Annual Financial Report

RNS Number : 1669M

Securities Trust of Scotland PLC

20 May 2022

 

From:  Securities Trust of Scotland plc

LEI:   549300UZ1Y7PPQYJGE19

Date:  20 May 2022

Results for the year ended 31 March 2022

The board of Securities Trust of Scotland plc (the 'company') are pleased to announce the company's results for the year ended 31 March 2022.

The following is an extract from the company's Annual Report and Financial Statements for the year to 31 March 2022. The Annual Report is expected to be posted to shareholders shortly.  Members of the public may obtain copies from the registered office, 28 Walker Street, Edinburgh EH3 7HR or from its website:  www.stsplc.co.uk . A copy will also shortly be available for inspection at the National Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

Highlights

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

· The net asset value total return for the year to 31 March 2022 was +16.8%, and the share price total return was +17.4%, compared to a total return of +10.8% in the Lipper Global - Equity Global Income Index. This compares to a net asset value return of +28.5%, a share price total return of +23.7% and a total return of +29.9% in the Lipper Global - Equity Global Income Index in the previous year.

· The company pays quarterly dividends to provide investors with a regular income. Dividends are paid in April, July, October and January. The dividend was rebased as part of the management changes. The board has announced a fourth quarterly dividend of 1.75 pence per ordinary share which will be paid on 1 July 2022 to shareholders on the register on 27 May 2022. The total dividend for the year will be 5.875 pence per share.

Chairman's Statement

Introduction

The year to 31 March 2022 proved to be a remarkably eventful period that commenced with a sustained recovery from the economic effects of the COVID pandemic before concerns regarding rapidly rising rates of inflation and the required policy response across the G7 began to dominate financial markets. In February 2022 Russian forces invaded Ukraine raising geopolitical risk to levels not seen this century.

Against such an uncertain background it is pleasing to be able to report positive returns for the year.  The net asset value total return was +16.8% and the share price total return was +17.4%, as the share price moved from a 0.3% discount to the net asset value to a slight premium over the year.  The Lipper Global - Equity Global Income Index produced a total return of +10.8% for the same period.

There currently seems to be no respite in the challenges being thrown at financial markets. As mentioned, against a background of already rising rates of inflation the war in Ukraine has led to a sharp rise in oil and, in particular, gas prices and shortages are predicted for many major commodities including several foodstuffs.  With inflation rates now higher than previously forecast, Central Banks are responding by raising short term interest rates and reversing the quantitative easing that was a response to the COVID related lockdowns.

Managing a global portfolio against such a fast evolving and uncertain background is no easy task and your board is reassured by the manager's clear investment philosophy and the consistent application of that policy. Portfolio turnover, by industry standards, is low. Your manager carefully selects companies that have the profitability and cash flow to generate long term real rates of return and then backs them to do so.

Securities Trust has been managed by Troy and administered by Juniper Partners since November 2020 It is pleasing to report that all aspects of the relationship between the board and managers are working well. The board are encouraged by the approach to fund management and the integration of ESG considerations into the investment process as well as the marketing and promotion of the trust.

Revenue and dividends

Revenue earned for the year was £7.4 million, 19% lower than in the prior year.  The decline was principally a result of two factors - no income was received from option writing and the portfolio constructed by the new managers, appointed in November 2020, has a lower yield than the portfolio of the previous manager. The board and managers were fully aware of these changes and their effects were anticipated.  Somewhat offsetting the lower income was the fact that costs were lower, reflecting the initial fee arrangement agreed at the time of Troy's appointment.

It is the board's policy to use revenue reserves, when considered appropriate, to assist in managing the long term growth of the dividend paid to shareholders. At 31 March 2022, the company has total revenue reserves available for distribution of £3.1m, which includes £1.3m of undistributed reserves from the prior financial year. A fourth quarterly dividend of 1.75 pence per share has been declared and will be paid on 1 July 2022 to shareholders on the register on 27 May 2022.

The total dividend for the year is therefore 5.875 pence per share an increase of 3.1% on the dividend of 5.70 pence per share paid in respect of the previous financial year.

