returning 10.0%
and 7.5% respectively, as worries about higher interest rates caused investors
to shun less liquid domestic cyclical stocks in favour of more defensive large
caps. Over the two years to September 2023, a divergence of over 31% in total
return has built up between the FTSE 100 and FTSE 250 indices, underlining the
unusual magnitude of this move.
Revenue Account
Dividends distributed by our holdings in the period under review came in at
£12.6 million, compared to the £13.5 million received last year,
representing a reduction of 7.2%. This was largely caused by a sharp decline
in the contribution from special dividends to £186,000 (from £800,000 in
2022). Excluding all special dividends from the calculation, to provide a
clearer view of the underlying change in dividends, the reduction was 2.8%.
The decline in special dividends reflects the tendency of management teams to
favour share buybacks over special dividends, often because they deem their
valuation to be unfairly cheap. We note that 29 of our holdings - over half
the portfolio - performed share buybacks during the financial year,
underlining the intrinsic valuation attractions of the portfolio.
Net revenue was £11.1 million. Management fees were 9.9% lower and total
expenditure before interest and tax was 7.7% lower than last year.
We are forecasting that the portfolio is currently delivering a gross dividend
yield, before costs, of 7.6% based on the income expected to be generated by
the portfolio over the financial year divided by the portfolio value at the
year end, representing a significant premium to the dividend yield of the
Index of 4.0% as at 30 September 2023.
During the financial year we focused on achieving the Board's priority of
delivering sufficient income to cover the dividend. We achieved this for a
second year, although the market backdrop of a decelerating global economy,
rising interest rates and geopolitical conflict made this a more challenging
task than it was the previous financial year. The largest variation in
portfolio income during the year was caused by the reduction in commodity
prices, affecting some of our Energy and Mining holdings. The UK equity market
has, in recent years, seen a concentration of dividends among a relatively
small number of sectors due to a succession of macro shocks, specifically
Covid-related dividend cuts, followed by Ukraine-related commodity price surge
and economic slowdown linked to higher interest rates. Our portfolio was not
immune from this increase in dividend concentration.
Having rebuilt dividend coverage since the Covid trough, we have turned our
attention to taking portfolio action that will simultaneously enhance the
portfolio's income prospects and diversify the portfolio's income generation
across a broader range of stocks and sectors. We would expect this process to
be assisted by a broadening in dividend payments across the UK market,
especially once macro uncertainty eases sufficiently to encourage management
teams to distribute surplus cash in the form of dividends.
Taking a step back, we are encouraged by the progress in our revenue account
in the 2 years since the height of Covid. While share prices may continue to
swing around on changing sentiment in relation to these macro drivers, we
remain confident that the focus of our investment approach on delivery of cash
flows and dividends remains the right one. For the wider UK equity market as a
whole, dividend cover of 2.2x (on a 12 month forward basis) suggests some
cushion should macro conditions remain tough. We continue to find many
examples of stocks whose cash flow and dividend potential is not effectively
priced in by the market. This provides us with the opportunity to buy
well-managed businesses with sound dividend prospects at low valuations,
helping to support our confidence in the continued progression of our dividend
per share in the financial year to 30 September 2024.
Portfolio Performance
The Company's net asset value ("NAV") total return was 1.8% for the period.
This return was lower than that of the Company's Reference Index as the return
of the index masked some sharp variations in performance within the UK equity
market, reflecting an underlying nervousness that persisted throughout most of
the period.
In summary, our NAV lagged the index for two key reasons.
First, market conditions were not supportive for the Fund's positioning. The
outperformance of a narrow range of large-cap stocks, linked to the strong US
dollar and ongoing investor de-allocations from domestic UK stocks, was a key
feature of the stock market during the period. This dragged on performance
given the portfolio's heavy weighting in small- and mid-cap stocks, itself a
function of the index-agnostic approach that we use in constructing the
portfolio. Our portfolio's exposure to the FTSE 100 Index was 52.6% at the end
of the period, whereas the FTSE 100 Index represented 84.4% of the total value
of the FTSE All-Share Index.
Second, the portfolio suffered from some company-specific disappointments,
mainly linked to the impact of falling commodity prices on some of our Energy
holdings and the impact of higher interest rates on activity levels in some of
our Financials and Consumer holdings.
Turning to specific stocks, the key drivers of our performance over the period
are as follows:
- Our Energy exposure detracted from performance at a time of
falling energy prices due to a rebuilding in gas storage levels and reduced
demand due to unseasonably mild winter weather. The weakest performers were
Thungela Resources and Diversified Energy which reversed the gains they had
made in the previous financial year. Both companies remain highly cash
generative even at lower energy prices, providing significant portfolio
income. Despite the benefit of our large holding in BP, this sector detracted
around 4% of relative performance.
- Within Financials, performance was hit by our holdings in CMC
Markets, OSB Group and Vanquis, all of which struggled in an environment of
rising interest rates, resulting in profit warnings. These negatives were only
partially offset by contributions from International Personal Finance,
Litigation Capital Management and Conduit, all of which delivered better than
expected results. Overall, this sector detracted around 5% of relative
performance.
- Performance was varied within Consumer and Industrial sectors.
Better than expected results from housebuilder Vistry and construction
business Galliford Try and Tyman. The portfolio also benefited from its
underweight in Consumer Staples, in particular not owning Unilever and Reckitt
Benckiser, although this was offset by weak performance of Imperial Brands on
concerns over the imposition of new tobacco restrictions. In aggregate, these
sectors were neutral for performance.
- The gearing position mildly detracted from performance as the
interest rate on the gearing exceeded the portfolio return. We continue to
believe that the gearing facility is in the best interests of shareholders
given the benefit to the revenue account as the dividend yield of the
portfolio still exceeds the interest rate being paid on the facility, as well
as the potential benefit to the capital account over time.
Activity
Purchases
During a period of rapidly changing expectations over the path for inflation
and interest rates, we have applied our investment process to position the
portfolio in stocks where we see the greatest potential to deliver income and
capital growth. Our experience is that stock-level opportunities can become
most abundant during times of volatile macro, as investors focus on economic
data, rather than corporate fundamentals.
Our largest purchase during the period was HSBC where we see rapid improvement
in profitability thanks to the benefit of higher base rates, as well as the
re-opening of the China/Hong Kong border. The business appears well prepared
for a tough economic backdrop, with management running a high level of
deposits and taking a cautious approach to lending. This sets the stock up
to deliver attractive dividends, while also providing capital growth potential
given the attractive returns being generated.
We added to our holding in National Grid which we see as well positioned to
deliver the grid expansion necessary for the transition to electric vehicles.
In the UK, National Grid benefits from inflation-linked contracts. The stock
has fallen sharply due to its correlation with government bonds, providing us
with an opportunity to add to our holding, with clear portfolio income
benefits given the high yield.
We bought a new holding in Ithaca Energy, whose huge cash generation is
supporting extremely attractive dividends, with around one fifth of the
company's market cap being paid back to shareholders in the form of dividends
in its first full year of listing. We expect Ithaca's heavy investment in the
North Sea to provide it with significant up-front tax breaks, helping to
mitigate the impact of the Energy Profits Levy.
Among smaller cap stocks, we bought a new holding in Vanquis where we expect
the new CEO to take rapid action to improve returns by managing loan growth
and costs. The stock's very low valuation - around 0.5x book value -
appears to reflect historic execution issues, rather than its forward-looking
earnings potential. We also added to our holding in Conduit which appears set
to benefit from a hardening reinsurance market, supporting our confidence in
management's ability to achieve the returns targets it set out at its IPO in
2020.
Please see the Annual Report for examples of our engagement with investee
companies which begins prior to purchase.
Sales
We reduced some of our Resources holdings, attempting to manage the trade-off
between portfolio income and risk, after strong performance linked to the
surge in energy prices caused by Russia's invasion of Ukraine. We took some
profits in BP and Shell, our two largest holdings, managing down their
position sizes. We also trimmed our weightings in Rio Tinto and BHP where
weakness in the Chinese real estate sector created a difficult backdrop for
their main commodity, iron ore.
This was another busy year of M&A for the portfolio. Following bid
announcements, we sold our holdings in DWF and Industrials REIT, both of which
received offers from private equity at a sizeable premium. We see this
M&A activity as a sign of the intrinsic value in this portfolio.
We also took action to sell some of the lower yielding stocks in the
portfolio, including Coca-Cola Hellenic, Mondi and Playtech, seeing more
attractive income opportunities elsewhere in the UK market.
Outlook
The narrowness of market returns, both in the UK and globally, was the most
striking feature of the period under review. In a large number of the world's
stock markets, index performance has been led by a small number of very large
cap stocks. Most notable is the US market, where the "Magnificent Seven", the
group of headline-grabbing technology companies, including Amazon, Apple,
Microsoft and Tesla are worth more than $11 trillion (greater than the
combined market capitalisation of the Japanese, UK and German stock markets).
The UK has seen a similar, if less pronounced, shift towards large cap stocks,
for two key reasons. First, concerns about the risk of a global recession have
driven investors towards the largest, most liquid internationally-focused
stocks in each sector, at the expense of small and mid-cap
domestically-orientated stocks. Second, UK equity funds have suffered a
prolonged period of outflows, as investors sell down UK equities in favour of
other asset classes. This has created a circularity in which negative share
price momentum has fuelled the perception that the UK is an unattractive
market, causing a reduction in liquidity and depressed valuations. In some
cases, low valuations have triggered bids for UK companies, resulting in a
shrinking number of companies listed on the UK market. According to Peel Hunt,
the number of companies (ex-investment trusts) listed on FTSE has fallen from
504 in 2013 to 412 in 2023. For those companies that remain listed, there is
often a frustration that their long-term prospects are not reflected in their
valuations, driving a sharp pick-up in buyback announcements.
Against this backdrop, we have retained our focus on income, providing
shareholders with a high level of dividend yield through a portfolio of
attractively valued UK-listed stocks from across the UK market. We have
constructed the portfolio across 3 key baskets of stocks. Each of these
baskets provides different characteristics that should perform at different
points in the cycle and help the portfolio to achieve each aspect of our
investment objective.
- (1) Dividend growth - stocks that are well positioned to grow
their cash flows and dividends, supported by corporate fundamentals that make
them resilient in an inflationary environment. Examples include Shell and
National Grid. Objective: achieve real growth in income.
- (2) Mispriced yield - higher yield stocks whose fundamentals are
more solid than the market perceives, enabling their dividends to be paid,
contrary to market expectations. Examples include BHP and Diversified
Energy. Objective: achieve above average income and deliver capital growth as
the yield normalises.
- (3) Unrecognised change - stocks with operational change that is
overlooked by the market. Earnings growth and valuation re-rating can work
together powerfully to drive share price. Examples include Conduit and
Hargreaves Lansdown. Objective: achieve real growth in capital as companies
deliver earnings growth and valuations normalise.
Our focus on valuation is a key aspect of our investment process. We believe
that the importance of valuation can come to life when managing an income
portfolio. A simplified way of visualising the valuation attractions of an
income stock is to consider the stream of dividends it is set to pay in
relation to its share price. This can provide some perspective on what is
being priced in, allowing a judgement to be made on whether the stock is
attractively valued. For example, in its latest financial year Rio Tinto paid
out 407p/share in dividends versus its year-end share price of 5174p, which
equates to a dividend yield of over 7.8%. The market is clearly pricing in a
rapid fade in dividend payouts, despite Rio Tinto owning high quality mines
that will endure for decades. In another example, Thungela Resources, we made
back our original investment in dividends within two years of purchase.
If you also include share buybacks, in addition to dividends, to calculate a
stock's overall distribution yield, then it becomes even clearer how rapid the
payback period can be. At the pace of share buybacks being made by some of our
holdings, the entire share capital would have been retired by the mid-2030s.
Of course, there are always risks to every business that could erode
profitability, de-railing dividend or buyback plans. We consider these risks
when making a judgement on each stock we analyse, assessing what level of cash
flow is likely to be sustainable in the context of the competitive position of
each business. We discuss with management teams what percentage of those cash
flows they expect to pay out in the form of dividends and/or buybacks. At the
time of writing, the median free cash flow yield in the portfolio is 9.9%. All
of this increases our understanding of the dividend prospects of the
portfolio, strengthening our confidence in our ability to maintain a growing
dividend per share to our shareholders.
Historically dividends have tended to represent a very high proportion of
total return (Goldman Sachs calculate 65% over a rolling 20 year period in UK
equities). We expect that, in a world of higher interest rates, investors
should logically be more attracted to value stocks that pay out dividends now,
rather than growth stocks that promise returns in the future. Higher discount
rates make future cash flows worth less, when discounted back. We believe that
this will drive an adjustment in the market's perception of the attractions of
value stocks versus growth stocks. The market is slowly acknowledging that
interest rates are unlikely to go back to the extremely low levels seen during
the 2010s. This should challenge the view that market leadership can revert to
the quality growth stocks that led the stock market during that decade. As
this becomes more widely recognised by investors, we would expect it to help
catalyse a valuation re-rating of the cash generative stocks that we own in
the portfolio. At the time of writing, the portfolio has a median
Price/Earnings ratio of 9.0x and a median Price/Book ratio of 1.0x which
compares favourably with 11.8x and 1.6x respectively for the FTSE All-Share ex
Investment Trusts Index despite returns that are in line with the wider market
(median Return on Equity of 11.7%).
