Half-year Report

RNS Number : 1406I

Securities Trust of Scotland PLC

10 December 2020

 

To:  RNS

From:  Securities Trust of Scotland plc

LEI:   549300UZ1Y7PPQYJGE19

Date:  10 December 2020

Half-year financial report

Six months to 30 September 2020

A copy of the half-year financial report ended 30 September 2020 has been submitted to the National Storage Mechanism and will shortly be available for viewing at: http://www.morningstar.co.uk/uk/NSM .

A copy of the half-year report can shortly be downloaded at www.stsplc.co.uk .

FINANCIAL HIGHLIGHTS

 

Total return ‡^ (including reinvested dividends)	Six months ended 30 September 2020 %	Six months ended 30 September 2019 %
Net asset value per share*	21.5	12.3
Peer group†	15.5	8.7
Share price	13.5	17.0

Income	Six months ended 30 September 2020	Six months ended 30 September 2019
Revenue per share	4.38p	4.30p
Dividend per share	2.75p	2.90p

Ongoing charges^ (as a percentage of shareholders' funds)	Six months ended 30 September 2020 %	Six months ended 30 September 2019 %
Ongoing charges	0.9	0.9

‡ The combined effect of any dividend paid, together with the rise or fall in the share price, net asset or peer group.

* The net asset value ('NAV') per share total return is calculated using cum-income NAV with dividends reinvested.

^† Please see below for details on the company's relevant peer group for the period.

^ Please see below for definitions of alternative performance measures.

 

INTERIM MANAGEMENT REPORT

Chairman's statement

The six months to 30 September 2020 have seen a number of significant developments for your company.

Global stockmarkets have shown substantial recoveries from the lows reached towards the end of March 2020 - coinciding with your company's fiscal year end. Reflecting this recovery I am pleased to report that the Net Asset Value Total Return for the six month period was +21.5% which compares favourably with the equivalent return of +15.5% from the peer group* against which your company's performance was benchmarked.

The share price total return for the same period was +13.5% which reflects a widening of the discount to Net Asset Value at which the company's shares traded from a premium of 3.6% at 31 March to a 3.2% discount at the period end. I will make further and more detailed comments on the discount later in this statement.

The level of returns from global stockmarkets might seem surprising given the high levels of uncertainty prevailing in March as most of the major economies in the Western World entered periods of lockdown with significant consequences for economic activity. Stockmarkets have been encouraged by the support provided by central banks which have sustained their policies of Quantative Easing and by Governments which generally have supported companies and employees by generous furlough payments. Markets are also increasingly looking through the significant reduction in earnings that will be reported for 2020 and anticipating a sharp recovery in 2021.

It is also worth highlighting that the background has not been universally negative and many companies and sectors have adapted quickly to the new circumstances or, indeed, been operating in sectors where demand has been strong driven by changes forced on companies and consumers as they adapt to new working environments. This has been particularly true in many technology and software sub sectors where very rapid change in behaviour has generated significant rises in demand.

Management changes

Martin Currie has been the fund manager and company secretary to your company since Securities Trust of Scotland was restructured in 2005 and indeed for some time before that event. On 2 June 2020 your board was informed by Martin Currie that three of the four members of the Global Equity Income Team who had the day to day responsibility of managing the portfolio had resigned and as a consequence Martin Currie would no longer be in a position to provide a Global Equity Income service to your company.

This was an unwelcome development not least because the board considered that the company was performing well at that time relative to its peer group* and was also trading at a premium to its Net Asset Value.

The board commenced a process to identify a new fund management company for the company. The board was advised in this process by JP Morgan Cazenove.

Despite the strictures of lockdown and difficulties with travel, a thorough and professional search process was undertaken by the board. A wide range of fund managers were considered and the board was very pleased to appoint Troy Asset Management Limited as fund managers to the trust and PATAC Limited as company secretary and AIFM. These appointments were effective as of 12 November 2020.

James Harries and Tomasz Boniek will be the named managers for your company. James has considerable experience in managing Global Equity Income funds. He launched the Newton Global Income Fund in 2005 and over the period of his management it grew to £4.5bn in assets and was first in its sector over 10 years. He joined Troy in 2016 and established the Troy Global Income Fund.

PATAC is company secretary to seven other investment trusts including Personal Assets Trust and Troy Income & Growth Trust. In addition to the company secretarial and AIFM responsibilities PATAC will also manage the discount control mechanism that your board has introduced. The successful operation of this policy will aim to ensure that your company's shares trade, on a consistent basis, at or very close to their Net Asset Value and that liquidity will be available at that valuation.

The successful implementation of this policy will see shares in Securities Trust being purchased and issued by the company on a consistent basis and the intention is to grow the size of the company in real terms via net issuance over time.

The board would like to thank Martin Currie for its service over the period of its appointment as manager and in particular for the professional manner in which the handover to Troy and PATAC was conducted.

