Annual Financial Report
Strategic Equity Capital PLC
RESULTS FOR THE YEAR ENDED 30 JUNE 2023
The Directors of Strategic Equity Capital plc are pleased to announce the Company’s results for the year ended 30 June 2023.
|
Capital Return |
As at 30 June 2023 |
As at 30 June 2022 |
% change |
|
Net asset value (“NAV”) per Ordinary share# |
342.47p |
316.21p |
8.3% |
|
Ordinary share price |
309.00p |
280.00p |
10.4% |
|
Comparative index* |
4,970.43 |
5,164.05 |
(3.7)% |
|
Discount of Ordinary share price to NAV |
(9.8)% |
(11.5)% |
|
|
Average discount of Ordinary share price to NAV for the year |
(7.4)% |
(12.6)% |
|
|
Total assets (£’000) |
170,784 |
177,198 |
(3.6)% |
|
Equity Shareholders’ funds (£’000) |
170,223 |
175,030 |
(2.7)% |
|
Ordinary shares in issue with voting rights |
49,704,711 |
55,352,088 |
|
|
Performance |
Year ended 30 June 2023 |
Year ended 30 June 2022 |
|
NAV total return for the year |
9.2% |
(9.2)% |
|
Share price total return for the year |
11.2% |
(9.5)% |
|
Comparative index* total return for the year |
(0.4)% |
(14.6)% |
|
Ongoing charges |
1.22% |
1.08% |
|
Ongoing charges (including performance fee) |
1.22% |
1.08% |
|
Revenue return per Ordinary share |
3.53p |
2.43p |
|
Dividend yield |
0.81% |
0.71% |
|
Proposed final dividend for the year |
2.50p |
2.00p |
|
Year’s Highs/Lows |
High |
Low |
|
NAV per Ordinary share |
346.28p |
279.69p |
|
Ordinary share price |
320.00p |
258.00p |
# Net asset value or NAV, the value of total assets less current liabilities. The net asset value divided by the number of shares in issue produces the net asset value per share.
*FTSE Small Cap (ex Investment Trusts) index
Chairman’s Statement
Results for the Year
I am pleased to report that, despite difficult market conditions, during the 12 months to 30 June 2023, the Company’s NAV per share (on a total return basis) increased by 9.2%. The FTSE Small Cap (ex Investment Trusts) Total Return Index (“FTSE Small Cap Index”), which we use for comparison purposes only, decreased by 0.4%. Over the same period, the share price of the Company increased by 11.2% on a total return basis.
NAV performance during the period was encouraging, reflecting the focus on higher quality companies exposed to areas of structural growth where they have a degree of pricing power. The Board believes that continuing to prioritise companies with resilient business fundamentals and strong balance sheets should enable the Company to continue outperforming over the medium to long term.
The Company’s Strategy and Investment Process are discussed in detail in the Investment Manager’s Report on pages 6 to 8 of the Annual Report.
As a direct result of our deliberate and distinctive investment process, the Company provides notable benefits for investors:
- Performance
Our performance has been strong relative to our peers and has been positive even in falling markets driven by the idiosyncratic nature of returns. This is a reflection of the skills of our fund manager Ken Wotton and his team and the benefits of taking a private equity approach to public markets. The construction of the portfolio has been deliberately designed to offer a real return. There continues to be demonstrable and significant private equity interest in UK stocks given compelling valuations, for example Medica (see page 23 of the Annual Report), and the potential upside on the Company’s other investments remains substantial in the view of the Investment Manager.
- Risk Management
For investors looking for high quality, but relatively cheap, small UK cap exposure, SEC offers low correlations and a low beta to the broader market. This, together with low valuations, see below, provides a strong margin of safety to underpin the long-term upside potential of the portfolio.
- Valuation
SEC currently offers investors an attractive discount at four different levels:
- UK equities stand at a substantial discount to global markets, currently at a 15 year low;
- Within the UK market, smaller capitalisation stocks are on a notable discount to large caps;
- The SEC portfolio of companies are both cheaper (and higher quality) than UK small Cap indices;
- Investors are today able to purchase SEC shares at a significant discount to NAV.
Discount and Discount Management
The average discount to NAV of the Company’s shares during the period was 7.4%, compared to the equivalent 12.6% figure from the prior year. The discount range was 3.3% to 12.5%.
Many of the measures implemented in Q1 2022 to address the persistent share price discount to NAV are now complete. These included a 10 per cent. tender offer; the implementation of a share buyback programme with 5,598,886 shares repurchased during the 2022 calendar year; and a commitment by Gresham House to use £5 million of its cash resources to purchase shares in the Company. Gresham House now has a 10.7% equity stake in the Company. These have been successful, resulting in the discount narrowing from 11.5% at the beginning of the period to 9.8% at the end of the period. For comparison, over the same period the average UK Smaller Company Investment Trust discount increased from 8.2% to 11.5%.
Other measures, also implemented in Q1 2022, remain ongoing. These include: a buy back policy to return 50 per cent. of proceeds from profitable realisations, at greater than a 5 per cent. discount on an ongoing basis, in each financial year; an ongoing commitment by Gresham House Asset Management to reinvest 50 per cent. of its management fee per quarter in shares if the Company’s shares trade at an average discount of greater than 5 per cent. for the quarter; and the deferral of an annual continuation resolution in favour of the implementation of a 100 per cent. realisation opportunity for shareholders in 2025.
Marketing
A priority of the Board over the last eighteen months has been a focused marketing plan and strategy to increase awareness of the Company and to ensure a clear investment proposition is presented to the market.
In a competitive marketplace, and for a relatively under-appreciated asset class, communicating differentiation is vitally important. The Investment Manager’s highly disciplined private equity approach to public markets, with constructive corporate engagement, thorough due diligence and a powerful network of advisers, alongside an active, high conviction concentrated portfolio of only 15-20 companies, are a source of competitive advantage and sustained performance. This is reflected in all communications including the Company’s webpage (www.strategicequitycapital.com).
