abrdn Diversfd. I&G - Annual Financial Report
10/01/2024 07:00
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RNS Number : 1421Z abrdn Diversified Income and Growth 10 January 2024
abrdn Diversified Income and Growth plc
(formerly Aberdeen Diversified Income and Growth Trust PLC)
LEI: 2138003QINEGCHYGW702
Annual Report 30 September 2023
"On behalf of the whole Board, I would like to extend my sincere thanks to all
of our shareholders for their patience, support and constructive feedback
throughout this period."
Davina Walter, Chairman
Performance Highlights
Net asset value total return(AB) Share price total return(A)
+0.4% -0.7%
2022 +1.2% 2022 -5.0%
Revenue return per share Dividend per share(C)
4.35p 7.33p
2022 4.99p 2022 5.60p
Dividend yield(A) Discount to net asset value (fair value basis)(AB)
8.8% 25.7%
2022 6.2% 2022 23.7%
(A) Considered to be an Alternative Performance Measure.
(B) Debt at fair value.
(C) See note.
Financial Calendar, Dividends and Highlights
Financial year end 30 September
Annual General Meeting 27 February 2024
Expected announcement of results for the year to December 2024
30 September 2024
Dividends
Rate xd date Record date Payment date
First interim 2023 1.42p 9 March 2023 10 March 2023 3 April 2023
Second interim 2023 1.42p 8 June 2023 9 June 2023 6 July 2023
Third interim 2023 1.42p 21 September 2023 22 September 2023 19 October 2023
Fourth interim 2023 1.42p 21 December 2023 22 December 2023 22 January 2024
Special 2023 1.65p 2 November 2023 3 November 2023 1 December 2023
2023 7.33p
First interim 2022 1.40p 3 March 2022 4 March 2022 31 March 2022
Second interim 2022 1.40p 16 June 2022 17 June 2022 14 July 2022
Third interim 2022 1.40p 22 September 2022 23 September 2022 20 October 2022
Fourth interim 2022 1.40p 22 December 2022 23 December 2022 19 January 2023
2022 5.60p
Highlights
2023 2022 % change
Total assets less current liabilities (before deducting prior charges) £355,264,000 £379,052,000 -6.3
Total shareholders' funds (Net Assets) £339,534,000 £363,358,000 -6.6
Market capitalisation £251,858,000 £276,986,000 -9.1
Ordinary share price (mid market) 83.60p 89.80p -6.9
Net asset value per Ordinary share (debt at fair value)(AB) 112.59p 117.63p -4.3
Discount to net asset value on Ordinary shares (debt at fair value)(AB) 25.7% 23.7%
Gearing (ratio of borrowings less cash to shareholders' funds)
Net (cash)/gearing (debt at par value)(A) -1.6% 1.8%
Net cash/(gearing) (debt at fair value)(AB) -1.5% 2.0%
Dividends and earnings per Ordinary share
Revenue return per share 4.35p 4.99p -12.7
Dividends per share(C) 7.33p 5.60p +30.9
Dividend cover (including proposed fourth interim dividend)(A) 0.59 0.89
Dividend yield(A) 8.8% 6.2%
Revenue reserves(D) £35,280,000 £39,261,000 -10.1
Ongoing charges ratio(AE) 1.74% 1.41%
(A) Considered to be an Alternative Performance Measure..
(B) Fair value of 6.25% Bonds 2031 £16,069,000 (2022 - £16,222,000).
(C) The figure for dividends per share reflects the years to which their
declaration relates (see note 8).
(D) The revenue reserve figure does not take account of the third and fourth
interim dividends and the special dividend paid after the year end amounting
to £4,278,000, £4,278,000 and £4,971,000 respectively (2022 -
£4,319,000, £4,314,000 and £nil).
(E) 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.
Strategic Report
"The Company seeks to provide income and capital appreciation over the long
term through investment in a globally diversified multi-asset portfolio."
Chairman's Statement
Introduction
The year under review has been a challenging one, as volatile markets and
investor wariness have weighed heavily on sentiment, adversely affecting the
valuations of many listed investment companies. Through these challenges, our
Investment Manager has continued to pursue its strategy of seeking to provide
income and capital appreciation over the long term from a genuinely
diversified portfolio, providing access to a wide selection of asset classes,
an attractive and dependable level of income and defensive characteristics
relative to the volatility of equity markets.
Despite the Board's confidence in the investment strategy, the persistent and
entrenched discount to Net Asset Value ("NAV") led the Directors to commence a
strategic review in June 2023 to consider how the Company could best restore
and deliver value to shareholders.
Strategic review & Managed Wind-Down
Following careful consideration of all the options available to the Company,
including asset sales and potential merger discussions with third parties, the
Board announced the outcome of the strategic review on 26 October 2023. The
Board determined that it was in the best interests of its shareholders to
continue the Company's existing investment management strategy whilst
simultaneously optimising shareholder value by means of an Enhanced
Distribution Programme, comprising realised gains and surplus available cash,
through a combination of special dividends and a tender offer.
Following the Company's announcement, further detailed discussions with
shareholders were undertaken. In the light of the feedback received and the
persistent discount to net asset value ("NAV") at which the Company's shares
continued to trade, the Board concluded that it was in the best interests of
shareholders as a whole to put forward proposals for a managed wind-down of
the Company (the "Managed Wind-Down").
Pursuant to the Managed Wind-Down announced on 14 December 2023, the Company
proposes to conduct an orderly realisation of its assets in a manner that
seeks to optimise the value of the Company's investments whilst progressively
returning cash to shareholders. In particular:
· the Board expects that approximately £115 million would be returned to
shareholders in the first half of 2024 at, or close to, NAV (subject to
shareholder approval and the appropriate use of the Company's distributable
reserves) with further returns of cash to follow as value is realised from the
Company's private markets portfolio in a timely and efficient manner;
· approximately £107.3 million of the Company's private markets portfolio
(valued as at 30 November 2023) is expected to mature between 2024 and 2027
(the "First Tranche"). It is intended that the proceeds from the First Tranche
will be returned to shareholders in a timely manner as the investments mature;
· the remaining £81.5 million of the private markets portfolio (valued as
at 30 November 2023) is expected to mature between 2029 and 2033 (the "Second
Tranche"). As market conditions improve, opportunistic secondary sales of
Second Tranche assets would be considered by the Company in order to realise
value from these assets in a timely manner;
· the Company will cease making new investments (save as to fund existing
commitments and support the Managed Wind-Down as set out below);
· the Board will seek to reduce the Company's ongoing costs; and
· it is intended that the Company's debt arrangements, comprising secured
bonds with a par value of c.£16.1 million, will be repaid during 2024.
Implementation of the Managed Wind-Down will require shareholder approval to
amend the Company's investment objective and policy and will also be
conditional on shareholders approving the continuation of the Company into
Managed-Wind Down at the Company's AGM on 27 February 2024. Full details of
the proposals will be set out in a circular to be published as soon as
practicable. Ahead of the circular being published, the Company will seek
regulatory approval of the proposed changes to the investment policy.
Continuation vote
The implementation of the Managed Wind-Down is conditional on shareholders
approving the continuation of the Company in its present form at the
forthcoming AGM. Accordingly, the Board recommends that shareholders vote in
favour of the continuation of the Company at the AGM (Resolution 10), as each
of the Directors intends to do in respect of their own interests in the
Company's shares. A separate general meeting of the Company, at which
shareholders will be asked to approve the change of investment policy to
implement the Managed Wind-Down, is expected to follow soon after the AGM.
Portfolio performance
During the year ended 30 September 2023, the Company's NAV total return with
debt at fair value, and income reinvested, was +0.4%. In line with wider
market volatility affecting the whole investment trust sector, the Company's
discount continued to widen with the result that the share price fell just
over 6.9% over the year ended 30 September 2023; this represented a
shareholder total return with income re-invested of -0.7%.
Earnings and dividend
A major component of our investment thesis is income, in the form of a
dependable quarterly dividend: in the year under review, this represented a
dividend yield of 8.8% based on the year end share price of 83.6 pence. The
Board confirmed at the outset of the current financial year its intention to
continue to pay at least the current level of dividend and to use its revenue
reserves which have been built up by the Company over many years to support
the dividend policy as required.
Three interim dividends of 1.42 pence per share were paid to shareholders in
March, July and October 2023. Further to its announcement to shareholders on
26 October 2023, a special dividend of 1.65 pence per share was paid on 1
December 2023 to shareholders on the register as at 3 November 2023 and with
an ex-dividend date of 2 November 2023. The Board declared, on 1 December
2023, a fourth interim dividend of 1.42 pence per share to be paid on 22
January 2024 to shareholders on the register on 22 December 2023. The
ex-dividend date is 21 December 2023 Accordingly, total dividends for the year
are 7.33 pence per share.
The Company will continue to pay its regular quarterly dividend until such
time as the change of investment objective and policy is approved. Further
information on the dividend policy thereafter will follow in the circular to
shareholders due to be published as soon as practicable.
Discount management
Throughout the year, the Company's shares have traded at a material discount
to NAV. The Board put in place a number of initiatives to address this,
including share buybacks, but the wide discount persisted and stood at 25.7%
at 30 September 2023. The strategic review had been expected to address the
discount. However, following the announcement of the outcome of the review on
26 October 2023, the discount had widened further and this, along with
detailed shareholder engagement, prompted the proposal to place the Company
into Managed Wind-Down.
Share buybacks
In light of this, and whilst shareholders consider the proposals in detail, no
further share buybacks are proposed ahead of the forthcoming AGM to enable
larger returns of capital through efficient distributions to maximise
shareholder value.
During the period, the Company bought back 7.2m shares into treasury, at a
cost of £6.3m during the year ended 30 September 2023. The Board has agreed
that shares bought into treasury will only be re-issued in the event of the
share price trading at a premium to the NAV per share as Ordinary shares can
be re-issued out of treasury less expensively than new Ordinary shares can be
issued. Although shares may be held in treasury indefinitely, the Board has
adopted a policy such that, in the event that the number of treasury shares
represents more than 10% of the Company's issued share capital (excluding
treasury shares) at the end of any financial year, the Company will cancel a
proportion of its treasury shares such that the remaining balance will equal
7.5% of the issued share capital (excluding treasury shares). In compliance
with this policy, the Company cancelled 14m treasury shares on 29 September
2023, resulting in 301,265,952 shares with voting rights and an additional
22,485,854 shares in treasury, as at 30 September 2023.
Gearing
The Company had a net cash position of 1.5% at 30 September 2023 as compared
to net gearing of 2.0% as at 30 September 2022, with the £16.1m 6.25% 2031
Bonds priced at fair value. The Board intends to repay the Bonds if
shareholders approve proposals to place the Company into Managed Wind-Down.
Board evaluation
As part of its annual board evaluation the Board engaged a leading third-party
adviser to undertake an independent evaluation of the Board, its committees
and individual Directors. Assessments were undertaken on each Director and
then discussed by the Board. The evaluation confirmed that the Company's
Board has in place an appropriate balance of experience, skills, corporate
knowledge and gender diversity (60% male, 40% female). Through recent
changes to the listing rules boards are required to report whether specific
targets are met and publish data on the composition of the board by gender and
ethnic backgrounds. Currently the Board meets two of the criteria that at
least 40% of Directors should be women and at least one senior board position
(Chair, CEO, CFO or SID) should be a woman. The Board will seek to comply with
the listing rules and UK Corporate Governance Code but explain where
compliance is not practical and feasible, given the proposals to place the
Company into Managed Wind-Down.
Environmental, social and governance ("ESG")
There is no simple answer to sustainable investing and to balancing policies
that accommodate climate change with the duty to optimise shareholder returns,
especially as some of the strongest returns in markets this year have come
from fossil fuel companies on the back of soaring energy prices. It is however
very clear that ESG factors need to be carefully considered and active
engagement with investee companies is required in order to help drive change
and increase sustainability. Taking account of ESG factors is now an
integral part of the investment process at abrdn, as is ongoing monitoring of
the ESG performance of investments in the portfolio. Equally as importantly,
the investment teams undertake constructive engagement with the investments
held, in both public and private markets, on ESG issues and related risks.
More detail on the approach to ESG can be found in the comments on Socially
Responsible Investment Policy in the Overview of Strategy as well as the
comments on ESG which are set out in the Investment Manager's Report. The
Board continues to review closely the Manager's approach to, and adherence
with, its ESG philosophy and policies.
Board
Anna Troup has indicated that she does not intend to stand for re-election as
a Director at the AGM. The remaining Directors would like to take this
opportunity to thank Anna for her substantial contributions to the Board.
AGM
This year's AGM is scheduled to be held in Wallacespace, 15 Artillery Lane,
London E1 7HA at 9.30am on 27 February 2024. Further information on certain
resolutions to be put to shareholders at the AGM may be found in the
Directors' Report.
Summary
Global markets continue to be volatile, and, whilst there are some positive
signs of recovery as inflation abates, the medium-term outlook for UK equity
markets remains subdued, especially in terms of the investment trust sector.
This is likely to continue to weigh on ADIG's valuation relative to NAV, hence
the proposals we are putting forward for an orderly Managed Wind Down which
seeks to optimise shareholder value. Should shareholders vote to accept the
proposals, the Board and Investment Manager will begin to conduct an orderly
realisation of the Company's assets with a view to returning cash to
Shareholders promptly, whilst aiming to optimise valuations.
On behalf of the whole Board, I would like to extend my sincere thanks to all
of our shareholders for their patience, support and constructive feedback
throughout this period. We look forward to engaging with you further in the
lead-up to the AGM and beyond.
Davina Walter
Chairman
9 January 2024
Overview of Strategy
The investment objective and investment policy set out below reflect the
investment strategy pursued by the Company during the year ended 30 September
2023.
The Managed Wind-Down, described in the Chairman's Statement, will require
shareholder approval to amend both the investment objective and investment
policy and will also be conditional on shareholders approving the continuation
of the Company.
Investment Objective
abrdn Diversified Income and Growth plc (the "Company") seeks to provide
income and capital appreciation over the long term through investment in a
globally diversified multi-asset portfolio.
Alongside this objective, the Board uses a Total Return (defined as dividends
plus change in NAV) of 6% per annum over a rolling five year period against
which to measure the returns from the portfolio.
Investment Approach
The Company is an investment trust governed by a Board of Directors with its
Ordinary shares listed on the premium segment of the London Stock Exchange. It
outsources its investment management and administration to an investment
management group, abrdn plc (the "Group"), and other third party providers.
The Company does not have a fixed life, but a resolution on whether the
Company should continue is put to shareholders at each Annual General Meeting.
The Company invests globally using a flexible multi-asset approach via quoted
and unlisted (Private Markets) investments providing shareholders with access
to the kind of diversified portfolio held by large, sophisticated global
investors.
It offers an attractive investment proposition characterised by:
· a genuinely diversified portfolio with access to a wide selection of
alternative asset classes;
· an attractive income with the potential to grow;
· volatility around half that of equities; and
· the broad resources of abrdn plc.
An appropriate spread of risk is sought by investing in a diversified
portfolio of securities and other assets. This includes, but is not limited
to:
· Private Markets, comprising private equity, private credit, real estate,
infrastructure, natural resources and unlisted alternatives;
· Listed Equities (including global equities, European green
infrastructure, UK mid-cap equities as well as listed alternatives, such as
royalties and litigation finance); and
· Fixed Income and Credit, comprising global loans, asset backed lending,
and emerging/frontier market debt.
Asset allocation is flexible allowing investment in the most attractive
investment opportunities at any point in time whilst always maintaining a
diversified portfolio. The Company leverages off the spread of capabilities
and experience within abrdn plc and may invest in funds managed by abrdn Fund
Managers Limited (the "Manager") where such allocation can offer requisite
exposure to certain alternative asset classes in a cost effective manner.
Investment Policy
As announced by the Company on 14 December 2023, implementation of the
proposals for a Managed Wind-Down of the Company will require both regulatory
and shareholder approval to amend the Company's investment objective and
policy.
Full details of the proposed investment objective and policy will be set out
in a circular to shareholders to be published as soon as practicable.
The Company's current Investment Policy incorporates the following investment
restrictions, at the time of investment, which the Manager must adhere to:
· no individual quoted company or transferable security exposure in the
portfolio may exceed 15% of the Company's total assets, other than in
treasuries and gilts;
· no other individual asset in the portfolio (including property,
infrastructure, private equity, commodities and other alternative assets) may
exceed 5% of the Company's total assets;
· the Company will not normally invest more than 5% of its total assets in
the unlisted securities issued by any individual company; and
· no more than 15% of the Company's total assets may be invested in an
individual regulated pooled investment fund.
The Company may invest in exchange-traded funds provided they are quoted on a
recognised investment exchange. The Company may invest in cash and cash
equivalents including money market funds, treasuries and gilts.
No more than 10% of the Company's total assets may be invested in other listed
closed-ended investment companies. This restriction does not apply to
investments in any such listed closed-ended investment companies which
themselves have published investment policies to invest no more than 15% of
their total assets in other closed-ended investment companies.
The Company may use derivatives to enhance portfolio returns (of a capital or
income nature) and for efficient portfolio management, that is, to reduce,
transfer or eliminate risk in its investments, including protection against
currency risks.
The Company may use gearing, in the form of borrowings and derivatives, to
enhance income and capital returns over the long term. The borrowings may be
in sterling or other currencies. The Company's articles of association contain
a borrowing limit equal to the value of its adjusted total of capital and
reserves. However, borrowings would not normally be expected to exceed 20% of
shareholders' funds. Total gearing, including net derivative exposure, would
not normally be expected to result in a net economic equity exposure in excess
of 120%.
It is the policy of the Company to invest no more than 15% of its gross assets
in other listed investment companies and no more than 15% of its gross assets
in any one company.
Management and Delivery of 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 to abrdn Fund Managers Limited (the "Manager"). In turn,
the investment management of the Company has been delegated by the Manager to
abrdn Investments Limited (the "Investment Manager"). Both companies are
subsidiaries of abrdn plc.
Investment Process
The Investment Manager believes that many investors could materially improve
their long-run returns and/or reduce risk by having a more diversified
portfolio. The Investment Manager's aim is to build a genuinely diversified
portfolio consisting of a wide range of assets, each with clear, fundamental
performance drivers that will deliver an attractive return for the Company's
shareholders. The Investment Manager engages all of its research capabilities,
including specialist macro and asset class researchers, to identify
appropriate investments. The approach, which incorporates a robust risk
framework, is not constrained by a benchmark mix of assets. This flexibility
ensures that the Investment Manager does not feel compelled to invest
shareholders' capital in investments which they believe to be unattractive.
The Company's portfolio consists of investments from a wide range of asset
classes including, but not limited to, Private Markets (such as private
equity, private credit, real estate, infrastructure, natural resources and
unlisted alternatives), Listed Equities (including global equities, European
green infrastructure, UK mid-cap equities as well as listed alternatives, such
as royalties and litigation finance) and Fixed Income and Credit (such as
global loans, asset backed lending, and emerging/frontier market debt).
Detailed investment research (including operational due diligence for unlisted
funds managed by third parties) is carried out on each potential opportunity
by specialist teams within the Investment Manager.
The weighting ascribed to each investment in the portfolio reflects the
perceived attractiveness of the investment case, including the contribution to
portfolio diversification. The Investment Manager also ensures that the
weighting is in keeping with its overall strategic framework for the portfolio
based on the return and valuation analysis of the Investment Manager's
Research Institute. The fundamental and valuation drivers of each investment
are reviewed on an ongoing basis.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to assess the
Company's success in achieving its objective and determining its progress in
pursuing its investment policy. For further information on the KPI relating
to the discount to NAV, please see references in the Chairman's Statement. The
primary KPIs, all of which are Alternative Performance Measures, are shown in
the table below.
KPI Description
Investment performance The Board reviews the performance of the portfolio as well as the net asset
value and share price for the Company over a range of time periods in light of
the Company's investment objective to seek to provide income and capital
appreciation over the long term through investment in a globally diversified
multi-asset portfolio (see Alternative Performance Measures). The Board also
reviews NAV and share price performance in comparison to the performance of
competitors in the Company's chosen peer group.
The Board monitors the Company's income yield. The Board reviews the
sustainability of the Company's dividend policy and regularly reviews revenue
forecasts and analysis provided by the Investment Manager on the sources of
portfolio income in order to monitor the extent to which dividends are covered
by net earnings. The Company's performance returns may be found under
"Performance and Results".
Premium/discount to net asset value ("NAV") The Board monitors the level of the Company's premium or discount to NAV and
considers strategies for managing this.
The Manager seeks to generate attractive risk adjusted returns by investing
in, or committing to, new or existing opportunities, whilst having particular
regard to the Company's return target, and taking into account income,
predicted cash flows, market risk and liquidity requirements. It is proposed
that where such opportunities are limited due to market conditions, then
subject to overall liquidity needs, available cash may be used under the
Company's share buyback authority, granted annually by shareholders, to
purchase Ordinary shares of the Company, where to do so represents a better
opportunity to deliver long-term shareholder value without disrupting the
overall portfolio.
In addition, the Company has adopted a formal policy for the issuance of new
shares and/or the sale of shares from treasury to meet demand for shares in
the market, and will only issue or sell shares from treasury where the
Company's share price is trading at a minimum premium to its net asset value
per share (calculated including income, with debt at fair value, at the
Directors' discretion).
Ongoing charges The ongoing charges ratio has been calculated in accordance with guidance
issued by the Association of Investment Companies (the "AIC") as the total of
investment management fees and administrative expenses and expressed as a
percentage of the average net asset values with debt at fair value throughout
the year. This includes the Company's share of costs of holdings in investment
companies on a look-through basis. The Board reviews the ongoing charges and
monitors the expenses incurred by the Company. The Company's ongoing charges
for the year, and the previous year, are disclosed under Financial Highlights
while the basis of calculation is set out in the Alternative Performance
Measures.
Principal Risks and Uncertainties
The Board has in place a robust process to assess and monitor the principal
and emerging risks facing the Company. A core element of this is the Company's
risk controls self-assessment ("RCSA"), which identifies the risks facing the
Company and assesses the likelihood and potential impact of each risk and the
quality of the controls in place to mitigate the risk. A residual risk rating
is then calculated for each risk based on the outcome of this assessment and
plotted on a risk heat-map. This approach allows the effect of any mitigating
procedures to be reflected in the final assessment. The RCSA, its method of
preparation and the operation of the key controls within the Manager's and
third party service providers' systems of internal control are reviewed on a
regular basis by the Audit Committee.
In order to gain a more comprehensive understanding of the Manager's and other
third party service providers' risk management processes and how these apply
to the Company's business, the Manager's internal audit department presents to
the Audit Committee setting out the results of testing performed in relation
to the Manager's internal control processes. The Audit Committee also
periodically receives presentations from the Manager's risk and compliance and
internal audit teams and reviews ISAE3402 reports from the Manager and from
the Company's Depositary (The Bank of New York Mellon (International)
Limited). The custodian is appointed by the Company's Depositary and does not
have a direct contractual relationship with the Company.
The Board has carried out a robust assessment of these risks, which include
those that would threaten its business model, future performance, solvency or
liquidity. The Board is confident that the procedures which the Company has in
place are sufficient to ensure that the necessary monitoring of risks and
controls has been carried out throughout the year ended 30 September 2023.
The Board is monitoring the current heightened geopolitical risks in the form
of the Russian invasion of Ukraine, conflict in the Middle East and rising
tension between China and Taiwan.
The Board is also conscious of the elevated threat posed by climate change and
continues to monitor, through its Investment Manager, the potential risk that
its portfolio investments may fail to adapt to the requirements imposed by
climate change further details may be found under 'Market Risk'.
Other than this, the Audit Committee does not consider that the principal
risks and uncertainties have changed materially during the year ended 30
September 2023.
