Final Results
08/06/2023 07:00
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RNS Number : 0058C STS Global Income & Growth Trust 08 June 2023
From: STS Global Income & Growth Trust plc
LEI: 549300UZ1Y7PPQYJGE19
Date: 8 June 2023
Results for the year ended 31 March 2023
The Board of STS Global Income & Growth Trust plc (formerly Securities
Trust of Scotland plc) (the 'Company') are pleased to announce the Company's
results for the year ended 31 March 2023.
The following is an extract from the Company's annual report and financial
statements for the year to 31 March 2023. The annual report is expected to be
posted to shareholders shortly. Members of the public may obtain copies from
the registered office, 28 Walker Street, Edinburgh EH3 7HR or from its
website: www.stsplc.co.uk (http://www.stsplc.co.uk) . A copy will also
shortly be available for inspection at the National Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Highlights
· The Company has changed its name to STS Global Income & Growth
Trust plc, which better explains the Company's aims and objectives.
· The Company's objective is to achieve rising income and long-term
capital growth through investment in a balanced portfolio constructed from
global equities.
· The net asset value total return for the year to 31 March 2023 was
-1.8%, and the share price total return was -4.8%, compared to a total return
of +0.5% in the Lipper Global - Equity Global Income Index. This compares to a
net asset value return of +16.8%, a share price total return of +17.4% and a
total return of +10.8% in the Lipper Global - Equity Global Income Index in
the previous year.
· The Company pays quarterly dividends to provide investors with a
regular income. Dividends are paid in April, July, October and January. The
Board has announced a fourth quarterly dividend of 1.85 pence per ordinary
share which will be paid on 14 July 2023 to shareholders on the register on 16
June 2023. The total dividend for the year will be 6.20 pence per share, an
increase of 5.5% from the prior year and 8.8% since the dividend was rebased
in 2021.
Chairman's Statement
The year to 31 March 2023 proved to be eventful in terms of both geopolitical
and economic developments. It was dominated by the immediate and longer term
effects of the dreadful war in Ukraine precipitated by the invasion by Russian
forces in February 2022. An immediate economic effect of the conflict was the
increase in prices of oil & gas on wholesale markets and this increase
added to the inflationary pressures already pushing through as economies
recovered post pandemic.
The boost to inflation arrived at a time when Central Banks, virtually
worldwide, were raising short term interest rates and reversing the very lax
monetary policies that had been in place since the financial crisis in
2007/2008. As might be expected bond markets found this background to be
challenging and were significantly lower over the year (the Investment
Association Sterling Corporate Bond Sector Index, for example, returned
-9.4%). Not surprisingly, equity markets struggled to generate positive
returns against such a difficult background.
Over the 12 month period the net asset value total return for your Company was
-1.8%, marginally behind the +0.5% total return for the comparator benchmark,
Lipper-Global - Equity Global Income Index.
The relative return for the year was consistent in the sense that when
markets, and generally in the first half of the period, were in a "risk off"
mode relative returns were good. However, later in the period as confidence
rose and markets returned to sectors and stock that had driven the post
pandemic bounce relative returns were poorer.
Your Manager's philosophy and portfolio positioning has remained consistent
and returns have been likewise consistent against a frequently changing
narrative in respect of markets. It is a feature of stock markets that
rallies begin with a reversion to what had driven previous returns but often
this effect fades and new drivers emerge as investors adapt to changing
circumstances. This may well be what is happening currently as the rally in
the second half of the financial year was led by sectors with higher
valuations despite what is a fundamental change in the monetary background.
The era of virtually free and abundant debt has ended to be replaced by a
period in which capital has an economic cost and has to be allocated on a much
more rational basis. Your Board and Manager believe that in such an
environment the focus on investing in strong companies in terms of market
positioning and financial robustness will produce good relative returns.
Revenue and dividends
Total revenue earned for the year was £8.2 million, an increase of 11.7% on
the previous year. This is a meaningful rise in income and has two principal
sources. First, the underlying dividend performance of the Company's
investments has been robust and is a testament to the stock selection of the
Manager. Second, with 47% of income arising from US dollar denominated
dividends the weakness of sterling vs the US dollar over the year has been a
boost to sterling revenues as dollar payments are translated at more
favourable rates. (For your information the average £/$ rate for the year was
1.21 compared with 1.37 in the previous year).
In arriving at a dividend level for the year your Board has been realistic and
cognisant of the fact that shareholders are expecting consistent dividend
growth over the longer term. While most encouraged by the underlying dividend
performance of our investment portfolio, the benefit of currency changes has
been welcome but is likely to be volatile and may even be reversed.
The Board will therefore transfer to reserves some of the currency benefit in
order that in the event of a period of less favourable currency movements
there is flexibility to use reserves to smooth the long term progression in
dividends paid to shareholders.
