Half-year Report

RNS Number : 1401I

Shires Income PLC

01 December 2022

 

SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2022

Legal Entity Identifier (LEI):  549300HVCIHNQNZAYA89

INVESTMENT OBJECTIVE

The Company's investment objective is to provide shareholders with a high level of income, together with the potential for growth of both income and capital from a diversified portfolio substantially invested in UK equities but also in preference shares, convertibles and fixed income securities.

BENCHMARK

The Company's benchmark is the FTSE All-Share Index (total return).

DIVIDENDS

The Company pays dividends to Ordinary shareholders on a quarterly basis.

Performance

Net asset value per Ordinary share total returnA			Share price total returnA
Six months ended 30 September 2022			Six months ended 30 September 2022
-12.3%			-15.7%
Year ended 31 March 2022	+11.4%		Year ended 31 March 2022	+18.4%
Benchmark index total return			Earnings per Ordinary share (revenue)
Six months ended 30 September 2022			Six months ended 30 September 2022
-8.3%			7.50p
Year ended 31 March 2022	+13.0%		Six months ended 30 September 2021	7.21p
Dividend yieldA			(Discount)/premium to net asset valueA
As at 30 September 2022			As at 30 September 2022
6.0%			(3.7)%
As at 31 March 2022	4.9%		As at 31 March 2022	0.3%
A Considered to be an Alternative Performance Measure.

Financial Calendar, Dividends and Highlights

Financial Calendar

Expected payment dates of quarterly dividends	28 October 2022 27 January 2023 28 April 2023 28 July 2023
Financial year end	31 March 2023
Expected announcement of results for year ended 31 March 2023	May 2023
Expected date of Annual General Meeting	6 July 2023

Financial Highlights

	30 September 2022	31 March 2022	% change
Total assets (£'000)A	92,754	104,819	-11.5
Shareholders' funds (£'000)	73,809	85,819	-14.0
Net asset value per share	238.20p	278.29p	-14.4
Share price (mid-market)	229.50p	279.00p	-17.7
(Discount)/premium to net asset value (cum-income)B	(3.7)%	0.3%
Dividend yieldB	6.0%	4.9%
Net gearingB	24.4%	20.4%
Ongoing charges ratioB	1.18%	1.14%
A Less current liabilities excluding bank loans of £9,000,000.
B Considered to be an Alternative Performance Measure. .

Performance (total return)

	Six months ended	Year ended	Three years ended	Five years ended
	30 September 2022	30 September 2022	30 September 2022	30 September 2022
Net asset valueA	-12.3%	-13.0%	+2.5%	+8.0%
Share priceA	-15.7%	-10.6%	+2.0%	+10.8%
FTSE All-Share Index	-8.3%	-4.0%	+2.4%	+11.3%
A Considered to be an Alternative Performance Measure.
All figures are for total return and assume reinvestment of net dividends excluding transaction costs.

For further information, please contact:

Luke Mason

abrdn Investments Limited

0207 463 6100

Chairman's Statement

Market Background

The first half of the financial year was highly volatile for financial markets. In the early part of 2022, markets saw a sharp rotation as investors digested the prospects of sustained higher inflation and interest rates. This dynamic continued to dominate market movements during the period under review. Notably, inflation has been higher in the last few months than for many years, putting pressure on income forecasts of both consumers and corporates. The causes of higher inflation are diverse, but a major catalyst has been resurgent demand following the Covid-19 pandemic at a time when the economy still has many capacity constraints from reduced labour availability, productivity levels and supply-chain issues. The inflationary pressures have then been heightened by the fall out of the Russia-Ukraine conflict which has disrupted commodity supply, leading to a rise in the prices of energy and food. After a long period of historically low interest rates, central banks around the world have been forced to confront inflation by raising interest rates. The US Federal Reserve increased the base rate from 0.25% at the start of the year to 4.0%, whilst the Bank of England and ECB have moved almost as quickly, with interest rates rising to 3.0% and 2.0% respectively.

This pace of interest rate increase from a low base has meant that investors have needed to re-evaluate the prices of companies' shares, especially those of highly rated growth companies. Combined with increasing concerns around slowing economic activity and increased uncertainties more broadly, this has led to a sell-off in global equity markets. The MSCI World Global Equity Index fell by 22% over the period under review, the US S&P 500 Index fell by 21% and the MSCI Europe Index fell by 14%. In this context, UK equities held up relatively well, with the FTSE All-Share Index falling by 8.3% in total return terms. A high weighting to energy and materials, which have benefitted from rising commodity prices, and to banks, which benefit from rising interest rates have helped the UK market, which has a low weighting to more highly rated sectors, such as technology.

For income investors, the background has been perhaps surprisingly reassuring so far this year. Since the Company's year-end in March, dividend expectations for many companies within the benchmark index have actually grown modestly. While this seems at odds with the economic outlook, it is consistent with what the Investment Manager is seeing from companies in the portfolio. Management teams are confident on the outlook for dividend payments and this confidence is backed up by the distribution ratio for the benchmark index (the proportion of earnings distributed as dividends) being close to historic lows. After many companies rebased dividends during the pandemic, there is now headroom for them to maintain or even grow their dividends. This should provide some reassurance to investors as we brace ourselves for a continuing period of economic uncertainty.

