Final Results

STS Global Income & Growth Trust

08 June 2023

 

From:    STS Global Income & Growth Trust plc

LEI:         549300UZ1Y7PPQYJGE19

Date:     8 June 2023

Results for the year ended 31 March 2023

The Board of STS Global Income & Growth Trust plc (formerly Securities Trust of Scotland plc) (the 'Company') are pleased to announce the Company's results for the year ended 31 March 2023.

The following is an extract from the Company's annual report and financial statements for the year to 31 March 2023. 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 has changed its name to STS Global Income & Growth Trust plc, which better explains the Company's aims and objectives.

·    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 2023 was -1.8%, and the share price total return was -4.8%, compared to a total return of +0.5% in the Lipper Global - Equity Global Income Index. This compares to a net asset value return of +16.8%, a share price total return of +17.4% and a total return of +10.8% in the Lipper Global - Equity Global Income Index in the previous year.

·    The Company pays quarterly dividends to provide investors with a regular income. Dividends are paid in April, July, October and January. The Board has announced a fourth quarterly dividend of 1.85 pence per ordinary share which will be paid on 14 July 2023 to shareholders on the register on 16 June 2023. The total dividend for the year will be 6.20 pence per share, an increase of 5.5% from the prior year and 8.8% since the dividend was rebased in 2021.

Chairman's Statement

The year to 31 March 2023 proved to be eventful in terms of both geopolitical and economic developments. It was dominated by the immediate and longer term effects of the dreadful war in Ukraine precipitated by the invasion by Russian forces in February 2022. An immediate economic effect of the conflict was the increase in prices of oil & gas on wholesale markets and this increase added to the inflationary pressures already pushing through as economies recovered post pandemic.

The boost to inflation arrived at a time when Central Banks, virtually worldwide, were raising short term interest rates and reversing the very lax monetary policies that had been in place since the financial crisis in 2007/2008. As might be expected bond markets found this background to be challenging and were significantly lower over the year (the Investment Association Sterling Corporate Bond Sector Index, for example, returned -9.4%). Not surprisingly, equity markets struggled to generate positive returns against such a difficult background.

Over the 12 month period the net asset value total return for your Company was -1.8%, marginally behind the +0.5% total return for the comparator benchmark, Lipper-Global - Equity Global Income Index.

The relative return for the year was consistent in the sense that when markets, and generally in the first half of the period, were in a "risk off" mode relative returns were good. However, later in the period as confidence rose and markets returned to sectors and stock that had driven the post pandemic bounce relative returns were poorer.

Your Manager's philosophy and portfolio positioning has remained consistent and returns have been likewise consistent against a frequently changing narrative in respect of markets.  It is a feature of stock markets that rallies begin with a reversion to what had driven previous returns but often this effect fades and new drivers emerge as investors adapt to changing circumstances. This may well be what is happening currently as the rally in the second half of the financial year was led by sectors with higher valuations despite what is a fundamental change in the monetary background.  The era of virtually free and abundant debt has ended to be replaced by a period in which capital has an economic cost and has to be allocated on a much more rational basis. Your Board and Manager believe that in such an environment the focus on investing in strong companies in terms of market positioning and financial robustness will produce good relative returns.

Revenue and dividends

Total revenue earned for the year was £8.2 million, an increase of 11.7% on the previous year. This is a meaningful rise in income and has two principal sources. First, the underlying dividend performance of the Company's investments has been robust and is a testament to the stock selection of the Manager. Second, with 47% of income arising from US dollar denominated dividends the weakness of sterling vs the US dollar over the year has been a boost to sterling revenues as dollar payments are translated at more favourable rates. (For your information the average £/$ rate for the year was 1.21 compared with 1.37 in the previous year).

In arriving at a dividend level for the year your Board has been realistic and cognisant of the fact that shareholders are expecting consistent dividend growth over the longer term. While most encouraged by the underlying dividend performance of our investment portfolio, the benefit of currency changes has been welcome but is likely to be volatile and may even be reversed.

