abrdn UK Smaller Cos - Annual Financial Report
25/08/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230825:nRSY3897Ka&default-theme=true
RNS Number : 3897K abrdn UK Smaller Cos. Growth Trust 25 August 2023
abrdn UK Smaller Companies Growth Trust plc
Annual Financial Report for the year ended 30 June 2023
Legal Entity Identifier (LEI): 213800UUKA68SHSJBE37
Investment Objective
To achieve long-term capital growth by investment in UK-quoted smaller
companies
Reference Index
The Company's reference index is the Numis Smaller Companies plus AIM (ex
investment companies) Index.
Website
Up to date information can be found on the Company's website:
abrdnuksmallercompaniesgrowthtrust.co.uk
Performance Highlights and Financial Calendar
Net asset total return(AB) Share price total return(AB)
-7.4% -6.8%
2022 -27.3% 2022 -34.3%
Total dividends per share Discount to net asset value(AB)
11.00p 14.3%
2022 8.10p 2022 14.6%
Revenue return per share Ongoing charges ratio(ABC)
12.44p 0.95%
2022 9.07p 2022 0.82%
(A) Considered to be an Alternative Performance Measure.
(B) A Key Performance Indicator ("KPI").
(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.
Financial Highlights
30 June 2023 30 June 2022 % change
Capital return
Total assets £451.5m £538.6m (16.2%)
Equity shareholders' funds £426.6m £498.6m (14.4%)
Market capitalisation(A) £365.7m £425.9m (14.1%)
Net asset value per share 482.95p 530.37p (8.9%)
Share price 414.00p 453.00p (8.6%)
Discount to NAV(B) 14.3% 14.6%
Net gearing(B) 2.5% 5.1%
Reference index(C) 5,199.92 5,520.20 (5.8%)
Dividends and earnings
Revenue return per share(D) 12.44p 9.07p 37.2%
Total dividends per share(E) 11.00p 8.10p 35.8%
Operating costs
Ongoing charges ratio(BF) 0.95% 0.82%
(A) Represents the number of Ordinary shares in issue in the Company
multiplied by the Company's share price.
(B) Considered to be an Alternative Performance Measure.
(C) Numis Smaller Companies plus AIM (ex investment companies) Index.
(D) Measures the revenue earnings for the year divided by the weighted average
number of Ordinary shares in issue (see Statement of Comprehensive Income).
(E) The figures for dividend per share reflect the years in which they were
earned (see note 8).
(F) 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.
For further information, please contact:
Stephanie Hocking
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.
Chairman's Statement
Performance
I am disappointed to be reporting to shareholders that in the year just ended,
the Company has extended its period of underperformance against its benchmark
on both a net asset value ("NAV") and share price basis. We are very aware
that the effect of this underperformance, over one, three and five years, is
that anyone who made their initial investment in the Company in the last five
years will most likely have seen a reduction in the value of their investment.
This is clearly an uncomfortable position for shareholders, and also for those
of us who are responsible for the portfolio and the Company.
For the year ended 30 June 2023, the Company's NAV total return, calculated on
the basis that all dividends received are reinvested in additional shares, was
-7.4%. The share price total return, calculated on the same basis, was -6.8%.
By contrast, the total return of the Company's reference index, the Numis
Smaller Companies plus AIM (ex investment companies) Index (the "reference
index"), was -2.8%.
The Board and the Manager have discussed the investment strategy at length
over the past couple of years but this year, in addition, your Board has spent
a lot of time considering the root causes of the underperformance in order to
be confident that the Company's investment thesis remains intact. It also
carried out a detailed review to assess whether the investment process itself
is being robustly implemented.
As a consequence of these reviews, the Board is able to support the Manager's
view that the drivers of current underperformance are primarily a confluence
of external events. These conditions reflect the weak UK economy, rising
inflation and the sequential increases in interest rates we are experiencing
as well as the political turbulence. These have created a difficult macro
environment for investing in small companies generally, but particularly for
the Manager's investment style, which focuses on Quality, Growth and Momentum
factors - and we believe does so to a greater extent than any of the peer
group companies in the sector. Whereas this favours the performance of the
Company in growth oriented markets, it creates very challenging conditions in
the market conditions we have seen, which have resulted in periods of rotation
and a continual de-rating of the highly rated growth companies which typify
our portfolio.
Detailed commentary on markets and performance for the year is contained in
the Investment Manager's Review.
Earnings and Dividends
The revenue return per share ("EPS") for the year ended 30 June 2023 was
12.44p (2022: 9.07p). The increase of 37.2% builds on the 41% increase in 2022
and has come from both an increase in the ordinary dividends received, special
dividends of £942,000 (7.2% of investment income), and a material increase in
interest income, as for the first time since 2008 cash balances are delivering
a return. Included in the EPS is the enhancement to earnings of 0.34p per
share (2.8%) as a result of share buy backs undertaken during the year.
The Board is pleased to announce that this significant increase in EPS is
flowing through to a substantial increase in dividends for shareholders and it
is declaring a final dividend of 8.00p per share. Together with the interim
dividend of 3.00p per share already paid, the total distribution for the
financial year will be 11.00p per share, representing a 35.8% increase on the
8.10p per share paid last year. This still permits a proportion of earnings to
be transferred to revenue reserves which will help your Company to withstand
any future downturn such as we witnessed in 2020/21 or, indeed, simply manage
any reduction in dividend receipts in future as income receipts from smaller
companies are generally more variable than those of larger companies.
Following the payment of the final dividend, an amount of approximately 2.0p
per share will be transferred to revenue reserves.
Subject to approval by shareholders at the Annual General Meeting ("AGM"), the
final dividend will be paid on 30 November 2023 to shareholders on the
register on 3 November 2023, with an associated ex-dividend date of 2 November
2023.
Management Fee and Company Secretarial Fee
The Board continually reviews the management fee structure and, during the
year, considered that the existing structure of fees paid to the Manager made
the Company insufficiently competitive relative to its closest peers.
Accordingly, the Board has negotiated a lower fee structure with the Manager.
With effect from 1 July 2023 fees will be 0.75% per annum (previously 0.85%)
on the first £175 million (previously £250 million) of net assets, 0.65% per
annum (unchanged) on net assets between this amount and £550 million
(unchanged), and 0.55% per annum (unchanged) on net assets above £550 million
(unchanged). In addition, from 1 January 2024 the Manager will no longer
charge for the provision of company secretarial services, saving the Company a
further £75,000 (+ VAT) per annum. On a pro-forma basis, based on the NAV at
30 June 2023, the change would represent a saving in a full year of around
£415,000, or approximately 12% of management fee costs. The Board considers
that this makes the fee structure more competitive when compared to the other
similar investment trusts in the sector.
Ongoing Charges
The ongoing charges ratio ("OCR") for the year ended 30 June 2023 was 0.95%
(2022: 0.82%). As I highlighted last year, we expected that the OCR would
increase this year with a fall in the NAV. In addition, the promotional fee,
which is set annually, was based on a higher NAV. We expect that the OCR in
the coming year will be lower, partly because of the reduction to the fees
referred to above and partly because the promotional fee will be lower. There
will be a further diminution of cost to come following the Manager's recent
decision to discontinue its Share Plan with effect from the end of the year,
as your Company currently contributes to the marketing and administration of
this Plan which accounts for some 7% of our shareholder base.
Discount Control and Share Buy Backs
At the year end the discount of the share price to the cum income NAV was
14.3% (2022: 14.6%).
Over the year, the Company bought back almost 5.7 million shares, equating to
6.0% of its issued share capital, at a total cost of £25.8 million and a
weighted average price of 449.7p per share. The weighted average discount at
which the shares were repurchased was 12.8%. The Board calculates that this
has added 4.0p per share to the NAV for remaining shareholders.
The Company has been more active in buying back shares in the last 12 months
than in any previous year since it last undertook a tender offer in 2015,
buying back shares on over 180 days last year. The increased activity has been
caused by the level of the discount, which has been wider than the 8% target
that the Board is committed to in the long term in normal market conditions.
Given the backdrop has continued to be unfavourable for the UK smaller
companies sector as a whole, evidenced by outflows in the open ended sector,
it is to be expected that we would see the discount widen as it has across
most of our peer group. Whilst the Board takes sector levels into account when
implementing its discount control mechanism, it remains committed to its long
term target of 8% and will continue to be active in the market when it
believes it to be in the best interests of shareholders.
Full details of the Board's discount control policy can be found in the
Overview of Strategy below.
Gearing
The Board has given the Investment Manager discretion to vary the level of
gearing between 5% net cash and 25% net gearing (at the time of drawdown). On
1 November 2022 the Company renewed its loan facility with the Royal Bank of
Scotland International, giving it access to a £40 million revolving credit
facility ("RCF"), £25 million of which was drawn down at the year end. The
gross level of borrowings was offset by cash and money market funds of £14.4
million resulting in net gearing at 30 June 2023 of 2.5% (2022: 5.1%).
The Board
After seven years as a Director, Caroline Ramsay has informed the Board that
she does not intend to stand for re-election at the Company's AGM in November.
Consequently, the Board undertook a search to find a replacement and appointed
Manju Malhotra, who joined the Board on 1 May 2023. Manju is a Chartered
Accountant and it is intended that she will assume the role of Chair of Audit
Committee at the completion of the AGM. On behalf of the Board, I would like
to thank Caroline for her contribution over the last few years and we wish her
well for the future, and to welcome Manju to the Board. Manju will stand for
election at the AGM. This period has also seen the completion in May of the
one year term of the Company's first Board Apprentice, Jessica Norell Neeson.
We thank Jessica for her pertinent contributions to our discussions and wish
her well in the next stage of her career path.
Annual General Meeting
The Company's AGM will be held at 12 noon on Thursday 23 November 2023 at
Wallacespace Spitalfields, 15 Artillery Lane, London E1 7HA. The meeting will
include a presentation from the Investment Manager and will be followed by a
buffet lunch. This is a good opportunity for shareholders to meet the Board
and Manager and we would encourage you to attend.
Shareholders will be able to submit questions in advance of the AGM at the
following email address: abrdnuksmallercompaniesgrowthtrust@abrdn.com. Should
you be unable to attend the AGM, the Investment Manager's presentation will be
made available on the Company's website shortly after the meeting. The results
of the AGM will also be published on the website.
In the meantime, the Board strongly encourages all shareholders to exercise
their votes in respect of the AGM in advance of the meeting, and to appoint
the Chairman of the meeting as their proxy, by completing the enclosed form of
proxy form, or letter of direction for those who hold shares through the abrdn
Investment Trust savings plans. This will ensure that your votes are
registered.
Outlook
The economic challenges that existed during the year seem set to continue
through the current financial year. Although starting to fall, inflation
remains high and interest rates have increased since the year end, with
further increases expected. This will likely prove again to be a difficult
backdrop for investing in smaller UK companies.
The Board considers the Investment Manager's process to be tried and tested
and it has yielded good results over the past two decades albeit interspersed
with periods of underperformance at times of market turbulence such as this.
Predicting when these challenging market conditions will change is very
difficult and we must acknowledge the possibility that they may continue for
longer than they have in the past two decades. We must accept that much of
this period was characterised by unprecedented low interest rates and loose
monetary conditions which is no longer the case.
Notwithstanding this uncertainty, company quality and growth factors should
ultimately prove themselves in such an environment, through resilience and
earnings delivery. Share price valuations of companies with these
characteristics remain very attractive in historic terms, and the Investment
Manager believes that this presents a significant opportunity to investors.
The Investment Manager has seen positive signs across the portfolio, with a
strong reporting season and earnings upgrades for some of our core positions,
even though significant economic challenges remain. If continued, over time
this should lead to an improvement in investor sentiment to UK equities and
the small and mid-cap sector in particular. In summary, the Board continues to
believe that there are opportunities for your Company to achieve superior
returns over the economic cycle.
Liz Airey
Chairman
24 August 2023
Overview of Strategy
Business
The Company is an investment trust with a premium listing on the London Stock
Exchange.
Investment Objective
The Company's objective is to achieve long-term capital growth by investment
in UK-quoted smaller companies.
