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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Sts Global Income & Growth Trust Plc | LSE:STS | London | Ordinary Share | GB00B09G3N23 | RED ORDS 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.00 | 0.46% | 217.00 | 216.00 | 219.00 | 217.00 | 217.00 | 217.00 | 584,682 | 16:29:55 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | -296k | -4.37M | -0.0437 | -49.66 | 216.85M |
TIDMSTS
RNS Number : 0058C
STS Global Income & Growth Trust
08 June 2023
From: STS Global Income & Growth Trust plc LEI: 549300UZ1Y7PPQYJGE19 Date: 8 June 2023
Results for the year ended 31 March 2023
The Board of STS Global Income & Growth Trust plc (formerly Securities Trust of Scotland plc) (the 'Company') are pleased to announce the Company's results for the year ended 31 March 2023.
The following is an extract from the Company's annual report and financial statements for the year to 31 March 2023. 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 has changed its name to STS Global Income & Growth Trust plc, which better explains the Company's aims and objectives.
-- 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 2023 was -1.8%, and the share price total return was -4.8%, compared to a total return of +0.5% in the Lipper Global - Equity Global Income Index. This compares to a net asset value return of +16.8%, a share price total return of +17.4% and a total return of +10.8% 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 1.85 pence per ordinary share which will be paid on 14 July 2023 to shareholders on the register on 16 June 2023. The total dividend for the year will be 6.20 pence per share, an increase of 5.5% from the prior year and 8.8% since the dividend was rebased in 2021.
Chairman's Statement
The year to 31 March 2023 proved to be eventful in terms of both geopolitical and economic developments. It was dominated by the immediate and longer term effects of the dreadful war in Ukraine precipitated by the invasion by Russian forces in February 2022. An immediate economic effect of the conflict was the increase in prices of oil & gas on wholesale markets and this increase added to the inflationary pressures already pushing through as economies recovered post pandemic.
The boost to inflation arrived at a time when Central Banks, virtually worldwide, were raising short term interest rates and reversing the very lax monetary policies that had been in place since the financial crisis in 2007/2008. As might be expected bond markets found this background to be challenging and were significantly lower over the year (the Investment Association Sterling Corporate Bond Sector Index, for example, returned -9.4%). Not surprisingly, equity markets struggled to generate positive returns against such a difficult background.
Over the 12 month period the net asset value total return for your Company was -1.8%, marginally behind the +0.5% total return for the comparator benchmark, Lipper-Global - Equity Global Income Index.
The relative return for the year was consistent in the sense that when markets, and generally in the first half of the period, were in a "risk off" mode relative returns were good. However, later in the period as confidence rose and markets returned to sectors and stock that had driven the post pandemic bounce relative returns were poorer.
Your Manager's philosophy and portfolio positioning has remained consistent and returns have been likewise consistent against a frequently changing narrative in respect of markets. It is a feature of stock markets that rallies begin with a reversion to what had driven previous returns but often this effect fades and new drivers emerge as investors adapt to changing circumstances. This may well be what is happening currently as the rally in the second half of the financial year was led by sectors with higher valuations despite what is a fundamental change in the monetary background. The era of virtually free and abundant debt has ended to be replaced by a period in which capital has an economic cost and has to be allocated on a much more rational basis. Your Board and Manager believe that in such an environment the focus on investing in strong companies in terms of market positioning and financial robustness will produce good relative returns.
Revenue and dividends
Total revenue earned for the year was GBP8.2 million, an increase of 11.7% on the previous year. This is a meaningful rise in income and has two principal sources. First, the underlying dividend performance of the Company's investments has been robust and is a testament to the stock selection of the Manager. Second, with 47% of income arising from US dollar denominated dividends the weakness of sterling vs the US dollar over the year has been a boost to sterling revenues as dollar payments are translated at more favourable rates. (For your information the average GBP/$ rate for the year was 1.21 compared with 1.37 in the previous year).
