GSCT The Global Smaller Companies Trust Plc

LONDON STOCK EXCHANGE ANNOUNCEMENT

The Global Smaller Companies Trust PLC

Statement of Audited Results

for the year ended 30 April 2024

Legal Entity Identifier: 2138008RRULYQP8VP386

Information disclosed in accordance with Disclosure Guidance and Transparency Rule 4.1

Financial highlights

Net Asset Value ('NAV') with debt at fair value total return of 9.0% (2023: -2.9%) versus 11.3% from the Benchmark (2023: -2.1%)

The NAV with debt at fair value rose to 178.1p from 165.7p.

Share price total return of 12.7% (2023: -6.2%)

The share price ended the year at 160.2p (2023: 144.6p).

Total dividend of 2.81 pence (2023: 2.30p)

54th consecutive annual increase, up by 22.2% (2023: up by 25.0%).

Shares ended the year at a discount to the NAV of 10.0% (2023: 12.7%)

Date:                26 June 2024

Contact:           Nish Patel                                                     

                        Columbia Threadneedle Investment Business Limited     

                        020 7464 5000

Chairman's Statement

It was pleasing to see equity markets bounce back during the financial year under review. Foremost in investors' minds was the outlook for inflation and interest rates. While inflation fell significantly in most parts of the world, tight labour markets meant that it remained higher than central bank targets and as a consequence authorities delayed cutting interest rates. As the year progressed it became increasingly evident that within developed economies consumers were operating at two different speeds: spending by higher income earners was supported by rising asset prices and interest income whilst consumption by the lower income cohort was hampered by higher costs of living that were not sufficiently covered by wage increases. Despite this mixed consumer environment, the global economy continued to grow and performed significantly better than had been feared at the start of the year. Sadly, geopolitical tensions continued to rise in the year with conflict breaking out in the Middle East, exacerbating an already tense backdrop with the war in Ukraine showing no sign of ending soon and unease between China and the US growing.

Given these uncertainties, it was only natural that investors gravitated towards the safety that larger companies offer and smaller companies lagged as a consequence. In the US, market returns were driven by a handful of larger companies that were in some way exposed to the fast-growing areas of Artificial Intelligence ('AI') and cloud computing. On the whole, developed market equities performed well, particularly in North America and Japan. A sense of optimism returned to Japan with corporations adopting more shareholder-friendly policies and the country moving from deflation to inflation. It was very encouraging to see Japanese smaller companies deliver earnings growth well in excess of other major developed markets in this financial year. China was laden by a slowdown in its domestic economy, which appears to be working through a downturn in its real estate sector. Outside of China, emerging markets showed strength, especially in the case of India.

Four years on from the onset of the COVID 19 pandemic, several industries were still adjusting to a new environment, with some suffering from normalisation in activity levels and others benefitting from recovery. On the bright side, this did create opportunities for your Company to purchase interests in high quality businesses with good long term prospects at attractive valuations. As businesses and investors became more confident that interest rates had peaked, capital markets transactions picked up, resulting in increased takeover activity and it was pleasing that your Company was a beneficiary of this. The Company has several holdings that have been owned for many years, initially bought when they were much smaller businesses. Many of them delivered another year of shareholder value creation. In the Lead Manager's Review you will be pleased to learn that we have added to this cohort of long term winners; companies that we think will be instrumental in generating future returns for your Company.

Performance and the Discount

Having fallen by 6.3% in the first half of the financial year, the Company's Net Asset Value ('NAV') total return (with long term borrowings at fair value) recovered well in the second half to end the financial year up 9.0%.

The total return from the Company's Benchmark, a blend of two indices, the MSCI All Country World ex UK Small Cap Index net (80%) and the Deutsche Numis UK Smaller Companies (excluding investment companies) Index (20%) for the year to 30 April 2024 was 11.3%. Longer term total returns from the NAV, Benchmark and share price are shown in the following table, highlighting the strong returns that the asset class has delivered to patient investors.

Source: Columbia Threadneedle Investments

Over the last few years UK investment trust company discounts have widened, given increased caution around the economic and geopolitical outlook. There have been outflows from UK based equity funds in general and smaller company funds have been hurt even more than larger company funds by this trend. Starting the financial year at 12.7%, your Company's discount reached 17.7% in July 2023 before closing at 10.0%, still some way from the Board's target of less than 5%. The narrower discount meant that the share price rose by 10.8% over the year, or by 12.7% on a total return basis, ahead of the Benchmark.

