Annual Financial Report

RNS Number : 6734Y

abrdn UK Smaller Cos. Growth Trust

08 September 2022

 

abrdn UK Smaller Companies Growth Trust plc

Annual Financial Report for the year ended 30 June 2022

Legal Entity Identifier (LEI): 213800UUKA68SHSJBE37

Investment Objective

To achieve long-term capital growth by investment in UK-quoted smaller companies

Reference Index

The Company's reference index is the Numis Smaller Companies plus AIM (ex investment companies) Index.

Website

Up to date information can be found on the Company's website: abrdnsmallercompaniesgrowthtrust.co.uk

Performance Highlights and Financial Calendar

Net asset total returnAB			Share price total returnAB
-27.3%			-34.3%
2021	+41.9%		2021	+46.9%
Total dividends per share			Discount to net asset valueAB
8.10p			14.6%
2021	7.70p		2021	5.4%
Revenue return per share			Ongoing charges ratioABC
9.07p			0.82%
2021	6.43p		2021	0.88%
A Considered to be an Alternative Performance Measure.
B A Key Performance Indicator ("KPI").
C Calculated in accordance with AIC guidance issued in October 2020 to include the Company's share of costs of holdings in investment companies on a look-through basis.

Financial Calendar

Annual General Meeting (London)	20 October 2022
Payment of final dividend for year ending 30 June 2022	28 October 2022
Half year end	31 December 2022
Expected announcement of results for the six months ending 31 December 2022	February 2023
Payment of interim dividend for year ending 30 June 2023	7 April 2023
Financial year end	30 June 2023
Expected announcement of results for year ending 30 June 2023	September 2023

Financial Highlights

	30 June 2022	30 June 2021	% change
Capital return
Total assets	£538.6m	£793.2m	(32.1%)
Equity shareholders' funds	£498.6m	£728.2m	(31.5%)
Market capitalisationA	£425.9m	£688.8m	(38.2%)
Net asset value per share	530.37p	737.97p	(28.1%)
Share price	453.00p	698.00p	(35.1%)
Discount to NAVB	14.6%	5.4%
Net gearing B	5.1%	5.7%
Reference index	5,520.20	6,977.10	(20.9%)
Dividends and earnings
Revenue return per shareC	9.07p	6.43p	41.1%
Total dividends per shareD	8.10p	7.70p	5.2%
Operating costs
Ongoing charges ratioBE	0.82%	0.88%
A Represents the number of Ordinary shares in issue in the Company multiplied by the Company's share price.
B Considered to be an Alternative Performance Measure .
C Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income).
D The figures for dividend per share reflect the years in which they were earned (see note 8).
E Calculated in accordance with AIC guidance issued in October 2020 to include the Company's share of costs of holdings in investment companies on a look-through basis.

For further information, please contact:

Stephanie Hocking

Evan Bruce-Gardyne

abrdn Fund Managers Limited

0131 372 2200

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise.  Investors may not get back the amount they originally invested.

Chairman's Statement

Last year I stated that "underperformance in any period is obviously disappointing", but last year that disappointment was offset somewhat by the positive absolute performance of more than 40%. This year we are in a more challenging position; the share price and net asset value ("NAV") total returns are both negative and have also underperformed the reference index.

Performance

For the year ended 30 June 2022, the Company's NAV total return, calculated on the basis that all dividends received are reinvested in additional shares, was -27.3%. The share price total return, calculated on the same basis, was -34.3%. By contrast, the total return of the Company's reference index, the Numis Smaller Companies plus AIM (ex investment companies) Index, was -19.0%.

The fall in equity values in the first half of 2022 was a global phenomenon; most major equity indices were trading at lower levels on 30 June 2022 than they were in December 2021, on the back of macro-economic concerns related to the threat of supply-chain issues in the post-Covid recovery and then the impact of the Russian invasion of Ukraine in February 2022. The initial reaction to these concerns was a very severe rotation out of what the market classifies as "growth" stocks into "value" stocks, which began at the beginning of 2022. These rotations are a fact of economic life and take place from time to time. They are uncomfortable while they last but, thankfully, they typically do not last for long.

The tangible effect of this is that any shareholder who made an initial investment in the Company in the last two years will be nursing unrealised losses, and those who invested at the highs in September 2021 could be over 30% lower on their purchase price. While everyone should recognise that this is an unavoidable risk of investing in equities, we appreciate that it is nonetheless deeply disappointing. However, we should note that this outcome is not unique to shareholders in the Company; as shown in the table below, the peer group weighted average NAV total return for the year was -22.7% and the peer group weighted average share price total return was -28.4%. This highlights how the challenging market backdrop is the significant driver of performance across the sector.

As the Investment Manager sets out in its report, its expertise is in stock picking using a set of metrics, which have been rigorously back tested, to screen companies and help it select those with the desired growth and quality characteristics for the portfolio. During a significant rotation such as we are experiencing, the whole portfolio comes under pressure. The Investment Manager's challenge is to identify whether the market is misjudging and mispricing the outlook for an individual company, or whether the underlying investment thesis has changed, and adjust the holdings accordingly. The Investment Manager believes that the fact the portfolio holdings are out of favour with the market is explained by a change in sentiment and not by a change in the fundamentals of the companies in which the portfolio is invested, and has confidence in its investment approach.

The Board considers the Investment Manager's process to be tried and tested and it has yielded good results over the past two decades, albeit interspersed with periods of underperformance at times of market turbulence such as this. The Board monitors the performance, composition of the portfolio and focus on quality and growth as this is the basis upon which our shareholders have invested in the Company. Whilst a cautious approach, including on gearing, is appropriate as the UK economy faces significant challenge in the period ahead, any style drift or process change would increase risk significantly. The Board continues to believe that the opportunities remain for superior returns over the cycle.

Earnings and Dividends

The revenue return per share ("EPS") for the year ended 30 June 2022 was 9.07p (2021: 6.43p). The increase of 41.1% reverses the declines in the past two years and is the highest EPS the Company has ever generated, exceeding the 8.80p in 2019. The EPS was enhanced by 0.26p per share (2.9%) as a result of share buy backs undertaken during the year, but the level of investment income of £11.1 million is also £1.1 million higher than it was in 2019. It is helpful to be able to report that the contribution by special dividends was less than 1.5% of total income, which provides a degree of confidence in the potential of the portfolio in the coming year.

This higher level of earnings provides the Board with the capacity to increase the level of the final dividend, thereby increasing the total dividend per share for the year, which has been held at 7.70p for the last three years. The Board is therefore proposing a final dividend of 5.40p per share, making a total dividend for the year of 8.10p per share, a 5.2% increase on the dividend for 2021. In addition, over £1.1 million will be transferred to the Revenue Reserves, which will equate to approximately 4.0p per share after the proposed final dividend has been paid.

In making this decision, the Board is very aware of the challenging outlook for the UK economy and does not wish to raise the dividend to a level that might prove unsustainable in future years.

Subject to approval by shareholders at the Annual General Meeting, the final dividend will be paid on 28 October 2022 to shareholders on the register on 7 October 2022, with an associated ex-dividend date of 6 October 2022.

Ongoing Charges

The ongoing charges ratio ("OCR") for the year ended 30 June 2022 was 0.82 % (2021: 0.88%). The reduction is largely a function of a higher average NAV during the year as compared to 2021, and we would expect to see a reversal in this ratio in the coming year.

Discount Control and Share Buy Backs

At the year end the discount of the share price to the cum income NAV was 14.6% (2021: 5.4%).

Over the year, the Board bought back 4.7 million shares, equating to 4.7% of the Company's issued share capital, at a total cost of £29.7 million and a weighted average price of 632.2p per share. The weighted average discount at which the shares were repurchased was 9.1%. The Board calculates that this has added 2.9p per share to the NAV for remaining Shareholders.

The Company has been more active in buying back shares in the last 12 months than in any previous year since it last undertook a tender offer in 2015, buying back shares on over 130 days last year. The increased activity has been caused by the level of the discount, which has been wider than the 8% target that the Board references in normal market conditions.

Given the backdrop has been unfavourable for the UK smaller companies sector as a whole, it is to be expected that we would see the discount widen as it has across most of our peer group. The Board remains committed to its target of 8% and will continue to be active in the market when it believes it to be in the best interests of shareholders. 

Full details of the Board's discount control policy can be found in the Strategic Report below. The average discount for the year as a whole was 8.2%.

Gearing

The Board has given the Investment Manager discretion to vary the level of gearing between 5% net cash and 25% net gearing (at the time of drawdown). The Company has a £40 million revolving credit facility and a £25 million fixed-rate loan, providing it with total borrowing facilities of £65 million. At the year-end, £15 million of the revolving credit facility and the £25 million fixed-rate loan were drawn. The gross level of borrowings was offset by cash and cash equivalents of £15.0 million resulting in net gearing of 5.1% (2021: 5.7%).

The existing facilities will expire on 31 October 2022. The Board has reviewed its options and a range of proposals and is expecting to refinance the facilities when they expire.

The Investment Team

The Board noted the announcement by abrdn on 5 September 2022 that Harry Nimmo is retiring from the business on 31 December 2022. On behalf of the Board and shareholders, I would like to thank Harry for all that he has done for the Company. Harry was appointed as the portfolio manager of the Company when Standard Life Investments, as it then was, took on the mandate on 31 August 2003. At that time, the share price was 47.75p and net assets were £44 million. 19 years later, the share price was 482p and net assets are almost £500 million. With dividends reinvested, the total return is over 12 times the amount invested. To put this in context, the FTSE All-Share Index has delivered a total return of less than 3 times and the reference index has returned less than 5 times. We would like to wish Harry a long and happy retirement.

The mantle for managing the portfolio is being passed to Abby Glennie who has been co-manager of the portfolio since November 2020.  With Harry's retirement, Abby will be supported by Amanda Yeaman as deputy manager. The Board has been working with Abby now for several years and is pleased to have her and Amanda responsible for the portfolio and is comfortable that the change in personnel will not lead to a change of process.

The Board

There have been no changes to the Board which has now had consistent membership since 2019. We do, however, continue to review regularly the balance of attributes on our Board including skills, experience and diversity in all its forms to ensure the Board retains the right mix to carry out its role.  Following our discussions on rounding out Board skills and enhancing diversity, we decided to participate in the Board Apprentice programme. This has been running for a number of years and is dedicated to increasing diversity on boards by increasing the pool of board-ready candidates. After interviewing a number of candidates, we were pleased to appoint Jessica Norell Neeson in this role for a 12-month period from May 2022.  She will attend all Board and committee meetings and will take part in discussions when invited to do so. The role is unremunerated.

Annual General Meeting

The Company's Annual General Meeting ("AGM") will take place at 12 noon on Thursday 20 October 2022 at the offices of abrdn plc, Bow Bells House, 1 Bread Street, London EC4M 9HH. The meeting will include a presentation from the Investment Manager and will be followed by lunch. This is a good opportunity for shareholders to meet the Board and Manager and we would encourage you to attend. 

Shareholders will be able to submit questions in advance of the AGM at the following email address: [e-mail]. Should you be unable to attend the AGM, the Investment Manager's presentation will be made available to shareholders on the Company's website shortly after the meeting. The results of the AGM will also be published on the website.

In the meantime, the Board strongly encourages all shareholders to exercise their votes in respect of the AGM in advance of the meeting, and to appoint the Chairman of the meeting as their proxy, by completing the enclosed form of proxy form, or letter of direction for those who hold shares through the abrdn Investment Trust savings plans. This should ensure that your votes are registered.

Outlook

Anticipating the future is never easy, but given the severity of the economic and political turmoil that exists, giving guidance to shareholders right now is particularly complex.

The challenges facing Liz Truss as the UK's new Prime Minister are multi-fold and daunting, with inflation running into double digits for the first time in almost 40 years, expectation of a recession and interest rates on a rising trajectory. Action will need to be taken urgently on the cost-of-living crisis, most notably the rapidly rising cost of energy, but at the time of writing the policy decisions, which will impact the whole of the UK economy, are unclear.

The problem for UK policy is that the root causes of these issues are primarily driven by external events; the energy crisis caused by the Russian invasion of Ukraine in February coming on top of existing climate change challenges and the effects of global policy responses to the Covid pandemic. The aftermath of Covid has seen significant global economic disruption and social change which is still unfolding.