Investment Policy
The Company intends to achieve its investment objective by investing in a
diversified portfolio consisting mainly of UK-quoted smaller companies. The
portfolio will normally comprise between 50-60 holdings representing the
Investment Manager's highest conviction investment ideas. In order to reduce
risk in the Company without compromising flexibility, no holding within the
portfolio should exceed 5% of total assets at the time of acquisition.
The Company may use derivatives for portfolio hedging purposes (i.e. only for
the purpose of reducing, transferring or eliminating the investment risks in
its investments in order to protect the Company's portfolio).
Within the Company's Articles of Association, the maximum level of gearing is
100% of net assets. The Directors have set parameters of between 5% net cash
and 25% net gearing (at the time of drawdown) for the level of gearing that
can be employed in normal market conditions. The Directors have delegated
responsibility to the Investment Manager for the operation of the gearing
level within the above parameters.
Board Investment Limits
The Directors have set additional guidelines in order to reduce the risk borne
by the portfolio:
- Companies with a market capitalisation of below £50 million
should not represent more than 5% of total assets.
- Companies involved in "Blue Sky" products should not represent
more than 5% of total assets.
- No more than 50% of the portfolio should be invested in
companies that are constituents of the FTSE AIM All-Share Index.
Investment Process
The Investment Manager's investment process combines asset allocation, stock
selection, portfolio construction, risk management, and dealing. The
investment process has evolved out of the Investment Manager's 'Focus on
Change' philosophy and is led by Quality, Growth and Momentum. The Investment
Manager's stock selection led investment process involves compiling a
shortlist of potential investments using a proprietary screening tool known as
"The Matrix" which reflects Quality, Growth and Momentum based factor
analysis. The final portfolio is the result of intensive research and includes
face to face meetings with senior management of these potential investments.
This disciplined process has been employed for many years and has delivered
strong long term performance.
Reference Index
The Company's reference index is the Numis Smaller Companies plus AIM (ex
investment companies) Index.
Delivering the Investment Objective
The Directors are responsible for determining the Company's investment
objective and investment policy. Day-to-day management of the Company's assets
has been delegated, via the Alternative Investment Fund Manager (the "AIFM"),
to the Investment Manager.
Promoting the Success of the Company
The Board's statement below 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 for the benefit of the members as a whole.
Key Performance Indicators ("KPIs")
The Board assesses the performance of the Company against the range of KPIs
shown below over a variety of timeframes, 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 performance The Board measures the Company's NAV total return performance against the
total return of the reference index (the Numis Smaller Companies plus AIM (ex
investment companies) Index) and its peer group of investment trusts.
Share price total return performance The Board measures the Company's share price total return performance against
the total return of the reference index and its peer group of investment
trusts.
Discount/premium to NAV The Board compares the discount or premium of the Ordinary share price to the
NAV per share to the discount of the peer group and also to the threshold of
the Company's discount target on a rolling 12 month basis.
Ongoing charges The Board monitors the Company's ongoing charges ratio against prior years and
other similar sized companies in the peer group.
The Chairman's Statement contains details of changes to the management fee
arrangements since the end of the year.
Principal and Emerging Risks and Uncertainties
The Board carries out a regular review of the risk environment in which the
Company operates, changes to the environment and individual risks. The Board
also considers emerging risks which might affect the Company. During the year,
the most significant risks were, political instability, inflation and
increasing interest rates and the resultant volatility that this has created
in global stock markets. In addition, the conflict in Ukraine has continued to
create geo-political uncertainty which has further increased market risk and
volatility.
There are a number of other risks which, if realised, could have a material
adverse effect on the Company and its financial condition, performance and
prospects. The Board 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 principal risks and uncertainties facing the Company at the current time,
together with a description of the mitigating actions the Board has taken, are
set out in the table below.
In terms of its appetite for risk, the Board has identified what it considers
to be the key risks to which the Company is exposed and seeks to take a
proportionate approach to the control of these risks. In particular, by
considering the likelihood and impact of a specific risk, if the potential
exposure is rated as Critical or Significant, the Board ensures that
significant mitigation is in place to reduce the likelihood of occurrence
whilst recognising that this may not be possible in all cases.
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 Mitigating Action
Strategy - the Company's objectives or the investment trust sector as a whole Through regular updates from the Manager, the Board monitors the discount/
become unattractive to investors, leading to a fall in demand for the premium at which the Company's shares trade relative to the NAV. It also holds
Company's shares. an annual strategy meeting and receives feedback from the Company's
Stockbroker and shareholders and updates from the Manager's investor relations
team at Board meetings.
Investment performance - the appointment or continuing appointment of an The Board meets the Manager on a regular basis and keeps investment
investment manager with inadequate resources, skills or experience, the performance under close review. Representatives of the Investment Manager
investment style or process being out of favour, or the adoption of attend all Board meetings and a detailed formal appraisal of the Manager is
inappropriate strategies in pursuit of the Company's objectives, could result carried out by the Management Engagement Committee on an annual basis.
in poor investment performance, a loss of value for shareholders and a
widening discount. The Board sets and monitors the investment restrictions and guidelines and
receives regular reports which include performance reporting on the
implementation of the investment policy, the investment process, ESG matters,
risk management and application of the investment guidelines.
Key person risk - a change in the key The Board discusses key person risk and succession planning with the Manager
personnel involved in the investment management of the portfolio could impact and Investment Manager on a regular basis.
on future investment performance and
lead to loss of investor confidence. The Investment Manager employs a standardised investment process for the
management of the portfolio. The well-resourced smaller companies team has
grown in size over a number of years. These factors mitigate against the
impact of the departure of any one member of the investment team.
Share price - failure to manage the discount effectively or an inappropriate The Company operates a discount control mechanism and aims to maintain a
marketing strategy could lead to a fall in the share price relative to the NAV discount level of less than 8% to the cum-income NAV under normal market
per share. conditions. Details of the discount control mechanism are contained in the
Overview of Strategy. The Directors undertake a programme of inviting major
shareholders to discuss issues of governance or strategy with the Chairman or
Senior Independent Director. In addition, 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 instruments - insufficient oversight or controls over financial As stated above, the Board sets investment guidelines and restrictions which
risks, including market price risk, liquidity risk and credit risk could are reviewed regularly and the Manager reports on compliance with them at
result in losses to the Company. Board meetings.
Further details of the Company's financial instruments and risk management are
included in note 16 to the financial statements.
Financial obligations - inadequate controls over financial record keeping and At each Board meeting, the Board reviews management accounts and receives a
forecasting, the setting of an inappropriate gearing strategy or the breaching report from the Administrator, detailing any breaches during the period under
of loan covenants could result in the Company being unable to meet its review. The Board sets gearing limits and monitors the level of gearing and
financial obligations, losses to the Company and impact its ability to compliance with the main financial covenants at Board meetings.
continue trading as a going concern.
The Audit Committee meets representatives from the Manager's Compliance and
Internal Audit teams on at least an annual basis and discusses any findings
and recommendations relevant to the Company.
Regulatory - failure to comply with relevant laws and regulations could result The Board receives updates on relevant changes in regulation from the Manager,
in fines, loss of reputation and potential loss of investment trust status. industry bodies and external advisers and the Board and Audit Committee
monitor compliance with regulations by review of checklists and internal
control reports from the Manager. Directors keep up to date in a variety of
ways, including attendance at training courses and seminars.
Operational - the Company is dependent on third parties for the provision of The Audit Committee reviews reports from the Manager on its internal controls
all systems and services (in particular those of the Manager and the and risk management (including an annual ISAE Report) and considers assurances
Depositary) and any control failures and gaps in their systems and services from all its other significant service providers on at least an annual basis,
could result in a loss or damage to the Company. including on matters relating to business continuity and cyber security. The
Audit Committee meets representatives from the Manager's Compliance and
Internal Audit teams on at least an annual basis and discusses any findings
and recommendations relevant to the Company. 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, and
provides periodic updates to the Board on this work.
A formal appraisal of the Company's main third party service providers is
carried out by the Management Engagement Committee on an annual basis.
Geopolitical - the effects of geopolitical instability or change could have an Current geopolitical risks include the actions taken by governments in
adverse impact on stock markets and the value of the Company's investment relation to climate change, the conflict in Ukraine and the impact of
portfolio. increased inflation and interest rates. The Investment Manager's focus on
quality companies, the diversified nature of the portfolio and a
managed level of gearing all serve to provide a degree of protection in
times of market volatility.
Promotional Activities
The Board recognises the importance of promoting the Company to prospective
investors both for improving liquidity and enhancing the 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 the Manager on behalf of a number of investment trusts under its
management. The Company also supports the Manager's investor relations
programme which involves regional roadshows, promotional and public relations
campaigns. The Manager'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. The promotional programme includes commissioning independent
paid for research on the Company, most recently from Edison Investment
Research Limited. A copy of the latest research note is available from the
Company's website.
The cost to the Company of participating in these programmes is matched by the
Manager through the provision of the necessary resources to carry out the
marketing and promotional activities.
Employees and Human Rights
The Company has no employees as 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 or human rights.
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 Governance ("ESG") Matters
The Board supports the Investment Manager's approach to ESG considerations
which are fully embedded into the investment process.
The UK Stewardship Code and Proxy Voting
The Company supports the UK 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, 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 on a quarterly basis on stewardship
(including voting) issues.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under
the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations
2013.
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.
Discount Control Policy
The Board operates a discount control mechanism which targets a maximum
discount of the share price to the cum-income net asset value of 8% under
normal market conditions. In pursuit of this objective, the Board closely
monitors the level of the discount and buys back shares in the market when it
believes it is in the best interests of shareholders as a whole to do so. At
each Annual General Meeting, the Board seeks shareholder approval to buy back
up to 14.99% of the Company's share capital. Share buy-backs will only be made
where the Board believes it to be in the best interests of shareholders as a
whole and the making and timing of share buy-backs will be at the discretion
of the Board.
The Board considers that, given the backdrop has continued to be unfavourable
for the UK smaller companies sector as a whole, evidenced by outflows in the
open ended sector, it is to be expected that the Company's discount would
widen as it has across most of the peer group. Whilst the Board takes sector
levels into account when implementing its discount control mechanism, it
remains committed to its long term target of 8% and will continue to be active
in the market when it believes it to be in the best interests of
shareholders.
The Company has a tender offer mechanism in place and the Board intends to
continue to seek shareholder approval at each Annual General Meeting to enable
it to carry out tender offers on a discretionary basis in circumstances where
the Board believes that share buy-backs are not sufficient to maintain the
discount at an appropriate level, although it expects that buy-backs should be
the primary mechanism for managing the discount.
Viability Statement
The Board considers that the Company, which does not have a fixed life, is a
long-term investment vehicle and, for the purposes of this statement, has
decided that five years is an appropriate period over which to consider its
viability. The Board considers that this period reflects a balance between
looking out over a long-term horizon and the inherent uncertainties of looking
out further than
five years.
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 five 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, together with the emerging risks
identified by the Board.
- The Company is invested in listed securities that are
readily-realisable in normal market conditions 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 Company's long-term performance record.
- The Company's level of gearing. The Company had net gearing of
2.5% as at 30 June 2023. The Company has a £40 million unsecured loan
facility agreement with The Royal Bank of Scotland International Limited which
expires on 1 November 2025. 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. The Board has also performed stress testing
and liquidity analysis. In the event that the facility is not refinanced,
there is considered to be sufficient portfolio liquidity to enable borrowings
to be repaid.
- The Company has cash and money market funds which at 30 June
2023 amounted to £14.4 million. These balances allow the Company to meet
liabilities as they fall due.
- The level of ongoing charges (the Chairman's Statement contains
details of changes to the management fee arrangements since the end of the
year).
- There are no capital commitments currently foreseen that would
alter the Board's view.
- The robustness of the operations of the Company's third party
service suppliers.
The Directors have also reviewed the revenue and ongoing expenses forecasts
for the coming year and considered the Company's Statement of Financial
Position as at 30 June 2023 which shows net current liabilities of £11.8
million at that date, and do not consider this to be a concern due to the
liquidity of the portfolio which would enable the Company to meet any short
term liabilities if required.
In assessing the Company's future viability, the Board has assumed that
shareholders will wish to continue to have exposure to the Company's
activities in the form of a closed ended entity and the Company will continue
to have access to sufficient capital.