Consequently a total dividend of 6.20 pence per ordinary share has been
declared representing a 5.5% increase over the 5.875 pence per share paid in
respect of the previous financial year.
Change of name
The current and previous Boards have discussed the suitability of the name of
your Company on several occasions. The Board now believes that it is
appropriate to implement a new name for the Company which better explains the
Company's aims and objectives. The investment mandate and strategy remain the
same; providing defensive capital returns with growing income by investing in
a concentrated portfolio of global companies.
The Board is also conscious of changes in its investor base, as well as
changes in the ways in which investors hold their shares. The Company's shares
are now held through a broad range of wealth managers and retail platforms and
we believe the name change will make it easier for individual retail investors
to find the Company on platforms when searching for global income and growth
investment opportunities.
Consequently, it was decided to change the name of your Company to "STS Global
Income & Growth Trust plc". In accordance with the Company's articles of
association, this change of name has been actioned by a resolution of the
directors and the name change took effect on 5 June 2023.
It is important to emphasise that nothing else will change, the ticker symbol
(STS) will remain the same as will the SEDOL and ISIN. You will not need or
receive new share certificates. The Board believes that this name change
will enhance the marketability of the shares and bring the Company more easily
to the attention of not only the retail investor but all potential buyers of
the shares.
Board changes
The Board is aware of the need to have a succession process in place and this
is particularly important as compliance with the best practice of corporate
governance in respect of terms of appointment and diversity is a key objective
of the Board.
Therefore and in line with its long term planning I am pleased to announce
that Gillian Elcock will be appointed as a non-executive director on 21
September 2023. Gillian is a non-executive director of International
Biotechnology Trust plc and a member of the Board of the CFA UK. I am
delighted that Gillian is joining our Board. She has a wealth of investment
experience and will bring a valuable perspective to Board discussions. My
colleagues and I very much look forward to working with her.
Discount management
Your Company adopted and implements a formal discount control mechanism. It is
the intention that the application of this policy will, in normal market
conditions, see the shares consistently valued close to their net asset value,
providing liquidity for all shareholders. Shares are bought by the Company
should they trade at a discount to net asset value and if there are sellers in
the market. Likewise shares will be issued at a premium to net asset value to
meet demand should there be buyers.
In the year to 31 March 2023, 1,616,500 shares were purchased by the Company
at an average discount of 1.9% and 1,575,000 shares were issued at an average
premium of 1.2%.
Borrowing facilities
Your Company currently has debt facilities totalling £15.8 million. The use
of these facilities is discussed regularly and also at every Board meeting.
The £15 million multicurrency facility that the Company has had available
since 2016 is due to expire in September of this year. Negotiations are
underway to replace this facility with an appropriately flexible facility that
will allow the Manager to utilise the debt in a cost effective manner with the
objective of enhancing returns to shareholders over time.
ESG
The Board continues to recognise the importance of considering environmental,
social, and governance ('ESG') factors when making investment decisions and in
the ongoing stewardship of investee companies and is supportive of the
Manager's approach to responsible investing, which fully integrates ESG
analysis into the fundamental research and investment process. More
information can be found on pages 12 and 13 of the annual report and on the
responsible investing section of the Company's website,
www.stsplc.co.uk/responsible-investment/
(http://www.stsplc.co.uk/responsible-investment/) .
AGM
The Annual General Meeting of your Company will be held on 20 September 2023
at the offices of Juniper Partners, 28 Walker Street, Edinburgh at 2.00pm. The
Board looks forward to meeting shareholders in person at that meeting.
Keeping in touch
I would encourage shareholders to visit the Company's website at
www.stsplc.co.uk (http://www.stsplc.co.uk) as it offers a wealth of
information about the Company. It is regularly updated and has recently been
redesigned. Through the website you can also subscribe to monthly email
updates including the factsheet which provides portfolio and performance
information. You can also contact the Manager or our Company Secretary,
Juniper Partners, through the website or by using the email address on page 74
of the annual report.
Outlook
Much of the focus of financial markets is on the timing and scale of changes
in short term interest rates. We may be near the peak of the current cycle -
there are a myriad of views. However, whilst the cost of debt may change it is
unlikely that Central Banks will relent on their liquidity policies as these
have to address 14 years of largesse. Many of the well-publicised issues in
the US and other banking systems recently owe more to the effects of the
quantitative tightening than the higher cost of money.
The rate of inflation may be declining, or be forecast to do so, but prices
are still rising at unfamiliar levels. Your Manager backs sound well
established companies with managements and processes that have been tested in
many economic circumstances and have stood the test of time. Whilst we would
not make firm predictions as to what lies ahead we can be confident that we
are invested in companies that have proved their ability to deliver throughout
the cycle and have belief in their ability to continue to do so.