In arriving at a dividend level for the year your Board has been realistic and cognisant of the fact that shareholders are expecting consistent dividend growth over the longer term. While most encouraged by the underlying dividend performance of our investment portfolio, the benefit of currency changes has been welcome but is likely to be volatile and may even be reversed.
The Board will therefore transfer to reserves some of the currency benefit in order that in the event of a period of less favourable currency movements there is flexibility to use reserves to smooth the long term progression in dividends paid to shareholders.
Consequently a total dividend of 6.20 pence per ordinary share has been declared representing a 5.5% increase over the 5.875 pence per share paid in respect of the previous financial year.
Change of name
The current and previous Boards have discussed the suitability of the name of your Company on several occasions. The Board now believes that it is appropriate to implement a new name for the Company which better explains the Company's aims and objectives. The investment mandate and strategy remain the same; providing defensive capital returns with growing income by investing in a concentrated portfolio of global companies.
The Board is also conscious of changes in its investor base, as well as changes in the ways in which investors hold their shares. The Company's shares are now held through a broad range of wealth managers and retail platforms and we believe the name change will make it easier for individual retail investors to find the Company on platforms when searching for global income and growth investment opportunities.
Consequently, it was decided to change the name of your Company to "STS Global Income & Growth Trust plc". In accordance with the Company's articles of association, this change of name has been actioned by a resolution of the directors and the name change took effect on 5 June 2023.
It is important to emphasise that nothing else will change, the ticker symbol (STS) will remain the same as will the SEDOL and ISIN. You will not need or receive new share certificates. The Board believes that this name change will enhance the marketability of the shares and bring the Company more easily to the attention of not only the retail investor but all potential buyers of the shares.
Board changes
The Board is aware of the need to have a succession process in place and this is particularly important as compliance with the best practice of corporate governance in respect of terms of appointment and diversity is a key objective of the Board.
Therefore and in line with its long term planning I am pleased to announce that Gillian Elcock will be appointed as a non-executive director on 21 September 2023. Gillian is a non-executive director of International Biotechnology Trust plc and a member of the Board of the CFA UK. I am delighted that Gillian is joining our Board. She has a wealth of investment experience and will bring a valuable perspective to Board discussions. My colleagues and I very much look forward to working with her.
Discount management
Your Company adopted and implements a formal discount control mechanism. It is the intention that the application of this policy will, in normal market conditions, see the shares consistently valued close to their net asset value, providing liquidity for all shareholders. Shares are bought by the Company should they trade at a discount to net asset value and if there are sellers in the market. Likewise shares will be issued at a premium to net asset value to meet demand should there be buyers.
In the year to 31 March 2023, 1,616,500 shares were purchased by the Company at an average discount of 1.9% and 1,575,000 shares were issued at an average premium of 1.2%.
Borrowing facilities
Your Company currently has debt facilities totalling GBP15.8 million. The use of these facilities is discussed regularly and also at every Board meeting. The GBP15 million multicurrency facility that the Company has had available since 2016 is due to expire in September of this year. Negotiations are underway to replace this facility with an appropriately flexible facility that will allow the Manager to utilise the debt in a cost effective manner with the objective of enhancing returns to shareholders over time.
ESG
The Board continues to recognise the importance of considering environmental, social, and governance ('ESG') factors when making investment decisions and in the ongoing stewardship of investee companies and is supportive of the Manager's approach to responsible investing, which fully integrates ESG analysis into the fundamental research and investment process. More information can be found on pages 12 and 13 of the annual report and on the responsible investing section of the Company's website, www.stsplc.co.uk/responsible-investment/ .
AGM
The Annual General Meeting of your Company will be held on 20 September 2023 at the offices of Juniper Partners, 28 Walker Street, Edinburgh at 2.00pm. The Board looks forward to meeting shareholders in person at that meeting.
