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Henderson Alt Strat (HAST)

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Tuesday 04 August, 2020

Henderson Alt Strat

Annual Financial Report

RNS Number : 0052V
Henderson Alternative Strat Tst PLC
04 August 2020
 

 Legal Entity Identifier: 213800J6LLOCA3CUDF69

 

HENDERSON ALTERNATIVE STRATEGIES TRUST PLC

 

Financial Report for the year ended 31 March 2020

 

 

This announcement contains regulated information

 

INVESTMENT OBJECTIVE

The Company's Investment Objective and Policy was changed on   3 July 2020, following approval from shareholders in general   meeting. The new Investment Objective is to conduct an orderly   realisation of the assets of the Company, to be effected in a manner   that seeks to achieve a balance between returning cash to   shareholders promptly and maximising value whilst retaining   investment trust status.

 

PERFORMANCE HIGHLIGHTS1

 

· Total dividend of 5.50p per ordinary share for the year to 31 March 2020

 

· NAV of 286.9p at the year end

 

· NAV total return of -13.8% over the year to 31 March 2020

 

31 March 2020

31 March 2019

NAV per ordinary share

286.9p

335.5p

Total return per ordinary share

(46.1p)

9.8p

Share price per ordinary share

212.0p

270.0p

Market capitalisation

£82.0m

£104.4m

Discount2

26.1%

19.5%

 

 

 

Interim dividend

-

5.00p

Final dividend3

5.50p

2.50p

Total dividend

5.50p

7.50p

 

 

 

Number of investments4

40

44

Ongoing charge5

0.90%

0.94%6

 

 

1.  Figures in respect of the year ended 31 March 2020 compared to the previous 18-month period ended 31 March 2019

2.  Discount calculated using year-end audited NAVs including current-year revenue

3.  2020 final dividend subject to shareholder approval at the annual general meeting on 16 September 2020

4.  Excludes nil-valued securities

5.  Calculated using the methodology prescribed by the AIC 

6.  Annualised for the 18 -months ended 31 March 2019

 

 

CHAIRMAN'S STATEMENT

 

I present to shareholders the full year report and financial statements of the Company for the year ended 31 March 2020.

 

Company Background

Your Company has pursued a specialist multi-strategy and alternatives investment approach for many years, and which predates the move to our current investment manager ( Henderson Investment Funds Limited appointed April 2013 ). During this period, the Alternatives asset class has grown in size and scope, with many new opportunities appearing in the investment universe. Their common thread is that these require careful selection, diligence and curation and your Board remain of the view that a listed investment company structure, with professional and independent governance, is an important access vehicle for many investors who seek exposure to a diversified portfolio of alternative assets. However, your Board recognises that the prevalence of persistent discounts to net asset values (which exist for many reasons, poor performance included) is a less attractive feature for long term investors.

 

New Company Investment Strategy

Your Board recognises that hitherto the Company has failed, despite the opportunities presented, to deliver the net asset value improvement and share price performance anticipated by its shareholders. Having considered at length the options available to it, as well as evaluating the potentially beneficial impact of share buybacks, tender offers and continuation votes, your Board asked its recently appointed senior manager Alex Barr in September 2019 to undertake a thorough review of the portfolio and the Company's competitive positioning. As we set out in January ( Company Update announcement, 16 January 2020, RNS number 9478Z ), that review concluded that the best way to improve performance, and to reduce the persistent discount, would be to increase its investment in more illiquid alternative investment strategies which demand enhanced due diligence and offer the rewards which accrue from skilled stock selection. The Board was advised also that its larger shareholders had little appetite for any increase in the illiquidity of the portfolio and that, for many, there was a preference for realising their investment in an orderly fashion. Accordingly, the Board committed itself to bring forward proposals to return cash to shareholders by realising the Company's portfolio of assets in an orderly and, wherever possible, in a value-generating manner.

 

In February the Board set out details ( publication of Circular and Notice of General Meeting, 24 February 2020, RNS number 8101D ) of a modified Investment Objective and Policy that would allow the Company's assets to be realised in both a methodical and orderly manner and to strike a balance between selling assets promptly and maximising value. We also gave notice of a general meeting to be held on 25 March. Shortly before this meeting, having monitored the disruptive impact of the COVID-19 virus on markets, which is discussed fully by your investment managers in their report, and which gave rise to highly volatile market conditions, we announced ( Adjournment of General Meeting notice, 19 March 2020, RNS number 8490G ) that an immediate change to an active realisation policy would not be in the best interests of shareholders and, in the light of Government restrictions, that the general meeting would be adjourned to a future date.

 

Having reiterated in that announcement our commitment to put before shareholders the resolution set out on 24 February, the Board took advantage of government legislation on general meetings to hold the meeting on 3 July 2020, at which the resolution was passed by poll and a majority of 99.9% of shareholders who voted. As a result, the Manager has now commenced the programme to realise the Company's assets in an orderly manner, and further details will be sent to shareholders once sufficient cash has been raised to start returning it to them.

 

Performance, Discount and Dividend

During the period under review the Company's Net Asset Value ("NAV") per share fell to 286.9p. Inclusive of the final dividend of 2.5p paid on 2 August 2019 shareholders received a (Sterling) NAV total return of -13.8% for the year to 31 March 2020. By way of comparison, the Company's benchmark, the FTSE World Total Return Index, returned -6.0% for the same period whilst the Company's share price fell by 20.8% (Index source, Bloomberg, NAV source Janus Henderson Investors) both on a total return basis.

 

A number of factors affected the Company's portfolio performance, particularly in its final quarter. Whilst the Company's private equity portfolio delivered good relative performance in the first half of the financial year, such gains were lost during the turmoil at year end. In the uncertainty created by the apparently unstoppable spread of COVID-19 and the closing-down of economies by concerned authorities, few companies were able to escape the severe market downturn. The prices of companies which offer alternative asset strategies tend to suffer disproportionately as a consequence of their comparative lack of transparency and of their illiquid nature. Poor price performance tends to be exacerbated by the inability to trade in volume owing to the disappearance of those who previously made markets in the shares. Already susceptible to such elements, the Company lost further support as a result of the Board's decision to postpone its EGM, in line with Government advice to companies. Fortunately, the Company's hedge fund and commodities strategies proved resilient and outperformed their respective indices whilst April proved a better month both for asset and share price appreciation.

 

Your investment managers address these issues in detail in their report which covers the adverse effect of stock selection in the first half of the financial year and the impact on the Company's portfolio in February and March of indiscriminate selling of all risk assets, which they consider to be the primary driver of negative performance.

 

At the period-end, the share price discount to NAV stood at 26%, having widened over the period from 20%, for the reasons outlined earlier. The discount has since narrowed to 10.6% at 17 July 2020 (the latest practicable date before this report).

 

Having committed in our last Annual Report (for the 18-month period to end March 2019) to maintain current dividend levels and, having said that we would use accumulated revenue reserves where necessary, your Board's view remains unchanged. Indeed, given the uncertainty around cancellation of dividends more generally throughout this crisis, the role listed investment companies play as reliable sources of income is as important as ever. In anticipation of shareholder approval at the AGM, your Board is pleased to propose a dividend of 5.5p per share (2019: interim: 5.0p; final: 2.5p (18-month period)) which will be payable on 12 October 2020 to shareholders on the register on 24 September 2020.

 

Fund Management Team

It has been a difficult year for our managers and their thoughtful response to the unusual challenges of markets and economies should not be underestimated by shareholders. Having obtained shareholder approval to change our Investment Policy, the Board now looks to our managers to realise our investment portfolio and to maximise and return the best attainable value to our shareholders.