Risk Mitigating Action
Performance risk (increased) To manage these risks the Board reviews the Company's investment mandate and
long term strategy at least annually and monitors, at each Board meeting, that
The Board is responsible for determining the investment policy to fulfil the appropriate limits are in place on the overall level of unlisted alternative
Company's objectives and for monitoring the performance of the Company's assets and gearing. It is expected that around 55% of the Company's total
Investment Manager and the strategy adopted. An inappropriate policy or assets, at the time of investment, may be invested in aggregate in unlisted
strategy may lead to poor performance, dissatisfied shareholders and a lower alternative assets. The strategic review (see the Chairman's Statement) was
premium or higher discount. The Company may invest in unlisted investments effected in response to a perception of increased performance risk, due to the
(such as private credit, real estate, infrastructure, natural resources, widening discount. This has culminated in the Board's decision to pursue
private equity and alternatives). These types of investments are expected to proposals to place the Company in a Managed Wind-Down, in order to effect an
have a different risk and return profile to the rest of the Company's orderly realisation of assets to optimise value for shareholders.
investment portfolio. They may be relatively illiquid and it may be difficult
for the Company to realise these investments over a short time period, which The Investment Manager provides the Board with an explanation of significant
may have a negative impact investment decisions, the rationale for the composition of the investment
on performance. portfolio and movements in the level of gearing. The Board monitors the
maintenance of an adequate spread of investments in order to minimise the
risks associated with particular countries or factors specific to particular
sectors, based on the diversification requirements inherent in the Company's
investment policy.
Portfolio risk (unchanged) The Board employs several strategies to monitor and assess that portfolio risk
is appropriate. These include regular analysis of various risk metrics
Risk analysis for a multi-asset portfolio needs to consider the interaction of including asset class risk attribution, asset class returns and contributions
asset classes and how these might correlate, or offset each other, under to performance, particularly in periods of equity market stress, and how the
various scenarios. current portfolio would perform in various forward-looking and
historical scenarios.
Gearing risk (unchanged) All borrowings require the approval of the Board and gearing levels are
reviewed regularly by the Board and the Investment Manager. Borrowings
The Company has the authority to borrow money or increase levels of market (including the Bonds) would not normally be expected to exceed 20% of
exposure through the use of derivatives and may do so when the Investment shareholders' funds. Total gearing, including net derivative exposure, would
Manager is confident that market conditions and opportunities exist to enhance not normally be expected to result in net economic equity exposure in
investment returns. However, if the investments fall in value, any borrowings
excess of 120%.
will magnify the extent of this fall in value.
Income/dividend risk (unchanged) The Board monitors this risk through the receipt of detailed income forecasts
and considers the level of income and expenses at each meeting.
The amount of dividends received will depend on the Company's underlying
portfolio. Any change in the tax treatment of the dividends or interest
received by the
Company (including as a result of withholding taxes or exchange controls
imposed by jurisdictions in which the Company invests) may reduce the level of
earnings
available for distribution to shareholders.
Regulatory risk (unchanged) The Investment Manager monitors investment movements, the level and type of
forecast income and expenditure and the amount of proposed dividends, if any,
The Company operates as an investment trust in accordance with Chapter 4 of to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax
Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from Act 2010 are not breached and the results are reported to the Board at each
capital gains tax on the profits realised from the sale of its investments. meeting. The Board and the AIFM also monitor changes in government policy and
Following authorisation under the Alternative Investment Fund Managers legislation which may have an impact on the Company.
Directive ("AIFMD"), the Company and its appointed AIFM are subject to the
risk that the requirements of this Directive are not correctly complied with.
Operational risk (unchanged) The security of the Company's assets, dealing procedures, accounting records
and maintenance of regulatory and legal requirements depends on the effective
In common with most other investment trust companies, the Company has no operation of the systems in place with third parties. These systems are
employees. The Company therefore relies upon the services provided by third regularly tested and monitored throughout the year, including in relation to
parties and is dependent on the control systems of the Manager and the cyber risk, through their industry-standard controls reports which provide
Depositary. assurance on the effective operation of internal controls. The controls
reports are assessed independently by their reporting accountants.
Market risk (unchanged) The Board considers the diversification of the portfolio, asset allocation,
stock selection, unlisted investments and levels of gearing on a regular basis
Market risk arises from volatility in the prices or valuation of the Company's and has set investment restrictions and guidelines which are monitored and
investments. It represents the potential loss the Company might suffer through reported on by
holding investments in the face of negative market movements.
the Investment Manager. The Board monitors the implementation and results of
the investment process
The Company invests in global assets across a range of countries and changes
with the Investment Manager.
in general economic and market conditions in certain countries, such as
interest rates, exchange rates, rates of inflation, industry conditions, The Board assesses climate change as an emerging risk in terms of how it
competition, political events and trends, tax laws, national and international develops, including how investor sentiment is evolving towards climate change
conflicts, economic sanctions and other factors can also substantially and within investment portfolios, and will consider how the Company may mitigate
adversely affect the securities and, as a consequence, the Company's prospects this risk, any other emerging risks, if and when they become material.
and share price.
The Board regularly engages with the Manager to understand how climate change,
Current heightened geopolitical risks are evident in the form of the Russian represented by environmental factors as part of ESG, is a key consideration
invasion of Ukraine, conflict in the Middle East and rising tension between within the Manager's investment process.
China and Taiwan.
The longer term emergence of the effects on investee companies of climate
change, and the regulatory environment around this present a further risk.
Financial risks (unchanged) Further details are disclosed in note 17 to the financial statements, together
with a summary of the policies for managing these risks.
The Company's investment activities expose it to a variety of financial risks
which include foreign currency risk and interest
rate risk.
The Board regularly reviews emerging risks facing the Company, which are
identified by a variety of means, including advice from the Company's
professional advisors, the AIC, and Directors' knowledge of markets, changes
and events. A failure to have in place appropriate procedures to assist in
identifying emerging risks may cause reactive actions and, in the worst case,
could cause the Company to become unviable or otherwise fail.
The principal risks associated with an investment in the Company's shares can
be found in the pre-investment disclosure document ("PIDD") published by the
AIFM, which is available from the Company's website: abrdndiversified.co.uk
Gearing
As at 30 September 2023, the Company had in place structural gearing in the
form of £16,096,000 6.25% Bonds 2031 (the "Bonds"). The Board is responsible
for determining the gearing strategy for the Company, with day-to-day gearing
decisions being made by the Manager within the remit set by the Board. The
Board has set its gearing limit at a maximum of 20% of the net asset value at
the time of draw down. The Board monitors the gearing position regularly and
considers alternative financing options. Please see references in the
Chairman's Statement to the proposed repayment of the Bonds in 2024.
Board Diversity
The Board is fully supportive of all aspects of diversity and the importance
of having a range of skilled, experienced individuals with relevant knowledge
in order to allow it to fulfil its obligations. Further information on Board
Diversity may be found in the Directors' Report.
Promoting the Company
The Board recognises the importance of promoting the Company to prospective
investors both for improving liquidity and enhancing the value and rating of
the Company's shares. The Board believes an effective way to achieve this is
through subscription to, and participation in, the promotional programme (the
"Programme") run by abrdn on behalf of a number of investment trusts under its
management. The Company's financial contribution to the Programme is matched
by abrdn which regularly reports to the Board, including analysis of the
effectiveness of the Programme as well as updates on the shareholder register
and any changes in the composition of that register.
The purpose of the Programme 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 and therefore the Company also
supports abrdn's investor relations programme which involves regional
roadshows, promotional and public relations campaigns. The Programme will be
reviewed by the Board in the context of the proposals for the Managed
Wind-Down of the Company.
Environmental, Social and Human Rights Issues
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. The Company's socially
responsible investment policy is set out below and the Board maintains
oversight and retains responsibility for the policy.
Socially Responsible Investment Policy
The Directors review the Manager's policy that encourages companies in which
investments are made to adhere to best practice in the area of corporate
governance and socially responsible investing. They believe that this can best
be achieved by entering into a dialogue with company management to encourage
them, where necessary, to improve their policies in both areas. The Manager's
ultimate objective, however, is to deliver superior investment returns for its
clients. Accordingly, whilst the Manager will seek to favour companies which
pursue best practice in these areas, this should not be to the detriment of
the return on the investment portfolio.
UK Stewardship Code and Proxy Voting as an Institutional Shareholder
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. The full text of the Manager's response
to the FRC's Stewardship Code 2020 may be found on its website.
Modern Slavery Act
Due to the nature of the Company's business, being an investment company that
does not offer goods and services to customers, the Board considers that it 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.
However, the Board maintains oversight of its third party suppliers and
considers that, as these comprise predominantly professional advisers and
service providers in the financial services industry, the risk is likely to be
low in relation to this matter.
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. However, at the portfolio level, the Manager engages on environmental
issues with underlying investments as part of its ESG policy.
Viability Statement
In accordance with the provisions of the UKLA's Listing Rules and the FRC's UK
Corporate Governance Code, the Directors have assessed the prospects of the
Company over a longer period than the 12 months required by the "Going
Concern" provision. The Board conducted this review for the period up to the
AGM in 2026, being a three year period from the date of shareholders' approval
of this Annual Report. The three year review period was selected because it is
aligned with the proposals for a Managed Wind-Down of the Company, as set out
in the Chairman's Statement. The Board considers that this period reflects a
balance between looking out over a medium term horizon and the inherent
uncertainties of looking out further than three years, given the profile of
the Company's investments.
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;
· the relevance of the Company's investment objective and investment
policy;
· the return of capital to shareholders;
· the annual continuation vote to be put to shareholders at the AGM on 27
February 2024, and the proposals to place the Company in a Managed Wind-Down;
and
· the level of demand for the Company's shares.
The three-year review considers the Company's cash flow, cash distributions
and other key financial ratios over the period. The three-year review also
makes certain assumptions about the normal level of expenditure likely to
occur and considers the impact on the financing facilities of the Company.
Whilst the financial statements have been prepared on a going concern basis,
there is a material uncertainty in respect of the continuation vote and
Managed Wind-Down of the Company (see note 2 (a) for related basis of
preparation disclosures).
In making this assessment, the Board has considered in particular the
potential longer term impact of a large economic shock, a period of increased
stock market volatility and/or markets at depressed levels, a significant
reduction in the liquidity of the portfolio or changes in investor sentiment
or regulation, and how these factors might affect the Company's prospects and
viability in the future. The Board reviewed a cash flows analysis in reaching
its conclusions, but recognised that the Company's operating expenses are
significantly lower than its total income.
The Board has also considered a number of financial metrics, including:
· the level of current and historic ongoing charges incurred by the
Company;
· the share price discount to NAV;
· the level of income generated by the Company;
· future income forecasts; and
· the liquidity of the Company's portfolio.
Considering the liquidity of the portfolio and the largely fixed overheads
which comprise a small percentage of net assets, the Board has concluded that,
even in exceptionally stressed operating conditions, the Company would be able
to meet its ongoing operating costs as they fall due.
Taking into account the Company's current position and the potential impact of
its principal risks and uncertainties, the Directors have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due for a period of three years from the date of
this Report, subject to shareholders' approval of the continuation vote at
each AGM.
Outlook
The Board's view on the general outlook for the Company can be found in the
Chairman's Statement under "Summary" while the Investment Manager's views on
the outlook for the portfolio are included in its report under "Where do we go
from here?".
On behalf of the Board
Davina Walter
Chairman
9 January 2024
Promoting the Success of the Company
The Board is required to report how it has discharged its duties and
responsibilities under section 172 of the Companies Act 2006 during the year
under review. Under this requirement, the Directors have a duty to promote the
success of the Company for the benefit of its members (shareholders) as a
whole, taking into account the likely long term consequences of decisions, the
need to foster relationships with the Company's stakeholders, and the impact
of the Company's operations on the environment. In addition, the Directors
must act fairly between shareholders and be cognisant of maintaining the
reputation of the Company.
The Purpose of the Company and Role of the Board
The purpose of the Company is to act as a 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 during the year comprised five 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 as well as 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 operates at its regular meetings and receives regular reporting and
feedback from the key service providers.
The Company's main stakeholders are its shareholders, the Manager, investee
companies and funds, service providers and the holders of the Company's Bonds.
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 the Board Engages
Shareholders Shareholders are key stakeholders and the Board places great importance on
communication with them, and meet, in the absence of the Manager, with current
and prospective shareholders to discuss performance and to receive shareholder
feedback. The Board welcomes all shareholders' views.
Part of that engagement has been to evaluate the feedback from shareholders
regarding the Company's share price and the persistent discount to NAV at
which its shares trade, culminating in the proposals for a Managed Wind-Down
of the Company.
Regular updates are provided to shareholders through the Annual Report, Half
Yearly Report, Manager's monthly factsheets, company announcements, including
daily net asset value announcements, and the Company's website.
Manager The Investment Manager's Report sets out the key investment decisions taken
during the year. The Investment Manager has continued to manage the Company's
assets in accordance with the mandate provided by shareholders, with the
oversight of the Board.
The Board regularly reviews the Company's performance against its investment
objective and the Board undertakes an annual strategy review 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.
Investee Companies and Funds Responsibility for actively monitoring the activities of investee companies
and funds 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 Investment Manager to
exercise voting rights on resolutions proposed by the investee companies
within the Company's portfolio.
The Board and Manager are committed to investing in a responsible manner and
the Investment Manager integrates environmental, social and governance
considerations into its research and analysis as part of the investment
decision-making process. Through engagement and exercising voting rights, the
Investment Manager actively works with companies to improve corporate
standards, transparency and accountability.
Service Providers The Board seeks to maintain constructive relationships with the Company's
suppliers, either directly or through the Manager, with regular communications
and meetings.
The Audit 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 and providing value for money.
Debt Providers On behalf of the Board, the Manager maintains a positive working relationship
with Law Debenture Trust p.l.c. as trustee on behalf of the holders of the
Company's Bonds, ensuring compliance with its covenants.
Specific Examples of Stakeholder Consideration During the Year
While the importance of giving due consideration to the Company's stakeholders
is not new, and is considered as part of every Board decision, the Directors
were particularly mindful of stakeholder considerations during the following
decisions undertaken during the year ended 30 September 2023.
Independent evaluation of the Board
In September 2023, the Company engaged Lintstock Ltd to undertake an
independent external evaluation of the effectiveness of the Board. Further
information may be found in the Directors' Report, under the Nomination
Committee section.
Dividends Paid to Shareholders
The level, frequency and timing of dividends paid are key considerations for
the Board, taking into account net earnings for the year and the Company's
objective of providing shareholders with dependable income and capital
appreciation over the long term through investment in a globally diversified
multi-asset portfolio.
The total dividends per share of 7.33p in respect of the year, including a
special dividend of 1.65p per share, represent an increase of 30.9% on the
prior year.
Share Buy Backs
During the year the Company bought back 7.2m Ordinary shares to be held in
treasury, providing a small accretion to the NAV and a degree of liquidity to
the market at times when the discount to the NAV per share had widened during
normal market condition.
Performance and Results
Performance (total return)
31 March 2017(B) - 31 December 2020(C) -
30 September 2023 30 September 2023 1 year 3 years 5 years
% return % return % return % return % return
Net asset value - debt at par(A) +13.3 +8.8 +0.4 +6.5 +8.4
Net asset value - debt at fair value(A) +21.6 +11.1 +0.4 +14.4 +14.5
Share price(A) +2.3 -3.0 -0.7 +9.0 -11.3
(A) Considered to be an Alternative Performance Measure. Total return
represents the capital return plus dividends reinvested.
(B) Change of Investment Objective and Investment Policy on 31 March 2017.
(C) Change of Investment Objective and Investment Policy on 31 December 2020.
Source: abrdn, Morningstar and Lipper.
Ten Year Financial Record
Year to/As at 30 September 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Total revenue (£'000) 23,608 23,120 23,265 17,961 23,262 22,106 20,783 18,878 17,959 17,163
Per Ordinary share (p)
Net revenue return 7.0 7.1 7.6 5.3 6.2 5.7 5.6 5.1 5.0 4.4
Total return 9.3 (4.5) 1.3 8.0 2.8 2.6 (1.4) 6.7 (0.2) (0.1)
Net dividends payable 6.44 6.54 6.54 5.89 5.24 5.36 5.44 5.52 5.60 7.33
Net asset value per Ordinary share (p)
Debt at par value 147.5 136.6 131.6 132.7 130.3 128.1 121.7 123.5 117.8 112.7
Debt at fair value 143.3 131.0 123.6 126.4 124.2 119.9 113.4 121.7 117.6 112.6
Equity shareholders' funds (£'000) 426,865 374,832 351,521 436,767 428,129 413,679 386,230 382,118 363,358 339,534
Investment Manager's Process
Investment Manager's Process
Risk management is embedded in the Investment Manager's process. The
approach is based around four pillars: Diversification principles, Risk
models, Scenario analysis and Peer review. In addition, liquidity risk is also
actively monitored, both by the Investment Manager and via regular independent
stress tests.
Further detail on each of the pillars is provided below:
· Diversification principles
The Investment Manager believes that diversification is a necessary element of
any robust multi-asset portfolio, reducing portfolio volatility in the short
term and reducing the reliance on any one asset class over the medium to
long-term. Diversification benefits arise from the range of assets that are
considered within the Company's portfolio; the longer-term modelling that is
used to establish the strategic framework; and they are also actively
considered as part of the day to day decision making for the portfolio. The
Investment Manager seeks to ensure that there is not a disproportionate
exposure or contribution to portfolio risk from any one asset class or
investment.
· Risk models
The second pillar of the risk management approach is the use of quantitative
risk models. Although the Investment Manager acknowledges that risk models
can have their limitations, it believes that they are a valuable input into
the broader process. In particular, they can provide an efficient, clear and
objective view on the portfolio's risk exposures at any given time.
· Scenario analysis
While the risk models include certain historic stress test scenarios in their
analysis, it is important to also consider how investments in the portfolio
might be expected to behave in various hypothetical scenarios. The scenario
analysis harnesses both the experience of the investment team and the broader
insights gained from across abrdn. From this analysis, the Investment Manager
is seeking to gain comfort that the potential risk of, and impact from, any
given scenario is acceptable. This helps to ensure that the portfolio is
resilient to the wide range of scenarios that might play out over time.
· Peer review
To ensure that the Investment Manager is capturing the best ideas within the
portfolio, the investment process has been designed to source views from
across the business and reflect back its own insights. On a formal basis,
the peer review process also includes oversight from a monthly meeting of the
Investment Manager's Diversified Asset Review Group as well as input from
abrdn's independent risk team and liquidity stress tests undertaken by the
dealing desk.
Investment Manager's Report
This Investment Manager's Report relates to the year ended 30 September 2023.
As explained in the Chairman's Statement, the Company has put forward
proposals to shareholders for a Managed Wind-Down which, if approved, would
include a revised investment policy including the cessation of new investments
by the Company with the exception of funding commitments for existing
investments.
Introduction
Markets have continued to be volatile in 2023, continuing the trend of recent
years. The driver this year is a significant undercurrent of stubborn
inflation coupled with rising geopolitical tensions. Market optimism about
generative artificial intelligence solutions ushering in a new technological
era has provided a balm at times, but outside of this, positive investment
performance has been hard to come by for many investors as rising interest
rates start to stifle growth.
Can central bankers thread the needle?
In the last Annual Report, we noted that inflation was the number one factor
driving markets, and this has remained the story in 2023. Headline inflation
appears to have peaked in developed markets; core inflation has also come
down, but remains somewhat stickier. The challenge for central bankers from
here is to thread the needle of holding rates high enough to keep inflationary
pressures at bay and bring inflation back to target while at the same time,
not tipping economies into recession. The US appears to be treading this path
well, while data in the UK and Europe is suggestive of a more imminent
downturn.
Geopolitics has also remained an issue in 2023, with the situation in Ukraine
showing no signs of meaningful change, while just after year end, the
Israeli-Palestinian conflict saw the deadliest events in over 50 years.
Worries are that the situation could escalate into a wider regional
confrontation.
Optimism around AI was a large driver of markets, with an explosion of Large
Language Models (LLMs) and generative AI tools such as ChatGPT gaining
headlines, but also ushering in new ways of working. These tools have the
potential to increase productivity, with new models with abilities and
functions being released regularly. Industries supporting this high growth
area and related indices performed strongly as a result, with the NASDAQ up
over 30% in local currency terms, outperforming the S&P 500 in the US by
nearly 15%. Nvidia, a leading supplier of specialist AI hardware, has seen its
market cap move from $300bn to over $1trn. In fact, the "Magnificent Seven"
stocks (Apple, Amazon, Microsoft, Alphabet, Meta, Netflix, Nvidia), were
responsible for 45% of the entire S&P 500 returns.
With investors concerned that entrenched inflation and sustained rate rises
could result in tougher financial conditions the impact across private markets
was varied. Deal activity across US and European private equity was down in H1
2023. However, levels of activity did vary across sectors with some proving to
be more resilient than others. Financial services proved to be resilient as
the rise in interest rates has resulted in consolidation across the sector and
the expectation is that this will continue. It is likely that investors are
waiting to see the extent of valuation corrections before activity across all
sectors picks back up. Within private credit as borrowing costs have gone up
private equity firms continue to turn to private credit to finance
transactions, shifting away from syndicated loan markets offered by the
traditional banks. Default rates are increasing, up to 4.5% in Q1 2023 , as
coverage ratios have dropped. In this climate, it is important to be rewarded
for the level of risk. Across real assets, infrastructure deal volumes were
also down, the lowest since H1 2020, 1,336 deals totalling $394.83bn in H1
2023 but energy transition sectors continued to grow. This is not surprising
as energy-security continues to be a priority and demand remains robust for
assets that are driving the energy transition. Real estate liquidity is
generally very low, and investors are waiting to see where values have shifted
meaning transactions volumes have fallen; down roughly 55% vs 2022 in Europe.
In Europe, there is a stronger preference for logistics and residential as
long-term drivers such as e-commerce and supply chain modernisation for the
former and demographic/ supply trends for the latter remain in place. In
Asia-Pacific we see that fundraising has skewed towards opportunistic
strategies. Overall, the delay in recovery is likely to come from tighter
lending conditions and recession, although relative value is building back up.
In summary, risks remain elevated, so a cautious approach must be taken at
this time.
A stable NAV in a volatile environment
On an absolute and relative basis, the return on net asset value ("NAV"), with
debt at fair value and including income, has been reasonable during the
period. The Company delivered a total NAV return of 0.4% with 3.6% volatility,
a good risk adjusted return per unit of risk taken. This compared with a 13.2%
return in equities as measured by the FTSE All-Share Index with 11.6%
volatility, and -0.6% in government bonds as measured by the ICE BofA UK Gilt
Index with a volatility of 11.5%. The share price total return was -0.7%
during the period.
The Company has been able to protect capital in an incredibly challenging
market environment, with Higher Yielding Fixed Income positions the top
performer, while Equity Growth and Diversifying Opportunities also performed
well. Our Real Asset holdings detracted from returns, while Defensive Assets
were broadly neutral.
In Higher Yield Fixed Income, the standout performers were Emerging Market
("EM") Bonds, and Asset Backed positions. Our Global Equity holdings were
positive over the first 8 months of the year, but the rotation to China shares
gave back some of these gains in the latter months of the year, while the
private equity holdings were also positive. The Diversifying Opportunities
returns were led by the Litigation Finance fund, managed by Burford,
validating its non-economic cycle return generation potential
We discuss performance, gross of management fees and expenses directly
attributable to the Company, in greater detail below.
How did the Company produce returns during such a volatile period?