The Board will therefore transfer to reserves some of the currency benefit in order that in the event of a period of less favourable currency movements there is flexibility to use reserves to smooth the long term progression in dividends paid to shareholders.

Consequently a total dividend of 6.20 pence per ordinary share has been declared representing a 5.5% increase over the 5.875 pence per share paid in respect of the previous financial year.

Change of name

The current and previous Boards have discussed the suitability of the name of your Company on several occasions. The Board now believes that it is appropriate to implement a new name for the Company which better explains the Company's aims and objectives. The investment mandate and strategy remain the same; providing defensive capital returns with growing income by investing in a concentrated portfolio of global companies.

The Board is also conscious of changes in its investor base, as well as changes in the ways in which investors hold their shares. The Company's shares are now held through a broad range of wealth managers and retail platforms and we believe the name change will make it easier for individual retail investors to find the Company on platforms when searching for global income and growth investment opportunities.

Consequently, it was decided to change the name of your Company to "STS Global Income & Growth Trust plc".  In accordance with the Company's articles of association, this change of name has been actioned by a resolution of the directors and the name change took effect on 5 June 2023.

It is important to emphasise that nothing else will change, the ticker symbol (STS) will remain the same as will the SEDOL and ISIN. You will not need or receive new share certificates.  The Board believes that this name change will enhance the marketability of the shares and bring the Company more easily to the attention of not only the retail investor but all potential buyers of the shares.

Board changes

The Board is aware of the need to have a succession process in place and this is particularly important as compliance with the best practice of corporate governance in respect of terms of appointment and diversity is a key objective of the Board.

Therefore and in line with its long term planning I am pleased to announce that Gillian Elcock will be appointed as a non-executive director on 21 September 2023. Gillian is a non-executive director of International Biotechnology Trust plc and a member of the Board of the CFA UK. I am delighted that Gillian is joining our Board. She has a wealth of investment experience and will bring a valuable perspective to Board discussions. My colleagues and I very much look forward to working with her.

Discount management

Your Company adopted and implements a formal discount control mechanism. It is the intention that the application of this policy will, in normal market conditions, see the shares consistently valued close to their net asset value, providing liquidity for all shareholders. Shares are bought by the Company should they trade at a discount to net asset value and if there are sellers in the market. Likewise shares will be issued at a premium to net asset value to meet demand should there be buyers.

In the year to 31 March 2023, 1,616,500 shares were purchased by the Company at an average discount of 1.9% and 1,575,000 shares were issued at an average premium of 1.2%.

Borrowing facilities

Your Company currently has debt facilities totalling £15.8 million.  The use of these facilities is discussed regularly and also at every Board meeting. The £15 million multicurrency facility that the Company has had available since 2016 is due to expire in September of this year. Negotiations are underway to replace this facility with an appropriately flexible facility that will allow the Manager to utilise the debt in a cost effective manner with the objective of enhancing returns to shareholders over time.

ESG

The Board continues to recognise the importance of considering environmental, social, and governance ('ESG') factors when making investment decisions and in the ongoing stewardship of investee companies and is supportive of the Manager's approach to responsible investing, which fully integrates ESG analysis into the fundamental research and investment process. More information can be found on pages 12 and 13 of the annual report and on the responsible investing section of the Company's website, www.stsplc.co.uk/responsible-investment/.

AGM

The Annual General Meeting of your Company will be held on 20 September 2023 at the offices of Juniper Partners, 28 Walker Street, Edinburgh at 2.00pm. The Board looks forward to meeting shareholders in person at that meeting.

Keeping in touch

I would encourage shareholders to visit the Company's website at www.stsplc.co.uk as it offers a wealth of information about the Company. It is regularly updated and has recently been redesigned. Through the website you can also subscribe to monthly email updates including the factsheet which provides portfolio and performance information. You can also contact the Manager or our Company Secretary, Juniper Partners, through the website or by using the email address on page 74 of the annual report.