Against this backdrop, markets as a whole are likely to remain volatile, responding to economic and geo-political developments as they unfold. However, it is important to remember that the Investment Manager invests in companies and their management teams, not in markets, and the share prices of individual companies, particularly small cap companies, will not track the market pound for pound. This is especially the case when the companies are market leaders in their, often, specialist fields.  As a Board, we will be looking to ensure that the Investment Manager maintains a laser focus on identifying the next generation of market leading companies.

Liz Airey
Chairman
7 September 2022

Overview of Strategy

Business

The Company is an investment trust with a premium listing on the London Stock Exchange.

Investment Objective

The Company's objective is to achieve long-term capital growth by investment in UK-quoted smaller companies. 

Investment Policy

The Company intends to achieve its investment objective by investing in a diversified portfolio consisting mainly of UK-quoted smaller companies. The portfolio will normally comprise between 50-60 holdings representing the Investment Manager's highest conviction investment ideas. In order to reduce risk in the Company without compromising flexibility, no holding within the portfolio should exceed 5% of total assets at the time of acquisition.

The Company may use derivatives for portfolio hedging purposes (i.e. only for the purpose of reducing, transferring or eliminating the investment risks in its investments in order to protect the Company's portfolio).

Within the Company's Articles of Association, the maximum level of gearing is 100% of net assets. The Directors have set parameters of between 5% net cash and 25% net gearing (at the time of drawdown) for the level of gearing that can be employed in normal market conditions. The Directors have delegated responsibility to the Investment Manager for the operation of the gearing level within the above parameters.

Board Investment Limits

The Directors have set additional guidelines in order to reduce the risk borne by the portfolio:

-  Companies with a market capitalisation of below £50 million should not represent more than 5% of total assets.

-  Companies involved in "Blue Sky" products should not represent more than 5% of total assets.

-  No more than 50% of the portfolio should be invested in companies that are constituents of the FTSE AIM All-Share Index.

Investment Process

The Investment Manager's investment process combines asset allocation, stock selection, portfolio construction, risk management, and dealing. The investment process has evolved out of the Investment Manager's 'Focus on Change' philosophy and is led by Quality, Growth and Momentum. The Investment Manager's stock selection led investment process involves compiling a shortlist of potential investments using a proprietary screening tool known as "The Matrix" which reflects Quality, Growth and Momentum based factor analysis. The final portfolio is the result of intensive research and includes face to face meetings with senior management of these potential investments. This disciplined process has been employed for many years and has delivered a consistency of performance through economic and market cycles.

Reference Index

The Company's reference index is the Numis Smaller Companies plus AIM (ex investment companies) Index.

Delivering the Investment Objective

The Directors are responsible for determining the Company's investment objective and investment policy. Day-to-day management of the Company's assets has been delegated, via the Alternative Investment Fund Manager (the "AIFM"), to the Investment Manager.

Promoting the Success of the Company

The Board's statement below describes 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 and how they have promoted the success of the Company for the benefit of the members as a whole.

Key Performance Indicators ("KPIs")

The Board believes that the success of the Company is best served through the measurement of Key Performance Indicators ("KPIs"), details of which are included below.

The Board assesses the performance of the Company against the range of KPIs shown below over a variety of timeframes, but has particular focus on the long-term, which the Board considers to be at least five years.

KPI	Description
Net asset value ("NAV") total return performance	The Board measures the Company's NAV total return performance against the total return of the reference index (the Numis Smaller Companies plus AIM (ex investment companies) Index) and its peer group of investment trusts.
Share price total return performance	The Board measures the Company's share price total return performance against the total return of the reference index and its peer group of investment trusts.
Discount/premium to NAV	The Board compares the discount or premium of the Ordinary share price to the NAV per share to the discount of the peer group and also to the threshold of the Company's discount target on a rolling 12 month basis. The average discount for the year as a whole was 8.2%.
Ongoing charges	The Board monitors the Company's ongoing charges ratio against prior years and other similar sized companies in the peer group. The OCR for the year ended 30 June 2022 was 0.82%, including look-through costs. This compares to the range of the most recently reported full year OCRs, including performance fees, for comparable investment trusts in the UK smaller companies sector of between 0.80% and 1.38%.

Principal and Emerging Risks and Uncertainties

The Board carries out a regular review of the risk environment in which the Company operates, changes to the environment and individual risks. The Board also considers emerging risks which might affect the Company. During the year, the key risk was inflation and the resultant volatility that it created in global stock markets. In addition, recent events in Ukraine have created geo-political uncertainty which has further increased market risk and volatility.

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.

The principal risks and uncertainties faced by the Company are reviewed by the Audit Committee in the form of a risk matrix and the Committee also gives consideration to the emerging risks facing the Company.

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.

In terms of its appetite for risk, the Board has identified what it considers to be the key risks to which the Company is exposed and seeks to take a proportionate approach to the control of these risks. In particular, by considering the likelihood and impact of a specific risk, if the potential exposure is rated as Critical or Significant, the Board ensures that significant mitigation is in place to reduce the likelihood of occurrence whilst recognising that this may not be possible in all cases.

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.

Risk	Mitigating Action
Strategy - the Company's objectives or the investment trust sector as a whole become unattractive to investors, leading to a fall in demand for the Company's shares.	Through regular updates from the Manager, the Board monitors the discount/ premium at which the Company's shares trade relative to the NAV. It also holds an annual strategy meeting and receives feedback from the Company's Stockbroker and shareholders and updates from the Manager's investor relations team at Board meetings.
Investment performance - the appointment or continuing appointment of an investment manager with inadequate resources, skills or experience, or the adoption of inappropriate strategies in pursuit of the Company's objectives could result in poor investment performance, a loss of value for shareholders and a widening discount.	The Board meets the Manager on a regular basis and keeps investment performance under close review. Representatives of the Investment Manager attend all Board meetings and a detailed formal appraisal of the Manager is carried out by the Management Engagement Committee on an annual basis. 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, ESG matters, risk management and application of the investment guidelines.
Key person risk - a change in the key personnel involved in the investment management of the portfolio could impact on future investment performance and lead to loss of investor confidence.	The Board discusses key person risk and succession planning with the Manager and Investment Manager on a regular basis. The Investment Manager employs a standardised investment process for the management of the portfolio. The well-resourced smaller companies team has grown in size over a number of years. These factors mitigate against the impact of the departure of any one member of the investment team.
Share price - failure to manage the discount effectively or an inappropriate marketing strategy could lead to a fall in the share price relative to the NAV per share.	The Company operates a discount control mechanism and aims to maintain a discount level of less than 8% to the cum-income NAV under normal market conditions. Details of the discount control mechanism are contained below. The Directors undertake a programme of inviting major shareholders to discuss issues of governance or strategy with the Chairman or Senior Independent Director. In addition, the Company participates in the Manager's investment trust promotional programme where the Manager has an annual programme of meetings with institutional shareholders and reports back to the Board on these meetings.
Financial instruments - insufficient oversight or controls over financial risks, including market price risk, liquidity risk and credit risk could result in losses to the Company.	As stated above, the Board sets investment guidelines and restrictions which are reviewed regularly and the Manager reports on compliance with them at Board meetings. Further details of the Company's financial instruments and risk management are included in note 17 to the financial statements.
Financial obligations - inadequate controls over financial record keeping and forecasting, the setting of an inappropriate gearing strategy or the breaching of loan covenants could result in the Company being unable to meet its financial obligations, 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 Board sets gearing limits and monitors the level of gearing and compliance with the main financial covenants at Board meetings. The Company's annual financial statements are audited by the Independent Auditor. The Audit Committee meets representatives from the Manager's Compliance and Internal Audit teams on at least an annual basis and discusses any findings and recommendations relevant to the Company.
Regulatory - failure to comply with relevant laws and regulations could result in fines, loss of reputation and potential loss of investment trust status.	The Board receives updates on relevant changes in regulation from the Manager, industry bodies and external advisers and the Board and Audit Committee monitor compliance with regulations by review of checklists and internal control reports from the Manager. Directors are encouraged to attend relevant external training courses.
Operational - the Company is dependent on third parties for the provision of all systems and services (in particular those of the Manager and the Depositary) and any control failures and gaps in their systems and services could result in a loss or damage to the Company.	The Audit Committee reviews reports from the Manager on its internal controls and risk management (including an annual ISAE Report) and considers assurances from all its other significant service providers on at least an annual basis, including on matters relating to business continuity and cyber security. The Audit Committee meets representatives from the Manager's Compliance and Internal Audit teams on at least an annual basis and discusses any findings and recommendations relevant to the Company. 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. A formal appraisal of the Company's main third party service providers is carried out by the Management Engagement Committee on an annual basis. The operational requirements of the Company, including its service providers, were subject to rigorous testing during the Covid-19 pandemic, including increased use of online communication and out of office working and reporting.
Geopolitical - the effects of geopolitical instability or change could have an adverse impact on stock markets and the value of the Company's investment portfolio.	Current geopolitical risks include the Covid-19 pandemic, climate change, the war in Ukraine and the impact of increased inflation. The Investment Manager's focus on quality companies, the diversified nature of the portfolio and a managed level of gearing all serve to provide a degree of protection in times of market volatility.

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 Manager on behalf of a number of investment trusts under its management. The Company also supports the Manager's investor relations programme which involves regional roadshows, promotional and public relations campaigns. During the Covid-19 pandemic, a number of events that are usually held physically were substituted with virtual events. 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 Edison Investment Research Limited. A copy of the latest research note is available from the Company's website.

The cost to the Company of participating in these programmes is matched by the Manager through the provision of the necessary resources to carry out the marketing and promotional activities.

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.

Modern Slavery Act

Due to the nature of its business, being a company that does not offer goods and services to customers, the Board considers that the Company 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 supports the Investment Manager's approach to ESG considerations which are fully embedded into the investment process.  A detailed explanation of the Investment Manager's overall approach to ESG was contained in last year's Annual Report and will be included on the Company's website.

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.

Discount Control Policy

The Board operates a discount control mechanism which targets a maximum discount of the share price to the cum-income net asset value of 8% under normal market conditions. In pursuit of this objective, the Board closely monitors the level of the discount and buys back shares in the market when it believes it is in the best interests of shareholders as a whole to do so. At each Annual General Meeting, the Board seeks shareholder approval to buy back up to 14.99% of the Company's share capital. Share buy-backs will only be made where the Board believes it to be in the best interests of shareholders as a whole and the making and timing of share buy-backs will be at the discretion of the Board.

The Company has a tender offer mechanism in place and the Board intends to continue to seek shareholder approval at each Annual General Meeting to enable it to carry out tender offers on a discretionary basis in circumstances where the Board believes that share buy-backs are not sufficient to maintain the discount at an appropriate level, although it expects that buy-backs should be the primary mechanism for managing the discount.

Viability Statement

The Board considers that the Company, which does not have a fixed life, is a long-term investment vehicle and, for the purposes of this statement, has decided that five years is an appropriate period over which to consider its viability. The Board considers that this period reflects a balance between looking out over a long-term horizon and the inherent uncertainties of looking out further than five years.

Taking into account the Company's current financial position and the potential impact of its principal risks and uncertainties, 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 five years from the date of this Report.

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 Company is invested in readily-realisable listed securities in normal market conditions and there is a spread of investments held.

-  The Company is closed ended in nature and therefore it is not required to sell investments when shareholders wish to sell their shares.

-  The Company's long-term performance record. 

-  The Company's level of gearing. The Company had net gearing of 5.1% as at 30 June 2022. The Company has a £65 million unsecured loan facility agreement with The Royal Bank of Scotland International Limited which matures on 31 October 2022. The Board has set overall limits for borrowing and reviews regularly the Company's level of gearing, cash flow projections and compliance with banking covenants. The Board has also performed stress testing and liquidity analysis. The Board has reviewed its options and a range of proposals and is expecting to refinance the facility when it expires. However, in the event that the facility is not refinanced, there is considered to be sufficient portfolio liquidity to enable borrowings to be repaid.   