 

Outlook

The social, economic and financial impact of COVID-19, has been, and remains, immense, with great uncertainty governing the shape of policy response and the nature and timing of recovery. With many individual businesses and certain business sectors requiring wholesale recapitalisation, with huge damage caused to fragile supply chains and with heavily dented consumer confidence, few business models remain truly unaffected. Some of these less damaged businesses sit within the alternatives space (certain 'availability' based infrastructure assets ( an 'availability based' project allows a private infrastructure company to receive regular payments, per the agreed contract terms, once the asset has been 'delivered and is available for use'. Payments are therefore not contingent on usage levels ) , for example) but equally there are areas that may see significant asset write-downs. For many illiquid asset classes net asset values for the first quarter will not be available for some time and the full financial impact will take time to become clear. The consequence of such limited visibility is reflected in wider spreads for many assets (regardless of whether public or private), itself a function of lower volumes and more limited buyer availability.

 

Your investment team remained fully aware of the Board's commitment to introduce a resolution to realise the assets of the Company, and agreed with the Board that further illiquid assets would not be added to the existing portfolio and that best efforts should be made to enhance the liquidity profile of the Company's investment portfolio as the shareholder vote approached. As stated previously, the full realisation process is expected to last no longer than two years.

 

Due to continued restrictions and uncertainties about the COVID-19 pandemic, this year's Annual General Meeting will be held as a closed meeting for the safety of our shareholders. I would strongly encourage shareholders to use their forms of proxy to vote, and, if they have any questions they would like to submit to the Board, or the Fund Managers, to do so in advance of the meeting by writing to [email protected].

 

Richard Gubbins

Chairman

3 August 2020

 

 

FUND MANAGERS' REPORT

 

Overview

At the end of March 2020 the Company was invested in 40 individual investments, accounting for 93.6% of the NAV.

 

Performance

In local currency terms the portfolio generated a total return of -12.7%, and in sterling terms -11.8% (Includes investment returns (and fees) on the Company's cash allocations, and all fees charged by underlying managers during the year. Excludes management and other fees charged by Henderson Investment Funds Limited)

 

We set out asset class level performance contribution (Sterling, gross of fees. Source - Janus Henderson Investors) here:

 

Investment  category

Contribution %

Average Weighting%

Private Equity

-4.1

31.2

Hedge  Funds

0.6

18.2

Public Equity

-5.4

14.8

Credit

-3.0

12.7

Property

-0.6

10.0

Commodities

0.7

4.8

 

Global financial markets experienced a wholesale sell-off in February and March 2020 as a direct reaction to the COVID-19 virus' spread throughout the world, and the subsequent steps taken to lock down many nations' economies. The cessation of most forms of travel, trade, economic development, hospitality and leisure have left very few asset classes unaffected, and many countries remain in some form of restrictive lock down or are taking steps to remobilise their economies and social systems. Portfolio performance was therefore significantly negative for the year under review as a direct result of this, and combined with the impact earlier in the financial year from key stock events experienced in mid-2019 discussed below.

We discuss performance by sector and start with private equity.

As set out in out in our half year report (update for the six-month period to 30 September 2019), we saw strong performance from listed private equity (PE) investments (which included Harbourvest Global Private Equity and 3i Group), and unlisted investments Mantra Secondary Opportunities and Renewable Energy & Environmental Infrastructure Fund II ("REEIF"). The listed PE portfolio saw re-ratings as well as strong underlying NAV growth, whilst Mantra and REEIF achieved healthy, profitable exits from underlying investments during the period. As markets reacted adversely in the final quarter of the Company's year to the rapidly developing COVID-19 pandemic, listed private equity discounts widened as investors became concerned over the quality of lagged NAVs and those funds' over-commitment ratios (Private Equity limited partnership funds report (for those reporting quarterly) on a one quarter lagged basis. Certain listed 'fund of private equity funds' use fair value adjustments to reflect changes in value of similar assets in public equity vehicles). Whilst the private equity industry has become more conservative in the wake of the 2007-2009 global financial crisis ("GFC") with regard to leverage use and commitment coverage, the greater prevalence of debt usage throughout the private equity eco-structure is of a more recent issue. The immediate outlook for portfolio company exits (sales) has been, and remains, of additional concern, and was a key factor in listed private equity discount widening.

 

Riverstone Energy, the listed private equity investor in US oil and gas ventures, fell heavily in the three months to mid-October last year, against the backdrop of a declining oil price and which translated into reduced growth forecasts for US domestic energy producers. Subsequent to this unhappy occurrence, the onset of COVID-19 dented heavily oil related investments' values owing to the significant drop in demand for oil - the IEA (International Energy Agency) expect global oil demand to fall by a record 9.3mb/d (source, IEA Oil market Report April 2020. Mb/d is 'million barrels per day') year-on-year in 2020. Our thesis for holding Riverstone post its initial fall was predicated on its deep value discount to NAV, indeed, the company's current market capitalisation remains less than its balance sheet net cash (as at 1 May, source - JP Morgan). This state of affairs has allowed Riverstone's board to take action to narrow the discount (to NAV) by returning cash and we were pleased to see a significant share buyback announced this May and subsequently enacted. Riverstone has since rallied over  60% (source, Bloomberg. Riverstone performance +68%  1/5/20 to 14/5/20).

 

Our hedge fund exposure delivered a positive contribution to performance which was led by the Blackrock European HedgeFund and Sagil Latin American Opportunities Fund. With the former, drivers to performance have come from a bias to quality and growth, select long positions in the US and Europe and a very timely rapid move out of value cyclicals. Whilst the latter fund saw a low-teens drawdown in March, the 11-month performance prior had been strong, resulting thereby in a net positive return for the 12-month period. As we noted in our half year report, Sagil had impressed us in 2019, given the volatility originating in Argentina over the summer.

 

Our credit exposure as a whole benefited from a general tightening in spreads over the first half of our reporting year, although, sadly, such gains disappeared when spreads widened in the first quarter this year. The Ashmore Emerging Markets Short Duration Fund, with its three largest geographic exposures in China, Argentina and Ecuador, fell heavily as some of its liquid holdings saw disproportionate declines when investors made decisions to 'sell what they could, rather than what they wanted to' (source, Ashmore, 'Emerging View, April 2020').

 

Within our public equity allocation, we were hurt by the economic exposure ('economic exposure' represents the investment in the underlying index multiple multiplied by the number of contracts held) to our Euro Stoxx 50 Index Dividend Future (expiry date 16/12/22) investment, a marked detractor to performance. Our original purchase was based on the better risk/reward characteristics of dividend futures at the time versus mainstream European equities. Dividends have historically proven to be more robust than earnings in previous recessions, and are also not subject normally to the de-rating effect that stocks suffer from as investors de-risk in the face of economic uncertainty. Nevertheless, dividend futures are vulnerable to significant price weakness in moments of heightened volatility as experienced this March, and this was notably pronounced as companies were forced to stop distributions in return for state bailouts (or took the opportunity to delay or cut dividends in order to preserve cash). As dividends are generally paid from profits from the previous calendar year, we feel confident that by 2022 most cyclical sectors will have re-instated their payouts, while more defensive companies will feel confident enough to resume their progressive payment policies. Moreover, weaker companies which cannot support dividend distributions tend to fall out of the index and are replaced by firms that have proven to have more resilient characteristics.

