TIDMADIG
RNS Number : 1421Z
abrdn Diversified Income and Growth
10 January 2024
abrdn Diversified Income and Growth plc
(formerly Aberdeen Diversified Income and Growth Trust PLC)
LEI: 2138003QINEGCHYGW702
Annual Report 30 September 2023
" On behalf of the whole Board, I would like to extend my
sincere thanks to all of our shareholders for their patience,
support and constructive feedback throughout this period. "
Davina Walter, Chairman
Performance Highlights
Net asset value total return(AB) Share price total return(A)
+0.4% -0.7%
2022 +1.2% 2022 -5.0%
Revenue return per share Dividend per share(C)
4.35p 7.33p
2022 4.99p 2022 5.60p
Dividend yield(A) Discount to net asset value (fair
value basis)(AB)
8.8% 25.7%
2022 6.2% 2022 23.7%
(A) Considered to be an Alternative Performance Measure.
(B) Debt at fair value.
(C) See note.
Financial Calendar, Dividends and Highlights
Financial year end 30 September
================================= =================
Annual General Meeting 27 February 2024
================================= =================
Expected announcement of results December 2024
for the year to
30 September 2024
================================= =================
Dividends
Rate xd date Record date Payment date
==================== ===== ============ ============= =============
First interim 2023 1.42p 9 March 2023 10 March 2023 3 April 2023
==================== ===== ============ ============= =============
Second interim 2023 1.42p 8 June 2023 9 June 2023 6 July 2023
==================== ===== ============ ============= =============
Third interim 2023 1.42p 21 September 22 September 19 October
2023 2023 2023
==================== ===== ============ ============= =============
Fourth interim 2023 1.42p 21 December 22 December 22 January
2023 2023 2024
-------------------- ----- ------------ ------------- -------------
Special 2023 1.65p 2 November 3 November 1 December
2023 2023 2023
-------------------- ----- ------------ ------------- -------------
2023 7.33p
-------------------- ----- ------------ ------------- -------------
First interim 2022 1.40p 3 March 2022 4 March 2022 31 March 2022
==================== ===== ============ ============= =============
Second interim 2022 1.40p 16 June 2022 17 June 2022 14 July 2022
==================== ===== ============ ============= =============
Third interim 2022 1.40p 22 September 23 September 20 October
2022 2022 2022
==================== ===== ============ ============= =============
Fourth interim 2022 1.40p 22 December 23 December 19 January
2022 2022 2023
-------------------- ----- ------------ ------------- -------------
2022 5.60p
-------------------- ----- ------------ ------------- -------------
Highlights
2023 2022 % change
============================================== ============== ============== ========
Total assets less current liabilities (before
deducting prior charges) GBP355,264,000 GBP379,052,000 -6.3
============================================== ============== ============== ========
Total shareholders' funds (Net Assets) GBP339,534,000 GBP363,358,000 -6.6
============================================== ============== ============== ========
Market capitalisation GBP251,858,000 GBP276,986,000 -9.1
============================================== ============== ============== ========
Ordinary share price (mid market) 83.60p 89.80p -6.9
============================================== ============== ============== ========
Net asset value per Ordinary share (debt
at fair value)(AB) 112.59p 117.63p -4.3
============================================== ============== ============== ========
Discount to net asset value on Ordinary
shares (debt at fair value)(AB) 25.7% 23.7%
============================================== ============== ============== ========
Gearing (ratio of borrowings less cash
to shareholders' funds)
============================================== ============== ============== ========
Net (cash)/gearing (debt at par value)(A) -1.6% 1.8%
============================================== ============== ============== ========
Net cash/(gearing) (debt at fair value)(AB) -1.5% 2.0%
============================================== ============== ============== ========
Dividends and earnings per Ordinary share
============================================== ============== ============== ========
Revenue return per share 4.35p 4.99p -12.7
============================================== ============== ============== ========
Dividends per share(C) 7.33p 5.60p +30.9
============================================== ============== ============== ========
Dividend cover (including proposed fourth
interim dividend)(A) 0.59 0.89
============================================== ============== ============== ========
Dividend yield(A) 8.8% 6.2%
============================================== ============== ============== ========
Revenue reserves(D) GBP35,280,000 GBP39,261,000 -10.1
============================================== ============== ============== ========
Ongoing charges ratio(AE) 1.74% 1.41%
---------------------------------------------- -------------- -------------- --------
(A) Considered to be an Alternative Performance Measure..
(B) Fair value of 6.25% Bonds 2031 GBP16,069,000 (2022 - GBP16,222,000).
(C) The figure for dividends per share reflects the years to which
their declaration relates (see note 8).
(D) The revenue reserve figure does not take account of the third
and fourth interim dividends and the special dividend paid after the
year end amounting to GBP4,278,000, GBP4,278,000 and GBP4,971,000 respectively
(2022 - GBP4,319,000, GBP4,314,000 and GBPnil).
(E) Calculated in accordance with AIC guidance issued in October 2020
to include the Company's share of costs of holdings in investment companies
on a look-through basis.
Strategic Report
"The Company seeks to provide income and capital appreciation
over the long term through investment in a globally diversified
multi-asset portfolio."
Chairman's Statement
Introduction
The year under review has been a challenging one, as volatile
markets and investor wariness have weighed heavily on sentiment,
adversely affecting the valuations of many listed investment
companies. Through these challenges, our Investment Manager has
continued to pursue its strategy of seeking to provide income and
capital appreciation over the long term from a genuinely
diversified portfolio, providing access to a wide selection of
asset classes, an attractive and dependable level of income and
defensive characteristics relative to the volatility of equity
markets.
Despite the Board's confidence in the investment strategy, the
persistent and entrenched discount to Net Asset Value ("NAV") led
the Directors to commence a strategic review in June 2023 to
consider how the Company could best restore and deliver value to
shareholders.
Strategic review & Managed Wind-Down
Following careful consideration of all the options available to
the Company, including asset sales and potential merger discussions
with third parties, the Board announced the outcome of the
strategic review on 26 October 2023. The Board determined that it
was in the best interests of its shareholders to continue the
Company's existing investment management strategy whilst
simultaneously optimising shareholder value by means of an Enhanced
Distribution Programme, comprising realised gains and surplus
available cash, through a combination of special dividends and a
tender offer.
Following the Company's announcement, further detailed
discussions with shareholders were undertaken. In the light of the
feedback received and the persistent discount to net asset value
("NAV") at which the Company's shares continued to trade, the Board
concluded that it was in the best interests of shareholders as a
whole to put forward proposals for a managed wind-down of the
Company (the "Managed Wind-Down").
Pursuant to the Managed Wind-Down announced on 14 December 2023,
the Company proposes to conduct an orderly realisation of its
assets in a manner that seeks to optimise the value of the
Company's investments whilst progressively returning cash to
shareholders. In particular:
-- the Board expects that approximately GBP115 million would be
returned to shareholders in the first half of 2024 at, or close to,
NAV (subject to shareholder approval and the appropriate use of the
Company's distributable reserves) with further returns of cash to
follow as value is realised from the Company's private markets
portfolio in a timely and efficient manner;
-- approximately GBP107.3 million of the Company's private
markets portfolio (valued as at 30 November 2023) is expected to
mature between 2024 and 2027 (the "First Tranche"). It is intended
that the proceeds from the First Tranche will be returned to
shareholders in a timely manner as the investments mature;
-- the remaining GBP81.5 million of the private markets
portfolio (valued as at 30 November 2023) is expected to mature
between 2029 and 2033 (the "Second Tranche"). As market conditions
improve, opportunistic secondary sales of Second Tranche assets
would be considered by the Company in order to realise value from
these assets in a timely manner;
-- the Company will cease making new investments (save as to
fund existing commitments and support the Managed Wind-Down as set
out below);
-- the Board will seek to reduce the Company's ongoing costs;
and
-- it is intended that the Company's debt arrangements,
comprising secured bonds with a par value of c.GBP16.1 million,
will be repaid during 2024.
Implementation of the Managed Wind-Down will require shareholder
approval to amend the Company's investment objective and policy and
will also be conditional on shareholders approving the continuation
of the Company into Managed-Wind Down at the Company's AGM on 27
February 2024. Full details of the proposals will be set out in a
circular to be published as soon as practicable. Ahead of the
circular being published, the Company will seek regulatory approval
of the proposed changes to the investment policy.
Continuation vote
The implementation of the Managed Wind-Down is conditional on
shareholders approving the continuation of the Company in its
present form at the forthcoming AGM. Accordingly, the Board
recommends that shareholders vote in favour of the continuation of
the Company at the AGM (Resolution 10), as each of the Directors
intends to do in respect of their own interests in the Company's
shares. A separate general meeting of the Company, at which
shareholders will be asked to approve the change of investment
policy to implement the Managed Wind-Down, is expected to follow
soon after the AGM.
Portfolio performance
During the year ended 30 September 2023, the Company's NAV total
return with debt at fair value, and income reinvested, was +0.4%.
In line with wider market volatility affecting the whole investment
trust sector, the Company's discount continued to widen with the
result that the share price fell just over 6.9% over the year ended
30 September 2023; this represented a shareholder total return with
income re-invested of -0.7%.
Earnings and dividend
A major component of our investment thesis is income, in the
form of a dependable quarterly dividend: in the year under review,
this represented a dividend yield of 8.8% based on the year end
share price of 83.6 pence. The Board confirmed at the outset of the
current financial year its intention to continue to pay at least
the current level of dividend and to use its revenue reserves which
have been built up by the Company over many years to support the
dividend policy as required.
Three interim dividends of 1.42 pence per share were paid to
shareholders in March, July and October 2023. Further to its
announcement to shareholders on 26 October 2023, a special dividend
of 1.65 pence per share was paid on 1 December 2023 to shareholders
on the register as at 3 November 2023 and with an ex-dividend date
of 2 November 2023. The Board declared, on 1 December 2023, a
fourth interim dividend of 1.42 pence per share to be paid on 22
January 2024 to shareholders on the register on 22 December 2023.
The ex-dividend date is 21 December 2023 Accordingly, total
dividends for the year are 7.33 pence per share.
The Company will continue to pay its regular quarterly dividend
until such time as the change of investment objective and policy is
approved. Further information on the dividend policy thereafter
will follow in the circular to shareholders due to be published as
soon as practicable.
Discount management
Throughout the year, the Company's shares have traded at a
material discount to NAV. The Board put in place a number of
initiatives to address this, including share buybacks, but the wide
discount persisted and stood at 25.7% at 30 September 2023. The
strategic review had been expected to address the discount.
However, following the announcement of the outcome of the review on
26 October 2023, the discount had widened further and this, along
with detailed shareholder engagement, prompted the proposal to
place the Company into Managed Wind-Down.
Share buybacks
In light of this, and whilst shareholders consider the proposals
in detail, no further share buybacks are proposed ahead of the
forthcoming AGM to enable larger returns of capital through
efficient distributions to maximise shareholder value.
During the period, the Company bought back 7.2m shares into
treasury, at a cost of GBP6.3m during the year ended 30 September
2023. The Board has agreed that shares bought into treasury will
only be re-issued in the event of the share price trading at a
premium to the NAV per share as Ordinary shares can be re-issued
out of treasury less expensively than new Ordinary shares can be
issued. Although shares may be held in treasury indefinitely, the
Board has adopted a policy such that, in the event that the number
of treasury shares represents more than 10% of the Company's issued
share capital (excluding treasury shares) at the end of any
financial year, the Company will cancel a proportion of its
treasury shares such that the remaining balance will equal 7.5% of
the issued share capital (excluding treasury shares). In compliance
with this policy, the Company cancelled 14m treasury shares on 29
September 2023, resulting in 301,265,952 shares with voting rights
and an additional 22,485,854 shares in treasury, as at 30 September
2023.
Gearing
The Company had a net cash position of 1.5% at 30 September 2023
as compared to net gearing of 2.0% as at 30 September 2022, with
the GBP16.1m 6.25% 2031 Bonds priced at fair value. The Board
intends to repay the Bonds if shareholders approve proposals to
place the Company into Managed Wind-Down.
Board evaluation
As part of its annual board evaluation the Board engaged a
leading third-party adviser to undertake an independent evaluation
of the Board, its committees and individual Directors. Assessments
were undertaken on each Director and then discussed by the Board.
The evaluation confirmed that the Company's Board has in place an
appropriate balance of experience, skills, corporate knowledge and
gender diversity (60% male, 40% female). Through recent changes to
the listing rules boards are required to report whether specific
targets are met and publish data on the composition of the board by
gender and ethnic backgrounds. Currently the Board meets two of the
criteria that at least 40% of Directors should be women and at
least one senior board position (Chair, CEO, CFO or SID) should be
a woman. The Board will seek to comply with the listing rules and
UK Corporate Governance Code but explain where compliance is not
practical and feasible, given the proposals to place the Company
into Managed Wind-Down.
Environmental, social and governance ("ESG")
There is no simple answer to sustainable investing and to
balancing policies that accommodate climate change with the duty to
optimise shareholder returns, especially as some of the strongest
returns in markets this year have come from fossil fuel companies
on the back of soaring energy prices. It is however very clear that
ESG factors need to be carefully considered and active engagement
with investee companies is required in order to help drive change
and increase sustainability. Taking account of ESG factors is now
an integral part of the investment process at abrdn, as is ongoing
monitoring of the ESG performance of investments in the portfolio.
Equally as importantly, the investment teams undertake constructive
engagement with the investments held, in both public and private
markets, on ESG issues and related risks. More detail on the
approach to ESG can be found in the comments on Socially
Responsible Investment Policy in the Overview of Strategy as well
as the comments on ESG which are set out in the Investment
Manager's Report. The Board continues to review closely the
Manager's approach to, and adherence with, its ESG philosophy and
policies.
Board
Anna Troup has indicated that she does not intend to stand for
re-election as a Director at the AGM. The remaining Directors would
like to take this opportunity to thank Anna for her substantial
contributions to the Board.
AGM
T his year's AGM is scheduled to be held in Wallacespace, 15
Artillery Lane, London E1 7HA at 9.30am on 27 February 2024.
Further information on certain resolutions to be put to
shareholders at the AGM may be found in the Directors' Report.
Summary
Global markets continue to be volatile, and, whilst there are
some positive signs of recovery as inflation abates, the
medium-term outlook for UK equity markets remains subdued,
especially in terms of the investment trust sector. This is likely
to continue to weigh on ADIG's valuation relative to NAV, hence the
proposals we are putting forward for an orderly Managed Wind Down
which seeks to optimise shareholder value. Should shareholders vote
to accept the proposals, the Board and Investment Manager will
begin to conduct an orderly realisation of the Company's assets
with a view to returning cash to Shareholders promptly, whilst
aiming to optimise valuations.
On behalf of the whole Board, I would like to extend my sincere
thanks to all of our shareholders for their patience, support and
constructive feedback throughout this period. We look forward to
engaging with you further in the lead-up to the AGM and beyond.
Davina Walter
Chairman
9 January 2024
Overview of Strategy
The investment objective and investment policy set out below
reflect the investment strategy pursued by the Company during the
year ended 30 September 2023.
The Managed Wind-Down, described in the Chairman's Statement,
will require shareholder approval to amend both the investment
objective and investment policy and will also be conditional on
shareholders approving the continuation of the Company.
Investment Objective
abrdn Diversified Income and Growth plc (the "Company") seeks to
provide income and capital appreciation over the long term through
investment in a globally diversified multi-asset portfolio.
Alongside this objective, the Board uses a Total Return (defined
as dividends plus change in NAV) of 6% per annum over a rolling
five year period against which to measure the returns from the
portfolio.
Investment Approach
The Company is an investment trust governed by a Board of
Directors with its Ordinary shares listed on the premium segment of
the London Stock Exchange. It outsources its investment management
and administration to an investment management group, abrdn plc
(the "Group"), and other third party providers. The Company does
not have a fixed life, but a resolution on whether the Company
should continue is put to shareholders at each Annual General
Meeting.
The Company invests globally using a flexible multi-asset
approach via quoted and unlisted (Private Markets) investments
providing shareholders with access to the kind of diversified
portfolio held by large, sophisticated global investors.
It offers an attractive investment proposition characterised
by:
-- a genuinely diversified portfolio with access to a wide
selection of alternative asset classes;
-- an attractive income with the potential to grow;
-- volatility around half that of equities; and
-- the broad resources of abrdn plc.
An appropriate spread of risk is sought by investing in a
diversified portfolio of securities and other assets. This
includes, but is not limited to:
-- Private Markets, comprising private equity, private credit,
real estate, infrastructure, natural resources and unlisted
alternatives;
-- Listed Equities (including global equities, European green
infrastructure, UK mid-cap equities as well as listed alternatives,
such as royalties and litigation finance); and
-- Fixed Income and Credit, comprising global loans, asset
backed lending, and emerging/frontier market debt.
Asset allocation is flexible allowing investment in the most
attractive investment opportunities at any point in time whilst
always maintaining a diversified portfolio. The Company leverages
off the spread of capabilities and experience within abrdn plc and
may invest in funds managed by abrdn Fund Managers Limited (the
"Manager") where such allocation can offer requisite exposure to
certain alternative asset classes in a cost effective manner.
Investment Policy
As announced by the Company on 14 December 2023, implementation
of the proposals for a Managed Wind-Down of the Company will
require both regulatory and shareholder approval to amend the
Company's investment objective and policy.
Full details of the proposed investment objective and policy
will be set out in a circular to shareholders to be published as
soon as practicable.
The Company's current Investment Policy incorporates the
following investment restrictions, at the time of investment, which
the Manager must adhere to:
-- no individual quoted company or transferable security
exposure in the portfolio may exceed 15% of the Company's total
assets, other than in treasuries and gilts;
-- no other individual asset in the portfolio (including
property, infrastructure, private equity, commodities and other
alternative assets) may exceed 5% of the Company's total
assets;
-- the Company will not normally invest more than 5% of its
total assets in the unlisted securities issued by any individual
company; and
-- no more than 15% of the Company's total assets may be
invested in an individual regulated pooled investment fund.
The Company may invest in exchange-traded funds provided they
are quoted on a recognised investment exchange. The Company may
invest in cash and cash equivalents including money market funds,
treasuries and gilts.
No more than 10% of the Company's total assets may be invested
in other listed closed-ended investment companies. This restriction
does not apply to investments in any such listed closed-ended
investment companies which themselves have published investment
policies to invest no more than 15% of their total assets in other
closed-ended investment companies.
The Company may use derivatives to enhance portfolio returns (of
a capital or income nature) and for efficient portfolio management,
that is, to reduce, transfer or eliminate risk in its investments,
including protection against currency risks.
The Company may use gearing, in the form of borrowings and
derivatives, to enhance income and capital returns over the long
term. The borrowings may be in sterling or other currencies. The
Company's articles of association contain a borrowing limit equal
to the value of its adjusted total of capital and reserves.
However, borrowings would not normally be expected to exceed 20% of
shareholders' funds. Total gearing, including net derivative
exposure, would not normally be expected to result in a net
economic equity exposure in excess of 120%.
It is the policy of the Company to invest no more than 15% of
its gross assets in other listed investment companies and no more
than 15% of its gross assets in any one company.
Management and Delivery of the Investment Objective
The Directors are responsible for determining the Company's
investment objective and investment policy. Day-to-day management
of the Company's assets has been delegated to abrdn Fund Managers
Limited (the "Manager"). In turn, the investment management of the
Company has been delegated by the Manager to abrdn Investments
Limited (the "Investment Manager"). Both companies are subsidiaries
of abrdn plc.
Investment Process
The Investment Manager believes that many investors could
materially improve their long-run returns and/or reduce risk by
having a more diversified portfolio. The Investment Manager's aim
is to build a genuinely diversified portfolio consisting of a wide
range of assets, each with clear, fundamental performance drivers
that will deliver an attractive return for the Company's
shareholders. The Investment Manager engages all of its research
capabilities, including specialist macro and asset class
researchers, to identify appropriate investments. The approach,
which incorporates a robust risk framework, is not constrained by a
benchmark mix of assets. This flexibility ensures that the
Investment Manager does not feel compelled to invest shareholders'
capital in investments which they believe to be unattractive.
The Company's portfolio consists of investments from a wide
range of asset classes including, but not limited to, Private
Markets (such as private equity, private credit, real estate,
infrastructure, natural resources and unlisted alternatives),
Listed Equities (including global equities, European green
infrastructure, UK mid-cap equities as well as listed alternatives,
such as royalties and litigation finance) and Fixed Income and
Credit (such as global loans, asset backed lending, and
emerging/frontier market debt). Detailed investment research
(including operational due diligence for unlisted funds managed by
third parties) is carried out on each potential opportunity by
specialist teams within the Investment Manager.
The weighting ascribed to each investment in the portfolio
reflects the perceived attractiveness of the investment case,
including the contribution to portfolio diversification. The
Investment Manager also ensures that the weighting is in keeping
with its overall strategic framework for the portfolio based on the
return and valuation analysis of the Investment Manager's Research
Institute. The fundamental and valuation drivers of each investment
are reviewed on an ongoing basis.
Key Performance Indicators ("KPIs")
The Board uses a number of financial performance measures to
assess the Company's success in achieving its objective and
determining its progress in pursuing its investment policy. For
further information on the KPI relating to the discount to NAV,
please see references in the Chairman's Statement. The primary
KPIs, all of which are Alternative Performance Measures, are shown
in the table below.
KPI Description
============================== ==================================================
Investment performance The Board reviews the performance of the
portfolio as well as the net asset value
and share price for the Company over a
range of time periods in light of the Company's
investment objective to seek to provide
income and capital appreciation over the
long term through investment in a globally
diversified multi-asset portfolio (see
Alternative Performance Measures). The
Board also reviews NAV and share price
performance in comparison to the performance
of competitors in the Company's chosen
peer group.
The Board monitors the Company's income
yield. The Board reviews the sustainability
of the Company's dividend policy and regularly
reviews revenue forecasts and analysis
provided by the Investment Manager on the
sources of portfolio income in order to
monitor the extent to which dividends are
covered by net earnings. The Company's
performance returns may be found under
"Performance and Results".
============================== ==================================================
Premium/discount to net asset The Board monitors the level of the Company's
value ("NAV") premium or discount to NAV and considers
strategies for managing this.
The Manager seeks to generate attractive
risk adjusted returns by investing in,
or committing to, new or existing opportunities,
whilst having particular regard to the
Company's return target, and taking into
account income, predicted cash flows, market
risk and liquidity requirements. It is
proposed that where such opportunities
are limited due to market conditions, then
subject to overall liquidity needs, available
cash may be used under the Company's share
buyback authority, granted annually by
shareholders, to purchase Ordinary shares
of the Company, where to do so represents
a better opportunity to deliver long-term
shareholder value without disrupting the
overall portfolio.
In addition, the Company has adopted a
formal policy for the issuance of new shares
and/or the sale of shares from treasury
to meet demand for shares in the market,
and will only issue or sell shares from
treasury where the Company's share price
is trading at a minimum premium to its
net asset value per share (calculated including
income, with debt at fair value, at the
Directors' discretion).
============================== ==================================================
Ongoing charges The ongoing charges ratio has been calculated
in accordance with guidance issued by the
Association of Investment Companies (the
"AIC") as the total of investment management
fees and administrative expenses and expressed
as a percentage of the average net asset
values with debt at fair value throughout
the year. This includes the Company's share
of costs of holdings in investment companies
on a look-through basis. The Board reviews
the ongoing charges and monitors the expenses
incurred by the Company. The Company's
ongoing charges for the year, and the previous
year, are disclosed under Financial Highlights
while the basis of calculation is set out
in the Alternative Performance Measures.
============================== ==================================================
Principal Risks and Uncertainties
The Board has in place a robust process to assess and monitor
the principal and emerging risks facing the Company. A core element
of this is the Company's risk controls self-assessment ("RCSA"),
which identifies the risks facing the Company and assesses the
likelihood and potential impact of each risk and the quality of the
controls in place to mitigate the risk. A residual risk rating is
then calculated for each risk based on the outcome of this
assessment and plotted on a risk heat-map. This approach allows the
effect of any mitigating procedures to be reflected in the final
assessment. The RCSA, its method of preparation and the operation
of the key controls within the Manager's and third party service
providers' systems of internal control are reviewed on a regular
basis by the Audit Committee.
In order to gain a more comprehensive understanding of the
Manager's and other third party service providers' risk management
processes and how these apply to the Company's business, the
Manager's internal audit department presents to the Audit Committee
setting out the results of testing performed in relation to the
Manager's internal control processes. The Audit Committee also
periodically receives presentations from the Manager's risk and
compliance and internal audit teams and reviews ISAE3402 reports
from the Manager and from the Company's Depositary (The Bank of New
York Mellon (International) Limited). The custodian is appointed by
the Company's Depositary and does not have a direct contractual
relationship with the Company.
The Board has carried out a robust assessment of these risks,
which include those that would threaten its business model, future
performance, solvency or liquidity. The Board is confident that the
procedures which the Company has in place are sufficient to ensure
that the necessary monitoring of risks and controls has been
carried out throughout the year ended 30 September 2023.
The Board is monitoring the current heightened geopolitical
risks in the form of the Russian invasion of Ukraine, conflict in
the Middle East and rising tension between China and Taiwan.
The Board is also conscious of the elevated threat posed by
climate change and continues to monitor, through its Investment
Manager, the potential risk that its portfolio investments may fail
to adapt to the requirements imposed by climate change further
details may be found under 'Market Risk'.
Other than this, the Audit Committee does not consider that the
principal risks and uncertainties have changed materially during
the year ended 30 September 2023.
Risk Mitigating Action
============================================== ===========================================
Performance risk (increased) To manage these risks the Board
The Board is responsible for determining reviews the Company's investment
the investment policy to fulfil mandate and long term strategy at
the Company's objectives and for least annually and monitors, at
monitoring the performance of the each Board meeting, that appropriate
Company's Investment Manager and limits are in place on the overall
the strategy adopted. An inappropriate level of unlisted alternative assets
policy or strategy may lead to poor and gearing. It is expected that
performance, dissatisfied shareholders around 55% of the Company's total
and a lower premium or higher discount. assets, at the time of investment,
The Company may invest in unlisted may be invested in aggregate in
investments (such as private credit, unlisted alternative assets. The
real estate, infrastructure, natural strategic review (see the Chairman's
resources, private equity and alternatives). Statement) was effected in response
These types of investments are expected to a perception of increased performance
to have a different risk and return risk, due to the widening discount.
profile to the rest of the Company's This has culminated in the Board's
investment portfolio. They may be decision to pursue proposals to
relatively illiquid and it may be place the Company in a Managed Wind-Down,
difficult for the Company to realise in order to effect an orderly realisation
these investments over a short time of assets to optimise value for
period, which may have a negative shareholders.
impact The Investment Manager provides
on performance. the Board with an explanation of
significant investment decisions,
the rationale for the composition
of the investment portfolio and
movements in the level of gearing.
The Board monitors the maintenance
of an adequate spread of investments
in order to minimise the risks associated
with particular countries or factors
specific to particular sectors,
based on the diversification requirements
inherent in the Company's investment
policy.
============================================== ===========================================
Portfolio risk (unchanged) The Board employs several strategies
Risk analysis for a multi-asset to monitor and assess that portfolio
portfolio needs to consider the risk is appropriate. These include
interaction of asset classes and regular analysis of various risk
how these might correlate, or offset metrics including asset class risk
each other, under various scenarios. attribution, asset class returns
and contributions to performance,
particularly in periods of equity
market stress, and how the current
portfolio would perform in various
forward-looking and
historical scenarios.
============================================== ===========================================
Gearing risk (unchanged) All borrowings require the approval
The Company has the authority to of the Board and gearing levels
borrow money or increase levels are reviewed regularly by the Board
of market exposure through the use and the Investment Manager. Borrowings
of derivatives and may do so when (including the Bonds) would not
the Investment Manager is confident normally be expected to exceed 20%
that market conditions and opportunities of shareholders' funds. Total gearing,
exist to enhance investment returns. including net derivative exposure,
However, if the investments fall would not normally be expected to
in value, any borrowings will magnify result in net economic equity exposure
the extent of this fall in value. in
excess of 120%.
============================================== ===========================================
Income/dividend risk (unchanged) The Board monitors this risk through
The amount of dividends received the receipt of detailed income forecasts
will depend on the Company's underlying and considers the level of income
portfolio. Any change in the tax and expenses at each meeting.
treatment of the dividends or interest
received by the
Company (including as a result
of withholding taxes or exchange
controls imposed by jurisdictions
in which the Company invests) may
reduce the level of earnings
available for distribution to shareholders.
============================================== ===========================================
Regulatory risk (unchanged) The Investment Manager monitors
The Company operates as an investment investment movements, the level
trust in accordance with Chapter and type of forecast income and
4 of Part 24 of the Corporation expenditure and the amount of proposed
Tax Act 2010. As such, the Company dividends, if any, to ensure that
is exempt from capital gains tax the provisions of Chapter 4 of Part
on the profits realised from the 24 of the Corporation Tax Act 2010
sale of its investments. Following are not breached and the results
authorisation under the Alternative are reported to the Board at each
Investment Fund Managers Directive meeting. The Board and the AIFM
("AIFMD"), the Company and its appointed also monitor changes in government
AIFM are subject to the risk that policy and legislation which may
the requirements of this Directive have an impact on the Company.
are not correctly complied with.
