REG - abrdn UK Smaller Cos - Half-year Report
05/03/2025 07:00
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RNS Number : 3496Z abrdn UK Smaller Cos. Growth Trust 05 March 2025
abrdn UK Smaller Companies Growth Trust plc
Half Yearly Report for the Six Months Ended 31 December 2024
Legal Entity Identifier (LEI): 213800UUKA68SHSJBE37
Investment Objective
The Company's objective is to achieve long-term capital growth by investment
in UK-quoted smaller companies.
Reference Index
The Company's reference index is the Deutsche Numis Smaller Companies
including AIM (ex investment companies) Index.
PERFORMANCE HIGHLIGHTS AND FINANCIAL CALENDAR
Net asset value total return(A) Share price total return(A)
Six months ended 31 December 2024 Six months ended 31 December 2024
+1.9% +4.9%
Year ended 30 June 2024 +18.1% Year ended 30 June 2024 +21.0%
Reference Index total return Discount to net asset value(A)
Six months ended 31 December 2024 As at 31 December 2024
+0.8% 10.1%
Year ended 30 June 2024 +10.0% As at 30 June 2024 12.5%
Revenue return per share Ongoing charges ratio(A)
Six months ended 31 December 2024 Forecast year ending 30 June 2025
5.93p 0.86%
Six months ended 31 December 2023 6.00p Year ended 30 June 2024 0.92%
(A) Considered to be an Alternative Performance Measure.
Financial Calendar
Payment of interim dividend for the year ending 30 June 2025 18 April 2025
Financial year end 30 June 2025
Expected announcement of results for year ending 30 June 2025 September 2025
Annual General Meeting (London) November 2025
Expected payment of final dividend for the year ending 30 June 2025 28 November 2025
Financial Highlights
31 December 2024 30 June 2024 % change
Capital return
Total assets(A) £428.9m £453.1m -5.3%
Equity shareholders' funds £388.9m £413.1m -5.9%
Market capitalisation £349.5m £361.3m -3.3%
Net asset value per share(B) 558.70p 556.19p +0.5%
Share price 502.00p 486.50p +3.2%
Discount to net asset value(C) 10.1% 12.5%
Net gearing(C) 6.6% 5.8%
Reference index 5,498.80 5,534.18 -0.6%
Dividends and earnings
Revenue return per Ordinary share(D) 5.93p 6.00p -1.2%
Interim dividend per share 3.70p 3.70p -
Operating costs
Ongoing charges ratio(CEF) 0.86% 0.92%
(A) Defined as total assets per the Statement of Financial Position less
current liabilities (before deduction of bank loans).
(B) With debt at par value.
(C) Considered to be an Alternative Performance Measure.
(D) Figure for 31 December 2024 is for the six months to that date. Figure for
30 June 2024 is for the six months to 31 December 2023.
(E) The ongoing charges ratio for the current year includes a forecast of
costs, charges and assumes no change in net assets for the year to 30 June
2025.
(F) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis.
Chairman's Statement
Dear Shareholders
I am pleased to report that your Company delivered positive share price and
net asset value ("NAV") total returns during the first six months of its
financial year, delivering modest outperformance over its reference index and
enabling it to build on the substantial outperformance that it achieved in the
previous year. I set out some details on this below.
Performance
The political landscape was a significant feature of the second half of 2024
when, among others, the electorates of the UK and the US both voted for
change, the impact of which is very much in evidence. In the UK there was
early optimism in the wake of the UK General Election. This drove the UK
smaller companies asset class up almost 6% in July, as measured by the
Deutsche Numis Smaller Companies including AIM (ex Investment Companies)
Index, which is the Company's "reference index". This was not sustained as
rumours as to what might be in the Budget on 30 October started to dominate
the media and affected confidence. One of the big threats was the suggestion
that the Inheritance Tax concession which has historically applied to some AIM
listed companies might be removed. Although these concerns were only partially
correct, the changes to Employer National Insurance thresholds and rates which
will come in on 5 April 2025 have acted to dampen the outlook for UK plc,
particularly where operations are predominantly onshore. Over the last couple
of months of 2024, the market was largely flat.
The net asset value ("NAV") total return for the six month period was 1.9%
while the share price delivered a total return of 4.9%. The difference between
these returns is reflected in the movement in the discount, which narrowed
from 12.5% on 30 June 2024 to 10.1% at the end of the period. The Company
outperformed the reference index, which produced a total return of 0.8%.
The Investment Manager's Review provides further information on individual
stock performance and portfolio activity during the period, as well as the
Investment Manager's outlook for the portfolio and the wider smaller companies
sector.
Total returns to 6 months 1 year 3 years 5 years 10 years
31 December 2024 % % % % %
NAV(A) +1.9 +12.2 -27.9 -2.6 +119.6
Share price(A) +4.9 +12.4 -29.4 -13.3 +116.1
Reference Index(B) +0.8 +5.0 -15.4 +6.6 +60.9
Peer Group weighted average (NAV) -1.7 +8.4 -13.4 +12.2 +93.3
Peer Group weighted average (share price) -2.5 +6.0 -17.5 +1.8 +94.5
(A) Considered to be an Alternative Performance Measure.
(B) Deutsche Numis Smaller Companies including AIM (ex investment companies)
Index, prior to 1 January 2018 Deutsche Numis Smaller Companies (ex investment
companies) Index.
