Dunedin Inc.Growth - Annual Financial Report
04/04/2024 07:00
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RNS Number : 2264J Dunedin Income Growth Inv Tst PLC 04 April 2024
DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC
Legal Entity Identifier (LEI): 549300PPXLZPR5JTL763
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2024
Performance Highlights
· NAV total return of 6.7%, outperforming the FTSE All-Share Index
return of 1.9%, resulting in the Company ranking top of the AIC UK
Equity Income sector by NAV total return for the year.
· Five year NAV total return of 43.8%, with the Company ranking 3rd
out of 20 in the AIC UK Equity Income sector by NAV total return.
· Record revenue return for the year of 13.54p per share, an
increase of 4.0%.
· Total dividend for the year of 13.75p per share, an increase of
5.0% which compares to the CPI increase of 4.0%.
Net asset value total return(AB) Earnings per share (revenue)
+6.7% 13.5p
2023 +2.4% 2023 13.0p
Ongoing charges(A) Share price total return(A)
0.64% (1.6)%
2023 0.64% 2023 (0.9)%
Discount to net asset value(AB) Dividends per Ordinary share
10.7% 13.75p
2023 2.9% 2023 13.10p
(A) Alternative Performance Measure.
(B) With debt at fair value, dividends reinvested.
For further information, please contact:
Paul Finlayson
abrdn Fund Managers Limited
07990 130 451
Chairman's Statement
I am pleased to present the Annual Report for Dunedin Income Growth Investment
Trust for the year ended 31 January 2024 and to report that our Company's net
asset value ("NAV") total return outperformed both the benchmark and peers for
the year.
Performance
After the rapid tightening of monetary policy and dramatic geopolitical and
domestic political events of 2022, the reporting period this year provided a
more stable investment environment and one that provided fewer headwinds to
the Company's investment strategy. As a result, the portfolio's total return
exceeded that of the FTSE All-Share Index and, in the process, delivered a
positive absolute return. Whilst performance of the portfolio, which is highly
active and differentiated from our benchmark, should be considered over longer
time periods, this year's performance represents a welcome return to
outperformance after two years in which the Investment Manager's strategic
focus on high quality companies with an emphasis on dividend growth and
sustainability had proven something of a challenge in a market that had
favoured more value orientated investment styles and seen strong returns from
commodity related sectors.
Over the longer term, the Company has delivered a NAV total return of 43.8%
over five years compared to the benchmark return of 30.4%, and over that
period ranks 3rd out of 20 in the AIC UK Equity Income sector by NAV total
return.
The Board recognises the importance of the dividend return to shareholders
and we are pleased to report that the portfolio has seen continued revenue
growth, with revenue earnings per share reaching another record high, at the
upper end of our original expectations for the year.
The NAV total return of the Company remains ahead of the benchmark and peers
over both the short and longer term. The main frustration in the period has
been the widening of the discount at which the Company's shares are trading
to NAV. Particularly as this now represents a wider discount than the average
of the UK Equity Income sector, despite stronger performance. Alongside that,
the portfolio remains highly differentiated to its peer group, offering a
highly active, relatively concentrated strategy, with a sustainability
overlay that remains unique within the sector and rare within the
wider investment trust universe.
We remain committed to the sustainability ambitions of the Company and
believe it is the right approach when investing for the long term and to
deliver sustainable and growing dividends. We expect that investors will
return their focus towards this segment of the market as environmental and
social risks rise and asset owners turn their attention to the impact of
their holdings. For the Investment Manager, this is about both avoiding
risks and taking advantage of opportunities such as investing behind the
powerful demand trends stemming from the climate transition.
Earnings and Dividend
Investment income increased by 4.6% during the year, reflecting good progress
in dividend distributions from companies in the portfolio. The revenue return
per share increased by 4.0%, reaching an all-time high of 13.54p, growing
slightly less than income due primarily to higher finance costs given
increases in interest rates.
Having paid three quarterly dividends of 3.2p per share, the Board is
proposing a final dividend of 4.15p per share, payable on 31 May 2024 to
shareholders on the register on 3 May 2024. This will make a total dividend
of 13.75p per share for the year, an increase of 5.0% on last year and ahead
of the rate of inflation of 4.0% as measured by CPI. This represents a
welcome return to dividend growth in real terms after two years of
exceptionally high inflation and will be the 40th year out of the past 44 that
the Company has grown its dividend, with the distribution maintained in the
other four years. Furthermore, having increased the dividend in every year
since 2011, the Company is classified as a 'next generation of dividend
heroes' by the Association of Investment Companies, being one of the
33 investment trusts that have raised their dividend for 10 to 19
consecutive years.
Following payment of the final dividend, we will have utilised 0.21p per
share of the Company's revenue reserves to meet dividends declared for this
financial year, meaning that 9.0p per share will be available to support
future distributions. This represents approximately 65% of the current annual
dividend cost. The net revenue earned during the financial year covers 98.5%
of the proposed dividend cost for the year. The Company has drawn 2.84p per
share from revenue reserves since January 2019, both through the strategic
transition away from higher yielding, lower growth companies and,
particularly in 2020/21, to support the dividend through a period of
extraordinary market disruption when 1.9p per share was utilised from
revenue reserves following the impact of the Covid pandemic on the
portfolio. It is worth noting that, given its long history, the Company is in
a favourable position of having the ability to pay dividends out of realised
capital reserves which exceeded £300 million at the year end, forming a
significant part of equity shareholders' funds.
The increased dividend of 13.75p per share represents a yield of 5.0% based
on the share price of 276p at the end of the year, compared to a notional
yield of 4.0% from the FTSE All-Share Index. Our distribution policy remains
to grow the dividend faster than inflation over the medium term and, with
the Company's robust revenue and capital reserves and the healthy underlying
dividend and earnings growth of the companies within the portfolio, we
believe that the policy remains very well supported.
Comments on SDR
The Board notes the FCA's recent regulation on sustainability disclosures,
including product labelling and presentation of sustainable credentials by UK
funds, including investment trusts; the Sustainable Disclosure Regime ('SDR").
The Board is considering the implications of this for the Company, which is
one of the few UK investment trusts to adopt a sustainable investment
approach. It is worth noting that the decision to formally adopt the
sustainable investment approach in 2021 was very much an evolution of our
investment approach which focuses on quality companies capable of delivering
superior total returns with growing income, rather than a response to
heightened levels of investor interest. The Board will continue to ensure that
our approach and process are described in terms that meet all facets of UK
regulation and we are confident that our successful, differentiated investment
approach will not have to change in any material respect as a result of the
introduction of this regulation.
Gearing
The Board believes that the sensible use of modest financial gearing, whilst
amplifying market movements in the short term, will enhance returns of both
capital and income to shareholders over the long term. We also recognise the
benefit that having a reasonable proportion of long-term fixed rate funding
provides to managing the Revenue Account, through greater certainty
over financing costs. The Company currently employs two sources of gearing;
the £30 million loan notes maturing in 2045, and a £30 million
multi-currency revolving credit facility that expires in July 2024. A
Sterling equivalent of £13.3 million of the revolving credit facility
was drawn down at the year end. The loan notes bear a fixed interest rate of
3.99% and the multi-currency facility is at a variable rate, and thus the
costs of borrowing have increased compared to the prior year.
With debt valued at par, the Company's net gearing decreased from 7.1% to
6.8% during the year. This decline was due to holding a higher cash balance
at the year end and a small reduction in borrowings due to the impact of
foreign exchange translation. The Board believes this remains a relatively
conservative level of gearing and, with part of the revolving
credit facility undrawn, this provides the Company with
financial flexibility should opportunities to deploy additional capital
arise.
Discount
The share price total return for the year of -1.6% was significantly lower
than the NAV total return, reflecting a move in the discount from 2.9%
at the end of last year to 10.7% as at 31 January 2024 (on a cum-income
basis with borrowings stated at fair value). In response to this widening
during the year, 2.1 million shares were bought back at an average price of
£2.69, well below the NAV.
The Board believes a consistent rating of the Company's shares close to the
underlying asset value is of significant benefit to shareholders. As well as
a strong focus on execution of the investment strategy, the Board continues to
support efforts to attract new investors and retain existing ones through
clear messaging and regular engagement with investors. We are confident that
the company's strong performance, attractive dividend profile and
differentiated positioning are a good basis to support a strong rating for the
Company's shares over the medium term. We will continue to use the buyback
facility to provide liquidity and address the imbalances between buyers and
sellers. Continued good performance and a renewal of broadly based interest in
UK equity markets will, we believe, place the Company's shares back on a
rating that reflects its performance. As in previous years, we will seek
shareholders' permission at the forthcoming AGM to buy back shares and issue
new shares.
Annual General Meeting and Online Shareholder Presentation
AGM
The AGM will be held at 12 noon on Thursday 23 May 2024 at the offices of
abrdn, 18 Bishops Square, London E1 6EG. The meeting will include a
presentation from the Investment Manager and will be followed by lunch. We
encourage all shareholders to complete and return the Proxy Form enclosed with
the Annual Report so as to ensure that your votes are represented at the
meeting. If you hold your shares in the Company via a share plan or a platform
and would like to attend and/or vote at the AGM, then you will need to make
arrangements with the relevant administrator.
We recognise that many shareholders who previously held the Company's shares
through the abrdn Savings Schemes now hold their shares through the
Interactive Investor platform. Where we have contact details, abrdn will keep
you up to date with information relating to the Company, including regarding
the AGM. You can also register for email alerts relating to the Company,
including links to videos and podcasts by the portfolio managers, articles on
the Company and notification of publication of interim and annual results. You
can register by scanning the QR Code on the Contents Page of the Annual Report
or by registering
here: www.dunedinincomegrowth.co.uk/en-gb/contact-and-support?tab=5
(http://www.dunedinincomegrowth.co.uk/en-gb/contact-and-support?tab=5) . We
would encourage all shareholders to register for updates. In addition, the
Association of Investment Companies has included helpful information on its
website explaining how platform customers can attend and vote at an AGM:
www.theaic.co.uk/how-to-vote-your-shares
(http://www.theaic.co.uk/how-to-vote-your-shares) . Should you wish to receive
any information directly from the Company, or request to receive a hard copy
of this and future Annual Reports, please contact the Company Secretary at
CEF.CoSec@abrdn.com
Online Shareholder Presentation
In order to encourage as much interaction as possible with our shareholders,
and especially for those who are unable to attend the AGM, we will also be
hosting an Online Shareholder Presentation, which will be held at 10.00 am on
Tuesday 7 May 2024. At this event you will receive a presentation from the
Investment Manager and have the opportunity to ask live questions of the
Chairman and the Investment Manager. The online presentation is being held
ahead of the AGM to allow shareholders to submit their proxy votes
subsequently.
Full details on how to register for the online event can be found at:
https://bit.ly/abrdn-Dunedin-Income-2024
Details are also contained on the Company's website.
Board Succession
It is the Company's stated policy that Directors should stand down after nine
years on the Board. Jasper Judd, who is Chairman of the Audit Committee, and
I, both joined the Board in February 2016. Accordingly, we will stand down
from the Board at the conclusion of the Company's AGM in 2025. The Board will
recruit a further Director during the course of this financial year who, it is
intended, will take over from Jasper as Chairman of the Audit Committee. The
number of Directors will therefore increase to six for a short period to allow
for an orderly handover and smooth succession. Howard Williams, who has been a
Director since April 2018, will succeed me as Chair of the Company and it is
the Board's intention to recruit a fifth Director in 2025 to bring the number
of Directors back to five.
Outlook
The Company has a clear focus on generating both total return and dividend
growth while formally incorporating sustainability into its mandate. The
Board believes that this is the correct strategy to deliver capital
outperformance and dividend growth over the longer term. Having weathered a
volatile economic and political environment over the past few years, we
believe that there are now reasons for cautious optimism for the Company's
relative performance to continue to prove robust.
Inflationary pressures have eased substantially, paving the way for the Bank
of England to potentially cut interest rates at some point in 2024. The global
economy, while far from booming, is continuing to prove relatively robust,
despite substantial tightening in monetary policy and very subdued Chinese
output. Sustainability is coming back onto investors' radars as environmental,
social and governance increasingly impact investment cases. Meanwhile, the
market valuations of UK and European equities are extremely attractive on an
absolute and relative basis. This all potentially points to an environment
that can both support earnings delivery and an expansion in equity multiples
which could drive attractive total returns to investors. While declining
interest rates may also help to narrow the discount at which your Company's
shares trade.
We also believe that the Investment Manager's focus on sustainable companies
means that the income growth of the Company should be driven more by
structural rather than cyclical growth and that gives the Investment Manager a
higher degree of confidence on the likely path of income generation. This
should help to underpin earnings delivery even in an environment where
economic growth remains modest, while the balance of the portfolio means it
is well set to navigate volatile markets and demonstrate resilience in a
range of different market environments.
There are a number of reasons to be watchful. Elections at home and abroad
will generate plenty of speculation and debate and, while inflationary
pressures have eased, they are still at elevated levels compared to central
bank targets. Likewise, geopolitical tensions continue to persist across the
Middle East, Russia continues with its invasion of Ukraine and China's
relationship with Taiwan remains tense. As a result, we think it is important
to maintain a relatively well-balanced portfolio and the Investment Manager's
focus on investing in companies with pricing power, strong balance sheets and
with greater exposure to structural, rather than cyclical, growth should
offer greater resilience in both capital and income generation. The
Company's track record over the past five years with this strategy remains
highly creditable.
The Board is confident that the Company is well-positioned to continue to
deliver relative total return outperformance over the medium and long term.
This, combined with the return to growing the dividend ahead of inflation,
should enable the Company's shares to trade closer to NAV.
David Barron
Chairman
3 April 2024
Overview of Strategy
Business
The Company is an investment trust with a premium listing on the London Stock
Exchange.
Investment Objective
The Company's objective is to achieve growth of income and capital from a
portfolio invested mainly in companies listed or quoted in the United Kingdom
that meet the Company's sustainable and responsible investing criteria as set
by the Board.
Investment Policy
In pursuit of its objective, the Company's investment policy is to invest in
high quality companies with strong income potential and providing an
above-average portfolio yield.
The Company may only make material changes to its investment policy (including
the level of gearing set by the Board) with the approval of shareholders in
the form of an ordinary resolution.
