Annual Financial Report
abrdn Smaller Companies Income Trust plc
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2021
STRATEGIC REPORT
1. FINANCIAL HIGHLIGHTS
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Net asset value total return{A} |
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Numis Smaller Companies ex Inv Trust Index |
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2021: |
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2021: |
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+30.4% |
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+21.9% |
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2020: -4.1% |
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2020: -4.3% |
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Share price total return{A} |
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Earnings per Ordinary share (revenue) |
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2021: |
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2021: |
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+22.9% |
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9.69p |
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2020: -5.1% |
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2020: 5.60p |
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Dividend per share |
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Discount to net asset value{A} |
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2021: |
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2021: |
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8.85p |
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15.3% |
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2020: 8.24p |
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2020: 10.3% |
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{A} Considered to be an Alternative Performance Measure. Further details can be found on pages 85 to 87 of the 2021 Annual Report. |
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2. CHAIRMAN'S STATEMENT
Performance
In another year in which the Covid-19 pandemic has dominated the headlines, your Company has delivered strong absolute and relative performance, with a net asset value ("NAV") total return of +30.4% compared to the benchmark, the Numis Smaller Companies (ex Investment Trusts) Index, which returned +21.9%.
Share price performance was also ahead of the benchmark, with a total return (including dividends reinvested) of +22.9% over the period.
Three and five year NAV performance against the benchmark has been equally strong, with returns of +68.2% and +91.0% respectively, versus composite benchmark returns of +37.3% and +36.8%.
The Company's one year performance is measured against the Numis Smaller Companies (ex Investment Trusts) Index, which was introduced by the Company on 1 January 2020. Prior to that date, the Company's benchmark was the FTSE Small Cap (ex Investment Trusts) Index. Performance over three and five year periods is therefore measured against a composite of both indices.
Dividend
It was pleasing to see the Company's revenue return for the year ended 31 December 2021 of 9.69p (2020: 5.60p) recover to similar levels to those seen before the start of the pandemic. This was a reflection of a robust year for UK equity markets, which saw a normalisation of earnings and a return of confidence to companies in the distribution of cash. This resulted in a more positive outlook for investors, boosted by the introduction of a vaccine rollout programme and some lifting of Government restrictions. More information on this can be found in the Manager's Review.
The Company was also able to return to paying a covered dividend this year and to increase the dividend to its highest level in ten years, with the total dividend for the year being 8.85p (2020: 8.24p).
With the year-end share price at 375p, this imputes a dividend yield of 2.4%. Over three and five years, the dividend has increased by 20.4% and 29.2% respectively, compared to rises in Consumer Prices Index ("CPI") of 7.5% and 13.0%.
The undistributed balance of the revenue account will be added to the Company's revenue reserve. The revenue reserve account continues to remain at a healthy level and will represent 12.1p per share following payment of the Company's fourth interim dividend.
Ongoing Charges
The Company's ongoing charges, which are regularly monitored by the Board, decreased during the year to 31 December 2021, to 1.20% from 1.35%.
Discount
At 31 December 2021, the Company's discount stood at -15.3% (2020: -10.3%). While this was disappointing, the widening of the discount was representative of a general trend in the smaller companies sector as a whole.
Gearing/Debt
The Company's use of its £10 million credit facility (£5 million of which is at a fixed interest rate and £5 million at a floating interest rate) has remained unchanged, with £7 million of the facility drawn down at the year end. The £5 million floating element of the facility expires in April 2022 and the Company is already seeking terms for its renewal. The £5 million fixed rate facility expires in April 2023.
The Company's net gearing position as at 31 December 2021 was 4.5%, compared to 7.0% at the end of 2020. This is lower due to short term cash balances held at the year end date.
Board Composition
Further to my update on the Board's composition in the Company's Half-Yearly Report, in which I referred to the retirement of Barry Rose and the appointment of Christopher Metcalfe, I am delighted to advise that on 5 January 2022, we welcomed Rosalyn Breedy to the Board as an independent Non-Executive Director.
Rosalyn is a corporate, funds and financial services lawyer and brings with her a wealth of experience of regulated funds, as well as a unique and diverse background which will complement the Board's skills and experience as a whole. Rosalyn's biography can be found on page 41 of the 2021 Annual Report and both Rosalyn and Christopher, who was appointed to the Board on 7 June 2021, will stand for election at the Company's Annual General Meeting ("AGM") in May 2022.
Having served on the Board of your Company for 10 years, with 7 years as Chairman, I shall be retiring as a Director at the forthcoming AGM and am happy to announce that Dagmar Kent Kershaw, who has served on the Board since 2017, has agreed to be my successor.
Environmental, Social and Corporate Governance ("ESG")
ESG has been embedded in your Manager's investment process for a number of years and the Board is pleased to see that they continue to actively engage with portfolio companies on ESG matters on a regular basis.
More information on this and the Manager's ESG investment process can be found in the Manager's Review.
The Manager
In July 2021, Standard Life Aberdeen plc changed its name to abrdn plc as part of a rebranding exercise. Following this change, and as advised in the Company's Half-Yearly Report, it is anticipated that the Company's Manager, Investment Manager and Company Secretary (Aberdeen Standard Fund Managers Limited, Aberdeen Asset Managers Limited and Aberdeen Asset Management PLC respectively) will also to change their names in the future.
Change of Name
Following the abrdn name change, the Board made the decision to align itself with the Manager's new brand by changing the Company's name to abrdn Smaller Companies Income Trust plc. This change came into effect on 7 January 2022.
Annual General Meeting
The Company's AGM will take place on Thursday 5 May 2022 at 12 noon and is currently scheduled to be held at the offices of abrdn, Bow Bells House, 1 Bread Street, London EC4M 9HH.
As you will be aware, for the last two years, in order to adhere to Government guidelines, we were unable to hold a physical meeting. This year, we are pleased to advise that we do intend to hold a physical meeting, but would encourage shareholders, in the event of any change to Government guidelines or a change of venue, to continue to check for updates from the Company on its website abrdnsmallercompaniesincome.co.uk or via Company announcements to the London Stock Exchange.
As in previous physical meetings, shareholders will have the opportunity to hear an update from the Manager and to ask questions of the Manager and the Board and we very much look forward to seeing you. I would encourage shareholders (whether or not they intend to attend the AGM in person) to lodge their proxy votes in advance of the meeting. Shareholders are also encouraged to send any questions in advance, by email, to smallercompaniesincome@abrdn.com .
Outlook
Your Manager's investment process has delivered good results for the Company and we are pleased to see the return of a more positive outlook for markets and to see dividend payments resume.
The continuation of a focus on stock selection in line with your Manager's disciplined Quality Growth and Momentum investment process with an income bias, will continue to guide them towards a portfolio of quality growth businesses, which can prove resilient in a variety of environments.
Robert Lister
Chairman
14 March 2022
3. OVERVIEW OF STRATEGY
Business Model
The business of the Company is that of an investment company which conducts its affairs in order to qualify as an investment trust for UK capital gains tax purposes.
The Company aims to attract long term private and institutional investors looking to benefit from the income and capital growth prospects of UK smaller companies. The Directors do not envisage any change in this activity in the foreseeable future.
Investment Objective and Purpose
The objective and purpose of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of UK smaller companies and UK fixed income securities.
Investment Policy
The Company invests in equities, corporate bonds and preference shares. The primary aim of the Company is to invest in the equity shares of smaller companies listed on a regulated UK stock market in order to gain growth in dividends and capital. The Company employs gearing with the primary intention of enhancing income and to a lesser extent, long-term total returns. The majority of the additional funds raised by gearing are invested in investment grade corporate bonds and preference shares.
Gearing
The level of gearing varies with opportunities in the market and the Board adopts a prudent approach to the use of gearing. The total level of gearing will not exceed 25% of the Company's net assets, at the time it is instigated, and within that gearing limit, the equity portfolio gearing will not exceed 10%, at the time it is instigated.
Risk diversification
The investment risk within the portfolio is managed through a diversified portfolio of equities, corporate bonds and preference shares. The Company does not invest in securities that are unquoted at the time of investment. A maximum of 5% of the Company's total assets can be invested in the securities of one company at the time of purchase. Although the Company is not permitted to invest more than 15% of its total assets in other listed investment companies (including investment trusts), the Board currently does not intend to invest in other listed investment companies.
Benchmark index
Numis Smaller Companies (excluding Investment Trusts) Index (total return) - effective from 1 January 2020; FTSE Small Cap Index (excluding Investment Trusts) Index (total return) - up to 31 December 2019.
Management
The Board has appointed ASFML (the "Manager") to act as the alternative investment fund manager ("AIFM"). The Company's portfolio is managed on a day-to-day basis by Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager") by way of a delegation agreement between ASFML and AAML. AAML and ASFML are both wholly owned subsidiaries of abrdn plc.
Delivering the Investment Policy
Equity Investment Process
The equity investment process is active and bottom-up, based on a disciplined evaluation of companies through company meetings with the Investment Manager. Stock selection is the major source of added value, concentrating on quality, growth and momentum characteristics.
Great emphasis is placed on understanding a company's business and understanding how it should be valued. New investments are not made without the Investment Manager having first met management of the investee company and undertaken further analysis to outline the underlying investment merits. Top-down investment factors are secondary in the equity portfolio construction, with diversification and formal controls guiding stock and sector weights.
Fixed Income Investment Process
The fixed income investment process is an active investment style which identifies value between individual securities. This is achieved by combining bottom-up security selection with a top-down investment approach. Investments in corporate bonds and preference shares are also managed by investment guidelines drawn up by the Board in conjunction with the Investment Manager which include:
- No holding in a single fixed interest security to exceed 5% of the total bond issue of the investee company; and
- Maximum acquisition cost of an investment grade bond is £1 million and of a non-investment grade bond is £500,000.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:
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KPI |
Description |
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Performance of net asset value against the benchmark index |
The Board considers the Company's net asset value total return figures to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. The Board measures performance against the benchmark index. The returns over one, three and five years are provided on page 25 and a graph showing performance against the benchmark index is shown on page 27 of the 2021 Annual Report. |
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Revenue return and |
The Board monitors the Company's net revenue return and dividend growth through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company aims to grow the dividend at a level above CPI when taken over a number of years. A graph showing the dividends and yields over five years is provided on page 26 of the 2021 Annual Report. |
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Share price performance |
The Board monitors the performance of the Company's share price on a total return basis. A graph showing the share price total return performance against the benchmark index is shown on page 27 of the 2021 Annual Report. |
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Share Price Discount/ Premium to NAV |
The discount/premium relative to the net asset value per share represented by the share price is monitored by the Board. A graph showing the share price discount/premium relative to the net asset value is shown on page 27 of the 2021 Annual Report. |
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Ongoing Charges Ratio (OCR) |
The Company's OCR is provided on page 5 of the 2021 Annual Report. The Board reviews the OCR, taking account of its total assets. |
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its business model, financial position, future performance, solvency or liquidity and prospects. The Board has in place a robust process to identify, assess and monitor the principal risks and uncertainties facing the Company. A summary of the principal risks together with their mitigating action is set out below.
The Board also regularly identifies and evaluates newly emerging risks, for example the impact of climate change and monitors these closely, as appropriate for the Company. The impact of climate change is not considered to be material to the financial statements as the entire investment portfolio consists of listed equities and corporate bonds and the quoted market (being bid) price is expected to reflect market participants' view of climate change risk.
