Final Results
22/05/2024 07:00
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RNS Number : 3643P STS Global Income & Growth Trust 22 May 2024
From: STS Global Income & Growth Trust plc
LEI: 549300UZ1Y7PPQYJGE19
Date: 22 May 2024
Results for the year ended 31 March 2024
The Board of STS Global Income & Growth Trust plc (the 'Company') is
pleased to announce the Company's results for the year ended 31 March 2024.
The following is an extract from the Company's annual report and financial
statements for the year to 31 March 2024. 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'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 2024 was
+4.8%, and the share price total return was +6.1%, compared to a total return
of +11.5% in the Lipper Global - Equity Global Income Index. This compares to
a net asset value total return of -1.8%, a share price total return of -4.8%
and a total return of +0.5% 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 1.525 pence per ordinary
share which will be paid on 5 July 2024 to shareholders on the register on 7
June 2024. The total dividend for the year will be 6.54 pence per share, an
increase of 5.5% from the prior year and 14.7% since the dividend was rebased
in 2021.
Chairman's Statement
During the period under review, your Company continued to grow its dividend
and made significant progress in increasing its scale and cost effectiveness.
Stock markets, on a global basis, recorded strong positive returns for the
year to 31 March 2024. There was, however, a marked variation in the scale of
these returns with, for example, the S&P 500 Index in the US generating a
29.9% return (in US dollars), while the STOXX 600 in Europe managed a 15.7%
return (in euros). In the UK, the FTSE 100 Index generated a relatively
disappointing 8.4% return.
Results for the year
The share price total return for the year was 6.1% and the net asset value
total return was 4.8%. A total dividend of 6.54 pence per share has been
recommended by the Board, representing a 5.5% increase on the previous year.
The proposed fourth quarterly dividend of 1.525 pence per share will be paid
on 5 July 2024 to shareholders on the register on 7 June 2024.
Whilst these are positive returns, they do lag the benchmark return of 11.5% .
A number of the performance return trends in stock markets that have been in
place since Troy was appointed as Investment Manager in 2020 continued during
the year. Most notable of these is the extreme polarisation of returns in the
US market where a small group of companies by number, but exceptionally
significant by market capitalisation, has driven overall market returns. The
Manager's report below gives a detailed assessment of these returns and the
Company's positioning against this background.
Corporate activity
On 28 November 2023 the Company announced that it had agreed heads of terms in
respect of the potential acquisition of the assets of Troy Income & Growth
Trust plc ('TIGT'). I am pleased to say that this transaction completed on 28
March 2024 and as a result £118 million of assets were acquired by STS,
financed by the issue of 52,889,037 new shares in STS. 70% of TIGT
shareholders rolled over into STS shares. In an industry context this is a
very high level of acceptance, and I should like to take this opportunity to
welcome all new shareholders to the Company.
Consequently, the total net assets of the Company at its year end were £314.4
million (compared with £219.2 million on 31 March 2023).
As part of the transaction, it was agreed with Troy that the fee scale for the
Company be reduced to 0.55% of net assets up to £250 million and 0.5%
thereafter. In addition, and as part of the transaction agreement, Troy has
agreed that no fee will be levied on the £118 million of assets acquired by
STS for 18 months following completion on 28 March 2024.
It is estimated that the ongoing charges ratio for STS will reduce to 0.77%
compared with 0.96% before the acquisition and fee adjustment.
It is a feature of the investment trust sector at present that scale, cost
effectiveness and liquidity are key drivers of shareholder demand. The Board
is pleased that STS has been able to improve its position in respect of each
of these measures as a result of the transaction.
Likewise, shareholders in TIGT who received STS shares will also benefit from
a lower cost ratio, and improved liquidity.
The nature of these transactions is complicated and cumbersome and it is clear
that they can only be achieved with the cooperation of directors, managers and
advisers. I would like to thank all those involved for their work and
perseverance in bringing this transaction to a successful conclusion.
Board composition
There are several changes to the composition of the Board that I would like to
outline.
Mark Little (Chair of the Audit and Risk Committee) will complete nine years
of service as a director during the coming financial year. Consequently, Mark
will not stand for re-election at the forthcoming AGM in June and will retire
as a director at the AGM.