The Board continue to believe that a consistently applied share buyback approach is in shareholder's best interests, providing liquidity for those in need of an exit along with NAV accretion to remaining holders. The pace of buybacks stepped up compared to previous years with some 30.2m shares bought back, representing 5.8% of the starting share capital (2023: 24.6m shares) repurchased across some 214 trading days, enhancing the NAV by 0.6% in the process. The chart on page 4 of the Annual Report and Financial Statements illustrates the Company's discount (and premium) over the last 10 years and that of the wider investment trust sector, providing a reminder that discounts/premiums in the investment trust sector tend to be cyclical. Good investment performance, share repurchases and increased interest in the shares from both existing and new investors will be key in helping to address the discount in the medium term.

Given the attractive relative and absolute valuations on offer in equities of smaller companies, marketing activity over a number of channels increased significantly over the course of the year. In order to seek to maximise the effectiveness of our marketing initiatives, the Board engaged a specialist third party marketing agency to sharpen the Company's principal selling points. The Global Smaller Companies Trust offers a simple, lower risk way to access the faster growth potential of the world's most exciting smaller companies; it uses a long-term approach to investing in high quality businesses that are undervalued and this has resulted in a track record of delivering strong total returns to shareholders with lower levels of volatility.

Dividends

It was another positive year on the income front. Revenue returns per share rose by a healthy 21.4% (2023: 28.6%) as income from both UK and overseas based holdings grew strongly. Following on from the 7.9% increase in the interim dividend, the Board has decided to recommend the payment of a final dividend of 2.13p, meaning the full year payment will be up by 22.2% to 2.81p. This will be paid to shareholders on 20 August 2024, and will be the 54th consecutive increase in the Company's dividend.

Costs

Ongoing charges (excluding performance fees from collective holdings) for the year reduced slightly over the year moving from 0.79% to 0.78%. Ongoing charges including performance fees from collective holdings were 0.80% (2023: 0.79%). These remain low compared to many smaller company funds in the market.

Performance by Region

The Lead Manager's Review starting on page 8 of the Annual Report and Financial Statements covers the year from a market and portfolio view in detail.

Source: Columbia Threadneedle Investments

*Performance of the Rest of World portfolio is shown here against both Asian and Latin American smaller company indices

^†See Lead Manager's Review in the Annual Report and Financial Statements

The table above shows how our regional portfolios performed in the year compared to their relevant local smaller company indices. Relative to the local small cap market returns, we were behind in North America and the UK, while in Europe we were ahead. After careful consideration and following extensive discussions with the Board, the Manager insourced approximately half of the Company's exposure to Japanese equities, making further use of the additional resources available at Columbia Threadneedle Investments. This is covered in more detail in the Lead Manager's Review in the Annual Report and Financial Statements. It was pleasing to see early results from this change with the Japanese portfolio on the whole outperforming its benchmark in the year. The Rest of World portfolio of collectives was behind its benchmark, hurt by widening discounts on the two investment trust companies held.

Asset allocation

Asset allocation positioning hurt relative performance in the year, largely reflecting the fact that we were overweight the UK and underweight North America. Over the course of the year, there were some movements in absolute geographic weightings. Our exposure to Asian markets increased at the expense of North America, the UK and Europe. The Manager believes that smaller company valuations are more attractive in the UK, Europe and Japan in comparison to North America and this is reflected in our year-end positioning.

The percentages in brackets are as at 30 April 2023

Source: Columbia Threadneedle Investments

The following table shows the weightings of the portfolio versus the Benchmark at the end of the financial year.

Source: Columbia Threadneedle Investments

Gearing Policy

The Board remains of the view that making use of our borrowing powers over the long term will serve to enhance shareholder returns as markets rise over time. At the end of the financial year, effective gearing was 4.7% compared to 5.2% a year earlier. Borrowings were made up of £35m 2.26% sterling loan notes maturing in 2039 and £16.5m of drawings in US dollars, Yen and Euros under our revolving credit facility. Reflecting the predominantly fixed rate nature of the debt, our borrowing costs remain low, although they have risen as interest rates have moved up.