In conclusion, our investment approach provides us with the flexibility to
invest across the UK market to build a portfolio that is delivering a high
yield and a growing dividend, while offering the potential to deliver NAV
growth as earnings growth picks up and valuations re-rate. In the short term,
the frustration is that subdued economic growth is causing a period of low
activity levels across a range of sectors. Coupled with ongoing asset
allocation shifts away from UK equities, this has so far inhibited a valuation
re-rating in our holdings, thereby holding back our NAV/share. However, we are
confident that this will change in time, as companies are rewarded for using
this period to set their house in order, taking actions to improve
profitability, while distributing capital via dividends and buybacks. We see
the Company's high yield as a function of the unusual level of opportunities
available at this time, and we therefore look forward to the coming year with
confidence.
Thomas Moore
Portfolio Manager
29 November 2023
Overview of Strategy
Business Model
The Company is an investment trust with a premium listing on the London Stock
Exchange.
Investment Objective
The Company's objective is to provide shareholders with an above average
income from their equity investment, while also providing real growth in
capital and income.
Investment Policy
The Directors set the investment policy, which is to invest in a diversified
portfolio consisting mainly of quoted UK equities which will normally comprise
between 50 and 70 individual equity holdings.
In order to reduce risk in the Company without compromising flexibility:
· no holding within the portfolio should exceed 10% of total assets at the
time of acquisition; and
· the top ten holdings within the portfolio will not exceed 50% of net
assets.
The Company may invest in convertible preference shares, convertible loan
stocks, gilts and corporate bonds.
The Directors set the gearing policy within which the portfolio is managed.
The parameters are that the portfolio should operate between holding 5% net
cash and 15% net gearing. The Directors have delegated responsibility to the
Manager for the operation of the gearing level within the above parameters.
Delivering the Investment Objective
The Board delegates investment management services to abrdn. The team within
abrdn managing the Company's portfolio of investments has been headed up by
Thomas Moore since 2011.
The portfolio is invested on an index-agnostic basis. The process is based on
a bottom-up stock-picking approach where sector allocations are a function of
the sum of the stock selection decisions, constrained only by appropriate risk
control parameters. The aim is to Focus on Change by evaluating changing
corporate situations and identifying insights that are not fully recognised by
the market.
Idea Generation and Research
The vast majority of the investment insights are generated from information
and analysis from one-on-one company meetings. Collectively, more than 3,000
company meetings are conducted annually across abrdn. These meetings are used
to ascertain the company's own views and expectations of its future prospects
and the markets in which it operates. Through actively questioning the senior
management and key decision makers of companies, the portfolio managers and
analysts look to uncover the key changes affecting the business and the
materiality of their impact on company fundamentals within the targeted
investment time horizon.
Investment Process in Practice
The index-agnostic approach ensures that the weightings of holdings reflect
the conviction levels of the investment team, based on an assessment of the
management team, the strategy, the prospects and the valuation metrics. The
process recognises that some of the best investment opportunities come from
under-researched parts of the market, where the breadth and depth of the
analyst coverage that the Portfolio Manager can access provides the scope to
identify a range of investment opportunities.
The consequence of this is that the Company's portfolio often looks very
different from other investment vehicles providing their investors with access
to UK equity income. This is because the process focuses on conviction levels
rather than index weightings. This means that the Company may provide a
complementary portfolio to the existing portfolios of investors who prefer to
make their own decisions and manage their ISAs, SIPPs and personal dealing
accounts themselves. As at 30 September 2023, 52.6% (2022: 48.9%) of the
Company's portfolio is invested in companies outside the FTSE 100 Index.
The index-agnostic approach further differentiates the portfolio because it
allows the Portfolio Manager to take a view at a thematic level, concentrate
the portfolio's holdings in certain areas and avoid others completely. The
effect of this approach is that the weightings of the portfolio can be
expected to differ significantly from that of any index, and the returns
generated by the portfolio may reflect this divergence, particularly in the
short term.
Our Manager's Approach to ESG
There is a broad understanding on the Board that a full and thorough
assessment of environmental, social and governance ("ESG") factors will allow
for better investment decisions to be made, which will lead to better outcomes
for the Company's shareholders. ESG factors are considered alongside
financial and other fundamental factors in order to make the best possible
investment decisions at a stock picking and at a portfolio construction level.
Although ESG factors are not the over-riding criteria in relation to the
investment decisions taken by our Portfolio Manager and the Company does not
specifically exclude any sectors from its investment universe, the Board
encourages the Portfolio Manager to ensure that ESG considerations are
inextricably embedded into the investment process in order to achieve
successful and sustainable performance for the Company over the long term.
By taking account of ESG factors, the Board believes that the Portfolio
Manager has a more complete view of a company, including its risks and
opportunities. The analysts supporting the Portfolio Manager seek to
determine which ESG factors are financially material to form a forward-looking
view of how a business will manage risks and capture opportunities. The
analysts focus on what they deem to be the most material ESG factors to
understand their impact on a company's future business performance, financial
position, and / or market perception.
To advance this analysis on behalf of the Company's shareholders, the
Portfolio Manager and his team have a very close relationship with the ESG
specialists within abrdn and have an on-desk ESG analyst to assist in the
research process and ESG engagements with companies. Through the utilisation
of third party provided research including MSCI and abrdn's inhouse ESG rating
tools the team is able to identify, where appropriate, leaders and laggards,
areas of weakness and areas of strength.
It should be noted that as part of the investment process to identify
attractive investment opportunities the Portfolio Manager must consider a
diverse range of companies, spanning a spectrum of maturity with respect to
environmental and social sustainability practices. An important feature of
the investment process is therefore active and meaningful engagement to
generate insights into underlying ESG performance, with the Company's approach
to engagement set out below.
In addition, for those investee companies at the relative beginning of their
journey towards improved ESG performance or in higher-impact industries, the
Portfolio Manager increasingly devotes attention to the robustness of
companies' strategies to improve sustainability performance. This is
particularly relevant for companies that must adopt credible transition
strategies - an area of growing focus for the Portfolio Manager on behalf of
the Company. For example, the portfolio holds a position in SSE, which is
undergoing a major shift away from fossil-fuel powered electricity generation
to renewable energy, with the company now planning to increase its renewable
capacity from 4GW in 2020/21 to 13GW by 2030/31.
Proactive company engagement
Our Manager believes that proactive company engagement ensures our holdings
remain or become better companies.
Our Manager's Approach to Engagement
Engagement is an important part of our Manager's investment process: our
Manager sees engagement not only as a right but as an obligation of investors,
in its role as owners of companies. Our Manager engages actively and regularly
with companies in which it is or may become
an investor.
Our Manager believes that informed and constructive engagement helps to foster
better companies, enhancing the value of the Company's investments.
There are generally two core reasons for engagement: to understand more about
a company's strategy and performance, or encourage best practice and drive
change.
Active engagement involves regular, candid communication with management teams
(or boards of directors) of portfolio companies to discuss a broad range of
ESG issues that are material to sustainable long-term returns, either
positively or negatively, including both risks and opportunities. Our
Manager's focus is on the factors which it believes to have the greatest
potential to enhance or undermine the Company's investment case. Sometimes the
Manager seeks more information, exchanges views on specific issues, encourages
better disclosure; and at other times, encourages change (including either
corporate strategy, capital allocation, or climate change strategy). On our
behalf, the Manager's engagements cover a range of ESG issues, including but
not limited to board composition, remuneration, audit, climate change, labour
issues, human rights, bribery and corruption.
Promoting the Success of the Company
The Board's statement in the Annual Report describes how the Directors have
discharged their duties and responsibilities over the course of the financial
year under section 172 (1) of the Companies Act 2006 and how they have
promoted the success of the Company. That statement forms part of the
Strategic Report.
Key Performance Indicators ("KPIs")
The Board assesses the performance of the Company against the range of KPIs
shown below over a variety of time periods, but has particular focus on the
long term, which the Board considers to be at least five years.
KPI Description
Net Asset Value ("NAV") Total Return While the Manager does not manage the portfolio with direct reference to any
relative to the FTSE All-Share Index particular index, the Board does review the performance against that of the
FTSE All-Share Index to provide context for the performance delivered.
The Company's NAV Total Return relative to the FTSE All Share Index since
2013, is set out on in the Annual Report.
Premium or discount to the NAV compared to the unweighted average of the The Board compares the discount of the Company's share price to its NAV when
discount of the peer group compared to the unweighted average discount of the other investment trusts in
the UK Equity Income sector.
The discount at the year end and at the end of the previous year, and the
narrowest and widest discounts during the year, for the Company and the peer
group, are shown in the table in the Annual Report.
Dividend growth compared to the The Company's objective is to provide shareholders with an above average
Retail Price Index ("RPI") income from their equity investment, while also providing real growth in
capital and income. Between 2012, the first full year after Thomas Moore
took over the role of Portfolio Manager, and the outbreak of the Covid-19
pandemic, the dividend growth of the portfolio exceeded inflation, as measured
by the RPI, indicating that shareholders had received real growth in the
dividends paid by the Company.
However, the income generated by the portfolio was significantly affected by
dividend cuts made by investee companies during 2020, which have not yet been
fully recovered. While dividend payments to shareholders did increase over the
last three years they did not keep pace with RPI, despite the dividends being
supplemented by drawing from revenue reserves.
In setting the level of the dividend for the current financial year, the Board
has balanced the need to deliver a meaningful increase to shareholders and its
desire to continue rebuilding the revenue reserves. After payment of the
fourth interim dividend, and based on current shares in issue, 0.56 pence per
share will be transferred to revenue reserves
A breakdown of the Company's dividend growth compared with RPI since 2013 is
set out in the Annual Report.
Ongoing charges ratio relative to The Board monitors the Company's ongoing charges ratio against prior years and
comparator investment vehicles other similar sized companies in the peer group.
The Ongoing Charges Ratio for the year increased moderately to 0.94% based on
average net assets over the year (2022: 0.91%).
Principal Risks and Uncertainties
The Board and Audit Committee carry out a regular review of the risk
environment in which the Company operates, changes to the environment and
individual risks. The Board also identifies emerging risks which might affect
the Company.
There are a number of principal risks and uncertainties which, if realised,
could have a material adverse effect on the Company and its financial
condition, performance and prospects. The Board, through the Audit Committee
has carried out a robust assessment of the Company's principal and emerging
risks, which include those that would threaten its business model, future
performance, solvency, liquidity or reputation.
The principal risks and uncertainties faced by the Company are reviewed by the
Audit Committee in the form of a risk matrix and the Committee also gives
consideration to the emerging risks facing the Company.
The Board has identified the implications for the Company's investment
portfolio of a changing climate, and the increased use of artificial
intelligence, as emerging risks which it considers are likely to become more
relevant for the Company in the future. The Board continues to assess these
emerging risks and their impact on the portfolio as they develop, including
how investor sentiment is evolving towards climate risk and how artificial
intelligence may impact business models in the future, and will consider how
the Company may mitigate these risks and any other emerging risks. The Board
receives regular reporting from the Manager on its approach to engagement with
investees on a variety of different topics.
The principal risks currently facing the Company, together with a description
of the mitigating actions the Board has taken, are set out in the table below.
The Board considers its risk appetite in relation to each principal risk and
monitors this on an ongoing basis. Where a risk is approaching or is outside
the tolerance level, the Board will consider taking action to manage the risk.
Currently, the Board considers the risks to be managed within acceptable
levels.
The principal risks associated with an investment in the Company's shares are
published monthly in the Company's factsheet and they can be found in the
pre-investment disclosure document ("PIDD") published by the Manager, both of
which are available on the Company's website.
Risk Trend Mitigating Action
Strategy - the Company's objectives or the investment trust sector as a whole ó Through regular updates from the Manager, the Board monitors the relevance of
become unattractive to investors, leading to a fall in demand for the
the Company's strategy, the performance of equity markets, the economic and
Company's shares. political environment, risks to the delivery of the Company's strategy in
light of the external environment and the discount/ premium at which the
Company's shares trade relative to the net asset value. It also holds an
annual strategy meeting and receives feedback from the Company's broker and
updates from the Manager's investor relations team at Board meetings to help
to better understand investor sentiment towards the Company and its strategy.
Investment Performance - the Board recognises that market risk is significant ì The Board meets the Manager on a regular basis and keeps investment
in achieving performance and it reviews investment guidelines to ensure that
performance under close review.
they are appropriate. The Board regularly reviews the impact of geopolitical
instability and change on market risk. The Board sets and monitors the investment restrictions and guidelines and
regular reports are received from the Manager on stock selection, asset
allocation, gearing, revenue forecasts and the costs of running the Company.
The Board determines the Company's dividend policy and approves the level of
dividends payable to shareholders.
Representatives of the Manager attend all Board meetings and a detailed formal
appraisal of the Manager is carried out by the Management Engagement Committee
on an annual basis to ensure that the continued appointment of the Manager
remains in the best interests of the shareholders.
The Board engages with shareholders at its AGM and Pre-AGM Online Event and
with larger shareholders at least annually to listen to sentiment towards the
Company and its performance directly.
Exogenous risks such as health, social, financial, economic and geopolitical - ì The Board discusses current issues with the Manager. During the year under
the effects of instability or change arising from these risks could have an
review, such issues have included increased inflation and interest rates and
adverse impact on stock markets and the value of the investment portfolio. the resulting volatility that it created in global stock markets, the Russian
Political risks include the political instability in the UK, the terms of the invasion of Ukraine and associated sanctions, investor attitudes towards
UK's exit from the European Union, any regulatory changes resulting from a equity markets, and the steps that the Manager has taken or might take to
different political environment, and wider geo-political issues. limit their impact on the portfolio and the operations of the Company.
