Shires Inc. Regulatory News (SHRS)

SHIRES INCOME PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Legal Entity Identifier (LEI): 549300HVCIHNQNZAYA89

The Company

Shires Income PLC (the "Company") is an investment trust. Its Ordinary shares are listed on the premium segment of the London Stock Exchange.

Investment Objective

The Company's investment objective is to provide shareholders with a high level of income, together with the potential for growth of both income and capital from a diversified portfolio substantially invested in UK equities but also in preference shares, convertibles and other fixed income securities.

Benchmark

The Company's benchmark is the FTSE All-Share Index (total return).

Website

Up to date information can be found on the Company's website: www.shiresincome.co.uk

COMPANY OVERVIEW - FINANCIAL HIGHLIGHTS

For further information, please contact:

Luke Mason (0207 463 5971)

Stephanie Hocking (0207 463 6403)

abrdn Fund Managers Limited

Financial Calendar and Highlights

Financial Calendar

Highlights

Chairman's Statement

The year to 31 March 2023 proved to be another challenging year on many levels. The conflict between Russia and Ukraine continued to impact the geo-political landscape, and the cost of living crisis deepened, with higher food and energy costs, in addition to rising inflation, higher interest rates and UK Government instability. Despite the impact of these factors on global equity markets, the UK market showed some resilience, with the FTSE All-Share Index returning 2.9% for the year.

Performance

Against this challenging economic backdrop, the Company's NAV performance for the year, on a total return basis, was -2.2%, an under performance of 5.1% compared to the FTSE All-Share Index benchmark return.

The Company's share price performance was also behind the benchmark, with a total return of -5.5% for the year.

While we did see strong performance from a number of holdings in the equity portfolio, the main detractors from performance were the preference share portfolio and the Company's holding in abrdn Smaller Companies Income Trust plc ("ASCIT"). I am pleased to report, however, that the portfolio continues to produce a high level of income, with the Company's revenue return per share exceeding returns of previous years.

Full details of performance for the year and portfolio activity are contained in the Investment Manager's Review.

Earnings and Dividends

The Company's revenue earnings per share for the year were 14.83p, compared to 14.21p last year, an increase of 4.4%, which is illustrative of the strong recovery we have continued to see since the declines experienced during the Covid-19 pandemic.

The Company has paid three interim dividends of 3.20p per Ordinary share (2022: 3.20p). The Board is proposing a final dividend of 4.60p per Ordinary share (2022: 4.20p), which will be paid on 28 July 2023 to shareholders on the register on 7 July 2023. This final dividend brings total Ordinary share dividends for the year to 14.20p per share, an increase of 2.9% compared to last year. Based on the year end share price of 250p, this equates to a dividend yield of 5.7%.

With the total dividends for the year covered by earnings, revenue reserves will stand at 1.05 times the current annual Ordinary share dividend cost. This allows the Company to support future dividend payments in times of economic difficulty. In addition, the Company also has the flexibility to pay dividends from its realised capital reserves, although the Board has no current intention of making use of this flexibility. Subject to unforeseen circumstances, it is proposed to continue during this financial year to pay three quarterly interim dividends of 3.20p each per Ordinary share and, as in previous years, the Board will decide on next year's final dividend having reviewed the full year results, taking into account the general outlook for the portfolio's investment income at that time.

Premium/(Discount)

At the end of the year, the Company's Ordinary shares were trading at a discount of 3.1% to the NAV per share (including income) compared to a premium of 0.3% at the end of the previous year. The average discount for the year was 1.0%. Despite ending the year on a small discount, the Company did enjoy periods where its shares traded at a premium to NAV and, as a result, in response to investor demand, we were able to issue 145,000 new Ordinary shares on a non-dilutive basis.

The Board and Manager monitor the premium/discount of the Company's shares on an ongoing basis and the Board will seek to renew the appropriate share issuance and share buyback authorities at the Annual General Meeting.

Gearing

The Company's gearing level (net of cash) was 22.2% as at 31 March 2023, compared to 20.4% at the end of the previous year, with the difference due to a lower amount of cash being held at the year end and a slightly lower net asset value compared to last year.

In May 2022, the Board made the decision, given the uncertain interest rate outlook, to renew the £20 million loan facility held with Scotia Bank Europe PLC, ahead of its maturity date of September 2022, which we believe proved to be the correct approach to take as interest rates continued to rise.

A new £20 million loan facility was therefore entered into with The Royal Bank of Scotland International Limited, London Branch, on 3 May 2022 for a five-year tenure.

£10 million of the new loan facility was drawn down for five years and fixed at an all-in interest rate of 3.903%. £9 million of the facility was drawn down on a short-term basis and can be repaid without incurring any financial penalties. The proceeds of the new loan were used to repay and cancel in full the Company's previous loan facilities with Scotia Bank Europe PLC. The Company's total borrowings were therefore unchanged following the re-financing.

Given the economic volatility we have seen since that time, the Board is pleased to have renewed the Company's debt early and for a longer tenure, in order to provide certainty over the funding cost in such an uncertain environment. As in previous years, the Board takes the view that the borrowings are notionally invested in the less volatile fixed income part of the portfolio which generates a high level of income, giving the Investment Manager greater ability to invest in a range of equity stocks with various yields. The Board believes that this combination should help enable the Company to achieve a high and potentially growing level of dividend, but also deliver some capital appreciation to shareholders.

Board Composition

Following the appointment of Helen Sinclair as a Director in February 2022 and the retirement of Marian Glen at the AGM in July 2022, the Board is comprised of four independent Directors, two women and two men, all with a wide range of skills and relevant experience to oversee the Company's affairs. The Board regularly reviews its composition, with succession planning an important part of its deliberations. In accordance with the AIC Code of Corporate Governance, all Directors are standing for re-appointment at this year's AGM. 

Environmental, Social and Governance ("ESG")

Shareholders will note in this Annual Report that there is a wealth of information provided by the Investment Manager on its ESG approach, which continues to be a fundamental part of its investment process.

The Board endorses the level of focus the Investment Manager places on ESG, which entails significant levels of engagement with company management focused upon both the reduction of risk but also potentially enhanced returns.

abrdn Smaller Companies Income Trust plc ("ASCIT)

As I have mentioned above, detractors from performance over the year included the Company's holding in ASCIT. This holding represented 7.8% of the portfolio at the year end and therefore its performance compared against the FTSE All-Share Index had a meaningful impact on the Company's own performance for the year. Shires, as a 13.6% shareholder in ASCIT, has been discussing for some time whether Shires' smaller company exposure could be delivered more efficiently and with less volatility.