Environmental, Social and Governance ('ESG')

While your Company is not an ESG labelled fund, the investment fund management team carefully considers ESG factors in making their stock selections. Analysis in this regard from the Manager's Responsible Investments team has continued to be useful, with regular input provided to the fund managers on specific topics of interest and new ESG developments. Engagement with the management teams of companies held in the portfolio has continued and some examples of this work are outlined in the Responsible Investment report on pages 23 to 26 of the Annual Report and Financial Statements.

Board Changes

As reported in the Half-Year Report, having followed a formal recruitment process, the Company was pleased to appoint two new non-executive Directors, Bulbul Barrett and Randeep Grewal, with effect from 1 December 2023. On 11 December 2023, David Stileman retired from the Board and Jo Dixon will also retire following the conclusion of the forthcoming Annual General Meeting. Jo is the Chairman of the Audit and Management Engagement Committee and the Senior Independent Director and following her retirement Nick Bannerman and Graham Oldroyd will fulfil these roles respectively.

David and Jo were appointed in 2015, and both have contributed significantly to the Company, bringing their wide-ranging experience to the Board. We record our appreciation and gratitude to David and Jo for their dedicated service to the Company and wish them well for the future.

Retirement of Peter Ewins

Peter Ewins stepped down as joint Lead Manager on 1 May 2024 and will retire from Columbia Threadneedle Investments this summer. Since he became Lead Manager of the portfolio in August 2005 he and his team produced excellent returns for shareholders. In fact, the NAV total return was 517.6%, virtually matched by a share price total return of 517.0% over his tenure. This was achieved with lower volatility than a number of other smaller company investment vehicles over this period. We are extremely grateful for Peter's dependable contribution and dedicated service and for his mentorship of Nish Patel, our new Lead Manager. We wish Peter a long and happy retirement.

Annual General Meeting

The Annual General Meeting will take place at The Chartered Accountants Hall, 1 Moorgate Place, London EC2R 6EA on Tuesday, 13 August 2024 at 12.00 noon. We hope as many shareholders as possible will attend. Nish Patel, the Lead Manager, will give a review of the year together with his view on the outlook. We will also be streaming the meeting live on the internet so that those shareholders who cannot attend in person will be able to view the proceedings. The live stream can be accessed by registering here: https://www.investormeetcompany.com/the-global-smaller-companies-trust-plc/register.

Voting on all resolutions at the AGM will be conducted by way of a poll, the results of which will be announced and posted on the Company's website following the meeting. You are therefore encouraged to lodge your votes prior to the meeting by completing your form of proxy or form of direction in accordance with the instructions shown. Their completion and return will not preclude you from attending the meeting or from shareholders voting in person. Shareholders who are unable to attend the AGM are requested to submit any questions they may have with regard to the resolutions proposed at the AGM or the performance of the Company in advance of the meeting to gscagm@columbiathreadneedle.com. Following the AGM, the Lead Manager's presentation will be available on the Company's website at globalsmallercompanies.co.uk.

Outlook

In the near term investors are likely to continue to pay particular attention to the direction of inflation and labour markets in major economies as well as geopolitical developments more widely. Our Manager will continue to focus on identifying companies that will do well regardless of what happens in the wider economy. The fund management team are still finding such opportunities within our very extensive investment universe and the Board has confidence in the Manager's lengthy experience in investing in this asset class.

Despite the recent underperformance of smaller companies relative to larger companies, it remains an attractive asset class over the long term. Smaller companies have the potential to deliver faster earnings growth as well as valuation expansion as they are more widely recognised. Furthermore, it is an area where active management can genuinely add value. The Manager has constructed a portfolio of investments in high quality businesses that are attractively valued and we look forward with optimism.

Anja Balfour
Chairman
25 June 2024

Principal and Emerging Risks and Long-Term Viability: Five Year Horizon

The Board's processes for monitoring the principal risks and identifying emerging risks are set out on page 57 of the Annual Report and Financial Statements and in note 23 to the financial statements. Any emerging risks that are identified and that are considered to be of significance are included on the Company's risk assessment together with any mitigations. These principal and emerging risks are reviewed regularly by the Audit and Management Engagement Committee and by the Board. Russia's invasion of Ukraine and increased conflict in the Middle East have added to the continuing economic and market uncertainty and political instability, with elections in the UK and US also on the horizon. The principal risks are largely unchanged from those reported in the prior year. Those identified as most relevant to the assessment of the Company's future prospects and viability were those relating to inappropriate business strategy, potential investment portfolio under-performance and its effect on the Company's share price discount/premium and dividends, as well as threats to security over the Company's assets.