In making its assessment, the Board is also aware that there are other matters
that could have an impact on the Company's prospects or viability in the
future, including the conflict in Ukraine, economic shocks or significant
stock market volatility caused by other factors, and changes in regulation or
investor sentiment.
Future Strategy
The Board intends to maintain the strategic direction set out in the Strategic
Report for the year ending 30 June 2024 as it believes that this is in the
best interests of shareholders.
On behalf of the Board
Liz Airey
Chairman
24 August 2023
Promoting the Success of the Company
Introduction
Section 172 (1) of the Companies Act 2006 (the "Act") requires each Director
to act in the way he/she considers, in good faith, would be most likely to
promote the success of the Company for the benefit of its members as a whole.
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 that provision of the Act (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, among other things, 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 Purpose of the Company and Role of the Board
The purpose of the Company is to act as an investment vehicle to provide, over
time, financial returns (both income and capital) to its shareholders.
Investment trusts, such as the Company, are long-term investment vehicles and
are typically externally managed, have no employees, and are overseen by an
independent non-executive board of directors.
The Board, which at the end of the year, comprised six independent
non-executive Directors with a broad range of skills and experience across all
major functions that affect the Company, retains responsibility 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's philosophy is that the Company should operate in a transparent
culture where all parties are treated with respect and provided with the
opportunity to offer practical challenge and participate in positive debate
which is focused on the aim of achieving the expectations of shareholders and
other stakeholders alike. The Board reviews the culture and manner in which
the Manager and Investment Manager operate at its meetings and receives
regular reporting and feedback from the other key service providers. The Board
is very conscious of the ways it promotes the Company's culture and ensures as
part of its regular oversight that the integrity of the Company's affairs is
foremost in the way that the activities are managed and promoted. The Board
works very closely with the Manager and Investment Manager in reviewing how
stakeholder 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.
The Company's main stakeholders have been identified as its shareholders, the
Manager (and Investment Manager), service providers, investee companies, debt
providers and, more broadly, the environment and community at large.
How the Board Engages with Stakeholders
The Board considers its stakeholders at Board meetings and receives feedback
on the Manager's interactions with them.
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 Company's Stockbroker
regularly meet with current and prospective shareholders to discuss
performance and shareholder feedback is discussed by the Directors at Board
meetings. In addition, Directors meet shareholders at the Annual General
Meeting and the Chairman offers to meet with the Company's larger shareholders
to discuss their views.
The Company subscribes to the Manager'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 Investment Manager's Review details the key investment decisions taken
during the year. The Investment Manager has continued to manage the portfolio
and other assets in accordance with the mandate agreed with the Company, 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 Investment Manager at every Board
meeting to help it to exercise effective oversight of the Investment Manager
and the Company's strategy.
The Board, through the 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
service providers either directly or through the Manager with regular
communications and meetings.
The 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 Investment 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 Company, the Manager maintains a positive working
relationship with The Royal Bank of Scotland International Limited, 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 Investment Manager embeds Environmental, Social and Governance ("ESG")
considerations into its research and analysis as part of the investment
decision-making process.
Specific Examples of Stakeholder Consideration During the Year
While the importance of giving due consideration to the Company's stakeholders
is not a new requirement, and is considered during every significant Board
decision, the Directors were particularly mindful of stakeholder
considerations as part of the following decisions made during the year ended
30 June 2023. Each of these decisions was made after taking into account the
short and long-term benefits for stakeholders.
Portfolio and Investment Performance
The Investment 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.
As explained in more detail in the Chairman's Statement, the Board and Manager
have discussed the investment strategy at length over the past couple of years
but during the year, in addition, the Board spent time considering the root
causes of the Company's underperformance in order to be confident that the
investment thesis remained intact. It also carried out a detailed review to
assess whether the investment process itself was being robustly
implemented.
As a consequence of these reviews, the Board was able to support the
Investment Manager's view that the drivers of current underperformance are
primarily a confluence of external events which have created a difficult macro
environment for investing in small companies generally, but particularly for
the Investment Manager's investment style, which focuses on Quality, Growth
and Momentum factors - and the Board believes does so to a greater extent than
any of its peer group companies in the sector. Whereas this favours the
performance of the Company in growth oriented markets, it creates very
challenging conditions in the market conditions seen recently, which have
resulted in periods of rotation and a continual de-rating of the highly rated
growth companies which typify the portfolio.
During the year the Management Engagement Committee decided that the
continuing appointment of the Manager is in the best interests of
shareholders.
Management Fee
As explained in the Chairman Statement, during the year, the Board considered
that the existing structure of fees paid to the Manager made the Company
insufficiently competitive relative to its closest peers. Accordingly, the
Board negotiated a lower fee structure with the Manager which the Board
considers is more competitive when compared to the other similar investment
trusts in the sector.
Dividends
The Board is recommending payment of a final dividend for the year of 8.00p
per Ordinary share. Following payment of the final dividend, total dividends
for the year will amount to 11.00p per Ordinary share, an increase of 35.8%
compared to the previous year. Although the Company has a capital growth
objective, the Board recognises the importance of dividends to shareholders.
Share Buy Backs
In accordance with the discount control policy included in the Overview of
Strategy, during the year the Company bought back 5,682,136 Ordinary shares to
be held in treasury, 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. It is the view of the Board
that this policy is in the interest of all shareholders.
Renewal of Bank Loan
On 1 November 2022 the Company renewed its loan facility with the Royal Bank
of Scotland International, giving it access to a £40 million revolving credit
facility ("RCF"), £25 million of which was drawn down at the year end. The
gross level of borrowings was offset by cash and money market funds of £14.6
million resulting in net gearing at 30 June 2023 of 2.5% (2022: 5.1%).
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.
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 value
of the Company under the Consumer Duty regulations and will review the
Manager's assessment of value an ongoing basis.
Board Succession
As explained in the Directors' Report, after seven years as a Director,
Caroline Ramsay has informed the Board that she does not intend to stand for
re-election at the Company's Annual General Meeting in November. Consequently,
following a formal recruitment process, the Board decided to appoint Ms Manju
Malhotra as an independent Director on 1 May 2023. New Board appointments seek
to achieve a good balance of skills, experience, gender and ethnicity.
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.
On behalf of the Board
Liz Airey
Chairman
24 August 2023
Performance
Performance (total return)
1 year return 3 years return 5 years return 10 years return
% % % %
Net asset value(AB) -7.4 -4.4 -6.1 +98.9
Share price(B) -6.8 -10.1 -10.4 +72.9
Reference Index -2.8 +19.9 -0.7 +72.4
Peer Group weighted average (NAV) +1.0 +24.5 +3.3 +107.3
Peer Group weighted average (share price) +1.4 +20.1 -0.4 +113.3
(A) Cum-income NAV with debt at fair value.
(B) Considered to be an Alternative Performance Measure.
Source: Morningstar
Ten Year Financial Record
Year to 30 June 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Per Ordinary share (p)
Net revenue return 5.05 6.76 6.76 6.42 7.24 8.80 6.74 6.43 9.07 12.44
Ordinary dividends paid/proposed 4.50 5.80 6.60 6.70 7.00 7.70 7.70 7.70 8.10 11.00
Net asset value(A) 298.92 336.89 345.43 456.60 552.93 539.54 527.73 737.97 530.37 482.95
Share price 281.25 300.00 316.00 431.00 500.00 491.50 482.00 698.00 453.00 414.00
Discount(%)(A) 5.9 10.9 8.5 5.6 9.6 8.9 8.7 5.4 14.6 14.3
Ongoing charges ratio (%)(B) 1.19 1.19 1.13 1.08 1.04 0.90 0.91 0.88 0.82 0.95
Gearing ratio (%)(C) (4.6) 4.1 3.6 1.7 3.6 1.5 (0.3) 5.7 5.1 2.5
Shareholders' funds (£m)(D) 219 243 241 324 408 543 528 728 499 427
Revenue reserves (£m)(E) 4.34 5.83 6.50 6.26 8.30 10.87 8.80 7.53 8.81 12.47
(A) Calculated with debt at par value and diluted for the effect of
Convertible Unsecured Loan Stock conversion from 01 July 2013 until 30 June
2017. From 30 June 2018, net asset value is calculated with debt at par value.
(B) Calculated as an average of shareholders' funds throughout the year and in
accordance with updated 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) Net gearing ratio calculated as debt less cash invested in AAA-rated money
market funds and short-term deposits divided by net assets at the year end.
(D) Increase in 2018 included the effect of the merger with Dunedin Smaller
Companies Investment Trust PLC.
(E) Revenue reserves are reported prior to paying the final dividend for the
year.
Investment Manager's Review
The net asset value ("NAV") total return for the Company for the year ended 30
June 2023 was -7.4%, while the share price total return was -6.8%. By
comparison, the UK smaller companies sector as represented by the Numis
Smaller Companies plus AIM (ex investment companies) Index (the "reference
index") delivered a total return of -2.8%.
Equity Markets
During the year under review, markets were volatile and top down driven, with
the dominating narrative one of persistent inflation and higher interest
rates. Against this backdrop, bottom-up company fundamentals have come second.
Whilst the portfolio holdings have been delivering well fundamentally, that
has often not been reflected in share prices.
The UK stock market, as represented by the FTSE All-Share Index, gained a
small amount of ground over the period, with a total return of 7.9%. The FTSE
100 Index outperformed the FTSE 250 Index (excluding investment companies),
the latter of which generated a total return of only 1.9%. Investors have
remained cautious around the UK economic picture, which has challenged the
more domestically focused small and mid-cap areas of the market.
The period was dominated by high inflation, rising interest rates and fears of
a sustained economic downturn. Inflation drivers included the war in Ukraine
as well as unsettled supply chains post Covid. Political uncertainty in the UK
did little to reduce share-price volatility, with Boris Johnson's resignation
as Prime Minister in July and the tax-cutting strategy unveiled by his
successor Liz Truss in September adding to market turbulence. Inflation
reached 10.1% in July, and the Bank of England ("BoE") warned that price rises
could accelerate in the autumn as a result of higher energy costs. The BoE
continued to tighten monetary policy by raising interest rates to combat
inflation. Through late 2022, data showed successive falls in output in the UK
manufacturing sector, while retail spending weakened, and we saw a sharp rise
in mortgage rates.
In the aftermath of the disastrous mini-Budget presented by new prime minister
Liz Truss and her chancellor Kwasi Kwarteng at the end of September, Truss was
forced to sack Kwarteng, reverse her tax-cutting policies and finally resign,
to be replaced by Rishi Sunak. These developments were welcomed by markets.
UK small and mid-cap equities enjoyed a positive final quarter of calendar
year 2022 as hopes rose that inflation had peaked and central banks would soon
slow the pace of monetary-policy tightening. However, there remained
significant difficulties and recession risk for the UK economy. The mid-cap
FTSE 250 Index rose by 10.6% in the final quarter of 2022, reversing some of
the heavy losses seen earlier in the year, whilst the FTSE Small Cap Index
returned 8.9%. Officials said rates would continue to increase until inflation
was significantly closer to the 2% long-term target, regardless of the
short-term economic impact. Late 2022 also saw many industries battling with
supply chain challenges, a result of Covid shutdowns combining with increasing
re-opening demand. This provided many challenges for companies and was a
contributor to the inflationary pressures. As we turned into 2023, many of the
supply shortages and logistics challenges had eased - one less headache for
companies to try to navigate.
The turn of the year saw the strongest surprises coming through in
consumer-exposed companies; consumer spending proving more resilient than
expected. The fear of a tough two year recession outlined by the BoE appeared
behind us for now. Hopes rose that the pace of interest rate rises would start
to slow, while indicators suggested the economy would avoid falling into
recession. Disappointingly, inflation remaining stubbornly high. March saw the
collapse of Silicon Valley Bank and a loss of confidence in Credit Suisse
sparked fears about the resilience of the global financial system. Trading
conditions in a number of sectors remained challenging. Mortgage lending
declined to its lowest level since 2016 in February, while in March house
prices recorded their steepest falls since 2009, a sharp reminder of the broad
global challenges.
However, with UK inflation remaining high and above other major geographies,
and interest rates continuing to increase, UK share prices lagged major
markets in Europe and North America. The big question globally, but
particularly in the UK, with GDP numbers proving more resilient than many
thought, is whether we get a recession or not.