 

Burford Capital, a litigation funding business, fell heavily in August following a critical research note published by short-seller Muddy Waters. The circa 50% fall in Burford's share price was concentrated over a two-day period. Muddy Waters' report had, amongst other points, alleged that Burford misrepresented returns and had poor governance. Whilst Burford management acted swiftly to address all issues, absolute performance has remained lacklustre, with many investors reluctant to return, despite significant resolution of transparency and liquidity concerns. The former (transparency, and in particular, its improvement) was one of several catalysts that we felt might serve to rebuild 'the fragile confidence in the company' that we referred to in our half year results. Whilst not fully immune from the COVID-19 crisis (which may impact on short term realisations and cash deployment) litigation funding remains an attractive long-term asset class, with pay-off structures not dissimilar to venture capital. This longer-term thesis is supported by the significant discount to which Burford trades compared to analysts' price targets.

Positive performance was delivered from Worldwide Healthcare Trust, driven by underlying M&A activity and more recently strong performance in biotech and medical devices.

Within our property allocation the contribution from Summit Properties and Urban Logistics was positive. however Overall returns, however, were impacted in this area by the long-term holding of CEIBA Investments, the listed Cuban Real Estate investor which has seen its discount to NAV widen primarily as a result of tightening US sanctions against Cuba. Whilst Cuba appears not to have been affected significantly by COVID-19, CEIBA has suffered hotel closures, has had to curtail hotel and resort development as a result of unavoidable lockdown and control measures and has consequently announced the cancellation of its 2020 dividend.

 

Our commodity exposure is effected through the Bank of America Merrill Lynch Commodity market neutral approach which performed strongly over the year. This systematic strategy generates returns from persistent inefficiencies ('risk premia') in commodity futures markets. The strategy performs particularly well when there is over-supply in markets, which became especially acute late in the period when most economies went into lockdown and demand for basic resources evaporated.

 

Activity

It has been an eventful year, with post-December portfolio decisions taken in the context of the 'risk-on' market environment that followed Boris Johnson's decisive UK electoral win in mid-December replaced by the rapid global onset of COVID-19 through 2020. The national (and broader European) Brexit angst seen through all of 2019 and the uncertainty around the China/US trading relationship seem long forgotten now, though these were pillars of our market view only six months ago. With regard to 2020 events, it feels helpful for context to highlight the levels of market volatility experienced - the VIX (The VIX index or Chicago Board Options Exchange Volatility Index. Estimates the expected volatility of the S&P500 index) delivered volatility levels in February and March considerably greater than those seen at the peak of concerns during the GFC and other similar market events. Indeed volatility remained elevated into summer 2020. Experience of past events reminds us that our ability (or otherwise) to act with any degree of certainty through such extraordinary periods is likely to be tested and we dwell on this in the outlook and strategy section.

 

Our new investments were all in liquid or listed strategies and funded through a combination of ongoing distributions from legacy private equity, other liquidity events, and asset sales.

 

In June we added the CIFC Global Floating Rate Credit Fund. CIFC is a US-based credit specialist and one of the largest managers of CLOs (Collateralised Loan Obligations - single securities backed by a pool of (usually) corporate loans. As implied, the loans are collateralised (or backed) by assets). The strategy invests in debt tranches of CLOs, with a minimum 45% in investment grade loans and targets a total return of 8%.  Whilst the CLO asset class has not escaped events this year, the fund has outperformed the broader CLO market. We believe that the manager will be able to continue to generate attractive returns. Whilst underlying loan default rates are forecast to approach levels similar to the aftermath of the financial crisis we believe the manager's focus on higher-rated tranches will protect capital losses even if distributions are temporarily delayed.

 

In July we added positions in Augmentum Fintech and New Energy Solar. Augmentum focuses on early-stage investing in fintech (financial technology) companies within Europe and has a number of fundamentally attractive holdings. As a result of COVID-19 we do see some short-term pressure on the financing of fintech, and similar issues on very near-term growth, but, with proven benefits accruing to both personal and enterprise adopters of fintech. New Energy Solar is an Australian-listed solar park developer and operator and has experienced so far no direct impact from COVID-19. We continue to see such assets as good diversifiers and New Energy offers a c7% yield. We follow with attentiveness the sale process currently underway for part interests in some of their assets. Within this latter infrastructure space we also introduced International Public Partnerships ("INPP") and added to HICLInfrastructure immediately after the UK general election. In the long build up to the election there had been much speculation with regard to a possible Labour government's intentions potentially to nationalise PFI/PPP contracts. Such speculation had weighed heavily on this sector. INPP was added to bolster our existing listed infrastructure exposure as was 3i Infrastructure ('3IN") on the final day of our financial year. 3IN has an exceptionally attractive diversified portfolio of economic infrastructure assets which includes Tampnet, an offshore communications network operator focused on the North Sea and Gulf of Mexico.

 

Within private equity we added two new listed names, Oakley Capital Investments and Pantheon International. Oakley has a strong track record of investing alongside successful entrepreneurs in high growth areas. We were able to buy the shares at a particularly wide discount owing to some technical selling as the trust moved to the specialist funds segment of the London Stock Exchange. As we note in the performance review, listed private equity names performed well in our first half and, indeed, continued to do so until February. Pantheon was introduced towards the end of March, following the heavy discount widening seen in listed private equity and after the decision to postpone the general meeting of Henderson Alternative Strategies Trust (HAST). Pantheon has a high quality, well diversified portfolio and, importantly in respect of HAST's requirements, has good liquidity. In view of HAST's possible move to a realisation mandate, Pantheon was added only as a small position. Whilst Private Equity will be impacted by this crisis, with further deterioration in finalised NAVs for this year's first two quarters likely, the discount widening seen in March appears to over-compensate for this outcome. Listed PE names have behaved more or less as they did during the GFC and history suggests that adding these names at the point of maximum pessimism can be sensible.

 

We sold Summit Properties, a listed real estate business in February, having trimmed in November after a period of strong performance. Having become increasingly concerned about governance of the business, and liquidity in the shares, our full exit came shortly before an unattractive take private bid.

 

In respect of trading activity, in the first half of the year we added to Safeguard Scientifics and Sigma Capital Group at attractive valuations and we also increased our investment in Sagil Latin American Opportunities Fund. We took profits in stocks which had performed particularly well, such as 3i Group PLC and Harbourvest Global Private Equity and improved overall liquidity by trimming less frequently traded holdings such as CEIBA Investments and Axiom European Financial Debt. We also consolidated our emerging market debt positions. We sold out of our local currency exposure and invested the proceeds into the USD denominated short duration fund run by Ashmore (Ashmore Emerging Markets Short Duration Fund). In our second half year, we have been active in 3i, both trimming and adding again as market conditions changed. We de-risked our position in German residential property business Deutsche Wohnen in March, by trimming it to raise cash and had similarly trimmed our position in the relatively illiquid Urban Logistics in December, following strong performance.

 

Outlook and Portfolio Strategy

In the latter part of 2019 investors' focus had been on the ongoing deterioration in key global economic indicators and on rising recessionary fears. Economic data appeared, however, to improve in early 2020, boosting hopes thereby that earnings might justify the high valuations of elevated global equity markets. As we suggested in our opening comments, everything changed with the spread of COVID-19. Of the many ways in which this is different from the GFC, it is perhaps the humanitarian consequences that are likely to have the most profound impact, not just on society but on how any portfolio of financial assets behaves. With 2020 consensus forecasts for the G8 having fallen from 1% to -5%, and a wide difference in estimated timelines to eventual recovery, it is clear that many businesses - starved of footfall and, in many cases, capital - will suffer irreversible damage. Equity markets do seem to be looking through these challenges which partially explains the post-March 'risk-on' rally that appears to have restored some equilibrium. It may be that investors are choosing to focus more on the upside risks, for example, faster release of countrywide lockdowns, or better news on vaccine development. The year to date performance of technology has been extraordinary, for instance, with the NASDAQ 9.6% up versus its February peak and 20.1% up year to date in dollar terms.