In October 2022, the Board and its adviser, JPMorgan Cazenove, and after consultation with abrdn, put forward in their opinion what was a constructive and compelling proposal to the board of ASCIT and its advisers. This proposal envisaged consolidating the companies whilst maintaining small cap exposure and concentrating on providing above average income from a diversified portfolio of UK quoted securities, which is in line with Shires' existing investment objective.

Following this approach, the Board of ASCIT announced on 13 February 2023 that it was conducting a strategic review and we were pleased to note that the ASCIT discount partially narrowed following this announcement. We look forward to hearing the outcome of the review shortly and to a resolution of the current uncertainty surrounding that company, with an outcome that is favourable to all shareholders.

Annual General Meeting ("AGM") and Online Shareholder Presentation

The Company's AGM will take place at 12 noon on Thursday 6 July 2023 at Wallacespace Spitalfields, 15-25 Artillery Lane, London E1 7HA, and will be followed by lunch. As well as the formal business of the meeting, the Investment Manager will provide a short presentation on the Company and there will be an opportunity for shareholders to ask questions of the Manager and the Board. We do hope you are able to join us. 

Irrespective of whether you are able to attend, we do encourage all shareholders to complete and return the Proxy Form enclosed with the Annual Report to ensure that your votes are represented at the meeting. If you hold your shares in the Company via a share plan or a platform and would like to attend and / or vote at the AGM, then you will need to make arrangements with the administrator of your share plan or platform. For this purpose, investors who hold their shares in the Company via the abrdn Investment Plan for Children, Share Plan or ISA will find a Letter of Direction enclosed. Shareholders are encouraged to complete and return their Proxy Forms / Letters of Direction in accordance with the instructions.

Given the popularity of our Online Shareholder Presentation in previous years, we have decided to hold another online presentation this year, in addition to the AGM. This will be held at 10.00am on Thursday 22 June 2023. A presentation will be given by the Investment Manager, and those in attendance will be given the opportunity to ask questions of the Chairman and Investment Manager both during the presentation and in advance.

Full details on how to register for the event can be found at: bit.ly/Shires-Income-PLC

Details are also contained on the Company's website. Should you be unable to attend the online event, it will be made available on the Company's website shortly afterwards. For those wishing to submit questions in advance, you can do this at the following email address: shires.income@abrdn.com 

Outlook

With the challenges I outlined in my opening remarks still very much present, and likely to continue for some time, the Board is pleased to see that the Company's equity portfolio performance on the whole remains robust and, as outlined in the Investment Manager's Review, given greater stability in fixed income markets, we expect the preference share portfolio to show some recovery in the coming months while still continuing to provide a reliable and high source of income. 

In this environment, good stock selection is key, together with a focus on maintaining the Company's income objective, both of which the Investment Manager has a strong track-record of delivering. The Board remains confident that the diverse sources of income in the portfolio and the flexibility to invest in both growth and value equities will continue to deliver the income and capital growth objectives of the Company over the longer term.

Robert TalbutChairman24 May 2023

Overview of Strategy

Business Model

The business of the Company is that of an investment company which qualifies as an investment trust for tax purposes. The Directors do not envisage any change in this activity in the foreseeable future.

Investment Objective

The Company's investment objective is to provide shareholders with a high level of income, together with the potential for growth of both income and capital, from a diversified portfolio substantially invested in UK equities but also in preference shares, convertibles and other fixed income securities.

Investment Policy

In pursuit of its objective, the Company's policy is to invest principally in the ordinary shares of UK quoted companies, and in preference shares, convertibles and other fixed income securities with above average yields.

The Company generates income primarily from ordinary shares, preference shares, convertibles and other fixed income securities. It also generates income by writing call and put options on shares owned, or shares the Company would like to own. By doing so, the Company generates premium income.

Risk Diversification

In order to ensure adequate diversification, the Board sets absolute limits on maximum holdings and exposures in the portfolio from time to time. These limits do not form part of the investment policy and can be changed or overridden with Board approval. The current limits are disclosed under the heading "Board Investment Limits" below.

Gearing

The Directors are responsible for determining the gearing strategy of the Company. Gearing is used with the intention of enhancing long-term returns. Gearing is subject to a maximum equity gearing level of 35% of net assets at the time of drawdown. Any borrowing, except for short-term liquidity purposes, is used for investment purposes. 

Delivering the Investment Policy

The Directors are responsible for determining the investment objective and investment policy of the Company, although any significant changes are required to be approved by shareholders at a general meeting. Day-to-day management of the Company's assets has been delegated, via the Alternative Investment Fund Manager (the "AIFM"), to the Investment Manager.

Board Investment Limits

In order to ensure adequate diversification, the Board has set absolute limits on maximum holdings and exposures in the portfolio at the time of acquisition. These can only be overridden with Board approval. The current limits include the following:

- Maximum 10% of total assets invested in the equity securities of overseas companies;

- Maximum 7.5% of total assets invested in the securities of one company (excluding abrdn Smaller Companies Income Trust plc);

- Maximum 5% of quoted investee company's ordinary shares (excluding abrdn Smaller Companies Income Trust plc); and 

- Maximum 10% of total assets invested directly in AIM holdings.

The Board assesses on a regular basis with the Manager the applicability of these investment limits, the use of gearing and risk diversification, whilst aiming to meet the overall investment objectives of the Company.

Preference Shares

The Company also invests in preference shares, primarily to enhance the income generation of the Company. The majority of these investments are in large financial institutions. Issue sizes are normally relatively small and the underlying securities are relatively illiquid by comparison with the equity component of the portfolio. A maximum of 7.5% of total assets may be invested in the preference shares of any one company. In addition, the Company cannot hold more than 10% of any investee company's preference shares.

Traded Options Contracts

The Company enters into traded option contracts, primarily to enhance the income generation of the Company. The risks associated with these option contracts are managed through the principal guidelines below, which operated in the year under review:

- Call options written to be covered by stock;

- Put options written to be covered by net current assets/borrowing facilities;

- Call options not to be written on more than 10% of the equity portfolio; and

- Put options not to be written on more than 10% of the equity portfolio.

Benchmark

In assessing its performance, the Company compares its returns with the returns of the FTSE All-Share Index (total return).

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 for the benefit of the members as a whole.

Key Performance Indicators ("KPIs")

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company, which are considered at each Board meeting, are shown in the table below:

Principal and Emerging Risks and Uncertainties

The Board carries out a regular review of the risk environment in which the Company operates, changes to that environment and to individual risks. The Board also identifies emerging risks which might impact on the Company. During the year, the most significant risks were inflation and increasing interest rates and the resultant volatility that this created in global stock markets. In addition, the conflict in Ukraine has created geo-political uncertainty which has further increased market risk premia and volatility. 