The Company has also been developing new content to engage investors and potential investors, including an innovative video series where the Investment Manager has interviewed the chief executives of portfolio companies to provide investors with a greater insight into the companies that the Company invests in. Extending insights and views of the Investment Manager have also been incorporated within the Company’s co-ordinated PR programme to engage key national, trade and specialist investment publications resulting in coverage including in the Mail on Sunday, Daily Mail’s This Money, Shares Magazine, Interactive Investor, Investment Week, Trustnet and Citywire Funds Insider.
The Board is ambitious with its plans to build the profile and positioning of the Company over time.
Gearing and Cash Management
The Company has maintained its policy of operating without a banking loan facility. This policy is periodically reviewed by the Board in conjunction with the Manager and remains under review.
Dividend
For the year ended 30 June 2023 the basic revenue return per share was 3.53p (2022: 2.43p). Although the Company is predominantly focused on delivering long term capital growth, due to the strongly cash generative nature of the majority of the portfolio companies and low capital intensity, many pay an attractive dividend. Accordingly, the Board is proposing a final dividend of 2.50p per share for the year ending 30 June 2023 (2022: 2.00p per share), payable on 15 November 2023 to shareholders on the register as at 13 October 2023.
The Board
I am delighted to welcome Brigid Sutcliffe and Howard Williams to the Board as non-executive Directors. Both joined in February 2023 and bring a wealth of experience and knowledge that will be of enormous benefit to the Company.
It is intended that Brigid will take over as the Company’s Audit Committee Chair after Jo Dixon retires at the Company’s AGM in November.
The Board would like to convey its sincere thanks to Jo for the significant contribution she has made to the Company and for her excellent leadership of the Audit Committee.
Outlook
The global macroeconomic and geopolitical environment remains highly uncertain, although signs of normalising inflation (and implications for monetary policy) are welcome. Closer to home the UK economy is proving to be relatively resilient, although certain sectors (for example housing and construction) are showing signs of challenge, which could promote further volatility in company earnings and equity market ratings as macroeconomic developments unfold.
Despite these obvious challenges the Investment Manager is observing an increasing number of attractive long term investment opportunities. Strong underlying fundamentals across the existing portfolio provide a robust and resilient platform for future investment returns. The significant dislocation between current UK public market valuations and the comparators in private markets provide good grounds for optimism about the prospects for positive valuation momentum over the medium term.
The resilient positioning of the Company’s portfolio should enable it to outperform in the current challenging environment and continue to deliver attractive long-term capital growth when markets stabilise. Furthermore, the enhanced marketing programme and ongoing share buybacks should support the Company’s ability to maintain a structurally narrower share price discount to NAV over the coming year.
The Board, once again, thanks you for your continued support.
William Barlow
Chairman
26 September 2023
The Investment Manager’s Report
Investment Strategy
In the following section, we remind shareholders of our strategy and investment process.
Our Strategic Public Equity strategy
The appointment of Gresham House as Manager in May 2020 and the subsequent appointment of Ken Wotton as Lead Fund Manager in September 2020 resulted in a refocus of the investment strategy ensuring that it is strictly applied and is able to effectively leverage the experienced resource of the Gresham House Strategic Equity team, the wider Group platform and its extensive network. We set out this strategy in detail in the Company’s 2022 Annual Report which we summarise again below.
Investment focus
Our investment focus is to invest into high quality, publicly listed companies which we believe can materially increase their value over the medium to long term through strategic, operational or management change. To select suitable investments and to assist in this process we apply our proprietary Strategic Public Equity (“SPE”) investment strategy. This includes a much higher level of engagement with management than most investment managers adopt and is closer in this respect to a private equity approach to investing in public markets companies. Our path to achieving this involves constructing a high conviction, concentrated portfolio; focusing on quality business fundamentals; undertaking deep due diligence including engaging our proprietary network of experts and assessing ESG risks and opportunities through the completion of the ESG decision tool; and maintaining active stewardship of our investments. Through constructive, active engagement with the management teams and boards of directors, we seek to ensure alignment with shareholder objectives and to provide support and access to other resource and expertise to augment a company’s value creation strategy.
We are long-term investors and typically aim to hold companies for three-to-five years to back a thesis that includes an entry and exit strategy and a clearly identified route to value creation. We have clear parameters for what we will invest in and areas which we will deliberately avoid.
Smaller company focus
We believe that UK Smaller Companies represent a structurally attractive part of the public markets. Academic research demonstrates that smaller companies in the UK have delivered substantial outperformance over the long term (see Figure 1 on page 6 in the Annual Report). This is partially because there are a large number of under-researched and under-owned businesses that typically trade at a valuation discount to larger companies (see Figure 2 on page 7 in the Annual Report) and relative to their prospects. A highly selective investor with the resources and experience to navigate successfully this part of the market can find exceptional long-term investment opportunities.
The key attractions of smaller companies are:
- Inefficient markets – Smaller companies remain under-researched and below the radar for most investors thus creating an opportunity for those willing to devote time and resource to this area.
- A large universe – Most UK listed companies are in the smaller companies category and are listed on the main market or AIM. Two-thirds of UK listed companies have a market capitalisation below £500m, offering a large opportunity set for smaller company specialists.
- Valuation discounts – Such discounts, arising for whatever reason, present attractive entry points at which the intrinsic worth of a company’s long-term prospects are undervalued.
- M&A activity – Smaller companies often offer strategic opportunities within their niche markets and can become attractive, bolt-on acquisitions to both trade and private equity buyers. These buyers provide an additional source of liquidity and realisation of value for smaller company investors.
