Annual Financial Report
23/05/2024 07:00
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RNS Number : 5345P Shires Income PLC 23 May 2024
SHIRES INCOME PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2024
Legal Entity Identifier (LEI): 549300HVCIHNQNZAYA89
The Company
Shires Income PLC (the "Company") is an investment trust. Its Ordinary shares
are listed on the premium segment of the London Stock Exchange.
Investment Objective
The Company's investment objective is to provide shareholders with a high
level of income, together with the potential for growth of both income and
capital from a diversified portfolio substantially invested in UK equities but
also in preference shares, convertibles and other fixed income securities.
Benchmark
The Company's benchmark is the FTSE All-Share Index (total return).
Website
Up to date information can be found on the Company's website:
www.shiresincome.co.uk
Performance Highlights
Net asset value per Ordinary share total return(A) Share price total return(A)
+5.1% -5.7%
2023 -2.2% 2023 -5.5%
Benchmark index total return Earnings per share (revenue)
+8.4% 14.75p
2023 +2.9% 2023 14.83p
Dividends per Ordinary share Dividend yield(A)
14.40p 6.5%
2023 14.20p 2023 5.7%
(A) Alternative Performance Measure .
For further information, please contact:
Paul Finlayson (0131 372 2200)
abrdn Fund Managers Limited
Financial Calendar and Highlights
Financial Calendar
Online Shareholder Presentation 25 June 2024
Annual General Meeting 5 July 2024
Expected payment dates of quarterly dividends 31 July 2024
31 October 2024
31 January 2025
30 April 2025
Half year end 30 September 2024
Expected announcement of results for the six months ending 30 September 2024 November 2024
Financial year end 31 March 2025
Expected announcement of results for year ending May 2025
31 March 2025
Highlights
31 March 2024 31 March 2023
Total assets £124,920,000 £98,864,000
Shareholders' funds £105,957,000 £79,913,000
Market capitalisation(A) £91,840,000 £77,411,000
Net asset value per Ordinary share(B) 256.00p 257.92p
Share price 222.00p 250.00p
Discount to NAV (cum-income)(C) 13.3% 3.1%
Net gearing(C) 16.4% 22.2%
Dividend and earnings
Revenue return per share(D) 14.75p 14.83p
Dividend per share(E) 14.40p 14.20p
Dividend cover(C) 1.02 1.04
Revenue reserves(F) £7,388,000 £7,040,000
Dividend yield(C) 6.5% 5.7%
Operating costs
Ongoing charges ratio (excluding look-through costs)(C) 1.09% 1.03%
Ongoing charges ratio (including look-through costs)(C) 1.10% 1.17%
(A) Represents the number of Ordinary shares in issue in the Company
multiplied by the Company's share price.
(B) Net asset value per Ordinary share is calculated after the repayment of
the capital paid up on Cumulative Preference shares (see note 16).
(C) Considered to be an Alternative Performance Measure.
(D) Measures the revenue earnings for the year divided by the weighted average
number of Ordinary shares in issue (see Statement of Comprehensive Income).
(E) The figures for dividend per share reflect the years in which they were
earned (see note 9).
(F) The revenue reserve figure does not take account of payment of the third
interim or final dividend amounting to £3,310,000 (2023 - £2,415,000)
combined.
Chairman's Statement
Highlights
· Successful completion of the combination with abrdn Smaller Companies
Income Trust plc ("aSCIT").
· Increased dividend of 14.40p per Ordinary share, providing a dividend
yield of 6.5% based on the year end share price.
· Confidence that the dividend remains sustainable.
· NAV total return of 5.1%, compared to a total return of 8.4% from the
FTSE All-Share Index.
Markets and Performance
The year to 31 March 2024 was good for equities globally, with growing
expectations of interest rate reductions during the course of 2024. The UK
market, as represented by the FTSE All-Share Index, delivered a total return
of 8.4%. The Company's net asset value ("NAV") total return for the year was
lower, at 5.1%. Although lagging the market return, the performance for the
year is in line with what we would expect, given the defensive and income
focused nature of the portfolio, and delivered the Company's objective of
providing shareholders with a high level of income, together with the
potential for growth of both income and capital.
Revenue earnings per share for the year were broadly similar to last year and
the total dividends for the year have been increased to 14.40p per Ordinary
share. This represents a dividend yield of 6.5% based on the year end share
price.
The share price performance for the year was disappointing, with a negative
total return of 5.7%, reflecting a significant widening of the discount, to
13.3% at the year end. Discount widening has been exhibited across much of the
investment trust universe. The persistence of higher interest rates is a
factor, as is decreased demand for collective funds generally, but, in the
case of Shires, the decision of abrdn to transfer its in-house savings scheme
to Interactive Investor certainly contributed to some short-term selling of
our shares. The Board's view was that this unprecedented level of discount was
unwarranted, and, to address this imbalance of supply and demand for the
Company's shares, the Company made use of its share buy back authority during
the year and will continue to make use of this authority going forward if
considered appropriate.
More detailed information on performance for the year and investment activity
within the portfolio are contained within the Investment Manager's Review.
Earnings and Dividends
The Company's revenue earnings per share for the year were 14.75p (2023 -
14.83p). Investment income was 13.7% higher than last year, due mainly to the
impact of a larger portfolio following the aSCIT transaction, including a
special dividend of £445,000 from aSCIT at the time of the transaction. The
transaction also resulted in a larger share capital base meaning that the per
share revenue earnings for the year were broadly unchanged.
The Company has paid three interim dividends of 3.20p per Ordinary share
(2023: 3.20p). The Board is proposing a final dividend of 4.80p per Ordinary
share (2023: 4.60p), which will be paid on 31 July 2024 to shareholders on the
register on 5 July 2024. This final dividend brings total Ordinary share
dividends for the year to 14.40p per share.
With the total dividends for the year covered by earnings, revenue reserves
will stand at 0.69 times (2023 - 1.05 times) the current annual Ordinary share
dividend cost. The reduction in reserve cover during the year is as a result
of the larger capital base following the aSCIT transaction, but it should
still allow the Company to support future dividend payments in times of
reduced earnings. In addition, the Company also has the flexibility to pay
dividends from its realised capital reserves, although the Board has no
current intention of making use of this flexibility. As explained below, we
propose to create greater flexibility through cancelling the amount standing
to the credit of the Company's Share Premium Account.
Through the proposed changes to the investment policy described below and the
cancellation of the Share Premium Account, together with the already healthy
level of revenue reserves, shareholders should take comfort that maintaining
and potentially growing the dividend remains realistic.
Allocation of Costs
The Company has historically allocated management fees and finance costs 50%
to Revenue and 50% to Capital in the Statement of Comprehensive Income.
Following a review of this allocation after the completion of the aSCIT
transaction, the Board has decided that, with effect from 1 April 2024, these
costs will be charged 40% to Revenue and 60% to Capital. The Board considers
that this allocation better reflects the expected long-term view of the nature
of the future investment returns of the enlarged portfolio and is consistent
with the treatment adopted by other UK Equity Income investment trusts.
Discount and Share Buy Backs
The discount at which the price of the Company's Ordinary shares traded
relative to the NAV widened during the period, to 13.3% as at 31 March 2024
compared to 3.1% at the start of the year. While it is disappointing to see
the Company's discount widen, this is consistent with what we have seen in the
investment trust sector more generally. It is important to note that Shires,
as a high yield, relatively risk averse, company is seen by some as in more
direct competition with cash deposits than many of its peers. Recent interest
rate rises have made cash investments more attractive and we suspect that this
has had a detrimental effect on demand for the Company's shares.
Market forecasts of reductions in interest rates later this year should make
Shires relatively more attractive to investors. In the meantime, we believe
that what the Board sees as the quite secure dividend and the potential for
capital growth and inflation protection provided by the Company, makes it a
much more compelling option compared to cash.
The Board has recently used share buybacks for the first time in the Company's
history to address the liquidity of the Company's shares - excess supply being
one of the factors which can impact the discount level. The extent of buybacks
is somewhat limited by the size of the Company and its gearing. It is in all
interests to grow the Company over time in order to spread fixed costs and
increase liquidity. Buying back shares acts against this and so has been used
with caution.
The Company bought back 863,532 Ordinary shares during the year at a cost of
£1.9 million and an average discount of 9.3%, thereby providing a modest
enhancement to the NAV. All shares bought back are held in treasury for
potential future resale at a premium to the NAV.
The Board will seek the renewal of the share buy back authority at the AGM and
will make use of this authority if it considers it in the best interests of
shareholders to do so.
It is encouraging to see that the discount has started to narrow since the
year end.
Proposed Changes to Investment Policy
Following a review by the Board and Manager of the Company's investment policy
we propose to seek shareholder approval at the AGM, principally to increase
the limit on exposure to overseas companies from 10% of total assets to 20% of
total assets. At the year end, 9.2% of the Company's total assets were
invested in the equity securities of overseas companies. The Board considers
that this change will provide the Investment Manager with greater flexibility
to achieve the Company's investment objective. The Company will remain in the
AIC's UK Equity Income Sector following the change.
Proposed Cancellation of Share Premium Account
Following the issue of new Ordinary shares to shareholders of aSCIT, the value
of the Company's Share Premium Account now amounts to £50.0 million. This
reserve cannot be used for distributions, including share buy backs or the
payment of dividends, although the Company is permitted to use its realised
capital reserve, which amounted to £27.5 million at the year end, for these
purposes.
The Board will propose a special resolution at the AGM to cancel the amount
standing to the credit of the Share Premium Account. The cancellation will
also require court approval which will be sought following the AGM. Once this
exercise is complete, the newly created distributable reserve will be
available to fund the cost of share buy backs and dividend payments. The Board
considers that it is in shareholders' interests for the Company to have this
flexibility, although it has no current intention of making use of it for
dividend payments which will continue to be resourced through net revenue and
revenue reserves.
Gearing
The Company has a £20 million loan facility of which £19 million was drawn
down at the year end. Net of cash, this represented gearing of 16.4%, compared
to 22.2% at the start of the year. The reduction is due mainly to the impact
of the aSCIT transaction, with the Company having the same value of borrowings
but a larger asset base. The weighted average borrowing cost at the year end
was 5.3% (31 March 2023 - 4.7%).
The Board continually monitors the level of gearing and takes the view that
the borrowings are notionally invested in the less volatile fixed income part
of the portfolio which generates a high level of income, giving the Investment
Manager greater ability to invest in a range of equity stocks with lower
yields and higher growth prospects. The Board believes that this combination
should enable the Company to achieve a high and potentially growing level of
dividend, and also deliver some capital appreciation for shareholders.
Manager's Fee Re-Investment Programme
The Board notes the announcement by abrdn plc in December 2023 of the
initiation of a programme to invest up to six months' worth of the management
fees received from the UK investment trusts it manages, in the underlying
companies' shares.
We welcome this proposal as it demonstrates commitment by abrdn to the Company
and the investment trust sector.
aSCIT Transaction
On 26 July 2023, the Company announced that it had agreed terms with the Board
of aSCIT for a proposed combination of the assets of the Company with those of
aSCIT (the "aSCIT transaction"). This was achieved by a scheme of
reconstruction and winding up of aSCIT, where assets were transferred to the
Company in exchange for the issue of new Ordinary shares to aSCIT
shareholders. A cash exit was also available under the scheme. aSCIT and
Shires shareholders approved the scheme on 20 November 2023 and it completed
on 1 December. Shires issued 11,268,494 new Ordinary shares to aSCIT
shareholders, with the new shares admitted to trading on 4 December 2023. The
terms of the scheme were such that Shires shareholders did not suffer any
dilution in their interests from the costs of the scheme, and an important
component of the scheme offsetting these costs was the elimination of the
discount to net asset value on the Company's holding in aSCIT via the switch
to directly held smaller companies, which are now valued at their market
price.
The transaction increased the size of Shires by more than 35%, to net assets
of £101 million at the point when aSCIT's assets transferred. Other than as
highlighted above, the Company will continue with its existing investment
policy and management arrangements, and now has a focused and direct exposure
to UK smaller companies rather than obtaining its exposure through investing
in aSCIT. This provides an additional benefit of allowing the Investment
Manager to spread risk amongst a number of investments rather than all risk
being concentrated in one vehicle. In addition, as a result of the
transaction, the Company's gearing ratio has fallen as explained above.
Board Composition
The Board is pleased to welcome Simon White as an independent non-executive
Director of the Company with effect from 1 January 2024. Simon has a
background in UK equity fund management and significant experience in the
investment trust sector. He was, until June 2022, Co-Head of Investment Trusts
at BlackRock where he was responsible for overseeing the company secretarial,
sales, marketing and third-party administration services. Simon has an
excellent understanding of the investment trust sector and we believe he will
make a significant contribution to the Board going forward.
As previously announced, I shall be stepping down from the Board at the AGM in
July, having served for nine years. Robin Archibald, who is the current Chair
of the Audit Committee and Senior Independent Director, will replace me as
Chairman, Jane Pearce will become the new Chair of the Audit Committee and
Helen Sinclair will become the new Senior Independent Director.
I would like to thank my colleagues on the Board for their support during my
time as Chairman. I am confident that the Board has the appropriate collective
skills and experience to take the Company forward and I wish the Company every
success in the future.
Online Shareholder Presentation and Annual General Meeting ("AGM")
Given the popularity of our Online Shareholder Presentation in previous years,
we have decided to hold another online presentation this year, in addition to
the AGM. This will be held at 10.00am on Tuesday 25 June 2024. A presentation
will be given by the Investment Manager, and those in attendance will be given
the opportunity to ask questions of the Chairman and Investment Manager both
during the presentation and in advance. Full details on how to register for
the event can be found at: https://bit.ly/Shires-Income
(https://bit.ly/Shires-Income) . Details are also contained on the Company's
website. Should you be unable to attend the online event, it will be made
available on the Company's website shortly afterwards. For those wishing to
submit questions in advance, you can do this at the following email address:
shires.income@abrdn.com (mailto:shires.income@abrdn.com)
The Company's AGM will take place at 12 noon on Friday 5 July 2024 at the
offices of abrdn plc, 18 Bishops Square, London E1 6EG, and will be followed
by lunch. As well as the formal business of the meeting, the Investment
Manager will provide a short presentation on the Company and there will be an
opportunity for shareholders to ask questions of the Manager and the Board.
Irrespective of whether you are able to attend, we do encourage all
shareholders to complete and return the Proxy Form enclosed with the Annual
Report 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 administrator of your share plan or platform.
Outlook
There remain a number of geo-political uncertainties that could impact stock
markets over the months ahead, including the continuing impact of the
conflicts in Ukraine and the Middle East, as well as the outcomes of the
elections in the US and the UK. It seems likely that interest rates in the UK
and globally have peaked and will be reduced later in the year, which should
be a positive for equity market valuations. The Board also believes that this
will be beneficial for the rating of the Company's shares, which is something
that we will continue to monitor very carefully.
