SLS.L Regulatory News (SLS)

STANDARD LIFE UK SMALLER COMPANIES TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020

Legal Entity Identifier (LEI): 213800UUKA68SHSJBE37

Investment Objective

To achieve long-term capital growth by investment in UK-quoted smaller companies

Reference Index

The Company's reference index is the Numis Smaller Companies plus AIM (ex investment companies) Index.

Website

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

COMPANY OVERVIEW - FINANCIAL HIGHLIGHTS

For further information, please contact:

Scott Anderson

Evan Bruce-Gardyne

Aberdeen Standard Investments

0131 372 2200

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.

STRATEGIC REPORT - CHAIRMAN'S STATEMENT

Introduction

It gives me great pleasure to address shareholders for the first time as Chairman following my appointment on 31 March 2020. Shareholders will all be aware of the excellent long term track record of the Company, and I would like to pay tribute to the role played by my predecessor, Allister Langlands, in leading the Company and, in particular, leading the merger with Dunedin Smaller Companies Investment Trust in October 2018.

COVID-19

Assuming the role of Chairman can be a challenge, but it is hard to envisage a more complex time to do so than eight days after the FTSE All-Share Index experienced its most abrupt four week fall since November 1987, in the wake of the COVID-19 pandemic. In our industry, we tend to focus on the economic impact of an unforeseen event, but as shareholders will fully appreciate, COVID-19 is much more far reaching in its impact. In the short term it has changed the way we live and work in a myriad of ways. The unanswerable question is to what extent and how quickly we will revert to what we knew as "normal life" and what the impact will have been on both the global and national economies. Against such a backdrop, your Investment Manager will have a task on its hands identifying the companies that will be able to adapt successfully to this new norm. The onset of the crisis in the UK, which occurred in late February, came eight months into your Company's year and so the impact on the Revenue Account was softened given much of the investment income had already been received. But clearly the 2021 Revenue Account will also be affected as a number of companies have cut or suspended their dividends.

During this period, the Board liaised closely with the Manager to receive updates on performance and to obtain confirmations that the operations of the Manager and those of other third party service providers were operating effectively.

Performance

For the year ended 30 June 2020, the Company's Net Asset Value ("NAV") total return, calculated on the basis that all dividends received are reinvested in additional shares, was -0.5%. The share price total return, calculated on the same basis, was -0.1%. By contrast, the total return of the Company's reference index, the Numis Smaller Companies plus AIM (ex-investment companies) Index, was significantly worse at -10.7%. This is, regrettably, the second year in a row that we have had to report negative absolute returns to you albeit also a second year of meaningful outperformance against the reference index. However, given the market collapse in March, when the portfolio lost almost over 40% of its value, the fact that we are reporting a NAV total return that is down only 0.5% underlines the pace of the recovery in share prices from the initial severe market reaction to the pandemic. I would also observe that one year numbers can be volatile; had the year end of the Company been in May, then we would have reported positive numbers both in 2019 and this year.

Earnings and Dividends

The basic revenue return per share for the year ended 30 June 2020 was 6.74p (2019: 8.80p). The net decline of over 23% is a consequence of dividend cuts and suspensions that were announced by a raft of investee companies largely in March and April.

This decline in earnings means that the portfolio has not generated sufficient income, after costs, to cover fully a dividend of the same amount as in 2019. The understandable reaction to the COVID crisis by a number of the investee companies of cutting their dividends is the root cause of the shortfall in distributable income. The Board discussed at length the implications of this shortfall on its options for the dividend and concluded that it should recognise one of the key benefits of investment trusts, that of being able to use revenue reserves to smooth dividends when the need arises, as in the current exceptional circumstances. In arriving at its decision, the Board considered a range of factors, including the investment objective of the Company, the likely shape of the wider recovery and the Investment Manager's outlook for the Revenue Account in 2021 and 2022. The Board also considered the implications on the revenue reserves and concluded that it was prudent to hold the dividend at the same level as in 2019, given the uncertainty in the timing of a sufficient recovery or in case there is a set back in the recovery of dividend distributions by investee companies. The Board is therefore proposing a final dividend of 5.00p per share, which will make a total dividend payment for the year of 7.70p per share, the same level as in 2019. This will require that £959,000, or 0.96p per share, is drawn from revenue reserves.

Subject to approval by shareholders at the Annual General Meeting to be held on 21 October 2020, the final dividend will be paid on 30 October 2020 to shareholders on the register on 2 October 2020 with an associated ex-dividend date of 1 October 2020. 

