REG - STS Global I&G Trust - Final Results
22/05/2025 07:00
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RNS Number : 6760J STS Global Income & Growth Trust 22 May 2025
STS Global Income & Growth Trust plc
LEI: 549300UZ1Y7PPQYJGE19
Results for the year ended 31 March 2025
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 2025.
Highlights
· The Company's share price returned 10.9% over the year, ahead of the
return from the Lipper Global - Equity Global Income Index of 4.5%. The net
asset value total return was also 10.9%.
· The Company pays quarterly dividends to provide investors with a
regular income. The Board has announced a fourth quarterly dividend of 3.61p
per ordinary share which will be paid on 4 July 2025 to shareholders on the
register on 6 June 2025. The total dividend for the year will be 8.37p per
share, an increase of 28% from the prior year and 47% since the dividend was
rebased in 2021. The Board is pleased to announce this significant increase in
the dividend, ensuring the Company's yield is competitive while remaining
sustainable, preserving full investment flexibility for the Managers.
· In the last 12 months the Company has been able to increase the
quality and underlying growth of the portfolio by investing in a number of
excellent businesses at attractive valuations.
Chairman's Statement
I am pleased to report that shareholder returns for the year to 31 March 2025
were not only positive but also ahead of both our benchmark and the peer group
- a strong result in a challenging and fast-evolving global environment.
Delivering value to our shareholders remains the Board's central focus. This
year, I would like to highlight two actions that reflect our ongoing
commitment to this.
The Company bought back 19.4 million shares during the year at a total cost of
£43.9 million and at an average discount of 1.4%, with a net benefit of
£564,000 to shareholders after costs. The buyback amounts to 13.8% of the
shares in issue on 31 March 2024. By any standards this is a significant
purchase and the share price discount to NAV was 1.7% at the start and end of
the year.
This purchase represented a significant use of shareholders' capital and
provided liquidity and value to the minority of shareholders who chose to sell
shares. The Board is minded to enhance the benefits for the majority of
shareholders who choose to remain invested.
Dividend and dividend policy
The Board has carefully considered both the dividend payment for the year and
the future dividend policy.
A fourth quarterly dividend of 3.61p per share has been declared. This will
bring the total dividend for the year to 8.37p, an increase of 28.0% over the
previous year. The 8.37p dividend represents a yield of 3.5% on the closing
share price as at 31 March 2025.
In setting the dividend the Board believes it has achieved the following:
· The dividend yield of the Company will be in line with the yield of
competing investment companies.
· It is set at a sustainable level.
· It is at a level from which it can rise reflecting growth in
portfolio earnings.
· It makes appropriate use of distributable reserves.
· It does not impinge on the investment flexibility of the Managers.
Quarterly dividends in the current year will be increased in order that
shareholders receive the higher dividend payment level at the earliest
opportunity. It is intended that the first quarterly dividend for the 2026
year will be at least 2.00p.
Investment Returns
The Company delivered a total return of 10.9% over the year, comfortably ahead
of the Lipper Global - Equity Global Income Index, which returned 4.5%. This
strong relative performance reflects the impact of the portfolio's positioning
as market drivers began to broaden beyond the narrow group of large US
technology stocks that led returns in prior years.
Following an initially positive reaction to the election of President Trump,
US equity markets retreated as greater consideration was given to the likely
economic impacts of the tariff policies being proposed by the new
Administration.
Since your Company's year-end equity markets throughout the world have shown a
significant rise in volatility. The negotiating tactics employed to agree
tariff levels are short term noise but the eventual outcome is likely to be
higher tariff levels on trade than have been seen in a century. The economic
impacts of tariffs are negative and lower economic growth will be one effect.
Bond and equity markets across the globe are taking time to adjust to the new
norm. However, your Company's portfolio has been relatively well placed
against the recent market background.
Board Composition
I will retire as Chair and as a director of the Company at the forthcoming AGM
on 23 June 2025. I joined the Board in 2016 and have now completed nine
years as a director.
Sarah Harvey will take over the role of Chair, having been appointed a
director in 2018. Sarah has a wealth of corporate experience and will bring a
fresh perspective to the role. Alexandra Innes will assume the role of Senior
Independent Director and Bridget Guerin will take over from Sarah as Chair of
the Marketing and Communications Committee.
