Final Results

STS Global Income & Growth Trust

22 May 2024

 

From:    STS Global Income & Growth Trust plc

LEI:         549300UZ1Y7PPQYJGE19

Date:     22 May 2024

Results for the year ended 31 March 2024

The Board of STS Global Income & Growth Trust plc (the 'Company') is pleased to announce the Company's results for the year ended 31 March 2024.

The following is an extract from the Company's annual report and financial statements for the year to 31 March 2024. 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 2024 was +4.8%, and the share price total return was +6.1%, compared to a total return of +11.5% in the Lipper Global - Equity Global Income Index. This compares to a net asset value total return of -1.8%, a share price total return of -4.8% and a total return of +0.5% in the Lipper Global - Equity Global Income Index in the previous year.

·    The Company pays quarterly dividends to provide investors with a regular income. Dividends are paid in April, July, October and January. The Board has announced a fourth quarterly dividend of 1.525 pence per ordinary share which will be paid on 5 July 2024 to shareholders on the register on 7 June 2024. The total dividend for the year will be 6.54 pence per share, an increase of 5.5% from the prior year and 14.7% since the dividend was rebased in 2021.

Chairman's Statement

During the period under review, your Company continued to grow its dividend and made significant progress in increasing its scale and cost effectiveness.

Stock markets, on a global basis, recorded strong positive returns for the year to 31 March 2024. There was, however, a marked variation in the scale of these returns with, for example, the S&P 500 Index in the US generating a 29.9% return (in US dollars), while the STOXX 600 in Europe managed a 15.7% return (in euros). In the UK, the FTSE 100 Index generated a relatively disappointing 8.4% return.

Results for the year

The share price total return for the year was 6.1% and the net asset value total return was 4.8%. A total dividend of 6.54 pence per share has been recommended by the Board, representing a 5.5% increase on the previous year. The proposed fourth quarterly dividend of 1.525 pence per share will be paid on 5 July 2024 to shareholders on the register on 7 June 2024.

Whilst these are positive returns, they do lag the benchmark return of 11.5% . A number of the performance return trends in stock markets that have been in place since Troy was appointed as Investment Manager in 2020 continued during the year. Most notable of these is the extreme polarisation of returns in the US market where a small group of companies by number, but exceptionally significant by market capitalisation, has driven overall market returns. The Manager's report below gives a detailed assessment of these returns and the Company's positioning against this background.

Corporate activity

On 28 November 2023 the Company announced that it had agreed heads of terms in respect of the potential acquisition of the assets of Troy Income & Growth Trust plc ('TIGT'). I am pleased to say that this transaction completed on 28 March 2024 and as a result £118 million of assets were acquired by STS, financed by the issue of 52,889,037 new shares in STS. 70% of TIGT shareholders rolled over into STS shares. In an industry context this is a very high level of acceptance, and I should like to take this opportunity to welcome all new shareholders to the Company.

Consequently, the total net assets of the Company at its year end were £314.4 million (compared with £219.2 million on 31 March 2023).

As part of the transaction, it was agreed with Troy that the fee scale for the Company be reduced to 0.55% of net assets up to £250 million and 0.5% thereafter. In addition, and as part of the transaction agreement, Troy has agreed that no fee will be levied on the £118 million of assets acquired by STS for 18 months following completion on 28 March 2024.

It is estimated that the ongoing charges ratio for STS will reduce to 0.77% compared with 0.96% before the acquisition and fee adjustment.

It is a feature of the investment trust sector at present that scale, cost effectiveness and liquidity are key drivers of shareholder demand. The Board is pleased that STS has been able to improve its position in respect of each of these measures as a result of the transaction.

Likewise, shareholders in TIGT who received STS shares will also benefit from a lower cost ratio, and improved liquidity.

The nature of these transactions is complicated and cumbersome and it is clear that they can only be achieved with the cooperation of directors, managers and advisers. I would like to thank all those involved for their work and perseverance in bringing this transaction to a successful conclusion.

Board composition

There are several changes to the composition of the Board that I would like to outline.