In this environment, good stock selection will continue to be key. The
Investment Manager has a strong long term track record of delivering the
Company's income and capital growth objective. Despite the various macro
uncertainties, the Board remains confident in the Company's ability, to
continue to achieve its objective going forward.
Robert Talbut
Chairman
22 May 2024
Overview of Strategy
Business Model
The business of the Company is that of an investment company which qualifies
as an investment trust for tax purposes. The Directors do not envisage any
change in this activity in the foreseeable future.
Benchmark
In assessing its performance, the Company compares its returns with the
returns of the FTSE All-Share Index (total return).
Investment Objective
The Company's investment objective is to provide shareholders with a high
level of income, together with the potential for growth of both income and
capital, from a diversified portfolio substantially invested in UK equities
but also in preference shares, convertibles and other fixed income securities.
Investment Policy
The Company's investment policy is to invest principally in the ordinary
shares of UK quoted companies, and in preference shares, convertibles and
other fixed income securities with above average yields. The Company generates
income primarily from ordinary shares, preference shares, convertibles and
other fixed income securities. It also generates income by writing call and
put options on shares owned, or shares the Company would like to own. By doing
so, the Company generates premium income.
Gearing
The Directors are responsible for determining the gearing strategy of the
Company. Gearing is used with the intention of enhancing long-term returns. It
is subject to a maximum equity gearing level of 35% of net assets at the time
of drawdown. Any borrowing except in relation to short-term liquidity
requirements is used for investment purposes.
Diversification of Risk and Investment Restrictions
In order to ensure adequate diversification, limits are set within the
investment policy which the AIFM and Investment Manager must operate. All of
these limits are measured at the point of acquisition of investments, unless
otherwise stated, as follows:
General Investment Limits
· a maximum of 10% of total assets may be invested in the equity securities
of overseas companies;
· a maximum of 7.5% of total assets may be invested in the securities of
one company (historically excluding abrdn Smaller Companies Income Trust plc);
· any investment must not represent more than 5% of a quoted investee
company's ordinary shares (historically excluding abrdn Smaller Companies
Income Trust plc); and
· a maximum of 10% of total assets may be invested directly in AIM
holdings.
Limits in Relation to Preference Shares
· a maximum of 7.5% of total assets may be invested in the preference
shares of any one company; and
· the Company may not hold more than 10% of any investee company's
preference shares.
Limits in Relation to Traded Option Contracts
There are principal guidelines put in place to manage the risks associated
with these contracts, including:
· call options written are to be covered by stock;
· put options written are to be covered by net current assets/borrowing
facilities;
· call options are not to be written on more than 10% of the equity
portfolio; and
· put options are not to be written on more than 10% of the equity
portfolio.
The Board assesses on a regular basis with the Investment Manager the
applicability of these investment limits, the use of gearing and risk
diversification, whilst aiming to meet the overall investment objectives of
the Company.
In accordance with the Listing Rules, the Company will not make any material
change to its published investment policy without the prior approval of the
FCA and the approval of its shareholders by ordinary resolution.
As set out in the Chairman's Statement, the Directors are seeking shareholder
approval for certain amendments at the forthcoming Annual General Meeting.
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 identified by
the Board in relation to the Company, which are considered at each Board
meeting, are shown in the table below
KPI Description
Performance against benchmark index The Board measures performance over the medium to long-term, on a total return
basis against the benchmark index - the FTSE All-Share Index (total return).
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 relative to the NAV per share represented by the share
price is closely monitored by the Board.
Revenue return per Ordinary share The Board monitors the Company's net revenue return (earnings per share).
Dividend per share The Board monitors the Company's annual dividends per Ordinary share and the
extent to which dividends are covered by current net revenue and revenue
reserves
Ongoing charges The Board monitors the Company's operating costs carefully.
Principal and Emerging Risks and Uncertainties
The Board carries out a regular review of the risk environment in which the
Company operates, changes to that environment and to individual risks. The
Board also identifies emerging risks which might impact the Company. During
the year, the most significant risks were inflation and high interest rates
and the resultant volatility that this created in global stock markets. In
addition, the conflicts in Ukraine and the Middle East and other geo-political
tensions have created geo-political uncertainty which has further increased
market risk premia and volatility. The most significant direct issue that the
Company has faced is the increasing discounts to net asset value that have
affected the entire investment company sector, including income funds,
resulting from selling pressure and lack of investor demand.
There are a number of other risks which, if realised, could have a material
adverse effect on the Company and its financial condition, performance and
prospects. The Board has carried out a robust assessment of the Company's
principal and emerging risks, which include those that would threaten its
business model, future performance, solvency, liquidity or reputation and has
endeavoured to find means of mitigating those risks, wherever practical.
The principal risks and uncertainties faced by the Company are reviewed by the
Audit Committee in the form of a risk matrix. The assessment of risks and
their mitigation continues to be an area of significant focus for the Audit
Committee. 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.
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.
Description Mitigating Actions
Strategic objectives and investment policy - a lack of demand for the The Board formally reviews the Company's objectives and strategies for
Company's shares due to its objectives becoming unattractive to investors, or achieving them on an annual basis, or more regularly if appropriate.
a negative perception of investment trusts, could result in a fall in the
value of its shares and a widening of the discount of the share price to its The Board is cognisant of the importance of regular communication with
underlying NAV. shareholders and knowledge of what encourages investment in the Company.
Directors attend meetings with shareholders where practical, host the Annual
General Meeting as a forum for shareholder contact and regularly discuss
shareholder investment behaviour with the Manager, including trends on
investment platforms and shareholder themes. The Board reviews shareholder
feedback through reports provided by the Manager's Investor Relations team and
also receives feedback from the Company's Stockbroker.
The Board and Manager keep the level of discount under constant review, as
well as changes to the Company's shareholder register. There has been regular
review in the last year culminating in the use of share buy backs as
appropriate.
Investment performance - The Board meets the Manager on a regular basis and keeps investment
performance under close review. This includes performance attribution by
performance of the portfolio when measured against the benchmark. sector and stock, and liquidity analysis, as well as the degree of
diversification in the portfolio and income sustainability through examination
of forward income projections.
Representatives of the Investment Manager attend all Board meetings and a
detailed formal appraisal of the abrdn Group is carried out annually by the
Management Engagement Committee.
The Board sets, and monitors, the investment restrictions and guidelines, and
receives regular reports which include performance reporting on the
implementation of the investment policy, the investment process, risk
management and application of the guidelines.
Investment risk within the portfolio is managed in four ways:
· Adherence by the Investment Manager to the investment process in order to
minimise investments in poor quality companies and/or overpaying for
investments.
· Diversification of investment - seeking to invest in a wide variety of
companies with strong balance sheets and the earnings power to pay increasing
dividends. In addition, investments are diversified by sector in order to
reduce the risk of a single large exposure. The Company invests mainly in
equities and preference shares.
· Adherence by the Investment Manager to the investment limits set by the
Board.
· Examination of changes to the portfolio and emerging investment themes,
including relative to benchmark constituents and in order to provide income.
Investment in preference shares
The Company has longstanding holdings in a number of preference shares with no
fixed redemption dates (representing 19.8% of the Company's portfolio as at 31
March 2024). The Directors regularly review these investments, which are held
primarily to enhance the income generation of the Company. By their nature,
their price movements will be subject to a number of factors, including
prevailing and changing interest rates, and, in normal market conditions, will
tend to respond less to pricing movements in equity markets. Issue sizes of
these preference shares are normally relatively small and with associated low
secondary market liquidity by comparison with the equity component of the
portfolio. The Board also considers the long-term nature of these investments
and the impact of any potential changes on the duration of the portfolio and
its returns, as well as the sustainability of the dividends paid.
Failure to maintain, and grow the dividend over the longer term - The Directors review detailed income forecasts at each Board meeting and
discuss the Investment Manager's outlook for dividends. The Company has
the level of the Company's dividends and future dividend growth will depend on revenue reserves which it can draw upon should there be a shortfall in revenue
the performance of the returns in a year, and also has the ability to pay dividends from realised
underlying portfolio. capital reserves but would only resort to this in circumstances where there
was an unexpected fall in net income.. The Board regularly reviews forward net
revenue projections and takes into account revenue reserves in setting
quarterly dividend levels.
Share price and shareholder relations - the adoption of an inappropriate The Board monitors the Company's Ordinary share price relative to the NAV per
marketing strategy, failure to address shareholder concerns or other factors, share and keeps the level of premium or discount at which the Company's shares
including the setting of an unattractive strategic investment proposition, trade under review. The Board also keeps the investment objective and policy
changing investor sentiment and investment underperformance, may lead to a under review and holds an annual strategy meeting where it reviews investor
decrease in demand for the Company's shares and a widening of the difference relations reports and updates from the Manager and the Company's Stockbroker.
between the share price and the NAV per share.
The Directors are updated at each Board meeting on the composition of, and any
movements in, the shareholder register, which is retail investor dominated.
The Board annually agrees a marketing and communications programme and budget
with the Manager, and receives updates regularly on both marketing and
investor relations.
The Board has a close focus on investor platform activity which has been the
dominant change over recent years in how retail investors choose to acquire
and hold their shares. This includes contact with the platform operators
through the Manager. The transfer of the abrdn Savings Plans to the
Interactive Investor platform during the last twelve months has given rise to
some selling pressure on the Company's shares.
Gearing - a fall in the value of the Company's investment portfolio could be The Board sets the gearing limits within which the Investment Manager can
exacerbated by the impact of gearing. It could also result in a breach of loan operate. Gearing levels and compliance with loan covenants are monitored on an
covenants and the forced sale ongoing basis by the Manager and at scheduled Board meetings, or between Board
meetings if required. In the event of a possible impending covenant breach,
of investments. appropriate action would be taken to reduce borrowing levels. The financial
covenants attached to the Company's borrowings currently provide for
significant headroom. The maximum equity gearing level is 35% of net assets at
the time of drawdown, which constrains the amount of gearing that can be
invested in equities which are more volatile than the fixed interest part of
the portfolio. The use of gearing has been an important facilitator of the
income returns from the portfolio, particularly in financing the high yield
preference share proportion of the portfolio which has historically provided
significant dividend income for the Company.
The Company's gearing includes a revolving credit facility which can be
reduced without any significant financial penalties for early repayment and at
relatively short notice.
Accounting and financial reporting - inadequate controls over financial record At each Board meeting, the Board reviews management accounts and receives a
keeping and forecasting could result in inaccurate financial reporting, the report from the Administrator, detailing any breaches during the period under
Company being unable to meet its financial obligations or inability to pay a review. The Company's annual financial statements are audited. The Audit
dividend, losses to the Company and impact its ability to continue trading as Committee receives bi-annual compliance and internal reports from the Manager
a going concern. and meets a representative from its Internal Audit team on at least an annual
basis and discusses any findings and recommendations relevant to the Company.
Regulatory and governance - failure to comply with relevant laws and The Board and Manager monitor changes in government policy and legislation
regulations could result in fines, loss of reputation and potentially loss of which may have an impact on the Company, and the Audit Committee monitors
an advantageous tax regime. compliance with regulations by reviewing internal control reports from the
Manager. There is also a regular review of adherence to governance guidelines
that affect investment companies and how the Company is meeting existing or
proposed guidelines.
The Board is kept aware of proposed changes to laws and regulations, considers
the changes and applies them as appropriate, if they are not already being
met.
From time to time the Board employs external advisers to advise on specific
regulatory and governance matters.
Operational - the Company is dependent on third parties for the provision of The Board receives reports from the Manager on its internal controls and risk
all systems and services (in particular, those of the abrdn Group) and any management processes and receives assurances from the Manager and all its
control failures and gaps in their systems and services, including in relation other significant service providers on at least an annual basis, including on
to cyber security, could result in a loss or damage to the Company. matters relating to operational resilience and cyber security. Written
agreements are in place with all third party service providers. The Manager
monitors closely the control environments and quality of services provided by
third parties, including those of the Depositary, through service level
agreements, regular meetings and key performance indicators. In the last year
this has included close monitoring of the activities involved in
consolidating the interests of the Company with abrdn Smaller Companies
Income Trust plc, including setting the terms of participation.
Exogenous risks such as health, social, financial, economic, climate and At any given time, the Company has sufficient cash resources to meet its
geo-political - the financial impact of such risks, associated with the operating requirements. In common with most commercial operations, exogenous
portfolio or the Company itself, could result in losses to risks over which
the Company.
the Company has no control are always a risk. The Company does what it can to
address these risks where possible and to try and meet the Company's
investment objectives.
The Board is supportive of the Investment Manager's approach to environmental,
social and governance ("ESG") risks and welcomes its active engagement with
company management. Through this activity, the Investment Manager aims to
identify and manage the exposure to such risks over time.
The financial and economic risks associated with the Company include market
risk, liquidity risk and credit risk, all of which the Investment Manager
seeks to mitigate. Further details of the steps taken to mitigate the
financial risks associated with the portfolio are set out in note 18 to the
financial statements.
External Agencies
In addition to the services provided to the Company by the abrdn Group, the
Board has contractually delegated certain services to external service
suppliers, including: depositary services (which include the safekeeping of
the Company's assets) (BNP Paribas Trust Corporation UK Limited) and share
registration services (Equiniti Limited). Each of these services was entered
into after full and proper consideration by the Board of the quality and cost
of services offered. In addition, day-to-day accounting and administration
services are provided, through delegation by the Manager, by the
Administrator, BNP Paribas Securities Services.
Promotional Activities
The Board recognises the importance of promoting the Company to prospective
investors both for improving liquidity and enhancing the rating of the
Company's shares. The Board believes one effective way to achieve this is
through subscription to, and participation in, the promotional programme run
by the abrdn Group on behalf of a number of investment trusts under its
management. The Company's financial contribution to the programme is matched
by the abrdn Group. The Company also supports the Manager's investor
relations programme which involves regional roadshows to existing and
potential shareholders, promotional and public relations campaigns. The
Manager's promotional and investor relations teams report to the Board on a
quarterly basis giving analysis of the promotional activities as well as
updates on the shareholder register and any changes in the make up of that
register.
The purpose of the promotional and investor relations programmes is both to
communicate effectively with existing shareholders and to gain new
shareholders, with the aim of improving liquidity and enhancing the value and
rating of the Company's shares. Communicating the long-term attractions of the
Company is key. The promotional programme includes commissioning independent
paid for research on the Company, most recently from Kepler Trust
Intelligence. A copy of the latest research note is available from 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 or environmental matters.
Modern Slavery Act
Due to the nature of the Company's business, being a company that does not
offer goods and services to customers, the Board considers that it is not
within the scope of the Modern Slavery Act 2015 because it has no turnover.
