From: STS Global
Income & Growth Trust plc
LEI:
549300UZ1Y7PPQYJGE19
Date: 22 May
2024
Results for the year ended 31 March 2024
The Board of STS Global Income &
Growth Trust plc (the 'Company') is pleased to announce the
Company's results for the year ended 31 March 2024.
The following is an extract from the
Company's annual report and financial statements for the year to 31
March 2024. The annual report is expected to be posted to
shareholders shortly. Members of the public may obtain copies
from the registered office, 28 Walker Street, Edinburgh EH3 7HR or
from its website: www.stsplc.co.uk.
A copy will also shortly be available for inspection at the
National Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Highlights
·
The Company's objective is to achieve rising
income and long-term capital growth through investment in a
balanced portfolio constructed from global equities.
·
The net asset value total return for the year to
31 March 2024 was +4.8%, and the share price total return was
+6.1%, compared to a total return of +11.5% in the Lipper Global -
Equity Global Income Index. This compares to a net asset value
total return of -1.8%, a share price total return of -4.8% and a
total return of +0.5% in the Lipper Global - Equity Global Income
Index in the previous year.
·
The Company pays quarterly dividends to provide
investors with a regular income. Dividends are paid in April, July,
October and January. The Board has announced a fourth quarterly
dividend of 1.525 pence per ordinary share which will be paid on 5
July 2024 to shareholders on the register on 7 June 2024. The total
dividend for the year will be 6.54 pence per share, an increase of
5.5% from the prior year and 14.7% since the dividend was rebased
in 2021.
Chairman's
Statement
During the period under review, your
Company continued to grow its dividend and made significant
progress in increasing its scale and cost effectiveness.
Stock markets, on a global basis,
recorded strong positive returns for the year to 31 March 2024.
There was, however, a marked variation in the scale of these
returns with, for example, the S&P 500 Index in the US
generating a 29.9% return (in US dollars), while the STOXX 600 in
Europe managed a 15.7% return (in euros). In the UK, the FTSE 100
Index generated a relatively disappointing 8.4% return.
Results for the year
The share price total return for the
year was 6.1% and the net asset value total return was 4.8%. A
total dividend of 6.54 pence per share has been recommended by the
Board, representing a 5.5% increase on the previous year. The
proposed fourth quarterly dividend of 1.525 pence per share will be
paid on 5 July 2024 to shareholders on the register on 7 June
2024.
Whilst these are positive returns,
they do lag the benchmark return of 11.5% . A number of the
performance return trends in stock markets that have been in place
since Troy was appointed as Investment Manager in 2020 continued
during the year. Most notable of these is the extreme polarisation
of returns in the US market where a small group of companies by
number, but exceptionally significant by market capitalisation, has
driven overall market returns. The Manager's report below gives a
detailed assessment of these returns and the Company's positioning
against this background.
Corporate activity
On 28 November 2023 the Company
announced that it had agreed heads of terms in respect of the
potential acquisition of the assets of Troy Income & Growth
Trust plc ('TIGT'). I am pleased to say that this transaction
completed on 28 March 2024 and as a result £118 million of assets
were acquired by STS, financed by the issue of 52,889,037 new
shares in STS. 70% of TIGT shareholders rolled over into STS
shares. In an industry context this is a very high level of
acceptance, and I should like to take this opportunity to welcome
all new shareholders to the Company.
Consequently, the total net assets
of the Company at its year end were £314.4 million (compared with
£219.2 million on 31 March 2023).
As part of the transaction, it was
agreed with Troy that the fee scale for the Company be reduced to
0.55% of net assets up to £250 million and 0.5% thereafter. In
addition, and as part of the transaction agreement, Troy has agreed
that no fee will be levied on the £118 million of assets acquired
by STS for 18 months following completion on 28 March
2024.
It is estimated that the ongoing
charges ratio for STS will reduce to 0.77% compared with 0.96%
before the acquisition and fee adjustment.
It is a feature of the investment
trust sector at present that scale, cost effectiveness and
liquidity are key drivers of shareholder demand. The Board is
pleased that STS has been able to improve its position in respect
of each of these measures as a result of the
transaction.
Likewise, shareholders in TIGT who
received STS shares will also benefit from a lower cost ratio, and
improved liquidity.
The nature of these transactions is
complicated and cumbersome and it is clear that they can only be
achieved with the cooperation of directors, managers and advisers.
I would like to thank all those involved for their work and
perseverance in bringing this transaction to a successful
conclusion.
Board composition
There are several changes to the
composition of the Board that I would like to outline.
Mark Little (Chair of the Audit and
Risk Committee) will complete nine years of service as a director
during the coming financial year. Consequently, Mark will not stand
for re-election at the forthcoming AGM in June and will retire as a
director at the AGM.
Brigid Sutcliffe has joined the
Board as a director, having been the TIGT Audit and Risk Committee
Chair since January 2022 and will take over the role of Chair of
the Audit and Risk Committee from Mark upon his retirement. Brigid
has considerable experience in the role of audit chair and has
worked closely with Mark and our auditors to ensure a smooth
handover of responsibilities.