Dividends

The approach adopted by Troy is to generate income only from the underlying dividend payments made by the constituents of the portfolio. Consequently, no further income will be earned by the company from option writing that was used to generate additional income by the previous manager. Your Board carefully evaluated this issue when considering the appointment of Troy.

Reflecting this the board has indicated that the dividend payment to shareholders for the year to 31 March 2021 will be not less than 5.5 pence per share. The board and Troy are confident that consistent growth in dividends can be achieved from the new level.

In line with this dividend the board announced a first interim dividend on 24 September of 1.375 pence per share which was paid in October. The board is pleased to declare a second interim dividend of 1.375 pence per share which will be paid on 22 January 2021 to shareholders on the register on 4 January 2021. The ex-dividend date will be 31 December 2020.

Stay in touch

Shareholders who have not already done so should register on the company's website to receive regular updates and, in particular, receive a copy of the Monthly Factsheet. The website address is www.stsplc.co.uk.

Outlook

Stockmarkets around the world have continued to rise since 30 September. This is despite a resurgence in the effects of COVID-19 shown in rising infection rates and many countries being required to reimpose lockdown measures. Off-setting these pessimistic developments has been significant progress in the development and roll out of vaccines. The outcome of the US presidential election has been well received and there is optimism that a deal can be reached in respect of the Brexit negotiations. Markets have moved quickly to price in all the above factors maintaining the elevated levels of volatility that has been a feature of 2020 to date.

The portfolio that your new managers have constructed has shown good resilience in terms of the dividend performance from its constituent companies. The board is very much looking forward to a long and successful relationship with Troy and PATAC.

John Evans

Chairman

9 December 2020

*  Please see the glossary below for details of the company's relevant peer group over the period.

Manager's outlook

We took over management of the portfolio on 12 November 2020 as the company embarks on a new chapter in its long history. Troy Asset Management Limited was established by Lord Weinstock and Sebastian Lyon 20 years ago with perspective, patience and discipline at the core of what the business. Their aim was to protect and grow capital, in that order, and to be highly cognisant of the risks to any investment. That philosophy remains strong to this day.

Investment trusts form a cornerstone of our business. Our intention is to build on Troy's success with Personal Assets Trust and Troy Income & Growth Trust to establish Securities Trust of Scotland as the leading quality-focused global income trust in the industry by delivering above-average returns and income with below-average volatility. In a world starved of income, such an outcome remains a key reason for many to invest, particularly those with irreplaceable capital. It is, after all, an ancient investment truth that funding all or part of one's day-to-day expenditure from income prevents one from having to draw down on capital at a time when market conditions are less benign.

We pursue a distinctive approach by investing in a concentrated portfolio of high-quality companies, with reference to the calibre of the businesses as opposed to a benchmark. We then allow these businesses to compound capital and income over the long-term, in an uninterrupted way, by having low turnover. It is our contention that the real money is made in the long-term compounding of a high-quality, settled portfolio and not in the continuous buying and selling of shares.

We judge a company's quality by its ability to generate high returns on employed capital, driven by certain attributes which the business possesses. These attributes may include brands, distribution, scale, dominant market positions, regulatory or cost advantages. The combination of these elements leads to high returns being sustained for far longer than economic theory suggests. Companies that exhibit these traits often provide the small-ticket repeat-purchase items and services that habitually form part of our lives. Having identified such enterprises, we want them to be managed by a team that has demonstrated sound capital allocation in the past and is incentivised to continue to do so in the future.

In addition to the above, we favour businesses that have low cyclicality, low capital intensity and significant growth potential, which, when combined with high returns, ensure high levels of predictable and growing free cash flow. The resulting value creation enables businesses to reinvest adequately, both in order to grow and to entrench their competitive advantages, while still allowing payment of an income to us as shareholders. Portfolio construction is a function of continuously balancing quality, income and growth while ensuring adequate diversification by business model, product type, geography, industry and thereby sources of return and income.

Such businesses are few and far between, so it is beneficial to have the broadest opportunity set

possible, which commends a global approach.

Consequently, our efforts, resources and ultimately portfolios are concentrated in particular sectors and industries that have the characteristics we favour such as consumer staples, healthcare, technology and high-quality capital-light industrial companies. Conversely, we eschew such sectors as energy, bulk chemicals, mining and manufacturing which tend to require huge amounts of capital but generate mediocre returns.

2020 has been a tumultuous year and a tragedy for many families. From an investment perspective it has had the notable features of accelerating pre-existing trends in economies and massively increasing the role of Government and associated indebtedness. The recent announcement of a highly effective vaccine is very welcome and likely reduces the risk of a very bad outcome. At the same time, the global economy is effectively undergoing a major restructuring as profit pools are undermined and shifted as a result of technological disruption, changing consumer habits and environmental pressures. That this is happening while markets trade at elevated levels relative to most long-term valuation measures makes for a confusing backdrop.