Risk Diversification
The Company maintains a diversified portfolio consisting, substantially, of
equity or equity-related securities, and it can invest in other financial
instruments. The Company is invested mainly in companies listed or quoted in
the
United Kingdom and can invest up to 25% of its gross assets overseas.
It is the policy of the Company to invest no more than 15% of its gross assets
in other listed investment companies and no more than 15% of its gross assets
in any one company.
Gearing
The Board is responsible for determining the gearing strategy for the Company,
with day-to-day gearing decisions being made by the Manager within the remit
set by the Board. The Board has set its gearing limit at a maximum of 30% of
the net asset value at the time of draw down. Gearing is used selectively to
leverage the Company's portfolio in order to enhance returns where and to the
extent considered appropriate.
Delivering the Investment Objective
The Directors are responsible for determining the Company's investment
objective and investment policy. Day-to-day management of the Company's assets
has been delegated, via the AIFM, to the Investment Manager.
Benchmark
The Company's benchmark is the FTSE All-Share Index (total return).
Performance is measured on a net asset value total return basis over the
long-term.
Promoting the Success of the Company
The Board's statement below describes how the Directors have discharged their
duties and responsibilities over the course of the financial year under
section 172 (1) of the Companies Act 2006 and how they have promoted the
success of the Company for the benefit of the members as a whole.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to assess the
Company's success in achieving its
objective and determining the progress of the Company in pursuing its
investment policy. The main KPIs are shown in the table below.
KPI Description
Performance of NAV against benchmark index and comparable investment trusts The Board measures the Company's NAV total return performance against the
total return of the benchmark index - the FTSE All-Share Index. The Board also
monitors performance relative to a peer group of investment trusts which have
similar objectives, policies and yield characteristics.
Revenue return per Ordinary share The Board monitors the Company's net revenue return.
Dividend per Ordinary share The Board monitors the Company's annual dividends per Ordinary share.
Share price performance The Board monitors the performance of the Company's share price on a total
return basis.
Premium/discount to NAV The premium/discount of the share price relative to the NAV per share is
monitored by the Board.
Ongoing charges The Board monitors the Company's operating costs carefully
Principal Risks and Uncertainties
The Board carries out a regular review of the risk environment in which the
Company operates, changes to the environment and individual risks. The Board
also considers emerging risks which might affect the Company. The Board
receives updates from the Manager on the risks that could affect the Company.
The Board has carried out a robust assessment of the Company's principal and
emerging risks, which include those that would threaten its business model,
future performance, solvency, liquidity or reputation. The principal risks and
uncertainties facing the Company at the current time, together with a
description of the mitigating actions the Board has taken, are set out in the
table below. In addition to those principal risks and uncertainties, the Board
considers that the development of Artificial Intelligence ("AI") presents
potential risks to businesses in almost every sector. The extent of the risk
presented by AI is extremely hard to assess at this point but the Board
considers that it is an emerging risk and, together with the Manager, will
monitor developments in this area.
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 a number of existing geo-political risks. The Board
is also conscious of the impact of inflation and higher interest rates on
financial markets.
The principal risks associated with an investment in the Company's shares are
published monthly in the Company's factsheet and they can be found in the
pre-investment disclosure document ("PIDD") published by the Manager, both of
which are available on the Company's website.
Risk Mitigating Action
Investment objectives - a lack of demand for the Company's shares could result Board review. The Board formally reviews the Company's objectives and
in a widening of the discount of the share price to its underlying NAV and a strategies for achieving them on an annual basis, or more regularly if
fall in the value of its shares. appropriate.
Shareholder communication. The Board is cognisant of the importance of regular
communication with shareholders. Directors attend meetings with the Company's
largest shareholders and meet other shareholders at the Annual General Meeting
and, as explained in the Chairman's Statement, the Company will hold an online
shareholder presentation in advance of the Annual General Meeting this year
including the opportunity for an interactive question and answer session. The
Board reviews shareholder correspondence and investor relations reports and
also receives feedback from the Company's Stockbroker.
Discount monitoring. The Board, through the Manager, keeps the level of
discount under constant review. The Board is responsible for the Company's
share buy back policy and is prepared to authorise the use of share buy backs
to provide liquidity to the market and try to limit any widening of the
discount.
Investment strategies - the Company adopts inappropriate investment strategies Adherence to investment guidelines. The Board sets investment guidelines and
in pursuit of its objectives which could result in investors avoiding the restrictions which the Manager follows, covering matters such as asset
Company's shares, leading to a widening of the discount and poor investment allocation, diversification, gearing, currency exposure and use of
performance. derivatives, as well as the Company's sustainable and responsible investment
criteria. These guidelines are reviewed regularly and the Manager reports on
compliance with them at Board meetings.
Diversification. In order to ensure adequate diversification, the Board has
set absolute limits on maximum holdings and exposures in the portfolio at the
time of investment, which are in addition to the limits contained in the
Company's investment policy, including the following:
- No more than 10% of gross assets to be invested in any
single stock; and
- The top five holdings should not account for more than 40%
of gross assets.
Investment performance - the appointment or continuing appointment of an Monitoring of performance. The Board meets the Investment Manager on a regular
investment manager with inadequate resources, skills or expertise or which basis and keeps under close review (inter alia) its resources and adherence to
makes poor investment decisions. This could result in poor investment investment processes. The Board also keep under review the adequacy of risk
performance, a loss of value for shareholders and a widening discount. controls and investment performance.
Management Engagement Committee. A detailed formal appraisal of the Manager is
carried out annually by the Management Engagement Committee.
Income/dividends - the Company adopts an unsustainable dividend policy Revenue forecasting and monitoring. The Manager presents detailed forecasts of
resulting in cuts to or suspension of dividends to shareholders, or one which income and expenditure covering both the current and subsequent financial
fails to meet investor demands. years at Board meetings. Dividend income received is compared to forecasts and
variances analysed.
Use of reserves. The Company has built up revenue reserves which are available
to smooth dividend distributions to shareholders should there be a shortfall
in revenue returns. The Company also has the ability to fund dividend
distributions from realised capital reserves.
Financial/market - insufficient oversight or controls over financial risks, Management controls. The Manager has a range of procedures and controls
including market risk, foreign currency risk, liquidity risk and credit risk relating to the Company's financial instruments, including a review of
could result in losses to the Company. investment risk parameters by its Investment Risk department and a review of
credit worthiness of counterparties by its Counterparty Credit Risk team.
Foreign currency hedging. It is not the Company's policy to hedge foreign
currency exposure but the Company may, from time to time, partially mitigate
it by drawing down borrowings in foreign currencies.
Board review. As stated above, the Board sets investment guidelines and
restrictions which are reviewed regularly and the Manager reports on
compliance with them at Board meetings.
Further details of the Company's financial instruments and risk management are
included in note 19 to the financial statements.
Gearing - gearing accentuates the effect of rises or falls in the market value Gearing restrictions. The Board sets gearing limits within which the Manager
of the Company's investment portfolio on its NAV. An inappropriate level of can operate.
gearing at a time of falling values could result in a significant fall in the
value of the Company's net assets and share price. Such a fall in the value of Monitoring. Both the limits and actual levels of gearing are monitored on an
the Company's net assets could result in a breach of loan covenants and ongoing basis by the Manager and at regular Board meetings. In the event of a
trigger demands for early repayment or require investments to be sold to meet possible impending covenant breach, appropriate action would be taken to
any shortfall. This could result in further losses. reduce borrowing levels.
Scrutiny of loan agreements. The Board takes advice from the Manager and the
Company's lawyers before approving details of loan agreements. Care is taken
to ensure that covenants are appropriate and unlikely to be breached.
Limits on derivative exposure. The Board has set limits on derivative
exposures and positions are monitored at regular Board meetings.
Regulatory - changes to, or failure to comply with, relevant regulations Board awareness. The Directors have an awareness of the more important
(including the Companies Act, The Financial Services and Markets Act, The regulations and are provided with information on changes by the Association of
Alternative Investment Fund Managers Directive, accounting standards, Investment Companies. In terms of day to day compliance with regulations, the
investment trust regulations, the Packaged Retail and Insurance-based Board is reliant on the knowledge and expertise of the Manager. However, where
Investment Product Regulations, the Listing Rules, Disclosure Guidance and necessary, the Board engages the service of external advisers. In addition,
Transparency Rules and Prospectus Rules) could result in fines, loss of all Directors are encouraged to attend relevant training courses.
reputation, reduced demand for the Company's shares and potentially loss of an
advantageous tax regime. Management controls. The Manager's company secretariat and accounting teams
use checklists to aid compliance and these are backed by the Manager's
compliance monitoring programme and risk based internal audit investigations.
ESG Risks - failure of the Company to adhere to its sustainable and Adherence to restrictions. The Board sets restrictions relating to the
responsible investment criteria, or non-compliance with applicable Company's sustainable and responsible investment criteria, which the
regulations, could lead to a loss of investor confidence or accusations of Investment Manager follows. These restrictions are reviewed regularly and the
greenwashing. Investment Manager reports on compliance with them at Board meetings.
Awareness of regulations. Through the Regulatory risk controls stated above,
the Board is also aware of the relevant ESG regulations impacting the Company.
Operational (including cyber-crime) - the Company is reliant on services Agreements. Written agreements are in place defining the roles and
provided by third parties (in particular those of the Manager and the responsibilities of all third party service providers.
Depositary) and any control gaps and failures in their operations could expose
the Company to loss or damage. Internal control systems of the Manager. The Board receives reports on the
operation and efficacy of the Manager's IT and control systems, including
those relating to cyber-crime, and its internal audit and compliance
functions.
Safekeeping of assets. The Depositary is ultimately responsible for the
safekeeping of the Company's assets and its records are reconciled to those of
the Manager on a regular basis. Through a delegation by the Depositary, the
Company's investments and cash balances are held in segregated accounts by the
Depositary.
Monitoring of other third party service providers. The Manager monitors
closely the control environments and quality of services provided by third
parties, including those of the Depositary. This includes controls relating to
cyber-crime and is conducted through service level agreements, regular
meetings and key performance indicators. The Directors review reports on the
Manager's monitoring of third party service providers on a periodic basis.
Geo-political - the impact of current and future geo-political events could Board and Manager awareness. Geo-political events over which the Company has
result in losses to the Company. no control are always a risk. The Investment Manager's focus on quality
companies, the diversified nature of the portfolio and a managed level of
gearing all serve to provide a degree of protection in times of market
volatility.
Geo-political risk is considered to have increased during the year as a result
of heightened global tensions. The trend of other principal risks has not
changed during the year.
Promotional Activities
The Board recognises the importance of promoting the Company to prospective
investors both for improving liquidity and enhancing the rating of the
Company's shares. The Board believes one effective way to achieve this is
through subscription to, and participation in, the promotional programme run
by abrdn on behalf of a number of investment trusts under its management. The
Company's financial contribution to the programme is matched by the Manager.
The Company also supports the Manager's investor relations programme which
involves regional roadshows, promotional and public relations campaigns. The
Manager's promotional and investor relations teams report to the Board on a
quarterly basis giving analysis of the promotional activities as well as
updates on the shareholder register and any changes in the make-up of that
register.
The purpose of the promotional and investor relations programmes is both to
communicate effectively with existing and prospective investors and to gain
new shareholders, with the aim of improving liquidity and enhancing the value
and rating of the Company's shares. Communicating the long-term attractions of
the Company is key. The promotional programme includes commissioning
independent paid for research on the Company, most recently from Kepler Trust
Intelligence. A copy of the latest research note is available from the Key
Literature section of the Company's website.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated the day to day
management and administrative functions to the Manager. There are therefore no
disclosures to be made in respect of employees.
Modern Slavery Act
Due to the nature of its business, being a company that does not offer goods
and services to customers, the Board considers that the Company is not within
the scope of the Modern Slavery Act 2015. The Company is therefore not
required to make a slavery and human trafficking statement. In any event, the
Board considers the Company's supply chains, dealing predominantly with
professional advisers and service providers in the financial services
industry, to be low risk in relation to this matter.
The UK Stewardship Code and Proxy Voting
The Company supports the UK Stewardship Code, and seeks to play its role in
supporting good stewardship of the companies in which it invests.
Responsibility for actively monitoring the activities of portfolio companies
has been delegated by the Board to the Manager which has sub-delegated that
authority to the Investment Manager. abrdn plc is a tier 1 signatory of the UK
Stewardship Code which aims to enhance the quality of engagement by investors
with investee companies in order to improve their socially responsible
performance and the long term investment return to shareholders. While
delivery of stewardship activities has been delegated to the Manager, the
Board acknowledges its role in setting the tone for the effective delivery of
stewardship on the Company's behalf.
The Board has also given discretionary powers to the Manager to exercise
voting rights on resolutions proposed by the investee companies within the
Company's portfolio. The Manager reports on a quarterly basis on stewardship
(including voting) issues.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under
the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations
2013.
Under Listing Rule 15.4.29(R), the Company, as a closed ended investment
company, is exempt from complying with the Task Force on Climate-related
Financial Disclosures.
Viability Statement
The Board considers that the Company, which does not have a fixed life, is a
long term investment vehicle and, for the purposes of this statement, has
decided that five years is an appropriate period over which to consider its
viability. The Board considers that this period reflects a balance between
looking out over a long term horizon and the inherent uncertainties of looking
out further than five years.
Taking into account the Company's current position and the potential impact of
its principal risks and uncertainties, the Directors have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due for a period of five years from the date of
this Report.
In assessing the viability of the Company over the review period, the
Directors have focused upon the following factors:
- The principal risks and uncertainties detailed above and the
steps taken to mitigate these risks.
- The relevance of the Company's investment objective.
- The Company is invested in readily-realisable listed securities.
- Share buy backs carried out in the past have not resulted in
significant reductions to the capital of the Company.
- Although the Company's stated investment policy contains a
maximum gearing limit of 30% of the NAV at the time of draw down, the Board's
policy is to have a relatively modest level of gearing and the financial
covenants attached to the Company's borrowings provide for significant
headroom.
- The ability of the Company to refinance its £30 million
multi-currency credit facility when it matures in July 2024 (see Going
Concern).
- The level of ongoing charges.
- The robustness of the operations of the Company's third party
service suppliers.