Investment Performance

During the six-month period to 30 September 2022, the Company delivered a net asset value ("NAV") total return of -12.3%, underperforming the FTSE All-Share Index benchmark by 4.0%. While the underperformance has been disappointing, it has been concentrated in two areas: the Company's investments in preference shares and in abrdn Smaller Companies Income Trust plc ("aSCIT") . In both instances, the underperformance is as would be expected given the macro-economic backdrop .

Firstly, the Company's position in preference shares has been a drag on performance, with the holdings declining in value by 13.0% and detracting just over 1% from relative performance. Preference shares, which are a fixed income investment, naturally decline in value as bond yields rise and we saw this over the six-month period. However, as shareholders will be aware, the reason for holding the preference shares within the portfolio is not for capital growth but for income, and the distributions from the issuing companies have been very resilient. The preference share portfolio now yields over 7.5% and generates an important and robust part of the Company's income stream. Secondly, we have seen the holding in aSCIT decline in value by 36%, detracting around 1.8% from the performance of the portfolio. The holding in the investment trust is a diversifier for the portfolio and provides access to higher growth companies within the UK market. Over the long term, aSCIT has delivered positive returns, but its style has been out of favour so far this year and the underperformance is largely explained by this dynamic.

More positively, the Company's equity portfolio has continued to outperform the benchmark, as well as delivering a superior dividend yield. Overweight positions in energy and financial companies have helped performance, while the underweight allocation to the consumer discretionary sector has also been beneficial. On an individual stock basis, there were strong returns from the energy sector. The greatest positive contributor on an individual stock basis was Diversified Energy , which increased in value by 16% as it continued to deliver resilient earnings and to grow its dividend as it acquired further energy producing assets at low prices.

Other energy companies also performed well during the period. Energean , which increased in value by 16%, delivered the first gas from its Karish development offshore Israel and has also upgraded guidance as a result of inflation linkage in its long term gas sale agreements. The maiden dividend has also been paid, with the dividend yield expected to rise to 13% in FY24. The company continues to offer stable and high free cashflow yield for the next decade, with further potential to come following recent successful exploration drilling.

Away from the energy sector, tobacco was also a strong contributor to performance, with the mix of defensive value particularly attractive in a time of rising bond yields and increasing recessionary fears. Imperial Brands was particularly strong, increasing in value by 18% during the period. Other notable performers included: Telecom Plus which benefitted from higher energy prices; Balfour Beatty which reported strong results; Euromoney Institutional Investor , which was bid for at a 40% premium; and Coca-Cola Hellenic Bottling Company , which continued to recover from the impact of the Russia-Ukraine conflict and rose by 22% after reporting positive results.

Negative performance for the equity portfolio in general is concentrated in two areas: property and UK cyclical companies. Property companies have been a source of stable and growing income in recent years, but rising interest rates have more recently challenged their valuations. The impact of exposure to this sector has therefore been negative and we have seen valuations of Sirius Real Estate , Countryside Partnerships and Urban Logistics , as examples, move lower. The impact of rising interest rates on both portfolio valuations and on cash generation (due to higher interest charges) is meaningful and the Investment Manager has consequently reduced the Company's allocation to the sector.

UK cyclical companies have been weak due to concerns around the domestic economy, the depreciation of Sterling and recession concerns. Marshalls , Howden Joinery and Bodycote all underperformed for these reasons - in each case the Investment Manager considers these to be high quality companies that will perform better when the economic cycle turns and they have a preference to hold them through the cycle.

Portfolio Activity

During the period, the Investment Manager initiated seven new positions and exited six. Below are brief details on the companies that were added and removed from the portfolio.

In April, The Investment Manager introduced a new position in Supermarket Income REIT . The company invests in supermarket real estate, with long term tenancy agreements and inflation linked pricing. This provides a reliable and defensive source of income. The company should also be able to deliver growth over time as it acquires additional property.

In July, a new position was initiated in Legal & General . The shares have fallen this year given concerns about how rising interest rates will impact the credit quality of their holdings. In the Investment Manager's view, Legal & General has a secure outlook and actually benefits from rising interest rates through its stronger Solvency 2 position. This means the dividend, at an 8% yield, should be secure and the company should continue to grow.

The Investment Manager also took a position in private equity firm Intermediate Capital Group. Private equity managers have seen share prices fall as bond yields have risen, but the Investment Manager sees more limited impact on underlying portfolio valuations and views this as an attractive entry point for long term investors. While private equity firms have suffered from rising interest rates, banks have been beneficiaries. The Investment Manager started a position in NatWest due to its high level of exposure to the positive effects of rising interest rates, something the Investment Manager feels is still under-estimated by the market. The Investment Manager is relatively relaxed about the impact on the company of potential rising bad debts, due to a high level of existing provisions built up through the Covid-19 pandemic. In addition, with a significant excess capital position, NatWest is expected to return a large portion of its value to shareholders in the next two to three years.

