Half-year Report
13/12/2023 07:00
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RNS Number : 5490W Shires Income PLC 13 December 2023
SHIRES INCOME PLC
HALF YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2023
Legal Entity Identifier (LEI): 549300HVCIHNQNZAYA89
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 fixed income securities.
BENCHMARK
The Company's benchmark is the FTSE All-Share Index (total return).
DIVIDENDS
The Company pays dividends to Ordinary shareholders on a quarterly basis.
Performance Highlights
Net asset value per Ordinary share total return(A) Share price total return(A)
Six months ended 30 September 2023 Six months ended 30 September 2023
+0.9% (3.1)%
Year ended 31 March 2023 (2.2)% Year ended 31 March 2023 (5.5)%
Benchmark index total return Earnings per Ordinary share (revenue)
Six months ended 30 September 2023 Six months ended 30 September 2023
+1.4% 7.66p
Year ended 31 March 2023 +2.9% Six months ended 30 September 2022 7.50p
Dividend yield(A) Discount to net asset value(A)
As at 30 September 2023 As at 30 September 2023
6.1% (7.0)%
As at 31 March 2023 5.7% As at 31 March 2023 (3.1)%
(A) Considered to be an Alternative Performance Measure.
Financial Calendar and Financial Highlights
Financial Calendar
Expected payment dates of quarterly dividends 27 October 2023
31 January 2024
26 April 2024
26 July 2024
Financial year end 31 March 2024
Expected announcement of results for year ended 31 March 2024 May 2024
Annual General Meeting July 2024
Financial Highlights
30 September 2023 31 March 2023 % change
Total assets (£'000)(A) 96,310 98,864 -2.6
Shareholders' funds (£'000) 77,353 79,913 -3.2
Net asset value per share 252.20p 257.92p -2.2
Share price (mid-market) 234.50p 250.00p -6.2
Discount to net asset value (cum-income)(B) (7.0)% (3.1)%
Dividend yield(B) 6.1% 5.7%
Net gearing(B) 23.1% 22.2%
Ongoing charges ratio(B) 1.26% 1.17%
(A) Less current liabilities excluding bank loans of £9,000,000.
(B) Considered to be an Alternative Performance Measure.
Performance (total return)
Six months ended Year ended Three years ended Five years ended
30 September 2023 30 September 2023 30 September 2023 30 September 2023
Net asset value(A) +0.9% +12.1% +29.4% +20.3%
Share price(A) -3.1% +8.2% +29.2% +21.3%
FTSE All-Share Index +1.4% +13.8% +39.8% +19.7%
(A) Considered to be an Alternative Performance Measure.
All figures are for total return and assume reinvestment of net dividends
excluding transaction costs.
For further information, please contact:
Paul Finlayson
abrdn Investments Limited
0131 372 9376
Chairman's Statement
Introduction
I am pleased to present the Half Yearly Report for the period ended 30
September 2023. I would like to welcome those new shareholders who have rolled
over their shareholdings from abrdn Smaller Companies Income Trust PLC
("aSCIT"), following the completion of the combination of our two companies on
1 December 2023. The transaction offers significant benefits for both sets
of shareholders, which I will describe in more detail later in this statement
and in the subsequent events note.
It has been an eventful period for the Company and I'm pleased to be able to
end it on this positive note.
Market Background
The main macro-economic trend in the six-month period was the continued rise
in interest rates as central banks attempted to tackle inflation. The US
Federal Reserve increased rates from 4.75% in March to 5.5% at the end of
September and the Bank of England increased interest rates from 4.0% to 5.25%.
In both cases rising short rates together with the corresponding rises in
longer-term bond yields, have seen a rapid tightening of financial conditions
since the end of 2021. Markets have accepted the likelihood that interest
rates will remain higher for longer, and that the previous period of ultra-low
interest rates will not be returned to. It is, however, increasingly likely
that we are close to the peak in interest rates. Inflation has started to
decline as key input costs such as energy and agricultural commodities fall,
and although more persistent inputs such as wage inflation remain high, recent
data suggests that economic growth is slowing, giving central banks some room
to consider interest rate cuts as we move into 2024.
Over the last twelve months the UK economy has defied the pessimists with
economic growth being far more resilient than feared and more recent data has
also indicated that the recovery post Covid has been at least as strong as
elsewhere in the world. In the US, the economy has performed reasonably well,
driven by robust consumer and business balance sheets and, alongside
moderating inflation, this has increased the probability of a soft landing. By
contrast, the Chinese and European economies are facing some headwinds. The
Chinese property market is heavily indebted and in considerable excess supply,
with developer and homebuyer confidence very low. However, policy is now
easing, which should prevent further downside outcomes and deflation becoming
embedded in the economy, and this could even surprise markets on the upside.
But in the Eurozone and the UK, the pass-through of earlier monetary policy
tightening reflected in both short and longer-term interest rates, is still
likely to mean that economic growth remains subdued in 2024 given the effects
on mortgage rates and corporate borrowing costs.