Performance
Overall through the year, the net asset value ("NAV") fell by 7.4% on a total
return basis, underperforming the reference index total return of -2.8%.
We had hoped for a more stable backdrop for the period, yet the dominating
market narrative has been one of UK inflation that requires the BoE to
increase interest rates. Through the period, policymakers still expected
inflation to be benign and central banks to increase rates slowly. This,
however, proved to be too complacent as the UK suffered from high persistent
inflation and this changed the trajectory of interest rates. Inflation injects
uncertainty into stock markets, affecting investor confidence. Value stocks
typically have strong current cash flows which are more likely to grow slowly
or diminish over time, while growth stocks are likely to represent fast
growing companies that have stronger cash flows in the future. When valuing
companies' share prices using the discounted cash flow method in times of
rising interest rates, growth stocks are hit harder by this effect than value
stocks, This has placed our Quality, Growth and Momentum process out of
favour.
Our quality focus has ensured that we have invested in companies which have
had supportive earnings and resilience. These companies have also demonstrated
pricing power with the ability to protect margins. The portfolio has not been
entirely immune from macro shocks, but we have seen the overall resilience and
growth delivering robust dividend payments.
The final quarter of 2022 saw UK markets rebound sharply, and the portfolio
outperformed the reference index. That rally come earlier than many would have
expected, given the recession outlook. We believe this highlighted the
attractive valuations those growth businesses are trading on, combined with
the resilient earnings growth they continue to provide.
Early 2023 saw market relief as consumers appeared resilient in the face of
the cost of living squeeze. This drove the market to focus less on quality,
and cheaper rated and more cyclical companies performed well, proving a more
difficult start to the calendar year for the Company. As we moved through the
remainder of the financial year, macro top down influences continued to drive
the direction of the markets, however we have felt more comfortable with the
degree of rationalism in share price moves, and the focus towards company
fundamentals. Whilst the market remains wary of companies which are trading at
high valuations relative to their history, we have seen overall less of a
value bias to the market in recent months, and we are seeing more importance
placed back on factors such as earnings revisions.
The five leading positive contributors to relative performance during the year
were as follows:
- 4imprint 198bps (shares +106%) delivered strong results through
the year exceeding expectations on many occasions, and also providing strong
dividend growth and a special dividend. Whilst benefitting from increased face
to face interactions at events driving promotional product usage, self-help
growth has been enabled through spend on marketing in a highly fragmented
market, capturing market share and new repeat customers.
- Games Workshop 135bps (shares +60%) has delivered strong growth
despite consumer spending challenges globally. Its continued investment in new
product innovation and community engagement is paying off, resulting in
dividend increases and strong returns for shareholders again this year. The
shares were also supported by the announcement of Amazon taking a license for
Warhammer for TV production.
- Diploma 99bps (shares +33%) traded well through the year,
proving itself as a quality industrial company. To complement organic growth,
it has also completed attractive bolt on acquisitions, such as the TIE deal
which was partly funded through an equity raise.
- Kainos 95bps (shares + 11%) has successfully navigated the
macroeconomic environment this year, delivering consistent growth and pricing
power to offset wage inflation. Its customer base is sticky, and digitisation
spend remains a priority for corporates. With the departure of long term
respected CEO Brendan Mooney, it has also demonstrated strong succession
planning.
- discoverIE 88bps (shares + 27%) has proved another quality
industrial business, trading strongly through the year. It has proactively
chosen exposures to regulatory and structurally growing areas, and with
products being designed into its customers' solutions, this provides
stickiness of revenue and resultant visibility of earnings. In addition, it
has complemented organic growth through bolt on acquisitions.
The five worst contributors to relative performance during the year were as
follows:
- Focusrite -130bp (shares -57%) the shares have struggled this
year, partly as a normalisation of Covid spending has impacted demand for the
company's products. It navigated supply chain issues early in the year and
continued to invest in new product solutions to drive demand.
- Hilton Food -111bps (shares -38%) the shares suffered from a
short term inability to pass on all input cost inflation in the fish division
of the business. This was successfully navigated within a few months, and in
the second half of the period the company traded strongly and also announced
interesting new customer wins.
- Future -106bps (shares -60%) the shares suffered from a lower
advertising spend environment, as well as concerns on consumer spend
softening. The CEO also announced her intention to leave the company, which
created more market uncertainty over the outlook for the business.
- Mortgage Advice Bureau -99bps (shares -33%) was a casualty of
the Truss mini budget, driving interest rates up and causing activity on
housing and mortgages to fall sharply. Whilst activity levels and its shares
recovered in early 2023, they are still below previous levels, and more recent
mortgage rate increases will be challenging in the short term. Over the medium
term this remains a very strong business, taking market share and with many
levers for growth.
- Marshalls -85bps (shares -46%) has suffered from reduced
activity in residential refurbishment and improvement work, as well as lower
new build housing activity. The commercial and infrastructure side of the
business has remained more resilient, and the management team has taken cost
and restructuring action to support the business against the macro-economic
challenges currently being faced.
Dealing and Activity
Portfolio turnover was around 15%, which represents an average holding period
of almost seven years and is not out of line with previous periods. Over the
year, we added eight new positions, and exited eleven holdings. There were no
IPO participations this period, in a quiet year in the markets for IPO
activity.
We initiated positions in some holdings which have been held historically in
the portfolio. Ricardo has transformed its business, now positioned as a
leader in environmental and engineering consultancy; working with governments,
agencies and corporates to implement sustainability agendas and strategies.
Paragon Banking is a specialist lender, with a focus on buy-to-let markets in
the UK. The business has demonstrated strong credit quality through the years,
and with a strong retail funding model and capital support, it continues to
take market share as a specialist, particularly in the professional landlord
arena. Smart Metering Systems has two key divisions; household smart meters
which provide long term visible and inflation linked revenue streams, along
with the new exposure to battery storage in grid networks - an attractive
return and growth exposure for the business. FDM Group is a specialist at
recruiting, training and deploying IT and business professionals, operating
globally. Craneware is a technology specialist operating in the US healthcare
market, focused on financial and operational optimisation for hospitals. Coats
is a global leader in thread production, with exposure to apparel, footwear
and specialty markets. One key growth area for its business is its leading
position in sustainable thread, a product increasingly in demand as industries
move towards more sustainable production. Alpha Group (previously called Alpha
FX) is another business which has expanded into interesting adjacent markets;
now half fintech, half consultancy. Whilst its FX (foreign exchange) risk
management business for corporates has gone from strength to strength, it has
also expanded into banking solutions for alternative asset managers, and the
corporate services and fund administration companies that support them.
Spirent is a leading provider of automated testing and assurance solutions for
networks, security and positioning.
Key tops up in the period included the position in Volution (leading supplier
of ventilation products, with global exposure), CVS (vet practices across the
UK), and Serica Energy (North Sea gas and oil producer). We also added to
4imprint (US promotional products), Games Workshop (hobby business with
Warhammer IP), YouGov (data services business for market research), Gamma
Communications (telecommunication and services provider for businesses),
Midwich (audio visual value added reseller), Treatt (natural flavours and
fragrances), and Tatton Asset Management (a leading provider to the UK's IFA
community, including through strong growth in its MPS (managed portfolio
services) offering).
Key reductions to positions were in companies across a range of sectors. We
trimmed the position in Kainos where the valuation of the business left
demanding earnings upgrades required, and the environment has got tougher in
some areas such as the NHS. Watches of Switzerland showed resilient demand and
order books, but some weakness in its jewellery exposure, and we were
conscious that the market was looking to derate this business given consumer
concern. We also reduced the holding in Alpha Financial Markets but remain
very positive on the outlook and growth of this business. GB Group was
challenged by earnings downgrades from the normalisation in cryptocurrency
markets. Telecom Plus is a resilient revenue stream business, but its
valuation had increased considerably prior to the period, and some market
headwinds were increasing. We controlled the position size in Diploma, which
continued to deliver strong results, but whose market capitalisation is now
quite large. Real Estate was a sector where we trimmed holdings in Safestore
and Sirius Real Estate, with the macro environment more challenging,
particularly with higher interest rates.
We exited a number of positions over the period, where we no longer felt a
high level of conviction in the investment cases. Watkin Jones suffered from
the mini budget crisis, which highlighted the lumpiness of the business and
the potential macro driven risks. Hotel Chocolat struggled as consumer
weakness in the UK, combined with continued Covid disruption in its new market
of Japan, meant the revenue weakness drove earnings downgrades, all at the
same time as capacity expansion across the manufacturing base. That consumer
weakness was a concern across a few of the exits; Moonpig where we felt it
made the likelihood of increasing the gift attach rate to orders harder to
progress, Gear4Music which had benefitted a lot from the shift to ecommerce
during Covid, which was then normalising, Inspecs where we had started to see
discretionary spend cause weakness in the demand for glasses, and Jet2 where
the cost-of-living crisis presented challenges to the security of demand and
the ability to pass on inflationary cost pressures. Molten Ventures struggled
with its share price falling, reflecting the concern of investors that the
pricing of private assets falling given market conditions wasn't being
reflected in the listed market. In the case of Gooch and Housego, supply chain
and inflationary pressures were challenging, as well as the need to invest in
the business, driving earnings downgrades. With Big Yellow we felt the
environment for the business was more challenging, combined with the pressures
from higher interest rates. Alliance Pharma's shares were challenged by
Covid-related Chinese issues, as well as a historic investigation into the
CEO. Lastly, we exited the holding in Intermediate Capital, a company which
has done very well for the portfolio over the years but is really now a large
company, where the macro environment presented some challenges.
Discount
As at 30 June 2023, the cum-income discount to NAV stood at 14.3%. The simple
average discount for the close peers as a whole was 13.6%. Whilst we have been
disappointed with the steeper discount, it has not been out of line with the
sector. The discount is more or less unchanged from where it was this time
last year. The width of the discount is indicative of the issue where UK
domestic companies are out of favour with investors as the Company has been
active in buying back shares throughout the period.
Gearing
The level of gearing (net of cash) at 30 June 2023 was 2.5%. Gearing was
reduced in late 2022, repaying £15 million of the £40 million previously
drawn down under the loan facility. We remain positive on the medium to
long-term potential of the asset class and would consider increasing gearing
at an appropriate point dependent on macro-economic conditions. We have
continued to hold cash in the portfolio due to market uncertainty and to
ensure we can participate in market opportunities and are not liquidity
constrained.
Revenue Account
Dividend income generated by the portfolio increased by 18.5% over the year.
At the same time, the increase in base rates has had a knock-on effect on the
interest income generated on cash balances held by the company. After 10 years
of virtually nil returns on cash, we received £526,000 in interest income
during the year.
The dividend outlook of the Company, seen through its income generation from
the underlying holdings, has remained strong. We were pleased with the
resilience seen through the challenging Covid period, and the income
generation from companies has continued to strengthen. The earnings resilience
and growth being delivered by the companies in the portfolio is being
reflected in the dividend growth they are providing. Despite tricky
macro-economic conditions, which often temper the wording in company outlook
statements, the strong dividend payments from the portfolio companies have
been a real sign of the underlying confidence of management teams. The ability
to deliver these dividend returns to shareholders has been supported by
balance sheet strength.
There are currently eight holdings in the portfolio which we don't expect to
be dividend payers in the near future, currently re-investing back into their
businesses to drive growth; Auction Technology, Big Technologies, Ergomed, LBG
Media, Marlowe, Motorpoint, Team17 and Watches of Switzerland. We have seen
special dividends from three holdings this year; Bytes Technology, Hollywood
Bowl and 4imprint, which in aggregate amounted to £942,000 or 7.2% of
investment income.
Outlook
Stock markets continue to be dominated by macro conditions, predominantly the
pathway of inflation and interest rates, globally. The UK appears to be
showing stickier inflation than many other key markets. Whilst energy prices
have stepped back, we are seeing areas such as food inflation in the UK remain
at high levels, and wage inflation and a strong labour market continue to
support consumer spending. Without a recession, there remains the challenge of
how inflation gets controlled; interest rates having already been increased
significantly, but often taking some time to have an impact. UK valuations
have derated significantly and are at attractive levels relative to other
regions, providing an opportunity for investors to look at the value inherent
in the UK market. If UK inflation reduces to a lower level, comparable to the
Eurozone and the US, this could drive UK markets to recover and refocus on
company fundamentals. Falling inflation could be that catalyst for our style
to perform better and cause flows to shift into the UK market.