Bridget Guerin has also joined the
Board of STS, having been Chair of TIGT since January 2023. My
colleagues and I very much look forward to working with Brigid and
Bridget and are pleased that such experienced directors have joined
the Board.
Finally, Angus Cockburn will not
stand for re-election at the AGM following his appointment as a
non-executive director of BAE Systems in November 2023.
I should like to take this
opportunity to thank Mark and Angus for their excellent and
valuable contributions to the development of the Company over the
years and wish them both well with their future careers.
The Board will consist of six
directors post the AGM. In a period, quite rightly, of scrutiny
regarding Board composition in respect of gender, ethnicity and
tenure the Board has seen considerable change in composition,
recently. With tenure as the principal driver, it is likely that
the Board will reduce in size in future.
Discount management
The Company has adopted a discount
control mechanism with the objective of ensuring that, in normal
market conditions, the share price trades close to the Company's
net asset value ('NAV') per share on a consistent basis. In order
to achieve this, shares are purchased when available at a small
discount to NAV and issued at a likewise small premium to NAV, when
demand exists. The successful implementation of this policy
requires that it is consistently applied and that liquidity is
available when required by the market.
In the year under review, 11,855,197
shares were bought by the Company at an average discount of 1.7%
and for a total cost of £25.9 million.
The investment trust sector has seen
significant outflows recently as savers and institutions have
reallocated their assets. This trend has been true across asset
categories for trusts whether defined by geography, industry sector
or corporate structure. STS has not been alone in seeing a lack of
demand for its shares. It has however been in a relatively small
group that has seen the discount to NAV of its shares remain tight
and consistently below 2% with liquidity available at that
valuation.
Gearing
During the year to 31 March 2024 the
seven year multi-currency facility that the Company had arranged
expired and new facilities were negotiated with The Royal Bank of
Scotland International, the Company's existing lender. It was
agreed to enter into a revolving credit facility with a three year
term. This new facility is for £20 million but has an accordion
facility that would provide an additional £5 million of funds,
should the Board request. At the time of the acquisition of the
TIGT assets, STS had drawn down £15.4 million of the facility and
had headroom of £4.6 million, plus the £5 million accordion option.
The Board and the Manager discuss gearing levels on a frequent
basis and the Board is comfortable that the current facility
provides sufficient funds to meet the immediate gearing
requirements but is fully prepared to seek further facilities,
should circumstances change.
Outlook
The Manager has applied its
investment philosophy on a consistent basis since appointment in
November 2020. For the majority of this period it has proven to be
a pretty hostile background for their process and style in terms of
relative market return. These trends can change and can do so very
quickly.
The Board's view is that the
investment process has been clearly described and consistently
applied. Likewise, the Board has ensured that your Company
has been consistent in the application of its discount control
mechanism since it was adopted.
John Evans
21 May 2024
Manager's
Review
The Company's share price returned
6.1% over the year to 31 March 2024 compared to the return from the
Lipper Global - Equity Global Income Index of 11.5%. Since
the inception of Troy's management the Company has returned 5.9%,
somewhat lagging the peer return of 8.9%.
Global equity markets began 2024
with a flourish, delivering most of the gain for the year to 31
March 2024 in the last few months. Investors anticipated an
economic recovery - about which we are sceptical - leading the best
performing sectors to be more cyclical areas such as extractive
industries, banks and industrial companies. These are periods in
markets when Troy's quality focussed, conservative approach tends
to lag, and this was no exception.
This optimism was further enhanced
by the ongoing enthusiasm among investors for all companies that
are perceived to be beneficiaries of the adoption of artificial
intelligence ('AI'). This is best demonstrated by the US
semiconductor company, Nvidia, which appreciated by +225.4% in the
year and now has a market capitalisation of $2.2 trillion. Truly,
these are remarkable times.
While we believe that AI is an
important and transformative technology, we wonder if we are seeing
the usual initial burst of excitement which will ultimately prove
to be transitory before the effects of the technology on the real
economy, and hopefully productivity, play out over several
years.
We continue to remain focused on
quality businesses that generate cash and pay dividends. We have a
somewhat cautious view of the current market exuberance, which we
expand upon in the outlook section.
The single biggest contributor was
the performance of our holding in Microsoft. The core Office and
Azure businesses are showing strong revenue growth driven partly by
AI. Their product designed to help subscribers to deploy AI across
the Microsoft software suite, named "Co-pilot", has driven revenue
per user growth. Further, AI-based expenditure on infrastructure
will benefit the Azure business for some time to come. This is well
understood by the market as indicated by the valuation of the
shares, but reminds us of the powerful competitive advantages that
this company continues to enjoy and which are arguably
strengthening.
Nintendo also had a strong year. We
have long been enthused by the increasing desire of the company to
monetise its incredible intellectual property both via gaming but
also films and theme parks. These include several timeless, world
class gaming franchises such as Mario, Donkey Kong and the Legend
of Zelda. The core Nintendo gaming platform, the Switch, can
increasingly be seen as an operating platform rather than simply a
console. Gamers download games electronically, to the benefit of
margins, giving them an individual relationship with the company.