============================================== ===========================================
Operational risk (unchanged) The security of the Company's assets,
In common with most other investment dealing procedures, accounting records
trust companies, the Company has and maintenance of regulatory and
no employees. The Company therefore legal requirements depends on the
relies upon the services provided effective operation of the systems
by third parties and is dependent in place with third parties. These
on the control systems of the Manager systems are regularly tested and
and the Depositary. monitored throughout the year, including
in relation to cyber risk, through
their industry-standard controls
reports which provide assurance
on the effective operation of internal
controls. The controls reports are
assessed independently by their
reporting accountants.
============================================== ===========================================
Market risk (unchanged) The Board considers the diversification
Market risk arises from volatility of the portfolio, asset allocation,
in the prices or valuation of the stock selection, unlisted investments
Company's investments. It represents and levels of gearing on a regular
the potential loss the Company might basis and has set investment restrictions
suffer through holding investments and guidelines which are monitored
in the face of negative market movements. and reported on by
The Company invests in global assets the Investment Manager. The Board
across a range of countries and monitors the implementation and
changes in general economic and results of the investment process
market conditions in certain countries, with the Investment Manager.
such as interest rates, exchange The Board assesses climate change
rates, rates of inflation, industry as an emerging risk in terms of
conditions, competition, political how it develops, including how investor
events and trends, tax laws, national sentiment is evolving towards climate
and international conflicts, economic change within investment portfolios,
sanctions and other factors can and will consider how the Company
also substantially and adversely may mitigate this risk, any other
affect the securities and, as a emerging risks, if and when they
consequence, the Company's prospects become material.
and share price. The Board regularly engages with
Current heightened geopolitical the Manager to understand how climate
risks are evident in the form of change, represented by environmental
the Russian invasion of Ukraine, factors as part of ESG, is a key
conflict in the Middle East and consideration within the Manager's
rising tension between China and investment process.
Taiwan.
The longer term emergence of the
effects on investee companies of
climate change, and the regulatory
environment around this present
a further risk.
============================================== ===========================================
Financial risks (unchanged) Further details are disclosed in
The Company's investment activities note 17 to the financial statements,
expose it to a variety of financial together with a summary of the policies
risks which include foreign currency for managing these risks.
risk and interest
rate risk.
============================================== ===========================================
The Board regularly reviews emerging risks facing the Company,
which are identified by a variety of means, including advice from
the Company's professional advisors, the AIC, and Directors'
knowledge of markets, changes and events. A failure to have in
place appropriate procedures to assist in identifying emerging
risks may cause reactive actions and, in the worst case, could
cause the Company to become unviable or otherwise fail.
The principal risks associated with an investment in the
Company's shares can be found in the pre-investment disclosure
document ("PIDD") published by the AIFM, which is available from
the Company's website: abrdndiversified.co.uk
Gearing
As at 30 September 2023, the Company had in place structural
gearing in the form of GBP16,096,000 6.25% Bonds 2031 (the
"Bonds"). The Board is responsible for determining the gearing
strategy for the Company, with day-to-day gearing decisions being
made by the Manager within the remit set by the Board. The Board
has set its gearing limit at a maximum of 20% of the net asset
value at the time of draw down. The Board monitors the gearing
position regularly and considers alternative financing options.
Please see references in the Chairman's Statement to the proposed
repayment of the Bonds in 2024.
Board Diversity
The Board is fully supportive of all aspects of diversity and
the importance of having a range of skilled, experienced
individuals with relevant knowledge in order to allow it to fulfil
its obligations. Further information on Board Diversity may be
found in the Directors' Report.
Promoting the Company
The Board recognises the importance of promoting the Company to
prospective investors both for improving liquidity and enhancing
the value and rating of the Company's shares. The Board believes an
effective way to achieve this is through subscription to, and
participation in, the promotional programme (the "Programme") run
by abrdn on behalf of a number of investment trusts under its
management. The Company's financial contribution to the Programme
is matched by abrdn which regularly reports to the Board, including
analysis of the effectiveness of the Programme as well as updates
on the shareholder register and any changes in the composition of
that register.
The purpose of the Programme is both to communicate effectively
with existing shareholders and to gain new shareholders with the
aim of improving liquidity and enhancing the value and rating of
the Company's shares. Communicating the long-term attractions of
the Company is key and therefore the Company also supports abrdn's
investor relations programme which involves regional roadshows,
promotional and public relations campaigns. The Programme will be
reviewed by the Board in the context of the proposals for the
Managed Wind-Down of the Company.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated the day
to day management and administrative functions to the Manager.
There are therefore no disclosures to be made in respect of
employees. The Company's socially responsible investment policy is
set out below and the Board maintains oversight and retains
responsibility for the policy.
Socially Responsible Investment Policy
The Directors review the Manager's policy that encourages
companies in which investments are made to adhere to best practice
in the area of corporate governance and socially responsible
investing. They believe that this can best be achieved by entering
into a dialogue with company management to encourage them, where
necessary, to improve their policies in both areas. The Manager's
ultimate objective, however, is to deliver superior investment
returns for its clients. Accordingly, whilst the Manager will seek
to favour companies which pursue best practice in these areas, this
should not be to the detriment of the return on the investment
portfolio.
UK Stewardship Code and Proxy Voting as an Institutional
Shareholder
Responsibility for actively monitoring the activities of
portfolio companies has been delegated by the Board to the Manager
which has sub-delegated that authority to the Investment Manager.
The full text of the Manager's response to the FRC's Stewardship
Code 2020 may be found on its website.
Modern Slavery Act
Due to the nature of the Company's business, being an investment
company that does not offer goods and services to customers, the
Board considers that it is not within the scope of the Modern
Slavery Act 2015 because it has no turnover. The Company is
therefore not required to make a slavery and human trafficking
statement.
However, the Board maintains oversight of its third party
suppliers and considers that, as these comprise predominantly
professional advisers and service providers in the financial
services industry, the risk is likely to be low in relation to this
matter.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions
producing sources under the Companies Act 2006 (Strategic Report
and Directors' Reports) Regulations 2013. However, at the portfolio
level, the Manager engages on environmental issues with underlying
investments as part of its ESG policy.
Viability Statement
In accordance with the provisions of the UKLA's Listing Rules
and the FRC's UK Corporate Governance Code, the Directors have
assessed the prospects of the Company over a longer period than the
12 months required by the "Going Concern" provision. The Board
conducted this review for the period up to the AGM in 2026, being a
three year period from the date of shareholders' approval of this
Annual Report. The three year review period was selected because it
is aligned with the proposals for a Managed Wind-Down of the
Company, as set out in the Chairman's Statement. The Board
considers that this period reflects a balance between looking out
over a medium term horizon and the inherent uncertainties of
looking out further than three years, given the profile of the
Company's investments.
In assessing the viability of the Company over the review
period, the Directors have focused upon the following factors:
-- the principal risks and uncertainties detailed above and the
steps taken to mitigate these risks;
-- the relevance of the Company's investment objective and
investment policy;
-- the return of capital to shareholders;
-- the annual continuation vote to be put to shareholders at the
AGM on 27 February 2024, and the proposals to place the Company in
a Managed Wind-Down; and
-- the level of demand for the Company's shares.
The three-year review considers the Company's cash flow, cash
distributions and other key financial ratios over the period. The
three-year review also makes certain assumptions about the normal
level of expenditure likely to occur and considers the impact on
the financing facilities of the Company. Whilst the financial
statements have been prepared on a going concern basis, there is a
material uncertainty in respect of the continuation vote and
Managed Wind-Down of the Company (see note 2 (a) for related basis
of preparation disclosures).
In making this assessment, the Board has considered in
particular the potential longer term impact of a large economic
shock, a period of increased stock market volatility and/or markets
at depressed levels, a significant reduction in the liquidity of
the portfolio or changes in investor sentiment or regulation, and
how these factors might affect the Company's prospects and
viability in the future. The Board reviewed a cash flows analysis
in reaching its conclusions, but recognised that the Company's
operating expenses are significantly lower than its total
income.
The Board has also considered a number of financial metrics,
including:
-- the level of current and historic ongoing charges incurred by
the Company;
-- the share price discount to NAV;
-- the level of income generated by the Company;
-- future income forecasts; and
-- the liquidity of the Company's portfolio.
Considering the liquidity of the portfolio and the largely fixed
overheads which comprise a small percentage of net assets, the
Board has concluded that, even in exceptionally stressed operating
conditions, the Company would be able to meet its ongoing operating
costs as they fall due.
Taking into account the Company's current position and the
potential impact of its principal risks and uncertainties, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due for a period of three years from the date of this Report,
subject to shareholders' approval of the continuation vote at each
AGM.
Outlook
The Board's view on the general outlook for the Company can be
found in the Chairman's Statement under "Summary" while the
Investment Manager's views on the outlook for the portfolio are
included in its report under "Where do we go from here?".
On behalf of the Board
Davina Walter
Chairman
9 January 2024
Promoting the Success of the Company
The Board is required to report how it has discharged its duties
and responsibilities under section 172 of the Companies Act 2006
during the year under review. Under this requirement, the Directors
have a duty to promote the success of the Company for the benefit
of its members (shareholders) as a whole, taking into account the
likely long term consequences of decisions, the need to foster
relationships with the Company's stakeholders, and the impact of
the Company's operations on the environment. In addition, the
Directors must act fairly between shareholders and be cognisant of
maintaining the reputation of the Company.
The Purpose of the Company and Role of the Board
The purpose of the Company is to act as a vehicle to provide,
over time, financial returns (both income and capital) to its
shareholders. Investment trusts, such as the Company, are long-term
investment vehicles and are typically externally managed, have no
employees, and are overseen by an independent non-executive board
of directors.
The Board, which during the year comprised five independent
non-executive Directors with a broad range of skills and experience
across all major functions that affect the Company, retains
responsibility for taking all decisions relating to the Company's
investment objective and policy, gearing, corporate governance and
strategy, and for monitoring the performance of the Company's
service providers.
The Board's philosophy is that the Company should operate in a
transparent culture where all parties are treated with respect as
well as the opportunity to offer practical challenge and
participate in positive debate which is focused on the aim of
achieving the expectations of shareholders and other stakeholders
alike. The Board reviews the culture and manner in which the
Manager operates at its regular meetings and receives regular
reporting and feedback from the key service providers.
The Company's main stakeholders are its shareholders, the
Manager, investee companies and funds, service providers and the
holders of the Company's Bonds.
How the Board Engages with Stakeholders
The Board considers its stakeholders at Board meetings and
receives feedback on the Manager's interactions with them
Stakeholder How the Board Engages
=================== ================================================================
Shareholders Shareholders are key stakeholders and the Board places
great importance on communication with them, and
meet, in the absence of the Manager, with current
and prospective shareholders to discuss performance
and to receive shareholder feedback. The Board welcomes
all shareholders' views.
Part of that engagement has been to evaluate the
feedback from shareholders regarding the Company's
share price and the persistent discount to NAV at
which its shares trade, culminating in the proposals
for a Managed Wind-Down of the Company.
Regular updates are provided to shareholders through
the Annual Report, Half Yearly Report, Manager's
monthly factsheets, company announcements, including
daily net asset value announcements, and the Company's
website.
=================== ================================================================
Manager The Investment Manager's Report sets out the key
investment decisions taken during the year. The Investment
Manager has continued to manage the Company's assets
in accordance with the mandate provided by shareholders,
with the oversight of the Board.
The Board regularly reviews the Company's performance
against its investment objective and the Board undertakes
an annual strategy review to ensure that the Company
is positioned well for the future delivery of its
objective for its stakeholders.
The Board receives presentations from the Investment
Manager at every Board meeting to help it to exercise
effective oversight of the Investment Manager and
the Company's strategy.
The Board, through the Management Engagement Committee,
formally reviews the performance of the Manager at
least annually.
=================== ================================================================
Investee Companies Responsibility for actively monitoring the activities
and Funds of investee companies and funds has been delegated
by the Board to the Manager which has sub-delegated
that authority to the Investment Manager.
The Board has also given discretionary powers to
the Investment Manager to exercise voting rights
on resolutions proposed by the investee companies
within the Company's portfolio.
The Board and Manager are committed to investing
in a responsible manner and the Investment Manager
integrates environmental, social and governance considerations
into its research and analysis as part of the investment
decision-making process. Through engagement and exercising
voting rights, the Investment Manager actively works
with companies to improve corporate standards, transparency
and accountability.
=================== ================================================================
Service Providers The Board seeks to maintain constructive relationships
with the Company's suppliers, either directly or
through the Manager, with regular communications
and meetings.
The Audit Committee conducts an annual review of
the performance, terms and conditions of the Company's
main service providers to ensure they are performing
in line with Board expectations and providing value
for money.
=================== ================================================================
Debt Providers On behalf of the Board, the Manager maintains a positive
working relationship with Law Debenture Trust p.l.c.
as trustee on behalf of the holders of the Company's
Bonds, ensuring compliance with its covenants.
=================== ================================================================
Specific Examples of Stakeholder Consideration During the
Year
While the importance of giving due consideration to the
Company's stakeholders is not new, and is considered as part of
every Board decision, the Directors were particularly mindful of
stakeholder considerations during the following decisions
undertaken during the year ended 30 September 2023.
Independent evaluation of the Board
In September 2023, the Company engaged Lintstock Ltd to
undertake an independent external evaluation of the effectiveness
of the Board. Further information may be found in the Directors'
Report, under the Nomination Committee section.
Dividends Paid to Shareholders
The level, frequency and timing of dividends paid are key
considerations for the Board, taking into account net earnings for
the year and the Company's objective of providing shareholders with
dependable income and capital appreciation over the long term
through investment in a globally diversified multi-asset
portfolio.
The total dividends per share of 7.33p in respect of the year,
including a special dividend of 1.65p per share, represent an
increase of 30.9% on the prior year.
Share Buy Backs
During the year the Company bought back 7.2m Ordinary shares to
be held in treasury, providing a small accretion to the NAV and a
degree of liquidity to the market at times when the discount to the
NAV per share had widened during normal market condition.
Performance and Results
Performance (total return)
31 March 2017(B) 31 December
- 2020(C) -
30 September 30 September 1 year 3 years 5 years
2023 2023
% return % return % return % return % return
======================= ================ ============ ======== ======== ========
Net asset value - debt
at par(A) +13.3 +8.8 +0.4 +6.5 +8.4
======================= ================ ============ ======== ======== ========
Net asset value - debt
at fair value(A) +21.6 +11.1 +0.4 +14.4 +14.5
======================= ================ ============ ======== ======== ========
Share price(A) +2.3 -3.0 -0.7 +9.0 -11.3
----------------------- ---------------- ------------ -------- -------- --------
(A) Considered to be an Alternative Performance Measure. Total return
represents the capital return plus dividends reinvested.
(B) Change of Investment Objective and Investment Policy on 31 March
2017.
(C) Change of Investment Objective and Investment Policy on 31 December
2020.
Source: abrdn, Morningstar and Lipper.
Ten Year Financial Record
Year to/As at 30 September 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
=========================== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total revenue (GBP'000) 23,608 23,120 23,265 17,961 23,262 22,106 20,783 18,878 17,959 17,163
--------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Per Ordinary share
(p)
=========================== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net revenue return 7.0 7.1 7.6 5.3 6.2 5.7 5.6 5.1 5.0 4.4
=========================== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return 9.3 (4.5) 1.3 8.0 2.8 2.6 (1.4) 6.7 (0.2) (0.1)
=========================== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net dividends payable 6.44 6.54 6.54 5.89 5.24 5.36 5.44 5.52 5.60 7.33
=========================== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net asset value per
Ordinary share (p)
=========================== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Debt at par value 147.5 136.6 131.6 132.7 130.3 128.1 121.7 123.5 117.8 112.7
=========================== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Debt at fair value 143.3 131.0 123.6 126.4 124.2 119.9 113.4 121.7 117.6 112.6
--------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Equity shareholders'
funds (GBP'000) 426,865 374,832 351,521 436,767 428,129 413,679 386,230 382,118 363,358 339,534
--------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment Manager's Process
Investment Manager's Process
Risk management is embedded in the Investment Manager's process.
The approach is based around four pillars: Diversification
principles, Risk models, Scenario analysis and Peer review. In
addition, liquidity risk is also actively monitored, both by the
Investment Manager and via regular independent stress tests.
Further detail on each of the pillars is provided below:
-- Diversification principles
The Investment Manager believes that diversification is a
necessary element of any robust multi-asset portfolio, reducing
portfolio volatility in the short term and reducing the reliance on
any one asset class over the medium to long-term. Diversification
benefits arise from the range of assets that are considered within
the Company's portfolio; the longer-term modelling that is used to
establish the strategic framework; and they are also actively
considered as part of the day to day decision making for the
portfolio. The Investment Manager seeks to ensure that there is not
a disproportionate exposure or contribution to portfolio risk from
any one asset class or investment.
-- Risk models
The second pillar of the risk management approach is the use of
quantitative risk models. Although the Investment Manager
acknowledges that risk models can have their limitations, it
believes that they are a valuable input into the broader process.
In particular, they can provide an efficient, clear and objective
view on the portfolio's risk exposures at any given time.
-- Scenario analysis
While the risk models include certain historic stress test
scenarios in their analysis, it is important to also consider how
investments in the portfolio might be expected to behave in various
hypothetical scenarios. The scenario analysis harnesses both the
experience of the investment team and the broader insights gained
from across abrdn. From this analysis, the Investment Manager is
seeking to gain comfort that the potential risk of, and impact
from, any given scenario is acceptable. This helps to ensure that
the portfolio is resilient to the wide range of scenarios that
might play out over time.
-- Peer review
To ensure that the Investment Manager is capturing the best
ideas within the portfolio, the investment process has been
designed to source views from across the business and reflect back
its own insights. On a formal basis, the peer review process also
includes oversight from a monthly meeting of the Investment
Manager's Diversified Asset Review Group as well as input from
abrdn's independent risk team and liquidity stress tests undertaken
by the dealing desk.
Investment Manager's Report
This Investment Manager's Report relates to the year ended 30
September 2023.
As explained in the Chairman's Statement, the Company has put
forward proposals to shareholders for a Managed Wind-Down which, if
approved, would include a revised investment policy including the
cessation of new investments by the Company with the exception of
funding commitments for existing investments.
Introduction
Markets have continued to be volatile in 2023, continuing the
trend of recent years. The driver this year is a significant
undercurrent of stubborn inflation coupled with rising geopolitical
tensions. Market optimism about generative artificial intelligence
solutions ushering in a new technological era has provided a balm
at times, but outside of this, positive investment performance has
been hard to come by for many investors as rising interest rates
start to stifle growth.
Can central bankers thread the needle?
In the last Annual Report, we noted that inflation was the
number one factor driving markets, and this has remained the story
in 2023. Headline inflation appears to have peaked in developed
markets; core inflation has also come down, but remains somewhat
stickier. The challenge for central bankers from here is to thread
the needle of holding rates high enough to keep inflationary
pressures at bay and bring inflation back to target while at the
same time, not tipping economies into recession. The US appears to
be treading this path well, while data in the UK and Europe is
suggestive of a more imminent downturn.
Geopolitics has also remained an issue in 2023, with the
situation in Ukraine showing no signs of meaningful change, while
just after year end, the Israeli-Palestinian conflict saw the
deadliest events in over 50 years. Worries are that the situation
could escalate into a wider regional confrontation.
Optimism around AI was a large driver of markets, with an
explosion of Large Language Models (LLMs) and generative AI tools
such as ChatGPT gaining headlines, but also ushering in new ways of
working. These tools have the potential to increase productivity,
with new models with abilities and functions being released
regularly. Industries supporting this high growth area and related
indices performed strongly as a result, with the NASDAQ up over 30%
in local currency terms, outperforming the S&P 500 in the US by
nearly 15%. Nvidia, a leading supplier of specialist AI hardware,
has seen its market cap move from $300bn to over $1trn. In fact,
the "Magnificent Seven" stocks (Apple, Amazon, Microsoft, Alphabet,
Meta, Netflix, Nvidia), were responsible for 45% of the entire
S&P 500 returns.
With investors concerned that entrenched inflation and sustained
rate rises could result in tougher financial conditions the impact
across private markets was varied. Deal activity across US and
European private equity was down in H1 2023. However, levels of
activity did vary across sectors with some proving to be more
resilient than others. Financial services proved to be resilient as
the rise in interest rates has resulted in consolidation across the
sector and the expectation is that this will continue. It is likely
that investors are waiting to see the extent of valuation
corrections before activity across all sectors picks back up.
Within private credit as borrowing costs have gone up private
equity firms continue to turn to private credit to finance
transactions, shifting away from syndicated loan markets offered by
the traditional banks. Default rates are increasing, up to 4.5% in
Q1 2023 , as coverage ratios have dropped. In this climate, it is
important to be rewarded for the level of risk. Across real assets,
infrastructure deal volumes were also down, the lowest since H1
2020, 1,336 deals totalling $394.83bn in H1 2023 but energy
transition sectors continued to grow. This is not surprising as
energy-security continues to be a priority and demand remains
robust for assets that are driving the energy transition. Real
estate liquidity is generally very low, and investors are waiting
to see where values have shifted meaning transactions volumes have
fallen; down roughly 55% vs 2022 in Europe. In Europe, there is a
stronger preference for logistics and residential as long-term
drivers such as e-commerce and supply chain modernisation for the
former and demographic/ supply trends for the latter remain in
place. In Asia-Pacific we see that fundraising has skewed towards
opportunistic strategies. Overall, the delay in recovery is likely
to come from tighter lending conditions and recession, although
relative value is building back up. In summary, risks remain
elevated, so a cautious approach must be taken at this time.
A stable NAV in a volatile environment
On an absolute and relative basis, the return on net asset value
("NAV"), with debt at fair value and including income, has been
reasonable during the period. The Company delivered a total NAV
return of 0.4% with 3.6% volatility, a good risk adjusted return
per unit of risk taken. This compared with a 13.2% return in
equities as measured by the FTSE All-Share Index with 11.6%
volatility, and -0.6% in government bonds as measured by the ICE
BofA UK Gilt Index with a volatility of 11.5%. The share price
total return was -0.7% during the period.
The Company has been able to protect capital in an incredibly
challenging market environment, with Higher Yielding Fixed Income
positions the top performer, while Equity Growth and Diversifying
Opportunities also performed well. Our Real Asset holdings
detracted from returns, while Defensive Assets were broadly
neutral.
In Higher Yield Fixed Income, the standout performers were
Emerging Market ("EM") Bonds, and Asset Backed positions. Our
Global Equity holdings were positive over the first 8 months of the
year, but the rotation to China shares gave back some of these
gains in the latter months of the year, while the private equity
holdings were also positive. The Diversifying Opportunities returns
were led by the Litigation Finance fund, managed by Burford,
validating its non-economic cycle return generation potential
We discuss performance, gross of management fees and expenses
directly attributable to the Company, in greater detail below.
How did the Company produce returns during such a volatile
period?
Equity Growth
Despite the uncertainty resulting from a banking crisis at the
start of the year followed by a combination of ongoing inflationary
pressures, monetary tightening and the risk of a US government
shutdown, Equities returned 8.2% over the period, contributing 1.2%
to the Company's performance. Both the Company's listed and private
equity portfolios contributed positively to the performance. Our
ESG Enhanced Equity exposure led the returns over the first half of
the financial year. Equity markets initially rose, as investors
sought to take advantage of lower valuations, despite a relatively
lacklustre third quarter earnings season. From the start of
January, the large US tech stocks led the way, benefitting
initially from expectations of a less aggressive rate hiking cycle
and subsequently the focus on US technology stocks. The rotation to
China shares in May of 2023 detracted from performance as the
anticipated regional economic rebound has so far struggled to take
hold.
Higher yielding fixed income
Higher Yielding Fixed Income led return generation over the six
months, adding 2.9% to Company performance. Within this the Asset
Backed sector was the top performer, contributing 1.2%. In the
rising rate environment, names such as TwentyFour Asset Backed
Opportunities offered strong income generation due to the floating
rate nature of the underlying investments. Emerging Market Bonds
were also positive contributors over the period, adding 1.1%,
driven by peaking yields and income payments.
Credit markets have continued to experience low default rates
and our tilt to floating rate lending has also enabled the
portfolio to benefit from a higher rate environment, and positive
returns were also generated by privately held names Mount Row II
and Hark III.
Real Assets
Real assets detracted from performance, returning -3.4% over the
six months.
Property assets have suffered from continued weakness in sectors
such as commercial offices, where hybrid working has reduced demand
for space. In addition, in a sector where debt is commonplace,
rising rates have impacted those names with unhedged exposure or
those who need to refinance maturing loans, as they are doing so at
a significantly higher rate. This dynamic impacted widely across
the listed names, and we reduced exposure to this sector at the end
of the year.
The NAVs for our infrastructure positions have been more
resilient given the high inflation linkage of underlying revenues
for assets in the privately held portfolio. This was a positive for
SL Capital Infrastructure II, while Andean Social Infrastructure I
was also positive. That being said, a moderating UK power price and
increased discount rates (as yields have risen) saw BlackRock
Renewable Infrastructure UK value fall. The listed infrastructure
sector also suffered from the impact of rising yields, as prices
swung from trading at a historic premium to NAV to a large discount
to NAV, with all names impacted.
Furthermore in the Real Assets basket , Agriculture Capital
Management II was written down significantly as one of its
properties breached its debt covenants. We later exited this fund
on the secondary market due to concerns about the outlook for the
investment.
Diversifying Opportunities
The basket of Diversifying Opportunities contributed 1.4% to the
performance of the Company over the period. Within this, the
private holding in Burford Opportunity Fund , in the litigation
finance sector was the largest driver, adding 1.0% to performance.
Over the year there was significant progress in the YPF case, which
has unlocked significant value for the Company, as detailed in the
half year report. In addition to this, proceeds were received from
the successful resolution of several other cases in the portfolio.
Listed Royalty name Round Hill contributed +0.3% in September
following a takeover bid at a large premium to the share price.
Defensive Assets
Our exposure to lower returning defensive assets, such as
government bonds and cash, is limited as we seek to provide long
term returns from a diversified exposure of return seeking
opportunities. This said, we have introduced an exposure to higher
quality bonds given the yields on offer. Within this basket, a
positive return from Cash was slightly outweighed by a negative
return on Government Bonds, as rising rates drove down the capital
value of the bonds. Ultimately the basket contributing a -0.1% to
performance.
What portfolio changes did we make?
Equity Growth
Within the Equity Growth basket, we reduced the weighting of the
ESG Enhanced Core Equity sleeve by half and sold the satellite
holding in Apax Global, given our reduced conviction in the growth
outlook and the increased likelihood of recession in developed
markets. We partly rotated into Chinese Equities to diversify away
from developed market corporate risk at a time when the region
offered the potential for outperformance as its economy reopened.
While this has not been the case so far, stocks are at post COVID
valuation lows, and we expect further government stimulus to
improve earnings potential.
The weight to the Private Equity portfolio increased slightly
over the year, as although it distributed $1.4m from the sale of
its stake in Action, the abrdn Secondary Opportunities Fund IV was
a significant net caller of capital as it continues to deploy
capital during its investment period.
In total, the Equity Growth basket was reduced from 18% to 13%
of the portfolio over the year. Within this basket, the privately
held assets moved from 10% to 11% of the Company's investment
portfolio. The proceeds from the overall reduction in the Equity
Growth basket were invested into Defensive Assets.
Higher Yielding Fixed Income
Within the higher yielding fixed income basket, we trimmed
exposure to both Senior and Junior ABS positions, as despite the
higher yield on offer, we anticipate a higher default rate as the
interest cost burden from high rates starts to weigh heavily on
companies . The proceeds were rotated into higher quality fixed
income within the defensive basket.
In our private credit portfolio, the majority of committed
capital has been called, and there were no new commitments made.
There was a slight increase in weight over the year (from 5% to
6%), as the Mount Row II assets rebounded strongly over the period
following recovery in the CLO markets.
Overall, the Higher Yielding Fixed Income basket was reduced
from 27% of the Company's assets to 22% at year end.
Real Assets
Within private Real Assets, a significant change was the
successful exit of the I77 toll road asset in the US in December,
which raised USD17.4m, crystalising a strong return from this
investment. From this point there were several drawdowns from SLCI
II to fund expansion of Airband's rural UK fibre network, and from
the Andean Social Infrastructure Fund to invest in 2 brownfield
Mexican hospitals, so the private infrastructure weight moved from
an intra-period low of 14% back up to 16% at year end. In Natural
Resources, we exited the Agricultural Capital Management II Fund,
where we had concerns on the manager's ability to increase
profitability of the underlying assets, and additionally on the
impact of more frequent extreme weather events on crop harvests in
the US.
In the public sphere, we exited our allocation to property from
3% of the Company, on a poor outlook for the sector as a whole.