In a world of such uncertainties, one area that seems quite clear is that income available to investors will remain scarce, owing to the need to keep debt servicing costs low. Conversely, equity markets do still provide income. It must be acknowledged, however, that they carry greater volatility than alternative sources such as government bonds. In such a world, an approach that is highly selective about the businesses in which we invest and that views risk as the permanent loss of capital is key. Further, by being conservative in our attitude, and recognising the cross-currents that both markets and the economy currently face, we can look to the future with confidence.

The restructuring of the company was completed in the first few days of our management and is now positioned in a manner consistent with the above approach. At the portfolio level we are generating a free cash flow yield* of 5.8% (as at 30 November 2020) which we expect to grow, funding a distribution of at least 5.5 pence for the upcoming year. While this represents a small reduction on the previous year, we expect this to be a level that can be funded sustainably from the natural income derived from the portfolio and that can grow in real terms. This ensures we are well placed for the long term and that the portfolio is not unduly contorted to produce income at a cost to returns on capital.

Tomasz and I, and the wider investment team, are delighted to be given this opportunity and look forward to working with the Board to fulfil the objectives of the company and the needs of our shareholders.

James Harries

9 December 2020

* free cash flow yield = free cash flow per share/share price

 

Risk and mitigation

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 investment manager, as described in the latest annual report. The principal 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.

Risks are regularly monitored at board meetings and the board's planned mitigation measures are described in the latest annual report. The board maintains a risk register and also carries out a risk workshop annually. The board has identified the following principal risks to the company:

· Loss of s1158-9 status

· Long-term investment underperformance

· Market, financial and interest rate risk

· Operational Risk

During the period the directors continued to assess the ongoing implications for the company and its principal risks as a result of the COVID-19 pandemic, including in relation to investment performance and operational risk. The board continues to work with the company's key service providers to mitigate such risks.

Further details of these risks and how the board manages them can be found in the 2020 annual report and on the company's website www.stsplc.com.

Directors' responsibility

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, and to the best of their knowledge, each director of the company confirms that the financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law) and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the AIC in October 2019. The directors are satisfied that the financial statements give a true and fair view of the assets, liabilities, financial position and profit of the company. Furthermore, each director certifies that the interim management statement includes an indication of important events that have occurred during the first six months of the financial year, and their impact on the financial statements, together with a description of the principal risks and uncertainties that the company faces. In addition, each director of the company confirms with the exception of management, secretarial fees, directors' fees and directors' shareholdings, that there have been no related party transactions during the six months to 30 September 2020.

Going concern status

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 and Manager's outlook.

The financial position of the company as at 30 September 2020 is shown on the unaudited condensed statement of financial position. The unaudited condensed statement of cash flow of the company is below. 

In accordance with the 2019 AIC Code of Corporate Governance and the 2018 UK Corporate Governance Code, the directors have undertaken a rigorous review of the company's ability to continue as a going concern. The company's assets consist primarily 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 risks disclosed above, in particular those related to COVID-19, and have reviewed revenue forecasts. They believe that the company has adequate financial resources to continue its operational existence for the foreseeable future and for at least one year from the date of signing of these financial statements. Accordingly, the directors continue to adopt the going concern basis in preparing these financial statements. 

By order of the board

John Evans, Chairman

9 December 2020

Portfolio Summary Portfolio distribution as at 30 September 2020
By region (excluding cash)	As at 30 September 2020	As at 31 March 2020
	%	%
North America	47.2	42.6
Developed Europe	33.7	40.7
Developed Asia Pacific ex Japan	19.1	16.7
	100.0	100.0

By sector (excluding cash)	As at 30 September 2020	As at 31 March 2020
	%	%
Technology	25.0	18.5
Industrials	16.3	16.6
Financials	15.8	22.7
Consumer goods	13.8	15.0
Consumer services	7.4	2.9
Basic materials	6.9	8.2
Telecommunications	6.1	6.6
Healthcare	6.0	4.4
Utilities	2.7	3.3
Oil & gas	-	1.8
	100.0	100.0

By asset class (including cash and borrowings)	As at 30 September 2020	As at 31 March 2020
	%	%
Equities	104.6	106.0
Cash	3.0	2.8
Less borrowings	(7.6)	(8.8)
	100.0	100.0

 

Largest 10 holdings	30 September 2020	30 September 2020	31 March 2020	31 March 2020
	Market value	% of total	Market value	% of total
	£000	portfolio	£000	portfolio
Microsoft	13,206	6.2	11,212	5.9
Taiwan Semiconductor	11,928	5.6	7,331	3.9
Samsung Electronics	9,072	4.3	7,215	3.8
Sanofi	8,561	4.0	3,205	1.7
Crown Castle International	7,872	3.7	7,728	4.1
Verizon Communications	7,781	3.7	7,333	3.9
Koninklijke DSM	7,638	3.6	7,093	3.7
Tencent Holdings	7,229	3.4	5,599	3.0
Broadcom	7,227	3.4	-	-
Air Products + Chemicals	7,036	3.3	4,918	2.6