Board changes

Angus Gordon Lennox was appointed as a director of Securities Trust of Scotland in 2013 and in line with best governance practice will retire from the board at the AGM in July 2022. Angus has made a significant contribution to the board over his tenure, and I would like to thank him on behalf of the board for his commitment, wisdom and frequent valuable insight.

Angus has been the Senior Independent Director of the company since 2018 and Sarah Harvey has agreed to take on this role upon Angus's retirement.

The board is pleased to announce that Alexandra Innes was appointed as a non-executive director on 4 April 2022. Alexandra is a Non-Executive Committee Member at the Bank of England and a member of the Group Executive Board and the Technology Investment Board at Knight Frank LLP.  Alexandra held a number of senior positions in the financial sector during her executive career and she will bring fresh perspective to the board. We look forward to working with her.

Discount management

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

In the year to 31 March 2022, 3,043,000 shares were purchased by the company at an average discount of 1.7% and 100,000 shares were issued at a premium of 1.3%. Since the year end a further 480,000 shares have been issued at an average premium of 1.1%.

The discount control mechanism is administered by Juniper Partners ("Juniper") and a close dialogue is maintained between the board and Juniper to ensure the efficient implementation of the discount control mechanism.

Gearing

Your company has total debt facilities available of £25.0 million and at the year end £15.0 million of these facilities were drawn down. Gearing is a topic regularly discussed between your board and managers. During the year average debt drawn down was £14.7 million.

Environmental, social and governance ('ESG')

The company aims to conduct itself responsibly, ethically and fairly and the board seeks to ensure that the manager's management of the portfolio takes account of ESG matters as an integral part of its analysis of companies for investment. The board believes that companies which exhibit positive ESG behaviours contribute to increasing value over the long term and that it is in shareholders' interests to consider ESG factors when selecting and retaining investments. The board encourages and actively oversees Troy's application of its ESG policies within the investment process. In addition to this, during the year the company published an ESG policy on the AIC website ( www.theaic.co.uk ) and further details of this policy can be found on pages 10 and 11 of the Annual Report.

Annual General Meeting

It is the current intention to hold a "traditional" meeting to which all shareholders are invited and welcome to attend. After two years of COVID related restrictions your board is delighted to be able to return to normal and looks forward to meeting shareholders in person on 4 July 2022.

Keeping in touch

I would encourage shareholders to visit the company's website at www.stsplc.co.uk which can be found in the QR link on page 4 of the Annual Report. This offers a wealth of further information on the company including videos, articles and a highly rated podcast series to understand more about our manager's investment philosophy. Through the website you can also subscribe to monthly email updates and the factsheet which will provide you with portfolio information and performance data. If you wish to contact the investment manager or the company secretary with any queries this can also be done through the website or by email using the email addresses set out on the inside back cover of the Annual Report.

Outlook

The appalling events in Ukraine dominate thoughts and the humanitarian crisis that the Russian invasion has created is utterly dreadful. While very mindful of this, the invasion, subsequent war and rhetoric from the Kremlin has added heightened geopolitical risk to an already uncertain global background. The rise in energy and commodity prices that the war and economic sanctions produced has caused inflation to accelerate from an already extended level and will force interest rates to rise further than had been previously considered.  This is a very different macro background to that which US financial markets in particular enjoyed in the very recent past.

The recent weakness in the exchange rate of Sterling against most major currencies, but in particular against the US Dollar, is notable and is of benefit to your company. The Sterling value of overseas investments and the dividends they pay rises. While 30% of the portfolio is invested in UK Equities the majority of these companies are global businesses and likewise beneficiaries of a weak pound.  While this currency weakness may prove to be transitory it does highlight some of the benefits of adopting a global as opposed to a more limited country only approach to an equity income mandate.

Your managers are being consistent in their management of the portfolio which is invested in strong companies both in terms of their financial performance and market positioning. Companies with such strengths should be well placed to cope with the challenges of rising costs and higher levels of inflation.