The Portfolio Manager's Review summarises the purchases and sales activity
during the Period as the Company considered the new set of opportunities
arising from the meaningful change in market backdrop during the financial
year. The Manager is in regular communication with investee entities,
economists, and the wider market to determine the impact of the geopolitical
and economic environment on the portfolio.
The Board oversees the Manager's performance at each Board Meeting and
formally considers whether the Company's strategy remains fit for purpose, in
light of exogenous risk, at its annual strategy meeting which last took place
in August 2023. The Board also regularly discusses the economic environment,
geopolitical risks, industry trends and the potential impact on the Company
with the Company's broker.
Operational Risk - in common with most investment trusts, the Board delegates ó The Audit Committee receives and reviews reports from the Manager on its
the operation of the business to third parties, the principal delegate being
internal controls and risk management (including an annual ISAE Report). It
the Manager. Failure of internal controls and poor performance of any also receives and reviews report from all its other significant service
service provider could lead to disruption, reputational damage or loss to the providers on at least an annual basis, including on matters relating to
Company. business continuity and cyber security. Written agreements are in place with
all third party service providers.
The Manager monitors closely the control environments and quality of services
provided by third parties, including those of the Depositary, through service
level agreements, regular meetings and key performance indicators.
A formal appraisal of the Company's main third party service providers is
carried out by the Management Engagement Committee on an annual basis.
Governance Risk - the Directors recognise the impact that an ineffective ó The Board is aware of the importance of effective leadership and board
board, unable to discuss, review and make decisions, could have on the Company
composition. The Board regularly reviews its own performance and, at least
and its shareholders. annually, formally reviews the performance of the Board and Chair through its
performance evaluation process.
Discount / Premium to NAV - a significant share price discount or premium to The Board keeps the level of the Company's discount / premium under review.
net asset value per share could lead to high levels of uncertainty for As explained in the Chair's Statement, the Company's share price has traded at
shareholders. close to par, and at times at a small premium, to net asset value during the
financial year. The share price discount to NAV was 8.8% at 30 September
2022 and 0.2% at 30 September 2023.
The Company participates in the Manager's investment trust promotional
programme where the Manager has an annual programme of meetings with
institutional shareholders and reports back to the Board on these meetings.
Financial obligations - inadequate controls over financial record keeping and ó At each Board meeting, the Board reviews management accounts and revenue
forecasting, the setting of an inappropriate gearing strategy or the breaching
forecasts.
of loan covenants could result in the Company being unable to meet its
financial obligations, losses to the Company and its ability to continue The Directors set the gearing policy within which the portfolio is managed.
trading as a going concern. The parameters are that the portfolio should operate between holding 5% net
cash and 15% net gearing. The Directors have delegated responsibility to the
Manager for the operation of the gearing level within the above parameters.
The Company's annual financial statements are audited by the independent
auditor.
Legal and Regulatory Risks - the Company operates in a complex legal and ó The actions the Board takes to mitigate these extensive risks are to ensure
regulatory environment. As a UK company with shares publicly quoted on the
that there is breadth and depth of expertise within the Board and the
London Stock Exchange, as an alternative investment fund and an investment organisations to which the Company has delegated. There are also authorities
trust, there are several layers of risk of this nature. whereby the Board or individual Directors can take further advice by employing
experts should that ever be considered necessary.
Promotional Activities
The Board recognises the importance of promoting the Company to prospective
investors both for improving liquidity and enhancing the value and rating of
the Company's shares. The Board believes one effective way to achieve this is
through subscription to, and participation in, the promotional programme run
by abrdn on behalf of a number of investment trusts under its management. The
Company's financial contribution to the programme is matched by abrdn. The
Company also supports abrdn's investor relations programme which involves
regional roadshows, promotional and public relations campaigns. abrdn's
promotional and investor relations teams report to the Board on a quarterly
basis giving analysis of the promotional activities as well as updates on the
shareholder register and any changes in the make-up of that register.
The purpose of the promotional and investor relations programmes is both to
communicate effectively with existing shareholders and to gain new
shareholders, with the aim of improving liquidity and enhancing the value and
rating of the Company's shares. Communicating the long-term attractions of the
Company is key. Part of the promotional programme includes commissioning
independent paid for research on the Company, most recently from Kepler Trust
Intelligence Research Limited. A copy of the latest research note is available
from the Key Documents section of the Company's website.
On 20 January 2023, the Board hosted an online shareholder presentation where
the Portfolio Manager provided an update on the portfolio. The Portfolio
Manager and Chair also answered live questions from the audience.
On 24 August 2023, the Board hosted an in-person meeting for large
shareholders at which the Portfolio Manager provided an update on the
portfolio. Both of these events gave the Directors the opportunity to hear the
views of shareholders first hand.
Board Diversity
The Board's statement on diversity is set out in the Statement of Corporate
Governance.
At 30 September 2023, there were three male and two female Directors on the
Board.
Modern Slavery Act
Due to the nature of its business, being a company that does not offer goods
and services to customers, the Board considers that the Company is not within
the scope of the Modern Slavery Act 2015 because it has no turnover. The
Company is therefore not required to make a slavery and human trafficking
statement. In any event, the Board considers the Company's supply chains,
dealing predominantly with professional advisers and service providers in the
financial services industry, to be low risk in relation to this matter.
Environmental, Social and Human Rights Issues
The Company has no employees. The Board has delegated the day to day
management and administrative functions to the Manager. There are therefore no
disclosures to be made in respect of employees.
The Company's socially responsible investment policy is set out below.
Active Engagement
Through engagement and exercising voting rights, the Manager actively works
with companies to improve corporate standards, transparency and
accountability. By making ESG central to its investment capabilities, the
Manager looks to deliver robust outcomes as well as actively contributing to a
fairer, more sustainable world.
The primary goal of the Manager is to generate the best long-term outcomes for
the Company in order to fulfil fiduciary responsibilities to shareholders and
this fits with one of the Manager's core principles as a business in how it
evaluates investments. The Manager sees ESG factors as being financially
material and impacting corporate performance. The Manager focuses on
understanding the ESG risks and opportunities of investments alongside other
financial metrics to make better investment decisions.
Responsible Investment
The Board is aware of its duty to act in the interests of the Company. The
Board acknowledges that there are risks associated with investment in
companies which fail to conduct business in a socially responsible manner and
has noted the Manager's policy on social responsibility. The Manager considers
social, environmental and ethical factors which may affect the performance or
value of the Company's investments as part of its investment process. In
particular, the Manager encourages companies in which investments are made to
adhere to best practice in the areas of ESG stewardship. The Manager believes
that this can best be achieved by entering into a dialogue with company
management to encourage them, where necessary, to improve their policies.
The Company's objective is to deliver above average income, while also
providing real growth in capital and income, on its investments for its
shareholders. The Board and Manager believes this will be produced on a
sustainable basis by investments in companies which adhere to best practice in
ESG. Accordingly, the Manager will seek to favour companies which pursue best
practice.
Stewardship
The Company is committed to the UK's Stewardship Code, and seeks to play its
role in supporting good stewardship of the companies in which it invests.
Responsibility for actively monitoring the activities of portfolio companies
has been delegated by the Board to the Manager which has sub-delegated that
authority to the Investment Manager. abrdn plc is a tier 1 signatory of the UK
Stewardship Code which aims to enhance the quality of engagement by investors
with investee companies in order to improve their socially responsible
performance and the long term investment return to shareholders. While
delivery of stewardship activities has been delegated to the Manager and its
group, the Board acknowledges its role in setting the tone for the effective
delivery of stewardship on the Company's behalf.
The Board has also given discretionary powers to the Manager to exercise
voting rights on resolutions proposed by the investee companies within the
Company's portfolio. The Manager reports to the Board on a quarterly basis
on stewardship (including voting) issues.
Global Greenhouse Gas Emissions
All of the Company's activities are outsourced to third parties. The Company
therefore has no greenhouse gas emissions to report from the operations of its
business, nor does it have responsibility for any other emissions producing
sources under the Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013.
For the same reason as set out above, the Company considers itself to be a low
energy user under the SECR regulations and therefore is not required to
disclose energy and carbon information.
Task Force for Climate-Related financial Disclosures ("TCFD")
Under Listing Rule 15.4.29(R), the Company, as a closed ended investment
company, is exempt from complying with the Task Force on Climate-related
Financial Disclosures ("TCFD").
Whilst TCFD is currently not applicable to the Company, the Manager has
produced a product level report on the Company in accordance with the FCA's
rules and guidance regarding the disclosure of climate-related financial
information consistent with TCFD Recommendations and Recommended Disclosures.
These disclosures are intended to help meet the information needs of market
participants, including institutional clients and consumers of financial
products, in relation to the climate-related impact and risks of the Manager's
TCFD in-scope business. The product level report on the Company is available
on the Manager's website at: invtrusts.co.uk.
Viability Statement
The Board considers that the Company is a long-term investment vehicle and,
for the purposes of this statement, has decided that three years is an
appropriate period over which to consider its viability. The Board considers
this to be an appropriate period for an investment trust company with a
portfolio of equity investments, and the financial position of the Company.
Taking into account the Company's current financial position and the potential
impact of its principal risks and uncertainties, the Directors have a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due for a period of three years from the
date of this Report.
In assessing the viability of the Company over the review period, the
Directors have focused upon the following factors:
· The principal risks and uncertainties detailed above and the steps taken
to mitigate these risks.
· All of the Company's investments are traded on major stock exchanges and
there is a spread of investments held.
· The Company is closed ended in nature and therefore it is not required to
sell investments when shareholders wish to sell their shares.
· The performance of the Company's share price relative to its net asset
value during the financial year. The share price discount narrowed from 8.8%
at 30 September 2022 to 0.2% at 30 September 2023, and the share price traded
at a small premium to NAV during the year.
· The Company's main liability is its bank loan of £21 million (2022: £25
million), which represents 11.3% (2022: 15.0%) of the Company's investment
portfolio. This is a £30 million (2022: £30 million) revolving credit
facility with The Royal Bank of Scotland International Limited, London Branch,
which was refinanced during the financial year and is due to expire in June
2026.
· The Company' s cash balance, and money market funds, at 30 September 2023
amounted to £4.2 million (2022: £3.6 million).
· The levels of ongoing charges of 0.94% (2022 0.91%).
· Shareholders' overwhelming voting in favour of the continuation of the
Company at the AGM in February 2022. The next continuation vote is due to
take place at the AGM to be held in 2027.
When considering the risks, the Board reviewed the impact of stress testing on
the portfolio, including the effects of any future falls in investment
values. The Board has also had regard to matters such as a reduction in the
income generated in the portfolio, a material increase in interest rates, a
reduction in the liquidity of the portfolio or changes in investor sentiment,
all of which could have an impact on the Company's prospects and viability in
the future. The results of the stress tests have given the Board comfort
over the viability of the Company.
Taking into account all of these factors, the Company's current position and
the potential impact of the principal risks and uncertainties faced by the
Company, the Board has concluded that it has a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the three year period of this assessment to 30 September 2026.
In assessing the Company's future viability, the Board has assumed that
investors will wish to continue to have exposure to the Company's activities,
in the form of a closed ended entity, the Company's long-term performance is
satisfactory, and the Company will continue to have access to sufficient
capital.
Future Strategy
The Board intends to maintain the Company's strategy set out in the Strategic
Report for the year ending 30 September 2024 as it is believed that these are
in the best interests of shareholders.
On behalf of the Board
Sarika Patel
Chair
29 November 2023
Promoting the Success of the Company
How the Board Meets its Obligations under Section 172 of the Companies Act 2006
The Board is required to describe to the Company's shareholders how the
Directors have discharged their duties and responsibilities over the course of
the financial year under Section 172 (1) of the Companies Act 2006 (the
"Section 172 Statement"). This statement provides an explanation of how the
Directors have promoted the success of the Company for the benefit of its
members as a whole, taking into account the likely long term consequences of
decisions, the need to foster relationships with all stakeholders and the
impact of the Company's operations on the environment.
The Board takes its role very seriously in representing the interests of the
Company's shareholders. The Board which, at the year end, comprised five
independent Non-Executive Directors collectively has a broad range of skills
and experience across all major functions that affect the Company. The Board
is responsible for taking all decisions relating to the Company's investment
objective and policy, gearing, corporate governance and strategy, and for
monitoring the performance of the Company's service providers.
The Board ensures that the Company operates in a transparent culture where all
parties are treated with respect and provided with the opportunity to offer
practical challenge and participate in debate to achieve the expectations of
shareholders and other stakeholders alike. The Board works very closely with
the Manager in reviewing how issues are handled, ensuring good governance and
responsibility in managing the Company's affairs, as well as visibility and
openness in how the affairs are conducted.
How the Board Engages with Stakeholders
The Board's main stakeholders have been identified as its shareholders, the
Investment and Portfolio Manager, service providers, investee companies, debt
providers and the community at large and the environment.
A summary of the Board's approach to engagement with stakeholders is set out
below.
Stakeholder How We Engage
Shareholders Shareholders are key stakeholders and the Board places great importance on
communication with them. The Board welcomes all shareholders' views and aims
to act fairly to all shareholders. The Manager and the Company's broker
regularly meet with current and prospective shareholders to discuss
performance and shareholder feedback is discussed by the Directors at Board
meetings. In addition, Directors have an opportunity to meet shareholders at
the Annual General Meeting.
The Company subscribes to abrdn's investor relations programme in order to
maintain communication channels with the Company's shareholder base.