 

Unaudited Condensed Statement of Comprehensive Income

		(Unaudited) Six months to 30 September 2020			(Unaudited) Six months to 30 September 2019
	Note	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Net gains on investments	5	-	32,319	32,319	-	20,336	20,336
Net currency gains/(losses)		56	198	254	119	(722)	(603)
Income	3	5,450	-	5,450	5,459	-	5,459
Investment management fee		(206)	(384)	(590)	(211)	(391)	(602)
Other expenses		(316)	-	(316)	(294)	-	(294)
Net return before finance costs and taxation		4,984	32,133	37,117	5,073	19,223	24,296
Finance costs		(94)	(162)	(256)	(104)	(184)	(288)
Net return on ordinary activities before taxation		4,890	31,971	36,861	4,969	19,039	24,008
Taxation on ordinary activities	4	(311)	-	(311)	(485)	-	(485)
Net returns attributable to ordinary redeemable shareholders		4,579	31,971	36,550	4,484	19,039	23,523
Net returns per ordinary redeemable share (basic and diluted)	2	4.38p	30.59p	34.97p	4.30p	18.25p	22.55p

		(Audited)
		Year to 31 March 2020
		Revenue	Capital	Total
	Note	£000	£000	£000
Net losses on investments	5	-	(20,635)	(20,635)
Net currency gains/(losses)		104	(26)	78
Income	3	8,700	-	8,700
Investment management fee		(410)	(761)	(1,171)
Other expenses		(587)	-	(587)
Net return before finance costs and taxation		7,807	(21,422)	(13,615)
Finance costs		(205)	(365)	(570)
Net return on ordinary activities before taxation		7,602	(21,787)	(14,185)
Taxation on ordinary activities	4	(867)	-	(867)
Net return attributable to ordinary redeemable shareholders		6,735	(21,787)	(15,052)
Net returns per ordinary redeemable share (basic and diluted)	2	6.46p	(20.89p)	(14.43p)

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 2019').

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued in the six months.

The notes below form part of these condensed financial statements.

 

Unaudited Condensed Statement of Financial Position

		(Unaudited) As at 30 September 2020		(Unaudited) As at 30 September 2019		(Audited) year to 31 March 2020
	Note	£000	£000	£000	£000	£000	£000
Fixed assets
Investments and derivatives at fair value through profit or loss*	5		212,195		232,901		189,669
Current assets
Trade and other receivables	6	11,077		489		3,408
Cash and cash equivalents		6,163		5,486		5,101
			17,240		5,975		8,509
Current liabilities
Trade payables - amounts falling due within one year	7	(10,494)		(10,429)		(10,430)
Dividend payable		-		-		(1,518)
Total current liabilities		(10,494)		(10,429)		(11,948)
Net current assets/( liabilities)			6,746		(4,454)		(3,439)
Total assets less current liabilities			218,941		228,447		186,230
Trade payables - amounts falling due after more than one year	8		(15,444)		(15,827)		(15,765)
Total net assets			203,497		212,620		170,465
Capital and reserves
Called up ordinary share capital		1,223		1,223		1,223
Capital redemption reserve		78		78		78
Share premium reserve		30,401		30,040		30,401
Special distributable reserve*		81,583		82,345		82,943
Capital reserve*		85,470		94,325		53,499
Revenue reserve*		4,742		4,609		2,321
Total shareholders' funds			203,497		212,620		170,465
Net asset value per ordinary redeemable share	2		195.58p		203.88p		162.72p

* These reserves are distributable.

The company is registered in Scotland no.SC283272.

The notes below form part of these condensed financial statements.

The financial statements were approved by the board of directors on 9 December 2020 signed on its behalf by John Evans, Chairman.

 

Unaudited Condensed Statement of Changes in Equity

For the period to 30 September 2020 (Unaudited)	Called up ordinary share capital £000	Capital redemption reserve £000	Share premium account £000	Special distributable capital reserve* £000	Capital reserve* £000	Revenue  reserve* £000	Total £000
As at 31 March 2020	1,223	78	30,401	82,943	53,499	2,321	170,465
Net return attributable to shareholders**	-	-	-	-	31,971	4,579	36,550
Ordinary shares bought back during the period	-	-	-	(1,360)	-	-	(1,360)
Dividends paid from revenue	-	-	-	-	-	(2,158)	(2,158)
As at 30 September 2020	1,223	78	30,401	81,583	85,470	4,742	203,497

For the period to 30 September 2019 (Unaudited)	Called up ordinary share capital £000	Capital redemption reserve £000	Share premium account £000	Special distributable capital reserve* £000	Capital reserve* £000	Revenue  reserve* £000	Total £000
As at 31 March 2019	1,223	78	30,040	82,709	75,286	2,108	191,444
Net return attributable to shareholders**	-	-	-	-	19,039	4,484	23,523
Ordinary shares bought back during the period	-	-	-	(364)	-	-	(364)
Dividends paid from revenue	-	-	-	-	-	(1,983)	(1,983)
As at 30 September 2019	1,223	78	30,040	82,345	94,325	4,609	212,620

