Annual Financial Report

RNS Number : 2157Z

Securities Trust of Scotland PLC

20 May 2021

 

From:  Securities Trust of Scotland plc

LEI:   549300UZ1Y7PPQYJGE19

Date:  20 May 2021

Results for the year ended 31 March 2021

The board of Securities Trust of Scotland plc (the 'company') are pleased to announce the company's results for the year ended 31 March 2021.

The following is an extract from the company's Annual Report and Financial Statements for the year to 31 March 2021. The Annual Report is expected to be posted to shareholders shortly.  Members of the public may obtain copies from the registered office, 28 Walker Street, Edinburgh EH3 7HR or from its website:  www.stsplc.co.uk . A copy will also shortly be available for inspection at the National Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

Highlights

· The company's objective is to achieve rising income and long-term capital growth through investment in a balanced portfolio constructed from global equities.

· The net asset value total return for the year to 31 March 2021 was 28.5%, compared to (8.3)% in the previous financial year. The share price total return was 23.7% compared to 2.7% in the previous financial year.

· The company appointed Troy Asset Management ('Troy' or the 'manager') as manager with effect from 12 November 2020. The manager typically runs a high conviction 30-50 stock equity portfolio that is unconstrained by geography, sector or market capitalisation. Troy specialises in a distinctive method of investing that prioritises the avoidance of permanent capital losses. This is achieved by investing in high quality companies in a concentrated portfolio with low turnover.

· As part of the recent management changes, the company has introduced a discount control mechanism which aims to ensure, in normal market conditions, that the shares trade consistently close to their net asset value. The discount control mechanism has been in effect since 12 November 2020.

· The company pays quarterly dividends to provide investors with a regular income. Dividends are paid in April, July, October and January. The dividend was rebased as part of the management changes. The board has announced a fourth quarterly dividend of 1.575p per ordinary share which will be paid on 2 July 2021 to shareholders on the register on 21 May 2021. The total dividend for the year will be 5.70p per share.

Chairman's Statement

Introduction

The year to 31 March 2021 proved to be an eventful one for your company. Stock markets around the globe generally reached a trough after precipitous declines in late March 2020 - just ahead of the start of your company's financial year. Given the substantial rally that has been a feature for much of the year it is a pleasure to be able to report on high positive returns in asset terms for the company.

The net asset value total return for the twelve months was 28.5%, recouping all of the decline seen in the previous financial year. The share price total return was 23.7%.

Stock markets around the globe in fact generated positive returns for most of the fiscal year quickly moving to discount an anticipated significant recovery in economic activity and corporate profits as restrictions around the world are eased and economic activity resumes a more familiar pattern. This view was prevalent early in the fiscal year and sustained through a second wave of infections late in 2020 by very positive news in November and December on the efficacy of the vaccines under test. Later, evidence of a successful vaccination programme in the US and UK in the first quarter of 2021 sustained the market rally.

In the UK a further boost was received as a deal was agreed to leave the EU which was considered much more positive than a no deal exit.

Throughout this period governments and central banks in the Western world adopted accommodative stances and, particularly in the US, the level of stimulus being placed behind the economic recovery is significant and unprecedented.

Such stimulus comes with a risk and specifically the possibility of higher levels of inflation has recently undermined the bond market in the US which has seen bond yields rise creating additional uncertainty around equity valuations.

Management arrangements

In September 2020 the board informed shareholders of the proposed changes to the investment management, company secretarial, custodian and depositary arrangements for the company. As noted in the Interim Report, these arrangements took effect from 12 November 2020.

I am pleased to confirm that the new arrangements are working well and that the transition has been smooth. This is all the more satisfactory as the reimposition of lockdown measures has placed further obstacles in the way of normal working practices for the board and all its advisers.

I am also pleased to confirm that throughout the fiscal year and to date all the continuity arrangements of all our advisers have worked very well and that no issues have arisen. I would like to thank all involved for the professional approach and successful outcome in respect of the management of the company over the past 15 months.

Troy and the board have agreed that the performance comparator for the company shall be the Lipper Global - Equity Global Income Index which includes all the relevant closed and open-ended funds in the sector. The return is produced independently by Lipper and is a statistically robust benchmark. The relevant measure shall be the median return from this sector. This comparator is effective from Troy's date of appointment, being 12 November 2020. For information the Index return for the full year to 31 March 2021 was 29.9%. For the earlier part of the fiscal year Martin Currie was measured against the median return of the Morningstar Global Equity Income Index.