Brigid Sutcliffe has joined the Board as a director, having been the TIGT
Audit and Risk Committee Chair since January 2022 and will take over the role
of Chair of the Audit and Risk Committee from Mark upon his retirement. Brigid
has considerable experience in the role of audit chair and has worked closely
with Mark and our auditors to ensure a smooth handover of responsibilities.
Bridget Guerin has also joined the Board of STS, having been Chair of TIGT
since January 2023. My colleagues and I very much look forward to working with
Brigid and Bridget and are pleased that such experienced directors have joined
the Board.
Finally, Angus Cockburn will not stand for re-election at the AGM following
his appointment as a non-executive director of BAE Systems in November 2023.
I should like to take this opportunity to thank Mark and Angus for their
excellent and valuable contributions to the development of the Company over
the years and wish them both well with their future careers.
The Board will consist of six directors post the AGM. In a period, quite
rightly, of scrutiny regarding Board composition in respect of gender,
ethnicity and tenure the Board has seen considerable change in composition,
recently. With tenure as the principal driver, it is likely that the Board
will reduce in size in future.
Discount management
The Company has adopted a discount control mechanism with the objective of
ensuring that, in normal market conditions, the share price trades close to
the Company's net asset value ('NAV') per share on a consistent basis. In
order to achieve this, shares are purchased when available at a small discount
to NAV and issued at a likewise small premium to NAV, when demand exists. The
successful implementation of this policy requires that it is consistently
applied and that liquidity is available when required by the market.
In the year under review, 11,855,197 shares were bought by the Company at an
average discount of 1.7% and for a total cost of £25.9 million.
The investment trust sector has seen significant outflows recently as savers
and institutions have reallocated their assets. This trend has been true
across asset categories for trusts whether defined by geography, industry
sector or corporate structure. STS has not been alone in seeing a lack of
demand for its shares. It has however been in a relatively small group that
has seen the discount to NAV of its shares remain tight and consistently below
2% with liquidity available at that valuation.
Gearing
During the year to 31 March 2024 the seven year multi-currency facility that
the Company had arranged expired and new facilities were negotiated with The
Royal Bank of Scotland International, the Company's existing lender. It was
agreed to enter into a revolving credit facility with a three year term. This
new facility is for £20 million but has an accordion facility that would
provide an additional £5 million of funds, should the Board request. At the
time of the acquisition of the TIGT assets, STS had drawn down £15.4 million
of the facility and had headroom of £4.6 million, plus the £5 million
accordion option. The Board and the Manager discuss gearing levels on a
frequent basis and the Board is comfortable that the current facility provides
sufficient funds to meet the immediate gearing requirements but is fully
prepared to seek further facilities, should circumstances change.
Outlook
The Manager has applied its investment philosophy on a consistent basis since
appointment in November 2020. For the majority of this period it has proven to
be a pretty hostile background for their process and style in terms of
relative market return. These trends can change and can do so very quickly.
The Board's view is that the investment process has been clearly described and
consistently applied. Likewise, the Board has ensured that your Company has
been consistent in the application of its discount control mechanism since it
was adopted.
John Evans
21 May 2024
Manager's Review
The Company's share price returned 6.1% over the year to 31 March 2024
compared to the return from the Lipper Global - Equity Global Income Index of
11.5%. Since the inception of Troy's management the Company has returned
5.9%, somewhat lagging the peer return of 8.9%.
Global equity markets began 2024 with a flourish, delivering most of the gain
for the year to 31 March 2024 in the last few months. Investors anticipated an
economic recovery - about which we are sceptical - leading the best performing
sectors to be more cyclical areas such as extractive industries, banks and
industrial companies. These are periods in markets when Troy's quality
focussed, conservative approach tends to lag, and this was no exception.
This optimism was further enhanced by the ongoing enthusiasm among investors
for all companies that are perceived to be beneficiaries of the adoption of
artificial intelligence ('AI'). This is best demonstrated by the US
semiconductor company, Nvidia, which appreciated by +225.4% in the year and
now has a market capitalisation of $2.2 trillion. Truly, these are
remarkable times.
While we believe that AI is an important and transformative technology, we
wonder if we are seeing the usual initial burst of excitement which will
ultimately prove to be transitory before the effects of the technology on the
real economy, and hopefully productivity, play out over several years.