Ongoing Charges

The ongoing charges ratio for the year ended 30 June 2020 was 0.88% (2019: 0.90%). The Company has benefited from the management fee reduction put in place from July 2018 and economies of scale following the merger with Dunedin Smaller Companies Investment Trust PLC in October 2018. The ongoing charges figure for the year is the lowest that it has been over the lifetime of the Company.

Discount Control and Buy Backs

At the year end the discount of the share price to the cum-income NAV was 8.7% (2019: 8.9%).

The discount was more volatile than in previous years, even before the events of March. Over late summer and early autumn in 2019 it traded around the 8% limit where the Board has indicated that it will intervene and buy back shares. In August and September, the Company bought back 485,640 shares. However, from then until the end of 2019, the share price outperformed the NAV and the Company ended the calendar year on a 1.8% premium. While the Board could have issued shares, it concluded that the thin volumes over the Christmas period were not representative of the balance between supply and demand. The premium did not endure into the new year. During March, the volatility of the share price and NAV increased to the point where in five trading days the share price moved from trading at a premium of 5% to a discount of 16%. The Board considered that the Company was not operating in "normal market conditions" and did not look to issue or buy back shares until markets became more stable, and the Company then bought back a small number of shares in May.

Over the year, the Board bought back 520,213 shares, equating to 0.5% of the Company's issued share capital, at a total cost of £2.4 million and a weighted average price of 466.15p per share. The weighted average discount was 8.8%. The Board calculates that this has added 0.2p per share to the NAV for remaining shareholders.

The Board aims to ensure that the discount to the cum-income net asset value does not exceed 8% in normal market conditions. The timing and scale of share buy-backs will be at the discretion of the Board. Full details of the Board's Discount Control Policy can be found in the Overview of Strategy. The average discount for the year as a whole was 5.6%. 

Gearing

The Board has given the Investment Manager discretion to vary the level of gearing between 5% net cash and 25% net gearing (at the time of drawdown). During the year, £25 million of fixed-rate borrowing was deployed at a fixed cost of 2.349%. The £20 million revolving credit facility was drawn in full in December 2019. However, as the impact of COVID-19 became apparent, the facility was repaid in full towards the end of March 2020. At the year end, the gross level of borrowings was offset by cash and cash equivalents of £26.5 million so that the Company had net cash of 0.3% (2019: net gearing 1.5%).

Board Succession

As previously announced, Allister Langlands retired from the Board on 31 March 2020. Allister had been a Director of the Company for 5½ years, including 2½ years as Chairman during which time he oversaw the merger with Dunedin Smaller Companies Investment Trust which has helped consolidate the position of the Company. The Board wishes him well in his retirement.

AGM and Investment Manager's Presentation

The Board intends to hold the Annual General Meeting ("AGM") of the Company at the offices of the Manager, Aberdeen Standard Investments, 6 St Andrew Square, Edinburgh EH2 2BD at 12 noon on 21 October 2020.

The Board has been considering how best to deal with the potential impact of the COVID-19 pandemic on arrangements for the Company's AGM. The Company is required by law to hold an AGM and the Board had been working on the basis that the Company's AGM would be held on 21 October 2020 as previously scheduled. Given the possibility that some measure of restriction on public gatherings and maintaining social distancing may remain in place in October, the Board has resolved to amend the format of the AGM for this year. Therefore, whilst the formal business of the AGM (as set out in the Notice of AGM) will be considered, the meeting will be functional only, and will follow the minimum legal requirements for an AGM. There will be no physical presentation from the investment managers and no refreshments will be offered. If the guidance on public gatherings remain in place in October, shareholders are strongly discouraged from attending the meeting and indeed entry may be refused if the law and/or Government guidance so requires. In such circumstances, arrangements will be made by the Company to ensure that the minimum number of shareholders required to form a quorum will attend the meeting in order that the meeting may proceed and the business concluded. The Board considers these revised arrangements to be in the best interests of shareholders in the current circumstances.

A presentation from the Investment Manager, along with the AGM results, will be made available to shareholders on the Company's website shortly after the AGM.

In light of the developing situation and the revised format of this year's meeting, shareholders are encouraged to raise any questions in advance of the AGM with the Company Secretary at standardlife.smaller@aberdeenstandard.com (please include 'SLS AGM' in the subject heading). Questions must be received by 5.00pm on 19 October 2020. Any questions received will be replied to by either the Manager or Board via the Company Secretary.