The core attributes of your manager's philosophy combine preservation of capital and the objective of delivering above average returns with below average levels of volatility. These objectives are particularly appropriate in the current uncertain world.

John Evans

19 May 2022

Manager's Review

The company generated a strong return for shareholders in the first full year under Troy's management. As the world has continued to recover from the COVID shock and bolstered by monetary and fiscal stimulus, markets made good progress. This continued for the first three quarters of the year until the appalling events in Ukraine dented optimism, caused equity markets to sell off and commodity markets to extend gains.

Our performance for the year as a whole has been satisfactory and has been achieved despite a number of events buffeting the world economy and markets. Inflation has become a major concern for investors and the authorities which marks a major change in the investment backdrop - at least for now.

Performance

As noted in the Chairman's statement, over the 12 months to 31 March 2022 the company delivered a net asset value ('NAV') total return of +16.8% and a share price total return of +17.4% reflecting a move in the share price from a small discount to a small premium relative to the NAV. This compares to the Lipper Global - Global Equity Income return of +10.8%.

The strongest contributors to the return were derived from the consumer staples and information technology sectors. Within information technology the best performing investments over the period were Paychex and Microsoft. Microsoft continues to benefit from companies using an increasing range of the software that the company offers driving impressive growth and returns. Paychex is a payroll, human resources and employee benefits outsourcing software provider to medium sized businesses in the US. The shares have performed consistently well through the year as employment prospects brightened. ADP, a competitor to Paychex, also performed well. Each of these companies continue to show resilient operating performance and consistent dividend growth.

Within consumer staples, Diageo and British American Tobacco were the key contributors. The resilience and valuation in the context of strong pricing power for these companies has been reappraised by investors in these more inflationary times. Both companies have also benefitted from people being able to go out and enjoy themselves. In the case of British American Tobacco, the shares were given further support following the reintroduction of a share buy back as debt on the balance sheet has been reduced to more comfortable levels.

Ironically the areas of less good performance were also concentrated in consumer staples and information technology showing the widening gyre of post-COVID economic fortunes even within sectors. One of the notable aspects of share price movements during the period under review has been the extent to which investors have rewarded companies who they perceive to be able to pass on price increases compared to those that will struggle to do so. Thus, while companies such as Diageo and Pepsi have done well, others such as Unilever and Clorox have lagged.

Unilever has been under a cloud for some time. The most notable recent development was a failed bid for the split-off consumer assets from GlaxoSmithKline which was abandoned following shareholder dissatisfaction with the deal (a sentiment shared by Troy). Investors have worried that the business has suffered from sluggish execution, exposure to slow-growing categories and muddled communication. We believe these issues are all fixable. Longer term we consider Unilever to be an attractive asset for the company which owing to the concerns outlined is attractively valued. We are maintaining our investment.

Clorox has been disrupted by COVID. Whereas in the UK we say Dettol in the US they say Clorox. Unsurprisingly demand for their products was pulled forward during the pandemic. As this demand has receded the business has found it difficult to respond. Rising input costs, notably oil, have also been problematic. We still think this remains a high quality business long term and expect short term virus-driven distortions to normalise.

Also, within consumer staples Reckitt Benckiser was lacklustre over the period having also been disrupted by COVID. Further, the company made a poor capital allocation decision when acquiring the infant formula company, Mead Johnson, in 2017. The company, under new management, is in the process of unwinding this decision. We continue to think this is a sound long term investment owing to the strength of its brands and dominant market positions.

Western Union was also weak over perennial concerns relating to its competitive position in an age of digital disruption. We continue to think these fears are overstated and encapsulated in an extremely attractive valuation. The shares trade on a 13% free cash flow yield.

Finally Vonovia was weak over this period. Over shorter term periods this company tends to be correlated with interest rates which have been on the rise. Negative bond yields have been a feature of the German bond market for some time but have recently turned positive again. While Vonovia may continue to tread water if yields rise, the investment case is predicated on the extraordinary value that German residential property continues to offer. Over longer periods of time we would expect this value component to trump the interest rate effect.