Due to a combination of factors, and in particular the merger with Troy Income
& Growth Trust in 2024, STS will have an all-female Board after my
departure. Though this will leave the Board in compliance with the FCA Listing
Rules and the FTSE Women Leaders Review, we would like to have better gender
diversity, and this issue will be addressed in the coming years.
At the same time, our Board's culture is firmly rooted in delivering
shareholder value. The Board believes that the significant buyback programme,
the proposed dividend, and the strong investment performance this year are all
aligned with that goal.
In a year when several investment trusts have come under pressure due to the
perception that they have failed to deliver value for shareholders, our
actions stand in contrast and demonstrate clear accountability to
shareholders.
Sarah and I are always happy to engage with shareholders who would like to
discuss any aspect of the Board's composition or strategy in more
detail.
Outlook
Equity and bond markets are currently trying to adjust to a more uncertain
economic outlook.
Your Managers are seeing many opportunities to invest in their chosen
companies at valuation levels not seen for many years. They are committing
capital at these levels with their usual long term holding period in mind.
Sharp movements in markets offer opportunities and it is not a time to
spectate. I am confident that your Managers are managing the portfolio to best
advantage in these uncertain times.
John Evans
21 May 2025
Manager's Review
The Company's share price returned 10.9% over the year to 31 March 2025, ahead
of the return from the Lipper Global - Equity Global Income Index of 4.5%.
Since the inception of Troy's management, the Company has returned 34.7%,
slightly behind the peer return of 39.6%.
Global equity markets made steady progress over the period under review,
albeit unspectacular when compared to the exceptional gains of the previous
two years. Importantly, the portfolio delivered solid returns and growth in
underlying free cash flow to support the Company's growing dividend.
Longstanding investment Paychex had a strong year. This is a US software
company engaged in the delivery of payroll and human resources management
including benefits and insurance. The US economy proved to be more robust than
many expected last year, leading to a healthy employment backdrop which
supports activity for this company. A further fillip was provided by fewer
interest rate cuts than were predicted by markets from which the company
benefits via its management of client cash. The shares have delivered an
excellent return for the Company over the years, balanced between income and
capital and we expect this to continue for years to come.
Following a change of management and a reinvigoration of the business,
investors have become more enthused by the prospects for Unilever to the
benefit of the shares. The company enjoys formidable competitive advantages
from owning a number of well recognised global consumer brands, such as Dove,
Knorr and Marmite, as well as the scale and depth of manufacturing and
distribution to support these brands. However, in recent times the company has
struggled to deliver growth. We believe the new CEO, Fernando Fernandez, who
himself replaced the relatively new previous CEO Hein Schumacher, has the
right attributes to drive change in the organisation to address this and
improve shareholder returns.
Formally called the Chicago Mercantile Exchange, CME Group was a positive
contributor. The company is very well placed to benefit from the structural
increase in the use of futures and options to manage risk in portfolios. It
also benefits from greater volatility in markets, as well as increased
government debt issuance, both of which we expect. The shares have further
benefited from the launch, and then subsequent failure to gain traction of a
rival exchange. This highlighted once again the strong, competitive advantages
and dominant market position CME Group commands.
The strongest contributor to the return for the year was the consumer staples
sector which makes up a material part of the portfolio. These gains were led
by Philip Morris and British American Tobacco ('BAT') which appreciated by
74.9% and 43.9% respectively in the year. In each case investors have rewarded
the companies for the resiliency of their cashflows and gained greater
confidence in the sustainability of their business models.
Both companies are transitioning from the traditional business of selling
combustible products to distributing a range of dramatically less harmful
products. In the case of Philip Morris, they have developed the premier global
heat-not burn product called IQOS and, via the acquisition of Swedish Match,
have a rapidly growing modern oral product named Zyn. This should allow the
company to increase both free cashflow growth and margins in the long term.
BAT is strategically some way behind Philip Morris but should benefit from
similar trends in time. This is not yet reflected in the valuation of the
shares which trade at a very wide discount to its better managed peer. We see
plenty of scope for this to close to the benefit of the shares. Further upside
is possible from the sale over time of BAT's stake in Indian fast moving
consumer goods ('FMCG') company ITC, the proceeds from which may be used to
buy back shares.
The two greatest detractors from performance were both spirits companies
Diageo and Pernod Ricard. Diageo is a long-term investment in the Company
whereas Pernod Ricard is a newer addition. We like these businesses long term
as spirits brands give rise to greater consumer loyalty than wine or beer.