The Board has adopted a risk matrix which identifies the key risks for the Company and covers strategy, investment management, operations, shareholders, regulatory and financial obligations and third party service providers. This risk matrix is reviewed formally every six months but risks, including emerging risks, are, if appropriate, discussed by the Board at, or between, formal Board quarterly meetings.
The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet or they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are on the Company's website.
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Description |
Mitigating Action |
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Investment and Market risk The Company is exposed to fluctuations in share prices and a fall in the value of its investment portfolio will have an adverse effect on the value of shareholders' funds. The Company invests in smaller companies which may be subject to greater volatility than similar larger companies. |
The Board has appointed ASFML to manage the portfolio within the remit of the investment policy. The Board monitors the results and implementation of the Manager's investment process and reviews the investment portfolio, including diversification and performance, at each meeting. |
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Investment portfolio management Investing outside of the investment restrictions and guidelines set by the Board could result in poor performance and inability to meet the Company's objectives. |
The Board is responsible for ensuring that the investment policy is met. The day-to-day management of the Company's assets has been delegated to the Manager under investment guidelines determined by the Board. The Board regularly reviews these guidelines to ensure they remain appropriate and monitors compliance with the guidelines through regular reports from the Manager, including performance reporting. |
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Major market event or geo-political risk The Company is exposed to stockmarket volatility or illiquidity as a result of a major market shock due to a national or global crisis. The impact of such risks, associated with the portfolio or the Company itself, could result in disruption on the operations of the Company and losses. |
External risks over which the Company has no control are always a risk. The Company does what it can to address these risks where possible, not least operationally and to try and meet the Company's investment objectives.
The Board is cognisant of the risks arising from the outbreak and spread of the Coronavirus around the world, including stockmarket instability and longer term economic effects, and the impact on the operations of the third-party suppliers, including the Manager. The Manager has undertaken an assessment of the Company's portfolio and is in close communication with the underlying investee companies in order to navigate and guide the Company through the current challenges. The Manager assesses and reviews the investment risks arising from the Covid-19 pandemic on companies in the portfolio, including but not limited to: employee absence, reduced demand, supply chain breakdown, balance sheet strength, ability to pay dividends, and takes the necessary investment decisions.
The Manager has extensive business continuity procedures and contingency arrangements to ensure they are able to service their clients, including investment trusts. The services from third parties, including the Manager, have continued to be supplied effectively and the Board will continue to monitor arrangements through regular updates from the Manager. |
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Gearing risk Gearing has the effect of accentuating market falls and market gains. The inability of the Company to meet its financial obligations, or an increase in the level of gearing, could result in the Company becoming over-geared or unable to take advantage of potential opportunities and result in a loss of value to the Company's shares. |
The Board monitors the Company's actual gearing levels (including equity gearing) in relation to its assets and liabilities and reviews the Company's compliance with the principal
The Company's gearing consists of a £10 million facility comprised of a £5 million five year fixed rate loan and a £5 million three year variable rate loan. As at 31 December 2021, £7 million was drawn down (£5 million fixed rate and £2 million variable rate). |
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Income and dividend risk The ability of the Company to pay dividends and any future dividend growth will depend over the longer term on the level of income generated from its investments and the timing of receipt of such income by the Company. In the shorter term the size of the Company's revenue reserves will determine the extent that shareholder dividend payments can be less volatile than the dividends actually paid by the companies in which the Company invests. Accordingly there is no guarantee that the Company's dividend objective will continue to be met. |
The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each Board meeting and the Manager has developed detailed and sophisticated models for forecasting and monitoring dividend payments. |
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Operational risk The Company is dependent on third parties for the provision of services and systems, in particular those of the Manager and the Depositary. Failure by a third party provider to carry out its contractual obligations could result in loss or damage to the Company. Disruption, including that caused by information technology breakdown or other cyber-related issue, could prevent the functioning of the Company. |
Written agreements are in place defining the roles and responsibilities of third party providers and their performance is reviewed on an annual basis. The Board reviews regular reports from the Manager on its internal controls and risk management systems, including internal audit and compliance monitoring functions. The Manager reports to the Board on the control environment and quality of service provided by third parties, including business continuity plans and policies to address cyber crime. Further details of internal controls are set out in the Audit Committee's Report on page 48 of the 2021 Annual Report. |
Promoting the Success of the Company
The Board is required to report on how it has discharged its duties and responsibilities under section 172 of the Companies Act 2006 (the "s172 Statement"). Under section 172, the Directors have a duty to promote the success of the Company for the benefit of its members as a whole, taking into account the likely long term consequences of decisions, the need to foster relationships with the Company's stakeholders and the impact of the Company's operations on the environment.
The Company currently consists of five Directors and has no employees or customers in the traditional sense. Without a variety of external stakeholders, the Company can neither exist nor flourish. Our shareholders own us and the Company's Manager, ASFML, provides investment management services. A number of other stakeholders support us by providing regulatory and other services, including secretarial, administration, depositary, custodial, banking and audit services. For example, BNP Paribas is our Depository and Ernst & Young LLP is our auditor.
Our relationship with each is different. We meet the Manager on a quarterly basis but might meet our investors, both institutional and retail, only once a year. We often need to balance the interests of different stakeholders, for example, in agreeing their fees.
The Board's principal concern has been, and continues to be, the interests of the Company's shareholders and potential investors. The Manager undertakes an annual programme of meetings with the largest shareholders and reports back to the Board on issues raised at these meetings. In normal circumstances, the Board encourage all shareholders to attend and participate in the Company's AGM and note that they can contact the Directors via the Company Secretary. Shareholders and investors can obtain up-to-date information on the Company through its website and the Manager's information services and have direct access to the Company through the Manager's customer services team or the Company Secretary. As the normal format of the 2021 AGM was not able to take place due to the government's social distancing restrictions in place, a number of presentations and podcasts by the Manager were made available on the Company's website for shareholders to access.
The Board believes that one of the key strategies of the Company, for its long-term stability and sustainability, is to develop share ownership among the growing retail and self-directed investors. Approximately 49% of the shares are currently held by such investors. In order to raise and maintain awareness of the Company, the Board participates in the promotional programme run by the Manager on behalf of a number of investment trusts under its management. The purpose of the programme is both to communicate effectively with existing shareholders and to reach more new shareholders, thus improving liquidity and enhancing the value and rating of the Company's shares. Regular reports are provided to the Board on promotional activities as well as analysis of the shareholder register.
As the Company has no employees, the culture of the Company is embodied in the Board of Directors. In seeking to deliver the Company's investment objective for shareholders, our values are trust and fairness while challenging constructively, and in a respectful way, our advisers and other stakeholders.
The Board undertakes a robust evaluation of the Manager, including investment performance and responsible stewardship, to ensure that the Company's objective of providing sustainable income and capital growth for its investors is met. The portfolio activities undertaken by the Manager on behalf of the Company can be found in the Manager's Review and details of the Board's relationship with the Manager and other third party providers, including oversight, is provided in the Statement of Corporate Governance.
Key decisions and actions during the year to 31 December 2021, which required the Directors to have greater focus on stakeholders included:
Directorate and Succession Planning
The Board has continued to progress its succession plans during the year and, as explained in the Chairman's statement, in light of the retirement of Barry Rose in June 2021 and the retirement of the Chairman in May 2022, has successfully recruited two new Directors in the year, Christopher Metcalfe and Rosalyn Breedy. Dagmar Kent Kershaw has agreed to take the role of Chairman of the Board from May 2022. Shareholders' interests are best served by ensuring a smooth and orderly refreshment of the Board which serves to provide continuity and maintain the Board's open and collegiate style.
Change of Company Name
In light of the Manager's rebrand to 'abrdn' in September 2021, the Board considered the opportunity to leverage the significant promotional activity and agreed that it was in the best interests of the Company to align the Company name with that of its Manager. Accordingly, the name change was effected in January 2022 at the earliest opportunity after the year end.
Renewal of Debt Facility
During the year, the Board approved the renewal of the Company's loan agreement with RBSI to provide it with a £10 million credit facility, £5 million of which is at a fixed interest rate and £5 million at a floating interest rate. The £5 million floating element of the facility expires in April 2022 and the Company is already seeking terms for its renewal. The £5 million fixed rate facility expires in April 2023. The Board believes that the modest use of gearing by the Company is of long term benefit to shareholders.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the appropriate knowledge represented on the Board in order to allow the Board to fulfill its obligations. Each Director brings different skills and experience to the Board. The Board takes the benefits of diversity into account in its recruitment of new Board members and this is evidenced in recent Board changes. At 31 December 2021, the Board consisted of three males and one female.
Employee, Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated the day-to-day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined in the Statement of Corporate Governance.
Modern Slavery Act
Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover or employees. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
The Company qualifies as a "low energy user" under the Streamlined Energy and Carbon Reporting Requirements (SECR), and its energy and carbon information is not disclosed for that reason.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.
In assessing the viability of the Company over the review period the Directors have focused upon the following factors:
- The principal risks detailed in the Strategic Report on pages 19 to 21 of the 2021 Annual Report and the steps taken to mitigate these risks. In particular, the Board has considered the operational ability of the Company to continue in the current environment, which continues to be impacted by the global Pandemic, and the ability of the key third-party suppliers to continue to provide essential services to the Company. Third party services have continued to be provided effectively;
- The investment objective in the current environment remains attractive. A resolution for the continuation of the Company was passed at the AGM in June 2020 demonstrating ongoing support for the Company's mandate. The Company has continued to deliver sustained dividend growth as well as good capital growth over the longer term;
- The outlook for the Company and its portfolio detailed in the Chairman's Statement and the Investment Manager's Review;
- The Company is invested in readily realisable listed securities;
- The level of revenue surplus generated by the Company over a number of years and its ability to achieve its dividend objective;
- The level of gearing is closely monitored. Covenants are actively monitored and there is adequate headroom in place. The Company has the ability to renew its gearing or repay its borrowings through proceeds from sales of investments. Initial discussions with banks have commenced with a view to renewing the facility; and
- The impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values.
When considering the risk of under-performance, the Board reviewed the impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values. The Board also considered that matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, the emerging risk of climate change or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future and the period over which the performance of the Company is monitored. The results of the stress tests have given the Board comfort over the viability of the Company.
Accordingly, taking into account all of these factors, the Company's current position and the potential impact of its principal risks and uncertainties, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report.
Robert Lister,
Chairman
14 March 2022
4. INVESTMENT MANAGER'S REVIEW
Overview
The Company delivered a NAV total return of 30.4% for the year ended 31 December 2021, outperforming the Numis Smaller Companies (ex- Investment Trusts) Index return of 21.9% by 8.5%. This continues the solid long term track record of the Company which, over three and five years, has delivered a NAV total return of 68.2% and 91.0% respectively, outperforming its composite benchmark by 30.9% and 54.2% respectively.
Our investment process of Quality Growth Momentum ("QGM") with an income support performed well over the course of 2021. Following an extraordinary 2020, this year has again proved our ability to identify high quality resilient businesses with levers for growth whilst maintaining the ability to pay dividends.
2021 was a strong year for global equities, including UK stocks. The Covid-19 pandemic (the "Pandemic") continued to put strain on the economy, particularly with the discovery of new variants, while investors grappled with the economic fallout. However, markets had largely adapted to this constrained environment, and were also underpinned by ongoing government and central bank support. Investor sentiment also improved on the back of a highly successful domestic vaccine rollout, positive economic data and robust corporate earnings.