In light of the outbreak and evolving government guidance, the Company will continue to keep arrangements for the AGM under review and it is possible the arrangements will need to change. We will keep shareholders updated of any changes through the Company's website (standardlifeuksmallercompaniestrust.co.uk) and announcements to the London Stock Exchange. We trust that shareholders will be understanding of this approach.

The Board strongly encourages all shareholders to exercise their votes in respect of the meeting in advance by completing the enclosed form of proxy, or letter of direction for those who hold shares through the Aberdeen Standard Investments savings plans. This should ensure that your votes are registered in the event that physical attendance at the AGM is not possible or restricted. Further details on how to attend and vote at Company Meetings for holders of shares via other share plans and platforms can be found on the AIC's website at: theaic.co.uk/aic/shareholder-voting-consumer-platforms.

Amendments to the Articles of Association

The Board is proposing that the Company adopts amended Articles of Association at the Annual General Meeting. The proposed amendments being introduced primarily relate to changes in law and regulation and developments in market practice since the existing Articles of Association were adopted, and principally include:

- provisions enabling the Company to hold shareholder meetings using electronic means (as well as physical shareholder meetings or hybrid meetings); and

- changes in response to the introduction of international tax regimes requiring the exchange of information.

While the new Articles of Association (if adopted) would permit shareholder meetings to be conducted using electronic means, these provisions will only be used where the Directors consider it is in the best of interests of shareholders for a hybrid or virtual-only meeting to be held. Nothing in the new Articles of Association will prevent the Company from holding physical shareholder meetings.

The amendments in relation to holding shareholder meetings using electronic means are being sought in response to challenges posed by government restrictions on social interactions as a result of the COVID-19 pandemic, which have made it impossible for shareholders to attend physical general meetings. The Board recognises that the AGM is an important occasion where shareholders can meet and question the Manager and the Board. 

The Board is committed to ensuring that future general meetings (including AGMs) incorporate a physical meeting where shareholders can meet with the Board, face to face, and where law and regulation permits. The potential to hold a general meeting through wholly electronic means is intended as a solution to be adopted as a last resort to ensure the continued smooth operation of the Company in extreme operating circumstances where physical meetings are effectively prohibited.

The Directors have no present intention of holding a virtual-only general meeting.

Outlook

While the future is always, by its very nature, uncertain, visibility is particularly foggy at present. The outcome of the US presidential election in November will inevitably have far-reaching implications for geopolitics given the very different stances of the two candidates. Closer to home, the Brexit negotiations appear to be making slow progress and given the limited time to complete them, the possibility of a hard Brexit remains. These events are coming on the back of the COVID crisis, which caused much of the global economy to come to a sudden halt. The level and speed of the return of economic activity in many sectors is unpredictable given that the virus has not been overcome, there is no vaccine and there is a great deal of concern about the likelihood and impact of a second wave.

Against such a backdrop, it must be assumed that the UK's path to recovery will be patchy and may suffer setbacks before it is fully established. But, as is clear from the Investment Manager's Review, the COVID crisis has affected different sectors in different ways. Some areas of the economy effectively stopped and will remain fragile for some time, while others have been beneficiaries from the move to homeworking. The Board takes comfort from the fact that the Investment Manager's process has been effective in identifying the companies that have had the resilience to weather the storm thus far. The portfolio has recovered strongly since the nadir in mid-March, outperforming the reference index, the FTSE All-Share Index and most of the peer group and, at the time of writing, has generated positive total returns over the last twelve months.

In line with the likely path of the recovery, it is eminently possible that the Company will face set backs in the short term, and the Investment Manager has stressed that the portfolio often underperforms in times of sharp recovery, when the share prices of companies most affected by a downturn often bounce very quickly from the depressed levels at which they had been trading, however the Board remains confident that the Investment Manager's process is robust and should continue to deliver outperformance over the long term.

Liz Airey

Chairman

8 September 2020

STRATEGIC REPORT - OVERVIEW OF STRATEGY

Business

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

Investment Objective

The Company's objective is to achieve long-term capital growth by investment in UK-quoted smaller companies.

Investment Policy

The Company intends to achieve its investment objective by investing in a diversified portfolio consisting mainly of UK-quoted smaller companies. The portfolio will normally comprise around 50 individual holdings representing the Investment Manager's highest conviction investment ideas. In order to reduce risk in the Company without compromising flexibility, no holding within the portfolio should exceed 5% of total assets at the time of acquisition.

The Company may use derivatives for portfolio hedging purposes (i.e. only for the purpose of reducing, transferring or eliminating the investment risks in its investments in order to protect the Company's portfolio).