-  The Company typically has cash balances which, including money market funds, at 30 June 2022 amounted to £15.0 million. These balances allow the Company to meet liabilities as they fall due.

-  The level of ongoing charges.

-  There are no capital commitments currently foreseen that would alter the Board's view.

-  The robustness of the operations of the Company's third party service suppliers.

In assessing the Company's future viability, the Board has assumed that shareholders will wish to continue to have exposure to the Company's activities in the form of a closed ended entity, performance will continue to be satisfactory, and the Company will continue to have access to sufficient capital.

In making its assessment, the Board is also aware 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, economic shocks or significant stock market volatility caused by other factors, and changes in regulation or investor sentiment.

Future Strategy

The Board intends to maintain the strategic direction set out in the Strategic Report for the year ending 30 June 2023 as it believes that this is in the best interests of shareholders.

On behalf of the Board
Liz Airey
Chairman
7 September 2022

Promoting the Success of the Company

Introduction

Section 172 (1) of the Companies Act 2006 (the "Act") requires each Director to act in the way he/she considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole.

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 that provision of the Act (the "Section 172 Statement"). This statement provides 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, among other things, the likely long-term consequences of decisions, the need to foster 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 end of the year, 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 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 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 (and Investment Manager), service providers, investee companies, debt providers and, more broadly, the environment and community at large. 

How the Board Engages with Stakeholders

The Board considers its stakeholders at Board meetings and receives feedback on the Manager's interactions with them.

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 to all shareholders. The Manager and Company's Stockbroker regularly meet with current and prospective shareholders to discuss performance and shareholder feedback is discussed by the Directors at Board meetings. In addition, Directors meet shareholders at the Annual General Meeting and the Chairman offers to meet with the Company's larger shareholders to discuss their views. The Company subscribes to the Manager's investor relations programme in order to maintain communication channels with the Company's shareholder base. Regular updates are provided to shareholders through the Annual Report, Half Yearly Report, monthly factsheets, Company announcements, including daily net asset value announcements, and the Company's website. 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.
Manager (and Investment Manager)	The Investment Manager's Review details the key investment decisions taken during the year. The Investment Manager has continued to manage the portfolio and other assets in accordance with the mandate agreed with the Company, with oversight provided by the Board. The Board regularly reviews the Company's performance against its investment objective and the Board undertakes an annual strategy review meeting to ensure that the Company is positioned well for the future delivery of its objective for its stakeholders. 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 at least annually.
Service Providers	The Board seeks to maintain constructive relationships with the Company's service providers 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, carrying out their responsibilities and providing value for money.
Investee Companies	Responsibility for 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 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 made.
Debt Providers	On behalf of the Company, the Manager maintains a positive working relationship with The Royal Bank of Scotland International Limited, the provider of the Company's loan facility, and provides regular updates on business activity and compliance with its loan covenants.
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

While the importance of giving due consideration to the Company's stakeholders is not a new requirement, and is considered during every significant Board decision, the Directors were particularly mindful of stakeholder considerations as part of the following decisions made during the year ended 30 June 2022. Each of these decisions was made after taking into account the short and long-term benefits for stakeholders.

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 and is reviewed at every Board meeting. Accordingly, at each Board meeting the Directors discuss performance in detail with the Investment Manager. In addition, during the year, the Board considered in detail how the Investment Manager incorporates ESG issues into its research and analysis work that forms part of the investment decision process.

During the year, the Management Engagement Committee decided that the continuing appointment of the Manager is in the best interests of shareholders.

Dividends

The Board is recommending payment of a final dividend for the year of 5.40p per Ordinary share. Following payment of the final dividend, total dividends for the year will amount to 8.10p per Ordinary share, an increase of 5.2% compared to the previous year.

Share Buy Backs

In accordance with the discount control policy included above, during the year the Company bought back 4,670,519 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 has widened in normal market conditions. It is the view of the Board that this policy is in the interest of all shareholders. 

'Meet the Manager' Presentation

In order to give shareholders an opportunity to meet the Board and the Investment Manager, the Board held an investor presentation in the Manager's office in London on 20 May 2022. The event was well attended and a number of questions were asked and responded to by the Investment Manager.

The Board places a great deal of importance on communications with shareholders and believes that events such as this provide good opportunities for it to receive feedback from shareholders.

Board Apprentice

To help grow the pool of young diverse candidates available to serve as non-executive directors of listed companies, during the year the Board conducted a process that resulted in the recruitment of a Board Apprentice, Jessica Norell Neeson, for a period of 12 months. Further details are provided in the Chairman's Statement. 

On behalf of the Board
Liz Airey
Chairman
7 September 2022

Performance

Performance (total return)

	1 year return	3 years return	5 years return	10 years return
	%	%	%	%
Net asset valueAB	-27.3	+2.7	+26.9	+184.1
Share priceB	-34.3	-3.7	+13.1	+159.9
Reference Index	-19.0	+10.1	+10.8	+133.7
Peer Group weighted average (NAV)	-22.7	+7.4	+15.6	+167.7
Peer Group weighted average (share price)	-28.4	+2.9	+16.9	+189.8
A Cum-income NAV with debt at fair value.
B Considered to be an Alternative Performance Measure.
Source: Thomson Reuters Datastream

Ten Year Financial Record

Year to 30 June	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Per Ordinary share (p)
Net revenue return	4.58	5.05	6.76	6.76	6.42	7.24	8.80	6.74	6.43	9.07
Ordinary dividends paid/proposed	4.05	4.50	5.80	6.60	6.70	7.00	7.70	7.70	7.70	8.10
Net asset valueA	281.58	298.92	336.89	345.43	456.60	552.93	539.54	527.73	737.97	530.37
Share price	280.50	281.25	300.00	316.00	431.00	500.00	491.50	482.00	698.00	453.00
Discount(%)A	0.4	5.9	10.9	8.5	5.6	9.6	8.9	8.7	5.4	14.6
Ongoing charges ratio (%)B	1.28	1.19	1.19	1.13	1.08	1.04	0.90	0.91	0.88	0.82
Gearing ratio (%)C	8.8	(4.6)	4.1	3.6	1.7	3.6	1.5	(0.3)	5.7	5.1
Shareholders' funds (£m)D	193	219	243	241	324	408	543	528	728	499
Revenue reserves (£m)E	3.69	4.34	5.83	6.50	6.26	8.30	10.87	8.80	7.53	8.81
A Calculated with debt at par value and diluted for the effect of Convertible Unsecured Loan Stock conversion from 31 March 2011 until 30 June 2017. From 30 June 2018, net asset value is calculated with debt at par value.
B Calculated as an average of shareholders' funds throughout the year and in accordance with updated AIC guidance issued in October 2020, to include the Company's share of costs of holdings in investment companies on a look-through basis.
C Net gearing ratio calculated as debt less cash invested in AAA-rated money market funds and short-term deposits divided by net assets at the year end.
D Increase in 2018 included the effect of the merger with Dunedin Smaller Companies Investment Trust PLC.
E Revenue reserves are reported prior to paying the final dividend for the year.

Investment Manager's Review

The net asset value ("NAV") total return for the Company for the year ended 30 June 2022 was -27.3%, while the share price total return was -34.3%. By comparison, the UK smaller companies sector as represented by the Numis Smaller Companies plus AIM (ex investment companies) Index (the "reference index") delivered a total return of -19.0%. Over the same period, the FTSE 100 Index of the largest UK listed companies delivered a total return of 5.8%. abrdn has managed the Company since 1 September 2003. The Company's share price at that time was 47.75p, compared to 453.0p at 30 June 2022. The share price total return over that period was 1,153.1% compared with the reference index's total return of 452.2%. The FTSE 100 Index's total return was 245.3% over the same period.

Equity Markets

The UK stock market, as represented by the FTSE All-Share Index, gained a small amount of ground over the year under review with a total return of 1.6%, outperforming many of its international counterparts. The picture is more mixed beneath the positive headline figure. Whilst the FTSE 100 Index of the UK's largest companies proved resilient, smaller companies, which are typically more focused on the domestic economy, came under significant pressure from the start of 2022. Investors continued to grapple with the fallout from the Covid-19 pandemic during the spring of 2021. Nonetheless, the easing of lockdown restrictions following an effective vaccine rollout built economic and stock market momentum for most of the period until the end of 2021, other than occasional market sell-offs as Covid-19 cases flared up.

Investors generally brushed off the threat of the Omicron variant at the end of 2021. The highly transmissible variant spread globally in December, with record daily cases in the US and most of Europe.

It has been a tough time for global stock markets in 2022, with investors rattled by soaring inflation, rising interest rates and the shock of the Russian invasion of Ukraine. Tensions escalated in Eastern Europe in early February when Russia deployed its armed forces to Ukraine's borders. However, the sharpest market falls came on 24 February when the invasion commenced. The macro driven impacts of steep inflation and rising interest rates have started to impact demand, particularly across consumer exposed areas, with a squeeze on disposable incomes, and a cost of living crisis for many in the UK on lower incomes. Whilst the UK large cap stock market has displayed relative resilience, small cap markets have been challenging. The FTSE 100 Index is home to many energy and mining companies, whose shares have benefited from high commodity prices, particularly after the Russian invasion. The small cap market in the UK has sold off sharply however, driven by the 'risk-off' trade where investors typically make a flight towards the perceived safety of larger cap areas. Smaller Companies also do not benefit from the support of the large weightings in areas such as resources, banks and energy that are prevalent within the FTSE 100 Index.

Inflation has continued to rise in the UK, with annual consumer price inflation hitting a 40-year high of 9.4% for the 12 month period to 30 June 2022. Soaring energy costs compounded by the war in Ukraine, post-pandemic supply problems and labour shortages are among the main reasons for escalating prices. The Bank of England ("BoE") reacted to rising inflation by steadily increasing base rates. Most recently, in August, it increased the rate by 50 basis points ("bps"), taking it to a 13-year high of 1.75%. Further interest rate rises are expected this year.

Performance

The period was a challenging one for performance for the Company, particularly during the second half of the financial year, with our style being out of favour in the market as "top down" global macro factors have taken the lead over "bottom up" stock picking. Smaller companies markets have been difficult, seeing dramatic falls during 2022 after having been relatively stable in the second half of 2021. The first half of the period was stronger for our process, with quality growth names holding up well given the fragility and stop/start of the Covid-19 recovery. However, there has been a strong value tilt to the market since the turn of the year, with investors favouring cheaper, value driven companies. Profit taking has occurred extensively in our typical quality growth businesses despite their earnings resilience and continuing growth.

It is disappointing that our investment process has not provided resilience in a bear market, which has been typical in the past. The difference this time has been the market's focus on the "top-down", as inflation has risen, exacerbated by the implications of the continuing war in Ukraine. 

The five leading performers during the year were as follows:

· Telecom Plus 118bps* (shares +72%): supportive end market conditions given the exit of low-priced competitors from the industry, and the strong position the nPower contract has in Utility Warehouse's pricing offering. Sales force fully engaged again post Covid-19. Strong cash generation and dividends.

· Safestore 90bps* (+12%): solid demand in the self-storage industry with the constant of the 3Ds (divorce, death, dislocation). Rate increases and strong utilisation have ensured consistent earnings and dividend growth.

· Alpha Financial Markets 77bps* (+10%): continues to take market share as consultant specialists in asset management, as well as expanding into insurance and alternatives through the acquisition of Lionpoint.

· Clipper Logistics 51bps* (+4%): strong growth through new and improving relationships with a range of retailers, given its full service offering and strong customer service proposition. Clipper was bid for by GXO Logistics during the year.

· Hilton Food 40bps* (-6%): resilient demand in the food industry, with a broad global presence, and with strong contracts and relationships with the supermarkets ensuring margin protection. Hilton has expanded in the fish protein market through acquisitions.

The five worst performers during the year were as follows:

· Gamma Communications -102bps* (shares -46%): disappointing growth in Europe given a slow recovery in corporate decision making and investment post Covid-19. However, Gamma offers a reliable and resilient revenue stream with high visibility, and continues to innovate in the latest service offerings.

· XP Power -94bps* (-49%): has navigated the challenges of the supply chain and Vietnam factory challenges well, to ensure continued delivery of products to customers. Shares were hit by the loss of a legal dispute, which came through an acquisition.

