SHIRES INCOME PLC
ANNUAL FINANCIAL REPORT FOR THE
YEAR ENDED 31 MARCH 2024
Legal Entity Identifier
(LEI): 549300HVCIHNQNZAYA89
The Company
Shires Income PLC (the "Company")
is an investment trust. Its Ordinary shares are listed on the
premium segment of the London Stock Exchange.
Investment Objective
The Company's investment objective
is to provide shareholders with a high level of income, together
with the potential for growth of both income and capital from a
diversified portfolio substantially invested in UK equities but
also in preference shares, convertibles and other fixed income
securities.
Benchmark
The Company's benchmark is the
FTSE All-Share Index (total return).
Website
Up to date information can be
found on the Company's website: www.shiresincome.co.uk
Performance Highlights
Net asset value per Ordinary share total
returnA
|
|
Share price total returnA
|
+5.1%
|
|
-5.7%
|
2023
|
-2.2%
|
|
2023
|
-5.5%
|
|
|
|
|
|
Benchmark index total return
|
|
|
Earnings per share (revenue)
|
|
+8.4%
|
|
14.75p
|
2023
|
+2.9%
|
|
2023
|
14.83p
|
|
|
|
|
|
Dividends per Ordinary share
|
|
|
Dividend yieldA
|
|
14.40p
|
|
6.5%
|
2023
|
14.20p
|
|
2023
|
5.7%
|
A Alternative Performance Measure
.
|
For further information, please
contact:
Paul Finlayson (0131 372
2200)
abrdn Fund Managers
Limited
Financial Calendar and Highlights
Financial Calendar
Online Shareholder Presentation
|
25 June 2024
|
Annual General Meeting
|
5 July 2024
|
Expected payment dates of quarterly
dividends
|
31 July 2024
31 October 2024
31 January 2025
30 April 2025
|
Half year end
|
30 September 2024
|
Expected announcement of results for the six
months ending 30 September 2024
|
November 2024
|
Financial year end
|
31 March 2025
|
Expected announcement of results for year
ending
31 March 2025
|
May 2025
|
Highlights
|
31 March 2024
|
31 March 2023
|
Total assets
|
£124,920,000
|
£98,864,000
|
Shareholders' funds
|
£105,957,000
|
£79,913,000
|
Market capitalisationA
|
£91,840,000
|
£77,411,000
|
Net asset value per Ordinary
shareB
|
256.00p
|
257.92p
|
Share price
|
222.00p
|
250.00p
|
Discount to NAV
(cum-income)C
|
13.3%
|
3.1%
|
Net gearingC
|
16.4%
|
22.2%
|
Dividend and earnings
|
|
|
Revenue return per shareD
|
14.75p
|
14.83p
|
Dividend per shareE
|
14.40p
|
14.20p
|
Dividend coverC
|
1.02
|
1.04
|
Revenue reservesF
|
£7,388,000
|
£7,040,000
|
Dividend yieldC
|
6.5%
|
5.7%
|
Operating costs
|
|
|
Ongoing charges ratio (excluding look-through
costs)C
|
1.09%
|
1.03%
|
Ongoing charges ratio (including look-through
costs)C
|
1.10%
|
1.17%
|
A Represents the number of Ordinary
shares in issue in the Company multiplied by the Company's share
price.
|
B Net asset value per Ordinary share
is calculated after the repayment of the capital paid up on
Cumulative Preference shares (see note 16).
|
C Considered to be an Alternative
Performance Measure.
|
D Measures the revenue earnings for
the year divided by the weighted average number of Ordinary shares
in issue (see Statement of Comprehensive Income).
|
E The figures for dividend per share
reflect the years in which they were earned (see note 9).
|
F The revenue reserve figure does
not take account of payment of the third interim or final dividend
amounting to £3,310,000 (2023 - £2,415,000) combined.
|
Chairman's Statement
Highlights
· Successful
completion of the combination with abrdn Smaller Companies Income
Trust plc ("aSCIT").
· Increased
dividend of 14.40p per Ordinary share, providing a dividend yield
of 6.5% based on the year end share price.
· Confidence
that the dividend remains sustainable.
· NAV total
return of 5.1%, compared to a total return of 8.4% from the FTSE
All-Share Index.
Markets and Performance
The year to 31 March 2024 was good for equities
globally, with growing expectations of interest rate reductions
during the course of 2024. The UK market, as represented by the
FTSE All-Share Index, delivered a total return of 8.4%. The
Company's net asset value ("NAV") total return for the year was
lower, at 5.1%. Although lagging the market return, the performance
for the year is in line with what we would expect, given the
defensive and income focused nature of the portfolio, and delivered
the Company's objective of providing shareholders with a high level
of income, together with the potential for growth of both income
and capital.
Revenue earnings per share for the year were
broadly similar to last year and the total dividends for the year
have been increased to 14.40p per Ordinary share. This represents a
dividend yield of 6.5% based on the year end share
price.
The share price performance for the year was
disappointing, with a negative total return of 5.7%, reflecting a
significant widening of the discount, to 13.3% at the year end.
Discount widening has been exhibited across much of the investment
trust universe. The persistence of higher interest rates is a
factor, as is decreased demand for collective funds generally, but,
in the case of Shires, the decision of abrdn to transfer its
in-house savings scheme to Interactive Investor certainly
contributed to some short-term selling of our shares. The Board's
view was that this unprecedented level of discount was unwarranted,
and, to address this imbalance of supply and demand for the
Company's shares, the Company made use of its share buy back
authority during the year and will continue to make use of this
authority going forward if considered appropriate.
More detailed information on performance for the
year and investment activity within the portfolio are contained
within the Investment Manager's Review.
Earnings and Dividends
The Company's revenue earnings per share for the
year were 14.75p (2023 - 14.83p). Investment income was 13.7%
higher than last year, due mainly to the impact of a larger
portfolio following the aSCIT transaction, including a special
dividend of £445,000 from aSCIT at the time of the transaction. The
transaction also resulted in a larger share capital base meaning
that the per share revenue earnings for the year were broadly
unchanged.
The Company has paid three interim dividends of
3.20p per Ordinary share (2023: 3.20p). The Board is proposing a
final dividend of 4.80p per Ordinary share (2023: 4.60p), which
will be paid on 31 July 2024 to shareholders on the register on 5
July 2024. This final dividend brings total Ordinary share
dividends for the year to 14.40p per share.
With the total dividends for the year covered by
earnings, revenue reserves will stand at 0.69 times (2023 - 1.05
times) the current annual Ordinary share dividend cost. The
reduction in reserve cover during the year is as a result of the
larger capital base following the aSCIT transaction, but it should
still allow the Company to support future dividend payments in
times of reduced earnings. In addition, the Company also has the
flexibility to pay dividends from its realised capital reserves,
although the Board has no current intention of making use of this
flexibility. As explained below, we propose to create greater
flexibility through cancelling the amount standing to the credit of
the Company's Share Premium Account.
Through the proposed changes to the investment
policy described below and the cancellation of the Share Premium
Account, together with the already healthy level of revenue
reserves, shareholders should take comfort that maintaining and
potentially growing the dividend remains realistic.
Allocation of Costs
The Company has historically allocated
management fees and finance costs 50% to Revenue and 50% to Capital
in the Statement of Comprehensive Income. Following a review of
this allocation after the completion of the aSCIT transaction, the
Board has decided that, with effect from 1 April 2024, these costs
will be charged 40% to Revenue and 60% to Capital. The Board
considers that this allocation better reflects the expected
long-term view of the nature of the future investment returns of
the enlarged portfolio and is consistent with the treatment adopted
by other UK Equity Income investment trusts.
Discount and Share Buy Backs
The discount at which the price of the Company's
Ordinary shares traded relative to the NAV widened during the
period, to 13.3% as at 31 March 2024 compared to 3.1% at the start
of the year. While it is disappointing to see the Company's
discount widen, this is consistent with
what we have seen in the investment trust sector
more generally. It is important to note that
Shires, as a high yield, relatively risk averse, company is
seen by some as in more direct competition with
cash deposits than many of its peers. Recent interest rate rises
have made cash investments more attractive and we suspect that this
has had a detrimental effect on demand for the Company's
shares.
Market forecasts of reductions in
interest rates later this year should make Shires
relatively more attractive to investors. In the
meantime, we believe that what the
Board sees as the quite secure dividend and the
potential for capital growth and inflation protection provided by
the Company, makes it a much more compelling option compared to
cash.
The Board has recently used share buybacks for
the first time in the Company's history to address the liquidity of
the Company's shares - excess supply being one of the factors which
can impact the discount level. The extent of buybacks is somewhat
limited by the size of the Company and its gearing. It is in all
interests to grow the Company over time in order to spread fixed
costs and increase liquidity. Buying back shares acts against this
and so has been used with caution.
The Company bought back 863,532 Ordinary
shares during the year at a cost of £1.9 million and an average
discount of 9.3%, thereby providing a modest enhancement to the
NAV. All shares bought back are held in treasury for potential
future resale at a premium to the NAV.
The Board will seek the renewal of the share buy
back authority at the AGM and will make use of this authority if it
considers it in the best interests of shareholders to do
so.
It is encouraging to see that the discount has
started to narrow since the year end.
Proposed Changes to Investment
Policy
Following a review by the Board and Manager of
the Company's investment policy we propose to seek shareholder
approval at the AGM, principally to increase the limit on exposure
to overseas companies from 10% of total assets to 20% of total
assets. At the year end, 9.2% of the Company's total assets were
invested in the equity securities of overseas companies. The Board
considers that this change will provide the Investment Manager with
greater flexibility to achieve the Company's investment objective.
The Company will remain in the AIC's UK Equity Income Sector
following the change.
Proposed Cancellation of Share Premium
Account
Following the issue of new Ordinary shares to
shareholders of aSCIT, the value of the Company's Share Premium
Account now amounts to £50.0 million. This reserve cannot be used
for distributions, including share buy backs or the payment of
dividends, although the Company is permitted to use its realised
capital reserve, which amounted to £27.5 million at the year end,
for these purposes.
The Board will propose a special resolution at
the AGM to cancel the amount standing to the credit of the Share
Premium Account. The cancellation will also require court approval
which will be sought following the AGM. Once this exercise is
complete, the newly created distributable reserve will be available
to fund the cost of share buy backs and dividend payments. The
Board considers that it is in shareholders' interests for the
Company to have this flexibility, although it has no current
intention of making use of it for dividend payments which will
continue to be resourced through net revenue and revenue
reserves.
Gearing
The Company has a £20 million loan facility of
which £19 million was drawn down at the year end. Net of cash, this
represented gearing of 16.4%, compared to 22.2% at the start of the
year. The reduction is due mainly to the impact of the aSCIT
transaction, with the Company having the same value of borrowings
but a larger asset base. The weighted average borrowing cost at the
year end was 5.3% (31 March 2023 - 4.7%).
The Board continually monitors the level of
gearing and takes the view that the borrowings are notionally
invested in the less volatile fixed income part of the portfolio
which generates a high level of income, giving the Investment
Manager greater ability to invest in a range of equity stocks with
lower yields and higher growth prospects. The Board believes that
this combination should enable the Company to achieve a high and
potentially growing level of dividend, and also deliver some
capital appreciation for shareholders.
Manager's Fee Re-Investment
Programme
The Board notes the announcement by abrdn plc in
December 2023 of the initiation of a programme to invest up to six
months' worth of the management fees received from the UK
investment trusts it manages, in the underlying companies'
shares.
We welcome this proposal as it demonstrates
commitment by abrdn to the Company and the investment trust
sector.
aSCIT Transaction
On 26 July 2023, the Company announced that it
had agreed terms with the Board of aSCIT for a proposed combination
of the assets of the Company with those of aSCIT (the "aSCIT
transaction"). This was achieved by a scheme of reconstruction and
winding up of aSCIT, where assets were transferred to the Company
in exchange for the issue of new Ordinary shares to aSCIT
shareholders. A cash exit was also available under the scheme.
aSCIT and Shires shareholders approved the scheme on 20 November
2023 and it completed on 1 December. Shires issued 11,268,494 new
Ordinary shares to aSCIT shareholders, with the new shares admitted
to trading on 4 December 2023. The terms of the scheme were such
that Shires shareholders did not suffer any dilution in their
interests from the costs of the scheme, and an important component
of the scheme offsetting these costs was the elimination of the
discount to net asset value on the Company's holding in aSCIT via
the switch to directly held smaller companies, which are now valued
at their market price.
The transaction increased the size
of Shires by more than 35%, to net assets of £101 million at the
point when aSCIT's assets transferred. Other than as highlighted
above, the Company will continue with its existing investment
policy and management arrangements, and now has a focused and
direct exposure to UK smaller companies rather than obtaining its
exposure through investing in aSCIT. This
provides an additional benefit of allowing the Investment Manager
to spread risk amongst a number of investments rather than all risk
being concentrated in one vehicle. In
addition, as a result of the transaction, the Company's gearing
ratio has fallen as explained above.
Board Composition
The Board is pleased to welcome
Simon White as an independent non-executive Director of the Company
with effect from 1 January 2024. Simon has a background in UK equity fund management and significant experience in
the investment trust sector. He was, until June 2022, Co-Head of
Investment Trusts at BlackRock where he was responsible
for overseeing the company secretarial, sales, marketing and
third-party administration services. Simon has an excellent
understanding of the investment trust sector and we believe he will
make a significant contribution to the Board going
forward.
As previously announced, I shall be stepping
down from the Board at the AGM in July, having served for nine
years. Robin Archibald, who is the current Chair of the Audit
Committee and Senior Independent Director, will replace me as
Chairman, Jane Pearce will become the new Chair of the Audit
Committee and Helen Sinclair will become the new Senior Independent
Director.
I would like to thank my colleagues on the Board
for their support during my time as Chairman. I am confident that
the Board has the appropriate collective skills and experience to
take the Company forward and I wish the Company every success in
the future.
Online Shareholder Presentation and Annual General
Meeting ("AGM")
Given the popularity of our Online Shareholder
Presentation in previous years, we have decided to hold another
online presentation this year, in addition to the AGM. This will be
held at 10.00am on Tuesday 25 June 2024. A presentation will be
given by the Investment Manager, and those in attendance will be
given the opportunity to ask questions of the Chairman and
Investment Manager both during the presentation and in advance.
Full details on how to register for the event can be found
at: https://bit.ly/Shires-Income.
Details are also contained on the Company's website. Should
you be unable to attend the online event, it will be made available
on the Company's website shortly afterwards. For those wishing to
submit questions in advance, you can do this at the following email
address: shires.income@abrdn.com
The Company's AGM will take place at 12 noon on
Friday 5 July 2024 at the offices of abrdn plc, 18 Bishops Square,
London E1 6EG, and will be followed by lunch. As well as the formal
business of the meeting, the Investment Manager will provide a
short presentation on the Company and there will be an opportunity
for shareholders to ask questions of the Manager and the Board.
Irrespective of whether you are able to attend, we do encourage all
shareholders to complete and return the Proxy Form enclosed with
the Annual Report to ensure that your votes are represented at the
meeting. If you hold your shares in the Company via a share plan or
a platform and would like to attend and / or vote at the AGM, then
you will need to make arrangements with the administrator of your
share plan or platform.