The Investment Manager has also added to a number of holdings in companies with significant overseas earnings. The first of these was KONE, which manufactures, distributes and maintains lift systems . The company's shares have de-rated on China growth concerns and the Investment Manager considers that the company now looks attractively valued given the quality of the business, and with a very secure balance sheet. The weighting of earnings to recurring service revenue should make it resilient, and the dividend yield is at a premium to the market. The Investment Manager also started a new position in French utility company Engie. The implementation of a power price cap in Europe above market expectations and the company's business plan provides the Investment Manager with confidence in the dividend which has an attractive yield of around 8%. The company also has an attractive long term renewable growth story.

The final addition to the portfolio was reinsurer Hiscox. After weak performance post-2019, an impressive new CEO has put the balance sheet in a strong position and sorted out legacy issues in the portfolio. The Investment Manager considers the company to be well positioned for better underwriting conditions and higher investment returns, both of which should drive strong earnings growth in the next two years.  The company's US retail business also has the potential to be much larger if it can deliver as management expects.

The first position exited was Schroders (non-voting shares), which had been purchased last year with a view that the discount of the non-voting shares to the voting shares was too wide and would close over time. The announcement in April that the company would combine the two lines of stock caused the discount to close, resulting in a 29% increase in value. With the investment case having played out, the Investment Manager chose to sell and look for other investment ideas.

Fortum performed poorly during the period due to its exposure to Russia and the risks to the business from higher European gas prices. While the Investment Manager considered that much of the risk was in the price, uncertainty remained very high and as a result they decided that they could find similarly high yields which were likely to be more secure, so chose to move on. The Investment Manager also sold the position in United Utilities which had held up well as a source of defensive exposure but looked fairly priced.

A more positive exit was that of Euromoney Institutional Investor following a bid for the company at a reasonably attractive price. Finally, the Investment Manager sold out of two positions which were inherited as spin outs from other holdings and were subscale in the portfolio. Haleon was spun out of GlaxoSmithKline and has an attractive end market position, but high debt and litigation risk combined with a low yield make it less appropriate for the portfolio. The Investment Manager also sold out of Woodside Energy , another subscale inherited position from BHP, after it went ex-dividend.

Investment Income

The revenue earnings per share for the period were 7.50p, which compares to 7.21p for the equivalent period last year. Across the portfolio, there has been a higher level of dividend income. This reflects particularly the continued recovery of dividends following the pandemic-impacted shareholder returns in 2020. Dividend expectations within the benchmark index remain around 25% lower than pre-pandemic levels, giving considerable scope for continued growth. Furthermore, some of the most income generative sectors, including energy, materials and financials, have seen earnings growth in the past year. In many cases there has also been a benefit from a stronger US Dollar for those companies that pay dividends in this currency.  Portfolio changes have also been made with the aim of enhancing the level of income generation. At a time of inflation and uncertain economic outlook we see a high level of income as being an important constituent of the total return potential provided by your company.

Dividends

A first interim dividend of 3.2p per Ordinary share in respect of the year ending 31 March 2023 (2022: first interim dividend - 3.2p) was paid on 28 October 2022. The Board declares a second interim dividend of 3.2p per Ordinary share (2022: second interim dividend - 3.2p), payable on 27 January 2023 to shareholders on the register at close of business on 6 January 2023.

Subject to unforeseen circumstances, it is proposed to pay a further interim dividend of 3.2p per Ordinary share and, as in previous years, the Board will decide on the level of final dividend having reviewed the full year's results, taking into account the outcome of the revenue account for the year and the general outlook for the portfolio's investment income at that time. However, it is the Board's current intention that the final dividend will be no less than 4.2p per Ordinary share (2022: 4.2p), resulting in a total dividend for the year of at least 13.8p per Ordinary share (2022: 13.8p). This is equivalent to a dividend yield of 6.0% based on the share price of 229.50p at 30 September 2022.

Gearing

During the period, the Board made the decision, in light of the prospect of future interest rate rises, together with some concern about access to credit within the wider economy, to renew the loan facility ahead of its expiry date in September 2022. Consequently, the Company entered into a new £20 million loan facility with The Royal Bank of Scotland International Limited, London Branch, on 3 May 2022. In addition, the Board took the view that securing a five-year agreement, so removing much uncertainty over future funding given its importance to the strategy of the Company, was the prudent thing to do.

£10 million of the new loan facility was drawn down and fixed at an all-in interest rate of 3.903%. £9 million of the facility was drawn down on a short-term basis and can be repaid without incurring any financial penalties. The proceeds of the new loan were used to repay and cancel in full the Company's previous loan facilities. At the end of the period, the Company's drawn down borrowings amounted to £19 million. Net of cash, this represented gearing of 24.4%, compared to 20.4% at the start of the period, reflecting the fall in NAV over the period.