Keeping in touch
I would encourage shareholders to visit the Company's website at www.stsplc.co.uk as it offers a wealth of information about the Company. It is regularly updated and has recently been redesigned. Through the website you can also subscribe to monthly email updates including the factsheet which provides portfolio and performance information. You can also contact the Manager or our Company Secretary, Juniper Partners, through the website or by using the email address on page 74 of the annual report.
Outlook
Much of the focus of financial markets is on the timing and scale of changes in short term interest rates. We may be near the peak of the current cycle - there are a myriad of views. However, whilst the cost of debt may change it is unlikely that Central Banks will relent on their liquidity policies as these have to address 14 years of largesse. Many of the well-publicised issues in the US and other banking systems recently owe more to the effects of the quantitative tightening than the higher cost of money.
The rate of inflation may be declining, or be forecast to do so, but prices are still rising at unfamiliar levels. Your Manager backs sound well established companies with managements and processes that have been tested in many economic circumstances and have stood the test of time. Whilst we would not make firm predictions as to what lies ahead we can be confident that we are invested in companies that have proved their ability to deliver throughout the cycle and have belief in their ability to continue to do so.
John Evans
7 June 2023
Manager's Review
As detailed in the Chairman's statement, in a tumultuous year for global equity markets the Company's NAV declined by 1.8% compared to a return of 0.5% for the Lipper Global - Equity Global Income Index comparator. Since the inception of Troy's management of the Company the NAV has risen by 15.3%.
After delivering strong returns in 2022, this year has been a year of consolidation for the Company and for equity markets. Rising interest rates to combat inflation as well as the ongoing war in Ukraine made for a challenging backdrop. The income account remains robust, however, with the dividend for the year increasing by 5.5%.
Performance
The last 12 months have demonstrated once again the power of branded consumer goods. At a time of rapidly rising interest rates driven by the re-emergence of inflation, our consumer staples portfolio companies have been able to raise prices to offset these headwinds. The combination of well-loved brands, the habit of repeat purchases and powerful distribution networks enables these companies to generate attractive and sustainable returns on capital employed. It is these same competitive advantages that gives these businesses pricing power. They also benefit from having limited capital requirements. This strength has been rewarded by investors over this period as four out of the top five contributors were consumer staples companies. These were Unilever, PepsiCo, Philip Morris and Hershey.
The fifth most significant contributor was Swiss healthcare company, Novartis. This is a high-quality franchise that remains excellent value. Recent results have been received well by investors as they re-appraise the steady if unspectacular growth of this company. The shares have begun to appreciate after a long spell of dull returns.
The key source of underperformance was our real estate investments. Of the three which we hold, two - Vonovia and Boston Properties - were the greatest detractors to performance over the year. The scale of the rise in interest rates and the pace that they have risen has been remarkable. The effect of this change is likely to be felt in the economy and markets with a lag. The impact on property has been far more immediate. For each of these businesses we believed there was a specific reason to invest.
Vonovia is the largest listed owner of German residential real estate (as well as having some exposure to Sweden and Austria). With property in Germany valued at a discount to replacement cost and bolstered by structural factors such as urbanisation and a trend towards smaller households we viewed this an attractive asset. This was further supported by an interest rate that was arguably too low for the German economy since it is set at the EU level. Unfortunately, these trends were overwhelmed by the shift in the structure of interest rates. As detailed below, Vonovia was subsequently sold and was no longer part of the portfolio at the year end.
Similarly, we believed Boston Properties to be attractive owing to its ownership of A grade office property in the coastal cities of the US. It is our contention that the current post-COVID norm of hybrid working practices is unlikely to outlast a more difficult economic environment. However, this trend reversal is taking time and when combined with a rising cost of capital caused the shares to decline in value.
The next two holdings which detracted from performance were both in the healthcare sector, broadly defined. Roche, like Novartis (see above) is a high quality Swiss pharmaceutical company. It also has an excellent diagnostics business. The underperformance of the shares derives from a spike in the share price which coincided with the end of March 2022. It is the retreat from this precipitous high that is captured in the poor showing over the last 12 months rather than more worrying operational concerns. The shares remain excellent value.