Regular updates are provided to shareholders through the Annual Report, Half
Yearly Report, monthly factsheets, Company announcements, including daily net
asset value announcements, and the Company's website.
The Company's Annual General Meeting provides a forum, both formal and
informal, for shareholders to meet and discuss issues with the Directors and
Manager. The Board encourages as many shareholders as possible to attend the
Company's Annual General Meeting and to provide feedback on the Company.
Manager (and Investment Manager) The Portfolio Manager's Review details the key investment decisions taken
during the year. The Company has appointed AFML as the Company's Manager, or
AIFM, which sub-delegates investment management to abrdn Investment Management
Limited, which is known as the Investment Manager.
The Manager has continued to manage the Company's assets in accordance with
the mandate provided by shareholders, with oversight provided by the Board.
The Board regularly reviews the Company's performance against its investment
objective and the Board undertakes an annual strategy review meeting to ensure
that the Company is positioned well for the future delivery of its objective
for its stakeholders.
The Board receives presentations from the Manager at every Board meeting to
help it to exercise effective oversight of the Manager and the Company's
strategy.
The Board, through the Remuneration & Management Engagement Committee,
formally reviews the performance of the Manager at least annually.
Service Providers The Board seeks to maintain constructive relationships with the Company's
suppliers either directly or through the Manager with regular communications
and meetings.
The Remuneration & Management Engagement Committee conducts an annual
review of the performance, terms and conditions of the Company's main service
providers to ensure they are performing in line with Board expectations,
carrying out their responsibilities and providing value
for money.
Investee Companies Responsibility for monitoring the activities of portfolio companies has been
delegated by the Board to the Manager which has sub-delegated that authority
to the Investment Manager.
The Board has also given discretionary powers to the Manager to exercise
voting rights on resolutions proposed by the investee companies within the
Company's portfolio. The Manager reports on a quarterly basis on stewardship
(including voting) issues.
Through engagement and exercising voting rights, the Manager actively works
with companies to improve corporate standards, transparency and
accountability.
The Board monitors investments made and divested and questions the rationale
for investment and voting decisions made.
Debt Providers On behalf of the Board, the Manager maintains a positive working relationship
with The Royal Bank of Scotland International Limited, London Branch, the
provider of the Company's loan facility, and provides regular updates on
business activity and compliance with its loan covenants.
Environment and Community The Board and Manager are committed to investing in a responsible manner and
the Manager embeds Environmental, Social and Governance ("ESG") considerations
into the research and analysis as part of the investment decision-making
process. Through the Investment Manager, the Board encourages improvements
in ESG practices and disclosures.
Specific Examples of Stakeholder Consideration during the Year
The importance of giving due consideration to the Company's stakeholders is
not a new requirement and is considered as part of every Board decision.
The Board considers its stakeholders at Board meetings and receives feedback
on the Investment Manager's interactions with them.
The Directors were particularly mindful of stakeholder considerations when
considering the following items during the year ended 30 September 2023:
Portfolio
The Portfolio Manager's Review details the key investment decisions taken
during the year. The overall shape and structure of the investment portfolio
is an important factor in delivering the Company's stated investment objective
and is reviewed at every Board Meeting. At every Board Meeting, the Board
discusses the performance in detail with the Portfolio Manager.
Dividend
The Board has determined the payment of a fourth interim dividend for the year
of 5.7 pence per Ordinary share. Following payment of the fourth interim
dividend, total dividends for the year will amount to 22.80 pence per Ordinary
share, a small increase compared to the previous year. In setting the level of
the dividend, the Board has balanced the need to deliver an increase to
shareholders and continuing the process of rebuilding the revenue reserves,
which was depleted during the height of Covid-19. Following payment of the
fourth interim dividend, and based on current shares in issue, 0.56 pence per
share will be transferred to revenue reserves
Promoting the Company
On 23 January 2023, the Board hosted an online shareholder presentation where
the Portfolio Manager provided an update on the portfolio, and the previous
Chair and Portfolio Manager answered questions from the audience. Over 240
investors signed up to the event. On 24 August 2023, the Company hosted a
meeting for large shareholders at which members of the Board were present and
at which the Portfolio Manager provided an update. Both these events gave the
Directors the opportunity to hear the views of shareholders first hand.
Pre-AGM Online Event
We will be hosting an Online Shareholder Presentation, which will be held at
11:30am on Friday, 26 January 2024. At this event there will be a
presentation from the Portfolio Manager followed by an opportunity to ask live
questions of the Portfolio Manager and the Chair. The online presentation is
being held ahead of the AGM to allow shareholders time to submit their proxy
votes after the presentation but prior to the AGM should they so wish. Full
details on how to register for the online event can be found on the Company's
website at abrdnequityincome.com.
Management Fee
As set out in the Chair's Statement, the Board has negotiated the Company's
Management Fee, on behalf of the Company's shareholders. With effect from 1
October 2023, the Company's management fee is charged at 0.55% of the net
assets of the Company, a 15.4% reduction when the Company's net assets are
below £175m.
Renewal of Bank Loan
On 23 June 2023 the Company renewed its loan facility with the Royal Bank of
Scotland International, giving it access to a £30 million revolving credit
facility ("RCF"), £21 million of which was drawn down at the year end. The
Board continues to believe that gearing is beneficial to long term net asset
value returns and is one of the benefits of the closed ended investment trust
structure.
Buy-Back and Issuance of Shares
During the year the Company bought back 100,417 providing a small accretion to
the NAV per share and a degree of liquidity to the market at times when the
discount to the NAV per share has widened in normal market conditions.
During the year the Company also issued 275,000 Ordinary shares from treasury
to meet investor demand at a premium to the prevailing net asset value.
Since the year end, the Company has issued a further 135,000 ordinary shares
from treasury.
The Board believes that the selective use of share buybacks and issuing shares from treasury, when circumstances dictate, is in the best interest of all shareholders.
Succession Planning
The Board has continued to consider its succession plans during the year, as
it recognises the benefits of regular Board refreshment. As reported in the
hair's Statement, Jeremy Tigue will retire as Senior Independent Director at
the AGM on 20 February 2024.
During the financial year, the Board, therefore, commenced the search for an
additional non-executive director. Nick Timberlake was appointed on 1 August
2023. Nick brings a wealth of investment trust and asset management
experience to the Board. During the year, it was agreed that Caroline Hitch
will replace Jeremy Tigue as Senior Independent Director and Nick Timberlake
will replace Caroline Hitch as Chair of the Remuneration & Management
Engagement Committee with effect from the conclusion of the AGM on 20 February
2024.
The Board believes that shareholders' interests are best served by ensuring a
smooth and orderly refreshment of the Board which serves to provide continuity
and maintain the Board's open and collegiate style.
Consumer Duty
During the year, the FCA's Consumer Duty Regulations came into effect,
introducing new rules for FCA regulated firms which manufacture or distribute
products and services to retail customers. The Consumer Duty rules do not
apply to the Company but do apply to the Manager.
The Board has reviewed the methodology employed by the Manager to assess the
value of the Company under the Consumer Duty regulations and will review the
Manager's assessment of value on an ongoing basis.
Results
Performance (total return)
1 year 3 years 5 years 10 years
30 September 2023 % % % %
Net asset value(A) 1.8 31.5 -12.8 31.5
Share price(A) 11.4 51.1 -9.5 33.9
Reference Index(B) 13.8 39.8 19.7 71.8
(A) Considered to be an Alternative Performance Measure.
(B) FTSE All-Share Index.
Source: abrdn/Morningstar/Factset
Ten Year Financial Record
Revenue
available Net Equity
Gross for Ordinary Revenue Ordinary Net asset Share Ongoing gearing / shareholders' Revenue
Year ended revenue shareholders return dividends value(A) price Discount(AB) charges(BC) (cash)(B) funds reserves(D)
30 September £'000 £'000 p p p p % % % £m (£m)
2014 5,780 5,136 15.69 14.00 397.9 394.0 1.0 0.94 13.4 166.5 5.75
2015 6,107 5,361 17.18 14.70 440.7 439.0 0.4 0.94 7.7 195.6 6.88
2016 7,084 6,214 17.92 15.40 431.5 412.4 4.4 0.96 7.5 199.7 8.15
2017 7,957 7,044 19.23 17.10 478.6(E) 459.6 4.8 0.87 9.9 235.3(E) 9.41
2018 11,893 10,846 22.06 19.20 485.0 473.0 2.5 0.87 12.1 238.4 10.82
2019 11,791 10,687 21.74 20.50 411.8 381.5 7.4 0.91 13.7 201.5 11.58
2020 8,730 7,614 15.61 20.60 288.0 252.0 12.5 0.92 13.3 139.2 8.75
2021 10,642 9,693 20.06 21.20 380.8 349.0 8.4 0.93 13.5 182.9 8.49
2022 13,517 12,244 25.51 22.70 331.8 302.5 8.8 0.91 15.0 157.5 10.27
2023 12,598 11,109 23.43 22.80 314.6 314.0 0.2 0.94 11.3 149.9 10.18
(A) Diluted for the effect of Subscription shares in issue for the year ended
30 September 2012 to 30 September 2016.
(B) Considered to be an Alternative Performance Measure..
(C) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis. The figure for 30 September 2020 has been restated in
accordance with this guidance.
(D) Revenue reserves are reported prior to paying the final dividend or fourth
interim dividend in each year. For 2017 only, reserves are reported after
having deducted the third interim dividend.
(E) The 2017 Net Asset Value is calculated under Financial Reporting
Standards, but includes an adjustment for the third interim dividend which had
been declared, but not paid, at the year end.
Investment Portfolio
As at 30 September 2023
Valuation as at Valuation as at
30 September 2023 Weight 30 September 2022
Stock Key Sector £'000 % £'000
BP Oil Gas and Coal 8,862 5.4 10,244
Shell Oil Gas and Coal 8,771 5.3 8,712
SSE Electricity 7,294 4.4 5,735
Glencore Industrial Metals and Mining 6,210 3.7 7,157
National Grid Gas Water and Multi-utilities 6,160 3.7 3,180
Close Brothers Banks 5,604 3.4 4,445
Barclays Banks 5,420 3.3 4,921
Diversified Energy Oil Gas and Coal 5,373 3.2 6,154
NatWest Group Banks 5,194 3.1 3,504
Imperial Brands Tobacco 4,945 3.0 4,217
Top ten investments 63,833 38.5
BHP Industrial Metals and Mining 4,612 2.8 6,172
Smith (DS) General Industrials 4,418 2.7 2,503
HSBC Banks 4,400 2.6 -
Conduit Holdings Non-life Insurance 4,267 2.6 1,520
Thungela Resources Oil Gas and Coal 4,122 2.5 9,109
Chesnara Life Insurance 3,763 2.3 3,756
Rio Tinto Industrial Metals and Mining 3,686 2.2 5,353
OSB Group Finance and Credit Services 3,476 2.1 3,626
Tyman Construction and Materials 3,304 2.0 2,320
British American Tobacco Tobacco 3,127 1.9 5,068
Top twenty investments 103,008 62.2
BAE Systems Aerospace and Defense 3,102 1.9 2,623
Legal & General Life Insurance 3,051 1.8 3,145
LondonMetric Real Estate Investment Trusts 2,849 1.7 1,222
Ithaca Energy Oil Gas and Coal 2,776 1.7 -
Vistry Household Goods and Home Construction 2,687 1.6 2,995
Hargreaves Lansdown Investment Banking and Brokerage Services 2,606 1.6 1,737
Standard Chartered Banks 2,555 1.6 4,015
Galliford Try Construction and Materials 2,532 1.5 1,517
International Personal Finance Finance and Credit Services 2,368 1.4 1,326
Anglo American Industrial Metals and Mining 2,355 1.4 3,488
Top thirty investments 129,889 78.4
Litigation Capital Investment Banking and Brokerage Services 2,268 1.4 1,631
CMC Markets Investment Banking and Brokerage Services 2,146 1.3 4,498
Real Estate Investors Real Estate Investment Trusts 2,020 1.2 2,319
DFS Furniture Retailers 2,014 1.2 1,667
Petershill Partners Investment Banking and Brokerage Services 1,999 1.2 1,706
TP ICAP Investment Banking and Brokerage Services 1,987 1.2 1,602
Quilter Investment Banking and Brokerage Services 1,898 1.1 1,281
Vanquis Banking Group Finance and Credit Services 1,795 1.1 -
Bellway Household Goods and Home Construction 1,705 1.0 1,272
Speedy Hire Industrial Transportation 1,615 1.0 1,865
Top forty investments 149,336 90.1
Hays Industrial Support Services 1,595 1.0 1,490
Centamin Precious Metals and Mining 1,547 0.9 1,668
Ashmore Investment Banking and Brokerage Services 1,517 0.9 1,591
Phoenix Life Insurance 1,471 0.9 1,606
Harbour Energy Oil Gas and Coal 1,366 0.8 1,209
Diageo Beverages 1,328 0.8 1,922
AstraZeneca Pharmaceuticals and Biotechnology 1,311 0.8 1,839
Randall & Quilter Non-life Insurance 1,247 0.7 2,337
Halfords Retailers 1,132 0.7 753
Vodafone Telecommunications Service Providers 1,086 0.7 1,887
Top fifty investments 162,936 98.3
CLS Holdings Real Estate Investment and Services 1,085 0.7 1,266
Bridgepoint Investment Banking and Brokerage Services 1,007 0.6 981
Premier Miton Investment Banking and Brokerage Services 683 0.4 2,411
AssetCo Investment Banking and Brokerage Services 23 - 750
Total Portfolio 165,734 100.0
All investments are equity investments.