We continue to remain focused on quality businesses that generate cash and pay
dividends. We have a somewhat cautious view of the current market exuberance,
which we expand upon in the outlook section.
The single biggest contributor was the performance of our holding in
Microsoft. The core Office and Azure businesses are showing strong revenue
growth driven partly by AI. Their product designed to help subscribers to
deploy AI across the Microsoft software suite, named "Co-pilot", has driven
revenue per user growth. Further, AI-based expenditure on infrastructure will
benefit the Azure business for some time to come. This is well understood by
the market as indicated by the valuation of the shares, but reminds us of the
powerful competitive advantages that this company continues to enjoy and which
are arguably strengthening.
Nintendo also had a strong year. We have long been enthused by the increasing
desire of the company to monetise its incredible intellectual property both
via gaming but also films and theme parks. These include several timeless,
world class gaming franchises such as Mario, Donkey Kong and the Legend of
Zelda. The core Nintendo gaming platform, the Switch, can increasingly be seen
as an operating platform rather than simply a console. Gamers download games
electronically, to the benefit of margins, giving them an individual
relationship with the company. We are likely to see the launch either this
year or next of the new Switch - the exact timing has not yet been announced -
which we expect to drive further performance of the shares.
Like Microsoft, another portfolio beneficiary of the current AI phenomena is
Relx which was the third best performer over the 12 months. The company is a
global provider of information and analytics for professional and business
customers. Recent advancements in AI have the potential to be additive to the
company's services because of its proprietary datasets as well as improving
growth prospects in its online professional publishing businesses. This drives
excellent financial productivity as well as strong recent share price
performance.
InterContinental Hotels also performed strongly. The brand build-out and
software investment they have been undertaking in recent years has converged
with persistent post-COVID travel spend to create very satisfactory
operational performance. Following a meeting with the relatively new CEO in
February 2024, we remain comfortable with the investment. It is observable
that corporate travel has not regained the level seen pre-COVID and we believe
this may well be structurally impaired. Encouragingly, this is more than
compensated by strength elsewhere in the business.
UK motor insurance group Admiral also performed strongly. The company was
disrupted post-COVID by rising inflation making investors question Admiral's
ability to raise prices to protect profitability. This enabled us to establish
an investment at a favourable valuation. Recent results have demonstrated the
quality of the business. A dominant market position combined with excellent
internal data and responsive management have enabled Admiral to take market
share and raise prices leading to improving prospects. The shares remain
decent value despite recent performance.
In the mirror image of last year four of the five detractors to performance
were consumer staples companies. The most impactful was Reckitt Benckiser.
Reckitt Benckiser has suffered from both sub-optimal execution and frankly,
bad luck. Both factors led to underperformance in recent weeks and over the
year. The shares fell initially following the disclosure of under-declared
volume rebates in the Middle East. A second impact was seen following
litigation charges in the US against a minor product line in its Mead Johnson
infant formula business. The scale of any potential charges is uncertain but
is likely to be substantially less than the loss of value implied by the fall
in the share price.
Meanwhile Reckitt Benckiser is a well-financed business that operates in
categories that have strong brands affording pricing power and an excellent
margin structure. It is very cash generative and enjoys decent market shares.
It now has a notably low valuation and therefore maintains its place in the
portfolio.
Diageo, Hershey and British American Tobacco were also weak, underscoring how
the best performing areas of the market in the previous year have been shunned
by investors over this 12-month period. This is partly an observable sector
effect. At a market level slower-growing but dependable businesses such as
these tend to be less favoured when much more fast-growing and exciting areas
such as technology are in vogue, leading to underperformance. This year there
has been the additional effect of the advent of weight loss drugs known as
GLP-1s which investors fear may crimp demand for the types of products these
companies produce. We are sceptical about the extent to which these treatments
will fundamentally change consumer behaviour over the long term. As such we
think the competitive advantages these companies display including strong
brands, depth and breadth of distribution and loyal repeat-purchase consumers
will again shine through in time. The sector is good value relative to its own
history and to the broader market. Sentiment is depressed leaving it poised to
improve.