As in previous years, the Board takes the view that the borrowings are notionally invested in the less volatile fixed income part of the portfolio which generates a high level of income, giving the Investment Manager greater ability to invest in a range of equity stocks with various yields and growth prospects. This combination means that the Company can continue to achieve a high level of dividend but also deliver some capital appreciation to shareholders.

Outlook

Recent months have been challenging for financial markets and there are a number of economic dark clouds impacting the investment outlook, with the Bank of England now predicting a "prolonged recession". While this is certainly a challenging time for equities, there are reasons to be more constructive. Firstly, a recession is now largely expected by financial markets; and secondly many companies are significantly cheaper than they were at the start of the year.  In addition, there are reasons to support a view that we are close to the peak of inflation and interest rate fears, and as these factors moderate, valuations can find support. Hence a time of widespread gloom could well be providing investors with attractive opportunities, and we have already seen signs of this with the strong rally across global equity markets since the middle of October.

In the shorter term, there is the likelihood of continued market turbulence. However, for those willing to take a longer-term view, there are strong supportive arguments that UK equity valuations look attractive. The market is on a multi-year high discount to other developed markets and has a record high yield premium. Furthermore, as the majority of company earnings come from overseas, any earnings downgrades will largely be offset by the currency benefit of weak Sterling. Importantly, from an income perspective the Investment Manager does not consider there to be a material risk of dividend cuts, with the UK distribution ratio at a seven year low. That will compress as earnings expectations likely fall, but there is plenty of headroom for most companies to maintain their dividends. That income should be helpful to many investors in these difficult market conditions. Overall, therefore, the Board takes the view that the Company continues to provide an outcome in-line with the investment mandate, namely a high level of current income with the potential for both income and capital growth.

Robert Talbut
Chairman
30 November 2022

Interim Management Statement

Directors' Responsibility Statement

The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-  the condensed set of financial statements within the Half Yearly Financial Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'; and

-  the Interim Board Report (constituting the Interim Management Report) includes a fair review of the information required by rules 4.2.7R of the Disclosure Guidance and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year) and 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could so do).

Principal and Emerging Risks and Uncertainties

The Board regularly reviews the principal and emerging risks and uncertainties faced by the Company together with the mitigating actions it has established to manage the risks. These are set out within the Strategic Report contained within the Annual Report for the year ended 31 March 2022 and comprise the following risk headings:

-  Strategic objectives and investment policy

-  Investment performance

-  Failure to maintain, and grow the dividend over the longer term

-  Widening of discount

-  Gearing

-  Regulatory obligations

-  Operational

-  Exogenous risks such as health, social, financial and geo-political

In addition to these risks, the Board is conscious of the continuing impact caused by the war in Ukraine, inflation, increasing interest rates and volatility in global equity and bond markets . The Board considers that these are risks that could have further implications for financial markets.

In all other respects, the Company's principal and emerging risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the remaining six months of the Company's financial year.

Going Concern

The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange. The Board has performed stress testing and liquidity analysis on the portfolio and considers that, in most foreseeable circumstances, the majority of the Company's investments are realisable within a relatively
short timescale.

The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants, including the headroom available. The Company has a £20 million loan facility which matures on 30 April 2027. £9 million of this amount is drawn down on a short-term basis through a revolving credit facility and can be repaid without incurring any financial penalties.

Having taken these factors into account, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for the period to 30 November 2023, which is at least twelve months from the date of approval of this Report. For these reasons, they continue to adopt the going concern basis of accounting in preparing the financial statements.

On behalf of the Board
Robert Talbut
Chairman
30 November 2022

Investment Portfolio - Equities

As at 30 September 2022
	Market	Total
	value	portfolio
Company	£'000	%
abrdn Smaller Companies Income Trust	6,781	7.4
AstraZeneca	4,183	4.6
Shell	3,827	4.2
Diversified Energy	3,114	3.4
BP	2,700	3.0
Diageo	2,696	2.9
British American Tobacco	2,449	2.7
TotalEnergies	2,252	2.5
SSE	2,216	2.4
Standard Chartered	2,135	2.3
Ten largest investments	32,353	35.4
Energean	1,938	2.1
Rio Tinto	1,732	1.9
Chesnara	1,521	1.7
National Grid	1,466	1.6
Telecom Plus	1,354	1.5
BHP	1,350	1.5
Imperial Brands	1,344	1.5
Unilever	1,305	1.4
Prudential	1,125	1.2
Inchcape	1,079	1.2
Twenty largest investments	46,567	51.0
M&G	1,075	1.2
Vodafone	1,063	1.2
Direct Line Insurance	951	1.0
Novo-Nordisk	944	1.0
Mondi	930	1.0
Sirius Real Estate	853	0.9
Close Brothers	834	0.9
Ashmore	824	0.9
Balfour Beatty	796	0.9
Morgan Sindall	770	0.8
Thirty largest investments	55,607	60.8
Howden Joinery	767	0.8
GSK	763	0.8
RS Group	758	0.8
Coca-Cola Hellenic Bottling Company	735	0.8
AXA	722	0.8
Bawag	712	0.8
NatWest	698	0.8
OSB	694	0.8
Legal & General	665	0.7
Intermediate Capital Group	607	0.7
Forty largest investments	62,728	68.6
Drax	571	0.6
Telenor	570	0.6
Entain	523	0.6
Supermarket Income REIT	510	0.6
Bodycote	506	0.6
Countryside Partnerships	496	0.5
Nordea	467	0.5
Assura	461	0.5
KONE	457	0.5
Engie	442	0.5
Fifty largest investments	67,731	74.1
Marshalls	439	0.5
Hiscox	423	0.5
Oxford Instruments	414	0.5
Wood Group	413	0.4
Urban Logistics	406	0.4
Softcat	280	0.3
Redrow	268	0.3
Bridge Point	197	0.2
Total equity investments	70,571	77.2