For the year to 31 March 2020 (Audited)	Called up ordinary share capital	Capital redemption reserve	Share premium account	Special distributable capital reserve*	Capital reserve*	Revenue  reserve*	Total
	£000	£000	£000	£000	£000	£000	£000
As at 31 March 2019	1,223	78	30,040	82,709	75,286	2,108	191,444
Net return attributable to shareholders**	-	-	-	-	(21,787)	6,735	(15,052)
Ordinary shares issued during the year	-	-	361	1,046	-	-	1,406
Ordinary shares bought back during the year	-	-	-	(812)	-	-	(812)
Dividends paid	-	-	-	-	-	(6,522)	(6,522)
As at 31 March 2020	1,223	78	30,401	82,943	53,499	2,321	170,465

*These reserves are distributable.

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

The notes below form part of these condensed financial statements.

Unaudited Condensed Statement of Cash Flow

		(Unaudited) Six months to		(Unaudited) Six months to		(Audited) Year to
		30 September 2020		30 September 2019		31 March 2020
	Note	£000	£000	£000	£000	£000	£000
Cashflows from operating activities
Profit/(loss) before tax			36,861		24,008		(14,185)
Adjustments for:
(Gains)/losses on investments	5	(32,319)		(20,336)		20,635
Finance costs		256		288		570
Exchange movement on bank borrowings	9	(321)		665		603
Purchases of investments*	5	(34,520)		(54,051)		(85,742)
Sales of investments*	5	44,313		54,164		88,116
Dividend income	3	(4,632)		(5,115)		(7,806)
Other income	3	-		-		(4)
Premium income - written options	3	(818)		(344)		(890)
Dividend received		4,750		5,601		8,183
Other income received		-		-		4
Premium income received - written options		818		344		890
Increase in receivables		(7,953)		(95)		(2,739)
Increase/(decrease) in payables		75		(73)		(72)
Overseas withholding tax suffered	4	(311)		(485)		(867)
			(30,662)		(19,437)		20,881
Net cash flows from operating activities			6,199		4,571		6,696
Cash flows from financing activities
Repurchase of ordinary share capital		(1,360)		(382)		(829)
Issue of ordinary share capital		166		-		1,240
Equity dividends paid		(3,676)		(3,498)		(6,519)
Interest paid on borrowings		(267)		(289)		(571)
Net cash flows from financing activities			(5,137)		(4,169)		(6,679)
Net increase in cash and cash equivalents			1,062		402		17
Cash and cash equivalents at the start of the period			5,101		5,084		5,084
Cash and cash equivalents at the end of the period	9		6,163		5,486		5,101

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

Notes to the Condensed Financial Statements

Note 1:  Accounting policies

For the period ending 30 September 2020 (and the year ending 31 March 2020), the company is applying Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102)', which forms part of the Generally Accepted Accounting Practice ('UK GAAP') issued by the Financial Reporting Council ('FRC') in 2015.

These condensed financial statements have been prepared on a going concern basis in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, FRS 102 issued by the FRC in September 2015, FRS 104 Interim Financial Reporting issued by the FRC in March 2015 and the revised Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('SORP') issued by the AIC in October 2019.

The accounting policies applied for the condensed set of financial statements are set out in the company's annual report for the year to 31 March 2020.

Note 2:  Returns and net asset value

	(Unaudited) Six months to 30 September 2020	(Unaudited) Six months to 30 September 2019	(Audited) Year to 31 March 2020
Revenue return
Revenue return attributable to ordinary redeemable shareholders	£4,579,000	£4,484,000	£6,735,000
Weighted average number of shares in issue during the period*	104,531,440	104,299,302	104,294,951
Revenue return per ordinary redeemable share (basic and diluted)	4.38p	4.30p	6.46p
Capital return
Capital return attributable to ordinary redeemable shareholders	£31,971,000	£19,039,000	(£21,787,000)
Weighted average number of shares in issue during the period*	104,531,440	104,299,302	104,294,951
Capital return per ordinary redeemable share	30.59p	18.25p	(20.89p)
Total return
Capital return per ordinary redeemable share (basic and diluted)	34.97p	22.55p	(14.43p)
Net asset value per share
Net assets attributable to shareholders	£203,497,000	£212,620,000	£170,465,000
Number of shares in issue at period end	104,046,075	104,285,623	104,760,635
Net asset value per share	195.58p	203.88p	162.72p

* Calculated excluding shares held in treasury.