Dividends

At the time of the announcement of the investment management changes and again in the Interim Report it was indicated that the total dividend in respect of the year to 31 March 2021 would not be less than 5.50p per ordinary share. The first three quarterly dividends paid were each 1.375p. I am pleased to inform you that the board has agreed that the fourth quarterly dividend will be 1.575p per ordinary share and will be paid on 2 July 2021 to shareholders on the register on 21 May 2021. Consequently total dividends for the year will be 5.70p. This is greater than the initial expectations but as discussed in the Interim Report lower than the 6.41p paid in respect of the previous financial year.

Total net revenue for the year was £7.0 million of which £818,000 was contributed by income from writing covered options - a strategy employed by the previous but not the current manager. In future, income will be earned from the dividends paid by portfolio companies. The 5.70p dividend described above is based on the expectations of dividend income from the current portfolio and is considered to be a base from which dividend payments can grow. The board and Troy are confident that consistent growth in dividends can be achieved from the new level.

Board changes

No appointment to the board was made when Rachael Beagles retired as Chairman in 2019. I am delighted that Angus Cockburn has been appointed to the board as from 1 May 2021. Angus recently retired as Chief Financial Officer of Serco Group plc, having previously held a similar role at Aggreko until 2014. Angus is an experienced non-executive director and brings a wealth of knowledge and a fresh perspective to your board. I would like to welcome him and look forward to his contribution.

The board consists of five independent non-executive directors.

Share buybacks and discount management

Alongside the investment management changes made in November 2020 the board also resolved to formalise the discount management arrangements for the company. In addition to its company secretarial role PATAC will also manage the company's discount control mechanism that your board has introduced.

The successful operation of this policy will aim to ensure that your company's shares will trade, on a consistent basis, at or very close to their net asset value ('NAV') and that liquidity consistently will be available at that value.

In line with this policy, since 12 November 2020 (the date the policy was introduced) to 31 March 2021, 2,203,000 shares have been repurchased at a small discount to NAV and 625,000 shares were reissued at a small premium to NAV.

Annual general meeting

The AGM in 2020 was held in a virtual format and unfortunately it was not possible for shareholders to attend. Regrettably, under the current restrictions it is not expected that it will be possible for shareholders to physically attend the meeting again this year. If this position changes then the company will make an announcement through an RNS. A presentation from the managers will be available on the website following the AGM. The board look forward to resuming the normal format of the AGM and welcoming shareholders back to the meeting when the restrictions allow.

Stay in touch

I would encourage shareholders to visit the company's website at www.stsplc.co.uk   as this offers a wealth of further information on the company including manager videos and related press releases and articles. Through the website you can also subscribe to monthly email updates and the factsheet which will provide you with portfolio information and performance data. If you wish to contact the investment manager or the company secretary with any queries this can also be done through the website or by email using the email addresses set out on page 69 of the Annual Report.

Outlook

Many stock markets around the globe currently stand at their all time high levels and as described above have made rapid and substantial recoveries from their 2020 lows. The inevitable effect of these rises in a period of challenging economic conditions is that valuations have been stretched and in many sectors now look extreme.

Your manager has a robust and long term approach to asset management and his report sets out in a very clear manner his views of current valuations and how the portfolio has been positioned against that background.

In particular the portfolio consists of companies capable consistently of generating the dividend growth that will sustain growth in your company's dividends over time.

The recovery in markets from their March 2020 lows has been substantial but one feels that the recovery in economic activity and indeed the progress of this pandemic might be less smooth than the current abundant optimism might suggest. To that end the board has every confidence in the portfolio positioning and the manager's philosophy and application.

Following significant changes to both the management and portfolio of Securities Trust in the financial year your board anticipates a more settled background in 2021. Our new managers have constructed a high quality portfolio reflecting Troy's philosophy of delivering an above average long term return with below average levels of volatility. We look forward to enjoying the returns and dividend growth that the successful implementation of the strategy will deliver.

John Evans

19 May 2021

Manager's Review

Investment background

Although Troy Asset Management took over the management of the company on 12th November 2020 this report covers the 12 months to 31 March 2021.