There are a number of other risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board 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 and has endeavoured to find means of mitigating those risks, wherever practical.

The principal risks and uncertainties faced by the Company are reviewed by the Audit Committee in the form of a risk matrix. The assessment of risks and their mitigation continues to be an area of significant focus for the Audit Committee.

The Board also regularly identifies and evaluates newly emerging risks, for example the impact of climate change, and monitors these closely, as appropriate for the Company. The impact of climate change is not considered to be material to the financial statements as the entire investment portfolio consists of listed equities and preference shares and the market price is expected to reflect market participants' view of climate change risk.

The principal risks and uncertainties facing the Company at the current time, 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.

External Agencies

In addition to the services provided to the Company by the abrdn Group, the Board has contractually delegated certain services to external service suppliers, including: depositary services (which include the safekeeping of the Company's assets) (BNP Paribas Trust Corporation UK Limited) and share registration services (Equiniti Limited). Each of these services was entered into after full and proper consideration by the Board of the quality and cost of services offered. In addition, day-to-day accounting and administration services are provided, through delegation by the Manager, by BNP Paribas Securities Services.

Promotional Activities

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the 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 the abrdn Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the abrdn Group. The Company also supports the Manager's investor relations programme which involves regional roadshows to existing and potential shareholders, promotional and public relations campaigns. The Manager'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. The promotional programme includes commissioning independent paid for research on the Company, most recently from Kepler Trust Intelligence. A copy of the latest research note is available from the Company's website.

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 or environmental matters.

Modern Slavery Act

Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. 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 Governance ("ESG") Matters

The Board is supportive of the Investment Manager's approach to ESG issues, including climate change, and welcomes its active engagement with company management.

The UK Stewardship Code and Proxy Voting

The Company supports the UK 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, 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

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

Under Listing Rule 15.4.29(R), the Company, as a closed ended investment company, is exempt from complying with the Task Force on Climate-related Financial Disclosures.

Viability Statement

The Board considers the Company, with no fixed life, to be a long-term investment vehicle but, for the purposes of this viability statement, has decided that three years is an appropriate period over which to report, irrespective of any exogenous risks that the Company may face. The Board considers that this period reflects a balance between a longer-term investment horizon, the inherent uncertainties within equity markets and the specifics of a closed-end investment company where its central purpose is different from other listed commercial and industrial companies. 

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

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

- The ongoing relevance of the Company's investment objective.

- The liquidity of the Company's portfolio. The majority of the portfolio is invested in readily realisable listed securities.

- The level of ongoing expenses. The Company's annual expenses, excluding the cost of the dividend, are expected to continue to be covered by annual investment income. 

- The level of gearing. This is closely monitored and stress testing is carried out by the Manager. The financial covenants attached to the Company's borrowings provide for significant headroom.

- Regulatory or market changes.

- The robustness of the operations of the Company's third party service providers.

In making its assessment, the Board has considered that there are other matters that could have an impact on the Company's prospects or viability in the future, including the current events in Ukraine, economic shocks, significant stock market volatility, the emerging risk of climate change, and changes in regulation or investor sentiment, including on income propensities.

Taking into account the Company's current position and the potential impact of its principal risks and uncertainties and emerging risks, 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 approval ofthis Report.

Outlook

The Board's view on the general outlook for the Company can be found in the Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included in its statement below.

On behalf of the Board Robert TalbutChairman24 May 2023

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"). The Board provides below 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, amongst other things, the likely long-term consequences of decisions, the need to foster business relationships with all stakeholders and the impact of the Company's operations on the environment.

The Purpose of the Company and Role of the Board

The purpose of the Company is to act as an investment vehicle to provide, over time, financial returns (both income and capital) to its shareholders. Investment trusts, such as the Company, are long-term investment vehicles and are typically externally managed, have no employees, and are overseen by an independent non-executive board of directors.

The Board, which, at the year end, comprised four independent non-executive Directors with a broad range of skills and experience across all major functions that affect the Company, retains responsibility for taking all decisions relating to the Company's investment objective and policy, gearing, corporate governance and strategy, and for monitoring the performance of the Company's service providers.

The Board's philosophy is that the Company should operate in a transparent culture where all parties are treated with respect and provided with the opportunity to offer practical challenge and participate in positive debate which is focused on the aim of achieving the expectations of shareholders and other stakeholders alike. The Board reviews the culture and manner in which the Manager and Investment Manager operate at its regular meetings and receives regular reporting and feedback from the other key service providers. The Board is very conscious of the ways it promotes the Company's culture and ensures as part of its regular oversight that the integrity of the Company's affairs is foremost in mind in the way that the activities are managed and promoted. The Board works very closely with the Manager and Investment Manager in reviewing how stakeholder 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.

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

How the Board Engages with Stakeholders

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

The Board and Manager also continue to consider how best to engage with private investors who invest through platforms, not least to increase voting participation at general meetings of the Company.

Specific Examples of Stakeholder Consideration During the Year

The Board is fully engaged in both oversight and the general strategic direction of the Company. During the year, the Board's main strategic discussions focussed around income management, with a portfolio consisting of equities, fixed interest securities, options and exposure to UK smaller companies through abrdn Smaller Companies Income Trust plc, a closed-end investment company. The impact of inflation and increasing interest rates was factored into these discussions.

While the importance of giving due consideration to the Company's stakeholders is not a new requirement, and is considered during every Board decision, the Directors were particularly mindful of stakeholder considerations during the following decisions undertaken during the year ended 31 March 2023.

Management of the Portfolio

The Investment Manager's Review details the key investment decisions taken during the year. The overall shape and structure of the investment portfolio is an important factor in delivering the Company's stated investment objective. 

The Board held its annual strategy meeting during the year at which it considered a number of factors, including the overall shape and composition of the portfolio, any feedback from shareholders and the Company's Stockbroker, and medium term revenue forecasts. 

During the year, the Board, through the Management Engagement Committee, decided that the continuing appointment of the Manager was in the best interests of shareholders.

Dividend

Following the payment of the final dividend for the year, of 4.6p per Ordinary share, total dividends for the year will amount to 14.2p per Ordinary share, representing a dividend yield of 5.7% based on the share price of 250p at the end of the financial year. This is in accordance with the Company's objective to provide shareholders with a high level of income.

In deciding on the level of dividend for the year, the Board took into account the revenue earnings per Ordinary share for the year, forecast revenues for subsequent years and the level of revenue reserves.

Through meetings with shareholders and feedback from the Manager and the Company's Stockbroker, the Board remains conscious of the importance that shareholders place on the level, and sustainability, of dividends paid by the Company. 