Sector Distribution
As at 30 September 2023
Portfolio Weightings %
Financials 36.6
Energy 18.9
Basi Materials 11.0
Industrials 10.1
Utilities 8.1
Consumer Staples 5.7
Consumer Discretionary 4.5
Real Estate 3.6
Healthcare 0.8
Telecommunications 0.7
As at 30 September 2022
Portfolio Weightings %
Financials 31.4
Energy 23.6
Industrials 10.2
Basi Materials 9.8
Consumer Staples 7.6
Consumer Discretionary 6.3
Utilities 5.1
Real Estate 3.2
Healthcare 1.7
Telecommunications 1.1
Directors' Report (extract)
The Directors present their report and the audited financial statements of the
Company for the year ended 30 September 2023.
Results and Dividends
The financial statements for the year ended 30 September 2023 are set out
below. Interim dividends of 5.7 pence per share were paid in March, June and
September 2023. The Board has declared that a fourth interim dividend for
the year to 30 September 2023 of 5.7 pence per share is payable on 8 January
2024 to shareholders on the register on 8 December 2023. The ex-dividend date
is 7 December 2023.
Principal Activity and Status
The Company is registered as a public limited company in England and Wales
under company number 2648152. The Company is an investment company within
the meaning of Section 833 of the Companies Act 2006, carries on business as
an investment trust and is a member of the Association of Investment
Companies.
The Company has applied for and has been accepted as an investment trust under
Sections 1158 and 1159 of the Corporation Tax Act 2010 and Part 2 Chapter 1 of
Statutory Instrument 2011/2999. This approval relates to accounting periods
commencing on or after 1 October 2012. The Directors are of the opinion that
the Company has conducted its affairs so as to be able to retain such
approval.
The Company intends to manage its affairs so that its Ordinary shares continue
to be a qualifying investment for inclusion in the stocks and shares component
of an Individual Savings Account.
Capital Structure and Voting Rights
The Company's issued share capital at 30 September 2023 consisted of
47,646,522 Ordinary shares of 25 pence each (2022: 47,471,939) and there were
1,532,245 Ordinary shares held in treasury (2022: 1,706,828), representing
3.1% (2022: 3.5%) of the issued share capital as at that date.
During the year, 100,417 Ordinary shares were bought back into treasury (2022:
561,535) and 275,000 Ordinary shares were issued from treasury (2022: nil).
There have been no changes to the Company's capital structure or voting rights
since the year end.
Each Ordinary shareholder is entitled to one vote on a show of hands and, on a
poll, to one vote for every Ordinary share held.
Management Agreement
The Company has appointed abrdn Fund Managers Limited ("AFML"), a wholly-owned
subsidiary of abrdn plc, as its alternative investment fund manager (the
"Manager"). AFML has been appointed to provide investment management, risk
management, administration and company secretarial services, and promotional
activities to the Company. The Company's portfolio is managed by abrdn
Investment Management Limited (the "Investment Manager") by way of a group
delegation agreement in place between AFML and the Investment Manager.
In addition, AFML has sub-delegated administrative and secretarial services to
abrdn Holdings Limited (previously called Aberdeen Asset Management PLC).
Up until 30 September 2023 ,the Company's management fee is calculated as
0.65% per annum of net assets up to £175million and at a rate of 0.55% of net
assets above this threshold.
With effect from 1 October 2023, the Company's management fee is calculated as
0.55% of net assets.
The Manager also receives a separate fee for the provision of promotional
activities to the Company.
Further details of the fees payable to the Manager are shown in notes 3 and 4
to the financial statements.
The management agreement is terminable on not less than six months' notice. In
the event of termination by the Company on less than the agreed notice period,
compensation is payable to the Manager in lieu of the unexpired notice period.
External Agencies
The Board has contractually delegated to external agencies, including the
Manager and other service providers, certain services including: the
management of the investment portfolio, the day-to-day accounting and company
secretarial requirements, the depositary services (which include the custody
and safeguarding of the Company's assets) and the share registration services.
Each of these contracts was entered into after full and proper consideration
by the Board of the quality and cost of services offered in so far as they
relate to the affairs of the Company. In addition, ad hoc reports and
information are supplied to the Board as requested.
Substantial Interests
Information provided to the Company by major shareholders pursuant to the
FCA's Disclosure, Guidance and Transparency Rules are published by the Company
via a Regulatory Information Service.
The table below sets out the interests in 3% or more of the issued share
capital of the Company, of which the Board was aware as at 30 September 2023.
Shareholder Number of Ordinary shares % held
Hargreaves Lansdown 11,166,926 23.4
Interactive Investor 10,063,837 21.1
Charles Stanley 4,586,981 9.6
AJ Bell 2,823,343 5.9
HSDL 2,285,627 4.8
abrdn Savings Plans 1,461,954 3.1
The Company has not been notified of any changes to these holdings as at the
date of this Report.
Directors
Biographies of the Directors of the Company are shown in the Annual Report and
on the Company's website: abrdnequityincome.com.
Sarika Patel is the Chair, Jeremy Tigue is the Senior Independent Director,
Mark Little is Chair of the Audit Committee and Caroline Hitch is Chair of the
Remuneration & Management Engagement Committee. Nick Timberlake was
appointed as an Independent Non-executive Director on 1 August 2023. The
Board engaged the services of Cornforth Consulting to assist in the search for
Nick Timberlake.
The Chair is responsible for providing effective leadership to the Board, by
setting the tone of the Company, demonstrating objective judgement and
promoting a culture of openness and debate. The Chair facilitates effective
contribution from each Director and encourages active engagement. In
conjunction with the Company Secretary, the Chair ensures that Directors
receive accurate, timely and clear information to assist them with effective
decision-making. The Chair acts upon the results of the Board evaluation
process by recognising strengths and addressing any weaknesses and also
ensures that the Board engages with major shareholders and that all Directors
understand shareholder views.
The Senior Independent Director acts as a sounding board for the Chair and
acts as an intermediary for other Directors, when necessary. Working closely
with the Remuneration & Management Engagement Committee, the Senior
Independent Director takes responsibility for an orderly succession process
for the Chair, and leads the annual appraisal of the Chair's performance. The
Senior Independent Director is also available to shareholders to discuss any
concerns they may have.
The Directors attended scheduled Board and Committee meetings during the year
ended 30 September 2023 as follows (with their eligibility to attend the
relevant meetings in brackets):
Board Meetings Audit Committee Meetings Remuneration & Management
Engagement
Committee
Meetings
Sarika Patel 4 (4) 2 (2) 1 (1)
Caroline Hitch 4 (4) 2 (2) 1 (1)
Mark Little 4 (4) 2 (2) 1 (1)
Jeremy Tigue 4 (4) 2 (2) 1 (1)
Nick Timberlake (A) 1 (1) 0 (0) 1 (1)
Mark White (B) 2 (2) 1 (1) 0 (0)
(A) Appointed to the Board on 1 August 2023.
(B) Retired from the Board on 2 February 2023.
The Board meets more frequently when business needs require, and met an
additional four times during the financial year.
Caroline Hitch, Mark Little and Sarika Patel will retire and, being eligible,
will offer themselves for re-election at the Annual General Meeting. Nick
Timberlake will offer himself for election at the Annual General Meeting. As
set out in the Chair's Statement, Jeremy Tigue will retire from the Board at
the Annual General Meeting on 20 February 2024, having served on the Board for
nine years.
The Board believes that all the Directors seeking election or re-election
remain independent of the Manager and free from any relationship which could
materially interfere with the exercise of their judgement on issues of
strategy, performance, resources and standards of conduct. The biographies of
each of the Directors are shown in the Annual Report and on the Company's
website abrdnequityincome.com, setting out their range of skills and
experience as well as length of service and their contribution to the Board
during the year. The Board believes that, collectively, it has the requisite
high level and range of business, investment and financial experience to
enable it to provide clear and effective leadership and proper governance of
the Company. Following formal performance evaluations, each Director's
performance continues to be effective and demonstrates commitment to the role,
and their individual performances contribute to the long-term sustainable
success of the Company. The Board therefore recommends the election or
re-election of each of the Directors at the Annual General Meeting.
Board's Policy on Tenure
In normal circumstances, it is the Board's expectation that Directors will not
serve beyond the Annual General Meeting following the ninth anniversary of
their appointment. However, the Board takes the view that independence of
individual Directors is not necessarily compromised by length of tenure on the
Board and that continuity and experience can add significantly to the Board's
strength. The Board believes that recommendation for re-election should be on
an individual basis following a rigorous review which assesses the
contribution made by the Director concerned, but also taking into account the
need for regular refreshment and diversity.
Board Diversity Policy
The Board recognises the importance of having a range of skilled and
experienced individuals with the right knowledge represented on the Board in
order to allow it to fulfil its obligations. The Board also recognises the
benefits and is supportive of the principle of diversity in its recruitment of
new Board members. The Board will not display any bias for age, gender, race,
sexual orientation, socio-economic background, religion, ethnic or national
origins or disability in considering the appointment of its Directors. In view
of its size, the Board will continue to ensure that all appointments are made
on the basis of merit against the specification prepared for each appointment.
In doing so, the Board will take account of the targets set out in the FCA's
Listing Rules, which are set out in the tables below.
The Board has resolved that the Company's year-end date is the most
appropriate date for disclosure purposes. The following information has been
provided by each Director through the completion of questionnaires. There
have been no changes since the year end.
Board Gender as at 30 September 2023
Number of Board members Percentage of the Board Number of senior positions on the Board Number in executive management Percentage of executive management
(note 3)
Men 3 60% 2
n/a n/a
Women 2 40% 2
(note 1)
Board Ethnic Background as at 30 September 2023
Number of Board members Percentage of the Board Number of senior positions on the Board Number in executive management Percentage of executive management
(note 3)
White British or other White 4 80% 3
(including minority-white groups)
n/a n/a
Asian 1 20% 1
(note 2)
Notes:
1. Meets the target of at least 40% as set out in LR 9.8.6R (9)(a)(i).
2. Meets the target of at least one individual on the Board is from a
minority ethnic background as set out in LR 9.8.6R (9)(a)(iii)
3. Whilst the Listing Rules define senior positions as the role of the
Chair, the Chief Executive, the Senior Independent Director ("SID") and the
Chief Financial Officer, the positions of the Chief Executive and Chief
Financial Officer are not relevant for the Company. The Company therefore
considers that the role of Chair, the SID, the Chair of the Audit Committee
and the Chair of the Remuneration & Management Engagement Committee are
senior positions.
Directors' and Officers' Liability Insurance
The Company's Articles of Association provide for each of the Directors to be
indemnified out of the assets of the Company against any liabilities incurred
by them as a Director of the Company in defending proceedings, or in
connection with any application to the Court in which relief is granted.
Directors' and Officers' liability insurance cover has been maintained
throughout the year at the expense of the Company.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director
has a conflict of interest. As part of this process, each Director prepares a
list of other positions held and all other conflict situations that may need
to be authorised either in relation to the Director concerned or his or her
connected persons. The Board considers each Director's situation and decides
whether to approve any conflict, taking into consideration what is in the best
interests of the Company and whether the
Director's ability to act in accordance with his or her wider duties is
affected. Each Director is required to notify the Company Secretary of any
potential, or actual, conflict situations that will need authorising by the
Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all Directors are
issued with letters of appointment. There were no contracts during, or at the
end of the year, in which any Director was interested.
The Company has a policy of conducting its business in an honest and ethical
manner. The Company takes a zero-tolerance approach to bribery and corruption
and has procedures in place that are proportionate to the Company's
circumstances to prevent them. The Manager also adopts a group-wide
zero-tolerance approach and has its own detailed policy and procedures in
place to prevent bribery and corruption. Copies of the Manager's anti-bribery
and corruption policies are available on its website.
In relation to the corporate offence of failing to prevent tax evasion, it is
the Company's policy to conduct all business in an honest and ethical manner.
The Company takes a zero-tolerance approach to facilitation of tax evasion
whether under UK law or under the law of any foreign country and is committed
to acting professionally, fairly and with integrity in all its business
dealings and relationships.
Financial Instruments
The financial risk management objectives and policies arising from its
financial instruments and the exposure of the Company to risk are disclosed in
note 15 to the financial statements.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board
is accountable to the Company's shareholders for good governance and this
statement describes how the Company has applied the principles identified in
the UK Corporate Governance Code as published in July 2018 (the "UK Code"),
which is available on the Financial Reporting Council's (the "FRC") website:
frc.org.uk.
The Board has also considered the principles and provisions of the AIC Code of
Corporate Governance as published in February 2019 (the "AIC Code"). The AIC
Code addresses the principles and provisions set out in the UK Code, as well
as setting out additional provisions on issues that are of specific relevance
to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.
It includes an explanation of how the AIC Code adapts the principles and
provisions set out in the UK Code to make them relevant for investment
companies.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the FRC, provides more relevant
information to shareholders.
The Board confirms that, during the year, the Company complied with the
principles and provisions of the AIC Code and the relevant provisions of the
UK Code, except as set out below.
The UK Code includes provisions relating to:
· interaction with the workforce (provisions 2, 5 and 6);
· the role and responsibility of the chief executive (provisions 9 and 14);
· requirement to establish a nomination committee and describe the work of
the nomination committee (provisions 17 and 23);
· the chair shall not be a member of the audit committee (provision 24);
· the need for an internal audit function (provision 25);
· previous experience of the chairman of a remuneration committee
(provision 32); and
· executive directors' remuneration (provisions 33 and 36 to 40).
