SIGT.L Regulatory News (SIGT)

To: RNS

From: Seneca Global Income & Growth Trust plc

LEI: 213800OQTUSRFDIL9L29

Date: 2 December 2020

SENECA GLOBAL INCOME & GROWTH TRUST PLCANNOUNCES INTERIM RESULTS

Unaudited results for the six months ended 31 October 2020

Chairman's Statement

Highlights for the period

· Net asset value total return +10.5% vs Benchmark +3.6%

· Share price total return +10.6%

· Annualised volatility 22.5% vs 27.6% for the FTSE All-Share Index†

· Quarterly dividend rate unchanged at 1.68p per share

· Yield of 4.8% based on the period-end share price and the current quarterly dividend rate

· Quarterly dividend rate to be maintained for this financial year at least

· Discount Control Mechanism - issuance nil; buybacks £11.1m

· Shares traded very close to net asset value throughout the period

· Shareholders approved all resolutions at the AGM by over 98% majority

† Source: FTSE Russell®/Morningstar/Seneca Investment Managers (the 'Manager')

Performance

Seneca Global Income & Growth Trust plc ('SIGT' or 'the Company') generated a net asset value ('NAV') total return per share of +10.5% for the six months to 31 October 2020. This was above the CPI +6% annualised Benchmark, which returned +3.6% over the period. The Company's Benchmark was adopted in July 2017 and performance against this Benchmark is measured over a 'typical investment cycle' which the Board believes is at least five years. Short term comparisons are therefore of little relevance though longer term comparisons remain entirely valid and appropriate. The underlying asset classes represented by the range of comparator indices shown on page three of the Interim Report reflect most of the asset classes in which SIGT invests. These comparator indices provide some context for short term performance but direct comparisons should still be used with caution.

COVID-19 continues to dominate all of our lives but the health crises it has brought about will pass. Indeed, there are reasons to be optimistic about the progress of vaccine trials and treatments, although, while many of us remain subject to 'lock-down' measures, it is hard to feel positive and to imagine a return to normality. COVID-19 has brought many new expressions into our lexicon, not the least of which is 'the new normal'. Perhaps that will simply turn out to reflect many trends that were already in place but have been accelerated to our collective benefit.

In my Statement to Shareholders this June, I highlighted the main factor that negatively affected SIGT's performance during the market decline from late February to late March was the Manager's Value Investing style. SIGT's strong performance during the six-month period under review has not particularly been related to any change to the investing style background. Growth Investing has continued to outshine Value Investing, with the extraordinary performance of the large technology companies in America of particular note. Rather, SIGT's performance can largely be credited to strong share price performances from a number of the investment trust holdings within Specialist Assets (as wide discounts narrowed) and to the portfolio's bias to UK mid- and small-cap companies, where some liquidity returned to that part of the market. The real upside from a change in sentiment towards Value Investing remains to be realised.

The Manager's Review provides greater analysis and explanation of the portfolio's performance over the period.

Dividends

The Company paid two interim dividends of 1.68p per share for the period, unchanged over the equivalent dividends last year. It is the Board's intention, barring unforeseen circumstances, that it will at least maintain the quarterly rate of 1.68p per share for the full year to 30 April 2021 and, based on this quarterly rate, the shares yielded 4.8% on the share price of 141p at the period end.

As explained in the Annual Report published in June 2020 and re-iterated in subsequent dividend announcements, there are many listed companies that have been forced, or have decided it is prudent, to cut, suspend or cancel their dividends. It remains to be seen how long these actions or policies will last and what level of dividends such companies will distribute in due course. Once this becomes clearer, the Board will evaluate an appropriate level for the Company's dividend. Until then, it is the Board's intention, barring further unforeseen circumstances, that it will at least maintain the quarterly dividend rate of 1.68p per share.

