Annual Financial Report

Strategic Equity Capital PLC

RESULTS FOR THE YEAR ENDED 30 JUNE 2022

The Directors of Strategic Equity Capital plc are pleased to announce the Company’s results for the year ended 30 June 2022.

Capital Return	As at 30 June 2022	As at 30 June 2021	% change
Net asset value (“NAV”) per Ordinary share	316.21p	350.05p	(9.7)%
Ordinary share price	280.00p	311.00p	(10.0)%
Comparative index*	5,164.05	6,213.89	(16.9)%
Discount of Ordinary share price to NAV	(11.5)%	(11.2)%
Average discount of Ordinary share price to NAV for the year	(12.6)%	(17.7)%
Total assets (£000)	177,198	223,759	(20.8)%
Equity Shareholders’ funds (£000)	175,030	221,569	(21.0)%
Ordinary shares in issue with voting rights	55,352,088	63,296,844	-

Performance	Year ended 30 June 2022	Year ended 30 June 2021
NAV total return for the year	(9.2)%	46.8%
Share price total return for the year	(9.5)%	59.9%
Comparative index* total return for the year	(14.6)%	65.2%
Ongoing charges	1.08%	1.07%
Ongoing charges (including performance fee)	1.08%	1.07%
Revenue return per Ordinary share	2.43p	1.34p
Dividend yield	0.7%	0.5%
Proposed final dividend for the year	2.00p	1.60p

Year’s Highs/Lows	High	Low
NAV per Ordinary share	362.5p	312.3p
Ordinary share price	322.0p	267.0p

*FTSE Small Cap (ex Investment Trusts) index

Chairman’s Statement

Introduction

Over the course of the Company’s financial year the broad economic recovery from the Covid-19 pandemic, which had driven strong equity market performance during 2021, gave way to aftershocks from the unwinding of government stimulus and support measures, uncovering damage to the real economy and driving increasing macroeconomic and geopolitical uncertainty.

The spectre of sustained high inflation at levels not experienced in developed economies for many decades has in turn led to a dramatic shift in the outlook for interest rates which have rapidly increased to levels not seen since before the Global Financial Crisis of 2008. The shocking reality of war in Europe following Russia’s invasion of Ukraine has heightened uncertainty, destabilised commodity markets and led to unprecedented increases in energy prices which have added further fuel to inflation.

This challenging backdrop has inevitably negatively impacted market sentiment and led to a sharp sell-off in most mainstream asset classes including global equities. The effect has been particularly acute within the area of UK Smaller Companies, where your Company focuses, driving significant volatility. This volatile market environment can be a double edged sword for the Company. On the one hand our portfolio companies face economic headwinds and a more uncertain outlook. On the other hand weaker share prices and the market’s tendency to over-discount shorter term issues and under appreciate the longer term prospects of fundamentally sound businesses can be a fertile hunting ground and plays to the strengths of the Manager’s established and proven investment process.

Weaker equity markets, particularly in the area of UK Smaller Companies, has increasingly been attracting the attention of well funded private equity funds seeking to take advantage of the relative valuation discount being applied to publicly listed companies compared to prevailing private market transaction valuation multiples. The Company’s portfolio has been a beneficiary of this phenomenon with takeover approaches for a number of companies over the past two years. During the period we made full realisations through takeover offers for Clinigen, Proactis and Equiniti all from private equity buyers. River & Mercantile was also fully exited post period end to a trade consolidator. The Company is positioned as a high conviction concentrated portfolio of high quality businesses that have the potential to be strategically valuable. As such it remains susceptible to further approaches while valuation multiples remain depressed. This, together with the underlying financial health of the portfolio despite the weaker economic environment, provides the Board with confidence that our investment management team will be able to generate good long term returns for shareholders in the Company.

Performance

During the twelve months to 30 June 2022, the Company’s share price decreased by 9.5% on a total return basis, while its NAV per share (on a total return basis) decreased by 9.2%. In contrast to the FTSE Small Cap (ex Investment Trusts) Total Return Index (“FTSE Small Cap Index”), which we use for comparison purposes only, fell by 14.6%. In the year to date up to 30 September 2022 these latter figures are even more

dramatic with the Company’s NAV decreasing by 17.6% while the FTSE Small Cap Index has fallen by a much larger amount of 26.6%. This is particularly encouraging as those sectors in which the Company does not invest such as Oil & Gas, Mining and Banks were those which performed best during the year.

Returns, on both an absolute and relative basis, have been encouraging over the medium term which the Board considers to be a more meaningful measure of performance; over the five years ending 30 June 2022, the NAV total return was 4.8% on an annualised basis, against the annualised comparator return of 3.7%. Over the five years ending 30 June 2022, the share price total return was 5.2% on an annualised basis.

Absolute NAV performance has inevitably been weaker during the year as a result of the broad market sell-off. However, the relatively defensive positioning of the portfolio, focused on higher quality companies exposed to areas of structural growth where they have a degree of pricing power and operate largely in businesses with resilient fundamentals and strong balance sheets has enabled the Company to outperform

its comparator and many of its peers during the period. It should also be noted that the Company has a deliberate policy of not investing into the natural resources sector where earnings are more dependent on the price of commodities which are outside of managements’ direct control. During the Company’s year commodity prices have been generally strong leading to outperformance by natural resources stocks.

This performance is discussed more fully in the Investment Manager’s Report on page 7 of the Annual Report.

Development of the Company

Ken Wotton (Managing Director, Public Equity at Gresham House) has been Lead Manager of the Company since September 2020. Since then Ken and his team have gradually repositioned the portfolio into a high conviction set of businesses, many of which the Company now holds strategic and influential equity stakes in. These form the platform from which the Manager implements its highly differentiated and engaged Strategic Public Equity strategy (summarised in the Investment Manager’s Report on page 7 of the Annual Report).

Gresham House plc, directly and indirectly through its in-house funds, has continued to purchase shares in the Company.