The past year has been a most extraordinary one in global capital markets and society. The severe government-enforced recession driven by fears of risks to health rather than economic wellbeing led to a sharp fall in equity markets which reached its nadir shortly before the beginning of this period under review. Following that time, equities have staged an equally rapid recovery, especially following the news that an effective vaccine to COVID had been developed in record time.

Investors have anticipated a return to normality. This combined with the likelihood of a buoyant consumer, fuelled by pent-up demand, as well as huge fiscal stimulus packages enacted around the world, most notably by the new US administration under the new President Biden, resulted in a strong return being delivered by global equity markets.

It is remarkable how much has changed in 12 short months. Sentiment has swung from deep concerns about a deflationary bust, centred on widespread credit defaults, to fears of a return to 1970s style inflation. This is partly reflected in the government bond market where the benchmark US 10 year treasury yield has moved from 0.67% to 1.74% over the year.

Within equities a broad based rally gave way to a rotation away from companies that dependably compound capital towards those that are deemed to be greater beneficiaries of an improving economic outlook. These businesses have recovered from a low ebb but tend to carry greater risk as a result of higher levels of economic or financial gearing or capital intensity. This willingness to embrace risk by investors can also be seen in strong investor sentiment, elevated levels of borrowing to finance stock market investment, high levels of retail investor participation - notably in options markets in the US - and huge share issuance in structures with questionable investor protections called Special Purpose Acquisition Companies (SPACs).

As a result of the rebound a number of long term valuation measures suggest equity markets are fully valued relative to history. These include the market capitalisation of the US equity market relative to GDP, the Shiller Cyclically Adjusted Price Earnings ratio and perhaps most simply, but relevantly, the dividend yield offered by the US equity market, which stands at a meagre 1.46%.

We therefore have the apparent contradiction of a nascent economic cycle co-exiting with valuations and behaviour more typical of the late stages of a market ascent. A confusing backdrop indeed.

Some clear themes can be discerned. There are likely to be persistent winners and losers from the events of 2020 with pre-existing trends having been given a boost. The acceleration in technological disruption benefitting the large technology companies at the cost of more traditional industries has increased in intensity. Further the tendency of governments to run large deficits producing ever greater levels of debt shows no signs of slowing.

Performance

Against this backdrop, the company delivered a net asset value ('NAV') total return of 28.5% and a share price total return of 23.7% over the year. This compares to the Lipper Global - Global Equity Income return of 29.9%. The difference between the share price and NAV performances generated by the company represents a move from a 3.55% premium to a 0.34% discount.

Investment strategy

The portfolio was restructured in November 2020 following the transfer of the management of the company to Troy Asset Management in accordance with our investment approach. The assets of the company are now concentrated in companies that generate a high return on capital employed, generally with limited need for capital or leverage, owing to sustainable competitive advantages. These attributes may include brands, distribution density, scale, dominant market positions and regulatory or cost advantages. This allows our portfolio companies to generate growing free cash flow which in turn can fund an attractive and growing dividend yield as well as sustaining adequate levels of investment to entrench these competitive advantages. Such businesses tend to be concentrated in sectors such as consumer staples, healthcare, technology and selected non-bank financials.

Similarly, we tend to eschew less advantaged companies that generate low returns on capital. They also often require large amounts of capital to operate and have high levels of financial or economic cyclicality. Examples of these sectors would include the extractive industries, bulk chemicals, banks and retailers.

Overall we are seeking to have a portfolio that balances quality, income and growth to deliver a dependable and growing income stream as well as long term capital appreciation.

Our aim is to deliver above average returns with below average volatility over full market cycles. By avoiding the worst draw downs in markets we believe investors are in a better position to compound capital in the long term. Similarly having established the portfolio we interrupt the compounding of capital reluctantly as demonstrated by the low levels of turnover in our funds.

We are not trying to make money all the time but over time from a concentrated portfolio of high quality companies.

Investment outlook

The recovery from the depths of the global pandemic to the sunlit uplands of more recent times is remarkable. This is especially so when the backdrop is characterised by many confusing and conflicting cross-currents in markets and the economy.

The prevailing consensus narrative, inferred from the recent pattern of performance in equity and bond markets, is that we are to expect a rapid economic recovery, spurred by government spending as well as pent up demand. This will meet the supply constraints left from COVID scarring in the economy, driving up prices, which is inflation. Portfolios therefore should be rotated into a mixture of cyclical businesses regardless of capital intensity, into extractive industries again regardless of long term returns on capital and levered interest rate beneficiaries despite the dangers such leverage involves. These are not actions that are consistent with Troy's distinctive approach that emphasises quality and the avoidance of permanent capital loss.