Despite these forces, equity markets have been resilient, with the MSCI World
Index up 3% over the six-month period, although it was up by as much as 10% at
its high at the end of July. The UK FTSE All-Share Index benchmark did not
quite keep pace, rising by 1.4% over the period in total return terms.
Performance by sector was mixed. Technology was the best performing sector in
the UK, rising by 14.5%, but remains a small weight in the market. Energy
(+11.5%) and Financials (+4.3%) performed well. Conversely, those sectors
which are negatively correlated to rising bond yields, such as Consumer
Staples (-5.0%) and Real Estate (-4.8%) lagged the market.
Investment Performance
Over the six-month period to 30 September 2023 the Company's Net Asset Value
("NAV") increased by 0.9% on a total return basis. This compares to the FTSE
All-Share Index total return of 1.4% referred to above, and the average return
from the open-ended UK Equity Income Sector of 0.5%. The main driver of
performance was a recovery in the Company's preference shares in the last few
months as bond yields started to peak. The total return from the preference
share portfolio during the period was 5.8%. Given the tough economic and
equity market background we believe that this was a creditable performance
from the Investment Manager.
Disappointingly, the share price total return for the period was -3.1%,
reflecting a widening of the discount at which the Ordinary shares trade
relative to the NAV, from 3.1% at the start of the period to 7.0% at 30
September 2023. This is addressed in more detail below, under Discount and
Share Buy Backs. The average discount over the 12 month period to 30 September
2023 was 3.1%, demonstrating that the discount widening has been a recent
development.
On an individual equity basis, the greatest positive contribution to
performance came from the holding in Standard Chartered, where the shares
rallied by 13% over the period as concerns around contagion from US banks at
the start of the year receded and the company continued to report good
performance. HSBC Holdings (+15%) benefitted from the same trends. There were
also strong performances from a number of more cyclical UK companies, with
Morgan Sindall (+26%), Direct Line Insurance (+26%), Melrose Industries (+15%)
and Vistry Group (+21%) all performing well. Dechra Pharmaceuticals was a
standout performer, with its shares rising by more than 30% following a bid
from a private equity firm. A rally in energy stocks in September was also
positive, with TotalEnergies and Shell both performing well. The holding in
aSCIT (+4%) also outperformed the benchmark, with the discount narrowing as a
result of the proposal for the combination with the Company, as referred to
above.
Negative performers were more concentrated, with a number of portfolio
holdings disappointing meaningfully. OSB (OneSavingsBank) fell by 30% after
having to adjust assumptions made in its credit book in response to higher
interest rates. The Investment Manager sees this as a one-off hit to the bank
and considers the shares to be good value. Since the period end the shares
have regained some lost ground after a reassuring update. Genus (-30%) was
also weak as it faces headwinds from cyclical weakness in the Chinese pork
market. Drax (-25%) has also been weak as the market has grown concerned about
the viability of its BECCS biomass power generation project.
Portfolio Activity
Activity in the portfolio was, as ever, driven by the Investment Manager's
views on individual companies rather than a change in strategy. However, if we
were to characterise the aim of trading during the period, it was to increase
the resilience and strength of income from the portfolio. The Investment
Manager's view at the end of the 2023 financial year was that upwards progress
from equity markets would be challenging in the short-term and that a period
of some economic weakness was a reasonable possibility in the next 12-18
months. At the same time, rising interest rates and bond yields meant that
cash and bonds were a reasonable alternative for investors looking for income.
It is therefore important that the portfolio continues to provide a high level
of income, and that this income generation will be resilient in any
macro-economic downturn.
In April, the Investment Manager made a number of trades to enhance income
from the portfolio. It sold out of the position in Nordea. While it continues
to like the company, it saw better value elsewhere in the sector and initiated
a position in Dutch bank ING Group which it considers to be a low risk,
well-funded and attractively priced bank.
The Investment Manager also started a new position in Genus, which develops
genetics for livestock. While the company is lower yielding than would usually
be considered for the portfolio, it does pay a dividend and is very high
quality, with a strong market position. The Investment Manager considers that
the shares are valued attractively compared to their historic levels and that
there are potential catalysts from gene editing development within the
investment time horizon.
Similar to the trades in European banks, the Investment Manager changed the UK
bank exposure at the start of the period by switching from NatWest to Lloyds
Banking Group. This trade took advantage of the timing of dividend payments to
enhance income and gives the Company exposure to a retail bank with a high
level of sustainable returns and likely increasing distribution capacity as
interest rates normalise and the group's pension fund deficit is eliminated,
reducing the drag on statutory profits.
In May, the Investment Manager bought back into Sirius Real Estate. It exited
this position late in 2022, with increasing concerns around commercial real
estate. However, the shares were recently upgraded and the company has
delivered strong cashflow and an increase in its dividend, signalling
management's confidence in cashflows to come. The Investment Manager therefore
saw an opportunity to add back some weight in real estate to the portfolio,
with the view that the sector could rally sharply once bond yields peak,
provided demand remains resilient in the sector.