At the end of December 2020, more than three-quarters of the UK's population were under the most severe restrictions yet markets were optimistic over the vaccine success as roll outs began around the world. The positive momentum took a brief pause in January 2021, and UK equities dipped slightly, before picking up in February and again thereafter. Supportive government policy, with Chancellor Rishi Sunak pledging an additional £65 billion in emergency support measures for workers and businesses, drove markets upwards. Easing lockdown restrictions, positive earnings results and an impressive vaccine rollout also benefited UK equities.
Equities were supported in the second half of the year by the continued easing of the Pandemic restrictions. Although the Government delayed 'freedom day' by four weeks, due to an uptick in infections caused by the Delta variant, all lockdown restrictions were eventually lifted at the end of July. This brought a welcome recovery in economic activity in August, however, this also put strain on supply chains. Supply chain pressure continued to build in September and proved one of the market's biggest challenges in the second half of the year while the disruption caused by a fuel shortage also dented sentiment. In October, equities were weighed down by soaring energy prices, with several small UK energy firms going bust as a result. Stocks fell back dramatically at the end of November after the discovery of a new variant of Covid-19 in South Africa, sparking fears around vaccine efficacy and the return of restrictions. Unlike some European countries, the UK has not seen a dramatic rise in hospitalisations. Concerns about rising inflation and less-supportive monetary policy were also reflected in investor sentiment at the end of the year.
In UK economic news, third-quarter growth figures showed that the UK has lagged behind other rich economies. The Bank of England held its benchmark interest rate at the all-time low of 0.1%, while maintaining the current rate of its asset-purchasing programme. Meanwhile, UK CPI continued to rise through the year, reaching 5.4% year on year in December - its highest level f many years.
The new issues market remained buoyant. As smaller companies investors it has been pleasing to see the UK market hosting vibrant new growth businesses. abrdn has enjoyed meeting prospective listed businesses, but has remained selective and true to our QGM investment process with an income bias.
Performance
Your Manager has run its QGM investment process for over 20 years and adheres to this process in all environments. The Company's portfolio is positioned to deliver outperformance over the cycle. Value rallies are the most challenging time for this process and it is believed that the extreme market volatility experienced last year, and the value rally of late 2020 into early 2021, is now behind us. The portfolio has delivered a NAV total return of 30.4%, outperforming the Numis Smaller Companies (ex- Investment Trusts) return of 21.9% for the year ended 31 December 2021. Effective company engagement remains key to identification of the QGM businesses that the Company invests in. In particular, your Manager looks for businesses that have many angles to their growth opportunities, giving them a greater ability to continue to grow, whether it be through areas like complimentary products and services, new geographies, or investments funded by the strength of their quality balance sheets.
Having paid a dividend of 8.85p per share for the year, the Company is pleased to report a Dividend Yield of 2.4%, higher than its benchmark which yielded 2.1%.
Equity Portfolio
Stock selection was a significant contributor to the outperformance of the Company over 2021. Earnings seasons have brought positive updates from the names held in the Company's portfolio and share prices have responded accordingly. Encouragingly, balance sheets are healthy and there is dividend growth coming through. Accordingly, your Manager believes that the dividend situation across the portfolio is now normalising.
Financials Liontrust and Tatton Asset Management were top contributors over the year having enjoyed sustained net inflows throughout 2021. Both companies are focused on the UK intermediary community as their core audience (IFAs, wealth managers) but the real point of differentiation is the simplicity and consistency of their investment management processes. Specifically, Liontrust delivered sustained net inflows in the period, with 21% growth in headline Assets under Management ("AuM"). The fund management process is clear and well-articulated, giving advisers confidence in the fundamental strength of stock selection and portfolio management discipline. It finished the year with the acquisition of institutional asset manager Majedie which boosted AuM further, and provides institutional growth opportunities. Liontrust's AuM is now in excess of £40 billion having delivered consistent organic growth on a diverse range of funds (equities, fixed income, multi-asset) and is increasingly diversified, having completed selective and accretive bolt-on acquisitions.
Tatton Asset Management has maintained impressive net inflows, benefiting from reduced social distancing restrictions which has allowed them to resume more meaningful face-to-face marketing, including the return of its annual conference. It has a clear portfolio asset allocation, with a number of variants (both risk rated and specialist - like ethical) which allows the solution to be tailored, aided by an attractive pricing position. The company's AuM has now broken the £11 billion mark driven by sustained monthly inflows. This has been complemented by the acquisition of the Verbatim funds, adding further AuM and also bringing a strategic partnership with Fintel. Tatton Asset Management has a broad reach providing discretionary fund management services to over 700 firms acting for in excess of 80,000 underlying investment accounts, a number which is continually growing.
Morgan Sindall added value following a number of upgrades to earnings guidance for the year in spite of widespread inflation in the supply chain and shortages of materials and labour. The UK construction business is benefiting from structural growth in infrastructure from increased investment, and heightened demand to help companies adapt offices to future ways of working. Forward visibility continues to strengthen and recent margin improvement reflected the continued focus on long-term relationships, operational delivery, and strong risk management. Your Manager remains confident in the growth potential on offer alongside the company's attractive yield.
It is unusual to be writing about Games Workshop as a detractor from performance for the year. In fact the company had an exceptional year in terms of sales demand, demonstrating excellent performance given that the comparative period last year included the successful launch of Warhammer 40,000 and pent-up demand after the Pandemic. Although all these numbers are promising, there were a number of headwinds in relation to pressures on freight costs and currency exchange rates. Supply chain constraints meant the company had to delay releases of new products. The company's stores and those of the trade accounts were impacted by government restrictions on opening and operating. This materially impacted sales in the channel as well as the ability to offer introductory games. Sales to Europe were impacted by the UK leaving the EU ("Brexit") and the company had to give refunds when delivery was impacted. Nevertheless the company made a confident outlook statement, with the focus on growing sales, given the planned increases in manufacturing and distribution capacity. This provided some insight into the company's thoughts on the sustainability of potential demand. Despite the share price weakness, your Manager believes that there has been no change in the long term investment case, namely that the niche category Games Workshop operates in will continue to thrive, their competitive position within this category remains strong and multiple longer term opportunities are available to the group. Without global supply issues your Manager is confident that the quality of the business and the top line growth opportunity will continue to provide strong earnings growth in coming years, which in turn will drive dividend growth.
There was a disappointing update from Seraphine shortly after its flotation, namely a warning on supply chain challenges. During their second quarter, supply constraints impacted availability which, in turn, weighed on new customer acquisition. This diluted marketing spend and led to fewer new customers which subsequently challenged revenues. The shares responded negatively to the downgrades to earnings. The update was reflective of some of the post-Pandemic supply chain difficulties facing the sector during the middle of the year; these were more challenging for smaller brands and retailers to mitigate. The company's update in December was encouraging, indicating that revenue growth had re-accelerated due to stock levels recovering and marketing spend being redirected (with customer acquisition costs returning to historic levels). There was also progress in the US with the Zalando partnership progressing well and a new agreement in place with Next. This encouraging update, suggested that the second quarter was abnormal and the business is getting back on track to delivering on its growth agenda.
Synthomer is a chemicals business that had a super normal year thanks to the Pandemic-related increase in demand for nitrile which is used in the production of latex gloves. Towards the end of the year there were some management changes and the unknown around the normalisation of demand for nitrile following the peak-of-cycle profitability, which weighed on the shares. Looking forward, the business is in a strong position. Management are confident that the benefits of the recent acquisitions of Eastman Chemical, an adhesive technology business, together with investment in new capacity, further efficiency measures and a proven strategy will underpin future growth. The balance sheet remains strong and flexible to support the group's dividend.
Fixed Income Portfolio
Fixed income markets endured a more challenging period in 2021 as government bond yields rose in response to stronger inflation data in many jurisdictions. Having expected to be more transitory in nature the prolonged impact of the Pandemic and the support being provided to economies have ultimately had a dramatic impact on prices and the data is now forcing policymakers into a more hawkish response. Policy rates did rise modestly in the UK at the end of 2021 and are expected to be raised again in the coming months, both in the UK and further afield. The impact of policy action, despite the recognition that inflation is largely caused by supply side issues, has pushed yields higher. Credit spreads remain relatively tight when compared to historical levels although further moves from government bonds could easily lead to a re-pricing of these markets and some volatility was noted in markets during the final quarter of the year.
Throughout most of the year, demand for investment grade credit was robust with investors being attracted by the positive yields on offer. As a result, the asset class outperformed government markets despite some volatility. Lower quality areas of the market performed better than higher quality credit, largely as a result of the higher yields on offer although weakness was notable in sectors such as energy, basic materials and technology.
The Company's exposure to fixed income is largely in shorter dated BBB rated areas of the market. Outcomes over the year were mixed, with a perpetual issue from Barclays being the stand out performer with a positive return of +3.7%, while a corporate hybrid issue from National Grid performed relatively poorly, driven by the challenges facing the domestic gas industry. This bond delivered a small negative return of approximately -1.5%. Bonds issued by Heathrow, the UK airport operator delivered a positive return of +0.64% and continues to look good value.
As yields rise in the UK your Manager anticipate that more opportunities will arise for the Company to take advantage of. Credit spreads have remained reasonably firm and any weakness in that market will be considered a buying opportunity. The Company's exposure to Scottish and Southern energy via a corporate hybrid will be replaced during 2022 as the bond is expected to be called by the issuer.
Portfolio activity
As ever, your Manager's QGM with an income bias investment process has driven stock selection. New positions in Mortgage Advice Bureau, Clipper Logistics, Hill & Smith, Greggs, CMC Markets, Procook, Seraphine, Synthomer and Robert Walters were added during the year.
Positions in 4imprint, James Fisher, Dechra Pharmaceutical, Aveva , Primary Healthcare Properties, Target Healthcare, Ultra Electronics and Stock Spirits were sold during the year.
Mortgage Advice Bureau is one of the UK's leading consumer intermediary brands and specialist appointed representative networks for mortgage intermediaries. The fast growing platform model allows customers to choose how and when they want to research, receive advice and transact. Technology is at the heart of both face to face and telephone advice, helping provide greater speed, ease, and convenience, and by doing so delivering an increasingly more compelling customer proposition. Having demonstrated resilience in poor market environments since flotation in 2014 it is believed that the momentum is set to build sharply while they convert a strong pipeline of advisers and a number of long standing technology initiatives come to fruition. Management's lead generation tool, network management and adviser productivity agendas have the potential to be transformational to market share gains.
A new position was initiated in Hill & Smith, a decentralised group of companies focused on the design, manufacture and supply of infrastructure products and galvanising services. With the arrival of a new Chief Executive Officer, the business now has the opportunity to leverage a package of internal and external drivers that should enable the company to deliver higher sales growth, improved profitability, better portfolio management and a stronger ESG story in the coming years. The company's end markets are strengthening, even before the US infrastructure bill in the US starts to filter through to forecasts. Your Manager conducted an ESG-specific engagement with the management of Hill and Smith in the last quarter of 2021, covering a wide range of topics such as Sustainable Products, CO2 Emissions, Health and Safety, Talent Development and Diversity & Inclusion. The company going through a transition in terms of its ESG credntials and, whilst initial findings were positive, the Manager expects to track further progress and developments, with a stronger ESG story in the coming years.