The Company is therefore not required to make a slavery and human trafficking
statement. In any event, the Board considers the Company's supply chains,
dealing predominantly with professional advisers and service providers in the
financial services industry, to be low risk in relation to this matter.
Environmental, Social and Governance ("ESG") Matters
The Board is supportive of the Investment Manager's approach to ESG issues,
including climate change, and welcomes its active engagement with company
management.
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 the Company, with no fixed life, to be a long-term
investment vehicle but, for the purposes of this viability statement, has
decided that three years is an appropriate period over which to report,
irrespective of any exogenous risks that the Company may face. The Board
considers that this period reflects a balance between a longer-term investment
horizon, the inherent uncertainties within equity markets and the specifics of
a closed-end investment company where its central purpose is different from
other listed commercial and industrial companies.
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 ongoing relevance of the Company's investment objective.
· The liquidity of the Company's portfolio. The majority of the portfolio
is invested in readily realisable listed securities.
· The level of ongoing expenses. The Company's annual revenue expenses,
excluding the cost of the dividend, are expected to continue to be covered by
investment income.
· The level of gearing. This is closely monitored and stress testing is
carried out by the Manager. The financial covenants attached to the Company's
borrowings provide for significant headroom.
· Regulatory or market changes.
· The robustness of the operations of the Company's third party service
providers.
· The operation of share buy backs undertaken by the Company.
In making its assessment, the Board has considered that there are other
matters that could have an impact on the Company's prospects or viability in
the future, including the current events in Ukraine and the Middle East,
economic shocks, significant stock market volatility, the emerging risk of
climate change, and changes in regulation or investor sentiment, including to
income propensities.
Taking into account the Company's current position and the potential impact of
its principal risks and uncertainties and emerging risks, the Directors have a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due for a period of three years from the
date of approval of this Report.
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 statement.
On behalf of the Board
Robert Talbut
Chairman
22 May 2024
Promoting the Success of the Company
How the Board Meets its Obligations Under Section 172 of the Companies Act
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 section 172 (1) of the Companies Act 2006 (the
"Section 172 Statement"). The Board provides below 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, amongst other things, the likely
long-term consequences of decisions, the need to foster business relationships
with all stakeholders and the impact of the Company's operations on the
environment.
The Purpose of the Company and Role of the Board
The purpose of the Company is to act as an investment vehicle to provide, over
time, financial returns (both income and capital) to its shareholders.
Investment trusts, such as the Company, are long-term investment vehicles and
are typically externally managed, have no employees, and are overseen by an
independent non-executive board of directors.
The Board, which, at the year end, comprised five independent non-executive
Directors with a broad range of skills and experience across all major
functions that affect the Company, retains responsibility for taking all
decisions relating to the Company's investment objective and policy, gearing,
corporate governance and strategy, and for monitoring the performance of the
Company's service providers.
The Board's philosophy is that the Company should operate in a transparent
culture where all parties are treated with respect and provided with the
opportunity to offer practical challenge and participate in positive debate
which is focused on the aim of achieving the expectations of shareholders and
other stakeholders alike. The Board reviews the culture and manner in which
the Manager and Investment Manager operate at its regular meetings and
receives regular reporting and feedback from the other key service providers.
The Board is very conscious of the ways it promotes the Company's culture and
ensures as part of its regular oversight that the integrity of the Company's
affairs is foremost in mind in the way that the activities are managed and
promoted. The Board works very closely with the Manager and Investment Manager
in reviewing how stakeholder issues are handled, ensuring good governance and
responsibility in managing the Company's affairs, as well as visibility and
openness in how the affairs are conducted.
The Company's main stakeholders have been identified as its shareholders, the
Manager/Investment Manager, service providers, investee companies, its debt
provider and, more broadly, the community at large and the environment.
How the Board Engages with Stakeholders
The Board considers its stakeholders at Board meetings and receives feedback
on the Manager's interactions with them.
The Board and Manager also continue to consider how best to engage with
private investors who invest through platforms, not least to increase voting
participation at general meetings of the Company and to try and increase
investor demand for diversified income from retail investors.
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 shareholders. The Company's shareholder register is
retail dominated. The Manager and Company's Stockbroker regularly meet with
current and prospective shareholders from the wealth management and IFA
community to discuss performance. Shareholder feedback is discussed by the
Directors at each Board meeting. The Company subscribes to the Manager's
investor relations programme in order to maintain communication channels with
shareholders.
Regular updates are provided to shareholders through the Annual Report,
Half-Yearly Report, monthly factsheets, Company announcements, including daily
NAV announcements, and through the Company's website, which includes up to
date information on the Company. The Company's Annual General Meeting provides
a forum, both formal and informal, for shareholders to meet and discuss issues
with the Directors and Manager. The Board encourages as many shareholders as
possible to attend the Company's Annual General Meeting and to provide
feedback on the Company. In addition to the Annual General Meeting, there will
be an Online Shareholder Presentation again this year following a favourable
response in the past to this informal on-line event. The Board welcomes
contact with shareholders and has various ways of receiving shareholder
questions and responding to them, including through the Company Secretary.
During the year, the Investment Manager held meetings with a number of the
Company's larger shareholders to update them on the Company and to receive any
feedback or concerns, particularly in relation to the corporate action
involving abrdn Smaller Companies Income Trust plc.
The Board is keen to have increased shareholder voting at general meetings of
the Company and reviews ways in which there can be greater communication with
the largely retail investor shareholder base.
Manager/Investment Manager The Investment Manager's Review details the key investment decisions taken
during the year. The Investment Manager has continued to manage the Company's
assets in accordance with the mandate agreed with the Company, with the
oversight of the Board.
The Board regularly reviews the Company's performance against its investment
objective and undertakes an annual strategy review meeting to ensure that the
Company is positioned well for the future delivery of its objective for its
shareholders. 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 and Investment 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, undertaking 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 to the Board on a quarterly basis on
stewardship (including voting) issues. Through engagement and exercising
voting rights, the Investment Manager actively works with companies to improve
corporate standards, transparency and accountability.
The Board monitors investments made and divested and questions the rationale
for investment and voting decisions.
Debt Provider On behalf of the Board, the Manager maintains a positive working relationship
with the provider of the Company's loan facility, and provides regular updates
to the Board on business activity and compliance with its loan covenants.
Gearing is an important component of the Company's capital structure.
Environment and Community The Board and Manager are committed to investing in a responsible manner and
the Investment Manager embeds Environmental, Social and Governance ("ESG")
considerations into its research and analysis as part of the investment
decision-making process.
Specific Examples of Stakeholder Consideration During the Year
The Board is fully engaged in both oversight and the general strategic
direction of the Company. During the year, the Board's main strategic
discussions focussed around the aSCIT transaction.
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 March 2024.
aSCIT Transaction
On 26 July 2023, the Company announced that it had agreed terms with the Board
of aSCIT for a proposed combination of the assets of the Company with those of
aSCIT (the "aSCIT transaction"). The scheme of reconstruction completed on 1
December 2023. Further details of the transaction and the benefits to
shareholders are contain in the Chairman's Statement.
Management of the 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.
During the year, the Board, through the Management Engagement Committee,
decided that the continuing appointment of the Manager was in the best
interests of shareholders.
Proposed Change to Investment Policy
As explained in the Chairman's Statement, following a review by the Board and
Manager of the Company's investment policy, the Board proposes to seek
shareholder approval at the Annual General Meeting to increase the limit on
exposure to overseas companies from 10% of total assets to 20% of total
assets. The Board considers that this change will provide the Investment
Manager with greater flexibility to achieve the Company's investment objective
and is therefore in the best interests of shareholders. The Company will
remain in the AIC's UK Equity Income Sector following the change.
Dividend
Following the payment of the final dividend for the year, of 4.80p per
Ordinary share, total dividends for the year will amount to 14.40p per
Ordinary share, representing a dividend yield of 6.5% based on the share price
of 222p at the end of the financial year. This is in accordance with the
Company's objective to provide shareholders with a high level of income.
In deciding on the level of dividend for the year, the Board took into account
the revenue earnings per Ordinary share for the year, forecast revenues for
subsequent years, the level of revenue reserves and the increase in issued
share capital following the aSCIT transaction, as well as the impact of share
buy backs.
Through meetings with shareholders and feedback from the Manager and the
Company's Stockbroker, the Board remains conscious of the importance that
shareholders place on the level, and sustainability, of dividends paid by the
Company.
Allocation of Costs
As explained in the Chairman's Statement, the Board has decided that, with
effect from 1 April 2024, management fees and finance costs will be charged
40% to Revenue and 60% to Capital. The Board considers that this allocation
better reflects the expected long-term view of the nature of the future
investment returns of the enlarged portfolio and is consistent with the
treatment adopted by other UK Equity Income investment trusts. The Board
therefore considers that this change is in the best interests of shareholders.
Share Buy Backs
During the year, the Company bought back 863,532 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 of periodically using buy back powers, but not in a mechanical fashion,
is in the interest of all shareholders.
Proposed Cancellation of Share Premium Account
As explained in the Chairman's Statement, the Board will propose a special
resolution at the Annual General Meeting to cancel the amount standing to the
credit of the Share Premium Account. The cancellation will also require court
approval which will be sought following the Annual General Meeting. Once this
exercise is complete, the newly created distributable reserve will be
available to fund the cost of share buy backs and dividend payments. The Board
considers that it is in shareholders' interests for the Company to have this
flexibility, although it has no current intention of making use of it for
dividend payments which will continue to be resourced through net revenue and
revenue reserves.
Board Succession
As explained in the Directors' Report, Simon White was appointed as an
independent non-executive Director on 1 January 2024 in advance of the
retirement of Robert Talbut from the Board at the forthcoming Annual General
Meeting. New Board appointments seek to achieve a good balance of skills,
experience, gender and ethnicity. The Board believes that shareholders'
interests are best served by ensuring a smooth and orderly refreshment of the
Board which serves to provide continuity and maintain the Board's open and
collegiate style.
Following the Annual General Meeting, Robin Archibald, current Audit Committee
Chairman and Senior Independent Director ("SID"), will assume the role of
Chairman of the Board and Jane Pearce will assume the role of Chair of the
Audit Committee, with Helen Sinclair acting as the SID.
Online Shareholder Presentation
As explained in the Chairman's Statement, to encourage and promote interaction
and engagement with the Company's shareholders, the Board has again decided to
hold an interactive Online Shareholder Presentation which will be held at
10.00am on 25 June 2024. At the presentation, shareholders will receive
updates from the Chairman and Investment Manager and there will be an
interactive question and answer session. The online presentation is being held
ahead of the Annual General Meeting in order to allow shareholders to submit
their proxy votes prior to the meeting.
On behalf of the Board
Robert Talbut
Chairman
22 May 2024
Performance
Performance (Total Return)
1 year 3 year 5 year
% return % return % return
Net asset value(A) +5.1 +14.5 +25.7
Share price(A) (based on mid-market) -5.7 +5.6 +9.2
FTSE All-Share Index +8.4 +26.1 +30.3
(A) Considered to be an Alternative Performance Measure.
All figures are for total return and assume re-investment of net dividends
excluding transaction costs.
Source: abrdn plc, Morningstar & Factset
Analysis of Total Return Performance %
Gross assets total return 6.7
Total NAV return per share 5.1
Total return on FTSE All-Share Index 8.4
Relative performance of NAV compared to FTSE All-Share Index -3.3
Dividends
Rate per share XD date Record date Payment date
First interim dividend 3.20p 5 October 2023 6 October 2023 27 October 2023
Second interim dividend 3.20p 4 January 2024 5 January 2024 31 January 2024
Third interim dividend 3.20p 4 April 2024 5 April 2024 30 April 2024
Proposed final dividend 4.80p 4 July 2024 5 July 2024 31 July 2024
2023/24 14.40p
First interim dividend 3.20p 6 October 2022 7 October 2022 28 October 2022
Second interim dividend 3.20p 5 January 2023 6 January 2023 27 January 2023
Third interim dividend 3.20p 6 April 2023 11 April 2023 28 April 2023
Final dividend 4.60p 6 July 2023 7 July 2023 28 July 2023
2022/23 14.20p
Ten Year Financial Record
Year to 31 March 2015 2016 2017 2018 2019 2020 2021* 2022* 2023* 2024*
Revenue available for ordinary dividends (£'000) 3,877 3,617 3,925 4,106 3,920 3,961 3,796 4,379 4,584 5,068
Per share (p)
Net revenue earnings 12.9 12.1 13.1 13.7 13.1 13.0 12.3 14.2 14.8 14.8
Net dividends paid/proposed 12.25 12.25 12.75 13.00 13.20 13.20 13.20 13.80 14.20 14.40
Net total earnings 23.1 (17.8) 54.5 9.4 10.3 (45.4) 68.2 29.5 (6.6) (4.3)
Net asset value 259.5 229.4 271.6 268.2 265.5 207.4 262.4 278.3 257.9 256.0
Share price (mid-market) 252.0 202.0 243.3 260.0 267.0 200.5 248.0 279.0 250.0 222.0
Shareholders' funds (£m) 77.8 68.8 81.5 80.5 80.1 63.9 80.9 85.8 79.9 106.0
* Net asset value per share is calculated after the repayment of the capital
paid up on Cumulative Preference shares (see note 16).
Cumulative Performance
Rebased to 100 at 31 March 2014
As at 31 March 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Net asset value 100.0 104.5 92.3 109.4 108.0 106.9 83.5 105.7 112.1 103.8 103.1
Net asset value total return(A) 100.0 109.7 102.0 127.0 131.2 136.4 111.8 149.8 166.8 163.1 171.5
Share price performance 100.0 99.9 80.1 96.4 103.1 105.8 79.5 98.3 110.6 99.1 88.0
Share price total return(A) 100.0 104.9 88.7 113.0 126.9 137.0 107.9 141.6 167.7 158.5 149.6
Benchmark performance 100.0 103.0 95.5 112.2 109.5 111.9 87.4 107.7 117.8 116.9 122.0
Benchmark total return(A) 100.0 106.6 102.4 124.9 126.4 134.5 109.7 138.9 157.1 161.6 175.3
(A) Total return figures are based on reinvestment of net income.
Investment Manager's Review
Highlights
- NAV total return of 5.1% compared to the FTSE All-Share Index total
return of 8.4%.
- The equity portfolio lagged a rising market, as we would expect
given the defensive and income focused nature of the holdings.
- The total return from the preference share portfolio was 16.1%, with
yields compressing as interest rate expectations began to move lower.
- The Company successfully completed the combination with abrdn
Smaller Companies Income Trust (the "aSCIT transaction"), adding scale and
liquidity and improving exposure to a focused set of high quality small-cap
companies.
Portfolio Strategy
We take a long term approach to investing, believing that, whilst there might
be volatility in the short and even medium term, share prices will ultimately
reflect the fundamental value of a company. Consequently, there was no change
to our approach to the construction of the portfolio during the year under
review. The Company's investment portfolio continues to be invested in
equities and preference shares. At the year end, 80% of the portfolio was
invested in equities and 20% was invested in preference shares.