· Future -90bps* (-45%): has continued to deliver strong earnings growth, however the shares have been hit by sentiment around consumer exposure, as well as headwinds from energy and paper costs. Future continues to drive growth opportunities, both organically and through bolt on acquisitions.

· Impax Asset Management -82bps* (-46%): despite resilient asset inflows, the shares have been de-rated given the earnings downgrades from lower market levels. Impax continues to be a highly respected asset manager in the ESG space, which remains a growth market.

· GB Group -80bps* (-52%): whilst the Company's performance has remained solid, the shares were hit by a poorly managed placing to fund the Acuant acquisition. Since then, there has been a continued solid execution from the business, and good integration of the deal.

(* relative to the reference index)

Dealing and Activity

Turnover remained modest during the year, not out of line with previous periods. Over the year we have added nine new positions into the portfolio, and exited ten holdings.

We participated in two IPOs during the year; Big Technologies, the electronic monitoring tag business predominantly for the criminal justice system, operating globally; and LBG Media , the digital media business operating under brands including Lad Bible. Both are founder run businesses, in growth end markets, where they have strong market positions. LBG Media is a leading multi-brand, multi-channel digital content publisher, with a global audience of 264 million social media followers. As well as creating and distributing bespoke content through its ten brands, LBG also work directly with brands, creating content as a producer. Big Technologies produces industry leading electronic monitoring systems, and through its long-term contracts with governments and justice systems globally, has strong revenue visibility.  New positions included Volution (leading supplier of ventilation products), YouGov (data services provider, a key business globally with products such as BrandIndex, and Profiles), Marlowe (UK leader in business-critical services and software), and Tatton Asset Management (discretionary fund management platform delivering strong growth). We also added new holdings in Watkin Jones (developer, builder and manager of new homes for rent across the UK and Ireland), Alliance Pharma (leading international healthcare business) and Serica Energy (North Sea producer of natural gas).

Other significant purchases included CVS (veterinary practices and services) where we see improving execution and structural growth trends, Robert Walters (global recruitment company) which is well positioned in a positive environment given active recruitment markets and candidate confidence to move, and Hollywood Bowl (ten pin bowling and mini-golf leisure) which is delivering strong trading and cash generation post Covid-19.

We exited three holdings in the portfolio which were subject to bid approaches; Sumo (video games development) which was acquired by Tencent which already held 9.99% of the shares, Sanne (fund administration) which was acquired in a competitive bid process won by Apex), and Clipper Logistics (logistics for the retail industry) which was bid for by US peer GXO Logistics in a cash and shares deal. As holders, we would have ended up with US listed equity so we exited the holding following the bid.

We exited the holdings in AO World and Avon Protection after they initially reported earnings downgrades, from fundamental operational challenges in their businesses. In neither case did we foresee a near term resolution, so moved on from these investments. These proved to be the correct decisions, with both companies subsequently experiencing continued downgrades and strategic reviews.

Trustpilot and Victorian Plumbing are both IPOs that we took part in, but we have since moved on. Trustpilot management are not showing a focus and discipline on profitability, rather choosing to focus on top line growth, which does not sit with our investment process. Victorian Plumbing profits were heavily impacted by supply chain disruptions and tight consumer spending.

We exited James Fisher (marine services) where management change and control of the business were a concern, and AB Dynamics (simulation and testing for autonomous vehicles) where the near term looked challenging and required investment. We also chose to exit RWS following the departure of the CEO, and the acquisition of SDL where we were unsure of the natural fit. We also reduced exposure to AJ Bell over the period, with the platform industry businesses all requiring investment, which pressures margins in a declining fee industry.

Sector Exposure

The sector exposures remain broadly consistent to the position at the interim stage. The leading sector exposures are to Financials, Media, Software and Industrial Support Services. We have reduced exposure to Financials, through reducing exposure to asset managers. We have also reduced exposure to Software, but have increased the weighting to Media where the portfolio holds a diverse mix of companies. We have increased the exposure in Telecoms through increasing exposure to Telecom Plus (multi utility provider to consumers). The portfolio continues to have low exposures to Resources, Personal Goods, Electronics, and Construction.

Discount

As at 30 June 2022, the cum-income discount to NAV stood at 14.6%. The simple average discount for the close peers as a whole was 13.6%. Whilst we have been disappointed with the widening of the discount during the year, it has not been out of line with the sector. As explained in more detail in the Chairman's Statement, the Company has been active in buying back shares. 

Gearing

The level of gearing at 30 June 2022 was 5.1%. We expect gearing to remain around current levels, reflecting our positive view over the medium to long-term of the asset class. We have held higher cash positions in recent months due to our caution of a short-term market sell-off.

Dividends

The dividend outlook of the Company, seen through its income generation from underlying holdings, improved through the year. The earnings resilience and growth being delivered by the companies in the portfolio is being reflected in the dividend growth they are providing. The confidence in the outlooks for the companies has also been emphasised by management teams' conviction in continuing strong dividend payments to shareholders, aided by balance sheet strength.

Whilst companies have broadly returned to their pre-Covid dividend policies, the portfolio, at time of writing, held ten positions which were non-dividend payers during the year. These companies constitute around 15% of the portfolio.  Hotel Chocolat has focused on continued investment in its business for growth post Covid and therefore not returned to paying dividends yet. However, many of the others are more recent listings to the stock market over the past couple of years and, whilst they have the potential to pay dividends in the future, are not yet doing so. 

One risk, if we do enter a recessionary period, is that the combination of more cautious attitudes, as well as earnings pressures in some markets, may see a more challenging dividend environment.

Outlook

At the time of writing, the market is dominated by macro conditions, particularly the direction of interest rates and inflation. Control of Covid-19 remains an issue in some regions, particularly China. The Russian invasion of Ukraine sadly rumbles on. The combination of these factors creates a very uncertain environment, which continues to see markets selling off.

We see two potential environments emerging, and in both scenarios we believe the Company has a place to play.

In a recessionary environment, or continued low economic growth, we believe the market will look to move more towards quality; resilience, reliability, visible revenue streams and strong balance sheets. In which case, on a relative basis, our Quality focus should become increasingly attractive to the market. In that economic situation where growth becomes scarcer, what growth is around tends to become more valuable. Our ability to identify companies which can deliver sustained earnings growth in that environment should be rewarded. In the Global Financial Crisis, the market cared about quality and earnings; it did not care about value seen through the underperformance of perceived cheap stocks.

In a recovery phase, small and mid-cap stocks tend to lead that market recovery, and we believe the outlook for the asset class would be attractive. Particularly in this cycle, we have seen small and mid-caps in the UK heavily underperform large caps. This disparity has been wider than seen in other geographical markets, accentuated by the sector composition of FTSE 100 Index towards oil and gas, energy, resources and banks. In that environment, we believe the small cap asset class can produce some attractive return potential, as markets recover and as the disparity to large cap narrows.

Since our appointment as Investment Manager in 2003, including the current downturn, there have been falls in the market of over 40% on three occasions. Markets anticipate improvements, and indeed turning points in the past have always been when the outlook is bleakest. During the banking crisis in November 2008, it looked quite likely that the world banking system was in danger of collapse. 2009, however, saw a swift recovery with super normal profits available for the brave (it must be stressed, however, that future performance does not reflect past performance). The Company's discount to NAV is at a level not seen since 2009. It is also the case that the share price has traded at a premium to the NAV from time to time over the past decade.

Smaller company markets have higher levels of risk and volatility which in part reflects the potential for higher returns in the long run. Thus, Smaller Companies as an asset class should be viewed as a long-term multi-year investment to achieve these potential strong returns that have historically been available.

Our investment process features quality and resilience. It is fair to say that, so far in this downturn, the holdings in the portfolio are, on the whole, trading well, and some indeed are seeing earnings forecast upgrades even in these difficult times. Markets really need to see inflation come under control and the shape of any potential imminent recession. A resolution to the very serious geo-political issues and a proper end to the Covid-19 emergency in the Far East would also be helpful. Clarity, particularly, on the first issue could see a sharp turn in markets. However, we may be some months away from that occurring.

We remain confident that our unchanged Quality, Growth and Momentum investment process generates strong returns from smaller companies in the long-term. Our process has been seasoned by four full economic cycles.

Harry Nimmo and Abby Glennie
abrdn
7 September 2022

Investment Portfolio

As at 30 June 2022
		Valuation	Total	Valuation
		2022	portfolio	2021
Company	Sector	£'000	%	£'000
Safestore	Real Estate Investment Trusts	21,795	4.2	19,471
Kainos	Software and Computer Services	21,199	4.0	30,624
Telecom Plus	Telecommunications Service Providers	20,999	4.0	9,706
Alpha Financial Markets	Industrial Support Services	20,033	3.8	18,451
Hilton Food	Food Producers	18,858	3.6	20,313
Cranswick	Food Producers	14,181	2.7	19,659
Focusrite	Leisure Goods	14,143	2.7	16,344
Mortgage Advice Bureau	Finance and Credit Services	13,733	2.6	16,634
Future	Media	13,377	2.6	37,256
Ergomed	Pharmaceuticals and Biotechnology	13,189	2.5	13,338
Top ten investments		171,507	32.7
XP Power	Electronic and Electrical Equipment	13,121	2.5	26,674
Diploma	Industrial Support Services	13,064	2.5	18,621
Bytes Technology	Software and Computer Services	12,934	2.5	17,141
Marshalls	Construction and Materials	12,567	2.4	16,733
Next 15 Communications	Media	12,477	2.4	14,722
JTC	Investment Banking and Brokerage Services	12,196	2.3	11,861
Watches of Switzerland	Personal Goods	12,018	2.3	12,992
Sirius Real Estate	Real Estate Investment and Services	11,855	2.3	13,427
discoverIE Group	Technology Hardware and Equipment	11,662	2.2	17,266
Gamma Communications	Telecommunications Service Providers	11,110	2.1	31,807
Top twenty investments		294,511	56.2
Morgan Sindall	Construction and Materials	10,896	2.1	12,900
Hill & Smith	Industrial Metals and Mining	10,841	2.1	14,011
Auction Technology	Software and Computer Services	10,204	1.9	15,414
Midwich	Industrial Support Services	10,012	1.9	10,082
GlobalData	Media	9,593	1.8	15,479
Treatt	Chemicals	8,921	1.7	12,769
CVS	Consumer Services	8,715	1.7	7,145
Big Technologies	Software and Computer Services	8,701	1.7	-
GB Group	Software and Computer Services	8,570	1.6	16,628
Impax Asset Management	Investment Banking and Brokerage Services	8,451	1.6	22,322
Top thirty investments		389,415	74.3
Robert Walters	Industrial Support Services	8,363	1.6	7,302
4imprint	Media	8,336	1.6	8,155
Big Yellow	Real Estate Investment Trusts	8,036	1.5	8,005
Henry Boot	Real Estate Investment and Services	7,942	1.5	7,011
Hollywood Bowl	Travel and Leisure	7,923	1.5	3,554
Games Workshop	Leisure Goods	7,770	1.5	18,736
Intermediate Capital	Investment Banking and Brokerage Services	7,370	1.4	13,682
Team 17	Leisure Goods	7,264	1.4	17,502
Mattioli Woods	Investment Banking and Brokerage Services	6,118	1.2	6,380
Marlowe	Industrial Support Services	5,861	1.1	-
Top forty investments		464,398	88.6
Liontrust Asset Management	Investment Banking and Brokerage Services	5,769	1.1	14,567
Jet2	Travel and Leisure	5,731	1.1	7,482
Hotel Chocolat	Food Producers	5,513	1.0	4,327
Moonpig	Retailers	4,685	0.9	4,900
AJ Bell	Investment Banking and Brokerage Services	4,663	0.9	14,052
Inspecs	Personal Goods	3,703	0.7	5,481
Gooch & Housego	Technology Hardware and Equipment	3,649	0.7	5,982
Motorpoint	Retailers	3,640	0.7	6,701
Serica Energy	Oil, Gas and Coal	3,483	0.7	-
LBG Media	Media	3,451	0.7	-
Top fifty investments		508,685	97.1
Watkin Jones	Household Goods and Home Construction	2,900	0.5	-
Tatton Asset Management	Investment Banking and Brokerage Services	2,555	0.5	-
Volution	Construction and Materials	2,458	0.5	-
YouGov	Media	2,265	0.4	-
Molten Ventures (previously known as Draper Esprit)	Investment Banking and Brokerage Services	2,211	0.4	-
Alliance Pharma	Pharmaceuticals and Biotechnology	1,819	0.4	-
Gear4Music	Leisure Goods	1,244	0.2	9,321
Total portfolio		524,137	100.0
All investments are equity investments.