We'd also remind investors of the geographic exposures of the portfolio
companies' revenues. At the time of writing, 51% of revenues are generated in
the UK, with 49% overseas. This is not too far away from the exposure within
the reference index. Many of the companies in the portfolio, as has been true
through time and a result also of our investment process, have strong
international growth exposure. Some are global leaders in what they do. Whilst
overseas exposure is a positive factor, given healthier economic outlooks in
some geographies, and diversification benefits, we are mindful of recent
Sterling strength which may cause some currency headwinds for overseas
exposures.
In a recession, or low economic growth environment, we believe the market will
look towards resilience, reliability, visible revenue streams and strong
balance sheets. We've seen these characteristics fundamentally demonstrated by
the portfolio companies over this period, clear also through the dividend
strength delivered. Where economic growth becomes scarcer, companies which
continue to generate strong growth will be rarer assets. Our ability to
identify companies which can deliver sustained earnings growth in that
environment should be rewarded, and we believe even the last 18 months of
challenging market times has shown evidence of our judgement on the
fundamental performance of the investee companies.
In a period of more positivity in markets, small and mid-cap stocks tend to
lead, and the outlook for the asset class should be attractive. Small and
mid-caps in the UK have lagged large companies in the market moves since the
start of 2022.
We continue to believe there are opportunities for businesses which deliver
well on earnings expectations, to outperform, with many currently trading on
undemanding valuations. The valuations currently being paid for growth
companies in UK small mid-cap markets remain significantly below historic
levels, whereas in other regions the market is now paying a 10 year median
valuation for growth businesses again. We therefore believe there is a
re-rating opportunity.
Since our appointment as Investment Manager in 2003, including the current
downturn, there have been falls in the market of over 40% on three occasions.
Markets anticipate improvements, and indeed turning points in the past have
always been when the outlook is bleakest. In the UK small and mid-caps sector,
the turn of the calendar year looks to have seen the direction of earnings
revisions change positively. This isn't out of line with previous market
rotations where, on average, markets start to recover a few months before the
turn in earnings. We take this as a positive indicator of market direction,
although the risks of recession still remain given the macro-economic
challenges.
The Company's discount to NAV is at a level not seen since 2009, with both the
UK Small Cap sector being out of favour with investors, as well as
disappointing underperformance by the Company this year, particularly driven
by our style of investment not being favoured in a period where Value has been
in focus.
Smaller company markets have higher levels of risk and volatility, which in
part reflects the potential for higher returns in the long run. Thus, Smaller
Companies as an asset class should be viewed as a long-term multi-year
investment to achieve these potential strong returns that have historically
been available. Market timing is challenging, particularly in the small cap
area, and often it is "time in" rather than "timing" which is critical.
As mentioned in last year's Annual Report, but sadly still an important
factor, UK markets really need to see inflation come under control and the
shape of any potential imminent recession. The UK is already pricing in a lot
of negativity; therein lies the longer term opportunity, particularly when
coupled with the Company's current discount level.
Whilst we constantly challenge short-term influences and how macroeconomic
conditions impact factors driving the market, we remain confident that our
Quality, Growth and Momentum investment process generates strong returns from
smaller companies in the long-term. Our process has been seasoned by five
economic cycles.
Abby Glennie and Amanda Yeaman
abrdn
24 August 2023
Investment Portfolio
As at 30 June 2023
Valuation Total Valuation
2023 portfolio 2022
Company Sector £'000 % £'000
4imprint Media 18,408 4.2 8,336
Bytes Technology Software and Computer Services 15,071 3.5 12,934
discoverIE Technology Hardware and Equipment 15,023 3.4 11,662
Games Workshop Leisure Goods 14,771 3.4 7,770
JTC Investment Banking and Brokerage Services 14,562 3.3 12,196
Alpha Financial Markets Industrial Support Services 14,542 3.3 20,033
Diploma Industrial Support Services 13,709 3.1 13,064
Hill & Smith Industrial Metals and Mining 13,317 3.0 10,841
CVS Consumer Services 13,071 3.0 8,715
Ergomed Pharmaceuticals and Biotechnology 12,859 2.9 13,189
Top ten investments 145,333 33.1
Cranswick Food Producers 12,482 2.8 14,181
Gamma Communications Telecommunications Service Providers 12,015 2.7 11,110
Hilton Food Food Producers 11,518 2.6 18,858
Telecom Plus Telecommunications Service Providers 11,247 2.6 20,999
Big Technologies Software and Computer Services 11,053 2.5 8,701
Morgan Sindall Construction and Materials 10,980 2.5 10,896
Kainos Software and Computer Services 9,623 2.2 21,199
Hollywood Bowl Travel and Leisure 9,550 2.2 7,923
Coats General Industrials 9,036 2.1 -
GlobalData Media 8,998 2.1 9,593
Top twenty investments 251,835 57.4
Next 15 Communications Media 8,657 2.0 12,477
Paragon Banking Investment Banking and Brokerage Services 8,500 1.9 -
Safestore Real Estate Investment Trusts 8,430 1.9 21,795
Midwich Industrial Support Services 8,420 1.9 10,012
Auction Technology Software and Computer Services 8,278 1.9 10,204
Smart Metering Systems Industrial Support Services 8,046 1.8 -
Treatt Chemicals 7,966 1.8 8,921
Mortgage Advice Bureau Investment Banking and Brokerage Services 7,803 1.8 -
Impax Asset Management Investment Banking and Brokerage Services 6,831 1.6 8,451
YouGov Media 6,602 1.5 2,265
Top thirty investments 331,368 75.5
Volution Construction and Materials 6,524 1.5 2,458
Sirius Real Estate Real Estate Investment and Services 6,384 1.4 11,855
XP Power Electronic and Electrical Equipment 6,107 1.4 13,121
Watches of Switzerland Personal Goods 6,071 1.4 12,018
Serica Energy Oil, Gas and Coal 5,951 1.4 3,483
Robert Walters Industrial Support Services 5,943 1.4 8,363
Team 17 Leisure Goods 5,771 1.3 7,264
AJ Bell Investment Banking and Brokerage Services 5,577 1.3 4,663
Marshalls Construction and Materials 5,495 1.3 12,567
Mattioli Woods Investment Banking and Brokerage Services 5,331 1.2 6,118
Top forty investments 390,522 89.1
Craneware Health Care Providers 4,510 1.0 -
Henry Boot Real Estate Investment and Services 4,471 1.0 7,942
Marlowe Industrial Support Services 4,376 1.0 5,861
Future Media 4,239 1.0 13,377
Focusrite Leisure Goods 4,187 0.9 14,143
Tatton Asset Management Investment Banking and Brokerage Services 4,000 0.9 2,555
Alpha Group Industrial Support Services 3,799 0.9 -
Ricardo Construction and Materials 3,566 0.8 -
FDM Group Software and Computer Services 3,401 0.8 -
Liontrust Asset Management Investment Banking and Brokerage Services 3,391 0.8 5,769
Top fifty investments 430,462 98.2
LBG Media Media 3,064 0.7 3,451
GB Group Software and Computer Services 2,328 0.5 8,570
Spirent Technology Hardware and Equipment 1,499 0.4 -
Motorpoint Retailers 1,055 0.2 3,640
Total portfolio 438,408 100.0
All investments are equity investments.
Sector Distribution of Investments
As at 30 June 2023
Portfolio weighting
2023 2022
% %
Basic Materials 4.8 3.8
Chemicals 1.8 1.7
Industrial Metals and Mining 3.0 2.1
Consumer Discretionary 23.9 24.7
Consumer Services 3.0 1.7
Household Goods and Home Construction - 0.5
Leisure Goods 5.6 5.8
Media 11.5 9.5
Personal Goods 1.4 3.0
Retailers 0.2 1.6
Travel and Leisure 2.2 2.6
Consumer Staples 5.4 7.3
Food Producers 5.4 7.3
Energy 1.4 0.7
Oil, Gas and Coal 1.4 0.7
Financials 12.8 12.0
Finance and Credit Services - 2.6
Investment Banking and Brokerage Services 12.8 9.4
Health Care 3.9 2.9
Health Care Providers 1.0 -
Pharmaceuticals and Biotechnology 2.9 2.9
Industrials 23.0 18.4
Construction and Materials 6.1 5.0
Electronic and Electrical Equipment 1.4 2.5
General Industrials 2.1 -
Industrial Support Services 13.4 10.9
Real Estate 4.3 9.5
Real Estate Investment and Services 2.4 3.8
Real Estate Investment Trusts 1.9 5.7
Technology 15.2 14.6
Software and Computer Services 11.4 11.7
Technology Hardware and Equipment 3.8 2.9
Telecommunications 5.3 6.1
Telecommunications Service Providers 5.3 6.1
Total 100.0 100.0
Directors' Report (extract)
The Directors present their report and the audited financial statements of the
Company for the year ended 30 June 2023.
Results and Dividends
The financial statements for the year ended 30 June 2023 are contained below.
An interim dividend of 3.00p per Ordinary share was paid on 14 April 2023 and
the Directors recommend a final dividend of.8.00p per Ordinary share, payable
on 30 November 2023 to shareholders on the register on 3 November 2023. The
ex-dividend date is 2 November 2023.
Principal Activity and Status
The Company is registered as a public limited company in Scotland under
company number SC145455, is an investment company within the meaning of
Section 833 of the Companies Act 2006 and carries on business as an investment
trust.
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 July 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 June 2023 consisted of 88,329,911
(2022: 94,012,047) Ordinary shares of 25 pence each and there were 15,834,511
(2022: 10,152,375) Ordinary shares held in treasury, representing 17.9% of the
issued share capital as at that date (excluding treasury shares).
During the year, 5,682,136 Ordinary shares were bought back into treasury.
Since the year end, the Company has bought back a further 1,995,572 Ordinary
shares into treasury. Accordingly, as at the date of this Report, the
Company's issued share capital consisted of 86,334,339 Ordinary shares of 25
pence each and 17,830,083 Ordinary shares held in treasury.
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 it and aFML. In addition, aFML has
sub-delegated administrative and secretarial services to abrdn Holdings
Limited and promotional activities to abrdn Investments Limited.
During the year, the management fee was calculated quarterly in arrears as
0.85% per annum applying to the first £250 million of the Company's net
assets, 0.65% per annum applying to net assets above this threshold until
£550 million, and 0.55% applying to net assets above this threshold. In
addition, the Manager received a secretarial and administration fee of
£75,000 plus VAT.
The Manager also receives a separate fee for the provision of promotional
activities to the Company. This fee amounted to £301,000 plus VAT for the
year (2022: £246,000 plus VAT).
Further details of the fees payable to the Manager are shown in notes 4 and 5
to the financial statements and the Chairman's Statement contains details of
changes to the management fee arrangements since the end of the year.
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.
Directors
Manju Malhotra was appointed as an independent non-executive Director of the
Company on 1 May 2023. Liz Airey is the Chairman and Tim Scholefield is the
Senior Independent Director.
Manju Malhotra will stand for election at the Annual General Meeting on 23
November 2023. Other than Caroline Ramsay, all of the other Directors will
retire and, being eligible, will offer themselves for re-election at the
Annual General Meeting. As explained in the Chairman's Statement, Caroline
Ramsay will retire as a Director following the conclusion of the Annual
General Meeting.
The Directors attended scheduled Board and Committee meetings during the year
ended 30 June 2023 as follows (with their eligibility to attend the relevant
meetings
in brackets):
Board Meetings Audit Committee Management
Meetings Engagement Nomination Committee Meetings
Committee
Meetings
Liz Airey 5 (5) - (-)(A) 1 (1) 3 (3)
Ashton Bradbury 5 (5) 2 (2) 1 (1) 3 (3)
Alexa Henderson 5 (5) 2 (2) 1 (1) 3 (3)
Manju Malhotra 1 (1) - (-) 1 (1) 1 (1)
Caroline Ramsay 5 (5) 2 (2) 1 (1) 3 (3)
Tim Scholefield 5 (5) 2 (2) 1 (1) 3 (3)
(A) Liz Airey is not a member of the Audit Committee but attends the meetings
by invitation
The Board meets more frequently when business needs require. During the year
ended 30 June 2023 this included a Board meeting to approve the appointment of
a new Director. In addition, there were two Board Committee meetings to
approve the annual and half yearly financial statements. All Directors
attended the Annual General Meeting held on 20 October 2022.