Outlook

Much of the focus of financial markets is on the timing and scale of changes in short term interest rates.  We may be near the peak of the current cycle - there are a myriad of views. However, whilst the cost of debt may change it is unlikely that Central Banks will relent on their liquidity policies as these have to address 14 years of largesse. Many of the well-publicised issues in the US and other banking systems recently owe more to the effects of the quantitative tightening than the higher cost of money.

The rate of inflation may be declining, or be forecast to do so, but prices are still rising at unfamiliar levels.  Your Manager backs sound well established companies with managements and processes that have been tested in many economic circumstances and have stood the test of time. Whilst we would not make firm predictions as to what lies ahead we can be confident that we are invested in companies that have proved their ability to deliver throughout the cycle and have belief in their ability to continue to do so.

John Evans

7 June 2023

Manager's Review

As detailed in the Chairman's statement, in a tumultuous year for global equity markets the Company's NAV declined by 1.8% compared to a return of 0.5% for the Lipper Global - Equity Global Income Index comparator. Since the inception of Troy's management of the Company the NAV has risen by 15.3%.

After delivering strong returns in 2022, this year has been a year of consolidation for the Company and for equity markets. Rising interest rates to combat inflation as well as the ongoing war in Ukraine made for a challenging backdrop. The income account remains robust, however, with the dividend for the year increasing by 5.5%.

Performance

The last 12 months have demonstrated once again the power of branded consumer goods. At a time of rapidly rising interest rates driven by the re-emergence of inflation, our consumer staples portfolio companies have been able to raise prices to offset these headwinds. The combination of well-loved brands, the habit of repeat purchases and powerful distribution networks enables these companies to generate attractive and sustainable returns on capital employed. It is these same competitive advantages that gives these businesses pricing power. They also benefit from having limited capital requirements. This strength has been rewarded by investors over this period as four out of the top five contributors were consumer staples companies. These were Unilever, PepsiCo, Philip Morris and Hershey.

The fifth most significant contributor was Swiss healthcare company, Novartis. This is a high-quality franchise that remains excellent value. Recent results have been received well by investors as they re-appraise the steady if unspectacular growth of this company. The shares have begun to appreciate after a long spell of dull returns.

The key source of underperformance was our real estate investments. Of the three which we hold, two - Vonovia and Boston Properties - were the greatest detractors to performance over the year. The scale of the rise in interest rates and the pace that they have risen has been remarkable. The effect of this change is likely to be felt in the economy and markets with a lag. The impact on property has been far more immediate. For each of these businesses we believed there was a specific reason to invest.

Vonovia is the largest listed owner of German residential real estate (as well as having some exposure to Sweden and Austria). With property in Germany valued at a discount to replacement cost and bolstered by structural factors such as urbanisation and a trend towards smaller households we viewed this an attractive asset. This was further supported by an interest rate that was arguably too low for the German economy since it is set at the EU level. Unfortunately, these trends were overwhelmed by the shift in the structure of interest rates. As detailed below, Vonovia was subsequently sold and was no longer part of the portfolio at the year end.

Similarly, we believed Boston Properties to be attractive owing to its ownership of A grade office property in the coastal cities of the US. It is our contention that the current post-COVID norm of hybrid working practices is unlikely to outlast a more difficult economic environment. However, this trend reversal is taking time and when combined with a rising cost of capital caused the shares to decline in value.

The next two holdings which detracted from performance were both in the healthcare sector, broadly defined. Roche, like Novartis (see above) is a high quality Swiss pharmaceutical company. It also has an excellent diagnostics business. The underperformance of the shares derives from a spike in the share price which coincided with the end of March 2022. It is the retreat from this precipitous high that is captured in the poor showing over the last 12 months rather than more worrying operational concerns. The shares remain excellent value.

Medtronic is a high-quality medical technology franchise covering a range of therapeutic and diagnostic medical products. The company suffered during COVID as many elective procedures were postponed. However, it has been rather slower to recover from this disruption than we would like. There have however been some encouraging signs recently including the approval of a new insulin management device for diabetics. The shares remain in the portfolio.