Online Shareholder Presentation

As explained in the Chairman's Statement, to encourage and promote interaction and engagement with the Company's shareholders, the Board has again decided to hold an interactive Online Shareholder Presentation which will be held at 10.00am on 22 June 2023. At the presentation, shareholders will receive updates from the Chairman and Investment Manager and there will be an interactive question and answer session. The online presentation is being held ahead of the AGM in order to allow shareholders to submit their proxy votes prior to the meeting.

Shareholder Engagement and Communication

During the year, through a mechanism provided by the Companies Act 2006, the Company wrote to a number of shareholders who hold their shares indirectly through retail platforms, to advise them how to register for updates relating to the Company and notifications of communications with shareholders.

The Company has a large retail shareholder base and the Board is keen to communicate with as many shareholders as possible and to encourage and increase voting participation at general meetings. 

On behalf of the BoardRobert TalbutChairman24 May 2023

Performance

Performance (Total Return)

Analysis of Total Return Performance

Dividends

Ten Year Financial Record

Cumulative Performance

Rebased to 100 at 31 March 2013

Investment Manager's Review

Portfolio Strategy

We take a long term approach to investing, believing that whilst there might be volatility in the short and even medium term, share prices will ultimately reflect the fundamental value of a company. Consequently, there has been no change to our approach to the construction of the portfolio during the year under review. The Company's investment portfolio is invested in equities and preference shares. At the year-end 78.4% of the portfolio was invested in equities and 21.6% was invested in preference shares.

Equity Market Review

Global equity markets fell over the 12 month period to 31 March 2023, with the MSCI World Index down by around 9% in US Dollar terms. While that marks a poor return for global equities, it could have been worse, with the index down by 22% in mid-October last year. Since then, we have seen a recovery in valuations and the financial year has ended with markets in a more optimistic mood.

Market direction over the year was dominated by macroeconomic factors, with the interplay between inflation, economic growth, and central bank policy setting the tone for equities. At the start of the Company's financial year, from April to June, the direction of travel continued very much as it was in the first quarter of 2022. Inflation expectations were increasing, driven by post-Covid tightness in many markets and exacerbated by the start of the Russia-Ukraine conflict. Indeed, some of the economic data was historic, with US inflation reaching a 40 year high and UK unemployment a 48 year low. This resulted in more hawkish central bank policy and rising interest rate expectations, with the clear impact of higher discount rates translating into lower equity valuations across the market, but especially in higher growth sectors. Investors also worried that higher interest rates would lead to a recession and, although the impact from Covid-19 had reduced significantly compared to the prior year, China's zero-Covid policy continued to weigh on global economic growth.

In July, there was some respite, with global equities increasing by almost 10% in a month - although even this did not quite offset the declines seen in the prior month. The increase came despite the ongoing and increasing fears of a recession and a warning at the start of the month from the Bank of England that the economic outlook for the UK had "deteriorated materially", matching similar comments from the International Monetary Fund ("IMF"). This view of underlying economic weakness was supported by data, with inflation continuing to rise and GDP growth slowing. UK consumer confidence in June remained at its lowest level since records began in 1974. The UK also faced increased political uncertainty as Prime Minister Boris Johnson finally announced his resignation. Despite the weak macro backdrop, corporate earnings results were generally strong at the half year stage, with many cyclical companies beating reduced expectations. Throughout the course of the year, fundamental corporate earnings remained robust, with limited signs of weakness.

July proved to be a false dawn for equity markets, however, with continued high levels of inflation pushing central banks to double down on more hawkish messaging and on interest rate rises. The Federal Reserve implemented a large 0.75% rise in interest rates, while the Bank of England raised interest rates by 0.5% at its September meeting. A few days later, UK Chancellor Kwarteng's mini-budget surprised investors with widespread unfunded tax cuts, which were partially reversed in early October. The £45 billion package prompted a wave of selling in bond and currency markets, driving gilt yields higher. The IMF warned that it did not recommend "large and untargeted" measures and that the proposals could fuel inflation and inequality. The 10-year gilt yield finished the month above 4% and the Bank of England was forced to launch emergency measures to stabilise markets, delaying a planned gilt sale and committing to buy up to £65 billion of gilts over a 13-day period. After the end of the period, the turmoil caused by the budget forced Prime Minister Liz Truss to resign, setting a record for the shortest premiership in history, at 45 days.

After a strong start to the year, the summer months also saw commodity price pull back. The combination of recession fears and resilient production from Russia meant that the oil price declined, with the West Texas Intermediate benchmark back under $80 per barrel, having peaked at over $120 per barrel as recently as June. At the same time, a period of warmer and windier weather led to a pullback in European natural gas prices, mitigating a major source of concern for the European economy since the Russian invasion of Ukraine.

The US economy outperformed expectations, reporting annualised growth of 2.6% in the third quarter, having been in a technical recession during the first half of the year. In the UK, Gilt markets settled after the volatility arising from the mini-Budget. In particular, government bond prices rose as former chancellor Rishi Sunak succeed Liz Truss as Prime Minister and quickly implemented a more pragmatic fiscal policy.

Equity markets turned more positive in October, as investors became optimistic that central banks could slow the pace of future interest rate increases. The US was one of the top-performing markets, with the Dow Jones Industrial Average posting its best monthly gain since 1987, having risen for four consecutive weeks. Markets rose again in November, as US data showed decelerating inflation, adding to investor expectations for a change in Federal Reserve policy. Markets also responded positively to the announcement from the Chinese government that it would start to ease Covid-19 restrictions.

That optimism reversed slightly in December as recession fears increased and the relaxation of Covid-19 restrictions in China led to a spike in cases, yet this concern was relatively short lived. 2022 closed with more interest rate rises: the Federal Reserve, European Central Bank, Swiss Central Bank and Bank of England all raised interest rates by 0.50% in their December meetings. The moves marked a deceleration in the pace of monetary tightening, however, and equities recovered into the calendar year end, helped by better than expected macro data.

The first quarter of 2023 saw continued volatility in equity markets, yet despite some marked swings, all major asset classes except the US Dollar and commodities delivered positive returns - a contrast to 2022 which was a rare year when both bonds and equities declined. The quarter started with a 'risk-on' mood due to better than expected economic data and falling recession worries, as gas prices fell in Europe and there were signs of a rapid reopening in China, with no persistent rise in infections, and a resilient US consumer sector. This led to short covering and a rebound in economically sensitive sectors, especially Consumer Discretionary. However, it also drove a resurgence in inflation pressures and incrementally hawkish rhetoric from central banks.