We are likely to see the launch either this year or next of the new
Switch - the exact timing has not yet been announced - which we
expect to drive further performance of the shares.
Like Microsoft, another portfolio
beneficiary of the current AI phenomena is Relx which was the third
best performer over the 12 months. The company is a global provider
of information and analytics for professional and business
customers. Recent advancements in AI have the potential to be
additive to the company's services because of its proprietary
datasets as well as improving growth prospects in its online
professional publishing businesses. This drives excellent financial
productivity as well as strong recent share price
performance.
InterContinental Hotels also
performed strongly. The brand build-out and software investment
they have been undertaking in recent years has converged with
persistent post-COVID travel spend to create very satisfactory
operational performance. Following a meeting with the relatively
new CEO in February 2024, we remain comfortable with the
investment. It is observable that corporate travel has not regained
the level seen pre-COVID and we believe this may well be
structurally impaired. Encouragingly, this is more than compensated
by strength elsewhere in the business.
UK motor insurance group Admiral
also performed strongly. The company was disrupted post-COVID by
rising inflation making investors question Admiral's ability to
raise prices to protect profitability. This enabled us to establish
an investment at a favourable valuation. Recent results have
demonstrated the quality of the business. A dominant market
position combined with excellent internal data and responsive
management have enabled Admiral to take market share and raise
prices leading to improving prospects. The shares remain decent
value despite recent performance.
In the mirror image of last year
four of the five detractors to performance were consumer staples
companies. The most impactful was Reckitt Benckiser.
Reckitt Benckiser has suffered from
both sub-optimal execution and frankly, bad luck. Both factors led
to underperformance in recent weeks and over the year. The shares
fell initially following the disclosure of under-declared volume
rebates in the Middle East. A second impact was seen following
litigation charges in the US against a minor product line in its
Mead Johnson infant formula business. The scale of any potential
charges is uncertain but is likely to be substantially less than
the loss of value implied by the fall in the share
price.
Meanwhile Reckitt Benckiser is a
well-financed business that operates in categories that have strong
brands affording pricing power and an excellent margin structure.
It is very cash generative and enjoys decent market shares. It now
has a notably low valuation and therefore maintains its place in
the portfolio.
Diageo, Hershey and British American
Tobacco were also weak, underscoring how the best performing areas
of the market in the previous year have been shunned by investors
over this 12-month period. This is partly an observable sector
effect. At a market level slower-growing but dependable businesses
such as these tend to be less favoured when much more fast-growing
and exciting areas such as technology are in vogue, leading to
underperformance. This year there has been the additional effect of
the advent of weight loss drugs known as GLP-1s which investors
fear may crimp demand for the types of products these companies
produce. We are sceptical about the extent to which these
treatments will fundamentally change consumer behaviour over the
long term. As such we think the competitive advantages these
companies display including strong brands, depth and breadth of
distribution and loyal repeat-purchase consumers will again shine
through in time. The sector is good value relative to its own
history and to the broader market. Sentiment is depressed leaving
it poised to improve.
Finally, Link REIT declined as
investors reassessed the likelihood of interest rates cuts around
the world. Inflation is proving to be more persistent than many
hoped and this has been detrimental to assets that tend to be
impacted by changes in the cost of capital. This may lead some
REITs to become financially constrained. This is not the case with
Link which is very conservatively financed and well placed to
capitalise should inexpensive assets become available owing to
others' relative imprudence.
Portfolio activity
Our long-term investment approach
leads to low turnover in our portfolios and this year was no
exception. We established new investments in Canadian National
Railway and Pernod Ricard during the year funded from sales of
Clorox, Coca-Cola and Boston Properties. We also received shares in
the world's largest consumer health company, Kenvue, which was
separately listed by Johnson and Johnson.
Canadian National Railway is a
high-quality franchise with impossible to replicate assets, leading
to limited competition. Entrenched competitive advantages are
enhanced by railroads' cost and carbon-intensity advantage over
long-distance journeys, versus trucking. The result is a business
that has an attractive margin structure and decent, sustainable
returns on invested capital.
The business has enjoyed organic
volume growth over time driven by the growth in population,
consumerism and ecommerce. The industry has also demonstrated
pricing power, leading to high incremental margins. Although
railroads require high rates of reinvestment to maintain the
network, the returns achieved justify the outlay. The industry has
also seen significant improvements in productivity in part owing to
sensible levels of investment as well as the application of
"Precision Scheduled Railroading" pioneered by the legendary
industry veteran Hunter Harrison.
Concerns of an economic slowdown as
well as one-off problems such as floods in Nova Scotia, several
wildfires across Canada and strikes at the West Coast ports led to
weakness in the share price affording us an opportunity to invest.
We increased the size of the investment during the year.
Self-described as créateurs de
convivialité, Pernod Ricard is the second largest spirits and wine
manufacturer in the world. Founded by Paul Ricard in 1932 to
produce pastis in Marseilles, the company eventually merged with
Pernod in 1975. Following a series of acquisitions, the company now
boasts an enviable stable of brands including Jameson whiskey,
Beefeater gin, Absolut vodka and Martell cognac. It has also
established a global presence, with excellent market positions in
the still nascent foreign spirits markets in India and China.