Outlook
There remain a number of geo-political
uncertainties that could impact stock markets over the months
ahead, including the continuing impact of the conflicts in Ukraine
and the Middle East, as well as the outcomes of the elections in
the US and the UK. It seems likely that interest rates in the UK
and globally have peaked and will be reduced later in the year,
which should be a positive for equity market valuations. The Board
also believes that this will be beneficial for the rating of the
Company's shares, which is something that we will continue to
monitor very carefully.
In this environment, good stock selection will
continue to be key. The Investment Manager has a strong long term
track record of delivering the Company's income and capital growth
objective. Despite the various macro
uncertainties, the Board remains confident in the
Company's ability, to continue to achieve
its objective going forward.
Robert
Talbut
Chairman
22 May 2024
Overview of Strategy
Business Model
The business of the Company is that of an
investment company which qualifies as an investment trust for tax
purposes. The Directors do not envisage any change in this
activity in the foreseeable future.
Benchmark
In assessing its performance, the Company
compares its returns with the returns of the FTSE All-Share Index
(total return).
Investment Objective
The Company's investment objective is to provide
shareholders with a high level of income, together with the
potential for growth of both income and capital, from a diversified
portfolio substantially invested in UK equities but also in
preference shares, convertibles and other fixed income
securities.
Investment Policy
The Company's investment policy is
to invest principally in the ordinary shares of UK quoted
companies, and in preference shares, convertibles and other fixed
income securities with above average yields. The Company generates
income primarily from ordinary shares, preference shares,
convertibles and other fixed income securities. It also generates
income by writing call and put options on shares owned, or shares
the Company would like to own. By doing so, the Company generates
premium income.
Gearing
The Directors are responsible for
determining the gearing strategy of the Company. Gearing is used
with the intention of enhancing long-term returns. It is subject to
a maximum equity gearing level of 35% of net assets at the time of
drawdown. Any borrowing except in relation to short-term liquidity
requirements is used for investment
purposes.
Diversification
of Risk and Investment Restrictions
In order to ensure adequate
diversification, limits are set within the investment policy which
the AIFM and Investment Manager must operate. All of these limits
are measured at the point of acquisition of investments, unless
otherwise stated, as follows:
General Investment
Limits
· a maximum of
10% of total assets may be invested in the equity securities of
overseas companies;
· a maximum of
7.5% of total assets may be invested in the securities of one
company (historically excluding abrdn Smaller Companies Income
Trust plc);
· any investment
must not represent more than 5% of a quoted investee company's
ordinary shares (historically excluding abrdn Smaller Companies
Income Trust plc); and
· a maximum of
10% of total assets may be invested directly in AIM
holdings.
Limits in Relation to Preference
Shares
· a maximum of
7.5% of total assets may be invested in the preference shares of
any one company; and
· the Company
may not hold more than 10% of any investee company's preference
shares.
Limits in Relation to Traded
Option Contracts
There are principal guidelines put in place to
manage the risks associated with these contracts,
including:
· call options
written are to be covered by stock;
· put options
written are to be covered by net current assets/borrowing
facilities;
· call options
are not to be written on more than 10% of the equity portfolio;
and
· put options
are not to be written on more than 10% of the equity
portfolio.
The Board assesses on a regular basis with the
Investment Manager the applicability of these investment limits,
the use of gearing and risk diversification, whilst aiming to meet
the overall investment objectives of the Company.
In accordance with the Listing Rules, the
Company will not make any material change to its published
investment policy without the prior approval of the FCA and the
approval of its shareholders by ordinary resolution.
As set out in the Chairman's Statement, the
Directors are seeking shareholder approval for certain amendments
at the forthcoming Annual General Meeting.
Key Performance Indicators ("KPIs")
The Board uses a number of financial
performance measures to assess the Company's success in achieving
its objective and determining the progress of the Company in
pursuing its investment policy. The main KPIs identified by
the Board in relation to the Company, which are considered at each
Board meeting, are shown in the table below
KPI
|
Description
|
Performance against benchmark index
|
The Board measures performance over the medium
to long-term, on a total return basis against the benchmark index -
the FTSE All-Share Index (total return).
|
Share price performance
|
The Board monitors the performance of the
Company's share price on a total return basis.
|
Premium/discount to NAV
|
The premium/discount relative to the NAV per
share represented by the share price is closely monitored by the
Board.
|
Revenue return per Ordinary share
|
The Board monitors the Company's net revenue
return (earnings per share).
|
Dividend per share
|
The Board monitors the Company's annual
dividends per Ordinary share and the extent to which dividends are
covered by current net revenue and revenue reserves
|
Ongoing charges
|
The Board monitors the Company's operating
costs carefully.
|
Principal and Emerging Risks and
Uncertainties
The Board carries out a regular review of the
risk environment in which the Company operates, changes to that
environment and to individual risks. The Board also identifies
emerging risks which might impact the Company. During the year, the
most significant risks were inflation and high interest rates and
the resultant volatility that this created in global stock markets.
In addition, the conflicts in Ukraine and the Middle East and other
geo-political tensions have created geo-political uncertainty which
has further increased market risk premia and volatility.
The most significant direct issue that the
Company has faced is the increasing discounts to net asset value
that have affected the entire investment company sector, including
income funds, resulting from selling pressure and lack of investor
demand.
There are a number of other risks which, if
realised, could have a material adverse effect on the Company and
its financial condition, performance and prospects. The Board has
carried out a robust assessment of the Company's principal and
emerging risks, which include those that would threaten its
business model, future performance, solvency, liquidity or
reputation and has endeavoured to find means of mitigating those
risks, wherever practical.
The principal risks and uncertainties faced by
the Company are reviewed by the Audit Committee in the form of a
risk matrix. The assessment of risks and their mitigation continues
to be an area of significant focus for the Audit Committee.
The principal risks and uncertainties facing the Company at
the current time, together with a description of the mitigating
actions the Board has taken, are set out in the table
below.
The principal risks associated with an
investment in the Company's shares are published monthly in the
Company's factsheet and they can be found in the pre-investment
disclosure document ("PIDD") published by the Manager, both of
which are available on the Company's website.
Description
|
Mitigating Actions
|
Strategic objectives and investment
policy - a lack of demand for the Company's shares due
to its objectives becoming unattractive to investors, or a negative
perception of investment trusts, could result in a fall in the
value of its shares and a widening of the discount of the share
price to its underlying NAV.
|
The Board formally reviews the Company's
objectives and strategies for achieving them on an annual basis, or
more regularly if appropriate.
The Board is cognisant of the importance of
regular communication with shareholders and knowledge of what
encourages investment in the Company. Directors attend meetings
with shareholders where practical, host the Annual General Meeting
as a forum for shareholder contact and regularly discuss
shareholder investment behaviour with the Manager, including trends
on investment platforms and shareholder themes. The Board reviews
shareholder feedback through reports provided by the Manager's
Investor Relations team and also receives feedback from the
Company's Stockbroker.
The Board and Manager keep the level of
discount under constant review, as well as changes to the Company's
shareholder register. There has been regular review in the last
year culminating in the use of share buy backs as
appropriate.
|
Investment performance -
performance of the portfolio when measured
against the benchmark.
|
The Board meets the Manager on a regular basis
and keeps investment performance under close review. This includes
performance attribution by sector and stock, and liquidity
analysis, as well as the degree of diversification in the portfolio
and income sustainability through examination of forward income
projections.
Representatives of the Investment Manager
attend all Board meetings and a detailed formal appraisal of the
abrdn Group is carried out annually by the Management Engagement
Committee.
The Board sets, and monitors, the investment
restrictions and guidelines, and receives regular reports which
include performance reporting on the implementation of the
investment policy, the investment process, risk management and
application of the guidelines.
Investment risk within the portfolio is managed
in four ways:
· Adherence by the Investment Manager to the investment process
in order to minimise investments in poor quality companies and/or
overpaying for investments.
· Diversification of investment - seeking to invest in a wide
variety of companies with strong balance sheets and the earnings
power to pay increasing dividends. In addition, investments are
diversified by sector in order to reduce the risk of a single large
exposure. The Company invests mainly in equities and preference
shares.
· Adherence by the Investment Manager to the investment limits
set by the Board.
· Examination of changes to the portfolio and emerging
investment themes, including relative to benchmark constituents and
in order to provide income.
Investment in preference
shares
The Company has longstanding holdings in a
number of preference shares with no fixed redemption dates
(representing 19.8% of the Company's portfolio as at 31 March
2024). The Directors regularly review these investments, which are
held primarily to enhance the income generation of the Company. By
their nature, their price movements will be subject to a number of
factors, including prevailing and changing interest rates, and, in
normal market conditions, will tend to respond less to pricing
movements in equity markets. Issue sizes of these preference shares
are normally relatively small and with associated low secondary
market liquidity by comparison with the equity component of the
portfolio. The Board also considers the long-term nature of these
investments and the impact of any potential changes on the duration
of the portfolio and its returns, as well as the sustainability of
the dividends paid.
|
Failure to maintain, and grow the
dividend over the longer term -
the level of the Company's dividends and future
dividend growth will depend on the performance of the
underlying portfolio.
|
The Directors review detailed income forecasts
at each Board meeting and discuss the Investment Manager's outlook
for dividends. The Company has revenue reserves which it can draw
upon should there be a shortfall in revenue returns in a year, and
also has the ability to pay dividends from realised capital
reserves but would only resort to this in circumstances where there
was an unexpected fall in net income.. The Board regularly reviews
forward net revenue projections and takes into account revenue
reserves in setting quarterly dividend levels.
|
Share price and shareholder
relations - the
adoption of an inappropriate marketing strategy, failure to address
shareholder concerns or other factors, including the setting of an
unattractive strategic investment proposition, changing investor
sentiment and investment underperformance, may lead to a decrease
in demand for the Company's shares and a widening of the difference
between the share price and the NAV per share.
|
The Board monitors the Company's
Ordinary share price relative to the NAV per share and keeps the
level of premium or discount at which the Company's shares trade
under review. The Board also keeps the investment objective and
policy under review and holds an annual strategy meeting where it
reviews investor relations reports and updates from the Manager and
the Company's Stockbroker.
The Directors are updated at each
Board meeting on the composition of, and any movements in, the
shareholder register, which is retail investor dominated. The Board
annually agrees a marketing and communications programme and budget
with the Manager, and receives updates regularly on both marketing
and investor relations.
The Board has a close focus on
investor platform activity which has been the dominant change over
recent years in how retail investors choose to acquire and hold
their shares. This includes contact with the platform operators
through the Manager. The transfer of the abrdn Savings Plans to the
Interactive Investor platform during the last twelve months has
given rise to some selling pressure on the Company's
shares.
|
Gearing - a fall in the
value of the Company's investment portfolio could be exacerbated by
the impact of gearing. It could also result in a breach of loan
covenants and the forced sale
of investments.
|
The Board sets the gearing limits within which
the Investment Manager can operate. Gearing levels and compliance
with loan covenants are monitored on an ongoing basis by the
Manager and at scheduled Board meetings, or between Board meetings
if required. In the event of a possible impending covenant breach,
appropriate action would be taken to reduce borrowing levels. The
financial covenants attached to the Company's borrowings currently
provide for significant headroom. The maximum equity gearing level
is 35% of net assets at the time of drawdown, which constrains the
amount of gearing that can be invested in equities which are more
volatile than the fixed interest part of the portfolio. The use of
gearing has been an important facilitator of the income returns
from the portfolio, particularly in financing the high yield
preference share proportion of the portfolio which has historically
provided significant dividend income for the Company.
The Company's gearing includes a revolving
credit facility which can be reduced without any significant
financial penalties for early repayment and at relatively short
notice.
|
Accounting and financial
reporting - inadequate controls over financial record keeping and
forecasting could result in inaccurate financial reporting, the
Company being unable to meet its financial obligations or inability
to pay a dividend, losses to the Company and impact its ability to
continue trading as a going concern.
|
At each Board meeting, the Board
reviews management accounts and receives a report from the
Administrator, detailing any breaches during the period under
review. The Company's annual financial statements are audited. The
Audit Committee receives bi-annual compliance and internal reports
from the Manager and meets a representative from its Internal Audit
team on at least an annual basis and discusses any findings and
recommendations relevant to the Company.
|
Regulatory and governance
- failure to comply with relevant laws and regulations could
result in fines, loss of reputation and potentially loss of an
advantageous tax regime.
|
The Board and Manager monitor changes in
government policy and legislation which may have an impact on the
Company, and the Audit Committee monitors compliance with
regulations by reviewing internal control reports from the Manager.
There is also a regular review of adherence to governance
guidelines that affect investment companies and how the Company is
meeting existing or proposed guidelines.
The Board is kept aware of proposed changes to
laws and regulations, considers the changes and applies them as
appropriate, if they are not already being met.
From time to time the Board employs external
advisers to advise on specific regulatory and governance
matters.
|
Operational - the
Company is dependent on third parties for the provision of all
systems and services (in particular, those of the abrdn Group) and
any control failures and gaps in their systems and services,
including in relation to cyber security, could result in a loss or
damage to the Company.
|
The Board receives reports from the Manager on
its internal controls and risk management processes and receives
assurances from the Manager and all its other significant service
providers on at least an annual basis, including on matters
relating to operational resilience and cyber security. Written
agreements are in place with all third party service providers. The
Manager monitors closely the control environments and quality of
services provided by third parties, including those of the
Depositary, through service level agreements, regular meetings and
key performance indicators. In the last year this has included
close monitoring of the activities involved in consolidating
the interests of the Company with abrdn Smaller Companies
Income Trust plc, including setting the terms of
participation.
|
Exogenous risks such as health,
social, financial, economic, climate and geo-political
- the financial impact of such risks, associated with the
portfolio or the Company itself, could result in losses to
the Company.
|
At any given time, the Company has sufficient
cash resources to meet its operating requirements. In common with
most commercial operations, exogenous risks over which
the Company has no control are always a risk.
The Company does what it can to address these risks where possible
and to try and meet the Company's investment objectives.
The Board is supportive of the Investment
Manager's approach to environmental, social and governance ("ESG")
risks and welcomes its active engagement with company management.
Through this activity, the Investment Manager aims to identify and
manage the exposure to such risks over time.
The financial and economic risks associated
with the Company include market risk, liquidity risk and credit
risk, all of which the Investment Manager seeks to mitigate.
Further details of the steps taken to mitigate the financial risks
associated with the portfolio are set out in note 18 to the
financial statements.
|
External Agencies
In addition to the services provided to the
Company by the abrdn Group, the Board has contractually delegated
certain services to external service suppliers, including:
depositary services (which include the safekeeping of the Company's
assets) (BNP Paribas Trust Corporation UK Limited) and share
registration services (Equiniti Limited). Each of these services
was entered into after full and proper consideration by the Board
of the quality and cost of services offered. In addition,
day-to-day accounting and administration services are provided,
through delegation by the Manager, by the Administrator, BNP
Paribas Securities Services.