The Investment Manager sold the Company's holding in British American Tobacco,
which had been a source of significant income in the portfolio for a long
period of time. However, recent sales data had disappointed in its key US
market and, after reducing the position over time, the Investment Manager
decided to exit. The Company continues to hold a position in Imperial Brands,
where the Investment Manager sees continued operational improvement after
recent management change and a strategy focused on driving cash generation,
which protects the dividend.
In June, the Investment Manager exited the position in Dechra Pharmaceuticals.
This was a recent purchase, in November last year. However, the company
received a bid from a private equity buyer in April and the share price moved
higher, giving an attractive 30%+ return in a short period of time. The
proceeds from the sale were invested in a new holding, IP Group, which is an
investor in early-stage companies focused on three areas: Life Sciences, Clean
Energy and Advanced Technology.
The Investment Manager started one new position in July, buying Italian
utility Enel. The holding provides exposure to long term investment growth in
renewable power generation.. To fund the purchase and control the level of
overseas exposure, the Investment Manager sold the remaining position in
Bawag, which had done well since purchase but where the Investment Manager saw
less attractive risk/reward.
During August, the Investment Manager started a new position in Convatec,
which produces medical supplies in areas such as wound care, infusion and
stomas. To fund the purchase, the Investment Manager sold out of the holding
in Smith & Nephew, where it saw less consistent delivery. Finally, the
Investment Manager sold out of a small remaining position in Vodafone, where
it saw the dividend as unlikely to grow and where the quality did not meet the
level it looks for in portfolio companies.
Earnings and Dividends
The revenue earnings per share for the period were 7.66p, which compares to
7.50p for the equivalent period last year. Across the portfolio, there has
been a modest increase in dividend income as companies continue to increase
distributions from levels re-based during the Covid pandemic. Companies in
certain sectors have seen tailwinds to earnings, with energy companies
benefitting from higher commodity prices and banks from higher interest rates.
One marked trend has been an increased preference for share buybacks amongst
UK companies. This is understandable given the need to maintain flexibility
with distributions and also the recognition that UK equities are lowly valued
compared to history and other developed markets. The UK now has a higher
buyback yield than the US, the long-time leader in this regard, providing an
additional source of shareholder returns. Portfolio changes have also been
made with the aim of enhancing the income generation. At a time of higher
inflation and an uncertain economic outlook, the Investment Manager considers
a high level of income as being important for the total return potential of
the Company.
A first interim dividend of 3.2p per Ordinary share in respect of the year
ending 31 March 2024 was paid on 27 October 2023 (2023: first interim dividend
- 3.2p). The Board is declaring a second interim dividend of 3.2p per
Ordinary share, payable on 31 January 2024 to shareholders on the register at
close of business on 5 January 2024. Subject to unforeseen circumstances, it
is proposed to pay a further interim dividend of 3.2p per Ordinary share prior
to the Board deciding on the rate of final dividend at the time of reviewing
the full year results.
The current annual rate of dividend Is 14.20p per Ordinary share, and
represented a dividend yield of 6.1% based on the share price at the end of
the period. The Board considers that one of the key attractions of the Company
is its high level of dividend and recognises that, in the current economic
environment, there is likely to be a continuing demand for an attractive and
reliable level of income. Whilst the Company remains on track to cover its
annual dividend cost with net income, the Board is conscious of the Company's
accumulated revenue reserves which add security to the sustainability of the
dividend.
Discount and Share Buy Backs
As stated above, the discount at which the price of the Company's Ordinary
shares trade relative to the NAV widened during the period, to 7.0% as at 30
September 2023. This is consistent with a general widening of discounts across
the whole investment trust sector, but exacerbated by the transfer of the
abrdn investment trust saving plans to Interactive Investor. Consequently, to
help address the imbalance of supply and demand for the shares, and in
accordance with the share buy-back authority provided by shareholders at the
Annual General Meeting, the Company bought back 312,673 Ordinary shares during
the period at a cost of £720,000 and an average discount of 9.2%, thereby
providing an enhancement to the NAV for continuing shareholders. Since the
period end, the Company has bought back a further 432,895 shares at a cost of
£954,000. The Board will continue to make use of the share buy-back authority
if it considers it in the interests of shareholders to do so. All shares
bought back are held in treasury for future resale at a premium to the NAV.
Gearing
The Company has a £20 million loan facility of which £19 million was drawn
down at the period end. Net of cash, this represented gearing of 23.1%,
compared to 22.2% at the start of the period. The weighted average borrowing
cost at the period end was 5.3% (31 March 2023 - 4.7%). The Board continually
monitors the level of gearing and continues to take 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 various
yields. 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.
Board Changes
At the AGM in July 2024, I shall be stepping down from the Board having served
for nine years. Having conducted a full succession process involving the
evaluation of external candidates, the Board has reached the decision that
Robin Archibald, who is the current Chair of the Audit Committee and Senior
Independent Director, should replace me as Chairman upon my retirement. Jane
Pearce will become the new Chair of the Audit Committee, and Helen Sinclair
will become the new Senior Independent Director. We have separately announced
that Simon White, who was Head of Investment Trusts at BlackRock from 2011
until June 2022 will be joining the Board as an independent non-executive
Director on 1 January 2024. With these changes, the Board remains confident
that we have the appropriate collective skills and experience to take the
Company forward.