First, and most importantly, we do not favour these types of companies owing to their heavy capital intensity and cyclicality. Such businesses deliver poor returns on capital over a full market cycle and are therefore by definition a "trade" rather than an investment. Second, it seems likely to us that investors are once again getting ahead themselves. While cyclical risks to the inflation outlook have clearly increased, the more structural drivers of inflation have worsened. Debt levels, which past a certain point depress growth, have exploded, technological disruption has accelerated and the demographic ageing has advanced inexorably.

Whether inflation returns or not, debt levels are such that rates cannot rise too much. We simply cannot afford it. If inflation does prove to be transitory the portfolio we have, that is dependable and durable global franchises delivering growing free cash flow, will be well placed. If, however, inflation does continue to rise the authorities will likely have to cap long and short term interest rates. This will create a very negative real interest rate environment which favours inflation-linked cash flows. In the longer term the same competitive advantages and low capital intensity that drives high returns on capital in our companies also affords the strength to pass on rising costs. Our portfolio is therefore also likely to be robust in this case.

Rather than chase what is currently performing investors are likely to be better served by taking advantage of the recent rotation towards lower quality and riskier enterprises to allocate capital to the type of high-quality businesses we favour. Otherwise an inevitable dilution in long term returns on capital will result. As demonstrated by Troy's long term track record across our strategies, it has not been necessary to capture such low-quality market moves to produce excellent risk adjusted results over the long term.

Overall we find excellent opportunities to invest in high quality global franchises trading at reasonable valuations. The company is currently generating a 5.3% free cash flow yield funding a 3.0% dividend yield. We expect both the free cash flow and dividend to grow consistently over the long term (while acknowledging over shorter time periods foreign exchange can reduce income from a globally invested portfolio to a domestic investor). We have confidence that the company will compound capital and income at an attractive rate on an underlying basis owing to the quality and durability of the portfolio companies.

James Harries

19 May 2021

For further information contact:

Troy Asset Management

Investment Manager

Tel:  [phone]

PATAC Limited

Company Secretary

Tel:  [phone]

Responsibility statement

The Directors confirm that to the best of their knowledge:

· the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and profit or loss of the company;

· the Chairman's statement, manager's review and strategic 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 it faces; and

· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

Principal risks

The company's business model is longstanding and resilient to most of the short-term uncertainties that it faces, which the board believes are effectively mitigated by its internal controls and the oversight of the manager, as described in the table below. The principal and emerging risks and uncertainties are therefore largely longer term and driven by the inherent uncertainties of investing in global equity markets.

The board believes that it is able to respond to these longer-term risks and uncertainties with effective mitigation so that both the potential impact and the likelihood of these seriously affecting shareholders' interests are materially reduced.

Operational and management risks along with a review of potential emerging risks, are regularly monitored at board meetings and the board's planned mitigation measures for the principal and emerging risks are described in the table below. As part of  its annual strategy meeting, the board carries out a robust assessment of the principal and emerging risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity.

The board maintains a risk register and also carries out a risk workshop as part of its annual strategy meeting. The board has identified the following principal risks to the company:

Risk	Mitigation
COVID-19 risk	COVID-19 developedrapidly,deliveringanabrupt,exogenousshocktotheglobaleconomyof considerable magnitude and became a principal risk in 2020. The company will continue to be exposed to the risk of market volatility in 2021 brought about by global outbreaks of COVID-19. The resilience of the operations undertaken by the manager and other key providers of operational services to the company, represented a risk to the company in 2020. The board has reviewed the mitigation measures with the manager and other key service providers and are satisfied that these are appropriate and will continue to support the company.
Market,financial andinterestrate risk	The company's portfolio is invested in listed equities and is therefore exposed to market risk. Adherence to investment process is intended to ensure portfolios are optimally positioned for market turbulence. The majority of the company's investment portfolio is invested in overseas securities and the balance sheet can be significantly affected by movements in foreign exchange rates. It is not the company's policy to hedge this risk on a continuing basis. As a consequence of investing in overseas securities the statement of comprehensive income is subject to currency fluctuation arising on overseas income. In order to retain its place in the FTSE All-Share index, the company must satisfy the liquidity test criteria set by the FTSE at each annual review. The liquidity of the company's shares is monitored by the board, the manager and the company's broker with a report being reviewed at every board meeting. The board regularly discusses ways to improve the liquidity position of the company. The company may use its authority to distribute some capital profit by way of dividend if so required. If the company distributes capital profit by way of dividend, the board is aware that it cannot support the payment of dividends partly out of capital on an indefinite basis in certain investment scenarios. The board actively manages this risk with the manager by seeking to grow the company's income and capital in real terms over the longer term.
Long-term investment underperformance	The board manages the risk of investment underperformance by relying on good manager stock  selection skills within a framework of diversification and other investment restrictions and guidelines. The board monitors the implementation and results of the investment process with the manager (who attends all board meetings) and reviews data that shows statistical measures of the company's risk profile. Should investment underperformance be sustained despite the mitigation measures taken by the manager, the board would assess the cause and be able to take appropriate action to manage this risk.
OperationalRisk	The company has outsourced its entire operational infrastructure to third party providers.Contracts and service level agreements have been arranged to ensure that the service provided by each third- party provider is of a sufficiently professional and technically high standard. The board receives and reviews control reports from all service providers where appropriate. Periodically, the board requests representatives from third party service providers to attend board meetings to give the board the opportunity to discuss the controls that are in place directly with the third-party providers. The board carries out an annual evaluation of its service providers and gives regular feedback to the manager and company secretary through the management engagement committee.
Loss of investment trust tax status	Loss of s1158-9 tax status would have serious consequences for the attractiveness of the company's shares. The board considers that, given the regular oversight of this risk carried out by the investment manager and reviewed by the board, the likelihood of this risk occurring is minimal. The audit committee regularly reviews the eligibility conditions and the company's compliance against each, including the minimum dividend requirements and shareholder composition for close company status.

Following the ongoing assessment of the principal and emerging risks facing the company, and its current position, the board is confident that the company will be able to continue in operation and that the processes of internal control that the company has adopted and oversight by the manager and the company secretary continue to be effective.

Going Concern

The company's business activities, together with the factors likely to affect its future development, performance and position are set out in the chairman's statement, manager's review, strategic report and the report of the directors in the Annual Report.

The company has a one year revolving credit facility for £10,000,000 which expires in September 2021, which was undrawn at 31 March 2021. In addition, the company has a multi-currency fixed facility, which expires in September 2023, in three tranches of £1,500,000, €4,500,000 and US$12,750,000, all of which were fully drawn down at the year- end date. The company has adequate financial resources in the form of readily realisable listed securities and as a result the directors assess that the company is able to continue in operational existence without the facilities.

In accordance with the 2019 AIC Code of Corporate Governance and the 2018 UK corporate Governance Code, the directors have undertaken a rigorous review of the company's ability to continue as a going concern. The company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors are mindful of the principal and emerging risks and uncertainties, in particular those related to COVID-19. They have reviewed revenue forecasts and they believe that the company has adequate financial resources to continue its operational existence for the foreseeable future, and at least for the period to 31 March 2023, which is at least 12 months from the date the financial statements are authorised for issue.

The Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flow follow.

Statement of Comprehensive Income

	Year to 31 March 2021			Year to 31 March 2020
	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000
Net gains/(losses)oninvestments	-	40,826	40,826	-	(20,635)	(20,635)
Net currency (losses)/gains	(12)	1,031	1,019	104	(26)	78
Income	9,109	-	9,109	8,700	-	8,700
Investment management fee	(285)	(529)	(814)	(410)	(761)	(1,171)
Otherexpenses	(995)	-	(995)	(587)	-	(587)
Net return before finance costs and
taxation	7,817	41,328	49,145	7,807	(21,422)	(13,615)
Financecosts	(161)	(299)	(460)	(205)	(365)	(570)
Net return on ordinary activities before
taxation	7,656	41,029	48,685	7,602	(21,787)	(14,185)
Taxation onordinaryactivities	(611)	-	(611)	(867)	-	(867)
Net return attributable to ordinary
redeemable shareholders	7,045	41,029	48,074	6,735	(21,787)	(15,052)
Net return per ordinary redeemable
share	6.76p	39.39p	46.15p	6.46p	(20.89p)	(14.43p)

The total columns of this statement are the profit and loss accounts of the company.