Source: abrdn and Refinitiv Datastream
Earnings and Dividend
The headline numbers on the Statement of Comprehensive Income are
significantly affected by the share buy back activity during the period, which
is described in more detail in the section below. The share buy backs have
reduced the size of the portfolio and thus its earnings capacity. However,
while the net revenue after tax was down 15.3% to £4.3 million, revenue
earnings per share ("EPS") for the six months to 31 December 2024 only
declined by 1.2% to 5.93p (2023: 6.00p).
Against this backdrop, the Board is declaring a maintained interim dividend of
3.70p per share which will be paid on 18 April 2025 to shareholders on the
register on 21 March 2025, with an associated ex-dividend date of 20 March
2025.
Gearing
The Company has a £40 million revolving credit facility ("RCF") with The
Royal Bank of Scotland International which matures in November 2025. At the
end of the period, the level of gearing, net of cash, was 6.6% (30 June 2024:
5.8%), with £40 million drawn down under the RCF at an interest rate of
6.25%. The Board will review proposals for the renewal of the facility prior
to its maturity.
Discount Control and Share Buy Backs
As stated above, the Company's shares were trading at a discount of 10.1% to
the NAV per share at the end of December, comparing to 12.5% at the start of
the period. Although there was some narrowing in the discount towards the end
of the period, it remained at a level where the Board felt it was in the best
interests of shareholders as a whole to continue to buy back shares.
Consequently, the Company was active in the market on most days and bought
back 4.7 million shares (6.3% of the opening issued share capital) worth
£23.5 million at an average discount of 11.1%. The buybacks acted to enhance
the NAV per share by 0.7%.
The Board has a policy of using buybacks to target a maximum discount of the
share price to the cum-income net asset value of 8% under normal market
conditions. It considers that this policy helps provide investors with a
degree of reassurance that the Board will endeavour to limit any widening of
the discount beyond the target level and to reduce the volatility of the
discount. This in turn should help increase demand for the shares, which
should have a net positive effect on the discount, particularly when coupled
with strong performance.
The Board considers that, given investor sentiment has remained negative
towards the UK smaller companies sector as a whole, evidenced by outflows in
the open ended sector, it is to be expected that the Company would face
discount pressure in common with most of the peer group. As a result, the
discount has been wider than the target level. Whilst the Board takes into
account the wider investment trust sector discount levels when implementing
its buyback policy, it remains committed to its long-term target of 8% and
will continue to be active in the market when it believes it to be in the best
interests of shareholders.
Outlook
After the political changes that dominated the news in 2024, we do now have
visibility as to who is leading the agendas in the UK and the US. These are
the two most important markets for your Company, the former because it is
where most of the operations of the investee companies are based and the
latter because decisions made in the US frequently impact on global businesses
both directly and through fluctuations in the US Dollar. This removes one
element of uncertainty, so disliked by markets. Having said that, there remain
concerns about the outlook for the UK with the possibility of mild stagflation
back in the frame despite the UK Government's avowed focus on growth. Indeed
the Bank of England's interest rate cut in early February is against a
backdrop of a likely increase in inflation over the next six months caused
principally by high energy costs. With inflation now expected to peak by the
autumn, reaching the Bank of England's target level of 2% seems to have been
pushed out to 2027. Whilst further interest rate cuts are still expected this
year, against this overall landscape, the economic outlook cannot be described
as bright.
At the same time, the impact of President Trump's various pronouncements, in
particular with respect to tariffs on global trade but also on expanding US
influence and control in various geographies, have yet to be seen.
Notwithstanding the difficult investment environment, the portfolio managers
have demonstrated that they have the processes and experience to navigate
choppy waters. They put a great deal of effort in getting to know the
management of the companies in which the portfolio is invested in order to
gain an understanding of their ability to position their companies to adapt to
the changing economic landscape. It is important to remember that the Company
invests in companies, not markets, and the portfolio's holdings are frequently
in companies which are market leaders in their particular specialism. There
are investment opportunities out there, but the economic conditions and
numerous other uncertainties indicate a challenging time ahead.
Liz Airey
Chairman
5 March 2025
Interim Management Report
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 Financial Reporting Standard 104 'Interim Financial
Reporting';
- The Interim Board Report (constituting the interim management
report) includes a fair review of the information required by DTR 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 year; and
- The financial statements include a fair review of the
information required by DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in the first six
months of the financial year and that have materially affected the financial
position or performance of the Company during that period, and any changes in
the related party transactions described in the last Annual Report that could
do so.
Principal and Emerging Risks and Uncertainties
The Board regularly reviews the principal and emerging risks and uncertainties
faced by the Company together with the mitigating actions it has established
to manage the risks. These are set out within the Strategic Report contained
within the Annual Report for the year ended 30 June 2024 and comprise the
following risk categories:
- Strategy
- Investment performance
- Key person risk
- Share price
- Financial instruments
- Financial obligations
- Regulatory
- Operational
- Geopolitical
There are a number of other risks which, if realised, could have a material
adverse effect on the Company and its financial condition, performance and
prospects. These include the conflicts in Ukraine and the Middle East, as well
as continuing tensions between the US and China. The Board is also conscious
of the impact of higher than forecast inflation and the implications for
interest rates, and also the potential impact on economic growth of recently
announced US trade tariffs. Other than these factors, the Company's principal
risks and uncertainties have not changed materially since the date of the
Annual Report and no material change is foreseen in the principal risks over
the remainder of the financial year.