Having enjoyed a bonanza
during COVID, as consumers enjoyed one of the few pleasures still
available to them in lockdown, this boom has turned to a mini bust
as consumption normalised. This effect has been worsened by the
economic slowdown in China. We believe these problems will
ultimately pass, although it may well take a few more months for
this to become apparent. We were able to buy the shares with a 3%
dividend yield which is the highest level since 2009.
Kenvue owns an attractive set of
consumer health brands including Tylenol (the US equivalent of
Calpol), Listerine, Neutrogena and Band-Aid. We believe that this
asset, having been spun out of Johnson and Johnson ('J&J'), was
sold without regard to valuation by some investors unwilling to
have a rump holding in their portfolios. This price-insensitive
selling saw the share price fall 33.8% over a 3-month period to a
level where the shares were priced at an inexpensive level. For the
world's largest consumer health business, which will now have
greater focus from the management team than was the case under the
J&J yoke, this seemed too cheap. We took advantage of this to
add to our investment. Latterly the company has also benefitted
from a favourable ruling relating to litigation brought relating to
Tylenol. This is as we expected.
Finally, we sold our small remaining
holding in Boston Properties as the anticipated reduction in
working from home failed to materialise. This will put further
downward pressure on office property valuations.
Outlook
We continue to see equity markets as
fully priced both in absolute terms and relative to their own
history. While economic data, especially in the US, has been
surprisingly resilient this has had the effect of making inflation
more persistent and interest rate cuts, upon which recent
exuberance partly rests, less likely. That this is happening
following the largest and most rapid rise in interest rates in 40
years warrants a cautious approach.
We also question the longevity of
the upward move in markets predicated on the rapid adoption of AI
across the economy. Investors have a tendency, known as Amara's
Law, to over-estimate the effects of a new technology in the short
term but underestimate it in the longer term. Consistent with this
would be a lull between the rapid build out of the infrastructure
currently being deployed, and productive AI usage in the real
economy. The former may well be short-lived whereas the latter
opportunity may well play out over years. If this turns out to be
correct investors may face severe losses in the near term as
valuations prove hard to justify. This happened to hardware
manufacturers such as Alcatel and Lucent following the dot com boom
in 2000.
By comparison our portfolio is
generating a 5.2% free cash flow yield that we expect to grow
persistently even in the event of a more challenging economic
backdrop. This is partly owing to the exceptional value we see in
high quality, global companies listed in the UK. As a result, we
have a material proportion of the portfolio invested in this
country.
The combination of attractive
returns on capital underpinning steady growth in free cash flow and
dividends, together with long term capital growth, should produce
decent and dependable returns even in the event of an economic
slowdown. While there has been much that has fired investors'
imaginations recently, the gains enjoyed may not survive either a
slower than expected adoption of new technologies or earnings
driven disappointment as the economy slows. Under such scenarios we
have confidence in the resilience of our portfolio companies and
our ability to deliver dependable income growth and capital gains
in the coming years.
James Harries
21 May 2024
For
further information contact:
Troy Asset Management
Investment Manager
Tel: 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:
Principal risks
|
Mitigation and management
|
Investment strategy and objectives -
Pursuing an investment strategy to fulfil the
Company's objective which the market perceives to be unattractive
or inappropriate may lead to reduced returns for shareholders and,
as a result, the Company may become unattractive to investors,
leading to decreased demand for its shares and a widening
discount.
|
The Board formally reviews the
Company's objective and strategy on an annual basis, or more
regularly if appropriate. The Board also receives updates at each
Board meeting from the Manager with regards to the portfolio and
its performance; receives broker updates on the market; and is
updated on the make-up and movements in the shareholder register.
In addition, the Company operates a discount control mechanism; the
marketing and distribution activity is actively reviewed; and the
Board and Manager proactively engage with shareholders on an
ongoing basis.
|
Investment management - If the
longer-term performance of the investment portfolio does not
deliver income and capital returns in line with the investment
objective and/or consistently underperforms market expectations,
the Company may become unattractive to investors.
|
The Board manages the risk of
investment underperformance by relying on the Manager's stock
selection skills within a framework of diversification and other
investment restrictions and guidelines.
The Board monitors the implementation
and results of the investment process with the Manager (who attends
all Board meetings) and reviews data that shows statistical
measures of the Company's risk profile. Should investment
underperformance be sustained despite the mitigation measures taken
by the Manager, the Board would assess the cause and be able to
take appropriate action to manage this risk.
|
Macro-economic and market risk - The Company's portfolio is invested in listed equities and is
therefore exposed to events or developments which can affect the
general level of share prices, including inflation or deflation,
economic recessions and movement in interest rates and currencies
which could cause losses within the portfolio and increasing
finance and operational costs of the Company.
|
The Board receives regular updates on
the Company's portfolio and the investment environment in which the
Manager is operating. An explanation of the different components of
market risk and how they are individually managed is contained in
note 18 to the financial statements on pages 59 to 62 of the annual
report.
|
Gearing and leverage risk - The
Company may borrow money for investment purposes. While this has
the potential to enhance investment returns in rising markets, in
falling markets the impact could be detrimental to performance. If
borrowing facilities are not renewed, the Company may have to sell
investments to repay borrowings.
