REG - abrdn Smll Co's IT - Half-year Report
14/09/2023 07:00
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RNS Number : 3651M abrdn Smaller Companies Inc Tst plc 14 September 2023
abrdn Smaller Companies Income Trust plc
Half Yearly Financial Report for the six months to 30 June 2023
OBJECTIVE
The objective of the Company is to provide a high and growing dividend and
capital growth from a portfolio invested principally in the ordinary shares of
smaller UK companies and UK fixed income securities.
BENCHMARK
Numis Smaller Companies ex Investment Trusts Index - effective from 1 January
2020; FTSE Small Cap ex Investment Trusts Index (total return) - up to 31
December 2019
MANAGEMENT
The Company's alternative investment fund manager is abrdn Fund Managers
Limited ("aFML" or "the Manager"), previously named Aberdeen Standard Fund
Managers Limited, authorised and regulated by the Financial Conduct Authority.
The Company's portfolio is managed on a day-to-day basis by abrdn Investments
Limited, previously named Aberdeen Asset Managers Limited ("aIL" or "the
Investment Manager") by way of a delegation agreement in place between aFML
and aIL.
Performance Highlights
Performance Highlights
Net asset value total return(A) Numis Smaller Companies ex Inv Trust Index
Six months ended 30 June 2023 Six months ended 30 June 2023
-0.7% +1.4%
Year ended 31 December 2022: -33.2% Year ended 31 December 2022: -17.9%
Earnings per Ordinary share (revenue) Share price total return(A)
Six months ended 30 June 2023 Six months ended 30 June 2023
6.52p +8.1%
Six months ended 30 June 2022: 6.10p Year ended 31 December 2022: -33.7%
Discount to net asset value(A) Net cash/(gearing)(A)
As at 30 June 2023 As at 30 June 2023
9.3% 1.6%
As at 31 December 2022: 16.3% As at 31 December 2022: -8.2%
(A) Considered to be an Alternative Performance Measure. Further details can
be found on pages 25 and 27 of the 2023 Interim Report.
Performance (total return)
Six months ended 1 year ended 3 years ended 5 years ended
30 June 2023 30 June 2023 30 June 2023 30 June 2023
Share price(A) +8.1% +1.8% +6.2% +0.4%
Net asset value per Ordinary share(A) -0.7% -5.2% -0.6% -6.7%
Composite benchmark(B) +1.4% +4.4% +29.5% +4.2%
(A) Considered to be an Alternative Performance Measure. Further details can
be found on page 27 of the 2023 Interim Report.
(B) Comprises the Numis Smaller Companies (exc Inv Trusts) from 1 January 2020
and the FTSE SmallCap Index (exc Inv Trusts) up to 31 December 2019.
Source: aFML, Lipper & Morningstar.
Financial Calendar, Dividends and Highlights
Payment dates of quarterly dividends January 2023
April 2023
July 2023
October 2023
Financial year end 31 December 2023
Extraordinary General Meetings 20 November 2023
1 December 2023
Financial Highlights
30 June 2023 31 December 2022 % change
Shareholders' funds (£'000) 61,397 63,520 -3.3
Net asset value per Ordinary share (with debt at par value) 277.69p 287.29p -3.3
Share price (mid-market) 252.00p 240.50p +4.8
Discount to net asset value per Ordinary share(A) 9.3% 16.3%
Net cash/(gearing)(A) 1.6% (8.2%)
Ongoing charges ratio(A) 1.31% 1.34%
(A) Considered to be an Alternative Performance Measure. Further details can
be found on pages 25 and 26 of the 2023 Interim Report.
Chair's Statement
Introduction
Since the year end, the Board has announced, on 13 February 2023, a review to
consider the future of the Company (the "Strategic Review") and more recently,
on 26 July 2023, the results of the Strategic Review: that the Board has
agreed heads of terms with the board of Shires Income plc ("Shires") for a
combination of the assets of the Company with the assets of Shires. If
approved by the shareholders of each company, the combination of assets will
be implemented by way of a scheme of reconstruction and members' voluntary
winding up of the Company under section 110 of the Insolvency Act and the
associated transfer of assets to Shires (the "Proposals").
The Board was very satisfied with the interest shown in the Strategic Review,
with proposals received from more than a dozen candidates, and is now pleased
to recommend the Proposals to shareholders of the Company.
We believe the Proposals will provide an attractive and potentially growing
level of dividend and the potential for future capital growth, whilst also
allowing you to retain some exposure to smaller companies overseen by the UK
Equities team at abrdn. Shareholders can choose to rollover into Shires or
receive cash for all or some of their shareholding, as calculated at the
cut-off date, on materially improved terms to those which Shires proposed
prior to the Strategic Review. The default option under the Scheme is for
shareholders to receive new shares in Shires.
The Proposals will be subject to the approval of shareholders of the Company
and Shires, as well as regulatory and tax approvals. Further details will be
in the circular, which is expected to be published in the coming weeks.
The Board believes that the Proposals as a whole are in the best interests of
the Company. In the event that the scheme of reconstruction does not go-ahead,
then the Company will make an announcement to the London Stock Exchange and on
the Company's website. We therefore encourage shareholders to check for such
updates.
Performance
During what has been a very challenging economic environment for smaller
companies, the Company's net asset value for the six month period to 30 June
2023 underperformed its benchmark, the Numis Smaller Companies ex Investment
Companies Index, by 2.1%, returning -0.7% on a total return basis, versus a
benchmark return of 1.4%.