Going Concern
The Company's assets consist mainly of equity shares in companies listed on
recognised stock exchanges and are considered by the Board to be realisable
within a short timescale under normal market conditions. The Board has set
overall limits for borrowing and reviews regularly the Company's level of
gearing, cash flow projections and compliance with banking covenants. The
Board has also reviewed stress testing analysis and considered the liquidity
of the portfolio.
As at 31 December 2024, the Company had a £40 million unsecured revolving
credit facility with The Royal Bank of Scotland International Limited which
matures on 1 November 2025. The facility was fully drawn down at the end of
the period. The Board will review proposals for the renewal of the facility
prior to its maturity.
The Directors are mindful of the Principal Risks and Uncertainties summarised
above and they believe that the Company has adequate financial resources to
continue in operational existence for a period of not less than 12 months from
the date of approval of this Report. They have arrived at this conclusion
having confirmed that the Company's diversified portfolio of realisable
securities is sufficiently liquid and could be used to meet short-term funding
requirements were they to arise, as well as share buy back commitments. The
Directors have also reviewed the revenue and ongoing expenses forecasts for
the coming year and considered the Company's Condensed Statement of Financial
Position as at 31 December 2024 which shows net current liabilities of £27.5
million at that date, and do not consider this to be a concern due to the
liquidity of the portfolio which would enable the Company to meet any short
term liabilities if required.
Taking all of this into account, the Directors believe that it is appropriate
to continue to adopt the going concern basis in preparing the financial
statements.
On behalf of the Board
Liz Airey
Chairman
5 March 2025
Investment Manager's Review
The net asset value ("NAV") total return for the Company for the six months to
31 December 2024 was 1.9% while the share price total return was 4.9%. By
comparison, the UK smaller companies sector as represented by the Deutsche
Numis Smaller Companies including AIM (ex investment companies) Index (the
"reference index") delivered a total return of 0.8%.
Overview
The second half of 2024 was a busy period for macro news, with the results of
the UK and US elections removing the incumbents and replacing them with new
leaders making new promises. In October, the UK government promised growth in
its budget but, despite its pro-growth agenda, some of the tax and regulatory
measures announced are widely considered to be anti-growth. Yet, the UK equity
and bond markets have largely moved sideways since the Budget, suggesting no
major surprise in the policy overall. In the near-term, UK businesses are
working though the implications of the proposed tax rises and changes to
Employers' National Insurance rates and will have to do much to contain cost
inflation. Automation programmes to improve productivity are set to become
more of a focus for UK businesses.
2024 proved to be a year of two halves, with optimism in the first half
rapidly evaporating in the second half, and recovery in certain sectors has
been slower to materialise than the market expected, leading to profit
warnings. While savers have been benefiting from elevated savings rates, an
expected recovery in big ticket discretionary consumer spending that is linked
to lower interest rates remains subdued. We sense that replacement cycles for
these types of items are lengthening, not helped by a slow housing transaction
market. Having said that, holiday spending has remained a sacrosanct as
households continue to prioritise spending in this area. The Industrials
sector had a tough six months, taking longer than expected to rebuild order
books. There have been a range of macro data points and manager surveys to
scrutinise since the Budget, but it is too early to determine how the economy
will progress and the pace at which interest rates fall or if inflation will
creep back into the system. We will take our lead directly from engagement
with the management teams of the companies in the portfolio and regular
meetings with them enable us to take the temperature of UK businesses across a
range of sectors.
We are bottom-up, not top-down, investors and 2024 was a more normal year for
the economy and stock markets in the sense that there was not a disturbance
caused by large and unusual external shocks. In this environment, markets were
more rational and good stock picking was rewarded. Our focus on Quality served
us well and the companies held in the portfolio have delivered operationally
and earnings have been resilient. We have backed new ideas with conviction,
and portfolio turnover has been slightly higher than average driven by two
factors. Firstly, our stock screening tool, the Matrix, has helped us be
nimble and to identify an appealing array of new Quality, Growth &
Momentum ("QGM") ideas which we have added to the portfolio. Our new ideas
have been found across a range of sectors, with no themes dominating.
Secondly, the recovery has been more drawn out than the market expected for
some holdings and, faced with sluggish momentum in some of these, we exited.
Stocks that we exited in the first half of 2024 suffered continued weakness in
the second half of the year, reassuring us that it was right to move on from
those. We have maintained a high level of engagement with management teams,
including site visits and meetings with new executive teams and Chairs.
Performance
The period under review lacked momentum as investors awaited the outcome of
the Budget. A key aspect of the Budget for UK smaller companies was the
reduction in the tax benefit of investing in AIM-listed companies for
Inheritance Tax purposes. Whilst not as bad as worst fears, we still believe
this reduces the attractiveness of the AIM market for investors, particularly
for companies coming to this market in the future. Quality stocks performed
well, and we believe that is largely due to earnings resilience - companies
achieving and exceeding expectations. Profit warnings have been prevalent
across the market and, while the portfolio hasn't been immune to them,
avoiding many of them was crucial as even shares of companies on lower ratings
sharply underperformed on warnings. The portfolio's relative out-performance
was consistent throughout the period, with limited monthly volatility and the
Matrix strength and consistency of performance in factors were notable.
The five top contributors to performance during the period were as follows:
Morgan Sindall (1.56% contribution, closing weight 4.8%) - had strong
operational delivery and solid financial performance which has driven an
exceptionally strong run in the shares, boosted by a high level of activity in
fit out and construction.