In making its assessment, the Board is also aware that there are other matters
that could have an impact on the Company's prospects or viability in the
future, including current and future geo-political events, economic shocks or
significant stock market volatility caused by other factors, and changes in
regulation or investor sentiment.
Outlook
The Board's view on the general outlook for the Company can be found in the
Chairman's Statement whilst the Investment Manager's views on the outlook for
the portfolio are included in its report..
On behalf of the Board
David Barron
Chairman
3 April 2024
Promoting the Success of the Company
Introduction
Section 172 (1) of the Companies Act 2006 (the "Act") requires each Director
to act in the way he/she considers, in good faith, would be most likely to
promote the success of the Company for the benefit of its members as a whole.
The Board is required to describe to the Company's shareholders how the
Directors have discharged their duties and responsibilities over the course of
the financial year under that provision of the Act (the "Section 172
Statement"). This statement provides an explanation of how the Directors
have promoted the success of the Company for the benefit of its members as a
whole, taking into account, among other things, the likely long term
consequences of decisions, the need to foster relationships with all
stakeholders and the impact of the Company's operations on the environment.
The Purpose of the Company and Role of the Board
The purpose of the Company is to act as a vehicle to provide, over time,
financial returns (both income and capital) to its shareholders. Investment
trusts, such as the Company, are long-term investment vehicles and are
typically externally managed, have no employees, and are overseen by an
independent non-executive board of directors.
The Board, which throughout the year comprised five independent non-executive
Directors with a broad range of skills and experience across all major
functions that affect the Company, retains responsibility for taking all
decisions relating to the Company's investment objective and policy, gearing,
corporate governance and strategy, and for monitoring the performance of the
Company's service providers.
The Board's philosophy is that the Company should operate in a transparent
culture where all parties are provided with the opportunity to offer practical
challenge and participate in positive debate which is focused on the aim of
achieving the expectations of shareholders and other stakeholders alike. The
Board reviews the culture and manner in which the Manager and Investment
Manager operate at its regular meetings and receives regular reporting and
feedback from the other key service providers. The Board works very closely
with the Manager and Investment Manager in reviewing how stakeholder issues
are handled, ensuring good governance and responsibility in managing the
Company's affairs, as well as visibility and openness in how the affairs are
conducted.
The Company's main stakeholders have been identified as its Shareholders, the
Manager (and Investment Manager), Service Providers, Investee Companies, Debt
Providers and, more broadly, the environment and community at large.
How the Board Engages with Stakeholders
The Board considers its stakeholders at Board meetings and receives feedback
on the Manager's interactions
with them.
Further details are included in the table below.
Stakeholder How We Engage
Shareholders Shareholders are key stakeholders and the Board places great importance on
communication with them. The Board welcomes all shareholders' views and aims
to act fairly between all of them. The Manager and Company's Stockbroker meet
regularly with current and prospective shareholders to discuss performance and
shareholder feedback is discussed by the Directors at Board meetings. In
addition, the Manager meets with analysts who cover the investment trust
sector and the Directors attend meetings with the Company's largest
shareholders and meet other shareholders at the Annual General Meeting.
The Company subscribes to the Manager's investor relations programme in order
to maintain communication channels, in particular, with the Company's
institutional shareholder base.
Regular updates are provided to shareholders through the Annual Report, Half
Yearly Report, monthly factsheets, Company announcements, including daily NAV
announcements, and the Company's website.
The Company's Annual General Meeting provides a forum, both formal and
informal, for shareholders to meet and discuss issues with the Directors and
Manager. The Board encourages as many shareholders as possible to attend the
Company's Annual General and to provide feedback on the Company. In addition
to the Annual General Meeting, this year the Company will again hold an
interactive online shareholder presentation at which shareholders will receive
updates from the Chairman and Investment Manager and there will be the
opportunity for an interactive question and answer session. Further details
are provided in the Chairman's Statement.
Manager The Investment Manager's Review details the key investment decisions taken
(and Investment Manager) during the year. The Investment Manager has continued to manage the Company's
assets in accordance with the mandate provided by the Company, with the
oversight of the Board.
The Board regularly reviews the Company's performance against its investment
objective and the Board undertakes an annual strategy review meeting to ensure
that the Company is positioned well for the future delivery of its objective
for its stakeholders.
The Board receives presentations from the Investment Manager at every Board
meeting to help it to exercise effective oversight of the Investment Manager
and the Company's strategy.
The Board, through the Management Engagement Committee, formally reviews the
performance of the Manager at least annually.
Service Providers The Board seeks to maintain constructive relationships with the Company's
suppliers either directly or through the Manager, with regular communications
and meetings.
The Management Engagement Committee conducts an annual review of the
performance, terms and conditions of the Company's main service providers to
ensure they are performing in line with Board expectations, carrying out their
responsibilities and providing value for money.
Investee Companies Responsibility for actively monitoring the activities of portfolio companies
has been delegated by the Board to the Manager which has sub-delegated that
authority to the Investment Manager.
The Board has also given discretionary powers to the Manager to exercise
voting rights on resolutions proposed by the investee companies within the
Company's portfolio. The Manager reports on a quarterly basis on stewardship
(including voting) issues.
Through engagement and exercising voting rights, the Investment Manager
actively works with companies to improve corporate standards, transparency and
accountability.
The Manager reports regularly to the Board on investment and engagement
activity.
Debt Providers On behalf of the Board, the Manager maintains a positive working relationship
with The Bank of Nova Scotia, London Branch, the provider of the Company's
multi-currency loan facility, and provides regular updates on business
activity and compliance with its loan covenants.
The Manager also provides regular covenant compliance certificates to the
holders of the Company's £30 million Loan Notes.
Environment and Community The Board and Manager are committed to investing in a sustainable and
responsible manner and the Investment Manager embeds Environmental, Social and
Governance ("ESG") considerations into the research and analysis as part of
the investment decision-making process.
Specific Examples of Stakeholder Consideration During the Year
While the importance of giving due consideration to the Company's stakeholders
is not a new requirement, and is considered during every Board decision, the
Directors were particularly mindful of stakeholder considerations during the
following decisions undertaken during the year ended 31 January 2024. Each of
these decisions was made after taking into account the short and long term
benefits for stakeholders.
Investment Objective and Portfolio
The Investment Manager's Review details the key investment decisions taken
during the year. The overall shape and structure of the investment portfolio
is an important factor in delivering the Company's stated investment objective
and is reviewed at every Board meeting, including compliance with the
Company's sustainable and responsible investing criteria.
During the year, through the work of the Management Engagement Committee, the
Board decided that the continuing appointment of the Manager is in the best
interests of shareholders.
Dividend
Following the payment of the final dividend for the year, of 4.15p per
Ordinary share, total dividends for the year will amount to 13.75p per
Ordinary share. This represents an increase of 5.0% compared to the previous
year. This will be the 40th year out of the past 44 that the Company has grown
its dividend, with the distribution maintained in the other four years, and is
in accordance with its policy to grow total annual dividends in real terms
over the medium term.
Through meetings with shareholders and feedback from the Manager and the
Company's Stockbroker, the Board is conscious of the importance that
shareholders place on the level of dividends paid by the Company.
Renewal of Bank Loan
During the year, the Board announced the renewal of the Company's £30 million
multi-currency revolving credit facility with Bank of Nova Scotia London
Branch. The facility replaced the expiring £30 million multi-currency
revolving credit facility and will expire on 11 July 2024.
Under the terms of the facility, the Company has the option to increase the
level of the commitment from £30 million to £40 million at any time, subject
to the lender's credit approval.
The Board continues to believe that borrowings, in the form of the Company's
Loan Notes 2045 and the multi-currency revolving credit facility, are
beneficial to long term net asset value returns and is one of the benefits of
the closed ended investment trust structure.
Share Buy Backs
During the year, the Company bought back 2,091,781 Ordinary shares to be held
in treasury, providing a small accretion to the NAV per share and a degree of
liquidity to the market at times when the discount to the NAV per share had
widened in normal market conditions. It is the view of the Board that this
policy is in the interest of all shareholders.
Shareholder Engagement
During the year, the Board met shareholders at the AGM and the Chairman met
directly with representatives of some of the Company's largest shareholders.
The AGM was held in Dundee in 2023 and will be held in London this year.
To encourage and promote stronger interaction and engagement with the
Company's shareholders, the Board will hold an interactive online shareholder
presentation which will be held at 10.00am on Tuesday 7 May 2024. At the
presentation, shareholders will receive updates from the Chairman and
Investment Manager and there will be the opportunity for an interactive
question and answer session. The online presentation is being held ahead of
the Annual General Meeting to allow shareholders to submit their proxy votes
prior to the meeting. Details of how to register for the event can be found in
the Chairman's Statement.
The Board considers that it is very important to maintain an ongoing dialogue
with shareholders to properly understand their views and to communicate the
actions of the Board.
On behalf of the Board
David Barron
Chairman
3 April 2024
Performance
Performance (total return)
1 year 3 year 5 year
% return % return % return
Total return (Capital return plus net dividends reinvested)
Net asset value(AB) +6.7% +18.0% +43.8%
Share price(B) (1.6)% +9.8% +41.4%
FTSE All-Share Index +1.9% +27.5% +30.4%
Capital return
Net asset value(A) +2.0% +3.8% +17.1%
Share price (6.1)% (3.8)% +14.1%
FTSE All-Share Index (1.9)% +14.6% +9.1%
(A) Cum-income NAV with debt at fair value.
(B) Considered to be an Alternative Performance Measure
Source: abrdn, Factset & Morningstar
Ten Year Financial Record
Year ended 31 January 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Total revenue (£'000) 20,994 20,359 21,963 22,317 22,263 20,518 18,346 21,518 21,950 22,949
Per share (p)
Revenue return 11.90 12.11 12.55 12.64 12.68 12.08 10.90 12.87 13.02 13.54
Dividends paid/proposed 11.25 11.40 11.70 12.10 12.45 12.70 12.80 12.90 13.10 13.75
Revenue reserve(A) 8.89 9.63 10.51 11.16 11.54 10.94 9.07 9.05 8.97 8.99
Net asset value(B) 279.66 237.48 270.34 290.57 266.83 312.22 297.64 309.03 302.80 308.98
Total return(C) 27.76 (28.94) 43.83 30.83 (11.95) 58.57 (1.81) 23.78 1.92 15.45
Shareholders' funds (£'000) 428,702 368,041 415,810 442,384 401,731 469,806 448,293 464,579 448,605 445,815
(A) After payment of third interim and final dividends (see note 16 for
further details).
(B) With debt at fair value.
(C) Per Statement of Comprehensive Income.
Investment Manager's Review
Introduction
For the year ended 31 January 2024, the Company's net asset value total return
of 6.7% compared favourably to a total return of 1.9% from the benchmark, the
FTSE All-Share Index. This encouraging outcome occurred despite various
challenges in the UK market, such as geopolitical risks, concerns over the
financial stability of the banking sector, fears of persistent inflation, and
the delayed impact of tight monetary policy. Economies proved more resilient
than anticipated coming into the year. Consumer confidence has benefited from
real wage growth and a moderating cost of living, meanwhile the UK faced a
mild technical recession in the latter half of the year. More disappointingly,
in the context of strong portfolio outperformance, the share price of the
Company declined over the year by 1.6% in total return terms and the discount
widened. The revenue return hit a new record level of 13.54p a share.
The global macro-economic outlook remains mixed, with a high degree of
uncertainty. While fears of a US recession have lessened, the Chinese recovery
has disappointed and global growth is expected to slow. Recognising this
backdrop, we believe the Company is well-positioned to navigate potential
challenges in the market. Our focus on higher-quality companies and
investments that can deliver both income and capital growth, while adhering to
the Company's sustainable and responsible investing approach, should help us
manage any difficult market conditions ahead.
The portfolio remains highly differentiated compared to both peers and its
benchmark. It remains the only UK Equity Income investment trust with a formal
sustainability approach. The active share of the portfolio is 76%, while the
number of holdings is a focussed group of 35. We see attractive opportunities
in innovative mid-sized UK companies and have 25% of the Company's assets in
the FTSE 250 Index and 50% in UK large companies. We utilise the Company's
flexibility to invest overseas with an allocation of up to 25% to high quality
overseas companies, offering diversification and unique exposures.
The Company offers an attractive 5.0% dividend yield (based on the year end
share price of 276p), approximately 20% ahead of the FTSE All-Share Index. The
free cash flow performance of companies held in the portfolio has been strong,
with many growing their dividends during the year. As a result, income
generation came in ahead of our initial expectations.
Performance
We are pleased with the Company's income progression in the year. The revenue
earnings per share of 13.54p exceeded our expectations and represents an
increase of 4.0% over the previous year. Special dividends were paid by Volvo
and Softcat in the year. A number of holdings delivered strong dividend
growth, including Games Workshop, Morgan Sindall, Novo-Nordisk, Relx, and
Sirius Real Estate. We continued writing options based on our fundamental
analysis of holdings in the portfolio and this has been a benefit to the
Company by diversifying and increasing the level of income generated.
The UK market concluded the year with a modest increase, despite experiencing
some volatility throughout the year. The Company benefited from positive
sector allocation given its underweight exposure to the basic materials
sector, which underperformed due to lower commodity prices associated with
weaker Chinese activity. The portfolio's overweight position in the technology
sector, an area with numerous quality and growth characteristics that we focus
on, proved beneficial to performance.
The Company's sustainable investment approach targets investment in
high-quality, sustainable Leaders and Improvers across the market and we
continue to engage with investee companies. Filters are applied to the
universe to reduce exposure to sectors and companies facing the highest
environmental and social risks. During the year, the investable universe
provided a tailwind to relative performance, primarily due to its lower
exposure to basic materials. While the primary focus of the Company is on
selecting high-quality, sustainable companies, we continue to monitor factor
risks presented by this approach and remain confident that it aligns with
positive outcomes for shareholders.
Encouragingly, fundamental analysis and stock picking contributed positively,
with the market rewarding companies that demonstrated attractive growth and
improving fundamentals. In the healthcare sector, Novo-Nordisk announced a
series of trial data indicating that the anti-obesity drug Wegovy not only
leads to weight loss in patients but also reduces the risk of cardiovascular
events. The drug targets a significant unmet need, obesity, with attractive
long-term supply/demand dynamics and the shares responded very favourably. The
accounting software firm Sage exceeded expectations with accelerating revenue
growth, driven by its US cloud accounting software product, Sage Intacct. Upon
purchasing shares in late 2022, we anticipated that the company was at a
growth and margin inflection point, which has subsequently materialised.