Portfolio activity

There were very few changes made to the portfolio during the year. We sold Verizon to fund an investment in Boston Properties, bought and sold Hargreaves Lansdown (an unusually short holding period for Troy) and established an investment in Domino's Pizza funded by the sale of Fevertree.

Boston Properties is the largest office REIT in the US, with prime properties in five coastal cities; Boston, New York, Washington, Los Angeles and San Francisco. Our belief is that the widely-held view that there will be materially less need for prime office space post COVID will ultimately prove to be overstated - despite the reality of a hybrid working environment. Our view is that knowledge-based economies benefit from network effects requiring face-to-face interaction which requires offices. The shares have performed well this year as the US economy has reopened.

The purchase and subsequent sale of Hargreaves Lansdown was a nuanced investment decision. We still think the company has a terrific long term opportunity to be the UK's leading digital wealth manager. The problem is that increased competition is putting pressure on pricing. This was exemplified by an announcement by rival, AJ Bell, that they would be launching a commission-free investment platform named DODL. We initially established a modest investment in the company with a view to increasing the scale of the investment should the valuation become more attractive. As we had become incrementally more negative and in the context of a still full valuation, we decided to sell.

Domino's Pizza is the UK's leading pizza franchise. We have long felt that this is an excellent business which has been undermanaged. This has changed as a newly invigorated board and new CEO have begun to improve operations. This was manifest during the year as the company announced a new agreement with franchisees following a long-running dispute. This should allow Domino's to grow more quickly as new stores are opened and promotional spend becomes more effective. Despite these developments, the company trades at a discount to similar assets around the world and makes for a compelling, resilient, long term investment case.

Investment strategy

A torrent of negative news flow has characterised the recent past, most obviously the horrific events in Ukraine. To this must be added a spike in inflation, a commodity price shock and the ongoing agonies of COVID, especially in China. Not only does this make for a much less stable backdrop it also, crucially in our view, has led to a material change in the investment backdrop.

Years of accommodative policy both monetary and fiscal, could be prosecuted with abandon so long as inflation was contained. This is no longer the case.

We have long worried that policymakers have been too focused on keeping goods and services prices subdued while allowing asset prices to rise. Not only is this likely to lead to unpleasant side effects such as inequality and the misallocation of capital but also leaves valuations vulnerable should it be necessary to rein in the supportive policy. That moment appears to have arrived.

Thus, the interest rate on a two year treasury note in the US has moved from 0.2% in September 2021 to 2.34% at the end of March 2022 (and has continued to rise since that date) as investors have anticipated rising short term interest rates. Interestingly longer term rates have been more measured with the US 10 year moving from 1.29% to (coincidentally but notably) 2.34% over the same period. As a result, the yield curve has "flattened" and ultimately inverted. This suggests that the mooted rate rises may precipitate a slowdown or even recession.

At the same time Central Banks around the world have indicated that they will cease and reverse quantitative easing. It is likely this has supported asset prices in recent years and its withdrawal may do the opposite.

All together this represents a far less emollient policy backdrop for risk assets and makes recent weakness in equity and credit markets unsurprising. A normalisation of policy appears to be leading to a normalisation of valuation which will be felt most keenly by the most fully priced assets. In this context, the war in Ukraine is likely to accentuate existing trends. Unfortunately, it will likely mean we have still more inflation in the short term, fewer rate rises (as the high oil price sucks demand from elsewhere in the economy) and a steeper recession than would otherwise have been the case.

We have constructed the portfolio to be robust to a range of outcomes by investing in companies which we consider to be both resilient and high quality. The same competitive advantages that allow companies to sustain a high return on capital employed and an attractive margin structure are also those that allow companies to raise prices to offset rising costs. Such attributes have benefitted the company this year and should continue to do so long into the future.

Looking forward, there are a number of companies in which we would like to invest, should the opportunity present itself, that are rapidly becoming better value. This will likely allow us to upgrade the quality and income growth embedded in the portfolio should prices continue to fall.

Even as we are horrified by the humanitarian disaster unfolding in Ukraine, we are remaining rational in our investment approach and are confident the company will continue to deliver growing free cash flow funding an attractive and growing income steam as well as long term capital growth.