Mark Little (Chair of the Audit and Risk Committee) will complete nine years of service as a director during the coming financial year. Consequently, Mark will not stand for re-election at the forthcoming AGM in June and will retire as a director at the AGM.

Brigid Sutcliffe has joined the Board as a director, having been the TIGT Audit and Risk Committee Chair since January 2022 and will take over the role of Chair of the Audit and Risk Committee from Mark upon his retirement. Brigid has considerable experience in the role of audit chair and has worked closely with Mark and our auditors to ensure a smooth handover of responsibilities.

Bridget Guerin has also joined the Board of STS, having been Chair of TIGT since January 2023. My colleagues and I very much look forward to working with Brigid and Bridget and are pleased that such experienced directors have joined the Board.

Finally, Angus Cockburn will not stand for re-election at the AGM following his appointment as a non-executive director of BAE Systems in November 2023.

I should like to take this opportunity to thank Mark and Angus for their excellent and valuable contributions to the development of the Company over the years and wish them both well with their future careers.

The Board will consist of six directors post the AGM. In a period, quite rightly, of scrutiny regarding Board composition in respect of gender, ethnicity and tenure the Board has seen considerable change in composition, recently. With tenure as the principal driver, it is likely that the Board will reduce in size in future.

Discount management

The Company has adopted a discount control mechanism with the objective of ensuring that, in normal market conditions, the share price trades close to the Company's net asset value ('NAV') per share on a consistent basis. In order to achieve this, shares are purchased when available at a small discount to NAV and issued at a likewise small premium to NAV, when demand exists. The successful implementation of this policy requires that it is consistently applied and that liquidity is available when required by the market.

In the year under review, 11,855,197 shares were bought by the Company at an average discount of 1.7% and for a total cost of £25.9 million.

The investment trust sector has seen significant outflows recently as savers and institutions have reallocated their assets. This trend has been true across asset categories for trusts whether defined by geography, industry sector or corporate structure. STS has not been alone in seeing a lack of demand for its shares. It has however been in a relatively small group that has seen the discount to NAV of its shares remain tight and consistently below 2% with liquidity available at that valuation.

Gearing

During the year to 31 March 2024 the seven year multi-currency facility that the Company had arranged expired and new facilities were negotiated with The Royal Bank of Scotland International, the Company's existing lender. It was agreed to enter into a revolving credit facility with a three year term. This new facility is for £20 million but has an accordion facility that would provide an additional £5 million of funds, should the Board request. At the time of the acquisition of the TIGT assets, STS had drawn down £15.4 million of the facility and had headroom of £4.6 million, plus the £5 million accordion option. The Board and the Manager discuss gearing levels on a frequent basis and the Board is comfortable that the current facility provides sufficient funds to meet the immediate gearing requirements but is fully prepared to seek further facilities, should circumstances change.

Outlook

The Manager has applied its investment philosophy on a consistent basis since appointment in November 2020. For the majority of this period it has proven to be a pretty hostile background for their process and style in terms of relative market return. These trends can change and can do so very quickly.

The Board's view is that the investment process has been clearly described and consistently applied.  Likewise, the Board has ensured that your Company has been consistent in the application of its discount control mechanism since it was adopted.

John Evans

21 May 2024

Manager's Review

The Company's share price returned 6.1% over the year to 31 March 2024 compared to the return from the Lipper Global - Equity Global Income Index of 11.5%.  Since the inception of Troy's management the Company has returned 5.9%, somewhat lagging the peer return of 8.9%.

Global equity markets began 2024 with a flourish, delivering most of the gain for the year to 31 March 2024 in the last few months. Investors anticipated an economic recovery - about which we are sceptical - leading the best performing sectors to be more cyclical areas such as extractive industries, banks and industrial companies. These are periods in markets when Troy's quality focussed, conservative approach tends to lag, and this was no exception.