Promotional Activities
The Board recognises the importance of promoting
the Company to prospective investors both for improving liquidity
and enhancing the rating of the Company's shares. The Board
believes one effective way to achieve this is through subscription
to, and participation in, the promotional programme run by the
abrdn Group on behalf of a number of investment trusts under its
management. The Company's financial contribution to the programme
is matched by the abrdn Group. The Company also supports the
Manager's investor relations programme which involves regional
roadshows to existing and potential shareholders, promotional and
public relations campaigns. The Manager's promotional and investor
relations teams report to the Board on a quarterly basis giving
analysis of the promotional activities as well as updates on the
shareholder register and any changes in the make up of that
register.
The purpose of the promotional and investor
relations programmes is both to communicate effectively with
existing shareholders and to gain new shareholders, with the aim of
improving liquidity and enhancing the value and rating of the
Company's shares. Communicating the long-term attractions of the
Company is key. The promotional programme includes commissioning
independent paid for research on the Company, most recently from
Kepler Trust Intelligence. A copy of the latest research note is
available from the Company's website.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has
delegated the day-to-day management and administrative functions to
the Manager. There are therefore no disclosures to be made in
respect of employees or environmental matters.
Modern Slavery Act
Due to the nature of the Company's business,
being a company that does not offer goods and services to
customers, the Board considers that it is not within the scope of
the Modern Slavery Act 2015 because it has no turnover. The Company
is therefore not required to make a slavery and human trafficking
statement. In any event, the Board considers the Company's supply
chains, dealing predominantly with professional advisers and
service providers in the financial services industry, to be low
risk in relation to this matter.
Environmental, Social and Governance ("ESG")
Matters
The Board is supportive of the Investment
Manager's approach to ESG issues, including climate change, and
welcomes its active engagement with company management.
The UK Stewardship Code and Proxy Voting
The Company supports the UK Stewardship Code,
and seeks to play its role in supporting good stewardship of the
companies in which it invests. Responsibility for actively
monitoring the activities of portfolio companies has been delegated
by the Board to the Manager which has sub-delegated that authority
to the Investment Manager. abrdn plc is a tier 1 signatory of the
UK Stewardship Code which aims to enhance the quality of engagement
by investors with investee companies in order to improve their
socially responsible performance and the long-term investment
return to shareholders. While delivery of stewardship activities
has been delegated to the Manager, the Board acknowledges its role
in setting the tone for the effective delivery of stewardship on
the Company's behalf.
The Board has also given discretionary powers to
the Manager to exercise voting rights on resolutions proposed by
the investee companies within the Company's portfolio. The Manager
reports on a quarterly basis on stewardship (including voting)
issues.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to
report from its operations, nor does it have responsibility for any
other emissions producing sources under the Companies Act 2006
(Strategic Report and Directors' Reports) Regulations
2013.
Under Listing Rule 15.4.29(R), the Company, as a
closed ended investment company, is exempt from complying with the
Task Force on Climate-related Financial Disclosures.
Viability Statement
The Board considers the Company, with no fixed
life, to be a long-term investment vehicle but, for the purposes of
this viability statement, has decided that three years is an
appropriate period over which to report, irrespective of any
exogenous risks that the Company may face. The Board considers that
this period reflects a balance between a longer-term investment
horizon, the inherent uncertainties within equity markets and the
specifics of a closed-end investment company where its central
purpose is different from other listed commercial and industrial
companies.
In assessing the viability of the Company over
the review period, the Directors have focused upon the following
factors:
· The principal
risks and uncertainties detailed above and the steps taken to
mitigate these risks.
· The ongoing
relevance of the Company's investment objective.
· The liquidity
of the Company's portfolio. The majority of the portfolio is
invested in readily realisable listed securities.
· The level of
ongoing expenses. The Company's annual revenue expenses, excluding
the cost of the dividend, are expected to continue to be covered by
investment income.
· The level of
gearing. This is closely monitored and stress testing is carried
out by the Manager. The financial covenants attached to the
Company's borrowings provide for significant headroom.
· Regulatory or
market changes.
· The robustness
of the operations of the Company's third party service
providers.
· The operation
of share buy backs undertaken by the Company.
In making its assessment, the Board has
considered that there are other matters that could have an impact
on the Company's prospects or viability in the future, including
the current events in Ukraine and the Middle East, economic shocks,
significant stock market volatility, the emerging risk of climate
change, and changes in regulation or investor sentiment, including
to income propensities.
Taking into account the Company's current
position and the potential impact of its principal risks and
uncertainties and emerging risks, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due for a period of three
years from the date of approval of this Report.
Outlook
The Board's view on the general outlook for the
Company can be found in the Chairman's Statement whilst the
Investment Manager's views on the outlook for the portfolio are
included in its statement.
On behalf of the Board
Robert Talbut
Chairman
22 May 2024
Promoting the Success of the Company
How the Board Meets its Obligations Under Section 172 of
the Companies Act
The Board is required to describe to the
Company's shareholders how the Directors have discharged their
duties and responsibilities over the course of the financial year
under section 172 (1) of the Companies Act 2006 (the "Section 172
Statement"). The Board provides below an explanation of how
the Directors have promoted the success of the Company for the
benefit of its members as a whole, taking into account, amongst
other things, the likely long-term consequences of decisions, the
need to foster business relationships with all stakeholders and the
impact of the Company's operations on the environment.
The Purpose of the Company and Role of the
Board
The purpose of the Company is to act as an
investment vehicle to provide, over time, financial returns (both
income and capital) to its shareholders. Investment trusts, such as
the Company, are long-term investment vehicles and are typically
externally managed, have no employees, and are overseen by an
independent non-executive board of directors.
The Board, which, at the year end, comprised
five independent non-executive Directors with a broad range of
skills and experience across all major functions that affect the
Company, retains responsibility for taking all decisions relating
to the Company's investment objective and policy, gearing,
corporate governance and strategy, and for monitoring the
performance of the Company's service providers.
The Board's philosophy is that the Company
should operate in a transparent culture where all parties are
treated with respect and provided with the opportunity to offer
practical challenge and participate in positive debate which is
focused on the aim of achieving the expectations of shareholders
and other stakeholders alike. The Board reviews the culture and
manner in which the Manager and Investment Manager operate at its
regular meetings and receives regular reporting and feedback from
the other key service providers. The Board is very conscious of the
ways it promotes the Company's culture and ensures as part of its
regular oversight that the integrity of the Company's affairs is
foremost in mind in the way that the activities are managed and
promoted. The Board works very closely with the Manager and
Investment Manager in reviewing how stakeholder issues are handled,
ensuring good governance and responsibility in managing the
Company's affairs, as well as visibility and openness in how the
affairs are conducted.
The Company's main stakeholders have been
identified as its shareholders, the Manager/Investment Manager,
service providers, investee companies, its debt provider and, more
broadly, the community at large and the
environment.
How the Board Engages with Stakeholders
The Board considers its stakeholders at Board
meetings and receives feedback on the Manager's interactions with
them.
The Board and Manager also continue to consider
how best to engage with private investors who invest through
platforms, not least to increase voting participation at general
meetings of the Company and to try and increase investor demand for
diversified income from retail investors.
Stakeholder
|
How We Engage
|
Shareholders
|
Shareholders are key stakeholders and the Board
places great importance on communication with them. The Board
welcomes all shareholders' views and aims to act fairly between all
shareholders. The Company's shareholder register is retail
dominated. The Manager and Company's Stockbroker regularly meet
with current and prospective shareholders from the wealth
management and IFA community to discuss performance. Shareholder
feedback is discussed by the Directors at each Board meeting. The
Company subscribes to the Manager's investor relations programme in
order to maintain communication channels with
shareholders.
Regular updates are provided to shareholders
through the Annual Report, Half-Yearly Report, monthly factsheets,
Company announcements, including daily NAV announcements, and
through the Company's website, which includes up to date
information on the Company. The Company's Annual General Meeting
provides a forum, both formal and informal, for shareholders to
meet and discuss issues with the Directors and Manager. The Board
encourages as many shareholders as possible to attend the Company's
Annual General Meeting and to provide feedback on the Company. In
addition to the Annual General Meeting, there will be an Online
Shareholder Presentation again this year following a favourable
response in the past to this informal on-line event. The Board
welcomes contact with shareholders and has various ways of
receiving shareholder questions and responding to them, including
through the Company Secretary. During the year, the Investment
Manager held meetings with a number of the Company's larger
shareholders to update them on the Company and to receive any
feedback or concerns, particularly in relation to the corporate
action involving abrdn Smaller Companies Income Trust
plc.
The Board is keen to have increased
shareholder voting at general meetings of the Company and reviews
ways in which there can be greater communication with the largely
retail investor shareholder base.
|
Manager/Investment Manager
|
The Investment Manager's Review details the key
investment decisions taken during the year. The Investment Manager
has continued to manage the Company's assets in accordance with the
mandate agreed with the Company, with the oversight of the
Board.
The Board regularly reviews the Company's
performance against its investment objective and undertakes an
annual strategy review meeting to ensure that the Company is
positioned well for the future delivery of its objective for its
shareholders. The Board receives presentations from the Investment
Manager at every Board meeting to help it to exercise effective
oversight of the Investment Manager and the Company's
strategy.
The Board, through the Management Engagement
Committee, formally reviews the performance of the Manager and
Investment Manager at least annually.
|
Service Providers
|
The Board seeks to maintain constructive
relationships with the Company's suppliers either directly or
through the Manager with regular communications and
meetings.
The Management Engagement Committee conducts an
annual review of the performance, terms and conditions of the
Company's main service providers to ensure they are performing in
line with Board expectations, undertaking their responsibilities
and providing value for money.
|
Investee Companies
|
Responsibility for actively monitoring the
activities of portfolio companies has been delegated by the Board
to the Manager which has sub-delegated that authority to the
Investment Manager.
The Board has also given discretionary powers
to the Manager to exercise voting rights on resolutions proposed by
the investee companies within the Company's portfolio. The Manager
reports to the Board on a quarterly basis on stewardship (including
voting) issues. Through engagement and exercising voting rights,
the Investment Manager actively works with companies to improve
corporate standards, transparency and accountability.
The Board monitors investments made and
divested and questions the rationale for investment and voting
decisions.
|
Debt Provider
|
On behalf of the Board, the Manager maintains a
positive working relationship with the provider of the Company's
loan facility, and provides regular updates to the Board on
business activity and compliance with its loan covenants. Gearing
is an important component of the Company's capital
structure.
|
Environment and Community
|
The Board and Manager are committed to
investing in a responsible manner and the Investment Manager embeds
Environmental, Social and Governance ("ESG") considerations into
its research and analysis as part of the investment decision-making
process.
|
Specific Examples of Stakeholder
Consideration During the Year
The Board is fully engaged in both oversight and
the general strategic direction of the Company. During the year,
the Board's main strategic discussions focussed around the aSCIT
transaction.
While the importance of giving due consideration
to the Company's stakeholders is not a new requirement, and is
considered during every Board decision, the Directors were
particularly mindful of stakeholder considerations during the
following decisions undertaken during the year ended 31 March
2024.
aSCIT Transaction
On 26 July 2023, the Company
announced that it had agreed terms with the Board of aSCIT for a
proposed combination of the assets of the Company with those of
aSCIT (the "aSCIT transaction"). The scheme of reconstruction
completed on 1 December 2023. Further details of the
transaction and the benefits to shareholders are contain in the
Chairman's Statement.
Management of the Portfolio
The Investment Manager's Review details the key
investment decisions taken during the year. The overall shape and
structure of the investment portfolio is an important factor in
delivering the Company's stated investment
objective.
During the year, the Board, through the
Management Engagement Committee, decided that the continuing
appointment of the Manager was in the best interests of
shareholders.
Proposed Change to Investment
Policy
As explained in the Chairman's Statement,
following a review by the Board and Manager of the Company's
investment policy, the Board proposes to seek shareholder approval
at the Annual General Meeting to increase the limit on exposure to
overseas companies from 10% of total assets to 20% of total assets.
The Board considers that this change will provide the Investment
Manager with greater flexibility to achieve the Company's
investment objective and is therefore in the best interests of
shareholders. The Company will remain in the AIC's UK Equity Income
Sector following the change.
Dividend
Following the payment of the final dividend for
the year, of 4.80p per Ordinary share, total dividends for the year
will amount to 14.40p per Ordinary share, representing a dividend
yield of 6.5% based on the share price of 222p at the end of the
financial year. This is in accordance with the Company's objective
to provide shareholders with a high level of
income.
In deciding on the level of dividend for the
year, the Board took into account the revenue earnings per Ordinary
share for the year, forecast revenues for subsequent years, the
level of revenue reserves and the increase in issued share capital
following the aSCIT transaction, as well as the impact of share buy
backs.
Through meetings with shareholders and feedback
from the Manager and the Company's Stockbroker, the Board remains
conscious of the importance that shareholders place on the level,
and sustainability, of dividends paid by the
Company.
Allocation of Costs
As explained in the Chairman's Statement, the
Board has decided that, with effect from 1 April 2024, management
fees and finance costs will be charged 40% to Revenue and 60% to
Capital. The Board considers that this allocation better reflects
the expected long-term view of the nature of the future investment
returns of the enlarged portfolio and is consistent with the
treatment adopted by other UK Equity Income investment
trusts. The Board therefore considers that this change is in
the best interests of shareholders.
Share Buy Backs
During the year, the Company
bought back 863,532 Ordinary shares to be held in treasury,
providing a small accretion to the NAV per share and a degree of
liquidity to the market at times when the discount to the NAV per
share had widened in normal market conditions. It is the view of
the Board that this policy of periodically using buy back powers,
but not in a mechanical fashion, is in the interest of all
shareholders.
Proposed Cancellation of Share
Premium Account
As explained in the Chairman's Statement, the
Board will propose a special resolution at the Annual General
Meeting to cancel the amount standing to the credit of the Share
Premium Account. The cancellation will also require court approval
which will be sought following the Annual General Meeting. Once
this exercise is complete, the newly created distributable reserve
will be available to fund the cost of share buy backs and dividend
payments. The Board considers that it is in shareholders' interests
for the Company to have this flexibility, although it has no
current intention of making use of it for dividend payments which
will continue to be resourced through net revenue and revenue
reserves.
Board Succession
As explained in the
Directors' Report, Simon White was appointed as an independent
non-executive Director on 1 January 2024 in advance of the
retirement of Robert Talbut from the Board at the forthcoming
Annual General Meeting. New Board appointments seek to
achieve a good balance of skills, experience, gender and ethnicity.
The Board believes that shareholders' interests are best served by
ensuring a smooth and orderly refreshment of the Board which serves
to provide continuity and maintain the Board's open and collegiate
style.
Following the Annual General
Meeting, Robin Archibald, current Audit Committee Chairman and
Senior Independent Director ("SID"), will assume the role of
Chairman of the Board and Jane Pearce will assume the role of Chair
of the Audit Committee, with Helen Sinclair acting as the
SID.