Principal Risk: Service providers and systems security - Errors, fraud or control failures at service providers or loss of data through business continuity failure or cyber attacks could damage reputation or investors' interests or result in loss. Cyber risks remain heightened.

Unchanged throughout the year.

Mitigation by strategy: The ancillary functions of administration, company secretarial, accounting and marketing services are all carried out by the Manager. Custody and depositary services are provided by third party suppliers.

The Board reviews and monitors the services provided and the effectiveness of service providers' processes through the review of internal controls reports and internal efficiency KPIs.

Actions taken in the year: The Audit and Management Engagement Committee and the Board have regularly reviewed the Company's risk management framework with the assistance of the Manager. Regular control reports are provided by the Manager which cover risk, compliance and oversight of its own third-party service providers, including IT security and cyber-threats. Reports from the Depositary, which is liable for the loss of any of the Company's securities and cash held in custody unless resulting from an external event beyond its reasonable control, were reviewed. The Board is satisfied that the continuity arrangements of all key suppliers continued to work well and as such, this risk is unchanged.

Principal Risk: Investment performance - Inappropriate business strategy or policy, or ineffective implementation, could result in poor returns for shareholders. Failure to access the targeted market or meet investor needs or expectations, including Responsible Investment and climate change in particular, leading to significant pressure on the share price. Political risk factors could also impact performance as could market shocks such as those experienced in relation to Covid-19 and the war in Ukraine

Unchanged throughout the year.

Mitigation by strategy: Under our Business Model, a manager is appointed with the capability and resources to manage the Company's assets, asset allocation, gearing, stock and sector selection and risk. The individual regional investment portfolios are managed to provide in combination a well-diversified, lower volatility and lower risk overall portfolio structure. The Board holds a separate strategy meeting each year and considers investment policy review reports from the Manager at each Board meeting. The performance of the Company relative to its Benchmark, its peers and inflation is a KPI measured by the Board on an ongoing basis and is reported on page 40 of the Annual Report and Financial Statements.

Actions taken in the year: Columbia Threadneedle Investments has been retained as Manager and continues to deliver on the Company's objective. It operates within a responsible investment culture under a corporate commitment to four key Sustainability Principles: Social Change, Financial Resilience, Community Building and Environmental Impact. Through the Manager, the Company has the flexibility to innovate, adapt and evolve as Responsible Investment necessities and expectations change. Marketing and investor relations campaigns continued throughout the year, including presentations by the Lead Manager to wealth managers, private clients and institutions across the country. Detailed reports provided by the Lead Manager have been reviewed by the Board at each of its meetings. Strong operational performance from the investment portfolio over the year has resulted in the dividend for the year increasing by 22.2%. In overall terms, this risk is considered unchanged.

Principal Risk: Discount/premium - A significant share price discount or premium to the Company's NAV per share, or related volatility, could lead to high levels of uncertainty or speculation and the potential to reduce investor confidence. Increased uncertainty in markets due to an event such as Covid-19 or the significant rise in inflation could lead to falls and volatility in the Company's NAV

Unchanged throughout the year but this risk has remained heightened.

Mitigation by strategy: The Board has established share buy-back and share issue policies, together with a dividend policy, which aim to moderate the level and volatility of the share price discount or premium to the NAV per share and it seeks shareholder approval each year for the necessary powers to implement those policies. The discount/premium to NAV at which the Company's shares trade is a KPI measured by the Board on an ongoing basis and is reported on page 40 of the Annual Report and Financial Statements.

Actions taken in the year: Despite actively buying in shares on a regular, ongoing basis in order to address the imbalance between the supply and demand of the Company's shares, the discount has remained wider than desired although it did fall during the period. During the course of the year, the Manager has continued to increase marketing activity over a number of channels and has enhanced the messaging around the core investment proposition. This activity aims to stimulate demand for the Company's shares from existing and new investors. Given the continued higher prevailing discount level the risk is considered to have remained heightened during the year

Long-Term Viability: Five Year Horizon

Through a series of stress tests ranging from moderate to extreme scenarios, including the impact of market shocks and based on historical information, but forward looking over the five years commencing 1 May 2024, the Board assessed the risks of:

·      Sustained high levels of inflation.