Just before Christmas, we received an unsolicited approach from the Board of Odyssean Investment Trust plc to merge your trust with theirs. After thorough consideration of the proposals with our advisers and detailed discussions with some of our largest shareholders, the Board decided to back a counter-proposal developed in conjunction with our current manager and to continue to support Ken Wotton our lead portfolio manager and the Gresham House Strategic Equity team.

Discount and Discount Management

The average discount to NAV of the Company’s shares during the period was 12.6%, compared to the equivalent 17.7% figure from the prior year. The discount range was 4.2% to 16.7%. The share price discount to NAV ended the period at 11.5%. At the date of this statement the discount was 8.3%.

The Board has announced a series of proposals which it believes will address the persistent discount. These include:

• the implementation of a tender offer for up to 10 per cent. of the Company’s share capital. The tender offer was approved by shareholders on 23 March 2022 and a total of 6,329,685 shares were repurchased at a cost of 322 .8748 pence per share.
• following the completion of the initial tender offer, the implementation of a share buyback programme for up to an additional approximate 9 per cent. of NAV with shares repurchased during the 2022 calendar year at a discount to NAV of greater than 5 per cent;
• a new buyback policy to return 50 per cent. of proceeds from profitable realisations, at greater than a 5 per cent. discount on an ongoing basis, in each financial year, commencing in the financial year ending 30 June 2023;
• a commitment by Gresham House plc to use £5 million of its cash resources to purchase shares by June 2023 at greater than a 5 per cent. discount;
• an ongoing commitment by Gresham House Asset Management to reinvest 50 per cent. of its management fee per quarter in shares if the Company’s shares trade at an average discount of greater than 5 per cent. for the quarter; and
• the deferral of the continuation resolutions that would otherwise be proposed at the Company’s Annual

General Meetings in 2022, 2023 and 2024 in favour of the implementation of a 100 per cent. realisation opportunity for shareholders in 2025, the structure and timing of which will be communicated by the Board in due course.

The Board

I am delighted to welcome Annie Coleman to your board as a new non-executive director. Annie was appointed as a director on 14 February 2022 and brings a wealth of financial services and strategic marketing experience at blue chip organisations including Goldman Sachs, UBS and Unicredit. She has already made a positive impact supporting the Company’s distribution and marketing strategy.

As I have already announced I shall be retiring from the Board at the AGM in November 2022. The Board is

undertaking a rigorous selection process for the new Chairman and expect to announce the appointment of my successor in the near future.

I would like to thank my Board colleagues for their support throughout my period as Chairman. It has been

a great pleasure working with such a dedicated, able and hard working team.

Gearing and Cash Management

The Company has maintained its policy of operating without a banking loan facility. This policy is reviewed

annually by the Board in conjunction with the Investment Manager. The Board, together with the Investment

Manager, has a conservative approach to gearing because of the concentrated nature of the portfolio. No gearing has been in place at any point during the period. Cash balances are generally maintained to take advantage of suitable investment opportunities as they arise.

Dividend

For the year ended 30 June 2022 the basic revenue return per share was 2.43p (2021: 1.34p; 2020: 0.38p). Although the Company is predominantly focused on delivering long term capital growth, due to the strongly cash generative nature of the majority of the portfolio companies and low capital intensity, many pay an attractive dividend. Accordingly, the Board is proposing a final dividend of 2.00p per share for the year ending 30 June 2022 (2021: 1.60p per share; 2020: 1.25p per share; 2019: 1.5p per share), payable on 16 November 2022 to shareholders on the register as at 14 October 2022.

Outlook

With no sign of a de-escalation of the war in Ukraine and with central banks and policy makers scrambling to tackle soaring inflation it is hard to be optimistic about the near term prospects for the UK or global economies. Inevitably this uncertain environment will lead to ongoing periods of market volatility over the coming year and potentially beyond. The relatively low valuation of the UK equity market compared to other international markets, particularly the USA, as well as the material discount being applied to UK Smaller Companies should provide some degree of downside protection. This, combined with a wealth of high quality UK listed companies with strong longer term prospects and the ongoing elevated level of takeover

activity, all give some cause for optimism when it comes to the Company’s portfolio and the potential to deploy capital into attractive new opportunities.

The resilient positioning of the Company’s portfolio should enable it to outperform in the current challenging

environment and deliver attractive long-term capital growth when markets stabilise. Allied with the new and

enhanced marketing programme, ongoing share buybacks and purchases by Gresham House we expect to see the discount narrow further over the coming year.

I step down in the knowledge that the Company’s portfolio is managed by a highly talented and well led investment team complemented in all areas by first class service providers. I wish them the best of good fortune in the years ahead.

The Board, once again, thanks you for your continued support.

Richard Hills

Chairman

5 October 2022

The Investment Manager’s Report

Investment Strategy

In the following section, we remind shareholders of our strategy and investment process.

Our Strategic Public Equity strategy

The appointment of Gresham House as Manager in May 2020 and the subsequent appointment of Ken Wotton as Lead Fund Manager in September 2020 resulted in a refocus of the investment strategy ensuring that it is strictly applied and is able to effectively leverage the experienced resource of the Gresham House Strategic Equity team, the wider Group platform and its extensive network. We set out this strategy in detail in the Company’s 2021 Annual Report which we summarise again below.

Investment focus

Our investment focus is to invest into high quality, publicly quoted companies which we believe can materially increase their value over the medium to long term through strategic, operational or management change. To select suitable investments and to assist in this process we apply our proprietary Strategic Public Equity (“SPE”) investment strategy. This includes a much higher level of engagement with management than most investment managers adopt and is closer in this respect to a private equity approach to investing in public companies. Our path to achieving this involves constructing a high conviction, concentrated portfolio; focusing on quality business fundamentals; undertaking deep due diligence including engaging our proprietary network of experts and assessing ESG risks and opportunities through the completion of the ESG

decision tool; and maintaining active stewardship of our investments. Through constructive, active engagement with the management teams and boards of directors, we seek to ensure alignment with shareholder objectives and to provide support and access to other resource and expertise to augment a company’s value creation strategy.