Equity Growth
Despite the uncertainty resulting from a banking crisis at the start of the
year followed by a combination of ongoing inflationary pressures, monetary
tightening and the risk of a US government shutdown, Equities returned 8.2%
over the period, contributing 1.2% to the Company's performance. Both the
Company's listed and private equity portfolios contributed positively to the
performance. Our ESG Enhanced Equity exposure led the returns over the first
half of the financial year. Equity markets initially rose, as investors
sought to take advantage of lower valuations, despite a relatively lacklustre
third quarter earnings season. From the start of January, the large US tech
stocks led the way, benefitting initially from expectations of a less
aggressive rate hiking cycle and subsequently the focus on US technology
stocks. The rotation to China shares in May of 2023 detracted from
performance as the anticipated regional economic rebound has so far struggled
to take hold.
Higher yielding fixed income
Higher Yielding Fixed Income led return generation over the six months, adding
2.9% to Company performance. Within this the Asset Backed sector was the top
performer, contributing 1.2%. In the rising rate environment, names such as
TwentyFour Asset Backed Opportunities offered strong income generation due
to the floating rate nature of the underlying investments. Emerging Market
Bonds were also positive contributors over the period, adding 1.1%, driven by
peaking yields and income payments.
Credit markets have continued to experience low default rates and our tilt to
floating rate lending has also enabled the portfolio to benefit from a higher
rate environment, and positive returns were also generated by privately held
names Mount Row II and Hark III.
Real Assets
Real assets detracted from performance, returning -3.4% over the six months.
Property assets have suffered from continued weakness in sectors such as
commercial offices, where hybrid working has reduced demand for space. In
addition, in a sector where debt is commonplace, rising rates have impacted
those names with unhedged exposure or those who need to refinance maturing
loans, as they are doing so at a significantly higher rate. This dynamic
impacted widely across the listed names, and we reduced exposure to this
sector at the end of the year.
The NAVs for our infrastructure positions have been more resilient given the
high inflation linkage of underlying revenues for assets in the privately held
portfolio. This was a positive for SL Capital Infrastructure II, while Andean
Social Infrastructure I was also positive. That being said, a moderating UK
power price and increased discount rates (as yields have risen) saw BlackRock
Renewable Infrastructure UK value fall. The listed infrastructure sector also
suffered from the impact of rising yields, as prices swung from trading at a
historic premium to NAV to a large discount to NAV, with all names impacted.
Furthermore in the Real Assets basket, Agriculture Capital Management II was
written down significantly as one of its properties breached its debt
covenants. We later exited this fund on the secondary market due to concerns
about the outlook for the investment.
Diversifying Opportunities
The basket of Diversifying Opportunities contributed 1.4% to the performance
of the Company over the period. Within this, the private holding in Burford
Opportunity Fund, in the litigation finance sector was the largest driver,
adding 1.0% to performance. Over the year there was significant progress in
the YPF case, which has unlocked significant value for the Company, as
detailed in the half year report. In addition to this, proceeds were received
from the successful resolution of several other cases in the portfolio. Listed
Royalty name Round Hill contributed +0.3% in September following a takeover
bid at a large premium to the share price.
Defensive Assets
Our exposure to lower returning defensive assets, such as government bonds and
cash, is limited as we seek to provide long term returns from a diversified
exposure of return seeking opportunities. This said, we have introduced an
exposure to higher quality bonds given the yields on offer. Within this
basket, a positive return from Cash was slightly outweighed by a negative
return on Government Bonds, as rising rates drove down the capital value of
the bonds. Ultimately the basket contributing a -0.1% to performance.
What portfolio changes did we make?
Equity Growth
Within the Equity Growth basket, we reduced the weighting of the ESG Enhanced
Core Equity sleeve by half and sold the satellite holding in Apax Global,
given our reduced conviction in the growth outlook and the increased
likelihood of recession in developed markets. We partly rotated into Chinese
Equities to diversify away from developed market corporate risk at a time when
the region offered the potential for outperformance as its economy reopened.
While this has not been the case so far, stocks are at post COVID valuation
lows, and we expect further government stimulus to improve earnings potential.
The weight to the Private Equity portfolio increased slightly over the year,
as although it distributed $1.4m from the sale of its stake in Action, the
abrdn Secondary Opportunities Fund IV was a significant net caller of capital
as it continues to deploy capital during its investment period.
In total, the Equity Growth basket was reduced from 18% to 13% of the
portfolio over the year. Within this basket, the privately held assets moved
from 10% to 11% of the Company's investment portfolio. The proceeds from the
overall reduction in the Equity Growth basket were invested into Defensive
Assets.
Higher Yielding Fixed Income
Within the higher yielding fixed income basket, we trimmed exposure to both
Senior and Junior ABS positions, as despite the higher yield on offer, we
anticipate a higher default rate as the interest cost burden from high rates
starts to weigh heavily on companies . The proceeds were rotated into higher
quality fixed income within the defensive basket.
In our private credit portfolio, the majority of committed capital has been
called, and there were no new commitments made. There was a slight increase in
weight over the year (from 5% to 6%), as the Mount Row II assets rebounded
strongly over the period following recovery in the CLO markets.
Overall, the Higher Yielding Fixed Income basket was reduced from 27% of the
Company's assets to 22% at year end.
Real Assets
Within private Real Assets, a significant change was the successful exit of
the I77 toll road asset in the US in December, which raised USD17.4m,
crystalising a strong return from this investment. From this point there
were several drawdowns from SLCI II to fund expansion of Airband's rural UK
fibre network, and from the Andean Social Infrastructure Fund to invest in 2
brownfield Mexican hospitals, so the private infrastructure weight moved from
an intra-period low of 14% back up to 16% at year end. In Natural Resources,
we exited the Agricultural Capital Management II Fund, where we had concerns
on the manager's ability to increase profitability of the underlying assets,
and additionally on the impact of more frequent extreme weather events on crop
harvests in the US.
In the public sphere, we exited our allocation to property from 3% of the
Company, on a poor outlook for the sector as a whole. While the listed
infrastructure valuations swung to a large discount to NAV, we retain
conviction in the sector, and see current valuations as attractive for long
term returns from this point.
Diversifying Opportunities
In the public investments, we reduced our exposure to Round Hill Music
Royalties following the takeover bid to take profits immediately, before
exiting the position fully after year end. In the privately held investments,
the majority of the committed capital in the sector has been called, and there
were no new commitments made, so there was no change at a portfolio allocation
level over the period. However, positive performance from Burford Opportunity
Fund and the abrdn Global Private Market Fund moved the portfolio allocation
up slightly from 16% to 17% of the Company's portfolio.
Defensive Assets
Defensive assets was the largest allocation change over the period, as we made
the strategic decision to de-risk the portfolio, allocations to this basket
moved its weight from 3% of the Company's portfolio coming into the year, up
to 16% at year end.
Within the basket we have allocated to Government Bonds and Investment Grade
Credit. Our view is that central bank rates have peaked, and that rates will
start to move down gradually from here, increasing the value of the bonds. In
addition, the Investment Grade Credit exposure provides an attractive income
yield at present, but the higher credit quality should mean that defaults are
lower than other credit sectors should we see levels of credit distress
increasing.
Where do we go from here?
Divergence remains a key theme for the global economy heading into 2024. The
US economy remains very resilient, with the rate of growth accelerating over
the summer. Robust consumer and business balance sheets, and a strong labour
market can extend expansion into 2024. With inflation moderating, the
likelihood of a soft landing has increased. This, however, is already priced
into the market, and our view is that the exceptional US performance will
likely only last a couple of more quarters, and that the US is likely to enter
a mild recession next year. Indeed industrial surveys point to weaker activity
and slowing labour demand reflecting a building drag from earlier Federal
Reserve tightening.
The outlook is less rosy for the Eurozone which is very close to recession,
due to ECB monetary policy and a weak global industrial cycle impacting the
region's exporters. Germany's energy intensive growth model is under real
pressure, with data pointing to a significant contraction. This would
translate to lower inflationary pressure, meaning the ECB is likely close to
the end of its hiking cycle, and will likely move to easing in 2024.
The UK additionally faces challenges, as the impact of previous interest rate
hikes feed through into slowing economic activity and falling house prices.
However, the UK's particular series of negative supply side shocks mean that
even with weak economic growth, inflation is likely to remain stickier,
meaning a BOE easing cycle may be later and slower than elsewhere.
While the global interest rates hiking cycle is close to peaking, recent
communication from central banks is that rates will remain higher for longer
than previously thought. Ultimately, over the next 12-18 months bond yields
will likely move lower as growth eventually runs out of steam and central
banks ease policy back to more neutral settings.
Within Equities, recent performance has been driven by multiple expansion
rather than earnings growth, the vast majority of which from big tech names.
This is reassuring on one hand, as it shows investors are not optimistic
across the board, but shows the risk of a change in sentiment to the large cap
tech names, and the negative impact this will have on the sector.
The likelihood of recession and the impact on earnings means we are less
favourable on corporate risk than earlier in the cycle. We have added a
position to investment-grade corporate bonds from our high yield debt
positions as a result. In the higher yield space, we are maintaining our
Emerging Market debt positions. Emerging Market central banks are ahead of
developed peers in combatting inflation and will have more room to cut when a
global recession hits. We remain mindful of shorter-term volatility in this
space however.
We are currently negative on Global Property, which continues to progress
steadily through a downturn. Higher interest rates have pushed up real estate
yields, and have increased the associated debt cost. This has happened much
more rapidly than during the GFC in most regions, with values falling between
15-30% in only two to three quarters. While this phase is close to the end,
the next phase of a weak office sector and secondary asset demand is starting.
However, this too shall pass, and we believe real estate valuations will reach
fair value in 2024 following a peak in interest rates.
Across private equity, despite the headwinds, pockets of opportunity remain
across sectors with strong long term growth prospects. We remain highly
convicted in investing in the next wave of disruptive technologies that will
drive long term growth. Further, we see mid-market companies that are driving
consumption growth in urban centres globally as attractive. Our attention is
on managers with proven through-the-cycle returns and distinct
operating/sector expertise, with long-term trends still giving investors the
prospect of positive outcomes from investments. We see significant value
creation opportunities in the Venture Capital and Growth Equity sectors. Near
term given economic volatility and valuation uncertainty we favour larger more
mature companies with strong balance sheets, along with secondary portfolios
that are attractively priced because of market dislocation.
As we look at the market today, within infrastructure clearly the energy
transition remains a dominant theme. Traditional regulated utilities remain
attractive, though there is some debate about appropriate valuations. We do
expect to see some impact on valuations, but as yet not much evidence has
emerged, partly because there is still strong competition for good assets.
Furthermore, the forward curve shows interest rates coming back down, which is
the expectation going into 2024. Long term we see significant value creation
opportunities in the development of essential infrastructure globally across
both economic and social spheres. It is important to note, in the near-term
cost of financing is much higher than it was over past last decade, resulting
in smaller relative value vs long term government bonds resulting lower total
return expectations.
The Company has a well-diversified portfolio which has proven to be resilient
in the recent challenging environment. While we expect market conditions to
remain challenging, we believe the Company is well placed to navigate what
continues to be a difficult economic environment.
Nalaka De Silva, Head of Private Markets Solutions,
Simon Fox, Senior Investment Director,
Nic Baddeley, Investment Manager
abrdn Investments Limited
Investment Manager
9 January 2024
Portfolio
The portfolio consists of a wide range of assets managed by specialist teams
within abrdn and also selected third party managers. Some of these
investments are longer term in nature and are not otherwise readily available
to private investors.
Ten Largest Investments
As at 30 September 2023
At At
30 September 30 September
2023 2022
% of Total % of Total
investments investments
SL Capital Infrastructure II(AB) 8.1 5.2
European economic infrastructure
iShares LI UK Gilts UCITS ETF 7.1 -
Mixed duration UK Government Bond portfolio
Aberdeen Standard Global Private Markets Fund(AB) 5.9 5.1
Multi-strategy private markets exposure
TwentyFour Asset Backed Opportunities Fund 5.7 6.8
Investments in mortgages, SME loans originated in Europe
Burford Opportunity Fund(B) 5.1 4.7
Diverse portfolio of litigation finance investments initiated by Burford
Capital
Healthcare Royalty Partners IV(B) 4.7 3.6
Invests in healthcare royalty streams primarily in the US
Bonaccord Capital Partners I-A(B) 4.7 4.1
Targets investment in alternative asset management companies.
Andean Social Infrastructure Fund I(AB) 4.4 3.4
Infrastructure project investments in the Andean region of South America
Aberdeen Standard Secondary Opportunities Fund IV(AB) 3.8 2.4
Diversified Private Equity portfolio which invests through secondary
transactions
iShares GBP Corp Bond UCITS ETF 3.4 -
Tracks the performance of an index composed of Sterling denominated investment
grade corporate bonds.
(A) Denotes abrdn plc managed products
(B) Unlisted holdings
Private Markets Investments
As at 30 September 2023
Valuation Total investments Valuation
2023 2023 2022
Company £'000 % £'000
Private Equity
Bonaccord Capital Partners I-A(B) 16,091 4.7 15,255
Aberdeen Standard Secondary Opportunities Fund IV(AB) 12,940 3.8 9,385
TrueNoord Co-Investment(B) 8,765 2.6 9,976
Maj Invest Equity 5(B) 2,432 0.7 2,492
HarbourVest International Private Equity VI(B) 1,678 0.5 2,100
Maj Invest Equity 4(B) 1,205 0.4 1,335
Mesirow Financial Private Equity IV(B) 599 0.2 882
HarbourVest VIII Buyout Fund(B) 160 0.1 260
HarbourVest VIII Venture Fund(B) 123 - 178
Mesirow Financial Private Equity III(B) 117 - 228
Top ten Private Equity holdings 44,110 13.0
Other holdings 27 -
Total Private Equity 44,137 13.0
Real Estate
Aberdeen Property Secondaries Partners II(AB) 9,385 2.8 9,851
Aberdeen European Residential Opportunities Fund(AB) 7,524 2.2 9,769
Cheyne Social Property Impact Fund(B) 3,299 1.0 4,813
Total Real Estate 20,208 6.0
Infrastructure
SL Capital Infrastructure II(AB) 27,419 8.1 19,581
Andean Social Infrastructure Fund I(AB) 15,016 4.4 12,691
BlackRock Renewable Income - UK(B) 8,199 2.4 8,523
Aberdeen Global Infrastructure Partners II (AUD)(AB) 4,541 1.3 6,840
Pan European Infrastructure Fund(B) 1,205 0.4 1,697
Aberdeen Global Infrastructure Partners II (USD)(AB) - - 17,755
Total Infrastructure 56,380 16.6
Private Credit
Mount Row Credit Fund II(B) 10,166 3.0 7,494
PIMCO Private Income Fund Offshore Feeder I LP(B) 7,662 2.2 8,796
ASI Hark III(B) 6,042 1.8 4,088
Total Private Credit 23,870 7.0
Other
Aberdeen Standard Global Private Markets Fund(AB) 19,934 5.9 19,122
Burford Opportunity Fund(B) 17,272 5.1 17,520
Healthcare Royalty Partners IV(B) 16,235 4.7 13,522
Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI(B) 333 0.1 298
Markel CATCo Reinsurance Fund Ltd - LDAF 2019 SPI(B) 81 - 281
Total Other 53,855 15.8
Total Private Markets 198,450 58.4
(A) Denotes abrdn plc managed products
(B) Unlisted holdings
Fixed Income & Credit Investments
As at 30 September 2023
Valuation Total investments Valuation
2023 2023 2022
Company £'000 % £'000
Structured Credit
TwentyFour Asset Backed Opportunities Fund 19,292 5.7 25,509
Fair Oaks Income Fund 1,046 0.3 1,089
Blackstone/GSO Loan Financing 615 0.2 3,468
Total Structured Credit 20,953 6.2
Syndicated Loans
Aberdeen Standard Alpha - Global Loans Fund(A) 2,279 0.7 2,347
Total Syndicated Loans 2,279 0.7
Investment Grade Credit
iShares GBP Corp Bond UCITS ETF 11,603 3.4 -
iShares GBP Ultrashort Bond 1,054 0.3 -
Total Investment Grade Credit 12,657 3.7
Developed Market Government Bonds
iShares LI UK Gilts UCITS ETF 24,059 7.1 -
Total Developed Market Government Bonds 24,059 7.1
Country
Brazil (Fed Rep of) 10% 01/01/25 2,347 0.7 1,313
Secretaria Tesouro 10% 01/01/31 1,805 0.5 1,755
Mexico (Utd Mex St) 5% 06/03/25 1,555 0.5 -
Mexico Bonos Desarr Fix Rt 10% 05/12/24 1,206 0.3 1,775
Titulos De Tesoreria 7% 26/03/31 986 0.3 859
Indonesia (Rep of) 8.375% 15/03/34 958 0.3 1,346
Malaysia (Govt of) 3.828% 05/07/34 936 0.3 988
Mexico (United Mexican States) 7.75% 13/11/42 868 0.3 831
South Africa (Rep of) 8.75% 31/01/44 862 0.2 995
South Africa (Rep of) 9% 31/01/40 803 0.2 329
Top ten holdings 12,326 3.6
Other holdings 17,293 5.1
Total Emerging Market Debt 29,619 8.7
Total Fixed Income & Credit 89,567 26.4
(A) Denotes abrdn plc managed products
Listed Equities
As at 30 September 2023
Valuation Valuation Valuation
2023 2023 2022
Company £'000 % £'000
Listed Equity
Aberdeen Standard SICAV I China A Shs Eqty Fund Z Acc USD 6,551 1.9 -
Cellnex Telecom 1,673 0.5 11
Total Listed Equity 8,224 2.4
Infrastructure Sub-Fund
3I Infrastructure 4,329 1.3 2,532
HICL Infrastructure 3,355 1.0 3,627
International Public Partnerships 3,241 0.9 2,194
Sequoia Economic Infrastructure Income 1,877 0.6 1,570
Cordiant Digital Infrastructure 1,831 0.5 2,336
Top five Infrastructure Sub-Fund holdings 14,633 4.3
Other holdings 1,050 0.3
Total Infrastructure Sub-Fund 15,683 4.6
Real Estate Sub-Fund
PRS REIT 457 0.1 1,673
Total Real Estate Sub-Fund 457 0.1
Alternative Income Sub-Fund
BioPharma Credit 3,629 1.1 6,267
Tufton Oceanic Assets 1,147 0.3 2,936
Round Hill Music Royalty Fund 926 0.3 3,446
SME Credit Realisation 44 - 201
Total Alternative Income Sub-Fund 5,746 1.7
Renewables Infrastructure Sub-Fund
Greencoat UK Wind 3,968 1.2 2,643
Greencoat Renewables 2,193 0.7 2,700
Pantheon Infrastructure 1,860 0.6 921
The Renewables Infrastructure Group 1,830 0.5 1,721
Bluefield Solar Income Fund 1,471 0.4 1,834
Top five Renewables Infrastructure Sub-Fund holdings 11,322 3.4
Other holdings 6,897 2.0
Total Renewables Infrastructure Sub-Fund 18,219 5.4
Reinsurance Sub-Fund
CATCo Reinsurance Opportunities Fund 84 - 150
Total Reinsurance Sub-Fund 84 -
Listed Royalties Sub-Fund
Franco Nevada 1,788 0.5 -
Wheaton Precious 1,754 0.5 -
Total Listed Royalties Sub-Fund 3,542 1.0
Total Equities 51,955 15.2
Net Assets Summary
As at 30 September 2023
Valuation Net assets Valuation Net assets
2023 2023 2022 2022
£'000 % £'000 %
Total investments 339,972 100.1 373,732 102.9
Cash and cash equivalents(A) 21,087 6.2 8,984 2.5
Forward contracts (5,615) (1.6) (4,922) (1.4)
6.25% Bonds 2031 (15,730) (4.6) (15,694) (4.3)
Other net (liabilities)/assets (180) (0.1) 1,258 0.3
Net assets 339,534 100.0 363,358 100.0
(A) Includes outstanding settlements
Manager's ESG Engagement
The Manager does not judge the suitability of an investment from an ESG
perspective on a purely binary basis. Instead, a dynamic approach is taken,
investing in companies where the greatest alignment to mitigating the risks
can be seen or pursued further through their commitment to improving their ESG
profile. The Manager believes in active engagement with its investments and
potential investments: from providing initial guidance on suitable metrics
through to holding the company to account for delivering on its promises. It
is through this filter that the Manager is comfortable investing in, for
example, sectors such as mining and oil & gas, subject to the belief that
a company is taking the necessary action to address the energy transition. The
Manager has high expectations for these companies given that many commodities
are necessary for the transition to a low carbon future.
Core beliefs: Assessing Risk, Enhancing Value
There are three core principles which underpin the Investment Manager's
integrated ESG approach. Firstly, ESG factors can materially impact financial
returns and the long term success of the investment strategy. Secondly, by
integrating ESG factors into investment decisions the Investment Manager
generates a better understanding of how well companies are managing ESG risks
and opportunities and this insight supports better decision making. Finally,
active engagement with company management teams is central to enhancing value
and a standard part of the Investment Manager's ongoing stewardship programme.
Responsible Investing - Integration of ESG into the Investment Manager's Process
"By embedding ESG factors into the active equity investment process, we aim to
reduce risk, enhance potential value for investors and foster companies that
can contribute positively to the world." Investment Manager
Financial Returns ESG factors can be financially material - the level of consideration they are
given in a company will ultimately have an impact on corporate performance,
either positively or negatively. Those companies that take their ESG
responsibilities seriously tend to outperform those that do not.
Fuller Insight Systematically assessing a company's ESG risks and opportunities alongside
other financial metrics allows the Investment Manager to make better
investment decisions.
Corporate Advancement Informed and constructive engagement helps foster better companies, protecting
and enhancing the value of the Company's investments.
"We believe that the market systematically undervalues the importance of ESG
factors. We believe that in-depth ESG analysis is part of both fundamental
company research and portfolio construction and will lead to better client
outcomes." Investment Manager
Researching Companies: Deeper Company Insights for Better Investor Outcomes
The Investment Manager's portfolio managers, sector analysts, ESG equity
analysts and central ESG Investment Team collaborate to generate a deep
understanding of the ESG risks and opportunities associated with each company.
The central ESG team also produces research into specific themes (e.g. labour
relations or climate change), sectors (e.g. forestry) and ESG topics to
understand and highlight best practice.
Global Networks: Working Together on Climate Change
The Investment Manager is a signatory to the UN Principles for Responsible
Investment and actively collaborates on ESG issues with global asset managers
and asset owners. Climate change is a particular area of focus because the
physical and transition risks related to climate change have the potential to
be financially material for many companies. The Investment Manager has been
actively involved in initiatives such as Climate Action100+ and Institutional
Investors Group on Climate Change ("IIGCC") Net Zero Framework and also
supports the Task Force on Climate Related Disclosures ("TCFD") which aims to
strengthen climate related reporting globally. Portfolio Management Team
ESG House Score ESG Investment Team Equity ESG Quality Score
· Responsibility of ESG analyst · Global insights · Responsibility of portfolio manager and sector analysts
· Based on quantitative data · Thematic research · Based on fundamental bottom up analysis of individual companies by
on-desk analysts
· Incorporates abrdn's views on materiality and sector specific risks · Co-ordination across asset classes
· Assesses the ESG quality of companies
· Uses wide range of data sources including MSCI, Trucost, voting analysis
and abrdn's investment insights · Reflective of equity analyst expertise
· Aims to be forward looking · Incorporates engagement with companies on ESG issues
Portfolio Managers & Sector Analysts All of the Investment Manager's equity portfolio managers and sector analysts
seek to engage actively with companies to gain insight into their specific
risks and provide a
positive ongoing influence on their corporate strategy for governance,
environmental and social impact.