During the six months ended 30 September 2020 there were 714,560 shares bought back into treasury at a cost of £1,360,000. (Six months ended 30 September 2019: 210,625 shares brought back into treasury at a cost of £364,000; twelve months ended 31 March 2020: 435,613 shares brought back into treasury at a cost of £812,000). Between 1 October and 8 December 2020, 625,000 ordinary shares of 1p each were issued from treasury for proceeds of £1,281,000 (Six months ended 30 September 2019: no shares were issued from treasury; twelve months ended 31 March 2020: 700,000 shares were issued from treasury for proceeds of £1,406,000). There have been no shares cancelled from treasury during the six months ended 30 September 2020. (Six months ended 30 September 2019: no shares were cancelled from treasury; twelve months ended 31 March 2020: no shares were cancelled from treasury). As at 30 September 2020 there were 18,253,073 shares in held in treasury.

Total return

The total return per share for the company is the combined effect of the rise and fall in the share price or NAV together with the reinvestment of the quarterly dividends paid.

The tables below provide the NAVs and share prices of the company on the dividend reinvestment dates for the six months ended 30 September 2020 and 30 September 2019.

2020	Dividend rate	NAV	Share price
31 March 2020	n/a	162.72	168.50
9 July 2020	2.06	189.87	193.00
30 September 2020	n/a	195.58	189.25
Total return		21.50%	13.50%

2019	Dividend rate	NAV	Share price
31 March 2019	n/a	183.21	169.50
4 July 2019	1.90	199.22	199.50
30 September 2019	n/a	203.88	196.50
Total return		12.30%	17.00%

Note 3:  Revenue

	(Unaudited) Six months to 30 September 2020 £000	(Unaudited) Six months to 30 September 2019 £000	(Audited) Year to 31 March 2020 £000
From listed investments
UK - equities	512	1,008	1,765
Overseas - equities	4,120	4,107	6,041
	4,632	5,115	7,806
Other revenue
Premium - written options	818	344	890
Other income	-	-	4
	5,450	5,459	8,700

During the six months to 30 September 2020 the company did not receive any capital dividends. (Six months to 30 September 2019: £nil; year to 31 March 2020: £nil).

During the six months to 30 September 2020 there were special dividends of £30,000 (30 September 2019: £99,000, year to 31 March 2020: £99,000) which were received and treated as income.

 

Note 4: Taxation on ordinary activities

	(Unaudited) Six months to 30 September 2020 £000			(Unaudited) Six months to 30 September 2019 £000			(Audited) Year to 31 March 2020 £000
Foreign tax			311			485			867

Note 5:  Investments at fair value through profit or loss

	(Unaudited) As at 30 September 2020 £000	(Unaudited) As at 30 September 2019 £000	(Audited) As at 31 March 2020 £000
Opening cost	182,216	182,754	182,754
Opening unrealised gains	7,453	29,924	29,924
Opening valuation	189,669	212,678	212,678
Acquisition at cost	34,520	54,051	85,742
Disposal proceeds	(44,313)	(54,164)	(83,116)
Gains/(losses) on disposal of investments	32,319	20,336	(20,635)
Closing valuation	212,195	232,901	189,669
Closing cost	171,515	187,602	182,216
Closing unrealised gains	40,680	45,299	7,453
Closing valuation	212,195	232,901	189,669

The company received £44,313,000 (six months ended 30 September 2019: £54,164,000; twelve months ended 31 March 2020: £83,116,000) from investments sold in the six months to 30 September 2020.  The cost of these investments when they were purchased was £45,224,000 (six months ended 30 September 2019: £49,203,000; twelve months ended 31 March 2020: £86,280,000).

Transaction costs

During the period, expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through capital and are included within gains/(losses) on investments in the statement of comprehensive income. The total costs were as follows:

	(Unaudited) Six months to 30 September 2020 £000	(Unaudited) Six months to 30 September 2019 £000	(Audited) Year to 31 March 2020 £000
Acquisitions	51	90	145
Disposals	33	27	51
	84	117	196

 

Note 6:  Trade and other receivables

	(Unaudited) As at 30 September 2020 £000	(Unaudited) As at 30 September 2019 £000	(Audited) As at 31 March 2020 £000
Dividends receivable	280	289	398
Cash collateral held at broker for derivatives	-	1	2,631
Tax recoverable	305	190	191
Prepayments and other debtors	21	9	22
Amount due for ordinary shares issued	-	-	166
Due from brokers	10,471	-	-
	11,077	489	3,408

None of the company's trade and other receivables are past due or impaired at any period end.

Note 7:  Trade payables - amounts falling due within one year

	(Unaudited) As at 30 September 2020 £000	(Unaudited) As at 30 September 2019 £000	(Audited) As at 31 March 2020 £000
Interest accrued	2	13	13
Sterling bank revolving loan	10,000	10,000	10,000
Other trade payables	492	416	417
	10,494	10,429	10,430

Note 8:  Trade payables - amounts falling due after one year

	(Unaudited) As at 30 September 2020 £000	(Unaudited) As at 30 September 2019 £000	(Audited) As at 31 March 2020 £000
Bank loan	15,444	15,827	15,765

The term loans carry an annual fixed rate interest of 2.1408%, 1.4175% and 3.1925% for Facility A, Facility B and Facility C respectively. The rate of interest for the revolving credit facility is set at each roll-over date and is made up of a fixed margin of 0.5% plus LIBOR rate. Under this agreement £10,000,000 was drawn at 25 September 2020 at a rate of 0.74663% with a maturity date of 26 October 2020.