Further, the trend towards drinking less but better has seen spirits enjoy a
greater share of consumption, with premiumisation further improving margins.
Recently these structural advantages have been challenged by offsetting
structural and cyclical trends that have worried investors.
Structurally it is feared that the consumption of spirits may be reduced owing
to the widespread adoption of GLP-1 drugs which suppress appetite. Further, it
is thought younger consumers are now more health conscious and less inclined
to drink alcohol. Additionally, there is some concern that the legalisation of
cannabis may lead to some substitution of consumption. To these structural
concerns have been added cyclical fears: the boom in consumption and stocking
up of spirits during COVID- related lockdowns has been followed by a
mini-bust.
Our view is that, though these concerns have some merit, they do not
invalidate the long-term investment case for these companies, especially
following the material de-rating(( 1 )) of the sector. We believe demand will
recover and inventories will normalise in time. GLP-1 drugs may impact
consumers while on the medication, but it may, we believe, be a temporary
effect (human nature tends to be surprisingly consistent in some respects).
Evidence suggests that the young are delaying consumption, but that this tends
to revert to more familiar trends when people either have children or enter
the workplace. As regards cannabis, it is thought to be consumed in different
"use occasions" and so is arguably less impactful than feared. More recently
the tariff wars have hurt sentiment as well, potentially, as profitability for
a time.
In our experience the narrative and sentiment surrounding an industry or
business follow share prices. The more they fall the more negative the
surrounding comment. It is worth remembering, however, that you cannot have
good news and attractive prices. These companies are dealing with plenty of
bad news, including tariffs, but we think in time that current valuation
levels will be seen as having been a long-term buying opportunity.
We bought Canadian National Railway last year and have added to it recently.
We view this as an excellent strategic asset that is impossible to replicate.
It has long benefitted from both the increasing productivity of its network
with the application of technology and its pricing power owing to its
oligopolistic position and lack of substitutes in certain regions and for
certain types of cargo. It also benefits from being the only
transcontinental railway in North America running from the Atlantic (Halifax),
to the Pacific (Vancouver) to the Gulf of Mexico (or should that be America?)
in New Orleans. The shares have been weak for several one-off reasons such as
wildfires and floods and a more persistent problem relating to labour
relations. Tariffs are also unwelcome. Despite this we believe the combination
of value, predictability and resiliency of free cash flow and income renders
this is an appropriate long-term investment for the Company.
Pepsi also appeared in the list of detractors to performance. With an
impressive track record of dividend growth, a dominant market position in the
US snacking industry and a long-term opportunity to grow in the rest of the
world, this is a high-quality global income asset. A combination of a fuller
starting valuation and, like the spirits companies, concerns around GLP-1
adoption has made for a lacklustre return. Free cash flow growth has been
constrained by a capital investment programme that should in time reap
rewards. We would expect this to be evident in the coming months. Meanwhile
the durability of the business should not be overlooked given the current
policy and market backdrop.
Finally, Microsoft declined in this period following years of strong returns.
In part this was owing to the sharp sell off in the very large technology
companies that have led the US equity market higher in recent years. A change
in market sentiment against the so-called Magnificent 7 (of which Microsoft is
a part) was inevitable at some stage. More fundamentally, however, there is
rising scepticism surrounding the efficacy of the massive investments made in
the build out of artificial intelligence ('AI') infrastructure. Microsoft is
deploying AI and has been a direct beneficiary of this capital splurge via its
hyper-scale cloud business. It was therefore exposed to this shift in
sentiment. The scale and diversification of Microsoft suggests this is a
manageable challenge and that the combination of predictable growth and
quality justifies the current valuation. This leads us to retain the position
despite shorter term market pressures.
Portfolio Activity
Within the overall trend of a rising equity market, several opportunities have
presented themselves for investment this year. We are continuously seeking to
increase the quality and underlying growth of the portfolio whilst maintaining
an attractive level of income for shareholders. In the last 12 months we have
been able to pursue this objective by investing into a number of excellent
businesses at very attractive valuations.