The Board believes it is right to do what it can to help Shareholders through this extraordinarily difficult and stressful period. One of the great strengths of investment trusts is their ability to pay dividends, if necessary or appropriate, out of historically accumulated revenue and other reserves. The Company is well endowed with distributable reserves and is comfortably able to sustain the current dividend rate for the year to April 2021, even though that will mean paying an uncovered dividend.

Discount Control Mechanism ('DCM')

The Company's DCM has been operating since August 2016 and, from then until the beginning of the six-month period under review, SIGT had issued a net total of 7.8m shares. During the period, SIGT issued no shares and bought back 7.9m such that, since the DCM's inception, an overall net total of 0.1m shares were bought back. Naturally, the Board would rather the Company was a net issuer of shares as it has been in past periods, but it is resolute in its application of the DCM - both to protect Shareholders against the share price trading at a material discount to its NAV and to provide Shareholders with liquidity. These aims are achieved while also enhancing NAV for continuing Shareholders by virtue of the shares being bought back at a small discount. Since the launch of the DCM, the Company's NAV has been enhanced by £316,574 through the small premium and the small discount taken on the issue and buy back of the Company's shares. It is hoped that SIGT is thought of as looking after the interests of all its Shareholders and that those who have chosen to sell may return to the Shareholder register in the future.

Gearing

The Board announced in early November 2020 that SIGT had renewed its £10m revolving credit facility with The Royal Bank of Scotland International Ltd for a further two years. At the period end, £7m was drawn down and during the period the average net gearing level was 11%. A small amount of the drawn facility was held in cash, or similar, to allow almost instant access to funds should the need have arisen. The undrawn element of the facility is in place largely to assist with the operation of the DCM, enabling gearing levels to be maintained when the DCM results in the issuance of new shares, and providing short term working capital, if necessary, when shares are bought back.

Investment Manager

The Board is able to confirm the completion of the acquisition of SIGT's Investment Manager, Seneca Investment Managers Ltd, by Momentum Global Investment Management Ltd ('MGIM') as proposed on 13 October 2020. As stated in its announcement of that date, the Board is supportive of this development: the companies share a philosophy of outcome-based multi-asset Value Investing, the Manager's current investment management team will retain its portfolio management responsibilities, and the transaction will be structured to ensure that clients experience seamless continuity of service with the additional benefits of a stronger offering and broader capabilities.

The Board anticipates there will be no change to SIGT as a consequence of the transaction save for a change to the Company's name in due course to reflect the Manager's integration into MGIM and consequent re-branding. The Board understands there are no redundancies foreseen as a result of the transaction and that the Manager's Liverpool office will supplement MGIM's London office with the intention of growing the combined multi-asset business.

Annual General Meeting ('AGM') and Circular

At the AGM held in July, Shareholders approved all resolutions, each by a majority of over 98%, including those resolutions that help with the effective management of the DCM, specifically allowing the Company to issue shares equivalent to 30% of its equity and to buy back up to 14.99%. As a consequence of the buy backs made during the period, the remaining authority has diminished to the point where the Board has today issued a Circular to seek Shareholder approval to renew its authority to buy back shares. As mentioned above in the DCM paragraph, the Board is resolute in its application of the DCM to both protect Shareholders against the share price trading at a material discount to its NAV and to provide Shareholders with liquidity. The renewal of the buy-back authority is essential to the effective management of the DCM.

The Board believes that this resolution is in the best interests of the Company and all its Shareholders and strongly recommends that Shareholders vote in favour of the resolution as the Directors intend to do in respect of their own beneficial shareholdings of 298,402 shares.

Change of Auditor

During the period, the Board carried out a formal tender process for the appointment of new auditors to the Company. This is no reflection on the quality of the existing auditors' work or any issue other than cost.

Ernst & Young LLP have formally resigned, after serving as auditors to the Company since 1997, and the Board has appointed BDO LLP following the competitive tender process. BDO LLP will carry out the audit for the year ending 30 April 2021 and Shareholders will be asked to approve their re-appointment for the following year at the 2021 AGM. As required by law, a formal letter from Ernst & Young LLP in relation to their resignation accompanies the Interim Report.