Investment Portfolio - Other Investments

As at 30 September 2022
	Market	Total
	value	portfolio
Company	£'000	%
Preference sharesA
Ecclesiastical Insurance Office 8 5/8%	5,215	5.7
Royal & Sun Alliance 7 3/8%	4,263	4.7
Santander 10.375%	3,740	4.1
General Accident 7.875%	3,690	4.0
Standard Chartered 8.25%	3,032	3.3
R.E.A. Holdings 9%	879	1.0
Total preference shares	20,819	22.8
Total equity investments	70,571	77.2
Total investments	91,390	100.0
A None of the preference shares listed above has a fixed redemption date.

Distribution of Assets and Liabilities

	Valuation at		Movement during the period			Valuation at
	31 March 2022		Purchases	Sales	Losses	30 September 2022
	£'000	%	£'000	£'000	£'000	£'000	%
Listed investments
Equities	77,709	90.5	6,242	(5,100)	(8,280)	70,571	95.6
Preference shares	24,716	28.8	-	-	(3,897)	20,819	28.2
Total investments	102,425	119.3	6,242	(5,100)	(12,177)	91,390	123.8
Current assets	2,656	3.1				2,332	3.2
Current liabilities	(19,262)	(22.4)				(9,968)	(13.5)
Non-current liabilities	-	-				(9,945)	(13.5)
Net assets	85,819	100.0				73,809	100.0
Net asset value per Ordinary share	278.29p					238.20p

Condensed Statement of Comprehensive Income

		30 September 2022			30 September 2021			31 March 2022
		(unaudited)			(unaudited)			(audited)
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	Note	'000	'000	'000	'000	'000	'000	£'000	£'000	£'000
(Losses)/gains on investments at fair value		-	(12,177)	(12,177)	-	7,739	7,739	-	5,048	5,048
Currency gains		-	5	5	-	6	6	-	3	3
Investment income
Dividend income		2,814	-	2,814	2,448	-	2,448	4,974	-	4,974
Stock dividends		-	-	-	164	-	164	194	-	194
Traded option premiums		31	-	31	29	-	29	71	-	71
		2,845	(12,172)	(9,327)	2,641	7,745	10,386	5,239	5,051	10,290
Expenses
Management fee		(103)	(103)	(206)	(106)	(106)	(212)	(212)	(212)	(424)
Administrative expenses		(220)	-	(220)	(212)	-	(212)	(440)	-	(440)
Finance costs		(152)	(152)	(304)	(66)	(65)	(131)	(135)	(135)	(270)
		(475)	(255)	(730)	(384)	(171)	(555)	(787)	(347)	(1,134)
Profit/(loss) before taxation		2,370	(12,427)	(10,057)	2,257	7,574	9,831	4,452	4,704	9,156
Taxation	2	(54)	-	(54)	(34)	-	(34)	(73)	-	(73)
Profit/(loss) attributable to equity holders		2,316	(12,427)	(10,111)	2,223	7,574	9,797	4,379	4,704	9,083
Earnings per Ordinary share (pence)	4	7.50	(40.25)	(32.75)	7.21	24.59	31.80	14.21	15.27	29.48
The Company does not have any income or expense that is not included in the profit for the period, and therefore the profit for the period is also the "Total comprehensive income for the period", as defined in IAS 1 (revised).
The total column of this statement represents the Condensed Statement of Comprehensive Income of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.

Condensed Balance Sheet

		As at	As at	As at
		30 September 2022	30 September 2021	31 March 2022
		(unaudited)	(unaudited)	(audited)
	Note	£'000	£'000	£'000
Non-current assets
Equities		70,571	79,307	77,709
Preference shares		20,819	26,862	24,716
Securities at fair value		91,390	106,169	102,425
Current assets
Accrued income and prepayments		890	895	1,173
Cash and cash equivalents		1,442	670	1,483
		2,332	1,565	2,656
Creditors: amounts falling due within one year
Trade and other payables		(968)	(229)	(262)
Short-term borrowings		(9,000)	(18,999)	(19,000)
		(9,968)	(19,228)	(19,262)
Net current liabilities		(7,636)	(17,663)	(16,606)
Total assets less current liabilities		83,754	88,506	85,819
Non-current liabilities
Long-term borrowings		(9,945)	-	-
Net assets		73,809	88,506	85,819
Share capital and reserves
Called-up share capital	6	15,532	15,460	15,460
Share premium account		21,412	21,109	21,109
Capital reserve	7	30,118	45,415	42,545
Revenue reserve		6,747	6,522	6,705
Equity shareholders' funds		73,809	88,506	85,819
Net asset value per Ordinary share (pence)	5	238.20	287.01	278.29
The accompanying notes are an integral part of the financial statements.