James Harries

19 May 2022

For further information contact:

Troy Asset Management

Investment Manager

Tel:  [phone]

Juniper Partners Limited

Company Secretary

Tel:  [phone]

Responsibility statement

The Directors confirm that to the best of their knowledge:

·   the financial statements,prepared in accordancewith United Kingdom GenerallyAccepted Accounting Practice,including FRS 102 'The Financial ReportingStandard applicable in the UK and Republicof Ireland', give a true and fair view of the assets, liabilities, financial position and profit or loss of the company;

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

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

Principal risks

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

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

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

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

Principal risks	Mitigation and management
Investment strategy and objectives - Pursuing an investment strategy to fulfil the company's objective which the market perceives to be unattractive or inappropriate may lead to reduced returns for shareholders and, as a result, the company may become unattractive to investors, leading to decreased demand for its shares and a widening discount.	The board formally reviews the company's objectives and strategies on an annual basis, or more regularly if appropriate. The board also receives updates at each board meeting from the manager with regards to the portfolio and its performance; receives broker updates on the market; and is updated on the make-up and movements in the shareholder register. In addition, the company operates a discount control mechanism; the marketing and distribution activity is actively reviewed; and the board and manager proactively engage with shareholders.
Investment management - If the longer-term performance of the investment portfolio does not deliver income and capital returns in line with the investment objective and/or consistently underperforms market expectations, the company may become unattractive to investors.	The board manages the risk of investment underperformance by relying on good manager stock selection skills within a framework of diversification and other investment restrictions and guidelines. The board monitors the implementation and results of the investment process with the manager (who attends all board meetings) and reviews data that shows statistical measures of the company's risk profile. Should investment underperformance be sustained despite the mitigation measures taken by the manager, the board would assess the cause and be able to take appropriate action to manage this risk.
Macro-economic and market risk - The company's portfolio is invested in listed equities and is therefore exposed to events or developments which can affect the general level of share prices, including inflation or deflation, economic recessions and movement in interest rates and currencies which could cause losses within the portfolio and increasing finance and operational costs of the company.	The board receives regular updates on the company's portfolio and the investment environment in which the manager is operating. An explanation of the different components of market risk and how they are individually managed is contained in note 16 to the financial statements on pages 53 to 57 of the Annual Report.
Gearing and leverage risk - The company may borrow money for investment purposes. While this has the potential to enhance investment returns in rising markets, in falling markets the impact could be detrimental to performance. If borrowing facilities are not renewed, the company may have to sell investments to repay borrowings.	The company's gearing is maintained at a conservative and manageable level. All borrowing facilities require prior approval of the board and actual borrowing levels are discussed by the board and manager at every meeting. Details of the company's current borrowings and unused facilities can be found in note 11 to the financial statements on page 51 of the Annual Report. The company's investments are in quoted securities that are readily realisable and the board regularly reviews the liquidity level of the portfolio in order to assess how quickly, if necessary, the borrowings could be repaid. Further information on leverage can be found on page 58 of the Annual Report.
Discount risk - The discount/premium at which the company's shares trade relative to its net asset value can fluctuate. The risk of a widening discount is that it may undermine investor confidence in the company.	The company operates a discount control mechanism which aims to ensure, in normal market conditions, the company's shares trade, on a consistent basis, at or very close to net asset value. The board reviews the operation of the discount control mechanism at each board meeting and maintains a regular dialogue with Juniper Partners (which manages the policy on behalf of the board) in respect of any issues or buybacks under the policy.
Operational risk - The company is dependent on third parties for the provision of all services and systems. Any fraud, control failures, cyber threats, business continuity issues at, or poor service from, these third parties could result in financial loss or reputational damage to the company.	The board carries out an annual evaluation of its service providers and gives regular feedback to the manager and company secretary through the management engagement committee. The board receives and reviews control reports from all service providers where appropriate. Periodically, the board requests representatives from third party service providers to attend board meetings to give the board the opportunity to discuss the controls that are in place directly with the third-party providers.
Accounting, legal and regulatory - In order to continue to qualify as an investment trust, the company must comply with the requirements of section 1158 of the Corporation Tax Act 2010. Breaches of the UK Listing Rules, the Companies Act or other regulations with which the company is required to comply, could lead to a number of detrimental outcomes.	The board considers that, given the regular oversight of this risk carried out by the company secretary and reviewed by the board, the likelihood of this risk occurring is minimal. The audit committee regularly reviews the eligibility conditions and the company's compliance against each, including the minimum dividend requirements and shareholder composition for close company status. The board receives reports from the manager, the AIFM, and the company secretary to enable it to ensure compliance with all applicable rules.
Climate change risk (emerging risk) - There is increasing awareness of the challenges and emerging risks posed by climate change.	The investment process is focused on ESG issues and, as set out on pages 10 to 11 of the Annual Report, this includes an assessment of the potential impact of climate change. Overall the specific potential effects of climate change are difficult, if not impossible to predict and the board and investment manager continue to monitor material physical and transition risks and opportunities as part of the investment process.
Geopolitical risk (emerging risk) - The impact of geopolitical events could result in losses to the company.	Geopolitical risks have always been an input into the investment process. This risk area is now highlighted as a result of the Russian invasion of Ukraine, with the resultant effects on global trade and volatility in asset prices. Further information on this risk and its potential impact on the company is set out in the chairman's statement and the manager's review. The board seek to mitigate this risk through maintaining a broadly diversified global equity portfolio with appropriate asset and geographical exposure. The board and the manager continue to monitor the ongoing heightened geopolitical risk and are in regular communication on emerging matters which may impact on the portfolio.