|
The Company's gearing is maintained
at a conservative and manageable level. All borrowing facilities
require prior approval of the Board and actual borrowing levels are
discussed by the Board and Manager at every meeting. Details of the
Company's current borrowings and unused facilities can be found in
note 12 to the financial statements on page 57 of the annual
report. The Company's investments are in quoted securities that are
readily realisable and the Board regularly reviews the liquidity
level of the portfolio in order to assess how quickly, if
necessary, the borrowings could be repaid. The Board, through the
Company Secretary, maintains an open and constructive dialogue with
the Company's lenders to ensure that any renewal of the facilities
is co-ordinated well in advance of the expiration of any existing
facilities.
|
Discount risk - The
discount/premium at which the Company's shares trade relative to
its net asset value can fluctuate. The risk of a widening discount
is that it may undermine investor confidence in the
Company.
|
The Company operates a discount
control mechanism which aims to ensure, in normal market
conditions, the Company's shares trade, on a consistent basis, at
or very close to net asset value. The Board reviews the operation
of the discount control mechanism at each Board meeting and
maintains a regular dialogue with Juniper Partners (which manages
the policy on behalf of the Board) in respect of any issues or
buybacks under the policy.
|
Operational risk - The Company
is dependent on third parties for the provision of all services and
systems. Any fraud, control failures, cyber threats, business
continuity issues at, or poor service from, these third parties
could result in financial loss or reputational damage to the
Company.
|
The Board carries out an annual
evaluation of its service providers and gives regular feedback to
the Manager and Company Secretary through the Management Engagement
Committee. The Board receives and reviews control reports from all
service providers where appropriate. Periodically, the Board
requests representatives from third party service providers to
attend Board meetings to give the Board the opportunity to discuss
the controls that are in place directly with the third-party
providers.
|
Accounting, legal and regulatory - In order to continue to qualify as an investment trust, the
Company must comply with the requirements of section 1158 of the
Corporation Tax Act 2010. Breaches of the UK Listing Rules, the
Companies Act or other regulations with which the Company is
required to comply, could lead to a number of detrimental
outcomes.
|
The Board considers that, given the
regular oversight of this risk carried out by the Company Secretary
and reviewed by the Board, the likelihood of this risk occurring is
minimal. The Audit and Risk Committee regularly reviews the
eligibility conditions and the Company's compliance against each,
including the minimum dividend requirements and shareholder
composition for close company status.
The Board receives reports from the
Manager and Juniper Partners in its capacity as AIFM and Company
Secretary to enable it to ensure compliance with all applicable
rules.
|
Environmental, social and governance ('ESG') risk
- There is increasing awareness of
the challenges and emerging risks posed by climate change and the
importance and impact of other ESG issues.
|
The investment process is focused on
ESG issues and, as set out on pages 11 and 12 of the annual report,
this includes an assessment of the potential impact of climate
change. Overall the specific potential effects of climate change
are difficult, if not impossible to predict and the Board and
Manager continue to monitor material physical and transition risks
and opportunities as part of the investment process.
|
Geopolitical risk - The impact
of geopolitical events could result in losses to the
Company.
|
Geopolitical risks have always been
an input into the investment process. This risk area is now
highlighted as a result of the Russian invasion of Ukraine and the
conflict in Gaza, with the resultant effects on global trade and
volatility in asset prices. The Board seeks to mitigate this risk
through maintaining a broadly diversified global equity portfolio
with appropriate asset and geographical exposure. The Board and the
Manager continue to monitor the ongoing heightened geopolitical
risk and are in regular communication on emerging matters which may
impact on the portfolio.
|
Following the ongoing assessment of
the principal and emerging risks facing the Company, and its current position, the Board is
confident that the Company will be able to continue in operation
and that the processes of internal control that the Company has
adopted and oversight by the Manager and the Company Secretary
continues to be effective.
Going
Concern
The Company's business activities,
together with the factors likely to affect its future development,
performance and position are set out in the Chairman's statement,
Manager's review, Strategic report and the Report of the directors
in the annual report.
The Company has a three-year
multi-currency revolving credit facility for £20 million, with an
additional £5 million accordion option, which expires in September
2026. As at 31 March 2024 £15.4 million had been drawn under this
facility in the following currencies: £1.5 million, €4.5 million
and US$12.75 million. The Company has adequate financial resources
in the form of readily realisable listed securities and as a result
the directors assess that the Company is able to continue in
operational existence without the facilities.
In accordance with the 2019 AIC Code of Corporate Governance, the directors have undertaken a rigorous review of the Company's ability
to continue as a going concern. The
Company's assets consist of a diverse portfolio
of listed equity shares which, in most
circumstances, are
realisable within a very short timescale.
The directors
are mindful of the principal and emerging
risks and uncertainties. They have reviewed revenue forecasts (adjusted for various
sensitivities) and they believe that
the Company has adequate financial resources and a
suitably liquid investment portfolio to continue its
operational existence for the foreseeable future, and at least for the period to 31
March 2026, which is at least 12 months
from the date the financial statements
are authorised for
issue.