This optimism was further enhanced by the ongoing enthusiasm among investors for all companies that are perceived to be beneficiaries of the adoption of artificial intelligence ('AI'). This is best demonstrated by the US semiconductor company, Nvidia, which appreciated by +225.4% in the year and now has a market capitalisation of $2.2 trillion. Truly, these are remarkable times.  

While we believe that AI is an important and transformative technology, we wonder if we are seeing the usual initial burst of excitement which will ultimately prove to be transitory before the effects of the technology on the real economy, and hopefully productivity, play out over several years.

We continue to remain focused on quality businesses that generate cash and pay dividends. We have a somewhat cautious view of the current market exuberance, which we expand upon in the outlook section.  

The single biggest contributor was the performance of our holding in Microsoft. The core Office and Azure businesses are showing strong revenue growth driven partly by AI. Their product designed to help subscribers to deploy AI across the Microsoft software suite, named "Co-pilot", has driven revenue per user growth. Further, AI-based expenditure on infrastructure will benefit the Azure business for some time to come. This is well understood by the market as indicated by the valuation of the shares, but reminds us of the powerful competitive advantages that this company continues to enjoy and which are arguably strengthening.

Nintendo also had a strong year. We have long been enthused by the increasing desire of the company to monetise its incredible intellectual property both via gaming but also films and theme parks. These include several timeless, world class gaming franchises such as Mario, Donkey Kong and the Legend of Zelda. The core Nintendo gaming platform, the Switch, can increasingly be seen as an operating platform rather than simply a console. Gamers download games electronically, to the benefit of margins, giving them an individual relationship with the company. We are likely to see the launch either this year or next of the new Switch - the exact timing has not yet been announced - which we expect to drive further performance of the shares.

Like Microsoft, another portfolio beneficiary of the current AI phenomena is Relx which was the third best performer over the 12 months. The company is a global provider of information and analytics for professional and business customers. Recent advancements in AI have the potential to be additive to the company's services because of its proprietary datasets as well as improving growth prospects in its online professional publishing businesses. This drives excellent financial productivity as well as strong recent share price performance.

 InterContinental Hotels also performed strongly. The brand build-out and software investment they have been undertaking in recent years has converged with persistent post-COVID travel spend to create very satisfactory operational performance. Following a meeting with the relatively new CEO in February 2024, we remain comfortable with the investment. It is observable that corporate travel has not regained the level seen pre-COVID and we believe this may well be structurally impaired. Encouragingly, this is more than compensated by strength elsewhere in the business.  

UK motor insurance group Admiral also performed strongly. The company was disrupted post-COVID by rising inflation making investors question Admiral's ability to raise prices to protect profitability. This enabled us to establish an investment at a favourable valuation. Recent results have demonstrated the quality of the business. A dominant market position combined with excellent internal data and responsive management have enabled Admiral to take market share and raise prices leading to improving prospects. The shares remain decent value despite recent performance.

In the mirror image of last year four of the five detractors to performance were consumer staples companies. The most impactful was Reckitt Benckiser.

Reckitt Benckiser has suffered from both sub-optimal execution and frankly, bad luck. Both factors led to underperformance in recent weeks and over the year. The shares fell initially following the disclosure of under-declared volume rebates in the Middle East. A second impact was seen following litigation charges in the US against a minor product line in its Mead Johnson infant formula business. The scale of any potential charges is uncertain but is likely to be substantially less than the loss of value implied by the fall in the share price.

 Meanwhile Reckitt Benckiser is a well-financed business that operates in categories that have strong brands affording pricing power and an excellent margin structure. It is very cash generative and enjoys decent market shares. It now has a notably low valuation and therefore maintains its place in the portfolio.

Diageo, Hershey and British American Tobacco were also weak, underscoring how the best performing areas of the market in the previous year have been shunned by investors over this 12-month period. This is partly an observable sector effect. At a market level slower-growing but dependable businesses such as these tend to be less favoured when much more fast-growing and exciting areas such as technology are in vogue, leading to underperformance. This year there has been the additional effect of the advent of weight loss drugs known as GLP-1s which investors fear may crimp demand for the types of products these companies produce. We are sceptical about the extent to which these treatments will fundamentally change consumer behaviour over the long term. As such we think the competitive advantages these companies display including strong brands, depth and breadth of distribution and loyal repeat-purchase consumers will again shine through in time. The sector is good value relative to its own history and to the broader market. Sentiment is depressed leaving it poised to improve.