Portfolio Construction
We will maintain a concentrated portfolio of 15-25 high conviction holdings with prospects for attractive absolute returns over our investment holding period. The majority of portfolio value is likely to be concentrated in the top 10-15 holdings with other positions representing potential “springboard” investments where we are awaiting a catalyst to increase our stake to an influential, strategic level.
Bottom-up stock picking determines SEC’s sector weightings which are not explicitly managed relative to a target benchmark weighting. The absence of certain sectors such as oil & gas, mining, and banks, as well as limited exposure to overtly cyclical parts of the market, and the absence of early stage or pre-profit businesses typically result in a portfolio weighted towards, but not exclusively, profitable cash generative service sector businesses particularly in technology, healthcare, business services, financials and industrials. The underlying value drivers are typically company specific and exhibit limited correlation even within the same broad sectors. Figure 3 on page 7 of the Annual Report sets out the sector exposure of the Company as at 30 June 2023.
Our smaller company focus and specialist expertise leads us to prioritise companies with a market capitalisation between £100m and £300m at the point of investment. This focus, in combination with the size of the Company and its concentrated portfolio approach, provides the potential to build a strategic and influential stake in the highest conviction holdings. In turn this provides a platform to maximise the likelihood that our constructive active engagement approach will be effective and ultimately successfully contribute to shareholder value creation.
Once purchased there is no upper limit restriction on the market capitalisation of an individual investment. We will run active positions regardless of market capitalisation provided they continue to deliver the expected contribution to overall portfolio returns and subject to exposure limits and portfolio construction considerations.
The weighted average market capitalisation of portfolio holdings increased to £252m as at 30 June 2023 compared to £231m as at 30 June 2022, largely reflecting share price growth across the portfolio, particularly in the case of the two largest holdings (Medica Group and XPS Pensions Group), both of which were top performers throughout the period and traded at market capitalisations greater than the portfolio average as at 30 June 2023. This level of average market capitalisation supports the Investment Manager’s strategy of focusing on smaller market capitalisation companies where SEC has the potential to take a meaningful equity stake as a platform to effectively apply its active engagement strategy.
We set out a description of the Top 10 holdings as at 30 June 2023 on page 11 of the Annual Report together with a high level summary of the investment case and recent developments for each position.
Constructive Active Engagement Approach
As far as possible, SEC aims to build consensus with other stakeholders. We want to unlock value for shareholders, but also create stronger businesses over the long term. The objective is to develop a dialogue with management so that the GHAM team and its network are seen as trusted advisors.
Operating with a highly-focused portfolio, SEC’s management team can build and maintain a deep understanding of its portfolio companies and their potential. The team engages with company management teams and boards in a number of areas including:
- Strategy – Working with boards to ensure that business strategy and operations are effectively aligned with long term value creation and focused on building strategic value within a company’s market.
- Corporate activity – Support for acquisition and divestment activity through advice, network introductions and the provision of cornerstone capital.
- Capital allocation – Seeking to work with boards to optimise capital allocation by prioritising the highest return and value added projects and areas of focus for investment of both capital and resource.
- Board composition – Ensuring that boards are appropriately balanced between executive and non-executive directors and contain the right balance of skills and experience; we actively use our talent network to introduce high quality candidates to enhance the quality of investee company boards as appropriate.
- Management incentivisation – Ensuring that key management are appropriately retained and incentivised to deliver long term shareholder value with schemes that fit with GHAM’s principles and are well aligned to our objectives as shareholders.
- ESG – Leveraging the Gresham House sustainable investing framework and central resource to help to identify, understand and monitor key ESG risks and opportunities as well as seeking to drive enhancements to a company’s approach where there are critical material issues with a particular focus on corporate governance.
- Investor Relations – Helping management teams to hone their equity story, select appropriate advisors and target their investor relations activities in the most effective way to ensure that value creation activity is understood and reflected by the market.
Engagement is undertaken privately, leveraging the wider platform and resources of the Gresham House group, as far as possible. The team will also work to leverage its extensive network to the benefit of portfolio companies. We seek to make introductions to our network in as collaborative way as appropriate where we believe there is an opportunity to support initiatives to create shareholder value.
In summary, we follow a practice of constructive corporate engagement and aim to work with management teams in order to support and enhance shareholder value creation. We attempt to build a consensus with other stakeholders and prefer to work collaboratively alongside like-minded co-investors.
Portfolio review for the twelve months to 30 June 2023
Over the course of the twelve months to 30 June 2023 we continued to evolve the portfolio at a more normalised pace than in the previous two financial years: purchasing two new holdings which represented 4.3% of NAV at the end of the period, and fully exiting four positions which represented 8.2% at the start of the period. We have also exited our position in Medica post period end as its recommended cash takeover offer from IK Partners completed, which represented 18% of closing NAV. As of 30 June 2023, the number of influential equity stakes where GHAM funds, in aggregate, hold a 5% or more equity stake stood at 11, and represented 77% of the portfolio by value at 30 June 2023.
Market Background
Over the twelve months to the end of June, the FTSE Smaller Companies (ex Investment Trusts) Index (“the index”) fell by 0.4% on a total return basis underperforming the FTSE All Share (+3.9%) but outperforming the FTSE AIM (-14.0%). Following the substantial style shift from growth to value in the first half of 2022, the 12 months to 30 June 2023 saw a small revival of growth style investing, with the MSCI UK Growth index outperforming its value peer. However, energy and mining stocks (in which the Company does not invest) continued to perform well given geopolitical developments, and were key contributors to the overall index performance.
The UK equity market continued to be out of favour with asset allocators, reaching 25 consecutive months of outflows by June 2023 (1). This continued selling pressure from UK equities has weighed on valuations, with the UK at multi-decade lows relative to other developed markets, particularly the US, despite the drawdowns experienced last year (see figure 5 on page 9 of the Annual Report). Whilst this demonstrates the value opportunities in the UK market, we believe that the challenging macroeconomic backdrop further fuels the need for careful assessment of the bottom up characteristics of each company. This suits the private equity approach taken by the Manager to investing on behalf of the Company.