Share price performance over the six month period was more positive, with a
return of +8.1%.
Discount
The Company's discount to net asset value as at 30 June 2023 stood at 9.3%,
compared with 16.3% at the end of December 2022. The narrowing of the
discount reflects the positive market sentiment which followed the
announcement of the Strategic Review. At the time of writing it is also
encouraging to see that, following the announcement of the results of the
Strategic Review, the Company's discount remains at these lower levels.
Company Gearing and Debt
In April 2023, the Company's £5 million fixed rate loan with the Royal Bank
of Scotland International Limited, London Branch expired and, in light of the
Strategic Review at that time, the Board decided not to renew it.
The Company's £5 million revolving credit facility remained in place and at
30 June 2023, £2 million was drawn down under this facility.
This resulted in a reduction in the Company's gearing level, which stood at
1.6% at the end of June 2023, compared with 8.2% at the end of December 2022.
After the period end, the Board took the decision to repay the Company's
remaining facility in full and the facility was cancelled on 7 August 2023.
Dividend
As announced with the results of the Strategic Review, the Company expects to
pay out the vast majority of its accumulated revenue reserves via a
pre-liquidation dividend to all shareholders. More details will be announced
separately to the London Stock Exchange via a regulatory news service
announcement.
For the first and second quarters of 2023, the Board announced dividends of
2.60p each per Ordinary share (2022 - 2.40p each), an increase on last year's
equivalent figures of 8.3%.
The Board has been pleased with the strength of the dividends generated from
the Company's portfolio holdings, which reflects the quality focus of these
companies. We have seen companies with robust business models, strong balance
sheets and the ability to defend margins against a challenging market back
drop. In recognition of this, the Board now declares a third interim dividend
of 2.60p per share in respect of the year to 31 December 2023 payable on 27
October 2023 to shareholders on the register at close of business on 29
September 2023. The ex-dividend date is 28 September 2023.
More information on the Company's portfolio can be found in the Investment
Manager's Review on pages 8 to 10 of the half yearly report for the period
ended 30 June 2023 (the "2023 Interim Report").
General Meetings
The Board strongly encourages attendance at general meetings, where you are
offered an opportunity to meet with the Board and representatives from the
Manager face to face after the meeting.
Your Manager's presentation, which was delivered at the Annual General Meeting
on 14 June 2023, is available to view on the Company's website,
abrdnsmallercompaniesincome.co.uk.
The notice for the general meetings required to effect the Proposals will be
circulated separately to all shareholders, together with the circular. As
usual, shareholders are encouraged to lodge their proxy votes in advance of
the meetings, irrespective of whether they are able to attend in person. You
may also submit any questions in advance of the meetings by email to:
smallercompaniesincome@abrdn.co.uk.
It is anticipated that the documentation in connection with the Proposals will
be published during October, with a view to convening general meetings on 20
November 2023 and 1 December 2023 in order to complete the transaction before
the end of the year.
Thus, if the necessary approvals are forthcoming, this will be my final
statement as Chair of the Company. I would like to thank shareholders for
their continuing support and all of the Company's service providers, including
the Manager and the Investment Manager, particularly Abby Glennie and Amanda
Yeaman, for all their hard work and stewardship of the Company's investments,
through some very challenging times for the smaller companies sector. Whilst
many of the challenges may remain, your Board believes that shareholders will
continue to benefit from the Investment Manager's focus on high income and the
potential upside presented under the merger Proposals.
Dagmar Kent Kershaw
Chair
13 September 2023
Other Matters
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse
effect on the Company and its financial condition, performance and prospects.
The Board has identified the principal risks and uncertainties facing the
Company together with a description of the mitigating actions it has taken.
These can be summarised under the following headings:
- Investment and Market
- Investment Portfolio Management
- Major Market Event, Climate Change or Geopolitical Development
- Income and Dividend
- Operational
- Gearing
Details of these risks are provided in detail on pages 23 to 25 of the Annual
Report for the year ending 31 December 2022.
The Board monitors these principal risks closely and has a process to identify
and assess emerging risks, such as climate change and geopolitical
developments.
The Board is also aware of the elevated threat posed by climate change and
continues to monitor, through the Investment Manager, the potential risk that
the companies in the portfolio may fail to adapt to the requirements imposed
by climate change.
In all other respects, the Company's principal risks have not changed
materially since the year end, nor are they expected to change in the second
half of the financial year ended 31 December 2023. Please note the material
uncertainty with regard to the future of the Company outlined below.
Going Concern with Material Uncertainty
The Company's assets consist substantially of "Level One" securities in
companies listed on recognised stock exchanges and in normal circumstances are
realisable within a short timescale.
The Board has set gearing limits and regularly reviews actual exposures, cash
flow projections and compliance with banking covenants. During the period and
in light of the Strategic Review, the Board has fully repaid the £5 million
variable rate loan facility using the proceeds of the sale of investments and
has terminated the loan facility with effect from 7 August 2023. The £5
million fixed rate loan facility expired in April 2023 and was not renewed.
Accordingly, the Company no longer has a credit facility in place.
In accordance with the Financial Reporting Council's Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting
issued in September 2014, taking account of the "Level One" assets (being
realisable within a short timescale) and the fact that the Company no longer
has any gearing, the Directors believe that adopting a going concern basis of
accounting remains appropriate. The Company has adequate financial resources
to continue in operational existence for the foreseeable future and at least
twelve months from the date of approval of this Half Yearly Report.