Sage's transition to subscription contracts and product innovation form a
strong foundation for sustained growth in the medium term. Relx is performing
better than anticipated due to its investment in data analytics and
decision-making tools, which enable customers to extract more value from its
platform. With the valuation at a discount to US peers, mainly due to its UK
listing, we continue to believe it is a compelling opportunity.
As addressed in last year's Annual Report, UK domestic and mid-sized
companies' underperformance in 2022 resulted in heavily discounted valuations,
but we anticipated that long-term alpha generation from UK mid-sized companies
would return. This trend of underperformance continued through to October 2023
due to concerns about sticky inflation, recession risk and market liquidity
headwinds, before sharply reversing in the last quarter of the financial year.
The holding in Intermediate Capital rebounded strongly, while UK construction
company Morgan Sindall and large housebuilder Taylor Wimpey saw share price
recovery as fears of a deep UK recession and house price deflation moderated.
Taylor Wimpey's unique dividend policy, based on net asset value rather than
earnings, ensured a visible and healthy shareholder distribution.
Turning to the detractors to performance. The holding in the Asian insurer
Prudential underperformed on concerns about the pace of recovery in China. We
view this as a temporary setback and believe that Prudential's long-term
structural growth potential, offered by its market exposures, is not reflected
in its discounted valuation. The specialist UK lender Close Brothers faced
news that the UK financial regulator, the FCA, has opened an enquiry into
legacy motor finance commission structures in the industry and whether
customers are owed financial redress. The quantum and timing of the amount to
be paid to customers is uncertain and patience will be required, with a
regulatory announcement anticipated in September this year. Meanwhile the
company cut its dividend in order to conserve capital which was a
disappointing development.
Portfolio Activity
We introduced several new holdings this year. We initiated a position in
Telecom Plus, a retailer of utility, telecom and insurance products, which
operates in the UK under the Utility Warehouse brand. The company has a
capital-light business model, strong balance sheet and attractive cost
advantage which means it is well placed to deliver long-term customer growth,
earnings progression and shareholder distributions. We also introduced the
UK's largest IT value added reseller Softcat to the portfolio. We believe
Softcat has significant potential for long-term growth, coupled with a strong
balance sheet and the optionality for enhanced shareholder cash returns.
Alongside these additions, we purchased a new position in German automotive
manufacturer Mercedes-Benz which is repositioning its strategy towards the
luxury end of the market and is well positioned from a technology perspective
to meet the challenges of the electric vehicle transition and the gradual move
to autonomous driving.
Finally, we introduced National Grid, which has been owned by the Company in
the past. The company aims to deliver both asset value and earnings growth
over the medium term, driven by the investment required to decarbonise the UK
and US energy networks and is a critical enabler of the energy transition. We
part funded this purchase with a reduction in the holding in SSE, which
benefits from similar drivers. National Grid has a superior shareholder
distribution return and so is helpful from an income perspective.
To fund these new ideas we exited small holdings in lower conviction names
Direct Line Insurance, Ashmore and Ubisoft. We also took the opportunity to
exit Dechra Pharmaceuticals after it received an all-cash offer from private
equity company EQT and the private equities investment department of Abu Dhabi
Investment Authority. Finally, we exited Coca-Cola Hellenic Bottling Company
following strong share price recovery from the negative reaction to the
Russian invasion of Ukraine, and resilient earnings.
Outlook
Signs are emerging that the actions taken by central banks to manage the high
levels of inflation in the UK and Europe are having their desired effect.
While inflation is decelerating, geopolitical risk and wage growth remain
elevated, together making the path to monetary easing a challenge to predict.
Global growth is expected to slow and the UK and Eurozone are already in
recession-like conditions. The US economy has remained more resilient than
many feared, however household savings and corporate balance sheets are
finite. Chinese growth has stabilised amid easing but household confidence and
the real estate sector weigh on the economy. Despite this backdrop, we remain
positive on the potential long-term returns available from the portfolio.
Fundamental company analysis supports our conviction in the high quality
businesses in the portfolio, and we see attractive opportunities that are
underappreciated by the market.
There are reasons to be optimistic. The Company should benefit from the focus
on higher quality companies with less reliance on the economic cycle, given
our attention to diversification, balance sheet strength, and resilience of
income. The UK equity market remains highly attractive in terms of valuation,
both on an absolute basis and relative to global markets. This view is
supported by the increased frequency of mergers and acquisitions across the
market which, in our view, will act as a catalyst to address the mispricing.
Overall, we will continue to maintain a balanced approach to the positioning
of the portfolio, giving it the potential to perform in a range of market
environments. Our primary attention is on protecting capital, but we will
continue to look to participate in opportunities where share prices in good
companies with attractive long-term prospects have been oversold.
Simultaneously, we will concentrate on those UK and overseas companies
committed to creating a more sustainable future.
Ben Ritchie and Rebecca Maclean,
abrdn Investments Limited
3 April 2024
Portfolio
Valuation Total Valuation
2024 assets 2023
Company Sector £'000 % £'000
AstraZeneca Pharmaceuticals and Biotechnology 32,517 6.7 38,221
Unilever Personal Care, Drug and Grocery Stores 28,205 5.8 35,175
TotalEnergies Oil, Gas and Coal 26,125 5.3 28,736
Relx Media 23,846 4.9 24,794
London Stock Exchange Finance and Credit Services 23,696 4.8 13,697
Diageo Beverages 22,711 4.6 25,344
National Grid Gas Water and Multi-utilities 17,956 3.7 -
Intermediate Capital Investment Banking and Brokerage Services 16,018 3.3 12,451
Chesnara Life Insurance 15,510 3.2 16,934
Taylor Wimpey Household Goods and Home Construction 15,075 3.1 11,926
Ten largest investments 221,659 45.4
SSE Electricity 13,876 2.8 20,814
ASML Technology Hardware and Equipment 13,067 2.7 10,202
Prudential Life Insurance 13,015 2.7 17,980
Sage Software and Computer Services 12,769 2.6 10,059
M&G Investment Banking and Brokerage Services 12,402 2.5 9,072
Games Workshop Leisure Goods 12,196 2.5 12,772
Volvo Industrial Transportation 11,466 2.3 14,667
Sirius Real Estate Real Estate Investment Trusts 11,433 2.3 4,112
Morgan Sindall Construction and Materials 11,166 2.3 8,085
Nordea Bank Banks 11,012 2.3 20,309
Twenty largest investments 344,061 70.4
Weir Group Industrial Engineering 10,471 2.1 11,653
Assura Real Estate Investment Trusts 10,061 2.1 13,327
Hiscox Non-life Insurance 10,043 2.1 10,869
Edenred Industrial Support Services 10,040 2.1 9,319
Mercedes-Benz Automobiles & Parts 9,893 2.0 -
Oxford Instruments Electronic and Electrical Equipment 9,228 1.9 80
Croda Chemicals 9,179 1.9 9,297
Novo-Nordisk Pharmaceuticals and Biotechnology 9,009 1.8 9,909
Telecom Plus Telecommunication Service Providers 8,970 1.8 -
Pets At Home Retailers 8,951 1.8 11,329
Thirty largest investments 439,906 90.0
Marshalls Construction and Materials 8,914 1.8 9,109
Softcat Software and Computer Services 7,269 1.5 -
Genus Pharmaceuticals and Biotechnology 6,865 1.4 6,020
Close Brothers Banks 6,170 1.3 11,001
Moonpig Retailers 4,963 1.0 3,551
Total investments 474,087 97.0
Net current assets(A) 14,780 3.0
Total assets less current liabilities(A) 488,867 100.0
(A) Excluding bank loan of £13,307,000
Sector Analysis
As at 31 January 2024
FTSE All-Share Portfolio Portfolio
Index weighting weighting weighting
2024 2024 2023
% % %
Energy Oil, Gas and Coal 10.8 5.3 5.8
10.8 5.3 5.8
Basic Materials Industrial Metals And Mining 6.3 1.9 1.9
Precious Metals And Mining 0.2 - -
Chemicals 0.6 - -
7.1 1.9 1.9
Industrials Construction and Materials 0.4 4.1 3.5
Aerospace And Defence 3.3 - -
Electronic and Electrical Equipment 1.0 1.9 -
General Industrials 1.6 - -
Industrial Engineering 0.6 2.1 2.4
Industrial Support Services 3.6 2.1 1.9
Industrial Transportation 1.2 2.3 3.0
11.7 12.5 10.7
Consumer Discretionary Automobiles & Parts 0.1 2.0 -
Consumer Services 1.6 - -
Household Goods and Home Construction 1.3 3.1 2.5
Leisure Goods 0.1 2.5 3.0
Personal Goods 0.3 - -
Media 4.1 4.9 5.0
Retailers 1.5 2.9 3.0
Travel And Leisure 3.5 - -
12.5 15.4 13.6
Health Care Medical Equipment And Services 0.6 - -
Pharmaceuticals and Biotechnology 10.7 9.9 12.2
11.3 9.9 12.2
Consumer Staples Beverages 3.2 4.6 8.3
Food Producers 0.6 - -
Tobacco 3.0 - -
Personal Care, Drug and Grocery Stores 7.6 5.8 7.1
14.4 10.4 15.5
Real Estate Real Estate Investment and Services 0.4 - 3.5
Real Estate Investment Trusts 2.3 4.4 -
2.7 4.4 3.5
Utilities Electricity 0.9 2.8 4.2
Gas Water and Multi-utilities 2.8 3.7 -
3.7 6.5 4.2
Financials Banks 9.0 3.6 6.3
Finance and Credit Services 1.9 4.8 2.8
Investment Banking and Brokerage Services 2.9 5.8 5.5
Closed End Investments 6.3 - -
Life Insurance 2.4 5.8 7.1
Non-life Insurance 0.8 2.1 4.1
23.3 22.1 25.7
Technology Software and Computer Services 1.4 4.1 2.0
Technology Hardware and Equipment - 2.7 2.1
1.4 6.8 4.1
Telecommunications Telecommunication Service Providers 1.1 1.8 -
1.1 1.8 -
Total investments 100.0 97.0 97.3
Net current assets before borrowings(A) 3.0 2.7
Total assets less current liabilities(A) 100.0 100.0
(A) Excluding bank loan of £13,307,000
Directors' Report (extract)
The Directors present their report and the audited financial statements for
the year ended 31 January 2024.
Results and Dividends
The financial statements for the year ended 31 January 2024 are contained
below. First, second and third interim dividends, each of 3.20p per Ordinary
share, were paid on 25 August 2023, 24 November 2023 and 29 February 2024
respectively. The Directors recommend a final dividend of 4.15p per Ordinary
share, payable on 31 May 2024 to shareholders on the register on 3 May 2024.
The ex-dividend date is 2 May 2024. A resolution to approve the final dividend
will be proposed at the Annual General Meeting.
Principal Activity and Status
The Company is registered as a public limited company (registered in Scotland
No. SC000881) and is an investment company within the meaning of Section 833
of the Companies Act 2006. The Company has been approved by HM Revenue &
Customs as an investment trust subject to it continuing to meet the relevant
eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the
ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for
all financial years commencing on or after 1 February 2012. The Directors
are of the opinion that the Company has conducted its affairs for the year
ended 31 January 2024 so as to enable it to comply with the ongoing
requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs in such a way as to satisfy the
requirements as a qualifying security for Individual Savings Accounts. The
Directors intend that the Company will continue to conduct its affairs in this
manner.
Donations to Charity
During the previous year, the Board decided that amounts of unclaimed
dividends greater than 12 years old, which are returned annually to the
Company by the Registrar in accordance with the Company Articles of
Association, would be donated to charity. Accordingly, the Company made a
donation of £19,000 (2023: £16,000) to the abrdn Charitable Foundation,
which directs funding to charities around the world.
The abrdn Charitable Foundation is a registered charity. Its board of
directors includes independent representation from the abrdn Group and
provides oversight and guidance for its charitable giving activities.
Capital Structure and Voting Rights
The issued Ordinary share capital at 31 January 2024 consisted of 146,172,889
Ordinary shares of 25p and 7,505,046 Ordinary shares held in treasury.
Each Ordinary share holds one voting right and shareholders are entitled to
vote on all resolutions which are proposed at general meetings of the Company.
The Ordinary shares, excluding treasury shares, carry a right to receive
dividends. On a winding up or other return of capital, after meeting the
liabilities of the Company, the surplus assets will be paid to Ordinary
shareholders in proportion to their shareholdings.
There are no restrictions on the transfer of, or voting rights attaching to,
the Ordinary shares in the Company other than certain restrictions which may
from time to time be imposed by law.
Management Agreement
The Company has appointed abrdn Fund Managers Limited ("aFML"), a wholly owned
subsidiary of abrdn plc, as its alternative investment fund manager. aFML has
been appointed to provide investment management, risk management,
administration and company secretarial services and promotional activities to
the Company. The Company's portfolio is managed by abrdn Investments Limited
("aIL) by way of a group delegation agreement in place between aFML and aIL.
In addition, aFML has sub-delegated administrative and secretarial services to
abrdn Holdings Limited and promotional activities to aIL. Details of the
management fees and fees payable for promotional activities are shown in notes
4 and 5 to the financial statements.
The management agreement is terminable on not less than six months' notice. In
the event of termination by the Company on less than the agreed notice period,
compensation is payable to the Manager in lieu of the unexpired notice period.
Substantial Interests
Information provided to the Company by major shareholders pursuant to the
FCA's Disclosure Guidance and Transparency Rules is published by the Company
via a Regulatory Information Service.
The table below sets out the interests in 3% or more of the issued share
capital of the Company, of which the Board was aware as at 31 January 2024.
Shareholder Number of shares held % held
Interactive Investor 37,572,556 25.7
Hargreaves Lansdown 17,857,977 12.2
EFG Harris Allday 6,942,544 4.7
A J Bell 6,328,721 4.3
W M Thomson 5,750,363 3.9
Charles Stanley 5,547,100 3.8
Rathbones 5,404,196 3.7
HSDL 5,044,283 3.4
Canaccord Genuity Wealth Management 4,579,615 3.1
There have been no changes notified to the Company between the year end and
the date of approval of this Report.