Medtronic is a high-quality medical technology franchise covering a range of therapeutic and diagnostic medical products. The company suffered during COVID as many elective procedures were postponed. However, it has been rather slower to recover from this disruption than we would like. There have however been some encouraging signs recently including the approval of a new insulin management device for diabetics. The shares remain in the portfolio.
Finally, Domino's Pizza was weak during the year. We continue to believe this is an excellent business trading at a very attractive valuation. The last few years have been marred by friction between the company and the underlying franchisees as well as several management changes including the loss of the CEO, for whom they have yet to find a permanent replacement. Further, investors have worried about the health of the UK consumer. These concerns have weighed on the shares. We believe that these problems will ultimately be solved, and the strategic direction of the business is becoming clearer. We are patiently waiting for the improving operational momentum to be reflected in the share price and it remains a long term investment for the Company.
Portfolio activity
Consistent with Troy's long term investment approach, activity within the portfolio has been limited. We established two new investments, Admiral Group and Texas Instruments funded from the sale of GSK, Western Union and Vonovia. We also added to our investments in Nintendo, Reckitt Benckiser and Link REIT.
Admiral Group ('Admiral') is an excellent business. Dominated by its UK car insurance business, Admiral's market leadership is based on expertise in specialist insurance. This specialisation leads to an extensive data set affording accurate pricing of risk. As such, and unusually for an insurance business, the company makes an underwriting profit over the cycle. This persistent and consistent profitability allows Admiral to offload the insurance risk to Munich Re but to retain much of the profitability. Costs are contained giving the company a very attractive return profile. The company has limited capital requirements and is therefore able to pay a healthy dividend.
For a variety of reasons, the performance of GSK towards the beginning of this period had been strong. These included the spinning-off of the consumer business (named Haleon) following a failed bid by Unilever, a change in dividend policy and US dollar strength (GSK has substantial US dollar earnings). This provided an attractive time to sell.
Conversely Admiral had been a poor performer. During COVID, Admiral's customers had been paying premiums without being able to use their cars, giving a short-term lift to profits. This was reflected in a strong share price. As this effect faded, so too did the company's valuation. A reallocation of capital from GSK to Admiral was therefore timely.
Texas Instruments ('TI') is a leader in analog semiconductors. We have spent the last few years patiently building our semiconductor industry knowledge. TI designs and manufactures relatively low specification chips which don't require the latest manufacturing technology and have incredibly long shelf lives. While other semiconductor companies constantly design and manufacture new CPUs (Central Processing Units) to satisfy the insatiable need for greater computing power, TI chips work for decades. We believe that roughly half of TI's sales derive from chips designed more than ten years ago. The result is a business with little technological risk and relatively low capital intensity.
The semiconductor industry has a degree of cyclicality, however in the case of TI, we consider this risk to be mitigated by having a conservative balance sheet and capital allocation policy that rewards long-term shareholders. Indeed, we believe TI has one of the clearest frameworks for value creation, as described in the Investor Overview document on TI's website. The business is fantastically profitable, ranking in the 89th percentile of S&P500 companies in terms of free cash flow margins. We considered the valuation to be attractive at purchase including offering us a c.3% prospective dividend yield.
The investment was funded by the sale of Western Union and the reduction in our investment in ADP.
Finally, we sold Vonovia and re-invested the proceeds in Link REIT. Link REIT is the largest and, we believe, best managed real estate investment trust in Asia. The company used its scale and reputation to be first to raise equity via a rights issue to offset the problems being felt across the industry from rising interest rates. We participated in the issue and then subsequently added to the investment, funded from the sale of Vonovia. Link REIT now has a low debt profile and is well placed to acquire distressed assets.