Finally, Link REIT declined as investors reassessed the likelihood of interest rates cuts around the world. Inflation is proving to be more persistent than many hoped and this has been detrimental to assets that tend to be impacted by changes in the cost of capital. This may lead some REITs to become financially constrained. This is not the case with Link which is very conservatively financed and well placed to capitalise should inexpensive assets become available owing to others' relative imprudence.

Portfolio activity

Our long-term investment approach leads to low turnover in our portfolios and this year was no exception. We established new investments in Canadian National Railway and Pernod Ricard during the year funded from sales of Clorox, Coca-Cola and Boston Properties. We also received shares in the world's largest consumer health company, Kenvue, which was separately listed by Johnson and Johnson.

Canadian National Railway is a high-quality franchise with impossible to replicate assets, leading to limited competition. Entrenched competitive advantages are enhanced by railroads' cost and carbon-intensity advantage over long-distance journeys, versus trucking. The result is a business that has an attractive margin structure and decent, sustainable returns on invested capital.

The business has enjoyed organic volume growth over time driven by the growth in population, consumerism and ecommerce. The industry has also demonstrated pricing power, leading to high incremental margins. Although railroads require high rates of reinvestment to maintain the network, the returns achieved justify the outlay. The industry has also seen significant improvements in productivity in part owing to sensible levels of investment as well as the application of "Precision Scheduled Railroading" pioneered by the legendary industry veteran Hunter Harrison. 

Concerns of an economic slowdown as well as one-off problems such as floods in Nova Scotia, several wildfires across Canada and strikes at the West Coast ports led to weakness in the share price affording us an opportunity to invest. We increased the size of the investment during the year.

Self-described as créateurs de convivialité, Pernod Ricard is the second largest spirits and wine manufacturer in the world. Founded by Paul Ricard in 1932 to produce pastis in Marseilles, the company eventually merged with Pernod in 1975. Following a series of acquisitions, the company now boasts an enviable stable of brands including Jameson whiskey, Beefeater gin, Absolut vodka and Martell cognac. It has also established a global presence, with excellent market positions in the still nascent foreign spirits markets in India and China.  

 Having enjoyed a bonanza during COVID, as consumers enjoyed one of the few pleasures still available to them in lockdown, this boom has turned to a mini bust as consumption normalised. This effect has been worsened by the economic slowdown in China. We believe these problems will ultimately pass, although it may well take a few more months for this to become apparent. We were able to buy the shares with a 3% dividend yield which is the highest level since 2009.

Kenvue owns an attractive set of consumer health brands including Tylenol (the US equivalent of Calpol), Listerine, Neutrogena and Band-Aid. We believe that this asset, having been spun out of Johnson and Johnson ('J&J'), was sold without regard to valuation by some investors unwilling to have a rump holding in their portfolios. This price-insensitive selling saw the share price fall 33.8% over a 3-month period to a level where the shares were priced at an inexpensive level. For the world's largest consumer health business, which will now have greater focus from the management team than was the case under the J&J yoke, this seemed too cheap. We took advantage of this to add to our investment. Latterly the company has also benefitted from a favourable ruling relating to litigation brought relating to Tylenol. This is as we expected. 

Finally, we sold our small remaining holding in Boston Properties as the anticipated reduction in working from home failed to materialise. This will put further downward pressure on office property valuations.

Outlook

We continue to see equity markets as fully priced both in absolute terms and relative to their own history. While economic data, especially in the US, has been surprisingly resilient this has had the effect of making inflation more persistent and interest rate cuts, upon which recent exuberance partly rests, less likely. That this is happening following the largest and most rapid rise in interest rates in 40 years warrants a cautious approach.