Directors
Throughout the year, the Board comprised five non-executive Directors, each of
whom is considered by the Board to be independent of the Company and the
Manager. David Barron is the Chairman and Howard Williams is the Senior
Independent Director.
The Directors attended scheduled Board and Committee meetings during the year
ended 31 January 2024 as follows (with their eligibility to attend the
relevant meetings in brackets):
Board Meetings Audit Committee Meetings Management Engagement Committee Meetings Nomination and Remuneration Committee Meetings
David Barron 6 (6) - (-)(A) 1 (1) 1 (1)
Gay Collins 6 (6) 2 (2) 1 (1) 1 (1)
Jasper Judd 6 (6) 2 (2) 1 (1) 1 (1)
Christine Montgomery 6 (6) 2 (2) 1 (1) 1 (1)
Howard Williams 6 (6) 2 (2) 1 (1) 1 (1)
(A) David Barron is not a member of the Audit Committee but attends by
invitation. He attended all Audit Committee meetings during the year.
The Board meets more frequently when business needs require.
Under the terms of the Company's Articles of Association, Directors are
subject to election at the first Annual General Meeting after their
appointment and are required to retire and be subject to re-election at least
every three years thereafter. However, the Board has decided that all
Directors will retire annually. Accordingly, Gay Collins, Jasper Judd, Howard
Williams, Christine Montgomery and David Barron will retire at the Annual
General Meeting and, being eligible, offer themselves for re-election.
The Board believes that all the Directors seeking re-election remain
independent of the Manager and free from any relationship which could
materially interfere with the exercise of their judgement on issues of
strategy, performance, resources and standards of conduct. The Board believes
that each Director has the requisite high level and range of business,
investment and financial experience which enables the Board to provide clear
and effective leadership and proper governance of the Company. Following
formal performance evaluations, each Director's performance continues to be
effective and demonstrates commitment to the role, and their individual
performances contribute to the long-term sustainable success of the Company.
The Board therefore recommends the re-election of each of the Directors at the
Annual General Meeting.
Board's Policy on Tenure
In normal circumstances, it is the Board's expectation that Directors will not
serve beyond the Annual General Meeting following the ninth anniversary of
their appointment. However, the Board takes the view that independence of
individual Directors is not necessarily compromised by length of tenure on the
Board and that continuity and experience can add significantly to the Board's
strength. The Board believes that recommendation for re-election should be on
an individual basis following a rigorous review which assesses the
contribution made by the Director concerned, but also taking into account the
need for managed succession and diversity.
It is the Board's policy that the Chairman of the Board will not serve as a
Director beyond the Annual General Meeting following the ninth anniversary of
his or her appointment to the Board. However, this may be extended in
exceptional circumstances or to facilitate effective succession planning and
the development of a diverse Board. In such a situation the reasons for the
extension will be fully explained to shareholders and a timetable for the
departure of the Chairman clearly set out.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced
individuals with the right knowledge represented on the Board in order to
allow it to fulfil its obligations. The Board also recognises the benefits,
and is supportive of, the principle of diversity in its recruitment of new
Board members, including diversity of thought, location and background. The
Board will not display any bias for age, gender, race, sexual orientation,
religion, ethnic or national origins, or disability in considering the
appointment of its Directors. In view of its size, the Board will continue to
ensure that all appointments are made on the basis of merit against the
specification prepared for each appointment. In doing so, the Board will take
account of the targets set out in the FCA's Listing Rules, which are set out
below.
The Board has resolved that the Company's year end date is the most
appropriate date for disclosure purposes.
Table for reporting on gender as at 31 January 2024
Number of Board members Percentage of the Board Number of senior positions on the Board (CEO, CFO, Chair and SID) Number in executive management Percentage of executive management
Men 3 60% n/a n/a n/a
(note 3) (note 3) (note 3)
Women 2 40% (note 1)
Not specified/prefer not to say - -
Table for reporting on ethnic background as at 31 January 2024
Number of Board members Percentage of the Board Number of senior positions on the Board (CEO, CFO, Chair and SID) Number in executive management Percentage of executive management
White British or other White 5 100% n/a n/a n/a
(including minority-white groups)
(note 3) (note 3) (note 3)
Minority ethnic - - (note 2)
Not specified/prefer not to say - -
Notes:
1. Meets target that at least 40% of Directors are women as set
out in LR 9.8.6R (9)(a)(i).
2. Does not meet target that at least one Director is from a
minority ethnic background as set out in LR 9.8.6R (9)(a)(iii).
3. This column is not applicable as the Company is externally
managed and does not have any executive staff. Specifically, it does not have
either a CEO or CFO. The Company considers that the roles of Chairman of the
Board, Senior Independent Director and Chairs of the Audit Committee,
Nomination and Remuneration Committee and Management Engagement Committee are
senior Board positions and, accordingly, that the Company meets in spirit the
requirement that at least one of the senior Board positions is held by a woman
as set out in LR 9.8.6R (9)(a)(ii) .
As shown in the above table, the Company has not as yet met the target set out
in LR 9.8.6R (9)(a)(iii) that at least one Director is from a minority ethnic
background. It is the Board's intention that this target will be taken into
account at the time of the next appointment.
The Roles of the Chairman and Senior Independent Director
The Chairman is responsible for providing effective leadership of the Board,
demonstrating objective judgement and promoting a culture of openness and
debate. The Chairman facilitates the effective contribution and encourages
active engagement by each Director. In conjunction with the Company Secretary,
the Chairman ensures that Directors receive accurate, timely and clear
information to assist them with effective decision-making. The Chairman acts
upon the results of the Board evaluation process by recognising strengths and
addressing any weaknesses and also ensures that the Board engages with major
shareholders and that all Directors understand shareholder views.
The Senior Independent Director acts as a sounding board for the Chairman and
acts as an intermediary for other Directors, when necessary. Working closely
with the Nomination and Remuneration Committee, the Senior Independent
Director takes responsibility for an orderly succession process for the
Chairman, and leads the annual appraisal of the Chairman's performance. The
Senior Independent Director is also available to shareholders to discuss any
concerns they may have.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of Directors' and Officers'
liabilities in relation to their acts on behalf of the Company. Each Director
is entitled to be indemnified out of the assets of the Company to the extent
permitted by law against any loss or liability incurred by him or her in the
execution of his or her duties in relation to the affairs of the Company.
These rights are included in the Articles of Association of the Company.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director
has a conflict of interest. As part of this process, each Director prepares a
list of other positions held and all other conflict situations that may need
to be authorised either in relation to the Director concerned or his or her
connected persons. The Board considers each Director's situation and decides
whether to approve any conflict, taking into consideration what is in the best
interests of the Company and whether the Director's ability to act in
accordance with his or her wider duties is affected. Each Director is required
to notify the Company Secretary of any potential, or actual, conflict
situations that will need authorising by the Board. Authorisations given by
the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all Directors are
issued with letters of appointment. There were no contracts during, or at the
end of the year, in which any Director was interested.
The Company has a policy of conducting its business in an honest and ethical
manner. The Company takes a zero-tolerance approach to bribery and corruption
and has procedures in place that are proportionate to the Company's
circumstances to prevent them. The Manager also adopts a group-wide
zero-tolerance approach and has its own detailed policy and procedures in
place to prevent bribery and corruption. Copies of the Manager's anti-bribery
and corruption policies are available on its website.
In relation to the corporate offence of failing to prevent tax evasion, it is
the Company's policy to conduct all business in an honest and ethical manner.
The Company takes a zero-tolerance approach to facilitation of tax evasion
whether under UK law or under the law of any foreign country and is committed
to acting professionally, fairly and with integrity in all its business
dealings and relationships.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board
is accountable to the Company's shareholders for good governance and this
statement describes how the Company has applied the principles identified in
the UK Corporate Governance Code as published in July 2018 (the "UK Code"),
which is available on the Financial Reporting Council's (the "FRC") website:
frc.org.uk.
The Board has also considered the principles and provisions of the AIC Code of
Corporate Governance as published in February 2019 (the "AIC Code"). The AIC
Code addresses the principles and provisions set out in the UK Code, as well
as setting out additional provisions on issues that are of specific relevance
to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the FRC, provides more relevant
information to shareholders.
The Board confirms that, during the year, the Company complied with the
principles and provisions of the AIC Code and the relevant provisions of the
UK Code, except as set out below.
The UK Code includes provisions relating to:
- interaction with the workforce (provisions 2, 5 and 6);
- the role and responsibility of the chief executive (provisions 9
and 14);
- requirement of the chairman of a remuneration committee to have
served on a remuneration committee for at least 12 months prior to appointment
(provision 32); and
- executive directors' remuneration (provisions 33 and 36 to 40).
The Board considers that these provisions are not relevant to the position of
the Company, being an externally managed investment company. In particular,
all of the Company's day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no executive
directors, employees or internal operations. The Company has therefore not
reported further in respect of these provisions.
Full details of the Company's compliance with AIC Code can be found on its
website.
Going Concern
The Company's assets consist mainly of equity shares in companies listed on
the London Stock Exchange and in most circumstances are considered to be
realisable within a short timescale. The Board has set limits for borrowing
and derivative contract positions and regularly reviews actual exposures, cash
flow projections and compliance with loan covenants. The Directors have
considered the fact that Company's investments comprise readily realisable
securities which can be sold to meet funding requirements if necessary. The
Directors have also performed stress testing on the portfolio and the loan
financial covenants.
The Company has borrowings in the form of £30 million 3.99% Loan Notes that
mature in December 2045, and a £30 million multi-currency revolving credit
facility with The Bank of Nova Scotia, London Branch, which matures in July
2024. The Board has reviewed indicative quotes for the renewal of the
multi-currency revolving credit facility and expects to be able to renew it
upon its maturity with a similar facility.
Following this assessment, the Directors believe that the Company has adequate
financial resources to continue in operational existence for the foreseeable
future and for at least twelve months from the date of this Report.
Accordingly, they continue to adopt the going concern basis of accounting in
preparing the financial statements.
Accountability and Audit
Each Director confirms that, so far as he or she is aware, there is no
relevant audit information of which the Company's Auditor is unaware, and they
have taken all the steps that they could reasonably be expected to have taken
as Directors in order to make themselves aware of any relevant audit
information and to establish that the Company's Auditor is aware of that
information.
Independent Auditor
The Company's Auditor, Deloitte LLP, has indicated its willingness to remain
in office. The Board will propose resolutions at the Annual General Meeting to
re-appoint Deloitte LLP as Auditor for the ensuing year and to authorise the
Directors to determine its remuneration.
Relations with Shareholders
The Directors place a great deal of importance on communications with
shareholders. Shareholders and investors may obtain up to date information on
the Company through its website.
The Board's policy is to communicate directly with shareholders and their
representative bodies without the involvement of the management group
(including the Company Secretary or the Manager) in situations where direct
communication is required, and representatives from the Board and Manager meet
with major shareholders on at least an annual basis in order to gauge their
views.
abrdn Holdings Limited has been appointed Company Secretary to the Company.
Whilst abrdn Holdings Limited is a wholly owned subsidiary of the abrdn Group,
there is a clear separation of roles between the Manager and Company Secretary
with different board compositions and different reporting lines in place. The
Company Secretary only acts on behalf of the Board, not the Manager, and there
is no filtering of communication.
At each Board meeting the Board receives full details of any communication
from shareholders to which the Chairman responds personally as appropriate.
Directors attend meetings with the Company's largest shareholders and meet
other shareholders at the Annual General Meeting and, as explained in the
Chairman's Statement, the Company will hold an online shareholder presentation
in advance of the Annual General Meeting this year, which will include an
interactive question and answer session.
The notice of the Annual General Meeting is sent out at least 20 working days
in advance of the meeting. All shareholders have the opportunity to put
questions to the Board and Manager at the meeting.
Disclosures in Strategic Report
In accordance with Section 414 C (11) of the Companies Act 2006, the following
information otherwise required to be set out in the Directors' Report has been
included in the Strategic Report: risk management objectives and policies and
likely future developments in the business.
Annual General Meeting
The Annual General Meeting will be held at 18 Bishops Square, London E1 6EG at
12 noon on Thursday 23 May 2024.
By order of the Board
abrdn Holdings Limited
Company Secretary
1 George Street
Edinburgh EH2 2LL
3 April 2024
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with UK Accounting Standards, including FRS
102 'The Financial Reporting Standard Applicable in the UK and Republic
of Ireland'.
Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with
the Companies Act 2006. They have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the Company and to
prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Statement of Corporate Governance that comply with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, but not
for the content of any information included on the website that has been
prepared or issued by third parties. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
- the financial statements have been prepared in accordance with
applicable accounting standards and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
- the Annual Report taken as a whole, is fair, balanced and
understandable and it provides the information necessary to assess the
Company's position and performance, business model and strategy; and
- the Strategic Report and Directors' Report include a fair review
of the development and performance of the business and the position of the
Company, together with a description of the principal risks and uncertainties
that the Company faces.