The revenue and capital items are presented in accordance with the Association of Investment Companies (AIC) Statement of Recommended Practice (SORP 2019).

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

Statement of Financial Position

	As at 31 March 2021		As at 31 March 2020
	£000	£000	£000	£000
Fixed assets
Investments at fair value through profit or loss		221,771		189,669
Current assets
Trade and other receivables	1,206		3,408
Cash and cash equivalents	825		5,101
	2,031		8,509
Current liabilities
Trade payables - amounts falling due within one year	(129)		(10,430)
Dividend payable	(1,410)		(1,518)
Total current liabilities	(1,539)		(11,948)
Net current assets/(liabilities)		492		(3,439)
Total assets less current liabilities		222,263		186,230
Trade payables - amounts falling due after more than one year		(14,585)		(15,765)
Total net assets		207,678		170,465
Capital and reserves
Called up share capital	1,223		1,223
Capital redemption reserve	78		78
Share premium account	30,725		30,401
Special distributable reserve*	78,194		82,943
Capital reserve*	94,528		53,499
Revenue reserve*	2,930		2,321
Total shareholders' funds		207,678		170,465
Net asset value per ordinary share		202.68p		162.72p

*These reserves are distributable.

Statement of Changes in Equity

For the year ended	Called up ordinary share capital		Capital redemption reserve	Share premium reserve	Special distributable reserve*	Capital reserve*	Revenue reserve*	Total
31 March 2021	£000		£000	£000	£000	£000	£000	£000
As at 31 March 2020	1,223		78	30,401	82,943	53,499	2,321	170,465
Net return
attributable to
shareholders**	-		-	-	-	41,029	7,045	48,074
Ordinary shares
issued during
the year	-		-	324	943	-	-	1,267
Ordinary shares
bought back during
the year	-		-	-	(5,692)	-	-	(5,692)
Dividends paid	-		-	-	-	-	(6,436)	(6,436)
As at 31 March 2021	1,223		78	30,725	78,194	94,528	2,930	207,678
For the year ended	Called up ordinary share capital	Capital redemption reserve		Share premium reserve	Special distributable reserve*	Capital reserve*	Revenue reserve*	Total
31 March 2020	£000	£000		£000	£000	£000	£000	£000
As at 31 March 2019	1,223	78		30,040	82,709	75,286	2,108	191,444
Net return
attributable to
shareholders**	-	-		-	-	(21,787)	6,735	(15,052)
Ordinary shares
issued during the year	-	-		361	1,046	-	-	1,406
Ordinary shares
bought back during
the year	-	-		-	(812)	-	-	(811)
Dividends paid	-	-		-	-	-	(6,522)	(6,522)
As at 31 March 2020	1,223	78		30,401	82,943	53,499	2,321	170,465

*  These reserves are distributable.

** The company does not have any other income or expenses that are not included in the 'Net return attributable to ordinary redeemable shareholders' as disclosed in the Statement of Comprehensive Income on page 40 of the Annual Report, and therefore this is also the 'Total comprehensive income' for the year.

Statement of Cash Flow

	Year ended 31 March 2021		Year ended 31 March 2020
	£000	£000	£000	£000
Cash flows from operating activities Net return on ordinary activities before taxation		48,685		(14,185)
Adjustments for:
(Gains)/losses on investments	(40,826)		20,635
Finance costs	460		570
Exchange movement on bank borrowings	(1,180)		603
Purchases of investments*	(248,428)		(85,742)
Sales of investments*	257,152		88,116
Dividend income	(8,288)		(7,806)
Other income	(3)		(4)
Premium income - written options	(818)		(890)
Dividend income received	7,959		8,183
Other income received	3		4
Premium income received - written options	818		890
Decrease/(increase) in receivables	2,608		(2,739)
Decrease in payables	(302)		(72)
Overseas withholding tax deducted	(853)		(867)
		(31,698)		20,881
Net cash flows from operating activities		16,987		6,696
Cash flows from financing activities
Repurchase of ordinary share capital	(5,692)		(829)
Issue of ordinary share capital	1,433		1,240
Equity dividends paid from revenue	(6,544)		(6,519)
Repayment of the Sterling loan facility	(10,000)		-
Interest paid on borrowings	(460)		(571)
Net cash flows from financing activities		(21,263)		(6,679)
Net (decrease)/increase in cash and cash equivalents		(4,276)		17
Cash and cash equivalents at the start of the year		5,101		5,084
Cash and cash equivalents at the end of the year		825		5,101

*Receipts from the sale of, and payments to acquire, investment securities have been classified as components of cash flows from operating activities because they form part of the fund's dealing operations.