The most significant new holding established in the year was the Spanish
software company Amadeus. The company is a leading provider of IT solutions
for the global travel and tourism industry. It operates two main business
segments: distribution and IT solutions. The distribution segment connects
travel providers with travel agencies and other intermediaries. The IT
solutions segment offers software and cloud-based platforms that help airlines
to manage their operations and hotels to manage their reservation systems. We
believe that Amadeus has a strong competitive position in both segments,
benefiting from high barriers to entry, network effects, and economies of
scale. In the IT solutions business, Amadeus's competitive position has
improved since COVID. Its competitors are losing business as they cannot match
Amadeus on research and development spending. Additionally, some of them are
dealing with financial problems that we believe will further hamper their
ability to compete effectively.
Air travel, after the significant COVID disruptions, is forecast to grow ahead
of GDP. Amadeus has a dominant market share, and we consider the company to be
well placed to benefit as spending increases with its existing customers. In
the hospitality sector, Amadeus is making significant progress with its
reservation system. Given the above we believe Amadeus to be significantly
undervalued and have established a meaningful holding in the Company.
We also established a new investment in Rentokil Initial. Some will remember
this business, managed by Clive Thompson in the 1980s and 1990s. It became a
conglomerate via acquisitions, earning Mr Thompson the nickname "Mr 20%" -
referring to what became to be expected of him - the delivery of 20% earnings
per share growth each year - until it was not and ended badly. The shares fell
by 92% between 1998 to 2009. Today it is a much better business. Under Andy
Ransom the company is focussed on commercial and residential pest control,
where it has become the global leader as well as the largest player in the
lucrative US market. It also has smaller businesses engaged in facilities
management, providing washroom hygiene equipment and workwear.
Pest control is an inherently attractive industry (at least from an investment
standpoint) given the resilient, repeat, non-discretionary nature of spending
in this category, often mandated by regulation, leading to high recurring
revenue and decent growth. Further, per capita pest control spend increases as
countries develop, and a warming planet may even further bolster demand.
Companies in the sector also enjoy durable competitive advantages. Scale and
local density of operations lead to a superior cost and productivity as well
as brand equity.
The second largest competitor in the US, Rollins (which admittedly is purely
focussed on pest control in one geography), trades at a very substantial
premium to its UK peer. Some of the reason for this premium is that Rentokil
has temporarily stumbled following the acquisition of the US pest business
called Terminix. At Troy we are generally wary of large corporate deals, and
this was no exception, leading us to refrain from investing while the deal
progressed. The valuation of the shares subsequently declined as teething
problems became apparent. However, we believe these issues will ultimately be
solved. In the meantime, we are being given the opportunity to invest in a
high-quality global income asset at a tantalising valuation.
Coloplast is a leading global medical device company listed in Denmark. It has
been in the Troy investment universe for several years and was recently
established as an investment in the Company. With dominant positions in Europe
and a growing US presence, the company designs, manufactures and markets
ostomy care systems, disposable containment devices and intermittent catheters
for continence care. They have also acquired an innovative business, called
Kerecis, which uses fish skin in wound care.
The nature of the intimate products Coloplast makes, together with their
expertise and history of innovation, creates strong brand recognition among
patients and healthcare providers leading to valuable customer loyalty. The
company has demonstrated strong returns on capital employed as well as
consistent growth over many years. Underlying demand is increasing as
populations age and chronic conditions become more widespread. The shares have
materially derated in recent years to a level that we think is sufficiently
attractive to establish an investment.
We also started an investment in Siemens. The company is one of the largest
industrial automation and electrification companies in the world which
benefits from several structural trends. These include the widening and
hardening of electric grids to power greener technologies as well as the need
to improve the efficiency of buildings to reduce emissions. The business is
involved in producing reliable highly engineered products, which are process
critical and therefore highly costly to the customer if they fail. This makes
for a strong competitive advantage by discouraging switching to alternative
suppliers. They are also a leader in industrial software. The business is
split into four divisions: Digital Industries (factory automation, industrial
controls and industrial software), Smart Infrastructure (building technologies
and electric power distribution), Mobility (rail and mass transit systems) and
Siemens Healthineers (medical imaging, diagnostics and advanced therapy
equipment). There is also an internal financing arm.
Siemens is going through a process of simplification, which we believe will
unlock significant value. The company has split out both Siemens Healthineers
and Siemens Energy into separate entities, retaining a stake in each of 70%
and 20% respectively. We believe both may be fully spun off in the future. The
resulting core business will likely enjoy higher returns on capital, lower
capital intensity and should attract a richer valuation. We have seen this
with several other industrial businesses in recent times, GE being the best
example.