The Statement of comprehensive
income, Statement of financial position, Statement of changes in
equity and Statement of cash flow follow.
Statement of comprehensive income
|
Year to 31 March
2024
|
Year to 31
March 2023
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
Net gains/(losses) on
investments
|
-
|
5,740
|
5,740
|
-
|
(8,800)
|
(8,800)
|
Net currency
(losses)/gains
|
(39)
|
286
|
247
|
(4)
|
(869)
|
(873)
|
Income
|
7,674
|
-
|
7,674
|
8,238
|
266
|
8,504
|
Investment management fee
|
(478)
|
(888)
|
(1,366)
|
(531)
|
(985)
|
(1,516)
|
Other
expenses
|
(595)
|
-
|
(595)
|
(625)
|
-
|
(625)
|
Net return before finance costs
and
|
|
|
|
|
|
|
taxation
|
6,562
|
5,138
|
11,700
|
7,078
|
(10,388)
|
(3,310)
|
Finance
costs
|
(269)
|
(500)
|
(769)
|
(171)
|
(318)
|
(489)
|
Net return on ordinary activities
before
|
|
|
|
|
|
|
taxation
|
6,293
|
4,638
|
10,931
|
6,907
|
(10,706)
|
(3,799)
|
Taxation on
ordinary
activities
|
(551)
|
-
|
(551)
|
(566)
|
-
|
(566)
|
Net return attributable to
ordinary
|
|
|
|
|
|
|
shareholders
|
5,742
|
4,638
|
10,380
|
6,341
|
(10,706)
|
(4,365)
|
Net return per ordinary
|
|
|
|
|
|
|
share
|
6.08p
|
4.92p
|
11.00p
|
6.34p
|
(10.70)p
|
(4.36)p
|
|
|
|
|
|
|
| |
The total columns of this statement
are the profit and loss accounts of the Company.
The revenue and capital items are
presented in accordance with the Association of Investment
Companies ('AIC') Statement of Recommended Practice (SORP
2022).
All revenue and capital items in
the above statement derive from continuing operations. No
operations were acquired or discontinued in the year.
Statement of financial position
|
As at 31 March
2024
|
As at 31
March 2023
|
|
£000
|
£000
|
£000
|
£000
|
|
Fixed assets
|
|
|
|
|
|
Investments held at fair value
through profit or loss
|
|
324,666
|
|
234,362
|
|
Current assets
|
|
|
|
|
|
Trade and other
receivables
|
60,068
|
|
1,113
|
|
|
Cash and cash equivalents
|
6,377
|
|
1,570
|
|
|
|
66,445
|
|
2,683
|
|
|
Current liabilities
|
|
|
|
|
|
Bank loans
|
(15,449)
|
|
(15,795)
|
|
|
Trade payables
|
(59,573)
|
|
(572)
|
|
|
Dividend payable
|
(1,736)
|
|
(1,443)
|
|
|
Total current liabilities
|
(76,758)
|
|
(17,810)
|
|
|
Net current liabilities
|
|
(10,313)
|
|
(15,127)
|
|
Total net assets
|
|
314,353
|
|
219,235
|
|
Capital and reserves
|
|
|
|
|
|
Called up share capital
|
1,752
|
|
1,223
|
|
|
Capital redemption
reserve
|
78
|
|
78
|
|
|
Share premium account
|
148,249
|
|
31,808
|
|
|
Special distributable
reserve
|
45,033
|
|
70,924
|
|
|
Capital reserve
|
116,543
|
|
111,905
|
|
|
Revenue reserve
|
2,698
|
|
3,297
|
|
|
Total shareholders' funds
|
|
314,353
|
|
219,235
|
|
Net asset value per ordinary
share
|
|
223.71p
|
|
220.37p
|
|
Statement of changes in equity
For the year ended
|
Called up
share
capital
|
Capital
redemption
reserve
|
Share
premium account
|
Special
distributable
reserve*
|
Capital
reserve*
|
Revenue
reserve*
|
Total
|
31
March 2024
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
As at 1 April 2023
|
1,223
|
78
|
31,808
|
70,924
|
111,905
|
3,297
|
219,235
|
Net return
|
|
|
|
|
|
|
|
attributable to
|
|
|
|
|
|
|
|
shareholders**
|
-
|
-
|
-
|
-
|
4,638
|
5,742
|
10,380
|
Shares issued in
|
|
|
|
|
|
|
|
respect of the
|
|
|
|
|
|
|
|
transaction with TIGT
|
529
|
-
|
117,223
|
-
|
-
|
-
|
117,752
|
Costs in relation to
|
|
|
|
|
|
|
|
the issue of shares
|
-
|
-
|
(782)
|
-
|
-
|
-
|
(782)
|
Shares bought back
|
|
|
|
|
|
|
|
into treasury
|
-
|
-
|
-
|
(25,891)
|
-
|
-
|
(25,891)
|
Dividends paid
|
-
|
-
|
-
|
-
|
-
|
(6,341)
|
(6,341)
|
As at 31 March 2024
|
1,752
|
78
|
148,249
|
45,033
|
116,543
|
2,698
|
314,353
|
For the year ended
|
Called up
share
capital
|
Capital
redemption reserve
|
Share
premium account
|
Special
distributable
reserve*
|
Capital
reserve*
|
Revenue
reserve*
|
Total
|
31 March 2023
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
As at 1 April 2022
|
1,223
|
78
|
30,762
|
71,925
|
122,611
|
3,058
|
229,657
|
Net return
|
|
|
|
|
|
|
|
attributable to
|
|
|
|
|
|
|
|
shareholders**
|
-
|
-
|
-
|
-
|
(10,706)
|
6,341
|
(4,365)
|
Shares issued
|
|
|
|
|
|
|
|
from treasury
|
-
|
-
|
1,046
|
2,585
|
-
|
-
|
3,631
|
Shares bought back
|
|
|
|
|
|
|
|
into treasury
|
-
|
-
|
-
|
(3,586)
|
-
|
-
|
(3,586)
|
Dividends paid
|
-
|
-
|
-
|
-
|
-
|
(6,102)
|
(6,102)
|
As at 31 March 2023
|
1,223
|
78
|
31,808
|
70,924
|
111,905
|
3,297
|
219,235
|
|
|
|
|
|
|
|
| |
*
These reserves are distributable with the
exception of the unrealised portion of the capital reserve, which
is non-distributable.