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

Going Concern

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

The company has a one year revolving credit facility for £10,000,000 which expires in September 2023, which was undrawn at 31 March 2022. In addition, the company has a multi-currency fixedfacility, which expires in September 2023, in three tranches of £1,500,000,€4,500,000andUS$12,750,000, all of which were fully drawn down at the year- end date. No decision has yet been taken in relation to the renewal of the borrowing facilities. Should they not be renewed then the company has adequate financial resources in the form of readily realisable listed securities and as a result the directors assess that the company is able to continue in operational existence without the facilities.

In accordance with the 2019 AIC Code of Corporate Governance, the directorshave undertaken a rigorous review of the company's ability to continue as a going concern. The company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances,arerealisable within a very short timescale. Thedirectorsare mindful of the principal and emerging risks and uncertainties.They have reviewed revenue forecasts (adjusted for various sensitivities) and they believe that the company has adequate financial resources and a suitably liquid investment portfolio to continue its operational existence for the foreseeable future, and at least forthe period to 31 March 2024, which is at least 12 months from the date the financial statements are authorised forissue.

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

Statement of Comprehensive Income

	Year to 31 March 2022			Year to 31 March 2021
	Revenue	Capital	Total		Revenue	Capital	Total
	£000	£000	£000		£000	£000	£000
Net gains on investments	-	29,232	29,232		-	40,826	40,826
Net currency (losses)/gains	3	(445)	(442)		(12)	1,031	1,019
Income	7,378	-	7,378		9,109	-	9,109
Investment management fee	(222)	(413)	(635)		(285)	(529)	(814)
Other expenses	(516)	-	(516)		(995)	-	(995)
Net return before finance costs and
taxation	6,643	28,374	35,017		7,817	41,328	49,145
Finance costs	(157)	(291)	(448)		(161)	(299)	(460)
Net return on ordinary activities before
taxation	6,486	28,083	34,569		7,656	41,029	48,685
Taxation on ordinary activities	(632)	-	(632)		(611)	-	(611)
Net return attributable to ordinary
redeemable shareholders	5,854	28,083	33,937		7,045	41,029	48,074
Net return per ordinary redeemable
share	5.82p	27.92p	33.74p		6.76p	39.39p	46.15p

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

The revenue and capital items are presented in accordance with the Association of Investment Companies (AIC) Statement of Recommended Practice (SORP 2021).