Greggs was added to the portfolio in view of abrdn's increased conviction on the stock following improved clarity on the company's direction. Management also outlined plans to develop the company's multichannel sales by extending evening trading, building on the success of the delivery channel and improving customer loyalty via the new Greggs app. Whilst the company's focus on ESG is not new, your Manager was encouraged by its ESG credentials with the launch of 'The Greggs Pledge" in February 2021. This pledge is a full sustainability agenda, focusing on all aspects of the company; Stronger, Healthier Communities; Safer Planet; Better Business. Please refer to the Case Study on page 35 of the 2021 Annual Report for further details.
The Company participated in the public listing of Seraphine, a leading maternity and nursing-wear brand. This market niche is poorly served by incumbent retailers. Seraphine's specialist focus, aspirational, yet affordable, positioning and digital-first approach enables it to offer a broad, innovative and relevant product offering. This has supported a long record of profitable growth, yet the brand still has headroom to grow in the UK, its most mature market and recent investments should unlock a greater international opportunity.
The Company also took part in the new listing of kitchenware brand retailer ProCook. This business is vertically-integrated and run by the founder, with no debt or external private investors. ProCook has an opportunity to significantly grow its market share given it is selling quality products at affordable prices.
Synthomer is a specialist chemical company and one of the world's leading suppliers of aqueous polymers. The company produces innovative formulations to support customers in a range of industries, from construction through paints and coatings to healthcare. Synthomer works closely with its customers and targets market leadership positions in its core markets. Its understanding of customer product and process requirements combined with their technology and process know-how are key to the business' success. The strategy is to establish Synthomer as a growing global speciality chemical business through organic growth, investing in innovation to support growth, and M&A. This high quality business offers strong earnings growth and strong cash returns to support the dividend yield of around 3%.
Clipper Logistics has a highly differentiated business model, focusing on delivering the value added components of logistics and advising customers on carrier selection for haulage. Growth has been rapid, boosted by the pandemic and despite a tough comparative period, revenue and profits are expected to rise at a double-digit rate for the next four years. Barriers to entry and change are high, giving excellent customer retention, market leading margins and revenue visibility. Management do things 'The Clipper Way', to drive their success and that of their customers through innovation and collaboration with all retail partners. ESG is central to Clipper's way of working and driving environmental and social change is one of its four key strategic pillars. Your Manager has been encouraged by the strength of the company's ESG credentials.
CMC Markets is primarily a provider of leveraged financial products (contracts for difference (CFDs), and spread betting) to the retail market; other revenue streams come from stockbroking and white label contracts. There is a focus on diversifying the business beyond the leveraged product offering. Management recently announced the planned launch of a share dealing platform in the UK to diversify further and the company's ambitions are significant. Management have an unwavering strategic focus on high quality clients and there has been record trading performance and profitability in the first half of the year, driven by increased client trading as a result of higher market volatility and an increased client base. CMC Markets continue to deliver on strategic initiatives and maintain a healthy pipeline of projects that create new revenue streams through further product, channel and geographic diversification. These initiatives are all supported by technology and through a wider application of this, the company can extend the offer and deliver further profitable growth. The Chief Executive Officer owns 60% of the company and is well aligned with investors' interests. The shares yield around 4% and the dividend policy is to pay out 50% of profit after tax.
Having sold Robert Walters in the prior year, due to lack of visibility in the shape or speed of their post- Pandemic recovery a new position has been added in the professional recruitment consultancy following a return in momentum. Your Manager believes that this momentum is more than just a temporary flushing out of pent-up demand, rather the start of something more sustained, as technology and flexible working changes longer-term dynamics. The global business historically has always gained share after a downturn. With the shares yielding over 3% it is believed that the company's prospects now look promising.
A position in James Fisher was sold as the balance sheet remains troubled and there were expected earnings downgrades in view of market conditions. Positions were also exited in 4imprint, where visibility of recovery remains low. It is not yet clear whether the lasting implications of the Pandemic will result in structural problems for the business. There were also divestments from Dechra and Aveva given they are now large cap companies, following many years of strong performance for the Company, and property companies Target Healthcare and Primary Healthcare Properties, where the growth prospects were considered to be lacklustre near term. Lastly, there were divestments from bid targets Ultra Electronics and Stock Spirits, having received the final dividends.
Outlook
Your Manager is positive about the outlook and the long-term discipline that the investment process provides. While there will have been lasting impacts associated with the UK pandemic, particularly around supply chain and inflation issues, the QGM process will continue to identify businesses that can drive up earnings in difficult macro environments. Concerns around supply chain issues remain a key concern for some sectors, and inflation overall, and how transitory that is, remains a question. There have been pleasing messages to customers across the portfolio on the ability to pass through inflation and protect margins. Also much of the portfolio has limited exposure to logistics and supply chain concerns, which insulates those names from some market headwinds. The dividend outlook looks encouraging, with the market broadly and the Company's portfolio back to strong dividend payments. Dividend growth could be expected to grow roughly in line with earnings growth, and with supportive balance sheet strength.
It has been encouraging to see that the number of new issues coming to the market continues to grow, bringing further diversity and investment opportunities to the small and mid capital company arena. The start of the year can traditionally see some reversal in market trends, so it might be expected to see different aspects dominate markets and the first quarter reporting season will be key, with earnings results coming through, which is where
the companies in the portfolio are expected to prove themselves.
2021 was characterised by a more stable environment post-Pandemic, driven by the reopening of the global economy. However, the Pandemic created a unique period for markets and has driven various headwinds and volatility in the global environment, namely the supply chain challenges and inflationary pressures. This, combined with the conflict with Russia and Ukraine creates market uncertainty for the year ahead. Your Manager will continue to look to identify companies in line with our bottom-up QGM process.
Abby Glennie
Aberdeen Asset Managers Limited
14 March 2022
5. RESULTS AND PERFORMANCE
|
Performance (Total return) |
|
|
|
|
|
1 year |
3 year |
5 year |
|
|
% return |
% return |
% return |
|
Net asset value{A} |
+30.4 |
+68.2 |
+91.0 |
|
Share price (based on mid price){A} |
+22.9 |
+84.0 |
+114.2 |
|
Composite Index{B} |
+21.9 |
+37.3 |
+36.8 |
|
Numis Smaller Companies ex Inv Trust Index |
+21.9 |
+46.1 |
+47.8 |
|
|
|||
|
{A} Considered to be an Alternative Performance Measure. Further details can be found on page 87 of the 2021 Annual Report . |
|||
|
{B} FTSE Small Cap ex Inv Trust Index up to 31 December 2019 and Numis Smaller Companies ex Inv Trust Index from 1 January 2020. |
|||
DIVIDENDS
|
|
Rate per share |
xd date |
Record date |
Payment date |
|
First interim dividend |
2.15p |
1 April 2021 |
6 April 2021 |
23 April 2021 |
|
Second interim dividend |
2.15p |
1 July 2021 |
2 July 2021 |
23 July 2021 |
|
Third interim dividend |
2.15p |
7 October 2021 |
8 October 2021 |
29 October 2021 |
|
Fourth interim dividend |
2.40p |
6 January 2022 |
7 January 2022 |
28 January 2022 |
|
2021 |
8.85p |
|
|
|
|
First interim dividend |
2.06p |
2 April 2020 |
3 April 2020 |
24 April 2020 |
|
Second interim dividend |
2.06p |
2 July 2020 |
3 July 2020 |
24 July 2020 |
|
Third interim dividend |
2.06p |
8 October 2020 |
9 October 2020 |
30 October 2020 |
|
Fourth interim dividend |
2.06p |
31 December 2020 |
4 January 2021 |
29 January 2021 |
|
2020 |
8.24p |
|
|
|
PORTFOLIO
|
TEN LARGEST INVESTMENTS |
|
|
|
at 31 December 2021 |
|
|
|
|
|
|
|
Sirius Real Estate |
|
Morgan Sindall |
|
Leading owner and operator of business parks, offices and industrial complexes in Germany. |
|
UK leading business in construction and regeneration work. |
|
|
|
|
|
Liontrust Asset Management |
|
DiscoverIE Group |
|
UK based asset manager, managing assets across a range of asset classes. |
|
International group of businesses that designs, manufactures and supplies highly differentiated components for electronic applications. |
|
|
|
|
|
Telecom Plus |
|
Safestore |
|
Reseller of telecom and utilities services, under the Utility Warehouse brand. |
|
Safestore is the UK's largest and Europe's second largest provider of self-storage. |
|
|
|
|
|
Intermediate Capital Group |
|
Softcat |
|
Global alternative asset manager in private debt, credit and equity. |
|
Value added technology reseller in UK. |
|
|
|
|
|
Tatton Asset Management |
|
Games Workshop |
|
UK discretionary fund manager providing services to UK's financial advisers enabling them to provide a better service to their clients. |
|
Global retailer of hobbyist products, selling through own retail stores, online, and through trade partners. Owner of the IP of Warhammer. |
INVESTMENT PORTFOLIO - EQUITY INVESTMENTS
At 31 December 2021 |
|
|
|
|
|
| Valuation | Total | Valuation |
|
| 2021 | portfolio | 2020 |
Company | Sector classification | £'000 | % | £'000 |
Sirius Real Estate | Real Estate Investment & Services | 4,608 | 4.5 | 2,778 |
Morgan Sindall | Construction & Materials | 4,284 | 4.2 | 2,604 |
Liontrust Asset Management | Investment Banking & Brokerage Services | 4,058 | 4.0 | 2,905 |
DiscoverIE Group | Technology Hardware & Equipment | 3,909 | 3.8 | 2,996 |
Telecom Plus | Telecommunications Service Providers | 3,347 | 3.3 | 2,436 |
Safestore | Real Estate Investment Trusts | 3,243 | 3.2 | 1,795 |
Intermediate Capital Group | Investment Banking & Brokerage Services | 3,213 | 3.1 | 3,025 |
Softcat | Software & Computer Services | 3,147 | 3.1 | 2,632 |
Tatton Asset Management | Investment Banking & Brokerage Services | 3,031 | 3.0 | 1,434 |
Games Workshop | Leisure Goods | 2,876 | 2.8 | 3,232 |
Ten largest investments |
| 35,716 | 35.0 |
|
Bytes Technology | Software & Computer Services | 2,857 | 2.8 | 1,688 |
Robert Walters | Industrial Support Services | 2,853 | 2.8 | - |
Halfords | Retailers | 2,761 | 2.7 | 1,148 |
Alpha Financial Markets Consulting | Industrial Support Services | 2,697 | 2.6 | 1,248 |
Somero Enterprises | Industrial Engineering | 2,596 | 2.5 | 1,218 |
Strix Group | Electronic & Electrical Equipment | 2,582 | 2.5 | 1,867 |
Kesko{A} | Personal Care, Drug & Grocery Stores | 2,326 | 2.3 | 1,783 |
Greggs | Personal Care, Drug & Grocery Stores | 2,219 | 2.2 | - |
Unite Group | Real Estate Investment Trusts | 2,216 | 2.2 | 2,297 |