The overall shape of the portfolio is largely unchanged. Branded consumer goods, healthcare and enterprise software represent a material proportion of the Company. Conversely, we have very limited exposure to sectors that we consider to be more cyclical and require significant capital investment to operate.
On an underlying revenue basis (as at 31 March 2023), the Company has 48.5% invested in the US, 27.9% in Asia and Emerging Markets (EM), 15.7% in Europe and 7.0% in the UK.
We continue to view the US to be the best economy with the best companies which is reflected in the significant exposure we have to that country.
The proportion of revenue coming from Asia and EM may increase over time. These economies have attractive growth prospects, in part owing to having much younger populations (with the important exception of China). Consumer expenditure is likely to structurally increase over the long term. Our portfolio company management teams are likely to allocate further capital to these areas in the coming years to take advantage of this opportunity.
Our favoured way of gaining exposure to these dynamic economies is via developed market listed businesses. We find them to have superior corporate governance and to demonstrate better capital allocation.
Investment strategy
Equity markets have staged a remarkable recovery from the lows seen in October 2022. We would caution investors that this advance may not be markets sounding the economic "all-clear". We continue to think that the effect of rapidly rising rates and the absence of quantitative easing is working their way through the global economy, albeit with a lag. The notable inversion of the US yield curve (a situation where short-term interest rates are higher than longer term interest rates which usually presages a recession) combined with still elevated equity market valuations is a time for caution.
To us this optimism is being driven by the reasonable expectation that inflation and therefore interest rates are peaking. We fear however that this will simply be the opening scene of a drama that develops ultimately into recession. It may be therefore that while this year capital markets had to contend with rising rates, next year they may have to deal with declining earnings.
At the same time many of our portfolio companies, notably in the consumer staples sector, are beginning to benefit from softening input costs. We are beginning to see the first signs of expanding gross and operating margins as a result. When combined with still healthy demand for these repeat-purchase products we are confident our companies will weather a more difficult economic environment relatively well.
Further we continue to wait patiently to redeploy capital into favoured sectors, but which remain, for now, stubbornly too expensive. If events play out as we have suggested above, this may be about to change.
We remain confident that the Company will continue to deliver growing free cash flow to fund an attractive and growing income stream as well as long term capital growth. Further we are excited by the opportunities that may become available in the coming year.
James Harries
7 June 2023
For further information contact:
Troy Asset Management
Investment Manager
Tel: 0207 499 4030
Juniper Partners Limited
Company Secretary
Tel: 0131 378 0500
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:
Hot Features
Premium
Principal risks Mitigation and management
Investment strategy and objectives The Board formally reviews the
- Pursuing an investment strategy Company's objective and strategy
to fulfil the Company's objective on an annual basis, or more
which the market perceives to regularly if appropriate. The
be unattractive or inappropriate Board also receives updates
may lead to reduced returns at each Board meeting from the
for shareholders and, as a result, Manager with regards to the
the Company may become unattractive portfolio and its performance;
to investors, leading to decreased receives broker updates on the
demand for its shares and a market; and is updated on the
widening discount. 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 Board manages the risk of
the longer-term performance investment underperformance
of the investment portfolio by relying on the Manager's
does not deliver income and stock selection skills within
capital returns in line with a framework of diversification
the investment objective and/or and other investment restrictions
consistently underperforms market and guidelines.
expectations, the Company may
become unattractive to investors. 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 Board receives regular updates
- The Company's portfolio is on the Company's portfolio and
invested in listed equities the investment environment in
and is therefore exposed to which the Manager is operating.
events or developments which An explanation of the different
can affect the general level components of market risk and
of share prices, including inflation how they are individually managed
or deflation, economic recessions is contained in note 18 to the
and movement in interest rates financial statements on pages
and currencies which could cause 60 to 63 of the annual report.
losses within the portfolio
and increasing finance and operational
costs of the Company.