The Board considers that these provisions, with the exception of the
requirement to establish a nomination committee and describe the work of the
nomination committee, are not relevant to the position of the Company, being
an externally managed investment company. In particular, all of the Company's
day-to-day management and administrative functions are outsourced to third
parties. As a result, the Company has no executive directors, employees or
internal operations. The Board has determined that there is no need for the
Company to have a standalone Nomination Committee given the number of
Directors on the Board. The functions traditionally undertaken by a
nomination committee are fulfilled by the Board.
The Company has therefore not reported further in respect of these provisions.
The full text of the Company's Corporate Governance Statement can be found on
its website.
Board Committees
The Board has appointed two committees, as set out below. Copies of their
terms of reference, which clearly define the responsibilities and duties of
each committee, are available on the Company's website, or upon request from
the Company. The terms of reference of each of the committees are reviewed and
re-assessed by the Board for their adequacy on an ongoing basis.
Audit Committee
The Audit Committee's Report is contained in the Annual Report.
Remuneration & Management Engagement Committee
The Remuneration & Management Engagement Committee comprises the full
Board and is chaired by Caroline Hitch. The main responsibilities of the
Committee include:
· monitoring and evaluating the performance of the Manager;
· reviewing at least annually the continued retention of the Manager;
· reviewing, at least annually, the terms of appointment of the Manager
including, but not limited to, the level and method of remuneration and the
notice period of the Manager;
· reviewing the performance and remuneration of the other key service
providers to the Company; and
· determining the Directors' remuneration policy and level of remuneration.
The Committee met once during the year to 30 September 2023 and undertook a
review of the management of the Company and its performance. Following
conclusion of the review, the Committee recommended to the Board that the
continuing appointment of the Manager and other key service providers was in
the best interests of the shareholders and the Company as a whole.
As reported in the Chair's Statement, it has been agreed that Nick Timberlake
will assume the role of Chair of the Remuneration & Management Engagement
Committee with effective from the conclusion of the AGM on 20 February 2024.
Going Concern
The Company's assets consist mainly of equity shares in companies listed on
recognised stock exchanges and are considered by the Board to be realisable
within a short timescale under normal market conditions. The Board has set
overall limits for borrowing and reviews regularly the Company's level of
gearing, cash flow projections and compliance with banking covenants, when
applicable. The Board has also performed stress testing and liquidity
analysis.
The Company's Articles require that at every fifth AGM, the Directors shall
propose an Ordinary Resolution to effect that the Company continues as an
investment trust. An Ordinary Resolution approving the continuation of the
Company for five years was passed at the AGM on 4 February 2022. The next
continuation vote will take place at the AGM to be held in 2027.
As at 30 September 2023, the Company had a £30 million (2022: £30 million)
revolving credit facility with The Royal Bank of Scotland International
Limited, London Branch. £21 million was drawn at the end of the financial
year (2022: £25 million). The revolving credit facility was refinanced
during the financial year and matures on
23 June 2026.
The Directors are mindful of the Principal Risks and Uncertainties disclosed
in the Strategic Report and they believe that the Company has adequate
financial resources to continue its operational existence for a period of not
less than 12 months from the date of approval of this Report. They have
arrived at this conclusion having confirmed that the Company's diversified
portfolio of realisable securities is sufficiently liquid and could be used to
meet short-term funding requirements were they to arise. They have also
reviewed the revenue and ongoing expenses forecasts for the coming year.
Accordingly, the Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the financial statements.
Accountability and Audit
The respective responsibilities of the Directors and the Auditor in connection
with the financial statements appear below.
The Directors who held office at the date of approval of this Directors'
Report confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's Auditor is unaware; and each Director has
taken all the steps that he/ she ought to have taken as a Director to make
himself/ herself aware of any relevant audit information and to establish that
the Company's Auditor is aware of that information.
Independent Auditor
Shareholders approved the re-appointment of KPMG LLP as the Company's
Independent Auditor at the AGM on 2 February 2023.
As set out in the Chair's Statement, following an audit tender exercise, the
Board is submitting resolutions to the AGM on 20 February 2024 to appoint
Johnston Carmichael LLP as the Company's Auditor for the year to 30 September
2024 and to authorise the Directors to determine the remuneration of the
Auditor.
Relations with Shareholders
The Directors place a great deal of importance on communications with
shareholders. Shareholders and investors may obtain up to date information on
the Company through its website and the Manager's Customer Services Department
by emailing trusts@abrdn.com.
The Board's policy is to communicate directly with shareholders and their
representative bodies without the involvement of the management group
(including the Company Secretary or the Manager) in situations where direct
communication is required, and representatives from the Manager meet with
major shareholders on at least an annual basis in order to gauge their views,
and report back to the Board on these meetings. In addition, the Company
Secretary only acts on behalf of the Board, not the Manager, and there is no
filtering of communication. At each Board meeting the Board receives full
details of any communication from shareholders to which the Chair responds
personally
as appropriate.
The Company's Annual General Meeting provides a forum for communication
primarily with private shareholders and is attended by the Board. The Manager
makes a presentation to the meeting and all shareholders have the opportunity
to put questions to both the Board and the Manager at the meeting. The Board
will also be hosting an Online Pre-AGM Investor Session to engage directly
with shareholders, regardless of their location. Details on how to register
for the Online Pre-AGM Investor Session are set out in the Chair's Statement.
The notice of the Annual General Meeting is sent out at least 20 working days
in advance of the meeting. All shareholders have the opportunity to put
questions to the Board and Manager at the meeting.
Additional Information
Where not provided elsewhere in the Directors' Report, the following provides
the additional information required to be disclosed by Part 15 of the
Companies Act 2006.
There are no restrictions on the transfer of Ordinary shares in the Company
issued by the Company other than certain restrictions which may from time to
time be imposed by law (for example, the Market Abuse Regulation). The Company
is not aware of any agreements between shareholders that may result in a
transfer of securities and/or voting rights.
The rules governing the appointment of Directors are set out in the Directors'
Remuneration Report in the Annual Report. The Company's Articles of
Association may only be amended by a special resolution passed at a general
meeting of shareholders.
The Company is not aware of any significant agreements to which it is a party
that take effect, alter or terminate upon a change of control of the Company
following a takeover. Other than the management agreement with the Manager,
further details of which are set out below, the Company is not aware of any
contractual or other agreements which are essential to its business which
could reasonably be expected to be disclosed in the Directors' Report.
Annual General Meeting
The Notice of the Annual General Meeting, which will be held on 20 February
2024, and related notes, may be found in the Annual Report.
Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
financial statements in accordance with UK Accounting Standards, including FRS
102 'The Financial Reporting Standard Applicable in the UK and Republic
of Ireland'.
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 are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
· assess the Company's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
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 its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Statement of Corporate Governance that comply with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, but not
for the content of any information included on the website that has been
prepared or issued by third parties. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
· the financial statements have been prepared in accordance with applicable
accounting standards and give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
· the Strategic Report and Directors' Report include 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 the
Company faces.
We consider the Annual 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.
On behalf of the Board
Sarika Patel
Chair
29 November 2023
Statement of Comprehensive Income
2023 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Net losses on investments at fair value 9 - (6,443) (6,443) - (24,281) (24,281)
Currency (losses)/gains - (1) (1) - 1 1
Income 2 12,598 - 12,598 13,517 - 13,517
Investment management fee 3 (302) (704) (1,006) (335) (782) (1,117)
Administrative expenses 4 (508) - (508) (464) - (464)
Net return before finance costs and taxation 11,788 (7,148) 4,640 12,718 (25,062) (12,344)
Finance costs 5 (401) (936) (1,337) (149) (347) (496)
Return before taxation 11,387 (8,084) 3,303 12,569 (25,409) (12,840)
Taxation 6 (278) - (278) (325) - (325)
Return after taxation 11,109 (8,084) 3,025 12,244 (25,409) (13,165)
Return per Ordinary share 8 23.43p (17.05p) 6.38p 25.51p (52.93p) (27.42p)
The total column of this statement represents the profit and loss account of
the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Statement of Financial Position
2023 2022
Notes £'000 £'000
Fixed assets
Investments at fair value through profit or loss 9 165,734 179,730
Current assets
Debtors 10 1,611 2,343
Investments in AAA-rated money market funds 3,027 2,503
Cash and short-term deposits 1,196 1,054
5,834 5,900
Current liabilities
Creditors: amounts falling due within one year
Bank loan 11 (20,941) (24,979)
Other creditors 11 (754) (3,152)
(21,695) (28,131)
Net current liabilities (15,861) (22,231)
Net assets 149,873 157,499
Capital and reserves
Called-up share capital 12 12,295 12,295
Share premium account 52,043 52,043
Capital redemption reserve 12,616 12,616
Capital reserve 13 62,735 70,276
Revenue reserve 10,184 10,269
Equity shareholders' funds 149,873 157,499
Net asset value per Ordinary share 14 314.55p 331.77p
The financial statements were approved by the Board of Directors and
authorised for issue on 29 November 2023 and were signed on its behalf by:
Sarika Patel
Chair
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Equity
For the year ended 30 September 2023
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 September 2022 12,295 52,043 12,616 70,276 10,269 157,499
Return after taxation(A) - - - (8,084) 11,109 3,025
Purchase of own shares for treasury - - - (315) - (315)
Sale of own shares from treasury - - - 858 - 858
Dividends paid during the year 7 - - - - (11,194) (11,194)
Balance at 30 September 2023 12,295 52,043 12,616 62,735 10,184 149,873
For the year ended 30 September 2022
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 September 2021 12,295 52,043 12,616 97,491 8,486 182,931
Return after taxation(A) - - - (25,409) 12,244 (13,165)
Purchase of own shares for treasury - - - (1,806) - (1,806)
Dividends paid during the year 7 - - - - (10,461) (10,461)
Balance at 30 September 2022 12,295 52,043 12,616 70,276 10,269 157,499
(A) per the Statement of Comprehensive Income.
The capital reserve at 30 September 2023 is split between realised gains of
£80,674,000 and unrealised losses of £17,939,000 (30 September 2022:
realised gains of £85,606,000 and unrealised losses of £15,330,000).
The Company's reserves available to be distributed by way of dividends or
buybacks which includes the revenue reserve and the realised element of the
capital reserve amount to £90,858,000 (30 September 2022 - £95,875,000).
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 30 September 2023
1. Accounting policies
(a) Basis of accounting and going concern. The Financial Statements have been
prepared in accordance with Financial Reporting Standard 102 and with the
Statement of Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' issued in July 2022. They have also been
prepared on the assumption that approval as an investment trust will continue
to be granted. The Financial Statements have been prepared on a going concern
basis.
The Company had net current liabilities at the year end. The Company's assets
consist mainly of equity shares in companies listed on recognised stock
exchanges and are considered by the Board to be realisable within a short
timescale under normal market conditions. The Board has set overall limits for
borrowing and reviews regularly the Company's level of gearing, cash flow
projections and compliance with banking covenants, when applicable. The Board
has also performed stress testing and liquidity analysis.
The Company's Articles require that at every fifth AGM, the Directors shall
propose an Ordinary Resolution to effect that the Company continues as an
investment trust. An Ordinary Resolution approving the continuation of the
Company for the next five years was passed at the AGM on 4 February 2022. The
next continuation vote will take place at the AGM to be held in 2027.
As at 30 September 2023, the Company had a £30 million (2022 - £30 million)
revolving credit facility with The Royal Bank of Scotland International
Limited, London Branch. £21 million was drawn at the end of the financial
year (2022 - £25 million). The revolving credit facility matures on 23 June
2026. A replacement option will be sought in advance of the expiry of the
facility, or should the Board decide not to renew this facility, any
outstanding borrowing would be repaid through the proceeds of equity sales as
required.
The Directors are mindful of the Principal Risks and Uncertainties disclosed
in the Strategic Report and they believe that the Company has adequate
financial resources to continue its operational existence for a period of not
less than 12 months from the date of approval of this Report. They have
arrived at this conclusion having confirmed that the Company's diversified
portfolio of realisable securities is sufficiently liquid and could be used to
meet short-term funding requirements were they to arise. They have also
reviewed the revenue and ongoing expenses forecasts for the coming year, and
expect to secure a replacement facility upon expiry of the current facility.
Accordingly, the Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the financial statements.
As an investment fund the Company has the option under FRS 102, which it has
taken, not to present a cash flow statement. A cash flow statement is not
required when an investment fund meets all the following conditions:
substantially all of the entity's investments are highly liquid, substantially
all of the entity's investments are carried at market value, and the entity
provides a Statement of Changes in Equity. The Directors have assessed that
the Company meets all of these conditions.
The accounting policies applied are unchanged from the prior year and have
been applied consistently.
All values are rounded to the nearest thousand pounds (£'000) except where
indicated otherwise.
(b) Investments. Investments have been designated upon initial recognition as fair
value through profit or loss in accordance with IAS 39. As permitted by FRS
102, the Company has elected to apply the recognition and measurement
provisions of IAS 39 Financial Instruments. This is done because all
investments are considered to form part of a group of financial assets which
is evaluated on a fair value basis, in accordance with the Company's
documented investment strategy, and information about the grouping is provided
internally on that basis.
Investments are recognised and de-recognised at trade date where a purchase or
sale is under a contract whose terms require delivery to be made within the
timeframe established by the market concerned, and are measured initially at
fair value. Subsequent to initial recognition, investments are valued at fair
value. For listed investments, this is deemed to be bid market prices or
closing prices for SETS stocks sourced from the London Stock Exchange. SETS is
the London Stock Exchange electronic trading service covering most of the
market including all the FTSE All-Share and the most liquid AIM constituents.