Finally, Link REIT declined as investors reassessed the likelihood of interest
rates cuts around the world. Inflation is proving to be more persistent than
many hoped and this has been detrimental to assets that tend to be impacted by
changes in the cost of capital. This may lead some REITs to become financially
constrained. This is not the case with Link which is very conservatively
financed and well placed to capitalise should inexpensive assets become
available owing to others' relative imprudence.
Portfolio activity
Our long-term investment approach leads to low turnover in our portfolios and
this year was no exception. We established new investments in Canadian
National Railway and Pernod Ricard during the year funded from sales of
Clorox, Coca-Cola and Boston Properties. We also received shares in the
world's largest consumer health company, Kenvue, which was separately listed
by Johnson and Johnson.
Canadian National Railway is a high-quality franchise with impossible to
replicate assets, leading to limited competition. Entrenched competitive
advantages are enhanced by railroads' cost and carbon-intensity advantage over
long-distance journeys, versus trucking. The result is a business that has an
attractive margin structure and decent, sustainable returns on invested
capital.
The business has enjoyed organic volume growth over time driven by the growth
in population, consumerism and ecommerce. The industry has also demonstrated
pricing power, leading to high incremental margins. Although railroads require
high rates of reinvestment to maintain the network, the returns achieved
justify the outlay. The industry has also seen significant improvements in
productivity in part owing to sensible levels of investment as well as the
application of "Precision Scheduled Railroading" pioneered by the legendary
industry veteran Hunter Harrison.
Concerns of an economic slowdown as well as one-off problems such as floods in
Nova Scotia, several wildfires across Canada and strikes at the West Coast
ports led to weakness in the share price affording us an opportunity to
invest. We increased the size of the investment during the year.
Self-described as créateurs de convivialité, Pernod Ricard is the second
largest spirits and wine manufacturer in the world. Founded by Paul Ricard in
1932 to produce pastis in Marseilles, the company eventually merged with
Pernod in 1975. Following a series of acquisitions, the company now boasts an
enviable stable of brands including Jameson whiskey, Beefeater gin, Absolut
vodka and Martell cognac. It has also established a global presence, with
excellent market positions in the still nascent foreign spirits markets in
India and China.
Having enjoyed a bonanza during COVID, as consumers enjoyed one of the few
pleasures still available to them in lockdown, this boom has turned to a mini
bust as consumption normalised. This effect has been worsened by the economic
slowdown in China. We believe these problems will ultimately pass, although it
may well take a few more months for this to become apparent. We were able to
buy the shares with a 3% dividend yield which is the highest level since 2009.
Kenvue owns an attractive set of consumer health brands including Tylenol (the
US equivalent of Calpol), Listerine, Neutrogena and Band-Aid. We believe that
this asset, having been spun out of Johnson and Johnson ('J&J'), was sold
without regard to valuation by some investors unwilling to have a rump holding
in their portfolios. This price-insensitive selling saw the share price fall
33.8% over a 3-month period to a level where the shares were priced at an
inexpensive level. For the world's largest consumer health business, which
will now have greater focus from the management team than was the case under
the J&J yoke, this seemed too cheap. We took advantage of this to add to
our investment. Latterly the company has also benefitted from a favourable
ruling relating to litigation brought relating to Tylenol. This is as we
expected.
Finally, we sold our small remaining holding in Boston Properties as the
anticipated reduction in working from home failed to materialise. This will
put further downward pressure on office property valuations.
Outlook
We continue to see equity markets as fully priced both in absolute terms and
relative to their own history. While economic data, especially in the US, has
been surprisingly resilient this has had the effect of making inflation more
persistent and interest rate cuts, upon which recent exuberance partly rests,
less likely. That this is happening following the largest and most rapid rise
in interest rates in 40 years warrants a cautious approach.
We also question the longevity of the upward move in markets predicated on the
rapid adoption of AI across the economy. Investors have a tendency, known as
Amara's Law, to over-estimate the effects of a new technology in the short
term but underestimate it in the longer term. Consistent with this would be a
lull between the rapid build out of the infrastructure currently being
deployed, and productive AI usage in the real economy. The former may well be
short-lived whereas the latter opportunity may well play out over years. If
this turns out to be correct investors may face severe losses in the near term
as valuations prove hard to justify. This happened to hardware manufacturers
such as Alcatel and Lucent following the dot com boom in 2000.
