ASEI.L Regulatory News (ASEI)

ABERDEEN STANDARD EQUITY INCOME TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2021

Legal Entity Identifier (LEI): 21380015XPT7BZISSQ74

HIGHLIGHTS

STRATEGIC REPORT

CHAIR'S STATEMENT

It is a great pleasure to present a full year report to you for the first time as Chair, having assumed the role following the retirement of Richard Burns in February 2021. As I said in the half yearly report, we have been through extraordinary times which have made navigating financial markets unusually difficult. However, the success of the vaccination programme has enabled a degree of normality to return to the economy albeit a normality punctuated by significant supply disruptions which are producing more inflationary conditions. This has led investors to focus more closely on fundamentals, rather than momentum, which has broadly been to our advantage.

Results

In the year to 30 September 2021, the Net Asset Value ("NAV") total return of the Company was 39.8%. The share price total return was higher at 47.1%. By contrast the reference index for the Company, the FTSE All-Share Index, delivered a total return of 27.9% which put the Company among the top quartile of investment trusts in the UK Equity Income peer group for the financial year. 

The performance numbers are impressive both in absolute terms and relative to the index. Thomas Moore took over responsibility for managing the portfolio 10 years ago, in November 2011, adopting the Focus on Change investment approach applied in an index-agnostic manner. In absolute terms, this year's NAV total return is the largest that the Company has generated in those 10 years and it has only been bettered once in relative terms. The absolute return has been driven by the powerful market recovery following the unprecedented intervention of Central Banks with unorthodox monetary policies and Governments with fiscal stimuli. It is also pleasing to note that the portfolio significantly outperformed relative to the market and most of its peers. 

The Focus on Change investment approach looks to identify those companies which the Manager believes are not correctly priced by the market. There is no requirement or expectation that the portfolio will mirror the weightings of the reference index and consequently the performance of the portfolio can diverge significantly from it. As my predecessor explained in his Chair's Statement last year, the Board reviewed a wide range of options available to the Company including the investment approach in light of the impact of Covid-19 on equity markets in 2020. We concluded that we should continue with the existing policy as we believed that the investment approach remained sound and the underperformance in 2020 was due to extraordinary market conditions which would pass. I am happy to conclude that the performance this year has vindicated that decision.

Earnings

Earnings per share for the year were 20.06p, an increase of 28.5%from the previous year. This is an encouraging increase but still leaves us below pre-pandemic levels. However, it is gratifying to see the rapid progress that has been made in restoring earnings to their former level driven, in part, by the focus that the Investment Manager has placed on ensuring that the portfolio has a significant bias towards companies with sustainable dividend policies. We would not have dared to hope that the recovery in earnings would have been as swift as this, twelve months ago. The Portfolio Manager's Review provides more detail on the sources of the performance and income.

Dividend

The Board has determined that the Company should announce a fourth interim dividend of 5.6 pence per share which will be paid on 21 January 2022 to shareholders on the Register on 24 December 2021, with an associated ex-dividend date of 23 December 2021. This takes the total dividend for the year to 21.2 pence per share, which is a 2.9% increase on the dividend declared for the 2020 financial year and the 21st consecutive annual dividend increase paid by the Company. The Board recognises that this increase is not fully covered by the net earnings of the portfolio, but has concluded that given the strength of the recovery in the Company's earnings in the last 12 months following the Covid-19 pandemic and the confidence that the Manager has in the sustainability of the revenue account into 2022 and beyond, that this significant increase was appropriate. The Manager expects that earnings will continue to recover from here and are likely to exceed the cost of the projected dividend distributions in 2022.

Buybacks

The Company bought back 294,486 Ordinary Shares or 0.61% of the issued share capital during the year. The buy backs increased the NAV per share by 0.18 pence. The Board monitors the discount of the share price to the cum-income NAV in both absolute terms and relative to the discount of other UK equity income investment trusts with a view to moderating discount volatility.

The Board

When I assumed the role of Chair earlier this year, I relinquished the Chair of the Remuneration Committee in line with accepted good governance practice. I am delighted that Caroline Hitch has agreed to succeed me in this role.

Following the retirement of Richard Burns we concluded that a Board of four Directors was better suited to the size of the Company. It has resulted in a reduction in non-executive directors' fees. The Board is currently of the view that the four Directors have sufficient experience to provide effective leadership and governance to the Company. This will be kept under review.

Annual General Meeting ("AGM")

This year's Annual General Meeting ("AGM") will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH on Friday, 4 February 2022 at 11:30 am. It is our intention to hold the meeting in person. We will be monitoring Government Guidelines covering meetings of this sort. In the event that the arrangements have to be changed, we will make an announcement on the London Stock Exchange and publish the information on the Company's website at aberdeenstandardequityincometrust.com

Continuation Vote

In coming to our decision on the Company's strategy last year, the Board bore in mind that shareholders have the opportunity to vote on the Company's continuation at this year's AGM. According to the articles, this resolution is tabled every five years to establish whether shareholders believe the Company should continue.

The Board believes that over the last decade your Company has established a clearly differentiated position relative to the many other investment companies in the UK Equity Income sector by using the Focus on Change investment approach applied in an index agnostic manner. With almost 60% of the portfolio coming from outside the FTSE 100, it provides shareholders with exposure to income-generating companies from across the size spectrum. The Company's yield is now over 6% and the Board and Manager are confident that the income underpinning this yield is sustainable.

Online Shareholder Presentation

In order to encourage as much interaction as possible with our shareholders, we will be hosting an Online Shareholder Presentation, which will be held at 11:00 am on Thursday 20 January 2022. At this event there will be a presentation from the Investment Manager followed by an opportunity to ask live questions of the Chair, Senior Independent Director and the Investment Manager. The online presentation is being held ahead of the AGM to allow shareholders time to submit their proxy votes after the presentation but prior to the AGM should they so wish. Full details on how to register for the online event can be found on the Company's website at www.aberdeenstandardequityincometrust.com/

Outlook

This time last year we had only just received news of the successful vaccine trials that offered the prospect of an eventual return to more normal life. A year on, we have seen tremendous strides in this direction with the vaccine rollout in the UK representing one of the Government's successes in their response to the pandemic. A number of major uncertainties remain. On the one hand, there is the possibility that new variants will set back the recovery while on the other there is concern that strong demand in the face of supply side constraints and energy shortages will cause more permanent inflationary conditions.

Notwithstanding these continuing challenges at the macro level, the Board shares our Manager's confidence that the portfolio is well positioned to deliver further growth in dividend income together with capital appreciation in the coming year. In light of this, we have felt confident enough to draw modestly on our reserves for a second year in order to resume meaningful dividend growth at a time of rising inflation. We will look to start to add to the reserves once our income is again sufficient to cover dividend distributions and enable them to keep pace with inflation.

Conclusion

Your Company has established a clearly differentiated position within the UK Equity Income sector with strong performance over the long term and excellent dividend growth in real terms. Given the positive outlook for the portfolio and the very attractive yield we would urge you to join us in voting in favour of continuation at the forthcoming AGM.

For Aberdeen Standard Equity Income Trust plc

Mark White

Chair9 December 2021

STRATEGIC REPORT

Business Model

The Company is an investment trust with a premium listing on the London Stock Exchange.