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

Statement of Financial Position

	As at 31 March 2022		As at 31 March 2021
	£000	£000	£000	£000
Fixed assets
Investments at fair value through profit or loss		244,561		221,771
Current assets
Trade and other receivables	1,089		1,206
Cash and cash equivalents	865		825
	1,954		2,031
Current liabilities
Trade payables - amounts falling due within one year	(489)		(129)
Dividend payable	(1,368)		(1,410)
Total current liabilities	(1,857)		(1,539)
Net current assets		97		492
Total assets less current liabilities		244,658		222,263
Trade payables - amounts falling due after more than one year		(15,001)		(14,585)
Total net assets		229,657		207,678
Capital and reserves
Called up share capital	1,223		1,223
Capital redemption reserve	78		78
Share premium account	30,762		30,725
Special distributable reserve*	71,925		78,194
Capital reserve*	122,611		94,528
Revenue reserve*	3,058		2,930
Total shareholders' funds		229,657		207,678
Net asset value per ordinary share		230.75p		202.68p

*These reserves are distributable.

Statement of Changes in Equity

For the year ended	Called up share capital		Capital redemption reserve	Share premium account	Special distributable reserve*	Capital reserve*	Revenue reserve*	Total
31 March 2022	£000		£000	£000	£000	£000	£000	£000
As at 1 April 2021	1,223		78	30,725	78,194	94,528	2,930	207,678
Net return
attributable to
shareholders**	-		-	-	-	28,083	5,854	33,937
Shares issued
from treasury	-		-	37	162	-	-	199
Shares bought back
into treasury	-		-	-	(6,431)	-	-	(6,431)
Dividends paid	-		-	-	-	-	(5,726)	(5,726)
As at 31 March 2022	1,223		78	30,762	71,925	122,611	3,058	229,657
For the year ended	Called up share capital	Capital redemption reserve		Share premium account	Special distributable reserve*	Capital reserve*	Revenue reserve*	Total
31 March 2021	£000	£000		£000	£000	£000	£000	£000
As at 1 April 2020	1,223	78		30,401	82,943	53,499	2,321	170,465
Net return
attributable to
shareholders**	-	-		-	-	41,029	7,045	48,074
Ordinary shares
issued during the year	-	-		324	943	-	-	1,267
Ordinary shares
bought back during
the year	-	-		-	(5,692)	-	-	(5,692)
Dividends paid	-	-		-	-	-	(6,436)	(6,436)
As at 31 March 2021	1,223	78		30,725	78,194	94,528	2,930	207,678

*  These reserves are distributable.

** The company does not have any other income or expenses that are not included in the 'Net return attributable to ordinary redeemable shareholders' as disclosed in the Statement of Comprehensive Income on page 42 of the Annual Report, and therefore this is also the 'Total comprehensive income' for the year.

Statement of Cash Flow

	Year ended 31 March 2022		Year ended 31 March 2021
	£000	£000	£000	£000
Cash flows from operating activities Net return on ordinary activities before taxation		34,569		48,685
Adjustments for:
Gains on investments	(29,232)		(40,826)
Finance costs	448		460
Exchange movement on bank borrowings	416		(1,180)
Purchases of investments*	(17,528)		(248,428)
Sales of investments*	23,970		257,152
Dividend income	(7,378)		(8,288)
Other income	-		(3)
Premium income - written options	-		(818)
Dividend income received	7,252		7,959
Other income received	-		3
Premium income received - written options	-		818
Decrease in receivables	17		2,608
Increase/(decrease) in payables	358		(302)
Overseas withholding tax deducted	(406)		(853)
		(22,083)		(31,698)
Net cash flows from operating activities		12,486		16,987
Cash flows from financing activities
Repurchase of ordinary share capital	(6,431)		(5,692)
Issue of ordinary share capital	199		1,433
Equity dividends paid from revenue	(5,768)		(6,544)
Repayment of the Sterling loan facility	-		(10,000)
Interest paid on borrowings	(446)		(460)
Net cash flows from financing activities		(12,446)		(21,263)
Net increase/(decrease) in cash and cash equivalents		40		(4,276)
Cash and cash equivalents at the start of the year		825		5,101
Cash and cash equivalents at the end of the year		865		825

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

Notes:

1.  Significant accounting policies

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (Accounting Standards "UK GAAP") including Financial Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (the "SORP") issued by the Association of Investment Companies in April 2021. All of the company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss. In preparing these financial statements the directors have considered the impact of climate change on the value of the listed investments that the company holds. As the portfolio consists of listed equities, which are valued using quoted bid prices for investments in an active market, then fair value reflects market participants view of climate change risk.