Cairn Homes (0.92% contribution, closing weight 3.2%) - delivered an excellent
first half, driven by scaling its output of highly efficient new homes in
Ireland, and its strong order book drove upgrades to outer years.
Raspberry Pi (0.58% contribution, closing weight 1.5%) - has made solid
progress, demonstrating both commercial and technology progress with its
channel strategy, improving the supply chain position, traction with custom
products and new product launches despite muted updates from the wider
industry.
XPS Pensions (0.58% contribution, closing weight 4.0%) - delivered strong
growth and upgrades to earnings driven by strong client demand and a
supportive regulatory backdrop.
Volution (0.56% contribution, closing weight 2.6%) - produced another period
of impressive delivery as the business continues to benefit from its focus on
the structurally attractive ventilation category and its broad geographic
platform. The shares reacted well to the acquisition of the Fantech group, a
provider of commercial and residential ventilation solutions in the Australian
and New Zealand markets, a strategically relevant deal at a good price.
The five biggest detractors to performance during the period were as follows:
Ashtead Technology (-0.91% contribution, closing weight 2.6%) - despite solid
half year results which demonstrated ongoing strong demand and good organic
growth, meeting expectations and providing in-line guidance were not enough to
support the shares after a strong run over the past 18 months. Its shares are
AIM listed and so were also impacted by changes to AIM tax benefits detailed
in the Budget.
Hunting (-0.79% contribution, closing weight 1.9%) - despite US headwinds, the
non-US business and its diversification over recent years was fuelling
significant growth. That growth continues but, with the US slowdown tougher
than had been expected, the company has reined its guidance back in towards
the bottom of its initial guided range for the year.
Mortgage Advice Bureau (-0.63% contribution, closing weight 1.9%) - the shares
have been held back by an FCA market study into pure protection products
despite being well positioned for good customer outcomes in this area. Its
shares are AIM listed.
Next 15 (-0.60% contribution, closing weight 0.8%) - the shares reacted badly
to downgrades to earnings reflecting a softer macro backdrop and loss of a
significant contract. Its shares are AIM listed.
Bytes Technology (-0.37% contribution, closing weight 1.2%) - the shares
weakened on concerns around IT spend and Microsoft exposure despite good
management communication about the short term factors that impact the share
price.
Portfolio Activity
Seven new holdings were added to the portfolio during the period.
Savills is a globally diverse real estate agent, predominantly focused on
commercial property markets, with leading positions in the UK and Asia.
Savills undertakes transactional services (capital markets/leasing), property
management, consultancy and investment management. Profits have been depressed
as transactions have slowed and, in contrast to its peers, management has
continued to invest in the business since Covid. We expect macro headwinds to
progressively abate, in response to improved price transparency in commercial
markets and a moderation in interest rate expectations. The key catalyst will
be a recovery in capital market transactions and leasing volumes in the global
real estate market. Savills' different geographies will recover at different
times/rates and factors such as debt maturities and higher property yields
should prompt progressively higher volumes going forward.
Trustpilot is the world's largest open review-management platform by number of
reviews and consumer engagement. It has a huge addressable market across the
UK, North America and Europe & Rest of World. Product suite, vertical
end-market and global geographic expansion increase Trustpilot's
opportunities, and the business is forecast to grow revenues substantially in
the coming years. Given the strong network effects of the model, which drive
higher growth as penetration rises, this supports long-term revenue growth. As
a platform business, there is strong operational leverage and there is margin
improvement to enjoy. Trustpilot has demonstrated its ability to deliver
profitable growth. Cash generation is strong, as is the balance sheet, and the
business benefits from organic growth as well as an ability to do bolt-on
M&A and/or return excess cash to shareholders.
ME Group is a high-quality UK-based designer, manufacturer and operator of
automated vending machines in high-footfall locations. Photo.ME is a market
leader in the automated vending machines segment, with a dominant market
share. The business has a newer Wash.ME division which is high growth and high
margin. There is potential for further estate expansion in existing
geographies, as well as moving into new ones. Further expansion should
contribute favourably to the product mix and improve group level margins.
Applied Nutrition is a leading sports nutrition, health and wellness brand,
which formulates and creates nutrition products targeted at a wide range of
consumers in over 80 countries via a business to business ("B2B") model, The
founder has built a strong global disruptive brand with a lean operating base
with vertically integrated manufacturing in a market with structural growth
dynamics. The B2B model, where distributors control the relationships with end
customers in their local markets, is unique in this industry and is a
differentiator underpinning future success.
Bloomsbury Publishing is unique both in its independence as a medium-sized
publisher and its combination of both general and academic publishing. A
strategy focussed on building a 'portfolio of portfolios' ensures good
diversification by channel (e.g. digital products, print, eBooks, audio),
territory, and markets (academic and consumer publishing). Such
diversification means there is more than one way of monetising an asset,
thereby adding value and longevity to its portfolio. The Bloomsbury virtuous
circle sees investment in quality content driving demand and strong cash
flows, which can then be reinvested in further content.
Avon Technologies has a market-leading respirator and helmet portfolio. The
business is enjoying good momentum with recent new contract wins and
opportunities for operational improvement. The business has a relatively new
CEO, Jos Sclater (appointed January 2023) who is executing well and improving
financial performance. Avon enjoys strong positions (sole source in many
cases) on several multi-year contracts, providing a helpful underpinning and
predictability to sales.