Material Uncertainty
The Board announced a Strategic Review on 13 February 2023, which concluded on
26 July 2023 with the announcement of the proposed combination of the assets
of the Company with the assets of Shires Income plc ("Shires"), subject to
shareholder approval, through a tax efficient scheme of reconstruction under
section 110 of the Insolvency Act 1986 (the "Proposals"). More detail can be
found in the Chair's Statement above and in the RNS announcement dated 26 July
2023.
The Board believes that the Proposals are in the best interests of
shareholders as a whole and recommends that shareholders vote in favour of the
resolutions required to effect the Proposals. This would result in the
voluntary liquidation of the Company. Due to the requirement for the Proposals
to receive approval from the shareholders of both the Company and Shires
(including the approval of independent shareholders in the Company for a
related party transaction) there remains material uncertainty as to the future
of the Company.
However, should the Proposals not receive the necessary shareholder approvals,
the Board believes that other attractive options remain viable for
shareholders, which can be pursued. The Board also believes that the
investment objective remains relevant and the Company remains in a position to
generate attractive returns for all shareholders. Accordingly, the Board has
prepared the financial statements in this Half Yearly Report on a going
concern basis.
Directors' Responsibility Statement
The Directors are responsible for preparing the Half Yearly Financial Report
in accordance with applicable law and regulations. The Directors confirm that
to the best of their knowledge:
- the condensed set of Financial Statements has been prepared in
accordance with International Accounting Standard 34 'Interim Financial
Reporting';
- the Interim Board Report includes a fair review of the information
required by rule 4.2.7R of the Disclosure Guidance and Transparency Rules
(being an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
Financial Statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year); and
- the Interim Board Report includes a fair review of the information
required by 4.2.8R (being related party transactions that have taken place
during the first six months of the financial year and that have materially
affected the financial position of the Company during that period; and any
changes in the related party transactions described in the last Annual Report
that could do so).
The Half Yearly Financial Report for the six months to 30 June 2023 comprises
the Interim Board Report and a condensed set of financial statements.
For and on behalf of the Board
Dagmar Kent Kershaw,
Chair
13 September 2023
Investment Manager's Review
Overview
UK equities made steady gains over the first six months of 2023 but
underperformed major markets in Europe and North America. Persistently high
inflation rates, further increases in interest rates and a gloomy economic
outlook were detrimental to the UK market. Overall, the UK's small and medium
sized companies underperformed their blue-chip counterparts over the period.
While the FTSE 100 Index returned 3.1%, the domestically focused FTSE 250
Index and FTSE Small Cap Index both declined by 0.6%.
Global equity markets remained volatile throughout the period, with the
collapse of US-based Silicon Valley Bank and a loss of confidence in
Switzerland's Credit Suisse in March 2023, sparking fears about the resilience
of the global financial system. The prospect of a US government debt default
also impacted markets in May 2023 before Congress eventually approved an
eleventh-hour increase of the debt ceiling. Lacklustre economic data from
China in the second quarter of 2023 also led to a weakening of commodities
prices, which weighed on the UK's large-cap energy and mining stocks.
In economic news, inflation in the UK remained stubbornly high over the
period, with a surprise rise in February 2023 and gradual declines in the
months that followed. The Bank of England ("BoE") increased the base rate in
the first half of the year in its ongoing efforts to bring price rises under
control. The 0.5% increase in interest rates surprised markets in June and
raised fears that further rate rises could be implemented later in the year.
Higher interest rates led to a surge in mortgage costs for homeowners and
prompted a sharp decline in construction sector and housing market activity.
Performance
In the first six months of the year, UK markets have been volatile,
macro-driven and have sold-off heavily. The dominating market narrative is one
of out-of-control inflation in the UK that requires the BoE to increase
interest rates. Against this backdrop our quality, growth and momentum process
has been out of favour. A series of four above expectation inflation reports
have made it clear to investors that UK inflation is differentiated from that
of the Eurozone or the US; with a combination of labour market shortages and a
lack of productivity growth conspiring to embed inflation in the UK economy
more than overseas. This excessive pessimism about inflation and monetary
policy in the UK has constrained UK equity markets and has been the driving
narrative for the first half of the year.
Overall, with the exception of the month of March 2023, when the market moved
towards quality names in the wake of the crisis in US regional banks and the
demise of Credit Suisse, the economic environment has been challenging for the
Company's portfolio. Accordingly, the Company has underperformed the Numis
Smaller Companies (excluding Investment Trusts) Index (total return) benchmark
by 2.1%.
Portfolio Activity
During the period, the Company initiated a position in Next Fifteen, the high
matrix scoring technology and data driven growth consultancy firm, taking
advantage of an attractive valuation entry point and consistent robust
earnings delivery. While the uncertain macroeconomic backdrop does present
risk, we believe the company has multiple growth levers and has left itself
material room on margins compared to consensus expectations. The shares are
trading on a 45% discount to its average valuation over the last ten years.
Our view is that this economic risk is over-estimated by the market and the
shares are undervalued.
The Company took a new position in the engineering consultant, Ricardo, after
the strategy laid out by management several years ago has finally come to
fruition. The company's new CEO has been key to driving this transformation
and there is more for the company to do, particularly in terms of
cross-selling, as well as organic growth or growth by acquisition. An increase
in focus on environmental and energy consultancy is expected to help Ricardo
approach its mid double-digit margin target over the next few years.