While the listed infrastructure valuations swung to a large
discount to NAV, we retain conviction in the sector, and see
current valuations as attractive for long term returns from this
point.
Diversifying Opportunities
In the public investments, we reduced our exposure to Round Hill
Music Royalties following the takeover bid to take profits
immediately, before exiting the position fully after year end. In
the privately held investments, the majority of the committed
capital in the sector has been called, and there were no new
commitments made, so there was no change at a portfolio allocation
level over the period. However, positive performance from Burford
Opportunity Fund and the abrdn Global Private Market Fund moved the
portfolio allocation up slightly from 16% to 17% of the Company's
portfolio.
Defensive Assets
Defensive assets was the largest allocation change over the
period, as we made the strategic decision to de-risk the portfolio,
allocations to this basket moved its weight from 3% of the
Company's portfolio coming into the year, up to 16% at year
end.
Within the basket we have allocated to Government Bonds and
Investment Grade Credit. Our view is that central bank rates have
peaked, and that rates will start to move down gradually from here,
increasing the value of the bonds. In addition, the Investment
Grade Credit exposure provides an attractive income yield at
present, but the higher credit quality should mean that defaults
are lower than other credit sectors should we see levels of credit
distress increasing.
Where do we go from here?
Divergence remains a key theme for the global economy heading
into 2024. The US economy remains very resilient, with the rate of
growth accelerating over the summer. Robust consumer and business
balance sheets, and a strong labour market can extend expansion
into 2024. With inflation moderating, the likelihood of a soft
landing has increased. This, however, is already priced into the
market, and our view is that the exceptional US performance will
likely only last a couple of more quarters, and that the US is
likely to enter a mild recession next year. Indeed industrial
surveys point to weaker activity and slowing labour demand
reflecting a building drag from earlier Federal Reserve
tightening.
The outlook is less rosy for the Eurozone which is very close to
recession, due to ECB monetary policy and a weak global industrial
cycle impacting the region's exporters. Germany's energy intensive
growth model is under real pressure, with data pointing to a
significant contraction. This would translate to lower inflationary
pressure, meaning the ECB is likely close to the end of its hiking
cycle, and will likely move to easing in 2024.
The UK additionally faces challenges, as the impact of previous
interest rate hikes feed through into slowing economic activity and
falling house prices. However, the UK's particular series of
negative supply side shocks mean that even with weak economic
growth, inflation is likely to remain stickier, meaning a BOE
easing cycle may be later and slower than elsewhere.
While the global interest rates hiking cycle is close to
peaking, recent communication from central banks is that rates will
remain higher for longer than previously thought. Ultimately, over
the next 12-18 months bond yields will likely move lower as growth
eventually runs out of steam and central banks ease policy back to
more neutral settings.
Within Equities, recent performance has been driven by multiple
expansion rather than earnings growth, the vast majority of which
from big tech names. This is reassuring on one hand, as it shows
investors are not optimistic across the board, but shows the risk
of a change in sentiment to the large cap tech names, and the
negative impact this will have on the sector.
The likelihood of recession and the impact on earnings means we
are less favourable on corporate risk than earlier in the cycle. We
have added a position to investment-grade corporate bonds from our
high yield debt positions as a result. In the higher yield space,
we are maintaining our Emerging Market debt positions. Emerging
Market central banks are ahead of developed peers in combatting
inflation and will have more room to cut when a global recession
hits. We remain mindful of shorter-term volatility in this space
however.
We are currently negative on Global Property, which continues to
progress steadily through a downturn. Higher interest rates have
pushed up real estate yields, and have increased the associated
debt cost. This has happened much more rapidly than during the GFC
in most regions, with values falling between 15-30% in only two to
three quarters. While this phase is close to the end, the next
phase of a weak office sector and secondary asset demand is
starting. However, this too shall pass, and we believe real estate
valuations will reach fair value in 2024 following a peak in
interest rates.
Across private equity, despite the headwinds, pockets of
opportunity remain across sectors with strong long term growth
prospects. We remain highly convicted in investing in the next wave
of disruptive technologies that will drive long term growth.
Further, we see mid-market companies that are driving consumption
growth in urban centres globally as attractive. Our attention is on
managers with proven through-the-cycle returns and distinct
operating/sector expertise, with long-term trends still giving
investors the prospect of positive outcomes from investments. We
see significant value creation opportunities in the Venture Capital
and Growth Equity sectors. Near term given economic volatility and
valuation uncertainty we favour larger more mature companies with
strong balance sheets, along with secondary portfolios that are
attractively priced because of market dislocation.
As we look at the market today, within infrastructure clearly
the energy transition remains a dominant theme. Traditional
regulated utilities remain attractive, though there is some debate
about appropriate valuations. We do expect to see some impact on
valuations, but as yet not much evidence has emerged, partly
because there is still strong competition for good assets.
Furthermore, the forward curve shows interest rates coming back
down, which is the expectation going into 2024. Long term we see
significant value creation opportunities in the development of
essential infrastructure globally across both economic and social
spheres. It is important to note, in the near-term cost of
financing is much higher than it was over past last decade,
resulting in smaller relative value vs long term government bonds
resulting lower total return expectations.
The Company has a well-diversified portfolio which has proven to
be resilient in the recent challenging environment. While we expect
market conditions to remain challenging, we believe the Company is
well placed to navigate what continues to be a difficult economic
environment.
Nalaka De Silva, Head of Private Markets Solutions,
Simon Fox, Senior Investment Director,
Nic Baddeley, Investment Manager
abrdn Investments Limited
Investment Manager
9 January 2024
Portfolio
The portfolio consists of a wide range of assets managed by
specialist teams within abrdn and also selected third party
managers. Some of these investments are longer term in nature and
are not otherwise readily available to private investors.
Ten Largest Investments
As at 30 September 2023
At At
30 September 30 September
2023 2022
% of Total % of Total
investments investments
======================================================= ============ ============
SL Capital Infrastructure II(AB) 8.1 5.2
======================================================= ============ ============
European economic infrastructure
------------------------------------------------------- ------------ ------------
iShares LI UK Gilts UCITS ETF 7.1 -
======================================================= ============ ============
Mixed duration UK Government Bond portfolio
------------------------------------------------------- ------------ ------------
Aberdeen Standard Global Private Markets Fund(AB) 5.9 5.1
======================================================= ============ ============
Multi-strategy private markets exposure
------------------------------------------------------- ------------ ------------
TwentyFour Asset Backed Opportunities Fund 5.7 6.8
======================================================= ============ ============
Investments in mortgages, SME loans originated
in Europe
------------------------------------------------------- ------------ ------------
Burford Opportunity Fund(B) 5.1 4.7
======================================================= ============ ============
Diverse portfolio of litigation finance investments
initiated by Burford Capital
------------------------------------------------------- ------------ ------------
Healthcare Royalty Partners IV(B) 4.7 3.6
======================================================= ============ ============
Invests in healthcare royalty streams primarily
in the US
------------------------------------------------------- ------------ ------------
Bonaccord Capital Partners I-A(B) 4.7 4.1
======================================================= ============ ============
Targets investment in alternative asset management
companies.
------------------------------------------------------- ------------ ------------
Andean Social Infrastructure Fund I(AB) 4.4 3.4
======================================================= ============ ============
Infrastructure project investments in the Andean
region of South America
------------------------------------------------------- ------------ ------------
Aberdeen Standard Secondary Opportunities Fund
IV(AB) 3.8 2.4
======================================================= ============ ============
Diversified Private Equity portfolio which invests
through secondary transactions
------------------------------------------------------- ------------ ------------
iShares GBP Corp Bond UCITS ETF 3.4 -
======================================================= ============ ============
Tracks the performance of an index composed
of Sterling denominated investment grade
corporate bonds.
------------------------------------------------------- ------------ ------------
(A) Denotes abrdn plc managed products
(B) Unlisted holdings
Private Markets Investments
As at 30 September 2023
=====================================================================================
Valuation Total investments Valuation
2023 2023 2022
Company GBP'000 % GBP'000
============================================ ========= ================= =========
Private Equity
============================================ ========= ================= =========
Bonaccord Capital Partners I-A(B) 16,091 4.7 15,255
============================================ ========= ================= =========
Aberdeen Standard Secondary Opportunities
Fund IV(AB) 12,940 3.8 9,385
============================================ ========= ================= =========
TrueNoord Co-Investment(B) 8,765 2.6 9,976
============================================ ========= ================= =========
Maj Invest Equity 5(B) 2,432 0.7 2,492
============================================ ========= ================= =========
HarbourVest International Private Equity
VI(B) 1,678 0.5 2,100
============================================ ========= ================= =========
Maj Invest Equity 4(B) 1,205 0.4 1,335
============================================ ========= ================= =========
Mesirow Financial Private Equity IV(B) 599 0.2 882
============================================ ========= ================= =========
HarbourVest VIII Buyout Fund(B) 160 0.1 260
============================================ ========= ================= =========
HarbourVest VIII Venture Fund(B) 123 - 178
============================================ ========= ================= =========
Mesirow Financial Private Equity III(B) 117 - 228
-------------------------------------------- --------- ----------------- ---------
Top ten Private Equity holdings 44,110 13.0
-------------------------------------------- --------- ----------------- ---------
Other holdings 27 -
-------------------------------------------- --------- ----------------- ---------
Total Private Equity 44,137 13.0
-------------------------------------------- --------- ----------------- ---------
Real Estate
============================================ ========= ================= =========
Aberdeen Property Secondaries Partners
II(AB) 9,385 2.8 9,851
============================================ ========= ================= =========
Aberdeen European Residential Opportunities
Fund(AB) 7,524 2.2 9,769
============================================ ========= ================= =========
Cheyne Social Property Impact Fund(B) 3,299 1.0 4,813
-------------------------------------------- --------- ----------------- ---------
Total Real Estate 20,208 6.0
-------------------------------------------- --------- ----------------- ---------
Infrastructure
============================================ ========= ================= =========
SL Capital Infrastructure II(AB) 27,419 8.1 19,581
============================================ ========= ================= =========
Andean Social Infrastructure Fund I(AB) 15,016 4.4 12,691
============================================ ========= ================= =========
BlackRock Renewable Income - UK(B) 8,199 2.4 8,523
============================================ ========= ================= =========
Aberdeen Global Infrastructure Partners
II (AUD)(AB) 4,541 1.3 6,840
============================================ ========= ================= =========
Pan European Infrastructure Fund(B) 1,205 0.4 1,697
============================================ ========= ================= =========
Aberdeen Global Infrastructure Partners
II (USD)(AB) - - 17,755
-------------------------------------------- --------- ----------------- ---------
Total Infrastructure 56,380 16.6
-------------------------------------------- --------- ----------------- ---------
Private Credit
============================================ ========= ================= =========
Mount Row Credit Fund II(B) 10,166 3.0 7,494
============================================ ========= ================= =========
PIMCO Private Income Fund Offshore Feeder
I LP(B) 7,662 2.2 8,796
============================================ ========= ================= =========
ASI Hark III(B) 6,042 1.8 4,088
-------------------------------------------- --------- ----------------- ---------
Total Private Credit 23,870 7.0
-------------------------------------------- --------- ----------------- ---------
Other
============================================ ========= ================= =========
Aberdeen Standard Global Private Markets
Fund(AB) 19,934 5.9 19,122
============================================ ========= ================= =========
Burford Opportunity Fund(B) 17,272 5.1 17,520
============================================ ========= ================= =========
Healthcare Royalty Partners IV(B) 16,235 4.7 13,522
============================================ ========= ================= =========
Markel CATCo Reinsurance Fund Ltd -
LDAF 2018 SPI(B) 333 0.1 298
============================================ ========= ================= =========
Markel CATCo Reinsurance Fund Ltd -
LDAF 2019 SPI(B) 81 - 281
-------------------------------------------- --------- ----------------- ---------
Total Other 53,855 15.8
-------------------------------------------- --------- ----------------- ---------
Total Private Markets 198,450 58.4
-------------------------------------------- --------- ----------------- ---------
(A) Denotes abrdn plc managed products
(B) Unlisted holdings
Fixed Income & Credit Investments
As at 30 September 2023
=================================================================================
Valuation Total investments Valuation
2023 2023 2022
Company GBP'000 % GBP'000
======================================== ========= ================= =========
Structured Credit
======================================== ========= ================= =========
TwentyFour Asset Backed Opportunities
Fund 19,292 5.7 25,509
======================================== ========= ================= =========
Fair Oaks Income Fund 1,046 0.3 1,089
======================================== ========= ================= =========
Blackstone/GSO Loan Financing 615 0.2 3,468
---------------------------------------- --------- ----------------- ---------
Total Structured Credit 20,953 6.2
---------------------------------------- --------- ----------------- ---------
Syndicated Loans
======================================== ========= ================= =========
Aberdeen Standard Alpha - Global Loans
Fund(A) 2,279 0.7 2,347
---------------------------------------- --------- ----------------- ---------
Total Syndicated Loans 2,279 0.7
---------------------------------------- --------- ----------------- ---------
Investment Grade Credit
======================================== ========= ================= =========
iShares GBP Corp Bond UCITS ETF 11,603 3.4 -
======================================== ========= ================= =========
iShares GBP Ultrashort Bond 1,054 0.3 -
---------------------------------------- --------- ----------------- ---------
Total Investment Grade Credit 12,657 3.7
---------------------------------------- --------- ----------------- ---------
Developed Market Government Bonds
======================================== ========= ================= =========
iShares LI UK Gilts UCITS ETF 24,059 7.1 -
---------------------------------------- --------- ----------------- ---------
Total Developed Market Government Bonds 24,059 7.1
---------------------------------------- --------- ----------------- ---------
Country
======================================== ========= ================= =========
Brazil (Fed Rep of) 10% 01/01/25 2,347 0.7 1,313
======================================== ========= ================= =========
Secretaria Tesouro 10% 01/01/31 1,805 0.5 1,755
======================================== ========= ================= =========
Mexico (Utd Mex St) 5% 06/03/25 1,555 0.5 -
======================================== ========= ================= =========
Mexico Bonos Desarr Fix Rt 10% 05/12/24 1,206 0.3 1,775
======================================== ========= ================= =========
Titulos De Tesoreria 7% 26/03/31 986 0.3 859
======================================== ========= ================= =========
Indonesia (Rep of) 8.375% 15/03/34 958 0.3 1,346
======================================== ========= ================= =========
Malaysia (Govt of) 3.828% 05/07/34 936 0.3 988
======================================== ========= ================= =========
Mexico (United Mexican States) 7.75%
13/11/42 868 0.3 831
======================================== ========= ================= =========
South Africa (Rep of) 8.75% 31/01/44 862 0.2 995
======================================== ========= ================= =========
South Africa (Rep of) 9% 31/01/40 803 0.2 329
---------------------------------------- --------- ----------------- ---------
Top ten holdings 12,326 3.6
---------------------------------------- --------- ----------------- ---------
Other holdings 17,293 5.1
---------------------------------------- --------- ----------------- ---------
Total Emerging Market Debt 29,619 8.7
---------------------------------------- --------- ----------------- ---------
Total Fixed Income & Credit 89,567 26.4
---------------------------------------- --------- ----------------- ---------
(A) Denotes abrdn plc managed products
Listed Equities
As at 30 September 2023
=============================================================================
Valuation Valuation Valuation
2023 2023 2022
Company GBP'000 % GBP'000
============================================ ========= ========= =========
Listed Equity
============================================ ========= ========= =========
Aberdeen Standard SICAV I China A Shs
Eqty Fund Z Acc USD 6,551 1.9 -
============================================ ========= ========= =========
Cellnex Telecom 1,673 0.5 11
-------------------------------------------- --------- --------- ---------
Total Listed Equity 8,224 2.4
-------------------------------------------- --------- --------- ---------
Infrastructure Sub-Fund
============================================ ========= ========= =========
3I Infrastructure 4,329 1.3 2,532
============================================ ========= ========= =========
HICL Infrastructure 3,355 1.0 3,627
============================================ ========= ========= =========
International Public Partnerships 3,241 0.9 2,194
============================================ ========= ========= =========
Sequoia Economic Infrastructure Income 1,877 0.6 1,570
============================================ ========= ========= =========
Cordiant Digital Infrastructure 1,831 0.5 2,336
-------------------------------------------- --------- --------- ---------
Top five Infrastructure Sub-Fund holdings 14,633 4.3
-------------------------------------------- --------- --------- ---------
Other holdings 1,050 0.3
-------------------------------------------- --------- --------- ---------
Total Infrastructure Sub-Fund 15,683 4.6
-------------------------------------------- --------- --------- ---------
Real Estate Sub-Fund
============================================ ========= ========= =========
PRS REIT 457 0.1 1,673
-------------------------------------------- --------- --------- ---------
Total Real Estate Sub-Fund 457 0.1
-------------------------------------------- --------- --------- ---------
Alternative Income Sub-Fund
============================================ ========= ========= =========
BioPharma Credit 3,629 1.1 6,267
============================================ ========= ========= =========
Tufton Oceanic Assets 1,147 0.3 2,936
============================================ ========= ========= =========
Round Hill Music Royalty Fund 926 0.3 3,446
============================================ ========= ========= =========
SME Credit Realisation 44 - 201
-------------------------------------------- --------- --------- ---------
Total Alternative Income Sub-Fund 5,746 1.7
-------------------------------------------- --------- --------- ---------
Renewables Infrastructure Sub-Fund
============================================ ========= ========= =========
Greencoat UK Wind 3,968 1.2 2,643
============================================ ========= ========= =========
Greencoat Renewables 2,193 0.7 2,700
============================================ ========= ========= =========
Pantheon Infrastructure 1,860 0.6 921
============================================ ========= ========= =========
The Renewables Infrastructure Group 1,830 0.5 1,721
============================================ ========= ========= =========
Bluefield Solar Income Fund 1,471 0.4 1,834
-------------------------------------------- --------- --------- ---------
Top five Renewables Infrastructure Sub-Fund
holdings 11,322 3.4
-------------------------------------------- --------- --------- ---------
Other holdings 6,897 2.0
-------------------------------------------- --------- --------- ---------
Total Renewables Infrastructure Sub-Fund 18,219 5.4
-------------------------------------------- --------- --------- ---------
Reinsurance Sub-Fund
============================================ ========= ========= =========
CATCo Reinsurance Opportunities Fund 84 - 150
-------------------------------------------- --------- --------- ---------
Total Reinsurance Sub-Fund 84 -
-------------------------------------------- --------- --------- ---------
Listed Royalties Sub-Fund
============================================ ========= ========= =========
Franco Nevada 1,788 0.5 -
============================================ ========= ========= =========
Wheaton Precious 1,754 0.5 -
-------------------------------------------- --------- --------- ---------
Total Listed Royalties Sub-Fund 3,542 1.0
-------------------------------------------- --------- --------- ---------
Total Equities 51,955 15.2
-------------------------------------------- --------- --------- ---------
Net Assets Summary
As at 30 September 2023
=============================================================================
Valuation Net assets Valuation Net assets
2023 2023 2022 2022
GBP'000 % GBP'000 %
=============================== ========= ========== ========= ==========
Total investments 339,972 100.1 373,732 102.9
------------------------------- --------- ---------- --------- ----------
Cash and cash equivalents(A) 21,087 6.2 8,984 2.5
=============================== ========= ========== ========= ==========
Forward contracts (5,615) (1.6) (4,922) (1.4)
=============================== ========= ========== ========= ==========
6.25% Bonds 2031 (15,730) (4.6) (15,694) (4.3)
=============================== ========= ========== ========= ==========
Other net (liabilities)/assets (180) (0.1) 1,258 0.3
------------------------------- --------- ---------- --------- ----------
Net assets 339,534 100.0 363,358 100.0
------------------------------- --------- ---------- --------- ----------
(A) Includes outstanding
settlements
Manager's ESG Engagement
The Manager does not judge the suitability of an investment from
an ESG perspective on a purely binary basis. Instead, a dynamic
approach is taken, investing in companies where the greatest
alignment to mitigating the risks can be seen or pursued further
through their commitment to improving their ESG profile. The
Manager believes in active engagement with its investments and
potential investments: from providing initial guidance on suitable
metrics through to holding the company to account for delivering on
its promises. It is through this filter that the Manager is
comfortable investing in, for example, sectors such as mining and
oil & gas, subject to the belief that a company is taking the
necessary action to address the energy transition. The Manager has
high expectations for these companies given that many commodities
are necessary for the transition to a low carbon future.
Core beliefs: Assessing Risk, Enhancing Value
There are three core principles which underpin the Investment
Manager's integrated ESG approach. Firstly, ESG factors can
materially impact financial returns and the long term success of
the investment strategy. Secondly, by integrating ESG factors into
investment decisions the Investment Manager generates a better
understanding of how well companies are managing ESG risks and
opportunities and this insight supports better decision making.
Finally, active engagement with company management teams is central
to enhancing value and a standard part of the Investment Manager's
ongoing stewardship programme.
Responsible Investing - Integration of ESG into the Investment
Manager's Process
"By embedding ESG factors into the active equity investment
process, we aim to reduce risk, enhance potential value for
investors and foster companies that can contribute positively to
the world." Investment Manager
Financial Returns ESG factors can be financially material - the level
of consideration they are given in a company will
ultimately have an impact on corporate performance,
either positively or negatively. Those companies
that take their ESG responsibilities seriously tend
to outperform those that do not.
====================== ========================================================
Fuller Insight Systematically assessing a company's ESG risks and
opportunities alongside other financial metrics allows
the Investment Manager to make better investment
decisions.
====================== ========================================================
Corporate Advancement Informed and constructive engagement helps foster
better companies, protecting and enhancing the value
of the Company's investments.
====================== ========================================================
"We believe that the market systematically undervalues the
importance of ESG factors. We believe that in-depth ESG analysis is
part of both fundamental company research and portfolio
construction and will lead to better client outcomes." Investment
Manager
Researching Companies: Deeper Company Insights for Better
Investor Outcomes
The Investment Manager's portfolio managers, sector analysts,
ESG equity analysts and central ESG Investment Team collaborate to
generate a deep understanding of the ESG risks and opportunities
associated with each company. The central ESG team also produces
research into specific themes (e.g. labour relations or climate
change), sectors (e.g. forestry) and ESG topics to understand and
highlight best practice.
Global Networks: Working Together on Climate Change
The Investment Manager is a signatory to the UN Principles for
Responsible Investment and actively collaborates on ESG issues with
global asset managers and asset owners. Climate change is a
particular area of focus because the physical and transition risks
related to climate change have the potential to be financially
material for many companies. The Investment Manager has been
actively involved in initiatives such as Climate Action100+ and
Institutional Investors Group on Climate Change ("IIGCC") Net Zero
Framework and also supports the Task Force on Climate Related
Disclosures ("TCFD") which aims to strengthen climate related
reporting globally. Portfolio Management Team
ESG House Score ESG Investment Team Equity ESG Quality
Score
* Responsibility of ESG analyst * Global insights * Responsibility of portfolio manager and sector
analysts
* Based on quantitative data * Thematic research
* Based on fundamental bottom up analysis of individual
companies by on-desk analysts
* Incorporates abrdn's views on materiality and sector * Co-ordination across asset classes
specific risks
* Assesses the ESG quality of companies
* Uses wide range of data sources including MSCI,
Trucost, voting analysis and abrdn's investment * Reflective of equity analyst expertise
insights
* Incorporates engagement with companies on ESG issues
* Aims to be forward looking
Portfolio Managers All of the Investment Manager's equity portfolio
& Sector Analysts managers and sector analysts seek to engage actively
with companies to gain insight into their specific
risks and provide a
positive ongoing influence on their corporate
strategy for governance, environmental and social
impact.
==================== =======================================================
ESG Equity Analysts The Investment Manager has dedicated and highly
experienced ESG equity analysts located across
the UK, US, Asia and Australia. Working as part
of individual investment teams, rather than as
a separate department, these specialists are integral
to pre-investment due diligence and post-investment
ongoing company engagement. They are also responsible
for taking thematic research produced by the central
ESG Investment Team, interpreting and translating
it into actionable insights and engagement programmes
for its regional investment strategies.
==================== =======================================================
ESG Investment Team This central team of more than 20 experienced
specialists based in Edinburgh and London provides
ESG consultancy and insight for all asset classes.
Taking a global approach both identifies regions,
industries and sectors that are most vulnerable
to ESG risks and identifies those that can take
advantage of the opportunities presented. Working
with portfolio managers, the team is key to the
Investment Manager's active stewardship approach
of using shareholder voting and corporate engagement
to drive positive change.
==================== =======================================================
Listed Equities
ESG Research Process: Introduction
The Investment Manager employs around 150 equity professionals
globally. A systematic and globally-applied approach to evaluating
stocks allows the Investment Manager to compare companies
consistently on their ESG credentials - both regionally and against
their peer group. The Investment Manager uses a combination of
external and proprietary in-house quantitative scoring techniques
to complement and cross-check analyst-driven ESG assessments. ESG
analysis is peer-reviewed within the equities team, and ESG factors
impacting both sectors and stocks are discussed as part of the
formal sector reviews.
ESG House Score
The ESG House Score is produced by the ESG Equity Analysts. The
ESG House Score framework has two main pillars which include
detailed operational and governance metrics. The underlying key
performance indicators are weighted according to how material they
are for each sector and country and populated from proprietary and
external data sources such as MSCI and Trucost. The scores are
standardised to allow the Investment Manager to see how individual
companies rank in a global context. These scores complement the
fundamental analysis of the equity analysts and the ranking of
companies from Laggards to Best in Class.
Equity ESG Quality Score
The Investment Manager's equity sector analysts have a fully
integrated approach to ESG analysis. Within the equity investment
process, every company is given a proprietary Quality Rating which
has five components: industry analysis, business model analysis,
analysis of the company's moat or competitive advantage,
consideration of ESG factors, assessment of management and analysis
of financials. In considering the ESG Quality Score the analyst
considers these key questions:
-- Which ESG issues are relevant for this company, how material
are they, and how are they being addressed?
-- What is the assessment of the quality of this company's
governance, ownership structure and management?
-- Are incentives and key performance indicators aligned with
the company's strategy and the interests of shareholders?
Having considered the regional universe and peer group in which
the company operates, the Investment Manager's equity team then
allocates it an ESG Quality rating between one and five (see
below). This is applied across every stock that the Investment
Manager covers globally. To be considered 'best in class', the
management of ESG factors must be a material part of the company's
core business strategy; management must provide excellent
disclosure of data on key risk; management must also have clear
policies and strong governance structures, among other
criteria.
Working with Companies: Staying Engaged, Driving Change
The Investment Manager continuously monitors and actively
engages with the companies in which it invests to maintain ESG
focus and improvement. This stewardship of client's assets consists
of four interconnected and equally important activities by the
Investment Manager to monitor, contact, engage and act.
The Investment Manager actively and regularly engages with the
management teams of companies in which they are invested in order
to share examples of best practice seen in other companies and to
effect positive change. The Investment Manager also actively
engages with management teams to explain voting decisions at
company annual general meetings.
The Investment Manager's engagement extends beyond the company's
management team and can include many other stakeholders such as
non-government agencies, industry and regulatory bodies, as well as
activists and the company's clients.
Priorities for engagement are established by the use of the ESG
House Score, in combination with bottom-up research insights from
investment teams across asset classes, and areas of thematic focus
from our company-level stewardship activities. What gets measured
gets managed, so the Investment Manager strongly encourages
companies to set clear targets or key performance indicators on all
material ESG risks.
There are three core principles which underpin the Investment
Manager's investment approach (shown below) and the time it
dedicates to ESG analysis as part of its overall fundamental equity
research process:
-- ESG factors are financially material, and impact corporate
performance
-- Understanding ESG risks and opportunities alongside other
financial metrics allows us to make better investment decisions
-- Informed and constructive engagement helps faster better
companies, enhancing the value of our clients' investments
As part of their company research, our stock analysts evaluate
the ownership structures, governance and management quality of the
companies they cover. They also assess potential environmental and
social risks that the companies may face. These insights are
captured in our company research notes.
Our stock analysts work closely with dedicated ESG specialists
who sit within each regional investment team and provide
industry-leading expertise and insight at the company level. These
specialists also mediate the insights developed by our central ESG
Investment team to the stock analysts, as well as interpret and
contextualise sector and company insights.
Our central ESG investment team provie4ds thought leadership,
thematic and global sector insights, as well as event-driven
research. The team is also heavily involved in the4 stewardship of
our investments and supports company engagement meeting where
appropriate.
How the Investment Manager embeds ESG into its Investment
Process
Investment Insight
-- High quality fundamental and first hand research
-- Assessment of ESG for all stocks under coverage
Active Ownership
-- Engage and vote with aim of improving financial resilience and investment performance
-- Raise standards in companies and industries we invest in, and
help drive industry best practice
Risk & Monitoring
-- Combine in-house and external scoring to inform view
-- Active tracking of portfolio holdings against ESG objectives
Our People
-- Over 130 equity professionals, and 40+ central and on-desk ESG specialists across the world
Directors' Report
The Directors present their audited Annual Report for the year
ended 30 September 2023.