** The Company does not have any
other income or expenses that are not included in the 'Net return
attributable to ordinary shareholders' as disclosed in the
Statement of comprehensive income above, and therefore this is also
the 'Total comprehensive income' for the year.
Statement of cash flow
|
Year ended 31 March
2024
|
Year
ended 31 March 2023
|
|
£000
|
£000
|
£000
|
£000
|
Cash flows from operating
activities
Net return on ordinary activities
before taxation
|
|
10,931
|
|
(3,799)
|
Adjustments for:
|
|
|
|
|
(Gains)/losses on
investments
|
(5,740)
|
|
8,800
|
|
Finance costs
|
769
|
|
489
|
|
Exchange movement on bank
borrowings
|
(346)
|
|
794
|
|
Purchases of
investments*#
|
(17,217)
|
|
(22,917)
|
|
Sales of investments*
|
43,263
|
|
24,316
|
|
Dividend income
|
(7,659)
|
|
(8,496)
|
|
Other income
|
(15)
|
|
(8)
|
|
Dividend income received
|
7,800
|
|
8,523
|
|
Other income received
|
14
|
|
8
|
|
Decrease/(increase) in receivables
|
8
|
|
(5)
|
|
(Decrease)/increase in payables
|
(120)
|
|
70
|
|
Overseas withholding tax
deducted
|
(586)
|
|
(612)
|
|
|
|
20,171
|
|
10,962
|
Net cash flows from operating
activities
|
|
31,102
|
|
7,163
|
Cash flows from financing
activities
|
|
|
|
|
Repurchase of shares
|
(25,560)
|
|
(3,586)
|
|
Issue of ordinary share
capital#
|
6,143
|
|
3,631
|
|
Equity dividends paid from
revenue
|
(6,048)
|
|
(6,027)
|
|
Interest paid on
borrowings
|
(830)
|
|
(476)
|
|
Net cash flows from financing
activities
|
|
(26,295)
|
|
(6,458)
|
Net increase in cash and cash
equivalents
|
|
4,807
|
|
705
|
Cash and cash equivalents at the
start of the year
|
|
1,570
|
|
865
|
Cash and cash equivalents at the end
of the year
|
|
6,377
|
|
1,570
|
*Receipts from the sale of, and
payments to acquire, investment securities have been classified as
components of cash flows from operating activities because they
form part of the Company's dealing operations.
#Investments acquired as a result of the transaction with TIGT
(£110.5m) were transferred in specie and therefore no cash was
paid. Similarly the receipt of these investments reduced the level
of cash received on the issue of the new shares.
Notes:
1.
Significant accounting policies
The accounts are prepared in
accordance with the Companies Act 2006, United Kingdom Generally
Accepted Accounting Practice (Accounting Standards 'UK GAAP')
including Financial Reporting Standard (FRS) 102 'The Financial
Reporting Standard applicable in the UK and Republic of Ireland'
and the Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (the 'SORP')
issued by the Association of Investment Companies in July 2022. All
of the Company's operations are of a continuing nature.
The accounts have been prepared on
a going concern basis under the historical cost convention, as
modified by the revaluation of investments held at fair value
through profit or loss. In preparing these financial statements the
directors have considered the impact of climate change on the value
of the listed investments that the Company holds. As the portfolio
consists of listed equities, which are valued using quoted bid
prices for investments in an active market, the fair value reflects
the market participants' view of climate change risk.
The Company's assets consist of a
diverse portfolio of listed equity shares which, in most
circumstances, are realisable within a very short timescale. The
directors have reviewed revenue forecasts and they believe that the
Company has adequate financial resources to continue its
operational existence for the foreseeable future, and for the
period to 31 March 2026, which is at least 12 months from the date
the financial statements are authorised for issue.
The principal accounting policies
are set out in Note 1 to the annual report.