Equity Market Review
The year to the end of March 2024 was a good one for equities, with the MSCI
World Global Index delivering a total return of around 25%, well ahead of the
long term average. This return was heavily weighted to the second half of the
year. The market move has generally tracked inflation and therefore interest
rate expectations, with valuations improving once investors had a line of
sight on the peak of inflation and interest rates.
By geography, the US performed well, with a 30% return from the S&P 500
Index and an even more impressive 40% gain for the technology focused Nasdaq
Index. Europe, returning 15%, and the UK, 8% were comparative laggards.
Emerging markets were also relatively weaker, returning 8% in aggregate,
although there were distinct winners and losers within that: the MSCI China
Index returned a negative 17%; the MSCI India Index returned a positive 40%,
highlighting the stark difference in investor positions of these two economies
over the period.
The above performance data highlights the significant outperformance of the US
in developed markets and particularly of the group of large cap technology
companies known as the "Magnificent Seven". These companies have been direct
beneficiaries of accelerated revenue growth due to the early adoption of
artificial intelligence technologies alongside increased investor optimism on
the sector. They have also been natural beneficiaries of investor expectations
that interest rates have peaked and will begin to fall in the second half of
2024 (more on this in the Outlook section below). In contrast, European and UK
markets, which have a lower weighting to technology and growth companies, have
relatively underperformed.
Within the UK market, technology also performed well, with the sector
returning 35%. The problem was that with a weighting of only 1.4% in the FTSE
350 Index at the end of the year, it was not enough to drive the wider market.
Other sectors that performed well were Industrials (+27%), Financials (+14%),
Consumer Discretionary (+13%) and Energy (+11%). These were offset by weaker
returns from Telecoms (-13%), Consumer Staples (-6%), Basic Materials (-5%)
and Utilities (flat on the year). In general, the UK's weighting to some
defensive and income sectors meant it failed to keep up with a rapidly rising
global market.
The UK market ended the year on a material valuation discount to global
markets - roughly a 40% discount on a price to earnings multiple. While much
of this is justified by the lower growth from the UK's sectoral exposure, the
discount remains around 20% once we adjust for this.
Investment Performance
The equity portfolio returned 5.1% over the 12 month period, lagging the FTSE
All-Share Index which returned 8.4%. This performance is roughly in line with
what we would expect in these markets. The equity portfolio is defensive and
weighted to higher income sectors, so can lag a rising market. That being
said, stock section in the year detracted from portfolio returns and that was
disappointing. After taking into account the performance of the preference
share portfolio (see below) and adjusting for costs, the net asset value
("NAV") total return of the Company was also 5.1%.
On a stock specific level, there were a number of strong performers in the
portfolio. Intermediate Capital, a private equity fund manager, delivered
robust performance and flows, with its shares rising by 78%. The exposure to
banks performed well as returns improved, benefitting from higher interest
rates and low credit write-offs: NatWest's shares increased by 31% during the
period and Standard Chartered increased by 16%. Industrials generally
performed well as economic activity remained robust and valuations recovered.
Melrose Industrials (+65%) re-rated after spinning out its lower quality autos
business and Morgan Sindall (+45%) delivered continued growth as its fit out
and construction businesses performed strongly. Finally, the addition of a
number of small cap UK companies around the middle of the year also had a
positive impact as these responded well to robust results and falling interest
rate expectations. Hollywood Bowl (+24%) and 4Imprint (+46%) performed
particularly well.
Offsetting this, the portfolio suffered from holding a number of companies
that disappointed in the year for fundamental reasons. XP Power, which
provides power supply to high tech manufacturing, fell by 61% after issuing a
profit warning as end clients de-stocked. This was particularly disappointing,
coming only a matter of weeks after management had reassured on the outlook
for the business. XP Power was one company that fell victim to a lack of
visibility in client orders as many industries went through a de-stocking
cycle, having built up inventory during the pandemic period. Dr. Martens
(-36%) faced similar issues, with high inventory levels in US wholesalers and
supply chain challenges causing downgrades to expectations. Another cyclical
disappointment was Genus, with its shares down 40% due to weakening demand for
pork in China. Close Brothers fell by 51% after the announcement of an FCA
review into auto lending in the UK, although we feel the impact of this is
overstated. Some commodity companies also suffered from falling prices: Anglo
American fell by 24% due to lower metals prices and disappointing production
figures, while Diversified Energy fell 40% due to a sustained fall in the US
gas prices to very low levels. Given its weighting in the portfolio, the fall
in Diversified Energy had a meaningful impact on the portfolio, detracting
1.4% from performance over the year.
Gearing and Preference Share Portfolio
The total return from the preference share portfolio for the year was 16.1%,
with yields compressing as interest rate expectations began to move lower.
This performance is very much as expected - during a period of rapidly rising
interest rates we would expect the bond like characteristics of preference
shares to mean they decline in value, and in an environment when interest
rates are falling we would expect this to provide a boost to the portfolio.
Our view on the long term attractions of the preference shares has not
changed. From here onwards it is more likely that interest rates eventually
decline gradually, acting as a modest tailwind for the valuation of this part
of the portfolio. Secondly, the attraction of these instruments is their high,
dependable yield. This has not changed and the preference share portfolio
offered a forward yield of almost 7% as at the year end.
The gearing level at the year end was 16.4%. The Company's borrowings are
notionally invested in the preference share portfolio. At the year end these
securities had a value of £24.2 million, materially in excess of net
indebtedness which stood at £17.3 million.
Revenue Account
Revenue earnings per share were broadly flat at 14.75p. While the income
generation of the portfolio in absolute terms has continued to increase, the
aSCIT transaction in December resulted in an increased share-count. We expect
the impact of this to be limited over time, but the timing of the transaction
meant that we received a number of holdings from aSCIT which did not pay
dividends during the remainder of the financial year, resulting in a short
term shortfall in income. We remain optimistic on the income growth potential
of the portfolio over the longer term.
The following table details the Company's main sources of income over the last
five years.
2024 2023 2022 2021 2020
% % % % %
Ordinary dividends 63.0 62.8 66.5 57.2 60.0
Preference dividends 25.7 29.1 26.9 33.2 31.0
abrdn Smaller Companies Income Trust 9.4 6.6 5.2 5.7 5.4
Fixed interest and bank interest 1.4 0.2 - - 0.3
Traded option premiums 0.5 1.3 1.4 3.9 3.3
Total 100.0 100.0 100.0 100.0 100.0
Total income (£'000s) 6,429 5,673 5,239 4,529 4,807
Portfolio Activity
Over the course of the year, we remained active in the portfolio, adding 14
new positions and exiting 18. The number of positions in the portfolio
therefore reduced and, despite the aSCIT transaction, we have maintained a
reasonably concentrated portfolio, while diversifying sources of income
widely.
The aSCIT transaction allowed us to select, alongside the abrdn small-cap
team, those holdings from the portfolio which best suited our requirements of
income growth and long term capital growth. The result was a more concentrated
and meaningful small-cap exposure than through our previous indirect exposure
through aSCIT. We added five new names: Greggs is a growing UK food retailer
with a strong market position and cost competitive offering; Hollywood Bowl is
a well-run leisure company gaining market share in the UK and expanding
internationally in Canada; 4Imprint is a digital business providing corporate
marketing products and is winning market share in a fragmented industry; Bytes
Technology is an IT re-seller with exposure to growing software demand; and
Hunting is a high quality engineer focused on energy services and benefiting
from increased visibility on sales as offshore activity recovers. In
aggregate, these companies give us exposure to a diversified mix of quality
and growth within the portfolio.
Other additions reflected changing outlooks for some sectors. We added
exposure to UK banks via Lloyds given the outlook for more resilient income as
interest rates have normalised. We also added some modest real estate exposure
after a period of weakness, adding Sirius Real Estate and Assura - two
companies with strong management teams and track records of growing value and
dividends. Our view that the aerospace sector had an improving outlook was
reflected in a purchase of Melrose Industrials, which also re-rated after the
spin out of its lower quality auto business.
We also reflected changes in our analysts' preference by switching holdings
within sectors. For example, we replaced Smith & Nephew with Convatec
given our view that there was more margin improvement and end market growth to
come from Convatec in the near term. In the banking sector, we switched Nordea
into ING given the more defensive nature of the business and a preference to
move away from Nordic banks after a strong run and higher valuations. Also
overseas, we continued to look for ways to diversify income, adding
Mercedes-Benz, where the valuation looked very attractive and Enel which gives
exposure to diversified utilities and strong capital growth from energy
transition in its end markets.
Exits during the year primarily reflected changes to our view on the
fundamental value of the businesses. RS Group, Howden Joinery and Coca-Cola
Hellenic all performed reasonably well and reached levels where we saw more
limited upside compared to other holdings. For Diageo and British American
Tobacco we had some concerns around the potential for revenue growth in the
near term and decided to move onto higher conviction ideas. Sales of Vistry,
Urban Logistics, Nordea, Bawag and Smith & Nephew reflected a preference
for other companies in the same sectors. Veterinary pharmaceuticals producer
Dechra Pharmaceuticals was sold after the company was bid for by a private
equity firm at a healthy premium.
In most cases of disappointing performance we chose to hold onto the
positions, taking the view that the long term quality of the businesses
remained and a lower price reflected short term changes in outlook. However,
we did sell out of XP Power after a profit warning and Direct Line Insurance
following a dividend cut, given decreased visibility on cash generation and
the ability to pay a stable and growing source of income over time.
As usual, the preference share portfolio has seen limited change, although we
did add two new fixed income investments issued by Standard Chartered and
Lloyds. This enabled the portfolio to retain its weighting of around 20% to
preference shares after the aSCIT transaction. Both positions offered around a
7% yield at the time of purchase, an attractive level relative to equities and
with a higher degree of income protection in the long term.
Stewardship
We believe that, as long term owners of the businesses in which we are
invested, it is not sufficient merely to seek out assets that we believe to be
undervalued. It is also incumbent upon us to take a proactive approach to our
stewardship of these companies. Therefore, we engage extensively with investee
companies. We have attended a range of meetings with chairmen, non-executive
directors and other stakeholders. Topics covered have included the composition
of boards, environmental and social issues, and remuneration. Risk is a very
broad subject that is interpreted in varying manners by different companies.
However, by engaging on this subject we secure a deeper understanding of how
the boards of investee companies perceive and seek to manage these issues.
Such interactions also enable us to push for improved disclosure and better
management practices and on occasion different decisions where appropriate. We
have had conversations regarding companies' financing choices. We find that it
is always worthwhile communicating our preference for conservatively
structured balance sheets that place a company's long term fortunes ahead of
possible short term share price gains. Such activity is by its nature time
consuming but we regard it as an integral aspect of our role as long term
investors.
Consideration of Environmental, Social and Governance ("ESG") factors forms an
important part of our investment process. Whilst the management of the
Company's investments is not undertaken with any specific instructions to
exclude certain asset types or classes, we embed ESG into the portfolio and
sector specific research on all positions as part of the investment process.
ESG investment is about active engagement with the goal of improving the
performance of assets held by the Company. We aim to make the best possible
investments for the Company by understanding the whole picture - before,
during and after an investment is made. That includes understanding the ESG
risks and opportunities they present, and how these could affect longer-term
performance and valuation. ESG considerations underpin all investment
activities.
Outlook
The last 12 months have delivered positive NAV growth, increased scale and
continued income growth for the Company. Performance has not kept pace with a
rising market and that is, of course, disappointing, but we continue to focus
on capital and income growth. Positions in defensive, income generating
sectors, such as utilities have lagged faster growth areas of the market such
as technology, but that does not mean they have been bad investments or that
they will fail to deliver an attractive total return for investors over the
long term.
Making forecasts for the next 12 months is always difficult, and especially at
the moment. In the last three months we have seen interest rate expectations
move back and forward, with global markets pushed to new highs before
retreating again. At this time, it seems that interest rates will need to stay
higher for longer to counteract inflation and continued strong growth from the
US economy - but which direction we will be heading a year from now is hard to
guess. Economic policy and market sentiment is very data dependent, and the
data can change quickly. The added complication of a record year for
democratic elections globally, including the US and the UK, makes the outlook
even cloudier.
Stretching our time horizon perhaps makes the task easier. Interest rates are
higher than they have been for some time and although they are not going back
to the extreme lows we have seen in the last decade, the likelihood is that
the direction of travel is back towards an equilibrium rate of 3-3.5% within
our investment timeframe. Rates at that level should allow for a more normal
market, with equity performance broadening out, something we have started to
see in March and April 2024. Market performance in the past year has been
unusually concentrated - history would indicate that is unlikely to remain the
case forever. Similarly, the discount on UK equities is historically high,
providing a margin of safety. Without a re-rating of the benchmark index we
will continue to see UK companies acquired by international peers.
The portfolio has performed well in the past few months and our expectation
would be that a focus on capital and income growth will deliver results over
the long term. We also expect a reduction in interest rates to increase the
relative appeal of the proposition. Currently, investors can earn an
attractive return on cash deposits and that has led many to understandably
take a "risk-free" approach in allocation. The Company's dividend yield is
already superior to cash, while also providing the prospect of capital growth
and a hedge to inflation, but as deposit rates reduce it is likely that a high
level income will become more appealing again.