Notes:

1.  Significant accounting policies

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (Accounting Standards "UK GAAP") including Financial Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (the "SORP") issued by the Association of Investment Companies in October 2019. All of the company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss. The company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors have reviewed revenue forecasts and they believe that the company has adequate financial resources to continue its operational existence for the foreseeable future, and for the period to 31 March 2023, which is at least 12 months from the date the financial statements are authorised for issue.

The principal accounting policies are set out in Note 1 to the Annual Report. These policies have been applied consistently throughout the current and prior year.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There are no critical accounting estimates or judgements.

Functional currency - the company is required to nominate a functional currency, being the currency in which the company predominately operates. The board has determined that sterling is the company's functional currency, which is also the currency in which these financial statements are prepared. This is also the currency in which all expenses and dividends are paid in.

2.  Returns and net asset value

	Year to 31 March 2021	Year to 31 March 2020
Revenue return
Revenue return attributable to ordinary redeemable shareholders	£7,045,000	£6,735,000
Weighted average number of shares in issue during the  year	104,176,945	104,294,951
Revenue return per ordinary redeemable share	6.76p	6.46p
Capital return
Capital return attributable to ordinary redeemable shareholders	£41,029,000	(£21,787,000)
Weighted average number of shares in issue during the  year	104,176,945	104,294,951
Capital return per ordinary redeemable share	39.39p	(20.89p)
Net return
Net return per ordinary redeemable share	46.15p	(14.43p)
Net asset value per share
Net assets attributable to shareholders	£207,678,000	£170,465,000
Number of shares in issue at the year end	102,468,075	104,760,635
Net asset value per share	202.68p	162.72p

3.  Dividends

	Year to 31 March 2021 £000	Year to 31 March 2020 £000
First interim dividend of 1.375p for the year ended 31 March 2021 (2020: 1.45p)	1,430	1,513
Second interim dividend of 1.375p for the year ended 31 March 2021 (2020: 1.45p)	1,438	1,509
Third interim dividend of 1.375p for the year ended 31 March 2021 (2020: 1.45p)	1,410	1,518
Proposed fourth interim dividend of 1.575p for the year ended 31 March 2021 (2020: 2.06p)	1,609	2,158
	5,887	6,698

During the year the directors received dividends of 6.185p (2020: 6.25p) per share. The revenue reserves as at 31 March 2021 are £2,930,000, of this £1,609,000 will be used to fund the fourth interim dividend. The articles of association of the company permit dividends to be paid out of capital.

4.  Investments at fair value

Under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', an entity is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc); or

Level 3: significant unobservable input (including the company's own assumptions in determining the fair value of investments). The financial assets measured at fair value through profit and loss are grouped into the fair value hierarchy as follows:

At 31 March 2021	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	221,771	-	-	221,771
Net fair value	221,771	-	-	221,771
At 31 March 2020	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	189,669	-	-	189,669
Net fair value	189,669	-	-	189,669

5.  Share capital

There were 2,917,560 shares bought back during the year to 31 March 2021 at a cost of £5,692,000 (2020: 435,613 at a cost of £811,000). During the year, the company issued 625,000 shares for proceeds of £1,267,000 (2020: 700,000 shares for proceeds of £1,406,000).

6.  Related party transactions

With the exception of the management and secretarial fees and the appointment of the new investment manager and company secretary on 12 November 2020 (as disclosed on page 3 of the Annual Report), directors' fees (disclosed on page 32 of the Annual Report) and directors' shareholdings (disclosed on page 31 of the Annual Report), there have been no related party transactions during the year, or in the prior year.

7.  Further information

These are not statutory accounts in terms of Section 434 of the Companies Act 2006.  Full audited accounts for the year to 31 March 2021 will be sent to shareholders by the beginning of June 2021 and will be available for inspection at 28 Walker Street, Edinburgh EH3 7HR, the registered office of the Company. The full annual report and accounts will be available on the Company's website www.stsplc.co.uk .

The audited accounts for the year ended 31 March 2021 will be lodged with the Registrar of Companies.

 

END

 

 

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