Market dynamics reversed sharply in March, with the collapse of Silicon Valley Bank in the US and the subsequent issues with Credit Suisse in Europe. This led to a 'risk-off' environment, with bonds rising and risk assets falling. Equities, especially in Europe, bore the brunt of the pain given the higher exposure of that region's banking sector to the economy and equity markets relative to the US. Still, signs that the crisis was under control as we moved through March meant that risk assets reversed direction again. Strong underlying fundamentals of the banking sector supported the view that Silicon Valley Bank and Credit Suisse were exceptions rather than the start of a broader sector issue.

Over the course of the 12 month period, UK equities performed relatively well compared to other global markets. The FTSE All-Share Index delivered a total return of 2.9% and the large cap FTSE 100 Index returned 5.2%. The performance was better than the US S&P 500 index returning -8.1% and the MSCI Europe Index at 3.9%. Generally, the weighting of the UK market towards more defensive and less growth-orientated sectors has worked in its favour during a period of rising interest rates. It is also notable, however, that in a time of flat/falling equity markets, a higher dividend yield enhances total return noticeably.

With the dominant theme for the year being one of rising interest rates, sector leadership in the UK market remained more with the value-orientated sectors, despite these being more economically sensitive. Energy was the top performing sector, with gains largely concentrated in the first part of the year. Consumer Discretionary and Industrials also performed well, despite rising recession concerns. At the other end of the spectrum, the Property sector performed particularly poorly, falling by around 30%. UK property companies have operated with higher levels of leverage than most sectors, and so rising interest rates put pressure on returns at the same time that their ability to grow rental yield is constrained by demand. Materials were also weak, with the boost from China reopening not enough to offset a pull-back in valuations earlier in the year.

Investment Performance

Over the year ended 31 March 2023, the Net Asset Value ("NAV") of the Company declined by 2.2% on a total return basis. This compares to the benchmark FTSE All-Share Index total return of 2.9%. The under performance was concentrated in two areas: the preference share portfolio and the holding in abrdn Smaller Companies Income Trust ("ASCIT"). The preference shares declined in value by 10.2% and detracted 3.0% from performance - we discuss the reasons for this in more detail below. The ASCIT share price declined by almost 12% (in total return terms) over twelve months, even following the re-rating of its shares after its announcement of a strategic review, and contributed around 1% of the under performance.

This under performance should largely be expected in the investment environment we saw during the year. Rising interest rates benefit less growth-orientated investments and smaller companies as an asset class under-performed larger companies during the year. Furthermore, ASCIT follows a momentum strategy, which is disadvantaged in such an environment.

Within the core equity portfolio, there were a number of very strong performers. These included a number of recent purchases. Games Workshop Group (+58%) recovered well after our investment, as did Vistry Group (+35%), NatWest (+29%), Hiscox (+25%), Oxford Instruments (+19%) and Smith & Nephew (+14%). Energy stocks continued to be strong contributors to overall performance, with BP (+42%) and TotalEnergies (+31%) standing out. TotalEnergies was also an example of a European holding in the portfolio that performed well. Novo-Nordisk (+52%) continued to deliver upgrades to revenue as new product launches beat expectations, while Kone (+20%), Nordea (+18%), AXA (+18%) and Engie (+13%) all delivered positive returns. Another trend we benefited from (and which seems to be only increasing) was the rise in bids for UK listed companies, reflecting the discount many trade at compared to international peers.  Euromoney Institutional Investor (+48%) and Wood Group (+24%) were subject to bids in the year.

Some other positions did not work out as well as we had hoped. The most concentrated under performance came in the Real Estate sector, with the impact of rising yields dragging down asset values and increasing interest costs. Sirius Real Estate (-41%), Urban Logistics (-29%), Supermarket Income REIT (-21%) and Assura (-17%) all under performed in share price terms although the underlying businessess continued to perform as expected.

The number of companies missing our expectations on underlying performance was small, although there were some notable disappointments. Marshalls (-52%) had two profit warnings after failing to offset the slow down in consumer demand for its products. Direct Line Insurance (-45%) was impacted by a high level of claims inflation in the winter months, putting its capital ratio under pressure and leading to a cut in the dividend. Close Brothers (-19%) disclosed a write down to the value of a recent acquisition. In each case we have retained the holding, and in the cases of Marshalls and Close Brothers increased the positions - we see these as strong long term businesses which will regain lost value over time. In the case of Direct Line Insurance, signs that the pricing cycle is improving cause us to hold on to the position for now.

Gearing and Preference Share Portfolio

As stated above, the preference shares declined in value in the year. This performance is very much as expected - during a period of rapidly rising interest rates we would expect the bond like characteristics of preference shares to mean they decline in value. Our view on the long term attractions of the preference shares has not changed. Firstly, it is unlikely that we will see a period of such rapid rises in interest rates repeated this cycle - indeed it is more likely that interest rates will eventually decline, acting as a tailwind for the valuations of the preference shares. Secondly, the attraction of these instruments is their high, dependable yield. This has not changed and the preference share portfolio offered a forward yield of almost 7.5% at the year end.

Gearing (net of cash) increased during the year, from 20.4% to 22.2%. The gearing is notionally invested in the preference share portfolio. At the year end these securities had a value of £20.9 million, exceeding the net indebtedness which stood at £17.8 million.

Revenue Account

Revenue earnings per share increased by 4.4% over the year to 14.83p (2022: 14.21p). This continues the strong recovery we have seen in dividends since the Covid-19 pandemic. The Company aims to invest in companies with the ability to grow dividends over time and it is encouraging to see revenue growth delivered. This is an important target for the Company.

The following table details the Company's main sources of income over the last five years.

Portfolio Activity

Changes to the portfolio during the year were, as ever, driven by fundamental analysis and by our views on the merits of individual companies. However, it is useful to try to explain some trends behind our trading activity over the course of the year. In the prior year, there was a clear move to add value to the portfolio, reflecting our view that the growth premium in equities was too high and that interest rates were likely to rise. In this financial year, the main drivers, such as they are, were different - although we retain a slight preference for value within the portfolio, we have been looking to add income and quality. Our broad view is that market levels look high and the economic outlook is uncertain. In this scenario we see income as an increasingly important part of total return and have been taking action to enhance this.

In April 2022, we initiated a position in Supermarket Income REIT. The company invests in supermarket real estate, with long term tenancy agreements and inflation linked pricing. This provides a reliable, and defensive, source of income, with a 5% headline yield and with the inflation linkage making cashflows reliable through the cycle. We sold out of one position in the month. Last year's purchase of the Schroders-Non Voting shares was based on a view that the discount of that instrument to the voting shares was too wide and would close over time. The announcement in March 2022 that the company would combine the two lines of shares caused the discount to close, resulting in a 29% increase in the value of our holding. With the investment case having played out we chose to move on to other ideas.