Within the Company's Articles of Association, the maximum level of gearing is 100% of net assets. The Directors have set parameters of between 5% net cash and 25% net gearing (at the time of drawdown) for the level of gearing that can be employed in normal market conditions. The Directors have delegated responsibility to the Investment Manager for the operation of the gearing level within the above parameters.

Board Investment Limits

The Directors have set additional guidelines in order to reduce the risk borne by the portfolio:

- Companies with a market capitalisation of below £50 million should not represent more than 5% of total assets.

- Companies involved in "Blue Sky" products should not represent more than 5% of total assets.

- No more than 50% of the portfolio should be invested in companies that are constituents of the FTSE AIM All-Share Index.

Investment Process

The Investment Manager's investment process combines asset allocation, stock selection, portfolio construction, risk management, and dealing. The investment process has evolved out of the Investment Manager's 'Focus on Change' philosophy and is led by Quality, Growth and Momentum. The Investment Manager's stock selection led investment process involves compiling a shortlist of potential investments using a proprietary screening tool known as "The Matrix" which reflects Quality, Growth and Momentum based factor analysis. The final portfolio is research intensive and includes face to face meetings with senior management of these potential investments. This disciplined process has been employed for many years and has delivered a consistency of performance through economic and market cycles.

Reference Index

The Company's reference index is the Numis Smaller Companies plus AIM (ex investment companies) Index.

Delivering the Investment Objective

The Directors are responsible for determining the Company's investment objective and investment policy. Day-to-day management of the Company's assets has been delegated, via the Alternative Investment Fund Manager (the "AIFM"), to the Investment Manager.

Promoting the Success of the Company

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

Key Performance Indicators ("KPIs")

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

Principal Risks and Uncertainties

The Board carries out a regular review of the risk environment in which the Company operates, changes to the environment and individual risks. The Board also considers emerging risks which might affect the Company. During the year, the most significant risk was the emergence of the COVID-19 virus during the first part of 2020 which has impacted dramatically on public health and mobility, but has also had a significant adverse influence on global financial markets and the future economic outlook.

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.

The principal risks and uncertainties faced by the Company are reviewed by the Audit Committee in the form of a risk matrix and the Committee also gives consideration to the emerging risks facing the Company.

The 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.

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 Aberdeen Standard Investments on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by Aberdeen Standard Investments. The Company also supports Aberdeen Standard Investments' investor relations programme which involves regional roadshows, promotional and public relations campaigns. Aberdeen Standard Investments' 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 Board recognises the importance of communicating effectively with existing shareholders and prospective investors. The promotional programme includes commissioning independent paid for research on the Company, most recently from Edison Investment Research Limited. A copy of the latest research note is available from the Latest News section of the Company's website.

Board Diversity Policy

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow it to fulfil its obligations. The Board also recognises the benefits and is supportive of the principle of diversity in its recruitment of new Board members. The Board will not display any bias for age, gender, race, sexual orientation, religion, ethnic or national origins, or disability in considering the appointment of its Directors. In view of its size, the Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment and the Board does not therefore consider it appropriate to set measurable objectives in relation to its diversity.

At 30 June 2020, there were two male and three female Directors on the Board.

Modern Slavery Act

Due to the nature of its business, being a company that does not offer goods and services to customers, the Board considers that the Company is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

Environmental, Social and Human Rights Issues

The Company has no employees as the Board has delegated the day to day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is set out below.

Environmental, Social and Governance ("ESG") Investing

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

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

Responsible Investment 

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

The Company's ultimate objective is to deliver long term growth on its investments for its shareholders which the Board and Investment Manager believes will be produced on a sustainable basis by investments in companies which adhere to best practice in ESG. Accordingly, the Investment Manager will seek to favour companies which pursue best practice.

Active Engagement

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

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

The Investment Manager aims for better risk-adjusted returns by actively undertaking informed and constructive engagement and asset management to generate better performance from its investments. Comprehensive assessment of ESG factors, combined with constructive company engagement, should lead to better client outcomes.

Stewardship

The Company supports the UK's Stewardship Code, and seeks to play its role in supporting good stewardship of the companies in which it invests. Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager. Standard Life Aberdeen 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.

Discount Control Policy

The Board operates a discount control mechanism which targets a maximum discount of the share price to the cum-income net asset value of 8% under normal market conditions. In pursuit of this objective, the Board closely monitors the level of the discount and buys back shares in the market when it believes it is in the best interests of shareholders as a whole to do so. At each Annual General Meeting, the Board seeks shareholder approval to buy back up to 14.99% of the Company's share capital. Share buy-backs will only be made where the Board believes it to be in the best interests of shareholders as a whole and the making and timing of share buy-backs will be at the discretion of the Board.