Condensed Statement of Changes in Equity

Six months ended 30 September 2022 (unaudited)
		Share
	Share	premium	Capital	Revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2022	15,460	21,109	42,545	6,705	85,819
Issue of Ordinary shares	72	303	-	-	375
(Loss)/p rofit for the period	-	-	(12,427)	2,316	(10,111)
Equity dividends	-	-	-	(2,274)	(2,274)
As at 30 September 2022	15,532	21,412	30,118	6,747	73,809
Six months ended 30 September 2021 (unaudited)
		Share
	Share	premium	Capital	Revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2021	15,447	21,052	37,841	6,517	80,857
Issue of Ordinary shares	13	57	-	-	70
Profit for the period	-	-	7,574	2,223	9,797
Equity dividends	-	-	-	(2,218)	(2,218)
As at 30 September 2021	15,460	21,109	45,415	6,522	88,506
Year ended 31 March 2022 (audited)
		Share
	Share	premium	Capital	Revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2021	15,447	21,052	37,841	6,517	80,857
Issue of Ordinary shares	13	57	-	-	70
Profit for the year	-	-	4,704	4,379	9,083
Equity dividends	-	-	-	(4,191)	(4,191)
As at 31 March 2022	15,460	21,109	42,545	6,705	85,819

Condensed Cash Flow Statement

	Six months ended	Six months ended	Year ended
	30 September 2022	30 September 2021	31 March 2022
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net cash inflow from operating activities
Dividend income received	3,134	2,561	4,809
Options premium received	31	42	71
Bank interest received	2	-	-
Management fee paid	(212)	(299)	(512)
Other cash expenses	(200)	(226)	(417)
Cash generated from operations	2,755	2,078	3,951
Interest paid	(183)	(143)	(280)
Overseas tax paid	(88)	(48)	(91)
Net cash inflow from operating activities	2,484	1,887	3,580
Cash flows from investing activities
Purchases of investments	(5,731)	(11,278)	(13,372)
Sales of investments	5,100	6,549	9,739
Net cash outflow from investing activities	(631)	(4,729)	(3,633)
Cash flows from financing activities
Equity dividends paid	(2,274)	(2,218)	(4,191)
Issue of Ordinary shares	375	70	70
Net cash outflow from financing activities	(1,899)	(2,148)	(4,121)
Decrease in cash and cash equivalents	(46)	(4,990)	(4,174)
Reconciliation of net cash flow to movements in cash and cash equivalents
Decrease in cash and cash equivalents as above	(46)	(4,990)	(4,174)
Net cash and cash equivalents at start of period	1,483	5,654	5,654
Effect of foreign exchange rate changes	5	6	3
Cash and cash equivalents at end of period	1,442	670	1,483
Non-cash transactions during the period comprised stock dividends of £nil (30 September 2021 - £164,000; 31 March 2022 - £194,000).

Notes to the Financial Statements

For the six months ended 30 September 2022

1.	Accounting policies - Basis of accounting
	The condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 34 'Interim Financial Reporting', as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). They have also been prepared using the same accounting policies applied for the year ended 31 March 2022 financial statements, which were prepared in accordance with International Financial Reporting Standards (IFRS) and received an unqualified audit report.
	a)  The financial statements have been prepared on a going concern basis. In accordance with the Financial Reporting Council's guidance on 'Going Concern and Liquidity Risk', the Directors have undertaken a review of the Company's assets which primarily consist of a diverse portfolio of listed equity shares and in most circumstances, are realisable within a very short timescale.

2.	Taxation
	The taxation charge for the period represents withholding tax suffered on overseas dividend income.

3.	Dividends
	The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended	Six months ended	Year ended
		30 September 2022	30 September 2021	31 March 2022
		£'000	£'000	£'000
	Revenue	2,316	2,223	4,379
	Dividends declared	(1,982)A	(1,972)B	(4,253)C
		334	251	126
	A Dividends declared relate to first two interim dividends (3.20p each) in respect of the financial year 2022/23.
	B Dividends declared relate to first two interim dividends (3.20p each) in respect of the financial year 2021/22.
	C Three interim dividends (3.20p each), and the final dividend (4.20p) declared in respect of the financial year 2021/22.