Performance Review
The net asset value (“NAV”) increased 9.2%, on a total return basis, over the twelve months to the end of June, closing at 342.5p per share. This increase in NAV reflected the positive returns delivered by the majority of portfolio companies throughout the period, despite volatile equity market conditions as geopolitical and macroeconomic concerns weighed on investor sentiment. The Company outperformed its benchmark during the period, as the FTSE Smaller Companies (ex Investment Trusts) index fell by 0.4% on a total return basis. This reflected the relatively defensive positioning of the portfolio compared to the wider market – focused on high quality businesses in less cyclical parts of the market and with resilient business models and robust balance sheets.
Despite the market volatility experienced over the year, we remain confident about the resilient underlying fundamentals of the portfolio companies and their ability to withstand the macroeconomic headwinds that look set to persist through the current financial year.
(1) Source: Investec Market Review July 2023
Top Five Absolute Contributors to Performance
|
Security |
Valuation 30 June 2023 £’000 |
Period Contribution to return (%) |
|
Medica Group |
30,881 |
5.82 |
|
XPS Pensions Group |
25,459 |
4.92 |
|
Wilmington |
9,482 |
2.28 |
|
Hostelworld |
8,209 |
2.19 |
|
Ricardo |
11,462 |
1.96 |
Medica, a leading provider of teleradiology services, was the subject of a recommended cash takeover offer from IK Partners, a European private equity firm, at a 32.5% premium, and the takeover has since completed (post period-end). XPS Pensions, a pensions consulting, advisory and administration services provider, which delivered results in excess of market expectations, resulting in analyst upgrades, and divested a non-core business at a significantly accretive valuation multiple to the wider group; Wilmington, a professional media provider, which demonstrated strong operating fundamentals and forecast upgrades whilst successfully refocussing the business on a digital first strategy in the governance, risk and compliance market; Hostelworld, an online travel agent focussed on the hostelling segment, following strong results (including a record first quarter) and an improving industry outlook; and Ricardo, a global strategic, environmental and engineering consultancy, which has delivered strong performance particularly in its environmental & energy transition divisions, which are key focus areas over the medium term.
Bottom Five Absolute Contributors to Performance
|
Security |
Valuation 30 June 2023 £’000 |
Period Contribution to return (%) |
|
Tribal |
6,580 |
(5.24) |
|
Inspired |
10,327 |
(2.25) |
|
R&Q Insurance Holdings |
7,429 |
(1.76) |
|
LSL Property Services |
8,645 |
(0.91) |
|
Tyman |
- |
(0.35) |
In challenging equity market conditions certain portfolio holdings suffered from share price weakness during the period, typically in response to short term developments that, we believe, do not fundamentally change the long term values of the holdings. The largest detractors included Tribal, an international provider of student administration software, following a profit downgrade resulting from an onerous contract; Inspired, which de-rated on no specific news and despite delivering strong results and reaffirming expectations in line with market consensus; R&Q Insurance Holdings, a global non-life specialty insurance company, following weaker than expected interim results, and an equity raise (through a preferred instrument) in order to bolster capital adequacy and facilitate a separation of the group’s two businesses in line with our view of the optimal path to value creation for the group; LSL Property Services, a leading provider of services to the UK residential property sector, which has been impacted by the slowdown in activity within the UK housing market, particularly within its surveying business; Tyman, a global building materials and component manufacturer and distributor (which the Company has now fully exited), which faced analyst downgrades reflecting end market challenges.
Portfolio Review
The portfolio remained highly focused with a total of 16 holdings and the top 10 accounted for around 80% of the NAV at the end of the period. 1% of the NAV was held in cash at period end. This had subsequently increased to c. 13% by the end of July 2023 following the receipt of the proceeds from the Medica Group takeover.
Over the period positions in Nexus (IRR of -18%), Assetco (IRR of 30%), Tyman (IRR of 23%), and IDOX (IRR of 6%) were fully exited, with Medica (IRR of 12% / 25% (2)) also fully exited post period end.
The Company currently has a number of key holdings that we believe trade at material valuation discounts to comparable private market transaction values, which provides a strong margin of safety underpinning the long term upside potential of the portfolio.
Changes in sector weightings have seen exposure to Healthcare increase from 16.2% to 21.6%, with exposure to Financial Services increasing from 25.2% to 32.6%. The largest decrease has been in cash, which decreased from 9.3% to 0.7% (although, as above, this increased substantially in July following the receipt of Medica Group sale proceeds).
(2) 12% reflects the IRR from the Company’s initial investment in Medica Group in 2017. 25% reflects the IRR since Ken Wotton became Manager of the Company in September 2020, and actively decided to upweight the Company’s holding in Medica Group
Top 10 Investee Company Review
(as at 30 June 2023)
|
Company |
Investment Thesis |
Developments during the year |
|
Medica 18.1% of NAV
Healthcare |
|
|
|
XPS 14.9% of NAV
Financial Services |
|
|
|
Brooks Macdonald 7.0% of NAV
Financial Services |
|
|
|
Ricardo 6.7% of NAV
Construction & Materials |
|
|
|
Fintel 6.3% of NAV
Financial Services |
|
|
|
Inspired 6.1% of NAV
Industrial Goods & Services |
|
|
|
Wilmington 5.6% of NAV
Media |
|
|
|
Iomart 5.3% of NAV
Technology |
|
|
|
LSL Property Services 5.1% of NAV
Real Estate |
|
|
|
Hostelworld 4.8% of NAV
Travel & Leisure |
|
|
Outlook
The Investment Manager’s core planning assumption is that continued geopolitical and macroeconomic uncertainty will drive market volatility throughout the remainder of 2023. The shift to a period of higher inflation and higher interest rates has fundamentally impacted asset markets and equities in particular. It is likely that increasing focus on company fundamentals and valuation discipline will be required to outperform in this environment which plays to the strengths of the Company’s investment strategy and the Investment Manager’s approach.