On behalf of the Board
David Barron
Chairman
3 April 2024
Statement of Comprehensive Income
Year ended 31 January 2024 Year ended 31 January 2023
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments 10 - 4,712 4,712 - (13,996) (13,996)
Currency profit/(loss) - 267 267 - (558) (558)
Income 3 22,949 - 22,949 21,950 - 21,950
Investment management fee 4 (696) (1,044) (1,740) (682) (1,022) (1,704)
Administrative expenses 5 (1,072) - (1,072) (951) - (951)
Net return/(loss) before finance costs and taxation 21,181 3,935 25,116 20,317 (15,576) 4,741
Finance costs 6 (757) (1,116) (1,873) (597) (888) (1,485)
Return/(loss) before taxation 20,424 2,819 23,243 19,720 (16,464) 3,256
Taxation 7 (410) - (410) (412) - (412)
Return/(loss) after taxation 20,014 2,819 22,833 19,308 (16,464) 2,844
Return/(loss) per Ordinary share (pence) 9 13.54 1.91 15.45 13.02 (11.10) 1.92
a) b) c) d) e) f) g)
The column of this statement headed "Total" represents the profit and loss
account of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Statement of Financial Position
As at As at
31 January 2024 31 January 2023
Notes £'000 £'000
Non-current assets
Investments at fair value through profit or loss 10 474,087 478,895
Current assets
Debtors 11 2,925 2,452
Cash and cash equivalents 12,868 12,267
15,793 14,719
Creditors: amounts falling due within one year
Bank loan 12 (13,307) (13,762)
Other creditors 12 (1,013) (1,509)
(14,320) (15,271)
Net current assets/(liabilities) 1,473 (552)
Total assets less current liabilities 475,560 478,343
Creditors: amounts falling due after more than one year 13 (29,745) (29,738)
Net assets 445,815 448,605
Capital and reserves
Called-up share capital 14 38,419 38,419
Share premium account 4,908 4,908
Capital redemption reserve 1,606 1,606
Capital reserve 376,996 379,839
Revenue reserve 16 23,886 23,833
Equity shareholders' funds 445,815 448,605
Net asset value per Ordinary share (pence) 17 304.99 302.57
The financial statements were approved and authorised for issue by the Board
of Directors on 3 April 2024 and were signed on its behalf by:
David Barron
Director
Company Number: SC000881
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Equity
For the year ended 31 January 2024
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 January 2023 38,419 4,908 1,606 379,839 23,833 448,605
Return after taxation - - - 2,819 20,014 22,833
Repurchase of shares for Treasury - - (5,662) - (5,662)
Dividends paid 8 - - - - (19,961) (19,961)
Balance at 31 January 2024 38,419 4,908 1,606 376,996 23,886 445,815
For the year ended 31 January 2023
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 January 2022 38,419 4,619 1,606 396,303 23,632 464,579
(Loss)/return after taxation - - - (16,464) 19,308 2,844
Issue of shares from Treasury - 289 - - - 289
Dividends paid 8 - - - - (19,107) (19,107)
Balance at 31 January 2023 38,419 4,908 1,606 379,839 23,833 448,605
The Revenue reserve and the part of the Capital reserve represented by
realised capital gains represent the amount of the Company's reserves
distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
Year ended Year ended
31 January 2024 31 January 2023
Notes £'000 £'000
Operating activities
Net return before finance costs and taxation 25,116 4,741
Adjustment for:
(Gains)/losses on investments (4,712) 13,996
Currency (gains)/losses (267) 558
Decrease in accrued dividend income 196 18
Decrease/(increase) in other debtors excluding tax 15 (16)
Increase in other creditors 109 186
Overseas withholding tax (1,093) (1,052)
Net cash flow from operating activities 19,364 18,431
Investing activities
Purchases of investments (91,372) (109,784)
Sales of investments 100,244 120,822
Net cash from investing activities 8,872 11,038
Financing activities
Interest paid (1,916) (1,409)
Dividends paid 8 (19,961) (19,107)
Buyback of Ordinary shares for treasury (5,571) -
Issue of shares from treasury - 289
Net cash used in financing activities (27,448) (20,227)
Increase in cash and cash equivalents 788 9,242
Analysis of changes in cash and cash equivalents during the year
Opening balance 12,267 2,855
Effect of exchange rate fluctuations on cash held (187) 170
Increase in cash as above 788 9,242
Closing balance 12,868 12,267
The accompanying notes are an integral part of the financial statements. A
reconciliation of the changes in net debt can be found in note 18.
Notes to the Financial Statements
For the year ended 31 January 2024
1. Principal activity
The Company is a closed-end investment company, registered in Scotland No.
SC000881, with its Ordinary shares being listed on the London Stock Exchange.
2. Accounting policies
(a) Basis of preparation and going concern. The financial statements have been
prepared in accordance with Financial Reporting Standard 102, the requirements
of the Companies Act 2006 and with the AIC ("Association of Investment
Companies") Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' issued in July 2022.
The financial statements are prepared in sterling which is the functional
currency of the Company and rounded to the nearest £'000. They have also been
prepared on the assumption that approval as an investment trust will continue
to be granted.
The Company's assets consist mainly of equity shares in companies listed on
the London Stock Exchange and in most circumstances are considered to be
realisable within a short timescale. The Board has set limits for borrowing
and derivative contract positions and regularly reviews actual exposures, cash
flow projections and compliance with loan covenants. The Directors have
considered the fact that Company's investments comprise readily realisable
securities which can be sold to meet funding requirements if necessary. The
Directors have also performed stress testing on the portfolio and the loan
financial covenants.
The Company has borrowings in the form of £30 million 3.99% Loan Notes that
mature in December 2045, and a £30 million multi-currency revolving credit
facility with The Bank of Nova Scotia, London Branch, which matures in July
2024. The Board has reviewed indicative quotes for the renewal of the
multi-currency revolving credit facility and expects to be able to renew it
upon its maturity with a similar facility.
Following this assessment, the Directors believe that the Company has adequate
financial resources to continue in operational existence for the foreseeable
future and for at least twelve months from the date of this Report.
Accordingly, they continue to adopt the going concern basis of accounting in
preparing the financial statements.
Critical accounting judgements and key sources of estimation uncertainty. The
preparation of financial statements requires the use of certain significant
accounting judgements, estimates and assumptions which requires management to
exercise its judgement in the process of applying the accounting policies
which are continually evaluated. The Board considers that there are no
accounting judgements, estimates and assumptions which would significantly
impact the financial statements.
(b) Revenue, expenses and interest payable. Income from equity investments (other
than special dividends), including taxes deducted at source, is included in
revenue by reference to the date on which the investment is quoted
ex-dividend. Special dividends are credited to revenue or capital according to
the circumstances. Foreign income is converted at the exchange rate applicable
at the time of receipt. Interest receivable on short term deposits and
expenses are accounted for on an accruals basis. Income from underwriting
commission is recognised as earned. Interest payable is calculated on an
effective yield basis. Stock lending income is recognised on an accruals
basis.
Underwriting commission is taken to revenue, unless any shares underwritten
are required to be taken up, in which case the proportionate commission
received is deducted from the cost of the investment.
Expenses are charged to capital when they are incurred in connection with the
maintenance or enhancement of the value of investments. In this respect, the
investment management fee and relevant finance costs, including the
amortisation of expenses, are allocated between revenue and capital in line
with the Board's expectation of returns from the Company's investments over
the long-term of 40% to revenue and 60% to capital.
(c) Investments. Investments have been designated upon initial recognition as fair
value through profit or loss. Investments are recognised and de-recognised at
trade date where a purchase or sale is under a contract whose terms require
delivery within the timeframe established by the market concerned, and are
measured initially at fair value. Subsequent to initial recognition,
investments are recognised at fair value through profit or loss. For listed
investments, this is deemed to be bid market prices or closing prices for SETS
stocks sourced from the London Stock Exchange. SETS is the London Stock
Exchange electronic trading service covering most of the market including all
FTSE All-Share and the most liquid AIM constituents. Gains or losses arising
from changes in fair value are included in net profit or loss for the period
as a capital item in the Statement of Comprehensive Income.
(d) Dividends payable. Final dividends payable to equity shareholders are
recognised in the financial statements when they have been approved by
Shareholders and become a liability of the Company. Interim dividends are
recognised in the financial statements in the period in which they are paid.
(e) Nature and purpose of reserves
Called-up share capital. The Ordinary share capital on the Statement of
Financial Position relates to the number of shares in issue and in treasury.
Only when the shares are cancelled, either from treasury or directly, is a
transfer made to the capital redemption reserve.
Share premium account. The balance classified as share premium includes the
premium above the nominal value from the proceeds on issue of any equity share
capital comprising Ordinary shares of 25p.
Capital redemption reserve. The capital redemption reserve is used to record
the amount equivalent to the nominal value of any of the Company's own shares
purchased and cancelled in order to maintain the Company's capital.
Capital reserve. Gains or losses on the disposal of investments and changes in
the fair values of investments are transferred to the capital reserve. The
capital element of the management fee and relevant finance costs are charged
to this reserve. Any associated tax relief is also credited to this reserve.
Certain other items including gains or losses on foreign currency and special
dividends are also allocated to this reserve as appropriate. The part of this
reserve represented by realised capital gains is available for distribution by
way of dividend.
The costs of share buybacks to be held in treasury are also deducted from this
reserve.
Revenue reserve. Income and expenses which are recognised in the revenue
column of the Statement of Comprehensive Income are transferred to the revenue
reserve. The revenue reserve is available for distribution by way of dividend.
(f) Taxation. The charge for taxation is based on the profit for the year and
takes into account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes.
Owing to the Company's status as an investment trust, and the intention to
continue meeting the conditions required to obtain approval in the foreseeable
future, the Company has not provided deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
(g) Foreign currency. Monetary assets and liabilities and non-monetary assets held
at fair value denominated in foreign currencies are converted into sterling at
the rate of exchange ruling at the reporting date. Transactions during the
year involving foreign currencies are converted at the rate of exchange ruling
at the transaction date. Gains or losses arising from a change in exchange
rates subsequent to the date of a transaction are included as a currency gain
or loss in revenue or capital in the Statement of Comprehensive Income,
depending on whether the gain or loss is of a revenue or capital nature. The
Company receives a proportion of its investment income in foreign currency.
These amounts are translated at the rate ruling on the date of receipt.
(h) Traded options. The Company may enter into certain derivative contracts (e.g.
options). Option contracts are accounted for as separate derivative contracts
and are therefore shown in other assets or other liabilities at their fair
value. The initial fair value is based on the initial premium, which is
recognised upfront. The premium received and fair value changes in the open
position which occur due to the movement in underlying securities are
recognised in the revenue column, losses realised on the exercise of the
contracts are recorded in the capital column of the Statement of Comprehensive
Income.
In addition, the Company may enter into derivative contracts to manage market
risk and gains or losses arising on such contracts are recorded in the capital
column of the Statement of Comprehensive Income.
(i) Borrowings. Borrowings are measured initially at the fair value of the
consideration received, net of any issue expenses, and subsequently at
amortised cost using the effective interest method. The finance costs of such
borrowings are accounted for on an accruals basis using the effective interest
rate method and are charged 40% to revenue and 60% to capital in the Statement
of Comprehensive Income to reflect the Company's investment policy and
prospective income and capital growth.
(j) Treasury shares. When the Company purchases the Company's equity share capital
to be held as treasury shares, the amount of the consideration paid, which
includes directly attributable costs, is net of any tax effects, and is
recognised as a deduction from the capital reserve. When these shares are sold
subsequently, the amount received is recognised as an increase in equity, and
any resulting surplus on the transaction is transferred to the share premium
account and any resulting deficit is transferred from the capital reserve.
3. Income
2024 2023
£'000 £'000
Income from investments
UK dividend income 14,970 13,643
Overseas dividends 5,843 6,262
20,813 19,905
Other income
Income on derivatives 2,060 2,007
Interest on tax reclaims 3 -
Interest received on withholding tax refunds 73 38
2,136 2,045
Total income 22,949 21,950
h) i)
During the year, the Company earned premiums totalling £2,060,000 (2023 -
£2,007,000) in exchange for entering into derivative transactions. The
Company had no open positions in derivative contracts at 31 January 2024 (2023
- no open positions). Losses realised on the exercise of derivative
transactions are disclosed in note 10.
4. Management fee
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee 696 1,044 1,740 682 1,022 1,704
The Company has an agreement with abrdn Fund Managers Limited ("aFML") for the
provision of investment management, risk management, accounting,
administrative and secretarial services. The management fee is calculated and
charged, on a monthly basis, at 0.45% per annum on the first £225 million,
0.35% per annum on the next £200 million and 0.25% per annum on amounts over
£425 million of the net assets of the Company, with debt at par and excluding
commonly managed funds. The balance due at the year end was £289,000 (2023 -
£286,000). The management fee is allocated 40% to revenue and 60% to capital.
There were no commonly managed funds held in the portfolio during the year to
31 January 2024 (2023 - none).
The management agreement may be terminated by either party on six months'
written notice.
5. Administrative expenses
2024 2023
£'000 £'000
Directors' fees 161 153
Auditor's remuneration (excluding VAT):
- fees payable to the Company's Auditor for the audit of the Company's annual 34 30
accounts
- fees payable to the Company's Auditor for other services:
- interim review - 7
Irrecoverable VAT 64 61
Promotional activities 246 243
Registrar's fees 46 43
Share plan fees 149 120
Printing and postage 104 65
Other expenses 268 229
1,072 951
Expenses of £246,000 (2023 - £243,000) were paid to aFML in respect of the
promotional activities of the Company. The balance outstanding at the year end
was £79,000 (2023 - £81,000).
6. Finance costs
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Bank loan 263 394 657 110 166 276
Loan Notes - repayable after more than five years 479 718 1,197 479 718 1,197
Amortised Loan Notes issue expenses 3 4 7 3 4 7
Bank overdraft 12 - 12 5 - 5
757 1,116 1,873 597 888 1,485
Finance costs (excluding bank overdraft interest) are allocated 40% to revenue
and 60% to capital.
7. Taxation
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge for the year
Overseas tax suffered 1,203 - 1,203 1,154 - 1,154
Overseas tax reclaimable (793) - (793) (742) - (742)
Total tax charge for the year 410 - 410 412 - 412
(b) Factors affecting the tax charge for the year. The UK corporation tax rate is
25% (2023 - 19%). The tax assessed for the year is lower than the rate of
corporation tax. The differences are explained below:
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return before taxation 20,424 2,819 23,243 19,720 (16,464) 3,256
Corporation tax at 24% (2023 - 19%) 4,902 677 5,579 3,747 (3,128) 619
Effects of: -
Non-taxable UK dividend income (3,406) - (3,406) (2,628) - (2,628)
Non-taxable stock dividends - - - - -
Capital (gains)/losses on investments not taxable - (1,123) (1,123) - 2,659 2,659
Expenses not deductible for tax purposes 1 - 1 1 - 1
Currency (gains)/losses not taxable - (73) (73) - 106 106
Overseas taxes 410 - 410 412 - 412
Non-taxable overseas dividends (1,402) - (1,402) (1,050) - (1,050)
Excess management expenses (95) 519 424 (70) 363 293
Total tax charge 410 - 410 412 - 412
(c) Factors that may affect future tax charges. At the year end, the Company has,
for taxation purposes only, accumulated unrelieved management expenses and
loan relationship deficits of £135,671,000 (2023 - £133,906,000). A deferred
tax asset in respect of this has not been recognised and these unrelieved
expenses will only be utilised if the Company has profits chargeable to
corporation tax in the future.