We also question the longevity of the upward move in markets predicated on the rapid adoption of AI across the economy. Investors have a tendency, known as Amara's Law, to over-estimate the effects of a new technology in the short term but underestimate it in the longer term. Consistent with this would be a lull between the rapid build out of the infrastructure currently being deployed, and productive AI usage in the real economy. The former may well be short-lived whereas the latter opportunity may well play out over years. If this turns out to be correct investors may face severe losses in the near term as valuations prove hard to justify. This happened to hardware manufacturers such as Alcatel and Lucent following the dot com boom in 2000.

By comparison our portfolio is generating a 5.2% free cash flow yield that we expect to grow persistently even in the event of a more challenging economic backdrop. This is partly owing to the exceptional value we see in high quality, global companies listed in the UK. As a result, we have a material proportion of the portfolio invested in this country.

The combination of attractive returns on capital underpinning steady growth in free cash flow and dividends, together with long term capital growth, should produce decent and dependable returns even in the event of an economic slowdown. While there has been much that has fired investors' imaginations recently, the gains enjoyed may not survive either a slower than expected adoption of new technologies or earnings driven disappointment as the economy slows. Under such scenarios we have confidence in the resilience of our portfolio companies and our ability to deliver dependable income growth and capital gains in the coming years.

James Harries

21 May 2024

For further information contact:

Troy Asset Management

Investment Manager

Tel:  [phone]

Juniper Partners Limited

Company Secretary

Tel:  [phone]

Responsibility statement

The directors confirm that to the best of their knowledge:

·     the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

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

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

Principal risks

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

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

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

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

Principal risks	Mitigation and management
Investment strategy and objectives - Pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate may lead to reduced returns for shareholders and, as a result, the Company may become unattractive to investors, leading to decreased demand for its shares and a widening discount.	The Board formally reviews the Company's objective and strategy on an annual basis, or more regularly if appropriate. The Board also receives updates at each Board meeting from the Manager with regards to the portfolio and its performance; receives broker updates on the market; and is updated on the make-up and movements in the shareholder register. In addition, the Company operates a discount control mechanism; the marketing and distribution activity is actively reviewed; and the Board and Manager proactively engage with shareholders on an ongoing basis.
Investment management - If the longer-term performance of the investment portfolio does not deliver income and capital returns in line with the investment objective and/or consistently underperforms market expectations, the Company may become unattractive to investors.	The Board manages the risk of investment underperformance by relying on the Manager's stock selection skills within a framework of diversification and other investment restrictions and guidelines. The Board monitors the implementation and results of the investment process with the Manager (who attends all Board meetings) and reviews data that shows statistical measures of the Company's risk profile. Should investment underperformance be sustained despite the mitigation measures taken by the Manager, the Board would assess the cause and be able to take appropriate action to manage this risk.
Macro-economic and market risk - The Company's portfolio is invested in listed equities and is therefore exposed to events or developments which can affect the general level of share prices, including inflation or deflation, economic recessions and movement in interest rates and currencies which could cause losses within the portfolio and increasing finance and operational costs of the Company.	The Board receives regular updates on the Company's portfolio and the investment environment in which the Manager is operating. An explanation of the different components of market risk and how they are individually managed is contained in note 18 to the financial statements on pages 59 to 62 of the annual report.
Gearing and leverage risk - The Company may borrow money for investment purposes. While this has the potential to enhance investment returns in rising markets, in falling markets the impact could be detrimental to performance. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings.	The Company's gearing is maintained at a conservative and manageable level. All borrowing facilities require prior approval of the Board and actual borrowing levels are discussed by the Board and Manager at every meeting. Details of the Company's current borrowings and unused facilities can be found in note 12 to the financial statements on page 57 of the annual report. The Company's investments are in quoted securities that are readily realisable and the Board regularly reviews the liquidity level of the portfolio in order to assess how quickly, if necessary, the borrowings could be repaid. The Board, through the Company Secretary, maintains an open and constructive dialogue with the Company's lenders to ensure that any renewal of the facilities is co-ordinated well in advance of the expiration of any existing facilities.
Discount risk - The discount/premium at which the Company's shares trade relative to its net asset value can fluctuate. The risk of a widening discount is that it may undermine investor confidence in the Company.	The Company operates a discount control mechanism which aims to ensure, in normal market conditions, the Company's shares trade, on a consistent basis, at or very close to net asset value. The Board reviews the operation of the discount control mechanism at each Board meeting and maintains a regular dialogue with Juniper Partners (which manages the policy on behalf of the Board) in respect of any issues or buybacks under the policy.
Operational risk - The Company is dependent on third parties for the provision of all services and systems. Any fraud, control failures, cyber threats, business continuity issues at, or poor service from, these third parties could result in financial loss or reputational damage to the Company.	The Board carries out an annual evaluation of its service providers and gives regular feedback to the Manager and Company Secretary through the Management Engagement Committee. The Board receives and reviews control reports from all service providers where appropriate. Periodically, the Board requests representatives from third party service providers to attend Board meetings to give the Board the opportunity to discuss the controls that are in place directly with the third-party providers.
Accounting, legal and regulatory - In order to continue to qualify as an investment trust, the Company must comply with the requirements of section 1158 of the Corporation Tax Act 2010. Breaches of the UK Listing Rules, the Companies Act or other regulations with which the Company is required to comply, could lead to a number of detrimental outcomes.	The Board considers that, given the regular oversight of this risk carried out by the Company Secretary and reviewed by the Board, the likelihood of this risk occurring is minimal. The Audit and Risk Committee regularly reviews the eligibility conditions and the Company's compliance against each, including the minimum dividend requirements and shareholder composition for close company status. The Board receives reports from the Manager and Juniper Partners in its capacity as AIFM and Company Secretary to enable it to ensure compliance with all applicable rules.
Environmental, social and governance ('ESG') risk - There is increasing awareness of the challenges and emerging risks posed by climate change and the importance and impact of other ESG issues.	The investment process is focused on ESG issues and, as set out on pages 11 and 12 of the annual report, this includes an assessment of the potential impact of climate change. Overall the specific potential effects of climate change are difficult, if not impossible to predict and the Board and Manager continue to monitor material physical and transition risks and opportunities as part of the investment process.
Geopolitical risk - 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 and the conflict in Gaza, with the resultant effects on global trade and volatility in asset prices. The Board seeks to mitigate this risk through maintaining a broadly diversified global equity portfolio with appropriate asset and geographical exposure. The Board and the Manager continue to monitor the ongoing heightened geopolitical risk and are in regular communication on emerging matters which may impact on the portfolio.

Following the ongoing assessment of the principal and emerging risks facing the Company, and its current position, the Board is confident that the Company will be able to continue in operation and that the processes of internal control that the Company has adopted and oversight by the Manager and the Company Secretary continues 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 three-year multi-currency revolving credit facility for £20 million, with an additional £5 million accordion option, which expires in September 2026. As at 31 March 2024 £15.4 million had been drawn under this facility in the following currencies: £1.5 million, €4.5 million and US$12.75 million. The Company has adequate financial resources in the form of readily realisable listed securities and as a result the directors assess that the Company is able to continue in operational existence without the facilities.

In accordance with the 2019 AIC Code of Corporate Governance, the directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors are mindful of the principal and emerging risks and uncertainties. They have reviewed revenue forecasts (adjusted for various sensitivities) and they believe that the Company has adequate financial resources and a suitably liquid investment portfolio to continue its operational existence for the foreseeable future, and at least for the period to 31 March 2026, which is at least 12 months from the date the financial statements are authorised for issue.

The Statement of comprehensive income, Statement of financial position, Statement of changes in equity and Statement of cash flow follow.