We are long-term investors and typically aim to hold companies for three to five years to back a thesis that

includes an entry and exit strategy and a clearly identified route to value creation. We have clear parameters for what we will invest in and areas which we will deliberately avoid.

Smaller company focus

We believe that UK Smaller Companies represent a structurally attractive part of the public markets.

Academic research demonstrates that smaller companies in the UK have delivered substantial  outperformance over the long term with the Numis Smaller Companies Index delivering a 3.1 percentage point compound premium return per annum since 1955 relative to the UK stock market as a whole. This is partially because there is a large number of under-researched and under-owned businesses that typically trade at a valuation discount to larger companies (see Figure 1 on page 8 of the Annual Report) and relative

to their prospects. A highly selective investor with the resources and experience to navigate successfully

this part of the market can find exceptional long-term investment opportunities.

The key attractions of smaller companies are:

• Inefficient markets – Smaller companies remain under-researched and below the radar for most investors thus creating an opportunity for those willing to devote time and resource to this area.
• A large universe – Most UK listed companies are in the smaller companies category and are listed on the main market or AIM. Two-thirds of UK listed companies have a market capitalisation below £500m, offering a large opportunity set for smaller company specialists.
• Valuation discounts – Such discounts, arising for whatever reason, present attractive entry points at

which the intrinsic worth of a company’s long-term prospects are undervalued.

• M&A activity – Smaller companies often offer strategic opportunities within their niche markets and can become attractive, potential acquisition targets for both trade and private equity buyers. These buyers provide an additional source of liquidity and realisation of value for smaller company investors.

Portfolio construction

We will maintain a concentrated portfolio of 15-25 high conviction holdings with prospects for attractive absolute returns over our investment holding period. The majority of portfolio value is likely to be concentrated in the top 10-15 holdings with other positions representing potential “springboard” investments where we are still undertaking due diligence or awaiting a catalyst to increase our stake to

an influential, strategic level.

Bottom-up stock picking determines SEC’s sector weightings which are not explicitly managed relative to

a target comparator weighting. The absence of certain sectors such as Oil & Gas, Mining, and Banks, as well as limited exposure to overtly cyclical parts of the market, and the absence of early stage or pre-profit businesses typically result in a portfolio weighted towards, but not exclusively, profitable cash generative service sector businesses particularly in technology, healthcare, business services, financials and industrials. The underlying value drivers are typically company specific and exhibit limited correlation even within the same broad sectors. Figure 2 on page 8 of the Annual Report sets out the sector exposure of the Fund

as at 30 June 2022.

Our smaller company focus and specialist expertise leads us to prioritise companies with a market capitalisation between £100m and £300m at the point of investment. This focus, in combination with the size of the Trust and its concentrated portfolio approach, provides the potential to build a strategic and influential stake in the highest conviction holdings. In turn this provides a platform to maximise the likelihood that our constructive active engagement approach will be effective and ultimately successfully contribute to shareholder value creation.

Once purchased there is no upper limit restriction on the market capitalisation of an individual investment. We will run active positions regardless of market capitalisation provided they continue to deliver the expected contribution to overall portfolio returns and subject to exposure limits and portfolio construction considerations.

The average market capitalisation of portfolio holdings decreased to £231m as at 30 June 2022 compared to

£367m as at 30 June 2021 reflecting a combination of weaker share prices as equity markets sold off during 2022 and the Manager’s strategy of focusing on smaller market capitalisation companies where SEC has the potential to take a meaningful equity stake as a platform to effectively apply its active engagement strategy.

We set out a description of the Top 10 holdings as at 30 June 2022 in the Investment Manager’s Report

on page 12 of the Annual Report together with a high level summary of the investment case and recent developments for each position.

Constructive Active Engagement Approach

As far as possible, SEC aims to build consensus with other stakeholders. We want to unlock value for shareholders, but also create stronger businesses over the long term. The objective is to develop a dialogue with management so that the GHAM team and its network are seen as trusted advisors.

Operating with a highly-focused portfolio, SEC’s management team can build and maintain a deep understanding of its portfolio companies and their potential. The team engages with company management teams and boards in a number of areas including:

• Strategy – Working with boards to ensure business strategy and operations are effectively aligned with long term value creation and focused on building strategic value within a company’s market.
• Corporate activity – Support for acquisition and divestment activity through advice, network introductions and provision of cornerstone capital.
• Capital allocation – Seeking to work with boards to optimise capital allocation by prioritising the highest return and value added projects and areas of focus for investment of both capital and resource.
• Board composition – Ensuring that boards are appropriately balanced between executive and nonexecutive directors and contain the right balance of skills and experience; we actively use our talent network to introduce high quality candidates to enhance the quality of investee company boards as appropriate.
• Management incentivisation – Ensuring that key management are appropriately retained and incentivised to deliver long term shareholder value with schemes that fit with GHAM’s principles and are well aligned to our objectives as shareholders.
• ESG – Leveraging the Gresham House sustainable investing framework and central resource to help to identify, understand and monitor key ESG risks and opportunities as well as seeking to drive enhancements to a company’s approach where there are critical material issues with a particular focus on corporate governance.
• Investor Relations – Helping management teams to hone their equity story, select appropriate advisors and target their investor relations activities in the most effective way to ensure that value creation activity is understood and reflected by the market.

Engagement is undertaken privately, as far as possible. The team will also work to leverage its extensive network to the benefit of portfolio companies. We seek to make introductions to our network in as collaborative way as appropriate where we believe there is an opportunity to support initiatives to create shareholder value.

In summary, we follow a practice of constructive corporate engagement and aim to work with management teams in order to support and enhance shareholder value creation. We attempt to build a consensus with other stakeholders and prefer to work collaboratively alongside likeminded co-investors.