These purchases were funded via the complete sale of several investments;
Proctor & Gamble and Fastenal were both sold on valuation grounds. We
continue to like both businesses, and they retain their place in the Troy
investment universe, but there is a price at which new ideas such as those
outlined above will likely make better investments.
Cisco has been a long-term investment in the Company and has delivered
attractive returns over that period. The original investment case was that the
company had a very strong market position in servers but also that the
business would increasingly migrate towards software products. This second leg
has not evolved quite as we would have hoped. More recently the share price
has appreciated because of investors' excitement regarding all things AI
related. While we do think Cisco will capture some of the current AI capital
expenditure boom, we think this became adequately reflected in the valuation
of the shares, giving us an opportunity to sell.
Domino's Pizza was sold after having been held for several years, owing to a
change in the investment case. The new management team have indicated that
they wish to make a substantial acquisition to add a new brand to the current
Domino's business. This would morph the company from a vertically integrated
pizza delivery business to more of a platform business with multiple brands.
While this may make long term strategic sense, we think it would come with
much greater risk to both the business and more importantly to existing
shareholders. A strategic acquisition may require either a substantial equity
raise or a highly levered balance sheet which would put the dividend at risk.
As a result, we decided to sell.
Johnson & Johnson was sold to part-fund the purchase of Coloplast. We
believe Coloplast is a superior business as well as offering faster growth.
Johnson & Johnson, as a stand-alone entity, is also a less attractive
asset following the spin out of consumer healthcare company, Kenvue.
Outlook
The re-election of Donald Trump to the US presidency has set off a chain of
events that few could have predicted and whose long-term effects may be
profound. Global capital markets are now reacting to communications from the
president, or his acolytes, on a seemingly hour-by-hour basis. While our
capital is allocated across the globe, all eyes are currently on the US
following the announcement of the so-called reciprocal tariffs on the world.
Given that the president appears to change his mind at will, it is somewhat
thankless to make too many predictions about what may or may not happen.
However, to maintain some perspective it may be worth putting the current
market backdrop in some context.
The inclusion of China into the global trading system in 2001 and the
development of an integrated globalised economy under the auspices of the Pax
Americana, led to a shift in manufacturing to lower cost areas, a
restructuring towards services in the developed world and the relative rise of
China. While this may have been desirable from an economic point of view, by
optimising the ability of economies to pursue their comparative advantage and
companies their cost base, it has created imbalances and societal pressures.
This dynamic was worsened by policymakers reducing interest rates to 0% and
deploying Quantitative Easing ('QE')(( 2 )) which pushed up asset prices (for
those with assets). The effect has been to denude the relative living
standards of the least well off. It is into this despondency that President
Trump is tapping.
The new US administration campaigned on a mandate of disrupting the status
quo: geopolitically (via the threatened breakdown of the rules-based system of
post-war international relations including the fraying of NATO), economically
(through challenging the desirability of globalisation with the resurrection
of protectionism via tariffs), and in currencies (where having the dollar as
the world's reserve currency is no longer seen as an exorbitant privilege but
rather as a burden to the US). Each marks a seismic shift of direction if seen
through to conclusion.
The valuation in the US market has been stretched in absolute terms and
relative to government bond markets. This is at a time of economic and now
political uncertainty. The US equity market represents about 70% of the global
index and the Magnificent 7 around 35% of that. The pain of a reversal of
these trends could be material to both investors who are over-exposed to this
dynamic, as well as the economy, as declining wealth saps confidence and
discourages spending.
Conversely, we believe our portfolio exhibits value, quality and resilience,
together with diversification away from the risks outlined above, to the
benefit of shareholders. Our conservative approach should enable us to both
limit the worst effects of the current volatility as well as deliver reliable
income growth. This combination could be especially valuable to shareholders
in coming months by avoiding the requirement to sell assets at inopportune
times to cover current liabilities. This is the cornerstone of our cautious,
income-focussed approach. It allows our shareholders the opportunity to endure
such inauspicious times with greater equanimity and leave capital undisturbed
and invested for the long term.
At the same time, we are encouraged to see several long-desired investments
beginning to fall to levels of valuation that we deem attractive. This should
enable us, over time, to add high-quality long-term investments to the
portfolio to drive growth in underlying free cash flow to the benefit of both
capital and income growth. Indeed, since the year end, we have made several
changes to the portfolio owing to the opportunities presented by market
volatility. This includes making an initial investment in Nike, selling our
remaining holding in Hershey and adding to Diageo, Rentokil and Siemens.