ESG Equity Analysts The Investment Manager has dedicated and highly experienced ESG equity
analysts located across the UK, US, Asia and Australia. Working as part of
individual investment teams, rather than as a separate department, these
specialists are integral to pre-investment due diligence and post-investment
ongoing company engagement. They are also responsible for taking thematic
research produced by the central ESG Investment Team, interpreting and
translating it into actionable insights and engagement programmes for its
regional investment strategies.
ESG Investment Team This central team of more than 20 experienced specialists based in Edinburgh
and London provides ESG consultancy and insight for all asset classes. Taking
a global approach both identifies regions, industries and sectors that are
most vulnerable to ESG risks and identifies those that can take advantage of
the opportunities presented. Working with portfolio managers, the team is key
to the Investment Manager's active stewardship approach of using shareholder
voting and corporate engagement to drive positive change.
Listed Equities
ESG Research Process: Introduction
The Investment Manager employs around 150 equity professionals globally. A
systematic and globally-applied approach to evaluating stocks allows the
Investment Manager to compare companies consistently on their ESG credentials
- both regionally and against their peer group. The Investment Manager uses
a combination of external and proprietary in-house quantitative scoring
techniques to complement and cross-check analyst-driven ESG assessments. ESG
analysis is peer-reviewed within the equities team, and ESG factors impacting
both sectors and stocks are discussed as part of the formal sector reviews.
ESG House Score
The ESG House Score is produced by the ESG Equity Analysts. The ESG House
Score framework has two main pillars which include detailed operational and
governance metrics. The underlying key performance indicators are weighted
according to how material they are for each sector and country and populated
from proprietary and external data sources such as MSCI and Trucost. The
scores are standardised to allow the Investment Manager to see how individual
companies rank in a global context. These scores complement the fundamental
analysis of the equity analysts and the ranking of companies from Laggards to
Best in Class.
Equity ESG Quality Score
The Investment Manager's equity sector analysts have a fully integrated
approach to ESG analysis. Within the equity investment process, every company
is given a proprietary Quality Rating which has five components: industry
analysis, business model analysis, analysis of the company's moat or
competitive advantage, consideration of ESG factors, assessment of management
and analysis of financials. In considering the ESG Quality Score the analyst
considers these key questions:
· Which ESG issues are relevant for this company, how material are they,
and how are they being addressed?
· What is the assessment of the quality of this company's governance,
ownership structure and management?
· Are incentives and key performance indicators aligned with the company's
strategy and the interests of shareholders?
Having considered the regional universe and peer group in which the company
operates, the Investment Manager's equity team then allocates it an ESG
Quality rating between one and five (see below). This is applied across every
stock that the Investment Manager covers globally. To be considered 'best in
class', the management of ESG factors must be a material part of the company's
core business strategy; management must provide excellent disclosure of data
on key risk; management must also have clear policies and strong governance
structures, among other criteria.
Working with Companies: Staying Engaged, Driving Change
The Investment Manager continuously monitors and actively engages with the
companies in which it invests to maintain ESG focus and improvement. This
stewardship of client's assets consists of four interconnected and equally
important activities by the Investment Manager to monitor, contact, engage and
act.
The Investment Manager actively and regularly engages with the management
teams of companies in which they are invested in order to share examples of
best practice seen in other companies and to effect positive change. The
Investment Manager also actively engages with management teams to explain
voting decisions at company annual general meetings.
The Investment Manager's engagement extends beyond the company's management
team and can include many other stakeholders such as non-government agencies,
industry and regulatory bodies, as well as activists and the company's
clients.
Priorities for engagement are established by the use of the ESG House Score,
in combination with bottom-up research insights from investment teams across
asset classes, and areas of thematic focus from our company-level stewardship
activities. What gets measured gets managed, so the Investment Manager
strongly encourages companies to set clear targets or key performance
indicators on all material ESG risks.
There are three core principles which underpin the Investment Manager's
investment approach (shown below) and the time it dedicates to ESG analysis as
part of its overall fundamental equity research process:
· ESG factors are financially material, and impact corporate performance
· Understanding ESG risks and opportunities alongside other financial
metrics allows us to make better investment decisions
· Informed and constructive engagement helps faster better companies,
enhancing the value of our clients' investments
As part of their company research, our stock analysts evaluate the ownership
structures, governance and management quality of the companies they cover.
They also assess potential environmental and social risks that the companies
may face. These insights are captured in our company research notes.
Our stock analysts work closely with dedicated ESG specialists who sit within
each regional investment team and provide industry-leading expertise and
insight at the company level. These specialists also mediate the insights
developed by our central ESG Investment team to the stock analysts, as well as
interpret and contextualise sector and company insights.
Our central ESG investment team provie4ds thought leadership, thematic and
global sector insights, as well as event-driven research. The team is also
heavily involved in the4 stewardship of our investments and supports company
engagement meeting where appropriate.
How the Investment Manager embeds ESG into its Investment Process
Investment Insight
· High quality fundamental and first hand research
· Assessment of ESG for all stocks under coverage
Active Ownership
· Engage and vote with aim of improving financial resilience and
investment performance
· Raise standards in companies and industries we invest in, and
help drive industry best practice
Risk & Monitoring
· Combine in-house and external scoring to inform view
· Active tracking of portfolio holdings against ESG objectives
Our People
· Over 130 equity professionals, and 40+ central and on-desk ESG
specialists across the world
Directors' Report
The Directors present their audited Annual Report for the year ended 30
September 2023.
Results and Dividends
The financial statements for the year ended 30 September 2023 may be found
below. The Company's revenue return was 4.35p per share for the year ended 30
September 2023 (2022 - 4.99p).
First, second and third interim dividends, each of 1.42p per Ordinary share,
were paid on 3 April 2023, 6 July 2023 and 19 October 2023, respectively.
The Directors declared, on 26 October 2023, a special dividend of 1.65p per
Ordinary share payable on 1 December 2023 to shareholders on the register on 3
November 2023. The ex-dividend date is 2 November 2023.
The Directors declared, on 1 December 2023, a fourth interim dividend of 1.42p
per Ordinary share payable on 22 January 2024 to shareholders on the register
on 22 December 2023. The ex-dividend date is 21 December 2023.
The Company will continue to pay its regular quarterly dividend until such
time as the change of investment objective and policy is approved under the
proposals for a Managed Wind-Down. Further information on the Company's
intention regarding future dividends may be found in the Directors' Report, in
relation to Resolution 3 to be proposed at the AGM on 27 February 2024.
Investment Trust Status
The Company is registered as a public limited company in Scotland under number
SC003721 and is an investment company within the meaning of Section 833 of the
Companies Act 2006. The Company has been approved by HM Revenue & Customs
as an investment trust subject to it continuing to meet the relevant
eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the
ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011. The
Directors are of the opinion that the Company has conducted its affairs for
the year ended 30 September 2023 so as to enable it to comply with the ongoing
requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs in such a way as to satisfy the
requirements as a qualifying security for Individual Savings Accounts. The
Directors intend that the Company will continue to conduct its affairs in this
manner.
Capital Structure and Voting rights
The issued Ordinary share capital at 30 September 2023 consisted of
301,265,952 Ordinary shares (2022 - 308,447,314) with voting rights and
22,485,854 Ordinary shares (2022 - 29,304,492) held in treasury. A total of
7,181,362 Ordinary shares were bought back into treasury during the year ended
30 September 2023 (2022 - 871,424). No Ordinary shares were bought back into
treasury between 1 October 2023 and the date of approval of this Annual
Report.
In the event of the share price trading at a premium to the NAV per share,
Ordinary shares can be re-issued out of treasury less expensively than new
Ordinary shares can be issued. Although shares may be held in treasury
indefinitely the Board is mindful of the total number of shares held and has,
therefore, decided to adopt a policy such that, in the event that the number
of treasury shares represents more than 10% of the Company's issued share
capital (excluding treasury shares) at the end of any financial year, the
Company will cancel a proportion of its treasury shares such that the
remaining balance will equal 7.5% of the issued share capital (excluding
treasury shares). The Company's policy is to cancel treasury shares, on 30
September each year, to ensure that the number of shares in treasury
represents no more than 10% of the Company's issued share capital (excluding
treasury shares). Accordingly, the Company announced on 29 September 2023
the cancellation of 14,000,000 treasury shares.
Each Ordinary share (excluding treasury shares) holds one voting right and
shareholders are entitled to vote on all resolutions which are proposed at
general meetings of the Company. The Ordinary shares, excluding treasury
shares, carry a right to receive dividends. On a winding up or other return
of capital, after meeting the liabilities of the Company, the surplus assets
will be paid to Ordinary shareholders in proportion to their shareholdings.
There are no restrictions on the transfer of Ordinary shares in the Company
other than certain restrictions which may from time to time be imposed by law.
Management Agreement
The Company has appointed the Manager, a wholly-owned subsidiary of abrdn plc,
as its alternative investment fund manager.
The Manager has been appointed to provide investment management, risk
management, administration and company secretarial services as well as
promotional activities. The Company's portfolio is managed by the Investment
Manager by way of a group delegation agreement in place between the Manager
and Investment Manager. In addition, the Manager has sub-delegated
administrative and secretarial services to abrdn Holdings Limited and
promotional activities to abrdn Investments Limited.
The Manager charges a monthly fee at the rate of one-twelfth of 0.50% on the
first £300 million of NAV and 0.45% of NAV in excess of £300 million. In
calculating the NAV, the 6.25% bonds due 2031 are valued at fair value. The
value of any investments in Exchange Traded Funds ("ETFs"), unit trusts, open
ended and closed ended investment companies and investment trusts of which the
Manager, or another company within the abrdn plc group is the operator,
manager or investment adviser, is deducted from net assets. Details of the
management fee charged during the year are included in note 4 to the financial
statements.
The management agreement has in place a six months' notice period. 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.
Corporate Governance
The Statement of Corporate Governance, which forms part of the Directors'
Report, may be found below.
Directors
As at the date of this Report, the Board consisted of a non-executive Chairman
and four non-executive Directors, all of whom served throughout the year ended
30 September 2023. Tom Challenor was Senior Independent Director and Chairman
of the Audit Committee.
Board Diversity
The Board recognises the importance of having a range of skilled, 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, and will give due regard to, 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
Directors. The Board will continue to ensure that all appointments are made on
the basis of merit against the specification prepared for each appointment.
The Board will take account of the targets set out in the FCA's Listing Rules,
which are set out below.
The Board voluntarily discloses the following information in relation to its
diversity.
The Board has resolved that the Company's year end date be the most
appropriate reference date for disclosure purposes. There have been no changes
between 30 September 2023 and the date of approval of this report. The
following information has been provided by each Director.
Table for reporting on gender as at 30 September 2023
Number of board members Percentage of the board Number of senior positions Number in executive management Percentage of executive management
on the board
(CEO, CFO, Chair and SID)
Men 3 60% 1 n/a n/a
(note 3) (note 3)
Women 2 40% 1
(note 1)
Not specified/prefer not to say - - -
Table for reporting on ethnic background as at 30 September 2023
Number of board members Percentage of the board Number of senior positions Number in executive management Percentage of executive management
on the board
(CEO, CFO, Chair and SID)
White British or other White 5 100% 5 n/a n/a
(including minority-white groups)
(note 3) (note 3)
Minority ethnic - - -
(note 2)
Not specified/prefer not to say - - -
Notes:
1. Meets target that at least 40% of Directors are women as set out in LR
9.8.6R (9)(a)(i)
2. Does not meet target that at least one Director is from a minority ethnic
background as set out in LR 9.8.6R (9)(a)(iii)
3. This column is not applicable as the Company is externally managed and
does not have any executive staff, specifically it does not have either a CEO
or CFO
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 leads the evaluation of the Board and individual
Directors, and acts upon the results of the evaluation process by recognising
strengths and addressing any weaknesses. The Chairman also engages with major
shareholders and ensures 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. Tom Challenor is the Senior Independent Director.
Board Committees
The Board has appointed a number of Committees, as set out below. Copies of
their terms of reference, which define the responsibilities and duties of each
Committee, are available on the Company's website, or upon request from the
Company. The terms of reference of each of the Committees are reviewed and
re-assessed by the Board for their adequacy on an ongoing basis.
Audit Committee
The Audit Committee's Report may be found below.
Management Engagement Committee
The Management Engagement Committee consists of all the Directors and was
chaired by Davina Walter throughout the year. The terms and conditions of the
Manager's appointment, including an evaluation of performance and fees, are
reviewed by the Committee on an annual basis. The Committee also keeps under
review the resources of abrdn plc, together with its commitment to the Company
and its investment trust business. In addition, the Committee conducts an
annual review of the performance, terms and conditions of the Company's key
third party suppliers, by undertaking peer comparisons and reviewing reports
from the Manager and the Depositary.
The Board conducts a formal annual evaluation of the performance of, and
contractual relationship with, the Manager and those third parties appointed
by the Manager. The evaluation includes consideration of the investment
strategy and process of the Manager, noting performance against the benchmark
over the long term and the quality of the support that the Company receives
from the Manager. The Board confirms that it is satisfied that the continuing
appointment of the Manager, on the terms agreed, is in the interests of
shareholders as a whole. The Management Engagement Committee met on 15
September 2022.
Nomination Committee
The Nomination Committee consists of all the Directors and was chaired by
Davina Walter throughout the year. The Committee reviews the effectiveness of
the Board, succession planning, Board appointments, appraisals, training and
the remuneration policy. As stated in the Directors' Remuneration Report, the
Nomination Committee determines the level of Directors' fees and there is no
separate remuneration committee. The Nomination Committee met on 15 September
2022 and on 12 October 2023.
The Directors attended scheduled meetings of the Board and Board Committees
during the year ended 30 September 2023 as set out in the table (with their
eligibility to attend the relevant meetings in brackets). The Directors meet
more regularly when business needs require, in particular in relation to the
strategic review. In addition, there were ad hoc Committee meetings when not
all Directors were required to attend.
Director Scheduled Board Meetings Audit Committee Meetings Management Engagement Committee Meetings Nomination Committee Meetings
Davina Walter(A) 6 (6) - (-) - (-) - (-)
Tom Challenor 6 (6) 2 (2) - (-) - (-)
Trevor Bradley 6 (6) 2 (2) - (-) - (-)
Anna Troup 6 (6) 2 (2) - (-) - (-)
Alistair Mackintosh 6 (6) 2 (2) - (-) - (-)
(A) Davina Walter, as Chairman of the Board, is not a member of the Audit
Committee
Further to the above, all Directors participated in additional meetings in
relation to the strategic review.
The names and biographies of each of the current Directors are shown on the
Company's website and indicate their range of skills and experience as well as
their length of service.
An external evaluation was undertaken in September 2023 by Lintstock Ltd, an
independent external board evaluation service provider which has no other
connection with the Company.
Assisted by Lintstock Ltd, the Board has assessed that it had in place the
appropriate balance of skills, experience, length of service and knowledge of
the Company while recognising the advantages of diversity. Details of the
individual contribution provided by each Director during the year are set out
in the published Annual Report.
Potential new Directors are identified against the requirements of the
Company's business and the need to have a balance of skills, experience,
independence, diversity and knowledge of the Company within the Board.
Each Director has the requisite high level and range of business and financial
experience which enables the Board to provide clear and effective leadership
and proper governance of the Company.
In line with best practice in corporate governance, all Directors offer
themselves for election or re-election at the AGM. Anna Troup has advised
that she is not seeking re-election as a Director and will retire from the
Board at the conclusion of the AGM.
Davina Walter, Tom Challenor, Trevor Bradley and Alistair Mackintosh each
retire and, being eligible, each submits themselves for re-election at the
AGM. The Board believes that all current Directors remain, and all Directors
during the year ended 30 September 2023 were, and continue to be, 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. In addition, the Board confirms that each
Director demonstrates commitment to the role and their performance remains
effective which supports their individual contribution to the role.
The Board therefore recommends, for approval by shareholders, the resolutions
for the individual re-election as Directors at the AGM of each of Davina
Walter, Tom Challenor, Trevor Bradley and Alistair Mackintosh.
Directors' and Officers' Liability Insurance
The Company's Articles of Association indemnify each of the Directors 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
Directors have been granted qualifying indemnity provisions by the Company
which are currently in force. Directors' and Officers' liability insurance
cover has been maintained throughout the year at the expense of the Company.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director
has an actual or potential 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 prevent or manage 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 their duties is affected. Each
Director is required to notify the Company Secretary of any potential, or
actual, conflict situations that will need authorising by the Board.
Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all Directors are
issued with letters of appointment. There were no contracts during, or at the
end of the year, in which any Director was interested.
The Board takes a zero-tolerance approach to bribery and has adopted
appropriate procedures designed to prevent bribery. The Manager also takes a
zero-tolerance approach and has its own detailed policy and procedures in
place to prevent bribery and corruption.
Going Concern
The Financial Statements of the Company have been prepared on a going concern
basis. This conclusion is consistent with the Company's Viability Statement.
The Directors are mindful of the principal risks and uncertainties disclosed
above and have reviewed forecasts detailing revenue and liabilities. The
Directors are satisfied that: the Company is able to meet all of its
liabilities from its assets, including its ongoing charges, so possesses
sufficient resources to continue in operational existence for the foreseeable
future and at least 12 months from the date of approval of this Annual Report;
the Company is financially sound; and the Company's key third party service
providers had in place appropriate business continuity plans.
While the Company is obliged to hold a continuation vote at the 2024 AGM, as
ordinary resolution 10, the Directors do not believe this should automatically
trigger the adoption of a basis other than going concern in line with the
Association of Investment Companies ("AIC") Statement of Recommended Practice
("SORP") which states that it is usually more appropriate to prepare financial
statements on a going concern basis unless a continuation vote has already
been triggered and shareholders have voted against continuation.
Additionally, the SORP guidance sets out that it is appropriate for the
financial statements to be prepared on a going concern basis whilst making a
material uncertainty disclosure as set out in accounting standards. Whilst the
financial statements have been prepared on a going concern basis, there is a
material uncertainty in respect of the continuation vote and Managed Wind-Down
of the Company (see note 2 (a) for related basis of preparation disclosures).
Relations with Shareholders
The Directors place great importance on communication with shareholders and
regularly meet with current and prospective shareholders to discuss
performance, including in the absence of the Manager. The Board receives
quarterly investor relations updates from the Manager. Significant changes to
the shareholder register, as well as shareholder feedback, are discussed by
the Directors at each Board meeting.
Regular updates are provided to shareholders through the Annual Report, Half
Yearly Report, monthly factsheets and daily net asset value announcements, all
of which are available through the Company's website at:
abrdndiversified.co.uk. The Annual Report is also widely distributed to other
parties who have an interest in the Company's performance. Shareholders and
investors may obtain up-to-date information on the Company through its website
or by contacting abrdn Investment Trusts.
The Board's policy is to communicate directly with shareholders and their
representative bodies without the involvement of the management group (either
the Company Secretary or abrdn) in situations where direct communication is
required and representatives from the Board offer to meet with major
shareholders on an annual basis in order to gauge their views. The Company
Secretary acts on behalf of the Board, not the Manager, and there is no
filtering of communication. At each Board meeting the Board receives full
details of any communication from shareholders to which the Chairman responds,
as appropriate, on behalf of the Board.
In addition, in relation to institutional shareholders, members of the Board
may either accompany the Manager or conduct meetings in the absence of the
Manager.
The Company's Annual General Meeting ordinarily provides a forum, both formal
and informal, for shareholders to meet and discuss issues with the Directors
and Investment Manager. The Notice of AGM included within the Annual Report is
normally sent out at least 20 working days in advance of the meeting.
Substantial Interests
As at 30 September 2023, the following interests over 3% in the issued
Ordinary share capital of the Company had been disclosed in accordance with
the requirements of the FCA's Disclosure Guidance and Transparency Rules:
Shareholder Number of shares held % held (B)
Interactive Investor (A) 32,999,111 11.0
Hargreaves Lansdown (A) 28,604,036 9.5
abrdn Retail Plans (A) 27,925,649 9.3
1607 Partners 16,142,792 5.4
Investec Wealth & Investment 14,586,659 4.8
EFG Harris Allday 10,922,733 3.6
Evelyn Partners 9,859,384 3.3
A J Bell 9,127,851 3.0
Charles Stanley 9,099,553 3.0
(A) Non-beneficial interest
(B) Based on 301,265,952 Ordinary shares in issue (excluding treasury shares)
as at 30 September 2023
The above interests at 30 September 2023 were unchanged at the date of
approval of this Report other than in relation to 1607 Capital Partners, which
advised the Company on 18 December 2023 of a holding of 14,492,868 shares,
equivalent to 4.8% of the Company's issued share capital (excluding treasury
shares).
Criminal Finances Act 2017
The Criminal Finances Act 2017 introduced a corporate criminal offence of
"failing to take reasonable steps to prevent the facilitation of tax evasion".
The Board has confirmed that it is the Company's policy to conduct all of its
business in an honest and ethical manner. The Board takes a zero tolerance
approach to facilitation of tax evasion, whether under UK law or under the law
of any foreign country.
Accountability and Audit
The responsibilities of the Directors and the auditor in connection with the
financial statements appear in the Report of the Audit Committee.
Each Director confirms that, so far as they are aware, there is no relevant
audit information of which the Company's auditor is unaware, and they have
taken all the steps that they could reasonably be expected to have taken as
Directors in order to make themselves aware of any relevant audit information
and to establish that the Company's auditor is aware of that information.
Annual General Meeting
The Annual General Meeting will be held at 9.30am on 27 February 2024 at
Wallacespace, 15 Artillery Lane, London, E1 7HA. The Notice of the Meeting is
included below. Resolutions including the following business will be proposed:
Dividend policy (Resolution 3)
It is best practice in corporate governance for companies to seek annual
shareholder approval of a policy to pay interim dividends where separate
authority is not sought for a final dividend. The quantum of any dividend
going forward will reflect, subject to shareholders approving the Company's
proposals for a Managed Wind-down, the Company's plan to return cash to
shareholders in a tax-efficient manner and the Board's intention for the
Company to retain its investment trust status during the Managed Wind-Down.
Continuation of the Company (Resolution 10)
In accordance with Article 175 of the Articles of Association of the Company
adopted by shareholders on 23 February 2021, the Directors are required to
propose an ordinary resolution at each AGM, that the Company continue as an
investment trust. The Directors refer shareholders to the Company's
announcement of 14 December 2023 setting out proposals for a Managed Wind-Down
of the Company. In the light of these proposals, the Directors are proposing,
as ordinary resolution 10, that the Company continues as an investment trust
and recommends that shareholders support the continuation of the Company in
the context of the Managed Wind-Down proposals. Implementation of the Managed
Wind-Down also requires shareholder approval for a change of investment
objective and policy. A separate circular will be published by the Company in
respect of the proposed changes as soon as practicable.
Allotment of Shares (Resolution 11)
Resolution 11 will be proposed as an ordinary resolution to confer an
authority on the Directors, in substitution for any existing authority, to
allot up to 10% of the issued Ordinary share capital of the Company (excluding
treasury shares) as at the date of the passing of the resolution (up to a
maximum aggregate nominal amount of approximately £7.5m based on the number
of Ordinary shares in issue as at the date of this Report) in accordance with
Section 551 of the Companies Act 2006. The authority conferred by this
resolution will expire at the next Annual General Meeting of the Company or,
if earlier, 31 March 2025 (unless previously revoked, varied or extended by
the Company in general meeting).
The Directors consider that the authority proposed to be granted by resolution
11 is necessary to retain flexibility.