·      Potential illiquidity of the Company's portfolio.

·      Substantial falls in investment values on the ability to meet loan covenant requirements and to repay and re-negotiate funding.

·      Significant falls in income on the ability to continue paying steadily-rising dividends and maintaining adequate revenue reserves.

The Board also took into consideration the operational robustness of its principal service providers and the effectiveness of business continuity plans in place, potential effects of regulatory changes and the potential threat from competition.

Based on its assessment and evaluation of the Company's future prospects, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the coming five years. This period has been chosen because it is consistent with the advice provided by many investment advisers, that investors should invest in equities for a minimum of five years. The Company's business model, strategy and the embedded characteristics listed below have helped define and maintain the stability of the Company over many decades. The Board expects this to continue and will continue to assess viability over subsequent five year rolling periods.

·      The Company has a long-term investment strategy under which it invests mainly in readily realisable, publicly listed securities and which restricts the level of borrowings.

·      The Company's business model and strategy are not time limited and, as a global investment trust company, are unlikely to be adversely impacted as a direct result of political uncertainties.

·      The Company is inherently structured for long-term outperformance, rather than short-term opportunities, with five years considered as a sensible time-frame for measuring and assessing long-term investment performance.

·      The Company is able to take advantage of its closed-end investment trust structure, such as having borrowing arrangements in place and the ability to secure additional finance in excess of five years.

·      There is rigid monitoring of the headroom under the Company's bank borrowing financial covenants.

·      Regular and robust review of revenue and expenditure forecasts is undertaken throughout the year against a backdrop of large revenue and capital reserves.

·      The Company retains title to all assets held by the Custodian which are subject to further safeguards imposed on the Depositary.

Statement of Directors' Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4.1.12 of the Disclosure Guidance and Transparency Rules the Directors confirm, in respect of the annual report for the year ended 30 April 2024 of which this statement of results is an extract, to the best of their knowledge that:

·      the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and

·      in the opinion of the Directors the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Anja Balfour

Chairman

25 June 2024

Income Statement

The total column of this statement is the profit and loss account of the Company.

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

A statement of total comprehensive income is not required as all income and expenses of the Company have been reflected in the above statement.

Statement of Changes in Equity

Balance Sheet

Statement of Cash Flows

Notes

1    Dividend

The Directors have proposed a final dividend in respect of the year ended 30 April 2024 of 2.13 pence per share, payable on 20 August 2024 to all shareholders on the register at close of business on 12 July 2024, with an ex-dividend date of 11 July 2024. The recommended final dividend is subject to approval by shareholders at the Annual General Meeting.

2    Financial Risk Management

The Company is an investment company, listed on the London Stock Exchange, and conducts its affairs so as to qualify in the United Kingdom (UK) as an investment trust under the provisions of Section 1158 of the Corporation Tax Act 2010. In so qualifying, the Company is exempted in the UK from corporation tax on capital gains on its portfolio of fixed asset investments.

The Company invests in smaller companies worldwide in order to secure a high total return. In pursuing the objective, the Company is exposed to financial risks which could result in a reduction of either or both of the value of the net assets and the profits available for distribution by way of dividend. These financial risks are principally related to the market (currency movements, interest rate changes and security price movements), liquidity and credit. The Board, together with the Manager, is responsible for the Company's risk management.

The full details of financial risks are contained in note 23 of the Annual Report and Financial Statements.

3    Annual Report and Financial Statements

This statement was approved by the Board on 25 June 2024. It is not the Company's statutory accounts. The statutory financial statements for the financial year ended 30 April 2024 have been approved and audited and received an independent auditor's report which was unqualified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report. The statutory financial statements for the financial year ended 30 April 2023 also received an independent auditor's report which was unqualified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report.

Ian Ridge

Columbia Threadneedle Investment Business Limited,

Company Secretary

26 June 2024

ENDS

A copy of the Annual Report and Financial Statements will be submitted to the National Storage Mechanism and will shortly be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism 

The Annual Report and Financial Statements for the year ended 30 April 2024 will be posted to shareholders and made available shortly on the Company's website at globalsmallercompanies.co.uk, where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found. Copies may also be obtained from the Company's registered office, Cannon Place, 78 Cannon Street, London EC4N 6AG.

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