During July, we started a new position in Legal & General. The share price had fallen given concerns about how rising rates impact credit quality. In our view, Legal & General has a secure outlook and actually benefits from rising interest rates through its stronger Solvency 2 position (a measure of balance sheet strength for insurance companies). This means the dividend, with an 8% dividend yield, is secure and the company can continue to grow, using an integrated approach and, for example, through its strong market position in bulk annuities. We see it as an undervalued company that should deliver resilient income through cycle.

To fund this trade, we sold out of a number of positions. Fortum had performed poorly due to its exposure to Russia and the risks to the business from higher European gas prices. While we think much of the risk is in the price, uncertainty remained very high and we could find similarly high yields which are likely to be more secure, so chose to move on. We also sold United Utilities, which held up well as a source of defensive exposure, but looked fairly priced. We also sold out of Euromoney Institutional Investor following a bid for the company at a reasonably attractive price.

During the third quarter of 2022 we introduced three new holdings. The first of these was lift manufacturer Kone, listed in Finland. The shares had de-rated on China growth concerns and looked attractively valued given the quality of the business with a very secure balance sheet. The weighting of earnings to recurring service revenue should make it resilient and 4.4% dividend yield is a premium to the market.

We also started a new position in French utility Engie. The implementation of a power price cap in Europe above market expectations and the company's business plan provides confidence in the dividend at an attractive yield of approximately 8%. The company also has an attractive long term renewable growth story.

The third new position was in reinsurer Hiscox, started after a positive meeting with the management team. After weak performance post-2019 a confident new CEO has put the balance sheet in a strong position and has sorted out legacy issues in the portfolio. The company is well positioned for better underwriting conditions and higher investment returns, both of which should drive strong earnings growth in the next few years. Hiscox is also less at risk from inflation concerns than its peers. The shares trade on an attractive valuation and US retail has the potential to be a much larger business if it can deliver as management expects. Its forward yield is marginally above the market level with the ability to grow.

We sold out of two positions, both of which were inherited as spin outs from other holdings and were subscale in the portfolio. Haleon was spun out of GlaxoSmithKline and has an attractive end market position, but high debt and litigation risk combined with a low dividend yield make it less appropriate for this portfolio. We also sold out of Woodside Energy, another subscale inherited position from BHP, after it went ex-dividend.

We started new positions in two companies in October. The first was medical services company Smith & Nephew. The stock has de-rated to 12x earnings, well below its long term average of 17x, but has a new CEO with a credible plan to fix the business. A 3% dividend yield is not large but has potential to grow over time and the company remains a potential take out candidate at this valuation. Income is likely to be defensive and relatively insulated from macro turbulence.

We also started a new position in Games Workshop Group. The shares have de-rated, but it has all the characteristics of a quality company with a high return on capital, a net cash balance sheet and a very strong track record of growth. Recent dividend increases provide reassurance on the commitment to distribute excess cash and the business should be resilient through any recession. Longer term, growth potential comes from expansion in foreign markets and consistent product roll out to a loyal customer base.

After a review of the property sector in October, we decided to focus our exposure. We consequently reduced the number of holdings within the sector, selling out of Sirius Real Estate, Assura and SuperMarket Income REIT. In each case, we see a risk to income from higher interest rates which may compress margins and lead to lower cash generation.

During November, we sold out of Entain. This has been a long term holding in the portfolio, with a positive return over that period. However, we see less chance of the company paying a material dividend in the near term and there is a high degree of uncertainty on growth and regulation in the US, meaning it is not a natural holding in the portfolio. We therefore choose to move on. The proceeds were used to start a new position in Dechra Pharmaceuticals, the veterinary pharmaceutical business. We sold out of this company in April 2021, but given its recent under performance it now looks good value again, with the earnings multiple 35% lower and the dividend yield 65% higher than when we sold. The quality characteristics remain very much in place, with strong barriers to entry and structural growth in end markets, and recent deals have built out the research pipeline to support future earnings growth.

During January we started two new positions. The first was in XP Power. The company designs and produces power supply products, often used in highly sensitive manufacturing processes. It has 4% yield and the potential to deliver attractive growth, with the current valuation at less than a 14x earnings multiple, reflecting some cyclical weakness and recent legal costs. Recent downgrades should now be close to an end and resolution of supply chain issues and litigation could be positive catalysts for the company within our investment time horizon.

Secondly, we started a new position in Dr. Martens. The iconic shoe brand is currently delivering steady top line growth, with more to play for in emerging markets and the potential for margins to improve as the sales mix shifts away from wholesale. The shares have de-rated on issues around a change in the company's US distribution centre which have hit profits in the short term. We believe this is an opportunity to buy a solid brand with earnings growth from market expansion and the direct to consumer mix shift, which delivers 4x higher margins than wholesale over the next five years. The current multiple of 8x earnings is an opportunity to buy for the long term in our view and a 4% dividend yield (which is very well covered) is attractive for the portfolio. It is also a diversifier, given our underweight exposure to the Fashion and Consumer Discretionary sectors.

In March, we made a number of portfolio adjustments to enhance income. In the Mining sector, we exited BHP and continued to reduce the weighting to Rio Tinto, reflecting our view that a recovery in Chinese demand is now largely priced in to the share price. We continued to reinvest some proceeds in Anglo American. We also topped up the position in Diversified Energy which has been weak on lower US gas prices, despite being well hedged - the yield of 15% is well covered and very attractive in our view. We started a new position in HSBC. The shares have pulled back in response to the recent "banking crisis" but we see the company as a natural beneficiary of a flight to quality for deposits and of reduced competition in the attractive Asian wealth market following the UBS purchase of Credit Suisse. The dividend is now well on its way to recovering to pre-Covid levels and the 8% yield is highly attractive given exposure to growing Asian markets. We funded the purchase with a small reduction in the holding in Standard Chartered - the move helps diversify the portfolio's exposure to banks and enhances income.

Finally, we sold out of the position in Kone - a purchase form earlier in the year. The shares had risen by 15% in a flat market since we purchased them in September, providing an attractive annualised return. We now see the company as more fairly valued so have taken profits and are moving on, hopefully to better ideas.

Stewardship and ESG

We believe that, as long term owners of the businesses in which we are invested, it is not sufficient merely to seek out assets that we believe to be undervalued. It is also incumbent upon us to take a proactive approach to our stewardship of these companies. Therefore, we engage extensively with our investee companies. We have attended a range of meetings with chairmen, non-executive directors and other stakeholders. Topics covered have included the composition of boards, environmental and social issues, and remuneration. Risk is a very broad subject that is interpreted in varying manners by different companies. However, by engaging on this subject we secure a deeper understanding of how the boards of our investee companies perceive and seek to manage these issues. Such interactions also enable us to push for improved disclosure and better management practices and, on occasion, different decisions where appropriate. We have had conversations regarding companies' financing choices. We find that it is always worthwhile communicating our preference for conservatively structured balance sheets that place a company's long term fortunes ahead of possible short term share price gains. Such activity is by its nature time consuming but we regard it as an integral aspect of our role as long term investors.