Investment Outlook

The Board and Manager believe an inflection point for the Growth vs Value investment style factors may well have taken place on 9 November with the news of the Pfizer/BioNTech vaccine trial's success. It may sound extraordinary to suggest a single event on a specific day caused such an inflection point, but investment markets have certainly reacted in that manner. SIGT has performed strongly in this environment with a NAV total return per share of 12.4% for the month of November. It is now possible to imagine a timetable for recovery even if it takes many months and is difficult, whereas before 9 November this was not possible and so the reaction of investment markets makes sense. They are, after all, no more than discounting the future. How sustained this reaction is and, within that, the change of investment style leadership from Growth to Value remains to be seen and will be influenced by other news and developments, not least in relation to Brexit. But it is clear that SIGT has significant potential to perform well, and the Board and Manager believe the events and performance in November illustrate just how dramatic this can be.

Richard Ramsay

Chairman

1 December 2020

Manager's Review

Overview

Markets began the road to recovery during the period with most major equity markets bouncing back strongly from their March lows. This has not been a broad market recovery and has been driven by a select few elements. Our view at the bottom of the market was that the sell-off was extreme and would be relatively short term in nature. We used it as an opportunity to increase those holdings with valuations that we deemed too expensive prior to the market falls. Governments have acted swiftly with support programmes such as the furlough schemes and central banks have massively increased liquidity. This has prompted markets to move upwards but we believe this is merely the first stage of the recovery and investor confidence is yet to rebound. If we look into the dynamics of the recovery, Growth stocks, and in particular a reasonably small number of them, have led the recovery. The FAANG stocks (Facebook, Amazon, Apple, Netflix and Google, now called Alphabet) were the highest performers in the COVID-induced downturn, which is understandable as they were strong beneficiaries of the lockdown. They have also led the performance from the market lows, up 49% over the six-month period. This suggests that the market mentality in previous months was very much one of pessimism and the initial gains were more about the central bank liquidity and government support packages than the market predicting an economic recovery. With the recent vaccine announcements, we are now starting to see the early stages of a much broader market recovery.

We can see this in our portfolio. Our Specialist Assets have rebounded well as many were trading on wide discounts in March which have narrowed since. Our allocation to mid-caps has benefitted from the increased liquidity and over the period small-caps have outperformed large-caps by an average of 6% across major equity markets. These two tailwinds have been contributors to our recent strong performance. However, the two major biases in the portfolio are Value and the UK. Neither factor has materially begun the road to recovery yet and these are the two parts of the portfolio that can provide the greatest upside when the negative sentiment begins to thaw. Over the period Value stocks generally underperformed Growth stocks by an average of 15% across equity markets and UK equities also continued to lag their global peers, with the FTSE All-Share returning -2% versus the FTSE World returning +10.6%. We are now at a point in time where the Value style and UK equities have significantly underperformed for a number of years, and we see compelling valuations in these areas.

As the economy slowly recovers and as the UK emerges from Brexit uncertainty, we fully expect these valuation anomalies to close. Taking a long-term and contrarian approach is a tough endeavour at certain times in the cycle, particularly when Momentum investing has been strong for a number of years, witness the Nifty Fifty bull market in the 1970s and the Tech boom at the turn of the millennium. Both periods were extremely tough for Value-focused investors. It is when an inflection point is reached that the greatest rewards can be reaped by a contrarian investor, and both these periods were followed by extremely strong performance for Value stocks.

Performance

The share price total return over the period was +10.6%, with a net asset value total return per share of +10.5%. The discount control mechanism continued to be implemented effectively to provide our investors with liquidity, and to keep the share price in line with the NAV. We believe the strong performance over the period is just the tip of the iceberg as our main equity exposure (UK Equities) is yet to participate in the recovery.