The elevated levels of corporate activity within the UK equity market continue to play out and the volume of takeover activity amongst smaller companies has not been seen since H2 2019, despite overall UK takeover volumes (of all sizes) remaining marginally below H1 2022 levels. Bid premia in the period were also elevated, providing further evidence of attractive valuations amongst UK smaller companies despite the higher cost of capital environment today. The investment process and private equity lens across public markets enables the identification of investment opportunities with potential strategic value that could be attractive acquisitions for both corporate and financial buyers.
We continue to believe that our fundamentals focused investment style has the potential to continue outperforming over the long term. We see significant opportunities for long term investors to back quality growth companies at attractive valuations in an environment where agile smaller businesses with strong management teams can take market share and build strong long-term franchises. We will maintain our focus on building a high conviction portfolio of less cyclical, high quality, strategically valuable businesses which we believe can deliver strong returns through the market cycle regardless of the performance of the wider economy.
Portfolio as at 30 June 2023
|
|
|
% of invested portfolio at |
|
||||
|
|
|
Date of first |
Cost |
Valuation |
30 June |
30 June |
net |
|
Company |
Sector Classification |
Investment |
£’000 |
£’000 |
2023 |
2022 |
Assets |
|
Medica Group |
Healthcare |
Mar 2017 |
19,120 |
30,881 |
18.2% |
13.3% |
18.1% |
|
XPS Pensions Group |
Financial Services |
Jul 2019 |
16,850 |
25,459 |
15.0% |
11.8% |
14.9% |
|
Brooks Macdonald |
Financial Services |
Jun 2016 |
10,563 |
11,916 |
7.0% |
7.4% |
7.0% |
|
Ricardo |
Construction & Materials Materials |
Sep 2021 |
9,107 |
11,462 |
6.8% |
2.5% |
6.7% |
|
Fintel |
Financial Services |
Oct 2020 |
10,076 |
10,800 |
6.4% |
5.8% |
6.3% |
|
Inspired Energy |
Industrial Goods & Services
|
Jul 2020 |
13,713 |
10,327 |
6.1% |
8.4% |
6.1% |
|
Wilmington |
Media |
Oct 2010 |
6,818 |
9,482 |
5.6% |
7.4% |
5.6% |
|
Iomart |
Technology |
Mar 2022 |
8,473 |
9,074 |
5.4% |
3.0% |
5.3% |
|
LSL Property Services |
Real Estate |
Mar 2021 |
13,256 |
8,645 |
5.1% |
6.5% |
5.1% |
|
Hostelworld |
Travel & Leisure |
Oct 2019 |
6,505 |
8,209 |
4.8% |
5.3% |
4.8% |
|
R&Q Insurance Holdings |
Financial Services |
Jun 2022 |
10,308 |
7,429 |
4.3% |
1.7% |
4.4% |
|
Tribal |
Technology |
Dec 2014 |
11,742 |
6,580 |
3.9% |
9.0% |
3.9% |
|
Benchmark |
Healthcare |
Jun 2019 |
6,733 |
6,120 |
3.6% |
4.3% |
3.6% |
|
Ten Entertainment |
Travel & Leisure |
Oct 2020 |
3,464 |
5,539 |
3.3% |
4.6% |
3.3% |
|
Carr’s Group |
Industrial Goods
Services] |
|
|
|
|
|
|
|
|
& Services |
Mar 2023 |
3,603 |
4,296 |
2.5% |
– |
2.5% |
|
Netcall |
Technology |
Mar 2023 |
3,168 |
3,055 |
1.8% |
– |
1.8% |
|
Total Investments |
|
|
|
169,274 |
|
|
99.4% |
|
Cash |
|
|
|
1,242 |
|
|
0.7% |
|
Net current liabilities |
|
|
|
(293) |
|
|
(0.1)%
|
| Total shareholders’ funds | 170,223 | 100.0% | |||||
Ken Wotton
Gresham House Asset Management
26 September 2023
Statement of Comprehensive Income
|
|
Year ended 30 June 2023 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
Investments |
|
|
|
|
Gains on investments held at fair value through profit or loss |
- |
10,602 |
10,602 |
|
|
- |
10,602 |
10,602 |
|
|
|
|
|
|
Income |
|
|
|
|
Dividends |
3,782 |
- |
3,782 |
|
Interest |
78 |
- |
78 |
|
Total income |
3,860 |
- |
3,860 |
|
|
|
|
|
|
Expenses Investment Manager’s fee |
(1,228) |
- |
(1,228) |
|
Other expenses |
(803) |
- |
(803) |
|
Total expenses |
(2,031) |
- |
(2,031) |
|
|
|
|
|
|
Net return before taxation |
1,829 |
10,602 |
12,431 |
|
|
|
|
|
|
Taxation |
- |
- |
- |
|
Net return and total comprehensive income for the year |
1,829 |
10,602 |
12,431 |
|
|
|
|
|
|
Return per Ordinary share |
3.53p |
20.44p |
23.97p |
The total column of this statement represents the Statement of Comprehensive Income prepared in accordance with IFRS. The supplementary revenue and capital return columns are both prepared under guidance published by the AIC. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.