Combination of aSCIT and Shires
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. 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 the scheme 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.
The combination has increased the size of Shires by more than 35%, to net
assets of £101 million at the point when aSCIT's assets transferred. As a
result, the Company will benefit from the reducing tiered management fee
structure at higher levels of assets under management, reducing the Ongoing
Charges Ratio ("OCR"), and there should be improved secondary liquidity in the
Company's shares, as well as greater scale to promote the Company from. The
Company will continue with its existing investment objective and policy and
management arrangements, but will have a direct exposure to UK smaller
companies rather than obtaining its exposure through investing in aSCIT. The
Company's gearing ratio has fallen as a result of the combination, from 23.1%
at 30 September 2023 to 13.5% at the time of writing, which includes £4.4
million of cash awaiting investment.
aSCIT's shares were trading at a 12-month average discount of 15.7% before the
announcement of its strategic review on 13 February 2023. aSCIT shareholders
who have received new Shires shares will benefit from a much lower OCR, a
significant increase in dividend yield outlook and an improved rating for
their shareholding.
We believe it has been a successful transaction for all concerned.
Outlook
UK equities look good value, trading at a material discount to other developed
markets which is not justified by the fundamentals of earnings and dividends.
Economic growth has been similar to other large economies and while inflation
has been higher this is now falling. The yield available on UK equities is
ahead of other markets and delivers an attractive rate of return. The
preference shares held in the portfolio also offer a high yield and the
potential decline in bond yields should provide a tailwind to their valuation.
However, the Investment Manager remains cautious on equities globally, as it
believes on a medium-term view that markets are pricing in an overly benign
outlook for macro-economic outcomes and interest rates.
By sector, the expected peaking of interest rates creates opportunities for
income investors in the UK, although the Investment Manager continues to look
for higher quality and more defensive areas of the market. Certain high yield
sectors, such as Utilities and Real Estate, are negatively correlated with
bond yields and can perform well. Utilities, in particular, offer defensive
exposure to falling bond yields and longer-term structural growth due to
higher investment requirements through a period of energy transition. Sectors
which are more economically sensitive and consumer exposed, such as Consumer
Discretionary, look less attractive.
It is reassuring to see more government attention on potential solutions to
some issues around UK market valuations, including liquidity and a lack of
home-grown investors into equities. While these will likely take time to bear
fruit, it highlights that there remain relatively cheap valuations ascribed to
UK equities that should provide rewards to patient investors. The combination
of the Company and abrdn Smaller Companies Income Trust will increase direct
exposure to small and mid-cap names in the portfolio. Despite the issues
currently facing smaller companies, the Investment Manager sees this as an
attractive area for new opportunities, and continues to invest in companies
that have sufficient quality and income characteristics, independent of their
size.
Overall, while market conditions may remain challenging in the shorter-term,
the Board remains confident in the defensive nature of the portfolio, its
ability to deliver long term capital growth and, most importantly, the
resilience of income, supported by substantial revenue reserves.
Robert Talbut
Chairman
13 December 2023
Interim Management Statement
Directors' Responsibility Statement
The Directors are responsible for preparing the Half Yearly Financial Report
in accordance with applicable law and regulations. The Directors confirm that
to the best of
their knowledge:
- the condensed set of financial statements within the Half Yearly
Financial Report has been prepared in accordance with IAS 34 'Interim
Financial Reporting'; and
- the Interim Board Report (constituting the Interim Management
Report) includes a fair review of the information required by rules 4.2.7R of
the Disclosure Guidance and Transparency Rules (being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements
and a description of the principal risks and uncertainties for the remaining
six months of the financial year) and 4.2.8R (being related party transactions
that have taken place during the first six months of the financial year and
that have materially affected the financial position of the Company during
that period; and any changes in the related party transactions described in
the last Annual Report that could so do).
Principal and Emerging Risks and Uncertainties
The Board regularly reviews the principal and emerging risks and uncertainties
faced by the Company together with the mitigating actions it has established
to manage the risks. These are set out within the Strategic Report contained
within the Annual Report for the year ended 31 March 2023 and comprise the
following risk headings:
- Strategic objectives and investment policy
- Investment performance
- Failure to maintain, and grow the dividend over the longer term
- Share price and shareholder relations
- Gearing
- Accounting and financial reporting
- Regulatory and governance
- Operational
Exogenous risks such as health, social, financial, economic, climate and
geo-political
In addition to these risks, the Board is conscious of the continuing impact of
the conflicts in Ukraine and, more recently, the Middle East, as well as
continuing tensions between the US and China. The Board is also conscious of
the impact of inflation and higher interest on financial markets. The Board
considers that these are risks that could have further implications for
financial markets.