The company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors have reviewed revenue forecasts and they believe that the company has adequate financial resources to continue its operational existence for the foreseeable future, and for the period to 31 March 2024, which is at least 12 months from the date the financial statements are authorised for issue.

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

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

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

2.  Returns and net asset value

	Year to 31 March 2022	Year to 31 March 2021
Revenue return (£000)	5,854	7,045
Capital return (£000)	28,083	41,029
Total (£000)	33,937	48,074
Weighted average number of shares in issue during the year	100,591,911	104,176,945
Revenue return per ordinary redeemable share	5.82p	6.76p
Capital return per ordinary redeemable share	27.92p	39.39p
Total return per ordinary redeemable share	33.74p	46.15p
Net asset value per share
Net assets attributable to shareholders (£000)	229,657	207,678
Number of shares in issue at the year end	99,525,075	102,468,075
Net asset value per share	230.75p	202.68p

3.  Dividends

	Year to 31 March 2022 £000	Year to 31 March 2021 £000
First interim dividend of 1.375p for the year ended 31 March2022(2021:1.375p)	1,376	1,430
Second interim dividend of 1.375p for the year ended 31 March2022(2021:1.375p)	1,374	1,438
Third interim dividend of 1.375p for the year ended 31 March2022(2021:1.375p)	1,368	1,410
Proposed fourth interim dividend of 1.75p for the year ended 31 March 2022 (2021: 1.575p)	1,750	1,608
	5,868	5,886

The revenue reserves as at 31 March 2022 are £3,058,000, of this £1,750,000 will be used to fund the fourth interim dividend. The amount reflected above for the cost of the proposed fourth interim dividend for 2022 is based on 100,005,075 ordinary shares, being the number of ordinary shares in issue excluding those held in treasury at the date of this report. The articles of association of the company permit dividends to be paid out of capital.

4.  Investments at fair value

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

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

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

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

At 31 March 2022	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	244,561	-	-	244,561
Net fair value	244,561	-	-	244,561
At 31 March 2021	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	221,771	-	-	221,771
Net fair value	221,771	-	-	221,771

5.  Share capital

There were 3,043,000 shares bought back during the year to 31 March 2022 at a cost of £6,431,000 (2021: 2,917,560 at a cost of £5,692,000). During the year, the company issued 100,000 shares for net proceeds of £199,000 (2021: 625,000 shares for net proceeds of £1,267,000).

6.  Related party transactions

With the exception of the management and secretarial fees, directors' fees and directors' shareholdings (disclosed on page 31 of the Annual Report), there have been no related party transactions during the year, or in the prior year.

The management fee payable in respect of the year ended 31 March 2022 was £635,000 (2021: £814,000), of which £373,000 (2021: £nil) was outstanding at the year-end. The secretarial and directors' fees payable in respect of the year ended 31 March 2022 are detailed in note 3 of the Annual Report. The amount outstanding at the year end for secretarial fees and directors' fees was £3,000 (2021: £nil) and £nil (2021: £nil) respectively.

7.  Further information

These are not statutory accounts in terms of Section 434 of the Companies Act 2006.  Full audited accounts for the year to 31 March 2022 will be sent to shareholders by the beginning of June 2022 and will be available for inspection at 28 Walker Street, Edinburgh EH3 7HR, the registered office of the Company. The full annual report and accounts will be available on the Company's website www.stsplc.co.uk .

The audited accounts for the year ended 31 March 2022 will be lodged with the Registrar of Companies.

 

END

 

 

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