John Evans
7 June 2023
Manager's Review
As detailed in the Chairman's statement, in a tumultuous year for global
equity markets the Company's NAV declined by 1.8% compared to a return of 0.5%
for the Lipper Global - Equity Global Income Index comparator. Since the
inception of Troy's management of the Company the NAV has risen by 15.3%.
After delivering strong returns in 2022, this year has been a year of
consolidation for the Company and for equity markets. Rising interest rates to
combat inflation as well as the ongoing war in Ukraine made for a challenging
backdrop. The income account remains robust, however, with the dividend for
the year increasing by 5.5%.
Performance
The last 12 months have demonstrated once again the power of branded consumer
goods. At a time of rapidly rising interest rates driven by the re-emergence
of inflation, our consumer staples portfolio companies have been able to raise
prices to offset these headwinds. The combination of well-loved brands, the
habit of repeat purchases and powerful distribution networks enables these
companies to generate attractive and sustainable returns on capital employed.
It is these same competitive advantages that gives these businesses pricing
power. They also benefit from having limited capital requirements. This
strength has been rewarded by investors over this period as four out of the
top five contributors were consumer staples companies. These were Unilever,
PepsiCo, Philip Morris and Hershey.
The fifth most significant contributor was Swiss healthcare company, Novartis.
This is a high-quality franchise that remains excellent value. Recent results
have been received well by investors as they re-appraise the steady if
unspectacular growth of this company. The shares have begun to appreciate
after a long spell of dull returns.
The key source of underperformance was our real estate investments. Of the
three which we hold, two - Vonovia and Boston Properties - were the greatest
detractors to performance over the year. The scale of the rise in interest
rates and the pace that they have risen has been remarkable. The effect of
this change is likely to be felt in the economy and markets with a lag. The
impact on property has been far more immediate. For each of these businesses
we believed there was a specific reason to invest.
Vonovia is the largest listed owner of German residential real estate (as well
as having some exposure to Sweden and Austria). With property in Germany
valued at a discount to replacement cost and bolstered by structural factors
such as urbanisation and a trend towards smaller households we viewed this an
attractive asset. This was further supported by an interest rate that was
arguably too low for the German economy since it is set at the EU level.
Unfortunately, these trends were overwhelmed by the shift in the structure of
interest rates. As detailed below, Vonovia was subsequently sold and was no
longer part of the portfolio at the year end.
Similarly, we believed Boston Properties to be attractive owing to its
ownership of A grade office property in the coastal cities of the US. It is
our contention that the current post-COVID norm of hybrid working practices is
unlikely to outlast a more difficult economic environment. However, this trend
reversal is taking time and when combined with a rising cost of capital caused
the shares to decline in value.
The next two holdings which detracted from performance were both in the
healthcare sector, broadly defined. Roche, like Novartis (see above) is a high
quality Swiss pharmaceutical company. It also has an excellent diagnostics
business. The underperformance of the shares derives from a spike in the share
price which coincided with the end of March 2022. It is the retreat from this
precipitous high that is captured in the poor showing over the last 12 months
rather than more worrying operational concerns. The shares remain excellent
value.
Medtronic is a high-quality medical technology franchise covering a range of
therapeutic and diagnostic medical products. The company suffered during COVID
as many elective procedures were postponed. However, it has been rather slower
to recover from this disruption than we would like. There have however been
some encouraging signs recently including the approval of a new insulin
management device for diabetics. The shares remain in the portfolio.
Finally, Domino's Pizza was weak during the year. We continue to believe this
is an excellent business trading at a very attractive valuation. The last few
years have been marred by friction between the company and the underlying
franchisees as well as several management changes including the loss of the
CEO, for whom they have yet to find a permanent replacement. Further,
investors have worried about the health of the UK consumer. These concerns
have weighed on the shares. We believe that these problems will ultimately be
solved, and the strategic direction of the business is becoming clearer. We
are patiently waiting for the improving operational momentum to be reflected
in the share price and it remains a long term investment for the Company.
Portfolio activity
Consistent with Troy's long term investment approach, activity within the
portfolio has been limited. We established two new investments, Admiral Group
and Texas Instruments funded from the sale of GSK, Western Union and Vonovia.
We also added to our investments in Nintendo, Reckitt Benckiser and Link REIT.
Admiral Group ('Admiral') is an excellent business. Dominated by its UK car
insurance business, Admiral's market leadership is based on expertise in
specialist insurance. This specialisation leads to an extensive data set
affording accurate pricing of risk. As such, and unusually for an insurance
business, the company makes an underwriting profit over the cycle. This
persistent and consistent profitability allows Admiral to offload the
insurance risk to Munich Re but to retain much of the profitability. Costs are
contained giving the company a very attractive return profile. The company has
limited capital requirements and is therefore able to pay a healthy dividend.