A new position in Alpha Group International ("Alpha") was initiated, after
several years of strong execution, with the company having successfully
addressed risks and processes in its foreign-exchange business and improved
banking solutions operations. Alpha has a strong management team built around
founder and CEO Morgan Tillbrook. We expect the company to deliver progress on
earnings growth and margins in the second half of 2023, while continuing to
reinvest in the business.
We sold the Company's position in Polar Capital, due to a decline in its
matrix score. While we believe the business is well placed over the longer
term, the industry backdrop is challenging and we haven't seen sufficient,
sustained momentum returning in the short term.
We also sold out of Victrex in view of perceived risk to earnings,
deteriorating end markets and lacklustre delivery. Moreover, we believe the
special dividend paid by the company last year is unlikely to be repeated.
ESG Engagement
During the first half of the year, we met with management at Paragon Banking
Group ("Paragon"), a business affected by environmental, social and governance
("ESG") matters on several levels. The most insightful part of the engagement
was our discussion around sustainable finance and the company's capital
allocation towards that area. This includes lending for rental properties with
high energy-performance certificate ratings, finance for electric vehicles and
development finance for energy efficient property developments. Paragon is in
a powerful position to create change and also be involved in determining
future regulation in the sector; however, we should not necessarily expect
them to cut exposure to other areas.
From a social perspective, Paragon's professional landlord service and the
wider influence it has in its buy-to-let business can help deliver a better
outcome for tenants. The company's staff turnover levels are also attractive
in comparison with its peers, and Paragon has made a very strong effort to
support women in senior roles. Overall, we were pleased with the progress the
business has already made and its general strategy. However, we would like to
engage further on Paragon's exposure to the UN's Sustainable Development Goals
through sustainable finance, as well as look in greater detail at its
performance relative to its peers in new originations in lower-emission homes.
We engaged directly with Smart Metering Systems ("SMS") regarding its battery
supply chain. We received clear evidence that SMS was taking its
responsibilities around the sourcing and handling of batteries seriously, with
regular independent audits of key suppliers. The company recognises the
importance of lithium's role in enabling the transition to a low-carbon future
and has clear policies to ensure suppliers' adherence to controls around the
sourcing and management of the raw materials and related resources involved in
battery production.
Fixed Income Portfolio
The first half of 2023 has been somewhat challenging for the UK bond market.
Inflation continues to run significantly ahead of the BoE's 2% target and the
Monetary Policy Committee has been forced to raise rates significantly more
than the market expected at the start of the new year. Credit spreads were
volatile in the first quarter on the back of the banking failures mentioned
earlier in this report. However, they have been rallying back and the increase
in government bond yields has more than offset the move.
The Company's holdings in the shorter end of the sterling market were impacted
by the significant tightening of monetary policy. Five-year yields were about
50 basis points higher over the period leading to some losses from bond
holdings. Bond issued by banks performed well relative to other areas of the
market which contributed to the Company's performance. Thames Water's well
documented financial and operational issues have no material impact on the
holdings.
Outlook
The markets continue to be dominated by macro conditions, predominantly the
pathway of inflation and interest rates, globally. The UK still stands out in
terms of inflation, in that whilst many countries are battling with high
inflation environments, the UK appears to be showing stickier inflation.
Whilst energy prices have stepped back, we are seeing areas such as food
inflation in the UK remain at high levels; and wage inflation as well as a
strong labour market continue to support consumer spending. Without a
recession, there remains the challenge of how inflation gets controlled;
interest rates having already been increased significantly, but often taking
some time to have an impact. China is the region where Covid-19 and the
re-opening still remains uncertain, with other countries having returned to
some 'normality'. The combination of these factors creates a very uncertain
environment, which continues to drive market challenges.
We would also remind investors of the geographic exposures of the portfolio
companies' revenues. At the time of writing, 51% of revenues are generated in
the UK, with 49% overseas. This is similar to the exposure within the
Company's benchmark. Many of the companies in the portfolio, as has been true
through time and a result also of our investment process, have strong
international growth exposure. Some are global leaders in what they do. One
challenge in the upcoming period for overseas earners is the current strength
of Sterling, which, if it continues, may cause some currency headwinds for
these businesses.
In a recessionary environment, or continued low economic growth, we believe
the market will move towards quality, resilience, reliability, visible revenue
streams and strong balance sheets. We have seen these characteristics
fundamentally demonstrated by the portfolio companies over this period, clear
also through the dividend strength. In that economic situation, where growth
becomes scarcer, the growth that remains tends to become more valuable.
In a recovery phase, small and mid-cap stocks tend to lead that market
recovery, and the outlook for the asset class should be attractive. Small and
mid-caps in the UK have still lagged large companies in the market moves since
the start of 2022. In that environment, we believe the small-cap asset class
can produce some attractive return potential, as markets recover and the
disparity to large-cap narrows. Encouragingly, the Company outperformed in the
sharp market recovery in Q4 2022, with quality growth companies performing
well.
We continue to believe there are opportunities for quality growth businesses,
which deliver well on earnings expectations, to outperform. The valuations
currently being paid for growth companies in UK small mid-cap markets remain
significantly below historic levels, whereas in other regions the market is
now paying a ten-year median valuation for growth businesses again. As such,
many quality UK growth companies currently trade on undemanding valuations.
Amanda Yeaman & Abby Glennie
abrdn Investments Limited
13 September 2023
Ten Largest Investments
As at 30 June 2023
Games Workshop 4imprint
Global retailer of hobbyist products, selling through own retail stores, Direct marketer of promotional products, with a focus on US.
online, and through trade partners. Owner of the IP of Warhammer.