Online Shareholder Presentation
As explained in the Chairman's Statement, to
encourage and promote interaction and engagement with the Company's
shareholders, the Board has again decided to hold an interactive
Online Shareholder Presentation which will be held at 10.00am on 25
June 2024. At the presentation, shareholders will receive updates
from the Chairman and Investment Manager and there will be an
interactive question and answer session. The online presentation is
being held ahead of the Annual General Meeting in order to allow
shareholders to submit their proxy votes prior to the
meeting.
On behalf of the Board
Robert Talbut
Chairman
22 May 2024
Performance
Performance (Total Return)
|
1 year
|
3 year
|
5 year
|
|
% return
|
% return
|
% return
|
Net asset valueA
|
+5.1
|
+14.5
|
+25.7
|
Share priceA (based on
mid-market)
|
-5.7
|
+5.6
|
+9.2
|
FTSE All-Share Index
|
+8.4
|
+26.1
|
+30.3
|
A Considered to be an Alternative
Performance Measure.
|
All figures are for total return and assume
re-investment of net dividends excluding transaction costs.
|
Source: abrdn plc, Morningstar &
Factset
|
|
|
|
Analysis of Total Return
Performance
%
Gross assets total return
|
6.7
|
Total NAV return per share
|
5.1
|
Total return on FTSE All-Share Index
|
8.4
|
Relative performance of NAV compared to FTSE
All-Share Index
|
-3.3
|
Dividends
|
Rate per share
|
XD date
|
Record date
|
Payment date
|
First interim dividend
|
3.20p
|
5 October 2023
|
6 October 2023
|
27 October 2023
|
Second interim dividend
|
3.20p
|
4 January 2024
|
5 January 2024
|
31 January 2024
|
Third interim dividend
|
3.20p
|
4 April 2024
|
5 April 2024
|
30 April 2024
|
Proposed final dividend
|
4.80p
|
4 July 2024
|
5 July 2024
|
31 July 2024
|
2023/24
|
14.40p
|
|
|
|
First interim dividend
|
3.20p
|
6 October 2022
|
7 October 2022
|
28 October 2022
|
Second interim dividend
|
3.20p
|
5 January 2023
|
6 January 2023
|
27 January 2023
|
Third interim dividend
|
3.20p
|
6 April 2023
|
11 April 2023
|
28 April 2023
|
Final dividend
|
4.60p
|
6 July 2023
|
7 July 2023
|
28 July 2023
|
2022/23
|
14.20p
|
|
|
|
Ten Year Financial Record
Year to 31 March
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021*
|
2022*
|
2023*
|
2024*
|
Revenue available for ordinary dividends
(£'000)
|
3,877
|
3,617
|
3,925
|
4,106
|
3,920
|
3,961
|
3,796
|
4,379
|
4,584
|
5,068
|
Per share (p)
|
|
|
|
|
|
|
|
|
|
|
Net revenue earnings
|
12.9
|
12.1
|
13.1
|
13.7
|
13.1
|
13.0
|
12.3
|
14.2
|
14.8
|
14.8
|
Net dividends paid/proposed
|
12.25
|
12.25
|
12.75
|
13.00
|
13.20
|
13.20
|
13.20
|
13.80
|
14.20
|
14.40
|
Net total earnings
|
23.1
|
(17.8)
|
54.5
|
9.4
|
10.3
|
(45.4)
|
68.2
|
29.5
|
(6.6)
|
(4.3)
|
Net asset value
|
259.5
|
229.4
|
271.6
|
268.2
|
265.5
|
207.4
|
262.4
|
278.3
|
257.9
|
256.0
|
Share price (mid-market)
|
252.0
|
202.0
|
243.3
|
260.0
|
267.0
|
200.5
|
248.0
|
279.0
|
250.0
|
222.0
|
Shareholders' funds (£m)
|
77.8
|
68.8
|
81.5
|
80.5
|
80.1
|
63.9
|
80.9
|
85.8
|
79.9
|
106.0
|
* Net asset value per share is calculated after
the repayment of the capital paid up on Cumulative Preference
shares (see note 16).
|
Cumulative Performance
Rebased to 100 at 31 March 2014
As at 31 March
|
2014
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
Net asset value
|
100.0
|
104.5
|
92.3
|
109.4
|
108.0
|
106.9
|
83.5
|
105.7
|
112.1
|
103.8
|
103.1
|
Net asset value total
returnA
|
100.0
|
109.7
|
102.0
|
127.0
|
131.2
|
136.4
|
111.8
|
149.8
|
166.8
|
163.1
|
171.5
|
Share price performance
|
100.0
|
99.9
|
80.1
|
96.4
|
103.1
|
105.8
|
79.5
|
98.3
|
110.6
|
99.1
|
88.0
|
Share price total returnA
|
100.0
|
104.9
|
88.7
|
113.0
|
126.9
|
137.0
|
107.9
|
141.6
|
167.7
|
158.5
|
149.6
|
Benchmark performance
|
100.0
|
103.0
|
95.5
|
112.2
|
109.5
|
111.9
|
87.4
|
107.7
|
117.8
|
116.9
|
122.0
|
Benchmark total returnA
|
100.0
|
106.6
|
102.4
|
124.9
|
126.4
|
134.5
|
109.7
|
138.9
|
157.1
|
161.6
|
175.3
|
A Total return figures are based on
reinvestment of net income.
|
Investment Manager's Review
Highlights
-
NAV total return of 5.1% compared to the FTSE All-Share Index
total return of 8.4%.
-
The equity portfolio lagged a rising market, as we would
expect given the defensive and income focused nature of the
holdings.
-
The total return from the preference share portfolio was
16.1%, with yields compressing as interest rate expectations began
to move lower.
-
The Company successfully completed the combination with abrdn
Smaller Companies Income Trust (the "aSCIT transaction"), adding
scale and liquidity and improving exposure to a focused set of high
quality small-cap companies.
Portfolio Strategy
We take a long term approach to investing,
believing that, whilst there might be volatility in the short and
even medium term, share prices will ultimately reflect the
fundamental value of a company. Consequently, there was no change
to our approach to the construction of the portfolio during the
year under review. The Company's investment portfolio continues to
be invested in equities and preference shares. At the year end, 80%
of the portfolio was invested in equities and 20% was invested in
preference shares.
Equity Market Review
The year to the end of March 2024 was a good one
for equities, with the MSCI World Global Index delivering a total
return of around 25%, well ahead of the long term average. This
return was heavily weighted to the second half of the year. The
market move has generally tracked inflation and therefore interest
rate expectations, with valuations improving once investors had a
line of sight on the peak of inflation and interest
rates.
By geography, the US performed well, with a 30%
return from the S&P 500 Index and an even more impressive 40%
gain for the technology focused Nasdaq Index. Europe, returning
15%, and the UK, 8% were comparative laggards. Emerging markets
were also relatively weaker, returning 8% in aggregate, although
there were distinct winners and losers within that: the MSCI China
Index returned a negative 17%; the MSCI India Index returned a
positive 40%, highlighting the stark difference in investor
positions of these two economies over the period.
The above performance data highlights the
significant outperformance of the US in developed markets and
particularly of the group of large cap technology companies known
as the "Magnificent Seven". These companies have been direct
beneficiaries of accelerated revenue growth due to the early
adoption of artificial intelligence technologies alongside
increased investor optimism on the sector. They have also been
natural beneficiaries of investor expectations that interest rates
have peaked and will begin to fall in the second half of 2024 (more
on this in the Outlook section below). In contrast, European and UK
markets, which have a lower weighting to technology and growth
companies, have relatively underperformed.
Within the UK market, technology also performed
well, with the sector returning 35%. The problem was that with a
weighting of only 1.4% in the FTSE 350 Index at the end of the
year, it was not enough to drive the wider market. Other sectors
that performed well were Industrials (+27%), Financials (+14%),
Consumer Discretionary (+13%) and Energy (+11%). These were offset
by weaker returns from Telecoms (-13%), Consumer Staples (-6%),
Basic Materials (-5%) and Utilities (flat on the year). In general,
the UK's weighting to some defensive and income sectors meant it
failed to keep up with a rapidly rising global market.
The UK market ended the year on a material
valuation discount to global markets - roughly a 40% discount on a
price to earnings multiple. While much of this is justified by the
lower growth from the UK's sectoral exposure, the discount remains
around 20% once we adjust for this.
Investment Performance
The equity portfolio returned 5.1% over the 12
month period, lagging the FTSE All-Share Index which returned 8.4%.
This performance is roughly in line with what we would expect in
these markets. The equity portfolio is defensive and weighted to
higher income sectors, so can lag a rising market. That being said,
stock section in the year detracted from portfolio returns and that
was disappointing. After taking into account the performance of the
preference share portfolio (see below) and adjusting for costs, the
net asset value ("NAV") total return of the Company was also
5.1%.
On a stock specific level, there were a number
of strong performers in the portfolio. Intermediate Capital, a private equity fund
manager, delivered robust performance and flows, with its shares
rising by 78%. The exposure to banks performed well as returns
improved, benefitting from higher interest rates and low credit
write-offs: NatWest's shares
increased by 31% during the period and Standard Chartered increased by 16%. Industrials
generally performed well as economic activity remained robust and
valuations recovered. Melrose
Industrials (+65%) re-rated after spinning out its
lower quality autos business and Morgan
Sindall (+45%) delivered continued growth as its fit
out and construction businesses performed strongly. Finally, the
addition of a number of small cap UK companies around the middle of
the year also had a positive impact as these responded well to
robust results and falling interest rate expectations.
Hollywood Bowl (+24%) and
4Imprint (+46%) performed
particularly well.
Offsetting this, the portfolio suffered from
holding a number of companies that disappointed in the year for
fundamental reasons. XP
Power, which provides power supply to high tech
manufacturing, fell by 61% after issuing a profit warning as end
clients de-stocked. This was particularly disappointing, coming
only a matter of weeks after management had reassured on the
outlook for the business. XP Power was one company that fell victim
to a lack of visibility in client orders as many industries went
through a de-stocking cycle, having built up inventory during the
pandemic period. Dr. Martens
(-36%) faced similar issues, with high inventory levels in US
wholesalers and supply chain challenges causing downgrades to
expectations. Another cyclical disappointment was
Genus, with its shares down 40% due
to weakening demand for pork in China. Close Brothers fell by 51% after the
announcement of an FCA review into auto lending in the UK, although
we feel the impact of this is overstated. Some commodity companies
also suffered from falling prices: Anglo
American fell by 24% due to lower metals prices and
disappointing production figures, while Diversified Energy fell 40% due to a sustained
fall in the US gas prices to very low levels. Given its weighting
in the portfolio, the fall in Diversified Energy had a meaningful
impact on the portfolio, detracting 1.4% from performance over the
year.
Gearing and Preference Share Portfolio
The total return from the preference share
portfolio for the year was 16.1%, with yields compressing as
interest rate expectations began to move lower. This performance is
very much as expected - during a period of rapidly rising interest
rates we would expect the bond like characteristics of preference
shares to mean they decline in value, and in an environment when
interest rates are falling we would expect this to provide a boost
to the portfolio. Our view on the long term attractions of the
preference shares has not changed. From here onwards it is more
likely that interest rates eventually decline gradually, acting as
a modest tailwind for the valuation of this part of the portfolio.
Secondly, the attraction of these instruments is their high,
dependable yield. This has not changed and the preference share
portfolio offered a forward yield of almost 7% as at the year
end.
The gearing level at the year end was 16.4%. The
Company's borrowings are notionally invested in the preference
share portfolio. At the year end these securities had a value of
£24.2 million, materially in excess of net indebtedness which stood
at £17.3 million.
Revenue Account
Revenue earnings per share were broadly flat at
14.75p. While the income generation of the portfolio in absolute
terms has continued to increase, the aSCIT transaction in December
resulted in an increased share-count. We expect the impact of this
to be limited over time, but the timing of the transaction meant
that we received a number of holdings from aSCIT which did not pay
dividends during the remainder of the financial year, resulting in
a short term shortfall in income. We remain optimistic on the
income growth potential of the portfolio over the longer
term.
The following table details the Company's main
sources of income over the last five years.
|
2024
|
2023
|
2022
|
2021
|
2020
|
|
%
|
%
|
%
|
%
|
%
|
Ordinary dividends
|
63.0
|
62.8
|
66.5
|
57.2
|
60.0
|
Preference dividends
|
25.7
|
29.1
|
26.9
|
33.2
|
31.0
|
abrdn Smaller Companies Income Trust
|
9.4
|
6.6
|
5.2
|
5.7
|
5.4
|
Fixed interest and bank interest
|
1.4
|
0.2
|
-
|
-
|
0.3
|
Traded option premiums
|
0.5
|
1.3
|
1.4
|
3.9
|
3.3
|
Total
|
100.0
|
100.0
|
100.0
|
100.0
|
100.0
|
Total income (£'000s)
|
6,429
|
5,673
|
5,239
|
4,529
|
4,807
|
Portfolio Activity
Over the course of the year, we
remained active in the portfolio, adding 14 new positions and
exiting 18. The number of positions in the portfolio therefore
reduced and, despite the aSCIT transaction, we have maintained a
reasonably concentrated portfolio, while diversifying sources of
income widely.
The aSCIT transaction allowed us
to select, alongside the abrdn small-cap team, those holdings from
the portfolio which best suited our requirements of income growth
and long term capital growth. The result was a more concentrated
and meaningful small-cap exposure than through our previous
indirect exposure through aSCIT. We added five new names:
Greggs is a growing UK
food retailer with a strong market position and cost competitive
offering; Hollywood Bowl
is a well-run leisure company gaining market
share in the UK and expanding internationally in Canada;
4Imprint is a digital
business providing corporate marketing products and is winning
market share in a fragmented industry; Bytes Technology is an IT re-seller
with exposure to growing software demand; and Hunting is a high quality engineer
focused on energy services and benefiting from increased visibility
on sales as offshore activity recovers. In aggregate, these
companies give us exposure to a diversified mix of quality and
growth within the portfolio.
Other additions reflected changing
outlooks for some sectors. We added exposure to UK banks via
Lloyds given the outlook
for more resilient income as interest rates have normalised. We
also added some modest real estate exposure after a period of
weakness, adding Sirius Real Estate
and Assura
- two companies with strong management teams and
track records of growing value and dividends. Our view that the
aerospace sector had an improving outlook was reflected in a
purchase of Melrose
Industrials, which also re-rated after the
spin out of its lower quality auto business.
We also reflected changes in our
analysts' preference by switching holdings within sectors. For
example, we replaced Smith &
Nephew with Convatec given our view that there
was more margin improvement and end market growth to come from
Convatec in the near term. In the banking sector, we
switched Nordea into ING given the more defensive nature of the business and a
preference to move away from Nordic banks after a strong run and
higher valuations. Also overseas, we continued to look for ways to
diversify income, adding Mercedes-Benz, where the valuation
looked very attractive and Enel
which gives exposure to diversified utilities and
strong capital growth from energy transition in its end
markets.
Exits during the year primarily
reflected changes to our view on the fundamental value of the
businesses. RS Group, Howden Joinery and Coca-Cola Hellenic
all performed reasonably well and reached levels
where we saw more limited upside compared to other holdings.