Portfolio review for the twelve months to 30 June 2022

Over the course of the financial year we have made good progress with the transition of the portfolio: purchasing five new holdings which represented 8% of NAV at the end of the period, fully exiting six positions (including two post period end) which represented 23% of NAV at the start of the period, and adding to a number of core positions. At the end of the period the number of influential equity stakes where GHAM funds, in aggregate, hold a 5% or more equity stake now stands at nine, and represented 62% of the portfolio by value at 30 June 2022.

Market Background

Over the twelve months to the end of June, the FTSE Smaller Companies (ex Investment Trusts) Index fell by 14.6% on a total return basis underperforming the FTSE All Share (+1.6%) but outperforming the FTSE AIM (-29.8%). The market witnessed a substantial style shift from growth to value as expectations of increasing interest rates took hold. This led to certain more value orientated sectors outperforming such as Oil & Gas, Mining and Banks, all areas where the Fund does not invest.

Significant geopolitical and macroeconomic uncertainty dominated the market tone and resulted in overall weaker risk appetite, falling share prices particularly in smaller companies and heightened market volatility. This was exacerbated during the second half of the Trust’s financial year after the Russian invasion of Ukraine increased geopolitical instability and disrupted commodity markets with global ramifications.

Performance Review

The net asset value (“NAV”) decreased 9.2%, on a total return basis, over the twelve months to the end of June, closing at 280p per share. This reduction in NAV reflected the volatile equity market conditions over the period as sentiment deteriorated due to increasing concerns around persistently high inflation, rising interest rates, supply chain disruption, and the ongoing aftereffects of the Covid-19 pandemic, heightened further by the Russia/Ukraine conflict during the second half of the financial year. Although NAV per share fell on an absolute basis, the Fund outperformed the FTSE Smaller Companies (ex Investment Trusts) Index which fell by 14.6%. This reflected the relatively defensive positioning of the portfolio compared to the wider market – focused on high quality businesses in less cyclical parts of the market and with resilient business models and robust balance sheets. This outperformance was achieved without exposure to sectors such as Oil & Gas, Mining or Banks which were strong relative performers during the year.

Despite the market volatility experienced over the year, we remain confident about the resilient underlying fundamentals of the portfolio companies and their ability to withstand the macroeconomic headwinds that look set to persist through the current financial year.

Clinigen, a specialist pharmaceutical services provider and the largest portfolio holding during the year, was the largest positive contributor during the period after receiving a takeover approach from European private equity firm Triton at a substantial premium to the undisturbed market price and delivering a full exit for the Fund. Wilmington, a professional media provider, delivered strong operational performance and upgraded financial forecasts benefitting from a substantial period of restructuring and a refocused strategy supported by the Gresham House team. River & Mercantile was also the recipient of a takeover approach from AssetCo, another listed asset management sector consolidator. It had previously sold its investment solutions and fiduciary management division to Schroders unlocking the value we believed was present in the sum of the constituent parts at the point of the Fund’s initial investment. Iomart, a datacentre and cloud services provider, is a recent smaller addition to the portfolio during the year and delivered results ahead of depressed market expectations following a protracted period of underperformance which drove a positive re-rating. Harworth, delivered results ahead of expectations and narrowed its valuation discount relative to the NAV of its asset portfolio after which we made a full exit from the position.

In challenging equity market conditions a number of the portfolio holdings suffered from share price weakness during the period, reversing the very positive trend during the prior year. The largest detractors included Tyman, a global supplier of building hardware which was de-rated on concerns about supply chain disruption and inflationary cost pressures despite delivering numbers in line with market expectations and demonstrating it has managed these issues effectively; Hyve, an events business was forced to exit its key Russian operations due to the Ukraine conflict; Inspired, an energy consultancy, was de-rated on negative sentiment due to the disruption to the UK energy market; Medica, a provider of outsourced teleradiology services was de-rated on no specific news which we used as an opportunity to increase the Fund’s position; and LSL Property Services, which de-rated on a weaker outlook for the UK housing market despite strong performance against its strategy to reposition the group as a financial services focussed business.

Portfolio Review

The portfolio remained highly focused with a total of 18 holdings. The top 10 accounted for 73% of the NAV at the end of the period, with 9% of the NAV held in cash at the period end.

Over the period positions in Alliance Pharma (IRR of 32%); Clinigen (IRR of 19%); Equiniti (IRR of 8%); Harworth (IRR of 18%); Hyve (IRR of -26%); and Proactis (IRR of -20%) were fully exited, with River & Mercantile (IRR of 37%) also exited post period end.

The elevated level of takeover activity in the UK equity market impacted the Fund during the year with Clinigen, Equiniti and Proactis receiving private equity approaches; River & Mercantile a trade approach; and Idox also receiving a potential offer from a trade buyer that was ultimately rejected. Given the current valuation discount being applied to UK smaller listed companies relative to their larger peers and overseas and private market comparables we expect takeover activity to remain buoyant. We believe the Fund currently has a number of key holdings which currently trade at material valuation discounts to comparable private market transaction values which provides a strong margin of safety on the long term upside potential of the portfolio.

We also took some profits from Wilmington following a strong share price performance during the period, delivering an IRR of 3.5% on the tranche divested.

New investments were initiated in Iomart, a datacentre and cloud services provider; Nexus Infrastructure, a specialist electrical engineering services provider; R&Q Investment Holdings, a specialist niche insurance services provider; Ricardo, a leading global environmental and automotive consultancy; and River & Mercantile, an independent fund manager and investment services firm (since exited).