Specialist Assets was the strongest performing asset class (+17.6%) and many wide discounts began to close. Of particular note were strong contributions from individual names; Merian Chrysalis rose by 46%, and an approach from M&G to purchase UK Mortgages Trust helped the latter's share price to increase 33% despite the offer being rejected by the board. DP Aircraft was the main detractor to performance with a fall in share price of 78% as its aircraft remain largely grounded.

The main detractors to portfolio performance were stocks that have been more exposed to the impact of COVID-19, many of which are within the UK Equities exposure. We believe that the UK has been hindered by the Government's response to the pandemic and has not participated yet in the recovery. Furthermore, the Brexit negotiations at the time of writing have failed to reach a conclusion.

However, there have been some bright spots in the UK market. Halfords was able to remain open throughout the lockdown and benefitted from an increased interest in cycling. Purplebricks was also oversold in March but the market has begun to recognise that the company can operate mainly online. The UK Government has also introduced stamp duty breaks and the company's Canadian business was sold for £77m of net cash.

Source: Seneca Investment Managers/StatPro Revolution

Asset Allocation

Our asset allocation is highly influenced from our bottom-up analysis. Since the market lows at the end of March we have been increasing exposure to asset classes with clear valuation opportunities. As both market and currency moves have been significant over the period the starting and end weights are not a clear reflection of our asset allocation moves. The key area where we have been adding capital is the UK, where we have been buying stocks at valuations similar, or in some cases lower, than we witnessed in the global financial crisis. As you would expect we have been funding this move with reductions in Fixed Income, Defensive Assets and, in particular, our Gold exposure which performed well during the crisis and recently hit the $2,000 per ounce mark. We have also increased exposure to Specialist Assets. This was both to capture upside, as many trusts were trading on what we felt were exceptionally large discounts, and the propensity for trusts to pay income was much higher than for their equity peers.

UK Equities

As we identified UK Equities as the asset class which will provide the best long term returns from the low point in March there has been considerable activity that cannot be seen simply from the start and end of period allocations. Firstly, we took the market drawdown as an opportunity to add a number of new investments such as Diversified Gas & Oil (DGOC). Going into 2020 we had no exposure to oil companies. The collapse in oil prices did pique our interest but rather than investing in one of the capital-intensive oil majors we opted for a lesser-known company. DGOC operates mature gas and oil fields in the Appalachian basin in North America. We view them as Value managers in the space in that they seek to acquire mature, cash generative assets at attractive yields. They are not an exploration company and are almost exclusively an operator, which keeps capex low and return on capital high. To further decrease volatility of cash flows DGOC hedges the majority of its commodity exposure. For example, 90% of the next two years natural gas production is hedged and then 50% of the following two years. This approach ensures strong visibility of income. Oil and gas wells tend to suffer steep falls in production over time. DGOC seeks to purchase mature wells in which the levels of decline are lower than 5%. However, it has managed to keep production levels constant over the last few years, effectively delivering a revenue uplift of $24m. In the present environment, in which many dividends are being suspended or cut, DGOC recently issued a Q3 update announcing EBITDA up over 10% and a 7% dividend increase. This represents a dividend rise of 15% this year.

We also added Stryx Group which few people will be familiar with but most will use their products. The business was founded in 1951 by an inventor who created temperature controls to prevent kettles overboiling. Today Stryx has a 54% market share in the kettle market. This is potentially a large growth market as surprisingly kettle penetration per household is only 38% globally. The group has also expanded its IP into faster growing markets such as water filtration and other temperature control products, for example baby feed sterilisation machines.

Another new purchase is M&G which has recently spun off from Prudential. It was another victim of the COVID sell off as asset managers suffered from lower assets under management and fee margin pressure. However, this is a complicated business and asset management fees are only around 30% of the company's profit. M&G has an extremely strong and stable annuity book and is planning to launch a version of its highly successful Pru Fund internationally. The Pru Fund grew from £1bn in 2008 to £54bn in 2019 so, if a similar version distributed through their European partners has a fraction of this success, we believe it will aid the share price immensely. The dividend at the time of purchase was around 8.5% and we estimated around 1.6x covered. The company has paid all dividends throughout the COVID crisis.