These policies have been applied consistently throughout the
current and prior year.
Estimates and judgements are
continually evaluated and are based on historical experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. There are no
critical accounting estimates or judgements.
Functional currency - the Company
is required to determine a functional currency, being the currency
in which the Company predominately operates. The Board has
determined that sterling is the Company's functional currency,
which is also the currency in which these financial statements are
prepared. This is also the currency in which all expenses and
dividends are paid in.
2.
Returns and net
asset value
|
Year to 31 March
2024
|
Year to
31 March 2023
|
Revenue return (£000)
|
5,742
|
6,341
|
Capital return (£000)
|
4,638
|
(10,706)
|
Total (£000)
|
10,380
|
(4,365)
|
Weighted average number of ordinary
shares in issue
|
94,344,039
|
100,005,571
|
Revenue return per ordinary
share
|
6.08p
|
6.34p
|
Capital return per ordinary
share
|
4.92p
|
(10.70)p
|
Total return per ordinary
share
|
11.00p
|
(4.36)p
|
Net asset value per share
|
|
|
Net assets attributable to
shareholders (£000)
|
314,353
|
219,235
|
Number of shares in issue at the
year end
|
140,517,415
|
99,483,575
|
Net asset value per
share
|
223.71p
|
220.37p
|
3.
Dividends
|
Year to 31 March
2024
£000
|
Year to
31 March 2023
£000
|
First interim dividend of
1.525p for the
year ended 31 March 2024 (2023: 1.45p)
|
1,431
|
1,454
|
Second interim dividend
of 1.525p for
the year ended
31 March 2024 (2023: 1.45p)
|
1,386
|
1,451
|
Third interim dividend
of 1.965p for
the year ended
31 March 2024 (2023: 1.45p)
|
1,736
|
1,443
|
Proposed fourth interim dividend of
1.525p for
the year ended
31 March 2024 (2023:
1.85p)
|
2,047
|
1,822
|
|
6,600
|
6,170
|
The revenue reserves as at 31 March
2024 are £2,698,000, of this £2,047,000 will be used to fund the
fourth interim dividend. The amount reflected above for the cost of
the proposed fourth interim dividend for 2024 is based on
134,248,415 ordinary shares, being the number of ordinary shares in
issue excluding those held in treasury at the date of this report.
The articles of association of the Company permit dividends to be
paid out of capital.
4.
Investments at fair value
Under FRS 102 'The Financial
Reporting Standard applicable in the UK and Republic of Ireland',
an entity is required to classify fair value measurements using a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The fair value hierarchy shall
have the following levels:
Level 1:
quoted prices (unadjusted) in active markets for identical assets
or liabilities;
Level 2:
other significant observable inputs (including quoted prices for
similar investments, interest rates, prepayments, credit risk,
etc); or
Level 3:
significant unobservable input (including
the Company's own
assumptions in determining the
fair value of investments). The financial assets measured at fair
value through profit or loss are grouped into the fair value
hierarchy as follows:
At
31 March 2024
|
Level 1
£000
|
Level 2
£000
|
Level 3
£000
|
Total
£000
|
Financial assets at fair value
through profit or loss
|
|
|
|
|
Quoted equities
|
324,666
|
-
|
-
|
324,666
|
Net
fair value
|
324,666
|
-
|
-
|
324,666
|
At 31 March 2023
|
Level
1
£000
|
Level
2
£000
|
Level
3
£000
|
Total
£000
|
Financial assets at fair value
through profit or loss
|
|
|
|
|
Quoted equities
|
234,362
|
-
|
-
|
234,362
|
Net fair value
|
234,362
|
-
|
-
|
234,362
|
5.
Share capital
There were 11,855,197 shares bought
back during the year to 31 March 2024 at a cost of £25,891,000
(2023: 1,616,500 shares at a cost of £3,586,000). During the year,
the Company issued 52,889,037 shares following the transaction with
Troy Income & Growth Trust plc, for net proceeds of
£117,752,000 (2023: 1,575,000 shares issued from treasury for net
proceeds of £3,631,000).
6.
Related party transactions
With the exception of the management
and secretarial fees, directors' fees and directors' shareholdings
(disclosed on page 34 of the annual report), there have been no
related party transactions during the year,
or in the prior year.
The management fee payable in
respect of the year ended 31 March 2024 was £1,366,000 (2023:
£1,516,000), of which £302,000 (2023: £386,000) was outstanding at
the year-end. The secretarial and directors' fees payable in
respect of the year ended 31 March 2024 are detailed in note 4 of
the annual report. The amount outstanding at the year end for
secretarial fees and directors' fees was £4,000 (2023: £18,000) and
£nil (2023: £nil) respectively.
7.
Further information
These are not statutory accounts in
terms of Section 434 of the Companies Act 2006. Full audited
accounts for the year to 31 March 2024 will be sent to shareholders
in May 2024 and will be available for inspection at 28 Walker
Street, Edinburgh EH3 7HR, the registered office of the Company.
The full annual report and accounts will be available on the
Company's website www.stsplc.co.uk.
The audited accounts for the year
ended 31 March 2024 will be lodged with the Registrar of
Companies.