Breedon supplies a range of quarried materials and related products/services
in the UK, Ireland, and, most recently, the US Midwest (through the 2024
acquisition of BMC). Looking forward, we believe the business is well-placed
given its asset-backing, exposure to infrastructure activity, and
decentralised local model. These factors alongside management's track record
of under-promising and over-delivering are key elements of the investment
case. We are positive on Breedon's prospects, driven by a macro recovery in
due course, margin normalisation to target/historical levels, and a
continuation of its successful M&A track record.
We exited seven holdings during the period.
Big Technologies has been through a period of slower momentum, having missed
out on a large bid in the UK, losing a Colombian contract and the business is
facing a litigation claim. The combination of this and increased organic
investment in the US, has led to downgrades and a loss of investor confidence.
Liontrust Asset Management. The franchise remains competitive and highly
geared to an improvement in the operating environment, yet it is currently
difficult to gauge when conditions might turn positive.
Robert Walters. Recruitment consultants are facing a prolonged period of
challenging conditions, against a backdrop of fee income declines across all
regions. Whilst management reiterated its assertion that any material
improvement in confidence levels will be gradual, and not likely to commence
until calendar year 2025, the business suffered a weaker than anticipated
September trading period which compounds pressure on near term forecasts.
YouGov issued an unexpected profit warning in June, driven by tough trading
conditions, operational miss steps and increased competition. After profit
warnings of this magnitude, the time taken for managements to rebuild
credibility with investors can be considerable. With growth prospects severely
downgraded we exited the position.
We also exited the positions in Midwich and Marlowe due to uncertainty over
their future prospects and Alpha Financial Markets Consulting following a bid
from Bridgepoint.
Top Ups for the period included Cairn Homes, Paragon Banking, AJ Bell,
Trustpilot, Raspberry Pi, Alpha Group International and Coats. All are trading
well and producing positive Matrix scores.
We reduced exposure to GlobalData, JTC, Bytes Technology, 4imprint and Diploma
to control the position sizes.
Revenue Account
Revenue earnings per share for the six month period were 5.93p, compared to
6.00p for the comparable period last year. The level of investment income
generated from the portfolio was 14.4% lower, due principally to the impact of
share buy backs conducted during 2024 which reduce the Company's capital base.
Dividends paid by investee companies were generally in line with expectations.
It is worth noting that buy backs have been a feature in the market which has
limited the cash that would have been available for dividends.
Outlook
Equity markets have been volatile since the period end, with share-price
fluctuations driven by macroeconomic concerns that have ranged from the likely
paths for inflation and interest rates, to international trade and the value
of Sterling as well as the UK employment market and household expenditure.
Policy will be determined by the trajectory of inflation in the coming months
as well as the wider growth outlook.
Our investment process has worked well in the current interest rate
environment, proving that we do not need interest rates to be at or near zero
for quality smaller companies to perform. We saw strong earnings updates in
January from a number of companies in the portfolio, accompanied with positive
share-price reactions. Earnings resilience and avoiding profit warnings in the
portfolio is particularly important against the volatile market backdrop.
The undervaluation of the UK market has been a persistent theme for a number
of years, and this remains the case. While UK equities advanced over the
course of 2024, they remain undervalued versus history as well as other major
markets, providing a foundation on which to build over the course of 2025.
Through this uncertainty, we are sticking to our tried and-tested investment
process, and backing quality companies that demonstrate earnings momentum and
resilience.
Abby Glennie and Amanda Yeaman
abrdn
5 March 2025
Investment Portfolio
At 31 December 2024
Market Total
value assets
Company Industry £'000 %
Morgan Sindall Construction and Materials 20,672 4.8
XPS Pensions Investment Banking and Brokerage Services 17,103 4.0
JTC Investment Banking and Brokerage Services 15,224 3.5
Cranswick Food Producers 15,130 3.5
Cairn Homes Household Goods and Home Construction 13,613 3.2
Hilton Food Food Producers 13,289 3.1
AJ Bell Investment Banking and Brokerage Services 12,662 3.0
Hill & Smith Industrial Metals and Mining 12,659 3.0
Coats General Industrials 12,506 2.9
Paragon Banking Finance and Credit Services 12,184 2.8
Top ten investments 145,042 33.8
Gamma Communications Telecommunications Service Providers 12,137 2.8
Jet2 Travel and Leisure 11,838 2.8
Ashtead Technology Oil, Gas and Coal 11,215 2.6
Volution Construction and Materials 10,960 2.6
Premier Foods Food Producers 10,957 2.6
Alpha Group Investment Banking and Brokerage Services 10,787 2.5
Diploma Industrial Support Services 10,455 2.4
Games Workshop Leisure Goods 10,099 2.4
Tatton Asset Management Investment Banking and Brokerage Services 9,736 2.3
Hollywood Bowl Travel and Leisure 9,606 2.2
Top twenty investments 252,832 59.0
Sirius Real Estate Real Estate Investment Trusts 8,802 2.1
Trustpilot Software and Computer Services 8,520 2.0
Mortgage Advice Bureau Finance and Credit Services 8,338 1.9
Hunting Oil, Gas and Coal 8,325 1.9
Johnson Service Industrial Support Services 8,132 1.9
4imprint Media 7,834 1.8
ME Group Leisure Goods 6,884 1.6
Craneware Health Care Providers 6,673 1.6
Clarkson Industrial Transportation 6,550 1.5
GlobalData Media 6,495 1.5
Top thirty investments 329,385 76.8
Raspberry Pi Technology Hardware and Equipment 6,417 1.5
Telecom Plus Telecommunications Service Providers 6,337 1.5
discoverIE Electronic and Electrical Equipment 5,909 1.3
Chemring Aerospace and Defense 5,781 1.3
Savills Real Estate Investment and Services 5,510 1.3
CVS Consumer Services 5,176 1.2
Bytes Technology Software and Computer Services 5,094 1.2
Auction Technology Software and Computer Services 5,085 1.2
Boku Industrial Support Services 5,044 1.2
Applied Nutrition Food Producers 4,993 1.2
Top forty investments 384,731 89.7
Renew Holdings Construction and Materials 4,282 1.0
Volex Electronic and Electrical Equipment 4,237 1.0
Breedon Construction and Materials 4,216 1.0
Treatt Chemicals 4,119 1.0
LBG Media Media 3,985 0.9
Bloomsbury Publishing Media 3,624 0.8
Next 15 Media 3,599 0.8
Ricardo Construction and Materials 2,844 0.7
Avon Technologies Aerospace and Defense 779 0.2
Total portfolio 416,416 97.1
Net current assets(A) 12,490 2.9
Total assets 428,906 100.0
(A) Current assets less current liabilities. Excludes bank loans of
£39,978,000.