Investment Objective

The Company's objective is to provide shareholders with an above average income from their equity investment, while also providing real growth in capital and income.

Investment Policy

The Directors set the investment policy, which is to invest in a diversified portfolio consisting mainly of quoted UK equities which will normally comprise between 50 and 70 individual equity holdings.

In order to reduce risk in the Company without compromising flexibility:

- no holding within the portfolio should exceed 10% of total assets at the time of acquisition; and

- the top ten holdings within the portfolio will not exceed 50% of net assets.

The Company may invest in convertible preference shares, convertible loan stocks, gilts and corporate bonds.

The Directors set the gearing policy within which the portfolio is managed. The parameters are that the portfolio should operate between holding 5% net cash and 15% net gearing. The Directors have delegated responsibility to the Manager for the operation of the gearing level within the above parameters.

Delivering the Investment Objective

The Board delegates investment management services to abrdn. The team within abrdn managing the Company's portfolio of investments has been headed up by Thomas Moore since 2011.

The portfolio is invested on an index-agnostic basis. The process is based on a bottom-up stock-picking approach where sector allocations are a function of the sum of the stock selection decisions, constrained only by appropriate risk control parameters. The aim is to Focus on Change by evaluating changing corporate situations and identifying insights that are not fully recognised by the market.

Idea Generation and Research

The vast majority of the investment insights are generated from information and analysis from one-on-one company meetings. Collectively, more than 3,000 company meetings are conducted annually across abrdn. These meetings are used to ascertain the company's own views and expectations of its future prospects and the markets in which it operates. Through actively questioning the senior management and key decision makers of companies, the portfolio managers and analysts look to uncover the key changes affecting the business and the materiality of their impact on company fundamentals within the targeted investment time horizon.

Investment Process in Practice

The index-agnostic approach ensures that the weightings of holdings reflect the conviction levels of the investment team, based on an assessment of the management team, the strategy, the prospects and the valuation metrics. The process recognises that some of the best investment opportunities come from under-researched parts of the market, where the breadth and depth of the analyst coverage that the Portfolio Manager can access provides the scope to identify a range of investment opportunities.

The consequence of this is that the Company's portfolio often looks very different from other investment vehicles providing their investors with access to UK equity income. This is because the process focuses on conviction levels rather than index weightings. This means that the Company may provide a complementary portfolio to the existing portfolios of investors who like to make their own decisions and manage their ISAs, SIPPs and personal dealing accounts themselves. Currently 58% (2020: 58%) of the Company's portfolio is invested in companies outside the FTSE 100 Index.

The index-agnostic approach further differentiates the portfolio because it allows the Portfolio Manager to take a view at a thematic level, concentrate the portfolio's holdings in certain areas and avoid others completely. The effect of this approach is that the weightings of the portfolio can be expected to differ significantly from that of any index, and the returns generated by the portfolio may reflect this divergence, particularly in theshort term.

Promoting the Success of the Company

The Board's statement below describes how the Directors have discharged their duties and responsibilities over the course of the financial year under section 172 (1) of the Companies Act 2006 and how they have promoted the success of the Company. That statement forms part of the Strategic Report.

Key Performance Indicators ("KPIs")

The Board assesses the performance of the Company against the range of KPIs shown below over a variety of timeframes, but has particular focus on the long term, which the Board considers to be at least five years.

Principal Risks and Uncertainties

The Board and Audit Committee carry out a regular review of the risk environment in which the Company operates, changes to the environment and individual risks. The Board also identifies emerging risks which might affect the Company. 

There are a number of principal risks and uncertainties which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board, through the Audit Committee has carried out a robust assessment of the Company's principal and emerging risks, which include those that would threaten its business model, future performance, solvency, liquidity or reputation.

The principal risks and uncertainties faced by the Company are reviewed by the Audit Committee in the form of a risk matrix and the Committee also gives consideration to the emerging risks facing the Company. The Board has identified as an emerging risk which it considers is likely to become more relevant for the Company in the future, the implications for the Company's investment portfolio of a changing climate. The Board will continue to assess this emerging risk as it develops, including how investor sentiment is evolving towards climate risk within investment portfolios, and will consider how the Company may mitigate this risk and any other emerging risks. 

The Board has discussed climate change with the Manager. In November 2021, abrdn announced a target to reduce the carbon intensity of its assets by 50% by 2030 against a 2019 baseline as part of its climate change strategy focused on Net Zero Directed Investing ("NZDI"). abrdn intends to achieve its goal via three pillars of action: 1) decarbonisation: namely to continue to incorporate carbon analysis into the investment process and support credible transition leaders and climate solutions; 2) increase the proportion of assets flowing into NZDI solutions across all asset classes; and 3) active ownership, whereby abrdn will continue its established practice of engaging with its investee companies and voting in order to drive change and transition to real assets. abrdn has indicated that it will look to divest from companies where, after two years, it considers insufficient progress has been made against the transition milestones set. abrdn will provide detail on the practical implementation of its carbon intensity reduction targets in a future publication. Additionally, abrdn has announced its own target of net zero in its operations by 2040.

The principal risks currently facing the Company, together with a description of the mitigating actions the Board has taken, are set out in the table below.

The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet and they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website.

Promotional Activities

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 one effective way to achieve this is through subscription to, and participation in, the promotional 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. The Company also supports abrdn's investor relations programme which involves regional roadshows, promotional and public relations campaigns. abrdn's promotional and investor relations teams report to the Board on a quarterly basis giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make-up of that register.

The purpose of the promotional and investor relations programmes 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. Part of the promotional programme includes commissioning independent paid for research on the Company, most recently from Kepler Trust Intelligence Research Limited. A copy of the latest research note is available from the Latest News section of the Company's website.

Board Diversity Policy

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 the principle of diversity in its recruitment of new Board members. The Board will not display any bias for age, gender, race, sexual orientation, religion, ethnic or national origins, or disability in considering the appointment of its Directors. In view of its size, the Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment and the Board does not therefore consider it appropriate to set measurable objectives in relation to its diversity. 

At 30 September 2021, there were two male and two female Directors on the Board. One of the female directors is Chair of the Audit Committee and the other is Chair of the Remuneration & Management Engagement Committee. One director has a non-white ethnic background.

Modern Slavery Act

Due to the nature of its business, being a company that does not offer goods and services to customers, the Board considers that the Company 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. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

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.

Environmental, Social and Governance ("ESG") Investing

ESG considerations underpin all investment activities. Whilst the management of the Company's investments is not undertaken with any specific instructions to exclude or include certain types of companies, the Manager embeds ESG considerations into the research and analysis of each company as part of the investment decision-making process. Where applicable, active engagement and other stewardship activities such as voting in line with best practices, with the goal of improving the performance of companies held around the world, is also an important part of the Manager's approach.

The Manager aims to make the best possible investments for the Company, by understanding the whole picture of the investments - before, during and after an investment is made. That includes understanding the ESG risks and opportunities they present, and how these could affect longer-term performance. With more than 1,000 investment professionals, the Manager is able to take account of ESG factors in its company research, stock selection and portfolio construction, supported by more than 50 asset class specific ESG specialists around the world.