For Diageo and British American Tobacco
we had some concerns around the potential for
revenue growth in the near term and decided to move onto higher
conviction ideas. Sales of Vistry, Urban Logistics, Nordea, Bawag and Smith & Nephew reflected a
preference for other companies in the same sectors. Veterinary
pharmaceuticals producer Dechra
Pharmaceuticals was sold after the company
was bid for by a private equity firm at a healthy
premium.
In most cases of disappointing
performance we chose to hold onto the positions, taking the view
that the long term quality of the businesses remained and a lower
price reflected short term changes in outlook. However, we did sell
out of XP Power after a profit warning and Direct
Line Insurance following a dividend cut,
given decreased visibility on cash generation and the ability to
pay a stable and growing source of income over time.
As usual, the preference share
portfolio has seen limited change, although we did add two new
fixed income investments issued by Standard Chartered and
Lloyds. This enabled the
portfolio to retain its weighting of around 20% to preference
shares after the aSCIT transaction. Both positions offered around a
7% yield at the time of purchase, an attractive level relative to
equities and with a higher degree of income protection in the long
term.
Stewardship
We believe that, as long term owners of the
businesses in which we are invested, it is not sufficient merely to
seek out assets that we believe to be undervalued. It is also
incumbent upon us to take a proactive approach to our stewardship
of these companies. Therefore, we engage extensively with investee
companies. We have attended a range of meetings with chairmen,
non-executive directors and other stakeholders. Topics covered have
included the composition of boards, environmental and social
issues, and remuneration. Risk is a very broad subject that is
interpreted in varying manners by different companies. However, by
engaging on this subject we secure a deeper understanding of how
the boards of investee companies perceive and seek to manage these
issues. Such interactions also enable us to push for improved
disclosure and better management practices and on occasion
different decisions where appropriate. We have had conversations
regarding companies' financing choices. We find that it is always
worthwhile communicating our preference for conservatively
structured balance sheets that place a company's long term fortunes
ahead of possible short term share price gains. Such activity is by
its nature time consuming but we regard it as an integral aspect of
our role as long term investors.
Consideration of Environmental, Social and
Governance ("ESG") factors forms an important part of our
investment process. Whilst the management of the Company's
investments is not undertaken with any specific instructions to
exclude certain asset types or classes, we embed ESG into the
portfolio and sector specific research on all positions as part of
the investment process. ESG investment is about active engagement
with the goal of improving the performance of assets held by the
Company. We aim to make the best possible investments for the
Company by understanding the whole picture - before, during and
after an investment is made. That includes understanding the ESG
risks and opportunities they present, and how these could affect
longer-term performance and valuation. ESG considerations underpin
all investment activities.
Outlook
The last 12 months have delivered positive NAV
growth, increased scale and continued income growth for the
Company. Performance has not kept pace with a rising market and
that is, of course, disappointing, but we continue to focus on
capital and income growth. Positions in defensive, income
generating sectors, such as utilities have lagged faster growth
areas of the market such as technology, but that does not mean they
have been bad investments or that they will fail to deliver an
attractive total return for investors over the long
term.
Making forecasts for the next 12 months is
always difficult, and especially at the moment. In the last three
months we have seen interest rate expectations move back and
forward, with global markets pushed to new highs before retreating
again. At this time, it seems that interest rates will need to stay
higher for longer to counteract inflation and continued strong
growth from the US economy - but which direction we will be heading
a year from now is hard to guess. Economic policy and market
sentiment is very data dependent, and the data can change quickly.
The added complication of a record year for democratic elections
globally, including the US and the UK, makes the outlook even
cloudier.
Stretching our time horizon perhaps makes the
task easier. Interest rates are higher than they have been for some
time and although they are not going back to the extreme lows we
have seen in the last decade, the likelihood is that the direction
of travel is back towards an equilibrium rate of 3-3.5% within our
investment timeframe. Rates at that level should allow for a more
normal market, with equity performance broadening out, something we
have started to see in March and April 2024. Market performance in
the past year has been unusually concentrated - history would
indicate that is unlikely to remain the case forever. Similarly,
the discount on UK equities is historically high, providing a
margin of safety. Without a re-rating of the benchmark index we
will continue to see UK companies acquired by international
peers.
The portfolio has performed well in the past few
months and our expectation would be that a focus on capital and
income growth will deliver results over the long term. We also
expect a reduction in interest rates to increase the relative
appeal of the proposition. Currently, investors can earn an
attractive return on cash deposits and that has led many to
understandably take a "risk-free" approach in allocation. The
Company's dividend yield is already superior to cash, while also
providing the prospect of capital growth and a hedge to inflation,
but as deposit rates reduce it is likely that a high level income
will become more appealing again.
Iain Pyle and Charles
Luke
abrdn Investments Limited
22 May 2024
Investment Portfolio - Equities
As at 31 March
2024
|
|
|
Valuation
|
Total
|
Valuation
|
|
|
2024
|
portfolio
|
2023
|
Company
|
FTSE All-Share Index Sector
|
£'000
|
%
|
£'000
|
AstraZeneca
|
Pharmaceuticals and
Biotechnology
|
5,440
|
4.5
|
4,136
|
Shell
|
Oil, Gas and
Coal
|
4,674
|
3.8
|
3,931
|
Morgan Sindall
|
Construction and
Materials
|
3,642
|
3.0
|
883
|
Energean
|
Oil, Gas and
Coal
|
3,333
|
2.7
|
1,894
|
BP
|
Oil, Gas and
Coal
|
3,281
|
2.7
|
3,184
|
Intermediate Capital Group
|
Investment Banking and Brokerage
Services
|
3,234
|
2.6
|
1,078
|
HSBC Holdings
|
Banks
|
3,232
|
2.6
|
903
|
Inchcape
|
Industrial Support
Services
|
2,931
|
2.4
|
1,226
|
Rio Tinto
|
Industrial, Metals and
Mining
|
2,637
|
2.2
|
1,152
|
4Imprint Group
|
Media
|
2,637
|
2.2
|
-
|
Ten largest investments
|
|
35,041
|
28.7
|
|
Chesnara
|
Life
Insurance
|
2,399
|
2.0
|
1,222
|
Anglo American
|
Industrial, Metals and
Mining
|
2,384
|
1.9
|
2,748
|
Hollywood Bowl
|
Travel and
Leisure
|
2,334
|
1.9
|
-
|
Diversified Energy
|
Oil, Gas and
Coal
|
2,292
|
1.9
|
2,499
|
National Grid
|
Gas, Water and
Multiutilities
|
2,283
|
1.9
|
1,726
|
SSE
|
Electricity
|
2,265
|
1.9
|
2,661
|
TotalEnergies
|
Oil, Gas and
Coal
|
2,218
|
1.8
|
1,839
|
Telecom Plus
|
Telecommunications Service
Providers
|
2,161
|
1.7
|
754
|
Sirius Real Estate
|
Real Estate Investment Trusts
|
1,991
|
1.6
|
-
|
Bytes Technology
|
Software and Computer
Services
|
1,914
|
1.6
|
-
|
Twenty largest investments
|
|
57,282
|
46.9
|
|
Balfour Beatty
|
Construction and
Materials
|
1,780
|
1.5
|
967
|
Lloyds Banking
|
Banks
|
1,779
|
1.5
|
-
|
Standard Chartered
|
Banks
|
1,771
|
1.4
|
1,526
|
M&G
|
Investment Banking and Brokerage
Services
|
1,723
|
1.4
|
1,051
|
NatWest
|
Banks
|
1,722
|
1.4
|
1,042
|
Melrose Industrials
|
General
Industrials
|
1,614
|
1.3
|
-
|
Enel
|
Electricity
|
1,609
|
1.3
|
-
|
GSK
|
Pharmaceuticals and
Biotechnology
|
1,576
|
1.3
|
835
|
Convatec
|
Health Care Equipment and
Services
|
1,563
|
1.3
|
-
|
Softcat
|
Software and Computer
Services
|
1,500
|
1.2
|
563
|
Thirty largest investments
|
|
73,919
|
60.5
|
|
Assura
|
Real Estate Investment
Trusts
|
1,487
|
1.2
|
-
|
Hunting
|
Oil Equipment Services and
Distribution
|
1,410
|
1.2
|
-
|
Imperial Brands
|
Tobacco
|
1,362
|
1.1
|
1,351
|
Games Workshop Group
|
Leisure
Goods
|
1,302
|
1.1
|
654
|
Mercedes-Benz Group
|
Automobiles and
Parts
|
1,222
|
1.0
|
-
|
Novo-Nordisk
|
Pharmaceuticals and
Biotechnology
|
1,186
|
1.0
|
1,272
|
Engie
|
Gas, Water and
Multiutilities
|
1,182
|
1.0
|
981
|
ING Group
|
Banks
|
1,080
|
0.9
|
-
|
Hiscox
|
Non-life
Insurance
|
1,066
|
0.9
|
982
|
OSB
|
Finance and Credit Services
|
1,035
|
0.7
|
995
|
Forty largest investments
|
|
86,251
|
70.6
|
|
Greggs
|
Food and Drug
Retailers
|
995
|
0.8
|
-
|
AXA
|
Non-life
Insurance
|
977
|
0.8
|
906
|
IP Group
|
Investment Banking and Brokerage
Services
|
975
|
0.8
|
-
|
Berkeley Group Holdings
|
Household Goods and Home
Construction
|
953
|
0.8
|
-
|
Ashmore
|
Investment Banking and Brokerage
Services
|
875
|
0.7
|
641
|
Unilever
|
Personal Care, Drug and Grocery
Stores
|
873
|
0.7
|
1,378
|
Mondi
|
General
Industrials
|
866
|
0.8
|
855
|
Drax
|
Electricity
|
809
|
0.7
|
578
|
Wood Group
|
Oil Equipment Services and
Distribution
|
781
|
0.6
|
648
|
Prudential
|
Life
Insurance
|
764
|
0.6
|
1,149
|
Fifty largest investments
|
|
95,119
|
77.9
|
|
Close Brothers
|
Banks
|
721
|
0.6
|
810
|
Dr. Martens
|
Personal
Goods
|
668
|
0.5
|
673
|
Bodycote
|
Industrial
Engineering
|
627
|
0.5
|
553
|
Genus
|
Pharmaceuticals and
Biotechnology
|
480
|
0.4
|
-
|
Oxford Instruments
|
Electronic and Electrical
Equipment
|
359
|
0.3
|
833
|
Total equity investments
|
|
97,974
|
80.2
|
|
Purchases and/or sales of
portfolio holdings effected during the year and the transaction
with aSCIT result in 2024 and 2023 values not being directly
comparable.
|
Investment Portfolio - Other Investments
As at 31 March
2024
|
|
Valuation
|
Total
|
Valuation
|
|
2024
|
portfolio
|
2023
|
Company
|
£'000
|
%
|
£'000
|
Preference sharesA
|
|
|
|
Ecclesiastical Insurance Office 8
5/8%
|
5,837
|
4.8
|
5,512
|
Royal & Sun Alliance 7 3/8%
|
4,899
|
4.0
|
4,437
|
Santander 10.375%
|
4,244
|
3.5
|
3,616
|
General Accident 7.875%
|
4,116
|
3.4
|
3,654
|
Standard Chartered 8.25%
|
3,197
|
2.6
|
2,900
|
Lloyds Bank 11.75%
|
960
|
0.8
|
-
|
R.E.A. Holdings 9%
|
686
|
0.5
|
776
|
Standard Chartered 7.375%
|
256
|
0.2
|
-
|
Total Preference shares
|
24,195
|
19.8
|
|
Total Investments
|
122,169
|
100.0
|
|
A None of the preference shares
listed above have a fixed redemption date.
|
|
|
|
Purchases and/or sales of portfolio holdings
effected during the year and the transaction with aSCIT result in
2024 and 2023 values not being directly comparable.
|
Distribution of Assets and Liabilities
|
|
|
Movement during the year
|
|
|
|
Valuation at
|
|
|
Gains/
|
Valuation at
|
|
31 March 2023
|
Purchases
|
Sales
|
(losses)
|
31 March 2024
|
|
£'000
|
%
|
£'000
|
£'000
|
£'000
|
£'000
|
%
|
Listed investments
|
|
|
|
|
|
|
|
Equities
|
75,760
|
94.8
|
75,634
|
(44,372)
|
(9,048)
|
97,974
|
92.5
|
Preference shares
|
20,895
|
26.2
|
-
|
-
|
3,300
|
24,195
|
22.8
|
Total investments
|
96,655
|
121.0
|
75,634
|
(44,372)
|
(5,748)
|
122,169
|
115.3
|
Current assets
|
2,559
|
3.2
|
|
|
|
3,242
|
3.1
|
Current liabilities
|
(9,350)
|
(11.7)
|
|
|
|
(9,491)
|
(9.0)
|
Non-current liabilities
|
(9,951)
|
(12.5)
|
|
|
|
(9,963)
|
(9.4)
|
Net assets
|
79,913
|
100.0
|
|
|
|
105,957
|
100.0
|
|
|
|
|
|
|
|
|
Net asset value per Ordinary share
|
257.9p
|
|
|
|
|
256.0p
|
|
Directors' Report
(extract)
The Directors present their report and audited
financial statements for the year ended 31 March 2024.
Results and Dividends
The financial statements for the year ended 31
March 2024 are contained below. Dividends paid and proposed for the
year amounted to 14.40p per Ordinary share.
First, second and third interim dividends for
the year, each of 3.20p per Ordinary share, were paid on 27 October
2023, 31 January 2024 and 30 April 2024 respectively. The Directors
recommend a final dividend of 4.80p per Ordinary share, payable on
31 July 2024 to shareholders on the register on 5 July 2024. The
ex-dividend date is 4 July 2024. Under UK-adopted international
accounting standards the third interim and final dividends will be
accounted for in the financial year ended 31 March 2025. A
resolution in respect of the final dividend will be proposed at the
forthcoming Annual General Meeting.
Investment Trust Status
The Company is registered as a public limited
company (registered in England and Wales No. 00386561) and is an
investment company within the meaning of Section 833 of the
Companies Act 2006. The Company has been approved by HM Revenue
& Customs as an investment trust subject to it continuing to
meet the relevant eligibility conditions of Section 1158 of the
Corporation Tax Act 2010 and the ongoing requirements of Part 2
Chapter 3 Statutory Instrument 2011/2999 for all financial years
commencing on or after 1 April 2012. The Directors are of the
opinion that the Company has conducted its affairs for the year
ended 31 March 2024 so as to enable it to comply with the ongoing
requirements for investment trust status.
Individual Savings Accounts
The Company satisfies the requirements as a
qualifying security for Individual Savings Accounts. The Directors
intend that the Company will continue to conduct its affairs in
this manner.
aSCIT Transaction
On 26 July 2023 the Company
announced that it had agreed terms with the board of abrdn Smaller
Companies Income Trust plc ("aSCIT") in respect of a proposed
combination of the assets of the Company with those of aSCIT (the
"aSCIT transaction"). Shareholders were sent documentation in
October explaining that this was to be effected by way of a scheme
of reconstruction and winding up of aSCIT under section 110 of the
Insolvency Act 1986 (the "Scheme") and the associated transfer of
the assets of aSCIT to the Company in exchange for the issue of new
Ordinary shares in the Company to those aSCIT shareholders who
rolled their shareholdings into the Company in accordance with the
Scheme.