Statement of comprehensive income

	Year to 31 March 2024			Year to 31 March 2023
	Revenue	Capital	Total		Revenue	Capital	Total
	£000	£000	£000		£000	£000	£000
Net gains/(losses) on investments	-	5,740	5,740		-	(8,800)	(8,800)
Net currency (losses)/gains	(39)	286	247		(4)	(869)	(873)
Income	7,674	-	7,674		8,238	266	8,504
Investment management fee	(478)	(888)	(1,366)		(531)	(985)	(1,516)
Other expenses	(595)	-	(595)		(625)	-	(625)
Net return before finance costs and
taxation	6,562	5,138	11,700		7,078	(10,388)	(3,310)
Finance costs	(269)	(500)	(769)		(171)	(318)	(489)
Net return on ordinary activities before
taxation	6,293	4,638	10,931		6,907	(10,706)	(3,799)
Taxation on ordinary activities	(551)	-	(551)		(566)	-	(566)
Net return attributable to ordinary
shareholders	5,742	4,638	10,380		6,341	(10,706)	(4,365)
Net return per ordinary
share	6.08p	4.92p	11.00p		6.34p	(10.70)p	(4.36)p

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

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

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

Statement of financial position

	As at 31 March 2024		As at 31 March 2023
	£000	£000	£000	£000
Fixed assets
Investments held at fair value through profit or loss		324,666		234,362
Current assets
Trade and other receivables	60,068		1,113
Cash and cash equivalents	6,377		1,570
	66,445		2,683
Current liabilities
Bank loans	(15,449)		(15,795)
Trade payables	(59,573)		(572)
Dividend payable	(1,736)		(1,443)
Total current liabilities	(76,758)		(17,810)
Net current liabilities		(10,313)		(15,127)
Total net assets		314,353		219,235
Capital and reserves
Called up share capital	1,752		1,223
Capital redemption reserve	78		78
Share premium account	148,249		31,808
Special distributable reserve	45,033		70,924
Capital reserve	116,543		111,905
Revenue reserve	2,698		3,297
Total shareholders' funds		314,353		219,235
Net asset value per ordinary share		223.71p		220.37p

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 2024	£000		£000	£000	£000	£000	£000	£000
As at 1 April 2023	1,223		78	31,808	70,924	111,905	3,297	219,235
Net return
attributable to
shareholders**	-		-	-	-	4,638	5,742	10,380
Shares issued in
respect of the
transaction with TIGT	529		-	117,223	-	-	-	117,752
Costs in relation to
the issue of shares	-		-	(782)	-	-	-	(782)
Shares bought back
into treasury	-		-	-	(25,891)	-	-	(25,891)
Dividends paid	-		-	-	-	-	(6,341)	(6,341)
As at 31 March 2024	1,752		78	148,249	45,033	116,543	2,698	314,353
For the year ended	Called up share capital	Capital redemption reserve		Share premium account	Special distributable reserve*	Capital reserve*	Revenue reserve*	Total
31 March 2023	£000	£000		£000	£000	£000	£000	£000
As at 1 April 2022	1,223	78		30,762	71,925	122,611	3,058	229,657
Net return
attributable to
shareholders**	-	-		-	-	(10,706)	6,341	(4,365)
Shares issued
from treasury	-	-		1,046	2,585	-	-	3,631
Shares bought back
into treasury	-	-		-	(3,586)	-	-	(3,586)
Dividends paid	-	-		-	-	-	(6,102)	(6,102)
As at 31 March 2023	1,223	78		31,808	70,924	111,905	3,297	219,235

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

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

Statement of cash flow

	Year ended 31 March 2024		Year ended 31 March 2023
	£000	£000	£000	£000
Cash flows from operating activities Net return on ordinary activities before taxation		10,931		(3,799)
Adjustments for:
(Gains)/losses on investments	(5,740)		8,800
Finance costs	769		489
Exchange movement on bank borrowings	(346)		794
Purchases of investments*#	(17,217)		(22,917)
Sales of investments*	43,263		24,316
Dividend income	(7,659)		(8,496)
Other income	(15)		(8)
Dividend income received	7,800		8,523
Other income received	14		8
Decrease/(increase) in receivables	8		(5)
(Decrease)/increase in payables	(120)		70
Overseas withholding tax deducted	(586)		(612)
		20,171		10,962
Net cash flows from operating activities		31,102		7,163
Cash flows from financing activities
Repurchase of shares	(25,560)		(3,586)
Issue of ordinary share capital#	6,143		3,631
Equity dividends paid from revenue	(6,048)		(6,027)
Interest paid on borrowings	(830)		(476)
Net cash flows from financing activities		(26,295)		(6,458)
Net increase in cash and cash equivalents		4,807		705
Cash and cash equivalents at the start of the year		1,570		865
Cash and cash equivalents at the end of the year		6,377		1,570