For a variety of reasons, the performance of GSK towards the beginning of this
period had been strong. These included the spinning-off of the consumer
business (named Haleon) following a failed bid by Unilever, a change in
dividend policy and US dollar strength (GSK has substantial US dollar
earnings). This provided an attractive time to sell.
Conversely Admiral had been a poor performer. During COVID, Admiral's
customers had been paying premiums without being able to use their cars,
giving a short-term lift to profits. This was reflected in a strong share
price. As this effect faded, so too did the company's valuation. A
reallocation of capital from GSK to Admiral was therefore timely.
Texas Instruments ('TI') is a leader in analog semiconductors. We have spent
the last few years patiently building our semiconductor industry knowledge. TI
designs and manufactures relatively low specification chips which don't
require the latest manufacturing technology and have incredibly long shelf
lives. While other semiconductor companies constantly design and manufacture
new CPUs (Central Processing Units) to satisfy the insatiable need for greater
computing power, TI chips work for decades. We believe that roughly half of
TI's sales derive from chips designed more than ten years ago. The result is a
business with little technological risk and relatively low capital intensity.
The semiconductor industry has a degree of cyclicality, however in the case of
TI, we consider this risk to be mitigated by having a conservative balance
sheet and capital allocation policy that rewards long-term shareholders.
Indeed, we believe TI has one of the clearest frameworks for value creation,
as described in the Investor Overview document on TI's website. The business
is fantastically profitable, ranking in the 89th percentile of S&P500
companies in terms of free cash flow margins. We considered the valuation to
be attractive at purchase including offering us a c.3% prospective dividend
yield.
The investment was funded by the sale of Western Union and the reduction in
our investment in ADP.
Finally, we sold Vonovia and re-invested the proceeds in Link REIT. Link REIT
is the largest and, we believe, best managed real estate investment trust in
Asia. The company used its scale and reputation to be first to raise equity
via a rights issue to offset the problems being felt across the industry from
rising interest rates. We participated in the issue and then subsequently
added to the investment, funded from the sale of Vonovia. Link REIT now has a
low debt profile and is well placed to acquire distressed assets.
The overall shape of the portfolio is largely unchanged. Branded consumer
goods, healthcare and enterprise software represent a material proportion of
the Company. Conversely, we have very limited exposure to sectors that we
consider to be more cyclical and require significant capital investment to
operate.
On an underlying revenue basis (as at 31 March 2023), the Company has 48.5%
invested in the US, 27.9% in Asia and Emerging Markets (EM), 15.7% in Europe
and 7.0% in the UK.
We continue to view the US to be the best economy with the best companies
which is reflected in the significant exposure we have to that country.
The proportion of revenue coming from Asia and EM may increase over time.
These economies have attractive growth prospects, in part owing to having much
younger populations (with the important exception of China). Consumer
expenditure is likely to structurally increase over the long term. Our
portfolio company management teams are likely to allocate further capital to
these areas in the coming years to take advantage of this opportunity.
Our favoured way of gaining exposure to these dynamic economies is via
developed market listed businesses. We find them to have superior corporate
governance and to demonstrate better capital allocation.
Investment strategy
Equity markets have staged a remarkable recovery from the lows seen in October
2022. We would caution investors that this advance may not be markets sounding
the economic "all-clear". We continue to think that the effect of rapidly
rising rates and the absence of quantitative easing is working their way
through the global economy, albeit with a lag. The notable inversion of the US
yield curve (a situation where short-term interest rates are higher than
longer term interest rates which usually presages a recession) combined with
still elevated equity market valuations is a time for caution.
To us this optimism is being driven by the reasonable expectation that
inflation and therefore interest rates are peaking. We fear however that this
will simply be the opening scene of a drama that develops ultimately into
recession. It may be therefore that while this year capital markets had to
contend with rising rates, next year they may have to deal with declining
earnings.
At the same time many of our portfolio companies, notably in the consumer
staples sector, are beginning to benefit from softening input costs. We are
beginning to see the first signs of expanding gross and operating margins as a
result. When combined with still healthy demand for these repeat-purchase
products we are confident our companies will weather a more difficult economic
environment relatively well.
Further we continue to wait patiently to redeploy capital into favoured
sectors, but which remain, for now, stubbornly too expensive. If events play
out as we have suggested above, this may be about to change.
We remain confident that the Company will continue to deliver growing free
cash flow to fund an attractive and growing income stream as well as long term
capital growth. Further we are excited by the opportunities that may become
available in the coming year.
James Harries
7 June 2023
For further information contact:
Troy Asset Management
Investment Manager
Tel: 0207 499 4030
Juniper Partners Limited
Company Secretary
Tel: 0131 378 0500
Responsibility statement
The directors confirm that to the best of their knowledge:
· the financial statements, prepared in accordance with United
Kingdom Generally Accepted Accounting Practice, including FRS 102 'The
Financial Reporting Standard applicable in the UK and Republic of Ireland',
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company;
· the annual report, including the strategic report, includes a fair
review of the development and performance of the business and the position of
the Company, together with a description of the principal and emerging risks
and uncertainties that it faces; and
· the annual report and financial statements, taken as a whole, are
fair, balanced, and understandable and provide the information necessary for
shareholders to assess the Company's performance, business model and strategy.