Changes in sector weightings have seen exposure to Healthcare decrease from 26.2% to 16.2%following the exit from Clinigen, whilst Financial Services has increased from 23.1% to 25.2% largely due to increases to the position in XPS. Real Estate has reduced to a 5.9% weighting following the exit from Harworth. Other sector weightings have changed less materially.
Top 10 Investee Company Review

(as at 30 June 2022)

Company	Investment Thesis	Developments during the year
Medica 12.2% of NAV Healthcare	A niche market leader in the UK teleradiology sector which is acyclical and is growing rapidly driven by increasing healthcare requirements and a structural shortage of radiologists Above market organic growth and underappreciated cash generation characteristics Discounted valuation relative to comparable private market transaction multiples	Rad MD and Irish acquisitions performing strongly Covid recovery and backlog in routine procedures supporting core business demand Future Tech investment progressing well
XPS 10.8% of NAV Financial Services	Leading ‘challenger’ brand in the pensions administration and advice market with organic market share opportunity following industry consolidation Highly defensive - high degree of revenue visibility and largely non-discretionary, regulation driven client activity with inflation protected contracts Below market rating despite favourable cash flow characteristics	Inflation protected contracts driving acceleration in revenue growth Strong visibility of regulatory changes driving sector demand Strong cash generation supporting growing dividend
Tribal 8.2% of NAV Technology	International provider of student administration software with market leading positions in the UK, Australia and NZ Strong defensive characteristics with high visibility of earnings Transition to cloud-based platform has potential to drive growth, margins and rating Low valuation relative to software sector averages and sector transaction multiples	Tribal Edge contract wins accelerating transition to SaaS Bolt on acquisitions expanding product portfolio and cross selling opportunities into existing base Prospects for improving cash generation as development investment moderates
Inspired Energy 7.7% of NAV Industrial Goods & Services	UK B2B corporate energy services and procurement specialist with strong ESG credentials Leading player in a fragmented industry; significant opportunity to gain market share through client wins, proposition extension and M&A Valued at a substantial discount to comparable private market transaction multiples	UK energy market disruption has reduced short term revenue visibility in procurement High energy costs have driven accelerated growth in optimisation services ESG revenues accelerating from a low base
Brooks Macdonald 6.8% of NAV Financial Services	UK focused wealth management platform; structural growth given continuing transition to self-investment Opportunity to leverage operational investments to grow margin and continue strong cash flow generation A consolidating market; opportunity for Brooks as both consolidator and potential target with recent takeover interest for sector peers	Return to organic net inflows despite market weakness Strategic technology partnership with SS&C underpins future scalability Sector takeover activity for Charles Stanley and Brewin Dolphin highlights margin of safety on valuation
Wilmington 6.7% of NAV Media	International provider of B2B data and training in the compliance, insurance, financial and healthcare sectors New top team have reshaped the strategy and portfolio of businesses Operational momentum driving revenue and margin growth with potential for a valuation re-rating	Profit and cash generation ahead of expectations driving forecast upgrades Recovery in live events underpinning growth and margin recovery Sector consolidation underlines valuation opportunity
LSL Property Services 5.9% of NAV Financial Services	Leading provider of services to the UK residential property sector with activities spanning mortgage broking, surveying and real estate agencies Significant opportunity to reallocate capital to the Financial Services division which is strategically valuable, high growth and underappreciated by the market Potential for a material re-rating as business mix shifts to higher quality less cyclical divisions	Uncertain housing market driving volatility into Estate Agency division Strong progress in financial services Improved proposition and growth opportunity in Surveying
Fintel 5.3% of NAV Financial Services	Leading UK provider of technology enabled regulatory solutions and services to IFAs, financial institutions and other intermediaries Strategically valuable technology platform with opportunity to drive material growth in revenues and margins through supporting customers’ digitisation journeys	Departure of non-executive Chairman has created founder succession uncertainty Digital transition progressing with non-core divestment activity Cash generation strong resulting in significant balance sheet de-geaaring
Hostelworld 4.8% of NAV Travel & Leisure	Leading online travel agent serving the global niche segment of hostelling Business rationalised and optimised during Covid with enhanced customer value proposition Recovery from Covid market dynamics well advanced with strong margin recovery potential	Revenues have recovered to pre-Covid levels with further volume recovery still to come Average order value and customer lifetime values improving Technology and app investment starting to deliver a positive impact
Ten Entertainment 4.2% of NAV Travel & Leisure	Leading UK operator of ten pin bowling centres High ROCE operating model with strong cash characteristics Improving competitive and property dynamics post Covid driving a long term growth opportunity	Strong like-for-like trading performance relative to pre-Covid levels demonstrating demand resilience Accelerated site expansion ongoing Balance sheet de-gearing will support a return to dividends

Outlook

The Manager’s core planning assumption is that continued geopolitical and macroeconomic uncertainty will drive market volatility throughout the remainder of the calendar year and well into 2023. Markets have not had to deal with rising interest rates and elevated inflation for a considerable period of time and the medium-to-long term ramifications of this for share prices is highly uncertain.

The Manager does not seek to make major macroeconomic predictions or to tilt portfolio construction materially in any direction to mitigate or benefit from macro trends. Rather the core focus remains building a portfolio bottom up by investing in high-quality, resilient companies exposed to structural growth, key competitive advantages or self-help opportunities and maintain valuation discipline such that they could drive attractive investment returns over the medium-to-long term regardless of the economic environment and where the Manager’s constructive active engagement approach can help to support or unlock that potential.

The Manager continues to believe that stock-level volatility across the market, while creating some challenges, will provide an attractive environment for investors to back quality companies with attractive long-term structural capital growth at reasonable valuations across the market cap spectrum. The economic environment and market discontinuity will provide agile smaller businesses with strong management teams the opportunity to take market share and build strong, enduring franchises.

The elevated levels of corporate activity within the UK equity space continue to play out. The investment process and private equity lens across public markets position enables identification of investment opportunities with potential strategic value that could be attractive acquisitions for both, corporate and financial buyers.

We continue to believe that our fundamental focused investment style has the potential to outperform over the long term. We see significant opportunities for long term investors to back quality growth companies at attractive valuations in an environment where agile smaller businesses with strong management teams can take market share and build strong long-term franchises. We will maintain our focus on building a high conviction portfolio of less cyclical, high quality, strategically valuable businesses which we believe can deliver strong returns through the market cycle regardless of the performance of the wider economy.