By comparison our portfolio is generating a 5.2% free cash flow yield that we
expect to grow persistently even in the event of a more challenging economic
backdrop. This is partly owing to the exceptional value we see in high
quality, global companies listed in the UK. As a result, we have a material
proportion of the portfolio invested in this country.
The combination of attractive returns on capital underpinning steady growth in
free cash flow and dividends, together with long term capital growth, should
produce decent and dependable returns even in the event of an economic
slowdown. While there has been much that has fired investors' imaginations
recently, the gains enjoyed may not survive either a slower than expected
adoption of new technologies or earnings driven disappointment as the economy
slows. Under such scenarios we have confidence in the resilience of our
portfolio companies and our ability to deliver dependable income growth and
capital gains in the coming years.
James Harries
21 May 2024
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 59 to 62 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 57 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.
Environmental, social and governance ('ESG') risk - There is increasing The investment process is focused on ESG issues and, as set out on pages 11
awareness of the challenges and emerging risks posed by climate change and the and 12 of the annual report, this includes an assessment of the potential
importance and impact of other ESG issues. 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 - The impact of geopolitical events could result in losses Geopolitical risks have always been an input into the investment process. This
to the Company. risk area is now highlighted as a result of the Russian invasion of Ukraine
and the conflict in Gaza, with the resultant effects on global trade and
volatility in asset prices. 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 continues 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 three-year multi-currency revolving credit facility for £20
million, with an additional £5 million accordion option, which expires in
September 2026. As at 31 March 2024 £15.4 million had been drawn under this
facility in the following currencies: £1.5 million, €4.5 million and
US$12.75 million. 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 2026, 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 2024 Year to 31 March 2023
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Net gains/(losses) on investments - 5,740 5,740 - (8,800) (8,800)
Net currency (losses)/gains (39) 286 247 (4) (869) (873)
Income 7,674 - 7,674 8,238 266 8,504
Investment management fee (478) (888) (1,366) (531) (985) (1,516)
Other (595) - (595) (625) - (625)
expenses
Net return before finance costs and
taxation 6,562 5,138 11,700 7,078 (10,388) (3,310)
Finance (269) (500) (769) (171) (318) (489)
costs
Net return on ordinary activities before
taxation 6,293 4,638 10,931 6,907 (10,706) (3,799)
Taxation on ordinary activities (551) - (551) (566) - (566)
Net return attributable to ordinary
shareholders 5,742 4,638 10,380 6,341 (10,706) (4,365)
Net return per ordinary
share 6.08p 4.92p 11.00p 6.34p (10.70)p (4.36)p
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 2024 As at 31 March 2023
£000 £000 £000 £000
Fixed assets
Investments held at fair value through profit or loss 324,666 234,362
Current assets
Trade and other receivables 60,068 1,113
Cash and cash equivalents 6,377 1,570
66,445 2,683
Current liabilities
Bank loans (15,449) (15,795)
Trade payables (59,573) (572)
Dividend payable (1,736) (1,443)
Total current liabilities (76,758) (17,810)
Net current liabilities (10,313) (15,127)
Total net assets 314,353 219,235
Capital and reserves
Called up share capital 1,752 1,223
Capital redemption reserve 78 78
Share premium account 148,249 31,808
Special distributable reserve 45,033 70,924
Capital reserve 116,543 111,905
Revenue reserve 2,698 3,297
Total shareholders' funds 314,353 219,235
Net asset value per ordinary share 223.71p 220.37p
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 2024 £000 £000 £000 £000 £000 £000 £000
As at 1 April 2023 1,223 78 31,808 70,924 111,905 3,297 219,235
Net return
attributable to
shareholders** - - - - 4,638 5,742 10,380
Shares issued in
respect of the
transaction with TIGT 529 - 117,223 - - - 117,752
Costs in relation to
the issue of shares - - (782) - - - (782)
Shares bought back
into treasury - - - (25,891) - - (25,891)
Dividends paid - - - - - (6,341) (6,341)
As at 31 March 2024 1,752 78 148,249 45,033 116,543 2,698 314,353
For the year ended Total