Bytes Technology Morgan Sindall
UK based company that provides information technology (IT) software offerings UK leading business in construction and regeneration work.
and solutions, with a focus on cloud and security products.
Hollywood Bowl DiscoverIE
Operator of bowling centres. International group of businesses that designs, manufactures and supplies
highly differentiated components for electronic applications.
Alpha Financial Markets Consulting Greggs
Leading global consulting company to assist asset management, wealth UK based food to go retailer, specialising in fresh bakes, sandwiches, hot
management and insurance industries. drinks and sweet treats.
Telecom Plus Softcat
Reseller of telecom and utilities service, under the Utility Warehouse brand. Value added technology reseller in UK.
Portfolio - Equities
At 30 June 2023
Valuation Total
2023 portfolio
Company Sector Classification £'000 %
Games Workshop Leisure Goods 2,263 3.7
4imprint Media 2,156 3.6
Bytes Technology Software and Computer Services 2,155 3.6
Morgan Sindall Construction and Materials 2,096 3.5
Hollywood Bowl Travel & Leisure 2,082 3.5
discoverIE Technology Hardware & Equipment 2,062 3.4
Alpha Financial Markets Consulting Industrial Support Services 1,888 3.1
Greggs Personal Care, Drug and Grocery Stores 1,724 2.9
Telecom Plus Telecommunications Service Providers 1,603 2.7
Softcat Software & Computer Services 1,579 2.6
Ten largest investments 19,608 32.6
AJ Bell Investment Banking & Brokerage Services 1,574 2.6
Tatton Asset Management Investment Banking & Brokerage Services 1,557 2.6
Sirius Real Estate Real Estate Investment & Services 1,466 2.4
Safestore Real Estate Investment Trusts 1,448 2.4
Intermediate Capital Investment Banking & Brokerage Services 1,405 2.3
Energean Oil Gas & Coal 1,398 2.3
Chesnara Life Insurance 1,379 2.3
Paragon Banking Investment Banking & Brokerage Services 1,351 2.3
Pets at Home Retailers 1,305 2.2
Assura Real Estate Investment Trusts 1,264 2.1
Twenty largest investments 33,755 56.1
Somero Enterprises Industrial Engineering 1,243 2.1
Smart Metering Systems Industrial Support Services 1,205 2.0
Midwich Industrial Support Services 1,126 1.9
Chemring Aerospace & Defense 1,054 1.8
Rathbone Brothers Investment Banking & Brokerage Services 1,044 1.7
Close Brothers Banks 1,042 1.7
Dunelm Retailers 1,026 1.7
Hilton Food Food Producers 1,026 1.7
Hill & Smith Industrial Metals & Mining 1,020 1.7
Kesko(A) Personal Care, Drug & Grocery Stores 985 1.6
Thirty largest investments 44,526 74.0
FDM Industrial Support Services 958 1.6
Severfield Construction & Materials 939 1.5
Robert Walters Industrial Support Services 919 1.5
Coats General Industrials 908 1.5
Serica Energy Oil Gas & Coal 899 1.5
Unite Real Estate Investment Trusts 886 1.5
Mortgage Advice Bureau Finance & Credit Services 885 1.5
Liontrust Asset Management Investment Banking & Brokerage Services 848 1.4
Forterra Construction & Materials 729 1.2
Gateley Industrial Support Services 693 1.2
Forty largest investments 53,190 88.4
XP Power Electronic & Electrical Equipment 654 1.1
MJ Gleeson Household Goods & Home Construction 643 1.1
Spirent Communications Telecommunications Equipment 606 1.0
FRP Advisory Industrial Support Services 598 1.0
Impax Asset Management Investment Banking & Brokerage Services 595 1.0
Next 15 Communications Media 592 1.0
Ricardo Construction & Materials 552 0.9
Marshalls Construction & Materials 517 0.8
Alpha Group Industrial Support Services 430 0.7
Total Equity Investments 58,377 97.0
(A) All investments are listed on the London Stock Exchange (sterling based),
except where marked, which is listed on an overseas exchange (sterling based).
Portfolio - Other Investments
At 30 June 2023
Valuation Total
2023 portfolio
Company £'000 %
Corporate Bonds(A)
NGG Finance 5.625% 379 0.7
Barclays Bank 9% Perp 311 0.5
HSBC Holdings 6.5% 300 0.5
Northumbrian Water 1.625% 256 0.4
Anglian Water Service Finance 4.5% 191 0.3
Informa 3.125% 180 0.3
NatWest Group 2.105% 165 0.3
Total Corporate Bonds 1,782 3.0
Total Investments 60,159 100.0
(A) All investments are listed on the London Stock Exchange (Sterling based).