Portfolio as at 30 June 2022

					% of invested portfolio at		% of invested portfolio at		% of
		Date of first	Cost	Valuation		30 June		30 June		net
Company	Sector Classification	Investment	£000	£000		2022		2021		Assets
Medica	Healthcare	Mar 2017	19,120	21,324		13.3%		11.6%		12.2%
XPS	Financial Services	Jul 2019	16,851	18,894		11.8%		9.2%		10.8%
Tribal	Technology	Dec 2014	11,742	14,340		9.0%		7.8%		8.2%
Inspired Energy	Industrial Goods &	Jul 2020	13,325	13,480		8.4%		6.3%		7.7%
	Services
Brooks Macdonald	Financial Services	Jun 2016	9,810	11,908		7.4%		5.0%		6.8%
Wilmington	Media	Oct 2010	10,113	11,807		7.4%		6.3%		6.8%
LSL Property Services	Real Estate	Mar 2021	13,256	10,343		6.5%		4.8%		5.9%
Fintel	Financial Services	Oct 2020	8,573	9,221		5.8%		5.1%		5.3%
Hostelworld	Travel & Leisure	Oct 2019	9,137	8,478		5.3%		4.5%		4.8%
Ten Entertainment	Travel & Leisure	Oct 2020	6,372	7,387		4.6%		3.8%		4.2%
Tyman	Construction&Materials	Apr 2007	7,318	7,348		4.6%		6.1%		4.2%
Benchmark	Healthcare	Jun 2019	6,734	6,937		4.3%		4.5%		4.0%
Iomart	Technology	Mar 2022	4,346	4,736		3.0%		-		2.7%
Ricardo	Construction&Materials	Sep 2021	4,713	4,026		2.5%		-		2.3%
Nexus Infrastructure	Construction&Materials	Jul 2021	4,523	3,412		2.1%		-		1.9%
Randall & Quilter	Financial Services	Jun 2022	2,665	2,697		1.7%		-		1.6%
Idox	Technology	Mar 2021	2,486	2,349		1.5%		1.2%		1.3%
AssetCo*	Financial Services	Jun 2022	-	1,263		0.8%		-		0.7%
Total Investments				159,950						91.4%
Cash				16,363						9.3%
Net current liabilities				(1,283)						(0.7%)

Total shareholders’ funds     175,030       100.0%

*AssetCo completed their purchase of River & Mercantile in August 2022.

Ken Wotton

Gresham House Asset Management

5 October 2022

Statement of Comprehensive Income

	Year ended 30 June 2022
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Investments
Losses on investments held at fair value through profit or loss	-	(21,776)	(21,776)
	-	(21,776)	(21,776)
Income
Dividends	4,173	-	4,173
Interest	6	-	6
Total income	4,179	-	4,179
Expenses Investment Manager’s fee	(1,564)	-	(1,564)
Other expenses	(1,128)	-	(1,128)
Total expenses	(2,692)	-	(2,692)
Net return before taxation	1,487	(21,776)	(20,289)
Taxation	-	-	-
Net return and total comprehensive income for the year	1,487	(21,776)	(20,289)
Return per Ordinary share	2.43p	(35.53)p	(33.10)p

The total column of this statement represents the Statement of Comprehensive Income prepared in accordance with IFRS. The supplementary revenue and capital return columns are both prepared under guidance published by the AIC. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.
Statement of Comprehensive Income

	Year ended 30 June 2021
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Investments
Gains on investments held at fair value through profit or loss	-	69,767	69,767
	-	69,767	69,767
Income
Dividends	2,382	-	2,382
Interest	1	-	1
Total income	2,383	-	2,383
Expenses Investment Manager’s fee	(894)	-	(894)
Other expenses	(643)	-	(643)
Total expenses	(1,537)	-	(1,537)
Net return before taxation	846	69,767	70,613
Taxation	-	-	-
Net return and total comprehensive income for the year	846	69,767	70,613
Return per Ordinary share	1.34p	110.22p	111.56p

Balance Sheet

			As at 30 June 2022			As at 30 June 2021
			£'000			£'000
Non-current assets
Investments held at fair value though profit or loss			159,950			215,756
Current assets
Trade and other receivables			885			423
Cash and cash equivalents			16,363			7,580
			17,248			8,003
Total assets			177,198			223,759
Current liabilities
Trade and other payables			(2,168)			(2,190)
Net assets			175,030			221,569
Capital and reserves
Share capital			6,353			6,986
Share premium account			11,300			31,737
Special reserve			19,767			24,567
Capital reserve			132,350			154,126
Capital redemption reserve			2,897			2,264
Revenue reserve			2,363			1,889
Total shareholders’ equity			175,030			221,569
Net asset value per share			316.21p			350.05p
Ordinary shares in issue			55,352,088			63,296,844

Statement of Changes in Equity

For the year ended 30 June 2022	Share capital	Share premium account	Special reserve	Capital reserve	Capital redemption reserve	Revenue reserve	Total
	£000	£000	£000	£000	£000	£000	£000
1 July 2021	6,986	31,737	24,567	154,126	2,264	1,889	221,569
Net return and total comprehensive income for the year	-	-	-	(21,776)	-	1,487	(20,289)
Dividends paid	-	-	-	-	-	(1,013)	(1,013)
Share buy-backs	(633)	(20,437)	(4,800)	-	633	-	(25,237)
30 June 2022	6,353	11,300	19,767	132,350	2,897	2,363	175,030
For the year ended 30 June 2021	Share capital	Share premium account	Special reserve	Capital reserve	Capital redemption reserve	Revenue reserve	Total
	£000	£000	£000	£000	£000	£000	£000
1 July 2020	6,986	31,737	24,567	84,359	2,264	1,834	151,747
Net return and total comprehensive income for the year	-	-	-	69,767	-	846	70,613
Dividends paid	-	-	-	-	-	(791)	(791)
30 June 2021	6,986	31,737	24,567	154,126	2,264	1,889	221,569