Results and Dividends
The financial statements for the year ended 30 September 2023
may be found below. The Company's revenue return was 4.35p per
share for the year ended 30 September 2023 (2022 - 4.99p).
First, second and third interim dividends, each of 1.42p per
Ordinary share, were paid on 3 April 2023, 6 July 2023 and 19
October 2023, respectively.
The Directors declared, on 26 October 2023, a special dividend
of 1.65p per Ordinary share payable on 1 December 2023 to
shareholders on the register on 3 November 2023. The ex-dividend
date is 2 November 2023.
The Directors declared, on 1 December 2023, a fourth interim
dividend of 1.42p per Ordinary share payable on 22 January 2024 to
shareholders on the register on 22 December 2023. The ex-dividend
date is 21 December 2023.
The Company will continue to pay its regular quarterly dividend
until such time as the change of investment objective and policy is
approved under the proposals for a Managed Wind-Down. Further
information on the Company's intention regarding future dividends
may be found in the Directors' Report, in relation to Resolution 3
to be proposed at the AGM on 27 February 2024.
Investment Trust Status
The Company is registered as a public limited company in
Scotland under number SC003721 and is an investment company within
the meaning of Section 833 of the Companies Act 2006. The Company
has been approved by HM Revenue & Customs as an investment
trust subject to it continuing to meet the relevant eligibility
conditions of Section 1158 of the Corporation Tax Act 2010 and the
ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011.
The Directors are of the opinion that the Company has conducted its
affairs for the year ended 30 September 2023 so as to enable it to
comply with the ongoing requirements for investment trust
status.
Individual Savings Accounts
The Company has conducted its affairs in such a way as to
satisfy the requirements as a qualifying security for Individual
Savings Accounts. The Directors intend that the Company will
continue to conduct its affairs in this manner.
Capital Structure and Voting rights
The issued Ordinary share capital at 30 September 2023 consisted
of 301,265,952 Ordinary shares (2022 - 308,447,314) with voting
rights and 22,485,854 Ordinary shares (2022 - 29,304,492) held in
treasury. A total of 7,181,362 Ordinary shares were bought back
into treasury during the year ended 30 September 2023 (2022 -
871,424). No Ordinary shares were bought back into treasury between
1 October 2023 and the date of approval of this Annual Report.
In the event of the share price trading at a premium to the NAV
per share, Ordinary shares can be re-issued out of treasury less
expensively than new Ordinary shares can be issued. Although shares
may be held in treasury indefinitely the Board is mindful of the
total number of shares held and has, therefore, decided to adopt a
policy such that, in the event that the number of treasury shares
represents more than 10% of the Company's issued share capital
(excluding treasury shares) at the end of any financial year, the
Company will cancel a proportion of its treasury shares such that
the remaining balance will equal 7.5% of the issued share capital
(excluding treasury shares). The Company's policy is to cancel
treasury shares, on 30 September each year, to ensure that the
number of shares in treasury represents no more than 10% of the
Company's issued share capital (excluding treasury shares).
Accordingly, the Company announced on 29 September 2023 the
cancellation of 14,000,000 treasury shares.
Each Ordinary share (excluding treasury shares) holds one voting
right and shareholders are entitled to vote on all resolutions
which are proposed at general meetings of the Company. The Ordinary
shares, excluding treasury shares, carry a right to receive
dividends. On a winding up or other return of capital, after
meeting the liabilities of the Company, the surplus assets will be
paid to Ordinary shareholders in proportion to their
shareholdings.
There are no restrictions on the transfer of Ordinary shares in
the Company other than certain restrictions which may from time to
time be imposed by law.
Management Agreement
The Company has appointed the Manager, a wholly-owned subsidiary
of abrdn plc, as its alternative investment fund manager.
The Manager has been appointed to provide investment management,
risk management, administration and company secretarial services as
well as promotional activities. The Company's portfolio is managed
by the Investment Manager by way of a group delegation agreement in
place between the Manager and Investment Manager. In addition, the
Manager has sub-delegated administrative and secretarial services
to abrdn Holdings Limited and promotional activities to abrdn
Investments Limited.
The Manager charges a monthly fee at the rate of one-twelfth of
0.50% on the first GBP300 million of NAV and 0.45% of NAV in excess
of GBP300 million. In calculating the NAV, the 6.25% bonds due 2031
are valued at fair value. The value of any investments in Exchange
Traded Funds ("ETFs"), unit trusts, open ended and closed ended
investment companies and investment trusts of which the Manager, or
another company within the abrdn plc group is the operator, manager
or investment adviser, is deducted from net assets. Details of the
management fee charged during the year are included in note 4 to
the financial statements.
The management agreement has in place a six months' notice
period. In the event of termination by the Company on less than the
agreed notice period, compensation is payable to the Manager in
lieu of the unexpired notice period.
Corporate Governance
The Statement of Corporate Governance, which forms part of the
Directors' Report, may be found below.
Directors
As at the date of this Report, the Board consisted of a
non-executive Chairman and four non-executive Directors, all of
whom served throughout the year ended 30 September 2023. Tom
Challenor was Senior Independent Director and Chairman of the Audit
Committee.
Board Diversity
The Board recognises the importance of having a range of
skilled, experienced individuals with the right knowledge
represented on the Board in order to allow it to fulfil its
obligations. The Board also recognises the benefits and is
supportive of, and will give due regard to, the principle of
diversity in its recruitment of new Board members. The Board will
not display any bias for age, gender, race, sexual orientation,
socio-economic background, religion, ethnic or national origins or
disability in considering the appointment of Directors. The Board
will continue to ensure that all appointments are made on the basis
of merit against the specification prepared for each appointment.
The Board will take account of the targets set out in the FCA's
Listing Rules, which are set out below.
The Board voluntarily discloses the following information in
relation to its diversity.
The Board has resolved that the Company's year end date be the
most appropriate reference date for disclosure purposes. There have
been no changes between 30 September 2023 and the date of approval
of this report. The following information has been provided by each
Director.
Table for reporting on gender as at 30 September 2023
Number Percentage Number of senior Number in Percentage
of board of the positions executive of executive
members board on the board management management
(CEO, CFO,
Chair and SID)
===================== ========= ========== ================ ============ ==============
n/a n/a
Men 3 60% 1 (note 3) (note 3)
===================== ========= ========== ================ ============ ==============
Women 2 40% 1
(note 1)
===================== ========= ========== ================ ============ ==============
Not specified/prefer - - -
not to say
===================== ========= ========== ================ ============ ==============
Table for reporting on e thnic background as at 30 September
2023
Number Percentage Number of senior Number Percentage
of board of the positions in executive of executive
members board on the board management management
(CEO, CFO,
Chair and SID)
=========================== ========= ========== ================ ============== ==============
White British or other
White n/a
(including minority-white (note n/a
groups) 5 100% 5 3) (note 3)
=========================== ========= ========== ================ ============== ==============
Minority ethnic - - -
(note 2)
=========================== ========= ========== ================ ============== ==============
Not specified/prefer - - -
not to say
=========================== ========= ========== ================ ============== ==============
Notes:
1. Meets target that at least 40% of Directors are women as set out in LR 9.8.6R (9)(a)(i)
2. Does not meet target that at least one Director is from a
minority ethnic background as set out in LR 9.8.6R (9)(a)(iii)
3. This column is not applicable as the Company is externally
managed and does not have any executive staff, specifically it does
not have either a CEO or CFO
The Role of the Chairman and Senior Independent Director
The Chairman is responsible for providing effective leadership
to the Board, by setting the tone of the Company, demonstrating
objective judgement and promoting a culture of openness and debate.
The Chairman facilitates the effective contribution, and encourages
active engagement, by each Director. In conjunction with the
Company Secretary, the Chairman ensures that Directors receive
accurate, timely and clear information to assist them with
effective decision-making. The Chairman leads the evaluation of the
Board and individual Directors, and acts upon the results of the
evaluation process by recognising strengths and addressing any
weaknesses. The Chairman also engages with major shareholders and
ensures that all Directors understand shareholder views.
The Senior Independent Director acts as a sounding board for the
Chairman and acts as an intermediary for other Directors, when
necessary. Working closely with the Nomination Committee, the
Senior Independent Director takes responsibility for an orderly
succession process for the Chairman, and leads the annual appraisal
of the Chairman's performance. The Senior Independent Director is
also available to shareholders to discuss any concerns they may
have. Tom Challenor is the Senior Independent Director.
Board Committees
The Board has appointed a number of Committees, as set out
below. Copies of their terms of reference, which define the
responsibilities and duties of each Committee, are available on the
Company's website, or upon request from the Company. The terms of
reference of each of the Committees are reviewed and re-assessed by
the Board for their adequacy on an ongoing basis.
Audit Committee
The Audit Committee's Report may be found below.
Management Engagement Committee
The Management Engagement Committee consists of all the
Directors and was chaired by Davina Walter throughout the year. The
terms and conditions of the Manager's appointment, including an
evaluation of performance and fees, are reviewed by the Committee
on an annual basis. The Committee also keeps under review the
resources of abrdn plc, together with its commitment to the Company
and its investment trust business. In addition, the Committee
conducts an annual review of the performance, terms and conditions
of the Company's key third party suppliers, by undertaking peer
comparisons and reviewing reports from the Manager and the
Depositary.
The Board conducts a formal annual evaluation of the performance
of, and contractual relationship with, the Manager and those third
parties appointed by the Manager. The evaluation includes
consideration of the investment strategy and process of the
Manager, noting performance against the benchmark over the long
term and the quality of the support that the Company receives from
the Manager. The Board confirms that it is satisfied that the
continuing appointment of the Manager, on the terms agreed, is in
the interests of shareholders as a whole. The Management Engagement
Committee met on 15 September 2022.
Nomination Committee
The Nomination Committee consists of all the Directors and was
chaired by Davina Walter throughout the year. The Committee reviews
the effectiveness of the Board, succession planning, Board
appointments, appraisals, training and the remuneration policy. As
stated in the Directors' Remuneration Report, the Nomination
Committee determines the level of Directors' fees and there is no
separate remuneration committee. The Nomination Committee met on 15
September 2022 and on 12 October 2023.
The Directors attended scheduled meetings of the Board and Board
Committees during the year ended 30 September 2023 as set out in
the table (with their eligibility to attend the relevant meetings
in brackets). The Directors meet more regularly when business needs
require, in particular in relation to the strategic review. In
addition, there were ad hoc Committee meetings when not all
Directors were required to attend.
Management
Scheduled Audit Engagement Nomination
Board Committee Committee Committee
Director Meetings Meetings Meetings Meetings
============== ========= ========== =========== ==========
Davina 6 (6) - (-) - (-) - (-)
Walter(A)
============== ========= ========== =========== ==========
Tom Challenor 6 (6) 2 (2) - (-) - (-)
============== ========= ========== =========== ==========
Trevor
Bradley 6 (6) 2 (2) - (-) - (-)
============== ========= ========== =========== ==========
Anna Troup 6 (6) 2 (2) - (-) - (-)
============== ========= ========== =========== ==========
Alistair
Mackintosh 6 (6) 2 (2) - (-) - (-)
============== ========= ========== =========== ==========
(A) Davina Walter, as Chairman
of the Board, is not a member of
the Audit Committee
Further to the above, all Directors participated in additional
meetings in relation to the strategic review.
The names and biographies of each of the current Directors are
shown on the Company's website and indicate their range of skills
and experience as well as their length of service.
An external evaluation was undertaken in September 2023 by
Lintstock Ltd, an independent external board evaluation service
provider which has no other connection with the Company.
Assisted by Lintstock Ltd, the Board has assessed that it had in
place the appropriate balance of skills, experience, length of
service and knowledge of the Company while recognising the
advantages of diversity. Details of the individual contribution
provided by each Director during the year are set out in the
published Annual Report.
Potential new Directors are identified against the requirements
of the Company's business and the need to have a balance of skills,
experience, independence, diversity and knowledge of the Company
within the Board.
Each Director has the requisite high level and range of business
and financial experience which enables the Board to provide clear
and effective leadership and proper governance of the Company.
In line with best practice in corporate governance, all
Directors offer themselves for election or re-election at the AGM.
Anna Troup has advised that she is not seeking re-election as a
Director and will retire from the Board at the conclusion of the
AGM.
Davina Walter, Tom Challenor, Trevor Bradley and Alistair
Mackintosh each retire and, being eligible, each submits themselves
for re-election at the AGM. The Board believes that all current
Directors remain, and all Directors during the year ended 30
September 2023 were, and continue to be, independent of the Manager
and free from any relationship which could materially interfere
with the exercise of their judgement on issues of strategy,
performance, resources and standards of conduct. In addition, the
Board confirms that each Director demonstrates commitment to the
role and their performance remains effective which supports their
individual contribution to the role.
The Board therefore recommends, for approval by shareholders,
the resolutions for the individual re-election as Directors at the
AGM of each of Davina Walter, Tom Challenor, Trevor Bradley and
Alistair Mackintosh.
Directors' and Officers' Liability Insurance
The Company's Articles of Association indemnify each of the
Directors out of the assets of the Company against any liabilities
incurred by them as a Director of the Company in defending
proceedings, or in connection with any application to the court in
which relief is granted. In addition, the Directors have been
granted qualifying indemnity provisions by the Company which are
currently in force. Directors' and Officers' liability insurance
cover has been maintained throughout the year at the expense of the
Company.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation
where a Director has an actual or potential conflict of interest.
As part of this process, each Director prepares a list of other
positions held and all other conflict situations that may need to
be authorised either in relation to the Director concerned or his
or her connected persons. The Board considers each Director's
situation and decides whether to prevent or manage any conflict,
taking into consideration what is in the best interests of the
Company and whether the Director's ability to act in accordance
with their duties is affected. Each Director is required to notify
the Company Secretary of any potential, or actual, conflict
situations that will need authorising by the Board. Authorisations
given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all
Directors are issued with letters of appointment. There were no
contracts during, or at the end of the year, in which any Director
was interested.
The Board takes a zero-tolerance approach to bribery and has
adopted appropriate procedures designed to prevent bribery. The
Manager also takes a zero-tolerance approach and has its own
detailed policy and procedures in place to prevent bribery and
corruption.
Going Concern
The Financial Statements of the Company have been prepared on a
going concern basis. This conclusion is consistent with the
Company's Viability Statement.
The Directors are mindful of the principal risks and
uncertainties disclosed above and have reviewed forecasts detailing
revenue and liabilities. The Directors are satisfied that: the
Company is able to meet all of its liabilities from its assets,
including its ongoing charges, so possesses sufficient resources to
continue in operational existence for the foreseeable future and at
least 12 months from the date of approval of this Annual Report;
the Company is financially sound; and the Company's key third party
service providers had in place appropriate business continuity
plans.
While the Company is obliged to hold a continuation vote at the
2024 AGM, as ordinary resolution 10, the Directors do not believe
this should automatically trigger the adoption of a basis other
than going concern in line with the Association of Investment
Companies ("AIC") Statement of Recommended Practice ("SORP") which
states that it is usually more appropriate to prepare financial
statements on a going concern basis unless a continuation vote has
already been triggered and shareholders have voted against
continuation.
Additionally, the SORP guidance sets out that it is appropriate
for the financial statements to be prepared on a going concern
basis whilst making a material uncertainty disclosure as set out in
accounting standards. Whilst the financial statements have been
prepared on a going concern basis, there is a material uncertainty
in respect of the continuation vote and Managed Wind-Down of the
Company (see note 2 (a) for related basis of preparation
disclosures).
Relations with Shareholders
The Directors place great importance on communication with
shareholders and regularly meet with current and prospective
shareholders to discuss performance, including in the absence of
the Manager. The Board receives quarterly investor relations
updates from the Manager. Significant changes to the shareholder
register, as well as shareholder feedback, are discussed by the
Directors at each Board meeting.
Regular updates are provided to shareholders through the Annual
Report, Half Yearly Report, monthly factsheets and daily net asset
value announcements, all of which are available through the
Company's website at: abrdndiversified.co.uk. The Annual Report is
also widely distributed to other parties who have an interest in
the Company's performance. Shareholders and investors may obtain
up-to-date information on the Company through its website or by
contacting abrdn Investment Trusts.
The Board's policy is to communicate directly with shareholders
and their representative bodies without the involvement of the
management group (either the Company Secretary or abrdn) in
situations where direct communication is required and
representatives from the Board offer to meet with major
shareholders on an annual basis in order to gauge their views. The
Company Secretary acts on behalf of the Board, not the Manager, and
there is no filtering of communication. At each Board meeting the
Board receives full details of any communication from shareholders
to which the Chairman responds, as appropriate, on behalf of the
Board.
In addition, in relation to institutional shareholders, members
of the Board may either accompany the Manager or conduct meetings
in the absence of the Manager.
The Company's Annual General Meeting ordinarily provides a
forum, both formal and informal, for shareholders to meet and
discuss issues with the Directors and Investment Manager. The
Notice of AGM included within the Annual Report is normally sent
out at least 20 working days in advance of the meeting.
Substantial Interests
As at 30 September 2023, the following interests over 3% in the
issued Ordinary share capital of the Company had been disclosed in
accordance with the requirements of the FCA's Disclosure Guidance
and Transparency Rules:
Number
of shares % held
Shareholder held (B)
============================= ========== ======
Interactive Investor
(A) 32,999,111 11.0
============================= ========== ======
Hargreaves Lansdown
(A) 28,604,036 9.5
============================= ========== ======
abrdn Retail Plans
(A) 27,925,649 9.3
============================= ========== ======
1607 Partners 16,142,792 5.4
============================= ========== ======
Investec Wealth & Investment 14,586,659 4.8
============================= ========== ======
EFG Harris Allday 10,922,733 3.6
============================= ========== ======
Evelyn Partners 9,859,384 3.3
============================= ========== ======
A J Bell 9,127,851 3.0
============================= ========== ======
Charles Stanley 9,099,553 3.0
============================= ========== ======
(A) Non-beneficial interest
(B) Based on 301,265,952 Ordinary
shares in issue (excluding treasury
shares) as at 30 September 2023
The above interests at 30 September 2023 were unchanged at the
date of approval of this Report other than in relation to 1607
Capital Partners, which advised the Company on 18 December 2023 of
a holding of 14,492,868 shares, equivalent to 4.8% of the Company's
issued share capital (excluding treasury shares).
Criminal Finances Act 2017
The Criminal Finances Act 2017 introduced a corporate criminal
offence of "failing to take reasonable steps to prevent the
facilitation of tax evasion". The Board has confirmed that it is
the Company's policy to conduct all of its business in an honest
and ethical manner. The Board takes a zero tolerance approach to
facilitation of tax evasion, whether under UK law or under the law
of any foreign country.
Accountability and Audit
The responsibilities of the Directors and the auditor in
connection with the financial statements appear in the Report of
the Audit Committee.
Each Director confirms that, so far as they are aware, there is
no relevant audit information of which the Company's auditor is
unaware, and they have taken all the steps that they could
reasonably be expected to have taken as Directors in order to make
themselves aware of any relevant audit information and to establish
that the Company's auditor is aware of that information.
Annual General Meeting
The Annual General Meeting will be held at 9.30am on 27 February
2024 at Wallacespace, 15 Artillery Lane, London, E1 7HA. The Notice
of the Meeting is included below. Resolutions including the
following business will be proposed:
Dividend policy (Resolution 3)
It is best practice in corporate governance for companies to
seek annual shareholder approval of a policy to pay interim
dividends where separate authority is not sought for a final
dividend. The quantum of any dividend going forward will reflect,
subject to shareholders approving the Company's proposals for a
Managed Wind-down, the Company's plan to return cash to
shareholders in a tax-efficient manner and the Board's intention
for the Company to retain its investment trust status during the
Managed Wind-Down.
Continuation of the Company (Resolution 10)
In accordance with Article 175 of the Articles of Association of
the Company adopted by shareholders on 23 February 2021, the
Directors are required to propose an ordinary resolution at each
AGM, that the Company continue as an investment trust. The
Directors refer shareholders to the Company's announcement of 14
December 2023 setting out proposals for a Managed Wind-Down of the
Company. In the light of these proposals, the Directors are
proposing, as ordinary resolution 10, that the Company continues as
an investment trust and recommends that shareholders support the
continuation of the Company in the context of the Managed Wind-Down
proposals. Implementation of the Managed Wind-Down also requires
shareholder approval for a change of investment objective and
policy. A separate circular will be published by the Company in
respect of the proposed changes as soon as practicable.
Allotment of Shares (Resolution 11)
Resolution 11 will be proposed as an ordinary resolution to
confer an authority on the Directors, in substitution for any
existing authority, to allot up to 10% of the issued Ordinary share
capital of the Company (excluding treasury shares) as at the date
of the passing of the resolution (up to a maximum aggregate nominal
amount of approximately GBP7.5m based on the number of Ordinary
shares in issue as at the date of this Report) in accordance with
Section 551 of the Companies Act 2006. The authority conferred by
this resolution will expire at the next Annual General Meeting of
the Company or, if earlier, 31 March 2025 (unless previously
revoked, varied or extended by the Company in general meeting).
The Directors consider that the authority proposed to be granted
by resolution 11 is necessary to retain flexibility.
Limited Disapplication of Pre-emption Provisions
(Resolution 12)
Resolution 12 will be proposed as a special resolution and seeks
to give the Directors power to allot Ordinary shares or to sell
Ordinary shares held in treasury (see below) (a) by way of a rights
issue (subject to certain exclusions); (b) by way of an open offer
or other offer of securities (not being a rights issue) in favour
of existing shareholders in proportion to their shareholdings
(subject to certain exclusions); and (c) to persons other than
existing shareholders for cash up to a maximum aggregate nominal
amount representing 10% of the Company's issued Ordinary share
capital as at the date of the passing of the resolution (up to an
aggregate nominal amount of approximately GBP7.5m based on the
number of Ordinary shares in issue as at the date of this Report),
without first being required to offer such shares to existing
shareholders pro rata to their existing shareholding.
This power will expire at the conclusion of the next Annual
General Meeting of the Company or, if earlier, 31 March 2025
(unless previously revoked, varied or extended by the Company in
general meeting).
The Company may buy back and hold shares in treasury and then
sell them at a later date for cash rather than cancelling them.
Such sales are required to be on a pre-emptive, pro rata basis to
existing shareholders unless shareholders agree by special
resolution to disapply such pre-emption rights. Accordingly, in
addition to giving the Directors power to allot unissued Ordinary
share capital on a non pre-emptive basis, resolution 12 will also
give the Directors power to sell Ordinary shares held in treasury
on a non pre-emptive basis, subject always in both cases to the
limitations noted above. Pursuant to this power, Ordinary shares
would only be issued for cash, and treasury shares would only be
sold for cash, at a premium to the net asset value per share
(calculated after the deduction of prior charges at market value).
Treasury shares are explained in more detail under the heading
"Market Purchase of the Company's own Ordinary Shares" below.
Market Purchase of the Company's own Ordinary Shares (Resolution
13)
Resolution 13 will be proposed as a special resolution to
authorise the Company to make market purchases of its own Ordinary
shares. The Company may do either of the following things in
respect of its own Ordinary shares which it buys back and does not
immediately cancel but, instead, holds in treasury:
-- sell such shares (or any of them) for cash (or its
equivalent); or
-- ultimately cancel the shares (or any of them).
Treasury shares may be resold quickly and cost effectively. No
dividends will be paid on treasury shares and no voting rights
attach to them.
The Manager seeks to generate attractive risk adjusted returns
by investing in, or committing to, new or existing opportunities,
whilst having particular regard to the Company's return target, and
taking into account income, predicted cash flows, market risk and
liquidity requirements. It is proposed that where such
opportunities are limited due to market conditions, then subject to
overall liquidity needs, available cash may be used under the
Company's share buyback authority, granted annually by
shareholders, to purchase Ordinary shares of the Company, where to
do so represents a better opportunity to deliver long-term
shareholder value without disrupting the overall portfolio.
Shareholders have the opportunity to endorse this revised
policy, which the Board believes is better being investment-led, by
voting in favour of Resolution 13 which gives the Company the
authority to buy Ordinary shares up to a maximum of 14.99% of the
issued Ordinary share capital of the Company (excluding treasury
shares) as at the date of the passing of the resolution
(approximately 45 million Ordinary shares). The minimum price which
may be paid for an Ordinary share is 25p (exclusive of expenses).
The maximum price (exclusive of expenses) which may be paid for the
shares is the higher of a) 5% above the average of the middle
market quotations of the Ordinary shares (as derived from the Daily
Official List of the London Stock Exchange) for the shares for the
five business days immediately preceding the date of purchase; and
b) the higher of the price of the last independent trade and the
highest current independent bid on the main market for the Ordinary
shares.
This authority, if conferred, will expire at the conclusion of
the next Annual General Meeting of the Company or, if earlier, on
31 March 2025 (unless previously revoked, varied or extended by the
Company in general meeting) and will be exercised only if it would
result in an increase in net asset value per Ordinary share for the
remaining shareholders and if it is in the best interests of
shareholders as a whole.
Holding General Meetings on not less than 14 days' clear notice
(Resolution 14)
Under the Companies Act 2006, the notice period for all general
meetings of the Company is 21 clear days' notice. Annual general
meetings will always be held on at least 21 clear days' notice but
shareholders can approve a shorter notice period for other general
meetings. Resolution 14, which is a special resolution, seeks the
authority from shareholders for the Company to be able to hold
general meetings (other than Annual General Meetings) on not less
than 14 clear days' notice. The approval will be effective until
the Company's next Annual General Meeting, when it is intended that
a similar resolution will be proposed. The Company will also need
to meet the requirements for electronic voting under the Companies
Act 2006 (as amended by the Shareholders' Rights Regulations)
before it can call a general meeting on not less than 14 days'
clear notice.
The Board believes that it is in the best interests of
Shareholders to have the ability to call meetings on not less than
14 clear days' notice should an urgent matter arise. The Directors
do not intend to hold a general meeting on less than 21 clear days'
notice unless immediate action is required.
This power will expire at the conclusion of the next Annual
General Meeting of the Company or, if earlier, 31 March 2025
(unless previously revoked, varied or extended by the Company in
general meeting).
Cancellation of the Share Premium Account (Resolution 15)
In connection with the Managed Wind-Down proposals, Resolution
15, a special resolution, asks the Company's shareholders to
approve the cancellation of the amount standing to the credit of
Company's share premium account pursuant to the Companies Act 2006
(the "Act") and subject to the sanction by the Scottish Court of
Session (the "Cancellation").
On the Cancellation becoming effective, subject to the
permission of the Court, a special reserve (the "Special Reserve")
will be created and will be able to be applied in any manner
permitted by the Act.
The Directors believe that the Cancellation would support the
Company in implementing the Managed Wind-Down as, in creating
further distributable reserves, the Special Reserve would provide
the Company with further flexibility in returning cash to
shareholders.
Recommendation
The Directors consider that the resolutions to be proposed at
the Annual General Meeting are in the best interests of the Company
and its shareholders and recommend that shareholders vote in favour
of the resolutions as they intend to do in respect of their own
beneficial shareholdings, amounting to 303,570 Ordinary shares,
representing 0.1% of the issued share capital (excluding treasury
shares).
By order of the Board
abrdn Holdings Limited
Company Secretary
1 George Street
Edinburgh EH2 2LL
9 January 2024
Statement of Corporate Governance
abrdn Diversified Income and Growth plc (the "Company") is
committed to high standards of corporate governance. The Board is
accountable to the Company's shareholders for good governance and
this statement describes how the Company has applied the principles
identified in the UK Corporate Governance Code as published in July
2018 (the "UK Code"), which is available on the Financial Reporting
Council's (the "FRC") website: frc.org.uk, and is applicable for
the Company's year ended 30 September 2023.
The Board has also considered the principles and provisions of
the AIC Code of Corporate Governance as published in February 2019
(the "AIC Code"). The AIC Code addresses the principles and
provisions set out in the UK Code, as well as setting out
additional provisions on issues that are of specific relevance to
the Company. The AIC Code is available on the AIC's website:
theaic.co.uk .
The Board considers that reporting against the principles and
provisions of the AIC Code, which has been endorsed by the FRC,
provides more relevant information to shareholders.
The Board confirms that, during the year, the Company has
complied with the principles and provisions of the AIC Code and the
relevant provisions of the UK Code, except for those provisions
relating to:
-- the role and responsibility of the chief executive;
-- executive directors' remuneration; and
-- the requirement for an internal audit function.
The Board considers that these provisions are not relevant to
the position of the Company being an externally managed investment
company. In particular, all of the Company's day-to-day management
and administrative functions are outsourced to third parties. As a
result, the Company has no executive directors, employees or
internal operations. The Company has therefore not reported further
in respect of these provisions.