Called up share Capital redemption reserve Share premium account Special distributable
capital reserve* Capital Revenue
reserve* reserve*
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
* 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 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 2024 Year ended 31 March 2023
£000 £000 £000 £000
Cash flows from operating activities
Net return on ordinary activities before taxation 10,931 (3,799)
Adjustments for:
(Gains)/losses on investments (5,740) 8,800
Finance costs 769 489
Exchange movement on bank borrowings (346) 794
Purchases of investments*(#) (17,217) (22,917)
Sales of investments* 43,263 24,316
Dividend income (7,659) (8,496)
Other income (15) (8)
Dividend income received 7,800 8,523
Other income received 14 8
Decrease/(increase) in receivables 8 (5)
(Decrease)/increase in payables (120) 70
Overseas withholding tax deducted (586) (612)
20,171 10,962
Net cash flows from operating activities 31,102 7,163
Cash flows from financing activities
Repurchase of shares (25,560) (3,586)
Issue of ordinary share capital(#) 6,143 3,631
Equity dividends paid from revenue (6,048) (6,027)
Interest paid on borrowings (830) (476)
Net cash flows from financing activities (26,295) (6,458)
Net increase in cash and cash equivalents 4,807 705
Cash and cash equivalents at the start of the year 1,570 865
Cash and cash equivalents at the end of the year 6,377 1,570
*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.
(#)Investments acquired as a result of the transaction with TIGT (£110.5m)
were transferred in specie and therefore no cash was paid. Similarly the
receipt of these investments reduced the level of cash received on the issue
of the new shares.
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 2026, 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 2024 Year to 31 March 2023
Revenue return (£000) 5,742 6,341
Capital return (£000) 4,638 (10,706)
Total (£000) 10,380 (4,365)
Weighted average number of ordinary shares in issue 94,344,039 100,005,571
Revenue return per ordinary share 6.08p 6.34p
Capital return per ordinary share 4.92p (10.70)p
Total return per ordinary share 11.00p (4.36)p
Net asset value per share
Net assets attributable to shareholders (£000) 314,353 219,235
Number of shares in issue at the year end 140,517,415 99,483,575
Net asset value per share 223.71p 220.37p
3. Dividends
Year to 31 March 2024 Year to 31 March 2023
£000 £000
First interim dividend of 1.525p for the year ended 31 March 2024 (2023: 1,431 1,454
1.45p)
Second interim dividend of 1.525p for the year ended 31 March 2024 (2023:
1.45p)
1,386 1,451
Third interim dividend of 1.965p for the year ended 31 March 2024 (2023: 1,736 1,443
1.45p)
Proposed fourth interim dividend of 1.525p for the year ended 31 March 2024 2,047 1,822
(2023: 1.85p)
6,600 6,170
The revenue reserves as at 31 March 2024 are £2,698,000, of this £2,047,000
will be used to fund the fourth interim dividend. The amount reflected above
for the cost of the proposed fourth interim dividend for 2024 is based on
134,248,415 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 or loss are grouped into the fair
value hierarchy as follows:
Level 1 Level 2 Level 3 Total
At 31 March 2024 £000 £000 £000 £000
Financial assets at fair value through profit or loss
Quoted equities 324,666 - - 324,666
Net fair value 324,666 - - 324,666
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
5. Share capital
There were 11,855,197 shares bought back during the year to 31 March 2024 at a
cost of £25,891,000 (2023: 1,616,500 shares at a cost of £3,586,000). During
the year, the Company issued 52,889,037 shares following the transaction with
Troy Income & Growth Trust plc, for net proceeds of £117,752,000 (2023:
1,575,000 shares issued from treasury for net proceeds of £3,631,000).
6. Related party transactions
With the exception of the management and secretarial fees, directors' fees and
directors' shareholdings (disclosed on page 34 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 2024 was
£1,366,000 (2023: £1,516,000), of which £302,000 (2023: £386,000) was
outstanding at the year-end. The secretarial and directors' fees payable in
respect of the year ended 31 March 2024 are detailed in note 4 of the annual
report. The amount outstanding at the year end for secretarial fees and
directors' fees was £4,000 (2023: £18,000) and £nil (2023: £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 2024 will be sent to
shareholders in May 2024 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 2024 will be lodged with the
Registrar of Companies.
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