Finally, Domino's Pizza was weak during the year. We continue to believe this is an excellent business trading at a very attractive valuation. The last few years have been marred by friction between the company and the underlying franchisees as well as several management changes including the loss of the CEO, for whom they have yet to find a permanent replacement. Further, investors have worried about the health of the UK consumer. These concerns have weighed on the shares. We believe that these problems will ultimately be solved, and the strategic direction of the business is becoming clearer. We are patiently waiting for the improving operational momentum to be reflected in the share price and it remains a long term investment for the Company.

Portfolio activity

Consistent with Troy's long term investment approach, activity within the portfolio has been limited. We established two new investments, Admiral Group and Texas Instruments funded from the sale of GSK, Western Union and Vonovia. We also added to our investments in Nintendo, Reckitt Benckiser and Link REIT.

Admiral Group ('Admiral') is an excellent business. Dominated by its UK car insurance business, Admiral's market leadership is based on expertise in specialist insurance. This specialisation leads to an extensive data set affording accurate pricing of risk. As such, and unusually for an insurance business, the company makes an underwriting profit over the cycle. This persistent and consistent profitability allows Admiral to offload the insurance risk to Munich Re but to retain much of the profitability. Costs are contained giving the company a very attractive return profile. The company has limited capital requirements and is therefore able to pay a healthy dividend.

For a variety of reasons, the performance of GSK towards the beginning of this period had been strong. These included the spinning-off of the consumer business (named Haleon) following a failed bid by Unilever, a change in dividend policy and US dollar strength (GSK has substantial US dollar earnings).  This provided an attractive time to sell.

Conversely Admiral had been a poor performer. During COVID, Admiral's customers had been paying premiums without being able to use their cars, giving a short-term lift to profits. This was reflected in a strong share price. As this effect faded, so too did the company's valuation. A reallocation of capital from GSK to Admiral was therefore timely.

Texas Instruments ('TI') is a leader in analog semiconductors. We have spent the last few years patiently building our semiconductor industry knowledge. TI designs and manufactures relatively low specification chips which don't require the latest manufacturing technology and have incredibly long shelf lives. While other semiconductor companies constantly design and manufacture new CPUs (Central Processing Units) to satisfy the insatiable need for greater computing power, TI chips work for decades. We believe that roughly half of TI's sales derive from chips designed more than ten years ago. The result is a business with little technological risk and relatively low capital intensity.

The semiconductor industry has a degree of cyclicality, however in the case of TI, we consider this risk to be mitigated by having a conservative balance sheet and capital allocation policy that rewards long-term shareholders. Indeed, we believe TI has one of the clearest frameworks for value creation, as described in the Investor Overview document on TI's website. The business is fantastically profitable, ranking in the 89th percentile of S&P500 companies in terms of free cash flow margins. We considered the valuation to be attractive at purchase including offering us a c.3% prospective dividend yield.

The investment was funded by the sale of Western Union and the reduction in our investment in ADP.

Finally, we sold Vonovia and re-invested the proceeds in Link REIT. Link REIT is the largest and, we believe, best managed real estate investment trust in Asia. The company used its scale and reputation to be first to raise equity via a rights issue to offset the problems being felt across the industry from rising interest rates. We participated in the issue and then subsequently added to the investment, funded from the sale of Vonovia. Link REIT now has a low debt profile and is well placed to acquire distressed assets.

The overall shape of the portfolio is largely unchanged. Branded consumer goods, healthcare and enterprise software represent a material proportion of the Company. Conversely, we have very limited exposure to sectors that we consider to be more cyclical and require significant capital investment to operate.

On an underlying revenue basis (as at 31 March 2023), the Company has 48.5% invested in the US, 27.9% in Asia and Emerging Markets (EM), 15.7% in Europe and 7.0% in the UK.

We continue to view the US to be the best economy with the best companies which is reflected in the significant exposure we have to that country. 