Overseas Equities

The key change has been the introduction of a new US Equity fund into the portfolio. We still hold the view that US equities are generally expensive but dispersion in the US reached record levels with a small number of high growth companies dominating the market. We believe that US Value stocks remain attractive and the pandemic crisis presented us with an opportunity to gain exposure to the Conventum Lyrical Fund in Q2 at a very attractive entry point. The manager looks for stocks in the cheapest quintile of the US market. The strategy was launched in 2007 and the manager has an excellent performance record over this time. Between 2007 and 2017 the fund traded on a price to earnings discount to the S&P 500 of around 23%. From 2017 Value stocks started to underperform significantly with the fund trading at an 80% discount to the index. In 2020 the fund traded at 9.6x earnings, versus 21.4x for the index. This could imply the fund contains poor quality businesses with declining earnings but this is not the case. Since inception (2007), the portfolio's stocks have seen earnings per share grow at 7.1% versus the S&P 500 4.8%. You may then ask are these companies impaired by the impact of COVID and therefore had their current earnings hampered? At the peak of the crisis the portfolio's 2020 earnings were forecast to decline 21% versus the S&P decline of 26%. To us this is compelling. A record discount to the market - yet an earnings forecast that is exceeding the market. The reasons for the discount are the environment and sentiment. People want to own the glamorous tech stocks but disregard companies such as the not so glamorous glass manufacturer and the underwear brand that are held in the Conventum Lyrical Fund portfolio. The environment and sentiment look set to change, and when they do these stocks should re-rate significantly.

By way of another example of recent activity, the Morant Wright Fuji Yield Fund is managed by six highly experienced fund managers who have all worked at the large asset gathering firms but set up a boutique asset manager in 1999, focusing only on Japanese equities. Japan has been cheap for many decades, but with the introduction of new economic policies under Prime Minister Abe, or "Abenomics", things began to change, and this path looks set to continue under Prime Minister Suga. This fund targets Japanese companies with strong balance sheets. Many companies in Japan have large amounts of cash and/or investments and at times these companies can be valued much lower than the sum of their parts. Compelling valuations are nothing new in Japan but we see value being increasingly unlocked through improving dividend payout ratios, greater shareholder activism, private equity activity and corporate M&A.

Specialist Assets

This has been a strong period for Specialist Assets. Almost all of our holdings have posted positive returns with the majority returning over 10%. Many of our holdings were over-sold in March and April. Huge discounts to NAVs emerged at this time as the market expected NAVs to fall even further. In most cases those NAV falls did not happen and even the select few which cancelled or reduced their dividends recovered as normal distributions were resumed. This has been extremely important to our portfolio given the weakness in equity dividends. We have even seen some dividend increases in the past few months from Hipgnosis Songs Fund, International Public Partnerships and JLEN Environmental Assets. We added one new name to our Specialist Assets allocation through our participation in the IPO of Home REIT. Home REIT was launched in October and is focussed on addressing homelessness through the acquisition and creation of high-quality accommodation. The trust will put together a portfolio that can provide suitable accommodation at a much-lower cost to local authorities than many of their current homing solutions. Home REIT will purchase properties at an acquisition yield of 5.75%, add 35% leverage and then rent the properties on 25-year leases to housing associations which will manage the properties on full repair and insure leases. The housing association is paid the housing benefit from the local authority. Rents are agreed with the local authorities and are inflation linked (with a cap at 4% pa and a collar at 1% pa). Investors will be paid 5.5% yield and the trust expects total returns to be 7.5% per annum.

We still believe that a number of our Specialist Assets are mispriced and have significant potential upside. An example of this would be Ediston Property REIT which operates a number of out of town retail parks. Lockdown proved very tough for high-profile shopping mall owners. However, Ediston's strategic focus is on the discount and convenience retailers (e.g. M&S food, B&M, Halfords and B&Q stores), all of which were able to stay open during lockdown and the discount retailers in particular are thriving. B&M has a number of stores on Ediston sites and their share price is up 26% this year. It is reporting increased footfall on out-of-town retail parks as a result of the pandemic as consumers would rather drive to retail parks than use public transport into city centres.