Distribution of Assets and Liabilities
As at 30 June 2023
Valuation at Valuation at
31 December 2022 Movement during the period 30 June 2023
Purchases Sales Losses
£'000 % £'000 £'000 £'000 £'000 %
Listed investments
Equity investments 66,628 104.9 3,130 (9,236) (2,145) 58,377 95.1
Corporate bonds 2,104 3.3 - (300) (22) 1,782 2.9
68,732 108.2 3,130 (9,536) (2,167) 60,159 98.0
Current assets 2,127 3.3 3,483 5.7
Other current liabilities (340) (0.5) (245) (0.4)
Loans (6,999) (11.0) (2,000) (3.3)
Net assets 63,520 100.0 61,397 100.0
Net asset value per Ordinary share 287.29p 277.69p
Condensed Statement of Comprehensive Income
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Losses on investments at fair value - (2,167) (2,167) - (30,167) (30,167) - (34,164) (34,164)
Currency losses - (3) (3) - - - - - -
Income
Dividend income 2 1,688 - 1,688 1,656 - 1,656 3,037 - 3,037
Interest income from investments 2 41 - 41 46 - 46 90 - 90
Other income 2 59 - 59 9 - 9 37 - 37
1,788 (2,170) (382) 1,711 (30,167) (28,456) 3,164 (34,164) (31,000)
Expenses
Investment management fee (72) (168) (240) (88) (205) (293) (160) (373) (533)
Other administrative expenses (226) - (226) (226) - (226) (435) - (435)
Finance costs (33) (77) (110) (33) (77) (110) (62) (145) (207)
Profit/(loss) before tax 1,457 (2,415) (958) 1,364 (30,449) (29,085) 2,507 (34,682) (32,175)
Taxation 3 (15) - (15) (15) - (15) (21) - (21)
Profit/(loss) attributable to equity holders 1,442 (2,415) (973) 1,349 (30,449) (29,100) 2,486 (34,682) (32,196)
Return per Ordinary share (pence) 5 6.52 (10.92) (4.40) 6.10 (137.72) (131.62) 11.24 (156.86) (145.62)
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with IFRS. The supplementary
revenue and capital columns are both prepared under guidance published by the
Association of Investment Companies (AIC). All items in the above statement
derive from continuing operations.
The Company does not have any income or expense that is not included in profit
for the period, and therefore the "Profit/(loss) attributable to equity
holders" is also the "Total comprehensive income attributable to equity
holders" as defined in IAS 1 (revised).
The accompanying notes are an integral part of these condensed financial
statements.
Condensed Balance Sheet
As at As at As at
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Non-current assets
Equities 58,377 68,363 66,628
Corporate Bonds 1,782 2,181 2,104
Securities at fair value 60,159 70,544 68,732
Current assets
Cash and cash equivalents 2,945 3,741 1,786
Other receivables 538 651 341
3,483 4,392 2,127
Current liabilities
Bank loan (2,000) (6,997) (6,999)
Trade and other payables (245) (260) (340)
(2,245) (7,257) (7,339)
Net current assets/(liabilities) 1,238 (2,865) (5,212)
Total assets less current liabilities 61,397 67,679 63,520
Net assets 61,397 67,679 63,520
Share capital and reserves
Called-up share capital 11,055 11,055 11,055
Share premium account 11,892 11,892 11,892
Capital redemption reserve 2,032 2,032 2,032
Capital reserve 32,564 39,212 34,979
Revenue reserve 3,854 3,488 3,562
Shareholders' funds 61,397 67,679 63,520
Net asset value per Ordinary share (pence) 6 277.69 306.10 287.29
The accompanying notes are an integral part of these condensed financial
statements.
Condensed Statement of Changes in Equity
Six months ended 30 June 2023 (unaudited)
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
As at 31 December 2022 11,055 11,892 2,032 34,979 3,562 63,520
(Loss)/profit for the period - - - (2,415) 1,442 (973)
Dividends paid in the period - - - - (1,150) (1,150)
As at 30 June 2023 11,055 11,892 2,032 32,564 3,854 61,397
Six months ended 30 June 2022 (unaudited)
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
As at 31 December 2021 11,055 11,892 2,032 69,661 3,200 97,840
(Loss)/profit for the period - - - (30,449) 1,349 (29,100)
Dividends paid in the period - - - - (1,061) (1,061)
As at 30 June 2022 11,055 11,892 2,032 39,212 3,488 67,679
Year ended 31 December 2022 (audited)
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
As at 31 December 2021 11,055 11,892 2,032 69,661 3,200 97,840
(Loss)/profit for the period - - - (34,682) 2,486 (32,196)
Dividends paid in the year - - - - (2,124) (2,124)
As at 31 December 2022 11,055 11,892 2,032 34,979 3,562 63,520
The accompanying notes are an integral part of these condensed financial
statements.
Condensed Statement of Cash Flows
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash flows from operating activities
Dividend income from investments received 1,511 1,369 3,071
Interest income from investments received 64 57 102
Interest from AAA-rated money market funds received 47 5 29
Bank interest received 7 1 3
Investment management fee paid (327) (322) (447)
Other cash expenses (217) (252) (476)
Cash generated from operations 1,085 858 2,282
Interest paid (134) (122) (213)
Overseas taxation suffered (6) (9) (33)
Net cash inflows from operating activities 945 727 2,036
Cash flows from investing activities
Purchases of investments (3,125) (9,319) (21,738)
Sales of investments 9,492 10,802 21,020
Net cash inflows/(outflows) from investing activities 6,367 1,483 (718)
Cash flows from financing activities
Loan repaid (5,000) - -
Equity dividends paid (1,150) (1,061) (2,124)
Net cash outflow from financing activities (6,150) (1,061) (2,124)
Net increase/(decrease) in cash and cash equivalents 1,162 1,149 (806)
Analysis of changes in cash and cash equivalents during the period
Opening balance 1,786 2,592 2,592
Currency loss (3) - -
Increase/(decrease) in cash and cash equivalents as above 1,162 1,149 (806)
Cash and cash equivalents at the end of the period 2,945 3,741 1,786
The accompanying notes are an integral part of these condensed financial
statements.