 

For many of our asset classes, credit and private equity in particular, managers will face significant challenges in delivering performance from existing portfolios, but for those with established longer-term investments, and those with cash to deploy now, the post crisis investment period is likely to offer rewarding opportunities.

 

As managers we have been through extraordinary market events previously and have learnt that patience must play its role in portfolio management, particularly in alternatives and particularly in times such as these. Our approach to trading through this period has not been wholly to discard risk assets in a rapidly falling market but, rather, to test recovery scenarios against our original investment theses, which for the most part appear intact. As managers of this portfolio, we have the additional challenge of not only managing to an equity-based benchmark, but to continue to do that whilst mindful that shareholders appeared supportive of adopting a realisation investment policy. As your Chairman, Richard Gubbins, notes in the preceding report, this was originally due to be put to shareholders in March but was adjourned, and the meeting subsequently reconvened and resolution passed in early July. We agreed with your Board that we would not make any commitments to illiquid assets, nor did we pre-empt the outcome of that vote by moving to realise assets before it. Where we traded, it was with a liquidity and quality improvement bias. Since the resolution has now passed, we have begun to liquidate assets in a careful and considered way and will provide updates on the expected liquidity timeline via our monthly factsheets.

 

Alex Barr, James de Bunsen and Peter Webster

Fund Managers, Janus Henderson Investors

3 August 2020

 

 

INVESTMENT PORTFOLIO

 

 

 

Portfolio

Investments

Focus

Market Value £'000

%

 

 

 

 

BlackRock European Hedge Fund Limited 3

Hedge Funds

8,520

8.2

Mantra Secondary Opportunities 4

Private Equity

7,735

7.4

Bank of America Merrill Lynch Commodity 2

Commodities

6,917

6.7

Sagil Latin America Opportunities Fund 3

Hedge Funds

5,605

5.4

Renewable Energy & Environmental Infrastructure Fund Ii (A) 4

Private Equity

5,286

5.1

KLS Sloane Robinson Emerging Market Equity Fund 3

Public Equity

5,023

4.8

HICL Infrastructure 1

Public Equity

4,405

4.2

DMS UCITS Platform ICAV CIFC Gbl Floating Rate Cdt B2 3

Credit

4,281

4.1

Worldwide Healthcare Trust PLC 1

Public Equity

4,243

4.1

Ceiba Investments Limited 1

Property

4,211

4.1

Ten largest

 

56,226

54.1

 

 

 

 

Majedie Asset Management Tortoise Fund 3

Hedge Funds

4,062

3.9

Baring Vostok Investments Limited Core 2

Private Equity

3,444

3.3

Intl Public Partner 1

Public Equity

3,244

3.1

Ashmore Emerging Markets Short Duration Fund 3

Credit

3,191

3.1

Harbourvest Global Private Equity Limited 1

Private Equity

2,663

2.6

Safeguard Scientifics Inc 1

Private Equity

2,449

2.4

3i Group plc 1

Private Equity

2,357

2.3

Eurovestech plc 2

Private Equity

2,343

2.3

Princess Private Equity Holding Limited 1

Private Equity

2,172

2.1

Urban Logistics REIT 1

Property

2,117

2.0

Twenty largest

 

84,268

81.2

 

 

 

 

Helium Selection Fund3

Hedge Funds

2,025

1.9

Oakley Capital Investments 1

Private Equity

1,921

1.8

NB Distressed Debt Investment Fund Limited - Global Shares 1

Credit

1,904

1.8

Sigma Capital Group PLC 1

Public Equity

1,601

1.5

Deutsche Wohnen 1

Property

1,549

1.5

New Energy Solar 1

Public Equity

1,390

1.3

Axiom European Financial Debt Fund Limited 1

Credit

1,196

1.2

Toro Limited 1

Credit

1,175

1.1

Burford Capital Ltd 1

Public Equity

1,118

1.1

3i Infrastructure plc 1

Public Equity

1,051

1.0

Thirty largest

 

99,199

95.4

 

 

 

 

Amber Trust SCA 4

Private Equity

960

0.9

Firebird Republics Fund SPV 4

Private Equity

911

0.9

Augmentum Fintech PLC 1

Private Equity

708

0.7

Riverstone Energy Limited 1

Private Equity

597

0.6

ASM Asian Recovery Fund 4

Hedge Funds

549

0.5

NB Distressed Debt Investment Fund Limited - Extended Life Shares 1

Credit

429

0.4

Century Capital Partners IV L.P. 4

Private Equity

378

0.4

Pantheon International 1

Private Equity

66

0.1

Armadillo Investments 4

Private Equity

64

0.1

 

 

 

 

Thirty nine largest

 

 

103,858

100.0

Other investments

 

Various

-

100.0

Total Investments (excluding derivatives)

 

 

 

103,858

100.0

EUX Euro Stoxx 50 Index Dividend 22 Future (Exp 16/12/22)5

 

 

 

(2,158)

 

Cash and other net current assets

 

 

9,271

 

Net assets

 

 

110,971

 

 

 

 

 

 

 

1.  Listed on Major Market

2.  Listed on Minor Market

3.  Unlisted investment with redemption rights

4.  Unlisted investment without redemption rights

5.  The unrealised loss of 2,158,000 represents the difference between the "economic exposure" and the settlement value

 

1.  Major Market includes London Stock Exchange full listing and AIM), Euronext and Singapore Stock Exchange

2.  Minor Market includes: Luxembourg Stock Exchange, Channel Islands Stock Exchange, Bermuda Stock Exchange, ISDX and LMMX

 

Managing Risks

In accordance with the AIC Code and FRC Guidance, the Board has established procedures to identify and manage risk and to determine the principal risks and uncertainties to which the Company is exposed in achieving its long-term objectives. The Company's principal risks are considered to be those that would threaten its business model, future performance, reputation, solvency and liquidity. In addition, it is the Board's responsibility to identify emerging risks which it defines as events, trends or uncertainties that are at an early stage of development but could pose a significant threat to the Company's future and require further monitoring and investigation.

 

Principal Risks

The Board, with the assistance of the Manager, regularly carries out a robust assessment of the principal risks facing the Company and seeks assurance that the risks are appropriately evaluated and that effective mitigating controls are in place, where possible. To aid the process, the Company has drawn up a detailed risk matrix, where the individual risks and the application of any relevant controls are described. Such safeguarding measures may be established by the Board itself: for example, the Board has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, to which the Manager must adhere and report upon monthly. Alternatively, the design and application of controls may be delegated by the Board to the Company's third-party service providers, who report regularly to the Board on the effectiveness of their control environments. Using a colour coded traffic light system, each risk within the matrix is assessed, scored and prioritised according to the severity of its potential impact on the Company and its likelihood of occurrence. The principal risks which have been identified as part of this process, and the steps taken by the Board to mitigate these, are set out in the table below.

 

The Board does not consider these principal risks to have changed during the course of the reporting period and up to the date of this report with the exception of the 'risks associated with Brexit' that are now considered as an emerging risk. In light of the circumstances,  COVID-19 is specifically referred to in operational risk.

 

Risk

Controls and mitigation

Investment Strategy and Performance

Poor investment performance

 

 

 

 

 

Failure of the Manager

 

 

 

Loss of Fund Manager or management team

 

 

Failure of strategy

 

The Board monitors investment performance at each meeting and the Fund Managers are committed to maintaining a diversified portfolio. Market risk is mitigated through the activities set out in note 15 to the financial statements. As the new Investment Policy is implemented, the Board will monitor the liquidity and stability of the portfolio.