Shareholders approved the Scheme
proposals at the Company's General Meeting held on 20 November 2023
and aSCIT's shareholders approved the Scheme proposals at their
General Meeting held on the same day. The Scheme completed on 1
December. On that date the Company issued 11,268,494 new Ordinary
shares to aSCIT shareholders in accordance with the Scheme. The new
shares were admitted to trading on 4 December 2023.
Capital Structure
During the year the Company issued 11,268,494
Ordinary shares of 50p each in connection with the aSCIT
transaction as referred to above. In addition, the Company bought
back 863,532 Ordinary shares at a discount to net
asset value, to hold in treasury. The issued Ordinary share capital
as at 31 March 2024 comprised 41,369,542 Ordinary shares of 50p
each, 863,532 Ordinary shares held in treasury and 50,000 3.5%
Cumulative Preference shares of £1 each.
Voting Rights
Each Ordinary and Cumulative Preference share
carries one vote at general meetings of the Company. The Cumulative
Preference shares carry a right to receive a fixed rate of dividend
and, on a winding up of the Company, to the payment of such fixed
cumulative preferential dividends to the date of such winding up
and to the repayment of the capital paid up on such shares in
priority to any payment to the holders of the Ordinary
shares.
The Ordinary shares, excluding any treasury
shares, carry a right to receive dividends and, on a winding up or
other return of capital, after meeting the liabilities of the
Company, the surplus assets will be paid to Ordinary shareholders
in proportion to their shareholdings.
There are no restrictions on the transfer of
Ordinary or Cumulative Preference shares in the Company other than
certain restrictions which may from time to time be imposed by
law.
Management Agreement
The Company has appointed abrdn Fund Managers
Limited ("aFML"), a wholly owned subsidiary of abrdn plc, as its
alternative investment fund manager. aFML has been appointed to
provide investment management, risk management, administration,
company secretarial services and promotional activities to the
Company. The Company's portfolio is managed by abrdn Investments
Limited by way of a group delegation agreement in place between
aFML and abrdn Investments Limited. In addition, aFML has
sub-delegated administrative and company secretarial services to
abrdn Holdings Limited and promotional activities to abrdn
Investments Limited. Details of the management fee and fees payable
for promotional activities are shown in notes 4 and 5 to the
financial statements.
The management agreement is terminable on not
less than six months' notice. In the event of termination by the
Company on less than the agreed notice period, compensation is
payable to the Manager in lieu of the unexpired notice
period.
Substantial Interests
Information provided to the
Company by major shareholders pursuant to the FCA's Disclosure
Guidance and Transparency Rules is published by the Company via a
Regulatory Information Service.
The table below sets out the interests in 3% or
more of the issued share capital of the Company, of which the Board
was aware as at 31 March 2024.
Shareholder
|
Number of Ordinary shares held
|
% of Ordinary shares held
|
Interactive Investor
|
13,410,525
|
32.4
|
Hargreaves Lansdown
|
8,562,529
|
20.7
|
AJ Bell
|
2,841,009
|
6.9
|
HSDL
|
2,363,079
|
5.7
|
|
|
|
There have been no changes notified to the
Company between the year end and the date of approval of this
Report.
Directors
Simon White was appointed as an independent
non-executive Director on 1 January 2024. In respect of the appointment of Mr White, the Board used the
services of an external search consultant, Fletcher Jones Limited.
Fletcher Jones Limited does not have any other connections with the
Company or individual Directors.
At the end of the year the Board comprised five
non-executive Directors, each of whom is considered by the Board to
be independent of the Company and the Manager.
The Directors attended scheduled Board and
Committee meetings during the year ended 31 March 2024 as follows
(relevant meetings in brackets):
Director
|
Board
|
Audit Committee
|
Management Engagement Committee
|
Remuneration Committee
|
Robert Talbut
|
5 (5)
|
2 (2)
|
1 (1)
|
1 (1)
|
Robin Archibald
|
5 (5)
|
2 (2)
|
1 (1)
|
1 (1)
|
Jane Pearce
|
5 (5)
|
2 (2)
|
1 (1)
|
1 (1)
|
Helen Sinclair
|
5 (5)
|
2 (2)
|
1 (1)
|
1 (1)
|
Simon WhiteA
|
1 (1)
|
- (-)
|
1 (1)
|
1 (1)
|
A
Appointed 1 January 2024
|
The Board meets more frequently when business
needs require and has regular dialogue between formal Board
meetings, including with the Manager. During the year, there were
an additional 11 Board/Board Committee meetings held principally in
relation to the aSCIT transaction, but also in relation to share
buy backs, Board succession and the approval of the Annual and Half
Yearly Reports.
Under the terms of the Company's Articles of
Association, Directors must retire and be subject to appointment at
the first Annual General Meeting after their appointment by the
Board, and be subject to re-appointment every three years
thereafter. However, the Board has decided that all Directors will
seek annual re-appointment after initial appointment to the
Board.
Having served for nine years, Robert Talbut will
retire at the Annual General Meeting on 5 July 2024. Simon White
will stand for appointment and each of Helen Sinclair, Robin
Archibald and Jane Pearce will seek re-appointment at the
meeting.
The Board believes that all the Directors
seeking appointment/re-appointment remain independent of the
Manager and free from any relationship which could materially
interfere with the exercise of their judgement on issues of
strategy, performance, resources and standards of conduct. The
Board believes that each Director has the requisite high level and
range of business, investment and financial experience which
enables the Board to provide clear and effective leadership,
oversight and proper governance of the
Company.
During the year, the Board undertook an annual
appraisal of the Chairman of the Board, individual Directors and
the performance of Committees and the Board as a whole. This
process involved the completion of questionnaires by each Director
and follow-on discussions between the Chairman and each Director.
The appraisal of the Chairman was undertaken by the Senior
Independent Director. Following this process, the
Board considers that it continues to operate in an efficient and
effective manner and that the performance of each of the Directors
seeking appointment/re-appointment continues to be effective.
Each Director has demonstrated commitment to the role
and the Board is satisfied that their individual performances
contribute to the long-term sustainable success of the Company. All
of the Directors have demonstrated that they have sufficient time
and commitment to fulfil their directorial roles with the Company.
The Board therefore recommends the appointment/re-appointment of
each of the Directors at the Annual General Meeting.
Board's Policy on Tenure
In normal circumstances, it is the Board's
expectation that Directors will not serve beyond the Annual General
Meeting following the ninth anniversary of their appointment.
However, the Board takes the view that independence of individual
Directors is not necessarily compromised by length of tenure on the
Board and that continuity and experience can add significantly to
the Board's strength. The Board believes that recommendation for
re-election should be on an individual basis following a rigorous
review which assesses the contribution made by the Director
concerned, but also taking into account the need for regular
refreshment and diversity, as well as providing continuity of
experience of the Company.
It is the Board's policy that the Chairman of
the Board will not normally serve as a Director beyond the Annual
General Meeting following the ninth anniversary of his/her
appointment to the Board. However, this may be extended in certain
circumstances including the facilitation of effective succession
planning and the development of a diverse Board. In such a
situation the reasons for the extension will be fully explained to
shareholders and a timetable for the departure of the Chairman
clearly set out.
The Role of the Chairman and Senior Independent
Director
The Chairman is responsible for providing
effective leadership to the Board, by setting the tone of the
Company, demonstrating objective judgement and promoting a culture
of openness and debate. The Chairman facilitates the effective
contribution and encourages active engagement by each Director. In
conjunction with the Company Secretary, the Chairman ensures that
Directors receive accurate, timely and clear information to assist
them with effective decision-making. The Chairman acts upon the
results of the Board evaluation process by recognising strengths
and addressing any weaknesses and also ensures that the Board
engages with major shareholders and that all Directors understand
shareholder views.
The Senior Independent Director acts as a
sounding board for the Chairman and acts as an intermediary for
other Directors, when necessary. Working closely with the other
Directors, the Senior Independent Director takes responsibility for
an orderly succession process for the Chairman, and leads the
annual appraisal of the Chairman's performance. The Senior
Independent Director is also available to shareholders to discuss
any concerns they may have.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of
Directors' and Officers' liabilities in relation to their acts on
behalf of the Company. In addition, the Company has entered into a
separate deed of indemnity with each of the Directors reflecting
the scope of the indemnity in the Articles of Association. Under
the Articles of Association, each Director is entitled to be
indemnified out of the assets of the Company to the extent
permitted by law against any loss or liability incurred by him or
her in the proper execution of his or her duties in relation to the
affairs of the Company.
Management of Conflicts of
Interest
The Board has a procedure in place to deal with
a situation where a Director has a conflict of interest. As part of
this process, each Director prepares a list of other positions held
and all other conflict situations that may need to be authorised
either in relation to the Director concerned or his or her
connected persons. The Board considers each Director's situation
and decides whether to approve any conflict, taking into
consideration what is in the best interests of the Company and
whether the Director's ability to act in accordance with his or her
wider duties is affected. Each Director is required to notify the
Company Secretary of any potential, or actual, conflict situations
that will need authorising by the Board. Authorisations given by
the Board are reviewed at each Board meeting.
No Director has a service contract with the
Company although all Directors are issued with letters of
appointment, which may be amended from time to time to reflect
regulatory and other changes. Other than the deeds of indemnity
referred to above and the Directors' letters of appointment, there
were no contracts during, or at the end of the year, in which any
Director was interested.
The Company has a policy of conducting its
business in an honest and ethical manner. The Company takes a
zero-tolerance approach to bribery and corruption and has
procedures in place that are proportionate to the Company's
circumstances to prevent them. The Manager also adopts a group-wide
zero-tolerance approach and has its own detailed policy and
procedures in place to prevent bribery and corruption. Copies of
the Manager's anti-bribery and corruption policies are available on
its website.
In relation to the corporate offence of failing
to prevent tax evasion, it is the Company's policy to conduct all
business in an honest and ethical manner. The Company takes a
zero-tolerance approach to facilitation of tax evasion whether
under UK law or under the law of any foreign country and is
committed to acting professionally, fairly and with integrity in
all its business dealings and relationships.
Board Diversity
The Board recognises the importance of having
a range of skilled and experienced individuals with the right
knowledge represented on the Board in order to allow it to fulfil
its obligations. The Board also recognises the benefits and is
supportive of the principle of diversity in its recruitment of new
Board members. The Board will not display any bias for age, gender,
race, sexual orientation, socio-economic background, religion,
ethnic or national origins or disability in considering the
appointment of its Directors. In view of its size, the Board will
continue to ensure that all appointments are made on the basis of
merit against the specification prepared for each appointment. In
doing so, the Board will take account of the targets set out in the
FCA's Listing Rules, which are set out in the tables
below.
The Board has resolved that the Company's year
end date is the most appropriate date for
disclosure purposes. The following information has
been provided by each Director through the completion of
questionnaires. There have been no
changes since the year end.
Table for reporting on gender as at 31 March
2024
|
Number of Board members
|
Percentage of the Board
|
Number of senior positions on the
Board (CEO, CFO, Chair and SID)
|
Number in executive
management
|
Percentage of executive
management
|
Men
|
3
|
60%
|
n/a
(note 3)
|
n/a
(note 3)
|
n/a
(note 3)
|
Women
|
2
|
40%
(note 1)
|
Not specified/prefer not to
say
|
-
|
-
|
Table for reporting on ethnic background as at
31 March 2024
|
Number of Board members
|
Percentage of the Board
|
Number of senior positions on the
Board (CEO, CFO, Chair and SID)
|
Number in executive
management
|
Percentage of executive
management
|
White British or other White
(including minority-white groups)
|
5
|
100%
|
n/a
(note 3)
|
n/a
(note 3)
|
n/a
(note 3)
|
Minority ethnic
|
-
|
-
(note 2)
|
Not specified/prefer not to
say
|
-
|
-
|
Notes:
1.
Meets target that at least 40% of Directors are women as set out in
LR 9.8.6R (9)(a)(i).
2. Does
not meet target that at least one Director is from a minority
ethnic background as set out in LR 9.8.6R (9)(a)(iii).
The Directors will take this into account when
making future Board appointments.
3. This
column is not applicable as the Company is externally managed and
does not have any executive staff. Specifically, it does not have
either a CEO or CFO. The Company considers that the roles of
Chairman of the Board, Senior Independent Director and Chairman of
the Audit Committee are senior Board positions. During the year
ended 31 March 2024 the Company did not meet the target set out in
LR 9.8.6R (9)(a)(ii) that at least one of the senior Board
positions is held by a woman. However, it will meet the target
following the Annual General Meeting on 5 July 2024 when Jane
Pearce will be appointed as Chair of the Audit Committee and Helen
Sinclair will be appointed as SID.
Corporate Governance
The Company is committed to high standards of
corporate governance and the Board is accountable to the Company's
shareholders for good governance. The Board has considered the
principles and provisions of the AIC Code of Corporate Governance
as published in February 2019 (the "AIC Code"). The AIC Code
addresses the principles and provisions set out in the UK Corporate
Governance Code as published by the FRC in July 2018 (the "UK
Code"), as well as setting out additional provisions on issues that
are of specific relevance to investment trusts.
The Board considers that reporting against the
principles and provisions of the AIC Code, which has been endorsed
by the FRC, provides more relevant information to shareholders than
if it had adopted the UK Code. The AIC Code is available on the
AIC's website: theaic.co.uk.
It includes an explanation of how the AIC Code adapts the
principles and provisions set out in the UK Code to make them
relevant for investment trusts.
The Board confirms that, during the year, the
Company complied with the principles and provisions of the AIC
Code.
Further details of the Company's compliance with
the AIC Code can be found on its website.
Going Concern
The Company's assets consist mainly of equity
shares in companies listed on the London Stock Exchange. The Board
has performed stress testing and liquidity analysis on the
portfolio and considers that, in most foreseeable circumstances,
the majority of the Company's investments are realisable within a
relatively short timescale.
The Board has set limits for borrowing and
regularly reviews actual exposures, cash flow projections and
compliance with banking covenants, including the headroom
available. At the year end, the Company had a £20 million loan
facility which is due to mature in May 2027.
Having taken these factors into account, the
Directors believe that the Company has adequate resources to
continue in operational existence for the foreseeable future and
has the ability to meet its financial obligations as they fall due
for the period to 30 June 2025, which is at least twelve months
from the date of approval of this Report. For these reasons, they
continue to adopt the going concern basis of accounting in
preparing the financial statements.
Accountability and Audit
Each Director confirms that, so far as he or she
is aware, there is no relevant audit information of which the
Company's Auditor is unaware, and they have taken all the steps
that they could reasonably be expected to have taken as Directors
in order to make themselves aware of any relevant audit information
and to establish that the Company's Auditor is aware of that
information.