Active Engagement

Through engagement and exercising voting rights, the Manager actively works with companies to improve corporate standards, transparency and accountability. By making ESG central to its investment capabilities, the Manager looks to deliver robust outcomes as well as actively contributing to a fairer, more sustainable world.

The primary goal of the Manager is to generate the best long-term outcomes for the Company in order to fulfil fiduciary responsibilities to shareholders and this fits with one of the Manager's core principles as a business in how it evaluates investments. The Manager sees ESG factors as being financially material and impacting corporate performance. The Manager focuses on understanding the ESG risks and opportunities of investments alongside other financial metrics to make better investment decisions.

Responsible Investment

The Board is aware of its duty to act in the interests of the Company. The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and has noted the Manager's policy on social responsibility. The Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments as part of its investment process. In particular, the Manager encourages companies in which investments are made to adhere to best practice in the areas of ESG stewardship. The Manager believes that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies.

The Company's objective is to deliver above average income, while also providing real growth in capital and income, on its investments for its shareholders which the Board and Manager believes will be produced on a sustainable basis by investments in companies which adhere to best practice in ESG. Accordingly, the Manager will seek to favour companies which pursue best practice.

Stewardship

The Company is committed to the UK's Stewardship Code, and seeks to play its role in supporting good stewardship of the companies in which it invests. 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. abrdn plc is a tier 1 signatory of the UK Stewardship Code which aims to enhance the quality of engagement by investors with investee companies in order to improve their socially responsible performance and the long term investment return to shareholders. While delivery of stewardship activities has been delegated to the Manager and its group, the Board acknowledges its role in setting the tone for the effective delivery of stewardship on the Company's behalf.

The Board has also given discretionary powers to the Manager to exercise voting rights on resolutions proposed by the investee companies within the Company's portfolio. The Manager reports on a quarterly basis on stewardship (including voting) issues. 

Global Greenhouse Gas Emissions

All of the Company's activities are outsourced to third parties. The Company therefore has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

For the same reason as set out above, the Company considers itself to be a low energy user under the SECR regulations and therefore is not required to disclose energy and carbon information.

Viability Statement

The Board considers that the Company is a long-term investment vehicle and, for the purposes of this statement, has decided that three years is an appropriate period over which to consider its viability. The Board considers this to be an appropriate period for an investment trust company with a portfolio of equity investments based on the cycle for the continuation vote, and the financial position of the Company.

Taking into account the Company's current financial 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.

In assessing the viability of the Company over the review period, the Directors have focused upon the following factors:

- The principal risks and uncertainties and the steps taken to mitigate these risks.

- All of the Company's investments are traded on major stock exchanges and there is a spread of investments held.

- The Company is closed-ended in nature and therefore it is not required to sell investments when shareholders wish to sell their shares.

- The Company's main liability is its bank loan of £25 million (2020: £20 million), which represents 12.1% (2020: 12.7%) of the Company's investment portfolio. This is a £30 million (2020: £20million) revolving credit facility with The Royal Bank of Scotland International Limited, London Branch.

- The Company's cash balance, including money-market funds, at 30 September 2021 amounted to £3.5 million (2020: £1.2 million).

- The Company has a relatively low level of ongoing charges.

- The engagement with investors and expectation that the Company's continuation vote resolution will pass successfully at the forthcoming AGM, as set out in the Chair's Statement. 

When considering the risks, the Board reviewed the impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values. The Board has also had regard to matters such as significant economic and stock market volatility, a substantial reduction in the liquidity of the portfolio or changes in investor sentiment, all of which could have an impact on the Company's prospects and viability in the future. The results of the stress tests have given the Board comfort over the viability of the Company. 

Taking into account all of these factors, the Company's current position and the potential impact of the principal risks and uncertainties faced by the Company, the Board has concluded that it has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of this assessment to 30 September 2024.

In assessing the Company's future viability, the Board has assumed that investors will wish to continue to have exposure to the Company's activities, in the form of a closed-ended entity, the Company's long-term performance is satisfactory, and the Company will continue to have access to sufficient capital. The Board has also acknowledged that investors will have the opportunity to vote on the continuation of the Company at its five yearly continuation vote at the forthcoming AGM of the Company.

Future Strategy

The Board intends to maintain the strategic policies set out in the Strategic Report for the year ending 30 September 2021 as it is believed that these are in the best interests of shareholders.

On behalf of the Board

Mark White

Chair9 December 2021

PROMOTING THE SUCCESS OF THE COMPANY

How the Board Meets its Obligations under Section 172 of the Companies Act

The Board is required to describe to the Company's shareholders how the Directors have discharged their duties and responsibilities over the course of the financial year under Section 172 (1) of the Companies Act 2006 (the "Section 172 Statement"). This statement provides an explanation of how the Directors have promoted the success of the Company for the benefit of its members as a whole, taking into account the likely long term consequences of decisions, the need to foster relationships with all stakeholders and the impact of the Company's operations on the environment.

The Board takes its role very seriously in representing the interests of the Company's shareholders. The Board which, at the year end, comprised four independent Non-Executive Directors has a broad range of skills and experience across all major functions that affect the Company. The Board is responsible 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 ensures that the Company operates in a transparent culture where all parties are treated with respect and provided with the opportunity to offer practical challenge and participate in debate to achieve the expectations of shareholders and other stakeholders alike. The Board works very closely with the Manager in reviewing how issues are handled, ensuring good governance and responsibility in managing the Company's affairs, as well as visibility and openness in how the affairs are conducted.

Specific Examples of Stakeholder Consideration during the Year

The importance of giving due consideration to the Company's stakeholders is not a new requirement and is considered as part of every Board decision. 

The Directors were particularly mindful of stakeholder considerations in reaching the following decisions during the year ended 30 September 2021.

Portfolio and Dividend

The strategy for promoting the Company has had to adapt to be Covid compliant, particularly in relation to meeting current and prospective investors. The Board has noted that the Manager has provided regular updates to investors on the Company's website and has been regularly kept informed of any feedback from all conversations with shareholders.

The Board intends to host an online shareholder event early in 2022, ahead of the Annual General Meeting on 5 February 2022. Further details are provided in the Chair's Statement. In the expectation that restrictions are being relaxed the Board hopes that the AGM will be in person and there will be more opportunities to meet shareholders face to face in 2022.

Loan Facility

During the year, the Board agreed to cancel and repay the £20 million revolving credit facility with Banco Santander S.A. London Branch. It was replaced with a £30 million revolving credit facility with The Royal Bank of Scotland International Limited, London Branch which has a maturity date of 25 June 2023. The Board is responsible for arranging this facility and the Manager for deploying it. The Board reminds shareholders that borrowing will enhance returns to shareholders when the portfolio is rising in value but that when values are falling the borrowing works to exacerbate declines. The Board believes that it is advantageous for the Company to have gearing and during the year gearing contributed just over 3% of relative performance.