 

The Board seeks assurances that the Manager maintains and tests business continuity plans to ensure operations can be maintained in the event of a business disruption.

 

The Board seeks assurances from the Managers that the Multi-Asset team is suitably resourced and that the Fund Managers are appropriately remunerated and incentivised in their roles.

 

The Board examines strategy and whether it remains appropriate at each meeting, which includes distribution strategy, market communication, drift from mandate and regulatory change. The Board reacts to any indication that the strategy has failed, which it has done by putting a change of Investment Objective and Policy to shareholders earlier this year.

Operational Risks including Cyber

Risks, Pandemic and Epidemic Risks

and Risks Relating to Terrorism and

International Conflicts

Risk of loss through inadequate or failed

internal procedures, policies, processes,

systems or human error. This includes risk of loss to the Company's third-party service providers as a result of inadequate procedures, policies, processes, systems or

human error.

 

Risk of financial loss, disruption or damage to the reputation of the Company, the Manager and the Company's other third-party service providers, as a result of failure of information technology systems.

 

Risk of loss as a result of external events

outside of the Board's control such as

pandemic and/or epidemic risks and risks

relating to terrorism and/ or international

conflicts that disrupt and impact the global economy. This includes the risk of loss to the Company's third-party service providers that are also disrupted and impacted by such events.

 

 

 

 

The Board receives a quarterly internal control report from the Manager to assist with the ongoing review and monitoring of internal controls and risk management systems it has in place.

 

The Board regularly receives reports from the Manager's Internal Audit, Risk, Compliance, Information Security and Business Continuity Teams. This provides assurance that the Manager has appropriate policies and procedures in place to be able to continue in operation and maintain stability in times of such risks. In particular, the Board asks the Manager to confirm that the Fund Manager can continue to manage the portfolio in these circumstances. The Board has received assurance from Janus Henderson that the impact of the COVID-19 pandemic has been managed and that the Manager's key third-party providers have appropriate policies and procedures such that service to the Company has not been adversely affected.

 

The Board makes similar enquiries of its key third-party service providers to gain assurance that they too have appropriate policies and procedures in place to be able to continue in operation and maintain stability in times of such risks.

 

Please refer to the Report of the Audit Committee in the annual report for further details about Internal Control and Risk Management.

Regulatory/Operational

Failure of a key third-party service provider

 

Breach of internal controls

Loss of s.1158 status

 

Breach of company law or Listing Rules resulting in suspension

 

The Board receives regular reporting from its key third-party service providers.

 

The Audit Committee reviews the independently audited reports on the effectiveness of internal controls in place at each of its key third-party service providers, monitors compliance with the investment mandate and receives quarterly internal control reports from the Manager and quarterly reports from the depositary on the safe custody of the Company's assets.

 

The Manager regularly reviews and reports on compliance with s.1158.

Discount

The Company's shares trade at an increasingly wide discount to NAV

 

The Board monitors the level of the Company's discount to NAV per share and reviews the average NAV for the AIC Flexible Investment sector at each meeting.

 

The Board regularly reviews with the Fund Managers and the Company's brokers measures to maintain demand in the Company's shares, including a full range of discount control mechanisms.

 

The Board considers these risks to have remained unchanged throughout the year under review.

 

Emerging Risks

With the help of the Manager's research resources and using its own market intelligence, the Board continually monitors the changing risk landscape and any emerging and increasing threats to the Company's business model. Such emerging risks could cause disruption for the Company, if ignored, but, if identified, could provide business opportunities. The emerging risks identified below are currently being evaluated and monitored.

 

Risks Associated with Brexit

Risk that whatever the implications of the UK's exit from the European Union and any forthcoming trade negotiations and transitional arrangements, the portfolio will be subject to greater market price risk volatility and specific stock risk as a result.

 

It is difficult to evaluate all of the potential implications on the Company's business and the wider economy. The main exposures are related to potential currency volatility affecting the value of the Company's holdings. The Board is confident that the Manager and its other key service providers will continue to operate for the foreseeable future whatever the outcome of the trade negotiations and transitional arrangements following the UK's departure from the EU

 

 

 

VIABILITY STATEMENT

The directors have assessed the viability of the Company over the expected realisation period (expected to be no longer than two years) taking account of the Company's current position and the potential impact of the principal risks and uncertainties as documented in this Strategic Report. In assessing viability, the directors have considered the approval by shareholders of the change to the Company's investment objective and policy with a view to realising the Company's assets in an orderly manner in order to return cash to shareholders and subsequently liquidate the Company. The directors have a reasonable expectation that the Company will be able to continue in operation and meets its liabilities as they fall due until such date that the Company is put into members' voluntary liquidation. The assessment has considered the possible impact of the principal risks and uncertainties facing the Company throughout the realisation period and the likelihood of their materialising in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.

 

The directors took into account the nature of the investment portfolio, including its liquidity, redemption restrictions that exist on certain investments, and the income stream that the current portfolio generates in considering the viability of the Company over the realisation period and its ability to meet liabilities as they fall due.

 

The directors do not expect there to be any significant change in the current principal risks and in the adequacy of the mitigating controls over the realisation period. The directors do not envisage any other events that would prevent the Company from continuing to operate over that period as the Company's assets are sufficiently liquid, its commitments are limited and the Company intends to continue to operate as an investment trust until it is placed into liquidation. In making their assessment, the directors have considered the impact that the ongoing Covid-19 pandemic may have on the realisation plan and subsequent liquidation.

 

The ongoing operation of the Company was subject to a continuation vote every three years, with the next vote due to take place in 2021. The approval by shareholders of the change in investment objective and policy, which will see the orderly realisation of the Company's assets and cash returned to shareholders means the continuation vote will no longer be necessary.

 

Based on this assessment, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the assessment period.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES UNDER DTR 4.1.12

Each of the directors confirms that, to the best of their knowledge:

 

· the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards comprising FRS 102 and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

 

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

 

 

For and on behalf of the Board

 

 

Graham Oldroyd

Director

3 August 2020

 

INCOME STATEMENT

 

 

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

 

 

 

 

Revenue

return

£'000

Capital

return

£'000

 

Total

£'000

(Losses)/gains on investments at fair value through profit or loss

-

(18,575)

(18,575)

-

2,285

2,285

 

Exchange differences

-

15

15

-

32

32

 

2

Investment income

2,211

-

2,211

3,312

-

3,312

 

Gross revenue and capital gains

2,211

(18,560)

(16,349)

3,312

2,317

5,629

 

3

Investment management fees

(151)

(602)

(753)

(247)

(989)

(1,236)

 

4

Other expenses

(409)

(273)

(682)

(611)

-

(611)

 

Net return before finance costs and taxation

1,651

(19,435)

(17,784)

2,454

1,328

3,782

  5

Finance costs

(3)

(10)

(13)

-

(1)

(1)

 

Net return before taxation

1,648

(19,445)

(17,797)

2,454

1,327

3,781

 

6

Taxation

(17)

-

(17)

-

-

-

 

8

Net return after taxation

1,631

 (19,445)

(17,814)

2,454

1,327

3,781

 

 

 

 

 

 

 

 

8

Return per ordinary share

4.22p

 (50.27p)

(46.05p)

6.34p

3.43p

9.77p

 

 

The Total columns of this statement represent the Income Statement of the Company. The Revenue return and Capital return columns are supplementary to this and are prepared under guidance published by the AIC. The Company had no recognised gains or losses other than those recognised in the Income Statement. No operations were acquired or discontinued in the year. All revenue and capital items in the above statement derive from continuing operations. 