Fixed Income

An element of our Fixed Income holdings has been sold and used as a source of funding to purchase Equity and Specialist Assets. The main source of funding has been Royal London Global Short Duration High Yield. Towards the end of 2019 we had been reducing Royal London Sterling Extra Yield and exited the holding. During the pandemic crisis credit spreads widened and we saw this as an opportunity to reintroduce Royal London Sterling Extra Yield. This has been funded by a further reduction in Royal London Global Short Duration High Yield.

Portfolio Income

We have significant diversification of income generators in our portfolio. Equity markets have seen unprecedented levels of dividends being cancelled or cut. Our Specialist Assets exposure was less affected at the peak of the crisis and has seen dividend payments normalise quickly. This has resulted in the share of income shifting from UK Equities in 2019 to Specialist Assets in 2020. As markets begin to normalise, we would expect this distortion to begin to neutralise and UK Equities to make stronger contributions to income in 2021.

Outlook

We remain mindful that this is no ordinary environment for investors, but eventually the virus risk will subside and every day we believe we are progressing back towards normality. The recent announcements of a number of potential vaccines should be a turning point for market sentiment and provide a great springboard for Value stocks. However, the complexities and unknown elements of the COVID crisis and Brexit negotiations continue to exercise considerable influence on market sentiment making predictions for the short to medium term nothing more than educated guesswork. We seek to invest for the long term in attractive businesses and funds; we focus on valuations and tend to be contrarian to the general market consensus, and we employ a rigorous bottom-up investment process. We held our nerve when fear was at its peak and we are beginning to see the rewards of those actions. We should continue to be rewarded as this crisis eases.

Seneca Investment Managers Limited

1 December 2020

Enquiries:

David Thomas, Seneca Investment Managers Limited 0151 906 2480

Gary Moglione, Seneca Investment Managers Limited 0151 906 2461

PATAC Limited 0131 378 0500

Unaudited Income Statement

The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.

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

Audited Income Statement

The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.

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

Statement of Changes in Equity

Six months ended 31 October 2020 (unaudited)

Six months ended 31 October 2019 (unaudited)

Year ended 30 April 2020 (audited)

Notes

1. Accounting policies

Basis of accounting

The half yearly financial statements have been prepared in accordance with FRS 104 'Interim Financial Reporting', UK Generally Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in October 2019). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The half yearly financial statements have been prepared on a going concern basis and have been prepared using the same accounting policies as the preceding annual financial statements.

2. Income

3. Return per share

The revenue return of 2.36p (31 October 2019 - 3.78p; 30 April 2020 - 6.79p) per Ordinary share is calculated on net revenue on ordinary activities after taxation for the year of £1,040,000 (31 October 2019 - £1,844,000; 30 April 2020 - £3,322,000) and on 43,998,927 (31 October 2019 - 48,778,099; 30 April 2020 - 48,937,757) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period.

The capital return of 12.21p (31 October 2019 - loss of 6.63p; 30 April 2020 - loss of 46.57p) per Ordinary share is calculated on a net capital return for the period of £5,372,000 (31 October 2019 - loss of £3,232,000; 30 April 2020 - loss of £22,792,000) and on 43,998,927 (31 October 2019 - 48,778,099; 30 April 2020 - 48,937,757) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period.

The total return of 14.57p (31 October 2019 - loss of 2.85p; 30 April 2020 - loss of 39.78p) per Ordinary share is calculated on the total return for the period of £6,412,000 (31 October 2019 - loss of £1,388,000; 30 April 2020 - loss of £19,470,000) and on 43,998,927 (31 October 2019 - 48,778,099; 30 April 2020 - 48,937,757) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period. 