Statement of Comprehensive Income
|
|
Year ended 30 June 2022 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
Investments |
|
|
|
|
Losses on investments held at fair value through profit or loss |
- |
(21,776) |
(21,776) |
|
|
- |
(21,776) |
(21,776) |
|
|
|
|
|
|
Income |
|
|
|
|
Dividends |
4,173 |
- |
4,173 |
|
Interest |
6 |
- |
6 |
|
Total income |
4,179 |
- |
4,179 |
|
|
|
|
|
|
Expenses Investment Manager’s fee |
(1,564) |
- |
(1,564) |
|
Other expenses |
(1,128) |
- |
(1,128) |
|
Total expenses |
(2,692) |
- |
(2,692) |
|
|
|
|
|
|
Net return before taxation |
1,487 |
(21,776) |
(20,289) |
|
|
|
|
|
|
Taxation |
- |
- |
- |
|
Net return and total comprehensive income for the year |
1,487 |
(21,776) |
(20,289) |
|
|
|
|
|
|
Return per Ordinary share |
2.43p |
(35.53)p |
(33.10)p |
Balance Sheet
|
|
|
|
As at 30 June 2023 |
|
|
As at 30 June 2022 |
|
|
|
|
£'000 |
|
|
£'000 |
|
Non-current assets |
|
|
|
|
|
|
|
Investments held at fair value though profit and loss |
|
|
169,274 |
|
|
159,950 |
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Trade and other receivables |
|
|
268 |
|
|
885 |
|
Cash and cash equivalents |
|
|
1,242 |
|
|
16,363 |
|
|
|
|
1,510 |
|
|
17,248 |
|
Total assets |
|
|
170,784 |
|
|
177,198 |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Trade and other payables |
|
|
(561) |
|
|
(2,168) |
|
Net assets |
|
|
170,223 |
|
|
175,030 |
|
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
|
|
Share capital |
|
|
6,353 |
|
|
6,353 |
|
Share premium account |
|
|
11,300 |
|
|
11,300 |
|
Special reserve |
|
|
3,590 |
|
|
19,767 |
|
Capital reserve |
|
|
142,952 |
|
|
132,350 |
|
Capital redemption reserve |
|
|
2,897 |
|
|
2,897 |
|
Revenue reserve |
|
|
3,131 |
|
|
2,363 |
|
Total shareholders’ equity |
|
|
170,223 |
|
|
175,030 |
|
Net asset value per share |
|
|
342.47p |
|
|
316.21p |
|
Ordinary shares in issue |
|
|
49,704,711 |
|
|
55,352,088 |
Statement of Changes in Equity
|
For the year ended 30 June 2023 |
Share capital |
Share premium account |
Special reserve |
Capital reserve |
Capital redemption reserve |
Revenue reserve |
Total |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
|
|
|
1 July 2022 |
6,353 |
11,300 |
19,767 |
132,350 |
2,897 |
2,363 |
175,030 |
|
Net return and total comprehensive income for the year |
- |
- |
- |
10,602 |
- |
1,829 |
12,431 |
|
Dividends paid |
- |
- |
- |
- |
- |
(1,061) |
(1,061) |
|
Share buy-backs |
- |
- |
(16,177) |
- |
- |
- |
(16,177) |
|
30 June 2023 |
6,353 |
11,300 |
3,590 |
142,952 |
2,897 |
3,131 |
170,223 |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
For the year ended 30 June 2022 |
Share capital |
Share premium account |
Special reserve |
Capital reserve |
Capital redemption reserve |
Revenue reserve |
Total |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
|
|
|
1 July 2021 |
6,986 |
31,737 |
24,567 |
154,126 |
2,264 |
1,889 |
221,569 |
|
Net return and total comprehensive income for the year |
- |
- |
- |
(21,776) |
- |
1,487 |
(20,289) |
|
Dividends paid |
- |
- |
- |
- |
- |
(1,013) |
(1,013) |
|
Share buy-backs |
(633) |
(20,437) |
(4,800) |
- |
633 |
- |
(25,237) |
|
30 June 2022 |
6,353 |
11,300 |
19,767 |
132,350 |
2,897 |
2,363 |
175,030 |
Statement of Cash Flows
|
|
Year Ended 30 June |
Year Ended 30 June |
|
|
2023 |
2022 |
|
|
£’000 |
£’000 |
|
Operating activities |
|
|
|
Net return before taxation |
12,431 |
(20,289) |
|
Adjustment for (gains)/losses on investments |
(10,602) |
21,776 |
|
Operating cash flows before movements in working capital |
1,829 |
1,487 |
|
Decrease/(increase) in receivables |
374 |
(219) |
|
Increase/(decrease) in payables |
22 |
(19) |
|
Purchases of portfolio investments |
(30,473) |
(36,443) |
|
Sales of portfolio investments |
30,463 |
70,129 |
|
Net cash flow from operating activities |
2,215 |
34,935 |
|
|
|
|
|
Financing activities |
|
|
|
Equity dividend paid |
(1,061) |
(1,013) |
|
Shares bought back in the year |
(16,275) |
(25,139) |
|
Net cash outflow from financing activities |
(17,336) |
(26,152) |
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents for year |
(15,121) |
8,783 |
|
Cash and cash equivalents at the start of the year |
16,363 |
7,580 |
|
Cash and cash equivalents at 30 June |
1,242 |
16,363 |
|
|
|
|
|
|
|
|
Principal and Emerging Risks
The Board believes that the overriding risks to shareholders are events and developments which can affect the general level of share prices, including, for instance, inflation or deflation, economic recessions and movements in interest rates and currencies which are outside of the control of the Board.
The principal risks and uncertainties are set out on pages 17 and 18 of the Annual Report.
Responsibility statement of the Directors in respect of the Annual Financial Report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that it faces.
We consider the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
Going Concern
In assessing the Company’s ability to continue as a going concern the Directors have also considered the
Company’s investment objective, detailed on the inside front cover, risk management policies, detailed on
pages 17 and 18 of the 2023 Annual Report, capital management (see note 16 to the financial statements), the nature of its portfolio and expenditure projections and believe that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and for at least 12 months from the date of this Report. In addition, the Board has had regard to the Company’s investment performance (see page 3 of the 2023 Annual Report) and the price at which the Company’s shares trade relative to their NAV (see page 3 of the 2023 Annual Report).