Continuation Vote

In the run up to the Company's five yearly continuation vote and Manager have continued to raise the Company's profile and increased engagement with investors. We will be hosting an Online Shareholder Presentation, which will be held at 11:00 am on Thursday 20 January 2022. At this event there will be a presentation from the Investment Manager followed by an opportunity to ask live questions of the Chair, Senior Independent Director and the Investment Manager. The online presentation is being held ahead of the AGM to allow shareholders time to submit their proxy votes after the presentation but prior to the AGM should they so wish. Full details on how to register for the online event can be found on the Company's website at www.aberdeenstandardequityincometrust.com/

Share Buy Backs

During the year the Company bought back 294,486 Ordinary shares to be held in treasury, providing a small accretion of 0.2 pence to the NAV per share and a degree of liquidity to the market at times when the discount to the NAV per share has widened. The Company announced on 8 September 2021 its intention to publish details of its share buyback powers which it renews annually and that until the AGM, to be held on 4 February 2022 that it has the authority to repurchase a maximum of 7,244,361 ordinary shares.

The Board believes that the selective use of share buybacks is in the best interest of all shareholders. 

Succession Planning

The Board has continued to consider its succession plans during the year, as it recognises the benefits of regular Board refreshment. 

Following the retirement of Richard Burns it was considered that a Board of four Directors was appropriate for the size of the Company and has resulted in a reduction in non-executive directors' fees. The Board currently believes that the four Directors have sufficient experience to provide effective leadership and governance to the Company. This will be kept under review.

During the year the Board determined that there was no need to have a standalone Nomination Committee. The Nomination Committee was therefore wound up and the Board fulfils the role of the Nomination Committee.

How the Board Engages with Stakeholders

The Company's main stakeholders have been identified as its shareholders, the Manager, service providers, investee companies, debt providers and the community at large and the environment.

The Board considers its stakeholders at Board meetings and receives feedback on the Manager's interactions with them.

THE INVESTMENT MANAGER'S APPROACH TO ESG

Introduction

The Board relies on its Investment Manager to apply appropriate Environment, Social and Governance ("ESG") principles to how the portfolio is constructed and managed within the confines of its investment objective and policy. The Company's objective is to provide shareholders with an above average income from their equity investment which means that the Company's holdings will typically be recognised for their dividend policies and will frequently trade on a high yield. This means the portfolio can be expected to have exposure to older industries such as energy and consumables. ESG principles are applied in deciding on a specific investment within these more mature industries as it is evident that the possibility of engagement by the Investment Manager can lead to radical changes to their business models to account for social and environmental responsibilities, irrespective of government interventions.

Although ESG factors are not the over-riding criteria in relation to the investment decisions taken by the Investment Manager, significant prominence is placed on ESG and climate-related factors throughout the investment process. The following highlights the way that ESG and climate change are considered by the Investment Manager. These processes are reviewed regularly and liable to change and the latest information will be available for download on the Company's website.

Core beliefs: Assessing Risk, Enhancing Value

The Company does not exclude any sectors from the investible universe. Consideration of ESG factors is a fundamental part of the Investment Manager's process and has been so for over 30 years. It is one of the key criteria on which the Investment Manager assesses the investment case for any company in which it invests for three key reasons as set out in the table below.

Responsible Investing - Integration of ESG into the Investment Manager's Process

"By embedding ESG factors into our active equity investment process, we aim to reduce risk, enhance potential value for our investors and foster companies that can contribute positively to the world." abrdn

"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." abrdn

Researching Companies: Deeper Company Insights for Better Investor Outcomes

The Investment Manager conducts extensive and high-quality fundamental and first-hand research to gain a detailed understanding of the investment case for every company in its global universe. A key part of the Investment Manager's research involves focusing its extensive resources on analysis of ESG issues. The table below details how the Investment Manager's portfolio managers, ESG equity analysts and central ESG Investment Team collaborate to generate a deep understanding of the ESG risks and opportunities associated with each company. Stewardship and active engagement with every company are also fundamental to the investment process, helping to produce positive outcomes that lead to better risk-adjusted returns.

Global ESG Infrastructure

The Investment Manager has around 150 equity professionals globally. Each systematically analyses ESG risks and opportunities as part of the research output for each company. Its central team and ESG equity analysts support the Investment Manager's first-hand company analysis, producing research into specific themes (e.g. labour relations or climate change), sectors (e.g. forestry) and ESG topics to understand and highlight best practice. Examples of thematic and sector research can be found on the Manager's website at: abrdn.com/en/uk/investor/responsible-investing

Climate Change

Climate change is one of the most significant challenges of the 21st century and has big implications for all investors. The energy transition is underway in many parts of the world, and policy changes, falling costs of renewable energy, and a change in public perception are happening at a rapid pace. Assessingthe risks and opportunities of climate change is a core part of the investment process. In particular, the InvestmentManager considers:

- Transition risks and opportunities

Governments could take robust climate change mitigation actions to reduce emissions and transition to a low-carbon economy. This is reflected in targets, policies and regulation and can have a considerable impact on high-emitting companies.

- Physical risks and opportunities

Insufficient climate change mitigation action will lead to more severe and frequent physical damage. This results in financial implications, including damage to crops and infrastructure, and the need for physical adaptation such as flood defences.

The Investment Manager has been a signatory to the United Nations' Principles for Responsible Investment ("UNPRI") - an initiative to promote responsible investment as a way of enhancing returns and better managing risk and has aligned its approach with that advocated by its investor agenda UNPRI provides an intellectual framework to steer the massive transition of financial capital towards low-carbon opportunities. It also encourages fund managers to demonstrate climate action across four areas: investments; corporate engagement; investor disclosure; and policy advocacy as explained below:

From Laggards to Best in Class: Rating Company ESG Credentials

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 captures the findings from its research and company engagement meetings in formal research notes.

Some of the key questions include:

- 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 rating between one and five (see below). This is applied across every stock that the Investment Manager covers globally.

The Investment Manager also 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. To be considered 'best in class', the management of ESG factors must be a material part of the company's core business strategy. It must provide excellent disclosure of data on key risks. It must also have clear policies and strong governance structures, among other criteria.

Working with Companies: Staying Engaged, Driving Change

Once the Investment Manager invests in a company, it is committed to helping that company maintain or raise its ESG standards further, using the Investment Manager's position as a shareholder to press for action as needed. The Investment Manager actively engages with the companies in which it invests to maintain ESG focus and encourage improvement.

The Investment Manager sees this programme of regular engagement as a necessary fulfilment of its duty as a responsible steward of clients' assets. It is also an opportunity to share examples of best practice seen in other companies and to use its influence to effect positive change. The Investment Manager's engagement is not limited to the company's management team. It can include many other stakeholders such as non-government agencies, industry and regulatory bodies, as well as activists and the company's clients. 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.

The investment process consists of four interconnected and equally important stages.

KEY FINANCIAL HIGHLIGHTS

Total return for periods to 30 September 2021

TEN YEAR FINANCIAL RECORD

INVESTMENT MANAGER'S REPORT

UK Market Review

UK equities rose sharply over the 12 month period as investors responded to improved economic data following the successful vaccine roll-out and consequent easing of Covid-19 related restrictions. This improved backdrop drove upgrades of UK economic growth, with the Office of Budget Responsibility forecasting 6.5% growth in 2021 (2.4 percentage points faster than they predicted in March 2021). Consumer demand recovered progressively as activity picked up following "Freedom Day" in July 2021, with households drawing upon savings built up during the pandemic. The pace of the demand recovery took many by surprise, causing supply chains to come under stress as companies struggled to ramp up production, causing widespread delays in the delivery of goods. The rush to hire people was evident from labour market data showing record vacancies (over 1 million jobs) and accelerating wage growth (7.2% year on year). This supply-side disruption coincided with a spike in energy prices, resulting in a pick-up in inflation to over 3%, well above the Bank of England's 2% target. This inflation data in turn caused a dramatic move higher in interest rate expectations towards the end of the financial year; a move that was further fuelled by hawkish commentary from various Monetary Policy Committee members, raising the prospect of an early rate hike.