The Board believes that all the Directors seeking 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 Board believes
that each Director has the requisite high level and range of business,
investment and financial experience which enables the Board 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.
In addition, all Directors have demonstrated that they have sufficient time to
fulfil their directorial roles with the Company. The Board therefore
recommends the re-election of each of the Directors at the Annual General
Meeting.
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 cash
monitoring, the custody and safeguarding of the Company's financial
instruments and monitoring the Company's compliance with investment limits and
leverage requirements) 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.
Board Diversity
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 June 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 2 33% 1
n/a n/a
Women 4 67% 3
(note 1)
Not specified/prefer not to say - - -
Board Ethnic Background as at 30 June 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 5 83% 4
(including minority-white groups)
n/a n/a
Asian/Asian British 1 17% -
(note 2)
Not specified/prefer not to say - - -
Notes:
1. Meets target of at least 40% as set out in LR 9.8.6R
(9)(a)(i)
2. Meets target of at least 1 as set out in LR 9.8.6R
(9)(a)(iii)
3. The Company considers that the role of Chairman, Senior
Independent Director ("SID") who is also Chairman of the Management Engagement
Committee, and the chairmen of the Audit Committee and Nomination Committee
are senior positions.
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.
It is the Board's policy that the Chairman of the Board will not normally
serve as a Director beyond the Annual General Meeting following the ninth
anniversary of his or her appointment to the Board. However, this may be
extended in certain circumstances or to facilitate effective succession
planning and the development of a diverse Board. In such a situation the
reasons for the extension will be fully explained to shareholders and a
timetable for the departure of the Chairman clearly set out.
The Role of the Chairman and Senior Independent Director
The Chairman 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 Chairman facilitates the
effective contribution and encourages active engagement by each Director. In
conjunction with the Company Secretary, the Chairman ensures that Directors
receive accurate, timely and clear information to assist them with effective
decision-making. The Chairman 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 Chairman and
acts as an intermediary for other Directors, when necessary. Working closely
with the Nomination Committee, the Senior Independent Director takes
responsibility for an orderly succession process for the Chairman, and leads
the annual appraisal of the Chairman's performance. The Senior Independent
Director is also available to shareholders to discuss any concerns they may
have.
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. Other than the deeds of indemnity referred
to above, 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.
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. In
addition, the Company has entered into separate deeds of indemnity with each
of the Directors, reflecting the scope of the indemnity in the Articles.
Directors' and Officers' liability insurance cover has been maintained
throughout the financial year at the expense of the Company.
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 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);
- 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 41).
The Board considers that these provisions 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 Company has therefore not
reported further in respect of these provisions.
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. Full details of the Company's compliance with the
AIC Code of Corporate Governance can be found on its website.
Matters Reserved for the Board
The Board sets the Company's objectives and ensures that its obligations to
its shareholders are met. It has formally adopted a schedule of matters which
are required to be brought to it for decision, thus ensuring that it maintains
full and effective control over appropriate strategic, financial, operational
and compliance issues.
These matters include:
- the maintenance of clear investment objectives and risk
management policies;
- the monitoring of the business activities of the Company ranging
from analysis of investment performance through to review of quarterly
management accounts;
- monitoring requirements such as approval of the Half-Yearly
Report and Annual Report and financial statements and approval and
recommendation of any dividends;
- setting the range of gearing in which the Manager may operate;
- major changes relating to the Company's structure including
share buy-backs and share issuance;
- Board appointments and removals and the related terms;
- authorisation of Directors' conflicts or possible conflicts of
interest;
- terms of reference and membership of Board Committees;
- appointment and removal of the Manager and the terms and
conditions of the Management Agreement relating thereto; and
- London Stock Exchange/Financial Conduct Authority -
responsibility for approval of all circulars, listing particulars and other
releases concerning matters decided by the Board.
Full and timely information is provided to the Board to enable it to function
effectively and to allow the Directors to discharge their responsibilities.
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 June 2023.
Shareholder Number of Ordinary shares % held
Hargreaves Lansdown 9,589,569 10.8
Interactive Investor 8,791,381 9.9
1607 Capital Partners 6,915,877 7.8
RBC Brewin Dolphin 6,820,513 7.7
abrdn Retail Plans 6,383,480 7.2
AJ Bell 4,239,158 4.8
Rathbones 3,621,425 4.1
City of London Investment Management 3,173,607 3.5
WM Thomson 3,088,233 3.5
The Company has not been notified of any changes to the above holdings since
the end of the year.
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. The
Board has also performed stress testing and liquidity analysis.
As at 30 June 2023, the Company had a £40 million unsecured revolving credit
facility with The Royal Bank of Scotland International Limited which expires
on 1 November 2025.
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 in 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. The Directors have
also reviewed the revenue and ongoing expenses forecasts for the coming year
and considered the Company's Statement of Financial Position as at 30 June
2023 which shows net current liabilities of £11.8 million at that date, and
do not consider this to be a concern due to the liquidity of the portfolio
which would enable the Company to meet any short term liabilities if required.
Taking all of this into account, the Directors believe that it is appropriate
to continue to adopt the going concern basis in preparing the financial
statements.
Accountability and Audit
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 they ought to have taken as a Director to make
themselves 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 20 October 2022 and resolutions to approve
its re-appointment for the year to 30 June 2024 and to authorise the Directors
to determine its remuneration will be proposed at the Annual General Meeting.
Financial Instruments
The financial risk management objectives and policies arising from financial
instruments and the exposure of the Company to risk are disclosed in note 16
to the financial statements.
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
(see Contact Addresses).
abrdn Holdings Limited has been appointed Company Secretary to the Company.
Whilst abrdn Holdings Limited is a wholly owned subsidiary of abrdn plc, there
is a clear separation of roles between the Manager and Company Secretary with
different board compositions and different reporting lines in place. The Board
notes that, in accordance with Market Abuse Regulations, procedures are in
place to control the dissemination of information within the abrdn plc group
of companies when necessary. Where correspondence addressed to the Board is
received there is full disclosure to the Board. This is kept confidential if
the subject matter of the correspondence requires confidentiality.
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.
The Company's Annual General Meeting provides a forum for communication
primarily with private shareholders and is attended by the Board. The
Investment Manager makes a presentation at the meeting and all shareholders
have the opportunity to put questions to both the Board and the Manager at the
meeting. The Board also hosts a regular 'Meet the Manager' session at which
the Investment Manager and members of the Board are present and to which all
shareholders are invited, last held in May 2022.
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, or voting rights attaching to,
Ordinary shares in 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 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,
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 ("AGM") will be held at 12 noon on
Thursday, 23 November 2023.
By order of the Board
abrdn Holdings Limited
Company Secretary
1 George Street
Edinburgh EH2 2LL
24 August 2023
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 they have elected 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' and
applicable law.
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 judgments and estimates that are reasonable, relevant and
reliable;
- 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 of
accounting unless they either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
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.
Responsibility Statement of the Directors in Respect of the Annual Financial
Report
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;
- 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; and
- the Annual Report taken as a whole, is fair, balanced and
understandable and it provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy.
On behalf of the Board
Liz Airey
Chairman
24 August 2023
Statement of Comprehensive Income
Year ended 30 June 2023 Year ended 30 June 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Net losses on investments held at fair value 10 - (46,435) (46,435) - (196,773) (196,773)
Income 3 13,649 - 13,649 11,123 - 11,123
Investment management fee 4 (848) (2,542) (3,390) (1,190) (3,569) (4,759)
Other administrative expenses 5 (1,115) - (1,115) (889) - (889)
Net return before finance costs and taxation 11,686 (48,977) (37,291) 9,044 (200,342) (191,298)
Finance costs 6 (315) (945) (1,260) (278) (833) (1,111)
Return before taxation 11,371 (49,922) (38,551) 8,766 (201,175) (192,409)
Taxation 7 - - - - - -
Return after taxation 11,371 (49,922) (38,551) 8,766 (201,175) (192,409)
Return per Ordinary share (pence) 9 12.44 (54.63) (42.19) 9.07 (208.10) (199.03)
The total column of this statement represents the profit and loss account of
the Company. The 'Revenue' and 'Capital' columns represent supplementary
information prepared under guidance issued by the Association of Investment
Companies.
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
As at As at
30 June 2023 30 June 2022
Notes £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 10 438,408 524,137
Current assets
Debtors 11 1,637 2,413
Investments in AAA-rated money market funds 14,129 14,414
Cash and short term deposits 294 582
16,060 17,409
Current liabilities
Creditors: other amounts falling due within one year 12 (2,943) (2,947)
Bank loan 12 (24,938) (39,988)
(27,881) (42,935)
Net current liabilities (11,821) (25,526)
Total assets less current liabilities 426,587 498,611
Net assets 426,587 498,611
Capital and reserves
Called-up share capital 13 26,041 26,041
Share premium account 170,146 170,146
Capital reserve 14 217,927 293,616
Revenue reserve 12,473 8,808
Equity shareholders' funds 426,587 498,611
Net asset value per Ordinary share (pence) 15 482.95 530.37
The financial statements were approved by the Board of Directors on 24 August
2023 and were signed on its behalf by:
Liz Airey
Chairman
The accompanying notes are an integral part of the Financial Statements.
Statement of Changes in Equity
For the year ended 30 June 2023
Share
Share premium Capital Revenue
capital account reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 30 June 2022 26,041 170,146 293,616 8,808 498,611
Return after taxation - - (49,922) 11,371 (38,551)
Buyback of Ordinary shares into Treasury (see note 13) - - (25,767) - (25,767)
Dividends paid (see note 8) - - - (7,706) (7,706)
Balance at 30 June 2023 26,041 170,146 217,927 12,473 426,587
For the year ended 30 June 2022
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 June 2021 26,041 170,146 20,132 504,395 7,532 728,246
Return after taxation - - - (201,175) 8,766 (192,409)
Buyback of Ordinary shares into Treasury (see note 13) - - (20,132) (9,604) - (29,736)
Dividends paid (see note 8) - - - - (7,490) (7,490)
Balance at 30 June 2022 26,041 170,146 - 293,616 8,808 498,611
The capital reserve at 30 June 2023 is split between realised of £169,058,000
and unrealised of £48,869,000 (30 June 2022 - realised £198,874,000 and
unrealised £94,742,000).
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 £181,531,000 (30 June 2022 - £207,682,000).
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
Year ended Year ended
30 June 2023 30 June 2022
£'000 £'000
Operating activities
Net return before taxation (38,551) (192,409)
Adjustment for:
Losses on investments 46,435 196,773
Decrease/(increase) in accrued dividend income 772 (792)
Finance costs 1,260 1,111
Decrease/(increase) in other debtors 3 (2)
(Decrease)/increase in other creditors (304) 920
Net cash inflow from operating activities 9,615 5,601
Investing activities
Purchases of investments (83,777) (94,258)
Sales of investments 122,718 144,236
Purchases of AAA-rated money market funds (91,974) (137,040)
Sales of AAA-rated money market funds 92,259 145,262
Net cash inflow from investing activities 39,226 58,200
Financing activities
Bank and loan interest paid (1,193) (1,088)
Repurchase of Ordinary shares into Treasury (25,230) (29,736)
Repayment of loan (15,000) (25,000)
Equity dividends paid (7,706) (7,490)
Net cash outflow from financing activities (49,129) (63,314)
(Decrease)/increase in cash (288) 487
Analysis of changes in cash during the year
Opening balance 582 95
(Decrease)/increase in cash as above (288) 487
Closing balance 294 582
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 30 June 2023
1. Principal activity
The Company is a closed-end investment company, registered in Scotland No
SC145455, with its Ordinary shares being listed on the London Stock Exchange.
2. 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 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. The
Board has also performed stress testing and liquidity analysis.