In all other respects, the Company's principal and emerging risks and
uncertainties have not changed materially since the date of the Annual Report
and are not expected to change materially for the remaining six months of the
Company's financial year.
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. The Company has a £20 million loan facility which matures
in May 2027. £9 million of this amount is drawn down on a short-term basis
through a revolving credit facility and can be repaid without incurring any
financial penalties.
The Board has also taken into account the impact on the Company of its
combination with abrdn Smaller Companies Income Trust PLC since the period
end.
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 31 December 2023, 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.
On behalf of the Board
Robert Talbut
Chairman
13 December 2023
Investment Portfolio - Equities
As at 30 September 2023
Market Total
value portfolio
Company £'000 %
abrdn Smaller Companies Income Trust 7,715 8.2
Shell 4,379 4.6
AstraZeneca 4,032 4.2
BP 3,268 3.5
Diversified Energy 2,727 2.9
Diageo 2,408 2.5
Anglo American 2,293 2.4
SSE 2,053 2.2
TotalEnergies 2,052 2.2
HSBC Holdings 2,016 2.1
Ten largest investments 32,943 34.8
Standard Chartered 1,857 1.9
Energean 1,641 1.7
Rio Tinto 1,614 1.7
National Grid 1,523 1.6
Unilever 1,318 1.4
Intermediate Capital Group 1,209 1.3
Novo-Nordisk 1,205 1.3
Melrose Industries 1,199 1.3
Lloyds Banking Group 1,193 1.3
Imperial Brands 1,191 1.3
Twenty largest investments 46,893 49.6
Inchcape 1,184 1.2
Chesnara 1,106 1.2
Morgan Sindall 1,059 1.1
M&G 1,033 1.1
Balfour Beaty 988 1.0
Engie 952 1.0
Sirius Real Estate 950 1.0
Close Brothers 934 1.0
IP Group 920 1.0
Prudential 914 1.0
Thirty largest investments 56,933 60.2
Mondi 903 1.0
Hiscox 879 0.9
Convatec 875 0.9
Softcat 869 0.9
GSK 860 0.9
Howden Joinery 835 0.9
XP Power 819 0.9
AXA 771 0.8
Oxford Instruments 716 0.8
Games Workshop Group 707 0.7
Forty largest investments 65,167 68.9
ING Group 674 0.7
OSB 667 0.7
Dr. Martens 659 0.7
Vistry Group 632 0.7
Enel 624 0.6
Telecom Plus 586 0.6
Telenor 569 0.6
Wood Group 564 0.6
Bodycote 546 0.6
Coca-Cola HBC 534 0.6
Fifty largest investments 71,222 75.3
Genus 532 0.6
Ashmore 442 0.5
Direct Line Insurance 435 0.4
Drax 412 0.4
Marshalls 349 0.4
Redrow 328 0.4
Total equity investments 73,720 78.0
Investment Portfolio - Other Investments
As at 30 September 2023
Market Total
value portfolio
Company £'000 %
Preference shares(A)
Ecclesiastical Insurance Office 8 5/8% 5,215 5.5
Royal & Sun Alliance 7 3/8% 4,611 4.9
General Accident 7.875% 3,796 4.0
Santander 10.375% 3,685 3.9
Standard Chartered 8.25% 2,991 3.1
R.E.A Holdings 9% 552 0.6
Total preference shares 20,850 22.0
Total equity investments 73,720 78.0
Total investments 94,570 100.0
(A) None of the preference shares listed above has a fixed redemption date.
Distribution of Assets and Liabilities
Valuation at Movement during the period Valuation at
31 March 2023 Purchases Sales Losses 30 September 2023
£'000 % £'000 £'000 £'000 £'000 %
Listed investments
Equities 75,760 94.8 11,489 (12,200) (1,329) 73,720 95.3
Preference shares 20,895 26.2 - - (45) 20,850 27.0
Total investments 96,655 121.0 11,489 (12,200) (1,374) 94,570 122.3
Current assets 2,559 3.2 2,154 2.8
Current liabilities (9,350) (11.7) (9,414) (12.2)
Non-current liabilities (9,951) (12.5) (9,957) (12.9)
Net assets 79,913 100.0 77,353 100.0
Net asset value per Ordinary share 257.92p 252.20p
Condensed Statement of Comprehensive Income
30 September 2023 30 September 2022 31 March 2023
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Losses on investments at fair value - (1,374) (1,374) - (12,177) (12,177) - (6,084) (6,084)
Currency (losses)/gains - (39) (39) - 5 5 - 39 39
Investment income
Dividend income 2,920 - 2,920 2,814 - 2,814 5,586 - 5,586
Interest income 16 - 16 - - - 7 - 7
Traded option premiums 79 - 79 31 - 31 73 - 73
Money market interest 8 - 8 - - - 7 - 7
3,023 (1,413) 1,610 2,845 (12,172) (9,327) 5,673 (6,045) (372)
Expenses
Management fee (100) (100) (200) (103) (103) (206) (207) (207) (414)
Administrative expenses (240) (24) (264) (220) - (220) (417) - (417)
Finance costs (245) (245) (490) (152) (152) (304) (363) (363) (726)
(585) (369) (954) (475) (255) (730) (987) (570) (1,557)
Profit/(loss) before taxation 2,438 (1,782) 656 2,370 (12,427) (10,057) 4,686 (6,615) (1,929)
Taxation 2 (80) - (80) (54) - (54) (102) - (102)
Profit/(loss) attributable to equity holders 2,358 (1,782) 576 2,316 (12,427) (10,111) 4,584 (6,615) (2,031)
Earnings per Ordinary share (pence) 4 7.66 (5.79) 1.87 7.50 (40.25) (32.75) 14.83 (21.40) (6.57)
The Company does not have any income or expense that is not included in the
profit for the period, and therefore the profit for the period is also the
"Total comprehensive income for the period", 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 the financial statements.