Consideration of Environmental, Social and Governance ("ESG") factors forms an important part of our process. Whilst the management of the Company's investments is not undertaken with any specific instructions to exclude certain asset types or classes, we embed ESG into the portfolio and sector specific research on all positions in the portfolio as part of the investment process. ESG investment is about active engagement with the goal of improving the performance of assets held by the Company. We aim to make the best possible investments for the Company by understanding the whole picture of the companies invested in - 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 and valuation. With in excess of 1,000 investment professionals and more than 50 ESG specialists, we are able to take account of ESG factors in our company research, stock selection and portfolio construction. ESG considerations underpin all investment activities.

Outlook

After the first quarter of 2023, anyone hoping for calmer markets after a turbulent 2022 would have been disappointed, with a sharp equity rally to start the year followed by a banking "crisis" which has hopefully largely passed by already. It has been a surprising start to the year in two ways. Firstly, fundamentals have so far been better than expected, with economic data proving resilient, A recession has so far been avoided and consensus forecasts have been upgraded from outright bearish to just slightly gloomy. Company results have proved to be better than expected, particularly in more cyclical areas of the market, with retailers and industrial companies rallying in recent months.

That should all support higher equity markets, but the second surprise in our view is that equities have risen as strongly as they have done. While the fundamentals have been less bad than feared, valuations already looked generous and it is notable that the market now prices in the lowest equity risk premium for many years once we account for impact of higher interest rates and slower profit growth based on consensus forecasts.

Interest rate expectations continue to drive the market direction, and we should not expect a pivot from central banks soon - falling energy costs have helped confidence rebound, but core inflation remains stubbornly high globally. Wage growth continues to surprise to the upside and, until this adjusts, central banks are unlikely to risk the rate cuts the market seems to be expecting. A correction in market levels is therefore likely in our view, especially as Q1 earnings could be a source of downgrades given that aggregate company margins remain close to all-time highs, something that should simply not persist with higher interest charges and wage inflation.

How do we reflect this outlook in the portfolio? The focus on quality companies and the generation of resilient income remains to the fore and becomes more important than ever. In a period where equity market returns could pause after an unprecedented run since the global financial crisis, income is likely to be a more important part of total return.

It is also worth noting that not all parts of the equity market are equally valued: the UK market remains at a record discount to other developed markets. In the last month we have started to see this reflected in a notable increase in acquisitions of UK listed companies (Wood Group and Dechra Pharmaceuticals are examples within the portfolio that have been bid for in the last few months). Unless the valuation gap closes, this is likely to continue and could be an additional tailwind, especially for UK companies with genuine barriers to entry and scarcity value which is underappreciated in public markets. For overseas investors, the need to deliver growth and margin improvement as organic opportunities reduce will likely compel further deals. So overall, a focus on income and stock selection is more important than ever as we look to generate returns.

Iain Pyle and Charles Lukeabrdn Investments Limited24 May 2023

Investment Portfolio - Equities

Investment Portfolio - Other Investments

Distribution of Assets and Liabilities

Directors' Report (extract)

The Directors present their report and audited financial statements for the year ended 31 March 2023.

Results and Dividends

The financial statements for the year ended 31 March 2023 are contained below. Dividends paid and proposed for the year amounted to 14.20p per Ordinary share.

First, second and third interim dividends for the year, each of 3.20p per Ordinary share, were paid on 28 October 2022, 27 January 2023 and 28 April 2023 respectively. The Directors recommend a final dividend of 4.60p per Ordinary share, payable on 28 July 2023 to shareholders on the register on 7 July 2023. The ex-dividend date is 6 July 2023. Under UK-adopted international accounting standards the third interim and final dividends will be accounted for in the financial year ended 31 March 2024. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting.

Investment Trust Status

The Company is registered as a public limited company (registered in England and Wales No. 00386561) and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust subject to it continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 April 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 March 2023 so as to enable it to comply with the ongoing requirements for investment trust status.

Individual Savings Accounts

The Company satisfies the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.

Capital Structure

During the year the Company issued 145,000 Ordinary shares of 50p each under its non pre-emptive allotment authority, raising £374,000 in aggregate on a non-dilutive basis. The issued Ordinary share capital at 31 March 2023 consisted of 30,964,580 Ordinary shares of 50p each and 50,000 3.5% Cumulative Preference Shares of £1 each.

Voting Rights

Each Ordinary and Cumulative Preference share carries one vote at general meetings of the Company. The Cumulative Preference shares carry a right to receive a fixed rate of dividend and, on a winding up of the Company, to the payment of such fixed cumulative preferential dividends to the date of such winding up and to the repayment of the capital paid up on such shares in priority to any payment to the holders of the Ordinary shares.

The Ordinary shares, excluding any treasury shares, carry a right to receive dividends and, on a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.

There are no restrictions on the transfer of Ordinary or Cumulative Preference shares in the Company other than certain restrictions which may from time to time be imposed by law.

Management Agreement

The Company has appointed abrdn Fund Managers Limited ("aFML"), a wholly owned subsidiary of abrdn plc, as its alternative investment fund manager. aFML has been appointed to provide investment management, risk management, administration, company secretarial services and promotional activities to the Company. The Company's portfolio is managed by abrdn Investments Limited by way of a group delegation agreement in place between aFML and abrdn Investments Limited. In addition, aFML has sub-delegated administrative and company secretarial services to abrdn Holdings Limited and promotional activities to abrdn Investments Limited. Details of the management fee and fees payable for promotional activities are shown in notes 4 and 5 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.

Substantial Interests

As at 31 March 2023, the following interests in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure Guidance and Transparency Rules:

There have been no changes notified to the Company between the year end and the date of approval ofthis Report.

Directors

Marian Glen retired as a Director on 6 July 2022. At the end of the year the Board comprised four non-executive Directors, each of whom is considered by the Board to be independent of the Company and the Manager.

The Directors attended scheduled Board and Committee meetings during the year ended 31 March 2023 as follows (relevant meetings in brackets):

A Retired 6 July 2022

The Board meets more frequently when business needs require and has regular dialogue between formal Board meetings, including with the Manager. There were two additional Board meetings and a number of committee meetings during the year, including to approve the new loan facility.

Under the terms of the Company's Articles of Association, Directors must retire and be subject to appointment at the first Annual General Meeting after their appointment by the Board, and be subject to re-appointment every three years thereafter. Directors with more than nine years' service are subject to annual re-appointment. However, the Board has decided that all Directors will seek annual re-appointment after initial appointment to the Board.