Condensed Statement of Comprehensive Income (unaudited)
Six months ended Six months ended
31 December 2024 31 December 2023
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Net gains on investments held at fair value - 3,044 3,044 - 19,511 19,511
Income 2 5,378 - 5,378 6,223 - 6,223
Investment management fee (347) (1,042) (1,389) (354) (1,063) (1,417)
Administrative expenses (398) - (398) (510) - (510)
Net return before finance costs and taxation 4,633 2,002 6,635 5,359 18,448 23,807
Finance costs (321) (963) (1,284) (267) (663) (930)
Return before taxation 4,312 1,039 5,351 5,092 17,785 22,877
Taxation 3 - - - - - -
Return after taxation 4,312 1,039 5,351 5,092 17,785 22,877
Return per Ordinary share (pence) 5 5.93 1.43 7.36 6.00 20.93 26.93
The total column of the condensed Statement of Comprehensive Income represents
the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Financial Position (unaudited)
As at As at
31 December 2024 30 June 2024
Notes £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 416,416 436,689
Current assets
Debtors 631 2,541
Investments in AAA-rated money-market funds 14,432 15,627
Cash and short-term deposits 1 293
15,064 18,461
Current liabilities
Creditors: amounts falling due within one year (2,574) (2,097)
Bank loan 8 (39,978) (39,964)
(42,552) (42,061)
Net current liabilities (27,488) (23,600)
Net assets 388,928 413,089
Capital and reserves
Called-up share capital 26,041 26,041
Share premium account 170,146 170,146
Capital reserve 180,905 203,375
Revenue reserve 11,836 13,527
Equity shareholders' funds 388,928 413,089
Net asset value per Ordinary share (pence) 7 558.70 556.19
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Changes in Equity (unaudited)
Six months ended 31 December 2024
Share
Share premium Capital Revenue
capital account reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 30 June 2024 26,041 170,146 203,375 13,527 413,089
Return after taxation - - 1,039 4,312 5,351
Buyback of shares into Treasury - - (23,509) - (23,509)
Dividends paid (see note 4) - - - (6,003) (6,003)
Balance at 31 December 2024 26,041 170,146 180,905 11,836 388,928
Six months ended 31 December 2023
Share
Share premium Capital Revenue
capital account reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 30 June 2023 26,041 170,146 217,927 12,473 426,587
Return after taxation - - 17,785 5,092 22,877
Buyback of shares into Treasury - - (29,579) - (29,579)
Dividends paid (see note 4) - - - (6,711) (6,711)
Balance at 31 December 2023 26,041 170,146 206,133 10,854 413,174
The capital reserve at 31 December 2024 is split between realised of
£97,624,000 and unrealised of £83,281,000 (31 December 2023 - realised
£134,329,000 and unrealised £71,804,000).
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Cash Flows (unaudited)
Six months ended Six months ended
31 December 2024 31 December 2023
£'000 £'000
Operating activities
Net return before finance costs and taxation 6,635 23,807
Adjustment for:
Gains on investments (3,044) (19,511)
Decrease in accrued income 439 846
Increase in other debtors (4) (7)
Decrease in other creditors (56) (354)
Net cash inflow from operating activities 3,970 4,781
Investing activities
Purchases of investments (64,626) (66,559)
Sales of investments 89,915 101,676
Purchases of AAA-rated money-market funds (53,386) (67,314)
Sales of AAA-rated money-market funds 54,581 64,594
Net cash inflow from investing activities 26,484 32,397
Financing activities
Interest paid (1,308) (888)
Equity dividends paid (6,003) (6,711)
Buyback of shares (23,435) (29,579)
Net cash outflow from financing activities (30,746) (37,178)
Decrease in cash and short-term deposits (292) -
Analysis of changes in cash during the period
Opening cash and short-term deposits 293 294
Decrease in cash and short-term deposits as above (292) -
Closing cash and short-term deposits 1 294
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements (unaudited)
For the year ended 31 December 2024
1. Accounting policies
Basis of accounting. The condensed financial statements have been prepared in
accordance with Financial Reporting Standard 104 'Interim Financial Reporting'
and with the Statement of Recommended Practice for 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' issued in July 2023.