Limited Disapplication of Pre-emption Provisions
(Resolution 12)
Resolution 12 will be proposed as a special resolution and seeks to give the
Directors power to allot Ordinary shares or to sell Ordinary shares held in
treasury (see below) (a) by way of a rights issue (subject to certain
exclusions); (b) by way of an open offer or other offer of securities (not
being a rights issue) in favour of existing shareholders in proportion to
their shareholdings (subject to certain exclusions); and (c) to persons other
than existing shareholders for cash up to a maximum aggregate nominal amount
representing 10% of the Company's issued Ordinary share capital as at the date
of the passing of the resolution (up to an aggregate nominal amount of
approximately £7.5m based on the number of Ordinary shares in issue as at the
date of this Report), without first being required to offer such shares to
existing shareholders pro rata to their existing shareholding.
This power will expire at the conclusion of the next Annual General Meeting of
the Company or, if earlier, 31 March 2025 (unless previously revoked, varied
or extended by the Company in general meeting).
The Company may buy back and hold shares in treasury and then sell them at a
later date for cash rather than cancelling them. Such sales are required to be
on a pre-emptive, pro rata basis to existing shareholders unless shareholders
agree by special resolution to disapply such pre-emption rights. Accordingly,
in addition to giving the Directors power to allot unissued Ordinary share
capital on a non pre-emptive basis, resolution 12 will also give the Directors
power to sell Ordinary shares held in treasury on a non pre-emptive basis,
subject always in both cases to the limitations noted above. Pursuant to this
power, Ordinary shares would only be issued for cash, and treasury shares
would only be sold for cash, at a premium to the net asset value per share
(calculated after the deduction of prior charges at market value). Treasury
shares are explained in more detail under the heading "Market Purchase of the
Company's own Ordinary Shares" below.
Market Purchase of the Company's own Ordinary Shares (Resolution 13)
Resolution 13 will be proposed as a special resolution to authorise the
Company to make market purchases of its own Ordinary shares. The Company may
do either of the following things in respect of its own Ordinary shares which
it buys back and does not immediately cancel but, instead, holds in treasury:
· sell such shares (or any of them) for cash (or its equivalent); or
· ultimately cancel the shares (or any of them).
Treasury shares may be resold quickly and cost effectively. No dividends will
be paid on treasury shares and no voting rights attach to them.
The Manager seeks to generate attractive risk adjusted returns by investing
in, or committing to, new or existing opportunities, whilst having particular
regard to the Company's return target, and taking into account income,
predicted cash flows, market risk and liquidity requirements. It is proposed
that where such opportunities are limited due to market conditions, then
subject to overall liquidity needs, available cash may be used under the
Company's share buyback authority, granted annually by shareholders, to
purchase Ordinary shares of the Company, where to do so represents a better
opportunity to deliver long-term shareholder value without disrupting the
overall portfolio.
Shareholders have the opportunity to endorse this revised policy, which the
Board believes is better being investment-led, by voting in favour of
Resolution 13 which gives the Company the authority to buy Ordinary shares up
to a maximum of 14.99% of the issued Ordinary share capital of the Company
(excluding treasury shares) as at the date of the passing of the resolution
(approximately 45 million Ordinary shares). The minimum price which may be
paid for an Ordinary share is 25p (exclusive of expenses). The maximum price
(exclusive of expenses) which may be paid for the shares is the higher of a)
5% above the average of the middle market quotations of the Ordinary shares
(as derived from the Daily Official List of the London Stock Exchange) for the
shares for the five business days immediately preceding the date of purchase;
and b) the higher of the price of the last independent trade and the highest
current independent bid on the main market for the Ordinary shares.
This authority, if conferred, will expire at the conclusion of the next Annual
General Meeting of the Company or, if earlier, on 31 March 2025 (unless
previously revoked, varied or extended by the Company in general meeting) and
will be exercised only if it would result in an increase in net asset value
per Ordinary share for the remaining shareholders and if it is in the best
interests of shareholders as a whole.
Holding General Meetings on not less than 14 days' clear notice (Resolution 14)
Under the Companies Act 2006, the notice period for all general meetings of
the Company is 21 clear days' notice. Annual general meetings will always be
held on at least 21 clear days' notice but shareholders can approve a shorter
notice period for other general meetings. Resolution 14, which is a special
resolution, seeks the authority from shareholders for the Company to be able
to hold general meetings (other than Annual General Meetings) on not less than
14 clear days' notice. The approval will be effective until the Company's next
Annual General Meeting, when it is intended that a similar resolution will be
proposed. The Company will also need to meet the requirements for electronic
voting under the Companies Act 2006 (as amended by the Shareholders' Rights
Regulations) before it can call a general meeting on not less than 14 days'
clear notice.
The Board believes that it is in the best interests of Shareholders to have
the ability to call meetings on not less than 14 clear days' notice should an
urgent matter arise. The Directors do not intend to hold a general meeting
on less than 21 clear days' notice unless immediate action is required.
This power will expire at the conclusion of the next Annual General Meeting of
the Company or, if earlier, 31 March 2025 (unless previously revoked, varied
or extended by the Company in general meeting).
Cancellation of the Share Premium Account (Resolution 15)
In connection with the Managed Wind-Down proposals, Resolution 15, a special
resolution, asks the Company's shareholders to approve the cancellation of the
amount standing to the credit of Company's share premium account pursuant to
the Companies Act 2006 (the "Act") and subject to the sanction by the Scottish
Court of Session (the "Cancellation").
On the Cancellation becoming effective, subject to the permission of the
Court, a special reserve (the "Special Reserve") will be created and will be
able to be applied in any manner permitted by the Act.
The Directors believe that the Cancellation would support the Company in
implementing the Managed Wind-Down as, in creating further distributable
reserves, the Special Reserve would provide the Company with further
flexibility in returning cash to shareholders.
Recommendation
The Directors consider that the resolutions to be proposed at the Annual
General Meeting are in the best interests of the Company and its shareholders
and recommend that shareholders vote in favour of the resolutions as they
intend to do in respect of their own beneficial shareholdings, amounting to
303,570 Ordinary shares, representing 0.1% of the issued share capital
(excluding treasury shares).
By order of the Board
abrdn Holdings Limited
Company Secretary
1 George Street
Edinburgh EH2 2LL
9 January 2024
Statement of Corporate Governance
abrdn Diversified Income and Growth plc (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, and is applicable for the
Company's year ended 30 September 2023.
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.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the FRC, provides more relevant
information to shareholders.
The Board confirms that, during the year, the Company has complied with the
principles and provisions of the AIC Code and the relevant provisions of the
UK Code, except for those provisions relating to:
· the role and responsibility of the chief executive;
· executive directors' remuneration; and
· the requirement for an internal audit function.
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.
Information on how the Company has applied the AIC Code, the UK Code, the
Companies Act 2006 and the FCA's DTR 7.2.6 is provided in the Directors'
Report and Audit Committee's Report as follows:
· the composition and operation of the Board and its Committees are
detailed in the Directors' Report and in the Report of the Audit Committee;
· the Board's policy on diversity is in the Strategic Report;
· the Company's approach to internal control and risk management is
detailed in the Report of the Audit Committee;
· the contractual arrangements with, and annual assessment of, the Manager
are set out in the Directors' Report;
· the Company's capital structure and voting rights are summarised in the
Directors' Report;
· the substantial interests disclosed in the Company's shares are listed in
the Directors' Report;
· the rules concerning the appointment and replacement of Directors are
contained in the Company's Articles of Association and are summarised in the
Directors' Remuneration Report. There are no agreements between the Company
and its Directors concerning compensation for loss of office; and
· the powers to issue or buy back the Company's ordinary shares, which are
sought annually, and any amendments to the Company's Articles of Association
require a special resolution (75% majority) to be passed by shareholders and
information on these resolutions may be found in the Directors' Report.
By order of the Board
abrdn Holdings Limited
Company Secretary
1 George Street
Edinburgh
EH2 2LL
9 January 2024
Directors' Remuneration Report
This Directors' Remuneration Report comprises three parts:
i. a Remuneration Policy, which is subject to a binding shareholder
vote every three years, or sooner if varied during this interval; most
recently approved by shareholders at the AGM on 28 February 2023 where 91.4%
of the votes were cast in favour of the relevant resolution while 8.6% were
cast against. The Remuneration Policy will be put to shareholders at the AGM
in 2026;
ii. an Implementation Report which is subject to an advisory vote on
the level of remuneration paid during the year; and
iii. an Annual Statement.
The law requires the Company's auditor to audit certain of the disclosures
provided in the Directors' Remuneration Report. Where disclosures have been
audited, they are indicated as such. The auditor's opinion is included in
their report.
Remuneration Policy
The Directors' Remuneration Policy is determined by the full Board, chaired by
Davina Walter, and a separate Remuneration Committee has not been established.
The Board's policy is that the remuneration of non-executive Directors should
be sufficient to attract and retain the Directors needed to oversee the
Company properly and to reflect its specific circumstances. The remuneration
should also reflect the nature of the Directors' duties, responsibilities, the
value of their time spent and be fair and comparable to that of other
investment trusts that are similar in size, and have similar capital
structures and similar investment objectives.
Fees paid to the directors of companies within the Company's peer group are
also taken into account and the Company Secretary provides the Directors with
relevant comparative information.
The policy also provides that the Chairman of the Board and of each Committee
may be paid a fee which is proportionate to the additional responsibilities
involved in that position. In order to avoid conflicts of interest, each
Director absents themselves from the consideration of their own fee. There
were no changes to the Directors' Remuneration Policy during the year nor are
there any proposals for changes in the foreseeable future.
No communications were received from shareholders regarding Directors'
remuneration during the year.
Limits on Directors' Remuneration
Directors' fees are set within the limits of the Company's Articles of
Association which limit the aggregate fees payable to the Board of Directors
per annum. The current limit is £300,000 per annum which may only be
increased by an ordinary resolution of shareholders.
The level of fees for the years ended 30 September 2023 and 2022 is set out in
the following table. Fees are reviewed annually and increased, if considered
appropriate.
30 September 2023 30 September 2022
£
£
Chairman 48,400 44,600
Chairman of Audit Committee 35,400 32,600
Senior Independent Director 32,100 29,600
Director 29,900 27,500
Appointment
· The Company only intends to appoint non-executive Directors.
· All the Directors are non-executive and are appointed under the terms of
Letters of Appointment.
· Directors must retire and be subject to election at the first Annual
General Meeting after their appointment, and be subject to re-election at
least every three years thereafter. Notwithstanding this, the Board has agreed
that all Directors shall retire and, if eligible, stand for re-election at
each AGM.
· Any Director newly appointed to the Board will receive the fee applicable
to each of the other Directors at the time of appointment together with any
other fee then currently payable in respect of a specific role which the new
Director is to undertake for the Company.
· No incentive or introductory fees will be paid to encourage a person to
become a Director.
· Directors are not eligible for bonuses, pension benefits, share options,
long term incentive schemes or other benefits.
· Directors are entitled to re-imbursement of out-of-pocket expenses
incurred in connection with the performance of their duties, including travel
expenses, which are considered to be taxable expenses.
· The Company indemnifies its Directors for all costs, charges, losses,
expenses and liabilities which may be incurred in the discharge of duties as a
Director of the Company.
Performance, Service Contracts, Compensation and Loss of Office
· The Directors' remuneration is not subject to any performance related
fee.
· No Director has a service contract.
· No Director was interested in contracts with the Company during the
period or subsequently.
· The terms of appointment provide that a Director may be removed without
notice.
· Compensation will not be due upon leaving office.
· No Director is entitled to any other monetary payment or any assets of
the Company.
· Directors' and Officers' liability insurance cover is maintained by the
Company on behalf of the Directors.
· It is the Board's intention that this Remuneration Policy applies for the
three years to 30 September 2025.
Implementation Report
Review of Directors' Fees
The level of Directors' fees was last revised with effect from 1 October 2022.
The Board carried out a review of Directors' annual fees, by reference to
inflation, as measured by the increase of 6.7% in the Consumer Prices Index
for the year to September 2023, and taking account of peer group comparisons
by sector and by market capitalisation. Accordingly, it was concluded that
Directors' fees would change, with effect from 1 October 2023, to the
following rounded rates per annum: £51,750 (Chairman), £37,750 (Audit
Committee Chairman), £34,250 (Senior Independent Director) and £32,000 for
each other Director.
Company Performance
The following graph shows the share price return (assuming all dividends are
reinvested) to Ordinary shareholders compared to a 6% total return over the
ten year period ended 30 September 2023 (rebased to 100 at 30 September 2013).
This index was chosen for comparison purposes as it is the objective used for
investment performance measurement purposes.
Statement of Voting at General Meeting
At the Company's last AGM, held on 28 February 2023, shareholders approved, as
Resolution 3, the Directors' Remuneration Report (other than the Directors'
Remuneration Policy) in respect of the year ended 30 September 2022.
The proxy votes shown in the following table were received on the Resolution:
Resolution For and Discretionary Against Withheld
3. Receive and adopt the Directors' Remuneration Report (excluding the 82.0m 7.6m 447,578
Directors' Remuneration Policy)
(91.5%) (8.5%)
Spend on Pay
As the Company has no employees, the Directors do not consider it appropriate
to present a table comparing remuneration paid to Directors with distributions
to shareholders. However, for ease of reference, the total fees paid to
Directors are shown in the Directors' Remuneration Report while
dividends paid to shareholders are set out in note 8 and share buybacks are
detailed in note 15.
Audited Information
Directors' Interests in the Company
The Directors are not required to have a shareholding in the Company. The
Directors (including their connected persons) at 30 September 2023 and 30
September 2022 had no interest in the share capital of the Company other than
those interests, all of which are beneficial, shown in the following table. In
addition, no Director had any interest in the Company's 6.25% Bonds 2031
during the year under review or up to and including the date of approval of
this Report.
30 September 2023 30 September 2022
Ordinary shares Ordinary shares
Davina Walter 37,387 31,785
Tom Challenor 160,264 159,129
Trevor Bradley 50,000 50,000
Anna Troup 5,000 5,000
Alistair Mackintosh (A) 25,000 25,000
(A) Held via a family investment company
There have been no changes to the Directors' interests in the share capital of
the Company since 30 September 2023, up to the date of approval of this
Report, other than the purchase by Tom Challenor of 696 shares and the
purchase by Davina Walter of 223 shares, both as a result of dividend
reinvestment, and the purchase by Trevor Bradley of 25,000 shares.
Fees Payable
The Directors who served during the year received the following fees, which
exclude employers' National Insurance contributions. Fees are pro-rated where
a change takes place during a financial year. There were no payments to
third parties included in the fees referred to in the table. All fees are at a
fixed rate and there is no variable remuneration. Taxable benefits refer to
travel costs associated with Directors' attendance at Board and Committee
meetings.
Audited Information
Directors' Remuneration
The Directors received the following remuneration in the form of fees and
taxable expenses:
Year ended 30 September 2023 Year ended 30 September 2022
Fees Taxable Expenses Fees Taxable Expenses
£ £ Total £ £ Total
£ £
Davina Walter 48,400 135 48,535 44,600 186 44,786
Tom Challenor (see note below) 37,600 132 37,732 34,700 146 34,846
Trevor Bradley 29,900 255 30,155 27,500 224 27,724
Anna Troup 29,900 40 29,940 27,500 234 27,734
Alistair Mackintosh 29,900 372 30,272 27,500 138 27,638
Total 175,700 934 176,634 161,800 927 162,727
Taxable expenses refer to amounts claimed by Directors for travelling to
attend meetings. The above amounts exclude any employers' national insurance
contributions, if applicable. All fees are at a fixed rate and there is no
variable remuneration. Fees are pro-rated where a change takes place during a
financial year. No payments were made to third parties. There are no other
fees to disclose as the Company has no employees, chief executive or executive
directors.
Tom Challenor is paid a composite annual fee, reflecting his position as
Senior Independent Director and Chairman of the Audit Committee; this was
equivalent to annual fees of £37,600 for the year ended 30 September 2023
(2022 - £34,700). With effect from 1 October 2023, Tom Challenor's composite
annual fee will be £40,000.
Annual Percentage Change in Directors' Remuneration
The table below sets out, for the Directors who served during the Year, the
annual percentage change in Directors' fees for the past three years.
Year ended 30 September 2023 Year ended 30 September 2022 Year ended 30 September 2021 Year ended 30 September 2020
Fees Fees Fees Fees
% % % %
Davina Walter (appointed a Director on 1 February 2019, SID on 27 February 8.5 1.9 16.6 102.8
2019 and Chairman on 26 February 2020)
Tom Challenor (appointed SID on 4 June 2021) 8.4 6.3 3.6 6.1
Trevor Bradley (appointed a Director on 1 August 2019) 8.7 1.9 1.9 511.6
Anna Troup (appointed a Director on 1 August 2019) 8.7 1.9 1.9 511.6
Alistair Mackintosh (appointed a Director on 1 May 2021) 8.7 144.4 0.0 0.0
Annual Statement
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the
Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013, it is confirmed that the above Remuneration Report
summarises, as applicable, for the year ended 30 September 2023:
· the major decisions on Directors' remuneration;
· any substantial changes relating to Directors' remuneration made during
the year; and
· the context in which the changes occurred and decisions have been taken,
including management of any potential conflicts of interest arising and
reflected any feedback from shareholders.
On behalf of the Board
Davina Walter
Chairman
9 January 2024
Report of the Audit Committee
The Audit Committee presents its Report for the year ended 30 September 2023.
Committee Composition
An Audit Committee has been established which was chaired by Tom Challenor
throughout the year and consisted of the whole Board with the exception of
Davina Walter. In compliance with July 2018 UK Code on Corporate Governance
(the "Code"), the Chairman of the Board is not a member of the Committee but
attends the Audit Committee by invitation of the Chairman
The Directors have satisfied themselves that at least one of the Committee's
members has recent and relevant financial experience - Tom Challenor is a
Fellow of the Institute of Chartered Accountants in England & Wales - and
that, collectively, the Audit Committee possesses competence appropriate for
the investment trust sector.
Role of the Audit Committee
The principal role of the Audit Committee is to assist the Board in relation
to the reporting of financial information, the review of financial controls
and the management of risk. The Committee has defined terms of reference which
are reviewed and re-assessed for their adequacy on at least an annual basis.
Copies of the terms of reference are published on the Company's website and
are available from the Company Secretary on request.
The Committee's main functions are listed below:
· to review and monitor the internal control systems and risk management
systems (including review of non-financial risks) on which the Company is
reliant (the Directors' statement on the Company's internal controls and risk
management is set out below);
· to consider whether there is a need for the Company to have its own
internal audit function;
· to monitor the integrity of the half-yearly and annual financial
statements of the Company by reviewing, and challenging where necessary, the
actions and judgements of the Manager;
· to review, and report to the Board on, the significant financial
reporting issues and judgements made in connection with the preparation of the
Company's financial statements, half-yearly financial reports, announcements
and related formal statements;
· to review the content of the Annual Report and advise the Board on
whether, taken as a whole, it is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company's
position and performance, business model and strategy;
· to meet with the auditor to review the proposed audit programme of work
and the findings of the auditor. The Committee shall also use this as an
opportunity to assess the effectiveness of the audit process;
· to develop and implement policy on the engagement of the auditor to
supply non-audit services;
· to review a statement from the Manager detailing the arrangements in
place within the Manager whereby staff may, in confidence, escalate concerns
about possible improprieties in matters of financial reporting or other
matters;
· to make recommendations in relation to the appointment of the auditor and
to approve the remuneration and terms of engagement of the auditor; and
· to monitor and review the auditor's independence, objectivity,
effectiveness, resources and qualification.
Activities During the Year
The Audit Committee met twice during the year when, amongst other matters, it
considered the Annual Report and the Half-Yearly Financial Report.
Representatives of the Manager's internal audit department and risk and
compliance department reported to the Committee on matters such as internal
control systems, risk and the conduct of the business in the context of its
regulatory environment.
Internal Control
There is an ongoing process, for identifying, evaluating and managing the
Company's significant business and operational risks, which has been in place
for the year ended 30 September 2023 and up to the date of approval of the
Annual Report, which is regularly reviewed by the Board and complies with the
FRC's guidance on internal controls.
The Board has overall responsibility for ensuring that there is a system of
internal controls in place and a process for reviewing its effectiveness. Any
system of internal control is designed to manage rather than eliminate the
risk of failure to achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or loss.
The design, implementation and maintenance of controls and procedures to
safeguard the assets of the Company and to manage its affairs properly extends
to operational and compliance controls and risk management. The Board, through
the Audit Committee, has prepared its own risk controls self-assessment which
lists potential risks relating to strategy; shareholders; Board; investment
management; promotional activities; company secretarial; depositary; third
party service providers and other external factors. The Board considers the
potential cause and possible effect of these risks as well as reviewing the
controls in place to mitigate these potential risks.
Clear lines of accountability have been established between the Board and the
Manager. The Board receives six-monthly reports from the Manager's risk and
compliance and internal audit teams covering key performance and risk
indicators and considers control and compliance issues brought to its
attention. In carrying out its review, the Board has had regard to the
activities of the Manager, including its internal audit and compliance
functions, and of the auditor.
The Board has reviewed the Manager's process for identifying and evaluating
the significant risks faced by the Company and the policies and procedures by
which these risks are managed. The Board has also reviewed the effectiveness
of the Manager's system of internal control including its annual internal
controls report prepared in accordance with the International Auditing and
Assurance Standards Board's International Standard on Assurances Engagements
("ISAE") 3402, "Assurance Reports on Controls at a Service Organisation".
Risks are identified and documented through a risk management framework by
each function within the Manager's activities. Risk is considered in the
context of the FRC's guidance on internal controls and includes financial,
regulatory, market, operational and reputational risk. This helps the internal
audit risk assessment model identify those functions for review. Any
weaknesses identified are reported to the Board and timetables are agreed for
implementing improvements to systems. The implementation of any remedial
action required is monitored and feedback provided to the Board.
The key components designed to provide effective internal control are outlined
below:
· written agreements are in place which specifically define the roles and
responsibilities of the Manager and other third party service providers;
· the Board and Manager have agreed clearly defined investment criteria,
specified levels of authority and exposure limits. Reports on these issues,
including performance statistics and investment valuations, are regularly
submitted to the Board;
· the Manager prepares forecasts and management accounts which allow the
Board to assess the Company's activities and review its performance; the
emphasis is on obtaining the relevant degree of assurance and not merely
reporting by exception;
· as a matter of course the Manager's compliance department continually
reviews its operations; and
· at its meeting in November 2023, the Audit Committee carried out an
annual assessment of internal controls for the year ended 30 September 2023 by
considering documentation from the Manager, including the internal audit and
compliance functions, and taking account of events since 30 September 2023.
The Board has considered the need for an internal audit function. However, the
Company has no employees and the day-to-day management of the Company's assets
has been delegated to the Manager which has its own compliance and internal
control systems. The Board has therefore decided to place reliance on those
systems and internal audit procedures and has concluded that it is not
necessary for the Company to have its own internal audit function.
Financial Statements and Significant Risks
During its review of the Company's financial statements for the year ended 30
September 2023, the Audit Committee considered, through review of reports and
other documentation, the following significant issues, in particular those
communicated by the auditor during its planning and reporting of the year end
audit:
Basis of Preparation and Material Uncertainty
How the issue was addressed - whilst the financial statements have been
prepared on a going concern basis, there is a material uncertainty in respect
of the continuation vote and Managed Wind-Down of the Company (see note 2 (a)
for related basis of preparation disclosures).
Valuation and Existence of Investments
How the issue was addressed - The Company's investments have been valued in
accordance with the accounting policies, as disclosed in note 2(e) to the
financial statements, which are consistent with the International Private
Equity and Venture Capital Valuation Guidelines - Edition 2018. Within the FRS
102 Fair Value hierarchy, all investments are categorised as either Level 1 or
2 other than 28 investments (2022 - 30), totalling £198.5m (2022 - £209.1m),
which are categorised as Level 3. The portfolio holdings and their pricing is
reviewed and verified by the Manager on a regular basis and management
accounts, including a full portfolio listing, are prepared for each Board
meeting. The Audit Committee rigorously challenges the assumptions underlying
valuation of unlisted investments. The Company engages the services of an
independent Depositary to hold the assets of the Company. The Depositary
checks the consistency of its records with those of the Manager on a monthly
basis and reports to the Board on an annual basis.