Within the UK market, sector performance ebbed and flowed during the year under review. Rising investor confidence in the first half of the 12 month period resulted in a rotation out of quality growth stocks into cyclical stocks that would benefit from the economic recovery. This trend reversed in the second half due to a rebound in the number of Covid-19 cases, although nervousness eased once it became clearer from the data that vaccines had broken the link between cases and deaths, reducing the risk of future lockdowns. Over the financial year the FTSE Small Cap and FTSE 250 indices outperformed the FTSE 100.

Portfolio Performance

The portfolio outperformed the Company's reference index, the FTSE All-Share Index (the "Index"), significantly in the financial year. This underlines the potential of our Focus on Change investment process to deliver for shareholders in more normal market conditions, following the intensity of the market reaction to Covid-19 in the previous financial year.

Looking back at the year under review, the key drivers of our performance relative to the FTSE All-Share Index can be summarised as follows:

1. We benefited from heavy exposure to economically-sensitive sectors which contributed strongly to performance. Consumer Discretionary was the largest contributor to performance by sector, adding around 2.5% of relative performance. Our holdings in housebuilder Vistry and sofa retailer DFS were particularly helpful as consumer demand rebounded so sharply. Financials also contributed strongly, adding around 1.0% of relative performance. Premier Miton and Close Brothers rose sharply, as investors observed improving market conditions.

2. We also benefited from limited exposure to defensive sectors which helped our performance as confidence in the economic recovery caused these stocks to fall out of favour. Our underweight positions in Healthcare and Consumer Staples added around 2.4% of relative performance, in particular not owning Unilever or Reckitt Benckiser.

3. The gearing position, averaging 11.7% over the 12 month period, contributed just over 3% of relative performance.

4. The main detractors to performance at the stock level were companies that produced results that were disappointing relative to market expectations, notably gold mining business Centamin, spread-betting business CMC Markets and motor insurance business Sabre Insurance. Between them, these three stocks cost 1.7% of relative performance.

Revenue Account

Dividends distributed by our portfolio holdings in the financial year were £10.6 million, which was 22% more than the £8.7 million received in the same 12 month period last year. This compares favourably to the FTSE All-Share Index whose dividends grew by 9.2% over the same timeframe. During the 12 month period, over 94% of the dividend income came from recurring rather than special dividends. This does illustrate the recurring nature of the earnings but it is also the result of a sharp reduction in the number of special dividends being paid in the wake of the pandemic.

We are reporting an increase of 27.3% in net revenue to £9.7 million as other expenses, interest and tax were lower in this financial year than they were 12 months ago. Management fees were higher, but this is a function of the increase in the value of the portfolio. Total expenditure by the portfolio, including all fees and charges, interest and tax was 15% lower in the year under review than in 2020.

The portfolio achieved an underlying dividend yield of 6.6% based on the income generated by the portfolio over the financial year divided by the average portfolio value, representing a significant premium to the effective monthly average dividend yield of the FTSE All-Share Index of 3.3% for the same 12 month period.

Portfolio income recovered dramatically in the second half of the 12 month period. This resulted from the reinstatement of dividends by companies that had cut dividends during the pandemic and continued dividend growth from companies that had maintained their dividends throughout the pandemic. The portfolio saw widespread strengthening in dividend momentum. Among large cap sectors, the highlights were Mining and Oil & Gas, both of which saw cash flows surge thanks to higher commodity prices and disciplined capital management. The revenue account also benefited from a revival in dividends among mid and small cap stocks that offer superior longer term growth prospects. We continue to believe that using an index-agnostic approach to build a differentiated portfolio will help us to deliver on our objectives through the cycle.

For some years, investors have worried about the sustainability of UK dividends. Investors have come to see higher yield stocks as value traps. Sure enough, some companies used Covid-19 as an excuse to cut their dividends. For the UK equity market in aggregate, dividend cover is set to increase from 1.5x in 2020 to 1.9x in 2021 as a function of both the numerator (dividends having been cut) and the denominator (earnings recovering rapidly). The outlook for UK dividends is now transformed as we believe that virtually all the companies that needed to cut have now cut. As more and more companies have reinstated their dividends, our investable universe of dividend paying stocks has broadened. While the economic recovery will not be linear, we are increasingly confident in the fundamentals of our holdings and consequently the potential of our portfolio to deliver dividend growth in this financial year and beyond.

Activity

Purchases

In an inflationary environment, we are finding a wide range of cheaply valued stocks with the ability to pass on rising input costs and benefit from rising prices. Improving external conditions and self-help actions are driving operational gearing, as revenues grow faster than costs. This makes us confident that our portfolio is well placed to help insulate our shareholders against inflation. We are using the flexibility to be able to invest across the UK market, positioning the portfolio in stocks that offer an attractive dividend outlook.

Our transactions during the 12 month period reflect our focus on portfolio income, driving a rapid return towards full dividend coverage, while simultaneously seeking to maximise our capital growth prospects by increasing exposure to cheaply valued stocks with improving operating momentum.

Our largest purchases can be grouped into the following categories:

1. We bought larger cap stocks whose earnings are benefiting from the rebounding global economy and disciplined capital management, allowing generous dividends to be paid - these include Resource stocks BP, Royal Dutch Shell and Anglo American and Financials Barclays and Standard Chartered.

2. We bought domestic cyclical stocks that are set to benefit from the improving UK economy as confidence levels recover - these include housebuilders Persimmon and Bellway.

3. We bought faster-growing small and mid-cap stocks that have attractive market positions in growing markets, offering the prospect of prolonged dividend growth - these include online gaming business 888, private markets business Petershill and fuel distributor Vivo Energy.

Sales

Our largest sales can be grouped into the following categories:

1. We received the proceeds of four bid situations - John Laing, Equiniti, Hastings and AFH Financial. We believe that the high incidence of bid situations underlines the intrinsic value within the portfolio.

2. We took some profits in CMC Markets following a significant rally in the share price. The stock has since had a profit warning due to a period of slower activity.

3. We reduced some lower-yielding stocks - these include housebuilder MJ Gleeson and transport operator National Express.

4. We trimmed some defensive mega-cap stocks whose earnings and dividend growth outlook appears more muted than other opportunities available in the market - these include GlaxoSmithKline and National Grid.

Outlook

A year ago, I set out how we had positioned the portfolio in stocks whose valuations did not price in the robust fundamentals that we anticipated. I laid out the macro catalysts that would enable these stocks to perform, alongside our confidence in their earnings delivery. The strong performance we subsequently achieved has been possible because we stayed alert to mispriced opportunities across a wide range of stocks that other investors appeared to be ignoring in the haze of macro uncertainty. 