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.
The half-yearly financial statements have been prepared using the same
accounting policies as the preceding annual accounts.
2. Income
Six months ended Six months ended
31 December 2024 31 December 2023
£'000 £'000
Income from investments
UK dividend income 4,237 4,915
Property income distributions 286 98
Overseas dividend income 278 560
Special dividends 155 214
4,956 5,787
Interest income
Interest from AAA-rated money-market funds 422 427
Bank interest - 9
422 436
Total income 5,378 6,223
3. Taxation
The taxation expense reflected in the Condensed Statement of Comprehensive
Income is based on management's best estimate of the weighted annual
corporation tax rate expected for the full financial year. The estimated
annual tax rate used for the year to 30 June 2025 is 25%.
4. Ordinary dividend on equity shares
Six months ended Six months ended
31 December 2024 31 December 2023
£'000 £'000
2024 final dividend of 8.30p per share (2023 - 8.00p) 6,003 6,711
5. Return per share
Six months ended Six months ended
31 December 2024 31 December 2023
p p
Revenue return 5.93 6.00
Capital return 1.43 20.93
Total return 7.36 26.93
Weighted average number of Ordinary shares 72,666,094 84,942,293
The figures above are based on the following:
Six months ended Six months ended
31 December 2024 31 December 2023
£'000 £'000
Revenue return 4,312 5,092
Capital return 1,039 17,785
Total return 5,351 22,877
6. Transaction costs
During the period, 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 gains on investments in the
Condensed Statement of Comprehensive Income. The total costs were as follows:
Six months ended Six months ended
31 December 2024 31 December 2023
£'000 £'000
Purchases 315 237
Sales 61 65
376 302
7. Net asset value per share
Total shareholders' funds have been calculated in accordance with the
provisions of applicable accounting standards. The analysis of total
shareholders' funds on the face of the Condensed Statement of Financial
Position reflects the rights, under the Articles of Association, of the
Ordinary shareholders on a return of assets.
These rights are reflected in the net asset value and the net asset value per
share attributable to Ordinary shareholders at the period end.
As at As at
31 December 2024 30 June 2024
Total shareholders' funds (£'000) 388,928 413,089
Number of Ordinary shares in issue at the period end(A) 69,613,014 74,270,535
Net asset value per share (pence) 558.70 556.19
(A) Excluding shares held in treasury.
During the six months ended 31 December 2024 the Company repurchased 4,657,521
Ordinary shares to be held in treasury (31 December 2023 - 7,148,645) at a
cost of £23,509,000 (31 December 2023 - £29,579,000).
As at 31 December 2024 there were 69,613,014 Ordinary shares in issue (30 June
2024 - 74,270,535). There were also 34,551,408 Ordinary shares (30 June 2024 -
29,893,887) held in treasury.
8. Loans
On 2 November 2022, the Company entered into a new three year revolving credit
facility of £40 million (the "RCF") with The Royal Bank of Scotland
International Limited. The RCF has a further uncommitted accordion provision
allowing the Company to request an increase, subject to lender's approval, of
up to an additional £25 million. At 31 December 2024 £40 million was drawn
down under the RCF at an interest rate of 6.25%.
The RCF is shown in the Condensed Statement of Financial Position net of
unamortised expenses of £22,000 (30 June 2024 - £36,000).
The terms of the RCF contain covenants that the Consolidated Net Tangible
Assets as defined in the agreement must not be less than £200 million, the
percentage of borrowings against the Adjusted Portfolio Value as defined in
the agreement shall not exceed 30%, and the portfolio contains a minimum of
thirty eligible investments (investments made in accordance with the Company's
investment policy). The Company complied with all covenants throughout the
year.
9. Analysis of changes in net debt
At Non-cash At
30 June 2024 Cash flows movements 31 December 2024
£'000 £'000 £'000 £'000
Cash and short-term deposits 293 (292) - 1
Investments in AAA-rated money-market funds 15,627 (1,195) - 14,432
Debt due in less than one year (39,964) - (14) (39,978)
Total net debt (24,044) (1,487) (14) (25,545)
At Non-cash At
30 June 2023 Cash flows movements 31 December 2023
£'000 £'000 £'000 £'000
Cash and short-term deposits 294 - - 294
Investments in AAA-rated money-market funds 14,129 2,719 - 16,848
Debt due in less than one year (24,938) - (13) (24,951)
Total net debt (10,515) 2,719 (13) (7,809)
10. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy shall have the following
classifications:
Level 1: unadjusted quoted prices in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are observable
(ie developed using market data) for the asset or liability, either directly
or indirectly.
Level 3: inputs are unobservable (ie for which market data is unavailable) for the
asset or liability.
All of the Company's investments are in quoted equities (30 June 2024 - same)
that are actively traded on recognised stock exchanges, with their fair value
being determined by reference to their quoted bid prices at the reporting
date. The total value of the investments (31 December 2024 - £416,416,000; 30
June 2024 - £436,689,000) have therefore been deemed as Level 1.
The investment in AAA rated money-market funds of £14,432,000 (30 June 2024 -
£15,627,000) is considered to be Level 2 under the fair value hierarchy of
FRS 102 due to not trading in an active market.