Iain Pyle and Charles Luke
abrdn Investments Limited
22 May 2024
Investment Portfolio - Equities
As at 31 March 2024
Valuation Total Valuation
2024 portfolio 2023
Company FTSE All-Share Index Sector £'000 % £'000
AstraZeneca Pharmaceuticals and Biotechnology 5,440 4.5 4,136
Shell Oil, Gas and Coal 4,674 3.8 3,931
Morgan Sindall Construction and Materials 3,642 3.0 883
Energean Oil, Gas and Coal 3,333 2.7 1,894
BP Oil, Gas and Coal 3,281 2.7 3,184
Intermediate Capital Group Investment Banking and Brokerage 3,234 2.6 1,078
Services
HSBC Holdings Banks 3,232 2.6 903
Inchcape Industrial Support 2,931 2.4 1,226
Services
Rio Tinto Industrial, Metals and 2,637 2.2 1,152
Mining
4Imprint Group Media 2,637 2.2 -
Ten largest investments 35,041 28.7
Chesnara Life Insurance 2,399 2.0 1,222
Anglo American Industrial, Metals and 2,384 1.9 2,748
Mining
Hollywood Bowl Travel and Leisure 2,334 1.9 -
Diversified Energy Oil, Gas and Coal 2,292 1.9 2,499
National Grid Gas, Water and Multiutilities 2,283 1.9 1,726
SSE Electricity 2,265 1.9 2,661
TotalEnergies Oil, Gas and Coal 2,218 1.8 1,839
Telecom Plus Telecommunications Service Providers 2,161 1.7 754
Sirius Real Estate Real Estate Investment Trusts 1,991 1.6 -
Bytes Technology Software and Computer Services 1,914 1.6 -
Twenty largest investments 57,282 46.9
Balfour Beatty Construction and Materials 1,780 1.5 967
Lloyds Banking Banks 1,779 1.5 -
Standard Chartered Banks 1,771 1.4 1,526
M&G Investment Banking and Brokerage 1,723 1.4 1,051
Services
NatWest Banks 1,722 1.4 1,042
Melrose Industrials General Industrials 1,614 1.3 -
Enel Electricity 1,609 1.3 -
GSK Pharmaceuticals and Biotechnology 1,576 1.3 835
Convatec Health Care Equipment and Services 1,563 1.3 -
Softcat Software and Computer Services 1,500 1.2 563
Thirty largest investments 73,919 60.5
Assura Real Estate Investment Trusts 1,487 1.2 -
Hunting Oil Equipment Services and Distribution 1,410 1.2 -
Imperial Brands Tobacco 1,362 1.1 1,351
Games Workshop Group Leisure Goods 1,302 1.1 654
Mercedes-Benz Group Automobiles and Parts 1,222 1.0 -
Novo-Nordisk Pharmaceuticals and Biotechnology 1,186 1.0 1,272
Engie Gas, Water and Multiutilities 1,182 1.0 981
ING Group Banks 1,080 0.9 -
Hiscox Non-life Insurance 1,066 0.9 982
OSB Finance and Credit Services 1,035 0.7 995
Forty largest investments 86,251 70.6
Greggs Food and Drug Retailers 995 0.8 -
AXA Non-life Insurance 977 0.8 906
IP Group Investment Banking and Brokerage 975 0.8 -
Services
Berkeley Group Holdings Household Goods and Home Construction 953 0.8 -
Ashmore Investment Banking and Brokerage 875 0.7 641
Services
Unilever Personal Care, Drug and Grocery 873 0.7 1,378
Stores
Mondi General Industrials 866 0.8 855
Drax Electricity 809 0.7 578
Wood Group Oil Equipment Services and Distribution 781 0.6 648
Prudential Life Insurance 764 0.6 1,149
Fifty largest investments 95,119 77.9
Close Brothers Banks 721 0.6 810
Dr. Martens Personal Goods 668 0.5 673
Bodycote Industrial Engineering 627 0.5 553
Genus Pharmaceuticals and Biotechnology 480 0.4 -
Oxford Instruments Electronic and Electrical Equipment 359 0.3 833
Total equity investments 97,974 80.2
Purchases and/or sales of portfolio holdings effected during the year and the
transaction with aSCIT result in 2024 and 2023 values not being directly
comparable.
Investment Portfolio - Other Investments
As at 31 March 2024
Valuation Total Valuation
2024 portfolio 2023
Company £'000 % £'000
Preference shares(A)
Ecclesiastical Insurance Office 8 5/8% 5,837 4.8 5,512
Royal & Sun Alliance 7 3/8% 4,899 4.0 4,437
Santander 10.375% 4,244 3.5 3,616
General Accident 7.875% 4,116 3.4 3,654
Standard Chartered 8.25% 3,197 2.6 2,900
Lloyds Bank 11.75% 960 0.8 -
R.E.A. Holdings 9% 686 0.5 776
Standard Chartered 7.375% 256 0.2 -
Total Preference shares 24,195 19.8
Total Investments 122,169 100.0
(A) None of the preference shares listed above have a fixed redemption date.
Purchases and/or sales of portfolio holdings effected during the year and the
transaction with aSCIT result in 2024 and 2023 values not being directly
comparable.
Distribution of Assets and Liabilities
Movement during the year
Valuation at Gains/ Valuation at
31 March 2023 Purchases Sales (losses) 31 March 2024
£'000 % £'000 £'000 £'000 £'000 %
Listed investments
Equities 75,760 94.8 75,634 (44,372) (9,048) 97,974 92.5
Preference shares 20,895 26.2 - - 3,300 24,195 22.8
Total investments 96,655 121.0 75,634 (44,372) (5,748) 122,169 115.3
Current assets 2,559 3.2 3,242 3.1
Current liabilities (9,350) (11.7) (9,491) (9.0)
Non-current liabilities (9,951) (12.5) (9,963) (9.4)
Net assets 79,913 100.0 105,957 100.0
Net asset value per Ordinary share 257.9p 256.0p
Directors' Report (extract)
The Directors present their report and audited financial statements for the
year ended 31 March 2024.
Results and Dividends
The financial statements for the year ended 31 March 2024 are contained below.
Dividends paid and proposed for the year amounted to 14.40p per Ordinary
share.
First, second and third interim dividends for the year, each of 3.20p per
Ordinary share, were paid on 27 October 2023, 31 January 2024 and 30 April
2024 respectively. The Directors recommend a final dividend of 4.80p per
Ordinary share, payable on 31 July 2024 to shareholders on the register on 5
July 2024. The ex-dividend date is 4 July 2024. Under UK-adopted international
accounting standards the third interim and final dividends will be accounted
for in the financial year ended 31 March 2025. A resolution in respect of the
final dividend will be proposed at the forthcoming Annual General Meeting.
Investment Trust Status
The Company is registered as a public limited company (registered in England
and Wales No. 00386561) 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 April 2012. The
Directors are of the opinion that the Company has conducted its affairs for
the year ended 31 March 2024 so as to enable it to comply with the ongoing
requirements for investment trust status.
Individual Savings Accounts
The Company satisfies 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.
aSCIT Transaction
On 26 July 2023 the Company announced that it had agreed terms with the board
of abrdn Smaller Companies Income Trust plc ("aSCIT") in respect of a proposed
combination of the assets of the Company with those of aSCIT (the "aSCIT
transaction"). Shareholders were sent documentation in October explaining that
this was to be effected by way of a scheme of reconstruction and winding up of
aSCIT under section 110 of the Insolvency Act 1986 (the "Scheme") and the
associated transfer of the assets of aSCIT to the Company in exchange for the
issue of new Ordinary shares in the Company to those aSCIT shareholders who
rolled their shareholdings into the Company in accordance with the Scheme.
Shareholders approved the Scheme proposals at the Company's General Meeting
held on 20 November 2023 and aSCIT's shareholders approved the Scheme
proposals at their General Meeting held on the same day. The Scheme completed
on 1 December. On that date the Company issued 11,268,494 new Ordinary shares
to aSCIT shareholders in accordance with the Scheme. The new shares were
admitted to trading on 4 December 2023.
Capital Structure
During the year the Company issued 11,268,494 Ordinary shares of 50p each in
connection with the aSCIT transaction as referred to above. In addition, the
Company bought back 863,532 Ordinary shares at a discount to net asset value,
to hold in treasury. The issued Ordinary share capital as at 31 March 2024
comprised 41,369,542 Ordinary shares of 50p each, 863,532 Ordinary shares held
in treasury and 50,000 3.5% Cumulative Preference shares of £1 each.
Voting Rights
Each Ordinary and Cumulative Preference share carries one vote at general
meetings of the Company. The Cumulative Preference shares carry a right to
receive a fixed rate of dividend and, on a winding up of the Company, to the
payment of such fixed cumulative preferential dividends to the date of such
winding up and to the repayment of the capital paid up on such shares in
priority to any payment to the holders of the Ordinary shares.
The Ordinary shares, excluding any treasury shares, carry a right to receive
dividends and, on a winding up or other return of capital, after meeting the
liabilities of the Company, the surplus assets will be paid to Ordinary
shareholders in proportion to their shareholdings.
There are no restrictions on the transfer of Ordinary or Cumulative Preference
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, company secretarial services and promotional activities to the
Company. The Company's portfolio is managed by abrdn Investments Limited by
way of a group delegation agreement in place between aFML and abrdn
Investments Limited. In addition, aFML has sub-delegated administrative and
company secretarial services to abrdn Holdings Limited and promotional
activities to abrdn Investments Limited. Details of the management fee 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 March 2024.
Shareholder Number of Ordinary shares held % of Ordinary shares held
Interactive Investor 13,410,525 32.4
Hargreaves Lansdown 8,562,529 20.7
AJ Bell 2,841,009 6.9
HSDL 2,363,079 5.7
There have been no changes notified to the Company between the year end and
the date of approval of this Report.
Directors
Simon White was appointed as an independent non-executive Director on 1
January 2024. In respect of the appointment of Mr White, the Board used the
services of an external search consultant, Fletcher Jones Limited. Fletcher
Jones Limited does not have any other connections with the Company or
individual Directors.
At the end of 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.
The Directors attended scheduled Board and Committee meetings during the year
ended 31 March 2024 as follows (relevant meetings in brackets):
Director Board Audit Committee Management Engagement Committee Remuneration Committee
Robert Talbut 5 (5) 2 (2) 1 (1) 1 (1)
Robin Archibald 5 (5) 2 (2) 1 (1) 1 (1)
Jane Pearce 5 (5) 2 (2) 1 (1) 1 (1)
Helen Sinclair 5 (5) 2 (2) 1 (1) 1 (1)
Simon White(A) 1 (1) - (-) 1 (1) 1 (1)
(A) Appointed 1 January 2024
The Board meets more frequently when business needs require and has regular
dialogue between formal Board meetings, including with the Manager. During the
year, there were an additional 11 Board/Board Committee meetings held
principally in relation to the aSCIT transaction, but also in relation to
share buy backs, Board succession and the approval of the Annual and Half
Yearly Reports.
Under the terms of the Company's Articles of Association, Directors must
retire and be subject to appointment at the first Annual General Meeting after
their appointment by the Board, and be subject to re-appointment every three
years thereafter. However, the Board has decided that all Directors will seek
annual re-appointment after initial appointment to the Board.
Having served for nine years, Robert Talbut will retire at the Annual General
Meeting on 5 July 2024. Simon White will stand for appointment and each of
Helen Sinclair, Robin Archibald and Jane Pearce will seek re-appointment at
the meeting.
The Board believes that all the Directors seeking appointment/re-appointment
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, oversight and proper governance of the Company.
During the year, the Board undertook an annual appraisal of the Chairman of
the Board, individual Directors and the performance of Committees and the
Board as a whole. This process involved the completion of questionnaires by
each Director and follow-on discussions between the Chairman and each
Director. The appraisal of the Chairman was undertaken by the Senior
Independent Director. Following this process, the Board considers that it
continues to operate in an efficient and effective manner and that the
performance of each of the Directors seeking appointment/re-appointment
continues to be effective. Each Director has demonstrated commitment to the
role and the Board is satisfied that their individual performances contribute
to the long-term sustainable success of the Company. All of the Directors have
demonstrated that they have sufficient time and commitment to fulfil their
directorial roles with the Company. The Board therefore recommends the
appointment/re-appointment 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 regular refreshment and diversity, as well as providing continuity of
experience of the Company.
It is the Board's policy that the Chairman of the Board will not normally
serve as a Director beyond the Annual General Meeting following the ninth
anniversary of his/her appointment to the Board. However, this may be extended
in certain circumstances including the facilitation of effective succession
planning and the development of a diverse Board. In such a situation the
reasons for the extension will be fully explained to shareholders and a
timetable for the departure of the Chairman clearly set out.
The Role of the Chairman and Senior Independent Director
The Chairman is responsible for providing effective leadership to the Board,
by setting the tone of the Company, demonstrating objective judgement and
promoting a culture of openness and debate. The Chairman facilitates the
effective contribution and encourages active engagement by each Director. In
conjunction with the Company Secretary, the Chairman ensures that Directors
receive accurate, timely and clear information to assist them with effective
decision-making. The Chairman acts upon the results of the Board evaluation
process by recognising strengths and addressing any weaknesses and also
ensures that the Board engages with major shareholders and that all Directors
understand shareholder views.
The Senior Independent Director acts as a sounding board for the Chairman and
acts as an intermediary for other Directors, when necessary. Working closely
with the other Directors, 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. In addition,
the Company has entered into a separate deed of indemnity with each of the
Directors reflecting the scope of the indemnity in the Articles of
Association. Under the Articles of Association, 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 proper execution
of his or her duties in relation to the affairs 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, which may be amended from time to time to
reflect regulatory and other changes. Other than the deeds of indemnity
referred to above and the Directors' 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.
Board Diversity
The Board recognises the importance of having a range of skilled and
experienced individuals with the right knowledge represented on the Board in
order to allow it to fulfil its obligations. The Board also recognises the
benefits and is supportive of the principle of diversity in its recruitment of
new Board members. The Board will not display any bias for age, gender, race,
sexual orientation, socio-economic background, religion, ethnic or national
origins or disability in considering the appointment of its Directors. In view
of its size, the Board will continue to ensure that all appointments are made
on the basis of merit against the specification prepared for each appointment.
In doing so, the Board will take account of the targets set out in the FCA's
Listing Rules, which are set out in the tables below.
The Board has resolved that the Company's year end date is the most
appropriate date for disclosure purposes. The following information has been
provided by each Director through the completion of questionnaires. There
have been no changes since the year end.
Table for reporting on gender as at 31 March 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 March 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). The Directors will take
this into account when making future Board appointments.
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 Chairman of the Audit Committee are senior
Board positions. During the year ended 31 March 2024 the Company did not meet
the target set out in LR 9.8.6R (9)(a)(ii) that at least one of the senior
Board positions is held by a woman. However, it will meet the target following
the Annual General Meeting on 5 July 2024 when Jane Pearce will be appointed
as Chair of the Audit Committee and Helen Sinclair will be appointed as SID.
Corporate Governance
The Company is committed to high standards of corporate governance and the
Board is accountable to the Company's shareholders for good governance. The
Board has 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 Corporate
Governance Code as published by the FRC in July 2018 (the "UK Code"), as well
as setting out additional provisions on issues that are of specific relevance
to investment trusts.
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 than if it had adopted the UK Code. The AIC Code
is available on the AIC's website: theaic.co.uk. It includes an explanation of
how the AIC Code adapts the principles and provisions set out in the UK Code
to make them relevant for investment trusts.
The Board confirms that, during the year, the Company complied with the
principles and provisions of the AIC Code.
Further details of the Company's compliance with the 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. The Board has performed stress testing and
liquidity analysis on the portfolio and considers that, in most foreseeable
circumstances, the majority of the Company's investments are realisable within
a relatively short timescale.
The Board has set limits for borrowing and regularly reviews actual exposures,
cash flow projections and compliance with banking covenants, including the
headroom available. At the year end, the Company had a £20 million loan
facility which is due to mature in May 2027.
Having taken these factors into account, the Directors believe that the
Company has adequate resources to continue in operational existence for the
foreseeable future and has the ability to meet its financial obligations as
they fall due for the period to 30 June 2025, which is at least twelve months
from the date of approval of this Report. For these reasons, 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, Ernst & Young LLP, has indicated its willingness to
remain in office. The Board will place resolutions before the Annual General
Meeting to re-appoint Ernst & Young 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 and the Manager's information service.