The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration:
- cash and cash equivalents balances and, from a liquidity perspective, the portfolio of readily realisable securities which can be used to meet short-term funding commitments;
- the ability of the Company to meet all of its liabilities and ongoing expenses from its assets;
- revenue and operating cost forecasts for the forthcoming year;
- the ability of third-party service providers to continue to provide services; and
- potential downside scenarios including stress testing the Company’s portfolio for a 25% fall in the value of the investment portfolio; a 50% fall in dividend income and a buy back of 5% of the Company’s ordinary share capital, the impact of which would leave the Company with a positive cash position.
Based on this assessment, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and therefore have prepared the financial statements on a going concern basis.
Related Party Transactions and transactions with the Investment Manager
Fees paid to Directors are disclosed in the Directors‘ Remuneration Report on page 39 of the 2023 Annual Report. Full details of Directors‘ interests are set out on page 40 of the 2023 Annual Report.
City of London Investment Management is considered a related party by virtue of their holding of 28.9% of the Company’s total voting rights. Further details are noted on page 27 of the 2023 Annual Report.
The amounts payable to the Investment Manager, which is not considered to be a related party, are disclosed in note 3. The amount due to the Investment Manager for management fees at 30 June 2023 was £311,000 (2022: £349,000). The amount due to the Investment Manager for performance fees at 30 June 2023 was £nil (2022: £nil).
As detailed on page 4 of the 2023 Annual Report, the Investment Manager, directly and indirectly through its in-house funds, has continued to purchase shares in the Company.
Notes
1.1 Corporate information
Strategic Equity Capital plc is a public limited company incorporated and domiciled in the United Kingdom and registered in England and Wales under the Companies Act 2006 whose shares are publicly traded. The Company is an investment company as defined by Section 833 of the Companies Act 2006.
The Company carries on business as an investment trust within the meaning of Sections 1158/1159 of the UK Corporation Tax Act 2010.
The financial statements of Strategic Equity Capital plc for the year ended 30 June 2023 were authorised for issue in accordance with a resolution of the Directors on 26 September 2023.
1.2 Basis of preparation and statement of compliance
The financial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, and reflect the following policies which have been adopted and applied consistently. Where presentational guidance set out in the Statement of Recommended Practice (“SORP”) for investment trusts issued by the AIC in February 2019 is consistent with the requirements of IFRS, the Directors have sought to prepare financial statements on a basis compliant with the recommendations of the SORP.
The financial statements of the Company have been prepared on a going concern basis.
Convention
The financial statements are presented in Sterling, being the currency of the Primary Economic Environment in which the Company operates, rounded to the nearest thousand, unless otherwise stated to the nearest one pound.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.
As such, no segmental reporting disclosure has been included in the financial statements.
2. Income
|
|
Year ended 30 June 2023 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
Income from investments |
|
|
|
|
UK dividend income |
3,782 |
- |
3,782 |
|
|
3,782 |
- |
3,782 |
|
|
|
|
|
|
Other operating income |
|
|
|
|
Liquidity interest |
78 |
- |
78 |
|
Total income |
3,860 |
- |
3,860 |
|
|
Year ended 30 June 2022 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
Income from investments |
|
|
|
|
UK dividend income |
4,173 |
- |
4,173 |
|
|
4,173 |
- |
4,173 |
|
|
|
|
|
|
Other operating income |
|
|
|
|
Liquidity interest |
6 |
- |
6 |
|
Total income |
4,179 |
- |
4,179 |
|
|
|
|
|
3. Investment Manager’s fee
|
|
Year ended 30 June 2023 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Management fee |
1,228 |
- |
1,228 |
|
|
1,228 |
- |
1,228 |
|
|
|
|
|
|
|
Year ended 30 June 2022 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Management fee |
1,564 |
- |
1,564 |
|
|
1,564 |
- |
1,564 |
A basic management fee is payable to the Investment Manager at annual rate of 0.75% of the NAV of the Company. The basic management fee accrues daily and is payable quarterly in arrears.
The Investment Manager is also entitled to a performance fee, details of which are set out below.
The Company’s performance is measured over rolling three-year periods ending on 30 June each year, by comparing the NAV total return per share over a performance period against the total return performance of the FTSE Small Cap (ex Investment Trusts) Index. A performance fee is payable if the NAV total return per share (calculated before any accrual for any performance fee to be paid in respect of the relevant performance period) at the end of the relevant performance period exceeds both: (i) the NAV per share at the beginning of the relevant performance period as adjusted by the aggregate amount of (a) the total return on the FTSE Small Cap (ex Investment Trusts) Index (expressed as a percentage) and (b) 2.0% per annum over the relevant performance period (“Benchmark NAV”); and (ii) the high watermark (which is the highest NAV per share by reference to which a performance fee was previously paid).
The Investment Manager is entitled to 10% of any excess of the NAV total return over the higher of the Benchmark NAV per share and the high watermark. The aggregate amount of the Management Fee and the Performance Fee in respect of each financial year of the Company shall not exceed an amount equal to 1.4% per annum of the NAV of the Company as at the end of the relevant financial period.
A performance fee of £nil been accrued in respect of the year ended 30 June 2023 (30 June 2022: £nil).