Sector Distribution of Investments

As at 30 June 2022
	Portfolio weighting
	2022	2021
	%	%
Basic Materials	3.8	3.5
Chemicals	1.7	1.7
Industrial Metals and Mining	2.1	1.8
Consumer Discretionary	24.7	27.4
Consumer Services	1.7	0.9
Household Goods and Home Construction	0.5	-
Leisure Goods	5.8	9.2
Media	9.5	9.8
Personal Goods	3.0	2.4
Retailers	1.6	3.6
Travel and Leisure	2.6	1.5
Consumer Staples	7.3	5.8
Food Producers	7.3	5.8
Energy	0.7	-
Oil, Gas and Coal	0.7	-
Financials	12.0	15.8
Finance and Credit Services	2.6	2.2
Investment Banking and Brokerage Services	9.4	13.6
Health Care	2.9	1.7
Pharmaceuticals and Biotechnology	2.9	1.7
Industrials	18.4	19.7
Aerospace and Defence	-	0.8
Construction and Materials	5.0	3.9
Electronic and Electrical Equipment	2.5	3.5
Industrial Engineering	-	0.3
Industrial Support Services	10.9	11.0
Industrial Transportation	-	0.2
Real Estate	9.5	6.3
Real Estate Investment and Services	3.8	2.7
Real Estate Investment Trusts	5.7	3.6
Technology	14.6	14.4
Software and Computer Services	11.7	11.4
Technology Hardware and Equipment	2.9	3.0
Telecommunications	6.1	5.4
Telecommunications Service Providers	6.1	5.4
Total	100.0	100.0

Directors' Report (extract)

The Directors present their report and the audited financial statements of the Company for the year ended 30 June 2022.

Results and Dividends

The financial statements for the year ended 30 June 2022 are contained below. An interim dividend of 2.70p per Ordinary share was paid on 8 April 2022 and the Directors recommend a final dividend of 5.40p per Ordinary share, payable on 28 October 2022 to shareholders on the register on 7 October 2022. The ex-dividend date is 6 October 2022.

Principal Activity and Status

The Company is registered as a public limited company in Scotland under company number SC145455, is an investment company within the meaning of Section 833 of the Companies Act 2006 and carries on business as an investment trust.

The Company has applied for and has been accepted as an investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010 and Part 2 Chapter 1 of Statutory Instrument 2011/2999. This approval relates to accounting periods commencing on or after 1 July 2012. The Directors are of the opinion that the Company has conducted its affairs so as to be able to retain such approval.

The Company intends to manage its affairs so that its Ordinary shares continue to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account.

Capital Structure and Voting Rights

The Company's issued share capital at 30 June 2022 consisted of 94,012,047 (2021: 98,682,566) Ordinary shares of 25 pence each and there were 10,152,375 (2021: 5,481,856) Ordinary shares held in treasury, representing 10.8% of the issued share capital as at that date (excluding treasury shares).

During the year, 4,670,519 Ordinary shares were bought back into treasury.

Since the year end, the Company has bought back a further 988,429 Ordinary shares into treasury. Accordingly, as at the date of this Report, the Company's issued share capital consisted of 93,023,618 Ordinary shares of 25 pence each and 11,140,804 Ordinary shares held in treasury.

Each ordinary shareholder is entitled to one vote on a show of hands and, on a poll, to one vote for every Ordinary share held.

Management Agreement

The Company has appointed abrdn Fund Managers Limited ("aFML") (previously Aberdeen Standard Fund Managers Limited, prior to a change of name of that Company on 1 August 2022), a wholly owned subsidiary of abrdn plc, as its Alternative Investment Fund Manager (the "Manager"). aFML has been appointed to provide investment management, risk management, administration and company secretarial services, and promotional activities to the Company. The Company's portfolio is managed by abrdn Investment Management Limited (the "Investment Manager") by way of a group delegation agreement in place between it and aFML. In addition, aFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to Aberdeen Asset Managers Limited.

The management fee is calculated quarterly in arrears as 0.85% per annum applying to the first £250 million of the Company's net assets, 0.65% per annum applying to net assets above this threshold until £550 million, and 0.55% applying to net assets above this threshold.

In addition, the Manager receives a secretarial and administration fee of £75,000 plus VAT per annum with effect from 1 January 2021. Prior to this date, the secretarial and administration fee was £110,000 per annum, as uprated by movements in RPI. A fee of 0.02% of the net asset value of the Company in excess of £70 million was also payable and the fee was capped at £150,000 plus VAT in total per annum.

The Manager also receives a separate fee for the provision of promotional activities to the Company. This fee amounted to £246,000 plus VAT for the year (2021: £150,000 plus VAT).

Further details of the fees payable to the Manager 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.

Company Name

Following approval by shareholders at the Annual General Meeting held on 21 October 2021, the Company's name changed from Standard Life UK Smaller Companies Trust plc to abrdn UK Smaller Companies Growth Trust plc.

Directors

Liz Airey is the Chairman and Tim Scholefield is the Senior Independent Director.

All of the Directors will retire and, being eligible, will offer themselves for re-election at the Annual General Meeting.

The Directors attended scheduled Board and Committee meetings during the year ended 30 June 2022 as follows (with their eligibility to attend the relevant meetings in brackets):

	Board Meetings	Audit Committee Meetings	Management Engagement Committee Meetings	Nomination Committee Meetings
Liz Airey	5 (5)	- (-)	1 (1)	1 (1)
Ashton Bradbury	5 (5)	2 (2)	1 (1)	1 (1)
Alexa Henderson	5 (5)	2 (2)	1 (1)	1 (1)
Caroline Ramsay	5 (5)	2 (2)	1 (1)	1 (1)
Tim Scholefield	5 (5)	2 (2)	1 (1)	1 (1)

The Board meets more frequently when business needs require. During the year ended 30 June 2022 this included two Board meetings to discuss share buy backs and the implications for the Company of the Manager's rebranding. In addition, there were two Board Committee meetings to approve the annual and half yearly financial statements. All Directors attended the Annual General Meeting held on 21 October 2021.

The Board believes that all the Directors seeking re-election 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 and proper governance of the Company. Following formal performance evaluations, each Director's performance continues to be effective and demonstrates commitment to the role, and their individual performances contribute to the long-term sustainable success of the Company. In addition, all Directors have demonstrated that they have sufficient time to fulfil their directorial roles with the Company. The Board therefore recommends the re-election of each of the Directors at the Annual General Meeting.

External Agencies

The Board has contractually delegated to external agencies, including the Manager and other service providers, certain services including: the management of the investment portfolio, the day-to-day accounting and company secretarial requirements, the depositary services (which include cash monitoring, the custody and safeguarding of the Company's financial instruments and monitoring the Company's compliance with investment limits and leverage requirements) and the share registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered in so far as they relate to the affairs of the Company. In addition, ad hoc reports and information are supplied to the Board as requested.

Board Diversity

The Board recognises the importance of having a range of skilled, 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, and will give due regard to, 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 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 seek to meet the targets set out in the FCA's Listing Rule 9.8.6R (9)(a), which are set out below.

Although the Company is not required to report against these targets until the 2023 Annual Report, the Board has resolved to do so on a voluntary basis for the year ended 30 June 2022. In accordance with the LR 9.8.6R (9), (10) and (11) the Board has provided the following information in relation to its diversity.

Board Gender as at 30 June 2022

	Number of Board members	Percentage of the Board	Number of senior positions on the Board	Number in executive management	Percentage of executive management
Men	2	40%	1 B	n/a	n/a
Women	3	60% A	2 CD	n/a	n/a

^A exceeds target of 40% as set out in LR 9.8.6R (9)(a)(i)

^B the position of Senior Independent Director is held by a man

^C the positions of Chairman of the Board and Chairman of the Audit Committee are held by women

^D exceeds target of 1 as set out in LR 9.8.6R (9)(a)(ii)

Board Ethnic Background as at 30 June 2022

	Number of Board members	Percentage of the Board	Number of senior positions on the Board	Number in executive management	Percentage of executive management
White British or other White (including minority-white groups)	5	100%	3	n/a	n/a
Minority ethnic	0 A	0%	0	n/a	n/a

^A is less than the target of 1 as asset out in LR 9.8.6R (9)(a)(iii)

As shown in the above table, the Company has not as yet met the target set out in LR 9.8.6R (9)(a)(iii), which formally comes into effect for the financial year ending 30 June 2023, in relation to the ethnic background of the Board. The most recent Board appointment was in August 2019. It is the Board's intention that the target as set out in LR 9.8.6R (9)(a)(iii) will be taken into account at the time of the next appointment.  

The information included above in relation to the gender and ethnic background of the Board has been obtained following confirmation from the individual Directors. 

There have been no changes since the year end that have affected the Company's ability to meet the targets set in LR 9.8.6R (9)(a).

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. 

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 or her appointment to the Board. However, this may be extended in certain circumstances or to facilitate 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 Nomination Committee, 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.

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. 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.

Directors' and Officers' Liability Insurance

The Company's Articles of Association provide for each of the Directors to be indemnified out of the assets of the Company against any liabilities incurred by them as a Director of the Company in defending proceedings, or in connection with any application to the Court in which relief is granted. Directors' and Officers' liability insurance cover has been maintained throughout the financial year at the expense of the Company.

Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code as published in July 2018 (the "UK Code"), which is available on the Financial Reporting Council's (the "FRC") website: frc.org.uk

The Board has also 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 Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. 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 companies.

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.

The Board confirms that, during the year, the Company complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except as set out below.

The UK Code includes provisions relating to:

-  interaction with the workforce (provisions 2, 5 and 6);

-  the role and responsibility of the chief executive (provisions 9 and 14);

-  previous experience of the chairman of a remuneration committee (provision 32); and

-  executive directors' remuneration (provisions 33 and 36 to 41).

The Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. 

Full details of the Company's compliance with the AIC Code of Corporate Governance can be found on its website.

Matters Reserved for the Board

The Board sets the Company's objectives and ensures that its obligations to its shareholders are met. It has formally adopted a schedule of matters which are required to be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, operational and compliance issues.

These matters include:

-  the maintenance of clear investment objectives and risk management policies;

-  the monitoring of the business activities of the Company ranging from analysis of investment performance through to review of quarterly management accounts;

-  monitoring requirements such as approval of the Half-Yearly Report and Annual Report and financial statements and approval and recommendation of any dividends;

-  setting the range of gearing in which the Manager may operate;

-  major changes relating to the Company's structure including share buy-backs and share issuance;

-  Board appointments and removals and the related terms;

-  authorisation of Directors' conflicts or possible conflicts of interest;

-  terms of reference and membership of Board Committees;

-  appointment and removal of the Manager and the terms and conditions of the Management Agreement relating thereto; and

-  London Stock Exchange/Financial Conduct Authority - responsibility for approval of all circulars, listing particulars and other releases concerning matters decided by the Board.

Full and timely information is provided to the Board to enable it to function effectively and to allow the Directors to discharge their responsibilities.

Substantial Interests

Information provided to the Company by major shareholders pursuant to the FCA's Disclosure, Guidance and Transparency Rules are 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 30 June 2022.

Shareholder	Number of Ordinary shares	% held
Hargreaves Lansdown	10,441,080	11.1
Interactive Investor	9,439,853	10.0
Brewin Dolphin	8,513,959	9.1
abrdn Retail Plans	6,673,821	7.1
1607 Capital Partners	5,975,394	6.4
AJ Bell	4,336,875	4.6
Rathbones	4,277,148	4.6
City of London Investment Management	2,839,946	3.0
Investec Wealth & Investment	2,822,892	3.0

The Company has not been notified of any changes to the above holdings since the end of the year.