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.
(c) Investments in AAA-rated money market funds. Money market funds investments
are used by the Company to provide additional short term liquidity. Due to
their short term nature, they are recognised in the Financial Statements as a
current asset and are included at fair value through profit and loss.
The Company invests in a AAA-rated money-market fund, Aberdeen Standard
Liquidity Fund, which is managed by abrdn Investments Limited. The share class
of the money market fund in which the Company invests does not charge a
management fee.
(d) Income. Income from equity investments, including taxes deducted at source, is
included in revenue by reference to the date on which the investment is quoted
ex-dividend. Special dividends are credited to revenue or capital according to
the circumstances. Foreign income is converted at the exchange rate applicable
at the time of receipt. Interest receivable on cash at bank and in hand and on
the money market fund is accounted for on an accruals basis.
(e) Expenses and interest payable. Expenses are accounted for on an accruals
basis. Expenses are charged to capital when they are incurred in connection
with the maintenance or enhancement of the value of investments. In this
respect, the investment management fee and relevant finance costs are
allocated between revenue and capital in line with the Board's expectation of
returns from the Company's investments over the long term in the form of
revenue and capital respectively (see notes 3 and 5).
Transaction costs incurred on the purchase and disposal of investments are
recognised as a capital item in the Statement of Comprehensive Income.
(f) Dividends payable. Interim dividends are accounted for when they are paid.
Final dividends are accounted on the date that they are approved by
shareholders.
(g) Capital and reserves
Called-up share capital. Share capital represents the nominal value of
Ordinary shares issued. This reserve is not distributable.
Share premium account. The share premium account represents the premium above
nominal value received by the Company on issuing shares net of issue costs.
This reserve is not distributable.
Capital redemption reserve. The capital redemption reserve represents the
nominal value of Ordinary shares repurchased and cancelled. This reserve is
not distributable.
Capital reserve. Gains or losses on realisation of investments and changes in
fair values of investments are included within the capital reserve. The
capital element of the management fee and relevant finance costs are charged
to this reserve. Any associated tax relief is also credited to this reserve.
The part of this reserve represented by realised capital gains is available
for distribution by way of a dividend and for the purpose of funding share
buybacks.
Revenue reserve. The revenue reserve represents accumulated revenue profits
retained by the Company that have not currently been distributed to
shareholders as a dividend.
(h) Taxation. The tax expense represents the sum of the tax currently payable and
deferred tax. Tax payable is based on the taxable profit for the year. Taxable
profit differs from profit before tax as reported in the Statement of
Comprehensive Income because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by
the Statement of Financial Position date.
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 timing differences can be deducted. Timing
differences are differences arising between the Company's taxable profits and
its results as stated in the accounts that arise from the inclusion of income
and expenses in tax assessments in periods different from those in which they
are recognised in the accounts.
Owing 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.
(i) Cash and cash equivalents. Cash comprises bank balances and cash held by the
Company. Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
(j) Bank borrowings. Interest bearing bank loans and overdrafts are recorded
initially at fair value, being the proceeds received, net of direct issue
costs. They are subsequently measured at amortised cost. Finance charges,
including premiums payable on settlement or redemption and direct issue costs,
are accounted for on an accruals basis in the Statement of Comprehensive
Income using the effective interest rate method and are added to the carrying
amount of the instrument to the extent that they are not settled in the period
in which they arise.
(k) Treasury shares. When the Company purchases its Ordinary shares to be held in
treasury, the amount of the consideration paid, which includes directly
attributable costs, is net of any tax effect, and is recognised as a deduction
from the capital reserve. When these shares are sold subsequently, the amount
received is recognised as an increase in equity, and any resulting surplus on
the transaction is transferred to the share premium account and any resulting
deficit is transferred from the capital reserve.
(l) Judgements and key sources of estimation uncertainty. Disclosure is required
of judgements and estimates made by management in applying the accounting
policies that have a significant effect on the Financial Statements. There are
no significant estimates or judgements which impact these Financial
Statements.
2. Income
2023 2022
£'000 £'000
Income from investments
UK investment income
Ordinary dividends 8,191 8,460
Special dividends 101 800
Stock dividends 101 -
8,393 9,260
Overseas and Property Income Distribution investment income
Ordinary dividends 3,998 4,243
Special dividends 85 -
Stock dividends 52 -
4,135 4,243
12,528 13,503
Other income
Money-market interest 67 14
Bank interest 3 -
70 14
Total income 12,598 13,517
3. Investment management fee
2023 2022
£'000 £'000
Charged to revenue reserve 302 335
Charged to capital reserve 704 782
1,006 1,117
The Company has an agreement with abrdn Fund Managers Limited ("aFML") for the
provision of management services, under which investment management services
have been delegated to abrdn Investment Management Limited. The contract is
terminable by either party on not less than six months' notice.
The fee payable to aFML was calculated at a rate of 0.65% per annum of net
assets up to £175 million and at a rate of 0.55% per annum of net assets
thereafter. The fee is payable quarterly in arrears and is chargeable 30% to
revenue and 70% to capital (see note 1(e) for further detail). The balance of
fees due at the year end was £245,000 (2022 - £530,000).
4. Administrative expenses
2023 2022
£'000 £'000
Directors' fees 127 105
Employers' National Insurance 7 4
Fees payable to the Company's Auditor (excluding VAT):
- for the audit of the annual financial statements 65 40
Professional fees 14 52
Depositary fees 19 22
Promotional activities(A) 109 103
Other expenses 167 238
508 564
(A) The Company has an agreement with aFML for the provision of promotional
activities. Fees paid under the agreement during the year were £109,000 (2022
- £103,000). At 30 September 2023, £27,000 was due to aFML (2022 -
£166,000).
With the exception of fees payable to the Company's auditor, irrecoverable VAT
has been included under the relevant expense line above. Irrecoverable VAT on
fees payable to the Company's auditor is included within other expenses.
The Company has no employees.
5. Finance costs
2023 2022
£'000 £'000
On bank loans and overdrafts:
Charged to revenue reserve 401 149
Charged to capital reserve 936 347
1,337 496
Finance costs are chargeable 30% to revenue and 70% to capital (see note
1(e)).
6. Taxation
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge for the year
Overseas withholding tax 278 - 278 325 - 325
(b) Factors affecting total tax charge for the year. The corporation tax rate was
22% (2022 - 19%). The total tax assessed for the year is lower (2022 - higher)
than that resulting from applying the standard rate of corporation tax in the
UK.
A reconciliation of the Company's total tax charge is set out below:
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return before taxation 11,387 (8,084) 3,303 12,569 (25,409) (12,840)
Corporation tax at a rate of 22% (2022 - 19%) 2,505 (1,778) 727 2,388 (4,828) (2,440)
Effects of:
Non-taxable UK dividends (1,891) - (1,891) (1,770) - (1,770)
Non-taxable overseas dividends (826) - (826) (744) - (744)
Expenses not deductible for tax purposes 2 - 2 - - -
Losses on investments not relievable - 1,417 1,417 - 4,613 4,613
Excess management expenses and loan relationship losses 210 361 571 126 215 341
Irrecoverable overseas withholding tax 278 - 278 325 - 325
Total taxation 278 - 278 325 - 325
At 30 September 2023, the Company had unutilised management expenses and loan
relationship losses of £34,587,000 (2022 - £31,990,000). No deferred tax
asset has been recognised on the unutilised management expenses and loan
relationship losses as it is unlikely that the Company will generate suitable
taxable profits in the future that these tax losses could be deducted against.
7. Dividends on Ordinary shares
2023 2022
£'000 £'000
Amounts recognised as distributions to equity holders in the year:
Fourth interim dividend for 2022 of 6.50p per share (2021 - 5.60p) 3,079 2,690
First interim dividend for 2023 of 5.70p per share (2022 - 5.40p) 2,700 2,594
Second interim dividend for 2023 of 5.70p per share (2022 - 5.40p) 2,700 2,594
Third interim dividend for 2023 of 5.70p per share (2022 - 5.40p) 2,715 2,583
11,194 10,461
The fourth interim dividend of 5.70p per Ordinary share, payable on 8 January
2024 to shareholders on the register on 8 December 2023 has not been included
as a liability in the financial statements.
The total dividends paid and proposed in respect of the financial year, which
is the basis on which the requirements of Sections 1158-1159 of the
Corporation Tax Act 2010 are considered, are set out below.
2023 2022
£'000 £'000
First interim dividend for 2023 of 5.70p per share (2022 - 5.40p) 2,700 2,594
Second interim dividend for 2023 of 5.70p per share (2022 - 5.40p) 2,700 2,594
Third interim dividend for 2023 of 5.70p per share (2022 - 5.40p) 2,715 2,583
Fourth interim dividend for 2023 of 5.70p per share (2022 - 6.50p) 2,724 3,079
10,839 10,850
8. Return per Ordinary share
2023 2022
£'000 p £'000 p
Basic
Revenue return 11,109 23.43 12,244 25.51
Capital return (8,084) (17.05) (25,409) (52.93)
Total return 3,025 6.38 (13,165) (27.42)
Weighted average number of Ordinary shares in issue(A) 47,415,968 48,004,224
(A) Calculated excluding shares held in Treasury where applicable.
9. Investments
2023 2022
£'000 £'000
Fair value through profit or loss
Opening book cost 195,060 191,866
Opening fair value (losses)/gains on investments held (15,330) 15,552
Opening fair value 179,730 207,418
Movements in the year:
Purchases at cost 46,738 40,986
Sales - proceeds (54,291) (44,393)
Losses on investments (6,443) (24,281)
Closing fair value 165,734 179,730
Closing book cost 183,673 195,060
Closing fair value losses on investments held (17,939) (15,330)
Closing fair value 165,734 179,730
The Company received £54,291,000 (2022 - £44,393,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£58,125,000 (2022 - £37,797,000). These investments have been revalued over
time and until they were sold any unrealised gains/(losses) were included in
the fair value of the investments.
Transaction costs. During the year, expenses were incurred in acquiring or
disposing of investments classified as fair value through profit or loss.
These have been expensed through capital and are included within losses on
investments in the Statement of Comprehensive Income. The total costs were as
follows:
2023 2022
£'000 £'000
Purchases 206 201
Sales 37 30
Total 243 231
10. Debtors: amounts falling due within one year
2023 2022
£'000 £'000
Amounts due from brokers 148 9
Net dividends and interest receivable 1,078 2,056
Other debtors 385 278
1,611 2,343
11. Creditors: amounts falling due within one year
2023 2022
£'000 £'000
Bank loan 21,000 25,000
Unamortised loan arrangement expenses (59) (21)
20,941 24,979
Other creditors
Amounts due to brokers 305 2,247
Investment management fee payable 245 530
Sundry creditors 204 375
754 3,152
On 23 June 2023, the Company agreed a new three year £30 million revolving
credit facility with the Royal Bank of Scotland International Limited, which
expires on 23 June 2026.
The facility agreement contains the following covenants:
- The Company's gross assets will not be less than £120 million (2022 - £120
million) at any time.
- The Company's total net debt will not exceed 25% (2022 - 25%) of net asset
value at any time.
- The Company should hold a minimum of 45 eligible investments.
All covenants were complied with throughout the year.
At 30 September 2023 and at the date of signing this Report, £21 million had
been drawn down from the facility, at a SONIA rate of 6.6847%. This is due to
mature on 21 December 2023.
12. Called-up share capital
2023 2022
£'000 £'000
Issued and fully paid:
Ordinary shares of 25p each
Opening balance of 47,471,939 (2022 - 48,033,474) Ordinary shares 11,868 12,009
Buyback of 100,417 (2022 - 561,535) Ordinary shares (25) (141)
Issue of 275,000 (2022 - nil) Ordinary shares 69 -
Closing balance of 47,646,522 (2022 - 47,471,939) Ordinary shares 11,912 11,868
Treasury shares
Opening balance of 1,706,828 (2022 - 1,145,293) Treasury shares 427 286
Buyback of 100,417 (2022 - 561,535) Ordinary shares to Treasury 25 141
Issue of 275,000 (2022 - nil) Ordinary shares from Treasury (69) -
Closing balance of 1,532,245 (2022 - 1,706,828) treasury shares 383 427
12,295 12,295
During the year, 100,417 Ordinary shares (2022 -561,535) were repurchased for
a consideration of £315,000 (2022 - £1,806,000), and 275,000 Ordinary shares
(2022 -nil) were issued from Treasury for a consideration of £858,000 (2022 -
£nil). At the year end the number of shares held in Treasury was 1,532,245
(2022 - 1,706,828).
Subsequent to the year end, a further 135,000 Ordinary shares were issued from
Treasury for a consideration of £403,000.
13. Capital reserve
2023 2022
£'000 £'000
Opening balance 70,276 97,491
Unrealised losses on investment holdings (2,612) (30,877)
(Losses)/ Gains on realisation of investments at fair value (3,831) 6,596
Currency (losses)/gains (1) 1
Investment management fee charged to capital (704) (782)
Finance costs charged to capital (936) (347)
Buyback of Ordinary shares into treasury (315) (1,806)
Issue of Ordinary shares from treasury 858 -
Closing balance 62,735 70,276
The capital reserve includes investment holding losses amounting to
£17,939,000 (2022 - losses of £15,330,000) as disclosed in note 9.