Principal risks
The Company's business model is longstanding and resilient to most of the
short-term uncertainties that it faces, which the Board believes are
effectively mitigated by its internal controls and the oversight of the
Manager, as described in the table below. The principal and emerging risks and
uncertainties are therefore largely longer term and driven by the inherent
uncertainties of investing in global equity markets.
The Board believes that it is able to respond to these longer-term risks and
uncertainties with effective mitigation so that both the potential impact and
the likelihood of these seriously affecting shareholders' interests are
materially reduced.
Operational and management risks along with a review of potential emerging
risks, are regularly monitored at Board meetings and the Board's planned
mitigation measures for the principal and emerging risks are described in the
table below. As part of its annual strategy meeting, the Board carries out a
robust assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future performance,
solvency, or liquidity.
The Board maintains a risk register and also carries out a risk workshop as
part of its annual strategy meeting. The Board has identified the following
principal risks to the Company:
Principal risks Mitigation and management
Investment strategy and objectives - Pursuing an investment strategy to fulfil The Board formally reviews the Company's objective and strategy on an annual
the Company's objective which the market perceives to be unattractive or basis, or more regularly if appropriate. The Board also receives updates at
inappropriate may lead to reduced returns for shareholders and, as a result, each Board meeting from the Manager with regards to the portfolio and its
the Company may become unattractive to investors, leading to decreased demand performance; receives broker updates on the market; and is updated on the
for its shares and a widening discount. make-up and movements in the shareholder register. In addition, the Company
operates a discount control mechanism; the marketing and distribution activity
is actively reviewed; and the Board and Manager proactively engage with
shareholders on an ongoing basis.
Investment management - If the longer-term performance of the investment The Board manages the risk of investment underperformance by relying on the
portfolio does not deliver income and capital returns in line with the Manager's stock selection skills within a framework of diversification and
investment objective and/or consistently underperforms market expectations, other investment restrictions and guidelines.
the Company may become unattractive to investors.
The Board monitors the implementation and results of the investment process
with the Manager (who attends all Board meetings) and reviews data that shows
statistical measures of the Company's risk profile. Should investment
underperformance be sustained despite the mitigation measures taken by the
Manager, the Board would assess the cause and be able to take appropriate
action to manage this risk.
Macro-economic and market risk - The Company's portfolio is invested in listed The Board receives regular updates on the Company's portfolio and the
equities and is therefore exposed to events or developments which can affect investment environment in which the Manager is operating. An explanation of
the general level of share prices, including inflation or deflation, economic the different components of market risk and how they are individually managed
recessions and movement in interest rates and currencies which could cause is contained in note 18 to the financial statements on pages 60 to 63 of the
losses within the portfolio and increasing finance and operational costs of annual report.
the Company.
Gearing and leverage risk - The Company may borrow money for investment The Company's gearing is maintained at a conservative and manageable level.
purposes. While this has the potential to enhance investment returns in rising All borrowing facilities require prior approval of the Board and actual
markets, in falling markets the impact could be detrimental to performance. If borrowing levels are discussed by the Board and Manager at every meeting.
borrowing facilities are not renewed, the Company may have to sell investments Details of the Company's current borrowings and unused facilities can be found
to repay borrowings. in note 12 to the financial statements on page 58 of the annual report. The
Company's investments are in quoted securities that are readily realisable and
the Board regularly reviews the liquidity level of the portfolio in order to
assess how quickly, if necessary, the borrowings could be repaid. The Board,
through the Company Secretary, maintains an open and constructive dialogue
with the Company's lenders to ensure that any renewal of the facilities is
co-ordinated well in advance of the expiration of any existing facilities.
Discount risk - The discount/premium at which the Company's shares trade The Company operates a discount control mechanism which aims to ensure, in
relative to its net asset value can fluctuate. The risk of a widening discount normal market conditions, the Company's shares trade, on a consistent basis,
is that it may undermine investor confidence in the Company. at or very close to net asset value. The Board reviews the operation of the
discount control mechanism at each Board meeting and maintains a regular
dialogue with Juniper Partners (which manages the policy on behalf of the
Board) in respect of any issues or buybacks under the policy.
Operational risk - The Company is dependent on third parties for the provision The Board carries out an annual evaluation of its service providers and gives
of all services and systems. Any fraud, control failures, cyber threats, regular feedback to the Manager and Company Secretary through the Management
business continuity issues at, or poor service from, these third parties could Engagement Committee. The Board receives and reviews control reports from all
result in financial loss or reputational damage to the Company. service providers where appropriate. Periodically, the Board requests
representatives from third party service providers to attend Board meetings to
give the Board the opportunity to discuss the controls that are in place
directly with the third-party providers.