Each of Helen Sinclair, Robin Archibald, Robert Talbut and Jane Pearce will seek re-appointment at the Annual General Meeting.

The Board believes that all the Directors seeking re-appointment 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 each Director has the requisite high level and range of business, investment and financial experience which enables the Board to provide clear and effective leadership, oversight and proper governance of the Company. 

Following formal performance evaluations, the performance of each of the Directors seeking re-appointment continues to be effective. Each Director has demonstrated commitment to the role and the Board is satisfied that their individual performances contribute to the long-term sustainable success of the Company. All of the Directors have demonstrated that they have sufficient time and commitment to fulfil their directorial roles with the Company. The Board therefore recommends the re-appointment 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, as well as providing continuity of experience of the Company. 

It is the Board's policy that the Chairman of the Board will not normally serve as a Director beyond the Annual General Meeting following the ninth anniversary of his appointment to the Board. However, this may be extended in certain circumstances including the facilitation of 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 Chairman clearly set out.

The Role of the Chairman and Senior Independent Director

The Chairman is responsible for providing effective leadership to the Board, by setting the tone of the Company, demonstrating objective judgement and promoting a culture of openness and debate. The Chairman facilitates the effective contribution and encourages active engagement by each Director. In conjunction with the Company Secretary, the Chairman ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chairman 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 Chairman and acts as an intermediary for other Directors, when necessary. Working closely with the other Directors, the Senior Independent Director takes responsibility for an orderly succession process for the Chairman, and leads the annual appraisal of the Chairman's performance. The Senior Independent Director is also available to shareholders to discuss any concerns they may have.

Directors' and Officers' Liability Insurance

The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company. In addition, the Company has entered into a separate deed of indemnity with each of the Directors reflecting the scope of the indemnity in the Articles of Association. Under the Articles of Association, each Director is entitled to be indemnified out of the assets of the Company to the extent permitted by law against any loss or liability incurred by him or her in the proper execution of his or her duties in relation to the affairs 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, which may be amended from time to time to reflect regulatory and other changes. Other than the deeds of indemnity referred to above and the Directors' 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.

Board Diversity

The Board recognises the importance of having a range of skilled and 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, socio-economic background, 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. In doing so, the Board will take account of the targets set out in the FCA's Listing Rules, which are set out in the tables below.

As an externally managed investment company, the Board employs no executive staff, and therefore does not have a chief executive officer or a chief financial officer, both of which are deemed Senior Board Positions by the FCA. However, the Directors considers the chairmen of the Board committees to be Senior Board Positions and the following disclosures are made on this basis. Other Senior Board Positions recognised by the FCA are the Chairman of the Board and Senior Independent Director.

The Board has resolved that the Company's year end date is the most appropriate date for disclosure purposes. The following information has been provided by each Director through the completion of questionnaires.  There have been no changes since the year end.

Board Gender as at 31 March 2023

A Meets target of at least 40% as set out in LR 9.8.6R (9)(a)(i)

B Chairman of the Board, Senior Independent Director, Chairman of the Audit Committee & Chairman of the Management Engagement Committee

C Chairman of the Remuneration Committee 

D Meets target of at least 1 as set out in LR 9.8.6R (9)(a)(ii)

Board Ethnic Background as at 31 March 2023

E Does not meet target of at least 1 as set out in LR 9.8.6R (9)(a)(iii)

In relation to the ethnic diversity of the Board, the Directors recognise that this does not meet the target set out in the Listing Rules, as shown in the table above. The Directors will take this into account when making future Board appointments.

Corporate Governance

The Company is committed to high standards of corporate governance and the Board is accountable to the Company's shareholders for good governance. The Board has 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 Corporate Governance Code as published by the FRC in July 2018 (the "UK Code"), as well as setting out additional provisions on issues that are of specific relevance to investment trusts.

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 than if it had adopted the UK Code. 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 trusts.

The Board confirms that, during the year, the Company complied with the principles and provisions of the AIC Code. 

Further details of the Company's compliance with the AIC Code can be found on its website.

Going Concern

The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange. The Board has performed stress testing and liquidity analysis on the portfolio and considers that, in most foreseeable circumstances, the majority of the Company's investments are realisable within a relativelyshort timescale.

The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants, including the headroom available. At the year end, the Company had a £20 million loan facility which is due to mature in May 2027.

Having taken these factors into account, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for the period to 30 June 2024, which is at least twelve months from the date of approval of this Report. For these reasons, they continue to adopt the going concern basis of accounting in preparing the financial statements.

Accountability and Audit

Each Director confirms that, so far as he or she is aware, there is no relevant audit information of which the Company's Auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

Independent Auditor

The Company's Auditor, Ernst & Young LLP, has indicated its willingness to remain in office. The Board will place resolutions before the Annual General Meeting to re-appoint Ernst & Young LLP as Auditor for the ensuing year and to authorise the Directors to determine its remuneration.

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 information service.

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. 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 Chairman responds personally as appropriate.

Directors make themselves available to attend meetings with the Company's largest shareholders and meet other shareholders at the Annual General Meeting and, as explained in the Chairman's Statement, the Company will hold an Online Shareholder Presentation in advance of the Annual General Meeting this year including the opportunity for an interactive question and answer session.

The notice of the Annual General Meeting is, where practicable, 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. Further details regarding the arrangements for this year's Annual General Meeting and separate Online Shareholder Presentation are set out in the Chairman's Statement.

Annual General Meeting

The Annual General Meeting will be held at Wallacespace Spitalfields, 15-25 Artillery Lane, London E1 7HA on Thursday 6 July 2023 at 12 noon.

By order of the Boardabrdn Holdings Limited Company Secretary1 George StreetEdinburgh EH2 2LL24 May 2023

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year, and under that law they have chosen to prepare the financial statements in accordance with UK-adopted international accounting standards. 

The financial statements are required by law to 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 in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently; 

- make judgments and estimates that are reasonable and prudent;

- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

- provide additional disclosures when compliance with the specific requirements in UK-adopted international accounting standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance;

- state whether the financial statements have been prepared in accordance with UK-adopted international accounting standards subject to any material departures disclosed and explained in the notes to the financial statements; and 

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud andother 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 inother jurisdictions.

The Board confirms that to the best of its 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;

·  in the opinion of the Directors, the Annual Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and

·  the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

On behalf of the BoardRobert Talbut Chairman24 May 2023

Statement of Comprehensive Income

Balance Sheet

Statement of Changes in Equity

Cash Flow Statement

Notes to the Financial Statements

For the year ended 31 March 2023