Condensed Balance Sheet
As at As at As at
30 September 2023 30 September 2022 31 March 2023
(unaudited) (unaudited) (audited)
Note £'000 £'000 £'000
Non-current assets
Equities 73,720 70,571 75,760
Preference shares 20,850 20,819 20,895
Securities at fair value 94,570 91,390 96,655
Current assets
Accrued income and prepayments 988 890 1,383
Cash and cash equivalents 1,166 1,442 1,176
2,154 2,332 2,559
Creditors: amounts falling due within one year
Trade and other payables (414) (968) (350)
Short-term borrowings (9,000) (9,000) (9,000)
(9,414) (9,968) (9,350)
Net current liabilities (7,260) (7,636) (6,791)
Total assets less current liabilities 87,310 83,754 89,864
Non-current liabilities
Long-term borrowings (9,957) (9,945) (9,951)
Net assets 77,353 73,809 79,913
Share capital and reserves
Called-up share capital 6 15,532 15,532 15,532
Share premium account 21,411 21,412 21,411
Capital reserve 7 33,428 30,118 35,930
Revenue reserve 6,982 6,747 7,040
Equity shareholders' funds 77,353 73,809 79,913
Net asset value per Ordinary share (pence) 5 252.20 238.20 257.92
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Changes in Equity
Six months ended 30 September 2023 (unaudited)
Share
Share premium Capital Revenue
capital account reserve reserve Total
£'000 £'000 £'000 £'000 £'000
As at 31 March 2023 15,532 21,411 35,930 7,040 79,913
Repurchase of ordinary shares into treasury - - (720) - (720)
(Loss)/profit for the period - - (1,782) 2,358 576
Equity dividends - - - (2,416) (2,416)
As at 30 September 2023 15,532 21,411 33,428 6,982 77,353
Six months ended 30 September 2022 (unaudited)
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 72 303 - - 375
(Loss)/profit for the period - - (12,427) 2,316 (10,111)
Equity dividends - - - (2,274) (2,274)
As at 30 September 2022 15,532 21,412 30,118 6,747 73,809
Year ended 31 March 2023 (audited)
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 period - - (6,615) 4,584 (2,031)
Equity dividends - - - (4,249) (4,249)
As at 31 March 2023 15,532 21,411 35,930 7,040 79,913
Condensed Cash Flow Statement
Six months ended Six months ended Year ended
30 September 2023 30 September 2022 31 March 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net cash inflow from operating activities
Dividend income received 3,301 3,134 5,478
Options premium received 81 31 71
Interest received from money market funds 9 - 7
Bank interest received 13 2 7
Management fee paid (206) (212) (415)
Other cash expenses (247) (200) (432)
Cash generated from operations 2,951 2,755 4,716
Interest paid (503) (183) (684)
Overseas tax paid (79) (88) (184)
Net cash inflow from operating activities 2,369 2,484 3,848
Cash flows from investing activities
Purchases of investments (11,404) (5,731) (16,518)
Sales of investments 12,200 5,100 16,199
Net cash inflow/(outflow) from investing activities 796 (631) (319)
Cash flows from financing activities
Equity dividends paid (2,416) (2,274) (4,249)
Issue of Ordinary shares - 375 374
Repurchase of ordinary shares into treasury (720) - -
Loan repayment - - (19,000)
Loan drawdown - - 19,000
Net cash outflow from financing activities (3,136) (1,899) (3,875)
Net increase/(decrease) in cash and cash equivalents 29 (46) (346)
Reconciliation of net cash flow to movements in cash and cash equivalents
Increase/(decrease) in cash and cash equivalents as above 29 (46) (346)
Net cash and cash equivalents at start of period 1,176 1,483 1,483
Effect of foreign exchange rate changes (39) 5 39
Cash and cash equivalents at end of period 1,166 1,442 1,176
Notes to the Financial Statements
For the six months ended 30 September 2023
1. Accounting policies - Basis of accounting
The condensed interim financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) 34 'Interim Financial
Reporting', as adopted by the International Accounting Standards Board (IASB),
and interpretations issued by the International Financial Reporting
Interpretations Committee of the IASB (IFRIC). They have also been prepared
using the same accounting policies applied for the year ended 31 March 2023
financial statements, which were prepared in accordance with International
Financial Reporting Standards (IFRS) and received an unqualified audit report.