Information on how the Company has applied the AIC Code, the UK
Code, the Companies Act 2006 and the FCA's DTR 7.2.6 is provided in
the Directors' Report and Audit Committee's Report as follows:
-- the composition and operation of the Board and its Committees
are detailed in the Directors' Report and in the Report of the
Audit Committee;
-- the Board's policy on diversity is in the Strategic
Report;
-- the Company's approach to internal control and risk
management is detailed in the Report of the Audit Committee;
-- the contractual arrangements with, and annual assessment of,
the Manager are set out in the Directors' Report;
-- the Company's capital structure and voting rights are
summarised in the Directors' Report;
-- the substantial interests disclosed in the Company's shares
are listed in the Directors' Report;
-- the rules concerning the appointment and replacement of
Directors are contained in the Company's Articles of Association
and are summarised in the Directors' Remuneration Report. There are
no agreements between the Company and its Directors concerning
compensation for loss of office; and
-- the powers to issue or buy back the Company's ordinary
shares, which are sought annually, and any amendments to the
Company's Articles of Association require a special resolution (75%
majority) to be passed by shareholders and information on these
resolutions may be found in the Directors' Report.
By order of the Board
abrdn Holdings Limited
Company Secretary
1 George Street
Edinburgh
EH2 2LL
9 January 2024
Directors' Remuneration Report
This Directors' Remuneration Report comprises three parts:
i. a Remuneration Policy, which is subject to a binding
shareholder vote every three years, or sooner if varied during this
interval; most recently approved by shareholders at the AGM on 28
February 2023 where 91.4% of the votes were cast in favour of the
relevant resolution while 8.6% were cast against. The Remuneration
Policy will be put to shareholders at the AGM in 2026;
ii. an Implementation Report which is subject to an advisory
vote on the level of remuneration paid during the year; and
iii. an Annual Statement.
The law requires the Company's auditor to audit certain of the
disclosures provided in the Directors' Remuneration Report. Where
disclosures have been audited, they are indicated as such. The
auditor's opinion is included in their report.
Remuneration Policy
The Directors' Remuneration Policy is determined by the full
Board, chaired by Davina Walter, and a separate Remuneration
Committee has not been established.
The Board's policy is that the remuneration of non-executive
Directors should be sufficient to attract and retain the Directors
needed to oversee the Company properly and to reflect its specific
circumstances. The remuneration should also reflect the nature of
the Directors' duties, responsibilities, the value of their time
spent and be fair and comparable to that of other investment trusts
that are similar in size, and have similar capital structures and
similar investment objectives.
Fees paid to the directors of companies within the Company's
peer group are also taken into account and the Company Secretary
provides the Directors with relevant comparative information.
The policy also provides that the Chairman of the Board and of
each Committee may be paid a fee which is proportionate to the
additional responsibilities involved in that position. In order to
avoid conflicts of interest, each Director absents themselves from
the consideration of their own fee. There were no changes to the
Directors' Remuneration Policy during the year nor are there any
proposals for changes in the foreseeable future.
No communications were received from shareholders regarding
Directors' remuneration during the year.
Limits on Directors' Remuneration
Directors' fees are set within the limits of the Company's
Articles of Association which limit the aggregate fees payable to
the Board of Directors per annum. The current limit is GBP300,000
per annum which may only be increased by an ordinary resolution of
shareholders.
The level of fees for the years ended 30 September 2023 and 2022
is set out in the following table. Fees are reviewed annually and
increased, if considered appropriate.
30 September 30 September
2023 2022
GBP GBP
=================== ============ =============
Chairman 48,400 44,600
=================== ============ =============
Chairman of Audit
Committee 35,400 32,600
=================== ============ =============
Senior Independent
Director 32,100 29,600
=================== ============ =============
Director 29,900 27,500
=================== ============ =============
Appointment
-- The Company only intends to appoint non-executive
Directors.
-- All the Directors are non-executive and are appointed under
the terms of Letters of Appointment.
-- Directors must retire and be subject to election at the first
Annual General Meeting after their appointment, and be subject to
re-election at least every three years thereafter. Notwithstanding
this, the Board has agreed that all Directors shall retire and, if
eligible, stand for re-election at each AGM.
-- Any Director newly appointed to the Board will receive the
fee applicable to each of the other Directors at the time of
appointment together with any other fee then currently payable in
respect of a specific role which the new Director is to undertake
for the Company.
-- No incentive or introductory fees will be paid to encourage a
person to become a Director.
-- Directors are not eligible for bonuses, pension benefits,
share options, long term incentive schemes or other benefits.
-- Directors are entitled to re-imbursement of out-of-pocket
expenses incurred in connection with the performance of their
duties, including travel expenses, which are considered to be
taxable expenses.
-- The Company indemnifies its Directors for all costs, charges,
losses, expenses and liabilities which may be incurred in the
discharge of duties as a Director of the Company.
Performance, Service Contracts, Compensation and Loss of
Office
-- The Directors' remuneration is not subject to any performance
related fee.
-- No Director has a service contract.
-- No Director was interested in contracts with the Company
during the period or subsequently.
-- The terms of appointment provide that a Director may be
removed without notice.
-- Compensation will not be due upon leaving office.
-- No Director is entitled to any other monetary payment or any
assets of the Company.
-- Directors' and Officers' liability insurance cover is
maintained by the Company on behalf of the Directors.
-- It is the Board's intention that this Remuneration Policy
applies for the three years to 30 September 2025.
Implementation Report
Review of Directors' Fees
The level of Directors' fees was last revised with effect from 1
October 2022. The Board carried out a review of Directors' annual
fees, by reference to inflation, as measured by the increase of
6.7% in the Consumer Prices Index for the year to September 2023,
and taking account of peer group comparisons by sector and by
market capitalisation. Accordingly, it was concluded that
Directors' fees would change, with effect from 1 October 2023, to
the following rounded rates per annum: GBP51,750 (Chairman),
GBP37,750 (Audit Committee Chairman), GBP34,250 (Senior Independent
Director) and GBP32,000 for each other Director.
Company Performance
The following graph shows the share price return (assuming all
dividends are reinvested) to Ordinary shareholders compared to a 6%
total return over the ten year period ended 30 September 2023
(rebased to 100 at 30 September 2013). This index was chosen for
comparison purposes as it is the objective used for investment
performance measurement purposes.
Statement of Voting at General Meeting
At the Company's last AGM, held on 28 February 2023,
shareholders approved, as Resolution 3, the Directors' Remuneration
Report (other than the Directors' Remuneration Policy) in respect
of the year ended 30 September 2022.
The proxy votes shown in the following table were received on
the Resolution:
Resolution For and Against Withheld
Discretionary
========================= =============== ======== ========
3. Receive and
adopt the Directors'
Remuneration Report
(excluding the
Directors' Remuneration 82.0m 7.6m
Policy) (91.5%) (8.5%) 447,578
========================= =============== ======== ========
Spend on Pay
As the Company has no employees, the Directors do not consider
it appropriate to present a table comparing remuneration paid to
Directors with distributions to shareholders. However, for ease of
reference, the total fees paid to Directors are shown in the
Directors' Remuneration Report while dividends paid to shareholders
are set out in note 8 and share buybacks are detailed in note
15.
Audited Information
Directors' Interests in the Company
The Directors are not required to have a shareholding in the
Company. The Directors (including their connected persons) at 30
September 2023 and 30 September 2022 had no interest in the share
capital of the Company other than those interests, all of which are
beneficial, shown in the following table. In addition, no Director
had any interest in the Company's 6.25% Bonds 2031 during the year
under review or up to and including the date of approval of this
Report.
30 September 30 September
2023 2022
Ordinary Ordinary shares
shares
==================== ============ ===============
Davina Walter 37,387 31,785
==================== ============ ===============
Tom Challenor 160,264 159,129
==================== ============ ===============
Trevor Bradley 50,000 50,000
==================== ============ ===============
Anna Troup 5,000 5,000
==================== ============ ===============
Alistair Mackintosh
(A) 25,000 25,000
==================== ============ ===============
(A) Held via a family investment
company
There have been no changes to the Directors' interests in the
share capital of the Company since 30 September 2023, up to the
date of approval of this Report, other than the purchase by Tom
Challenor of 696 shares and the purchase by Davina Walter of 223
shares, both as a result of dividend reinvestment, and the purchase
by Trevor Bradley of 25,000 shares.
Fees Payable
The Directors who served during the year received the following
fees, which exclude employers' National Insurance contributions.
Fees are pro-rated where a change takes place during a financial
year. There were no payments to third parties included in the fees
referred to in the table. All fees are at a fixed rate and there is
no variable remuneration. Taxable benefits refer to travel costs
associated with Directors' attendance at Board and Committee
meetings.
Audited Information
Directors' Remuneration
The Directors received the following remuneration in the form of
fees and taxable expenses:
Year ended 30 September Year ended 30 September
2023 2022
=============================== ============================= ============================
Taxable Taxable
Fees Expenses Total Fees Expenses Total
GBP GBP GBP GBP GBP GBP
=============================== ========= ========= ======= ======= ========= ========
Davina Walter 48,400 135 48,535 44,600 186 44,786
=============================== ========= ========= ======= ======= ========= ========
Tom Challenor (see note below) 37,600 132 37,732 34,700 146 34,846
=============================== ========= ========= ======= ======= ========= ========
Trevor Bradley 29,900 255 30,155 27,500 224 27,724
=============================== ========= ========= ======= ======= ========= ========
Anna Troup 29,900 40 29,940 27,500 234 27,734
=============================== ========= ========= ======= ======= ========= ========
Alistair Mackintosh 29,900 372 30,272 27,500 138 27,638
=============================== ========= ========= ======= ======= ========= ========
Total 175,700 934 176,634 161,800 927 162,727
------------------------------- --------- --------- ------- ------- --------- --------
Taxable expenses refer to amounts claimed by Directors for
travelling to attend meetings. The above amounts exclude any
employers' national insurance contributions, if applicable. All
fees are at a fixed rate and there is no variable remuneration.
Fees are pro-rated where a change takes place during a financial
year. No payments were made to third parties. There are no other
fees to disclose as the Company has no employees, chief executive
or executive directors.
Tom Challenor is paid a composite annual fee, reflecting his
position as Senior Independent Director and Chairman of the Audit
Committee; this was equivalent to annual fees of GBP37,600 for the
year ended 30 September 2023 (2022 - GBP34,700). With effect from 1
October 2023, Tom Challenor's composite annual fee will be
GBP40,000.
Annual Percentage Change in Directors' Remuneration
The table below sets out, for the Directors who served during
the Year, the annual percentage change in Directors' fees for the
past three years.
Year ended Year ended Year ended Year ended
30 September 30 September 30 September 30 September
2023 2022 2021 2020
======================================== ============== ============== ============= =============
Fees Fees Fees Fees
% % % %
======================================== ============== ============== ============= =============
Davina Walter (appointed a Director
on 1 February 2019, SID on 27
February 2019 and Chairman on
26 February 2020) 8.5 1.9 16.6 102.8
======================================== ============== ============== ============= =============
Tom Challenor (appointed SID on
4 June 2021) 8.4 6.3 3.6 6.1
======================================== ============== ============== ============= =============
Trevor Bradley (appointed a Director
on 1 August 2019) 8.7 1.9 1.9 511.6
======================================== ============== ============== ============= =============
Anna Troup (appointed a Director
on 1 August 2019) 8.7 1.9 1.9 511.6
======================================== ============== ============== ============= =============
Alistair Mackintosh (appointed
a Director on 1 May 2021) 8.7 144.4 0.0 0.0
---------------------------------------- -------------- -------------- ------------- -------------
Annual Statement
On behalf of the Board and in accordance with Part 2 of Schedule
8 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013, it is confirmed that the
above Remuneration Report summarises, as applicable, for the year
ended 30 September 2023:
-- the major decisions on Directors' remuneration;
-- any substantial changes relating to Directors' remuneration
made during the year; and
-- the context in which the changes occurred and decisions have
been taken, including management of any potential conflicts of
interest arising and reflected any feedback from shareholders.
On behalf of the Board
Davina Walter
Chairman
9 January 2024
Report of the Audit Committee
The Audit Committee presents its Report for the year ended 30
September 2023.
Committee Composition
An Audit Committee has been established which was chaired by Tom
Challenor throughout the year and consisted of the whole Board with
the exception of Davina Walter. In compliance with July 2018 UK
Code on Corporate Governance (the "Code"), the Chairman of the
Board is not a member of the Committee but attends the Audit
Committee by invitation of the Chairman
The Directors have satisfied themselves that at least one of the
Committee's members has recent and relevant financial experience -
Tom Challenor is a Fellow of the Institute of Chartered Accountants
in England & Wales - and that, collectively, the Audit
Committee possesses competence appropriate for the investment trust
sector.
Role of the Audit Committee
The principal role of the Audit Committee is to assist the Board
in relation to the reporting of financial information, the review
of financial controls and the management of risk. The Committee has
defined terms of reference which are reviewed and re-assessed for
their adequacy on at least an annual basis. Copies of the terms of
reference are published on the Company's website and are available
from the Company Secretary on request.
The Committee's main functions are listed below:
-- to review and monitor the internal control systems and risk
management systems (including review of non-financial risks) on
which the Company is reliant (the Directors' statement on the
Company's internal controls and risk management is set out
below);
-- to consider whether there is a need for the Company to have
its own internal audit function;
-- to monitor the integrity of the half-yearly and annual
financial statements of the Company by reviewing, and challenging
where necessary, the actions and judgements of the Manager;
-- to review, and report to the Board on, the significant
financial reporting issues and judgements made in connection with
the preparation of the Company's financial statements, half-yearly
financial reports, announcements and related formal statements;
-- to review the content of the Annual Report and advise the
Board on whether, taken as a whole, it is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy;
-- to meet with the auditor to review the proposed audit
programme of work and the findings of the auditor. The Committee
shall also use this as an opportunity to assess the effectiveness
of the audit process;
-- to develop and implement policy on the engagement of the
auditor to supply non-audit services;
-- to review a statement from the Manager detailing the
arrangements in place within the Manager whereby staff may, in
confidence, escalate concerns about possible improprieties in
matters of financial reporting or other matters;
-- to make recommendations in relation to the appointment of the
auditor and to approve the remuneration and terms of engagement of
the auditor; and
-- to monitor and review the auditor's independence,
objectivity, effectiveness, resources and qualification.
Activities During the Year
The Audit Committee met twice during the year when, amongst
other matters, it considered the Annual Report and the Half-Yearly
Financial Report. Representatives of the Manager's internal audit
department and risk and compliance department reported to the
Committee on matters such as internal control systems, risk and the
conduct of the business in the context of its regulatory
environment.
Internal Control
There is an ongoing process, for identifying, evaluating and
managing the Company's significant business and operational risks,
which has been in place for the year ended 30 September 2023 and up
to the date of approval of the Annual Report, which is regularly
reviewed by the Board and complies with the FRC's guidance on
internal controls.
The Board has overall responsibility for ensuring that there is
a system of internal controls in place and a process for reviewing
its effectiveness. Any system of internal control is designed to
manage rather than eliminate the risk of failure to achieve
business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss.
The design, implementation and maintenance of controls and
procedures to safeguard the assets of the Company and to manage its
affairs properly extends to operational and compliance controls and
risk management. The Board, through the Audit Committee, has
prepared its own risk controls self-assessment which lists
potential risks relating to strategy; shareholders; Board;
investment management; promotional activities; company secretarial;
depositary; third party service providers and other external
factors. The Board considers the potential cause and possible
effect of these risks as well as reviewing the controls in place to
mitigate these potential risks.
Clear lines of accountability have been established between the
Board and the Manager. The Board receives six-monthly reports from
the Manager's risk and compliance and internal audit teams covering
key performance and risk indicators and considers control and
compliance issues brought to its attention. In carrying out its
review, the Board has had regard to the activities of the Manager,
including its internal audit and compliance functions, and of the
auditor.
The Board has reviewed the Manager's process for identifying and
evaluating the significant risks faced by the Company and the
policies and procedures by which these risks are managed. The Board
has also reviewed the effectiveness of the Manager's system of
internal control including its annual internal controls report
prepared in accordance with the International Auditing and
Assurance Standards Board's International Standard on Assurances
Engagements ("ISAE") 3402, "Assurance Reports on Controls at a
Service Organisation".
Risks are identified and documented through a risk management
framework by each function within the Manager's activities. Risk is
considered in the context of the FRC's guidance on internal
controls and includes financial, regulatory, market, operational
and reputational risk. This helps the internal audit risk
assessment model identify those functions for review. Any
weaknesses identified are reported to the Board and timetables are
agreed for implementing improvements to systems. The implementation
of any remedial action required is monitored and feedback provided
to the Board.
The key components designed to provide effective internal
control are outlined below:
-- written agreements are in place which specifically define the
roles and responsibilities of the Manager and other third party
service providers;
-- the Board and Manager have agreed clearly defined investment
criteria, specified levels of authority and exposure limits.
Reports on these issues, including performance statistics and
investment valuations, are regularly submitted to the Board;
-- the Manager prepares forecasts and management accounts which
allow the Board to assess the Company's activities and review its
performance; the emphasis is on obtaining the relevant degree of
assurance and not merely reporting by exception;
-- as a matter of course the Manager's compliance department
continually reviews its operations; and
-- at its meeting in November 2023, the Audit Committee carried
out an annual assessment of internal controls for the year ended 30
September 2023 by considering documentation from the Manager,
including the internal audit and compliance functions, and taking
account of events since 30 September 2023.
The Board has considered the need for an internal audit
function. However, the Company has no employees and the day-to-day
management of the Company's assets has been delegated to the
Manager which has its own compliance and internal control systems.
The Board has therefore decided to place reliance on those systems
and internal audit procedures and has concluded that it is not
necessary for the Company to have its own internal audit
function.
Financial Statements and Significant Risks
During its review of the Company's financial statements for the
year ended 30 September 2023, the Audit Committee considered,
through review of reports and other documentation, the following
significant issues, in particular those communicated by the auditor
during its planning and reporting of the year end audit:
Basis of Preparation and Material Uncertainty
How the issue was addressed - whilst the financial statements
have been prepared on a going concern basis, there is a material
uncertainty in respect of the continuation vote and Managed
Wind-Down of the Company (see note 2 (a) for related basis of
preparation disclosures).
Valuation and Existence of Investments
How the issue was addressed - The Company's investments have
been valued in accordance with the accounting policies, as
disclosed in note 2(e) to the financial statements, which are
consistent with the International Private Equity and Venture
Capital Valuation Guidelines - Edition 2018. Within the FRS 102
Fair Value hierarchy, all investments are categorised as either
Level 1 or 2 other than 28 investments (2022 - 30), totalling
GBP198.5m (2022 - GBP209.1m), which are categorised as Level 3. The
portfolio holdings and their pricing is reviewed and verified by
the Manager on a regular basis and management accounts, including a
full portfolio listing, are prepared for each Board meeting. The
Audit Committee rigorously challenges the assumptions underlying
valuation of unlisted investments. The Company engages the services
of an independent Depositary to hold the assets of the Company. The
Depositary checks the consistency of its records with those of the
Manager on a monthly basis and reports to the Board on an annual
basis.
Recognition of Investment Income
How the issue was addressed - the recognition of investment
income is undertaken in accordance with accounting policy note 2(b)
to the financial statements. Special dividends are allocated to the
capital or revenue accounts according to the nature of the payment
and the intention of the underlying company. The Directors also
review, at each meeting, the Company's income, including income
received, revenue forecasts and dividend comparisons.
Maintenance of Investment Trust Status
How the issue was addressed - The Company has been approved as
an investment trust under Sections 1158 and 1159 of the Corporation
Tax Act 2010. Ongoing compliance with the eligibility criteria is
monitored on a regular basis by the Manager and reported at each
Board meeting.
Allocation of finance costs and investment management fees
The Company's finance costs and investment management fees were
charged 50% to capital and 50% to revenue during the year ended 30
September 2023. This reflects the Board's currently anticipated
split of future investment returns. Prior to 1 October 2022, the
charging allocation was 60% to capital and 40% to revenue.
Review of Auditor
The Audit Committee has reviewed the effectiveness of the
auditor, PricewaterhouseCoopers LLP including:
-- Independence - the auditor discusses with the Audit
Committee, at least annually, the steps it takes to ensure its
independence and objectivity and makes the Committee aware of any
potential issues, explaining all relevant safeguards.
-- Quality of audit work - including the ability to resolve
issues in a timely manner (identified issues are satisfactorily and
promptly resolved), its communications/presentation of outputs (the
explanation of the audit plan, any deviations from it and the
subsequent audit findings are comprehensive and comprehensible),
and its working relationship with management (the auditor has a
constructive working relationship with the Manager).
-- Quality of people and service - including continuity and
succession plans (the audit team is made up of sufficient, suitably
experienced staff with provision made for knowledge of the
investment trust sector and retention on rotation of the audit
director).
In reviewing the auditor, the Committee also took into account
the FRC's latest Audit Quality Inspection Report for
PricewaterhouseCoopers LLP.
Audit Tender
This year's audit of the Company's Annual Report is the third
performed by PricewaterhouseCoopers LLP since their appointment
following an audit tender process held by the Company in 2019 and
is therefore the fourth year for which the senior statutory
auditor, Shujaat Khan, has served.
Shareholders will have the opportunity to vote on the
re-appointment of PricewaterhouseCoopers LLP as auditor, and their
remuneration, as Resolutions 8 and 9 at the forthcoming AGM.
Provision of Non-Audit Services
The Committee has established a policy on the supply of
non-audit services provided by the auditor. Such services are
considered on an individual basis and may only be provided if the
service is at a reasonable and competitive cost and does not
constitute a conflict of interest or potential conflict of interest
or prevent the auditor from remaining objective and independent. In
addition, non-audit services will only be approved by the Committee
if in compliance with the Financial Reporting Council's and UK
Public Interest Entity's independence requirements. All non-audit
services require the pre-approval of the Committee. Non-audit fees
paid to the auditor during the year under review amounted to
GBP17,225 (2022 - GBP15,750), comprising GBP12,000 (2022 -
GBP11,000) for the review of the Half-Yearly Financial Report and
GBP5,225 (2022 - GBP4,750) in relation to covenant compliance
requirements for the 6.25% Bonds 2031.
Tom Challenor
Chairman of the Audit Committee
9 January 2024
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements, in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law the
Directors have elected to prepare the financial statements in
accordance with UK Accounting Standards, including FRS 102 'The
Financial Reporting Standard Applicable in the UK and Republic of
Ireland'.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgments and estimates that are reasonable and
prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Statement of Corporate
Governance that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website but not for any information on the website that
has been prepared or issued by third parties. Legislation in the UK
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
-- the financial statements have been prepared in accordance
with applicable accounting standards and give a true and fair view
of the assets, liabilities, financial position and profit of the
Company;
-- in the opinion of the Directors, the Annual Report taken as a
whole, is fair, balanced and understandable and it provides the
information necessary to assess the Company's position and
performance, business model and strategy; and
-- the Strategic Report and Directors' Report include a fair
review of the development and performance of the business and the
position of the Company, together with a description of the
principal risks and uncertainties that the Company faces.
On behalf of the Board,
Davina Walter
Chairman
9 January 2024
Statement of Comprehensive Income
Year ended 30 September Year ended 30 September
2023 2022
================================== ==== =========================== ===========================
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================== ==== ======= ======== ======== ======= ======== ========
(Losses)/gains on investments 10 - (24,549) (24,549) - 11,405 11,405
================================== ==== ======= ======== ======== ======= ======== ========
Foreign exchange gains/(losses) - 13,297 13,297 - (24,660) (24,660)
================================== ==== ======= ======== ======== ======= ======== ========
Income 3 17,163 - 17,163 17,959 - 17,959
================================== ==== ======= ======== ======== ======= ======== ========
Investment management fees 4 (563) (563) (1,126) (517) (776) (1,293)
================================== ==== ======= ======== ======== ======= ======== ========
Administrative expenses 5 (1,146) (38) (1,184) (940) 10 (930)
---------------------------------- ---- ------- -------- -------- ------- -------- --------
Net return/(loss) before finance
costs and taxation 15,454 (11,853) 3,601 16,502 (14,021) 2,481
================================== ==== ======= ======== ======== ======= ======== ========
Finance costs 6 (524) (524) (1,048) (426) (639) (1,065)
---------------------------------- ---- ------- -------- -------- ------- -------- --------
Net return/(loss) before taxation 14,930 (12,377) 2,553 16,076 (14,660) 1,416
================================== ==== ======= ======== ======== ======= ======== ========
Taxation 7 (1,678) (1,174) (2,852) (637) (1,488) (2,125)
---------------------------------- ---- ------- -------- -------- ------- -------- --------
Return/(loss) attributable
to equity shareholders 13,252 (13,551) (299) 15,439 (16,148) (709)
---------------------------------- ---- ------- -------- -------- ------- -------- --------
Return/(loss) per Ordinary
share (pence) 9 4.35 (4.45) (0.10) 4.99 (5.23) (0.23)
---------------------------------- ---- ------- -------- -------- ------- -------- --------
The total column of the Statement of Comprehensive Income is the profit
and loss account of the Company. There has been no other comprehensive
income during the year, accordingly, the return/(loss) attributable
to equity shareholders is equivalent to the total comprehensive income/(loss)
for the year.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of these financial statements.
Statement of Financial Position
As at
As at 30 September
2022
30 September (*Restated)
2023
Note GBP'000 GBP'000
============================================= ===== ============= ============
Non-current assets
============================================= ===== ============= ============
Investments at fair value through profit
or loss 10 339,972 373,732
============================================= ===== ============= ============
Deferred taxation asset 7 - 1,167
--------------------------------------------- ----- ------------- ------------
339,972 374,899
============================================= ===== ============= ============
Current assets
============================================= ===== ============= ============
Debtors 11 1,549 2,845
============================================= ===== ============= ============
Derivative financial instruments 87 984
============================================= ===== ============= ============
Cash and cash equivalents 12 21,025 7,179
--------------------------------------------- ----- ------------- ------------
22,661 11,008
--------------------------------------------- ----- ------------- ------------
Current liabilities
============================================= ===== ============= ============
Derivative financial instruments (5,702) (5,906)
============================================= ===== ============= ============
Other creditors 13 (1,667) (949)
============================================= ===== ============= ============
(7,369) (6,855)
--------------------------------------------- ----- ------------- ------------
Net current assets 15,292 4,153
--------------------------------------------- ----- ------------- ------------
Total assets less current liabilities 355,264 379,052
============================================= ===== ============= ============
Non-current liabilities
============================================= ===== ============= ============
6.25% Bonds 2031 14 (15,730) (15,694)
--------------------------------------------- ----- ------------- ------------
Net assets 339,534 363,358
--------------------------------------------- ----- ------------- ------------
Equity
============================================= ===== ============= ============
Called up share capital (*restated)(A) 15 80,938 84,438
============================================= ===== ============= ============
Share premium account 116,556 116,556
============================================= ===== ============= ============
Capital redemption reserve (*restated)(A) 37,043 33,543
============================================= ===== ============= ============
Capital reserve 16 69,717 89,560
============================================= ===== ============= ============
Revenue reserve 35,280 39,261
--------------------------------------------- ----- ------------- ------------
Total shareholders' funds 339,534 363,358
--------------------------------------------- ----- ------------- ------------
Net asset value per Ordinary share
(pence) 17
============================================= ===== ============= ============
Bonds at par value 112.70 117.80
--------------------------------------------- ----- ------------- ------------
Bonds at fair value 112.59 117.63
--------------------------------------------- ----- ------------- ------------
(A) Further details of the restatement can be found in note 25.
The financial statements were approved by the Board of Directors and
authorised for issue on 9 January 2024 and were signed on its behalf
by:
Davina Walter, Chairman
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Equity
For the year ended 30 September 2023
=================================================================================================
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ==== =========== ======= =========== ======== ======== ========
Balance at 1 October 2022
(*restated)(A) 84,438 116,556 33,543 89,560 39,261 363,358
========================== ==== =========== ======= =========== ======== ======== ========
Return after taxation - - - (13,551) 13,252 (299)
========================== ==== =========== ======= =========== ======== ======== ========
Ordinary shares purchased
for treasury 15 - - - (6,292) - (6,292)
========================== ==== =========== ======= =========== ======== ======== ========
Ordinary shares cancelled
from treasury 15 (3,500) - 3,500 - - -
========================== ==== =========== ======= =========== ======== ======== ========
Dividends paid 8 - - - - (17,233) (17,233)
-------------------------- ---- ----------- ------- ----------- -------- -------- --------
Balance at 30 September
2023 80,938 116,556 37,043 69,717 35,280 339,534
-------------------------- ---- ----------- ------- ----------- -------- -------- --------
For the year ended 30 September 2022
Capital
Share Share redemption
capital premium reserve Capital Revenue
(*Restated) account (*Restated) reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ==== =========== ======= =========== ======== ======== ========
Balance at 1 October 2021
(*restated)(A) 84,438 116,556 33,543 106,572 41,009 382,118
========================== ==== =========== ======= =========== ======== ======== ========
Return after taxation - - - (16,148) 15,439 (709)
========================== ==== =========== ======= =========== ======== ======== ========
Ordinary shares purchased
for treasury 15 - - - (864) - (864)
========================== ==== =========== ======= =========== ======== ======== ========
Dividends paid 8 - - - - (17,187) (17,187)
-------------------------- ---- ----------- ------- ----------- -------- -------- --------
Balance at 30 September
2022 (*restated)(A) 84,438 116,556 33,543 89,560 39,261 363,358
-------------------------- ---- ----------- ------- ----------- -------- -------- --------
(A) Further details of the restatement can be found in note 25.