4. Dividends

Ordinary dividends on equity shares deducted from reserves are analysed below:

The Company has declared a second interim dividend in respect of the year ending 30 April 2021 of 1.68p (2020 - 1.68p) per Ordinary share which will be paid on 18 December 2020 to Ordinary shareholders on the register on 27 November 2020.

5. Net asset value per share

6. Called-up share capital

During the period, the Company repurchased 7,918,740 Ordinary shares at a cost of £11,105,000 which were held in treasury (31 October 2019 - 714,000 Ordinary shares at a cost of £1,237,000 which were held in treasury; 30 April 2020 - 2,626,000 Ordinary shares at a cost of £3,759,000 which were held in treasury).

During the period there were no Ordinary shares re-issued from treasury (31 October 2019 - 2,170,273 Ordinary shares re-issued from treasury for cash proceeds totalling £3,849,000; 30 April 2020 - 2,550,273 Ordinary shares re-issued from treasury for proceeds totalling £4,498,000).

At 31 October 2020 there were 9,800,740 Ordinary shares held in treasury (31 October 2019 - 350,000 Ordinary shares held in treasury; 30 April 2020 - 1,882,000 Ordinary shares held in treasury).

During the period there were no new Ordinary shares issued by the Company (31 October 2019 - 364,727 new Ordinary shares issued by the Company for cash proceeds totalling £643,000; 30 April 2020 - 364,727 new Ordinary shares issued for cash proceeds of £643,000).

At 31 October 2020, there were 39,800,348 Ordinary shares in issue (31 October 2019 - 49,251,088; 30 April 2020 - 47,719,088).

The cost of the operation of the discount control mechanism of £26,000 has been charged against the share premium account.

7. Fair Value Hierarchy

Financial Reporting Standard 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

- Level 1: the unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date;

- Level 2: inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly; and

- Level 3: inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The financial assets measured at fair value in the Balance Sheet are grouped into the fair value hierarchy at 31 October 2020 as follows:

(a) Quoted Investments

Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges and the fair value of these investments have been determined by reference to their quoted bid prices at the reporting date. The fair value for OEICs included in Level 1 has been determined based on prices published by the relevant fund manager. Those OEICs included within Level 1 are quoted in an active market. The fair value for OEICs in Level 3 has been determined based on prices published by the relevant fund manager with the application of an illiquidity discount.

(b) Delisted Investments

Blue Capital Global Reinsurance Fund is in liquidation. The fair value is based on the current value of the fund, as provided by the relevant fund manager, with the appropriate liquidation discount.

8. Half-Yearly Financial Report

The results for the six months ended 31 October 2020 and six months ended 31 October 2019, which have not been reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on "Review of Interim Financial Information", constitute non-statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the year ended 30 April 2020 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2),(3) or (4) of the Companies Act 2006.

9. This Half-Yearly Report was approved by the Board on 1 December 2020.

The report and accounts for the half-year ended 31 October 2020 will be posted to shareholders and made available on the website https://senecaim.com/private-investors/investment-trust/. Copies may also be obtained from the Company Secretary, PATAC Limited, 28 Walker Street, Edinburgh, EH3 7HR.

Principal Risks and Uncertainties

Risks are inherent in the investment process, but it is important that their nature and magnitude are understood so that risks, particularly those which the Company does not wish to take, can be identified and either avoided or controlled. The Board has established a detailed framework of the key risks that the business is exposed to, with associated policies and processes devised to mitigate or manage those risks. The principal risks faced by the Company are set out below.

Pandemic Risk: The COVID-19 pandemic has brought unprecedented challenges to the world and its rapid development has delivered an abrupt shock to the global economy. Since the start of 2020, the pandemic has moved quickly from being an emerging risk of the Company to the principal risk. The Company is exposed to market risk, with volatile and falling markets brought about by the pandemic, as well as investment and earnings risks surrounding the companies in the portfolio, such as reduced demand, reduced turnover and supply chain breakdown. SIML continues to review carefully the composition of the Company's portfolio and to discuss this with the Board on a regular basis. Operationally, COVID-19 is also affecting the suppliers of services to the Company, including SIML and other key service providers. This represents a risk to the Company and the Board is reviewing regularly the mitigation measures which have been put in place to maintain operational resilience and their effectiveness. Working from home arrangements have been implemented by the Company's service providers where appropriate and government guidance is being followed. To date services have continued to be supplied as normal.