The past 12 months have strengthened my conviction in our ability to achieve our income and capital objectives while staying true to our Focus on Change investment process. A surge in portfolio income in the second half of the 12 month period has driven a sharp recovery in the revenue account, allowing shareholders to feel confident in our ability to return to above 1x dividend cover sooner rather than later. At the same time, the portfolio has enjoyed strong capital growth, well in excess of our peer group and Reference Index. The income and capital objectives go hand in hand in this market environment, given the number of higher-yielding stocks experiencing positive change in their underlying corporate fundamentals.

Looking ahead, reasons for confidence in the outlook can be summarised as follows:

1. The abundance of stocks with a combination of positive operating revisions and low valuation: We expect company results to act as a key catalyst for the market to recognise the robust fundamentals and low valuations of our holdings. Our Matrix quant model helps us to identify stocks with positive operating revisions, indicating companies that are generating results that are outstripping market expectations, which should support their ability to deliver a growing stream of dividends. Many of these stocks are also trading at low valuation multiples, indicating that we are not over-paying. Three sectors stand out as particularly well positioned in the current environment - Consumer Discretionary (notably housebuilders which look set to deliver record unit volumes and selling prices, driving positive operational gearing even in a rising interest rate environment), Financials (notably lenders which are seeing a pick-up in loan growth, rising interest margins and improving credit quality) and Resources (cash-generative businesses that should act as excellent inflation hedges, benefiting from rising demand and capex discipline, potentially helping to deliver a new super-cycle). These three sectors represent just over three quarters of the portfolio, underlining our conviction in their prospects.

2. The prospect of further incoming M&A, if valuations remain this low: Many of our holdings offer free cash flow yields in excess of 10%, underlining the potential for their valuations to expand once investors become more convinced in the outlook. In last year's report, I suggested that we should expect corporate bidders to step in if institutional shareholders did not take advantage of these valuation opportunities. The portfolio saw its fair share of corporate activity this financial year, with proceeds coming in from four bid situations. Since our year-end, two more holdings, Playtech and Vivo Energy, have announced incoming bids, at a premium to their closing share prices of 58% and 25% respectively. Given how cheap valuations are, we would not be surprised if others follow suit.

3. The potential for an inflection in macro conditions, such as a spike in inflation, to drive a market rotation in favour of our portfolio: Our primary focus remains at the stock level, but we are also conscious of the macro environment in which we are picking stocks. The market's immediate focus is on the pace of transmission of new strains of the virus. However, under the surface, we are observing a stealthy change in the macro backdrop, namely an increase in inflation expectations, which we see as potentially beneficial for our portfolio. Between mid-2018 and mid-2020, US 10 year Treasury yields slumped from over 3% to 0.5%, driven in large part by the central bank policy of quantitative easing. This was thedominant driver of markets, including equities, during this period. The bull market in government bonds drove a bull market in quality growth stocks, resulting in many of these stocks reaching eye-watering valuations. Many cash-generative dividend-paying stocks got left behind, creating the valuation opportunities that we now see. As it becomes clearer that inflation is taking hold and monetary policy is set to tighten, investors are reappraising which assets they should hold. Investors looking for hedges against inflation are beginning to see the logic of owning stocks with the ability to pass on rising input costs and benefit from rising prices, meaning that their cash generation, and therefore dividends, can actually thrive during these inflationary periods. We believe that our portfolio is well positioned for this emergent landscape. In November 2020 bond yields spiked following the vaccine announcement, leading to a surge the performance of cyclical and financial stocks. This gave investors a taste of how sharply the market can rotate when the market backdrop changes. The arrival of the new variants such as Delta and Omicron have caused a hiatus in this trend, but the inflationary conditions that catalysed the original rotation are, if anything, even stronger now..

In last year's Annual Report, I wrote about my determination to deliver a significant improvement in performance and I explained the grounds for my confidence that this would happen. It is gratifying to be able to report a very strong year, both in terms of capital and income. I am grateful to the Board for their encouragement and guidance, helping me to remain focused on my objectives through a turbulent period. By remaining committed to the investment process, scouring the UK market for attractively valued stocks with positive change, I am confident that the portfolio can continue to deliver for shareholders in the financial year ahead and beyond.

Thomas Moore

Portfolio Manager

abrdn9 December 2021

TEN LARGEST INVESTMENTS

As at 30 September 2021

SECTOR DISTRIBUTION

INVESTMENT CASE STUDY

DIRECTORS' REPORT

The Directors present their report and the audited financial statements of the Company for the year ended 30September 2021.

Results and Dividends

The financial statements for the year ended 30 September 2021 are contained below. Interim dividends of 5.2 pence per share were paid in March, June and September 2021. The Board has declared that a fourth interim dividend for the year to 30 September 2021 of 5.6 pence per share is payable on 21 January 2022 to shareholders on the register on 24 December 2021. The ex-dividend date is 23 December 2021.

Principal Activity and Status

The Company is registered as a public limited company in England and Wales under company number 2648152. The Company is an investment company within the meaning of Section 833 of the Companies Act 2006, carries on business as an investment trust and is a member of the Association of Investment Companies.

The Company has applied for and has been accepted as an investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010 and Part 2 Chapter 1 of Statutory Instrument 2011/2999. This approval relates to accounting periods commencing on or after 1 October 2012. The Directors are of the opinion that the Company has conducted its affairs so as to be able to retain such approval.

The Company intends to manage its affairs so that its Ordinary shares continue to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account.

Capital Structure and Voting Rights

The Company's issued share capital at 30 September 2021 consisted of 48,033,474 Ordinary shares of 25 pence each (2020: 48,327,960) and there were 1,145,293 Ordinary shares held in treasury (2020: 850,807), representing 2.4% of the issued share capital as at that date.

During the year, 294,486 Ordinary shares were bought back into treasury. The Company did not issue any new shares or shares from treasury, during the year.

There have been no changes to the Company's capital structure or voting rights since the year end.

Each Ordinary shareholder is entitled to one vote on a show of hands and, on a poll, to one vote for every Ordinary share held.

Management Agreement

The Company has appointed Aberdeen Standard Fund Managers Limited ("ASFML"), a wholly-owned subsidiary of abrdn plc, as its alternative investment fund manager (the "Manager"). ASFML has been appointed to provide investment management, risk management, administration and company secretarial services, and promotional activities to the Company. The Company's portfolio is managed by Standard Life Investments Limited (the "Investment Manager") by way of a group delegation agreement in place between ASFML and the Investment Manager. In addition, ASFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC since 6 September 2019.

With effect from 1 October 2019, the management fee is calculated as 0.65% per annum of net assets up to £175million and at a rate of 0.55% of net assets above this threshold. The Manager also receives a separate fee for the provision of promotional activities to the Company.

Further details of the fees payable to the Manager are shown in notes 3 and 4 to the financial statements.

The management agreement is terminable on not less than six months' notice. 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.

External Agencies

The Board has contractually delegated to external agencies, including the Manager and other service providers, certain services including: the management of the investment portfolio, the day-to-day accounting and company secretarial requirements, the depositary services (which include the custody and safeguarding of the Company's assets) and the share registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered in so far as they relate to the affairs of the Company. In addition, ad hoc reports and information are supplied to the Board as requested.

Substantial Interests

Information provided to the Company by major shareholders pursuant to the FCA's Disclosure, Guidance and Transparency Rules are published by the Company via a Regulatory Information Service.

The table below sets out the interests in 3% or more of the issued share capital of the Company, of which the Board was aware as at 30 September 2021.