4. Other expenses
|
|
Year ended 30 June 2023 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Secretarial services |
171 |
- |
171 |
|
Auditors’ remuneration for: |
|
|
|
|
Audit services* |
65 |
- |
65 |
|
Directors’ remuneration |
161 |
- |
161 |
|
Other expenses^ |
406 |
- |
406 |
|
|
803 |
- |
803 |
|
|
Year ended 30 June 2022 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Secretarial services |
153 |
- |
153 |
|
Auditors’ remuneration for: |
|
|
|
|
Audit services* |
43 |
- |
43 |
|
Directors’ remuneration |
140 |
- |
140 |
|
Other expenses^ |
792 |
- |
792 |
|
|
1,128 |
- |
1,128 |
*No non-audit fees were incurred during the year
^Other expenses in the previous year include £412,000 of costs in relation to the Company’s General Meeting and Circular to approve the various proposals outlined in the 9 February 2022 Stock Exchange announcement.
5. Taxation
|
|
Year ended 30 June 2023 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Corporation tax at 20.50% |
- |
- |
- |
|
|
- |
- |
- |
|
|
Year ended 30 June 2022 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Corporation tax at 19.00% |
- |
- |
- |
|
|
- |
- |
- |
As at 30 June 2023 the total current taxation charge in the Company’s revenue account is lower than the standard rate of corporation tax in the UK.
6. Dividends
Under the requirements of Sections 1158/1159 of the Corporation Tax Act 2010 no more than 15% of total income may be retained by the Company. These requirements are considered on the basis of dividends declared in respect of the financial year as shown below.
|
|
||
|
|
30 June |
30 June |
|
|
2023 |
2022 |
|
|
£'000 |
£'000 |
|
Final dividend proposed of 2.50p (2022: 2.00p) per share |
1,235 |
1,061 |
The following dividends were declared and paid by the Company in the financial year:
|
|
30 June |
30 June |
|
|
2023 |
2022 |
|
|
£'000 |
£'000 |
|
Final dividend: 2.00p (2022: 1.60p) per share |
1,061 |
1,013 |
Dividends have been solely paid out of the Revenue reserve.
7. Return per Ordinary share
|
|
Year ended 30 June 2023 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
pence |
pence |
Pence |
|
|
|
|
|
|
Return per Ordinary share |
3.53 |
20.44 |
23.97 |
|
|
3.53 |
20.44 |
23.97 |
|
|
Year ended 30 June 2022 |
||
|
|
Revenue |
Capital |
|
|
|
return |
return |
Total |
|
|
pence |
pence |
Pence |
|
|
|
|
|
|
Return per Ordinary share |
2.43 |
(35.53) |
(33.10) |
|
|
2.43 |
(35.53) |
(33.10) |
Returns per Ordinary share are calculated based on 51,853,838 (30 June 2022: 61,286,517) being the weighted average number of Ordinary shares, excluding shares held in treasury, in issue throughout the year.
8. Investments
|
|
30 June 2023 £’000 |
|
Investment portfolio summary: |
|
|
Quoted investments at fair value through profit or loss |
169,274 |
|
|
169,274 |
|
|
|
|
|
30 June 2022 £’000 |
|
Investment portfolio summary: |
|
|
Quoted investments at fair value through profit or loss |
159,950 |
|
|
159,950 |
Under IFRS 13, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in measuring the fair value of each asset. The fair value hierarchy has the following levels:
Investments whose values are based on quoted market prices in active markets are classified within level 1 and include active quoted equities.
The definition of level 1 inputs refers to ‘active markets’, which is a market in which transactions take place with sufficient frequency and volume for pricing information to be provided on an ongoing basis. Due to the liquidity levels of the markets in which the Company trades, whether transactions take place with sufficient frequency and volume is a matter of judgement, and depends on the specific facts and circumstances. The Investment Manager has analysed trading volumes and frequency of the Company’s portfolio and has determined these investments as level 1 of the hierarchy.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Level 3 instruments include private equity, as observable prices are not available for these securities the Company has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines.
The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value of the investment.
The following table analyses within the fair value hierarchy the Company’s financial assets and liabilities (by class) measured at fair value at 30 June 2023.
Financial instruments at fair value through profit or loss
|
30 June 2023 |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
|
Equity investments |
169,274 |
- |
- |
169,274 |
|
Liquidity funds |
- |
1 |
- |
1 |
|
Total |
169,274 |
1 |
- |
169,275 |
|
30 June 2022 |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
|
Equity investments |
159,950 |
- |
- |
159,950 |
|
Liquidity funds |
- |
2,463 |
- |
2,463 |
|
Total |
159,950 |
2,463 |
- |
162,413 |
There were no transfers between levels for the year ended 30 June 2023 (2022: none).
9. Nominal Share capital
|
|
Number |
£’000 |
|
Allotted, called up and fully paid Ordinary shares of 10p each: |
|
|
|
Ordinary shares in circulation at 30 June 2022 |
63,529,206 |
6,353 |
|
Shares held in Treasury at 30 June 2022 |
(8,177,118) |
(818) |
|
Ordinary shares in issue per Balance Sheet at 30 June 2022 |
55,352,088 |
5,535 |
|
Shares bought back during the year to be held in Treasury |
(5,647,377) |
(564) |
|
Ordinary shares in issue per Balance Sheet at 30 June 2023 |
49,704,711 |
4,971 |
|
Shares held in Treasury at 30 June 2023 |
13,824,495 |
1,382 |
|
Ordinary shares in circulation at 30 June 2023 |
63,529,206 |
6,353 |
These are not statutory accounts in terms of Section 434 of the Companies Act 2006. Full audited accounts for the year to 30 June 2023 will be sent to shareholders in October 2023 and will be available for inspection at 1 Finsbury Circus, London EC2M 7SH, the registered office of the Company. The full annual report and accounts will be available on the Company’s website www.strategicequitycapital.com
The audited accounts for the year ended 30 June 2023 will be lodged with the Registrar of Companies.
Latest directors dealings
- 1 day ago IntegraFin Holding
- 1 day ago Spirent Communications
- 1 day ago CRH (CDI)
- 1 day ago Bezant Resources
- 1 day ago EJF Investments Ltd NPV