The UK corporation tax rate increased to 25% with effect from 1 April 2023.
This impacted, where appropriate, the value of UK deferred tax balances and
the tax charged on future UK profits.
8. Ordinary dividends on equity shares
2024 2023
£'000 £'000
Amounts recognised as distributions paid during the year:
Third interim dividend for 2023 - 3.00p (2022 - 3.00p) 4,448 4,445
Final dividend for 2023 - 4.10p (2022 - 3.90p) 6,079 5,782
First interim dividend for 2024 - 3.20p (2023 - 3.00p) 4,744 4,448
Second interim dividend for 2024 - 3.20p (2023 - 3.00p) 4,709 4,448
Return of unclaimed dividends(A) (19) (16)
19,961 19,107
(A) Unclaimed dividends returned to the Company during the year ended 31
January 2024 have been donated to charity (see note 22).
A third interim dividend of 3.20p per Ordinary share was declared on 14
December 2023, payable on 29 February 2024 to shareholders on the register on
2 February 2024 and has not been included as a liability in these financial
statements. The final dividend of 4.15p per Ordinary share was approved by the
Board on 3 April 2024, payable on 31 May 2024 to shareholders on the register
on 3 May 2024 and has not been included as a liability in the financial
statements.
The table below sets out the total dividends paid and proposed in respect of
the financial year, which is the basis upon which the requirements of Sections
1158-1159 of the Corporation Tax Act 2010 are considered. The net revenue
available for distribution by way of dividend for the year is £20,014,000
(2023 - £19,308,000).
2024 2023
£'000 £'000
First interim dividend for 2024 - 3.20p (2023 - 3.00p) 4,744 4,448
Second interim dividend for 2024 - 3.20p (2023 - 3.00p) 4,709 4,448
Third interim dividend for 2024 - 3.20p (2023 - 3.00p) 4,678 4,448
Final dividend for 2024 - 4.15p (2023 - 4.10p) 6,019 6,079
20,150 19,423
The final dividend is based on the latest share capital of 145,039,800
Ordinary shares excluding those held in treasury.
9. Return per Ordinary share
2024 2023
£'000 p £'000 p
Revenue return 20,014 13.54 19,308 13.02
Capital return/(loss) 2,819 1.91 (16,464) (11.10)
Total return 22,833 15.45 2,844 1.92
Weighted average number of Ordinary shares in issue 147,764,075 148,256,451
10. Investments at fair value through profit or loss
2024 2023
£'000 £'000
Opening book cost 424,815 428,488
Investment holdings gains 54,080 73,935
Opening fair value 478,895 502,423
Analysis of transactions made during the year
Purchases 90,723 110,433
Sales - proceeds (100,243) (119,965)
Gains/(losses) on investments 4,712 (13,996)
Closing fair value 474,087 478,895
Closing book cost 409,443 424,815
Closing investment holdings gains 64,644 54,080
Closing fair value 474,087 478,895
The Company received £100,243,000 (2023 - £119,965,000) from investments
sold in the year. The book cost of these investments when they were purchased
was £105,411,000 (2023 - £114,106,000). These investments have been revalued
over time and until they were sold any unrealised gains/losses were included
in the fair value of the investments.
The realised gains figure above includes losses realised on the exercise of
traded options of £1,251,000 (2023 - £625,000). Premiums received of
£2,060,000 (2023 - £2,007,000) are included within income per note 3.
Transaction costs. During the year expenses were incurred in acquiring or
disposing of investments classified as fair value through profit or loss.
These have been expensed through capital and are included within
gains/(losses) on investments in the Statement of Comprehensive Income. The
total costs were as follows:
2024 2023
£'000 £'000
Purchases 333 506
Sales 55 76
388 582
The above transaction costs are calculated in line with the AIC SORP. The
transaction costs in the Company's Key Information Document are calculated on
a different basis and in line with the PRIIPs regulations.
11. Debtors: amounts falling due within one year
2024 2023
£'000 £'000
Net dividends and interest receivable 568 763
Tax recoverable 2,340 1,657
Other loans and receivables 17 32
2,925 2,452
12. Creditors: amounts falling due within one year
2024 2023
(a) Bank loan £'000 £'000
EUR 15,600,000 - 11 February 2023 - 13,762
EUR 15,600,000 - 11 February 2024 13,307 -
13,307 13,762
The Company has a £30,000,000 multi-currency revolving credit facility with
The Bank of Nova Scotia, London Branch committed until 11 July 2024. Under the
terms of the facility, subject to the lender's credit approval, the Company
has the option to increase the level of the facility from £30,000,000 to
£40,000,000 at any time, should further investment opportunities be
identified. As at 31 January 2024 €15,600,000 had been drawn down at a rate
of 5.130% (2023 - €15,600,000 at a rate of 3.618%), which matured on 15
February 2024. At the date this Report was approved €15,600,000 had been
drawn down at a rate of 5.109%, maturing on 15 April 2024. The terms of the
loan facility contain covenants that the adjusted asset coverage is not be
less than 4.00 to 1.00 and that the minimum net assets of the Company are
£200 million.
2024 2023
(b) Other creditors £'000 £'000
Loan Notes and bank loan interest 209 257
Amount due to brokers 92 649
Sundry creditors 712 603
1,013 1,509
13. Creditors: amounts falling due after more than one year
2024 2023
£'000 £'000
3.99% Loan Notes 2045 30,000 30,000
Unamortised Loan Note issue expenses (255) (262)
29,745 29,738
The 3.99% Loan Notes were issued in December 2015 and are due to be redeemed
at par on 8 December 2045. Interest is payable in half-yearly instalments in
June and December. The Loan Notes are secured by a floating charge over the
whole of the assets of the Company. The Company has complied with the Loan
Note Trust Deed covenant that total net borrowings (ie. after the deduction of
cash balances) should not exceed 33% of the Company's net asset value and that
the Company's net asset value should not be less than £200 million.
The fair value of the Loan Notes as at 31 January 2024 was £23,916,000 (2023
- £29,393,000), the value stated in note 19. The effect on the net asset
value of deducting the Loan Notes at fair value rather than at par is
disclosed in note 17.
14. Called-up share capital
2024 2023
£'000 £'000
Allotted, called up and fully paid:
146,172,889 (2023 - 148,264,670) Ordinary shares of 25p each - equity 36,543 37,066
Treasury shares:
7,505,046 (2023 - 5,413,265) Ordinary shares of 25p each - equity 1,876 1,353
38,419 38,419
The Ordinary share capital on the Statement of Financial Position relates to
the number of shares in issue and in treasury. Only when the shares are
cancelled, either from treasury or directly, is a transfer made to the capital
redemption reserve.
During the year the Company issued no Ordinary shares (2023 - 100,000 shares
issued at a price of 290p per share). During the year the Company repurchased
2,091,781 (2023 - nil) ordinary shares at a cost of £5,662,000, including
expenses. All of the shares were placed in treasury.
15. Analysis of changes in financing during the year
2024 2023
Equity Equity
share capital share capital
(including Loan (including Loan
premium) Notes premium) Notes
£'000 £'000 £'000 £'000
Opening balance at 31 January 2023 43,327 29,738 43,038 29,731
Issue of shares from Treasury - - 289 -
Movement in unamortised Loan Notes issue expenses - 7 - 7
Closing balance at 31 January 2024 43,327 29,745 43,327 29,738
16. Revenue reserve per share
The following information is presented supplemental to the financial
statements to show the Companies Act position at the year end.
2024 2023
Revenue reserve (£'000) 23,886 23,833
Number of Ordinary shares in issue at year end 146,172,889 148,264,670
Revenue reserve per Ordinary share (p) as per the Companies Act 16.34 16.07
Less: - third interim dividend (p) (3.20) (3.00)
- final dividend (p) (4.15) (4.10)
Revenue reserve per Ordinary share (p) 8.99 8.97
17. Net asset value per share
Equity shareholders' funds have been calculated in accordance with the
provisions of FRS 102. The analysis of equity shareholders' funds on the face
of the Statement of Financial Position does not reflect 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 year end, adjusted to
reflect the deduction of the Loan Notes at par. A reconciliation between the
two sets of figures is as follows:
2024 2023
Net assets attributable (£'000) 445,815 448,605
Number of Ordinary shares in issue at year end(A) 146,172,889 148,264,670
Net asset value per Ordinary share 304.99p 302.57p
(A) Excluding shares held in treasury.
Adjusted net assets 2024 2023
Net assets attributable (£'000) as above 445,815 448,605
Unamortised Loan Note issue expenses (note 13) (255) (262)
Adjusted net assets attributable (£'000) 445,560 448,343
Number of Ordinary shares in issue at year end(A) 146,172,889 148,264,670
Adjusted net asset value per Ordinary share 304.82p 302.39p
(A) Excluding shares held in treasury.
Net assets - debt at fair value £'000 £'000
Net assets attributable 445,815 448,605
Amortised cost Loan Notes 29,745 29,738
Market value Loan Notes (23,916) (29,393)
Net assets attributable 451,644 448,950
Number of Ordinary shares in issue at the period end(A) 146,172,889 148,264,670
Net asset value per Ordinary share (debt at fair value) 308.98p 302.80p
(A) Excluding shares held in treasury.
18. Analysis of changes in net debt
At Currency Non-cash At
31 January 2023 differences Cash flows movements 31 January 2024
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 12,267 (187) 788 - 12,868
Debt due within one year (13,762) 455 - - (13,307)
Debt due after more than one year (29,738) - - (7) (29,745)
(31,233) 268 788 (7) (30,184)
At Currency Non-cash At
31 January 2022 differences Cash flows movements 31 January 2023
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 2,855 170 9,242 - 12,267
Debt due within one year (13,034) (728) - - (13,762)
Debt due after more than one year (29,731) - - (7) (29,738)
(39,910) (558) 9,242 (7) (31,233)
A statement reconciling the movement in net funds to the net cash flow has not
been presented as there are no differences from the above analysis.
19. Financial instruments and risk management
The Company's investment activities expose it to various types of financial
risk associated with the financial instruments and markets in which it
invests. The Company's financial instruments comprise securities and other
investments, cash balances, loans and debtors and creditors that arise
directly from its operations; for example, in respect of sales and purchases
awaiting settlement, and debtors for accrued income. The Company also has the
ability to enter into derivative transactions in the form of option contracts
for the purpose of generating income and futures/options for hedging market
exposures.
During the year, the Company entered into certain options contracts for the
purpose of generating income. Positions closed during the year realised a loss
of £1,251,000 (2023 - £625,000). As disclosed in note 3, the premium
received and fair value changes in respect of options written in the year was
£2,060,000 (2023 - £2,007,000). The largest position in derivative contracts
held during the year at any given time was £905,000 (2023 - £889,000). The
Company had no open positions in derivative contracts at 31 January 2024 (2023
- none).
The Board relies on abrdn Fund Managers Limited ("aFML" or the "Manager") for
the provision of risk management activities under the terms of its management
agreement with aFML (further details of which are included under note 4). The
Board regularly reviews and agrees policies for managing each of the key
financial risks identified with the Manager. The types of risk and the
Manager's approach to the management of each type of risk, are summarised
below. Such approach has been applied throughout the year and has not changed
since the previous accounting period. The numerical disclosures exclude
short-term debtors and creditors on the grounds that they are not considered
to be material.
The Company's Manager has an independent Investment Risk department for
reviewing the investment risk parameters of all core equity, fixed income and
alternative asset classes on a regular basis. The department reports to the
Manager's Performance Review Committee which is chaired by the Manager's Chief
Investment Officer. The department's responsibility is to review and monitor
ex-ante (predicted) portfolio risk and style characteristics using best
practice, industry standard multi-factor models.
Risk management framework. The directors of aFML collectively assume
responsibility for aFML's obligations under the AIFMD including reviewing
investment performance and monitoring the Company's risk profile during the
year.
aFML is a fully integrated member of the abrdn Group (the "Group") which
provides a variety of services and support to aFML in the conduct of its
business activities, including in the oversight of the risk management
framework for the Company. aFML has delegated the day to day administration of
the investment policy to abrdn Limited, which is responsible for ensuring that
the Company is managed within the terms of its investment guidelines and the
limits set out in its pre-investment disclosures to investors (details of
which can be found on the Company's website). aFML has retained responsibility
for monitoring and oversight of investment performance, product risk and
regulatory and operational risk for the Company.
The Manager conducts its risk oversight function through the operation of the
Group's risk management processes and systems which are embedded within the
Group's operations. The Group's Risk Division supports management in the
identification and mitigation of risks and provides independent monitoring of
the business. The Division includes Compliance, Business Risk, Market Risk,
Risk Management and Legal. The team is headed up by the Group's Chief Risk
Officer, who reports to the Chief Executive Officers of the Group. The Risk
Division achieves its objective through embedding the Risk Management
Framework throughout the organisation using the Group's operational risk
management system ("SHIELD").
The Group's Internal Audit Department is independent of the Risk Division and
reports directly to the Group's Chief Executive Officers and to the Audit
Committee of the Group's Board of Directors. The Internal Audit Department is
responsible for providing an independent assessment of the Group's control
environment.
The Group's corporate governance structure is supported by several committees
to assist the board of directors of abrdn, its subsidiaries and the Company to
fulfil their roles and responsibilities. The Group's Risk Division is
represented on all committees, with the exception of those committees that
deal with investment recommendations. The specific goals and guidelines on the
functioning of those committees are described on the committees' terms of
reference.
Risk Management. The main risks the Company faces from its financial
instruments are (i) market risk (comprising interest rate risk, currency risk
and other price risk), (ii) liquidity risk and (iii) credit risk.
The Board regularly reviews and agrees policies for managing each of these
risks. The Group's policies for managing these risks are summarised below and
have been applied throughout the year. The numerical disclosures exclude
short-term debtors and creditors, other than for currency disclosures.
(i) Market risk. Market risk comprises three elements - interest rate risk,
currency risk and price risk.
(a) Interest rate risk. Interest rate movements may affect:
- the fair value of the investments in fixed interest rate securities;
- the level of income receivable on cash deposits; and
- interest payable on the Company's variable rate borrowings.
Management of the risk. The possible effects on fair value and cash flows that
could arise as a result of changes in interest rates are taken into account
when making investment and borrowing decisions.