 

 

STATEMENT OF CHANGES IN EQUITY

 

 

 

 Year ended 31 March 2020

 

 

 

Notes

 

 

Share

capital

£'000

Share premium

account

£'000

Capital redemption

reserve

£'000

 

Capital reserve

£'000

 

Revenue

reserve

£'000

 

 

Total

£'000

 

Balance at 1 April 2019

9,670

10,966

8,783

98,582

1,751

129,752

 

Net return after taxation

-

-

-

  (19,445)

1,631

(17,814)

7

Ordinary dividends

-

-

-

-

(967)

(967)

 

Balance at 31 March 2020

9,670

10,966

8,783

79,137

2,415

110,971

 

 

 

 

 

 

 

 

 

 

 

 

 

18-months ended 31 March 2019

 

 

 

Share

capital

£'000

Share premium

account

£'000

Capital redemption

reserve

£'000

 

Capital reserve

£'000

 

Revenue

reserve

£'000

 

 

Total

£'000

 

Balance at 1 October 2017

9,670

10,966

8,783

97,255

3,068

129,742

 

Net return after taxation

-

-

-

1,327

2,454

3,781

7

Ordinary dividends

-

-

-

-

(3,771)

(3,771)

 

Balance at 31 March 2019

9,670

10,966

8,783

98,582

1,751

129,752

 

 

 

 

 

 

 

 

 

 

STATEMENT OF FINANCIAL POSITION

 

 

Notes

 

 

 Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

Fixed Assets

 

 

9

Investments held at fair value through profit or loss

-

113,014

 

Current assets

 

 

9

Portfolio Investments held at fair value through profit or loss

103,858

 

-

9

Money market fund investments held at fair value through profit or loss

7,553

 

14,810

10

Debtors

1,231

2,600

 

Cash and cash equivalents

32

-

 

Total current assets

112,674

17,410

11

Creditors: amounts falling due within one year

(1,703)

(672)

 

Net current assets

110,971

16,738

 

Total assets less current liabilities

110,971

129,752

 

 

 

 

 

Capital and reserves

 

 

12

Called up share capital

9,670

9,670

 

Share premium account

10,966

10,966

 

Capital redemption reserve

8,783

8,783

 

Capital reserve

79,137

98,582

 

Revenue reserve

2,415

1,751

 

Total equity shareholders' funds

110,971

129,752

 

 

 

 

8

Net asset value per ordinary share

286.91p

335.46p

 

 

The financial statements were approved and authorised for issue by the Board of Directors on 3 August 2020.

 

 

 

Graham Oldroyd

Director

3 August 2020

 

CASH FLOW STATEMENT

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

Cash flows from operating activities

 

 

Net return before taxation

(17,797)

3,781

Add back: finance costs

13

1

Losses/(gains) on investments held at fair value through profit or loss

18,575

(2,285)

Withholding tax on dividends deducted at source

(17)

-

Decrease/(increase) in prepayments and accrued income

414

(971)

(Decrease)/increase in other creditors

(22)

283

Exchange movements: cash and cash equivalents

18

8

Net cash inflow from operating activities

1,184

817

Cash flows from investing activities

 

 

Purchases of investments held at fair value through profit or loss

(42,946)

(31,458)

Sales of investments held at fair value through profit or loss

37,716

44,231

Purchases of money market fund held at fair value through profit or loss

(30,142)

(43,283)

Sale of money market fund held at fair value through profit or loss

37,399

33,191

Future contract cash movements

(2,158)

104

Net cash inflow from investing activities

(131)

2,785

Cash flows from financing activities

 

 

Equity dividends paid

(967)

(3,771)

Interest paid

(13)

(1)

Net cash outflow from financing activities

(980)

(3,772)

Net increase/(decrease) in cash and equivalents

73

170

Cash and cash equivalents at beginning of year

(23)

155

Exchange movements

(18)

(8)

Cash and cash equivalents/(bank overdraft)

32

(23)

 

 

The presentation of future contracts cash movements were previously disclosed under operating activities. These have been reclassified in the current year and are now disclosed under investing activities 

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1

 

Accounting Policies

 

 

a) Basis of preparation

The Company is a registered investment company as defined in Section 833 of the Companies Act 2006 and is incorporated in the United Kingdom. It operates in the United Kingdom and is registered at the address in the annual report.

 

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 - the Financial Reporting Standard applicable in the UK and Republic of Ireland and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts ("SORP") which was issued in October 2019.

 

The principal accounting policies applied in the presentation of these financial statements are set out below. Other than being prepared on a non-going concern basis and the reclassification of fixed asset investments to be classified as current assets as explained in policy (h) in the financial statements, these policies have been consistently applied to all the periods presented. There have been no other significant changes to the accounting policies compared to those set out in the Company's Annual Report for the 18-month period ended 31 March 2019.

 

The financial statements have been prepared under the historical cost basis except for the measurement at fair value of investments. In applying FRS 102, financial instruments have been accounted for in accordance with Section 11 and 12 of the Standard.

 

On 26 February 2018, the Company announced that it was changing its financial year end from 30 September to 31 March with the aim of aligning more closely its reporting cycle to the receipt of valuations from the unquoted funds and other unlisted investments held in the portfolio. Therefore, the current financial accounting period for which financial statements have been prepared is the first twelve month period reported since the change. The comparative amounts presented in the financial statements (including the related notes) are for the 18-month period ended 31 March 2019 and are therefore not entirely comparable.

 

b) Going concern

As set out in the Chairman's Statement, the directors put forward to shareholders a proposal to change the Company's investment objective and policy with a view to realising the Company's assets and returning cash to shareholders before putting the Company into members' voluntary liquidation. The resolution to start this process was approved by shareholders at the general meeting on 3 July 2020. The directors believe that members will voluntarily resolve to liquidate the Company in due course following an initial realisation period and return of cash to shareholders. As a result of this, these financial statements have been prepared on a non-going concern basis. Further detail on the considerations and impact on the financial statements is provided in policies (g) and (h).

 

The directors do however believe that the Company has adequate resources to continue in operational existence, continue to operate as an investment trust and meet its ongoing liabilities for the realisation period until it is placed into liquidation.

 

c) Income

Investment income is included in the Income Statement and taken to the revenue return on an ex-dividend basis except where, in the opinion of the directors, the dividend is capital in nature in which case it is taken to the 'Gains or losses on investments held at fair value through profit or loss' in the capital return column. Deposit interest is included on an accrual basis.

 

d) Expenses and interest

Expenses and interest payable are accounted for on an accruals basis.

 

e) Investment management fees and finance costs

The investment management fee and interest payable have been allocated 20% to revenue and 80% to capital. The allocation is in line with the long-term historic split of returns, in the form of income and capital gains respectively, from the investment portfolio.

 

f) Taxation

The taxation charge represents the sum of current and deferred taxation. Current taxation is based on the results showing in the accounts and is calculated using the prevailing taxation rates. Deferred taxation is accounted for in respect of all material timing differences to the extent that it is probable that an asset or liability will crystallise. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods.

 

The tax currently payable is based on the taxable profit for the period. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for the current period's tax is calculated using the applicable rate of corporation tax for the accounting period.

 

In line with the recommendations of the AIC SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Income Statement is the 'marginal basis'. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Income Statement, then no tax relief is transferred to the capital return column.