-----------------------------------------
Gearing and leverage risk - The Company's gearing is maintained
The Company may borrow money at a conservative and manageable
for investment purposes. While level. All borrowing facilities
this has the potential to enhance require prior approval of the
investment returns in rising Board and actual borrowing levels
markets, in falling markets are discussed by the Board and
the impact could be detrimental Manager at every meeting. Details
to performance. If borrowing of the Company's current borrowings
facilities are not renewed, and unused facilities can be
the Company may have to sell found in note 12 to the financial
investments to repay borrowings. statements on page 58 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 The Company operates a discount
at which the Company's shares control mechanism which aims
trade relative to its net asset to ensure, in normal market
value can fluctuate. The risk conditions, the Company's shares
of a widening discount is that trade, on a consistent basis,
it may undermine investor confidence at or very close to net asset
in the Company. 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 The Board carries out an annual
is dependent on third parties evaluation of its service providers
for the provision of all services and gives regular feedback to
and systems. Any fraud, control the Manager and Company Secretary
failures, cyber threats, business through the Management Engagement
continuity issues at, or poor Committee. The Board receives
service from, these third parties and reviews control reports
could result in financial loss from all service providers where
or reputational damage to the appropriate. Periodically, the
Company. 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 The Board considers that, given
- In order to continue to qualify the regular oversight of this
as an investment trust, the risk carried out by the Company
Company must comply with the Secretary and reviewed by the
requirements of section 1158 Board, the likelihood of this
of the Corporation Tax Act 2010. risk occurring is minimal. The
Breaches of the UK Listing Rules, Audit and Risk Committee regularly
the Companies Act or other regulations reviews the eligibility conditions
with which the Company is required and the Company's compliance
to comply, could lead to a number against each, including the
of detrimental outcomes. 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.
-----------------------------------------
Climate change risk - There The investment process is focused
is increasing awareness of the on ESG issues and, as set out
challenges and emerging risks on pages 12 and 13 of the annual
posed by climate change. 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 (emerging Geopolitical risks have always
risk) - The impact of geopolitical been an input into the investment
events could result in losses process. This risk area is now
to the Company. highlighted as a result of the
Russian invasion of Ukraine,
with the resultant effects on
global trade and volatility
in asset prices. Further information
on this risk and its potential
impact on the Company is set
out in the Chairman's statement
and the Manager's review. The
Board 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 continue to be effective.
Going Concern
The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's statement, Manager's review, Strategic report and the Report of the directors in the annual report.
The Company has a one year revolving credit facility for GBP10,000,000 which expires in September 2023, which was undrawn at 31 March 2023. In addition, the Company has a multi-currency fixed facility, which expires in September 2023, in three tranches of GBP1,500,000, EUR4,500,000 and US$12,750,000, all of which were fully drawn down at the year-end date. No decision has yet been taken in relation to the renewal of the borrowing facilities. Should they not be renewed then t he 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 d irectors have undertaken a rigorous review of the Company's ability to continue as a going concern. The C ompany's assets consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale. The d irectors 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 2025, 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 2023 Year to 31 March 2022
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
================================ ========= ======== ======= ========= ======= ======
Net (losses)/gains on
investments - (8,800) (8,800) - 29,232 29,232
Net currency (losses)/gains (4) (869) (873) 3 (445) (442)
Income 8,238 266 8,504 7,378 - 7,378
Investment management
fee (531) (985) (1,516) (222) (413) (635)
Other expenses (625) - (625) (516) - (516)
================================ ========= ======== ======= ========= ======= ======
Net return before finance
costs and
Taxation 7,078 (10,388) (3,310) 6,643 28,374 35,017
Finance costs (171) (318) (489) (157) (291) (448)
================================ ========= ======== ======= ========= ======= ======
Net return on ordinary
activities before
taxation 6,907 (10,706) (3,799) 6,486 28,083 34,569
Taxation on ordinary activities (566) - (566) (632) - (632)
================================ ========= ======== ======= ========= ======= ======
Net return attributable
to ordinary
shareholders 6,341 (10,706) (4,365) 5,854 28,083 33,937