As at 30 June 2023, the Company had a debt with The Royal Bank of Scotland
International Limited. This consists of a five year revolving credit facility
of £40 million of which £25 million is being utilised. The Board has
reviewed its options and a range of proposals and is expecting to refinance
the facility when it expires. However, in the event that the facility is not
refinanced, there is considered to be sufficient portfolio liquidity to enable
borrowings to be repaid.
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. The Directors have
also reviewed the revenue and ongoing expenses forecasts for the coming year
and considered the Company's Statement of Financial Position as at 30 June
2023 which shows net current liabilities of £11.8 million at that date.
Taking all of this into account, the Directors believe that it is appropriate
to continue to adopt the going concern basis in preparing the financial
statements.
The accounting policies applied are unchanged from the prior year and have
been applied consistently.
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) AAA-rated money market funds. The AAA money market funds 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.
d) Income. Income from equity investments (other than special dividends),
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 in the Statement of Comprehensive Income,
according to the circumstances of the underlying payment. Foreign income is
converted at the exchange rate applicable at the time of receipt. Interest
receivable on short-term deposits and money market funds is accounted for on
an accruals basis.
e) Expenses and interest payable. Expenses are accounted for on an accruals
basis. Expenses are charged to the capital column of the Statement of
Comprehensive Income 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 25% to revenue and 75%
to the capital columns of the Statement of Comprehensive Income 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 4 and 6).
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. Dividends are recognised in the period in which they are
paid.
g) Nature and purpose of reserves
Called-up share capital. The Ordinary share capital on the Statement of
Financial Position relates to the number of shares in issue and in treasury.
Only when the shares are cancelled, either from treasury or directly, is a
transfer made to the capital redemption reserve. This reserve is not
distributable.
Share premium account. The balance classified as share premium includes the
premium above nominal value from the proceeds on issue of any equity share
capital comprising Ordinary shares of 25p. This reserve is not distributable.
Special reserve. The special reserve arose following court approval for the
cancellation of the share premium account balance at 24 June 1999 and on 13
October 2009. Court of Session approval was granted for the cancellation of
the Company's entire share premium account and capital redemption reserve and
subsequent creation of a special distributable capital reserve. The special
reserve is used to fund share purchases of its own Ordinary shares by the
Company and was fully utilised during the year ended 30 June 2022.
Capital reserve. Gains or losses on disposal of investments and changes in
fair values of investments are transferred to 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 share buybacks and dividends.
Revenue reserve. Income and expenses which are recognised in the revenue
column of the Statement of Comprehensive Income are transferred to the revenue
reserve. The revenue reserve is available for distribution including by way of
dividend.
h) Taxation. Tax expense represents the sum of tax currently payable and deferred
tax. Any tax payable is based on taxable profit for the period. Taxable
profit differs from profit before tax as reported in the Statement of
Comprehensive Income because it excludes items of income or expenses 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 year end date.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the year end 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 year end 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
Financial Statements which are capable of reversal in one or more subsequent
periods.
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) Foreign currency. Non-monetary assets and liabilities denominated in foreign
currency carried at fair value through profit or loss are converted into
Sterling at the rate of exchange ruling at the year end date. Transactions
during the year involving foreign currencies are converted at the rate of
exchange ruling at the transaction date. Any gain or loss arising from a
change in exchange rates subsequent to the date of the transaction is included
as an exchange gain or loss in the Statement of Comprehensive Income.
j) 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.
k) 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.
l) Bank borrowing. 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 straight line 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.
m) 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 special reserve. During the year the special reserve was utilised in
full with subsequent costs being 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.
3. Income
2023 2022
£'000 £'000
Income from investments
UK dividend income 10,706 9,139
Property income distributions 431 734
Overseas dividend income 1,043 1,034
Special dividends 943 166
13,123 11,073
Other income
Interest from AAA-rated money market funds 516 50
Bank interest 10 -
Total income 13,649 11,123
4. Investment management fee
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 848 2,542 3,390 1,190 3,569 4,759
The balance due to abrdn Fund Managers Limited ("aFML") at the year end in
respect of investment management fees was £1,667,000 (2022 - £2,083,000).
For further details see the Directors' Report and note 20.
5. Administrative expenses (inclusive of VAT)
2023 2022
£'000 £'000
Secretarial fees(A) 90 90
Promotional activities(A) 362 295
Directors' fees 154 145
Auditor's remuneration:
- fees payable to the Company's Independent Auditor for the audit of the 60 40
annual accounts (excluding VAT)
- VAT on audit fees 12 8
Registrar's fees 27 27
Professional fees 89 12
Custody fees 28 32
Depositary fees 56 79
Other expenses 237 161
1,115 889
(A) The Company has an agreement with aFML for the provision of secretarial
services and promotional activities. Secretarial fees payable during the year,
inclusive of VAT, were £90,000 (2022 - £90,000) and the amount due to aFML
at the year end was £90,000 (2022 - £45,000). Costs relating to promotional
activities during the year, inclusive of VAT, were £362,000 (2022 -
£295,000) and the amount due to aFML at the year end was £132,000 (2022 -
£115,000).
6. Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Bank loan interest 282 846 1,128 258 774 1,032
Non-utilisation fees 25 76 101 11 31 42
Amortisation of loan arrangement expenses 8 23 31 9 28 37
315 945 1,260 278 833 1,111
7. Taxation
(a) Analysis of charge for year
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Tax charge - - - - - -
Given the Company's continued investment trust status and there being no
taxable income generated from its operations, no tax has been paid in the year
(2022 - same).
(b) Provision for deferred taxation. At 30 June 2023, the Company had unutilised
management expenses and loan relationship losses of £80,344,000 (2022 -
£75,537,000). A deferred tax asset has not been recognised on the unutilised
management expenses and loan relationship losses as it is unlikely there will
be suitable future taxable profits against which these tax losses could be
deducted. Therefore, it is unlikely that the Company will generate future
taxable revenue that would enable the existing tax losses to be utilised.
(c) Factors affecting the tax charge for the year. The main rate of UK corporation
tax increased from 19% to 25% from 1 April 2023. The tax charge for the year
is higher (2022 - higher) than the standard rate of UK corporation tax for the
period of 20.5% (2022 - 19%). The differences are explained in the following
table:
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return before taxation 11,371 (49,922) (38,551) 8,766 (201,175) (192,409)
Corporation tax at an effective rate of 20.50% (2022 - 19%) 2,331 (10,234) (7,903) 1,666 (38,223) (36,557)
Effects of:
Non-taxable UK dividend income (2,388) - (2,388) (1,768) - (1,768)
Non-taxable overseas dividend income (214) - (214) (196) - (196)
Management expenses and loan relationship losses not utilised 271 715 986 298 836 1,134
Non-taxable losses on investments - 9,519 9,519 - 37,387 37,387
Total tax charge - - - - - -
8. Dividends
2023 2022
£'000 £'000
Amounts recognised as distributions to equity holders in the period:
2022 final dividend of 5.40p per share (2021 - 5.00p) paid on 28 October 2022 5,000 4,885
2023 interim dividend of 3.00p per share (2022 - 2.70p) paid on 14 April 2023 2,706 2,605
7,706 7,490
The proposed 2023 final dividend is subject to approval by shareholders at the
Annual General Meeting and has not been included as a liability in these
Financial Statements.
Set out below are the total dividends paid and proposed in respect of the
financial year, which is the basis on which the requirements of Section
1158-1159 of the Corporation Taxes Act 2010 are considered. The net revenue
available for distribution by way of dividend for the year is £11,371,000
(2022 - £8,766,000).
2023 2022
£'000 £'000
Interim dividend 2023 of 3.00p per share (2022 - 2.70p) paid on 14 April 2023 2,706 2,605
Proposed final dividend 2023 of 8.00p per share (2022 - 5.40p) payable on 30 6,907 5,000
November 2023
9,613 7,605
The amount payable for the proposed final dividend is based on the Ordinary
shares in issue as the date of approval of this Report, 245 August 2023, which
satisfies the requirement of Section 1159 of the Corporation Tax Act 2010.
9. Return per Ordinary share
2023 2022
p £000 p £000
Basic
Revenue return 12.44 11,371 9.07 8,766
Capital return (54.63) (49,922) (208.10) (201,175)
Total return (42.19) (38,551) (199.03) (192,409)
Weighted average number of Ordinary shares in issue 91,387,673 96,670,077
10. Investments held at fair value through profit or loss
2023 2022
£'000 £'000
Opening book cost 429,395 444,749
Opening investment holdings gains 94,742 325,254
Opening fair value 524,137 770,003
Additions at cost 83,423 94,523
Disposals - proceeds (122,717) (143,616)
Losses on investments (46,435) (196,773)
Closing fair value 438,408 524,137
2023 2022
£'000 £'000
Closing book cost 389,539 429,395
Closing investment holding gains 48,869 94,742
Closing fair value 438,408 524,137
All investments are in equity shares listed on the London Stock Exchange.
The Company received £122,717,000 (2022 - £143,616,000) from investments
sold in the period. The book cost of these investments when they were
purchased was £123,279,000 (2022 - £109,878,000 ). 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 235 259
Sales 94 110
329 369
11. Debtors
2023 2022
£'000 £'000
Amounts due from brokers 10 11
Dividends receivable 1,608 2,380
Other debtors 19 22
1,637 2,413
12. Creditors: amounts falling due within one year
2023 2022
£'000 £'000
Amounts payable to brokers 31 385
Amounts payable in relation to share buybacks 537 -
Interest payable 225 108
Investment management fee payable 1,667 2,083
Sundry creditors 483 371
2,943 2,947
2023 2022
Bank loan £'000 £'000
Bank loan 25,000 40,000
Unamortised loan arrangement expenses (62) (12)
24,938 39,988
On 1 November 2017 the Company entered into a £45 million unsecured loan
facility agreement arranged with The Royal Bank of Scotland International
Limited ("RBSI"), which was increased to £65 million effective 10 May 2021.
The facilities consisted of a five year fixed-rate term loan facility of £25
million (the "Term Loan") and a five year revolving credit facility of £40
million (the "RCF").
On 3 October 2022 the £15 million drawn down from the RCF was repaid and on 1
November 2022 the £25 million term loan was repaid from a new RCF of £40
million, provided by RBSI, which expires on 1 November 2025. At 30 June
2023, the Company had drawn down £25 million from the RCF at an interest
rate of 5.477% with a maturity date of 2 August 2023. At the date of this
Report, the Company had drawn down £25 million at an interest rate of 6.231%.
The terms of the unsecured loan facility agreement ("the agreement") contain
covenants that the Consolidated Net Tangible Assets as defined in the
agreement must not be less than £200 million, the percentage of borrowings
against the Adjusted Portfolio Value as defined in the agreement shall not
exceed 30%, and the portfolio contains a minimum of thirty eligible
investments (investments made in accordance with the Company's investment
policy). The Company complied with all covenants throughout the year.
13. Called-up share capital
2023 2022
Number £'000 Number £'000
Authorised 150,000,000 37,500 150,000,000 37,500
Issued and fully paid:
Ordinary shares of 25p each 88,329,911 22,082 94,012,047 23,503
Held in treasury: 15,834,511 3,959 10,152,375 2,538
104,164,422 26,041 104,164,422 26,041
Ordinary shares Treasury shares Total
Number Number Number
Opening balance 94,012,047 10,152,375 104,164,422
Share buybacks (5,682,136) 5,682,136 -
Closing balance 88,329,911 15,834,511 104,164,422
During the year the Company repurchased 5,682,136 (2022 - 4,670,519) Ordinary
shares to treasury at a cost of £25,767,000 (2022 - £29,736,000)..
14. Capital reserve
2023 2022
£'000 £'000
Opening balance 293,616 504,395
Unrealised losses on investment holdings (45,873) (230,512)
(Loss)/gains on realisation of investments at fair value (562) 33,739
Management fee charged to capital (2,542) (3,569)
Finance costs charged to capital (945) (833)
Buyback of Ordinary shares into treasury (25,767) (9,604)
Closing balance 217,927 293,616
The capital reserve includes investment holding gains amounting to
£48,869,000 (2022 - gains of £94,742,000) as disclosed in note 10.