 

Deferred taxation is provided on all timing differences that have originated but not been reversed by the Statement of Financial Position date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. Any liability to deferred tax is provided at the average rate of tax expected to apply based on tax rates and laws that have been enacted or substantively enacted at the Statement of Financial Position date. Deferred tax assets and liabilities are not discounted to reflect the time value of money.

 

g) Investments

The Company's investments are categorised as "fair value through profit or loss". All investments are held at fair value. For listed investments, this is deemed to be quoted bid prices as at 31 March 2020 or closing prices for SETS stocks sourced from the London Stock Exchange.

 

Derivative financial instruments are initially recorded at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Changes in fair value of derivative financial instruments are recognised in the Income Statement.

 

Unquoted investments are valued at fair value based on the latest available information, principally net asset value, and with reference to the International Private Equity and Venture Capital Valuation Guidelines, December 2018 and the Special Valuation Guidance issued in March 2020.

 

Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as "Gains or losses on investments held at fair value through profit or loss".

 

Transaction costs incurred on the purchase and disposal of investments are included in gains or losses on investments held at fair value through profit and loss as disclosed in note 9 in the annual report. All purchases and sales are accounted for on a trade date basis.As set out in policy (b), the financial statements have been prepared on a non-going concern basis. There have, however, been no changes to the basis of valuation of investments. The Company continues to value its financial assets on the basis disclosed in this policy. The time frame envisaged for the managed wind-down of the portfolio does not affect the valuation of assets or liabilities on the Company's balance sheet.

 

h) Significant judgements and estimates

The preparation of financial statements requires the Company to make judgements, estimates and assumptions that affect amounts reported for assets and liabilities at the Statement of Financial Position date and the amounts reported for revenues and expenses during the period. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances. The results form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. However, the nature of estimation means that the actual outcomes could differ from those estimates, possibly significantly. The estimates and underlying assumptions are reviewed on an ongoing basis. The estimates relate to the fair value of unquoted investments where there is no appropriate market price. See notes 9 and 17 in the annual report for more information.

 

Critical accounting judgements and key sources of estimation uncertainty used in preparing the financial information are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting estimates will, by definition, seldom equal the related actual results.

 

The key estimates, and assumptions, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities relate to the valuation of the Company's unquoted level 3 investments (see note 17 in the annual report). 15.3% of the Company's portfolio is comprised of level 3 investments (31 March 2019: 16.2%). These are all valued in line with accounting policy 1(g) in the annual report. Under the accounting policy the reported net asset value methodology has been adopted in valuing those investments, as described further in the annual report.

 

As the Company has judged that it is appropriate to use reported NAVs in valuing the unquoted investments as set out in note 17, the Company does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in the reporting period, which may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

 

Whilst the Board considers the methodologies and assumptions adopted in the valuation of unquoted investments are supportable, reasonable and robust, because of the inherent uncertainty of valuation the values used may differ significantly from the values that would have been used had a ready market for the investment existed and the differences could be significant. These values may need to be revised as circumstances change and material adjustments may still arise as a result of a reappraisal of the unquoted investments' fair value within the next year.

 

As set out on in the annual report, the directors have considered that the financial statements should be prepared on a non-going concern basis. A significant proportion of costs to return cash to shareholders will relate to the costs of tender exercises to return cash prior to the liquidation. The timing and value of any such costs will depend on when progress is made to liquidate the portfolio and the directors consider it appropriate to make a return of cash. Any future costs relating to the return of cash to shareholders will therefore be provided for when the Company becomes obliged to make such payments.

 

In respect of other future costs associated with the liquidation of the Company, these will primarily be legal costs and liquidator costs. Such costs associated with the subsequent members' voluntary liquidation are expected to be in a range of £120,000 to £150,000. As the exact cost and time frame for incurring these costs is uncertain and not material to the financial statements as a whole, no provision has been made in these financial statements for any future costs and they will be charged as the related services are provided.

 

Any costs associated directly with the orderly wind down of the Company will be charged to capital reserves. Costs incurred during the year and charged to capital total £273,000 and are disclosed in note 4.

 

Other ongoing administrative costs will continue to be incurred as the Company continues to operate and will be recognised on an accruals basis.

 

The directors consider that the proposed wind up of the Company has no material impact on the valuation of the Company's investments or other assets and liabilities and therefore the assets are measured in the Statement of Financial Position at fair value and liabilities are measured at amounts expected to be paid. In coming to this conclusion, the directors have considered whether there has been any material write downs of investment subsequent to the year end or through the initial realisation process which may indicate that carrying values at year-end are not representative of fair value or realisable amounts.

 

As the financial statements are prepared on a non-going concern basis, all assets and liabilities have been classified as current assets and liabilities in the current year.

 

i) Cash and cash equivalents

Cash comprises cash in hand and on demand deposits.

 

j) Foreign currencies

The results and financial position of the Company are expressed in pounds Sterling, which is the functional and presentational currency of the Company. Sterling is the functional currency because it is the currency of the primary economic environment in which the Company operates.

 

Transactions recorded in overseas currencies during the period are translated into Sterling at the appropriate daily exchange rates. Monetary assets and liabilities and equity investments held at fair value through profit or loss which are denominated in foreign currencies at the Statement of Financial Position date are translated into Sterling at the exchange rates ruling at that date.

 

Any gains or losses on the translation of foreign currency balances, whether realised or unrealised, are taken to the capital or to the revenue return of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature.

 

k) Capital and reserves

Called up share capital represents the nominal value of ordinary shares issued.

 

The share premium account represents the premium above nominal value received by the Company on issuing shares net of issue costs.

 

The revenue reserve represents accumulated revenue profits retained by the Company that have not currently been distributed to shareholders as a dividend.

 

The capital redemption reserve represents the nominal value of ordinary shares that have been repurchased and cancelled.

 

Gains and losses on realisations of fixed asset investments, and transaction costs, together with appropriate exchange differences, are dealt with in the Capital Reserve. A portion of the investment management fee and finance costs, together with any tax relief, is also taken to this reserve. Increases and decreases in the valuation of fixed asset investments are dealt with in this reserve. The cost of share buybacks is also charged directly to this reserve.

 

l) Distributable reserves

The Company's realised capital reserve and revenue reserve may be distributed by way of a dividend.

 

m) Dividends payable

Interim dividends are recognised in the period in which they are paid and final dividends are recognised when approved by shareholders. Dividends are dealt with in the Statement of Changes in Equity.

 

2

Investment Income

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

 

Income from equity shares and securities

 

 

 

UK investment income

584

352

 

Overseas income

1,353

2,843

 

Property income distributions

195

75

 

 

2,132

3,270

 

Other income

 

 

 

 

Interest from money market fund investments

72

40

 

 

Other income

7

2

 

 

 

79

42

 

 

Total income

2,211

3,312

 

 

 

 

 

3

 

Investment Management Fees

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

 

Revenue

 

 

 

 

 

Investment management fee

 

151

247

 

 

Capital

 

 

 

 

 

Investment management fee

 

602

989

 

 

Total

 

753

1,236

 

 

 

 

 

 

Details of the fee basis are contained in the annual report.

 

 

 

 

 

For the period 1 October 2017 to 31 March 2018, the management fee was charged at a rate of 0.70% per annum, payable quarterly in arrears based on the net asset value at the relevant quarter end. With effect from 1 April 2018, the rate was reduced to 0.60% per annum on the first £250,000,000 of the net asset value and 0.55% per annum in excess thereof.