Going Concern

The Company's assets consist mainly of equity shares in companies listed on recognised stock exchanges and are considered by the Board to be realisable within a short timescale under normal market conditions. The Board has set overall limits for borrowing and reviews regularly the Company's level of gearing, cash flow projections and compliance with banking covenants. The Board has also performed stress testing and liquidity analysis.

As at 30 June 2022, the Company had a £65 million unsecured loan facility agreement with The Royal Bank of Scotland International Limited which matures on 31 October 2022. This consists of a five year, fixed-rate term loan facility of £25 million and a revolving credit facility of £40 million. The Board has reviewed its options and a range of proposals and is expecting to refinance the facility when it expires. However, in the event that the facility is not refinanced, there is considered to be sufficient portfolio liquidity to enable borrowings to be repaid. 

The Directors are mindful of the Principal Risks and Uncertainties disclosed in the Strategic Report above and they believe that the Company has adequate financial resources to continue its operational existence for a period of not less than 12 months from the date of approval of this Report. They have arrived at this conclusion having confirmed that the Company's diversified portfolio of realisable securities is sufficiently liquid and could be used to meet short-term funding requirements were they to arise. The Directors have also reviewed the revenue and ongoing expenses forecasts for the coming year and considered the Company's Statement of Financial Position as at 30 June 2022 which shows net current liabilities of £25.5 million at that date. Taking all of this into account, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Accountability and Audit

The Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Independent Auditor was unaware, and that each Director has taken all the steps that they might reasonably be expected to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Independent Auditor was aware of that information.

Independent Auditor

Shareholders approved the re-appointment of KPMG LLP as the Company's Independent Auditor at the AGM on 21 October 2021 and resolutions to approve its re-appointment for the year to 30 June 2023 and to authorise the Directors to determine its remuneration will be proposed at the Annual General Meeting.

Financial Instruments

The financial risk management objectives and policies arising from financial instruments and the exposure of the Company to risk are disclosed in note 17 to the financial statements.

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 Customer Services Department (see Contact Addresses).

Aberdeen Asset Management PLC ("AAM") has been appointed Company Secretary to the Company. Whilst AAM is a wholly owned subsidiary of the abrdn Group, there is a clear separation of roles between the Manager and Company Secretary with different board compositions and different reporting lines in place. The Board notes that, in accordance with Market Abuse Regulations, procedures are in place to control the dissemination of information within the abrdn plc group of companies when necessary. Where correspondence addressed to the Board is received there is full disclosure to the Board. This is kept confidential if the subject matter of the correspondence requires confidentiality.

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, and report back to the Board on these meetings.

The Company's Annual General Meeting provides a forum for communication primarily with private shareholders and is attended by the Board. The Manager makes a presentation to the meeting and all shareholders have the opportunity to put questions to both the Board and the Manager at the meeting. The Board also hosts a regular 'Meet the Manager' session at which the Investment Manager and members of the Board are present and to which all shareholders are invited, last held on 20 May 2022.

The notice of the Annual General Meeting is 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.

Annual General Meeting

The Notice of the Annual General Meeting ("AGM") will be held at 12 noon on Thursday, 20 October 2022.

By order of the Board
Aberdeen Asset Management PLC
Company Secretary
1 George Street
Edinburgh EH2 2LL
7 September 2022

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

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. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic
of Ireland'.

Under company law the Directors must not approve the financial statements unless they are satisfied that they 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 and then apply them consistently; 

· make judgments and estimates that are reasonable and prudent;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

· prepare the financial statements on the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.  

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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.

Responsibility Statement of the Directors in Respect of the Annual Financial Report

The Directors confirm that to the best of their 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;

· 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; and

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

On behalf of the Board
Liz Airey
Chairman
7 September 2022

Statement of Comprehensive Income

		Year ended 30 June 2022			Year ended 30 June 2021
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Net (losses)/gains on investments held at fair value	10	-	(196,773)	(196,773)	-	213,905	213,905
Income	3	11,123	-	11,123	8,573	-	8,573
Investment management fee	4	(1,190)	(3,569)	(4,759)	(1,149)	(3,449)	(4,598)
Other administrative expenses	5	(889)	-	(889)	(828)	-	(828)
Net return before finance costs and taxation		9,044	(200,342)	(191,298)	6,596	210,456	217,052
Finance costs	6	(278)	(833)	(1,111)	(204)	(612)	(816)
Return before taxation		8,766	(201,175)	(192,409)	6,392	209,844	216,236
Taxation	7	-	-	-	-	-	-
Return after taxation		8,766	(201,175)	(192,409)	6,392	209,844	216,236
Return per Ordinary share (pence)	9	9.07	(208.10)	(199.03)	6.43	211.01	217.44
The total column of this statement represents the profit and loss account of the Company.  The 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the Financial Statements.

Statement of Financial Position

		As at	As at
		30 June 2022	30 June 2021
	Notes	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	10	524,137	770,003
Current assets
Debtors	11	2,413	2,238
Investments in AAA-rated money market funds		14,414	22,636
Cash and short term deposits		582	95
		17,409	24,969
Current liabilities
Creditors: other amounts falling due within one year	12	(2,947)	(1,775)
Bank loan	12	(39,988)	(40,000)
		(42,935)	(41,775)
Net current liabilities		(25,526)	(16,806)
Total assets less current liabilities		498,611	753,197
Creditors: amounts falling due after more than one year
Bank loan	13	-	(24,951)
Net assets		498,611	728,246
Capital and reserves
Called-up share capital	14	26,041	26,041
Share premium account		170,146	170,146
Special reserve		-	20,132
Capital reserve	15	293,616	504,395
Revenue reserve		8,808	7,532
Equity shareholders' funds		498,611	728,246
Net asset value per Ordinary share (pence)	16	530.37	737.97
The financial statements were approved by the Board of Directors on 7 September 2022 and were signed on its behalf by:
Liz Airey
Chairman
The accompanying notes are an integral part of the Financial Statements.

Statement of Changes in Equity

For the year ended 30 June 2022
		Share
	Share	premium	Special	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 June 2021	26,041	170,146	20,132	504,395	7,532	728,246
Return after taxation	-	-	-	(201,175)	8,766	(192,409)
Buyback of Ordinary shares into Treasury (see note 14)	-	-	(20,132)	(9,604)	-	(29,736)
Dividends paid (see note 8)	-	-	-	-	(7,490)	(7,490)
Balance at 30 June 2022	26,041	170,146	-	293,616	8,808	498,611
For the year ended 30 June 2021
		Share
	Share	premium	Special	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 June 2020	26,041	170,146	28,534	294,551	8,804	528,076
Return after taxation	-	-	-	209,844	6,392	216,236
Buyback of Ordinary shares into Treasury (see note 14)	-	-	(8,402)	-	-	(8,402)
Dividends paid (see note 8)	-	-	-	-	(7,664)	(7,664)
Balance at 30 June 2021	26,041	170,146	20,132	504,395	7,532	728,246
The capital reserve at 30 June 2022 is split between realised of £198,874,000 and unrealised of £94,742,000 (30 June 2021 - realised £179,141,000 and unrealised £325,254,000).
The Company's reserves available to be distributed by way of dividends or buybacks which includes the revenue reserve and the realised element of the capital reserve amount to £207,682,000 (30 June 2021 - £186,673,000). The special reserve at 30 June 2022 is £nil (30 June 2021 - the special reserve of £20,132,000 was available to fund share buy backs but could not be used to pay dividends).
The accompanying notes are an integral part of the financial statements.

Statement of Cash Flows

	Year ended	Year ended
	30 June 2022	30 June 2021
	£'000	£'000
Operating activities
Net return before taxation	(192,409)	216,236
Adjustment for:
Losses/(gains) on investments	196,773	(213,905)
Increase in accrued dividend income	(792)	(994)
Decrease in accrued interest income	-	7
Finance costs	1,111	816
Increase in other debtors	(2)	(3)
Increase in other creditors	920	281
Net cash inflow from operating activities	5,601	2,438
Investing activities
Purchases of investments	(94,258)	(188,635)
Sales of investments	144,236	159,116
Purchases of AAA-rated money market funds	(137,040)	(150,977)
Sales of AAA-rated money market funds	145,262	154,806
Net cash inflow/(outflow) from investing activities	58,200	(25,690)
Financing activities
Bank and loan interest paid	(1,088)	(756)
Repurchase of Ordinary shares into Treasury	(29,736)	(8,282)
Drawdown of loan	-	40,000
Repayment of loan	(25,000)	-
Equity dividends paid	(7,490)	(7,664)
Net cash (outflow)/inflow from financing activities	(63,314)	23,298
Increase in cash	487	46
Analysis of changes in cash during the year
Opening balance	95	49
Increase in cash as above	487	46
Closing balance	582	95
The accompanying notes are an integral part of the financial statements.

Notes to the Financial Statements

For the year ended 30 June 2022

1.	Principal activity
	The Company is a closed-end investment company, registered in Scotland No SC145455, with its Ordinary shares being listed on the London Stock Exchange.

2.	Accounting policies
	a)	Basis of accounting and going concern . The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in April 2021. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.
		The Company's assets consist mainly of equity shares in companies listed on recognised stock exchanges and are considered by the Board to be realisable within a short timescale under normal market conditions. The Board has set overall limits for borrowing and reviews regularly the Company's level of gearing, cash flow projections and compliance with banking covenants. The Board has also performed stress testing and liquidity analysis.
		The Company does not have a fixed life and, under the Articles of Association, there is no requirement for a continuation vote.
		As at 30 June 2022, the Company had a £65 million unsecured loan facility agreement with The Royal Bank of Scotland International Limited which matures on 31 October 2022. This consists of a five year, fixed-rate term loan facility of £25 million and a revolving credit facility of £40 million. The Board has commenced a process to refinance the loan facility and  expects it be replaced when it matures. In the event that the facility is not replaced, there is considered to be sufficient portfolio liquidity to enable it to be repaid.
		The Directors are mindful of the Principal Risks and Uncertainties disclosed in the Strategic Report and they believe that the Company has adequate financial resources to continue its operational existence for a period of not less than 12 months from the date of approval of this Report. They have arrived at this conclusion having confirmed that the Company's diversified portfolio of realisable securities is sufficiently liquid and could be used to meet short-term funding requirements were they to arise. The Directors have also reviewed the revenue and ongoing expenses forecasts for the coming year and considered the Company's Statement of Financial Position as at 30 June 2022 which shows net current liabilities of £25.5 million at that date. Taking all of this into account, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
		The accounting policies applied are unchanged from the prior year and have been applied consistently.
	b)	Investments . Investments have been designated upon initial recognition as fair value through profit or loss in accordance with IAS 39. As permitted by FRS 102, the Company has elected to apply the recognition and measurement provisions of IAS 39 Financial Instruments. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis.
		Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery to be made within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are valued at fair value.  For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all the FTSE All-Share and the most liquid AIM constituents.
		Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve.
	c)	AAA-rated money market funds. The AAA money market funds are used by the Company to provide additional short term liquidity.  Due to their short term nature, they are recognised in the Financial Statements as a current asset and are included at fair value through profit and loss.
	d)	Income . Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital in the Statement of Comprehensive Income, according to the circumstances of the underlying payment.  Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on short-term deposits and money market funds is accounted for on an accruals basis.

	e)	Expenses and interest payable . Expenses are accounted for on an accruals basis. Expenses are charged to the capital column of the Statement of Comprehensive Income when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs are allocated 25% to revenue and 75% to the capital columns of the Statement of Comprehensive Income in line with the Board's expectation of returns from the Company's investments over the long term in the form of revenue and capital respectively (see notes 4 and 6).
		Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Statement of Comprehensive Income.
	f)	Dividends payable . Dividends are recognised in the period in which they are paid.
	g)	Nature and purpose of reserves
		Called-up share capital . The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. This reserve is not distributable.
		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 25p. This reserve is not distributable.
		Special reserve. The special reserve arose following court approval for the cancellation of the share premium account balance at 24 June 1999 and on 13 October 2009. Court of Session approval was granted for the cancellation of the Company's entire share premium account and capital redemption reserve and subsequent creation of a special distributable capital reserve. The special reserve is used to fund share purchases of its own Ordinary shares by the Company. During the year the balance of the special reserve was utlised in full.
		Capital reserve . Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve. The part of this reserve represented by realised capital gains is available for distribution by way of share buybacks and dividends.
		Revenue reserve . Income and expenses which are recognised in the revenue column of the Statement of Comprehensive Income are transferred to the revenue reserve. The revenue reserve is available for distribution including by way of dividend.