Recognition of Investment Income
How the issue was addressed - the recognition of investment income is
undertaken in accordance with accounting policy note 2(b) to the financial
statements. Special dividends are allocated to the capital or revenue accounts
according to the nature of the payment and the intention of the underlying
company. The Directors also review, at each meeting, the Company's income,
including income received, revenue forecasts and dividend comparisons.
Maintenance of Investment Trust Status
How the issue was addressed - The Company has been approved as an investment
trust under Sections 1158 and 1159 of the Corporation Tax Act 2010. Ongoing
compliance with the eligibility criteria is monitored on a regular basis by
the Manager and reported at each Board meeting.
Allocation of finance costs and investment management fees
The Company's finance costs and investment management fees were charged 50% to
capital and 50% to revenue during the year ended 30 September 2023. This
reflects the Board's currently anticipated split of future investment returns.
Prior to 1 October 2022, the charging allocation was 60% to capital and 40% to
revenue.
Review of Auditor
The Audit Committee has reviewed the effectiveness of the auditor,
PricewaterhouseCoopers LLP including:
· Independence - the auditor discusses with the Audit Committee, at least
annually, the steps it takes to ensure its independence and objectivity and
makes the Committee aware of any potential issues, explaining all relevant
safeguards.
· Quality of audit work - including the ability to resolve issues in a
timely manner (identified issues are satisfactorily and promptly resolved),
its communications/presentation of outputs (the explanation of the audit plan,
any deviations from it and the subsequent audit findings are comprehensive and
comprehensible), and its working relationship with management (the auditor has
a constructive working relationship with the Manager).
· Quality of people and service - including continuity and succession plans
(the audit team is made up of sufficient, suitably experienced staff with
provision made for knowledge of the investment trust sector and retention on
rotation of the audit director).
In reviewing the auditor, the Committee also took into account the FRC's
latest Audit Quality Inspection Report for PricewaterhouseCoopers LLP.
Audit Tender
This year's audit of the Company's Annual Report is the third performed by
PricewaterhouseCoopers LLP since their appointment following an audit tender
process held by the Company in 2019 and is therefore the fourth year for which
the senior statutory auditor, Shujaat Khan, has served.
Shareholders will have the opportunity to vote on the re-appointment of
PricewaterhouseCoopers LLP as auditor, and their remuneration, as Resolutions
8 and 9 at the forthcoming AGM.
Provision of Non-Audit Services
The Committee has established a policy on the supply of non-audit services
provided by the auditor. Such services are considered on an individual basis
and may only be provided if the service is at a reasonable and competitive
cost and does not constitute a conflict of interest or potential conflict of
interest or prevent the auditor from remaining objective and independent. In
addition, non-audit services will only be approved by the Committee if in
compliance with the Financial Reporting Council's and UK Public Interest
Entity's independence requirements. All non-audit services require the
pre-approval of the Committee. Non-audit fees paid to the auditor during the
year under review amounted to £17,225 (2022 - £15,750), comprising £12,000
(2022 - £11,000) for the review of the Half-Yearly Financial Report and
£5,225 (2022 - £4,750) in relation to covenant compliance requirements for
the 6.25% Bonds 2031.
Tom Challenor
Chairman of the Audit Committee
9 January 2024
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors 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'.
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 and prudent;
· state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with
the Companies Act 2006. They 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 any information 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.
We confirm that to the best of our 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 of the Company;
· in the opinion of the Directors, the Annual Report taken as a whole, is
fair, balanced and understandable and it provides the information necessary to
assess the Company's position and performance, business model and strategy;
and
· the Strategic Report and Directors' Report include a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties that the
Company faces.
On behalf of the Board,
Davina Walter
Chairman
9 January 2024
Statement of Comprehensive Income
Year ended 30 September 2023 Year ended 30 September 2022
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments 10 - (24,549) (24,549) - 11,405 11,405
Foreign exchange gains/(losses) - 13,297 13,297 - (24,660) (24,660)
Income 3 17,163 - 17,163 17,959 - 17,959
Investment management fees 4 (563) (563) (1,126) (517) (776) (1,293)
Administrative expenses 5 (1,146) (38) (1,184) (940) 10 (930)
Net return/(loss) before finance costs and taxation 15,454 (11,853) 3,601 16,502 (14,021) 2,481
Finance costs 6 (524) (524) (1,048) (426) (639) (1,065)
Net return/(loss) before taxation 14,930 (12,377) 2,553 16,076 (14,660) 1,416
Taxation 7 (1,678) (1,174) (2,852) (637) (1,488) (2,125)
Return/(loss) attributable to equity shareholders 13,252 (13,551) (299) 15,439 (16,148) (709)
Return/(loss) per Ordinary share (pence) 9 4.35 (4.45) (0.10) 4.99 (5.23) (0.23)
The total column of the Statement of Comprehensive Income is the profit and
loss account of the Company. There has been no other comprehensive income
during the year, accordingly, the return/(loss) attributable to equity
shareholders is equivalent to the total comprehensive income/(loss) for the
year.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of these financial statements.
Statement of Financial Position
As at
As at 30 September 2022
30 September 2023 (*Restated)
Note £'000 £'000
Non-current assets
Investments at fair value through profit or loss 10 339,972 373,732
Deferred taxation asset 7 - 1,167
339,972 374,899
Current assets
Debtors 11 1,549 2,845
Derivative financial instruments 87 984
Cash and cash equivalents 12 21,025 7,179
22,661 11,008
Current liabilities
Derivative financial instruments (5,702) (5,906)
Other creditors 13 (1,667) (949)
(7,369) (6,855)
Net current assets 15,292 4,153
Total assets less current liabilities 355,264 379,052
Non-current liabilities
6.25% Bonds 2031 14 (15,730) (15,694)
Net assets 339,534 363,358
Equity
Called up share capital (*restated)(A) 15 80,938 84,438
Share premium account 116,556 116,556
Capital redemption reserve (*restated)(A) 37,043 33,543
Capital reserve 16 69,717 89,560
Revenue reserve 35,280 39,261
Total shareholders' funds 339,534 363,358
Net asset value per Ordinary share (pence) 17
Bonds at par value 112.70 117.80
Bonds at fair value 112.59 117.63
(A) Further details of the restatement can be found in note 25.
The financial statements were approved by the Board of Directors and
authorised for issue on 9 January 2024 and were signed on its behalf by:
Davina Walter, Chairman
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Equity
For the year ended 30 September 2023
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 October 2022 (*restated)(A) 84,438 116,556 33,543 89,560 39,261 363,358
Return after taxation - - - (13,551) 13,252 (299)
Ordinary shares purchased for treasury 15 - - - (6,292) - (6,292)
Ordinary shares cancelled from treasury 15 (3,500) - 3,500 - - -
Dividends paid 8 - - - - (17,233) (17,233)
Balance at 30 September 2023 80,938 116,556 37,043 69,717 35,280 339,534
For the year ended 30 September 2022
Capital
Share Share redemption
capital premium reserve Capital Revenue
(*Restated) account (*Restated) reserve reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 October 2021 (*restated)(A) 84,438 116,556 33,543 106,572 41,009 382,118
Return after taxation - - - (16,148) 15,439 (709)
Ordinary shares purchased for treasury 15 - - - (864) - (864)
Dividends paid 8 - - - - (17,187) (17,187)
Balance at 30 September 2022 (*restated)(A) 84,438 116,556 33,543 89,560 39,261 363,358
(A) Further details of the restatement can be found in note 25.
The accompanying notes are an integral part of these financial statements.
Statement of Cash Flows
Year ended Year ended
30 September 2023 30 September 2022
Note £'000 £'000
Operating activities
Net return before finance costs and taxation 3,601 2,481
Adjustments for:
Dividend income (7,341) (7,878)
Distribution income (6,815) (7,324)
Fixed interest income (2,643) (2,689)
Interest (income)/expense (344) 11
Other income (20) (57)
Dividends received 7,349 7,848
Distributions received 6,815 7,324
Fixed interest income received 2,540 2,742
Interest received/(paid) 294 (11)
Other income received 20 57
Unrealised losses on forward contracts 693 2,005
Foreign exchange losses/(gains) 88 (550)
Losses/(gains) on investments 24,549 (11,405)
Decrease/(increase) in other debtors 23 (40)
Increase in accruals 204 286
Corporation tax paid (1,110) (417)
Taxation withheld (550) (234)
Net cash flow from/(used in) operating activities 27,353 (7,851)
Investing activities
Purchases of investments (102,128) (59,692)
Sales of investments 113,246 86,057
Net cash flow from investing activities 11,118 26,365
Financing activities
Purchase of own shares to treasury (6,292) (864)
Interest paid (1,012) (1,035)
Equity dividends paid 8 (17,233) (17,187)
Net cash flow used in financing activities (24,537) (19,086)
Increase/(decrease) in cash and cash equivalents 13,934 (572)
Analysis of changes in cash and cash equivalents during the year
Opening balance 7,179 7,201
Foreign exchange (88) 550
Increase/(decrease) in cash and cash equivalents as above 13,934 (572)
Closing balance 21,025 7,179
Represented by:
Money market funds 12,450 -
Cash and short term deposits 8,575 7,179
21,025 7,179
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 30 September 2023
1. Principal activity
The Company is a closed-end investment company, registered in Scotland No
SC003721, with its Ordinary shares having a premium listing on the London
Stock Exchange.
2. Accounting policies
(a) Basis of preparation. The financial statements have been prepared in
accordance with Financial Reporting Standard 102, the Companies Act 2006 and
the Association of Investment Companies ('AIC') Statement of Recommended
Practice 'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' (the 'SORP') issued in July 2022. They have also been prepared
on a going concern basis and on the assumption that approval as an investment
trust will continue to be granted.
While the Company is obliged to hold a continuation vote at the 2024 AGM, as
ordinary resolution 10, the Directors do not believe this should automatically
trigger the adoption of a basis other than going concern in line with the
Association of Investment Companies ("AIC") Statement of Recommended Practice
("SORP") which states that it is usually more appropriate to prepare financial
statements on a going concern basis unless a continuation vote has already
been triggered and shareholders have voted against continuation.
The Directors considered a number of factors in determining unanimously that
shareholders should vote in favour of continuation at the AGM and have engaged
in discussions with a number of shareholders, and with their advisers, in
reaching this conclusion. These matters included:
- the outcome of the strategic review, in the form of a restriction on new
investments as part of a revised investment policy, taking account of the
maturity profile of medium and longer term private markets investments;
- the proposed managed wind down, which is subject to shareholder approval, is
aimed at optimising shareholder returns and is likely to take at least three
to four years;
- feedback from certain shareholders that a return of capital by the Company,
as explained in the Chairman's Statement, was preferred; and
- an assessment of the pattern of the Company's future cashflows, after taking
account of working capital requirements, capital commitments for the private
markets investments and the proposed repayment of the 6.25% Bonds 2031.
Based on this assessment the Directors have made the assumption that the
continuation vote will pass, however recognise that the outcome of the vote is
not yet known given the performance of the Company against its benchmark and
the Company's share price compared with its net asset value per share.
Additionally, uncertainty also exists in respect of the proposals for a
Managed Wind-Down of the Company which are subject to shareholder approval and
the timeline for the liquidation of the Company which will be impacted by the
timing of the disposals of the Company's investments.
If the Managed Wind-Down proposals are rejected by shareholders and they vote
for a discontinuation of the Company, the Directors will require to deliver a
revised wind down proposal for approval following shareholder engagement
within six months of the AGM.
In accordance with the SORP guidance, the Directors note that these conditions
indicate the existence of a material uncertainty which may cast significant
doubt about the Company's ability to continue as a going concern. The
Company's financial statements do not include the adjustments that would
result if the Company was unable to continue as a going concern, such as the
repurchase cost of the Company's Bonds using the Spens methodology, a
liquidation provision or potential adjustments to carrying values of
investments relating to their realisation in due course. Based on their
assessment and considerations above, the Directors have concluded that the
financial statements of the Company should continue to be prepared on a going
concern basis and the financial statements have been prepared accordingly.
The Directors are mindful of the principal risks and uncertainties disclosed
and have reviewed forecasts detailing revenue and liabilities. The Directors
are satisfied that: the Company is able to meet all of its liabilities from
its assets, including its ongoing charges, so possesses sufficient resources
to continue in operational existence for the foreseeable future and at least
12 months from the date of approval of this Annual Report; the Company is
financially sound; and the Company's key third party service providers had in
place appropriate business continuity plans.
A substantial proportion of the Company's assets are invested in equity shares
in companies and fixed interest securities listed on recognised stock
exchanges and in most circumstances, including in the current market
environment, are realisable within a short timescale. The Board has set limits
for borrowing and regularly reviews cash flow projections and compliance with
banking covenants, including the headroom available.
The financial statements are presented in sterling (rounded to the nearest
£'000), which is the Company's functional and presentation currency. The
Company's performance is evaluated and its liquidity is managed in sterling.
Therefore sterling is considered as the currency that most faithfully
represents the economic effects of the underlying transactions, events and
conditions.
Significant accounting judgements, estimates and assumptions. The preparation
of financial statements requires the use of certain significant accounting
judgements, estimates and assumptions which require Directors to exercise
judgement in the process of applying the accounting policies. The areas where
judgements, estimates and assumptions have the most significant effect on the
amounts recognised in the financial statements are the determination of the
fair value of unlisted investments, as disclosed in note 2(e).
(b) Income. Dividend income receivable on equity shares is recognised on the
ex-dividend date. Dividend income on equity shares where no ex-dividend date
is quoted is brought into account when the Company's right to receive payment
is established. Where the Company has elected to receive dividends in the form
of additional shares rather than in cash the amount of the cash dividend
foregone is recognised as income. Special dividends are credited to capital or
revenue according to their circumstances. Dividend income is presented gross
of any non-recoverable withholding taxes, which are disclosed separately in
the Statement of Comprehensive Income.
Distributions of non-recallable capital received from unlisted holdings during
their investment phase, which have been funded through profits being
generated, are allocated to revenue in alignment with the nature of the
underlying source of income and in accordance with guidance in the AIC SORP.
The fixed returns on debt instruments are recognised using the time
apportioned accruals basis and the discount or premium on acquisition is
amortised or accreted on a straight line basis. Interest income is accounted
for on an accruals basis. Underwriting commission is recognised when the issue
underwritten closes.
(c) Expenses. All expenses are recognised on an accruals basis. Expenses are
charged through the revenue column of the Statement of Comprehensive Income
except as follows:
- expenses which are incidental to the acquisition or disposal of an
investment are treated as capital and separately identified and disclosed in
note 10;
- with effect from 1 October 2022, the Company charges 50% of investment
management fees and finance costs to capital, in accordance with the Board's
view at that time of the expected long term return in the form of capital
gains and income respectively from the investment portfolio of the Company.
Previously the allocation was 60% to capital.
In accordance with the investment management agreement, where applicable, an
amount equivalent to the management fee received by the Manager on the
underlying holding which is managed by the Group in the normal course of
business, is either removed from or offset against the management fee payable
by the Company to ensure that no double counting occurs.
(d) Taxation. The tax expense represents the sum of tax currently payable and
deferred tax. Any tax payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Statement of
Comprehensive Income because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that were applicable at the Statement of Financial
Position date.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the Statement of Financial Position date, where
transactions or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the Statement
of Financial Position date. 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. Deferred tax is measured on a non-discounted basis at the tax rates
that are expected to apply in the periods in which timing differences are
expected to reverse, based on tax rates and laws enacted or substantively
enacted at the Statement of Financial Position date.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue within the Statement of Comprehensive
Income on the same basis as the particular item to which it relates using the
Company's effective rate of tax for the year. The SORP recommends that the
benefit of that tax relief should be allocated to capital and a corresponding
charge made to revenue. The Company does not apply the marginal method of
allocation of tax relief as any allocation of tax relief between capital and
revenue would have no impact on shareholders' funds. Had this allocation been
made, the charge to revenue and corresponding credit to capital for the year
ended 30 September 2023 would have been £1,122,000 (2022 - £1,720,000).
(e) Investments. The Company has chosen to apply the recognition and measurement
provisions of IAS 39 Financial Instruments: Recognition and Measurement and
investments have been designated upon initial recognition at fair value
through profit or loss. 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 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
through profit or loss. For listed investments, this is deemed to be bid
market prices or closing prices for SETS (London Stock Exchange's electronic
trading service) stocks sourced from the London Stock Exchange.
Unlisted investments, including those in Limited Partnerships ('LPs') are
valued by the Directors at fair value using International Private Equity and
Venture Capital Valuation Guidelines - Edition 2022.
The Company's investments in LPs are subject to the terms and conditions of
the respective investee's offering documentation. The investments in LPs are
valued based on the reported Net Asset Value ('NAV') of such assets as
determined by the administrator or General Partner of the LP and adjusted by
the Directors in consultation with the Manager to take account of concerns
such as liquidity so as to ensure that investments held at fair value through
profit or loss are carried at fair value. The reported NAV is net of
applicable fees and expenses including carried interest amounts of the
investees and the underlying investments held by each LP are accounted for, as
defined in the respective investee's offering documentation. While the
underlying fund managers may utilise various model-based approaches to value
their investment portfolios, on which the Company's valuations are based, no
such models are used directly in the preparation of fair values of the
investments. The NAV of LPs reported by the administrators may subsequently be
adjusted when such results are subject to audit and audit adjustments may be
material to the Company.
Gains and losses arising from changes in fair value are treated 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.
(f) Borrowings. Borrowings are measured initially at the fair value of the
consideration received, net of any issue expenses, and subsequently at
amortised cost using the effective interest rate method. The finance costs of
such borrowings are accounted for on an accruals basis using the effective
interest rate method and have been charged 50% to revenue and 50% to capital
in the Statement of Comprehensive Income up to 30 September 2023 to reflect
the Company's investment policy and prospective income and capital growth.
Previously the allocation was 40% to revenue and 60% to capital.
(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.
Capital redemption reserve. The capital redemption reserve is used to record
the amount equivalent to the nominal value of any of the Company's own shares
purchased and cancelled in order to maintain the Company's capital. This
reserve is not distributable.
Capital reserve. This reserve reflects any gains or losses on investments
realised in the period along with any movement in the fair value of
investments held that have been recognised in the Statement of Comprehensive
Income. These include gains and losses from foreign currency exchange
differences. Additionally, expenses, including finance costs, are charged to
this reserve in accordance with (c) and (f) above. The capital reserve is
distributable to the extent unrealised gains/losses arising from unlisted
investments are excluded.
Revenue reserve. This reserve reflects all income and costs which are
recognised in the revenue column of the Statement of Comprehensive Income. The
revenue reserve represents the amount of the Company's reserves distributable
by way of dividend.
When making a distribution to shareholders, the Directors determine profits
available for distribution by reference to 'Guidance on realised and
distributable profits under the Companies Act 2006' issued by the Institute of
Chartered Accountants in England and Wales and the Institute of Chartered
Accountants of Scotland in April 2017. The availability of distributable
reserves in the Company is dependent on those dividends meeting the definition
of qualifying consideration within the guidance and on available cash
resources of the company and other accessible sources of funds. The
distributable reserves are therefore subject to any future restrictions or
limitations at the time such distribution is made.
(h) Valuation of derivative financial instruments. Derivatives are classified as
fair value through profit or loss - held for trading. Derivatives are
initially accounted and measured at fair value on the date the derivative
contract is entered into and subsequently measured at fair value. The gain or
loss on re-measurement is taken to the Statement of Comprehensive Income. The
sources of the return under the derivative contract are allocated to the
revenue and capital column of the Statement of Comprehensive Income in
alignment with the nature of the underlying source of income and in accordance
with guidance in the AIC SORP.
(i) Dividends payable. Dividends payable to equity shareholders are recognised in
the financial statements when they have been approved by shareholders and
become a liability of the Company. Interim dividends are recognised in the
financial statements in the period in which they are paid.
(j) Foreign currency. Monetary assets and liabilities and non-monetary assets held
at fair value denominated in foreign currencies are converted into sterling at
the rate of exchange ruling at the reporting date. Transactions during the
year involving foreign currencies are converted at the rate of exchange ruling
at the transaction date. Gains or losses arising from a change in exchange
rates subsequent to the date of a transaction are included as a currency gain
or loss in revenue or capital in the Statement of Comprehensive Income,
depending on whether the gain or loss is of a revenue or capital nature.
(k) Treasury shares. When the Company purchases the Company's equity share capital
to be held as treasury shares, the amount of the consideration paid, which
includes directly attributable costs, is net of any tax effects, and is
recognised as a deduction from the capital reserve. When these shares are sold
subsequently, the amount received is recognised as an increase in equity, and
any resulting surplus on the transaction is transferred to the share premium
account and any resulting deficit is transferred from the capital reserve.
(l) Cash and cash equivalents. Cash comprises cash at bank. Cash equivalents
includes bank overdrafts repayable on demand and short term, highly liquid,
investments that are readily convertible to known amounts of cash and that are
subject to an insignificant risk of change in value.
(m) Segmental reporting. The Directors are of the opinion that the Company is
engaged in a single segment of business activity, being investment business.
Consequently, no business segmental analysis is provided.
3. Income
2023 2022
£'000 £'000
Income from investments
UK listed dividends 1,988 2,934
Overseas listed dividends 5,353 4,939
Unquoted Limited Partnership income 6,815 7,324
Stock dividends - 5
Fixed interest income 2,643 2,689
16,799 17,891
Other income
Deposit interest 216 11
Interest from money market funds 128 -
Other income 20 57
364 68
Total income 17,163 17,959
4. Investment management fees
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 563 563 1,126 517 776 1,293
The investment management fee has been levied by abrdn Fund Managers Limited
("aFML") at the following tiered levels:
- 0.50% per annum in respect of the first £300 million of the net asset value
(with the 6.25% Bonds 2031 at fair value); and
- 0.45% per annum in respect of the balance of the net asset value (with the
6.25% Bonds 2031 at fair value).
The Company also receives rebates in respect of underlying investments in
other funds managed by the Group (where an investment management fee is
charged by the Group on that fund) in the normal course of business to ensure
that no double counting occurs. Any investments made in funds managed by the
Manager which themselves invest directly into alternative investments
including, but not limited to, infrastructure and property are charged at the
Manager's lowest institutional fee rate. To avoid double charging, such
investments are excluded from the overall management fee calculation.
At the year end, an amount of £179,000 (2022 - £315,000) was outstanding in
respect of management fees due by the Company.
With effect from 1 October 2022, management fees are charged 50% to revenue
and 50% to capital (previously 40% to revenue and 60% to capital) in line with
the Company's expected long-term returns.
5. Administrative expenses
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Directors' remuneration 176 - 176 162 - 162
Custody fees 28 - 28 42 - 42
Depositary fees 43 - 43 50 - 50
Shareholders' services(A) 388 - 388 263 - 263
Registrar's fees 63 - 63 59 - 59
Transaction costs - 38 38 - 26 26
Legal and professional fees 109 - 109 103 - 103
Printing and postage 54 - 54 37 - 37
Irrecoverable VAT 38 - 38 50 - 50
Auditor's remuneration:
- statutory audit 125 - 125 61 - 61
- other non-audit services
report in respect of Bond covenant compliance 5 - 5 5 - 5
review of Half-yearly Report 12 - 12 11 - 11
Other expenses 105 - 105 97 (36) 61
1,146 38 1,184 940 (10) 930
(A) Includes registration, savings scheme and other wrapper administration and
promotional expenses, of which £388,000 (2022 - £260,000) was payable to
aFML to cover promotional activities during the year. There was £337,000
(2022 - £170,000) due to aFML in respect of these promotional activities at
the year end.
6. Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
6.25% Bonds 2031 521 521 1,042 414 622 1,036
Bank interest 3 3 6 12 17 29
524 524 1,048 426 639 1,065
With effect from 1 October 2022, finance costs have been charged 50% to
revenue and 50% to capital (previously 40% to revenue and 60% to capital).
7. Taxation
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge for the year
Current UK tax 1,656 - 1,656 502 - 502
Double taxation relief (32) - (32) (62) - (62)
Corporation tax prior year adjustment(A) - - 22 - 22
Overseas tax suffered 54 7 61 175 1 176
Current tax charge for the year 1,678 7 1,685 637 1 638
Movement in deferred tax asset - 1,167 1,167 - 1,487 1,487
Total tax charge for the year 1,678 1,174 2,852 637 1,488 2,125
(A) Adjustment in 2022 relates to tax payable upon the reclassification of
income as taxable which had previously been identified as non-taxable.
(b) Factors affecting the tax charge for the year. The tax assessed for the year
is lower than the standard rate of corporation tax of 25% (2022 - 19%). The
differences are explained as follows:
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return before taxation 14,930 (12,377) 2,553 16,076 (14,660) 1,416
Net return before taxation multiplied by the standard rate of corporation tax 3,285 (2,723) 562 3,054 (2,785) 269
of 22.0% (2022 - 19.0%)
Effects of:
Non taxable (gains) on investments held at fair value through profit or loss - 5,401 5,401 - (1,793) (1,793)
Exchange (gains)/losses not taxable - (2,926) (2,926) - 4,305 4,305
Non taxable UK dividend income (157) - (157) (346) - (346)
Non taxable overseas dividend income (350) - (350) (486) - (486)
Disallowable expenses - - - - 5 5
Overseas tax suffered 54 7 61 175 1 176
Double taxation relief (32) - (32) (62) - (62)
Corporation tax prior year adjustment - - - 22 - 22
Utilisation of excess management expenses - (874) (874) - (1,452) (1,452)
Effect of not applying the marginal method of allocation of tax relief (1,122) 1,122 - (1,720) 1,720 -
Movement in deferred tax asset - 1,167 1,167 - 1,487 1,487
1,678 1,174 2,852 637 1,488 2,125
(c) Factors that may affect future tax charges. At the year end, after offset
against income taxable on receipt, there was a deferred tax asset of £nil
(2022 - £1,167,000) in relation to surplus management expenses.
2023 2022
(d) Movement in deferred tax asset £'000 £'000
Origination and reversal of timing differences 1,167 1,646
Impact of change in tax rate - (159)
1,167 1,487
8. Ordinary dividends on equity shares
2023 2022
£'000 £'000
Third interim dividend for 2022 - 1.40p (2021 - 1.38p) 4,319 4,269
Fourth interim dividend for 2022 - 1.40p (2021 - 1.38p) 4,314 4,267
First interim dividend for 2023 - 1.42p (2022 - 1.40p) 4,322 4,328
Second interim dividend for 2023 - 1.42p (2022 - 1.40p) 4,278 4,323
17,233 17,187
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 Sections 1158
and 1159 of the Corporation Tax Act 2010 are considered. The revenue available
for distribution by way of dividend for the year is £13,252,000 (2022 -
£15,439,000).
2023 2022
£'000 £'000
First interim dividend for 2023 - 1.42p (2022 - 1.40p) 4,322 4,328
Second interim dividend for 2023 - 1.42p (2022 - 1.40p) 4,278 4,323
Third interim dividend for 2023 - 1.42p (2022 - 1.40p) 4,278 4,319
Fourth interim dividend for 2023 - 1.42p (2022 - 1.40p) 4,278 4,314
Special dividend for 2023 - 1.65p (2022 - nil) 4,971 -
22,127 17,284
9. Return per Ordinary share
2023 2022
p p
Revenue return 4.35 5.00
Capital loss (4.45) (5.23)
Total loss (0.10) (0.23)
The figures above are based on the following:
2023 2022
£'000 £'000
Revenue return 13,252 15,439
Capital loss (13,551) (16,148)
Total loss (299) (709)
Weighted average number of shares in issue(A) 304,340,151 308,982,666
(A) Calculated excluding shares held in treasury.
10. Investments
2023 2022
£'000 £'000
Held at fair value through profit or loss
Opening valuation 373,732 390,446
Opening investment holdings gains (31,812) (8,546)
Opening book cost 341,920 381,900
Movements during the year:
Purchases at cost 102,128 59,476
Sales - proceeds (111,509) (87,527)
Sales - losses (3,509) (11,861)
Dilution/(accretion) of fixed income book cost 170 (68)
Closing book cost 329,200 341,920
Closing investment holdings gains 10,772 31,812
Closing valuation of investments 339,972 373,732
2023 2022
The portfolio valuation(A) £'000 £'000
UK equities 91,499 76,744
Overseas equities 18,125 40,113
Fixed interest 29,619 32,147
Loan investments 2,279 15,662
Unlisted holdings 198,450 209,066
339,972 373,732
(A) The portfolio valuation includes pooled investment vehicles and collective
investment schemes.
2023 2022
(Losses)/Gains on investments £'000 £'000
Realised losses (3,509) (11,861)
Net movement in investment holdings (losses)/gains (21,040) 23,266
(24,549) 11,405
The Company received £111,509,000 (2022 - £87,527,000) from investments sold
in the period. The book cost of these investments when they were purchased
was £115,018,000 (2022 - £99,388,000). These investments have been
revalued over time and until they were sold any unrealised gains/losses were
included in the fair value of 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 68 47
Sales 43 62
111 109
The above transaction costs are calculated in line with the AIC SORP. The
transaction costs in the Company's Key Information Document are calculated on
a different basis and in line with the PRIIPs regulations.
Substantial holdings. At the year end the Company held more than 3% of a share
class in the following investees:
% of
Investee Class Class
Aberdeen Global Infrastructure Partners II AUD 11
Aberdeen European Residential Opportunities Fund B 6
Aberdeen Property Secondaries Partners II A-1 21
Aberdeen Standard Global Private Markets Fund GBP Acc 6
Andean Social Infrastructure Fund I USD 13
Bonaccord Capital Partners I-A USD 7
Cheyne Social Property Impact Fund GBP 3
Maj Equity Fund 4 DKK 3
Mount Row Credit Fund III A9 5
Secondary Opportunities Fund USD 6
SL Capital Infrastructure II EUR 5
Significant holdings disclosure requirements - AIC SORP
Details are disclosed below in accordance with the requirements of paragraph
82 of the AIC Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (updated in July 2022)
in relation to unlisted investments included in the ten largest holdings. As
required, this disclosure includes turnover, pre-tax profits and net assets
attributable to investors as reported within the most recently audited
financial statements of the investee companies, where possible.
Income
recognised
Proportion from Net assets
Latest of capital Book Market holding in Pre-tax attributable to
Financial owned cost value the period Turnover profit/(loss) shareholders
Name Statements % £'000 £'000 £'000 ('000) ('000) ('000)
SL Capital Infrastructure n/a 5.2 22,386 27,419 Information not publicly available
Aberdeen Standard Global Private Markets Fund n/a 6.2 15,044 19,934 Information not publicly available
Burford Opportunity Fund n/a 8.3 13,818 17,272 Information not publicly available
Healthcare Royalty Partners IV n/a 2.0 18,397 16,235 Information not publicly available
Bonaccord Capital Partners I-A n/a 7.2 11,823 16,091 Information not publicly available
Andean Social Infrastructure Fund n/a 12.5 14,311 15,016 Information not publicly available
Aberdeen Standard Secondary Opportunities Fund IV n/a 6.3 8,080 12,940 Information not publicly available
Income
recognised
Proportion from Net assets
Latest of capital Book Market holding in Pre-tax attributable to
Financial owned cost value the period Turnover profit/(loss) shareholders
Name Statements % £'000 £'000 £'000 ('000) ('000) ('000)
SL Capital Infrastructure n/a 5.2 15,013 19,581 Information not publicly available
Aberdeen Standard Global Private Markets Fund n/a 6.2 15,044 19,122 Information not publicly available
Burford Opportunity Fund n/a 8.3 13,505 17,520 Information not publicly available
Healthcare Royalty Partners IV n/a 2.0 12,762 13,522 Information not publicly available
Bonaccord Capital Partners I-A n/a 7.2 11,217 15,255 Information not publicly available
Andean Social Infrastructure Fund n/a 12.5 11,248 12,691 Information not publicly available
Aberdeen Standard Secondary Opportunities Fund IV n/a 6.3 4,683 9,385 Information not publicly available
11. Debtors
2023 2022
£'000 £'000
Amounts due from brokers 62 1,806
Prepayments and accrued income 903 950
Taxation recoverable 584 89
1,549 2,845
12. Cash and cash equivalents
2023 2022
£'000 £'000
Cash at bank and in hand 8,575 7,179
Money market funds 12,450 -
21,025 7,179
13. Current liabilities
2023 2022
£'000 £'000
Interest on 6.25% Bonds 2031 55 55
Corporation tax payable 756 242
Other creditors 856 652
1,667 949
14. Creditors: amounts falling due after more than one year
2023 2022
£'000 £'000
6.25% Bonds 2031(A)
Balance at beginning of year 15,694 15,664
Amortisation of discount and issue expenses 36 30
Balance at end of year 15,730 15,694
(A) The fair value of the 6.25% Bonds using the last available quoted offer
price from the London Stock Exchange as at 30 September 2023 was 99.8297p, a
total of £16,069,000 (2022 - 100.7812p, a total of £16,222,000).
At the year end the Company had in issue £16,096,000 (2022 - £16,096,000)
Bonds 2031 which were issued at 99.343%. The Bonds have been accounted for in
accordance with FRS 102, which require any discount or issue costs to be
amortised over the life of the Bonds. The Bonds are secured by a floating
charge over all of the assets of the Company.
Under the covenants relating to the Bonds, the Company is required to ensure
that, at all times, the aggregate principal amount outstanding in respect of
monies borrowed by the Company does not exceed an amount equal to its share
capital and reserves. All covenants were met during the year and also during
the period from the year end to the date of this Report.
15. Called up share capital
Ordinary Treasury Total
shares shares shares (*Restated)
(number) (number) (number) £'000
Allotted, called up and fully paid
Ordinary shares of 25p each
At 1 October 2022(A) 308,447,314 29,304,492 337,751,806 84,438
Shares cancelled from treasury - (14,000,000) (14,000,000) (3,500)
Shares purchased for treasury (7,181,362) 7,181,362 - -
At 30 September 2023 301,265,952 22,485,854 323,751,806 80,938
(A)As per Note 25, the Statement of Financial Position and the Statement of
Changes in Equity have been restated to reflect a transfer of £6,914,000 from
called up share capital to the capital redemption reserve following the
cancellation of 27,659,068 Ordinary shares of 25p from treasury on 31 March
2021.
During the year 7,181,362 (2022 - 871,424) Ordinary shares of 25p each were
purchased to be held in treasury at a cost of £6,292,000 (2022 -
£864,000). There were no Ordinary shares of 25p issued from treasury during
the year (2022 - same). On 29 September 2023, 14,000,000 Ordinary shares held
in treasury were cancelled.
16. Capital reserve
2023 2022
£'000 £'000
At 1 October 89,560 106,572
Movement in investment holding gains (21,040) 23,266
Losses on realisation of investments at fair value (3,509) (11,861)
Foreign exchange gains/(losses) 13,297 (24,660)
Transaction and other costs (38) 10
Finance costs (524) (639)
Purchase of own shares to treasury (6,292) (864)
Investment management fees (563) (776)
Overseas tax suffered (7) (1)
Deferred tax (1,167) (1,487)
At 30 September 69,717 89,560
17. Net asset value per Ordinary share
The net asset value per Ordinary share and the net asset value attributable to
the Ordinary shares at the year end were as follows:
Debt at par 2023 2022
Net asset value attributable (£'000) 339,534 363,358
Number of Ordinary shares in issue excluding treasury (note 15) 301,265,952 308,447,314
Net asset value per share (p) 112.70 117.80
Debt at fair value £'000 £'000
Net asset value attributable 339,534 363,358
Add: Amortised cost of 6.25% Bonds 2031 15,730 15,694
Less: Market value of 6.25% Bonds 2031 (16,069) (16,222)
339,195 362,830
Number of Ordinary shares in issue excluding treasury (note 15) 301,265,952 308,447,314
Net asset value per share (p) 112.59 117.63
18. Financial instruments
Risk management. The Company's investment activities expose it to various
types of financial risk associated with the financial instruments and markets
in which it invests. The Company's financial instruments, other than
derivatives, comprise securities and other investments, cash balances, liquid
resources, 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 in the form of forward foreign currency
contracts, futures and options, subject to Board approval, for the purpose of
enhancing portfolio returns and for hedging purposes in a manner consistent
with the Company's broader investment policy.
As at 30 September 2023 there were 18 open positions in derivatives
transactions (2022 - 16).
Risk management framework. The directors of abrdn Fund Managers Limited
('aFML') collectively assume responsibility for aFML's obligations under the
AIFMD including reviewing investment performance and monitoring the Company's
risk profile during the year.
aFML is a fully integrated member of abrdn plc (the 'Group'), which provides a
variety of services and support to aFML in the conduct of its business
activities, including the oversight of the risk management framework for the
Company. aFML has delegated the day to day administration of the investment
policy to abrdn Investments Limited, which is responsible for ensuring that
the Company is managed within the terms of its investment guidelines and the
limits set out in its pre-investment disclosures to investors (details of
which can be found on the Company's website). aFML has retained responsibility
for monitoring and oversight of investment performance, product risk and
regulatory and operational risk for the Company.
The Group's Internal Audit Department is independent of the Risk Division and
reports directly to the Audit Committee of the Group's Board of Directors and
to the Group's Chief Executive Officer. The Internal Audit Department is
responsible for providing an independent assessment of the Group's control
environment.
The Manager conducts its risk oversight function through the operation of the
Group's risk management processes and systems which are embedded within the
Group's operations. The Group's Risk Division supports management in the
identification and mitigation of risks and provides independent monitoring of
the business. The Division includes Compliance, Business Risk, Market Risk,
Risk Management and Legal. The team is headed up by the Group's Chief Risk
Officer, who reports to the Chief Executive Officer of the Group. The Risk
Division achieves its objective through embedding the Risk Management
Framework throughout the organisation using the Group's operational risk
management system ('SHIELD').
The Group's corporate governance structure is supported by several committees
to assist the board of directors of aFML, its subsidiaries and the Company to
fulfil their roles and responsibilities. The Group's Risk Division is
represented on all committees, with the exception of those committees that
deal with investment recommendations. The specific goals and guidelines on the
functioning of those committees are described in the committees' terms of
reference.
Risk management. The main risks the Company faces from these financial
instruments are (i) market risk (comprising interest rate, foreign currency
and other price risk), (ii) liquidity risk and (iii) credit risk.
In order to mitigate risk, the investment strategy is to select investments
for their fundamental value. Asset selection is therefore based on disciplined
accounting, market and sector analysis. 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 asset class. The Investment
Manager actively monitors market prices throughout the year and reports to the
Board, which meets regularly in order to consider investment strategy. Current
and future strategy is detailed in the Chairman's Statement, regarding
proposals for a Managed Wind-Down of the Company.
The Board has agreed the parameters for net (cash)/gearing, which was -1.6% of
net assets as at 30 September 2023 (2022 - net gearing of 1.8%). The Manager's
policies for managing these risks are summarised below and have been applied
throughout the current and previous year. The numerical disclosures in the
tables listed below exclude short-term debtors and creditors.
Market risk. The Company's investment portfolio is exposed to market price
fluctuations, which are monitored by the Manager in pursuance of the
investment objective. Adherence to investment guidelines and to investment and
borrowing powers set out in the management agreement mitigates the risk of
exposure to any particular security or issuer. Further information on the
investment portfolio is set out in the Investment Manager's Report.
Market price risk arises mainly from uncertainty about future prices of
financial instruments used in the Company's operations. It represents the
potential loss the Company might suffer through holding market positions as a
consequence of price movements. It is the Board's policy to hold investments
in the portfolio in a broad spread of asset classes in order to reduce the
risk arising from factors specific to a particular asset class.
Interest rate risk. Interest rate movements may affect:
- the level of income receivable on cash deposits; and
- the fair value of any investments in fixed interest rate securities.
Management of the risk. 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. Details of the 6.25% Bonds
2031 and interest rate applicable can be found in note 14.
The Board imposes borrowing limits to ensure gearing levels are appropriate to
market conditions and reviews these on a regular basis. Interest rate risk is
the risk of movements in the value of financial instruments as a result of
fluctuations in interest rates.
Financial assets. The interest rate risk of the portfolio of financial assets
at the reporting date was as follows:
2023 2022
Within More than Within More than
1 year 1 year Total 1 year 1 year Total
£'000 £'000 £'000 £'000 £'000 £'000
Exposure to fixed interest rates
Fixed interest investments 3,677 25,942 29,619 4,633 27,514 32,147
Exposure to floating interest rates
Loan investments(A) - 2,279 2,279 - 15,662 15,662
Cash and cash equivalents 21,025 - 21,025 7,179 - 7,179
24,702 28,221 52,923 11,812 43,176 54,988
(A) Variable distributions received from investment holdings, which have an
underlying portfolio of fixed interest securities.
Financial liabilities. The Company has borrowings by way of a bond issue, held
at amortised cost of £15,730,000 (2022 - £15,694,000) details of which are
in note 14. The fair value of this loan has been calculated at £16,069,000 as
at 30 September 2023 (2022 - £16,222,000).
Interest rate sensitivity. A sensitivity analysis demonstrates the sensitivity
of the Company's results for the year to a reasonably possible change in
interest rates, with all other variables held constant.
The sensitivity of the return/(loss) attributable to equity shareholders for
the year is the effect of the assumed change in interest rates on:
- the net interest income for the year, based on the floating rate financial
assets held at the Statement of Financial Position date; and
- changes in fair value of investments for the year, based on revaluing fixed
rate financial assets and liabilities at the Statement of Financial Position
date.
If interest rates had been 50 basis points higher or lower and all other
variables were held constant, the Company's net interest for the year ended 30
September 2023 would increase/decrease by £105,000 (2022 - increase/decrease
£36,000). This is attributable to the Company's exposure to interest rates on
its floating rate cash balances at 30 September 2023.
The capital return would decrease/increase by £2,236,000 (2022 -
increase/decrease by £4,384,000) using VaR ("Value at Risk") analysis based
on 100 observations of monthly VaR computations of fixed interest portfolio
positions at each year end.
Foreign currency risk. A proportion of the Company's investment portfolio is
invested in overseas securities whose values are subject to fluctuation due to
changes in foreign exchange rates. In addition, the impact of changes in
foreign exchange rates upon the profits of investee companies can result,
indirectly, in changes in their valuations. Consequently the Statement of
Financial Position can be affected by movements in exchange rates.
Management of the risk. The revenue account is subject to currency
fluctuations arising on dividends receivable in foreign currencies and,
indirectly, due to the impact of foreign exchange rates upon the profits of
investee companies. The Company has entered into derivative transactions, in
the form of forward foreign currency contracts, to ensure that exposure to
foreign denominated investments and cashflows is appropriately hedged.
Foreign currency risk exposure by currency of denomination excluding other
debtors and receivables and other payables falling due within one year:
30 September 2023 30 September 2022
Net Total Net Total
monetary currency monetary currency
Investments items exposure Investments items exposure
£'000 £'000 £'000 £'000 £'000 £'000
US Dollar 117,117 (3,089) 114,028 150,252 (3,124) 147,128
Euro 53,472 (459) 53,013 52,268 (702) 51,566
Other 41,008 (596) 40,412 49,275 1,010 50,285
211,597 (4,144) 207,453 251,795 (2,816) 248,979
Foreign currency sensitivity. The following table details the impact on the
Company's net assets to a 20% decrease (in the context of a 20% increase the
figures below should all be read as negative) in sterling against the foreign
currencies in which the Company has exposure. The sensitivity analysis
includes foreign currency denominated monetary items and adjusts their
translation at the period end for a 20% change in foreign currency rates. This
sensitivity excludes forward foreign currency contracts entered into for
hedging short term cash flows.
2023 2022
£'000 £'000
US Dollar 22,806 29,426
Euro 10,603 10,313
Other 8,082 10,057
41,491 49,796
Forward foreign currency contracts. The following forward foreign currency
contracts were outstanding at the Statement of Financial Position date:
Unrealised
gain/(loss)
30 September
Buy Sell Settlement Amount Contracted 2023
Date of contract Currency Currency date '000 rate £'000
31 August 2023 JPY GBP 7 December 2023 4,920 180.2114 53
11 September 2023 USD GBP 7 December 2023 837 1.2211 21
15 September 2023 USD GBP 7 December 2023 617 1.2211 12
25 September 2023 GBP CAD 7 December 2023 528 1.6492 1
25 September 2023 GBP EUR 7 December 2023 205 1.1498 -
87
31 August 2023 CHF GBP 7 December 2023 1,895 1.1088 (1)
31 August 2023 GBP AUD 7 December 2023 11,285 1.8876 (383)
31 August 2023 GBP CAD 7 December 2023 8,270 1.6492 (332)
31 August 2023 GBP EUR 7 December 2023 56,882 1.1498 (549)
31 August 2023 GBP NOK 7 December 2023 5,222 12.9686 (193)
31 August 2023 GBP NZD 7 December 2023 5,462 2.0322 (254)
31 August 2023 GBP SEK 7 December 2023 5,463 13.2251 (213)
31 August 2023 GBP USD 7 December 2023 97,334 1.2211 (3,733)
31 August 2023 GBP USD 7 December 2023 284 1.2211 (11)
1 September 2023 GBP USD 7 December 2023 389 1.2211 (15)
13 September 2023 GBP CAD 7 December 2023 180 1.6492 (4)
13 September 2023 GBP EUR 7 December 2023 225 1.1498 (1)
19 September 2023 GBP USD 7 December 2023 945 1.2211 (13)
(5,702)
Unrealised
gain/(loss)
30 September
Buy Sell Settlement Amount Contracted 2022
Date of contract Currency Currency date '000 rate £'000
1 September 2022 GBP AUD 7 December 2022 13,528 1.7359 324
1 September 2022 GBP CAD 7 December 2022 6,596 1.5350 41
1 September 2022 GBP NOK 7 December 2022 6,060 12.1588 292
1 September 2022 GBP NZD 7 December 2022 6,123 1.9745 239
1 September 2022 USD GBP 7 December 2022 222 1.1173 8
12 September 2022 EUR GBP 7 December 2022 1,205 1.1349 9
15 September 2022 USD GBP 7 December 2022 259 1.1173 8
29 September 2022 GBP USD 7 December 2022 3,445 1.1173 63
984
1 September 2022 GBP EUR 7 December 2022 65,989 1.1349 (943)
1 September 2022 GBP SEK 7 December 2022 6,055 12.3520 (15)
1 September 2022 GBP USD 7 December 2022 130,780 1.1173 (4,886)
1 September 2022 JPY GBP 7 December 2022 2,277 160.5538 (7)
7 September 2022 GBP USD 7 December 2022 1,466 1.1173 (39)
9 September 2022 GBP USD 7 December 2022 199 1.1173 (8)
22 September 2022 GBP USD 7 December 2022 251 1.1173 (2)
22 September 2022 GBP USD 7 December 2022 423 1.1173 (6)
(5,906)
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
investments.
Management of the risk. 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 to
international markets 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.