11. Transactions with the Manager
The Company has an agreement with abrdn Fund Managers Limited ("aFML") for the
provision of investment management, secretarial, accounting and administration
and promotional activity services. The Company agreed a new managament fee
charged on net assets (total assets less total liabilities), effective as of 1
July 2023. During the six months ended 31 December 2024 the management fee
paid to aFML was charged by applying a tiered rate of 0.75% to the first £175
million of net assets, 0.65% of net assets between £175 million and £550
million and 0.55% of net assets above £550 million. The contract is
terminable by either party on six months' notice.
During the period £1,389,000 (31 December 2023 - £1,417,000) of investment
management fees were earned by aFML, with a balance of £676,000 (31 December
2023 - £1,417,000) due at the period end.
The Company also had an agreement with aFML for the provision of secretarial
services. It was agreed between the Company and the Manager that payment
under this agreement for secretarial services would cease with effect from 1
January 2024. During the period, fees of £nil (31 December 2023 - £37,000)
exclusive of VAT were earned by aFML for the provision of secretarial and
administration services. The balance due to aFML at the period end was £nil
(31 December 2023 - £94,000) exclusive of VAT.
The Manager also receives a separate promotional activities fee which during
the period was based on an annual amount of £206,000 exclusive of VAT payable
quarterly in arrears. During the period, a fee of £103,000 (31 December 2023
- £109,000) exclusive of VAT was payable to the Manager, with a balance of
£51,500 (31 December 2023 - £55,000) exclusive of VAT being due at the
period end.
12. Subsequent events
Subsequent to the period end, up to the date of approval of this Report, the
Company repurchased a further 3,445,984 Ordinary shares to be held in treasury
at a cost of £17,311,000.
13. Half-Yearly Financial Report
The financial information in this Report does not constitute statutory
accounts as defined in Sections 434 - 436 of the Companies Act 2006. The
financial information for the year ended 30 June 2024 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. The half-yearly financial statements have been
prepared using the same accounting policies as the preceding annual accounts.
14. This Half-Yearly Financial Report was approved by the Board on 5 March 2025.
Alternative Performance Measures
Alternative performance measures ("APMs") are numerical measures of the
Company's current, historical or future performance, financial position or
cash flows, other than financial measures defined or specified in the
applicable financial framework. The Company's applicable financial framework
includes FRS 102 and the AIC SORP.
The Directors assess the Company's performance against a range of criteria
which are viewed as particularly relevant for closed-end investment companies.
Where the calculation of an APM is not detailed within the financial
statements, an explanation of the methodology employed is provided below:
Discount
A discount is the percentage by which the market price is lower than the Net
Asset Value ("NAV") per share.
31 December 2024 30 June 2024
Share price a 502.00p 486.50p
Net Asset Value per share b 558.70p 556.19p
Discount (a/b)-1 10.1% 12.5%
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by shareholders' funds, expressed as a percentage. Under AIC reporting
guidance cash and cash equivalents includes amounts due from and to brokers at
the period end as well as cash and short-term deposits.
31 December 2024 30 June 2024
£'000 £'000
Total borrowings a (39,978) (39,964)
Cash and short-term deposits 1 293
Investments in AAA-rated money-market funds 14,432 15,627
Amounts due from brokers - -
Amounts payable to brokers - -
Total cash and cash equivalents b 14,433 15,920
Net gearing (borrowings less cash & cash equivalents) c=a+b (25,545) (24,044)
Shareholders' funds d 388,928 413,089
Net gearing (borrowings less cash & cash equivalents) e=c/d 6.6% 5.8%
Ongoing charges ratio
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC, which is defined as the total of investment management fees
and recurring administrative expenses and expressed as a percentage of the
average daily net asset values published throughout the year. The ratio
reported at 31 December 2024 includes actual costs and charges for the six
months and includes a forecast for costs, charges and the asset base for the
remaining six months of the financial year ending 30 June 2025.
31 December 2024(A) 30 June 2024(B)
£'000 £'000
Investment management fees a 2,755 2,817
Administrative expenses b 789 876
Less: non-recurring charges(C) c (5) (5)
Ongoing charges d=a+b+c 3,539 3,688
Average net assets e 413,819 402,438
Ongoing charges ratio (excluding look-through costs) f=d/e 0.86% 0.92%
Look-through costs(D) g - -
Ongoing charges ratio (including look-through costs) h=f+g 0.86% 0.92%
(A) Forecast for the year ending 30 June 2025 based on estimates as at 31
December 2024.
(B) For the year ended 30 June 2024.
(C) Comprises professional fees not expected to recur.
(D) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis.
Total return
NAV and share price total returns show how the NAV and share price have
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. NAV total return assumes
reinvesting the net dividend paid by the Company back into the NAV of the
Company with debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return assumes reinvesting the net dividend
back into the share price of the Company on the date on which that dividend
goes ex-dividend.
Share
Six months ended 31 December 2024 NAV price
Opening (p) a 556.19 486.50
Closing (p) b 558.70 502.00
Increase (p) c=b-a 2.51 15.50
% increase d=c/a 0.5% 3.2%
Uplift from reinvestment of dividends(A) e 1.4% 1.7%
Total return increase d+e 1.9% 4.9%
(A) The uplift from reinvestment of dividends assumes that the dividend of
8.30p paid by the Company in November 2024 was reinvested in the NAV and share
price of the Company on the ex-dividend date.
By order of the Board
abrdn Holdings Limited
Company Secretary
5 March 2025
Please note that past performance is not necessarily a guide to the future and
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
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