================================ ========= ======== ======= ========= ======= ======
Net return per ordinary
share 6.34p (10.70)p (4.36)p 5.82p 27.92p 33.74p
================================ ========= ======== ======= ========= ======= ======
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 As at 31 March
2023 2022
====================================== ================== ===================
GBP000 GBP000 GBP000 GBP000
====================================== ======== ======== ======= ========
Fixed assets
Investments held at fair value
through profit or loss 234,362 244,561
Current assets
Trade and other receivables 1,113 1,089
Cash and cash equivalents 1,570 865
====================================== ======== ======== ======= ========
2,683 1,954
Current liabilities
Bank loans (15,795) -
Trade payables (572) (489)
Dividend payable (1,443) (1,368)
====================================== ======== ======== ======= ========
Total current liabilities (17,810) (1,857)
====================================== ======== ======== ======= ========
Net current (liabilities)/assets (15,127) 97
Total assets less current liabilities 219,235 244,658
Non-current liabilities
Bank loans - (15,001)
====================================== ======== ======== ======= ========
Total net assets 219,235 229,657
====================================== ======== ======== ======= ========
Capital and reserves
Called up share capital 1,223 1,223
Capital redemption reserve 78 78
Share premium account 31,808 30,762
Special distributable reserve 70,924 71,925
Capital reserve 111,905 122,611
Revenue reserve 3,297 3,058
====================================== ======== ======== ======= ========
Total shareholders' funds 219,235 229,657
====================================== ======== ======== ======= ========
Net asset value per ordinary
share 220.37p 230.75p
====================================== ======== ======== ======= ========
Statement of changes in equity
Called Capital Share Special
For the year up share redemption premium distributable Capital Revenue
ended capital reserve account reserve* reserve* reserve* Total
31 March 2023 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=============== ================= ================ ============= ================== ============= =========== =======
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
=============== ================= ================ ============= ================== ============= =========== =======
Called Capital Share Special
For the year up share redemption premium distributable Capital Revenue
ended capital reserve account reserve* reserve* reserve* Total
31 March 2022 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
=============== ================= ================ ============= ================== ============= =========== =======
As at 1 April
2021 1,223 78 30,725 78,194 94,528 2,930 207,678
Net return
attributable
to
shareholders** - - - - 28,083 5,854 33,937
Shares issued
from treasury - - 37 162 - - 199
Shares bought
back
into treasury - - - (6,431) - - (6,431)
Dividends paid - - - - - (5,726) (5,726)
=============== ================= ================ ============= ================== ============= =========== ======= As at 31 March 2022 1,223 78 30,762 71,925 122,611 3,058 229,657 =============== ================= ================ ============= ================== ============= =========== =======
* 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 redeemable 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 Year ended 31 March
2023 2022
===================================== ===================== =====================
GBP000 GBP000 GBP000 GBP000
===================================== ========= ========== ========== =========
Cash flows from operating activities
Net return on ordinary activities
before taxation (3,799) 34,569
Adjustments for:
Losses/(gains) on investments 8,800 (29,232)
Finance costs 489 448
Exchange movement on bank borrowings 794 416
Purchases of investments* (22,917) (17,528)
Sales of investments* 24,316 23,970
Dividend income (8,496) (7,378)
Other income (8) -
Dividend income received 8,523 7,252
Other income received 8 -
(Increase)/decrease in receivables (5) 17
Increase in payables 70 358
Overseas withholding tax deducted (612) (406)
===================================== ========= ========== ========== =========
10,962 (22,083)
===================================== ========= ========== ========== =========
Net cash flows from operating
activities 7,163 12,486
===================================== ========= ========== ========== =========
Cash flows from financing activities
Repurchase of ordinary share
capital (3,586) (6,431)
Issue of ordinary share capital
from treasury 3,631 199
Equity dividends paid from revenue (6,027) (5,768)
Interest paid on borrowings (476) (446)
===================================== ========= ========== ========== =========
Net cash flows from financing
activities (6,458) (12,446)
===================================== ========= ========== ========== =========
Net increase in cash and cash
equivalents 705 40
Cash and cash equivalents at
the start of the year 865 825
===================================== ========= ========== ========== =========
Cash and cash equivalents at
the end of the year 1,570 865
===================================== ========= ========== ========== =========
*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.