Unwelcome though the current uncertainty may be, it is likely to contain the
seeds of opportunity for the patient global income investor.
James Harries
21 May 2025
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 and uncertainties
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 detailed risk
analysis as part of its annual strategy meeting. The Board has identified the
following principal and emerging risks to the Company:
Principal risks Mitigation and management
Investment strategy and objectives - Pursuing The Board formally reviews the Company's objective and strategy on an annual
basis, or more regularly if appropriate. The Board also receives updates at
an investment strategy to fulfil the Company's each Board meeting from the Manager with regards to the portfolio and its
performance; receives broker updates on the market; and is updated on the
objective which the market perceives to be make-up and movements in the shareholder register. In addition, the Company
operates a discount control mechanism; the marketing and distribution activity
unattractive or inappropriate may lead to is actively reviewed; and the Board and Manager proactively engage with
shareholders on an ongoing basis.
reduced returns for shareholders and, as a
result, the Company may become unattractive
to investors, leading to decreased demand for
its shares and a widening discount.
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 61 to 64.
losses within the portfolio and increasing finance and operational costs of
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 59. 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 13
awareness of the challenges and emerging risks posed by climate change and the and 14 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. The
to the Company. ongoing conflicts in Ukraine and Gaza have affected global trade and
contributed to volatility in asset prices. This has been further exacerbated
by the recent appointment of President Trump and the uncertainty caused by his
Administration, in particular the from the imposition of increased global
tariffs. 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 2025 £15.1 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 disclosed on pages 17 to 19 of the annual report and also
considered the potential impact of increased tariffs. 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 2027, 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 2025 Year to 31 March 2024
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Net gains on - 22,547 22,547 - 5,740 5,740
investments
Net currency (losses)/gains (10) 275 265 (39) 286 247
Income 10,796 - 10,796 7,674 - 7,674
Investment management fee (397) (738) (1,135) (478) (888) (1,366)
Other (710) - (710) (595) - (595)
expenses
Net return before finance costs and
taxation 9,679 22,084 31,763 6,562 5,138 11,700
Finance (347) (644) (991) (269) (500) (769)
costs
Net return on ordinary activities before
taxation 9,332 21,440 30,772 6,293 4,638 10,931
Taxation on ordinary activities (672) - (672) (551) - (551)
Net return attributable to ordinary
shareholders 8,660 21,440 30,100 5,742 4,638 10,380
Net return per ordinary
share 6.74p 16.68p 23.42p 6.08p 4.92p 11.00p
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 2025 As at 31 March 2024
£000 £000 £000 £000
Non-current assets
Investments held at fair value through profit or loss 308,024 324,666
Current assets
Trade and other receivables 1,283 60,068
Cash and cash equivalents 1,471 6,377
2,754 66,445
Current liabilities
Bank loans (15,138) (15,449)
Trade payables (1,095) (59,573)
Dividend payable - (1,736)
Total current liabilities (16,233) (76,758)
Net current liabilities (13,479) (10,313)
Total net assets 294,545 314,353
Capital and reserves
Called up share capital 1,752 1,752
Capital redemption reserve 78 78
Share premium account 148,245 148,249
Special distributable reserve 1,163 45,033
Capital reserve 137,983 116,543
Revenue reserve 5,324 2,698
Total shareholders' funds 294,545 314,353
Net asset value per ordinary share 243.10p 223.71p
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 2025 £000 £000 £000 £000 £000 £000 £000
As at 1 April 2024 1,752 78 148,249 45,033 116,543 2,698 314,353
Net return
attributable to
shareholders** - - - - 21,440 8,660 30,100
Costs in relation to
the issue of shares - - (4) - - - (4)
Shares bought back
into treasury - - - (43,870) - - (43,870)
Dividends paid - - - - - (6,034) (6,034)
As at 31 March 2025 1,752 78 148,245 1,163 137,983 5,324 294,545
For the year ended Total
Called up share Capital redemption reserve Share premium account Special distributable
capital reserve* Capital Revenue
reserve* reserve*
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
* 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 2025 Year ended 31 March 2024
£000 £000 £000 £000
Cash flows from operating activities
Net return on ordinary activities before taxation 30,772 10,931
Adjustments for:
Gains on investments (22,547) (5,740)
Finance costs 991 769
Exchange movement on bank borrowings (311) (346)
Purchases of investments(*) (107,343) (17,217)
Sales of investments(*) 146,467 43,263
Dividend income (10,765) (7,659)
Other income (31) (15)
Dividend income received 10,677 7,800
Other income received 31 14
(Increase)/decrease in receivables (7) 8
Increase/(decrease) in payables 398 (120)
Overseas withholding tax deducted (758) (586)
16,802 20,171
Net cash flows from operating activities 47,574 31,102
Cash flows from financing activities
Repurchase of shares (43,961) (25,560)
Issue of ordinary share capital(**) 222 6,143
Equity dividends paid from revenue (7,770) (6,048)
Interest paid on borrowings (971) (830)
Net cash flows from financing activities (52,480) (26,295)
Net (decrease)/increase in cash and cash equivalents (4,906) 4,807
Cash and cash equivalents at the start of the year 6,377 1,570
Cash and cash equivalents at the end of the year 1,471 6,377
(*) 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.