Other price risk sensitivity. If market prices at the reporting date had been
10% higher or lower on investments held at fair value while all other
variables remained constant, the return attributable to Ordinary shareholders
and equity for the year ended 30 September 2023 would have increased/decreased
by £30,807,000 (2022 - £32,592,000).
Liquidity risk. This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Within Within Within More than
1 year 1-3 years 3-5 years 5 years Total
£'000 £'000 £'000 £'000 £'000
6.25% Bonds 2031 - - - 16,096 16,096
Interest cash flows on 6.25% Bonds 2031 1,006 2,012 2,012 3,018 8,048
1,006 2,012 2,012 19,114 24,144
Management of the risk. The Company's assets comprise sufficient readily
realisable securities which can be sold to meet funding commitments if
necessary.
Credit risk. This is the risk that one party to a financial instrument will
fail to discharge an obligation and cause the other party to incur a financial
loss.
Management of the risk
- where the Manager makes an investment in a bond, corporate or otherwise, the
credit ratings of the issuer are taken into account so as to manage the risk
to the Company of default;
- investments in quoted bonds are made across a variety of industry sectors
and geographic markets so as to avoid concentrations of credit risk;
- transactions involving derivatives are entered into only with investment
banks, the credit rating of which is taken into account so as to minimise the
risk to the Company of default;
- investment transactions are carried out with a number of brokers, whose
credit-standing is reviewed periodically by the 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 daily review of failed trade reports. In addition,
both stock and cash reconciliations to the custodian's records are performed
daily to ensure discrepancies are investigated in a timely manner. The
Manager's Compliance department carries out periodic reviews of the
custodian's operations and reports its finding to the Manager's Risk
Management Committee; and
- cash is held only with reputable banks with acceptable credit quality. It is
the Manager's policy to trade only with A- and above (Long Term rated) and
A-1/P-1 (Short Term rated) counterparties.
Credit risk exposure. In summary, compared to the amounts in the Statement of
Financial Position, the maximum exposure to credit risk at 30 September 2023
and 30 September 2022 was as follows:
2023 2022
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
£'000 £'000 £'000 £'000
Non-current assets
Securities at fair value through profit or loss 339,972 31,898 373,732 47,809
Current assets
Amounts due from brokers 62 62 1,806 1,806
Accrued income 779 779 853 853
Derivatives 87 87 984 984
Cash and short term deposits 21,025 21,025 7,179 7,179
361,925 53,851 384,554 58,631
None of the Company's financial assets are secured by collateral or other
credit enhancements and none of the Company's financial assets are past due or
impaired (2022 - £nil).
Credit ratings. The following table provides a credit rating profile using
Standard and Poor's credit rating for the bond portfolio at 30 September 2023
and 30 September 2022.
2023 2022
£'000 £'000
A 415 792
A- - 159
AAA 312 -
BB 3,278 4,285
BB- 2,347 2,264
BBB+ 6,084 4,324
BBB - 760
BBB- 2,113 1,299
Non-rated 17,349 33,926
31,898 47,809
Whilst a substantial proportion of the fixed interest portfolio does not have
a rating provided by a recognised credit ratings agency, the Manager
undertakes an ongoing review of their suitability for inclusion within the
portfolio.
19. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy has the following levels:
Level 1: inputs are quoted prices (unadjusted) in active markets 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 for the assets or liabilities, either directly (ie as prices) or
indirectly (ie derived from prices).
Level 3: inputs are unobservable (ie for which market data is unavailable) for
the asset or liability.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. For this purpose, the
significance of an input is assessed against the fair value measurement in its
entirety. If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that measurement is a
Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability.
The financial assets and liabilities measured at fair value in the Statement
of Financial Position are grouped into the fair value hierarchy at the
reporting date as follows:
Level 1 Level 2 Level 3 Total
As at 30 September 2023 £'000 £'000 £'000 £'000
Financial assets/(liabilities) at fair value through profit or loss
Equity investments 90,332 19,292 198,450 308,074
Loan investments - 2,279 - 2,279
Fixed interest instruments - 29,619 - 29,619
Forward currency contracts - financial assets - 87 - 87
Forward currency contracts - financial liabilities - (5,702) - (5,702)
Net fair value 90,332 45,575 198,450 334,357
Level 1 Level 2 Level 3 Total
As at 30 September 2022 £'000 £'000 £'000 £'000
Financial assets/(liabilities) at fair value through profit or loss
Equity investments 91,349 25,509 209,065 325,923
Loan investments - 15,662 - 15,662
Fixed interest instruments - 32,147 - 32,147
Forward currency contracts - financial assets - 984 - 984
Forward currency contracts - financial liabilities - (5,906) - (5,906)
Net fair value 91,349 68,396 209,065 368,810
Year ended Year ended
30 September 2023 30 September 2022
Level 3 Financial assets at fair value through profit or loss £'000 £'000
Opening fair value 209,065 172,108
Purchases including calls (at cost) 26,083 24,445
Disposals and return of capital (26,368) (20,803)
Transfers from level 1 - 70
Transfers from level 2 - 2,853
Total gains or losses included in losses on investments in the Statement of
Comprehensive Income:
- assets disposed of during the year 8,253 535
- assets held at the end of the year (18,583) 29,857
Closing balance 198,450 209,065
The fair value of Level 3 financial assets has been determined by reference to
primary valuation techniques described in note 2(e) of these financial
statements and included within other price sensitivity within note 18. The
Level 3 equity investments comprise the following:
Year ended Year ended
30 September 2023 30 September 2022
£'000 £'000
Aberdeen European Residential Opportunities Fund 7,524 9,769
Aberdeen Global Infrastructure Partners II (AUD) 4,541 6,840
Aberdeen Global Infrastructure Partners II (USD) - 17,755
Aberdeen Property Secondaries Partners II 9,385 9,851
Aberdeen Standard Global Private Markets Fund 19,934 19,122
Aberdeen Standard Secondary Opportunities Fund IV 12,940 9,385
Agriculture Capital Management Fund II - 4,258
Andean Social Infrastructure Fund I 15,016 12,691
ASI HARK 6,042 4,088
III
BlackRock Renewable Income - UK 8,199 8,523
Bonaccord Capital Partners I-A 16,091 15,255
Burford Opportunity Fund 17,272 17,520
Cheyne Social Property Impact Fund 3,299 4,813
Dover Street VII 20 70
HarbourVest International Private Equity V 7 6
HarbourVest International Private Equity VI 1,678 2,100
HarbourVest VIII Buyout Fund 160 260
HarbourVest VIII Venture Fund 123 178
Healthcare Royalty Partners IV 16,235 13,522
Maj Invest Equity 4 1,205 1,335
Maj Invest Equity 5 2,432 2,492
Markel CATCo Reinsurance Fund Ltd - LDAF 2018 SPI 333 298
Markel CATCo Reinsurance Fund Ltd - LDAF 2019 SPI 81 281
Mesirow Financial Private Equity III 117 228
Mesirow Financial Private Equity IV 599 882
Mount Row Credit Fund II 10,166 7,494
Pan European Infrastructure Fund 1,205 1,697
PIMCO Private Income Fund Offshore Feeder I LP 7,662 8,796
SL Capital Infrastructure II 27,419 19,581
TrueNoord Co-Investment 8,765 9,976
198,450 209,065
During the year to 30 September 2022, the Company reviewed its exposure to
holdings in Russia in light of the war in Ukraine and decided to initially
write down the fair value of holdings to £nil and subsequently value on the
basis of net realisable sales proceeds. The consequence of this is noted in
transfer from Level 1 and Level 2 in the above table. There were no transfers
between levels for financial assets and financial liabilities during the year
ended 30 September 2023.
For all other assets and liabilities (i.e. those not included in the hierarchy
table) carrying value approximates to fair value with the exception of the
6.25% Bonds 2031. The basis of their fair value is detailed in note 14.
20. Related party transactions and transactions with the Manager
Related party transactions - Directors' fees and interests. Fees payable
during the year to the Directors and their interests in shares of the Company
are considered to be related party transactions and are disclosed within the
Directors' Remuneration Report. The balance of fees due to Directors at the
year end was £15,000 (2022 - £13,000).
Transactions with the Manager. The Company has an agreement with aFML for the
provision of management services. The investment management fee is levied by
aFML at the following tiered levels, payable monthly in arrears:
- 0.50% per annum in respect of the first £300 million of the net asset value
(with debt at fair value); and
- 0.45% per annum in respect of the balance of the net asset value (with debt
at fair value).
Details of transactions during the year and balances outstanding at the year
end are disclosed in note 4.
In accordance with the investment management agreement, where applicable, an
amount equivalent to the management fee received by the Manager on the
underlying holding which is managed by the Group in the normal course of
business, is either removed from or offset against the management fee payable
by the Company to ensure that no double counting occurs. Any investments made
in funds managed by the Group which themselves invest directly into
alternative investments including, but not limited to, infrastructure and
property will be charged at the Group's lowest institutional fee rate. To
avoid double charging, such investments will be excluded from the overall
management fee calculation.
The following table details all investments held at 30 September 2023 that
were managed by the Group. For the period to 30 September 2023 no fees were
levied in respect of these funds.
30 September 2023
£'000
Aberdeen Standard SICAV I China A Shs Eqty Fund Z Acc USD(A) 6,551
Aberdeen Standard Alpha - Global Loans Fund(A) 2,279
SL Capital Infrastructure II(B) 27,419
Aberdeen Standard Global Private Markets Fund(B) 19,934
Andean Social Infrastructure Fund I(B) 15,016
Aberdeen European Residential Opportunities Fund(B) 7,524
Aberdeen Global Infrastructure Partners II (AUD)(B) 4,541
Aberdeen Standard Secondary Opportunities Fund IV(C) 12,940
Aberdeen Property Secondaries Partners II(C) 9,385
96,759
(A) The Company is invested in a share class which is not subject to a
management charge from the Group.
(B) The value of this holding is removed from the management fee calculation
to ensure that no double counting occurs.
(C) An amount equivalent to the management fee received by the Manager on the
underlying is offset against the management fee payable by the Company to
ensure that no double counting occurs.
The Company also has an agreement with aFML for the provision of secretarial,
accounting and administration services and promotional activities. Details of
transactions during the year and balances outstanding at the year end are
disclosed in note 5.
21. Capital management policies and procedures
The current investment objective of the Company is to seek to provide income
and capital appreciation over the long term through investment in a globally
diversified multi-asset portfolio.
The capital of the Company consists of debt (comprising Bonds) and equity
(comprising issued capital, reserves and retained earnings). 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 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 into account the Investment
Manager's views on the market (net gearing at the reporting period end is
disclosed in the Financial Highlights and the calculation basis is set out in
the Alternative Performance Measures);
- the level of equity shares in issue; and
- the revenue account, shareholder distributions and the extent to which the
balance is either accretive or dilutive of the revenue reserves.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
At the year end a covenant relating to the issue of the Bonds provides that
the Company is to ensure that, at all times, the aggregate principal amount
outstanding in respect of monies borrowed by the Company does not exceed an
amount equal to its share capital and reserves. This covenant was met during
the year and also during the period from the year end to the date of this
report. The Company is not subject to any other externally imposed capital
requirements.
22. Analysis of changes in net debt
At Currency Non-cash At
1 October 2022 differences Cash flows movements 30 September 2023
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 7,179 - 13,846 - 21,025
Debt due after one year (15,694) - - (36) (15,730)
Total (8,515) - 13,846 (36) 5,295
At Currency Non-cash At
1 October 2021 differences Cash flows movements 30 September 2022
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 7,201 - (22) - 7,179
Debt due after one year (15,664) - - (30) (15,694)
Total (8,463) - (22) (30) (8,515)
* The amount of £4,922,000 representing forward contracts has been removed
from the prior year comparative to be consistent with current year's
presentation due to forward contracts not meeting the Company's definition of
"Net debt"
23. Commitments and contingent liabilities
At 30 September 2023 the Company had commitments of £293,935,000 of which
£43,282,000 remained outstanding (2022 - £74,420,000). Further details are
given below. There were no contingent liabilities as at 30 September 2023
(2022 - £nil).
Undrawn commitments
30 September 2023
£'000
Aberdeen Standard Secondary Opportunities Fund IV 11,775
Aberdeen Global Infrastructure Partners II (AUD) 6,233
Burford Opportunity Fund 5,445
Andean Social Infrastructure Fund I 4,793
Bonaccord Capital Partners I-A 4,522
SL Capital Infrastructure II 2,798
ASI Hark III 2,517
Healthcare Royalty Partners IV 1,324
Aberdeen European Residential Opportunities Fund 1,201
Aberdeen Property Secondaries Partners II 1,183
Maj Invest Equity 4 364
Pan European Infrastructure Fund 278
Maj Invest Equity 5 211
Dover Street VII 181
HarbourVest International Private Equity VI 154
Mesirow Financial Private Equity IV 143
HarbourVest VIII Buyout Fund 71
Mesirow Financial Private Equity III 52
HarbourVest International Private Equity V 29
HarbourVest VIII Venture Fund 8
43,282
Undrawn commitments
30 September 2022
£'000
Aberdeen Standard Secondary Opportunities Fund IV 17,134
SL Capital Infrastructure II 10,374
Andean Social Infrastructure Fund I 8,880
Healthcare Royalty Partners IV 7,703
Burford Opportunity Fund 7,211
Aberdeen Global Infrastructure Partners II (AUD) 6,789
ASI Hark III 6,416
Bonaccord Capital Partners I-A 5,341
Aberdeen Property Secondaries Partners II 1,292
Aberdeen European Residential Opportunities Fund 1,215
Maj Invest Equity 4 374
Agriculture Capital Management Fund II 361
Maj Invest Equity 5 340
Pan European Infrastructure Fund 282
Dover Street VII 198
Mesirow Financial Private Equity IV 179
HarbourVest International Private Equity VI 156
HarbourVest VIII Buyout Fund 78
Mesirow Financial Private Equity III 56
HarbourVest International Private Equity V 29
HarbourVest VIII Venture Fund 9
Aberdeen Global Infrastructure Partners II (USD) 3
74,420
24. Subsequent events
On 20 June 2023, the Company announced that it had commenced a strategic
review to consider how it could seek to address the material discount to NAV
at which the Company's shares had traded and to consider how best to deliver
value to shareholders
On 26 October 2023, the Company announced that, following consideration of the
options available to the Company, including asset sales and discussions with
third parties, the Board had determined that it was in the best interests of
its shareholders to continue the Company's existing investment strategy and to
return optimal value by means of enhanced distributions, comprising realised
gains and surplus available cash, through a combination of special dividends
and a tender offer (the "Enhanced Distribution Programme"). The Enhanced
Distribution Programme had been expected to return between £30 million and
£35 million to shareholders by the end of 2024 and further enhanced returns
of value, including special dividends, were envisaged during 2025 and 2026 as
a substantial part of the Company's private markets portfolio matured. The
Company added that it remained committed to offering shareholders an
attractive and differentiated investment proposition characterised by a
genuinely diversified portfolio which provided access to a wide selection of
asset classes, an attractive level of dependable income and defensive
characteristics relative to the volatility of equity markets.
On 15 December 2023, the Company announced that further discussions with
shareholders had been undertaken. In the light of the feedback received during
these conversations and the entrenched discount to net asset value ("NAV") at
which the Company's shares continued to trade, the Board concluded that it was
in the best interests of shareholders as a whole to put forward proposals for
a managed wind-down of the Company (the "Managed Wind-Down"). Further
information on the Managed Wind-Down may be found in the Chairman's Statement
and additional detail will follow in a separate circular to shareholders to be
issued as soon as practicable.
25. Prior year restatement
The Statement of Financial Position and the Statement of Changes in Equity for
the year ended 30 September 2022 have been restated to reflect a transfer of
£6,914,000 from called up share capital to the capital redemption reserve
following the cancellation of 27,659,068 Ordinary shares of 25p from treasury
on 31 March 2021. As a result opening share capital at 1 October 2022 and
closing share capital at 30 September 2022 has decreased by £6,914,000 to
£84,438,000 and opening capital redemption reserve at 1 October 2022 and
closing capital redemption reserve at 30 September 2022 has increased by
£6,914,000 to £33,543,000. These changes have no impact on the financial
position of the Company.
AIFMD Disclosures (Unaudited)
The Manager and the Company are required to make certain disclosures available
to investors in accordance with the AIFMD. Those disclosures that are required
to be made pre-investment are included within a pre-investment disclosure
document ("PIDD") which can be found on the Company's website.
There have been no material changes to the disclosures contained within the
PIDD since its most recent update in December 2023.
The periodic disclosures as required under the AIFMD to investors are made
below:
· information on the investment strategy, geographic and sector investment
focus and principal stock exposures is included in the Strategic Report;
· none of the Company's assets are subject to special arrangements arising
from their illiquid nature;
· the Strategic Report, note 18 to the financial statements and the PIDD,
together set out the risk profile and risk management systems in place. There
have been no changes to the risk management systems in place in the period
under review and no breaches of any of the risk limits set, with no breach
expected;
· there are no new arrangements for managing the liquidity of the Company
or any material changes to the liquidity management systems and procedures
employed by the Manager; and
· all authorised Alternative Investment Fund Managers are required to
comply with the AIFMD Remuneration Code. In accordance with the AIFMD
Remuneration Code, the AIFM's remuneration policy in respect of its reporting
period ended 31 December 2022 is available on the website of abrdn plc at
www.abrdn.com/en-gb/corporate/about-us/our-leadership-team/remuneration-disclosure
or on request from the Company Secretaries, abrdn Holdings Limited.
Leverage
The table below sets out the current maximum permitted limit and actual level
of leverage for the Company:
Gross Method Commitment Method
Maximum level of leverage 3.50:1 2.50:1
Actual level at 30 September 2023 1.64:1 1.70:1
There have been no breaches of the maximum level during the period and no
changes to the maximum level of leverage employed by the Company. There have
been no changes to the circumstances in which the Company may be required to
post assets as collateral and no guarantees granted under the leveraging
arrangement. Changes to the information contained either within this Annual
Report or the PIDD in relation to any special arrangements in place, the
maximum level of leverage which ASFML may employ on behalf of the Company; the
right of use of collateral or any guarantee granted under any leveraging
arrangement; or any change to the position in relation to any discharge of
liability by the Depositary will be notified via a regulatory news service
without undue delay in accordance with
the AIFMD.
The information above has been approved for the purposes of Section 21 of the
Financial Services and Markets Act 2000 (as amended by the Financial Services
Act 2012) by abrdn Fund Managers Limited which is authorised and regulated by
the Financial Conduct Authority in the United Kingdom.
Alternative Performance Measures (Unaudited)
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.
Net asset value per Ordinary share - debt at fair value
The net asset value per Ordinary share with debt at fair value is calculated
as follows:
As at As at
30 September 2023 30 September 2022
£'000 £'000
Net asset value attributable 339,534 363,358
Add: Amortised cost of 6.25% Bonds 2031 15,730 15,694
Less: Market value of 6.25% Bonds 2031 (16,069) (16,222)
339,195 362,830
Number of Ordinary shares in issue excluding treasury shares 301,265,952 308,447,314
Net asset value per share (p) 112.59 117.63
Discount to net asset value per Ordinary share - debt at fair value
The discount is the amount by which the Ordinary share price is lower than the
net asset value per Ordinary share - debt at fair value, expressed as a
percentage of the net asset value - debt at fair value. The Board considers
this to be the most appropriate measure of the Company's discount.
30 September 2023 30 September 2022
Net asset value per Ordinary share (p) a 112.59 117.63
Share price (p) b 83.60 89.80
Discount (a-b)/a 25.7% 23.7%
Dividend cover
Revenue return per Ordinary share divided by dividends declared for the year
per Ordinary share expressed as a ratio.
30 September 2023 30 September 2022
Revenue return per Ordinary share (p) a 4.35 4.99
Dividends declared (p) b 7.33 5.60
Dividend cover a/b 0.59 0.89
Dividend yield
The annual dividend per Ordinary share divided by the share price, expressed
as a percentage.
30 September 2023 30 September 2022
Dividend per Ordinary share (p) a 7.33 5.60
Closing share price (p) b 83.60 89.80
Dividend yield a/b 8.8% 6.2%
Net (cash)/gearing - debt at par value
Net (cash)/gearing with debt at par value 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
net amounts due to and from brokers at the period end, in addition to cash and
short term deposits.
30 September 2023 30 September 2022
Borrowings (£'000) a 15,730 15,694
Cash (£'000) b 21,025 7,179
Amounts due to brokers (£'000) c - -
Amounts due from brokers (£'000) d 62 1,806
Shareholders' funds (£'000) e 339,534 363,358
Net (cash)/gearing (a-b+c-d)/e -1.6% 1.8%
Net (cash)/gearing - debt at fair value
Net gearing with debt at fair value 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
net amounts due to and from brokers at the year end, in addition to cash and
short term deposits per the Statement of Financial Position.
30 September 2023 30 September 2022
Borrowings (£'000) a 16,069 16,222
Cash (£'000) b 21,025 7,179
Amounts due to brokers (£'000) c - -
Amounts due from brokers (£'000) d 62 1,806
Shareholders' funds (£'000) e 339,195 362,830
Net (cash)/gearing (a-b+c-d)/e -1.5% 2.0%
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and
administrative expenses and expressed as a percentage of the average daily net
asset values with debt at fair value published throughout the year.
2023 2022
£ £
Investment management fees 1,126,000 1,293,000
Administrative expenses 1,184,000 930,000
Less: non-recurring charges(A) (31,000) (37,000)
Ongoing charges 2,279,000 2,186,000
Average net assets with debt at fair value 351,878,000 371,257,000
Ongoing charges ratio (excluding look-through costs) 0.65% 0.59%
Look-through costs(B) 1.09% 0.82%
Ongoing charges ratio (including look-through costs) 1.74% 1.41%
(A) Professional services considered unlikely to recur.
(B) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis.
The ongoing charges ratio provided in the Company's Key Information Document
is calculated in line with the PRIIPs regulations, which includes financing
and transaction costs. This can be found within the literature library section
of the Company's website: abrdndiversified.co.uk.
Total return
NAV and share price total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. NAV and share price total
returns are monitored against open-ended and closed-ended competitors, and the
Reference Index, respectively.
NAV NAV Share
Year ended 30 September 2023 (debt at par) (debt at fair value) Price
Opening at 1 October 2022 a 117.8p 117.6p 89.8p
Closing at 30 September 2023 b 112.7p 112.6p 83.6p
Price movements c=(b/a)-1 -4.3% -4.3% -6.9%
Dividend reinvestment(A) d 4.7% 4.7% 6.2%
Total return c+d +0.4% +0.4% -0.7%
NAV NAV Share
Year ended 30 September 2022 (debt at par) (debt at fair value) Price
Opening at 1 October 2021 a 123.5p 121.7p 100.0p
Closing at 30 September 2022 b 117.8p 117.6p 89.8p
Price movements c=(b/a)-1 -4.6% -3.4% -10.2%
Dividend reinvestment(A) d 4.4% 4.6% 5.2%
Total return c+d -0.2% +1.2% -5.0%
(A) NAV total return involves investing the net dividend in the NAV of the
Company with debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return involves reinvesting the net dividend in
the share price of the Company on the date on which that dividend goes
ex-dividend.
Additional Notes to the Annual Financial Report
The Annual Report will be posted to shareholders in January 2024 and copies
will be available from the registered office of the Company and on the
Company's website at - www.abrdndiversified.co.uk
(http://www.abrdndiversified.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. Investors may not get back the amount they originally invested.
By order of the Board
abrdn Holdings Limited
Company Secretary
9 January 2024
* Neither the Company's website nor the content of any website accessible from
hyperlinks on the Company's website (or any other website) is (or is deemed to
be) incorporated into, or forms (or is deemed to form) part of this
announcement.
END
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