Dunelm | Retailers | 2,155 | 2.1 | 1,122 |
Twenty largest investments |
| 60,978 | 59.7 |
|
Synthomer | Chemicals | 2,070 | 2.0 | - |
Assura | Real Estate Investment Trusts | 2,051 | 2.0 | 2,956 |
Hollywood Bowl | Travel & Leisure | 2,050 | 2.0 | 2,372 |
FDM | Industrial Support Services | 2,044 | 2.0 | 1,806 |
Hilton Food Group | Food Producers | 2,033 | 2.0 | 2,181 |
AJ Bell | Investment Banking & Brokerage Services | 2,016 | 2.0 | 2,303 |
Mortgage Advice Bureau | Finance & Credit Services | 1,957 | 1.9 | - |
Impax Asset Management | Investment Banking & Brokerage Services | 1,909 | 1.9 | 905 |
Polar Capital Holdings | Investment Banking & Brokerage Services | 1,905 | 1.9 | 1,006 |
XP Power | Electronic & Electrical Equipment | 1,838 | 1.8 | 3,075 |
Thirty largest investments |
| 80,851 | 79.2 |
|
Close Brothers | Banks | 1,796 | 1.8 | 1,769 |
Chesnara | Life Insurance | 1,653 | 1.6 | 1,730 |
Victrex | Chemicals | 1,608 | 1.6 | 1,545 |
Seraphine | Personal Goods | 1,522 | 1.5 | - |
Forterra | Construction & Materials | 1,511 | 1.5 | 965 |
MJ Gleeson | Household Goods & Home Construction | 1,419 | 1.4 | 1,456 |
Rathbone Brothers | Investment Banking & Brokerage Services | 1,206 | 1.2 | 478 |
Midwich | Industrial Support Services | 1,161 | 1.1 | 1,273 |
Marshalls | Construction & Materials | 1,146 | 1.1 | 1,237 |
ProCook | Household Goods & Home Construction | 1,081 | 1.1 | - |
Forty largest investments |
| 94,954 | 93.1 |
|
Gateley Holdings | Industrial Support Services | 1,058 | 1.0 | 606 |
Hill & Smith Holdings | Industrial Metals and Mining | 1,015 | 1.0 | - |
Severfield | Construction & Materials | 1,014 | 1.0 | 825 |
RWS Holdings | Industrial Support Services | 873 | 0.9 | 717 |
Moneysupermarket | Software & Computer Services | 825 | 0.8 | 1,316 |
CMC Markets | Investment Banking & Brokerage Services | 640 | 0.6 | - |
Clipper Logistics | Industrial Support Services | 187 | 0.2 | - |
Total Equity investments |
| 100,566 | 98.6 |
|
{A} All equity investments are listed on the London Stock Exchange (sterling based), except those marked, which are listed on overseas exchanges based in sterling. | ||||
INVESTMENT PORTFOLIO - OTHER INVESTMENTS
At 31 December 2021 |
|
|
|
| Valuation | Total | Valuation |
| 2021 | portfolio | 2020 |
Company | £'000 | % | £'000 |
Corporate Bonds{A} |
|
|
|
NGG Finance 5.625% | 433 | 0.3 | 458 |
Barclays Bank 9% Perp | 346 | 0.3 | 364 |
Heathrow Funding 5.225% | 312 | 0.3 | 326 |
SSE 3.625% Var | 302 | 0.3 | 308 |
HSBC Holdings 6.5% | 224 | 0.2 | 238 |
Total Corporate Bonds | 1,617 | 1.4 |
|
Total Investments | 102,183 | 100.0 |
|
|
| ||
{A} All investments are listed on the London Stock Exchange (Sterling based). |
| ||
DISTRIBUTION OF ASSETS AND LIABILITIES At 31 December 2021 | ||||||||
|
|
|
| |||||
| Valuation at | Movement during the year | Valuation at |
| ||||
| 31 December |
|
| Gains/ | 31 December |
| ||
| 2020 | Purchases | Sales | (losses) | 2021 |
| ||
| £'000 | % | £'000 | £'000 | £'000 | £'000 | % |
|
Listed investments |
|
|
|
|
|
|
|
|
Equity investments | 80,354 | 104.2 | 35,740 | (34,223) | 18,695 | 100,566 | 102.8 |
|
Corporate bonds | 2,100 | 2.7 | - | (400) | (83) | 1,617 | 1.7 |
|
| 82,454 | 106.9 | 35,740 | (34,623) | 18,612 | 102,183 | 104.5 |
|
Current assets | 1,935 | 2.5 |
|
|
| 2,968 | 3.0 |
|
Other current liabilities | (254) | (0.3) |
|
|
| (316) | (0.3) |
|
Loans | (6,991) | (9.1) |
|
|
| (6,995) | (7.2) |
|
Net assets | 77,144 | 100.0 |
|
|
| 97,840 | 100.0 |
|
Net asset value per Ordinary share | 348.91p |
|
|
|
| 442.52p |
|
|
GOING CONCERN
The Directors believe that it is appropriate to continue to adopt the going concern basis in the preparation of the financial statements.
The Company's assets consist substantially of securities in companies listed on recognised stock exchanges and in normal circumstances are realisable within a short timescale.
The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary.
The Board has set gearing limits and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company has a £10 million credit facility comprised of a fixed rate £5 million loan which expires in 2023 and a variable rate £5 million loan which expires in April 2022. A replacement option for the variable rate loan is currently being sought. Should the Board decide not to renew this facility, any outstanding borrowing would be repaid through the proceeds of the sale of investments as required. £2 million of the variable rate loan was drawn down at the date of this report.
The Company undertakes a continuation vote every five years. The last continuation vote was passed at the AGM held in June 2020 with 99.7% of votes in favour.
The Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale) and the Company has a relatively low level of gearing. As such, the Company has the ability to raise sufficient funds in order to remain within its debt covenants and pay expenses.
Taking the above factors into consideration, the Directors reasonably believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period until at least 31 December 2023. Accordingly the Board continues to adopt the going concern basis in preparing the financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether they have been prepared in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial report
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 taken as a whole; and
- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.
- 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.
For and on behalf of
abrdn Smaller Companies Income Trust plc
Robert Lister,
Chairman
14 March 2022
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
|
| Year ended 31 December 2021 | Year ended 31 December 2020 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Gains/(losses) on investments at fair value | 10 | - | 21,035 | 21,035 | - | (4,361) | (4,361) |
|
|
|
|
|
|
|
|
Income | 3 |
|
|
|
|
|
|
Dividend income |
| 2,741 | - | 2,741 | 1,766 | - | 1,766 |
Interest income from investments |
| 80 | - | 80 | 73 | - | 73 |
Other income |
| 1 | - | 1 | 2 | - | 2 |
|
| 2,822 | 21,035 | 23,857 | 1,841 | (4,361) | (2,520) |
Expenses |
|
|
|
|
|
|
|
Investment management fee | 4 | (203) | (472) | (675) | (158) | (369) | (527) |
Other administrative expenses | 5 | (394) | - | (394) | (382) | - | (382) |
Finance costs | 6 | (56) | (130) | (186) | (55) | (128) | (183) |
Profit/(loss) before tax |
| 2,169 | 20,433 | 22,602 | 1,246 | (4,858) | (3,612) |
Taxation | 7 | (26) | - | (26) | (8) | - | (8) |
Profit/(loss) attributable to equity holders | 9 | 2,143 | 20,433 | 22,576 | 1,238 | (4,858) | (3,620) |
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|
|
|
|
Return per Ordinary share (pence) | 9 | 9.69 | 92.42 | 102.11 | 5.60 | (21.97) | (16.37) |
|
|
|
|
|
|
|
|
The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. | |||||||
The Company does not have any income or expense that is not included in profit for the year, and therefore the "Profit attributable to equity holders " is also the "Total comprehensive income attributable to equity holders" as defined in IAS 1 (revised). | |||||||
All of the profit and comprehensive income are attributable to the equity holders of the Company. | |||||||
All items in the above statement derive from continuing operations. | |||||||
The accompanying notes are an integral part of these financial statements. | |||||||
BALANCE SHEET (AUDITED)
|
| As at | As at |
|
| 31 December | 31 December |
|
| 2021 | 2020 |
| Notes | £'000 | £'000 |
Non-current assets |
|
|
|
Equities |
| 100,566 | 80,354 |
Corporate bonds |
| 1,617 | 2,100 |
Securities at fair value | 10 | 102,183 | 82,454 |
|
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
| 2,592 | 1,615 |
Other receivables | 11 | 376 | 320 |
|
| 2,968 | 1,935 |
|
|
|
|
Current liabilities |
|
|
|
Bank loan | 12 | (2,000) | (2,000) |
Trade and other payables | 12 | (316) | (254) |
|
| (2,316) | (2,254) |
Net current assets/(liabilities) |
| 652 | (319) |
Total assets less current liabilities |
| 102,835 | 82,135 |
|
|
|
|
Non-current liabilities |
|
|
|
Bank loan | 13 | (4,995) | (4,991) |
Net assets |
| 97,840 | 77,144 |
|
|
|
|
Share capital and reserves |
|
|
|
Called-up share capital | 15 | 11,055 | 11,055 |
Share premium account |
| 11,892 | 11,892 |
Capital redemption reserve |
| 2,032 | 2,032 |
Capital reserve |
| 69,661 | 49,228 |
Revenue reserve |
| 3,200 | 2,937 |
Equity shareholders' funds |
| 97,840 | 77,144 |
|
|
|
|
Net asset value per Ordinary share (pence) | 16 | 442.52 | 348.91 |
STATEMENT OF CHANGES IN EQUITY (AUDITED)
Year ended 31 December 2021 |
|
|
|
|
|
|
|
|
|
| Share | Capital |
|
|
|
|
| Share | premium | redemption | Capital | Revenue |
|
|
| capital | account | reserve | reserve | reserve | Total |
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
As at 31 December 2020 |
| 11,055 | 11,892 | 2,032 | 49,228 | 2,937 | 77,144 |
Profit for the year |
| - | - | - | 20,433 | 2,143 | 22,576 |
Dividends paid in the year | 8 | - | - | - | - | (1,880) | (1,880) |
As at 31 December 2021 |
| 11,055 | 11,892 | 2,032 | 69,661 | 3,200 | 97,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 December 2020 |
|
|
|
|
|
|
|
|
|
| Share | Capital |
|
|
|
|
| Share | premium | redemption | Capital | Revenue |
|
|
| capital | account | reserve | reserve | reserve | Total |
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
As at 31 December 2019 |
| 11,055 | 11,892 | 2,032 | 54,086 | 3,595 | 82,660 |
(Loss)/profit for the year |
| - | - | - | (4,858) | 1,238 | (3,620) |
Dividends paid in the year | 8 | - | - | - | - | (1,896) | (1,896) |
As at 31 December 2020 |
| 11,055 | 11,892 | 2,032 | 49,228 | 2,937 | 77,144 |
|
|
|
|
|
|
|
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. | |||||||
The accompanying notes are an integral part of the financial statements. | |||||||
CASH FLOW STATEMENT (AUDITED)
|
| Year ended | Year ended |
|
| 31 December 2021 | 31 December 2020 |
| Notes | £'000 | £'000 |
Cash flows from operating activities |
|
|
|
Dividend income received |
| 2,699 | 1,757 |
Interest income received |
| 98 | 73 |
Other income received |
| 1 | 2 |
Investment management fee paid |
| (650) | (533) |
Other cash expenses |
| (379) | (358) |
Cash generated from operations |
| 1,769 | 941 |
|
|
|
|
Interest paid |
| (166) | (177) |
Overseas taxation suffered |
| (38) | (26) |
Net cash inflows from operating activities |
| 1,565 | 738 |
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchases of investments |
| (20,109) | (21,204) |
Sales of investments |
| 21,401 | 23,197 |
Net cash inflow from investing activities |
| 1,292 | 1,993 |
|
|
|
|
Cash flows from financing activities |
|
|
|
Equity dividends paid | 8 | (1,880) | (1,896) |
Net cash outflow from financing activities |
| (1,880) | (1,896) |
Net increase in cash and cash equivalents |
| 977 | 835 |
|
|
|
|
Analysis of changes in cash and cash equivalents during the year |
|
|
|
Opening balance |
| 1,615 | 780 |
(Decrease)/increase in cash and cash equivalents as above |
| 977 | 835 |
Closing balances |
| 2,592 | 1,615 |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
1. | Principal activity |
| The Company is a closed-end investment company, registered in Scotland No SC137448, with its Ordinary shares being listed on the London Stock Exchange. |
2. | Accounting policies | |
| (a) | Basis of accounting. The financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards. |
|
| The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company has a £10 million credit facility comprised of a fixed rate £5 million loan which expires in 2023 and a revolving £5 million loan which expires in April 2022. A replacement option for the revolving element of the facility is currently being sought but, should the Board decide not to renew this facility, any outstanding borrowing would be repaid through the proceeds of investment sales as required. The Company undertakes a continuation vote every five years. The last continuation vote was passed at the AGM held in June 2020 with 99.7% of votes in favour. Having taken these factors into account as well as the impact of Covid-19 and having assessed the principal risks set out in the Strategy Report on pages 19 to 21 of the 2021 Annual Report, the Directors believe that, after making enquiries, the Company has adequate financial resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period until at least 31 December 2023. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements. |