Accounting, legal and regulatory - In order to continue to qualify as an The Board considers that, given the regular oversight of this risk carried out
investment trust, the Company must comply with the requirements of section by the Company Secretary and reviewed by the Board, the likelihood of this
1158 of the Corporation Tax Act 2010. Breaches of the UK Listing Rules, the risk occurring is minimal. The Audit and Risk Committee regularly reviews the
Companies Act or other regulations with which the Company is required to eligibility conditions and the Company's compliance against each, including
comply, could lead to a number of detrimental outcomes. the minimum dividend requirements and shareholder composition for close
company status.
The Board receives reports from the Manager and Juniper Partners in its
capacity as AIFM and Company Secretary to enable it to ensure compliance with
all applicable rules.
Climate change risk - There is increasing awareness of the challenges and The investment process is focused on ESG issues and, as set out on pages 12
emerging risks posed by climate change. and 13 of the annual report, this includes an assessment of the potential
impact of climate change. Overall the specific potential effects of climate
change are difficult, if not impossible to predict and the Board and Manager
continue to monitor material physical and transition risks and opportunities
as part of the investment process.
Geopolitical risk (emerging risk) - The impact of geopolitical events could Geopolitical risks have always been an input into the investment process. This
result in losses to the Company. risk area is now highlighted as a result of the Russian invasion of Ukraine,
with the resultant effects on global trade and volatility in asset prices.
Further information on this risk and its potential impact on the Company is
set out in the Chairman's statement and the Manager's review. The Board seeks
to mitigate this risk through maintaining a broadly diversified global equity
portfolio with appropriate asset and geographical exposure. The Board and the
Manager continue to monitor the ongoing heightened geopolitical risk and are
in regular communication on emerging matters which may impact on the
portfolio.
Following the ongoing assessment of the principal and emerging risks facing
the Company, and its current position, the Board is confident that the Company
will be able to continue in operation and that the processes of internal
control that the Company has adopted and oversight by the Manager and the
Company Secretary continue to be effective.
Going Concern
The Company's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Chairman's
statement, Manager's review, Strategic report and the Report of the directors
in the annual report.
The Company has a one year revolving credit facility for £10,000,000 which
expires in September 2023, which was undrawn at 31 March 2023. In addition,
the Company has a multi-currency fixed facility, which expires in September
2023, in three tranches of £1,500,000, €4,500,000 and US$12,750,000, all of
which were fully drawn down at the year-end date. No decision has yet been
taken in relation to the renewal of the borrowing facilities. Should they not
be renewed then the Company has adequate financial resources in the form of
readily realisable listed securities and as a result the directors assess that
the Company is able to continue in operational existence without the
facilities.
In accordance with the 2019 AIC Code of Corporate Governance, the directors
have undertaken a rigorous review of the Company's ability to continue as a
going concern. The Company's assets consist of a diverse portfolio of listed
equity shares which, in most circumstances, are realisable within a very short
timescale. The directors are mindful of the principal and emerging risks and
uncertainties. They have reviewed revenue forecasts (adjusted for various
sensitivities) and they believe that the Company has adequate financial
resources and a suitably liquid investment portfolio to continue its
operational existence for the foreseeable future, and at least for the period
to 31 March 2025, which is at least 12 months from the date the financial
statements are authorised for issue.
The Statement of comprehensive income, Statement of financial position,
Statement of changes in equity and Statement of cash flow follow.
Statement of comprehensive income
Year to 31 March 2023 Year to 31 March 2022
Capital Total Capital Total
Revenue Revenue
£000 £000 £000 £000 £000 £000
Net (losses)/gains on investments - (8,800) (8,800) - 29,232 29,232
Net currency (losses)/gains (4) (869) (873) 3 (445) (442)
Income 8,238 266 8,504 7,378 - 7,378
Investment management fee (531) (985) (1,516) (222) (413) (635)
Other (625) - (625) (516) - (516)
expenses
Net return before finance costs and
Taxation 7,078 (10,388) (3,310) 6,643 28,374 35,017
Finance (171) (318) (489) (157) (291) (448)
costs
Net return on ordinary activities before
taxation 6,907 (10,706) (3,799) 6,486 28,083 34,569
Taxation on ordinary activities (566) - (566) (632) - (632)
Net return attributable to ordinary
shareholders 6,341 (10,706) (4,365) 5,854 28,083 33,937
Net return per ordinary
share 6.34p (10.70)p (4.36)p 5.82p 27.92p 33.74p
The total columns of this statement are the profit and loss accounts of the
Company.
The revenue and capital items are presented in accordance with the Association
of Investment Companies (AIC) Statement of Recommended Practice (SORP 2022).