The accompanying notes are an integral part of these financial statements.
Statement of Cash Flows
Year ended Year ended
30 September 30 September
2023 2022
Note GBP'000 GBP'000
============================================== ===== ============ ============
Operating activities
============================================== ===== ============ ============
Net return before finance costs and
taxation 3,601 2,481
============================================== ===== ============ ============
Adjustments for:
============================================== ===== ============ ============
Dividend income (7,341) (7,878)
============================================== ===== ============ ============
Distribution income (6,815) (7,324)
============================================== ===== ============ ============
Fixed interest income (2,643) (2,689)
============================================== ===== ============ ============
Interest (income)/expense (344) 11
============================================== ===== ============ ============
Other income (20) (57)
============================================== ===== ============ ============
Dividends received 7,349 7,848
============================================== ===== ============ ============
Distributions received 6,815 7,324
============================================== ===== ============ ============
Fixed interest income received 2,540 2,742
============================================== ===== ============ ============
Interest received/(paid) 294 (11)
============================================== ===== ============ ============
Other income received 20 57
============================================== ===== ============ ============
Unrealised losses on forward contracts 693 2,005
============================================== ===== ============ ============
Foreign exchange losses/(gains) 88 (550)
============================================== ===== ============ ============
Losses/(gains) on investments 24,549 (11,405)
============================================== ===== ============ ============
Decrease/(increase) in other debtors 23 (40)
============================================== ===== ============ ============
Increase in accruals 204 286
============================================== ===== ============ ============
Corporation tax paid (1,110) (417)
============================================== ===== ============ ============
Taxation withheld (550) (234)
---------------------------------------------- ----- ------------ ------------
Net cash flow from/(used in) operating
activities 27,353 (7,851)
---------------------------------------------- ----- ------------ ------------
Investing activities
============================================== ===== ============ ============
Purchases of investments (102,128) (59,692)
============================================== ===== ============ ============
Sales of investments 113,246 86,057
---------------------------------------------- ----- ------------ ------------
Net cash flow from investing activities 11,118 26,365
---------------------------------------------- ----- ------------ ------------
Financing activities
============================================== ===== ============ ============
Purchase of own shares to treasury (6,292) (864)
============================================== ===== ============ ============
Interest paid (1,012) (1,035)
============================================== ===== ============ ============
Equity dividends paid 8 (17,233) (17,187)
---------------------------------------------- ----- ------------ ------------
Net cash flow used in financing activities (24,537) (19,086)
---------------------------------------------- ----- ------------ ------------
Increase/(decrease) in cash and cash
equivalents 13,934 (572)
---------------------------------------------- ----- ------------ ------------
Analysis of changes in cash and cash
equivalents during the year
============================================== ===== ============ ============
Opening balance 7,179 7,201
============================================== ===== ============ ============
Foreign exchange (88) 550
============================================== ===== ============ ============
Increase/(decrease) in cash and cash
equivalents as above 13,934 (572)
---------------------------------------------- ----- ------------ ------------
Closing balance 21,025 7,179
---------------------------------------------- ----- ------------ ------------
Represented by:
============================================== ===== ============ ============
Money market funds 12,450 -
============================================== ===== ============ ============
Cash and short term deposits 8,575 7,179
---------------------------------------------- ----- ------------ ------------
21,025 7,179
---------------------------------------------- ----- ------------ ------------
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 30 September 2023
1. Principal activity
The Company is a closed-end investment company, registered in Scotland
No SC003721, with its Ordinary shares having a premium listing on
the London Stock Exchange.
2. Accounting policies
(a) Basis of preparation. The financial statements have been prepared
in accordance with Financial Reporting Standard 102, the Companies
Act 2006 and the Association of Investment Companies ('AIC')
Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' (the 'SORP') issued
in July 2022. They have also been prepared on a going concern
basis and on the assumption that approval as an investment trust
will continue to be granted.
While the Company is obliged to hold a continuation vote at the
2024 AGM, as ordinary resolution 10, the Directors do not believe
this should automatically trigger the adoption of a basis other
than going concern in line with the Association of Investment
Companies ("AIC") Statement of Recommended Practice ("SORP")
which states that it is usually more appropriate to prepare financial
statements on a going concern basis unless a continuation vote
has already been triggered and shareholders have voted against
continuation.
The Directors considered a number of factors in determining unanimously
that shareholders should vote in favour of continuation at the
AGM and have engaged in discussions with a number of shareholders,
and with their advisers, in reaching this conclusion. These matters
included:
- the outcome of the strategic review, in the form of a restriction
on new investments as part of a revised investment policy, taking
account of the maturity profile of medium and longer term private
markets investments;
- the proposed managed wind down, which is subject to shareholder
approval, is aimed at optimising shareholder returns and is likely
to take at least three to four years;
- feedback from certain shareholders that a return of capital
by the Company, as explained in the Chairman's Statement, was
preferred; and
- an assessment of the pattern of the Company's future cashflows,
after taking account of working capital requirements, capital
commitments for the private markets investments and the proposed
repayment of the 6.25% Bonds 2031.
Based on this assessment the Directors have made the assumption
that the continuation vote will pass, however recognise that
the outcome of the vote is not yet known given the performance
of the Company against its benchmark and the Company's share
price compared with its net asset value per share. Additionally,
uncertainty also exists in respect of the proposals for a Managed
Wind-Down of the Company which are subject to shareholder approval
and the timeline for the liquidation of the Company which will
be impacted by the timing of the disposals of the Company's investments.
If the Managed Wind-Down proposals are rejected by shareholders
and they vote for a discontinuation of the Company, the Directors
will require to deliver a revised wind down proposal for approval
following shareholder engagement within six months of the AGM.
In accordance with the SORP guidance, the Directors note that
these conditions indicate the existence of a material uncertainty
which may cast significant doubt about the Company's ability
to continue as a going concern. The Company's financial statements
do not include the adjustments that would result if the Company
was unable to continue as a going concern, such as the repurchase
cost of the Company's Bonds using the Spens methodology, a liquidation
provision or potential adjustments to carrying values of investments
relating to their realisation in due course. Based on their assessment
and considerations above, the Directors have concluded that the
financial statements of the Company should continue to be prepared
on a going concern basis and the financial statements have been
prepared accordingly.
The Directors are mindful of the principal risks and uncertainties
disclosed and have reviewed forecasts detailing revenue and liabilities.
The Directors are satisfied that: the Company is able to meet
all of its liabilities from its assets, including its ongoing
charges, so possesses sufficient resources to continue in operational
existence for the foreseeable future and at least 12 months from
the date of approval of this Annual Report; the Company is financially
sound; and the Company's key third party service providers had
in place appropriate business continuity plans.
A substantial proportion of the Company's assets are invested
in equity shares in companies and fixed interest securities listed
on recognised stock exchanges and in most circumstances, including
in the current market environment, are realisable within a short
timescale. The Board has set limits for borrowing and regularly
reviews cash flow projections and compliance with banking covenants,
including the headroom available.
The financial statements are presented in sterling (rounded to
the nearest GBP'000), which is the Company's functional and presentation
currency. The Company's performance is evaluated and its liquidity
is managed in sterling. Therefore sterling is considered as the
currency that most faithfully represents the economic effects
of the underlying transactions, events and conditions.
Significant accounting judgements, estimates and assumptions
. The preparation of financial statements requires the use of
certain significant accounting judgements, estimates and assumptions
which require Directors to exercise judgement in the process
of applying the accounting policies. The areas where judgements,
estimates and assumptions have the most significant effect on
the amounts recognised in the financial statements are the determination
of the fair value of unlisted investments, as disclosed in note
2(e).
(b) Income. Dividend income receivable on equity shares is recognised
on the ex-dividend date. Dividend income on equity shares where
no ex-dividend date is quoted is brought into account when the
Company's right to receive payment is established. Where the
Company has elected to receive dividends in the form of additional
shares rather than in cash the amount of the cash dividend foregone
is recognised as income. Special dividends are credited to capital
or revenue according to their circumstances. Dividend income
is presented gross of any non-recoverable withholding taxes,
which are disclosed separately in the Statement of Comprehensive
Income.
Distributions of non-recallable capital received from unlisted
holdings during their investment phase, which have been funded
through profits being generated, are allocated to revenue in
alignment with the nature of the underlying source of income
and in accordance with guidance in the AIC SORP.
The fixed returns on debt instruments are recognised using the
time apportioned accruals basis and the discount or premium on
acquisition is amortised or accreted on a straight line basis.
Interest income is accounted for on an accruals basis. Underwriting
commission is recognised when the issue underwritten closes.
(c) Expenses . All expenses are recognised on an accruals basis.
Expenses are charged through the revenue column of the Statement
of Comprehensive Income except as follows:
- expenses which are incidental to the acquisition or disposal
of an investment are treated as capital and separately identified
and disclosed in note 10;
- with effect from 1 October 2022, the Company charges 50% of
investment management fees and finance costs to capital, in accordance
with the Board's view at that time of the expected long term
return in the form of capital gains and income respectively from
the investment portfolio of the Company. Previously the allocation
was 60% to capital.
In accordance with the investment management agreement, where
applicable, an amount equivalent to the management fee received
by the Manager on the underlying holding which is managed by
the Group in the normal course of business, is either removed
from or offset against the management fee payable by the Company
to ensure that no double counting occurs.
(d) Taxation. The tax expense represents the sum of tax currently
payable and deferred tax. Any tax payable is based on the taxable
profit for the year. Taxable profit differs from net profit as
reported in the Statement of Comprehensive Income because it
excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable
or deductible. The Company's liability for current tax is calculated
using tax rates that were applicable at the Statement of Financial
Position date.
Deferred taxation is recognised in respect of all timing differences
that have originated but not reversed at the Statement of Financial
Position date, where transactions or events that result in an
obligation to pay more tax in the future or right to pay less
tax in the future have occurred at the Statement of Financial
Position date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there
will be suitable profits from which the future reversal of the
underlying timing differences can be deducted. Timing differences
are differences arising between the Company's taxable profits
and its results as stated in the financial statements which are
capable of reversal in one or more subsequent periods. Deferred
tax is measured on a non-discounted basis at the tax rates that
are expected to apply in the periods in which timing differences
are expected to reverse, based on tax rates and laws enacted
or substantively enacted at the Statement of Financial Position
date.
The tax effect of different items of income/gain and expenditure/loss
is allocated between capital and revenue within the Statement
of Comprehensive Income on the same basis as the particular item
to which it relates using the Company's effective rate of tax
for the year. The SORP recommends that the benefit of that tax
relief should be allocated to capital and a corresponding charge
made to revenue. The Company does not apply the marginal method
of allocation of tax relief as any allocation of tax relief between
capital and revenue would have no impact on shareholders' funds.
Had this allocation been made, the charge to revenue and corresponding
credit to capital for the year ended 30 September 2023 would
have been GBP1,122,000 (2022 - GBP1,720,000).
(e) Investments . The Company has chosen to apply the recognition
and measurement provisions of IAS 39 Financial Instruments: Recognition
and Measurement and investments have been designated upon initial
recognition at fair value through profit or loss. This is done
because all investments are considered to form part of a group
of financial assets which is evaluated on a fair value basis,
in accordance with the Company's documented investment strategy,
and information about the grouping is provided internally on
that basis.
Investments are recognised and de-recognised at trade date where
a purchase or sale is under a contract whose terms require delivery
within the timeframe established by the market concerned, and
are measured initially at fair value. Subsequent to initial recognition,
investments are valued at fair value through profit or loss.
For listed investments, this is deemed to be bid market prices
or closing prices for SETS (London Stock Exchange's electronic
trading service) stocks sourced from the London Stock Exchange.
Unlisted investments, including those in Limited Partnerships
('LPs') are valued by the Directors at fair value using International
Private Equity and Venture Capital Valuation Guidelines - Edition
2022.
The Company's investments in LPs are subject to the terms and
conditions of the respective investee's offering documentation.
The investments in LPs are valued based on the reported Net Asset
Value ('NAV') of such assets as determined by the administrator
or General Partner of the LP and adjusted by the Directors in
consultation with the Manager to take account of concerns such
as liquidity so as to ensure that investments held at fair value
through profit or loss are carried at fair value. The reported
NAV is net of applicable fees and expenses including carried
interest amounts of the investees and the underlying investments
held by each LP are accounted for, as defined in the respective
investee's offering documentation. While the underlying fund
managers may utilise various model-based approaches to value
their investment portfolios, on which the Company's valuations
are based, no such models are used directly in the preparation
of fair values of the investments. The NAV of LPs reported by
the administrators may subsequently be adjusted when such results
are subject to audit and audit adjustments may be material to
the Company.
Gains and losses arising from changes in fair value are treated
in net profit or loss for the period as a capital item in the
Statement of Comprehensive Income and are ultimately recognised
in the capital reserve.
(f) Borrowings . Borrowings are measured initially at the fair value
of the consideration received, net of any issue expenses, and
subsequently at amortised cost using the effective interest rate
method. The finance costs of such borrowings are accounted for
on an accruals basis using the effective interest rate method
and have been charged 50% to revenue and 50% to capital in the
Statement of Comprehensive Income up to 30 September 2023 to
reflect the Company's investment policy and prospective income
and capital growth. Previously the allocation was 40% to revenue
and 60% to capital.
(g) Nature and purpose of reserves
Called up share capital. The Ordinary share capital on the Statement
of Financial Position relates to the number of shares in issue
and in treasury. Only when the shares are cancelled, either from
treasury or directly, is a transfer made to the capital redemption
reserve. This reserve is not distributable.
Capital redemption reserve . The capital redemption reserve is
used to record the amount equivalent to the nominal value of
any of the Company's own shares purchased and cancelled in order
to maintain the Company's capital. This reserve is not distributable.
Capital reserve . This reserve reflects any gains or losses on
investments realised in the period along with any movement in
the fair value of investments held that have been recognised
in the Statement of Comprehensive Income. These include gains
and losses from foreign currency exchange differences. Additionally,
expenses, including finance costs, are charged to this reserve
in accordance with (c) and (f) above. The capital reserve is
distributable to the extent unrealised gains/losses arising from
unlisted investments are excluded.
Revenue reserve . This reserve reflects all income and costs
which are recognised in the revenue column of the Statement of
Comprehensive Income. The revenue reserve represents the amount
of the Company's reserves distributable by way of dividend.
When making a distribution to shareholders, the Directors determine
profits available for distribution by reference to 'Guidance
on realised and distributable profits under the Companies Act
2006' issued by the Institute of Chartered Accountants in England
and Wales and the Institute of Chartered Accountants of Scotland
in April 2017. The availability of distributable reserves in
the Company is dependent on those dividends meeting the definition
of qualifying consideration within the guidance and on available
cash resources of the company and other accessible sources of
funds. The distributable reserves are therefore subject to any
future restrictions or limitations at the time such distribution
is made.
(h) Valuation of derivative financial instruments . Derivatives
are classified as fair value through profit or loss - held for
trading. Derivatives are initially accounted and measured at
fair value on the date the derivative contract is entered into
and subsequently measured at fair value. The gain or loss on
re-measurement is taken to the Statement of Comprehensive Income.
The sources of the return under the derivative contract are
allocated to the revenue and capital column of the Statement
of Comprehensive Income in alignment with the nature of the
underlying source of income and in accordance with guidance
in the AIC SORP.
(i) Dividends payable . Dividends payable to equity shareholders
are recognised in the financial statements when they have been
approved by shareholders and become a liability of the Company.
Interim dividends are recognised in the financial statements
in the period in which they are paid.
(j) Foreign currency . Monetary assets and liabilities and non-monetary
assets held at fair value denominated in foreign currencies
are converted into sterling at the rate of exchange ruling at
the reporting date. Transactions during the year involving foreign
currencies are converted at the rate of exchange ruling at the
transaction date. Gains or losses arising from a change in exchange
rates subsequent to the date of a transaction are included as
a currency gain or loss in revenue or capital in the Statement
of Comprehensive Income, depending on whether the gain or loss
is of a revenue or capital nature.
(k) Treasury shares . When the Company purchases the Company's equity
share capital to be held as treasury shares, the amount of the
consideration paid, which includes directly attributable costs,
is net of any tax effects, and is recognised as a deduction
from the capital reserve. When these shares are sold subsequently,
the amount received is recognised as an increase in equity,
and any resulting surplus on the transaction is transferred
to the share premium account and any resulting deficit is transferred
from the capital reserve.
(l) Cash and cash equivalents. Cash comprises cash at bank. Cash
equivalents includes bank overdrafts repayable on demand and
short term, highly liquid, investments that are readily convertible
to known amounts of cash and that are subject to an insignificant
risk of change in value.
(m) Segmental reporting . The Directors are of the opinion that
the Company is engaged in a single segment of business activity,
being investment business. Consequently, no business segmental
analysis is provided.
3. Income
==================================== ======= =======
2023 2022
GBP'000 GBP'000
==================================== ======= =======
Income from investments
==================================== ======= =======
UK listed dividends 1,988 2,934
======================================== ======= =======
Overseas listed dividends 5,353 4,939
======================================== ======= =======
Unquoted Limited Partnership income 6,815 7,324
======================================== ======= =======
Stock dividends - 5
======================================== ======= =======
Fixed interest income 2,643 2,689
---------------------------------------- ------- -------
16,799 17,891
---------------------------------------- ------- -------
Other income
==================================== ======= =======
Deposit interest 216 11
======================================== ======= =======
Interest from money market funds 128 -
======================================== ======= =======
Other income 20 57
---------------------------------------- ------- -------
364 68
---------------------------------------- ------- -------
Total income 17,163 17,959
---------------------------------------- ------- -------
4. Investment management fees
2023 2022
============================= ============================ ===========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================= ======== ======== ======== ======== ======== =======
Investment management fee 563 563 1,126 517 776 1,293
--------------------------------- -------- -------- -------- -------- -------- -------
The investment management fee has been levied by abrdn Fund Managers
Limited ("aFML") at the following tiered levels:
- 0.50% per annum in respect of the first GBP300 million of the
net asset value (with the 6.25% Bonds 2031 at fair value); and
- 0.45% per annum in respect of the balance of the net asset value
(with the 6.25% Bonds 2031 at fair value).
The Company also receives rebates in respect of underlying investments
in other funds managed by the Group (where an investment management
fee is charged by the Group on that fund) in the normal course
of business to ensure that no double counting occurs. Any investments
made in funds managed by the Manager which themselves invest directly
into alternative investments including, but not limited to, infrastructure
and property are charged at the Manager's lowest institutional
fee rate. To avoid double charging, such investments are excluded
from the overall management fee calculation.
At the year end, an amount of GBP179,000 (2022 - GBP315,000) was
outstanding in respect of management fees due by the Company.
With effect from 1 October 2022, management fees are charged 50%
to revenue and 50% to capital (previously 40% to revenue and 60%
to capital) in line with the Company's expected long-term returns.
5. Administrative expenses
2023 2022
============================= ======== ========================= ===========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================= ======== ======= ======= ======= ======= ======= =========
Directors' remuneration 176 - 176 162 - 162
============================= ============ ======= ======= ======= ======= ======= =========
Custody fees 28 - 28 42 - 42
============================= ============ ======= ======= ======= ======= ======= =========
Depositary fees 43 - 43 50 - 50
============================= ============ ======= ======= ======= ======= ======= =========
Shareholders' services(A) 388 - 388 263 - 263
============================= ============ ======= ======= ======= ======= ======= =========
Registrar's fees 63 - 63 59 - 59
============================= ============ ======= ======= ======= ======= ======= =========
Transaction costs - 38 38 - 26 26
============================= ============ ======= ======= ======= ======= ======= =========
Legal and professional
fees 109 - 109 103 - 103
============================= ============ ======= ======= ======= ======= ======= =========
Printing and postage 54 - 54 37 - 37
============================= ============ ======= ======= ======= ======= ======= =========
Irrecoverable VAT 38 - 38 50 - 50
============================= ============ ======= ======= ======= ======= ======= =========
Auditor's remuneration:
============================= ======== ======= ======= ======= ======= ======= =========
- statutory audit 125 - 125 61 - 61
============================= ============ ======= ======= ======= ======= ======= =========
- other non-audit
services
============================= ======== ======= ======= ======= ======= ======= =========
report in respect of Bond
covenant compliance 5 - 5 5 - 5
================================== ======= ======= ======= ======= ======= =========
review of Half-yearly
Report 12 - 12 11 - 11
================================== ======= ======= ======= ======= ======= =========
Other expenses 105 - 105 97 (36) 61
----------------------------- ------------ ------- ------- ------- ------- ------- ---------
1,146 38 1,184 940 (10) 930
----------------------------- ------------ ------- ------- ------- ------- ------- ---------
(A) Includes registration, savings scheme and other wrapper administration
and promotional expenses, of which GBP388,000 (2022 - GBP260,000)
was payable to aFML to cover promotional activities during the
year. There was GBP337,000 (2022 - GBP170,000) due to aFML in respect
of these promotional activities at the year end.
6. Finance costs
=================== ======== ======== ======== ======== ======== =======
2023 2022
=================== ============================ ===========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================== ======== ======== ======== ======== ======== =======
6.25% Bonds 2031 521 521 1,042 414 622 1,036
======================= ======== ======== ======== ======== ======== =======
Bank interest 3 3 6 12 17 29
----------------------- -------- -------- -------- -------- -------- -------
524 524 1,048 426 639 1,065
----------------------- -------- -------- -------- -------- -------- -------
With effect from 1 October 2022, finance costs have been charged
50% to revenue and 50% to capital (previously 40% to revenue and
60% to capital).
7. Taxation
2023 2022
=========================== ============================ =========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ======== ======== ======== ======= ======= =======
(a) Analysis of charge for
the year
=========================== ======== ======== ======== ======= ======= =======
Current UK tax 1,656 - 1,656 502 - 502
==================================== ======== ======== ======== ======= ======= =======
Double taxation relief (32) - (32) (62) - (62)
==================================== ======== ======== ======== ======= ======= =======
Corporation tax prior
year adjustment(A) - - 22 - 22
==================================== ======== ======== ======== ======= ======= =======
Overseas tax suffered 54 7 61 175 1 176
------------------------------------ -------- -------- -------- ------- ------- -------
Current tax charge for
the year 1,678 7 1,685 637 1 638
==================================== ======== ======== ======== ======= ======= =======
Movement in deferred tax
asset - 1,167 1,167 - 1,487 1,487
------------------------------------ -------- -------- -------- ------- ------- -------
Total tax charge for the
year 1,678 1,174 2,852 637 1,488 2,125
------------------------------------ -------- -------- -------- ------- ------- -------
(A) Adjustment in 2022 relates to tax payable upon the reclassification
of income as taxable which had previously been identified as
non-taxable.
(b) Factors affecting the tax charge for the year. The tax assessed
for the year is lower than the standard rate of corporation tax
of 25% (2022 - 19%). The differences are explained as follows:
2023 2022
============================== ========================== ============================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======= ======== ======= ======= ======== =========
Net return before taxation 14,930 (12,377) 2,553 16,076 (14,660) 1,416
----------------------------------- ------- -------- ------- ------- -------- ---------
Net return before taxation
multiplied by the standard
rate of corporation tax
of 22.0% (2022 - 19.0%) 3,285 (2,723) 562 3,054 (2,785) 269
=================================== ======= ======== ======= ======= ======== =========
Effects of:
============================== ======= ======== ======= ======= ======== =========
Non taxable (gains) on
investments held at fair
value through profit or
loss - 5,401 5,401 - (1,793) (1,793)
=================================== ======= ======== ======= ======= ======== =========
Exchange (gains)/losses
not taxable - (2,926) (2,926) - 4,305 4,305
=================================== ======= ======== ======= ======= ======== =========
Non taxable UK dividend
income (157) - (157) (346) - (346)
=================================== ======= ======== ======= ======= ======== =========
Non taxable overseas dividend
income (350) - (350) (486) - (486)
=================================== ======= ======== ======= ======= ======== =========
Disallowable expenses - - - - 5 5
=================================== ======= ======== ======= ======= ======== =========
Overseas tax suffered 54 7 61 175 1 176
=================================== ======= ======== ======= ======= ======== =========
Double taxation relief (32) - (32) (62) - (62)
=================================== ======= ======== ======= ======= ======== =========
Corporation tax prior
year adjustment - - - 22 - 22
=================================== ======= ======== ======= ======= ======== =========
Utilisation of excess
management expenses - (874) (874) - (1,452) (1,452)
=================================== ======= ======== ======= ======= ======== =========
Effect of not applying
the marginal method of
allocation of tax relief (1,122) 1,122 - (1,720) 1,720 -
=================================== ======= ======== ======= ======= ======== =========
Movement in deferred tax
asset - 1,167 1,167 - 1,487 1,487
----------------------------------- ------- -------- ------- ------- -------- ---------
1,678 1,174 2,852 637 1,488 2,125
----------------------------------- ------- -------- ------- ------- -------- ---------
(c) Factors that may affect future tax charges . At the year end,
after offset against income taxable on receipt, there was a deferred
tax asset of GBPnil (2022 - GBP1,167,000) in relation to surplus
management expenses.
2023 2022
(d) Movement in deferred tax GBP'000 GBP'000
asset
============================== ======= ======== ======= ======= ======== =========
Origination and reversal of
timing differences 1,167 1,646
=========================================== ======== ======= ======= ======== =========
Impact of change in tax
rate - (159)
----------------------------------- ------- -------- ------- ------- -------- ---------
1,167 1,487
----------------------------------- ------- -------- ------- ------- -------- ---------
8. Ordinary dividends on equity shares
======================================================== ========== =========
2023 2022
GBP'000 GBP'000
======================================================== ========== =========
Third interim dividend for 2022 - 1.40p
(2021 - 1.38p) 4,319 4,269
============================================================ ========== =========
Fourth interim dividend for 2022 - 1.40p
(2021 - 1.38p) 4,314 4,267
============================================================ ========== =========
First interim dividend for 2023 - 1.42p
(2022 - 1.40p) 4,322 4,328
============================================================ ========== =========
Second interim dividend for 2023 - 1.42p
(2022 - 1.40p) 4,278 4,323
------------------------------------------------------------ ---------- ---------
17,233 17,187
------------------------------------------------------------ ---------- ---------
Set out below are the total dividends paid and proposed in respect
of the financial year, which is the basis on which the requirements
of Sections 1158 and 1159 of the Corporation Tax Act 2010 are considered.
The revenue available for distribution by way of dividend for the
year is GBP13,252,000 (2022 - GBP15,439,000).
2023 2022
GBP'000 GBP'000
======================================================== ========== =========
First interim dividend for 2023 - 1.42p
(2022 - 1.40p) 4,322 4,328
============================================================ ========== =========
Second interim dividend for 2023 - 1.42p
(2022 - 1.40p) 4,278 4,323
============================================================ ========== =========
Third interim dividend for 2023 - 1.42p
(2022 - 1.40p) 4,278 4,319
============================================================ ========== =========
Fourth interim dividend for 2023 - 1.42p
(2022 - 1.40p) 4,278 4,314
============================================================ ========== =========
Special dividend for 2023 - 1.65p (2022
- nil) 4,971 -
------------------------------------------------------------ ---------- ---------
22,127 17,284
------------------------------------------------------------ ---------- ---------
9. Return per Ordinary share
============================================== =========== ===========
2023 2022
p p
============================================== =========== ===========
Revenue return 4.35 5.00
================================================== =========== ===========
Capital loss (4.45) (5.23)
-------------------------------------------------- ----------- -----------
Total loss (0.10) (0.23)
-------------------------------------------------- ----------- -----------
The figures above are based on the following:
2023 2022
GBP'000 GBP'000
============================================== =========== ===========
Revenue return 13,252 15,439
================================================== =========== ===========
Capital loss (13,551) (16,148)
-------------------------------------------------- ----------- -----------
Total loss (299) (709)
-------------------------------------------------- ----------- -----------
Weighted average number of shares in issue(A) 304,340,151 308,982,666
-------------------------------------------------- ----------- -----------
(A) Calculated excluding shares held in
treasury.
10. Investments
============================================================================ ========================= =============
2023 2022
GBP'000 GBP'000
============================================================================ ========================= =============
Held at fair value through profit or loss
============================================================================ ========================= =============
Opening valuation 373,732 390,446
================================================================================= ========================= =============
Opening investment holdings gains (31,812) (8,546)
--------------------------------------------------------------------------------- ------------------------- -------------
Opening book cost 341,920 381,900
================================================================================= ========================= =============
Movements during the year:
============================================================================ ========================= =============
Purchases at cost 102,128 59,476
================================================================================= ========================= =============
Sales - proceeds (111,509) (87,527)
================================================================================= ========================= =============
Sales - losses (3,509) (11,861)
================================================================================= ========================= =============
Dilution/(accretion) of fixed income book
cost 170 (68)
--------------------------------------------------------------------------------- ------------------------- -------------
Closing book cost 329,200 341,920
================================================================================= ========================= =============
Closing investment holdings gains 10,772 31,812
--------------------------------------------------------------------------------- ------------------------- -------------
Closing valuation of investments 339,972 373,732
--------------------------------------------------------------------------------- ------------------------- -------------
2023 2022
The portfolio valuation(A) GBP'000 GBP'000
============================================================================ ========================= =============
UK equities 91,499 76,744
================================================================================= ========================= =============
Overseas equities 18,125 40,113
================================================================================= ========================= =============
Fixed interest 29,619 32,147
================================================================================= ========================= =============
Loan investments 2,279 15,662
================================================================================= ========================= =============
Unlisted holdings 198,450 209,066
--------------------------------------------------------------------------------- ------------------------- -------------
339,972 373,732
--------------------------------------------------------------------------------- ------------------------- -------------
(A) The portfolio valuation includes pooled investment vehicles
and collective investment schemes.