(**) Cash flows relate to transaction with TIGT in March 2024.
Notes:
1. Significant accounting policies
The financial statements 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 financial statements 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 2027, 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 2025 Year to 31 March 2024
Revenue return (£000) 8,660 5,742
Capital return (£000) 21,440 4,638
Total (£000) 30,100 10,380
Weighted average number of ordinary shares in issue 128,565,700 94,344,039
Revenue return per ordinary share 6.74p 6.08p
Capital return per ordinary share 16.68p 4.92p
Total return per ordinary share 23.42p 11.00p
Net asset value per share
Net assets attributable to shareholders (£000) 294,545 314,353
Number of shares in issue at the year end 121,161,415 140,517,415
Net asset value per share 243.10p 223.71p
3. Dividends
Year to 31 March 2025 Year to 31 March 2024
£000 £000
First interim dividend of 1.586p for the year ended 31 March 2025 (2024: 2,029 1,431
1.525p)
Second interim dividend of 1.586p for the year ended 31 March 2025 (2024: 1,973 1,386
1.525p)
Third interim dividend of 1.586p for the year ended 31 March 2025 (2024: 1,920 1,736
1.965p)
Proposed fourth interim dividend of 3.61p for the year ended 31 March 2025 4,337 2,032
(2024: 1.525p)
10,259 6,585
The distributable reserves as at 31 March 2025 are £105,030,000, of this
£6,257,000 will be used to fund the third and fourth interim dividends. The
amount reflected above for the cost of the proposed fourth interim dividend
for 2025 is based on 120,144,415 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 inputs (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 2025 £000 £000 £000 £000
Financial assets at fair value through profit or loss
Quoted equities 308,024 - - 308,024
Net fair value 308,024 - - 308,024
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
5. Share capital
There were 19,356,000 shares bought back during the year to 31 March 2025 at a
cost of £43,870,000 (2024: 11,855,197 shares at a cost of £25,891,000). No
shares were issued in the year (2024: the Company issued 52,889,037 shares
following the transaction with Troy Income & Growth Trust plc, for net
proceeds of £117,752,000). The share premium represents the surplus amount
over the nominal value of the issued share capital, net of any related
issuance costs.
6. Related party transactions
With the exception of the management and secretarial fees, directors' fees and
directors' shareholdings (disclosed on page 36 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 2025 was
£1,135,000 (2024: £1,366,000), of which £694,000 (2024: £302,000) was
outstanding at the year-end. The secretarial and directors' fees payable in
respect of the year ended 31 March 2025 are detailed in note 4 of the annual
report. The amount outstanding at the year end for secretarial fees and
directors' fees was £6,000 (2024: £4,000) and £nil (2024: £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 2025 will be sent to
shareholders in May 2025 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) . 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) .
The audited accounts for the year ended 31 March 2025 will be lodged with the
Registrar of Companies.
1 De-rating refers to a decline in a company's valuation. For instance, a
stock that traded on a price-to-earnings multiple of 20x but now trades on 15x
is said to have de-rated.
2 Quantitative easing is a form of unconventional monetary policy in which a
central bank purchases longer-term securities (i.e. government bonds) from the
open market in order to increase the money supply and encourage lending and
investment. Buying these securities adds new money to the economy, and also
serves to lower interest rates. It also expands the central bank's balance
sheet.
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