The proportion of revenue coming from Asia and EM may increase over time. These economies have attractive growth prospects, in part owing to having much younger populations (with the important exception of China). Consumer expenditure is likely to structurally increase over the long term. Our portfolio company management teams are likely to allocate further capital to these areas in the coming years to take advantage of this opportunity.

Our favoured way of gaining exposure to these dynamic economies is via developed market listed businesses. We find them to have superior corporate governance and to demonstrate better capital allocation.

Investment strategy

Equity markets have staged a remarkable recovery from the lows seen in October 2022. We would caution investors that this advance may not be markets sounding the economic "all-clear". We continue to think that the effect of rapidly rising rates and the absence of quantitative easing is working their way through the global economy, albeit with a lag. The notable inversion of the US yield curve (a situation where short-term interest rates are higher than longer term interest rates which usually presages a recession) combined with still elevated equity market valuations is a time for caution.

To us this optimism is being driven by the reasonable expectation that inflation and therefore interest rates are peaking. We fear however that this will simply be the opening scene of a drama that develops ultimately into recession. It may be therefore that while this year capital markets had to contend with rising rates, next year they may have to deal with declining earnings.

At the same time many of our portfolio companies, notably in the consumer staples sector, are beginning to benefit from softening input costs. We are beginning to see the first signs of expanding gross and operating margins as a result. When combined with still healthy demand for these repeat-purchase products we are confident our companies will weather a more difficult economic environment relatively well.

Further we continue to wait patiently to redeploy capital into favoured sectors, but which remain, for now, stubbornly too expensive. If events play out as we have suggested above, this may be about to change.

We remain confident that the Company will continue to deliver growing free cash flow to fund an attractive and growing income stream as well as long term capital growth. Further we are excited by the opportunities that may become available in the coming year.

James Harries

7 June 2023

For further information contact:

Troy Asset Management

Investment Manager

Tel:  [phone]

Juniper Partners 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 annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal and emerging risks and uncertainties that it faces; and

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

Principal risks

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:

Principal risks	Mitigation and management
Investment strategy and objectives - Pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate may lead to reduced returns for shareholders and, as a result, the Company may become unattractive to investors, leading to decreased demand for its shares and a widening discount.	The Board formally reviews the Company's objective and strategy on an annual basis, or more regularly if appropriate. The Board also receives updates at each Board meeting from the Manager with regards to the portfolio and its performance; receives broker updates on the market; and is updated on the make-up and movements in the shareholder register. In addition, the Company operates a discount control mechanism; the marketing and distribution activity is actively reviewed; and the Board and Manager proactively engage with shareholders on an ongoing basis.
Investment management - If the longer-term performance of the investment portfolio does not deliver income and capital returns in line with the investment objective and/or consistently underperforms market expectations, the Company may become unattractive to investors.	The Board manages the risk of investment underperformance by relying on the Manager's 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.
Macro-economic and market risk - The Company's portfolio is invested in listed equities and is therefore exposed to events or developments which can affect the general level of share prices, including inflation or deflation, economic recessions and movement in interest rates and currencies which could cause losses within the portfolio and increasing finance and operational costs of the Company.	The Board receives regular updates on the Company's portfolio and the investment environment in which the Manager is operating. An explanation of the different components of market risk and how they are individually managed is contained in note 18 to the financial statements on pages 60 to 63 of the annual report.
Gearing and leverage risk - The Company may borrow money for investment purposes. While this has the potential to enhance investment returns in rising markets, in falling markets the impact could be detrimental to performance. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings.	The Company's gearing is maintained at a conservative and manageable level. All borrowing facilities require prior approval of the Board and actual borrowing levels are discussed by the Board and Manager at every meeting. Details of the Company's current borrowings and unused facilities can be found in note 12 to the financial statements on page 58 of the annual report. The Company's investments are in quoted securities that are readily realisable and the Board regularly reviews the liquidity level of the portfolio in order to assess how quickly, if necessary, the borrowings could be repaid. The Board, through the Company Secretary, maintains an open and constructive dialogue with the Company's lenders to ensure that any renewal of the facilities is co-ordinated well in advance of the expiration of any existing facilities.
Discount risk - The discount/premium at which the Company's shares trade relative to its net asset value can fluctuate. The risk of a widening discount is that it may undermine investor confidence in the Company.	The Company operates a discount control mechanism which aims to ensure, in normal market conditions, the Company's shares trade, on a consistent basis, at or very close to net asset value. The Board reviews the operation of the discount control mechanism at each Board meeting and maintains a regular dialogue with Juniper Partners (which manages the policy on behalf of the Board) in respect of any issues or buybacks under the policy.
Operational risk - The Company is dependent on third parties for the provision of all services and systems. Any fraud, control failures, cyber threats, business continuity issues at, or poor service from, these third parties could result in financial loss or reputational damage to the Company.	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. 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.
Accounting, legal and regulatory - In order to continue to qualify as an investment trust, the Company must comply with the requirements of section 1158 of the Corporation Tax Act 2010. Breaches of the UK Listing Rules, the Companies Act or other regulations with which the Company is required to comply, could lead to a number of detrimental outcomes.	The Board considers that, given the regular oversight of this risk carried out by the Company Secretary and reviewed by the Board, the likelihood of this risk occurring is minimal. The Audit and Risk 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. The Board receives reports from the Manager and Juniper Partners in its capacity as AIFM and Company Secretary to enable it to ensure compliance with all applicable rules.
Climate change risk - There is increasing awareness of the challenges and emerging risks posed by climate change.	The investment process is focused on ESG issues and, as set out on pages 12 and 13 of the annual report, this includes an assessment of the potential impact of climate change. Overall the specific potential effects of climate change are difficult, if not impossible to predict and the Board and Manager continue to monitor material physical and transition risks and opportunities as part of the investment process.
Geopolitical risk (emerging risk) - The impact of geopolitical events could result in losses to the Company.	Geopolitical risks have always been an input into the investment process. This risk area is now highlighted as a result of the Russian invasion of Ukraine, with the resultant effects on global trade and volatility in asset prices. Further information on this risk and its potential impact on the Company is set out in the Chairman's statement and the Manager's review. The Board seeks to mitigate this risk through maintaining a broadly diversified global equity portfolio with appropriate asset and geographical exposure. The Board and the Manager continue to monitor the ongoing heightened geopolitical risk and are in regular communication on emerging matters which may impact on the portfolio.

Following the ongoing assessment of the principal and emerging risks facing the Company, and its current position, the Board is confident that the Company will be able to continue in operation and that the processes of internal control that the Company has adopted and oversight by the Manager and the Company Secretary 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 2023, which was undrawn at 31 March 2023. 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. No decision has yet been taken in relation to the renewal of the borrowing facilities. Should they not be renewed then the Company has adequate financial resources in the form of readily realisable listed securities and as a result the directors assess that the Company is able to continue in operational existence without the facilities.

In accordance with the 2019 AIC Code of Corporate Governance, the directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors are mindful of the principal and emerging risks and uncertainties. They have reviewed revenue forecasts (adjusted for various sensitivities) and they believe that the Company has adequate financial resources and a suitably liquid investment portfolio to continue its operational existence for the foreseeable future, and at least for the period to 31 March 2025, 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 2023			Year to 31 March 2022
	Revenue	Capital	Total		Revenue	Capital	Total
	£000	£000	£000		£000	£000	£000
Net (losses)/gains on investments	-	(8,800)	(8,800)		-	29,232	29,232
Net currency (losses)/gains	(4)	(869)	(873)		3	(445)	(442)
Income	8,238	266	8,504		7,378	-	7,378
Investment management fee	(531)	(985)	(1,516)		(222)	(413)	(635)
Other expenses	(625)	-	(625)		(516)	-	(516)
Net return before finance costs and
Taxation	7,078	(10,388)	(3,310)		6,643	28,374	35,017
Finance costs	(171)	(318)	(489)		(157)	(291)	(448)
Net return on ordinary activities before
taxation	6,907	(10,706)	(3,799)		6,486	28,083	34,569
Taxation on ordinary activities	(566)	-	(566)		(632)	-	(632)
Net return attributable to ordinary
shareholders	6,341	(10,706)	(4,365)		5,854	28,083	33,937
Net return per ordinary
share	6.34p	(10.70)p	(4.36)p		5.82p	27.92p	33.74p

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

The revenue and capital items are presented in accordance with the Association of Investment Companies (AIC) Statement of Recommended Practice (SORP 2022).