2023 2022
(Losses)/Gains on investments GBP'000 GBP'000
============================================================================ ========================= =============
Realised losses (3,509) (11,861)
================================================================================= ========================= =============
Net movement in investment holdings (losses)/gains (21,040) 23,266
--------------------------------------------------------------------------------- ------------------------- -------------
(24,549) 11,405
--------------------------------------------------------------------------------- ------------------------- -------------
The Company received GBP111,509,000 (2022 - GBP87,527,000) from
investments sold in the period. The book cost of these investments
when they were purchased was GBP115,018,000 (2022 - GBP99,388,000).
These investments have been revalued over time and until they
were sold any unrealised gains/losses were included in the fair
value of investments.
Transaction costs. During the year expenses were incurred in acquiring
or disposing of investments classified as fair value through profit
or loss. These have been expensed through capital and are included
within losses on investments in the Statement of Comprehensive
Income. The total costs were as follows:
2023 2022
GBP'000 GBP'000
============================================================================ ========================= =============
Purchases 68 47
================================================================================= ========================= =============
Sales 43 62
--------------------------------------------------------------------------------- ------------------------- -------------
111 109
--------------------------------------------------------------------------------- ------------------------- -------------
The above transaction costs are calculated in line with the AIC
SORP. The transaction costs in the Company's Key Information Document
are calculated on a different basis and in line with the PRIIPs
regulations.
Substantial holdings . At the year end the Company held more than
3% of a share class in the following investees:
% of
Investee Class Class
============================================================================ ========================= =============
Aberdeen Global Infrastructure Partners
II AUD 11
================================================================================= ========================= =============
Aberdeen European Residential Opportunities
Fund B 6
================================================================================= ========================= =============
Aberdeen Property Secondaries Partners
II A-1 21
================================================================================= ========================= =============
Aberdeen Standard Global Private Markets
Fund GBP Acc 6
================================================================================= ========================= =============
Andean Social Infrastructure Fund I USD 13
================================================================================= ========================= =============
Bonaccord Capital Partners I-A USD 7
================================================================================= ========================= =============
Cheyne Social Property Impact Fund GBP 3
================================================================================= ========================= =============
Maj Equity Fund 4 DKK 3
================================================================================= ========================= =============
Mount Row Credit Fund III A9 5
================================================================================= ========================= =============
Secondary Opportunities Fund USD 6
================================================================================= ========================= =============
SL Capital Infrastructure II EUR 5
--------------------------------------------------------------------------------- ------------------------- -------------
Significant holdings disclosure requirements - AIC SORP
Details are disclosed below in accordance with the requirements
of paragraph 82 of the AIC Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital Trusts'
(updated in July 2022) in relation to unlisted investments included
in the ten largest holdings. As required, this disclosure includes
turnover, pre-tax profits and net assets attributable to investors
as reported within the most recently audited financial statements
of the investee companies, where possible.
Income
recognised
Proportion from Net assets
Latest of capital Book Market holding Pre-tax attributable
in to
Financial owned cost value the period Turnover profit/(loss) shareholders
Name Statements % GBP'000 GBP'000 GBP'000 ('000) ('000) ('000)
================ ============ =========== ======== ======== =========== ========= ============== ===============
SL Capital Information not publicly
Infrastructure n/a 5.2 22,386 27,419 available
================ ================= =========== ======== ======== =======================================================
Aberdeen
Standard
Global Private Information not publicly
Markets Fund n/a 6.2 15,044 19,934 available
================ ================= =========== ======== ======== =======================================================
Burford
Opportunity Information not publicly
Fund n/a 8.3 13,818 17,272 available
================ ================= =========== ======== ======== =======================================================
Healthcare
Royalty
Partners Information not publicly
IV n/a 2.0 18,397 16,235 available
================ ================= =========== ======== ======== =======================================================
Bonaccord
Capital
Partners Information not publicly
I-A n/a 7.2 11,823 16,091 available
================ ================= =========== ======== ======== =======================================================
Andean Social
Infrastructure Information not publicly
Fund n/a 12.5 14,311 15,016 available
================ ================= =========== ======== ======== =======================================================
Aberdeen
Standard
Secondary
Opportunities Information not publicly
Fund IV n/a 6.3 8,080 12,940 available
---------------- ----------------- ----------- -------- -------- -------------------------------------------------------
Income
recognised
Proportion from Net assets
Latest of capital Book Market holding Pre-tax attributable
in to
Financial owned cost value the period Turnover profit/(loss) shareholders
Name Statements % GBP'000 GBP'000 GBP'000 ('000) ('000) ('000)
================ ============ =========== ======== ======== =========== ========= ============== ===============
SL Capital Information not publicly
Infrastructure n/a 5.2 15,013 19,581 available
================ ================= =========== ======== ======== =======================================================
Aberdeen
Standard
Global Private Information not publicly
Markets Fund n/a 6.2 15,044 19,122 available
================ ================= =========== ======== ======== =======================================================
Burford
Opportunity Information not publicly
Fund n/a 8.3 13,505 17,520 available
================ ================= =========== ======== ======== =======================================================
Healthcare
Royalty
Partners Information not publicly
IV n/a 2.0 12,762 13,522 available
================ ================= =========== ======== ======== =======================================================
Bonaccord
Capital
Partners Information not publicly
I-A n/a 7.2 11,217 15,255 available
================ ================= =========== ======== ======== =======================================================
Andean Social
Infrastructure Information not publicly
Fund n/a 12.5 11,248 12,691 available
================ ================= =========== ======== ======== =======================================================
Aberdeen
Standard
Secondary
Opportunities Information not publicly
Fund IV n/a 6.3 4,683 9,385 available
---------------- ----------------- ----------- -------- -------- -------------------------------------------------------
11. Debtors
=============================== ======= =======
2023 2022
=============================== ======= =======
GBP'000 GBP'000
=============================== ======= =======
Amounts due from brokers 62 1,806
==================================== ======= =======
Prepayments and accrued income 903 950
==================================== ======= =======
Taxation recoverable 584 89
------------------------------------ ------- -------
1,549 2,845
------------------------------------ ------- -------
12. Cash and cash equivalents
========================== ======= =======
2023 2022
GBP'000 GBP'000
========================== ======= =======
Cash at bank and in hand 8,575 7,179
=============================== ======= =======
Money market funds 12,450 -
------------------------------- ------- -------
21,025 7,179
------------------------------- ------- -------
13. Current liabilities
============================= ======= =======
2023 2022
GBP'000 GBP'000
============================= ======= =======
Interest on 6.25% Bonds 2031 55 55
================================== ======= =======
Corporation tax payable 756 242
================================== ======= =======
Other creditors 856 652
---------------------------------- ------- -------
1,667 949
---------------------------------- ------- -------
14. Creditors: amounts falling due after more than one year
==============================================================================
2023 2022
GBP'000 GBP'000
========================================================= ========= ========
6.25% Bonds 2031(A)
========================================================= ========= ========
Balance at beginning of year 15,694 15,664
============================================================== ========= ========
Amortisation of discount and issue expenses 36 30
-------------------------------------------------------------- --------- --------
Balance at end of year 15,730 15,694
-------------------------------------------------------------- --------- --------
(A) The fair value of the 6.25% Bonds using the last available
quoted offer price from the London Stock Exchange as at 30 September
2023 was 99.8297p, a total of GBP16,069,000 (2022 - 100.7812p,
a total of GBP16,222,000).
At the year end the Company had in issue GBP16,096,000 (2022 -
GBP16,096,000) Bonds 2031 which were issued at 99.343%. The Bonds
have been accounted for in accordance with FRS 102, which require
any discount or issue costs to be amortised over the life of the
Bonds. The Bonds are secured by a floating charge over all of the
assets of the Company.
Under the covenants relating to the Bonds, the Company is required
to ensure that, at all times, the aggregate principal amount outstanding
in respect of monies borrowed by the Company does not exceed an
amount equal to its share capital and reserves. All covenants were
met during the year and also during the period from the year end
to the date of this Report.
15. Called up share capital
======================== =========== ============ ============ ===========
Ordinary Treasury Total
shares shares shares (*Restated)
(number) (number) (number) GBP'000
======================== =========== ============ ============ ===========
Allotted, called up
and fully paid
Ordinary shares of
25p each
======================== =========== ============ ============ ===========
At 1 October 2022(A) 308,447,314 29,304,492 337,751,806 84,438
============================= =========== ============ ============ ===========
Shares cancelled from
treasury - (14,000,000) (14,000,000) (3,500)
============================= =========== ============ ============ ===========
Shares purchased for
treasury (7,181,362) 7,181,362 - -
----------------------------- ----------- ------------ ------------ -----------
At 30 September 2023 301,265,952 22,485,854 323,751,806 80,938
----------------------------- ----------- ------------ ------------ -----------
(A) As per Note 25, the Statement of Financial Position and the
Statement of Changes in Equity have been restated to reflect a
transfer of GBP6,914,000 from called up share capital to the capital
redemption reserve following the cancellation of 27,659,068 Ordinary
shares of 25p from treasury on 31 March 2021.
During the year 7,181,362 (2022 - 871,424) Ordinary shares of 25p
each were purchased to be held in treasury at a cost of GBP6,292,000
(2022 - GBP864,000). There were no Ordinary shares of 25p issued
from treasury during the year (2022 - same). On 29 September 2023,
14,000,000 Ordinary shares held in treasury were cancelled.
16. Capital reserve
======================================== ======== ========
2023 2022
GBP'000 GBP'000
======================================== ======== ========
At 1 October 89,560 106,572
============================================= ======== ========
Movement in investment holding gains (21,040) 23,266
============================================= ======== ========
Losses on realisation of investments at
fair value (3,509) (11,861)
============================================= ======== ========
Foreign exchange gains/(losses) 13,297 (24,660)
============================================= ======== ========
Transaction and other costs (38) 10
============================================= ======== ========
Finance costs (524) (639)
============================================= ======== ========
Purchase of own shares to treasury (6,292) (864)
============================================= ======== ========
Investment management fees (563) (776)
============================================= ======== ========
Overseas tax suffered (7) (1)
============================================= ======== ========
Deferred tax (1,167) (1,487)
--------------------------------------------- -------- --------
At 30 September 69,717 89,560
--------------------------------------------- -------- --------
17. Net asset value per Ordinary share
The net asset value per Ordinary share and the net asset value
attributable to the Ordinary shares at the year end were as follows:
Debt at par 2023 2022
================================================ =========== ===========
Net asset value attributable (GBP'000) 339,534 363,358
===================================================== =========== ===========
Number of Ordinary shares in issue excluding
treasury (note 15) 301,265,952 308,447,314
===================================================== =========== ===========
Net asset value per share (p) 112.70 117.80
----------------------------------------------------- ----------- -----------
Debt at fair value GBP'000 GBP'000
================================================ =========== ===========
Net asset value attributable 339,534 363,358
===================================================== =========== ===========
Add: Amortised cost of 6.25% Bonds 2031 15,730 15,694
===================================================== =========== ===========
Less: Market value of 6.25% Bonds 2031 (16,069) (16,222)
----------------------------------------------------- ----------- -----------
339,195 362,830
----------------------------------------------------- ----------- -----------
Number of Ordinary shares in issue excluding
treasury (note 15) 301,265,952 308,447,314
----------------------------------------------------- ----------- -----------
Net asset value per share (p) 112.59 117.63
----------------------------------------------------- ----------- -----------
18. Financial instruments
Risk management. The Company's investment activities expose it
to various types of financial risk associated with the financial
instruments and markets in which it invests. The Company's financial
instruments, other than derivatives, comprise securities and other
investments, cash balances, liquid resources, loans and debtors
and creditors that arise directly from its operations; for example,
in respect of sales and purchases awaiting settlement, and debtors
for accrued income. The Company also has the ability to enter into
derivative transactions in the form of forward foreign currency
contracts, futures and options, subject to Board approval, for
the purpose of enhancing portfolio returns and for hedging purposes
in a manner consistent with the Company's broader investment policy.
As at 30 September 2023 there were 18 open positions in derivatives
transactions (2022 - 16).
Risk management framework . The directors of abrdn Fund Managers
Limited ('aFML') collectively assume responsibility for aFML's
obligations under the AIFMD including reviewing investment performance
and monitoring the Company's risk profile during the year.
aFML is a fully integrated member of abrdn plc (the 'Group'), which
provides a variety of services and support to aFML in the conduct
of its business activities, including the oversight of the risk
management framework for the Company. aFML has delegated the day
to day administration of the investment policy to abrdn Investments
Limited, which is responsible for ensuring that the Company is
managed within the terms of its investment guidelines and the limits
set out in its pre-investment disclosures to investors (details
of which can be found on the Company's website). aFML has retained
responsibility for monitoring and oversight of investment performance,
product risk and regulatory and operational risk for the Company.
The Group's Internal Audit Department is independent of the Risk
Division and reports directly to the Audit Committee of the Group's
Board of Directors and to the Group's Chief Executive Officer.
The Internal Audit Department is responsible for providing an independent
assessment of the Group's control environment.
The Manager conducts its risk oversight function through the operation
of the Group's risk management processes and systems which are
embedded within the Group's operations. The Group's Risk Division
supports management in the identification and mitigation of risks
and provides independent monitoring of the business. The Division
includes Compliance, Business Risk, Market Risk, Risk Management
and Legal. The team is headed up by the Group's Chief Risk Officer,
who reports to the Chief Executive Officer of the Group. The Risk
Division achieves its objective through embedding the Risk Management
Framework throughout the organisation using the Group's operational
risk management system ('SHIELD').
The Group's corporate governance structure is supported by several
committees to assist the board of directors of aFML, its subsidiaries
and the Company to fulfil their roles and responsibilities. The
Group's Risk Division is represented on all committees, with the
exception of those committees that deal with investment recommendations.
The specific goals and guidelines on the functioning of those committees
are described in the committees' terms of reference.
Risk management . The main risks the Company faces from these financial
instruments are (i) market risk (comprising interest rate, foreign
currency and other price risk), (ii) liquidity risk and (iii) credit
risk.
In order to mitigate risk, the investment strategy is to select
investments for their fundamental value. Asset selection is therefore
based on disciplined accounting, market and sector analysis. It
is the Board's policy to hold an appropriate spread of investments
in the portfolio in order to reduce the risk arising from factors
specific to a particular asset class. The Investment Manager actively
monitors market prices throughout the year and reports to the Board,
which meets regularly in order to consider investment strategy.
Current and future strategy is detailed in the Chairman's Statement,
regarding proposals for a Managed Wind-Down of the Company.
The Board has agreed the parameters for net (cash)/gearing, which
was -1.6% of net assets as at 30 September 2023 (2022 - net gearing
of 1.8%). The Manager's policies for managing these risks are summarised
below and have been applied throughout the current and previous
year. The numerical disclosures in the tables listed below exclude
short-term debtors and creditors.
Market risk . The Company's investment portfolio is exposed to
market price fluctuations, which are monitored by the Manager in
pursuance of the investment objective. Adherence to investment
guidelines and to investment and borrowing powers set out in the
management agreement mitigates the risk of exposure to any particular
security or issuer. Further information on the investment portfolio
is set out in the Investment Manager's Report.
Market price risk arises mainly from uncertainty about future prices
of financial instruments used in the Company's operations. It represents
the potential loss the Company might suffer through holding market
positions as a consequence of price movements. It is the Board's
policy to hold investments in the portfolio in a broad spread of
asset classes in order to reduce the risk arising from factors
specific to a particular asset class.
Interest rate risk. Interest rate movements may affect:
- the level of income receivable on cash deposits; and
- the fair value of any investments in fixed interest rate securities.
Management of the risk. The possible effects on fair value and
cash flows that could arise as a result of changes in interest
rates are taken into account when making investment and borrowing
decisions. Details of the 6.25% Bonds 2031 and interest rate applicable
can be found in note 14.
The Board imposes borrowing limits to ensure gearing levels are
appropriate to market conditions and reviews these on a regular
basis. Interest rate risk is the risk of movements in the value
of financial instruments as a result of fluctuations in interest
rates.
Financial assets . The interest rate risk of the portfolio of financial
assets at the reporting date was as follows:
2023 2022
=============================== ========================= =========================
Within More Within More
than than
1 year 1 year Total 1 year 1 year Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ======= ======= ======= ======= ======= =======
Exposure to fixed interest
rates
=============================== ======= ======= ======= ======= ======= =======
Fixed interest investments 3,677 25,942 29,619 4,633 27,514 32,147
=============================== ======= ======= ======= ======= ======= =======
Exposure to floating interest
rates
=============================== ======= ======= ======= ======= ======= =======
Loan investments(A) - 2,279 2,279 - 15,662 15,662
=============================== ======= ======= ======= ======= ======= =======
Cash and cash equivalents 21,025 - 21,025 7,179 - 7,179
------------------------------- ------- ------- ------- ------- ------- -------
24,702 28,221 52,923 11,812 43,176 54,988
------------------------------- ------- ------- ------- ------- ------- -------
(A) Variable distributions received from investment holdings,
which have an underlying portfolio of fixed interest securities.
Financial liabilities. The Company has borrowings by way of a bond
issue, held at amortised cost of GBP15,730,000 (2022 - GBP15,694,000)
details of which are in note 14. The fair value of this loan has
been calculated at GBP16,069,000 as at 30 September 2023 (2022
- GBP16,222,000).
Interest rate sensitivity . A sensitivity analysis demonstrates
the sensitivity of the Company's results for the year to a reasonably
possible change in interest rates, with all other variables held
constant.
The sensitivity of the return/(loss) attributable to equity shareholders
for the year is the effect of the assumed change in interest rates
on:
- the net interest income for the year, based on the floating rate
financial assets held at the Statement of Financial Position date;
and
- changes in fair value of investments for the year, based on revaluing
fixed rate financial assets and liabilities at the Statement of
Financial Position date.
If interest rates had been 50 basis points higher or lower and
all other variables were held constant, the Company's net interest
for the year ended 30 September 2023 would increase/decrease by
GBP105,000 (2022 - increase/decrease GBP36,000). This is attributable
to the Company's exposure to interest rates on its floating rate
cash balances at 30 September 2023.
The capital return would decrease/increase by GBP2,236,000 (2022
- increase/decrease by GBP4,384,000) using VaR ("Value at Risk")
analysis based on 100 observations of monthly VaR computations
of fixed interest portfolio positions at each year end.
Foreign currency risk . A proportion of the Company's investment
portfolio is invested in overseas securities whose values are subject
to fluctuation due to changes in foreign exchange rates. In addition,
the impact of changes in foreign exchange rates upon the profits
of investee companies can result, indirectly, in changes in their
valuations. Consequently the Statement of Financial Position can
be affected by movements in exchange rates.
Management of the risk. The revenue account is subject to currency
fluctuations arising on dividends receivable in foreign currencies
and, indirectly, due to the impact of foreign exchange rates upon
the profits of investee companies. The Company has entered into
derivative transactions, in the form of forward foreign currency
contracts, to ensure that exposure to foreign denominated investments
and cashflows is appropriately hedged.
Foreign currency risk exposure by currency of denomination excluding
other debtors and receivables and other payables falling due within
one year:
30 September 2023 30 September 2022
========================= =================================== ================================
Net Total Net Total
monetary currency monetary currency
Investments items exposure Investments items exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= =========== ========== ========== =========== ======== =========
US Dollar 117,117 (3,089) 114,028 150,252 (3,124) 147,128
============================= =========== ========== ========== =========== ======== =========
Euro 53,472 (459) 53,013 52,268 (702) 51,566
============================= =========== ========== ========== =========== ======== =========
Other 41,008 (596) 40,412 49,275 1,010 50,285
----------------------------- ----------- ---------- ---------- ----------- -------- ---------
211,597 (4,144) 207,453 251,795 (2,816) 248,979
----------------------------- ----------- ---------- ---------- ----------- -------- ---------
Foreign currency sensitivity . The following table details the
impact on the Company's net assets to a 20% decrease (in the context
of a 20% increase the figures below should all be read as negative)
in sterling against the foreign currencies in which the Company
has exposure. The sensitivity analysis includes foreign currency
denominated monetary items and adjusts their translation at the
period end for a 20% change in foreign currency rates. This sensitivity
excludes forward foreign currency contracts entered into for hedging
short term cash flows.
2023 2022
GBP'000 GBP'000
========================= =========== ===== === =================== ===================
US Dollar 22,806 29,426
============================= =========== ===== === =================== ===================
Euro 10,603 10,313
============================= =========== ===== === =================== ===================
Other 8,082 10,057
----------------------------- ----------- ----- --- ------------------- -------------------
41,491 49,796
----------------------------- ----------- ----- --- ------------------- -------------------
Forward foreign currency contracts . The following forward foreign
currency contracts were outstanding at the Statement of Financial
Position date:
Unrealised
gain/(loss)
30 September
Buy Sell Settlement Amount Contracted 2023
Date of contract Currency Currency date '000 rate GBP'000
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 JPY GBP 2023 4,920 180.2114 53
================== ========= ========= =========== ======= ========== ============
7 December
11 September 2023 USD GBP 2023 837 1.2211 21
================== ========= ========= =========== ======= ========== ============
7 December
15 September 2023 USD GBP 2023 617 1.2211 12
================== ========= ========= =========== ======= ========== ============
7 December
25 September 2023 GBP CAD 2023 528 1.6492 1
================== ========= ========= =========== ======= ========== ============
7 December
25 September 2023 GBP EUR 2023 205 1.1498 -
------------------ --------- --------- ----------- ------- ---------- ------------
87
-------------------------------------------------- ------- ---------- ------------
7 December
31 August 2023 CHF GBP 2023 1,895 1.1088 (1)
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 GBP AUD 2023 11,285 1.8876 (383)
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 GBP CAD 2023 8,270 1.6492 (332)
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 GBP EUR 2023 56,882 1.1498 (549)
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 GBP NOK 2023 5,222 12.9686 (193)
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 GBP NZD 2023 5,462 2.0322 (254)
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 GBP SEK 2023 5,463 13.2251 (213)
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 GBP USD 2023 97,334 1.2211 (3,733)
================== ========= ========= =========== ======= ========== ============
7 December
31 August 2023 GBP USD 2023 284 1.2211 (11)
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2023 GBP USD 2023 389 1.2211 (15)
================== ========= ========= =========== ======= ========== ============
7 December
13 September 2023 GBP CAD 2023 180 1.6492 (4)
================== ========= ========= =========== ======= ========== ============
7 December
13 September 2023 GBP EUR 2023 225 1.1498 (1)
================== ========= ========= =========== ======= ========== ============
7 December
19 September 2023 GBP USD 2023 945 1.2211 (13)
------------------ --------- --------- ----------- ------- ---------- ------------
(5,702)
-------------------------------------------------- ------- ---------- ------------
Unrealised
gain/(loss)
30 September
Buy Sell Settlement Amount Contracted 2022
Date of contract Currency Currency date '000 rate GBP'000
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2022 GBP AUD 2022 13,528 1.7359 324
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2022 GBP CAD 2022 6,596 1.5350 41
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2022 GBP NOK 2022 6,060 12.1588 292
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2022 GBP NZD 2022 6,123 1.9745 239
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2022 USD GBP 2022 222 1.1173 8
================== ========= ========= =========== ======= ========== ============
7 December
12 September 2022 EUR GBP 2022 1,205 1.1349 9
================== ========= ========= =========== ======= ========== ============
7 December
15 September 2022 USD GBP 2022 259 1.1173 8
================== ========= ========= =========== ======= ========== ============
7 December
29 September 2022 GBP USD 2022 3,445 1.1173 63
------------------ --------- --------- ----------- ------- ---------- ------------
984
-------------------------------------------------- ------- ---------- ------------
7 December
1 September 2022 GBP EUR 2022 65,989 1.1349 (943)
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2022 GBP SEK 2022 6,055 12.3520 (15)
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2022 GBP USD 2022 130,780 1.1173 (4,886)
================== ========= ========= =========== ======= ========== ============
7 December
1 September 2022 JPY GBP 2022 2,277 160.5538 (7)
================== ========= ========= =========== ======= ========== ============
7 December
7 September 2022 GBP USD 2022 1,466 1.1173 (39)
================== ========= ========= =========== ======= ========== ============
7 December
9 September 2022 GBP USD 2022 199 1.1173 (8)
================== ========= ========= =========== ======= ========== ============
7 December
22 September 2022 GBP USD 2022 251 1.1173 (2)
================== ========= ========= =========== ======= ========== ============
7 December
22 September 2022 GBP USD 2022 423 1.1173 (6)
------------------ --------- --------- ----------- ------- ---------- ------------
(5,906)
-------------------------------------------------- ------- ---------- ------------
Other price risk. Other price risks (ie changes in market prices
other than those arising from interest rate or currency risk) may
affect the value of investments.
Management of the risk. It is the Board's policy to hold an appropriate
spread of investments in the portfolio in order to reduce the risk
arising from factors specific to a particular sector. The allocation
of assets to international markets and the stock selection process
both act to reduce market risk. The Manager actively monitors market
prices throughout the year and reports to the Board, which meets
regularly in order to review investment strategy.
Other price risk sensitivity. If market prices at the reporting
date had been 10% higher or lower on investments held at fair value
while all other variables remained constant, the return attributable
to Ordinary shareholders and equity for the year ended 30 September
2023 would have increased/decreased by GBP30,807,000 (2022 - GBP32,592,000).
Liquidity risk. This is the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities.
Within Within Within More than
1 year 1-3 years 3-5 years 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================ ========= =========== =========== =========== ========
6.25% Bonds
2031 - - - 16,096 16,096
============================= ========= =========== =========== =========== ========
Interest cash flows on
6.25% Bonds 2031 1,006 2,012 2,012 3,018 8,048
----------------------------- --------- ----------- ----------- ----------- --------
1,006 2,012 2,012 19,114 24,144
---------------------------- --------- ----------- ----------- ----------- --------
Management of the risk. The Company's assets comprise sufficient
readily realisable securities which can be sold to meet funding
commitments if necessary.
Credit risk. This is the risk that one party to a financial instrument
will fail to discharge an obligation and cause the other party
to incur a financial loss.
Management of the risk
- where the Manager makes an investment in a bond, corporate or
otherwise, the credit ratings of the issuer are taken into account
so as to manage the risk to the Company of default;
- investments in quoted bonds are made across a variety of industry
sectors and geographic markets so as to avoid concentrations of
credit risk;
- transactions involving derivatives are entered into only with
investment banks, the credit rating of which is taken into account
so as to minimise the risk to the Company of default;
- investment transactions are carried out with a number of brokers,
whose credit-standing is reviewed periodically by the Manager,
and limits are set on the amount that may be due from any one broker;
- the risk of counterparty exposure due to failed trades causing
a loss to the Company is mitigated by the daily review of failed
trade reports. In addition, both stock and cash reconciliations
to the custodian's records are performed daily to ensure discrepancies
are investigated in a timely manner. The Manager's Compliance department
carries out periodic reviews of the custodian's operations and
reports its finding to the Manager's Risk Management Committee;
and
- cash is held only with reputable banks with acceptable credit
quality. It is the Manager's policy to trade only with A- and above
(Long Term rated) and A-1/P-1 (Short Term rated) counterparties.
Credit risk exposure. In summary, compared to the amounts in the
Statement of Financial Position, the maximum exposure to credit
risk at 30 September 2023 and 30 September 2022 was as follows:
2023 2022
======================================= ========= ========= ======== =========
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
GBP'000 GBP'000 GBP'000 GBP'000
======================================= ========= ========= ======== =========
Non-current assets
======================================= ========= ========= ======== =========
Securities at fair value through
profit or loss 339,972 31,898 373,732 47,809
======================================= ========= ========= ======== =========
Current assets
======================================= ========= ========= ======== =========
Amounts due from brokers 62 62 1,806 1,806
======================================= ========= ========= ======== =========
Accrued income 779 779 853 853
======================================= ========= ========= ======== =========
Derivatives 87 87 984 984
======================================= ========= ========= ======== =========
Cash and short term deposits 21,025 21,025 7,179 7,179
--------------------------------------- --------- --------- -------- ---------
361,925 53,851 384,554 58,631
--------------------------------------- --------- --------- -------- ---------
None of the Company's financial assets are secured by collateral
or other credit enhancements and none of the Company's financial
assets are past due or impaired (2022 - GBPnil).
Credit ratings. The following table provides a credit rating profile
using Standard and Poor's credit rating for the bond portfolio
at 30 September 2023 and 30 September 2022.