The financial statements have been prepared on a going concern basis. In
accordance with the Financial Reporting Council's guidance on 'Going Concern
and Liquidity Risk', the Directors have undertaken a review of the Company's
assets which primarily consist of a diverse portfolio of listed equity shares
and in most circumstances, are realisable within a very short timescale.
2. Taxation
The taxation charge for the period represents withholding tax suffered on
overseas dividend income.
3. Dividends
The following table shows the revenue for each period less the dividends
declared in respect of the financial period to which they relate.
Six months ended Six months ended Year ended
30 September 2023 30 September 2022 31 March 2023
£'000 £'000 £'000
Revenue 2,358 2,316 4,584
Dividends declared (1,962)(A) (1,982)(B) (4,397)(C)
396 334 187
(A) Dividends declared relate to first two interim dividends (3.20p each) in
respect of the financial year 2023/24.
(B) Dividends declared relate to first two interim dividends (3.20p each) in
respect of the financial year 2022/23.
(C) Three interim dividends (3.20p each), and the final dividend (4.60p)
declared in respect of the financial year 2022/23.
4. Earnings per Ordinary share
Six months ended Six months ended Year ended
30 September 2023 30 September 2022 31 March 2023
£'000 £'000 £'000
Returns are based on the following figures:
Revenue return 2,358 2,316 4,584
Capital return (1,782) (12,427) (6,615)
Total return 576 (10,111) (2,031)
Weighted average number of Ordinary shares in issue 30,795,219 30,874,580 30,919,854
5. Net asset value per Ordinary share
The net asset value per Ordinary share and the net asset values attributable
to Ordinary shareholders at the period end were as follows:
As at As at As at
30 September 2023 30 September 2022 31 March 2023
(unaudited) (unaudited) (audited)
Net assets per Condensed Balance Sheet (£'000) 77,353 73,809 79,913
3.5% Cumulative Preference shares of £1 each (£'000) (50) (50) (50)
Attributable net assets (£'000) 77,303 73,759 79,863
Number of Ordinary shares in issue 30,651,907 30,964,580 30,964,580
Net asset value per Ordinary share (p) 252.20 238.20 257.92
The Company has a policy of calculating the net asset value per Ordinary share
based on net assets less an amount due to holders of 3.5% Cumulative
Preference shares of £1 each equating to £1 per share (£50,000), divided by
the number of Ordinary shares in issue.
6. Called up share capital
30 September 2023 30 September 2022 31 March 2023
Number £'000 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 30,819,580 15,410
Ordinary shares issued - - 145,000 72 145,000 72
Ordinary shares bought back (312,673) (156) - - - -
Balance carried forward 30,651,907 15,326 30,964,580 15,482 30,964,580 15,482
Treasury shares:
Ordinary shares bought back to treasury 312,673 156 - - - -
Balance carried forward 312,673 156 - - - -
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 50,000 50
15,532 15,532 15,532
During the six months ended 30 September 2023, 312,673 Ordinary shares were
bought back to treasury at a total cost of £720,000.
No Ordinary shares were issued during the period (six months ended 30
September 2022 - 145,000 for proceeds of £374,000; year ended 31 March 2023 -
145,000 for proceeds of £374,000).
7. Capital reserve
The capital reserve reflected in the Condensed Balance Sheet at 30 September
2023 includes unrealised gains of £6,691,000 (30 September 2022 - unrealised
gains of £2,800,000; 31 March 2023 - unrealised gains of £7,045,000) which
relate to the revaluation of investments held at the reporting date. The
balance relates to realised gains of £26,737,000 (30 September 2022 -
£27,318,000; 31 March 2023 - £28,885,000).
8. Analysis of changes in financial liabilities
Six months ended Six months ended Year ended
30 September 2023 30 September 2022 31 March 2023
£'000 £'000 £'000
Opening balance at 1 April (18,951) (19,000) (19,000)
Cashflow - 60 60
Other movements(A) (6) (5) (11)
Closing balance (18,957) (18,945) (18,951)
(A) The other movements represent the amortisation of the loan arrangement
fees.
On 3 May 2022, the Company entered into a new five year £20 million loan
facility with The Royal Bank of Scotland International Limited, London Branch.
£10 million of the new loan facility has been drawn down and fixed at an
all-in interest rate of 3.903%. £9 million of the facility has been drawn
down on a short-term basis at an all-in interest rate of 6.836%, maturing 4
October 2023. The new loan facility matures on 30 April 2027.
9. Transactions with the Manager
The Company has an agreement with abrdn Fund Managers Limited ("aFML") for the
provision of management, secretarial, accounting and administration services
and for the carrying out of promotional activities in relation to the Company.