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

Statement of financial position

	As at 31 March 2023		As at 31 March 2022
	£000	£000	£000	£000
Fixed assets
Investments held at fair value through profit or loss		234,362		244,561
Current assets
Trade and other receivables	1,113		1,089
Cash and cash equivalents	1,570		865
	2,683		1,954
Current liabilities
Bank loans	(15,795)		-
Trade payables	(572)		(489)
Dividend payable	(1,443)		(1,368)
Total current liabilities	(17,810)		(1,857)
Net current (liabilities)/assets		(15,127)		97
Total assets less current liabilities		219,235		244,658
Non-current liabilities
Bank loans		-		(15,001)
Total net assets		219,235		229,657
Capital and reserves
Called up share capital	1,223		1,223
Capital redemption reserve	78		78
Share premium account	31,808		30,762
Special distributable reserve	70,924		71,925
Capital reserve	111,905		122,611
Revenue reserve	3,297		3,058
Total shareholders' funds		219,235		229,657
Net asset value per ordinary share		220.37p		230.75p

Statement of changes in equity

For the year ended	Called up share capital		Capital redemption reserve	Share premium account	Special distributable reserve*	Capital reserve*	Revenue reserve*	Total
31 March 2023	£000		£000	£000	£000	£000	£000	£000
As at 1 April 2022	1,223		78	30,762	71,925	122,611	3,058	229,657
Net return
attributable to
shareholders**	-		-	-	-	(10,706)	6,341	(4,365)
Shares issued
from treasury	-		-	1,046	2,585	-	-	3,631
Shares bought back
into treasury	-		-	-	(3,586)	-	-	(3,586)
Dividends paid	-		-	-	-	-	(6,102)	(6,102)
As at 31 March 2023	1,223		78	31,808	70,924	111,905	3,297	219,235
For the year ended	Called up share capital	Capital redemption reserve		Share premium account	Special distributable reserve*	Capital reserve*	Revenue reserve*	Total
31 March 2022	£000	£000		£000	£000	£000	£000	£000
As at 1 April 2021	1,223	78		30,725	78,194	94,528	2,930	207,678
Net return
attributable to
shareholders**	-	-		-	-	28,083	5,854	33,937
Shares issued
from treasury	-	-		37	162	-	-	199
Shares bought back
into treasury	-	-		-	(6,431)	-	-	(6,431)
Dividends paid	-	-		-	-	-	(5,726)	(5,726)
As at 31 March 2022	1,223	78		30,762	71,925	122,611	3,058	229,657

*    These reserves are distributable with the exception of the unrealised portion of the capital reserve, which is non-distributable.

** The Company does not have any other income or expenses that are not included in the 'Net return attributable to ordinary redeemable shareholders' as disclosed in the Statement of comprehensive income above, and therefore this is also the 'Total comprehensive income' for the year.

Statement of cash flow

	Year ended 31 March 2023		Year ended 31 March 2022
	£000	£000	£000	£000
Cash flows from operating activities Net return on ordinary activities before taxation		(3,799)		34,569
Adjustments for:
Losses/(gains) on investments	8,800		(29,232)
Finance costs	489		448
Exchange movement on bank borrowings	794		416
Purchases of investments*	(22,917)		(17,528)
Sales of investments*	24,316		23,970
Dividend income	(8,496)		(7,378)
Other income	(8)		-
Dividend income received	8,523		7,252
Other income received	8		-
(Increase)/decrease in receivables	(5)		17
Increase in payables	70		358
Overseas withholding tax deducted	(612)		(406)
		10,962		(22,083)
Net cash flows from operating activities		7,163		12,486
Cash flows from financing activities
Repurchase of ordinary share capital	(3,586)		(6,431)
Issue of ordinary share capital from treasury	3,631		199
Equity dividends paid from revenue	(6,027)		(5,768)
Interest paid on borrowings	(476)		(446)
Net cash flows from financing activities		(6,458)		(12,446)
Net increase in cash and cash equivalents		705		40
Cash and cash equivalents at the start of the year		865		825
Cash and cash equivalents at the end of the year		1,570		865