4.	Earnings per Ordinary share
		Six months ended	Six months ended	Year ended
		30 September 2022	30 September 2021	31 March 2022
		£'000	£'000	£'000
	Returns are based on the following figures:
	Revenue return	2,316	2,223	4,379
	Capital return	(12,427)	7,574	4,704
	Total return	(10,111)	9,797	9,083
	Weighted average number of Ordinary shares in issue	30,874,580	30,804,963	30,812,251

5.	Net asset value per Ordinary share
	The net asset value per Ordinary share and the net asset values attributable to Ordinary shareholders at the period end were as follows:
		As at	As at	As at
		30 September 2022	30 September 2021	31 March 2022
		(unaudited)	(unaudited)	(audited)
	Net assets per Condensed Balance Sheet (£'000)	73,809	88,506	85,819
	3.5% Cumulative Preference shares of £1 each (£'000)	(50)	(50)	(50)
	Attributable net assets (£'000)	73,759	88,456	85,769
	Number of Ordinary shares in issue	30,964,580	30,819,580	30,819,580
	Net asset value per Ordinary share (p)	238.20	287.01	278.29
	The Company has a policy of calculating the net asset value per Ordinary share based on net assets less an amount due to holders of 3.5% Cumulative Preference shares of £1 each equating to £1 per share (£50,000), divided by the number of Ordinary shares in issue.

6.	Called up share capital
		30 September 2022		30 September 2021		31 March 2022
		Number	£'000	Number	£'000	Number	£'000
	Allotted, called up and fully paid Ordinary shares of 50 pence each:
	Balance brought forward	30,819,580	15,410	30,794,580	15,397	30,794,580	15,397
	Ordinary shares issued	145,000	72	25,000	13	25,000	13
	Balance carried forward	30,964,580	15,482	30,819,580	15,410	30,819,580	15,410
	Allotted, called up and fully paid 3.5% Cumulative Preference shares of £1 each
	Balance brought forward and carried forward	50,000	50	50,000	50	50,000	50
			15,532		15,460		15,460
	During the six months ended 30 September 2022 the Company issued 145,000 Ordinary shares of 50p each (six months ended 30 September 2021 - 25,000; year ended 31 March 2022 - 25,000) for proceeds of £375,000 (six months ended 30 September 2021 - £70,000; year ended 31 March 2022 - £70,000).

7.

Capital reserve

The capital reserve reflected in the Condensed Balance Sheet at 30 September 2022 includes unrealised gains of £2,800,000 (30 September 2021 - unrealised gains of £19,147,000; 31 March 2022 - unrealised gains of £15,319,000) which relate to the revaluation of investments held at the reporting date. The balance relates to realised gains of £27,318,000 (30 September 2021 - £26,268,000; 31 March 2022 - £27,226,000).

8.	Analysis of changes in financial liabilities
		Six months ended	Six months ended	Year ended
		30 September 2022	30 September 2021	31 March 2022
		£'000	£'000	£'000
	Opening balance at 1 April	(19,000)	(18,999)	(18,999)
	Cashflow	-	-	-
	Other movementsA	55	-	(1)
	Closing balance	(18,945)	(18,999)	(19,000)
	A The other movements represent the amortisation of the loan arrangement fees.
	On 3 May 2022, the Company repaid its previous loan facility and entered into an agreement with The Royal Bank of Scotland International Limited, London Branch to provide a new £20 million loan facility of which £10,000,000 has been drawn down at a fixed rate of 3.903%. In addition, at the period end £9,000,000 of the facility was drawn on a short-term basis at an all-in interest rate of 3.34% and can be repaid without incurring any financial penalties. The new loan facility matures on 30 April 2027.

9.	Transactions with the Manager
	The Company has an agreement with abrdn Fund Managers Limited ("aFML") for the provision of management, secretarial, accounting and administration services and for the carrying out of promotional activities and saving scheme services in relation to the Company.
	The management fee is based on 0.45% per annum up to £100 million and 0.40% per annum over £100 million, by reference to the net assets of the Company and including any borrowings up to a maximum of £30 million, and excluding commonly managed funds, calculated monthly and paid quarterly. The fee is allocated 50% to revenue and 50% to capital. The agreement is terminable on not less than six months' notice. The total of the fees paid and payable during the period to 30 September 2022 was £206,000 (30 September 2021 - £212,000; 31 March 2022 - £424,000) and the balance due to aFML at the period end was £101,000. (30 September 2021 - £107,000; 31 March 2022 - £107,000). The Company held an interest in a commonly managed fund, abrdn Smaller Companies Income Trust plc, in the portfolio during the period to 30 September 2022 (30 September 2021 and 31 March 2022 - same). The value attributable to this holding is excluded from the calculation of the management fee payable by the Company.
	The management agreement with aFML also provides for the provision of promotional activities, which aFML has delegated to abrdn Investments Limited. The total fees paid and payable in relation to promotional activities were £20,000 (30 September 2021 - £20,000; 31 March 2022 - £54,000) and the balance due to aFML at the period end was £20,000 (30 September 2021 - £10,000; 31 March 2022 - £54,000). The Company's management agreement with aFML also provides for the provision of company secretarial and administration services to the Company; no separate fee is charged to the Company in respect of these services, which have been delegated to abrdn Holdings Limited.
	During the period, the Company was granted VAT registered status backdated to 1 January 2021. Accordingly, all of the above figures are stated excluding VAT.