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
Statement of financial position
As at 31 March 2023 As at 31 March 2022
£000 £000 £000 £000
Fixed assets
Investments held at fair value through profit or loss 234,362 244,561
Current assets
Trade and other receivables 1,113 1,089
Cash and cash equivalents 1,570 865
2,683 1,954
Current liabilities
Bank loans (15,795) -
Trade payables (572) (489)
Dividend payable (1,443) (1,368)
Total current liabilities (17,810) (1,857)
Net current (liabilities)/assets (15,127) 97
Total assets less current liabilities 219,235 244,658
Non-current liabilities
Bank loans - (15,001)
Total net assets 219,235 229,657
Capital and reserves
Called up share capital 1,223 1,223
Capital redemption reserve 78 78
Share premium account 31,808 30,762
Special distributable reserve 70,924 71,925
Capital reserve 111,905 122,611
Revenue reserve 3,297 3,058
Total shareholders' funds 219,235 229,657
Net asset value per ordinary share 220.37p 230.75p
Statement of changes in equity
Called up share Capital redemption Share premium account Special distributable
For the year ended capital reserve reserve* Capital reserve* Revenue reserve* Total
31 March 2023 £000 £000 £000 £000 £000 £000 £000
As at 1 April 2022 1,223 78 30,762 71,925 122,611 3,058 229,657
Net return
attributable to
shareholders** - - - - (10,706) 6,341 (4,365)
Shares issued
from treasury - - 1,046 2,585 - - 3,631
Shares bought back
into treasury - - - (3,586) - - (3,586)
Dividends paid - - - - - (6,102) (6,102)
As at 31 March 2023 1,223 78 31,808 70,924 111,905 3,297 219,235
For the year ended Total
Called up share Capital redemption reserve Share premium account Special distributable
capital reserve* Capital Revenue
reserve* reserve*
31 March 2022 £000 £000 £000 £000 £000 £000 £000
As at 1 April 2021 1,223 78 30,725 78,194 94,528 2,930 207,678
Net return
attributable to
shareholders** - - - - 28,083 5,854 33,937
Shares issued
from treasury - - 37 162 - - 199
Shares bought back
into treasury - - - (6,431) - - (6,431)
Dividends paid - - - - - (5,726) (5,726)
As at 31 March 2022 1,223 78 30,762 71,925 122,611 3,058 229,657
* These reserves are distributable with the exception of the unrealised
portion of the capital reserve, which is non-distributable.
** The Company does not have any other income or expenses that are not
included in the 'Net return attributable to ordinary redeemable shareholders'
as disclosed in the Statement of comprehensive income above, and therefore
this is also the 'Total comprehensive income' for the year.
Statement of cash flow
Year ended 31 March 2023 Year ended 31 March 2022
£000 £000 £000 £000
Cash flows from operating activities
Net return on ordinary activities before taxation (3,799) 34,569
Adjustments for:
Losses/(gains) on investments 8,800 (29,232)
Finance costs 489 448
Exchange movement on bank borrowings 794 416
Purchases of investments* (22,917) (17,528)
Sales of investments* 24,316 23,970
Dividend income (8,496) (7,378)
Other income (8) -
Dividend income received 8,523 7,252
Other income received 8 -
(Increase)/decrease in receivables (5) 17
Increase in payables 70 358
Overseas withholding tax deducted (612) (406)
10,962 (22,083)
Net cash flows from operating activities 7,163 12,486
Cash flows from financing activities
Repurchase of ordinary share capital (3,586) (6,431)
Issue of ordinary share capital from treasury 3,631 199
Equity dividends paid from revenue (6,027) (5,768)
Interest paid on borrowings (476) (446)
Net cash flows from financing activities (6,458) (12,446)
Net increase in cash and cash equivalents 705 40
Cash and cash equivalents at the start of the year 865 825
Cash and cash equivalents at the end of the year 1,570 865
*Receipts from the sale of, and payments to acquire, investment securities
have been classified as components of cash flows from operating activities
because they form part of the Company's dealing operations.
Notes:
1. Significant accounting policies
The accounts are prepared in accordance with the Companies Act 2006, United
Kingdom Generally Accepted Accounting Practice (Accounting Standards 'UK
GAAP') including Financial Reporting Standard (FRS) 102 'The Financial
Reporting Standard applicable in the UK and Republic of Ireland' and the
Statement of Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' (the 'SORP') issued by the Association
of Investment Companies in July 2022. All of the Company's operations are of a
continuing nature.
The accounts have been prepared on a going concern basis under the historical
cost convention, as modified by the revaluation of investments held at fair
value through profit or loss. In preparing these financial statements the
directors have considered the impact of climate change on the value of the
listed investments that the Company holds. As the portfolio consists of listed
equities, which are valued using quoted bid prices for investments in an
active market, the fair value reflects the market participants' view of
climate change risk.