|
| In preparing these financial statements the Directors have considered the impact of climate change risk as an emerging risk as set out on page 20 of the 2021 Annual Report, and have concluded that it does not have a material impact on the Company's investments. In line with IFRS investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the Balance Sheet date and therefore reflect market participants view of climate change risk. |
|
| The financial statements have also been prepared in accordance with the Statement of Recommended Practice (SORP), "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in April 2021 to the extent that it is consistent with IASs. |
|
| Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires the Board to exercise its judgement in the process of applying the accounting policies and are continually evaluated. One area of judgement includes the assessment of whether special dividends should be allocated to revenue or capital based on their individual merits. The Directors do not consider there to be any significant estimates within the financial statements. |
|
| New and amended accounting standards and interpretations. The Company applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2021. The adoption of these standards and amendments did not have a material impact on the financial statements: |
|
| Standards |
|
| IAS 39, IFRS 4, 7, 9 and 16 Amendments - Interest Benchmark Reform Phase 2 |
|
| Future amendments to standards and interpretations. At the date of authorisation of these financial statements, the following amendments to Standards and Interpretations were assessed to be relevant and are all effective for annual periods beginning on or after 1 January 2022 and are not expected to have a material impact on the financial statements: |
|
| Standards |
|
| IAS 1 Amendments - Classification of Liabilities as Current or Non-Current (effective from 1 January 2023) |
|
| IAS 1 Amendments - Disclosure of Accounting Policies (effective from 1 January 2023) |
|
| IAS 8 Amendments - Definition of Accounting Estimates (effective from 1 January 2023) |
| (b) | Investments. The Company has adopted the classification and measurement provisions of IFRS 9 'Financial Instruments'. |
|
| The Company classifies its equity investments and debt instruments based on their contractual cash flow characteristics and the Company's business model for managing the assets. Equity investments fail the contractual cash flows test so are measured at fair value. For debt instruments, the business model is the determining feature and they are managed, performance monitored and risk evaluated, on a fair value basis. The Manager is also compensated based on the fair value of the Company's assets. Consequently, all investments are measured at fair value through profit or loss. |
|
| Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured at fair value. For listed investments, the valuation of investments at the year end is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. |
|
| Gains and losses arising from the changes in fair value are included in net profit or loss for the period as a capital item. Transaction costs are treated as a capital cost. |
| (c) | Income. Dividend income from equity investments, including preference shares which have a discretionary dividend is recognised when the shareholders' rights to receive payment have been established, normally the ex-dividend date. Special dividends are allocated to revenue or capital based on their individual merits. |
|
| Interest from debt securities, and income from preference shares which do not have a discretionary dividend are accounted for on an accruals basis. Any write-off of the premium or discount on acquisition as a result of using this basis is allocated against the revenue reserve in accordance with the SORP. |
|
| Interest receivable on AAA rated money market funds and short term deposits are accounted for on an accruals basis. |
| (d) | Expenses. All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the management fee and finance costs have been allocated 30% to revenue and 70% to capital (2020 - same), in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company. This allocation is reviewed on a regular basis. |
| (e) | Cash and cash equivalents. Cash comprises cash in hand and demand deposits. Cash equivalents includes bank overdrafts repayable on demand and short term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value. Cash equivalents are held to meet short term cash commitments. |
| (f) | Borrowings. At and after initial measurement, bank borrowings are measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on issue, and costs that are an integral part of the effective interest rate. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and are charged 30% to revenue and 70% to capital in the Statement of Comprehensive Income to reflect the Company's investment policy and prospective income and capital growth. |
| (g) | Taxation. The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the Balance Sheet date. |
|
| Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound. |
| (h) | Foreign currencies. Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies are converted into sterling at the rate of exchange ruling at the reporting date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Gains or losses arising from a change in exchange rates subsequent to the date of a transaction are included as a currency gain or loss in revenue or capital in the Statement of Comprehensive Income, depending on whether the gain or loss is of a revenue or capital nature. |
| (i) | Nature and purpose of reserves |
|
| Share premium account. The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising ordinary shares of 50p per share. This reserve is not distributable. |
|
| Capital redemption reserve. The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital. This reserve is not distributable. |
|
| Capital reserve. This reserve reflects any gains or losses on investments realised in the period along with any increases and decreases in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. These include gains and losses from foreign currency exchange differences. Additionally, expenses, including finance costs, are charged to this reserve in accordance with (e) above. This reserve is not distributable except for the purpose of funding share buybacks to the extent that gains are deemed realised. |
|
| Revenue reserve. This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
| (j) | Dividends payable. Interim dividends are recognised in the financial statements in the period in which they are paid. |
| (k) | Segmental reporting. The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided. |
3. | Income |
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Income from investments |
|
|
| Dividend income from UK equity securities | 2,136 | 1,295 |
| Dividend income from overseas equity securities | 403 | 271 |
| Property income distributions | 202 | 200 |
|
| 2,741 | 1,766 |
| Interest income from investments | 80 | 73 |
|
| 2,821 | 1,839 |
| Other income |
|
|
| Bank interest | - | 2 |
| Interest from AAA-rated money market funds | 1 | - |
| Total revenue income | 2,822 | 1,841 |
4. | Management fee |
|
| ||||
|
| 2021 | 2020 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Management fee | 203 | 472 | 675 | 158 | 369 | 527 |
|
|
|
|
|
|
|
|
| For the year ended 31 December 2021 management services were provided by Aberdeen Standard Fund Managers Limited ("ASFML"). The management fee was calculated at an annual rate of 0.75% of the net assets of the Company, calculated and paid monthly. The balance due to ASFML at the year end was £119,000 (2020 - £94,000). The fee is allocated 30% (2020 - 30%) to revenue and 70% (2020 - 70%) to capital. | ||||||
| The agreement is terminable on twelve months' written notice from the Company or the Manager, however, the Company may terminate the agreement on immediate notice on the payment to the Manager of six months' fees in lieu of notice. | ||||||
5. | Other administrative expenses |
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Directors' fees | 117 | 117 |
| Auditor's remuneration: |
|
|
| - fees payable for the audit of the annual accounts | 36 | 32 |
| Promotional activities | 49 | 44 |
| Legal and professional fees | 38 | 23 |
| Registrars' fees | 17 | 21 |
| Printing and postage | 22 | 22 |
| Broker fees | 36 | 36 |
| Directors' & Officers' liability insurance | 8 | 7 |
| Trade subscriptions | 31 | 27 |
| Other expenses | 40 | 53 |
|
| 394 | 382 |
|
|
|
|
| Expenses of £49,000 (2020 - £44,000) were paid to ASFML in respect of the promotion of the Company. The balance outstanding at the year end was £37,000 (2020 - £22,000). | ||
| All of the expenses above, with the exception of the auditor's remuneration, include irrecoverable VAT where applicable. The VAT charged on the auditor's remuneration is included within other expenses. | ||
6. | Finance costs |
| |||||
|
| 2021 | 2020 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Bank loans | 56 | 130 | 186 | 55 | 128 | 183 |
7. | Taxation |
| ||||||
| (a) | Analysis of charge for the year |
|
| ||||
|
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
|
| Overseas withholding tax | 26 | - | 26 | 8 | - | 8 |
|
| Total tax charge for the year | 26 | - | 26 | 8 | - | 8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (b) | Factors affecting tax charge for the year |
|
|
|
|
|
|
|
| The UK corporation tax rate was 19% throughout the year (2020 - same). The tax assessed for the year is lower than the corporation tax rate. The differences are explained below: | ||||||
|
|
|
| |||||
|
|
| 2021 | 2020 | ||||
|
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
|
| Profit/(loss) before tax | 2,169 | 20,433 | 22,602 | 1,246 | (4,858) | (3,612) |
|
|
|
|
|
|
|
|
|
|
| Taxation of profit/(loss) at the effective standard rate of corporation tax | 412 | 3,882 | 4,294 | 237 | (923) | (686) |
|
| Effects of: |
|
|
|
|
|
|
|
| Non taxable UK dividend income | (406) | - | (406) | (246) | - | (246) |
|
| Capital (gains)/losses disallowed for the purposes of corporation tax | - | (3,997) | (3,997) | - | 829 | 829 |
|
| Non taxable overseas income not subject to tax | (77) | - | (77) | (51) | - | (51) |
|
| Excess management expenses not utilised | 71 | 115 | 186 | 60 | 94 | 154 |
|
| Irrecoverable overseas withholding tax | 26 | - | 26 | 8 | - | 8 |
|
| Total tax charge for the year | 26 | - | 26 | 8 | - | 8 |
|
|
|
|
|
|
|
|
|
| (c) | Factors that might affect future tax charges. No provision for deferred tax has been made in the current or prior accounting year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company. | ||||||
|
| At the year end, the Company has for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £16,503,000 (2020 - £15,534,000). It is unlikely that the fund will generate sufficient taxable profits in the future to utilise these amounts and therefore no deferred tax asset has been recognised. | ||||||
8. | Dividends |
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Amounts recognised as distributions to equity holders in the period: |
|
|
| Fourth interim dividend for 2020 of 2.06p (2019 - 2.40p) per Ordinary share | 455 | 531 |
| First interim dividend for 2021 of 2.15p (2020 - 2.06p) per Ordinary share | 475 | 455 |
| Second interim dividend for 2021 of 2.15p (2020 - 2.06p) per Ordinary share | 475 | 455 |
| Third interim dividend for 2021 of 2.15p (2020 - 2.06p) per Ordinary share | 475 | 455 |
|
| 1,880 | 1,896 |
|
|
|
|
| The fourth interim dividend of 2021 of 2.40p (2020 - 2.06p) per share has not been included as a liability in these financial statements. | ||
| The following table sets out the total dividends payable in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £2,143,000 (2020 - £1,238,000). | ||
|
|
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| First interim dividend for 2021 of 2.15p (2020 - 2.06p) per Ordinary share | 475 | 455 |