The repayment date of the term loans is the same as their termination date which is the 19 September 2023. The repayment date of the revolving facility is the last day of its interest period and the termination date is the 30 September 2021.

Under the loan agreements the company is to ensure that, at each month end, the aggregate principal amount outstanding in respect of monies borrowed does not exceed an amount equal to 25% of its adjusted net tangible assets and, unless otherwise agreed with the lender, net tangible assets are not less than £100,000,000. Also the company shall not enter into any obligations except with the prior consent of the lender and not enter into any option writing programme which the value of its transactions, at any time, exceed 15% of its net tangible assets.

As at 30 September 2020 the company had drawn down the full amount of the loan and the balances as at that date were for Facility A £1,500,000, Facility B £4,082,000 (€4,500,000), Facility C £9,862,000 (US$12,750,000) and Facility D £10,000,000 (30 September 2019:Facility A £1,500,000, Facility B £3,981,000 (€4,500,000), Facility C £10,346,000 (US$12,750,000) and Facility D £10,000,000; 31 March 2020 Facility A £1,500,000, Facility B £3,982,000 (€4,500,000), Facility C £10,283,000 (US$12,750,000) and Facility D £10,000,000).

Note 9:  Analysis of net debt

	(Audited) As at 31 March 2020 £000	Cash flow £000	Exchange movements £000	(Unaudited) As at 30 September 2020 £000
Cash at bank	5,101	1,062	-	6,163
Bank borrowings	(25,765)	-	321	(25,444)
	(20,664)	1,062	321	(19,281)

Note 10:  Interim financial report

The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in S434 - 6 of the Companies Act 2006. The financial information for the six months ended 30 September 2020 has not been audited or reviewed.

The information for the year ended 31 March 2020 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under s498 (2),(3) or (4) of the Companies Act 2006.

Note 11:  Fair value hierarchy

Under FRS 102, the company 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:

	As at 30 September 2020 (Unaudited)
	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Financial assets at fair value through profit or loss
Quoted equities and derivatives	212,195	-	-	212,195
Net fair value	212,195	-	-	212,195
	As at 30 September 2019 (Unaudited)
	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Financial assets at fair value through profit or loss
Quoted equities and derivatives	232,901	-	-	232,901
Net fair value	232,901	-	-	232,901
	As at 31 March 2020 (Audited)
	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Financial assets at fair value through profit or loss
Quoted equities and derivatives	189,669	-	-	189,699
Net fair value	189,699	-	-	189,699

 

ALTERNATIVE PERFORMANCE MEASURES

The European Securities and Markets Authority ('ESMA') published its guidelines on Alternative Performance Measures ('APMs'). APMs are defined as being a 'financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable accounting framework.' The guidelines aim to improve comparability, reliability and/or comprehensibility of APMs. The company uses the following APMs throughout the report, financial statements and notes to the financial statements:

Discount/Premium

Discount

The amount, expressed as a percentage, by which the share price is less than the net asset value per share. As at 30 September 2020 the share price was 189.25p and the net asset value per share (cum income) was 195.58p, the discount was therefore 3.2%.

Premium

The amount, expressed as a percentage, by which the share price is more than the net asset value per share.

NAV per share

A very common measure of the underlying value of a share in an investment company.

In basic terms, the net asset value ('NAV') is the value of the investment company's assets, less any liabilities it has. The NAV per share is the NAV divided by the number of shares in issue. This will very often be different to the share price. The difference is known as the discount or premium. NAV (cum income) per share - the net asset value per share cum income is shown on the statement of financial position, and includes undistributed current year income. The NAV (cum income) per share as at 30 September 2020 was 195.58p.

NAV (ex income) per share - the net asset value (ex income) per share is excluding any current year income.

The NAV (ex income) is calculated by deducting undistributed current year income from the NAV (cum income). To determine the NAV (ex income) the following calculation is applied:

Net assets £203,497,000 - per Statement of Financial Position

Less undistributed current year income £4,579,000 - per Statement of Comprehensive Income

Less any dividends paid for the current year - nil at 30 September 2020: £nil

This figure is then divided by the shares in issue as at 30 September 2020, 104,046,075, to give the NAV (ex income) per share of 191.18p as at 30 September 2020.

NAV capital return performance

A measure showing how the net asset value ('NAV') per share has performed over a period of time just in relation to the capital, without reflecting the value of dividends paid to shareholders.

NAV total return performance

A measure showing how the net asset value ('NAV') per share has performed over a period of time, taking into account both capital returns and dividends paid to shareholders.

The AIC shows NAV total return based on a hypothetical investment of £100. It assumes that dividends paid to shareholders are reinvested at NAV at the time the shares are quoted ex-dividend.