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

^#Investments acquired as a result of the transaction with TIGT (£110.5m) were transferred in specie and therefore no cash was paid. Similarly the receipt of these investments reduced the level of cash received on the issue of the new shares.

Notes:

1.                    Significant accounting policies

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (Accounting Standards 'UK GAAP') including Financial Reporting Standard (FRS) 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in July 2022. All of the Company's operations are of a continuing nature.

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

The Company's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The directors have reviewed revenue forecasts and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future, and for the period to 31 March 2026, 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 2024	Year to 31 March 2023
Revenue return (£000)	5,742	6,341
Capital return (£000)	4,638	(10,706)
Total (£000)	10,380	(4,365)
Weighted average number of ordinary shares in issue	94,344,039	100,005,571
Revenue return per ordinary share	6.08p	6.34p
Capital return per ordinary share	4.92p	(10.70)p
Total return per ordinary share	11.00p	(4.36)p
Net asset value per share
Net assets attributable to shareholders (£000)	314,353	219,235
Number of shares in issue at the year end	140,517,415	99,483,575
Net asset value per share	223.71p	220.37p

3.            Dividends

	Year to 31 March 2024 £000	Year to 31 March 2023 £000
First interim dividend of 1.525p for the year ended 31 March 2024 (2023: 1.45p)	1,431	1,454
Second interim dividend of 1.525p for the year ended 31 March 2024 (2023: 1.45p)	1,386	1,451
Third interim dividend of 1.965p for the year ended 31 March 2024 (2023: 1.45p)	1,736	1,443
Proposed fourth interim dividend of 1.525p for the year ended 31 March 2024 (2023: 1.85p)	2,047	1,822
	6,600	6,170

The revenue reserves as at 31 March 2024 are £2,698,000, of this £2,047,000 will be used to fund the fourth interim dividend. The amount reflected above for the cost of the proposed fourth interim dividend for 2024 is based on 134,248,415 ordinary shares, being the number of ordinary shares in issue excluding those held in treasury at the date of this report. The articles of association of the Company permit dividends to be paid out of capital.

4.            Investments at fair value

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

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

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

Level 3: significant unobservable input (including the Company's own assumptions in determining the fair value of investments). The financial assets measured at fair value through profit or loss are grouped into the fair value hierarchy as follows:

At 31 March 2024	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	324,666	-	-	324,666
Net fair value	324,666	-	-	324,666
At 31 March 2023	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	234,362	-	-	234,362
Net fair value	234,362	-	-	234,362

5.            Share capital

There were 11,855,197 shares bought back during the year to 31 March 2024 at a cost of £25,891,000 (2023: 1,616,500 shares at a cost of £3,586,000). During the year, the Company issued 52,889,037 shares following the transaction with Troy Income & Growth Trust plc, for net proceeds of £117,752,000 (2023: 1,575,000 shares issued from treasury for net proceeds of £3,631,000).

6.            Related party transactions

With the exception of the management and secretarial fees, directors' fees and directors' shareholdings (disclosed on page 34 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 2024 was £1,366,000 (2023: £1,516,000), of which £302,000 (2023: £386,000) was outstanding at the year-end. The secretarial and directors' fees payable in respect of the year ended 31 March 2024 are detailed in note 4 of the annual report. The amount outstanding at the year end for secretarial fees and directors' fees was £4,000 (2023: £18,000) and £nil (2023: £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 2024 will be sent to shareholders in May 2024 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 2024 will be lodged with the Registrar of Companies.

 

END