The management fee is based on 0.45% per annum up to £100 million and 0.40%
per annum 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. The fee is
allocated 50% to revenue and 50% to capital. The agreement is terminable on
not less than six months' notice. The total of the fees paid and payable
during the period to 30 September 2023 was £200,000 (30 September 2022 -
£206,000; 31 March 2023 - £414,000) and the balance due to aFML at the
period end was £100,000. (30 September 2022 - £101,000; 31 March 2023 -
£105,000). The Company held an interest in a commonly managed investment
trust, abrdn Smaller Companies Income Trust plc, in the portfolio during the
period to 30 September 2023 (30 September 2022 and 31 March 2023 - same). The
value attributable to this holding was excluded from the calculation of the
management fee payable by the Company.
The management agreement with aFML also provides for the provision of
promotional activities, which aFML has delegated to abrdn Investments Limited.
The total fees paid and payable in relation to promotional activities were
£20,000 (30 September 2022 - £20,000; 31 March 2023 - £40,000) and the
balance due to aFML at the period end was £20,000 (30 September 2022 -
£20,000; 31 March 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 was charged to the Company during the
period in respect of these services, which have been delegated to abrdn
Holdings Limited.
10. Segmental information
For management purposes, the Company is organised into one main operating
segment, which invests in equity securities and debt instruments. All of the
Company's activities are interrelated, and each activity is dependent on the
others. Accordingly, all significant operating decisions are based upon
analysis of the Company as one segment. The financial results from this
segment are equivalent to the financial statements of the Company as a whole.
11. Fair value hierarchy
IFRS 13 'Fair 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 (ie as prices) or
indirectly (ie 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 Condensed
Balance Sheet are grouped into the fair value hierarchy as follows:
Level 1 Level 2 Level 3 Total
At 30 September 2023 Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted investments a) 94,570 - - 94,570
Net fair value 94,570 - - 94,570
Level 1 Level 2 Level 3 Total
At 30 September 2022 Note £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted investments a) 91,390 - - 91,390
Net fair value 91,390 - - 91,390
Level 1 Level 2 Level 3 Total
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.
12. Subsequent events
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. Shareholders
were sent documentation in October explaining that this combination 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.
As part of the Scheme, since the end of the period the Company has received an
exceptional terminal dividend of £445,000 from its holding in aSCIT.
The management fee arrangements of the Company are unchanged, other than
through the introduction of an administration fee of £120,000 per annum plus
VAT, payable to the Manager.
Further details are contained in the Chairman's Statement.
13. The financial information contained in this Half Yearly Financial Report does
not constitute statutory accounts as defined in Sections 434 - 436 of the
Companies Act 2006. The financial information for the six months ended 30
September 2023 and 30 September 2022 has not been reviewed or audited by the
Company's independent auditor.
The information for the year ended 31 March 2023 has been extracted from the
latest published audited financial statements which have been filed with the
Registrar of Companies. The report of the independent auditor on those
accounts contained no qualification or statement under Section 498 (2), (3) or
(4) of the Companies Act 2006.
14. This Half Yearly Financial Report was approved by the Board on 13 December
2023.
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.
30 September 2023 31 March 2023
NAV per Ordinary share (p) a 252.20 250.00
Share price (p) b 234.50 257.92
Discount (a-b)/a (7.0)% (3.1)%
Dividend yield
The annual dividend divided by the share price, expressed as a percentage.
30 September 2023(A) 31 March 2023
Annual dividend per Ordinary share (p) a 14.20 14.20
Share price (p) b 234.50 250.00
Dividend yield a/b 6.1% 5.7%
(A) Based on annual dividend declared for previous year.
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.
30 September 2023 31 March 2023
Borrowings (£'000) a 18,957 18,951
Cash (£'000) b 1,166 1,176
Amounts due to brokers (£'000) c 85 -
Amounts due from brokers (£'000) d - -
Shareholders' funds (£'000) e 77,353 79,913
Net gearing (a-b+c-d)/e 23.1% 22.2%
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and
administrative expenses and expressed as a percentage of the average daily net
asset values published throughout the year. The ratio for 30 September 2023 is
based on forecast ongoing charges for the year ending 31 March 2024.
30 September 2023 31 March 2023
Investment management fees (£'000) 400 414
Administrative expenses (£'000) 476 417
Less: non-recurring charges(A)(£'000) (24) -
Ongoing charges (£'000) 852 831
Average net assets (£'000) 78,175 80,617
Ongoing charges ratio (excluding look-through costs) 1.09% 1.03%
Look-through costs(B) 0.17% 0.14%
Ongoing charges ratio (including look-through costs) 1.26% 1.17%
(A) Comprises promotional activity 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
Benchmark, respectively.
Share
Six months ended 30 September 2023 NAV Price
Opening at 1 April 2023 a 257.92p 250.00p
Closing at 30 September 2023 b 252.20p 234.50p
Price movements c=(b/a)-1 (2.2)% (6.2)%
Dividend reinvestment(A) d 3.1% 3.1%
Total return c+d 0.9% (3.1)%
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.
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
13 December 2023
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