14. Net asset value per share
The net asset value per share and the net assets attributable to Ordinary
shares at the end of the year calculated in accordance with the Articles of
Association were as follows:
2023 2022
Basic
Total shareholders' funds (£'000) 149,873 157,499
Number of Ordinary shares in issue at year end(A) 47,646,522 47,471,939
Net asset value per share 314.55p 331.77p
(A) Excludes shares in issue held in treasury where applicable.
15. Financial instruments
Risk management. The Company's financial instruments comprise securities and
other investments, cash balances, loans and debtors and creditors that arise
directly from its operations; for example, in respect of sales and purchases
awaiting settlement, and debtors for accrued income. The Company also has the
ability to enter into derivative transactions for the purpose of managing
currency and market risks arising from the Company's activities.
The main risks the Company faces from its financial instruments are (i) market
price risk (comprising interest rate risk, currency risk and other price
risk), (ii) liquidity risk and (iii) credit risk.
The Board regularly reviews and agrees policies for managing each of these
risks. The Manager's policies for managing these risks are summarised below
and have been applied throughout the year.
(i) Market risk. The fair value or future cash flows of a financial instrument
held by the Company may fluctuate because of changes in market prices.
This market risk comprises three elements - interest rate risk, currency risk
and other price risk.
Interest rate risk
Interest rate movements may affect:
- the level of income receivable on cash deposits;
- interest payable on the Company's variable rate borrowings.
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment and
borrowing decisions.
It is the Company's policy to increase its exposure to equity market price
risk through the judicious use of borrowings. When borrowed funds are invested
in equities, the effect is to magnify the impact on Shareholders' funds of
changes - both positive and negative - of revenue and capital returns.
Interest rate profile
The interest rate risk profile of the portfolio of financial assets and
liabilities at the Statement of Financial Position date was as follows:
Weighted
average Weighted
period for average
which interest Fixed Floating
rate is fixed rate rate rate
As at 30 September 2023 Years % £'000 £'000
Assets
Investments in AAA-rated money-market funds - 5.38 - 3,027
Cash deposits - 3.69 - 1,196
Total assets - - - 4,223
Liabilities
Bank loans 0.22 6.68 20,941 -
Total liabilities - - 20,941 -
Weighted
average Weighted
period for average
which interest Fixed Floating
rate is fixed rate rate rate
As at 30 September 2022 Years % £'000 £'000
Assets
Investments in AAA-rated money-market funds - 6.67 - 2,503
Cash deposits - - - 1,054
Total assets - - - 3,557
Liabilities
Bank loans - 2.79 24,979 -
Total liabilities - - 24,979 -
The weighted average interest rate is based on the current yield of each
asset, weighted by its market value. The weighted average interest rate on
bank loans is based on the interest rate payable, weighted by the total value
of the loans.
The floating rate assets consist of investments in AAA-rated money-market
funds and cash deposits on call earning interest at prevailing market rates.
All financial liabilities are measured at amortised cost.
Maturity profile. The Company did not hold any assets at 30 September 2023 or
30 September 2022 that had a maturity date. The £21 million (2022 - £25
million) loan drawn down had a maturity date of 21 December 2023 (2022 - 30
November 2022) at the Statement of Financial Position date.
Interest rate sensitivity. The sensitivity analysis below have been determined
based on the exposure to interest rates at the Statement of Financial Position
date and with the stipulated change taking place at the beginning of the
financial year and held constant throughout the reporting period in the case
of instruments that have floating rates.
If interest rates had been 100 basis points higher or lower and all other
variables were held constant, the Company's :
- profit for the year ended 30 September 2023 would decrease/increase by
£168,000 (2022 - decrease/increase by £214,000). This is mainly attributable
to the Company's exposure to interest rates on its fixed rate borrowings and
floating rate cash balances.
Currency risk. All of the Company's investments are in Sterling. The Company
can be exposed to currency risk when it receives dividends in currencies other
than Sterling. The current policy is not to hedge this risk but this policy is
kept under constant review by the Board.
Other price risk. Other price risks (ie changes in market prices other than
those arising from interest rate or currency risk) may affect the value of the
quoted investments.
It is the Board's policy to hold an appropriate spread of investments in the
portfolio in order to reduce the risk arising from factors specific to a
particular sector. The Manager actively monitors market prices throughout
the year and reports to the Board. The investments held by the Company are
listed on the London Stock Exchange.
Other price risk sensitivity. If market prices at the Statement of Financial
Position date had been 10% higher or lower while all other variables remained
constant, the return attributable to ordinary shareholders and equity for the
year ended 30 September 2023 would have increased/decreased by £16,573,000
(2022 - increase/decrease of £17,973,000). This is based on the Company's
equity portfolio held at each year end.
(ii) Liquidity risk. This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Liquidity risk is not considered to be significant as 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 loan and overdraft facilities (note 11).
(iii) Credit risk. This is failure of the counterparty to a transaction to discharge
its obligations under that transaction that could result in the Company
suffering a loss.
The risk is not significant, and is managed as follows:
- where the investment manager makes an investment in a bond, corporate or
otherwise, the credit rating of the issuer is taken into account so as to
minimise the risk to the Company of default;
- investment transactions are carried out with a large number of brokers,
whose credit-standing and credit rating is reviewed periodically by the
investment manager, and limits are set on the amount that may be due from any
one broker;
- cash and money invested in AAA money market funds are held only with
reputable institutions.
None of the Company's financial assets are secured by collateral or other
credit enhancements.
Credit risk exposure. In summary, compared to the amount in the Statement of
Financial Position, the maximum exposure to credit risk at 30 September was as
follows:
2023 2022
Statement of Statement of
Financial Position Maximum exposure Financial Position Maximum exposure
£'000 £'000 £'000 £'000
Current assets
Debtors 1,611 1,611 2,343 2,343
Investment in AAA-rated money market funds 3,027 3,027 2,503 2,503
Cash and short term deposits 1,196 1,196 1,054 1,054
5,834 5,834 5,900 5,900
None of the Company's financial assets is past due or impaired.
Fair values of financial assets and financial liabilities. The fair value of
borrowings is not materially different to the accounts value in the financial
statements of £20,941,000 (note 11).
16. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy shall have the following
classifications:
Level 1: unadjusted quoted prices in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable (ie developed using market date) for the asset or liability, either
directly or indirectly.
Level 3: inputs are unobservable (ie for which market data is unavailable) for
the asset or liability.
All of the Company's investments are in quoted equities (2022 - same) that are
actively traded on recognised stock exchanges, with their fair value being
determined by reference to their quoted bid prices at the reporting date. The
total value of the investments (2023 - £165,734,000; 2022 - £179,730,000)
have therefore been deemed as Level 1 The investment in AAA rated money market
funds of £3,027,000 (2022 - £2,503,000) is considered to be Level 2 under
the fair value hierarchy of FRS 102 due to not trading in an active market.
17. Capital management policies and procedures
The Company's capital management objectives are:
- to ensure that the Company will be able to continue as a going concern; and
- to maximise the income and capital return to its equity shareholders through
an appropriate balance of equity capital and debt. The Board normally seeks to
limit gearing to 15% of net assets. At the year end the Company had gearing of
11.3% of net assets (2022 - 15.0%).
The Board monitors and reviews the broad structure of the Company's capital on
an ongoing basis. This review includes the nature and planned level of
gearing, which takes account of the Manager's views on the market and the
extent to which revenue in excess of that which is required to be distributed
should be retained.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period. Any year end positions are
presented in the Statement of Financial Position.
The Company does not have any externally imposed capital requirements.
18. Contingent liabilities
As at 30 September 2023 there were no contingent liabilities (2022 - none).
19. Segmental Information
The Company is engaged in a single segment of business, which is to invest in
equity securities. All of the Company's activities are interrelated and each
activity is dependent on the others. Accordingly, all significant operating
decisions are based on the Company as one segment.
20. Related party transactions and transactions with the Manager
Related party transactions. Fees payable during the year to the Directors and
their interests in shares of the Company are considered to be related party
transactions and are disclosed within the Directors' Remuneration Report The
balance of fees due to Directors at the year end was £33,000 (2022 -
£30,000).
Transactions with the Manager. abrdn Fund Managers Limited received fees for
its services as Manager. Further details are provided in notes 3 and 4.
21. Subsequent events
Subsequent to the year end, the Company announced a change to the terms of the
management fee. With effect from 1 October 2023, the Company's management fee
will be charged at a flat fee of 0.55% per annum of the Company's net assets.
Prior to 1 October 2023, the Company's management fee was charged at a rate of
0.65% per annum of net assets up to £175 million and at a rate of 0.55% per
annum of net assets thereafter.
Alternative Performance Measures
Alternative performance measures ('APM') are numerical measures of the
Company's current, historical or future performance, financial position or
cash flows, other than financial measures defined or specified in the
applicable financial framework. The Company's applicable financial framework
includes FRS 102 and the AIC SORP.
The Directors assess the Company's performance against a range of criteria
which are viewed as particularly relevant for closed-ended investment
companies. Where the calculation of an APM is not detailed within the
financial statements, an explanation of the methodology employed is provided
below:
Discount & premium
A discount is the percentage by which the market price of an investment trust
is lower than the Net Asset Value ("NAV") per share. A premium is the
percentage by which the market price per share of an investment trust exceeds
the NAV per share.
30 September 2023 30 September 2022
Share price 314.00p 302.50p
Net asset value per share 314.55p 331.77p
Discount 0.2% 8.8%
Dividend yield
Dividend yield measures the dividend per share as a percentage of the share
price per share.
30 September 2023 30 September 2022
Share price 314.00p 302.50p
Dividend per share 22.80p 22.70p
Dividend yield 7.3% 7.5%
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by Shareholders' funds, expressed as a percentage. Under AIC reporting
guidance cash and cash equivalents includes amounts due from and to brokers at
the period end as well as cash and short-term deposits.
30 September 2023 30 September 2022
£'000 £'000
Total borrowings a 20,941 24,979
Cash and short-term deposits 1,196 1,054
Investments in AAA-rated money-market funds 3,027 2,503
Amounts due from brokers 148 9
Amounts payable to brokers (305) (2,247)
Total cash and investments in AAA-rated money-market funds b 4,066 1,319
Gearing (borrowings less cash & investments in AAA-rated money-market c=(a-b) 16,875 23,660
funds)
Shareholders' funds d 149,873 157,499
Net gearing e=(c/d) 11.3% 15.0%
Ongoing charges ratio
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC, which is defined as the total of investment management fees
and recurring administrative expenses and expressed as a percentage of the
average daily net asset values published throughout the period.
30 September 2023 30 September 2022
£'000 £'000
Investment management fees 1,006 1,117
Administrative expenses 508 464
Less: non-recurring charges(A) (27) (42)
Ongoing charges a 1,487 1,539
Average net assets b 158,676 178,283
Ongoing charges ratio (excluding look-through costs) c=(a/b) 0.94% 0.86%
Look-through costs(B) d 0.00% 0.05%
Ongoing charges ratio (including look-through costs) e=c+d 0.94% 0.91%
(A) Comprises professional fees not expected to recur.
(B) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis.
The ongoing charges ratio provided in the Company's Key Information Document
is calculated in line with the PRIIPs regulations, which includes financing
and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. Share price and NAV total
returns are monitored against open-ended and closed-ended competitors, and the
Reference Index, respectively.
Share
Year ended 30 September 2023 NAV Price
Opening at 1 October 2022 a 331.8p 302.5p
Closing at 30 September 2023 b 314.6p 314.0p
Price movements c=(b/a)-1 (5.2%) 3.8%
Dividend reinvestment(A) d 7.0% 7.6%
Total return c+d 1.8% 11.4%
Share
Year ended 30 September 2022 NAV Price
Opening at 1 October 2021 a 380.8p 349.0p
Closing at 30 September 2022 b 331.8p 302.5p
Price movements c=(b/a)-1 (12.9%) (13.3%)
Dividend reinvestment(A) d 5.3% 5.5%
Total return c+d (7.6%) (7.8%)
(A) NAV total return involves investing the net dividend in the NAV of the
Company with debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return involves reinvesting the net dividend in
the share price of the Company on the date on which that dividend goes
ex-dividend.
Additional Notes to the Annual Financial Report
The Annual General Meeting will be held at wallacespace Spitalfields, 15-25
Artillery Lane, London, E1 7HA on Tuesday, 20 February 2024 at 11:30 am.
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 30 September 2023 have been
agreed with the auditor and are an abridged version of the Company's full
accounts, which have been approved and audited with an unqualified report. The
2022 and 2023 statutory accounts received unqualified reports from the
Company's auditor and did not include any reference to matters to which the
auditor drew attention by way of emphasis without qualifying the reports, and
did not contain a statement under s.498(2) or 498(3) of the Companies Act
2006. The financial information for 2022 is derived from the statutory
accounts for 2022 which have been delivered to the Registrar of Companies. The
2023 accounts will be filed with the Registrar of Companies in due course.
The Annual Report and Accounts will be posted to shareholders in December
2023. Copies will be available during normal business hours from the
Secretary, abrdn Holdings Limited, 1 George Street, Edinburgh EH2 2LL or from
the Company's website, abrdnequityincome.com*.
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise and may be affected by exchange rate movements. Investors may not get
back the amount they originally invested.
By order of the Board
abrdn Holdings Limited
Company Secretary
29 November 2023
* Neither the Company's website nor the content of any website accessible from
hyperlinks on it (or any other website) is (or is deemed to be) incorporated
into, or forms (or is deemed to form) part of this announcement.
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