The Company's assets consist of a diverse portfolio of listed equity shares
which, in most circumstances, are realisable within a very short timescale.
The directors have reviewed revenue forecasts and they believe that the
Company has adequate financial resources to continue its operational existence
for the foreseeable future, and for the period to 31 March 2025, which is at
least 12 months from the date the financial statements are authorised for
issue.
The principal accounting policies are set out in Note 1 to the annual report.
These policies have been applied consistently throughout the current and prior
year.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. There are no critical
accounting estimates or judgements.
Functional currency - the Company is required to determine a functional
currency, being the currency in which the Company predominately operates. The
Board has determined that sterling is the Company's functional currency, which
is also the currency in which these financial statements are prepared. This is
also the currency in which all expenses and dividends are paid in.
2. Returns and net asset value
Year to 31 March 2023 Year to 31 March 2022
Revenue return (£000) 6,341 5,854
Capital return (£000) (10,706) 28,083
Total (£000) (4,365) 33,937
Weighted average number of ordinary shares in issue 100,005,571 100,591,911
Revenue return per ordinary share 6.34p 5.82p
Capital return per ordinary share (10.70)p 27.92p
Total return per ordinary share (4.36)p 33.74p
Net asset value per share
Net assets attributable to shareholders (£000) 219,235 229,657
Number of shares in issue at the year end 99,483,575 99,525,075
Net asset value per share 220.37p 230.75p
3. Dividends
Year to 31 March 2023 Year to 31 March 2022
£000 £000
First interim dividend of 1.45p for the year ended 31 March 2023 (2022: 1,454 1,376
1.375p)
Second interim dividend of 1.45p for the year ended 31 March 2023 (2022:
1.375p)
1,451 1,374
Third interim dividend of 1.45p for the year ended 31 March 2023 (2022: 1,443 1,368
1.375p)
Proposed fourth interim dividend of 1.85p for the year ended 31 March 2023 1,822 1,754
(2022: 1.75p)
6,170 5,872
The revenue reserves as at 31 March 2023 are £3,297,000, of this £1,822,000
will be used to fund the fourth interim dividend. The amount reflected above
for the cost of the proposed fourth interim dividend for 2023 is based on
98,508,575 ordinary shares, being the number of ordinary shares in issue
excluding those held in treasury at the date of this report. The articles of
association of the Company permit dividends to be paid out of capital.
4. Investments at fair value
Under FRS 102 'The Financial Reporting Standard applicable in the UK and
Republic of Ireland', an entity is required to classify fair value
measurements using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value hierarchy shall
have the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: other significant observable inputs (including quoted prices for
similar investments, interest rates, prepayments, credit risk, etc); or
Level 3: significant unobservable input (including the Company's own
assumptions in determining the fair value of investments). The financial
assets measured at fair value through profit and loss are grouped into the
fair value hierarchy as follows:
Level 1 Level 2 Level 3 Total
At 31 March 2023 £000 £000 £000 £000
Financial assets at fair value through profit or loss
Quoted equities 234,362 - - 234,362
Net fair value 234,362 - - 234,362
Level 1 Level 2 Level 3 Total
At 31 March 2022 £000 £000 £000 £000
Financial assets at fair value through profit or loss
Quoted equities 244,561 - - 244,561
Net fair value 244,561 - - 244,561
5. Share capital
There were 1,616,500 shares bought back during the year to 31 March 2023 at a
cost of £3,586,000 (2022: 3,043,000 shares at a cost of £6,431,000). During
the year, the Company issued 1,575,000 shares for net proceeds of £3,631,000
(2022: 100,000 shares for net proceeds of £199,000).
6. Related party transactions
With the exception of the management and secretarial fees, directors' fees and
directors' shareholdings (disclosed on page 35 of the annual report), there
have been no related party transactions during the year, or in the prior year.
The management fee payable in respect of the year ended 31 March 2023 was
£1,516,000 (2022: £635,000), of which £386,000 (2022: £373,000) was
outstanding at the year-end. The secretarial and directors' fees payable in
respect of the year ended 31 March 2023 are detailed in note 4 of the annual
report. The amount outstanding at the year end for secretarial fees and
directors' fees was £18,000 (2022: £3,000) and £nil (2022: £nil)
respectively.
7. Further information
These are not statutory accounts in terms of Section 434 of the Companies Act
2006. Full audited accounts for the year to 31 March 2023 will be sent to
shareholders in June 2023 and will be available for inspection at 28 Walker
Street, Edinburgh EH3 7HR, the registered office of the Company. The full
annual report and accounts will be available on the Company's website
www.stsplc.co.uk (http://www.stsplc.co.uk) .
The audited accounts for the year ended 31 March 2023 will be lodged with the
Registrar of Companies.
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