Independent Auditor
The Company's Auditor, Ernst & Young LLP,
has indicated its willingness to remain in office. The Board will
place resolutions before the Annual General Meeting to re-appoint
Ernst & Young LLP as Auditor for the ensuing year and to
authorise the Directors to determine its remuneration.
Relations with Shareholders
The Directors place a great deal of importance
on communications with shareholders. Shareholders and investors may
obtain up to date information on the Company through its website
and the Manager's information service.
The Board's policy is to communicate directly
with shareholders and their representative bodies without the
involvement of the management group (including the Company
Secretary or the Manager) in situations where direct communication
is required, and representatives from the Manager meet with major
shareholders on at least an annual basis in order to gauge their
views. In addition, the Company Secretary only acts on behalf of
the Board, not the Manager, and there is no filtering of
communication. At each Board meeting the Board receives full
details of any communication from shareholders to which the
Chairman responds personally as appropriate.
Directors make themselves available to attend
meetings with the Company's largest shareholders and meet other
shareholders at the Annual General Meeting and, as explained in the
Chairman's Statement, the Company will hold an Online Shareholder
Presentation in advance of the Annual General Meeting this year
including the opportunity for an interactive question and answer
session.
The notice of the Annual General Meeting is,
where practicable, sent out at least 20 working days in advance of
the meeting. All shareholders have the opportunity to put questions
to the Board and Manager at the meeting. Further details regarding
the arrangements for this year's Annual General Meeting and
separate Online Shareholder Presentation are set out in the
Chairman's Statement.
Annual General Meeting
The Annual General Meeting will be held
at 18 Bishops Square, London E1 6EG on Friday 5 July
2024 at 12 noon.
By order of the Board
abrdn Holdings Limited
Company Secretary
1 George Street
Edinburgh EH2 2LL
22 May 2024
Statement of Directors' Responsibilities
The Directors are responsible for preparing the
Annual Report and the financial statements, in accordance with
applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year, and under that law
they have chosen to prepare the financial statements in accordance
with UK-adopted international accounting
standards.
The financial statements are required by law to
give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for that
period.
In preparing these financial statements, the
Directors are required to:
· select
suitable accounting policies in accordance with IAS 8 'Accounting
Policies, Changes in Accounting Estimates and Errors' and then
apply them consistently;
· make judgments
and estimates that are reasonable and prudent;
· present
information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
· provide
additional disclosures when compliance with the specific
requirements in UK-adopted international accounting
standards is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and financial
performance;
· state whether
the financial statements have been prepared in accordance with
UK-adopted international accounting standards subject to any
material departures disclosed and explained in the notes to the
financial statements; and
· prepare the
financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping proper
accounting records that disclose with reasonable accuracy at any
time the financial position of the Company and enable them to
ensure that the financial statements comply with the Companies Act
2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the
Directors are also responsible for preparing a Strategic Report,
Directors' Report, Directors' Remuneration Report and Statement of
Corporate Governance that comply with that law and those
regulations.
The Directors are responsible for the
maintenance and integrity of the corporate and financial
information included on the Company's website, but not for the
content of any information included on the website that has been
prepared or issued by third parties. Legislation in the UK
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The Board confirms that to the best of its
knowledge:
· the financial
statements have been prepared in accordance with applicable
accounting standards and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
Company;
· in the opinion
of the Directors, the Annual Report taken as a whole, is fair,
balanced and understandable and it provides the information
necessary to assess the Company's position and performance,
business model and strategy; and
· the Strategic
Report and Directors' Report include a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that the Company faces.
On behalf of the Board
Robert Talbut
Chairman
22 May 2024
Statement of Comprehensive Income
|
|
Year ended
|
Year ended
|
|
|
31 March 2024
|
31 March 2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Losses on investments at fair value
|
11
|
-
|
(5,748)
|
(5,748)
|
-
|
(6,084)
|
(6,084)
|
Currency (losses)/gains
|
|
-
|
(56)
|
(56)
|
-
|
39
|
39
|
|
|
|
|
|
|
|
|
Income
|
3
|
|
|
|
|
|
|
Income from
investments
|
|
6,361
|
-
|
6,361
|
5,593
|
-
|
5,593
|
Income from other investing
activity
|
|
68
|
-
|
68
|
80
|
-
|
80
|
|
|
6,429
|
(5,804)
|
625
|
5,673
|
(6,045)
|
(372)
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Management fee
|
4
|
(210)
|
(210)
|
(420)
|
(207)
|
(207)
|
(414)
|
Administrative expenses
|
5
|
(505)
|
(24)
|
(529)
|
(417)
|
-
|
(417)
|
Finance costs
|
7
|
(502)
|
(502)
|
(1,004)
|
(363)
|
(363)
|
(726)
|
|
|
(1,217)
|
(736)
|
(1,953)
|
(987)
|
(570)
|
(1,557)
|
Profit/(loss) before taxation
|
|
5,212
|
(6,540)
|
(1,328)
|
4,686
|
(6,615)
|
(1,929)
|
|
|
|
|
|
|
|
|
Taxation
|
8
|
(144)
|
-
|
(144)
|
(102)
|
-
|
(102)
|
Profit/(loss) attributable to equity holders
of the Company
|
|
5,068
|
(6,540)
|
(1,472)
|
4,584
|
(6,615)
|
(2,031)
|
|
|
|
|
|
|
|
|
Earnings per Ordinary share (pence)
|
10
|
14.75
|
(19.03)
|
(4.28)
|
14.83
|
(21.40)
|
(6.57)
|
|
The Company does not have any income or
expense that is not included in profit for the year, and therefore
the "Profit for the year" is also the "Total comprehensive income
for the year", as defined in IAS 1 (revised).
|
The total column of this statement represents
the Statement of Comprehensive Income of the Company, prepared in
accordance with UK adopted International Accounting
Standards. The revenue and capital columns are supplementary to
this and are prepared under guidance published by the Association
of Investment Companies.
|
All items in the above statement derive from
continuing operations.
|
The accompanying notes are an integral part of
these financial statements.
|
Balance Sheet
|
|
As at
|
As at
|
|
|
31 March 2024
|
31 March 2023
|
|
Notes
|
£'000
|
£'000
|
Non-current assets
|
|
|
|
Ordinary shares
|
|
97,974
|
75,760
|
Preference shares
|
|
24,195
|
20,895
|
Securities at fair value
|
11
|
122,169
|
96,655
|
|
|
|
|
Current assets
|
|
|
|
Other receivables
|
12
|
1,567
|
1,383
|
Cash at bank
|
|
1,675
|
1,176
|
|
|
3,242
|
2,559
|
|
|
|
|
Creditors: amounts falling due within one
year
|
|
|
|
Other payables
|
|
(491)
|
(350)
|
Short-term borrowings
|
|
(9,000)
|
(9,000)
|
|
13
|
(9,491)
|
(9,350)
|
Net current liabilities
|
|
(6,249)
|
(6,791)
|
Total assets less current
liabilities
|
|
115,920
|
89,864
|
|
|
|
|
Non-current liabilities
|
|
|
|
Long-term borrowings
|
13
|
(9,963)
|
(9,951)
|
Net assets
|
|
105,957
|
79,913
|
|
|
|
|
Share capital and reserves
|
|
|
|
Called-up share capital
|
14
|
21,166
|
15,532
|
Share premium account
|
|
49,952
|
21,411
|
Capital reserve
|
15
|
27,451
|
35,930
|
Revenue reserve
|
|
7,388
|
7,040
|
Equity shareholders' funds
|
|
105,957
|
79,913
|
|
|
|
|
Net asset value per Ordinary share
(pence)
|
16
|
256.00
|
257.92
|
|
|
|
|
The financial statements were approved by the
Board of Directors and authorised for issue on 22 May 2024 and were
signed on its behalf by:
|
Robert Talbut
|
|
|
|
Chairman
|
|
|
|
The accompanying notes are an integral part of
these financial statements.
|
|
|
|
Statement of Changes in Equity
Year ended 31 March
2024
|
|
|
|
Share
|
|
|
|
|
|
Share
|
premium
|
Capital
|
Revenue
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
Total
|
|
Note
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
As at 31 March 2023
|
|
15,532
|
21,411
|
35,930
|
7,040
|
79,913
|
Issue of shares on the aSCIT
transaction
|
22
|
5,634
|
29,594
|
-
|
-
|
35,228
|
Cost of shares issued in respect of the aSCIT
transaction
|
22
|
-
|
(1,053)
|
-
|
-
|
(1,053)
|
Buyback of Ordinary shares for
treasury
|
|
-
|
-
|
(1,939)
|
-
|
(1,939)
|
(Loss)/profit for the year
|
|
-
|
-
|
(6,540)
|
5,068
|
(1,472)
|
Equity dividends
|
9
|
-
|
-
|
-
|
(4,720)
|
(4,720)
|
As at 31 March 2024
|
|
21,166
|
49,952
|
27,451
|
7,388
|
105,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 March 2023
|
|
|
|
Share
|
|
|
|
|
|
Share
|
premium
|
Capital
|
Revenue
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
As at 31 March 2022
|
|
15,460
|
21,109
|
42,545
|
6,705
|
85,819
|
Issue of Ordinary shares
|
|
72
|
302
|
-
|
-
|
374
|
(Loss)/profit for the year
|
|
-
|
-
|
(6,615)
|
4,584
|
(2,031)
|
Equity dividends
|
9
|
-
|
-
|
-
|
(4,249)
|
(4,249)
|
As at 31 March 2023
|
|
15,532
|
21,411
|
35,930
|
7,040
|
79,913
|
|
|
|
|
|
|
|
The Company has aggregate realised and
distributable reserves of £34,839,000 as at 31 March 2024 (2023 -
£42,970,000), comprising a capital reserve of £27,451,000 (2023 -
£35,930,000) and a revenue reserve of £7,388,000 (2023 -
£7,040,000).
|
The accompanying notes are an integral part of
these financial statements.
|
Cash Flow Statement
|
Year ended
|
Year ended
|
|
31 March 2024
|
31 March 2023
|
|
£'000
|
£'000
|
Net cash inflow from operating
activities
|
|
|
Dividend income received
|
6,171
|
5,478
|
Interest income received
|
31
|
7
|
Options premium received
|
35
|
71
|
Interest received from money market
funds
|
31
|
7
|
Management fee paid
|
(397)
|
(415)
|
Other cash expenses
|
(539)
|
(432)
|
Cash generated from operations
|
5,332
|
4,716
|
|
|
|
Interest paid
|
(991)
|
(684)
|
Overseas tax paid
|
(140)
|
(184)
|
Net cash inflows from operating
activities
|
4,201
|
3,848
|
|
|
|
Cash flows from investing activities
|
|
|
Purchases of investments
|
(43,873)
|
(16,518)
|
Sales of investments
|
44,372
|
16,199
|
Net cash outflow from investing
activities
|
499
|
(319)
|
|
|
|
Cash flows from financing activities
|
|
|
Equity dividends paid
|
(4,720)
|
(4,249)
|
Issue of Ordinary shares
|
-
|
374
|
Buyback of Ordinary shares to
Treasury
|
(1,838)
|
-
|
Net cash acquired and received following the
aSCIT transaction
|
3,444
|
-
|
Cost of shares issued in respect of the aSCIT
transaction
|
(1,031)
|
-
|
Loan repayment
|
-
|
(19,000)
|
Loan drawdown
|
-
|
19,000
|
Net cash outflow from financing
activities
|
(4,145)
|
(3,875)
|
Increase/(decrease) in cash and cash
equivalents
|
555
|
(346)
|
|
|
|
Reconciliation of net cash flow to movements in
cash and cash equivalents
|
|
|
Increase/ (decrease) in cash and cash
equivalents as above
|
555
|
(346)
|
Net cash and cash equivalents at start of
year
|
1,176
|
1,483
|
Effect of foreign exchange rate
changes
|
(56)
|
39
|
Net cash and cash equivalents at end of
year
|
1,675
|
1,176
|
Notes to the Financial Statements
For the year ended 31 March 2024
1.
|
Principal activity.
|
|
The Company is a closed-end investment company,
registered in England and Wales No. 00386561, with its Ordinary
shares listed on the London Stock Exchange.
|
2.
|
Accounting policies
|
|
(a)
|
Basis of accounting.
The financial statements of the Company have been prepared in
accordance with UK adopted International Accounting Standards
("IAS") and using the historical cost convention except for
investments, which are measured at fair value (see note 2(b) below)
.
|
|
|
In preparing these financial statements the
Directors have considered the impact of climate change risk as an
emerging risk, and have concluded that it does not have a material
impact on the Company's investments. In line with IAS, investments
are valued at fair value, which for the Company are quoted bid
prices for investments in active markets at the Balance Sheet date
and therefore reflect market participants view of climate change
risk.
|
|
|
The Company's financial statements are
presented in sterling, which is also the functional currency as it
is the currency in which shares are issued and expenses are
generally paid. All values are rounded to the nearest thousand
pounds (£'000) except when otherwise indicated.
|
|
|
Where presentational guidance set out in the
Statement of Recommended Practice ("SORP"): 'Financial Statements
of Investment Trust Companies and Venture Capital Trusts' issued by
the Association of Investment Companies ("AIC"), is consistent with
the requirements of IAS, the Directors have sought to prepare the
financial statements on a basis compliant with the recommendations
of the SORP issued in July 2022.
|
|
|
Going concern. The
Company's assets consist mainly of equity shares in companies
listed on the London Stock Exchange. The Board has performed stress
testing and liquidity analysis on the portfolio and considers that,
in most foreseeable circumstances, the majority of the Company's
investments are realisable within a relatively short timescale. The
Board has set limits for borrowing and regularly reviews actual
exposures, cash flow projections and compliance with banking
covenants, including the headroom available. At the year end, the
Company had a £20 million loan facility which is due to mature in
May 2027. Having taken these factors into account, the Directors
believe that the Company has adequate resources to continue in
operational existence for the foreseeable future and has the
ability to meet its financial obligations as they fall due for the
period to 30 June 2025, which is at least twelve months from the
date of approval of this Report. For these reasons, they continue
to adopt the going concern basis of accounting in preparing the
financial statements.
|
|
|
Significant accounting judgements,
estimates and assumptions. The preparation of
financial statements requires the use of certain significant
accounting judgements, estimates and assumptions which requires
management to exercise its judgement in the process of applying the
accounting policies and are continually evaluated. The Directors do
not consider there to be any significant judgements and estimates
within the financial statements for the year ended 31 March 2024.