	h)	Taxation . Tax expense represents the sum of tax currently payable and deferred tax.  Any tax payable is based on taxable profit for the period.  Taxable profit differs from profit before tax as reported in the Statement of Comprehensive Income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the year end date.
		Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the year end date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the year end date measured on an undiscounted basis and based on enacted tax rates. 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 underlying timing differences can be deducted.  Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods.
		Owing to the Company's status as an investment trust company, 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.
	i)	Foreign currency. Non-monetary assets and liabilities denominated in foreign currency carried at fair value through profit or loss are converted into Sterling at the rate of exchange ruling at the year end date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Statement of Comprehensive Income.
	j)	Judgements and key sources of estimation uncertainty . Disclosure is required of judgements and estimates made by management in applying the accounting policies that have a significant effect on the Financial Statements. There are no significant estimates or judgements which impact these Financial Statements.
	k)	Cash and cash equivalents . Cash comprises bank balances and cash held by the Company. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
	l)	Bank borrowing. Interest bearing bank loans and overdrafts are recorded initially at fair value, being the proceeds received, net of direct issue costs. They are subsequently measured at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Statement of Comprehensive Income using the straight line method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
	m)	Treasury shares . When the Company purchases its Ordinary shares to be held in treasury, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effect, and is recognised as a deduction from the special reserve. During the year the special reserve was utlised in full with subsequent costs being recognised as a deduction from the capital reserve. When these shares are sold subsequently, the amount received is recognised as an increase in equity, and any resulting surplus on the transaction is transferred to the share premium account and any resulting deficit is transferred from the capital reserve.

3.	Income
		2022	2021
		£'000	£'000
	Income from investments
	UK dividend income	9,139	6,394
	Property income distributions	734	867
	Overseas dividend income	1,034	1,054
	Special dividends	166	232
		11,073	8,547
	Other income
	Interest from AAA-rated money market funds	50	26
	Total income	11,123	8,573

4.	Investment management fee
		2022			2021
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	1,190	3,569	4,759	1,149	3,449	4,598
	The balance due to abrdn Fund Managers Limited ("aFML") at the year end was £2,083,000 (2021 - £1,264,000). For further details see note 21.

5.	Administrative expenses (inclusive of VAT)
		2022	2021
		£'000	£'000
	Secretarial feesA	90	135
	Promotional activitiesA	295	180
	Directors' fees	145	135
	Auditor's remuneration:
	- fees payable to the Company's Independent Auditor for the audit of the annual accounts (excluding VAT)	40	33
	- VAT on audit fees	8	6
	Registrar's fees	27	26
	Professional fees	12	45
	Custody fees	32	29
	Depositary fees	79	92
	Other expenses	161	147
		889	828
	A The Company has an agreement with aFML for the provision of secretarial services and promotional activities. Secretarial fees payable during the year, inclusive of VAT, were £90,000 (2021 - £135,000) and the amount due to aFML at the year end was £45,000 (2021 - £68,000). Costs relating to promotional activities during the year, inclusive of VAT, were £295,000 (2021 - £180,000) and the amount due to aFML at the year end was £115,000 (2021 - £60,000).

6.	Finance costs
		2022			2021
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Bank loan interest	258	774	1,032	177	532	709
	Non-utilisation fees	11	31	42	18	52	70
	Amortisation of loan arrangement expenses	9	28	37	9	28	37
		278	833	1,111	204	612	816

7.	Taxation
	(a)	Analysis of charge for year
			2022			2021
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Tax charge	-	-	-	-	-	-
	(b)	Provision for deferred taxation. At 30 June 2022, the Company had unutilised management expenses and loan relationship losses of £75,537,000 (2021 - £69,571,000). A deferred tax asset has not been recognised on the unutilised management expenses and loan relationship losses as it is unlikely there will be suitable future taxable profits against which these tax losses could be deducted. Therefore, it is unlikely that the Company will generate future taxable revenue that would enable the existing tax losses to be utilised.
	(c)	Factors affecting the tax charge for the year. The UK corporation tax rate is 19% (2021 - 19%). The tax charge for the year is lower (2021 - lower) than the standard rate of corporation tax in the UK of 19% (2021 - 19%). The differences are explained in the following table.
			2022			2021
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Net return before taxation	8,766	(201,175)	(192,409)	6,392	209,844	216,236
		Corporation tax at a rate of 19% (2021 - 19%)	1,666	(38,223)	(36,557)	1,215	39,870	41,085
		Effects of:
		Non-taxable UK dividend income	(1,768)	-	(1,768)	(1,259)	-	(1,259)
		Non-taxable overseas dividend income	(196)	-	(196)	(200)	-	(200)
		Management expenses and loan relationship losses not utilised	298	836	1,134	244	771	1,015
		Non-taxable losses/(gains) on investments	-	37,387	37,387	-	(40,641)	(40,641)
		Total tax charge	-	-	-	-	-	-

8.	Dividends
		2022	2021
		£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	2021 final dividend of 5.00p per share (2020 - 5.00p) paid on 29 October 2021	4,885	4,986
	2022 interim dividend of 2.70p per share (2021 - 2.70p) paid on 8 April 2022	2,605	2,678
		7,490	7,664
	The proposed 2022 final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these Financial Statements.
	Set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Section 1158-1159 of the Corporation Taxes Act 2010 are considered. The revenue available for distribution  by way of dividend for the year is £8,766,000 (2021 - £6,392,000).
		2022	2021
		£'000	£'000
	Interim dividend 2022 of 2.70p per share (2021 - 2.70p) paid on 8 April 2022	2,605	2,678
	Proposed final dividend 2022 of 5.40p per share (2021 - 5.00p) payable on 28 October 2022	5,023	4,894
		7,628	7,572
	The amount payable for the proposed final dividend is based on the Ordinary shares in issue as the date of approval of this Report, 7 September 2022, which satisfies the requirement of Section 1159 of the Corporation Tax Act 2010.

9.	Return per Ordinary share
		2022		2021
		p	£000	p	£000
	Basic
	Revenue return	9.07	8,766	6.43	6,392
	Capital return	(208.10)	(201,175)	211.01	209,844
	Total return	(199.03)	(192,409)	217.44	216,236
	Weighted average number of Ordinary shares in issue		96,670,077		99,447,493

10.	Investments held at fair value through profit or loss
			2022	2021
			£'000	£'000
	Opening book cost		444,749	372,312
	Opening investment holdings gains		325,254	154,728
	Opening fair value		770,003	527,040
	Additions at cost		94,523	188,543
	Disposals - proceeds		(143,616)	(159,485)
	(Losses)/gains on investments		(196,773)	213,905
	Closing fair value		524,137	770,003
			2022	2021
			£'000	£'000
	Closing book cost		429,395	444,749
	Closing investment holding gains		94,742	325,254
	Closing fair value		524,137	770,003
	All investments are in equity shares listed on the London Stock Exchange.
	The Company received £143,616,000 (2021 - £159,485,000) from investments sold in the period. The book cost of these investments when they were purchased was £109,878,000 (2021 - £116,107,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
	Transaction costs. During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within (losses)/gains on investments in the Statement of Comprehensive Income. The total costs were as follows:
			2022	2021
			£'000	£'000
	Purchases		259	600
	Sales		110	98
			369	698

11.	Debtors
		2022	2021
		£'000	£'000
	Amounts due from brokers	11	631
	Dividends receivable	2,380	1,587
	Other debtors	22	20
		2,413	2,238

12.	Creditors: amounts falling due within one year
		2022	2021
		£'000	£'000
	Amounts payable to brokers	385	120
	Interest payable	108	121
	Investment management fee payable	2,083	1,264
	Sundry creditors	371	270
		2,947	1,775
		2022	2021
	Bank loan	£'000	£'000
	Bank loan	40,000	40,000
	Unamortised loan arrangement expenses	(12)	-
		39,988	40,000
	On 1 November 2017 the Company entered into a £45 million unsecured loan facility agreement arranged with The Royal Bank of Scotland International Limited, which was increased to £65 million effective 10 May 2021. The facilities consist of a five year fixed-rate term loan facility of £25,000,000 (the "Term Loan") and a five year revolving credit facility of £40,000,000 (the "RCF"). The Term Loan has a maturity date of 31 October 2022.
	The Company had drawn down £25 million of the Term Loan at the year end, at an interest rate of 2.349% (2021 - 2.349%) and £15 million of the RCF, at an interest rate of 2.090% (2021 - 1.201%), with a maturity date of 15 July 2022. Subsequent to the year end, the loan was rolled over and £15 million was drawn down at the date of this Report at an approximate interest rate of 2.7402% until 1 November 2022.
	The terms of the unsecured loan facility agreement ("the agreement") contain covenants that the Consolidated Net Tangible Assets as defined in the agreement must not be less than £200 million, the percentage of borrowings against the Adjusted Portfolio Value as defined in the agreement shall not exceed 30%, and the portfolio contains a minimum of thirty eligible investments (investments made in accordance with the Company's investment policy). The Company complied with all covenants throughout the year.

13.	Creditors: amounts falling due after more than one year
		2022	2021
		£'000	£'000
	Bank loan	-	25,000
	Unamortised loan arrangement expenses	-	(49)
		-	24,951

14.	Called-up share capital
		2022		2021
		Number	£'000	Number	£'000
	Authorised	150,000,000	37,500	150,000,000	37,500
	Issued and fully paid:
	Ordinary shares of 25p each	94,012,047	23,503	98,682,566	24,671
	Held in treasury:	10,152,375	2,538	5,481,856	1,370
		104,164,422	26,041	104,164,422	26,041
			Ordinary shares	Treasury shares	Total
			Number	Number	Number
	Opening balance		98,682,566	5,481,856	104,164,422
	Share buybacks		(4,670,519)	4,670,519	-
	Closing balance		94,012,047	10,152,375	104,164,422
	During the year the Company repurchased 4,670,519 (2021 - 1,382,632) Ordinary shares to treasury at a cost of £29,736,000 (2021 - £8,402,000). Subsequent to the year end, a further 988,429 Ordinary shares were repurchased to treasury at a cost of £4,993,000.

15.	Capital reserve
		2022	2021
		£'000	£'000
	Opening balance	504,395	294,551
	Unrealised (losses)/gains on investment holdings	(230,511)	170,527
	Gains on realisation of investments at fair value	33,738	43,378
	Management fee charged to capital	(3,569)	(3,449)
	Finance costs charged to capital	(833)	(612)
	Buyback of ordinary shares into treasury	(9,604)	-
	Closing balance	293,616	504,395
	The capital reserve includes investment holding gains/(losses) amounting to £94,742,000 (2021 - gains of £325,254,000) as disclosed in note 10.

16.	Net asset value per share
	Total shareholders' funds have been calculated in accordance with the provisions of applicable accounting standards. The analysis of total shareholders' funds on the face of the Statement of Financial Position reflects the rights, under the Articles of Association, of the Ordinary shareholders on a return of assets.
		2022	2021
	Net assets attributable (£'000)	498,611	728,246
	Number of Ordinary shares in issue at year endA	94,012,047	98,682,566
	Net asset value per share	530.37p	737.97p
	A Excluding shares held in treasury.