| Second interim dividend for 2021 of 2.15p (2020 - 2.06p) per Ordinary share | 475 | 455 |
| Third interim dividend for 2021 of 2.15p (2020 - 2.06p) per Ordinary share | 475 | 455 |
| Fourth interim dividend for 2021 of 2.40p (2020 - 2.06p) per Ordinary share | 531 | 455 |
|
| 1,956 | 1,820 |
9. | Earnings per Ordinary share |
|
|
|
| 2021 | 2020 |
|
| p | p |
| Revenue return | 9.69 | 5.60 |
| Capital return | 92.42 | (21.97) |
| Total return | 102.11 | (16.37) |
|
|
|
|
| The returns per share are based on the following figures: |
|
|
|
|
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Revenue return | 2,143 | 1,238 |
| Capital return | 20,433 | (4,858) |
| Total return | 22,576 | (3,620) |
|
|
|
|
| Weighted average number of shares in issue | 22,109,765 | 22,109,765 |
|
|
|
|
| During the year there were no (2020 - same) dilutive shares in issue. |
|
|
10. | Non-current assets - securities at fair value |
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Listed on recognised stock exchanges: |
|
|
| United Kingdom | 95,248 | 80,671 |
| Overseas | 6,935 | 1,783 |
|
| 102,183 | 82,454 |
|
|
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Opening book cost | 60,215 | 56,436 |
| Investment holdings gains | 22,239 | 32,372 |
| Opening fair value | 82,454 | 88,808 |
|
|
|
|
| Analysis of transactions made during the year |
|
|
| Purchases | 20,095 | 21,204 |
| Sales - proceeds | (21,401) | (23,197) |
| Gains/(losses) on investments | 21,035 | (4,361) |
| Closing fair value | 102,183 | 82,454 |
|
|
|
|
| Closing book cost | 69,027 | 60,215 |
| Closing investment holdings gains | 33,156 | 22,239 |
| Closing fair value | 102,183 | 82,454 |
|
|
|
|
| The Company received £21,401,000 (2020 - £23,197,000) from investments sold in the year. The book cost of these investments when they were purchased were £11,283,000 (2020 - £17,425,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. | ||
| Transaction costs. During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains/(losses) on investments in the Statement of Comprehensive Income. The total costs were as follows: | ||
|
| ||
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Purchases | 76 | 74 |
| Sales | 16 | 15 |
|
| 92 | 89 |
|
|
|
|
| The above transaction costs are calculated and disclosed in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations. | ||
11. | Other receivables |
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Accrued income & prepayments | 376 | 320 |
|
| 376 | 320 |
|
|
|
|
| None of the above amounts are overdue. |
|
|
12. | Current liabilities |
|
| |
|
|
| 2021 | 2020 |
|
|
| £'000 | £'000 |
| (a) | Short-term loan | 2,000 | 2,000 |
|
|
|
|
|
|
| The Company has in place a £10 million loan facility with Royal Bank of Scotland International, London Branch (RBSI) which is comprised of two £5 million tranches. Tranche A is a one year £5 million multi-currency revolving credit facility which expires in April 2022 and £2 million was drawn down at 31 December 2021 at a rate of 0.98713% until 26 January 2022. | ||
|
| The Directors are of the opinion that the fair value of the short term bank loan at 31 December 2021 is not materially different from the book value. | ||
|
|
|
|
|
|
|
| 2021 | 2020 |
| (b) | Trade and other payables | £'000 | £'000 |
|
| Investment management fee | 119 | 94 |
|
| Interest payable | 44 | 29 |
|
| Amounts due to brokers | 5 | - |
|
| Sundry creditors | 148 | 131 |
|
|
| 316 | 254 |
13. | Non-current liabilities |
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Fixed rate loan | 4,995 | 4,991 |
|
|
|
|
| The Company has in place a £10 million loan facility with Royal Bank of Scotland International, London Branch (RBSI) which is comprised of two £5 million tranches. Tranche B is a five year £5 million fixed rate loan facility and was fully drawn down on 28 April 2018. The interest on Tranche B is fixed at 2.825% per annum payable quarterly in arrears. | ||
| All financial liabilities are measured at amortised cost. The fair value of the fixed rate loan has been calculated as £5,105,000 (2020 - £5,177,000) and would be classified as a Level 2 liability under Fair Value Hierarchy guidance of IFRS 13 'Fair Value Measurement'. | ||
14. | Analysis of changes in financing liabilities during the year | ||
| The following table shows the movements during the year of financing liabilities in the Balance Sheet: | ||
|
|
|
|
|
| 2021 | 2020 |
|
| £'000 | £'000 |
| Opening balance at 1 January | 6,991 | 6,987 |
| Amortisation of arrangement costs | 4 | 4 |
| Closing balance at 31 December | 6,995 | 6,991 |
15. | Called-up share capital |
|
| |
|
| Ordinary shares | ||
|
| of 50 pence each | ||
|
| Number | £'000 | |
| Authorised | 35,000,000 | 17,500 | |
| Allotted and fully paid |
|
| |
| At 31 December 2021 and 31 December 2020 | 22,109,765 | 11,055 | |
16. | Net asset value per share | ||
| The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end were as follows: | ||
|
|
|
|
|
| 2021 | 2020 |
| Net asset value attributable (£'000) | 97,840 | 77,144 |
| Number of Ordinary shares in issue | 22,109,765 | 22,109,765 |
| Net asset value per share (p) | 442.52 | 348.91 |
|
|
|
|
| At the year end there were no (2020 - same) dilutive shares in issue. |
| |
17. | Financial instruments and risk management | |||||||||||||||
| The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise UK and overseas listed equities and corporate fixed interest bonds, cash balances, debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company may enter into derivative transactions for the purpose of managing market risks arising from the Company's activities though there was no exposure to derivative instruments during the year. | |||||||||||||||
| The Board has delegated the risk management function to Aberdeen Standard Fund Managers Limited ("the AIFM" or "ASFML") under the terms of its management agreement with ASFML (further details of which are included under note 3). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. | |||||||||||||||
| Risk management framework. The directors of ASFML collectively assume responsibility for ASFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. | |||||||||||||||
| ASFML is a fully integrated member of the abrdn plc group of companies (referred to as "the Group"), which provides a variety of services and support to ASFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in FUND 3.2.2R (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. | |||||||||||||||
| The AIFM conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SHIELD"). | |||||||||||||||
| The Group's Internal Audit Department is independent of the Group's Risk Division and reports directly to the Chief Executive Officer and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. | |||||||||||||||
| The Group's corporate governance structure is supported by several committees to assist the board of directors of the Group, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference. | |||||||||||||||
| Risk management. The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk and price risk), (ii) liquidity risk and (iii) credit risk. | |||||||||||||||
| (i) | Market risk. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises two elements - interest rate risk and price risk. | ||||||||||||||
|
| Interest rate risk. Interest rate risk is the risk that interest rate movements will affect: | ||||||||||||||
|
| - | the fair value of the investments in fixed interest rate securities; | |||||||||||||
|
| - | the level of income receivable on cash deposits; | |||||||||||||
|
| - | interest payable on the Company's variable rate borrowings. | |||||||||||||
|
| Management of the risk. The Board will monitor the effects of interest movements closely when making investment and borrowing decisions. | ||||||||||||||
|
| The Board reviews on a regular basis the values of the fixed interest rate securities. | ||||||||||||||
|
| Interest rate profile. The interest rate risk profile of the portfolio of financial assets and liabilities (excluding equity shares) at the Balance Sheet date was as follows: | ||||||||||||||
|
|
|
|
|
|
| ||||||||||
|
|
| Weighted | Weighted |
|
| ||||||||||
|
|
| average | average |
|
| ||||||||||
|
|
| period | interest | Fixed | Floating | ||||||||||
|
|
| rate is fixed | rate | rate | rate | ||||||||||
|
| As at 31 December 2021 | Years | % | £'000 | £'000 | ||||||||||
|
| Assets |
|
|
|
| ||||||||||
|
| Corporate bonds | 30.72 | 5.56 | 1,617 | - | ||||||||||
|
| Investments in AAA-rated money market funds |
| 0.19 | - | 2,406 | ||||||||||
|
| Cash | - | - | - | 186 | ||||||||||
|
| Total assets | - | - | 1,617 | 2,592 | ||||||||||
|
| Liabilities |
|
|
|
| ||||||||||
|
| Short-term bank loan | 0.07 | 0.85 | (2,000) | - | ||||||||||
|
| Fixed rate bank loan | 1.32 | 2.83 | (5,000) | - | ||||||||||
|
| Total liabilities | - | - | (7,000) | - | ||||||||||
|
| Total | - | - | (5,383) | 2,592 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
|
|
|
| Weighted | Weighted |
|
| |||||||||
|
|
|
| average | average |
|
| |||||||||
|
|
|
| period | interest | Fixed | Floating | |||||||||
|
|
|
| rate is fixed | rate | rate | rate | |||||||||
|
| As at 31 December 2020 | Years | % | £'000 | £'000 | ||||||||||
|
| Assets |
|
|
|
| ||||||||||
|
| Corporate bonds | 25.57 | 5.02 | 2,100 | - | ||||||||||
|
| Cash | - | - | - | 1,615 | ||||||||||
|
| Total assets | - | - | 2,100 | 1,615 | ||||||||||
|
| Liabilities |
|
|
|
| ||||||||||
|
| Short-term bank loan | 0.07 | 0.99 | (2,000) | - | ||||||||||
|
| Fixed rate bank loan | 2.32 | 2.83 | (5,000) | - | ||||||||||
|
| Total liabilities | - | - | (7,000) | - | ||||||||||
|
| Total | - | - | (4,900) | 1,615 | ||||||||||
|
|
| ||||||||||||||
|
| The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on the bank loan is based on the interest rate payable, weighted by the total value of the loan. The maturity date of the Company's loan is shown in note 12 to the financial statements. | ||||||||||||||
|
| The cash assets consist of cash deposits on call earning interest at prevailing market rates. | ||||||||||||||
|
| Short-term debtors and creditors, with the exception of bank loans, have been excluded from the above tables. | ||||||||||||||
|
| All financial liabilities are measured at amortised cost. | ||||||||||||||
|
| Interest rate sensitivity. The sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. |
| |||||||||||||
|
| If interest rates had been 25 basis points higher or lower (based on the current parameter used by the Manager's Investment Risk Department on risk assessment) and all other variables were held constant, the Company's; |
| |||||||||||||
|
| - | revenue return for the year ended 31 December 2021 would decrease/increase by approximately £11,000 (2020 - decrease/increase by £14,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end. |
| ||||||||||||
|
| - | The capital return would decrease/increase by £105,000 (2020 - increase/decrease by £134,000) using VaR ("Value at Risk") analysis based on 100 observations of weekly VaR computations of fixed interest portfolio positions at each year end. |
| ||||||||||||
|
| Price risk. Price risks (i.e. changes in market prices other than those arising from interest rates) will affect the value of the quoted investments. The Company's stated objective is to provide a high and growing dividend with capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities. |
| |||||||||||||
|
| Management of the risk. It is the Company's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets to specific sectors and the stock selection process, as detailed on pages 89 and 90 of the 2021 Annual Report, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. All of the investments held by the Company are listed on the London Stock Exchange, with the exception of its holding in Kesko, which is traded on the Helsinki exchange. |
| |||||||||||||
|
| Price sensitivity. If market prices at the Balance Sheet date had been 10% higher while all other variables remained constant, net capital gains attributable to ordinary shareholders for the year ended 31 December 2021 would have increased by £10,057,000 (2020 - £8,035,000). If market prices at the Balance Sheet date had been 10% lower while all other variables remained constant, net capital gains attributable to ordinary shareholders for the year ended 31 December 2021 would have decreased by £10,057,000 (2020 - £8,035,000).This is based on the Company's equity investments held at each year end. |