The Board's policy is to communicate directly with shareholders and their
representative bodies without the involvement of the management group
(including the Company Secretary or the Manager) in situations where direct
communication is required, and representatives from the Manager meet with
major shareholders on at least an annual basis in order to gauge their views.
In addition, 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 make themselves available to 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 notice of the Annual General Meeting is, where practicable, 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. Further
details regarding the arrangements for this year's Annual General Meeting and
separate Online Shareholder Presentation are set out in the Chairman's
Statement.
Annual General Meeting
The Annual General Meeting will be held at 18 Bishops Square, London E1 6EG on
Friday 5 July 2024 at 12 noon.
By order of the Board
abrdn Holdings Limited
Company Secretary
1 George Street
Edinburgh EH2 2LL
22 May 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, and under that law they have chosen to prepare the financial
statements in accordance with UK-adopted international accounting standards.
The financial statements are required by law to 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 in accordance with IAS 8 'Accounting
Policies, Changes in Accounting Estimates and Errors' and then apply them
consistently;
· make judgments and estimates that are reasonable and prudent;
· present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific
requirements in UK-adopted international accounting standards is insufficient
to enable users to understand the impact of particular transactions, other
events and conditions on the Company's financial position and financial
performance;
· state whether the financial statements have been prepared in accordance
with UK-adopted international accounting standards subject to any material
departures disclosed and explained in the notes to 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 Board confirms that to the best of its 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;
· in the opinion of the Directors, the Annual Report taken as a whole, is
fair, balanced and understandable and it provides the information necessary to
assess the Company's position and performance, business model and strategy;
and
· the Strategic Report and Directors' Report include a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties that the
Company faces.
On behalf of the Board
Robert Talbut
Chairman
22 May 2024
Statement of Comprehensive Income
Year ended Year ended
31 March 2024 31 March 2023
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Losses on investments at fair value 11 - (5,748) (5,748) - (6,084) (6,084)
Currency (losses)/gains - (56) (56) - 39 39
Income 3
Income from investments 6,361 - 6,361 5,593 - 5,593
Income from other investing activity 68 - 68 80 - 80
6,429 (5,804) 625 5,673 (6,045) (372)
Expenses
Management fee 4 (210) (210) (420) (207) (207) (414)
Administrative expenses 5 (505) (24) (529) (417) - (417)
Finance costs 7 (502) (502) (1,004) (363) (363) (726)
(1,217) (736) (1,953) (987) (570) (1,557)
Profit/(loss) before taxation 5,212 (6,540) (1,328) 4,686 (6,615) (1,929)
Taxation 8 (144) - (144) (102) - (102)
Profit/(loss) attributable to equity holders of the Company 5,068 (6,540) (1,472) 4,584 (6,615) (2,031)
Earnings per Ordinary share (pence) 10 14.75 (19.03) (4.28) 14.83 (21.40) (6.57)
The Company does not have any income or expense that is not included in profit
for the year, and therefore the "Profit for the year" is also the "Total
comprehensive income for the year", as defined in IAS 1 (revised).
The total column of this statement represents the Statement of Comprehensive
Income of the Company, prepared in accordance with UK adopted International
Accounting Standards. The revenue and capital columns are supplementary to
this and are prepared under guidance published by the Association of
Investment Companies.
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of these financial statements.
Balance Sheet
As at As at
31 March 2024 31 March 2023
Notes £'000 £'000
Non-current assets
Ordinary shares 97,974 75,760
Preference shares 24,195 20,895
Securities at fair value 11 122,169 96,655
Current assets
Other receivables 12 1,567 1,383
Cash at bank 1,675 1,176
3,242 2,559
Creditors: amounts falling due within one year
Other payables (491) (350)
Short-term borrowings (9,000) (9,000)
13 (9,491) (9,350)
Net current liabilities (6,249) (6,791)
Total assets less current liabilities 115,920 89,864
Non-current liabilities
Long-term borrowings 13 (9,963) (9,951)
Net assets 105,957 79,913
Share capital and reserves
Called-up share capital 14 21,166 15,532
Share premium account 49,952 21,411
Capital reserve 15 27,451 35,930
Revenue reserve 7,388 7,040
Equity shareholders' funds 105,957 79,913
Net asset value per Ordinary share (pence) 16 256.00 257.92
The financial statements were approved by the Board of Directors and
authorised for issue on 22 May 2024 and were signed on its behalf by:
Robert Talbut
Chairman
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Equity
Year ended 31 March 2024
Share
Share premium Capital Revenue
capital account reserve reserve Total
Note £'000 £'000 £'000 £'000 £'000
As at 31 March 2023 15,532 21,411 35,930 7,040 79,913
Issue of shares on the aSCIT transaction 22 5,634 29,594 - - 35,228
Cost of shares issued in respect of the aSCIT transaction 22 - (1,053) - - (1,053)
Buyback of Ordinary shares for treasury - - (1,939) - (1,939)
(Loss)/profit for the year - - (6,540) 5,068 (1,472)
Equity dividends 9 - - - (4,720) (4,720)
As at 31 March 2024 21,166 49,952 27,451 7,388 105,957
Year ended 31 March 2023
Share
Share premium Capital Revenue
capital account reserve reserve Total
£'000 £'000 £'000 £'000 £'000
As at 31 March 2022 15,460 21,109 42,545 6,705 85,819
Issue of Ordinary shares 72 302 - - 374
(Loss)/profit for the year - - (6,615) 4,584 (2,031)
Equity dividends 9 - - - (4,249) (4,249)
As at 31 March 2023 15,532 21,411 35,930 7,040 79,913
The Company has aggregate realised and distributable reserves of £34,839,000
as at 31 March 2024 (2023 - £42,970,000), comprising a capital reserve of
£27,451,000 (2023 - £35,930,000) and a revenue reserve of £7,388,000 (2023
- £7,040,000).
The accompanying notes are an integral part of these financial statements.
Cash Flow Statement
Year ended Year ended
31 March 2024 31 March 2023
£'000 £'000
Net cash inflow from operating activities
Dividend income received 6,171 5,478
Interest income received 31 7
Options premium received 35 71
Interest received from money market funds 31 7
Management fee paid (397) (415)
Other cash expenses (539) (432)
Cash generated from operations 5,332 4,716
Interest paid (991) (684)
Overseas tax paid (140) (184)
Net cash inflows from operating activities 4,201 3,848
Cash flows from investing activities
Purchases of investments (43,873) (16,518)
Sales of investments 44,372 16,199
Net cash outflow from investing activities 499 (319)
Cash flows from financing activities
Equity dividends paid (4,720) (4,249)
Issue of Ordinary shares - 374
Buyback of Ordinary shares to Treasury (1,838) -
Net cash acquired and received following the aSCIT transaction 3,444 -
Cost of shares issued in respect of the aSCIT transaction (1,031) -
Loan repayment - (19,000)
Loan drawdown - 19,000
Net cash outflow from financing activities (4,145) (3,875)
Increase/(decrease) in cash and cash equivalents 555 (346)
Reconciliation of net cash flow to movements in cash and cash equivalents
Increase/ (decrease) in cash and cash equivalents as above 555 (346)
Net cash and cash equivalents at start of year 1,176 1,483
Effect of foreign exchange rate changes (56) 39
Net cash and cash equivalents at end of year 1,675 1,176
Notes to the Financial Statements
For the year ended 31 March 2024
1. Principal activity.
The Company is a closed-end investment company, registered in England and
Wales No. 00386561, with its Ordinary shares listed on the London Stock
Exchange.
2. Accounting policies
(a) Basis of accounting. The financial statements of the Company have been
prepared in accordance with UK adopted International Accounting Standards
("IAS") and using the historical cost convention except for investments, which
are measured at fair value (see note 2(b) below) .
In preparing these financial statements the Directors have considered the
impact of climate change risk as an emerging risk, and have concluded that it
does not have a material impact on the Company's investments. In line with
IAS, investments are valued at fair value, which for the Company are quoted
bid prices for investments in active markets at the Balance Sheet date and
therefore reflect market participants view of climate change risk.
The Company's financial statements are presented in sterling, which is also
the functional currency as it is the currency in which shares are issued and
expenses are generally paid. All values are rounded to the nearest thousand
pounds (£'000) except when otherwise indicated.
Where presentational guidance set out in the Statement of Recommended Practice
("SORP"): 'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' issued by the Association of Investment Companies ("AIC"), is
consistent with the requirements of IAS, the Directors have sought to prepare
the financial statements on a basis compliant with the recommendations of the
SORP issued in July 2022.
Going concern. The Company's assets consist mainly of equity shares in
companies listed on the London Stock Exchange. The Board has performed stress
testing and liquidity analysis on the portfolio and considers that, in most
foreseeable circumstances, the majority of the Company's investments are
realisable within a relatively short timescale. The Board has set limits for
borrowing and regularly reviews actual exposures, cash flow projections and
compliance with banking covenants, including the headroom available. At the
year end, the Company had a £20 million loan facility which is due to mature
in May 2027. Having taken these factors into account, the Directors believe
that the Company has adequate resources to continue in operational existence
for the foreseeable future and has the ability to meet its financial
obligations as they fall due for the period to 30 June 2025, which is at least
twelve months from the date of approval of this Report. For these reasons,
they continue to adopt the going concern basis of accounting in preparing the
financial statements.
Significant accounting judgements, estimates and assumptions. 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 and are
continually evaluated. The Directors do not consider there to be any
significant judgements and estimates within the financial statements for the
year ended 31 March 2024. Special dividends are assessed and credited to
capital or revenue according to their circumstances.
New and amended accounting standards and interpretations. At the date of
authorisation of these financial statements, the following amendments to
Standards and Interpretations were assessed to be relevant and are all
effective for annual periods beginning on or after 1 January 2023 but are
considered to not have a material impact on the financial statements:
- IAS 1 Amendments (Disclosure of Accounting Policies) (effective from 1
January 2023)
Future amendments to standards and interpretations. At the date of
authorisation of these financial statements, the following amendments to
Standards and Interpretations were assessed to be relevant and are all
effective for annual periods beginning on or after 1 January 2024;
- IAS 1 Amendments (Classification of Liabilities as Current or Non-Current)
(effective from 1 January 2024)
- IAS 1 Amendments (Non-current Liabilities with Covenants) (effective from
1 January 2024)
The Company intends to adopt the Standards and Interpretations in the
reporting period when they become effective and the Board does not anticipate
that the adoption of these Standards and Interpretations in future periods
will materially impact the Company's financial results in the period of
initial application although there may be revised presentations to the
Financial Statements and additional disclosures.
(b) Investments. All investments are evaluated and managed on a fair value basis
and are therefore classified as FVTPL ("Fair Value Through Profit or Loss").
Investments are recognised and de-recognised at the 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 at fair value.
For listed investments, this is deemed to be bid market prices or closing
prices for SETS (London Stock Exchange's electronic trading service) stocks
sourced from the London Stock Exchange.
Gains and losses arising from the changes in fair value are included in net
profit or loss for the period as a capital item. Transaction costs are treated
as a capital cost.
(c) Income. Dividend income from equity investments, which have a discretionary
dividend, is recognised when the shareholders' rights to receive payment have
been established, normally the ex-dividend date. Special dividends are
allocated to revenue or capital based on their individual merits.
If a scrip dividend is taken in lieu of a cash dividend, the net amount of the
cash dividend declared is credited to the revenue account. Any excess in the
value of the shares received over the amount of the cash dividend foregone is
recognised as capital.
Income from preference shares which do not have a discretionary dividend are
accounted for on a fair value basis.
Interest from deposits and interest from debt securities which do not have a
discretionary dividend are accounted for on an accruals basis.
The premium received from traded options is recognised in the revenue column
of the Statement of Comprehensive Income.
(d) Expenses. All expenses are accounted for on an accruals basis. In respect of
the analysis between revenue and capital items presented within the Statement
of Comprehensive Income, all expenses have been presented as revenue items
except those where a connection with the maintenance or enhancement of the
value of the investments held can be demonstrated. Accordingly, the management
fee and finance costs have been allocated 50% to revenue and 50% to capital,
in order to reflect the Directors' expected long-term view of the nature of
the future investment returns of the Company.
(e) Borrowings. Both short-term and long-term borrowings, which comprise interest
bearing bank loans are initially recognised at cost, being the fair value of
the consideration received, net of any issue expenses and subsequently
measured at amortised cost using the effective interest method. The finance
costs, being the difference between the net proceeds of borrowings and the
total amount of payments that require to be made in respect of those
borrowings, are amortised over the life of the borrowings.
(f) Taxation. The tax payable is based on the taxable profit for the year. Taxable
profit differs from net profit as reported in the Statement of Comprehensive
Income because it excludes items of income or expenditure that are taxable or
deductible in other years and it further excludes items that are never taxable
or deductible. The Company has no liability for current tax.
Deferred tax is recognised in respect of all temporary differences at the
Balance Sheet date, where transactions or events that result in an obligation
to pay more tax in the future or right to pay less tax in the future have
occurred at the Balance Sheet date. This is subject to deferred tax assets
only being recognised if it is considered more likely than not that there will
be suitable profits from which the future reversal of the temporary
differences can be deducted. Deferred tax assets and liabilities are measured
at the rates applicable to the legal jurisdictions in which they arise, using
tax rates that are expected to apply at the date the deferred tax position is
unwound.
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 currencies. Monetary assets and liabilities, comprising current
assets, current liabilities and non-current liabilities and non-monetary
assets comprising non-current assets held at fair value which are denominated
in foreign currencies are converted into sterling at the rate of exchange
ruling at the reporting date. Transactions during the year in foreign
currencies are converted at the rate of exchange ruling at the transaction
date. Gains or losses on monetary assets and liabilities 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 column of the Statement of
Comprehensive Income, depending on whether the gain or loss is of a revenue or
capital nature. Non-monetary assets that are measured at fair value and gains
or losses arising from a change in exchange rates subsequent to the date of a
transaction are included as a gain or loss on investments in the capital
column of the Statement of Comprehensive Income.
(h) Derivatives. The Company may enter into certain derivatives (e.g. traded
options). Traded option contracts are restricted to writing out-of-the-money
options with a view to generating income. Premiums received on traded option
contracts are recognised as income evenly over the period from the date they
are written to the date when they expire or are exercised or assigned. Losses
on any movement in the fair value of open contracts at the year end and on the
exercise of the contracts are recorded in the capital column of the Statement
of Comprehensive Income as they arise.
(i) Cash and cash equivalents. Cash and cash equivalents comprise cash in hand and
at banks and short-term deposits with an original maturity of less than 90
days.