NAV total return shows performance which is not affected by movements in discounts and premiums. It also takes into account the fact that different investment companies pay

out different levels of dividends.

The NAV total return performance, calculated using the NAV (cum income) for the year end 30 September 2020 was 21.50%, details of the calculation are given in note 2.

Ongoing charges

Ongoing charges are the total of the company's expenses including both the investment management fee (excluding performance fees, if any) and other costs expressed as a percentage of NAV. The ongoing charges figure has been calculated in line with the AIC's recommended

methodology.

Share price total return

A measure showing how the share price has performed over a period of time, taking into account both capital returns and dividends paid to shareholders.

 

GLOSSARY OF TERMS

AIFM Directive

The Alternative Investment Fund Managers Directive ('AIFMD') is a European Union ('EU') directive governing the regulation of alternative investment fund managers ('AIFMs') operating in the EU. AIFMs are responsible for managing investment products that fall within the category

of alternative investment funds and investment trusts, including the company, are included in this.

Assets

Anything owned or controlled that has value. For investment companies, this might include shares and securities, property, cash etc.

Benchmark

An index or other measure against which the performance of an investment company is compared or its objectives are set.

The annual report and accounts will normally include an explanation of how the company has performed against its benchmark over the year and the reasons for any under or over performance.

Bid price

The price at which you sell your shares when two prices are quoted. This is sometimes shown as the 'sell' price and will be the lower of the two prices shown.

Dividend

Income from an investment in shares. Not all investment companies pay dividends. Dividend income is not guaranteed and may fall as well as rise. The company pays dividends quarterly in April, July, October and January.

Dividend yield

The annual dividends expressed as a percentage of the current share price.

Ex and cum income

Also shown as 'ex div' or 'xd', this means that, if you buy the shares today, you won't receive the most recently declared dividend.

Shares are being traded all the time on stock markets, so for administrative reasons there needs to be a point when buyers and sellers agree whether they will receive the most recently declared dividend. The point when the shares purchased will no longer receive the dividend is known as

the 'ex-dividend date' and the shares are said to have 'gone ex dividend'. The share price will normally fall by the amount of the dividend to reflect this.

If you buy the shares when you are still entitled to the most recently declared dividend, this is known as the shares being cum dividend.

Free cash flow

The difference between operating cash flow and capital expenditures net of fixed asset disposals. It represents the cash available to the company after accounting for all expenses.

Gearing

At its simplest, gearing means borrowing money to buy more assets in the hope the company makes enough profit to pay back the debt and interest and leave something extra for shareholders. However, if the investment portfolio does not perform well, gearing can increase losses. The more an investment company gears, the higher the risk.

The gearing currently employed is detailed in note 8.

Investment trust

An investment company which is based in the UK and which meets certain tax conditions so that it does not pay tax on gains made within the portfolio.

Investment company

A closed-ended fund which invests in a diversified portfolio of assets. Investors buy and sell their shares in the investment company on a stock exchange.

Net assets

A measure of the size of an investment company. The total value of all assets held, less liabilities and prior charges, including income for the current year.

Options

An option is a financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed- upon price (the strike price) during a certain period of time or on a specific date (exercise date).

Call options give the option to buy at certain price, so the buyer would want the stock to go up.

Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

Out of the money

A call option is considered 'out of the money' when the call option's strike price is higher than the prevailing market price of the underlying stock. A put option is said to be out of the money if the current price of the underlying stock is above the strike price of the option.

Peer group

For the purposes of the period to 30 September 2020, the company's investment performance (on a total return basis) measured against the median of the peer group on a rolling three-year basis. The peer group is made up of all relevant open and closed-ended peers (sourced from the Morningstar Global Equity Income Sector and Association of Investment Companies ('AIC') Global Equity Income Sector).

Following Troy's appointment as manager, investment performance (on a total return basis) will be measured against the Lipper Global - Equity Global Income for comparison purposes.

Peer group total return

A measure showing how the peer group has performed over a period of time, taking into account both capital returns and dividends paid.

Share buy backs

Describes an investment company buying its own shares and reducing the number of shares in existence.

Share buy backs can be used to return money to shareholders, but are also often used to tackle the company's discount.

Discounts may reflect an imbalance between the demand for shares and the number of shares in existence. The hope is that, by reducing the number of shares in existence, the buy back will help to prevent the discount widening or even reduce it.

Share price

The price of a share as determined by the stock market.

If you see a single share price shown, It is likely that this is the mid-market price. This is different to the price at which you buy and sell the shares, which are known as the bid price (sell) and offer price (buy).

Treasury shares

Shares in a company's own share capital which the company itself owns and which can be sold to investors to raise new funds.

Treasury shares only come into existence when a company buys back shares. Instead of cancelling the shares (i.e. they cease to exist) they are held 'in treasury' by the company and can be sold at a later date to raise new funds.

 

END

 

 

IR VKLFBBLLZFBX