Notes to the Financial Statements
For the year ended 30 June 2023
1. Accounting policies
Basis of preparation. The condensed financial statements have been prepared in
accordance with International Financial Reporting Standards ('IFRS') 34 -
'Interim Financial Reporting', as adopted by the International Accounting
Standards Board ('IASB'), and interpretations issued by the International
Financial Reporting Interpretations Committee ('IFRIC') of the IASB. They have
been prepared using the same accounting policies applied for the year ended 31
December 2022 financial statements, which received an unqualified audit
report.
Going concern with Material Uncertainty. In accordance with the Financial
Reporting Council's guidance on 'Going Concern and Liquidity Risk' the
Directors have undertaken a review of the Company's assets which principally
consist of equity shares in companies listed on the London Stock Exchange and
may be realised within a short timescale to meet outstanding liabilities.
The Board announced a Strategic Review on 13 February 2023, which concluded on
26 July 2023 with the announcement of the proposed combination of the assets
of the Company with the assets of Shires Income plc ("Shires"), subject to
shareholder approval, through a tax efficient scheme of reconstruction under
section 110 of the Insolvency Act 1986 (the "Proposals"). More detail can be
found in the Chair's Statement above and in the RNS announcement dated 26 July
2023.
The Board believes that the Proposals are in the best interests of
shareholders as a whole and recommends that shareholders vote in favour of the
resolutions required to effect the Proposals. This would result in the
voluntary liquidation of the Company. Due to the requirement for the Proposals
to receive approval from the shareholders of both the Company and Shires
(including the approval of independent shareholders in the Company for a
related party transaction) there remains material uncertainty as to the future
of the Company.
However, should the Proposals not receive the necessary shareholder approvals,
the Board believes that other attractive options remain viable for
shareholders, which can be pursued. The Board also believes that the
investment objective remains relevant and the Company remains in a position to
generate attractive returns for all shareholders. Accordingly, the Board has
prepared the financial statements in this Half Yearly Report on a going
concern basis.
2. Income
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Income from investments
Dividend income from UK equity securities 1,431 1,269 2,367
Dividend income from overseas equity securities 149 260 462
Property income distributions 108 127 208
1,688 1,656 3,037
Interest income from investments 41 46 90
1,729 1,702 3,127
Other income
Bank interest 7 1 4
Interest from AAA-rated money market funds 52 8 33
Total revenue income 1,788 1,711 3,164
3. Taxation
The tax expense reflected in the Condensed Statement of Comprehensive Income
represents irrecoverable withholding tax suffered on overseas dividend income.
4. Dividends
The following table shows the revenue for each period less the dividends
declared in respect of the financial period to which they relate.
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Profit attributable 1,442 1,349 2,486
Dividends declared (1,150)(A) (1,061)(B) (2,168)(C)
292 288 318
(A) Dividends declared relate to the first two interim dividends (both 2.60p
each) declared in respect of the financial year 2023.
(B) Dividends declared relate to the first two interim dividends (both 2.40p
each) declared in respect of the financial year 2022.
(C) Dividends declared relate to the three interim dividends (2.40p each) and
final interim dividend (2.60p) declared in respect of the financial year 2022
totalling 9.80p.
5. Return per Ordinary share
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
p p p
Revenue return 6.52 6.10 11.24
Capital return (10.92) (137.72) (156.86)
Net return (4.40) (131.62) (145.62)
The returns per Ordinary share are based on the following figures:
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Revenue return 1,442 1,349 2,486
Capital return (2,415) (30,449) (34,682)
Net return (973) (29,100) (32,196)
Weighted average number of Ordinary shares in issue 22,109,765 22,109,765 22,109,765
6. Net asset value per Ordinary share
The net asset value per Ordinary share and the net assets attributable to
Ordinary shareholders at the period end calculated in accordance with the
Articles of Association were as follows:
As at As at As at
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Attributable net assets (£'000) 61,397 67,679 63,520
Number of Ordinary shares in issue 22,109,765 22,109,765 22,109,765
Net asset value per Ordinary share (p) 277.69 306.10 287.29
7. Transaction costs
During the period expenses were incurred in acquiring or disposing of
investments classified as fair value. These have been expensed through capital
and are included within losses on investments at fair value in the Condensed
Statement of Comprehensive Income. The total costs were as follows:
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Purchases 6 32 81
Sales 5 9 18
11 41 99
8. Analysis of changes in financing liabilities during the period
The following table shows the movements during the period of financing
liabilities in the Condensed Balance Sheet:
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Opening balance 6,999 6,995 6,995
Amortisation of arrangement costs 1 2 4
Repayment of loan (5,000) - -
Closing balance 2,000 6,997 6,999
9. Fair value hierarchy
Under IFRS 13 'Fair Value Measurement' an entity is required to classify fair
value measurements using a fair value hierarchy that reflects the significance
of the inputs used in making measurements. The fair value hierarchy has the
following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the assets or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The financial assets measured at fair value in the Condensed Balance Sheet are
grouped into the fair value hierarchy as follows:
Level 1 Level 2 Level 3 Total
At 30 June 2023 (unaudited) Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities a) 58,377 - - 58,377
Quoted bonds b) - 1,782 - 1,782
58,377 1,782 - 60,159
Level 1 Level 2 Level 3 Total
At 30 June 2022 (unaudited) Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities a) 68,363 - - 68,363
Quoted bonds b) - 2,181 - 2,181
68,363 2,181 - 70,544
Level 1 Level 2 Level 3 Total
At 31 December 2022 (audited) Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities a) 66,628 - - 66,628
Quoted bonds b) - 2,104 - 2,104
66,628 2,104 - 68,732
a) Quoted equities. The fair value of the Company's investments in quoted
equities has been determined by reference to their quoted bid prices at the
reporting date. Quoted equities included in Fair Value Level 1 are actively
traded on recognised stock exchanges.
b) Quoted bonds. The fair value of the Company's investments in quoted bonds
has been determined by reference to their quoted bid prices at the reporting
date. Investments categorised as Level 2 are not considered to trade in active
markets.