10.

Segmental information

For management purposes, the Company is organised into one main operating segment, which invests in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole.

11.	Fair value hierarchy
	IFRS 13 'Fair Value Measurement' requires an entity 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 has the following levels:
	Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	The financial assets and liabilities measured at fair value in the Condensed Balance Sheet are grouped into the fair value hierarchy as follows:
					Level 1	Level 2	Level 3	Total
	At 30 September 2022			Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments			a)	91,390	-	-	91,390
	Financial liabilities at fair value through profit or loss
	Derivatives			b)	-	-	-	-
	Net fair value				91,390	-	-	91,390
					Level 1	Level 2	Level 3	Total
	At 30 September 2021			Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments			a)	106,169	-	-	106,169
	Financial liabilities at fair value through profit or loss
	Derivatives			b)	-	(10)	-	(10)
	Net fair value				106,169	(10)	-	106,159
					Level 1	Level 2	Level 3	Total
	At 31 March 2022			Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments			a)	102,425	-	-	102,425
	Financial liabilities at fair value through profit or loss
	Derivatives			b)	-	-	-	-
	Net fair value				102,425	-	-	102,425
	a)	Quoted investments. The fair value of the Company's quoted investments has been determined by reference to their quoted bid prices at the reporting date. Quoted investments included in Fair Value Level 1 are actively traded on recognised stock exchanges.
	b)	Derivatives. The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis although not actively traded and therefore have been classed as Level 2.
		The fair value of the Company's investments in Over the Counter Options has been determined using observable market inputs other than quoted prices included within Level 2.

12.	The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2022 and 30 September 2021 has not been reviewed or audited by the Company's independent auditor.
	The information for the year ended 31 March 2022 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the independent auditor on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.

13.	This Half Yearly Financial Report was approved by the Board on 30 November 2022.

Alternative Performance Measures

Alternative performance measures 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 IFRS 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.
Discount to net asset value per Ordinary share
The difference between the share price and the net asset value per Ordinary share expressed as a percentage of the net asset value per Ordinary share.
		30 September 2022	31 March 2022
NAV per Ordinary share (p)	a	238.20	278.29
Share price (p)	b	229.50	279.00
(Discount)/premium	(a-b)/a	(3.7)%	0.3%
Dividend yield
The annual dividend divided by the share price, expressed as a percentage.
		30 September 2022A	31 March 2022
Annual dividend per Ordinary share (p)	a	13.80	13.80
Share price (p)	b	229.50	279.00
Dividend yield	a/b	6.0%	4.9%
A Based on annual dividend declared for previous year.
Net gearing
Net gearing measures total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance, cash and cash equivalents includes net amounts due to and from brokers at the period end as well as cash and short term deposits.
		30 September 2022	31 March 2022
Borrowings (£'000)	a	18,945	19,000
Cash (£'000)	b	1,442	1,483
Amounts due to brokers (£'000)	c	516	5
Amounts due from brokers (£'000)	d	-	-
Shareholders' funds (£'000)	e	73,809	85,819
Net gearing	(a-b+c-d)/e	24.4%	20.4%
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average daily net asset values published throughout the year. The ratio for 30 September 2022 is based on forecast ongoing charges for the year ending 31 March 2023.
		30 September 2022	31 March 2022
Investment management fees (£'000)		400	424
Administrative expenses (£'000)		412	440
Less: non-recurring chargesA(£'000)		-	(17)
Ongoing charges (£'000)		812	847
Average net assets (£'000)		77,869	86,114
Ongoing charges ratio (excluding look-through costs)		1.04%	0.98%
Look-through costsB		0.14%	0.16%
Ongoing charges ratio (including look-through costs)		1.18%	1.14%
A Comprises promotional activity fees not expected to recur.
B 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 provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which, amongst other things, includes the cost of borrowings and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. Share price and NAV total returns are monitored against open-ended and closed-ended competitors, and the Benchmark, respectively.
			Share
Six months ended 30 September 2022		NAV	Price
Opening at 1 April 2022	a	278.29p	279.00p
Closing at 30 September 2022	b	238.20p	229.50p
Price movements	c=(b/a)-1	(14.4)%	(17.7)%
Dividend reinvestmentA	d	2.1%	2.0%
Total return	c+d	(12.3)%	(15.7)%
			Share
Year ended 31 March 2022		NAV	Price
Opening at 1 April 2021	a	262.41p	248.00p
Closing at 31 March 2022	b	278.29p	279.00p
Price movements	c=(b/a)-1	6.1%	12.5%
Dividend reinvestmentA	d	5.3%	5.9%
Total return	c+d	+11.4%	+18.4%
A NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.

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

By order of the Board

abrdn Holdings Limited

Company Secretary

30 November 2022

* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (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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