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

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 July 2022. 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. In preparing these financial statements the directors have considered the impact of climate change on the value of the listed investments that the Company holds. As the portfolio consists of listed equities, which are valued using quoted bid prices for investments in an active market, the fair value reflects the market participants' view of climate change risk.

The Company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors have reviewed revenue forecasts and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future, and for the period to 31 March 2025, which is at least 12 months from the date the financial statements are authorised for issue.

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

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

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

2.            Returns and net asset value

	Year to 31 March 2023	Year to 31 March 2022
Revenue return (£000)	6,341	5,854
Capital return (£000)	(10,706)	28,083
Total (£000)	(4,365)	33,937
Weighted average number of ordinary shares in issue	100,005,571	100,591,911
Revenue return per ordinary share	6.34p	5.82p
Capital return per ordinary share	(10.70)p	27.92p
Total return per ordinary share	(4.36)p	33.74p
Net asset value per share
Net assets attributable to shareholders (£000)	219,235	229,657
Number of shares in issue at the year end	99,483,575	99,525,075
Net asset value per share	220.37p	230.75p

3.            Dividends

	Year to 31 March 2023 £000	Year to 31 March 2022 £000
First interim dividend of 1.45p for the year ended 31 March 2023 (2022: 1.375p)	1,454	1,376
Second interim dividend of 1.45p for the year ended 31 March 2023 (2022: 1.375p)	1,451	1,374
Third interim dividend of 1.45p for the year ended 31 March 2023 (2022: 1.375p)	1,443	1,368
Proposed fourth interim dividend of 1.85p for the year ended 31 March 2023 (2022: 1.75p)	1,822	1,754
	6,170	5,872

The revenue reserves as at 31 March 2023 are £3,297,000, of this £1,822,000 will be used to fund the fourth interim dividend. The amount reflected above for the cost of the proposed fourth interim dividend for 2023 is based on 98,508,575 ordinary shares, being the number of ordinary shares in issue excluding those held in treasury at the date of this report. The articles of association of the Company permit dividends to be paid out of capital.

4.            Investments at fair value

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

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

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

Level 3: significant unobservable 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 2023	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	234,362	-	-	234,362
Net fair value	234,362	-	-	234,362
At 31 March 2022	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	244,561	-	-	244,561
Net fair value	244,561	-	-	244,561

5.            Share capital

There were 1,616,500 shares bought back during the year to 31 March 2023 at a cost of £3,586,000 (2022: 3,043,000 shares at a cost of £6,431,000). During the year, the Company issued 1,575,000 shares for net proceeds of £3,631,000 (2022: 100,000 shares for net proceeds of £199,000).

6.            Related party transactions

With the exception of the management and secretarial fees, directors' fees and directors' shareholdings (disclosed on page 35 of the annual report), there have been no related party transactions during the year, or in the prior year.

The management fee payable in respect of the year ended 31 March 2023 was £1,516,000 (2022: £635,000), of which £386,000 (2022: £373,000) was outstanding at the year-end. The secretarial and directors' fees payable in respect of the year ended 31 March 2023 are detailed in note 4 of the annual report. The amount outstanding at the year end for secretarial fees and directors' fees was £18,000 (2022: £3,000) and £nil (2022: £nil) respectively.

7.            Further information

These are not statutory accounts in terms of Section 434 of the Companies Act 2006.  Full audited accounts for the year to 31 March 2023 will be sent to shareholders in June 2023 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 2023 will be lodged with the Registrar of Companies.

 

END