There have been no transfers of assets between levels of the fair value
hierarchy during any of the periods covered in this Report.
10. Related party transactions
There were no related party transactions during the period.
11. Transactions with the Manager
The Company has agreements with abrdn Fund Managers Limited ("aFML" or "the
Manager") for the provision of investment management, secretarial, accounting
and administration and promotional activities.
The management fee is calculated at an annual rate of 0.75% of the net assets
of the Company, calculated and paid monthly. During the period £240,000 (30
June 2022 - £293,000; 31 December 2022 - £533,000) of investment management
fees were payable to the Manager, with a balance of £117,000 (30 June 2022
-£89,000; 31 December 2022 - £204,000) being payable to aFML at the period
end. During the period and at the period end, the Company held £2,533,000 (30
June 2022 - £3,498,000; 31 December 2022 - £1,450,000) in Aberdeen Standard
Liquidity Fund (Lux) - Sterling Fund which is managed by abrdn Investments
Luxembourg S.A. The Company pays a management fee on the value of these
holdings but no fee is chargeable at the underlying fund level. The management
fee is chargeable 30% to revenue and 70% to capital.
During the period expenses of £28,000 (30 June 2022 - £28,000; 31 December
2022 - £56,000) were payable to the Manager in connection with the promotion
of the Company. The balance outstanding at the period end was £14,000 (30
June 2022 - £14,000; 31 December 2022 - £14,000).
12. Segmental information
The Company is engaged in a single segment of business, which is to invest in
equity securities and debt instruments. All of the Company's activities are
interrelated, and each activity is dependent on the others. Accordingly, all
significant operating decisions are based on the Company as one segment.
13. Publication of non-statutory accounts
The financial information contained in this Half Yearly Financial Report does
not constitute statutory accounts as defined in Sections 434 - 436 of the
Companies Act 2006. The financial information for the six months ended 30 June
2023 and 30 June 2022 has not been audited.
The information for the year ended 31 December 2022 has been extracted from
the latest published audited financial statements which have been filed with
the Registrar of Companies. The report of the auditors on those accounts
contained no qualification or statement under Section 498 (2), (3) or (4) of
the Companies Act 2006.
14. This Half Yearly Financial Report was approved by the Board on 13 September
2023.
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
For further information please contact:-
Holly Kidd
abrdn Holdings Limited
Company Secretary
Tel: 0131 372 2200
Alternative Performance Measures
Alternative performance measures 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 IFRS 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.
Discount to Net Asset Value per Ordinary share
The amount by which the market price per Ordinary share is lower than the net
asset value per Ordinary share, expressed as a percentage of the net asset
value per Ordinary share.
30 June 2023 31 December 2022
NAV per Ordinary share (p) a 277.69 287.29
Share price (p) b 252.00 240.50
Discount (b-a)/a 9.3% 16.3%
Net cash/(gearing)
Net cash/(gearing) measures 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 as well as cash.
30 June 2023 31 December 2022
Borrowings (£'000) a 2,000 6,999
Cash (£'000) b 412 336
Investments in AAA-rated money market funds c 2,533 1,450
Amounts due to brokers (£'000) d 5 -
Amounts due from brokers (£'000) e 44 -
Shareholders' funds (£'000) f 61,397 63,520
Net cash/(gearing) (a-b-c+d-e)/f 1.6% -8.2%
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 published
daily net asset values with debt at fair value throughout the year. The ratio
for 30 June 2023 is based on forecast ongoing charges for the year ending 31
December 2022.
30 June 2023 31 December 2022
Investment management fees (£'000) 470 533
Administrative expenses (£'000) 429 435
Less: non-recurring charges(A) (£'000) - (30)
Ongoing charges (£'000) 899 938
Average net assets (£'000) 62,551 71,863
Ongoing charges ratio (excluding look-through costs) 1.44% 1.31%
Look-through costs(B) 0.02% 0.03%
Ongoing charges ratio (including look-through costs) 1.46% 1.34%
(A) Professional services comprising new director recruitment costs and legal
fees 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 amongst
other things, financing and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. Share price and NAV total
returns are monitored against open-ended and closed-ended competitors, and the
benchmark, respectively.
Share
Six months ended 30 June 2023 NAV Price
Opening at 1 January 2023 a 287.3p 240.5p
Closing at 30 June 2023 b 277.7p 252.0p
Price movements c=(b/a)-1 -3.3% 4.8%
Dividend reinvestment(A) d 2.6% 3.3%
Total return c+d -0.7% +8.1%
Share
Year ended 31 December 2022 NAV Price
Opening at 1 January 2022 a 442.6p 375.0p
Closing at 31 December 2022 b 287.3p 240.5p
Price movements c=(b/a)-1 -35.1% -35.9%
Dividend reinvestment(A) d 1.9% 2.2%
Total return c+d -33.2% -33.7%
(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 dividend in the
share price of the Company on the date on which that dividend goes
ex-dividend.
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