The Company has not been notified of any changes to these holdings as at the date of this Report.

Directors

Mark White succeeded Richard Burn as Chair on 5 February 2021.

Jeremy Tigue is the Senior Independent Director, Sarika Patel is Chair of the Audit Committee and Caroline Hitch is Chair of the Remuneration & Management Engagement Committee having been appointed to the role on 5 February 2021.

Following the retirement of Richard Burns on 5 February 2021 the number of Directors reduced to four. With no immediate plans to recruit an additional director the Board determined that there was no need to have a standalone Nomination Committee. The Nomination Committee was therefore wound up and the Board fulfils the role of the Nomination Committee.

The Chair 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 Chair facilitates the effective contribution and encourages active engagement by each Director. In conjunction with the Company Secretary, the Chair ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chair acts upon the results of the Board evaluation process by recognising strengths and addressing any weaknesses and also ensures that the Board engages with major shareholders and that all Directors understand shareholder views.

The Senior Independent Director acts as a sounding board for the Chair and acts as an intermediary for other Directors, when necessary. Working closely with the Remuneration & Management Engagement Committees, the Senior Independent Director takes responsibility for an orderly succession process for the Chair, and leads the annual appraisal of the Chair's performance. The Senior Independent Director is also available to shareholders to discuss any concerns they may have.

The Directors attended scheduled Board and Committee meetings during the year ended 30 September 2021 as follows (with their eligibility to attend the relevant meetings in brackets):

A retired from the Board on 5 February 2021.

The Board meets more frequently when business needs require, and met additionally once during the financial year.

Caroline Hitch, Sarika Patel, Jeremy Tigue and Mark White will retire and, being eligible, will offer themselves for re-election at the Annual General Meeting.

The Board believes that all the Directors seeking re-election remain 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. The Board believes that, collectively, it has the requisite high level and range of business, investment and financial experience to enable it to provide clear and effective leadership and proper governance of the Company. Following formal performance evaluations, each Director's performance continues to be effective and demonstrates commitment to the role, and their individual performances contribute to the long-term sustainable success of the Company. The Board therefore recommends the re-election of each of the Directors at the Annual General Meeting.

Board's Policy on Tenure

In normal circumstances, it is the Board's expectation that Directors will not serve beyond the Annual General Meeting following the ninth anniversary of their appointment. However, the Board takes the view that independence of individual Directors is not necessarily compromised by length of tenure on the Board and that continuity and experience can add significantly to the Board's strength. The Board believes that recommendation for re-election should be on an individual basis following a rigorous review which assesses the contribution made by the Director concerned, but also taking into account the need for regular refreshment and diversity. 

In future, it is the Board's policy that the Chair of the Board will not normally serve as a Director beyond the Annual General Meeting following the ninth anniversary of his or her appointment to the Board. However, this may be extended in certain circumstances or to facilitate effective succession planning and the development of a diverse Board. In such a situation the reasons for the extension will be fully explained to shareholders and a timetable for the departure of the Chair clearly set out.

Directors' and Officers' Liability Insurance

The Company's Articles of Association provide for each of the Directors to be indemnified 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. 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 a 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 approve 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 his or her wider 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 Company has a policy of conducting its business in an honest and ethical manner. The Company takes a zero-tolerance approach to bribery and corruption and has procedures in place that are proportionate to the Company's circumstances to prevent them. The Manager also adopts a group-wide zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption. Copies of the Manager's anti-bribery and corruption policies are available on its website.

In relation to the corporate offence of failing to prevent tax evasion, it is the Company's policy to conduct all business in an honest and ethical manner. The Company takes a zero-tolerance approach to facilitation of tax evasion whether under UK law or under the law of any foreign country and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships.

Financial Instruments

The financial risk management objectives and policies arising from its financial instruments and the exposure of the Company to risk are disclosed in note 14 to the financial statements.

Corporate Governance

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.

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. It includes an explanation of how the AIC Code adapts the principles and provisions set out in the UK Code to make them relevant for investment companies.

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 complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except as set out below.

The UK Code includes provisions relating to:

- interaction with the workforce (provisions 2, 5 and 6);

- the role and responsibility of the chief executive (provisions 9 and 14);

- requirement to establish a nomination committee and describe the work of the nomination committee (provisions 17 and 23);

- the chair shall not be a member of the audit committee (provision 24);

- previous experience of the chairman of a remuneration committee (provision 32); and

- executive directors' remuneration (provisions 33 and 36 to 40).

The Board considers that these provisions, with the exception of the requirement to establish a nomination committee and describe the work of the nomination committee, 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, except in respect of the winding up of the Nomination Committee and how the Board now carries out the work of the Nomination Committee as set out above.

The full text of the Company's Corporate Governance Statement can be found on its website.

Board Committees

The Board has appointed two committees, as set out below. Copies of their terms of reference, which clearly 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.

Remuneration & Management Engagement Committee

The Remuneration & Management Engagement Committee comprises the full Board and is chaired by Caroline Hitch. The main responsibilities of the Committee include:

- monitoring and evaluating the performance of the Manager;

- reviewing at least annually the continued retention of the Manager;

- reviewing, at least annually, the terms of appointment of the Manager including, but not limited to, the level and method of remuneration and the notice period of the Manager;

- reviewing the performance and remuneration of the other key service providers to the Company; and

- determining the Directors' remuneration policy and level of remuneration.

The Committee met once during the year to 30 September 2021 and undertook a review of the management of the Company and its performance. Following the conclusion of the review, the Committee, recommended to the Board that the continuing appointment of the Manager was in the best interests of the shareholders and the Company as a whole. 

Going Concern

The Company's assets consist mainly of equity shares in companies listed on recognised stock exchanges and are considered by the Board to be realisable within a short timescale under normal market conditions. The Board has set overall limits for borrowing and reviews regularly the Company's level of gearing, cash flow projections and compliance with banking covenants, when applicable. The Board has also performed stress testing and liquidity analysis.

The Company's Articles require that, at every fifth Annual General Meeting, the Directors shall propose an Ordinary Resolution to effect that the Company continues as an investment trust. An Ordinary Resolution approving the continuation of the Company for the next five years was passed at the AGM on 15 December 2016. The next continuation vote will take place at the AGM to be held on 4 February 2022, further details are set out in the Chair's Statement.

As at 30 September 2021, the Company had a £30 million (2020: £20 million) revolving credit facility with The Royal Bank of Scotland International Limited, London Branch. £25 million was drawn at the end of the financial year. The £20 million revolving credit facility with Banco Santander, S.A., London Branch was cancelled on 28 June 2021 and repaid.

The Directors are mindful of the Principal Risks and Uncertainties disclosed in the Strategic Report and they believe that the Company has adequate financial resources to continue its operational existence for a period of not less than 12 months from the date of approval of this Report. They have arrived at this conclusion having confirmed that the Company's diversified portfolio of realisable securities is sufficiently liquid and could be used to meet short-term funding requirements were they to arise, including in current market conditions caused by the Covid-19 pandemic. They have also reviewed the revenue and ongoing expenses forecasts for the coming year. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Accountability and Audit

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware; and each Director has taken all the steps that he/ she ought to have taken as a Director to make himself/ herself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

Independent Auditor

Shareholders approved the re-appointment of KPMG LLP as the Company's Independent Auditor at the AGM on 5 February 2021. Resolutions to approve the re-appointment of KPMG LLP for the year to 30 September 2022 and to authorise the Directors to determine the remuneration of the Auditor will be proposed at the AGM on 4 February 2022.