Statement of Cash Flows

	Year Ended 30 June	Year Ended 30 June
	2022	2021
	£000	£000
Operating activities
Net return before taxation	(20,289)	70,613
Adjustment for losses/(gains) on investments	21,776	(69,767)
Operating cash flows before movements in working capital	1,487	846
Increase in receivables	(219)	(368)
(Decrease)/increase in payables	(19)	366
Purchase of portfolio investments	(36,443)	(61,324)
Sales of portfolio investments	70,129	54,950
Net cash flow from operating activities	34,935	(5,530)
Financing activities
Equity dividend paid	(1,013)	(791)
Shares bought back in the year	(25,139)	-
Net cash outflow from financing activities	(26,152)	(791)
Increase/(decrease) in cash and cash equivalents for year	8,783	(6,321)
Cash and cash equivalents at the start of the year	7,580	13,901
Cash and cash equivalents at 30 June	16,363	7,580

Principal and Emerging Risks

The Board believes that the overriding risks to shareholders are events and developments which can affect the general level of share prices, including, for instance, inflation or deflation, economic recessions and movements in interest rates and currencies which are outside of the control of the Board.

The principal risks and uncertainties are set out on pages 18 and 19 of the Annual Report.

Responsibility statement of the Directors in respect of the Annual Financial Report

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

• the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that it faces.

We consider the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Going Concern

In assessing the Company’s ability to continue as a going concern the Directors have also considered the

Company’s investment objective, detailed on the inside front cover, risk management policies, detailed on

pages 18 and 19 of the Annual Report, capital management (see note 16 to the financial statements), the nature of its portfolio and expenditure projections and believe that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and for at least 12 months from the date of this Report. In addition, the Board has had regard to the Company’s investment performance (see page 3 of the Annual Report) and the price at which the Company’s shares trade relative to their NAV (see page 3 of the Annual Report).

The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration:

• cash and cash equivalents balances and the portfolio of readily realisable securities which can be used to meet short-term funding commitments;
• the ability of the Company to meet all of its liabilities and ongoing expenses from its assets;
• revenue and operating cost forecasts for the forthcoming year;
• the ability of third-party service providers to continue to provide services; and
• potential downside scenarios including stress testing the Company’s portfolio for a 25% fall in the value of the investment portfolio; a 50% fall in dividend income and the remainder of the share buy-backs for the 2022 calendar year under the current share buy-back programme, the impact of which would leave the Company with a positive cash position.

The Directors also considered the effects of the “mini-budget” announced by the UK Government on 23 September 2022. The consequences are not considered to affect the Company’s ability to continue as a going concern.

Based on this assessment, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and therefore have prepared the financial statements on a going concern basis.

Related Party Transactions and transactions with the Investment Manager

Fees paid to Directors are disclosed in the Directors’ Remuneration Report on page 40 of the Annual Report. Full details of Directors’ interests are set out on page 41 of the Annual Report.

City of London Investment Management is considered a related party by virtue of their holding of 28.9% of the Company’s total voting rights.  Further details are noted on page 28 of the Annual Report.

The amounts payable to the Investment Manager, which is not considered to be a related partgy, are disclosed in note 3 on page 58 of the Annual Report. The amount due to the Investment Manager for management fees at 30 June 2022 was £349,000 (2021: £403,000). The amount due to the Investment Manager for performance fees at 30 June 2022 was £nil (2021: £nil).

As detailed on page 5 of the Annual Report the Investment Manager, directly and indirectly though its in-house funds, has continued to purchase shares in the Company.

Notes

1.1 Corporate information

Strategic Equity Capital plc is a public limited company incorporated and domiciled in the United Kingdom and registered in England and Wales under the Companies Act 2006 whose shares are publicly traded. The Company is an investment company as defined by Section 833 of the Companies Act 2006.

The Company carries on business as an investment trust within the meaning of Sections 1158/1159 of the UK Corporation Tax Act 2010.

The financial statements of Strategic Equity Capital plc for the year ended 30 June 2022 were authorised for issue in accordance with a resolution of the Directors on 5 October 2022.

1.2 Basis of preparation and statement of compliance

The financial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, and reflect the following policies which have been adopted and applied consistently. Where presentational guidance set out in the Statement of Recommended Practice (“SORP”) for investment trusts issued by the AIC in February 2019 is consistent with the requirements of IFRS, the Directors have sought to prepare financial statements on a basis compliant with the recommendations of the SORP.

The financial statements of the Company have been prepared on a going concern basis.

The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration:

• cash and cash equivalents balances and the portfolio of readily realisable securities which can be used to meet short-term funding commitments;

• the ability of the Company to meet all of its liabilities and ongoing expenses from its assets;

• revenue and operating cost forecasts for the forthcoming year;

• the ability of third-party service providers to continue to provide services; and

• potential downside scenarios including stress testing the Company’s portfolio for a 25% fall in the value of the investment portfolio; a 50% fall in dividend income and a buy-back of 9% of the Company’s Ordinary share capital, the impact of which would leave the Company with a positive cash position.

Based on this assessment, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and therefore have prepared the financial statements on a going concern basis.

Convention

The financial statements are presented in Sterling, being the currency of the Primary Economic Environment in which the Company operates, rounded to the nearest thousand, unless otherwise stated to the nearest one pound.

Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.

As such, no segmental reporting disclosure has been included in the financial statements.

2. Income

	Year ended 30 June 2022
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Income from investments
UK dividend income	4,173	-	4,173
	4,173	-	4,173
Other operating income
Liquidity interest	6	-	6
Total income	4,179	-	4,179

	Year ended 30 June 2021
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Income from investments
UK dividend income	2,382	-	2,382
	2,382	-	2,382
Other operating income
Liquidity interest	1	-	1
Total income	2,383	-	2,383

3. Investment Manager’s fee

	Year ended 30 June 2022
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Management fee	1,564	-	1,564
	1,564	-	1,564

	Year ended 30 June 2021
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Management fee	894	-	894
	894	-	894

A basic management fee is payable to the Investment Manager at annual rate of 0.75% of the NAV of the Company. The basic management fee accrues daily and is payable quarterly in arrears.