The Board imposes borrowing limits to ensure gearing levels are appropriate to
market conditions and reviews these on a regular basis. Borrowings comprise
fixed rate, revolving, and uncommitted facilities. Details of borrowings at 31
January 2024 are shown in notes 12 and 13.
Interest risk profile. The interest rate risk profile of the portfolio of
financial assets and liabilities at the Statement of Financial Position date
was as follows:
Weighted
average Weighted
period for average
which interest Fixed Floating
rate is fixed rate rate rate
At 31 January 2024 Years % £'000 £'000
Assets
Sterling - - - 12,868
Total assets - - - 12,868
Liabilities
Bank loans 0.08 5.13 (13,307) -
Loan Notes 21.87 3.99 (29,745) -
Total liabilities - - (43,052) -
Weighted
average Weighted
period for average
which interest Fixed Floating
rate is fixed rate rate rate
At 31 January 2023 Years % £'000 £'000
Assets
Sterling - - - 12,267
Total assets - - - 12,267
Liabilities
Bank loans 0.17 3.62 (13,762) -
Loan Notes 22.87 3.99 (29,738) -
Total liabilities - - (43,500) -
The weighted average interest rate is based on the current yield of each
asset, weighted by its market value. The weighted average interest rate on
bank loans is based on the interest rate payable, weighted by the total value
of the loans. The maturity dates of the Company's borrowings are shown in
notes 12 and 13 to the financial statements.
The floating rate assets consist of cash deposits all earning interest at
prevailing market rates.
The Company's equity portfolio and short-term debtors and creditors (excluding
bank loans) have been excluded from the above tables. All financial
liabilities are measured at amortised cost.
Interest rate sensitivity. Movements in interest rates would not significantly
affect net assets attributable to the Company's shareholders and total profit.
(b) Foreign currency risk. A proportion of the Company's investment portfolio
is invested in overseas securities whose values are subject to fluctuation due
to changes in exchange rates. In addition, the impact of changes in foreign
exchange rates upon the profits of investee companies can result, indirectly,
in changes in their valuations. Consequently the Statement of Financial
Position can be affected by movements in exchange rates.
Management of the risk. It is not the Company's policy to hedge this risk on a
continuing basis but the Company may, from time to time, match specific
overseas investment with foreign currency borrowings. A proportion of the
Company's borrowings, as detailed in note 12, is in foreign currency as at 31
January 2024. The revenue account is subject to currency fluctuations arising
on dividends received in foreign currencies and, indirectly, due to the impact
of foreign exchange rates upon the profits of investee companies. The Company
does not hedge this currency risk.
Foreign currency risk exposure by currency of denomination:
31 January 2024 31 January 2023
Net Total Net Total
monetary currency monetary currency
Investments assets exposure Investments assets exposure
£'000 £'000 £'000 £'000 £'000 £'000
Euro 57,491 (11,208) 46,283 44,258 (12,391) 31,867
Swiss Francs - 96 96 15,617 90 15,707
Danish Krone 9,009 109 9,118 9,909 114 10,023
Norwegian Krone 13,067 11 13,078 10,202 12 10,214
Swedish Krona 22,478 - 22,478 34,976 1 34,977
Sterling 372,042 (17,280) 354,762 363,933 (18,116) 345,817
Total 474,087 (28,272) 445,815 478,895 (30,290) 448,605
The asset allocation between specific markets can vary from time to time based
on the Manager's opinion of the attractiveness of the individual stocks in
these markets.
Foreign currency sensitivity. There is no sensitivity analysis included as the
Board believes the amount exposed to foreign currency denominated monetary
assets to be immaterial. Where the Company's equity investments (which are
non-monetary items) are priced in a foreign currency, they have been included
within the other price risk sensitivity analysis so as to show the overall
level of exposure.
(c) Price risk. Price risks (i.e. changes in market prices other than those
arising from interest rate or currency risk) may affect the value of the
quoted investments and traded options.
Management of the risk. It is the Board's policy to hold an appropriate spread
of investments in the portfolio in order to reduce the risk arising from
factors specific to a particular company or sector. Both the allocation of
assets and the stock selection process act to reduce market risk. The Manager
actively monitors market prices throughout the year and reports to the Board,
which meets regularly in order to review investment strategy. The investments
held by the Company are listed on various stock exchanges in the UK and
Europe.
Price risk sensitivity. If market prices at the Statement of Financial
Position date had been 10% higher while all other variables remained constant,
the return attributable to Ordinary shareholders for the year ended 31 January
2024 would have increased by £47,409,000 (2023 - increase of £47,890,000)
and equity reserves would have increased by the same amount. Had market prices
been 10% lower the converse would apply.
(ii) Liquidity risk. This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities as they fall due in
line with the maturity profile analysed below.
More
Within Within Within Within Within than
1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total
At 31 January 2024 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Bank loans 13,307 - - - - - 13,307
Loan Notes - - - - - 30,000 30,000
Interest cash flows on bank loans and loan notes 1,254 1,197 1,197 1,197 1,197 20,349 26,391
Cash flows on other creditors 804 - - - - - 804
15,365 1,197 1,197 1,197 1,197 50,349 70,502
More
Within Within Within Within Within than
1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total
At 31 January 2023 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Bank loans 13,762 - - - - - 13,762
Loan Notes - - - - - 30,000 30,000
Interest cash flows on bank loans and loan notes 1,281 1,197 1,197 1,197 1,197 21,546 27,615
Cash flows on other creditors 1,252 - - - - - 1,252
16,295 1,197 1,197 1,197 1,197 51,546 72,629
Management of the risk. The Board imposes borrowing limits to ensure gearing
levels are appropriate to market conditions and reviews these on a regular
basis. Borrowings comprise Loan Notes and a revolving facility. The Loan Notes
provide secure long-term funding while short term flexibility is achieved
through the borrowing facility. It is the Board's policy to maintain a gearing
level, measured on the most stringent basis of calculation after netting off
cash equivalents, of less than 30% at all times. Details of borrowings at 31
January 2024 are shown in notes 12 and 13.
Liquidity risk is not considered to be significant as the Company's assets
comprise mainly cash and listed securities, which can normally be sold to meet
funding commitments if necessary. Short-term flexibility is achieved through
the use of loan and overdraft facilities, details of which can be found in
note 12. Under the terms of the loan facility, the Manager provides the lender
with loan covenant reports on a monthly basis, to provide the lender with
assurance that the terms of the facility are not being breached. The Manager
will also review the credit rating of a lender on a regular basis. Details of
the Board's policy on gearing are shown in the interest rate risk section of
this note.
Liquidity risk exposure. At 31 January 2024 and 31 January 2023 the amortised
cost of the Company's Loan Notes was £29,745,000 and £29,738,000
respectively. At 31 January 2024 and 31 January 2023 the Company's bank loans
amounted to £13,307,000 and £13,762,000 respectively. The facility is
committed until 11 July 2024.
( Credit risk. This is failure of the counterparty to a transaction to discharge
its obligations under that transaction that could result in the Company
suffering a loss.
Management of the risk. Investment transactions are carried out with a large
number of brokers, whose credit standing is reviewed periodically by the
Manager, and limits are set on the amount that may be due from any one broker;
- the risk of counterparty exposure due to failed trades causing a loss to the
Company is mitigated by the review of failed trade reports on a daily basis.
In addition, both stock and cash reconciliations to the Custodians' records
are performed on a daily basis to ensure discrepancies are investigated on a
timely basis. The Group's Compliance department carries out periodic reviews
of the custodian's operations and reports its finding to the abrdn Group's
Risk Management Committee. This review will also include checks on the
maintenance and security of investments held;
- cash is held only with reputable banks whose credit ratings are monitored on
a regular basis.
There are internal exposure limits to cash balances placed with
counterparties. The credit worthiness of counterparties is also reviewed on a
regular basis.
None of the Company's financial assets are secured by collateral or other
credit enhancements.
Credit risk exposure. In summary, compared to the amounts in the Statement of
Financial Position, the maximum exposure to credit risk at 31 January was as
follows:
2024 2023
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
£'000 £'000 £'000 £'000
Non-current assets
Investments at fair value through profit or loss 474,087 - 478,895 -
Current assets
Cash and short term deposits 12,868 12,868 12,267 12,267
486,955 12,868 491,162 12,267
None of the Company's financial assets is past due or impaired.
Fair values of financial assets and financial liabilities. The fair value of
borrowings has been calculated at £37,223,000 as at 31 January 2024 (2023 -
£43,155,000) compared to an accounts value in the financial statements of
£43,052,000 (2023 - £43,500,000) (notes 12 and 13). The fair value of each
loan is determined by aggregating the expected future cash flows for that loan
discounted at a rate comprising the borrower's margin plus an average of
market rates applicable to loans of a similar period of time and currency. All
other assets and liabilities of the Company are included in the Statement of
Financial Position at fair value.
20. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy has the following 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.
The financial assets and liabilities measured at fair value in the Statement
of Financial Position are grouped into the fair value hierarchy at the
reporting date as follows:
Level 1 Level 2 Level 3 Total
As at 31 January 2024 Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities a) 474,087 - - 474,087
Total 474,087 - - 474,087
Level 1 Level 2 Level 3 Total
As at 31 January 2023 £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities a) 478,895 - - 478,895
Total 478,895 - - 478,895
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.
21. Capital management policies and procedures
The Company's capital management objectives are:
- to ensure that the Company will be able to continue as a going concern; and
- to maximise the return to its equity shareholders through an appropriate
balance of equity capital and debt.
The capital of the Company consists of equity, comprising issued capital,
reserves and retained earnings.
The Board monitors and reviews the broad structure of the Company's capital.
This review includes the nature and planned level of gearing, which takes
account of the Manager's views on future expected returns and the extent to
which revenue in excess of that which is required to be distributed should be
retained. The Company is not subject to any externally imposed capital
requirements.
22. Related party transactions and transactions with the Manager
Directors' fees and interests. Fees payable during the year to the Directors
and their interests in the shares of the Company are disclosed within the
Directors' Remuneration Report.
Transactions with the Manager. The Company has an agreement with the abrdn
Group for the provision of management, secretarial, accounting and
administration services and also for the provision of promotional activities.
Details of transactions during the year and balances outstanding at the year
end are disclosed in notes 4 and 5.
During the year, the Company received £19,000 in respect of returned,
unclaimed dividends accumulated over a number of years. The Board took the
decision to donate these monies to the abrdn Charitable Foundation. The abrdn
Charitable Foundation is a registered charity. Its board of directors includes
independent representation from the abrdn Group and provides oversight and
guidance for its charitable giving activities.
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 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.
Dividend cover
Dividend cover measures the revenue return per share divided by total
dividends per share, expressed as a ratio.
2024 2023
Revenue return per share a 13.54p 13.02p
Dividends per share b 13.75p 13.10p
Dividend cover a/b 0.98 0.99
Net gearing
Net 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 and short term deposits.
2024 2023
Borrowings (£'000) a 43,052 43,500
Cash (£'000) b 12,868 12,267
Amounts due to brokers (£'000) c 92 649
Amounts due from brokers (£'000) d - -
Shareholders' funds (£'000) e 445,815 448,605
Net gearing (a-b+c-d)/e 6.79% 7.11%
Discount to net asset value per share with debt at fair value
The discount is the amount by which the share price is lower than the net
asset value per share with debt at fair value, expressed as a percentage of
the net asset value with debt at fair value.
2024 2023
NAV per Ordinary share (p) (see note 17) a 308.98p 302.80p
Share price (p) b 276.00p 294.00p
Discount (a-b)/b 10.67% 2.91%
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 less non-recurring charges, expressed as a percentage
of the average net asset values with debt at fair value throughout the year.
2024 2023
Investment management fees (£'000) 1,740 1,704
Administrative expenses (£'000) 1,073 951
Less: non-recurring charges (£'000) (17) -
Ongoing charges (£'000) 2,796 2,655
Average net assets (£'000) 448,512 430,038
Ongoing charges ratio (excluding look-through costs) 0.62% 0.62%
Look-through costs(A) 0.02% 0.02%
Ongoing charges ratio (including look-through costs) 0.64% 0.64%
(A)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 amongst other things,
includes the cost of borrowings and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. Share price and NAV total
returns are monitored against open-ended and closed-ended competitors, and the
Reference Index, respectively.
Share
Year ended 31 January 2024 NAV Price
Opening at 1 February 2023 a 302.8p 294.0p
Closing at 31 January 2024 b 309.0p 276.0p
Price movements c=(b/a)-1 2.0% -6.1%
Dividend reinvestment(A) d 4.7% 4.5%
Total return c+d +6.7% (1.6)%
Share
Year ended 31 January 2023 NAV Price
Opening at 1 February 2022 a 309.0p 310.0p
Closing at 31 January 2023 b 302.8p 294.0p
Price movements c=(b/a)-1 (2.0)% (5.2)%
Dividend reinvestment(A) d 4.4% 4.3%
Total return c+d +2.4% -0.9%
(A) NAV total return involves investing the net dividend in the NAV of the
Company with debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return involves reinvesting the net dividend in
the share price of the Company on the date on which that dividend goes
ex-dividend.
Additional Notes to Annual Financial Report
The Annual General Meeting will be held at the offices of abrdn plc, 18
Bishops Square, London E1 6EG at 12 noon on Thursday 23 May 2024.
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 January 2024 are an
abridged version of the Company's full accounts, which have been approved and
audited with an unqualified report. The 2023 and 2024 statutory accounts
received unqualified reports from the Company's Auditor and did not include
any reference to matters to which the Auditor drew attention by way of
emphasis without qualifying the reports, and did not contain a statement under
S498 of the Companies Act 2006. The financial information for 2023 is derived
from the statutory accounts for the year ended 31 January 2023 which have been
delivered to the Registrar of Companies. The accounts for the year ended 31
January 2024 will be filed with the Registrar of Companies in due course.
The Annual Report and Accounts will be posted to shareholders in April 2023
and copies will be available from the registered office of the Company and on
the Company's website, www.dunedinincomegrowth.co.uk.*
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise. Investors may not get back the amount they originally invested.
By order of the Board
abrdn Holdings Limited
Company Secretary
3 April 2024
* Neither the Company's website nor the content of any website accessible from
hyperlinks on the Company's website (or any other website) is (or is deemed to
be) incorporated into, or forms (or is deemed to form) part of this
announcement.
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