15. Net asset value per share
Total shareholders' funds have been calculated in accordance with the
provisions of applicable accounting standards. The analysis of total
shareholders' funds on the face of the Statement of Financial Position
reflects the rights, under the Articles of Association, of the Ordinary
shareholders on a return of assets.
2023 2022
Net assets attributable (£'000) 426,587 498,611
Number of Ordinary shares in issue at year end(A) 88,329,911 94,012,047
Net asset value per share 482.95p 530.37p
(A) Excluding shares held in treasury.
16. Financial instruments
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. No such transactions took
place during the year.
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. There was no material currency
risk to the Company for the period given its investing and financing
activities are in the UK.
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 price 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 and money market funds;
- 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.
As at 30 June 2023, the Company had drawn down £25 million (2022 - £40
million) from the £40 million revolving credit facility with The Royal Bank
of Scotland International Limited. During the year the £25 million term loan
with The Royal Bank of Scotland International Limited was repaid.
Interest risk profile. The interest rate risk profile of the portfolio of
financial assets and liabilities at the year end date was as follows:
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
As at 30 June 2023 Years % £'000 £'000
Assets
Investments in AAA-rated money market funds - 4.92 - 14,129
Cash deposits - 3.93 - 294
Total assets - - - 14,423
Liabilities
Bank loan 0.09 5.48 25,000 -
Total liabilities - - 25,000 -
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
As at 30 June 2022 Years % £'000 £'000
Assets
Investments in AAA-rated money market funds - 1.17 - 14,414
Cash deposits - - - 582
Total assets - - - 14,996
Liabilities
Bank loan 0.33 2.35 25,000 -
Bank loan 0.08 2.09 15,000 -
Total liabilities - - 40,000 -
The weighted average interest rate is based on the current yield of each
asset, weighted by its market value.
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.
Interest rate sensitivity. The sensitivity analyses below have been determined
based on the exposure to interest rates at the year end 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 result for the year ended 30 June
2023 and net assets would increase/decrease by £144,000 (2022 -
increase/decrease by £150,000). This is mainly attributable to the Company's
exposure to interest rates on its floating rate cash balances and money market
funds.
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 allocation of assets and the stock selection process
both act to reduce market risk. The Manager actively monitors market prices
throughout the year and reports to the Board, which meets regularly in order
to review investment strategy. The investments held by the Company are mainly
listed on the London Stock Exchange.
Other price risk sensitivity. If market prices at the year end date had been
10% higher or lower while all other variables remained constant, the return
attributable to Ordinary Shareholders for the year ended 30 June 2023 would
have increased/decreased by £43,841,000 (2022 - increase/decrease of
£52,414,000). 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 and AAA-rated money market
funds, which can be sold to meet funding commitments if necessary. Subject to
compliance with the terms of the revolving credit facility, including relevant
covenant compliance, the Company has the ability to make future loan drawdowns
during the period until the expiry of the facility on 1 November 2025.The
maturity of the Company's existing borrowings is set out in the credit risk
profile section of this note.
Due between
Expected Due within 3 months Due after
cash flows 3 months and 1 year 1 year
As at 30 June 2023 £'000 £'000 £'000 £'000
Bank loan 28,309 342 1,027 26,940
Due between
Expected Due within 3 months Due after
cash flows 3 months and 1 year 1 year
As at 30 June 2022 £'000 £'000 £'000 £'000
Bank loan 40,318 15,170 25,148 -
iii) Credit risk. This is failure of the counter party 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:
- investment transactions are carried out with a number of brokers, whose
credit-standing is reviewed periodically by the investment manager, and limits
are set on the amount that may be due from any one broker;
- the risk of counterparty exposure due to failed trades causing a loss to the
Company is mitigated by the review of failed trade reports on a monthly basis.
In addition, both stock and cash reconciliations to the Custodians' records
are performed on a daily basis to ensure discrepancies are investigated on a
timely basis.
- cash is held only with reputable banks with high quality external credit
enhancements.
None of the Company's financial assets are secured by collateral or other
credit enhancements.
Credit risk exposure. In summary, compared to the amounts in the Statement of
Financial Position, the maximum exposure to credit risk at 30 June was as
follows:
2023 2022
Statement of Maximum Statement of Maximum
Financial Position exposure Financial Position exposure
Current assets £'000 £'000 £'000 £'000
Debtors 10 10 11 11
Investments in AAA-rated money markets funds 14,129 14,129 14,414 14,414
Cash and short term deposits 294 294 582 582
14,433 14,433 15,007 15,007
None of the Company's financial assets is past due or impaired.
17. Analysis of changes in net debt
At Non-cash At
30 June 2022 Cash flows movements 30 June 2023
£'000 £'000 £'000 £'000
Cash and cash equivalents 582 (288) - 294
Investments in AAA-rated money market funds 14,414 (285) - 14,129
Debt due in less than one year (39,988) 15,080 (30) (24,938)
(24,992) 14,507 (30) (10,515)
At Non-cash At
30 June 2021 Cash flows movements 30 June 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents 95 487 - 582
Investments in AAA-rated money market funds 22,636 (8,222) - 14,414
Debt due in less than one year (40,000) 25,000 (24,988) (39,988)
Debt due after more than one year (24,951) - 24,951 -
(42,220) 17,265 (37) (24,992)
A statement reconciling the movement in net funds to the net cash flow has not
been presented as there are no differences from the above analysis.
18. Capital management
The investment objective of the Company is to achieve long term capital growth
by investment in UK quoted smaller companies.
The Company manages its capital to ensure that it will be able to continue as
a going concern while maximising the return to Shareholders through the
optimisation of the debt and equity balance.
The Company's capital comprises the following:
2023 2022
£'000 £'000
Equity
Equity share capital 26,041 26,041
Reserves 400,546 472,570
Liabilities
Bank loan 24,938 39,988
451,525 538,599
The Company's net gearing comprises the following:
2023 2022
£'000 £'000
Bank loans (24,938) (39,988)
Cash and investments in AAA-rated money market funds 14,423 14,996
Amounts due from brokers 10 11
Amounts payable to brokers (31) (385)
Net gearing (borrowings less cash and cash equivalents) (10,536) (25,366)
Net assets 426,587 498,611
Net gearing (%) 2.5 5.1
The Board monitors and reviews the broad structure of the Company's capital on
an ongoing basis. This review includes:
- the planned level of gearing which takes account of the Investment Manager's
views on the market;
- the level of equity shares;
- 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.
The Company does not have any externally imposed capital requirements.
19. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurement using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy has 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 data) 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 - £438,408,000; 2022 - £524,137,000)
have therefore been deemed as Level 1.
The investment in AAA rated money market funds of £14,129,000 (2022 -
£14,414,000 ) is considered to be Level 2 under the fair value hierarchy of
FRS 102 due to not trading in an active market.
The fair value of the £25 million revolving credit facility loan as at the 30
June 2023 is £25,000,000, due to it being short-term in nature, with a par
value per Statement of Financial Position of £24,938,000. Under the fair
value hierarchy in accordance with FRS 102, these borrowings can be classified
at Level 2.
20. Transactions with the Manager
The Company has an agreement with abrdn Fund Managers Limited for the
provision of management services. The management fee is calculated and payable
quarterly in arrears at a rate of 0.85% per annum on the first £250 million
of net assets, 0.65% per annum on net assets between £250 million and £550
million and 0.55% on net assets above £550 million.
The Manager also receives a separate fee for the provision of secretarial
services and promotional activities as disclosed in note 5..
21. Related party transactions
The Directors of the Company received fees for their services. Further details
are provided in the Directors' Remuneration Report which also includes the
Directors' shareholdings.
22. Subsequent events
Subsequent to the year end, a further 1,995,572 Ordinary shares were
repurchased to treasury at a cost of £8,413,000.
As noted in the Chairman's Statement, with effect from 1 July 2023 the
management fee will be calculated and payable quarterly in arrears at a rate
of 0.75% per annum on the first £175 million of net assets, 0.65% per annum
on net assets between £175 million and £550 million and 0.55% on net assets
above £550 million and it has also been agreed that the Manager would not
charge the Company for the provision of secretarial services with effect from
1 January 2024.
Alternative Performance Measures
Alternative performance measures ("APMs") 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-end 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
A discount is the percentage by which the market price is lower than the Net
Asset Value ("NAV") per share.
30 June 2023 30 June 2022
Share price 414.00p 453.00p
Net Asset Value per share 482.95p 530.37p
Discount 14.3% 14.6%
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 June 2023 30 June 2022
£'000 £'000
Total borrowings (A) (24,938) (39,988)
Cash and short term deposits 294 582
Investments in AAA-rated money market funds 14,129 14,414
Amounts due from brokers 10 11
Amounts payable to brokers (31) (385)
Total cash and money market fund investments(B) 14,402 14,622
Net gearing (borrowings less cash and money market fund investments)(C=A+B) (10,536) (25,366)
Shareholders' funds(D) 426,587 498,611
Net gearing(C/D) 2.5% 5.1%
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 of published daily net asset values throughout the year.
30 June 2023 30 June 2022
£'000 £'000
Investment management fee(A) 3,390 4,759
Administrative expenses(B) 1,115 889
Less: non-recurring charges(C) (40) (6)
Ongoing charges 4,465 5,642
Average daily net assets 471,984 696,750
Ongoing charges ratio (excluding look-through costs) 0.95% 0.81%
Look-through costs(D) - 0.01%
Ongoing charges ratio (including look-through costs) 0.95% 0.82%
(A) See note 4.
(B) See note 5.
(C) Comprises professional fees not expected to recur.
(D) 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 differs from the other ongoing costs figure reported
in the Company's Key Information Document calculated in line with the PRIIPs
regulations, which includes the ongoing charges ratio and the financing and
transaction costs.
Total return
NAV and share price total returns show how the NAV and share price have
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. NAV total return assumes
reinvesting the net dividend paid by the Company back into the NAV of the
Company with debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return assumes reinvesting the net dividend
back into the share price of the Company on the date on which that dividend
goes ex-dividend.
NAV total return
Year ended 30 June 2023 2023 2022
Opening NAV 530.37p 737.97p
Closing NAV 482.95p 530.37p
Decrease in NAV -47.42p -207.60p
% Decrease in NAV -8.9% -28.1%
Uplift from reinvestment of dividends(A) 1.5% 0.8%
NAV total return decrease -7.4% -27.3%
(A) The uplift from reinvestment of dividends assumes that the dividends of
5.4p in October 2022 and 3.0p in April 2023 (5.0p and 2.7p in 2021/22) paid by
the Company were reinvested in the NAV of the Company on the ex-dividend date.
Share price total return
Year ended 30 June 2023 2023 2022
Opening share price 453.00p 698.00p
Closing share price 414.00p 453.00p
Decrease in share price -39.00p -245.00p
% Decrease in share price -8.6% -35.1%
Uplift from reinvestment of dividends(A) 1.8% 0.8%
Share price total return decrease -6.8% -34.3%
(A) The uplift from reinvestment of dividends assumes that the dividends of
5.4p in October 2022 and 3.0p in April 2023 (5.0p and 2.7p in 2021/22) paid by
the Company were reinvested in the shares of the Company on the ex-dividend
date.
Additional Notes to the Annual Financial Report
The Annual General Meeting will be held at Wallacespace Spitalfields, 15
Artillery Lane, London E1 7HA on Thursday 23 November 2023 at 12 noon.
If approved at the Annual General Meeting, the final dividend of 8.00p per
share will be paid on 30 November 2023 to holders of Ordinary shares on the
register at the close of business on 3 November 2023. The relevant ex-dividend
date is 2 November 2023.
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 30 June 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 September
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, www.abrnuksmallercompaniesgrowthtrust.co.uk
(http://www.standardlifeuksmallercompaniestrust.co.uk) *.
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
24 August 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR SEUFILEDSELA
Recent news on Aberdeen Uk Smaller Companies Growth Trust
See all newsAberdeen UK Smllr Cs - Annual Financial Report
Brief: Aberdeen UK Smaller Companies Growth Trust Announces Proposed Reconstruction And Rollover Into JUGI
Aberdeen UK Smllr Cs - Agreement with Saba
Aberdeen UK Smllr Cs - Director Declaration
RCS - Aberdeen UK Smllr Cs - Kepler Trust Intelligence: New Research