The Investment Manager is also entitled to a performance fee, details of which are set out below.

The Company’s performance is measured over rolling three-year periods ending on 30 June each year, by comparing the NAV total return per share over a performance period against the total return performance of the FTSE Small Cap (ex Investment Trusts) Index. A performance fee is payable if the NAV total return per share (calculated before any accrual for any performance fee to be paid in respect of the relevant performance period) at the end of the relevant performance period exceeds both: (i) the NAV per share at the beginning of the relevant performance period as adjusted by the aggregate amount of (a) the total return on the FTSE Small Cap (ex Investment Trusts) Index (expressed as a percentage) and (b) 2.0% per annum over the relevant performance period (“Benchmark NAV”); and (ii) the high watermark (which is the highest NAV per share by reference to which a performance fee was previously paid).

The Investment Manager is entitled to 10% of any excess of the NAV total return over the higher of the Benchmark NAV per share and the high watermark. The aggregate amount of the Management Fee and the Performance Fee in respect of each financial year of the Company shall not exceed an amount equal to 1.4% per annum of the NAV of the Company as at the end of the relevant financial period.

A performance fee of £nil been accrued in respect of the year ended 30 June 2022 (30 June 2021: £nil).

4. Other expenses

	Year ended 30 June 2022
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Secretarial services	153	-	153
Auditors’ remuneration for:
Audit services*	43	-	43
Directors’ remuneration	140	-	140
Other expenses^	792	-	792
	1,128	-	1,128

	Year ended 30 June 2021
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Secretarial services	148	-	148
Auditors’ remuneration for:
Audit services*	35	-	35
Directors’ remuneration	135	-	135
Other expenses^	325	-	325
	643	-	643

*No non-audit fees were incurred during the year

^ Other expenses include £412,000 of costs in relation to the Company’s General Meeting and Circular to approve the various proposals outlined in the 9 February Stock Exchange announcement (2021: £63,000 in relation to the Company’s General Meeting requisition). 

5. Taxation

	Year ended 30 June 2022
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Corporation tax at 19.00%	-	-	-
	-	-	-

	Year ended 30 June 2021
	Revenue	Capital
	return	return	Total
	£'000	£'000	£'000
Corporation tax at 19.00%	-	-	-
	-	-	-

The Company is subject to corporation tax at 19.00%. As at 30 June 2022 the total current taxation charge in the Company’s revenue account is lower than the standard rate of corporation tax in the UK.

6. Return per Ordinary share

	Year ended 30 June 2022
	Revenue	Capital
	return	return	Total
	pence	pence	Pence
Return per Ordinary share	2.43	(35.53)	(33.10)
	2.43	(35.53)	(33.10)
	Year ended 30 June 2021
	Revenue	Capital
	return	return	Total
	pence	pence	Pence
Return per Ordinary share	1.34	110.22	111.56
	1.34	110.22	111.56

Returns per Ordinary share are calculated based on 61,286,517 (30 June 2021: 63,296,844) being the weighted average number of Ordinary shares, excluding shares held in treasury, in issue throughout the year.

7. Investments

	30 June 2022 £000
Investment portfolio summary:
Quoted investments at fair value through profit or loss	159,950
	159,950

	30 June 2021 £000
Investment portfolio summary:
Quoted investments at fair value through profit or loss	215,756
	215,756

Under IFRS 13, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in measuring the fair value of each asset. The fair value hierarchy has the following levels:

Investments whose values are based on quoted market prices in active markets are classified within level 1 and include active listed equities.

The definition of level 1 inputs refers to ‘active markets’, which is a market in which transactions take place with sufficient frequency and volume for pricing information to be provided on an ongoing basis. Due to the liquidity levels of the markets in which the Company trades, whether transactions take place with sufficient frequency and volume is a matter of judgement, and depends on the specific facts and circumstances. The Investment Manager has analysed trading volumes and frequency of the Company’s portfolio and has determined these investments as level 1 of the hierarchy.

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

Level 3 instruments include private equity, as observable prices are not available for these securities the Company has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines.

The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value of the investment.

The following table analyses within the fair value hierarchy the Company’s financial assets and liabilities (by class) measured at fair value at 30 June 2022.

Financial instruments at fair value through profit or loss

30 June 2022	Level 1 £000	Level 2 £000	Level 3 £000	Total  £000
Equity investments	159,950	-	-	159,950
Liquidity funds	-	2,463	-	2,463
Total	159,950	2,463	-	162,413

30 June 2021	Level 1 £000	Level 2 £000	Level 3 £000	Total  £000
Equity investments	215,756	-	-	215,756
Liquidity funds	-	2,457	-	2,457
Total	215,756	2,457	-	218,213

There were no transfers between levels for the year ended 30 June 2022 (2021: none).

8. Nominal Share capital

	Number	£000
Allotted, called up and fully paid Ordinary shares of 10p each:
Ordinary shares in circulation at 30 June 2021	69,858,891	6,986
Shares held in Treasury at 30 June 2021	(6,562,047)	(656)
Ordinary shares in issue per Balance Sheet at 30 June 2021	63,296,844	6,330
Shares bought back and cancelled during the year	(6,329,685)	(633)
Shares bought back during the year to be held in Treasury	(1,615,071)	(162)
Ordinary shares in issue per Balance Sheet at 30 June 2022	55,352,088	5,535
Shares held in Treasury at 30 June 2022	8,177,118	818
Ordinary shares in circulation at 30 June 2022	63,529,206	6,353

These are not statutory accounts in terms of Section 434 of the Companies Act 2006.  Full audited accounts for the year to 30 June 2022 will be sent to shareholders in October 2022 and will be available for inspection at 1 Finsbury Circus, London EC2M 7SH, the registered office of the Company. The full annual report and accounts will be available on the Company’s website www.strategicequitycapital.com

The audited accounts for the year ended 30 June 2022 will be lodged with the Registrar of Companies.