 

 

4

Other Expenses

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

 

Revenue

 

 

 

 

General expenses

221

357

 

 

Directors' fees

105

165

 

 

Auditor's remuneration - fees payable to the Company's auditor for the audit of the Company's statutory accounts1

49

39

 

 

Depositary charges

34

50

 

 

 

409

611

 

 

 

 

 

 

 

 

1 These figures include VAT. Fees for audit services excluding VAT were £41,200 (2015: £32,300).

 

In addition, costs incurred to date in connection with the modification of the Company's investment objective and policy have been charged to capital and amounted to £273,000 (2019: nil)

 

 

 

 

5  Finance costs

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

Bank overdraft interest

9

1

 

Interest on derivatives margin cash

4

-

 

 

13

1

 

Allocated to capital

(10)

(1)

 

 

 

 

 

 

3

-

       

 

 

6

Taxation

 

a) Analysis of the charge for the period

 

 

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

Overseas withholding taxes

17

-

 

Current tax charge for the year/period

17

-

 

 

 

b) Factors affecting the tax charge for the period

 

 

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

Net return on before taxation

(17,797)

3,781

 

Corporation tax 19.0% (2019: 19%)

(3,381)

718

 

Non-taxable dividends

(281)

(512)

 

Non-taxable losses/(gains) on investments

3,421

(92)

 

Expenses not deductible for tax purposes

52

-

 

Movement in unutilised management expenses

192

(108)

 

Non-taxable exchange differences

(3)

(6)

 

Overseas withholding tax

17

-

 

Total taxation charge for the period

17

-

 

 

The Company's profit for the accounting year is taxed at an effective rate of 19.0% (2019: 19%).

 

The Company is subject to taxation on gains arising from the realisation of investments in non-qualifying offshore funds but is otherwise exempt from taxation on chargeable gains. Excess management expenses are available to be offset against future taxable profits including any profits on the disposal of interests in non-qualifying offshore funds. The position at the period-end is as follows:

 

 

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

Excess management expenses

8,231

7,722

 

Unrealised appreciation on non-qualifying offshore funds

(6,135)

(6,632)

 

Excess management expenses

2,096

1,090

 

 

 

 

 

 

No provision for deferred taxation has been made in the current or prior accounting year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation and disposal of investments, as it is exempt from tax on these items because of its investment trust status, except for those arising from the realisation of investments in non-qualifying offshore funds. The Company has not recognised a deferred tax asset totalling £398,000 (2019: £185,000) based on a prospective corporation tax rate of 19% (2019: 17%). The deferred tax asset arises as a result of having unutilised management expenses in excess of unrealised appreciation on non-qualifying offshore funds. These expenses will only be utilised, to any material extent, if the Company has profits chargeable to corporation tax in the future, because changes are made to the tax treatment of the capital gains made by investment trusts, where disposals of non-qualifying offshore funds would otherwise result in a tax charge or there are other changes to the Company's investment profile which require them to be used. 

7

Dividends on equity shares

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

2019 interim dividend 5.00p

-

1,934

 

2019 final dividend 2.50p (2017: 4.75p)

967

1,837

 

 

967

3,771

 

 

The proposed final dividend of 5.50p per share is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. This dividend of £2,127,000 (2019: £967,000) is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the period is £1,631,000 (2019: £2,454,000). Dividends paid in the financial period ended 31 March 2019 reflect the longer 18-month period over which accounts were prepared, and included an interim and final dividend.

 

All dividends have been paid or will be paid out of revenue profits or the revenue profits.

 

 

8

Returns/Net asset value per Ordinary Share

 

 

 

The return per ordinary share is based on the net loss attributable to the ordinary shares of £17,814,000 (2019: £3,781,000 gain) and on 38,678,638 ordinary shares (2019: 38,678,638) being the weighted average number of ordinary shares in issue during the year. The return per ordinary share can be further analysed between revenue and capital, as below:

 

 

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

Net revenue return

1,631

 

Net capital return

(19,445)

 

Net total return

(17,814)

 

Weighted average number of ordinary shares in issue during the year / period

38,678,638

 

 

 

 

 

 

Year ended 31 March 2020

pence

18-months ended

 31 March 2019

pence

 

Revenue return per ordinary share

4.22

 

Capital return per ordinary share

(50.27)

 

Total return per ordinary share

(46.05)

 

 

 

 

The Company does not have any dilutive securities. Therefore, the basic and diluted returns per share are the same. The net asset value per share is based on the net assets of £110,971,000 (2019: £129,752,000) divided by the number of shares in issue at the end of the year/period 38,678,638 (2019: 38,678,638). The net asset value per ordinary share at 31 March 2020 was 286.91p (2019: 335.46p)

 

 

The movements during the period of the assets attributable to the ordinary shares were as follows:

 

 

 

 

 

Year ended 31 March 2020

£'000

18-months ended

 31 March 2019

£'000

 

Total net assets at 1 April

129,752

 

Total net return after taxation

(17,814)

 

Ordinary dividends paid in the year

(967)

 

Net assets attributable to the ordinary shares at period end

110,971

 

 

 

 

 

 

9

Share capital

Shares in issue

Nominal value of total shares in issue

£'000

 

Allotted, issued and fully paid ordinary shares of 25p

 

 

 

At 1 April 2019

38,678,638

9,670

 

Allotted, issued and fully paid ordinary shares of 25p

 

 

 

At 1 October 2017

38,678,638

9,670

 

 

 

 

No shares were bought back in the period to 31 March 2020 or in the period to 24 July 2020 subsequent to the year-end.

 

Every shareholder has the right to one vote for each share held.

 

 

10

Related party transactions 

 

Other than the relationship between the Company and its directors, the provision of services by the Manager is the only related party arrangement currently in place as defined in the Listing Rules. Other than fees payable by the Company in the ordinary course of business and the provision of marketing services, there have been no material transactions with this related party affecting the financial position of the Company during the year under review.

 

 

11

2020 Financial statements

 

The figures and financial information for the 12 months ended 31 March 2020 are compiled from an extract of the latest financial statements of the Company and do not constitute the statutory accounts for that year. Those financial statements included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. They have not yet been delivered to the Registrar of Companies.

 

 

12

2019 Financial statements

 

The figures and financial information for the year ended 31 March 2019 are compiled from an extract of the published financial statements of the Company and do not constitute the statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

 

 

13

Dividend

 

The final dividend, if approved by the shareholders at the annual general meeting, of 5.50p per ordinary share will be paid on 12 October 2020 to shareholders on the Register of Members at the close of business on 25 September 2020. The Company's shares will be traded ex-dividend on 24 September 2020.

 

 

14

Annual Report

 

Copies of the Annual Report for the 12 months ended 31 March 2020 will be posted to shareholders in December and will be available on the Company's website www.hendersonalternativestrategies.com or in hard copy from the Corporate Secretary, Henderson Secretarial Services Limited, 201 Bishopsgate, London EC2M 3AE.

 

 

15

Annual General Meeting

 

The annual general meeting will be held on Wednesday 16 September 2020 at 11.30am.

      

 

 

For further information please contact:

 

Alex Barr

Fund Manager

Henderson Alternative Strategies Trust plc

Telephone: 020 7818 2824

 

James de Bunsen

Fund Manager

Henderson Alternative Strategies Trust plc

Telephone: 020 7818 3869

 

James de Sausmarez

Director and Head of Investment Trusts

Henderson Investment Funds Limited

Telephone: 020 7818 3349

 

Laura Thomas

Investor Relations and PR Manager

Henderson Investment Funds Limited

  Telephone: 020 7818 2636

Peter Webster

Fund Manager

Henderson Alternative Strategies Trust plc

Telephone: 020 7818 6116

 

 

 

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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