(j) Other receivables. Financial assets classified as loans and receivables are
held to collect contractual cash flows and give rise to cash flows
representing solely payments of principal and interest. As such they are
measured at amortised cost. Other receivables do not carry any interest, they
have been assessed for any expected credit losses over their lifetime due to
their short-term nature.
(k) Other payables. Payables are non-interest bearing and are stated at their
undiscounted cash flows.
(l) Dividends payable. Final dividends are recognised from the date on which they
are approved by shareholders. Interim dividends are recognised when paid.
(m) Nature and purpose of reserves
Share premium account. The balance classified as share premium includes the
premium above nominal value from the proceeds on issue of any equity share
capital comprising Ordinary shares of 50p per share and includes the premium
arising following the issue of shares on the transaction with abrdn Smaller
Companies Income Trust plc on 1 December 2023 less the costs associated with
the transaction. This reserve is not distributable.
Capital reserve. This reserve reflects any realised gains or losses in the
period together with any unrealised increases and decreases that have been
recognised in the Statement of Comprehensive Income. These include gains and
losses from foreign currency exchange differences. Additionally, expenses,
including finance costs, are charged to this reserve in accordance with (d)
above.
The capital reserve, to the extent that the gains are deemed realised, is
distributable, including by way of share buybacks and dividends.
Revenue reserve. This reserve reflects all income and costs which are
recognised in the revenue column of the Statement of Comprehensive Income. The
revenue reserve is distributable, including by way of dividend.
(n) Segmental reporting. The Directors are of the opinion that the Company is
engaged in a single segment of business activity, being investment business.
Consequently, no business segmental analysis is provided.
3. Income
2024 2023
£'000 £'000
Income from listed investments
UK dividend income 5,254 4,784
Overseas dividend income 1,048 802
Interest from investment in money market funds 31 7
UK interest 28 -
6,361 5,593
Other income from investment activity
Deposit interest 34 7
Traded option premiums 34 73
Total income 6,429 5,673
4. Management fees
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fees 210 210 420 207 207 414
The management fee is based on 0.45% per annum up to £100 million and 0.40%
over £100 million, by reference to the net assets of the Company and
including any borrowings up to a maximum of £30 million, and excluding
commonly managed funds, calculated monthly and paid quarterly. In addition,
with effect from 1 December 2023, a further fee of £120,000 per annum is
charged for other services provided under the terms of the management
agreement. The fee is allocated 50% to revenue and 50% to capital. The
management agreement is terminable on not less than six months' notice. For
the period 1 December 2023 to 30 May 2024, there is a management fee waiver in
place as a result of the transaction with abrdn Smaller Companies Income Trust
plc ("aSCIT"). For this period the fee will be calculated at 0.29% per annum
of net assets up to £100 million and 0.26% per annum of net assets over this
threshold. After this waiver period has ended the fee will return to the
existing fee rates. Should the Company terminate the management agreement
within three years of the date of the transaction with aSCIT, then the Company
undertakes to repay all or a proportion of the management fees waived by the
Manager based on the time elapsed since completion of the transaction. For the
period to 31 March 2024 the value of the management fee waiver was calculated
to be £65,000. The total of the fees paid and payable during the year to 31
March 2024 was £420,000 (2023 - £414,000) and the balance due to abrdn Fund
Managers Limited ("aFML") at the year end was £127,000 (2023 - £105,000).
5. Administrative expenses
2024 2023
£'000 £'000
Directors' remuneration 141 134
Auditor's remuneration: fees payable to the Company's Auditor for the audit of 60 53
the Company's annual accounts
Promotional activities 50 40
Professional fees 25 19
Directors' & Officers' liability insurance 11 10
Trade subscriptions 29 27
Share plan costs 30 18
Registrar's fees 39 39
Printing, postage and stationery 28 31
Custody fees 11 7
Other administrative expenses 81 39
505 417
Capital administrative expenses - professional fees 24 -
529 417
The management agreement with aFML also provides for the provision of
promotional activities, which aFML has delegated to abrdn Investments Limited.
The total fees payable under the management agreement in relation to
promotional activities were £50,000 (2023 - £40,000) with a balance due to
aFML at the year end of £19,000 (2023 - £10,000). The Company's management
agreement with aFML also provides for the provision of company secretarial and
administration services to the Company. No separate fee is charged to the
Company in respect of these services, which have been delegated to abrdn
Holdings Limited.
6. Directors' remuneration
The Company had no employees during the year (2023 - none). No pension
contributions were paid for Directors (2023 - £nil). Further details on
Directors' Remuneration can be found in the Directors' Remuneration Report.
7. Finance costs
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
On bank loans 502 502 1,004 363 363 726
8. Taxation
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of the charge for the year
Overseas tax 144 - 144 102 - 102
Total tax charge 144 - 144 102 - 102
(b) Factors affecting the tax charge for the year. The tax assessed for the year
is lower than the effective rate of corporation tax in the UK. The differences
are explained in the reconciliation below:
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) before taxation 5,212 (6,540) (1,328) 4,686 (6,615) (1,929)
Corporation tax at an effective rate of 25% (2023 - 19%) 1,303 (1,635) (332) 890 (1,257) (367)
Effects of:
Non-taxable UK dividend income (1,329) - (1,329) (903) - (903)
Excess management expenses not utilised 251 184 435 162 108 270
Expenses not deductible for tax purposes 3 - 3 - - -
Overseas withholding tax 144 - 144 102 - 102
Non-taxable overseas dividends (228) - (228) (149) - (149)
Losses on investments not taxable - 1,437 1,437 - 1,156 1,156
Losses/(gains) on currency movements - 14 14 - (7) (7)
Total tax charge 144 - 144 102 - 102
At 31 March 2024 the Company had surplus management expenses and loan
relationship debits with a tax value of £8,008,000 based on a corporation tax
rate of 25% (2023 - £7,572,000 based on a corporation tax rate of 19%) in
respect of which a deferred tax asset has not been recognised. This is because
the Company is not expected to generate taxable income in a future period in
excess of the deductible expenses of that future period and, accordingly, it
is unlikely that the Company will be able to reduce future tax liabilities
through the use of existing surplus expenses.
9. Dividends
2024 2023
£'000 £'000
Amounts recognised as distributions to equity holders in the period:
Third interim dividend for 2023 of 3.20p (2022 - 3.20p) per share 991 986
Final dividend for 2023 of 4.60p (2022 - 4.20p) per share 1,425 1,294
First two interim dividends for 2024 totalling 6.40p (2023 - 6.40p) per share 2,308 1,982
Refund of unclaimed dividends from previous periods (6) (15)
4,718 4,247
3.5% Cumulative Preference shares 2 2
Total 4,720 4,249
The third interim dividend of 3.20p for the year to 31 March 2024, which was
paid on 30 April 2024, and the proposed final dividend of 4.80p for the year
to 31 March 2024, payable on 31 July 2024, have not been included as
liabilities in these financial statements.
Set out below are the total Ordinary dividends payable in respect of the
financial year, which is the basis on which the requirements of Sections
1158-1159 of the Corporation Tax Act 2010 are considered:
2024 2023
£'000 £'000
Three interim dividends for 2024 totalling 9.60p (2023 - 9.60p) per share 3,632 2,973
Proposed final dividend for 2024 of 4.80p (2023 - 4.60p) per share 1,986 1,424
5,618 4,397
The amount reflected above for the cost of the proposed final dividend for
2024 is based on 41,369,542 Ordinary shares, being the number of Ordinary
shares in issue at the date of this Report.
10. Earnings per Ordinary share
2024 2023
£'000 £'000
Earnings per Ordinary share are based on the following figures:
Revenue return 5,068 4,584
Capital return (6,540) (6,615)
Total return (1,472) (2,031)
Weighted average number of Ordinary shares 34,363,846 30,919,854
During the year and preceding years there were no potentially dilutive shares
in issue.
11. Non-current assets - Securities at fair value
2024 2023
Listed Listed
investments investments
£'000 £'000
Opening book cost 89,610 87,106
Opening investment holdings gains 7,045 15,319
Opening valuation 96,655 102,425
Assets acquired in relation to the aSCIT transaction 31,761 -
Purchases 43,873 16,513
Sales - proceeds (44,372) (16,199)
Losses on investments (5,748) (6,084)
Total investments held at fair value through profit or loss 122,169 96,655
2024 2023
Listed Listed
investments investments
£'000 £'000
Closing book cost 119,549 89,610
Closing investment holdings gains 2,620 7,045
Total investments held at fair value through profit or loss 122,169 96,655
2024 2023
Losses on investments £'000 £'000
Net realised (losses)/gains on sales of investments(A) (1,202) 2,210
Cost of call options exercised (121) (20)
Net realised (losses)/gains on sales (1,323) 2,190
Movement in fair value of investments (4,413) (8,274)
Cost of put options assigned (12) -
(5,748) (6,084)
(A) Includes losses realised on the exercise of traded options of £133,000
(2023 - £20,000) which are reflected in the capital column of the Statement
of Comprehensive Income.
The cost of exercising of call options and assigning put options is the
difference between the market price of the underlying shares and the strike
price of the options. The premiums earned on options expired, exercised or
assigned of £34,000 (2023 - £73,000) have been dealt with in the revenue
account.
The movement in the fair value of traded option contracts has been calculated
in accordance with the accounting policy stated in note 2(h) and has been
charged to the capital reserve.
The Company received £44,372,000 (2023 - £16,199,000) from investments sold
in the period. The book cost of these investments when they were purchased was
£45,695,000 (2023 - £14,009,000). 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.
During the year expenses were incurred in acquiring or disposing of
investments classified as fair value through profit or loss. These have been
expensed through capital and are included within losses on investments in the
Statement of Comprehensive Income. The total costs on purchases of investments
in the year was £182,000 (2023 - £78,000). The total costs on sales of
investments in the year was £15,000 (2023 - £11,000). 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.
At 31 March 2024 the Company held the following investments comprising more
than 3% of the class of share capital held:
Class
Country of Number of Class of held
Company Incorporation shares held shares held %
Ecclesiastical Insurance Office England 4,490,000 8 5/8% Cum Pref 4.2
Royal & Sun Alliance England 4,600,000 7 3/8% Cum Pref 3.7
General Accident Scotland 3,548,000 7.875% Cum Pref 3.2
12. Other receivables
2024 2023
£'000 £'000
Accrued income and prepayments 1,567 1,381
Option contract premium - 2
1,567 1,383
None of the above amounts are overdue.
13. Current liabilities
2024 2023
£'000 £'000
Short-term bank loan 9,000 9,000
Amounts due to brokers relating to buyback of Ordinary shares for Treasury 101 -
Other creditors 390 350
9,491 9,350
Included above are the following amounts owed to aFML for management and
savings scheme services and for the promotion of the Company.
2024 2023
£'000 £'000
Other creditors 160 123
2024 2023
Non-current liabilities £'000 £'000
Long-term bank loan 10,000 10,000
Loan arrangement fees (37) (49)
9,963 9,951
On 3 May 2022, the Company entered into a five year £20 million loan facility
with The Royal Bank of Scotland International Limited, London Branch. £10
million of the loan facility has been drawn down and fixed at an all-in
interest rate of 3.903% until 30 April 2027. £9 million of the facility has
been drawn down on a short-term basis at an all-in interest rate of 6.84%,
maturing 5 April 2024. At the date this Report was approved £9,000,000 of the
facility had been drawn down on a short-term basis at a rate of 6.85%,
maturing on 7 June 2024.
The terms of The Royal Bank of Scotland International Limited facility contain
covenants that consolidated gross borrowings do not exceed 33% of the adjusted
portfolio value ("Securities at fair value" per the Balance Sheet adjusted for
any ineligible investments) at any time, the number of eligible investments
shall not be less than 30 at any time and the portfolio value shall at all
times be equal to or more than £40 million. The Company met these covenants
during the year and following the year end.
The arrangement expenses incurred on the drawdown of the loan will be
amortised over the term of the loan.
14. Called up share capital
2024 2023
Number £'000 Number £'000
Allotted, called up and fully paid Ordinary shares of 50 pence each:
Balance brought forward 30,964,580 15,482 30,819,580 15,410
Ordinary shares issued 11,268,494 5,634 145,000 72
Ordinary shares bought back to Treasury in the year (863,532) (432) - -
Balance carried forward 41,369,542 20,684 30,964,580 15,482
Allotted, called up and fully paid 3.5% Cumulative Preference shares of £1
each:
Balance brought forward and carried forward 50,000 50 50,000 50
20,734 15,532
Treasury shares:
Balance brought forward - - - -
Ordinary shares bought back to Treasury in the year 863,532 432 - -
Balance carried forward 863,532 432 - -
During the year 11,268,494 Ordinary shares were issued in exchange for
£35,228,000 of net assets from abrdn Smaller Companies Income Trust plc (note
22).
During the year 863,532 Ordinary shares were bought back into Treasury
representing 2.1% of the Company's total issued share capital (2023 - nil) at
a total cost of £1,939,000 (2023 - the Company issued 145,000 Ordinary shares
of 50p each for proceeds of £374,000).
Each Ordinary and Cumulative Preference share carries one vote at general
meetings of the Company. The Cumulative Preference shares are considered to be
equity. They have no fixed redemption date, carry a right to receive a fixed
rate of dividend and, on a winding up of the Company, to the payment of such
fixed cumulative preferential dividends to the date of such winding up and to
the repayment of the capital paid up on such shares in priority to any payment
to the holders of the Ordinary shares.
The Ordinary shares, excluding any treasury shares, carry a right to receive
dividends and, on a winding up or other return of capital, after meeting the
liabilities of the Company, the surplus assets will be paid to Ordinary
shareholders in proportion to their shareholdings.
There are no restrictions on the transfer of Ordinary or Cumulative Preference
shares in the Company other than certain restrictions which may from time to
time be imposed by law.
15. Capital reserve
2024 2023
£'000 £'000
At 31 March 2023 35,930 42,545
Net (losses)/gains on sales of investments during year (1,323) 2,190
Movement in fair value decreases of investments (4,425) (8,274)
Buyback of Ordinary shares for treasury (1,939) -
Management fees (210) (207)
Administrative expenses (24) -
Interest on bank loans (502) (363)
Currency (losses)/gains (56) 39
At 31 March 2024 27,451 35,930
The capital reserve includes gains of £2,620,000 (31 March 2023 - gains of
£7,045,000), which relate to the revaluation of investments held at the
reporting date.
16. Net asset value per Ordinary share
The net asset value per share and the net assets attributable to the Ordinary
shareholders at the year end were as follows:
2024 2023
Net assets per Balance Sheet £105,957,000 £79,913,000
3.5% Cumulative Preference shares of £1 each £50,000 £50,000
Attributable net assets £105,907,000 £79,863,000
Number of Ordinary shares in issue 41,369,542 30,964,580
Net asset value per share 256.00p 257.92p
17. Analysis of changes in financial liabilities during the year
At At
31 March Cash Other 31 March
2023 flows movements(A) 2024
Financing activities £'000 £'000 £'000 £'000
Debt due within one year (9,000) - - (9,000)
Debt due after more than one year (9,951) - (12) (9,963)
(18,951) - (12) (18,963)
At At
31 March Cash Other 31 March
2022 flows movements(A) 2023
Financing activities £'000 £'000 £'000 £'000
Debt due within one year (19,000) 10,000 - (9,000)
Debt due after more than one year - (10,000) 49 (9,951)
(19,000) - 49 (18,951)
(A) The other movements column represents the amortisation of the loan
arrangement fees.