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 2025, 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 Year to 31 March
2023 2022
---------------------------------------- ---------------- ----------------
Revenue return (GBP000) 6,341 5,854
Capital return (GBP000) (10,706) 28,083
Total (GBP000) (4,365) 33,937
Weighted average number of ordinary
shares in issue 100,005,571 100,591,911
---------------------------------------- ---------------- ----------------
Revenue return per ordinary share 6.34p 5.82p
Capital return per ordinary share (10.70)p 27.92p
======================================== ================ ================
Total return per ordinary share (4.36)p 33.74p
======================================== ================ ================
Net asset value per share
Net assets attributable to shareholders
(GBP000) 219,235 229,657
Number of shares in issue at the year
end 99,483,575 99,525,075
Net asset value per share 220.37p 230.75p
======================================== ================ ================
3. Dividends
Year to 31 March Year to 31 March
2023 2022
GBP000 GBP000
======================================== ================ ================
First interim dividend of 1.45p for
the year ended 31 March 2023 (2022:
1.375p) 1,454 1,376
Second interim dividend of 1.45p for
the year ended 31 March 2023 (2022:
1.375p) 1,451 1,374
Third interim dividend of 1.45p for
the year ended 31 March 2023 (2022:
1.375p) 1,443 1,368
Proposed fourth interim dividend of
1.85p for the year ended 31 March 2023
(2022: 1.75p) 1,822 1,754
======================================== ================ ================
6,170 5,872
======================================== ================ ================
The revenue reserves as at 31 March 2023 are GBP3,297,000, of this GBP1,822,000 will be used to fund the fourth interim dividend. The amount reflected above for the cost of the proposed fourth interim dividend for 2023 is based on 98,508,575 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 and loss are grouped into the fair value hierarchy as follows:
Level 1 Level 2 Level 3 Total
At 31 March 2023 GBP000 GBP000 GBP000 GBP000
=============================== =========== =========== =========== ==========
Financial assets at fair value
through profit or loss
Quoted equities 234,362 - - 234,362
=============================== =========== =========== =========== ==========
Net fair value 234,362 - - 234,362
=============================== =========== =========== =========== ==========
At 31 March 2022 Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
=============================== =========== =========== =========== ==========
Financial assets at fair value
through profit or loss
Quoted equities 244,561 - - 244,561
=============================== =========== =========== =========== ==========
Net fair value 244,561 - - 244,561
=============================== =========== =========== =========== ==========
5. Share capital
There were 1,616,500 shares bought back during the year to 31 March 2023 at a cost of GBP3,586,000 (2022: 3,043,000 shares at a cost of GBP6,431,000). During the year, the Company issued 1,575,000 shares for net proceeds of GBP3,631,000 (2022: 100,000 shares for net proceeds of GBP199,000).
6. Related party transactions
With the exception of the management and secretarial fees, directors' fees and directors' shareholdings (disclosed on page 35 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 2023 was GBP1,516,000 (2022: GBP635,000), of which GBP386,000 (2022: GBP373,000) was outstanding at the year-end. The secretarial and directors' fees payable in respect of the year ended 31 March 2023 are detailed in note 4 of the annual report. The amount outstanding at the year end for secretarial fees and directors' fees was GBP18,000 (2022: GBP3,000) and GBPnil (2022: GBPnil) 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 2023 will be sent to shareholders in June 2023 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 2023 will be lodged with the Registrar of Companies.
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END
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