Relations with Shareholders

The Directors place a great deal of importance on communications with shareholders. Shareholders and investors may obtain up to date information on the Company through its website and the Manager's Customer Services Department

The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (including the Company Secretary or the Manager) in situations where direct communication is required, and representatives from the Manager meet with major shareholders on at least an annual basis in order to gauge their views, and report back to the Board on these meetings. In addition, the Company Secretary only 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 Chair responds personally as appropriate.

The Company's Annual General Meeting normally provides a forum for communication primarily with private shareholders and is attended by the Board. The Manager normally makes a presentation to the meeting and all shareholders have the opportunity to put questions to both the Board and the Manager at the meeting. Due to the Covid-19 pandemic the 2021 AGM was held on a functional only basis, satisfying the minimum legal requirements. However, at the date of this report it is intended to hold the 2022 meeting in person.

Prior to the Covid-19 pandemic, the Manager hosted an annual Meet the Manager session at which members of the Board were present and to which all shareholders were invited. Due to Covid-19, it was not possible to host these sessions during the year under review, or the previous financial year. However, Thomas Moore has continued to provide updates to shareholders by video conference. The Board intends to host an online shareholder event early in 2022, ahead of the Annual General Meeting on 4 February 2022 and further details are set out in the Chair's Statement.

The notice of the Annual General Meeting is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board and Manager at the meeting.

Additional Information

Where not provided elsewhere in the Directors' Report, the following provides the additional information required to be disclosed by Part 15 of the Companies Act 2006.

There are no restrictions on the transfer of Ordinary shares in the Company issued by the Company other than certain restrictions which may from time to time be imposed by law (for example, the Market Abuse Regulation). The Company is not aware of any agreements between shareholders that may result in a transfer of securities and/or voting rights.

The rules governing the appointment of Directors are set out in the Directors' Remuneration Report. The Company's Articles of Association may only be amended by a special resolution passed at a general meeting of shareholders.

The Company is not aware of any significant agreements to which it is a party that take effect, alter or terminate upon a change of control of the Company following a takeover. Other than the management agreement with the Manager, the Company is not aware of any contractual or other agreements which are essential to its business which could reasonably be expected to be disclosed in the Directors' Report.

Annual General Meeting

The Annual General Meeting will be held on Friday, 4 February 2022

Resolutions including the following business will be proposed.

Dividend Policy

As a result of the timing of the payment of the Company's quarterly dividends, the Company's shareholders are unable to approve a final dividend each year. In line with good corporate governance, the Board therefore proposes to put the Company's dividend policy to shareholders for approval at the Annual General Meeting and on an annual basis thereafter.

The Company's dividend policy is that interim dividends on the Ordinary shares are payable quarterly in March, June, September and December each year. Resolution 3 will seek shareholder approval for the dividend policy.

Continuation Vote

Resolution 10, which is an ordinary resolution, will, if approved, allow the Company to continue as an investment trust.

Issue of Ordinary Shares

Resolution 11, which is an ordinary resolution, will, if passed, renew the Directors' authority to allot new Ordinary shares up to 10% of the issued share capital of the Company (excluding treasury shares) as at the date of the passing of the resolution.

Resolution 12, which is a special resolution, will, if passed, renew the Directors' existing authority to allot new Ordinary shares or sell treasury shares for cash without the new Ordinary shares first being offered to existing shareholders in proportion to their existing holdings. This will give the Directors authority to make limited allotments or sell shares from treasury of up to 10% of the total ordinary issued share capital, excluding treasury shares, as at the date of the passing of the resolution.

The authority to issue shares on a non pre-emptive basis includes shares held in treasury (if any) which the Company sells or transfers, including pursuant to the authority conferred by resolution 11.

New Ordinary shares will only be issued at prices representing a premium to the last published net asset value per share.

The authorities being sought under resolutions 11 and 12 shall expire at the conclusion of the Company's next AGM in 2023 or, if earlier, on the expiry of 15 months from the date of the passing of the resolutions, unless such authorities are renewed prior to such time. The Directors have no current intention to exercise these authorities and will only do so if they believe it is advantageous and in the best interests of shareholders.

Purchase of the Company's Ordinary Shares

Resolution 13, which is a special resolution, seeks to renew the Board's authority to make market purchases of the Company's Ordinary shares in accordance with the provisions contained in the Companies Act 2006 and the FCA's Listing Rules. Accordingly, the Company will seek authority to purchase up to a maximum of 14.99% of the issued share capital (excluding treasury shares) at the date of passing of the resolution at a minimum price of 25 pence per share (being the nominal value). Under the Listing Rules, the maximum price that may be paid on the exercise of this authority must not exceed the higher of: (i) 105% of the average of the middle market quotations (as derived from the Daily Official List of the London Stock Exchange) for the shares over the five business days immediately preceding the date of purchase; and (ii) the higher of the last independent trade and the highest current independent bid on the trading venue on which the purchase is carried out.

The Board does not intend to use this authority to purchase the Company's Ordinary shares, unless to do so would result in an increase in the net asset value per Ordinary share and would be in the best interests of shareholders. Any Ordinary shares purchased shall either be cancelled or held in treasury. The authority being sought shall expire at the conclusion of the AGM in 2023 or, if earlier, on the expiry of 15 months from the date of the passing of the resolution unless such authority is renewed prior to such time.

Notice of General Meetings

Under the Companies Act 2006, the notice period for the holding of general meetings of the Company is 21 clear days unless shareholders agree to a shorter notice period and certain other conditions are met. Resolution 14, which is a special resolution, will seek to authorise the Directors to call general meetings of the Company (other than Annual General Meetings) on not less than 14 clear days' notice, as permitted by the Companies Act 2006 amended by the Companies (Shareholders' Rights) Regulations 2009.

It is currently intended that this flexibility to call general meetings on shorter notice will only be used for non-routine business and where it is considered to be in the interests of all shareholders. If resolution 14 is passed, the authority to convene general meetings on not less than 14 clear days' notice will remain effective until the conclusion of the AGM in 2023 or, if earlier, on the expiry of 15 months from the date of the passing of the resolution, unless renewed prior to such time.

Recommendation

The Board considers that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and most likely to promote the success of the Company for the benefit of its members as a whole. Accordingly, the Board recommends that shareholders vote in favour of the resolutions as they intend to do in respect of their own beneficial shareholdings, amounting to 105,465 Ordinary shares, representing 0.22%% of the issued share capital.

By order of the Board

Aberdeen Asset Management PLC

Company Secretary

1 George Street

Edinburgh EH2 2LL

9 December 2021

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

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 are required 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 judgements 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;

- assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; 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 adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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 the content of any information included 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.

The Directors confirm that to the best of their 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 or loss of the Company;

- 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; and

We consider that the Annual Report, taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Mark White

Chair9 December 2021

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2021

STATEMENT OF FINANCIAL POSITION

As at 30 September 2021

STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2021

NOTES

For the year ended 30 September 2021