18. Financial instruments
Risk management. The Company's investment activities expose it to various
types of financial risk associated with the financial instruments and markets
in which it invests. The Company's financial instruments 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 may also, subject to Board approval, enter into derivative
transactions, in the form of traded options, for the purpose of enhancing
income returns and portfolio management. During the year, the Company entered
into certain derivative contracts. As disclosed in note 3, the premium
received and fair value changes in respect of options written in the year were
£34,000 (2023 - £73,000). Positions closed during the year realised a loss
of £133,000 (2023 - £20,000). The largest position in derivative contracts
held during the year at any given time was £35,000 (2023 - £40,000). The
Company had no open positions in derivative contracts at 31 March 2024 (2023 -
nil).
The Board has delegated the risk management function in relation to financial
instruments to abrdn Fund Managers Limited ("aFML") 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 given their relatively low value.
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. The AIFM 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). The AIFM
has retained responsibility for monitoring and oversight of investment
performance, product risk and regulatory and operational risk for the Company.
The Group's Internal Audit Department is independent of the Risk Division and
reports directly to the Group's CEO 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 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 Group's CEO. The Risk Division achieves its
objective through embedding the Risk Management Framework throughout the
organisation using the Group's operational risk management system ("SHIELD").
The Group's corporate governance structure is supported by several committees
to assist the board of directors of 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 price risk), (ii) liquidity risk and (iii) credit risk.
(i) Market risk. The fair value or future cash flows of a financial instrument
held by the Company may fluctuate because of changes in market prices. This
market risk comprises three elements - interest rate risk, currency risk and
other price risk.
Interest rate risk. Interest rate movements may affect:
- the fair value of the investments in convertibles and preference shares;
- 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. The fixed rate facilities
are used to finance opportunities at low rates and, the revolving and
uncommitted facilities to provide flexibility in the short-term. Current bank
covenants state that the gross borrowings will not exceed one-third of
adjusted portfolio value.
The Board reviews the value of investments in preference shares on a regular
basis.
Interest rate profile. The interest rate risk profile of the portfolio of
financial assets and liabilities (excluding ordinary shares) at the Balance
Sheet date was as follows:
Weighted
average
period Weighted
for which average
rate is interest Fixed Floating
fixed rate rate rate
As at 31 March 2024 Years % £'000 £'000
Assets
UK preference shares - 8.62 24,195 -
Cash and cash equivalents - 5.35 - 1,675
Total assets 24,195 1,675
Liabilities
Short-term bank loans 0.01 6.84 (9,000) -
Long-term bank loans 3.09 3.90 (9,963) -
Total liabilities (18,963) -
Weighted
average
period Weighted
for which average
rate is interest Fixed Floating
fixed rate rate rate
As at 31 March 2023 Years % £'000 £'000
Assets
UK preference shares - 8.49 20,895 -
Cash and cash equivalents - 3.97 - 1,176
Total assets 20,895 1,176
Liabilities
Short-term bank loans 0.01 5.58 (9,000) -
Long-term bank loans 4.01 3.90 (9,951) -
Total liabilities (18,951) -
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 cash assets consist of cash deposits on call earning interest at
prevailing market rates.
The UK preference shares assets have no maturity date.
Short-term debtors and creditors (with the exception of bank loans) have been
excluded from the above tables.
Interest rate sensitivity. The sensitivity analyses below have been determined
based on the exposure to interest rates for non-derivative instruments at the
Balance Sheet date and the stipulated change taking place at the beginning of
the financial year and held constant throughout the reporting period in the
case of instruments that have floating rates.
If interest rates had been 200 basis points higher or lower and all other
variables were held constant, the Company's:
- profit before tax for the year ended 31 March 2024 would increase/decrease
by £34,000 (2023 - £24,000). This is mainly attributable to the Company's
exposure to interest rates on its floating rate cash balances. These figures
have been calculated based on cash positions at each year end.
- the capital return would decrease/increase by £3,300,000 (2023 -
increase/decrease by £3,342,000) using VaR ("Value at Risk") analysis based
on 100 observations of monthly VaR computations of fixed interest portfolio
positions at each year end.
Currency risk. A small proportion of the Company's investment portfolio is
invested in overseas securities whose values are subject to fluctuation due to
changes in exchange rates.
Management of the risk. 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. The Company
does not have any exposure to foreign currency liabilities. No currency
sensitivity analysis has been prepared as the Company considers any impact to
be immaterial to the financial statements.
Price risk. Price risks (ie changes in market prices other than those arising
from interest rate or currency risk) may affect the value of the quoted
investments.
Management of the risk. It is the Board's policy to hold an appropriate spread
of investments in the portfolio in order to reduce the risk arising from
factors specific to a particular sector. The allocation of assets to specific
sectors and the stock selection process both act to reduce market risk. The
Manager actively monitors market prices throughout the year and reports to the
Board, which meets regularly in order to review investment strategy. The
investments held by the Company are listed on recognised stock exchanges.
Price sensitivity. If market prices at the Balance Sheet date had been 20%
higher or lower while all other variables remained constant, the profit before
tax attributable to Ordinary shareholders for the year ended 31 March 2024
would have increased/decreased by £19,595,000 (2023 - increase/decrease of
£15,152,000). This is based on the Company's portfolio of Ordinary shares
held at each year end.
(ii) Liquidity risk. This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Management of the risk. Liquidity risk is not considered to be significant as
the Company's assets comprise mainly readily realisable securities, which can
be sold to meet funding commitments if necessary.
Short-term flexibility is achieved through the use of loan facilities, details
of which can be found in note 13. 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.
The Board imposes borrowing limits to ensure gearing levels are appropriate to
market conditions and reviews these on a regular basis. Borrowings comprise a
revolving loan facility and a fixed term loan facility. The Board has imposed
a maximum equity gearing level of 35% which constrains the amount of gearing
that can be invested in equities which, in normal market conditions, are more
volatile than the preference shares within the portfolio. Details of
borrowings at 31 March 2024 are shown in note 13.
Maturity profile. The maturity profile of the Company's financial liabilities
at the Balance Sheet date, with amounts undiscounted and order by contractual
maturity, was as follows:
Within Within More than
1 year 1-5 years 5 years
At 31 March 2024 £'000 £'000 £'000
Trade and other payables (491) - -
Short-term bank loans (9,052) - -
Long-term bank loans (389) (10,873) -
(9,932) (10,873) -
Within Within More than
1 year 1-5 years 5 years
At 31 March 2023 £'000 £'000 £'000
Trade and other payables (350) - -
Short-term bank loans (9,044) - -
Long-term bank loans (392) (11,262) -
(9,786) (11,262) -
(iii) Credit risk. This is the risk of 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. The risk is managed as follows:
- where the Investment Manager makes an investment in a bond, corporate or
otherwise, the credit rating of the issuer is taken into account so as to
minimise the risk to the Company of default;
- transactions involving derivatives are entered into only with investment
banks, the credit rating of which is taken into account so as to minimise the
risk to the Company of default;
- investment transactions are carried out with a large number of brokers,
whose credit-standing is reviewed periodically by the investment manager, and
limits are set on the amount that may be due from any one broker;
- the risk of counterparty exposure due to failed trades causing a loss to the
Company is mitigated by the review of failed trade reports on a daily basis.
In addition, both stock and cash reconciliations to the Custodian's records
are performed on a daily basis to ensure discrepancies are investigated on a
timely basis. The Group's Compliance carries out periodic reviews of the
Custodian's operations and reports its findings to the abrdn Group's Risk
Management Committee and to the Board of the Company. This review will also
include checks on the maintenance and security of investments held;
- transactions involving derivatives and other arrangements wherein the
creditworthiness of the entity acting as broker or counterparty to the
transaction is likely to be of sustained interest are subject to rigorous
assessment by the Investment Manager of the credit worthiness of that
counterparty. The Company's aggregate exposure to each such counterparty is
monitored regularly by the Board; and
- cash is held only with reputable banks with high quality external credit
enhancements.
It is the Investment Manager's policy to trade only with A- and above (Long
Term rated) and A-1/P-1 (Short Term rated) counterparties.
None of the Company's financial assets are secured by collateral or other
guarantees or assurances.
Credit risk exposure. In summary, compared to the amounts in the Balance
Sheet, the maximum exposure to credit risk at 31 March 2024 and 31 March 2023
was as follows:
2024 2023
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
£'000 £'000 £'000 £'000
Non-current assets
Quoted preference shares at fair value through profit or loss 24,195 24,195 20,895 20,895
Current assets
Accrued income 1,567 1,567 1,363 1,363
Option contract premium - - 2 2
Cash and cash equivalents 1,675 1,675 1,176 1,176
27,437 27,437 23,436 23,436
None of the Company's financial assets is past its due date.
Fair value of financial assets and liabilities. The fair value of the
long-term loan has been calculated at £9,619,000 as at 31 March 2024 (2023 -
£9,097,000) compared to an accounts value in the financial statements of
£9,963,000 (2023 - £9,951,000) (note 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. The
loan is considered to be classed as a Level 2 liability under IFRS 13. The
carrying values of fixed asset investments are stated at their fair values,
which have been determined with reference to quoted market prices. Traded
options contracts are valued at fair value which have been determined with
reference to quoted market values of the contracts. The contracts are
tradeable on a recognised exchange. For all other short-term debtors and
creditors, their book values approximate to fair values because of their
short-term maturity.
19. Fair value hierarchy
IFRS 13 'Financial Value Measurement' requires an entity to classify fair
value measurements using a fair value hierarchy that reflects the significance
of the inputs used in making the measurements. The fair value hierarchy has
the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the assets or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The financial assets and liabilities measured at fair value in the Balance
Sheet are grouped into the fair value hierarchy at 31 March 2024 as follows:
Level 1 Level 2 Level 3 Total
As at 31 March 2024 Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted investments a) 122,169 - - 122,169
Net fair value 122,169 - - 122,169
Level 1 Level 2 Level 3 Total
As at 31 March 2023 Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted investments a) 96,655 - - 96,655
Net fair value 96,655 - - 96,655
a) Quoted investments. The fair value of the Company's quoted investments has
been determined by reference to their quoted bid prices at the reporting date.
Quoted investments included in Fair Value Level 1 are actively traded on
recognised stock exchanges.
20. 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 Investment Manager's views on the market 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.
21. Related party transactions
Directors' fees and interests. Fees payable during the year to the Directors
and their interests in 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 for the carrying out of promotional activities in
relation to the Company. Details of transactions during the year and balances
outstanding at the year end are disclosed in notes 4 and 5.
22. Transaction with abrdn Smaller Companies Investment Trust plc ("aSCIT")
On 1 December 2023, the Company announced that it had acquired £35,228,000 of
net assets from aSCIT in consideration for the issue of 11,268,494 new
Ordinary shares as part of a recommended s110 Scheme under the Insolvency Act.
The scheme, inter alia, involved the cancellation of the Company's existing
holding in the issued capital of aSCIT, and a formula asset value ("FAV")
calculation to take account the costs of the transaction in computing the
number and value of shares to be issued by the Company and assets transferred
under the Scheme, as well as the value of cash exit for aSCIT shareholders
which was at a discount to the FAV.
Net assets acquired £'000
Investments 31,779
Cash 3,444
Debtors 5
Net assets 35,228
Satisfied by the value of new Ordinary shares issued 35,228
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 IAS and the
AIC SORP. The Directors assess the Company's performance against a range of
criteria which are viewed as particularly relevant for closed-end investment
companies.
Discount to net asset value per Ordinary share
The difference between the share price and the net asset value per Ordinary
share expressed as a percentage of the net asset value per Ordinary share.
2024 2023
NAV per Ordinary share (p) a 256.00 257.92
Share price (p) b 222.00 250.00
Discount (a-b)/a 13.3% 3.1%
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 14.75p 14.83p
Dividends per share b 14.40p 14.20p
Dividend cover a/b 1.02x 1.04x
Dividend Yield
The annual dividend divided by the share price, expressed as a percentage.
2024 2023
Annual dividend per Ordinary share (p) a 14.40p 14.20p
Share price (p) b 256.00p 250.00p
Dividend yield a/b 5.6% 5.7%
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 18,963 18,951
Cash (£'000) b 1,675 1,176
Amounts due to brokers (£'000) c 101 -
Amounts due from brokers (£'000) d - -
Shareholders' funds (£'000) e 105,957 79,913
Net gearing (a-b+c-d)/e 16.4% 22.2%
Ongoing Charges Ratio
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and
administrative expenses and expressed as a percentage of the average net asset
values throughout the year.
2024 2023
Investment management fees (£'000) 420 414
Administrative expenses (£'000) 529 417
Less: non-recurring charges(A) (£'000) (24) -
Ongoing charges (£'000) 925 831
Average net assets (£'000) 85,134 80,617
Ongoing charges ratio (excluding look-through costs) 1.09% 1.03%
Look-through costs(B) 0.01% 0.14%
Ongoing charges ratio (including look-through costs) 1.10% 1.17%
(A) Comprises promotional acitivities fees not expected to recur.
(B) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis.
The ongoing charges ratio provided in the Company's Key Information Document
is calculated in line with the PRIIPs regulations which 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 March 2024 NAV Price
Opening at 1 April 2023 a 250.00p 257.92p
Closing at 31 March 2024 b 222.00p 256.00p
Price movements c=(b/a)-1 -11.2% -0.7%
Dividend reinvestment(A) d 5.8% 5.5%
Total return c+d -5.4% +4.8%
Share
Year ended 31 March 2023 NAV Price
Opening at 1 April 2022 a 278.29p 279.00p
Closing at 31 March 2023 b 257.92p 250.00p
Price movements c=(b/a)-1 -7.3% -10.4%
Dividend reinvestment(A) d 5.1% 4.9%
Total return c+d -2.2% -5.5%
(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 18 Bishops Square, London E1 6EG on
Friday 5 July 2024 at 12 noon.
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 March 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 S.498 of
the Companies Act 2006. The financial information for 2023 is derived from the
statutory accounts for 2023 which have been delivered to the Registrar of
Companies. The 2024 accounts will be filed with the Registrar of Companies in
due course.
The Annual Report and Accounts will be posted to shareholders and copies will
be available from the registered office of the Manager and on the Company's
website, www.shiresincome.co.uk (http://www.shiresincome.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
22 May2024
* 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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