Investment and Strategy Risk: The Board is responsible for deciding the investment strategy to fulfil the Company's objectives and monitoring the performance of the Manager. Inappropriate strategy, including country and sector allocation, stock selection and the use of gearing, could lead to poor returns for Shareholders. To manage this risk the Board requires the Manager to provide an explanation of significant stock selection decisions and the rationale for the composition of the investment portfolio at each Board meeting, when gearing levels are also reviewed. The Board monitors the spread of investments to ensure that it is adequate to minimise the risk associated with particular countries or factors specific to particular sectors. The Manager also provides the Board and Shareholders with monthly factsheets.

Market Risk: The Company's assets consist principally of listed equities and fixed income securities and its greatest risks are in consequence market-related. In addition to ordinary movements in the prices of the Company's investments and the loss that the Company might suffer through holding investments in the face of negative market movements, the Company's use of gearing necessarily amplifies this risk. The Board seeks to mitigate this risk through the processes described in the paragraph above and monitoring the implementation and results of the investment process with the Manager.

Financial Risk: The Company's investment activities expose it to a variety of financial risks that include market price risk, foreign currency risk, interest rate risk and liquidity and credit risk.

Earnings and Dividend Risk: The earnings that underpin the amount of dividends declared and future dividend growth are generated by the Company's underlying portfolio. Fluctuations in earnings resulting from changes to the underlying portfolio or changes in the tax treatment of the dividends or interest received by the Company could reduce the level of dividends received by Shareholders. The Board monitors and manages this risk by considering detailed income forecasts prepared by the Manager and Company Secretary at each Board meeting and when the quarterly dividends are declared.

Operational Risk: The Company relies upon the services provided by third parties and is reliant on the control systems of the Manager and the Company's other service providers. The security and/or maintenance of, inter alia, the Company's assets, dealing and settlement procedures and accounting records depend on the effective operation of these systems, including controls to address cyber risk. These are regularly tested and monitored and are reported on at each Board meeting. An internal control report, which includes an assessment of risks, together with the procedures to mitigate such risks, is prepared by the Company Secretary and reviewed by the Audit Committee at least once a year. The Custodian, J.P. Morgan Chase Bank N.A., produces an internal control report every six months which is reviewed by its auditors and gives assurance regarding the effective operation of controls. A summary of this report is reviewed by the Audit Committee.

Regulatory Risk: The breach of regulatory rules could lead to a suspension of the Company's stock exchange listing or financial penalties. Breach of Sections 1158 and 1159 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on chargeable gains. The Company Secretary monitors the Company's compliance with the Listing Rules of the FCA and Sections 1158 and 1159 of the Corporation Tax Act 2010. Compliance with the principal rules is reviewed by the Directors at each Board meeting.

Key Man Risk: In order to reduce key man risk, the Manager operates a team approach to fund management, with each member of the four strong highly experienced investment team contributing to the performance of the Company through their research specialisations.

Directors' Statement of Responsibilities in Respect of the Half-Yearly Financial Report

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the Directors confirm that to the best of their knowledge:

• the condensed set of financial statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) on a going concern basis, and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;

• the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

• the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year;

• the half-yearly report includes a fair review of the related party transactions that have taken place in the first six months of the financial year; and

• in light of the controls and monitoring processes that are in place, the Company has adequate resources and arrangements to continue operating within its stated objective and policy for the foreseeable future. Accordingly, the accounts continue to be drawn up on the basis that the Company is a going concern.

Richard Ramsay

Chairman

1 December 2020