2023 2022
GBP'000 GBP'000
======================================= ========= ========= ======== =========
A 415 792
======================================= ========= ========= ======== =========
A- - 159
======================================= ========= ========= ======== =========
AAA 312 -
======================================= ========= ========= ======== =========
BB 3,278 4,285
======================================= ========= ========= ======== =========
BB- 2,347 2,264
======================================= ========= ========= ======== =========
BBB+ 6,084 4,324
======================================= ========= ========= ======== =========
BBB - 760
======================================= ========= ========= ======== =========
BBB- 2, 113 1,299
======================================= ========= ========= ======== =========
Non-rated 17,34 9 33,926
--------------------------------------- --------- --------- -------- ---------
31,898 47,809
--------------------------------------- --------- --------- -------- ---------
Whilst a substantial proportion of the fixed interest portfolio
does not have a rating provided by a recognised credit ratings
agency, the Manager undertakes an ongoing review of their suitability
for inclusion within the portfolio.
19. Fair value hierarchy
FRS 102 requires an entity 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
has the following levels:
Level 1: inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities that the entity can access
at the measurement date.
Level 2: inputs other than quoted prices included within Level
1 that are observable for the assets or liabilities, either directly
(ie as prices) or indirectly (ie derived from prices).
Level 3: inputs are unobservable (ie for which market data is unavailable)
for the asset or liability.
The level in the fair value hierarchy within which the fair value
measurement is categorised in its entirety is determined on the
basis of the lowest level input that is significant to the fair
value measurement. For this purpose, the significance of an input
is assessed against the fair value measurement in its entirety.
If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that measurement
is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The financial assets and liabilities measured at fair value in
the Statement of Financial Position are grouped into the fair value
hierarchy at the reporting date as follows:
Level 1 Level 2 Level 3 Total
As at 30 September 2023 GBP'000 GBP'000 GBP'000 GBP'000
========================================= ======== ======== ========= ============
Financial assets/(liabilities)
at fair value through profit
or loss
========================================= ======== ======== ========= ============
Equity investments 90,332 19,292 198,450 308,074
============================================== ======== ======== ========= ============
Loan investments - 2,279 - 2,279
============================================== ======== ======== ========= ============
Fixed interest instruments - 29,619 - 29,619
============================================== ======== ======== ========= ============
Forward currency contracts -
financial assets - 87 - 87
============================================== ======== ======== ========= ============
Forward currency contracts -
financial liabilities - (5,702) - (5,702)
---------------------------------------------- -------- -------- --------- ------------
Net fair value 90,332 45,575 198,450 334,357
---------------------------------------------- -------- -------- --------- ------------
Level 1 Level 2 Level 3 Total
As at 30 September 2022 GBP'000 GBP'000 GBP'000 GBP'000
========================================= ======== ======== ========= ============
Financial assets/(liabilities)
at fair value through profit
or loss
========================================= ======== ======== ========= ============
Equity investments 91,349 25,509 209,065 325,923
============================================== ======== ======== ========= ============
Loan investments - 15,662 - 15,662
============================================== ======== ======== ========= ============
Fixed interest instruments - 32,147 - 32,147
============================================== ======== ======== ========= ============
Forward currency contracts -
financial assets - 984 - 984
============================================== ======== ======== ========= ============
Forward currency contracts -
financial liabilities - (5,906) - (5,906)
---------------------------------------------- -------- -------- --------- ------------
Net fair value 91,349 68,396 209,065 368,810
---------------------------------------------- -------- -------- --------- ------------
Year ended Year ended
30 September 30 September
2023 2022
Level 3 Financial assets at fair GBP'000 GBP'000
value through profit or loss
========================================= ======== ============== =================
Opening fair value 209,065 172,108
============================================== ======== ============== =================
Purchases including calls (at
cost) 26,083 24,445
============================================== ======== ============== =================
Disposals and return of capital (26,368) (20,803)
============================================== ======== ============== =================
Transfers from level 1 - 70
============================================== ======== ============== =================
Transfers from level 2 - 2,853
============================================== ======== ============== =================
Total gains or losses included
in losses on investments in the
Statement of Comprehensive Income:
========================================= ======== ============== =================
- assets disposed of during the
year 8,253 535
============================================== ======== ============== =================
- assets held at the end of the
year (18,583) 29,857
---------------------------------------------- -------- -------------- -----------------
Closing balance 198,450 209,065
---------------------------------------------- -------- -------------- -----------------
The fair value of Level 3 financial assets has been determined
by reference to primary valuation techniques described in note
2(e) of these financial statements and included within other price
sensitivity within note 18. The Level 3 equity investments comprise
the following:
Year ended Year ended
30 September 30 September
2023 2022
GBP'000 GBP'000
========================================== ======== ============== ================
Aberdeen European Residential
Opportunities Fund 7,524 9,769
===================================================== ============== ================
Aberdeen Global Infrastructure
Partners II (AUD) 4,541 6,840
===================================================== ============== ================
Aberdeen Global Infrastructure
Partners II (USD) - 17,755
===================================================== ============== ================
Aberdeen Property Secondaries
Partners II 9,385 9,851
===================================================== ============== ================
Aberdeen Standard Global Private
Markets Fund 19,934 19,122
===================================================== ============== ================
Aberdeen Standard Secondary Opportunities
Fund IV 12,940 9,385
===================================================== ============== ================
Agriculture Capital Management
Fund II - 4,258
===================================================== ============== ================
Andean Social Infrastructure
Fund I 15,016 12,691
===================================================== ============== ================
ASI HARK III 6,042 4,088
===================================================== ============== ================
BlackRock Renewable Income -
UK 8,199 8,523
===================================================== ============== ================
Bonaccord Capital Partners I-A 16,091 15,255
===================================================== ============== ================
Burford Opportunity Fund 17,272 17,520
===================================================== ============== ================
Cheyne Social Property Impact
Fund 3,299 4,813
===================================================== ============== ================
Dover Street VII 20 70
===================================================== ============== ================
HarbourVest International Private
Equity V 7 6
===================================================== ============== ================
HarbourVest International Private
Equity VI 1,678 2,100
===================================================== ============== ================
HarbourVest VIII Buyout Fund 160 260
===================================================== ============== ================
HarbourVest VIII Venture Fund 123 178
===================================================== ============== ================
Healthcare Royalty Partners IV 16,235 13,522
===================================================== ============== ================
Maj Invest Equity 4 1,205 1,335
===================================================== ============== ================
Maj Invest Equity 5 2,432 2,492
===================================================== ============== ================
Markel CATCo Reinsurance Fund
Ltd - LDAF 2018 SPI 333 298
===================================================== ============== ================
Markel CATCo Reinsurance Fund
Ltd - LDAF 2019 SPI 81 281
===================================================== ============== ================
Mesirow Financial Private Equity
III 117 228
===================================================== ============== ================
Mesirow Financial Private Equity
IV 599 882
===================================================== ============== ================
Mount Row Credit Fund II 10,166 7,494
===================================================== ============== ================
Pan European Infrastructure Fund 1,205 1,697
===================================================== ============== ================
PIMCO Private Income Fund Offshore
Feeder I LP 7,662 8,796
===================================================== ============== ================
SL Capital Infrastructure II 27,419 19,581
===================================================== ============== ================
TrueNoord Co-Investment 8,765 9,976
----------------------------------------------------- -------------- ----------------
198,450 209,065
------------------------------------------------------- -------------- ----------------
During the year to 30 September 2022, the Company reviewed its
exposure to holdings in Russia in light of the war in Ukraine and
decided to initially write down the fair value of holdings to GBPnil
and subsequently value on the basis of net realisable sales proceeds.
The consequence of this is noted in transfer from Level 1 and Level
2 in the above table. There were no transfers between levels for
financial assets and financial liabilities during the year ended
30 September 2023.
For all other assets and liabilities (i.e. those not included in
the hierarchy table) carrying value approximates to fair value
with the exception of the 6.25% Bonds 2031. The basis of their
fair value is detailed in note 14.
20. Related party transactions and transactions with the
Manager
Related party transactions - Directors' fees and interests. Fees
payable during the year to the Directors and their interests in
shares of the Company are considered to be related party transactions
and are disclosed within the Directors' Remuneration Report. The
balance of fees due to Directors at the year end was GBP15,000
(2022 - GBP13,000).
Transactions with the Manager . The Company has an agreement with
aFML for the provision of management services. The investment management
fee is levied by aFML at the following tiered levels, payable monthly
in arrears:
- 0.50% per annum in respect of the first GBP300 million of the
net asset value (with debt at fair value); and
- 0.45% per annum in respect of the balance of the net asset value
(with debt at fair value).
Details of transactions during the year and balances outstanding
at the year end are disclosed in note 4.
In accordance with the investment management agreement, where applicable,
an amount equivalent to the management fee received by the Manager
on the underlying holding which is managed by the Group in the
normal course of business, is either removed from or offset against
the management fee payable by the Company to ensure that no double
counting occurs. Any investments made in funds managed by the Group
which themselves invest directly into alternative investments including,
but not limited to, infrastructure and property will be charged
at the Group's lowest institutional fee rate. To avoid double charging,
such investments will be excluded from the overall management fee
calculation.
The following table details all investments held at 30 September
2023 that were managed by the Group. For the period to 30 September
2023 no fees were levied in respect of these funds.
30 September
2023
GBP'000
============================================================= =============
Aberdeen Standard SICAV I China A Shs Eqty Fund Z Acc
USD(A) 6,551
================================================================== =============
Aberdeen Standard Alpha - Global Loans Fund(A) 2,279
================================================================== =============
SL Capital Infrastructure II(B) 27,419
================================================================== =============
Aberdeen Standard Global Private Markets Fund(B) 19,934
================================================================== =============
Andean Social Infrastructure Fund I(B) 15,016
================================================================== =============
Aberdeen European Residential Opportunities Fund(B) 7,524
================================================================== =============
Aberdeen Global Infrastructure Partners II (AUD)(B) 4,541
================================================================== =============
Aberdeen Standard Secondary Opportunities Fund IV(C) 12,940
================================================================== =============
Aberdeen Property Secondaries Partners II(C) 9,385
================================================================== =============
96,759
------------------------------------------------------------------ -------------
(A) The Company is invested in a share class which is not subject
to a management charge from the Group.
(B) The value of this holding is removed from the management fee
calculation to ensure that no double counting occurs.
(C) An amount equivalent to the management fee received by the
Manager on the underlying is offset against the management fee
payable by the Company to ensure that no double counting occurs.
The Company also has an agreement with aFML for the provision of
secretarial, accounting and administration services and promotional
activities. Details of transactions during the year and balances
outstanding at the year end are disclosed in note 5.
21. Capital management policies and procedures
The current investment objective of the Company is to seek to provide
income and capital appreciation over the long term through investment
in a globally diversified multi-asset portfolio.
The capital of the Company consists of debt (comprising Bonds)
and equity (comprising issued capital, reserves and retained earnings).
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to shareholders
through the optimisation of the debt and equity balance.
The Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. This review includes:
- the planned level of gearing which takes into account the Investment
Manager's views on the market (net gearing at the reporting period
end is disclosed in the Financial Highlights and the calculation
basis is set out in the Alternative Performance Measures);
- the level of equity shares in issue; and
- the revenue account, shareholder distributions and the extent
to which the balance is either accretive or dilutive of the revenue
reserves.
The Company's objectives, policies and processes for managing capital
are unchanged from the preceding accounting period.
At the year end a covenant relating to the issue of the Bonds provides
that the Company is to ensure that, at all times, the aggregate
principal amount outstanding in respect of monies borrowed by the
Company does not exceed an amount equal to its share capital and
reserves. This covenant was met during the year and also during
the period from the year end to the date of this report. The Company
is not subject to any other externally imposed capital requirements.
22. Analysis of changes in net debt
At Currency Non-cash At
1 October differences Cash flows movements 30 September
2022 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ========= =========== ========== ========= ============
Cash and cash equivalents 7,179 - 13,846 - 21,025
=============================== ========= =========== ========== ========= ============
Debt due after one year (15,694) - - (36) (15,730)
------------------------------- --------- ----------- ---------- --------- ------------
Total (8,515) - 13,846 (36) 5,295
------------------------------- --------- ----------- ---------- --------- ------------
At Currency Non-cash At
1 October differences Cash flows movements 30 September
2021 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ========= =========== ========== ========= ============
Cash and cash equivalents 7,201 - (22) - 7,179
=============================== ========= =========== ========== ========= ============
Debt due after one year (15,664) - - (30) (15,694)
------------------------------- --------- ----------- ---------- --------- ------------
Total (8,463) - (22) (30) (8,515)
------------------------------- --------- ----------- ---------- --------- ------------
* The amount of GBP4,922,000 representing forward contracts has
been removed from the prior year comparative to be consistent with
current year's presentation due to forward contracts not meeting
the Company's definition of "Net debt"
23. Commitments and contingent liabilities
At 30 September 2023 the Company had commitments of GBP293,935,000
of which GBP43,282,000 remained outstanding (2022 - GBP74,420,000).
Further details are given below. There were no contingent liabilities
as at 30 September 2023 (2022 - GBPnil).
Undrawn commitments
30 September
2023
GBP'000
==================================================== ===================
Aberdeen Standard Secondary Opportunities Fund IV 11,775
========================================================= ===================
Aberdeen Global Infrastructure Partners II (AUD) 6,233
========================================================= ===================
Burford Opportunity Fund 5,445
========================================================= ===================
Andean Social Infrastructure Fund I 4,793
========================================================= ===================
Bonaccord Capital Partners I-A 4,522
========================================================= ===================
SL Capital Infrastructure II 2,798
========================================================= ===================
ASI Hark III 2,517
========================================================= ===================
Healthcare Royalty Partners IV 1,324
========================================================= ===================
Aberdeen European Residential Opportunities Fund 1,201
========================================================= ===================
Aberdeen Property Secondaries Partners II 1,183
========================================================= ===================
Maj Invest Equity 4 364
========================================================= ===================
Pan European Infrastructure Fund 278
========================================================= ===================
Maj Invest Equity 5 211
========================================================= ===================
Dover Street VII 181
========================================================= ===================
HarbourVest International Private Equity VI 154
========================================================= ===================
Mesirow Financial Private Equity IV 143
========================================================= ===================
HarbourVest VIII Buyout Fund 71
========================================================= ===================
Mesirow Financial Private Equity III 52
========================================================= ===================
HarbourVest International Private Equity V 29
========================================================= ===================
HarbourVest VIII Venture Fund 8
========================================================= ===================
43,282
--------------------------------------------------------- -------------------
Undrawn commitments
30 September
2022
GBP'000
==================================================== ===================
Aberdeen Standard Secondary Opportunities Fund IV 17,134
========================================================= ===================
SL Capital Infrastructure II 10,374
========================================================= ===================
Andean Social Infrastructure Fund I 8,880
========================================================= ===================
Healthcare Royalty Partners IV 7,703
========================================================= ===================
Burford Opportunity Fund 7,211
========================================================= ===================
Aberdeen Global Infrastructure Partners II (AUD) 6,789
========================================================= ===================
ASI Hark III 6,416
========================================================= ===================
Bonaccord Capital Partners I-A 5,341
========================================================= ===================
Aberdeen Property Secondaries Partners II 1,292
========================================================= ===================
Aberdeen European Residential Opportunities Fund 1,215
========================================================= ===================
Maj Invest Equity 4 374
========================================================= ===================
Agriculture Capital Management Fund II 361
========================================================= ===================
Maj Invest Equity 5 340
========================================================= ===================
Pan European Infrastructure Fund 282
========================================================= ===================
Dover Street VII 198
========================================================= ===================
Mesirow Financial Private Equity IV 179
========================================================= ===================
HarbourVest International Private Equity VI 156
========================================================= ===================
HarbourVest VIII Buyout Fund 78
========================================================= ===================
Mesirow Financial Private Equity III 56
========================================================= ===================
HarbourVest International Private Equity V 29
========================================================= ===================
HarbourVest VIII Venture Fund 9
========================================================= ===================
Aberdeen Global Infrastructure Partners II (USD) 3
--------------------------------------------------------- -------------------
74,420
--------------------------------------------------------- -------------------
24. Subsequent events
On 20 June 2023, the Company announced that it had commenced a
strategic review to consider how it could seek to address the material
discount to NAV at which the Company's shares had traded and to
consider how best to deliver value to shareholders
On 26 October 2023, the Company announced that, following consideration
of the options available to the Company, including asset sales
and discussions with third parties, the Board had determined that
it was in the best interests of its shareholders to continue the
Company's existing investment strategy and to return optimal value
by means of enhanced distributions, comprising realised gains and
surplus available cash, through a combination of special dividends
and a tender offer (the "Enhanced Distribution Programme"). The
Enhanced Distribution Programme had been expected to return between
GBP30 million and GBP35 million to shareholders by the end of 2024
and further enhanced returns of value, including special dividends,
were envisaged during 2025 and 2026 as a substantial part of the
Company's private markets portfolio matured. The Company added
that it remained committed to offering shareholders an attractive
and differentiated investment proposition characterised by a genuinely
diversified portfolio which provided access to a wide selection
of asset classes, an attractive level of dependable income and
defensive characteristics relative to the volatility of equity
markets.
On 15 December 2023, the Company announced that further discussions
with shareholders had been undertaken. In the light of the feedback
received during these conversations and the entrenched discount
to net asset value ("NAV") at which the Company's shares continued
to trade, the Board concluded that it was in the best interests
of shareholders as a whole to put forward proposals for a managed
wind-down of the Company (the "Managed Wind-Down"). Further information
on the Managed Wind-Down may be found in the Chairman's Statement
and additional detail will follow in a separate circular to shareholders
to be issued as soon as practicable.
25. Prior year restatement
The Statement of Financial Position and the Statement of Changes
in Equity for the year ended 30 September 2022 have been restated
to reflect a transfer of GBP6,914,000 from called up share capital
to the capital redemption reserve following the cancellation of
27,659,068 Ordinary shares of 25p from treasury on 31 March 2021.
As a result opening share capital at 1 October 2022 and closing
share capital at 30 September 2022 has decreased by GBP6,914,000
to GBP84,438,000 and opening capital redemption reserve at 1 October
2022 and closing capital redemption reserve at 30 September 2022
has increased by GBP6,914,000 to GBP33,543,000. These changes have
no impact on the financial position of the Company.
AIFMD Disclosures (Unaudited)
The Manager and the Company are required to make certain
disclosures available to investors in accordance with the AIFMD.
Those disclosures that are required to be made pre-investment are
included within a pre-investment disclosure document ("PIDD") which
can be found on the Company's website.
There have been no material changes to the disclosures contained
within the PIDD since its most recent update in December 2023.
The periodic disclosures as required under the AIFMD to
investors are made below:
-- information on the investment strategy, geographic and sector
investment focus and principal stock exposures is included in the
Strategic Report;
-- none of the Company's assets are subject to special
arrangements arising from their illiquid nature;
-- the Strategic Report, note 18 to the financial statements and
the PIDD, together set out the risk profile and risk management
systems in place. There have been no changes to the risk management
systems in place in the period under review and no breaches of any
of the risk limits set, with no breach expected;
-- there are no new arrangements for managing the liquidity of
the Company or any material changes to the liquidity management
systems and procedures employed by the Manager; and
-- all authorised Alternative Investment Fund Managers are
required to comply with the AIFMD Remuneration Code. In accordance
with the AIFMD Remuneration Code, the AIFM's remuneration policy in
respect of its reporting period ended 31 December 2022 is available
on the website of abrdn plc at
www.abrdn.com/en-gb/corporate/about-us/our-leadership-team/remuneration-disclosure
or on request from the Company Secretaries, abrdn Holdings
Limited.
Leverage
The table below sets out the current maximum permitted limit and
actual level of leverage for the Company:
Gross Method Commitment Method
============================= ============ =================
Maximum level of leverage 3.50:1 2.50:1
============================= ============ =================
Actual level at 30 September
2023 1.64:1 1.70:1
============================= ============ =================
There have been no breaches of the maximum level during the
period and no changes to the maximum level of leverage employed by
the Company. There have been no changes to the circumstances in
which the Company may be required to post assets as collateral and
no guarantees granted under the leveraging arrangement. Changes to
the information contained either within this Annual Report or the
PIDD in relation to any special arrangements in place, the maximum
level of leverage which ASFML may employ on behalf of the Company;
the right of use of collateral or any guarantee granted under any
leveraging arrangement; or any change to the position in relation
to any discharge of liability by the Depositary will be notified
via a regulatory news service without undue delay in accordance
with
the AIFMD.
The information above has been approved for the purposes of
Section 21 of the Financial Services and Markets Act 2000 (as
amended by the Financial Services Act 2012) by abrdn Fund Managers
Limited which is authorised and regulated by the Financial Conduct
Authority in the United Kingdom.
Alternative Performance Measures (Unaudited)
Alternative Performance Measures ("APMs") are numerical measures of
the Company's current, historical or future performance, financial
position or cash flows, other than financial measures defined or specified
in the applicable financial framework. The Company's applicable financial
framework includes FRS 102 and the AIC SORP. The Directors assess the
Company's performance against a range of criteria which are viewed
as particularly relevant for closed-end investment companies.
Net asset value per Ordinary share - debt at fair value
The net asset value per Ordinary share with debt at fair value is calculated
as follows:
As at As at
30 September 30 September
2023 2022
GBP'000 GBP'000
======================================= ============= ============= =============
Net asset value attributable 339,534 363,358
======================================================= ============= =============
Add: Amortised cost of 6.25% Bonds
2031 15,730 15,694
======================================== ============= ============= =============
Less: Market value of 6.25% Bonds
2031 (16,069) (16,222)
======================================== ------------- ------------- -------------
339,195 362,830
----------------------------------------------------- ------------- -------------
Number of Ordinary shares in issue excluding
treasury shares 301,265,952 308,447,314
------------------------------------------------------- ------------- -------------
Net asset value per
share (p) 112.59 117.63
------------------------------------------------------- ------------- -------------
Discount to net asset value per Ordinary share - debt at fair value
The discount is the amount by which the Ordinary share price is lower
than the net asset value per Ordinary share - debt at fair value, expressed
as a percentage of the net asset value - debt at fair value. The Board
considers this to be the most appropriate measure of the Company's
discount.
30 September 30 September
2023 2022
======================================= ============= ============= =============
Net asset value per
Ordinary share (p) a 112.59 117.63
======================================== ============ ============= =============
Share price (p) b 83.60 89.80
======================================== ============ ============= =============
Discount (a-b)/a 25.7% 23.7%
---------------------------------------- ------------ ------------- -------------
Dividend cover
Revenue return per Ordinary share divided by dividends declared for
the year per Ordinary share expressed as a ratio.
30 September 30 September
2023 2022
======================================= ============= ============= =============
Revenue return per
Ordinary share (p) a 4.35 4.99
======================================== ============ ============= =============
Dividends declared
(p) b 7.33 5.60
======================================== ============ ============= =============
Dividend cover a/b 0.59 0.89
---------------------------------------- ------------ ------------- -------------
Dividend yield
The annual dividend per Ordinary share divided by the share price,
expressed as a percentage.
30 September 30 September
2023 2022
======================================= ============= ============= =============
Dividend per Ordinary
share (p) a 7.33 5.60
======================================== ============ ============= =============
Closing share price
(p) b 83.60 89.80
======================================== ============ ============= =============
Dividend yield a/b 8.8% 6.2%
---------------------------------------- ------------ ------------- -------------
Net (cash)/gearing - debt at par value
Net (cash)/gearing with debt at par value measures the total borrowings
less cash and cash equivalents divided by shareholders' funds, expressed
as a percentage. Under AIC reporting guidance cash and cash equivalents
includes net amounts due to and from brokers at the period end, in
addition to cash and short term deposits.
30 September 30 September
2023 2022
======================================= ============= ============= =============
Borrowings (GBP'000) a 15,730 15,694
======================================== ============ ============= =============
Cash (GBP'000) b 21,025 7,179
======================================== ============ ============= =============
Amounts due to brokers c - -
(GBP'000)
======================================= ============= ============= =============
Amounts due from brokers
(GBP'000) d 62 1,806
======================================== ============ ============= =============
Shareholders' funds
(GBP'000) e 339,534 363,358
---------------------------------------- ------------ ------------- -------------
Net (cash)/gearing (a-b+c-d)/e -1.6% 1.8%
---------------------------------------- ------------ ------------- -------------
Net (cash)/gearing - debt at fair value
Net gearing with debt at fair value measures the total borrowings less
cash and cash equivalents divided by shareholders' funds, expressed
as a percentage. Under AIC reporting guidance cash and cash equivalents
includes net amounts due to and from brokers at the year end, in addition
to cash and short term deposits per the Statement of Financial Position.
30 September 30 September
2023 2022
======================================= ============= ============= =============
Borrowings (GBP'000) a 16,069 16,222
======================================== ============ ============= =============
Cash (GBP'000) b 21,025 7,179
======================================== ============ ============= =============
Amounts due to brokers c - -
(GBP'000)
======================================= ============= ============= =============
Amounts due from brokers
(GBP'000) d 62 1,806
======================================== ============ ============= =============
Shareholders' funds
(GBP'000) e 339,195 362,830
---------------------------------------- ------------ ------------- -------------
Net (cash)/gearing (a-b+c-d)/e -1.5% 2.0%
---------------------------------------- ------------ ------------- -------------
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and administrative
expenses and expressed as a percentage of the average daily net asset
values with debt at fair value published throughout the year.
2023 2022
GBP GBP
============================= ============ =============== ============== ============
Investment management
fees 1,126,000 1,293,000
=========================================== =============== ============== ============
Administrative expenses 1,184,000 930,000
=========================================== =============== ============== ============
Less: non-recurring
charges(A) (31,000) (37,000)
------------------------------------------- --------------- -------------- ------------
Ongoing charges 2,279,000 2,186,000
------------------------------------------- --------------- -------------- ------------
Average net assets with debt at
fair value 351,878,000 371,257,000
--------------- -------------- ------------
Ongoing charges ratio (excluding
look-through costs) 0.65% 0.59%
--------------- -------------- ------------
Look-through costs(B) 1.09% 0.82%
------------------------------------------- --------------- -------------- ------------
Ongoing charges ratio (including
look-through costs) 1.74% 1.41%
--------------- -------------- ------------
(A) Professional services considered unlikely to recur.
(B) Calculated in accordance with AIC guidance issued in October 2020
to include the Company's share of costs of holdings in investment companies
on a look-through basis.
The ongoing charges ratio provided in the Company's Key Information
Document is calculated in line with the PRIIPs regulations, which includes
financing and transaction costs. This can be found within the literature
library section of the Company's website: abrdndiversified.co.uk.
Total return
NAV and share price total returns show how the NAV and share price
has performed over a period of time in percentage terms, taking into
account both capital returns and dividends paid to shareholders. NAV
and share price total returns are monitored against open-ended and
closed-ended competitors, and the Reference Index, respectively.
NAV NAV Share
Year ended 30 September (debt at par) (debt at fair Price
2023 value)
============================= ============ =============== ============== ============
Opening at 1 October
2022 a 117.8p 117.6p 89.8p
============================= ============ =============== ============== ============
Closing at 30 September
2023 b 112.7p 112.6p 83.6p
============================= ============ =============== ============== ============
Price movements c=(b/a)-1 -4.3% -4.3% -6.9%
============================= ============ =============== ============== ============
Dividend reinvestment(A) d 4.7% 4.7% 6.2%
----------------------------- ------------ --------------- -------------- ------------
Total return c+d +0.4% +0.4% -0.7%
----------------------------- ------------ --------------- -------------- ------------
NAV NAV Share
Year ended 30 September (debt at par) (debt at fair Price
2022 value)
============================= ============ =============== ============== ============
Opening at 1 October
2021 a 123.5p 121.7p 100.0p
============================= ============ =============== ============== ============
Closing at 30 September
2022 b 117.8p 117.6p 89.8p
============================= ============ =============== ============== ============
Price movements c=(b/a)-1 -4.6% -3.4% -10.2%
============================= ============ =============== ============== ============
Dividend reinvestment(A) d 4.4% 4.6% 5.2%
----------------------------- ------------ --------------- -------------- ------------
Total return c+d -0.2% +1.2% -5.0%
----------------------------- ------------ --------------- -------------- ------------
(A) NAV total return involves investing the net dividend in the NAV
of the Company with debt at fair value on the date on which that dividend
goes ex-dividend. Share price total return involves reinvesting the
net dividend in the share price of the Company on the date on which
that dividend goes ex-dividend.
Additional Notes to the Annual Financial Report
The Annual Report will be posted to shareholders in January 2024
and copies will be available from the registered office of the
Company and on the Company's website at -
www.abrdndiversified.co.uk *
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise. Investors may not get back the
amount they originally invested.
By order of the Board
abrdn Holdings Limited
Company Secretary
9 January 2024
* Neither the Company's website nor the content of any website
accessible from hyperlinks on the Company's website (or any other
website) is (or is deemed to be) incorporated into, or forms (or is
deemed to form) part of this announcement.
END
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END
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