Special dividends are assessed and credited to capital or revenue
according to their circumstances.
|
|
|
New and amended accounting
standards and interpretations. At the date of
authorisation of these financial statements, the following
amendments to Standards and Interpretations were assessed to be
relevant and are all effective for annual periods beginning on or
after 1 January 2023 but are considered to not have a material
impact on the financial statements:
|
|
|
- IAS 1 Amendments (Disclosure of Accounting
Policies) (effective from 1 January 2023)
|
|
|
Future amendments to standards and
interpretations. At the date of authorisation of these
financial statements, the following amendments to Standards and
Interpretations were assessed to be relevant and are all effective
for annual periods beginning on or after 1 January 2024;
|
|
|
- IAS 1 Amendments (Classification of
Liabilities as Current or Non-Current) (effective from 1 January
2024)
|
|
|
- IAS 1 Amendments (Non-current
Liabilities with Covenants) (effective from 1 January
2024)
|
|
|
The Company intends to adopt the Standards and
Interpretations in the reporting period when they become effective
and the Board does not anticipate that the adoption of these
Standards and Interpretations in future periods will materially
impact the Company's financial results in the period of initial
application although there may be revised presentations to the
Financial Statements and additional disclosures.
|
|
(b)
|
Investments. All
investments are evaluated and managed on a fair value basis and are
therefore classified as FVTPL ("Fair Value Through Profit or
Loss").
|
|
|
Investments are recognised and de-recognised at
the trade date where a purchase or sale is under a contract whose
terms require delivery within the timeframe established by the
market concerned, and are measured at fair value. For listed
investments, this is deemed to be bid market prices or closing
prices for SETS (London Stock Exchange's electronic trading
service) stocks sourced from the London Stock Exchange.
|
|
|
Gains and losses arising from the changes in
fair value are included in net profit or loss for the period as a
capital item. Transaction costs are treated as a capital
cost.
|
|
(c)
|
Income.
Dividend income from equity investments, which have a
discretionary dividend, is recognised when the shareholders' rights
to receive payment have been established, normally the ex-dividend
date. Special dividends are allocated to revenue or capital based
on their individual merits.
|
|
|
If a scrip dividend is taken in lieu of a cash
dividend, the net amount of the cash dividend declared is credited
to the revenue account. Any excess in the value of the shares
received over the amount of the cash dividend foregone is
recognised as capital.
|
|
|
Income from preference shares which do not have
a discretionary dividend are accounted for on a fair value
basis.
|
|
|
Interest from deposits and interest from debt
securities which do not have a discretionary dividend are accounted
for on an accruals basis.
|
|
|
The premium received from traded options is
recognised in the revenue column of the Statement of Comprehensive
Income.
|
|
(d)
|
Expenses. All expenses
are accounted for on an accruals basis. In respect of the analysis
between revenue and capital items presented within the Statement of
Comprehensive Income, all expenses have been presented as revenue
items except those where a connection with the maintenance or
enhancement of the value of the investments held can be
demonstrated. Accordingly, the management fee and finance costs
have been allocated 50% to revenue and 50% to capital, in order to
reflect the Directors' expected long-term view of the nature of the
future investment returns of the Company.
|
|
(e)
|
Borrowings. Both
short-term and long-term borrowings, which comprise interest
bearing bank loans are initially recognised at cost, being the fair
value of the consideration received, net of any issue expenses and
subsequently measured at amortised cost using the effective
interest method. The finance costs, being the difference between
the net proceeds of borrowings and the total amount of payments
that require to be made in respect of those borrowings, are
amortised over the life of the borrowings.
|
|
(f)
|
Taxation. The tax
payable is based on the taxable profit for the year. Taxable profit
differs from net profit as reported in the Statement of
Comprehensive Income because it excludes items of income or
expenditure that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Company has no liability for current tax.
|
|
|
Deferred tax is recognised in respect of all
temporary differences at the Balance Sheet date, where transactions
or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the
Balance Sheet date. This is subject to deferred tax assets only
being recognised if it is considered more likely than not that
there will be suitable profits from which the future reversal of
the temporary differences can be deducted. Deferred tax assets and
liabilities are measured at the rates applicable to the legal
jurisdictions in which they arise, using tax rates that are
expected to apply at the date the deferred tax position is
unwound.
|
|
|
Owing to the Company's status as an investment
trust, and the intention to continue meeting the conditions
required to obtain approval in the foreseeable future, the Company
has not provided deferred tax on any capital gains and losses
arising on the revaluation or disposal of investments.
|
|
(g)
|
Foreign currencies.
Monetary assets and liabilities, comprising current assets,
current liabilities and non-current liabilities and non-monetary
assets comprising non-current assets held at fair value which are
denominated in foreign currencies are converted into sterling at
the rate of exchange ruling at the reporting date. Transactions
during the year in foreign currencies are converted at the rate of
exchange ruling at the transaction date. Gains or losses on
monetary assets and liabilities arising from a change in exchange
rates subsequent to the date of a transaction are included as a
currency gain or loss in revenue or capital column of the Statement
of Comprehensive Income, depending on whether the gain or loss is
of a revenue or capital nature. Non-monetary assets that are
measured at fair value and gains or losses arising from a change in
exchange rates subsequent to the date of a transaction are included
as a gain or loss on investments in the capital column of the
Statement of Comprehensive Income.
|
|
(h)
|
Derivatives. The
Company may enter into certain derivatives (e.g. traded options).
Traded option contracts are restricted to writing out-of-the-money
options with a view to generating income. Premiums received on
traded option contracts are recognised as income evenly over the
period from the date they are written to the date when they expire
or are exercised or assigned. Losses on any movement in the fair
value of open contracts at the year end and on the exercise of the
contracts are recorded in the capital column of the Statement of
Comprehensive Income as they arise.
|
|
(i)
|
Cash and cash
equivalents. Cash and cash equivalents comprise cash
in hand and at banks and short-term deposits with an original
maturity of less than 90 days.
|
|
(j)
|
Other receivables.
Financial assets classified as loans and receivables are held to
collect contractual cash flows and give rise to cash flows
representing solely payments of principal and interest. As such
they are measured at amortised cost. Other receivables do not carry
any interest, they have been assessed for any expected credit
losses over their lifetime due to their short-term
nature.
|
|
(k)
|
Other payables.
Payables are non-interest bearing and are stated at their
undiscounted cash flows.
|
|
(l)
|
Dividends payable.
Final dividends are recognised from the date on which they
are approved by shareholders. Interim dividends are recognised when
paid.
|
|
(m)
|
Nature and purpose of reserves
|
|
|
Share premium account.
The balance classified as share premium includes the premium above
nominal value from the proceeds on issue of any equity share
capital comprising Ordinary shares of 50p per share and includes
the premium arising following the issue of shares on the
transaction with abrdn Smaller Companies Income Trust plc on 1
December 2023 less the costs associated with the transaction. This
reserve is not distributable.
|
|
|
Capital reserve. This
reserve reflects any realised gains or losses in the period
together with any unrealised increases and decreases that have been
recognised in the Statement of Comprehensive Income. These include
gains and losses from foreign currency exchange differences.
Additionally, expenses, including finance costs, are charged to
this reserve in accordance with (d) above.
|
|
|
The capital reserve, to the extent that the
gains are deemed realised, is distributable, including by way of
share buybacks and dividends.
|
|
|
Revenue reserve. This
reserve reflects all income and costs which are recognised in the
revenue column of the Statement of Comprehensive Income. The
revenue reserve is distributable, including by way of
dividend.
|
|
(n)
|
Segmental reporting.
The Directors are of the opinion that the Company is engaged in a
single segment of business activity, being investment business.
Consequently, no business segmental analysis is
provided.
|
3.
|
Income
|
|
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Income from listed investments
|
|
|
|
UK dividend income
|
5,254
|
4,784
|
|
Overseas dividend income
|
1,048
|
802
|
|
Interest from investment in money market
funds
|
31
|
7
|
|
UK interest
|
28
|
-
|
|
|
6,361
|
5,593
|
|
Other income from investment
activity
|
|
|
|
Deposit interest
|
34
|
7
|
|
Traded option premiums
|
34
|
73
|
|
Total income
|
6,429
|
5,673
|
4.
|
Management fees
|
|
|
2024
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Management fees
|
210
|
210
|
420
|
207
|
207
|
414
|
|
|
|
|
|
|
|
|
|
The management fee is based on 0.45% per annum
up to £100 million and 0.40% over £100 million, by reference to the
net assets of the Company and including any borrowings up to a
maximum of £30 million, and excluding commonly managed funds,
calculated monthly and paid quarterly. In addition, with effect
from 1 December 2023, a further fee of £120,000 per annum is
charged for other services provided under the terms of the
management agreement. The fee is allocated 50% to revenue and 50%
to capital. The management agreement is terminable on not less than
six months' notice. For the period 1 December 2023 to 30 May 2024,
there is a management fee waiver in place as a result of the
transaction with abrdn Smaller Companies Income Trust plc
("aSCIT"). For this period the fee will be calculated at 0.29% per
annum of net assets up to £100 million and 0.26% per annum of net
assets over this threshold. After this waiver period has ended the
fee will return to the existing fee rates. Should the Company
terminate the management agreement within three years of the date
of the transaction with aSCIT, then the Company undertakes to repay
all or a proportion of the management fees waived by the Manager
based on the time elapsed since completion of the transaction. For
the period to 31 March 2024 the value of the management fee waiver
was calculated to be £65,000. The total of the fees paid and
payable during the year to 31 March 2024 was £420,000 (2023 -
£414,000) and the balance due to abrdn Fund Managers Limited
("aFML") at the year end was £127,000 (2023 - £105,000).
|
5.
|
Administrative expenses
|
|
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Directors' remuneration
|
141
|
134
|
|
Auditor's remuneration: fees payable to the
Company's Auditor for the audit of the Company's annual
accounts
|
60
|
53
|
|
Promotional activities
|
50
|
40
|
|
Professional fees
|
25
|
19
|
|
Directors' & Officers' liability
insurance
|
11
|
10
|
|
Trade subscriptions
|
29
|
27
|
|
Share plan costs
|
30
|
18
|
|
Registrar's fees
|
39
|
39
|
|
Printing, postage and stationery
|
28
|
31
|
|
Custody fees
|
11
|
7
|
|
Other administrative expenses
|
81
|
39
|
|
|
505
|
417
|
|
Capital administrative expenses - professional
fees
|
24
|
-
|
|
|
529
|
417
|
|
|
|
|
|
The management agreement with aFML also
provides for the provision of promotional activities, which aFML
has delegated to abrdn Investments Limited. The total fees payable
under the management agreement in relation to promotional
activities were £50,000 (2023 - £40,000) with a balance due to aFML
at the year end of £19,000 (2023 - £10,000). The Company's
management agreement with aFML also provides for the provision of
company secretarial and administration services to the Company. No
separate fee is charged to the Company in respect of these
services, which have been delegated to abrdn Holdings
Limited.
|
6.
|
Directors' remuneration
|
|
The Company had no employees during the year
(2023 - none). No pension contributions were paid for Directors
(2023 - £nil). Further details on Directors' Remuneration can be
found in the Directors' Remuneration Report.
|
7.
|
Finance costs
|
|
|
2024
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
On bank loans
|
502
|
502
|
1,004
|
363
|
363
|
726
|
8.
|
Taxation
|
|
|
|
|
2024
|
|
|
2023
|
|
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
(a)
|
Analysis of the charge for the year
|
|
|
|
|
|
|
|
|
Overseas tax
|
144
|
-
|
144
|
102
|
-
|
102
|
|
|
Total tax charge
|
144
|
-
|
144
|
102
|
-
|
102
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Factors affecting the tax charge
for the year. The tax assessed for the year is lower
than the effective rate of corporation tax in the UK. The
differences are explained in the reconciliation below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024
|
|
|
2023
|
|
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
|
Profit/(loss) before taxation
|
5,212
|
(6,540)
|
(1,328)
|
4,686
|
(6,615)
|
(1,929)
|
|
|
|
|
|
|
|
|
|
|
|
Corporation tax at an effective rate of 25%
(2023 - 19%)
|
1,303
|
(1,635)
|
(332)
|
890
|
(1,257)
|
(367)
|
|
|
Effects
of:
|
|
|
|
|
|
|
|
|
Non-taxable UK dividend
income
|
(1,329)
|
-
|
(1,329)
|
(903)
|
-
|
(903)
|
|
|
Excess management expenses not
utilised
|
251
|
184
|
435
|
162
|
108
|
270
|
|
|
Expenses not deductible for tax
purposes
|
3
|
-
|
3
|
-
|
-
|
-
|
|
|
Overseas withholding tax
|
144
|
-
|
144
|
102
|
-
|
102
|
|
|
Non-taxable overseas dividends
|
(228)
|
-
|
(228)
|
(149)
|
-
|
(149)
|
|
|
Losses on investments not taxable
|
-
|
1,437
|
1,437
|
-
|
1,156
|
1,156
|
|
|
Losses/(gains) on currency
movements
|
-
|
14
|
14
|
-
|
(7)
|
(7)
|
|
|
Total tax charge
|
144
|
-
|
144
|
102
|
-
|
102
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2024 the Company had surplus
management expenses and loan relationship debits with a tax value
of £8,008,000 based on a corporation tax rate of 25% (2023 -
£7,572,000 based on a corporation tax rate of 19%) in respect of
which a deferred tax asset has not been recognised. This is because
the Company is not expected to generate taxable income in a future
period in excess of the deductible expenses of that future period
and, accordingly, it is unlikely that the Company will be able to
reduce future tax liabilities through the use of existing surplus
expenses.
|
9.
|
Dividends
|
|
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Amounts recognised as distributions to equity
holders in the period:
|
|
|
|
Third interim dividend for 2023 of 3.20p (2022
- 3.20p) per share
|
991
|
986
|
|
Final dividend for 2023 of 4.60p (2022 -
4.20p) per share
|
1,425
|
1,294
|
|
First two interim dividends for 2024 totalling
6.40p (2023 - 6.40p) per share
|
2,308
|
1,982
|
|
Refund of unclaimed dividends from previous
periods
|
(6)
|
(15)
|
|
|
4,718
|
4,247
|
|
3.5% Cumulative Preference shares
|
2
|
2
|
|
Total
|
4,720
|
4,249
|
|
|
|
|
|
The third interim dividend of 3.20p for the
year to 31 March 2024, which was paid on 30 April 2024, and the
proposed final dividend of 4.80p for the year to 31 March 2024,
payable on 31 July 2024, have not been included as liabilities in
these financial statements.
|
|
Set out below are the total Ordinary dividends
payable in respect of the financial year, which is the basis on
which the requirements of Sections 1158-1159 of the Corporation Tax
Act 2010 are considered:
|
|
|
|
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Three interim dividends for 2024 totalling
9.60p (2023 - 9.60p) per share
|
3,632
|
2,973
|
|
Proposed final dividend for 2024 of 4.80p
(2023 - 4.60p) per share
|
1,986
|
1,424
|
|
|
5,618
|
4,397
|
|
|
|
|
|
The amount reflected above for the cost of the
proposed final dividend for 2024 is based on 41,369,542 Ordinary
shares, being the number of Ordinary shares in issue at the date of
this Report.
|
10.
|
Earnings per Ordinary share
|
|
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Earnings per Ordinary share are based on the
following figures:
|
|
|
|
Revenue return
|
5,068
|
4,584
|
|
Capital return
|
(6,540)
|
(6,615)
|
|
Total return
|
(1,472)
|
(2,031)
|
|
|
|
|
|
Weighted average number of Ordinary
shares
|
34,363,846
|
30,919,854
|
|
|
|
|
|
During the year and preceding years there were
no potentially dilutive shares in issue.
|