17.	Financial instruments
	The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions for the purpose of managing currency and market risks arising from the Company's activities. No such transactions took place during the year.
	The main risks the Company faces from its financial instruments are i) market price risk (comprising interest rate risk, currency risk and other price risk), ii) liquidity risk and iii) credit risk. There was no material currency risk to the Company for the period given its investing and financing activities are in the UK.
	The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year.
	i)	Market price risk. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.
		Interest rate risk
		Interest rate movements may affect:
		- the level of income receivable on cash deposits and money market funds;
		- interest payable on the Company's variable rate borrowings.
		The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
		It is the Company's policy to increase its exposure to equity market price risk through the judicious use of borrowings. When borrowed funds are invested in equities, the effect is to magnify the impact on Shareholders' funds of changes - both positive and negative - in the value of the portfolio.
		As at 30 June 2022, the Company had drawn down £40 million (2021 - £65 million) of the £65 million (2021 - £65 million) unsecured loan facility agreement arranged with The Royal Bank of Scotland International Limited. The facilities consist of a five year fixed-rate term loan facility of £25 million and a five year revolving credit facility of £40 million.
		Interest risk profile. The interest rate risk profile of the portfolio of financial assets and liabilities at the year end date was as follows:
			Weighted average	Weighted
			period for which	average	Fixed	Floating
			rate is fixed	interest rate	rate	rate
		As at 30 June 2022	Years	%	£'000	£'000
		Assets
		Investments in AAA-rated money market funds	-	1.17	-	14,414
		Cash deposits	-	-	-	582
		Total assets	-	-	-	14,996
		Liabilities
		Bank loan	0.33	2.35	25,000	-
		Bank loan	0.08	2.09	15,000	-
		Total liabilities	-	-	40,000	-

			Weighted average	Weighted
			period for which	average	Fixed	Floating
			rate is fixed	interest rate	rate	rate
		As at 30 June 2021	Years	%	£'000	£'000
		Assets
		Investments in AAA-rated money market funds	-	0.08	-	22,636
		Cash deposits	-	-	-	95
		Total assets	-	-	-	22,731
		Liabilities
		Bank loan	1.33	2.35	25,000	-
		Bank loan	0.08	1.20	40,000	-
		Total liabilities	-	-	65,000	-
		The weighted average interest rate is based on the current yield of each asset, weighted by its market value.
		The floating rate assets consist of investments in AAA-rated money market funds and cash deposits on call earning interest at prevailing market rates.
		All financial liabilities are measured at amortised cost.
		Interest rate sensitivity . The sensitivity analyses below have been determined based on the exposure to interest rates at the year end date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
		If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's profit for the year ended 30 June 2022 and net assets would increase/decrease by £150,000 (2021 - increase/decrease by £227,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances and money market funds.
		Other price risk. Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
		It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are mainly listed on the London Stock Exchange.
		Other price risk sensitivity . If market prices at the year end date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary Shareholders for the year ended 30 June 2022 would have increased/decreased by £52,414,000 (2021 - increase/decrease of £77,000,000). This is based on the Company's equity portfolio held at each year end.

	ii)	Liquidity risk . This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
		Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities and AAA-rated money market funds, which can be sold to meet funding commitments if necessary. The maturity of the Company's existing borrowings is set out in the credit risk profile section of this note.
							Due between
			Expected		Due within		3 months		Due after
			cash flows		3 months		and 1 year		1 year
		As at 30 June 2022	£'000		£'000		£'000		£'000
		Bank loan	40,318		15,170		25,148		-
							Due between
			Expected		Due within		3 months		Due after
			cash flows		3 months		and 1 year		1 year
		As at 30 June 2021	£'000		£'000		£'000		£'000
		Bank loan	65,825		40,190		439		25,196
	iii)	Credit risk . This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
		The risk is not significant, and is managed as follows:
		- investment transactions are carried out with a number of brokers, whose credit-standing is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker;
		- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, both stock and cash reconciliations to the Custodians' records are performed on a daily basis to ensure discrepancies are investigated on a timely basis.
		- cash is held only with reputable banks with high quality external credit enhancements.
		None of the Company's financial assets are secured by collateral or other credit enhancements.
		Credit risk exposure . In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 30 June was as follows:
				2022				2021
				Statement of		Maximum		Statement of		Maximum
				Financial Position		exposure		Financial Position		exposure
		Current assets		£'000		£'000		£'000		£'000
		Debtors		11		11		631		631
		Investments in AAA-rated money markets funds		14,414		14,414		22,636		22,636
		Cash and short term deposits		582		582		95		95
				15,007		15,007		23,362		23,362
		None of the Company's financial assets is past due or impaired.

18.	Analysis of changes in net debt
		At		Non-cash	At
		30 June 2021	Cash flows	movements	30 June 2022
		'000	'000	'000	'000
	Cash and cash equivalents	95	487	-	582
	Investments in AAA-rated money market funds	22,636	(8,222)	-	14,414
	Debt due in less than one year	(40,000)	25,000	(24,988)	(39,988)
	Debt due after more than one year	(24,951)	-	24,951	-
		(42,220)	17,265	(37)	(24,992)
		At		Non-cash	At
		30 June 2020	Cash flows	movements	30 June 2021
		'000	'000	'000	'000
	Cash and cash equivalents	49	46	-	95
	Investments in AAA-rated money market funds	26,465	(3,829)	-	22,636
	Debt due in less than one year	-	(40,000)	-	(40,000)
	Debt due after more than one year	(24,914)	-	(37)	(24,951)
		1,600	(43,783)	(37)	(42,220)
	A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis.

19.	Capital management
	The investment objective of the Company is to achieve long term capital growth by investment in UK quoted smaller companies.
	The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to Shareholders through the optimisation of the debt and equity balance.
	The Company's capital comprises the following:
		2022	2021
		£'000	£'000
	Equity
	Equity share capital	26,041	26,041
	Reserves	472,570	702,205
	Liabilities
	Bank loan	39,988	64,951
		538,599	793,197
	The Company's net gearing comprises the following:
		2022	2021
		£'000	£'000
	Bank loans	(39,988)	(64,951)
	Cash and investments in AAA-rated money market funds	14,996	22,731
	Amounts due from brokers	11	631
	Amounts payable to brokers	(385)	(120)
	Net gearing	(25,366)	(41,709)
	Net assets	498,611	728,246
	Net gearing (%)	5.1	5.7
	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:
	- the planned level of gearing which takes account of the Investment Manager's views on the market;
	- the level of equity shares;
	- the extent to which revenue in excess of that which is required to be distributed should be retained.
	The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
	The Company does not have any externally imposed capital requirements.

20.	Fair value hierarchy
	FRS 102 requires an entity to classify fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following classifications:
	Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
	Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.
	Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability.
	All of the Company's investments are in quoted equities (2021 - same) that are actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments (2022 - £524,137,000; 2020 - £770,003,000) have therefore been deemed as Level 1.
	The investment in AAA rated money market funds of £14,414,000 (2021 - £22,636,000) is considered to be Level 2 under the fair value hierarchy of FRS 102 due to not trading in an active market.
	The fair value of the £25 million Term Loan as at the 30 June 2022 is £25,000,000, due to it now being short-term in nature, (2021 - £25,742,000) with a par value per Statement of Financial Position of £24,988,000 (2021 - £24,951,000) using the interest rate swap valuation technique. The £15 million revolving credit facility loan has a fair value of £15,000,000 due to it being short-term in nature. Under the fair value hierarchy in accordance with FRS 102, these borrowings can be classified at Level 2.

21.	Transactions with the Manager
	The Company has an agreement with abrdn Fund Managers Limited for the provision of management services. The management fee is calculated and payable quarterly in arrears at a rate of 0.85% per annum on the first £250 million of net assets, 0.65% per annum on net assets between £250 million and £550 million and 0.55% on net assets above £550 million. The contract is terminable by either party on six months notice. Details of fees payable during the year and fees outstanding at the year end are disclosed in note 4.
	The Manager also receives a separate fee for the provision of secretarial services and promotional activities as disclosed in note 5.

22.	Related party transactions
	The Directors of the Company received fees for their services. Further details will be provided in the Directors' Remuneration which will also include the Directors' shareholdings.

Alternative Performance Measures

Alternative performance measures ("APMs") are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP.
The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. Where the calculation of an APM is not detailed within the financial statements, an explanation of the methodology employed is provided below:
Discount
A discount is the percentage by which the market price is lower than the Net Asset Value ("NAV") per share.
	30 June 2022	30 June 2021
Share price	453.00p	698.00p
Net Asset Value per share	530.37p	737.97p
Discount	14.6%	5.4%
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes amounts due from and to brokers at the period end as well as cash and short-term deposits.
	30 June 2022	30 June 2021
	£'000	£'000
Total borrowings A	(39,988)	(64,951)
Cash and short term deposits	582	95
Investments in AAA-rated money market funds	14,414	22,636
Amounts due from brokers	11	631
Amounts payable to brokers	(385)	(120)
Total cash and cash equivalentsB	14,622	23,242
Net gearing (borrowings less cash & cash equivalents)C=A+B	(25,366)	(41,709)
Shareholders' fundsD	498,611	728,246
Net gearingC/D	5.1%	5.7%
Ongoing charges ratio
The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC, which is defined as the total of investment management fees and recurring administrative expenses and expressed as a percentage of the average of published daily net asset values throughout the year.
	30 June 2022	30 June 2021
	£'000	£'000
Investment management feeA	4,759	4,598
Administrative expensesB	889	828
Less: non-recurring chargesC	(6)	(8)
Ongoing charges	5,642	5,418
Average daily net assets	696,750	624,000
Ongoing charges ratio (excluding look-through costs)	0.81%	0.87%
Look-through costsD	0.01%	0.01%
Ongoing charges ratio (including look-through costs)	0.82%	0.88%
A See note 4.
See note 5.
C Comprises professional fees not expected to recur.
D Calculated in accordance with AIC guidance issued in October 2020 to include the Company's share of costs of holdings in investment companies on a look-through basis.
The ongoing charges ratio differs from the other ongoing costs figure reported in the Company's Key Information Document calculated in line with the PRIIPs regulations, which includes the ongoing charges ratio and the financing and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price have performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return assumes reinvesting the net dividend paid by the Company back into the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return assumes reinvesting the net dividend back into the share price of the Company on the date on which that dividend goes ex-dividend.
NAV total return
Year ended 30 June 2022	2022	2021
Opening NAV (p)	737.97p	527.73p
Closing NAV (p)	530.37p	737.97p
(Decrease)/increase in NAV (p)	-207.60	210.24
% (Decrease)/increase in NAV	-28.1%	39.8%
Uplift from reinvestment of dividendsA	0.8%	2.1%
NAV total return (decrease)/increase	-27.3%	41.9%
A The uplift from reinvestment of dividends assumes that the dividends of 5.0p in October 2021 and 2.7p in April 2022 (5.0p and 2.7p in 2020/21) paid by the Company were reinvested in the NAV of the Company on the ex-dividend date.
Share price total return
Year ended 30 June 2022	2022	2021
Opening share price (p)	698.00p	482.00p
Closing share price (p)	453.00p	698.00p
(Decrease)/increase in share price (p)	-245.00	216.00
% (Decrease)/increase in share price	-35.1%	44.8%
Uplift from reinvestment of dividendsA	0.8%	2.1%
Share price total return (decrease)/increase	-34.3%	46.9%
A The uplift from reinvestment of dividends assumes that the dividends of 5.0p in October 2021 and 2.7p in April 2022 (5.0p and 2.7p in 2020/21) paid by the Company were reinvested in the shares of the Company on the ex-dividend date.

Additional Notes to the Annual Financial Report

The Annual General Meeting will be held at 12 noon on 20 October 2022 at the offices of abrdn plc, Bow Bells House, 1 Bread Street, London EC4M 9HH.

If approved at the Annual General Meeting, the final dividend of 5.40p per share will be paid on 28 October 2022 to holders of Ordinary shares on the register at the close of business on 7 October 2022. The relevant ex-dividend date is 6 October 2022.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 June 2022 have been agreed with the auditor and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2021 and 2022 statutory accounts received unqualified reports from the Company's auditor and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498(2) or 498(3) of the Companies Act 2006. The financial information for 2021 is derived from the statutory accounts for 2021 which have been delivered to the Registrar of Companies. The 2022 accounts will be filed with the Registrar of Companies in due course.

The Annual Report and Accounts will be posted to shareholders in September 2022. Copies will be available during normal business hours from the Secretary, Aberdeen Asset Management PLC, 1 George Street, Edinburgh EH2 2LL or from the Company's website, www.abrnuksmallercompaniesgrowthtrust.co.uk *.

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

By order of the Board

Aberdeen Asset Management PLC

Company Secretary

7 September 2022

* Neither the Company's website nor the content of any website accessible from hyperlinks on it (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

END

 

 

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