| |||||||||||||
| (ii) | Liquidity risk. This is the risk that the Company will encounter difficulty raising funds to meet its cash commitments as they fall due. Liquidity risk may result from either the inability to sell financial instruments quickly at their fair value or from the inability to generate cash inflows as required. |
| |||||||||||||
|
| Management of the risk. Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan facilities (note 12). |
| |||||||||||||
|
| Maturity profile. The maturity profile of the Company's financial liabilities at the Balance Sheet date was as follows: | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
|
|
| Within | Within | Within | Within | ||||||||||
|
|
| 1 year | 1-2 years | 2-3 years | 3-4 years | ||||||||||
|
| At 31 December 2021 | £'000 | £'000 | £'000 | £'000 | ||||||||||
|
| Trade and other payables | (316) | - | - | - | ||||||||||
|
| Bank loans | (2,000) | (5,000) | - | - | ||||||||||
|
| Interest on bank loans | (143) | (70) | - | - | ||||||||||
|
|
| (2,459) | (5,070) | - | - | ||||||||||
|
|
|
|
|
|
| ||||||||||
|
|
| Within | Within | Within | Within | ||||||||||
|
|
| 1 year | 1-2 years | 2-3 years | 3-4 years | ||||||||||
|
| At 31 December 2020 | £'000 | £'000 | £'000 | £'000 | ||||||||||
|
| Trade and other payables | (254) | - | - | - | ||||||||||
|
| Bank loans | (2,000) | - | (5,000) | - | ||||||||||
|
| Interest on bank loans | (143) | (141) | (70) | - | ||||||||||
|
|
|
| (2,397) | (141) | (5,070) | - | |||||||||
|
|
|
|
|
|
|
| |||||||||
| (iii) | Credit risk. This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. |
| |||||||||||||
|
| Management of the risk. The Company considers credit risk not to be significant as it is actively managed as follows: | ||||||||||||||
|
| - | where the Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default; | |||||||||||||
|
| - | investments in quoted bonds are made across a variety of industry sectors so as to avoid concentrations of credit risk; | |||||||||||||
|
| - | investment transactions are carried out on a delivery versus payment basis with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker; | |||||||||||||
|
| - | the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the custodian's records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Manager's compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's risk management committee. | |||||||||||||
|
| - | cash is held only with reputable banks with high quality external credit ratings. | |||||||||||||
|
| None of the Company's financial assets are secured by collateral or other credit enhancements. | ||||||||||||||
|
| Credit risk exposure. In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 December was as follows: |
| |||||||||||||
|
|
|
|
|
|
|
| |||||||||
|
|
| 2021 | 2020 |
| |||||||||||
|
|
| Balance | Maximum | Balance | Maximum |
| |||||||||
|
|
| Sheet | exposure | Sheet | exposure |
| |||||||||
|
|
| £'000 | £'000 | £'000 | £'000 |
| |||||||||
|
| Non-current assets |
|
|
|
|
| |||||||||
|
| Quoted convertibles, bonds and preference shares at fair value through profit or loss | 1,617 | 1,617 | 2,100 | 2,100 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
|
| Current assets |
|
|
|
|
| |||||||||
|
| Accrued income | 376 | 376 | 320 | 320 |
| |||||||||
|
| Cash and cash equivalents | 2,592 | 2,592 | 1,615 | 1,615 |
| |||||||||
|
|
| 4,585 | 4,585 | 4,035 | 4,035 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
|
| None of the Company's financial assets are past due and the application of the expected credit loss model for impairment under IFRS 9 has not had a material impact on the Company. |
| |||||||||||||
|
| Credit ratings. The table below provides a credit rating profile using Fitch's credit ratings for the quoted bonds at 31 December 2021 and 31 December 2020: |
| |||||||||||||
|
|
|
|
| ||||||||||||
|
|
| 2021 | 2020 | ||||||||||||
|
|
| £'000 | £'000 | ||||||||||||
|
| A+ | 224 | 238 | ||||||||||||
|
| A- | 312 | 732 | ||||||||||||
|
| BB+ | 302 | 308 | ||||||||||||
|
| BBB | 346 | 364 | ||||||||||||
|
| BBB- | 433 | 458 | ||||||||||||
|
|
| 1,617 | 2,100 | ||||||||||||
|
|
|
|
| ||||||||||||
|
| Fair value of financial assets and liabilities. The book value of cash at bank and short-term bank loans and overdrafts included in these financial statements approximate to fair value because of their short-term maturity. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices and have been categorised as Level 1 and Level 2 within the Fair Value Hierarchy table on page 83. For details of bond maturities and interest rates, see page 33 of the 2021 Annual Report. For all other short-term debtors and creditors, their book values approximate to fair values because of their short-term maturity. The fair value of the long-term loan has been calculated at £5,105,000 as at 31 December 2021 (2020 - £5,177,000) compared to an accounts value in the financial statements of £4,995,000 (2020 - £4,991,000) (note 13). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. |
| |||||||||||||
|
| Gearing. The Company has in place a £10 million unsecured loan facility of which £7 million has been drawn down. Although this gearing increases the opportunity for gain, it also increases the risk of loss in falling markets. The risk of increased gearing is managed by retaining the flexibility to reduce short term borrowings as appropriate. Gearing levels are monitored so that they remain within guidelines set by the Board. |
| |||||||||||||
18. | Fair value hierarchy | ||||||
| Under IFRS 13 'Fair Value Measurement' an entity is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy 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 liabilities, 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 Balance Sheet are grouped into the fair value hierarchy at 31 December 2021 as follows: | ||||||
|
|
|
|
|
|
| |
|
|
| Level 1 | Level 2 | Level 3 | Total | |
|
| Note | £'000 | £'000 | £'000 | £'000 | |
| Financial assets at fair value through profit or loss |
|
|
|
|
| |
| Quoted equities | a) | 100,566 | - | - | 100,566 | |
| Quoted bonds | b) | - | 1,617 | - | 1,617 | |
| Total |
| 100,566 | 1,617 | - | 102,183 | |
|
|
|
|
|
|
| |
| As at 31 December 2020 |
|
|
|
|
| |
|
|
| Level 1 | Level 2 | Level 3 | Total | |
|
| Note | £'000 | £'000 | £'000 | £'000 | |
| Financial assets at fair value through profit or loss |
|
|
|
|
| |
| Quoted equities | a) | 80,354 | - | - | 80,354 | |
| Quoted bonds | b) | - | 2,100 | - | 2,100 | |
| Total |
| 80,354 | 2,100 | - | 82,454 | |
|
|
|
|
|
|
|
|
| a) | Quoted equities. The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. | |||||
| b) | Quoted bonds. The fair value of the Company's investments in quoted convertibles, bonds and preference shares has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets. | |||||
| There have been no transfers of assets or liabilities between levels of the fair value hierarchy during any of the above periods. | ||||||
19. | Related party transactions |
| Directors fees and interests. Fees payable during the year to the Directors and their interests in the shares of the Company are disclosed within the Directors' Remuneration Report on pages 52 and 53 and fees payable also within note 5 on page 72 of the 2021 Annual Report. |
| Transactions with the Manager. Management, promotional activities, secretarial and administration services are provided by ASFML with details of transactions during the year and balances outstanding at the year end disclosed in notes 4 and 5 of the 2021 Annual Report. |
20. | Capital management policies and procedures |
| The objective of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities. |
| The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. |
| The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: |
| - the planned level of gearing, which takes account of the Investment Manager's views on the market; |
| - the level of equity shares in issue; and |
| - the extent to which revenue in excess of that which is required to be distributed should be retained. |
| The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. |
| The Company does not have any externally imposed capital requirements. |
ADDITIONAL NOTES TO THE ANNUAL FINANCIAL REPORT
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2021 or 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the registrar of companies, and those for 2021 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006
The statutory accounts for the financial year ended 31 December 2021 were approved by the Directors on 14 March 2022 but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which is to be held at 12.00pm on 5 May 2022 at Bow Bells House, One Bread Street, London EC4M 9HH.
The Annual Report will be posted to shareholders in March 2022 and additional copies will be available from the Manager (Investor Helpline - Tel. 0808 500 4000) or by download from the Company's webpage
(www.abrdnsmallercompaniesincome.co.uk)
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
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 | |||
Discount to Net Asset Value per Ordinary Share is the amount by which the market price per Ordinary share is lower than the net asset value per Ordinary share, expressed as a percentage of the net asset value per Ordinary share. | |||
|
|
|
|
|
| 2021 | 2020 |
NAV per Ordinary share (p) | a | 442.52 | 348.91 |
Share price (p) | b | 375.00 | 313.00 |
Discount | (b-a)/a | -15.3% | -10.3% |
|
|
|
|
Dividend cover | |||
Dividend cover is the revenue return per share divided by total dividends per share, expressed as a ratio. | |||
|
|
|
|
|
| 2021 | 2020 |
Revenue return per share | a | 9.69p | 5.60p |
Dividends per share | b | 8.85p | 8.24p |
Dividend cover | a/b | 1.09 | 0.68 |
|
|
|
|
Net gearing |
|
|
|
Net gearing measures the total borrowings less cash and cash equivalents dividend by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes amounts due to and from brokers at the year end as well as cash and cash equivalents. | |||
|
|
|
|
|
| 2021 | 2020 |
Borrowings (£'000) | a | 6,995 | 6,991 |
Cash (£'000) | b | 186 | 1,615 |
Investments in AAA-rated money market funds | c | 2,406 | - |
Amounts due to brokers (£'000) | d | 5 | - |
Amounts due from brokers (£'000) | e | - | - |
Shareholders' funds (£'000) | f | 97,840 | 77,144 |
Net gearing | (a-b-c+d-e)/f | 4.5% | 7.0% |
|
|
|
|
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 with debt at fair value published throughout the year. | |||
|
|
| |
| 2021 | 2020 | |
Investment management fees (£'000) | 675 | 528 | |
Administrative expenses (£'000) | 393 | 382 | |
Less: non-recurring charges{A} (£'000) | (25) | (24) | |
Ongoing charges (£'000) | 1,043 | 886 | |
Average net assets (£'000) | 89,659 | 70,608 | |
Ongoing charges ratio (excluding look-through costs) | 1.16% | 1.25% | |
Look-through costs{B} | 0.04% | 0.10% | |
Ongoing charges ratio (including look-through costs) | 1.20% | 1.35% | |
{A} Professional services comprising new Director recruitment costs and legal fees considered unlikely 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 includes financing 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 |
Year ended 31 December 2021 |
| NAV | Price |
Opening at 1 January 2021 | a | 348.9p | 313.0p |
Closing at 31 December 2021 | b | 442.6p | 375.0p |
Price movements | c=(b/a)-1 | 26.8% | 19.8% |
Dividend reinvestment{A} | d | 3.6% | 3.1% |
Total return | c+d | +30.4% | +22.9% |
|
|
|
|
|
|
| Share |
Year ended 31 December 2020 |
| NAV | Price |
Opening at 1 January 2020 | a | 373.9p | 343.0p |
Closing at 31 December 2020 | b | 348.9p | 313.0p |
Price movements | c=(b/a)-1 | -6.7% | -8.7% |
Dividend reinvestment{A} | d | 2.6% | 3.6% |
Total return | c+d | -4.1% | -5.1% |
{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. | |||
For abrdn Smaller Companies Income Trust plc
Aberdeen Asset Management PLC, Company Secretary
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