The Company has a tender offer mechanism in place and the Board intends to continue to seek shareholder approval at each Annual General Meeting to enable it to carry out tender offers on a discretionary basis in circumstances where the Board believes that share buy-backs are not sufficient to maintain the discount at an appropriate level, although it expects that buy-backs should be the primary mechanism for managing the discount.

Viability Statement

The Board considers that the Company, which does not have a fixed life, is a long term investment vehicle and, for the purposes of this statement, has decided that five years is an appropriate period over which to consider its viability. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than five years.

Taking into account the Company's current financial position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report.

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

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

- The Company is invested in readily-realisable listed securities in normal market conditions and there is a spread of investments held.

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

- The Company's long term performance record.

- The Company's level of gearing. The Company had a net cash balance of 0.3% of net assets as at 30 June 2020. The Company has a £45 million unsecured loan facility agreement with The Royal Bank of Scotland International Limited which matures on 31 October 2022. The Board has set overall limits for borrowing and reviews regularly the Company's level of gearing, cash flow projections and compliance with banking covenants. The Board has also performed stress testing and liquidity analysis.

- The Company typically has cash balances which, including money market funds, at 30 June 2020 amounted to £26.5 million. These balances allow the Company to meet liabilities as they fall due.

- The level of ongoing charges.

- There are no capital commitments currently foreseen that would alter the Board's view.

- Current market conditions caused by the global spread of the COVID-19 virus. In particular, the Board has considered the operational ability of the Company to continue in the current environment, which has been impacted by the global COVID-19 pandemic and the ability of the key third-party suppliers to continue to provide essential services to the Company.

In assessing the Company's future viability, the Board has assumed that shareholders will wish to continue to have exposure to the Company's activities in the form of a closed ended entity, performance will continue to be satisfactory, and the Company will continue to have access to sufficient capital.

In making its assessment, the Board is also aware that there are other matters that could have an impact on the Company's prospects or viability in the future, including a greater than anticipated economic impact of the spread of the COVID-19 virus, economic shocks or significant stock market volatility caused by other factors, and changes in regulation or investor sentiment.

Future Strategy

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

On behalf of the Board

Liz Airey

Chairman

8 September 2020

STRATEGIC REPORT - PROMOTING THE SUCCESS OF THE COMPANY

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

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

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

The Board's philosophy is that the Company should operate in a transparent culture where all parties are treated with respect 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 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 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 (and Investment Manager), service providers, investee companies and debt providers. More broadly, the environment and community at large are also stakeholders in the Company.

How the Board Engages with Stakeholders

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

Specific Examples of Stakeholder Consideration During the Year

While the importance of giving due consideration to the Company's stakeholders is not a new requirement, and is considered during every significant Board decision, the Directors were particularly mindful of stakeholder considerations during the following decisions undertaken during the year ended 30 June 2020. Each of these decisions was made after taking into account the short and long term benefits for stakeholders. Time was also spent in ensuring the Board met corporate governance requirements which continue to evolve, including the introduction of the new AIC Code of Corporate Governance.

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. As explained in the Directors' Report, during the year, the Management Engagement Committee decided that the continuing appointment of the Manager was in the best interests of shareholders.

Dividends

Following the payment of the final dividend for the year, of 5.0p per Ordinary share, total dividends for the year will amount to 7.7p per Ordinary share, unchanged from the previous year.

Share Buy Backs

In accordance with the discount control policy included within the Overview of Strategy, during the year the Company bought back 520,213 Ordinary shares to be held in treasury, providing a small accretion to the NAV per share and a degree of liquidity to the market at times when the discount to the NAV per share has widened in normal market conditions. It is the view of the Board that this policy is in the interest of all shareholders.

At the end of December 2019, the Company's shares were trading at a premium of 1.8%. While the Board could have issued shares, it concluded that the thin volumes over the Christmas period were not representative of the balance between supply and demand. The premium did not endure into the new year.

Amendments to the Articles of Association

The Board is proposing that the Company adopt amended Articles of Association (the "New Articles") at the Annual General Meeting this year. The proposed amendments being introduced in the New Articles primarily relate to changes in law and regulation and developments in market practice since the existing Articles of Association were adopted, and principally include:

- provisions enabling the Company to hold shareholder meetings using electronic means (as well as physical shareholder meetings or hybrid meetings); and

- changes in response to the introduction of international tax regimes requiring the exchange of information.

A summary of the principal amendments being introduced in the New Articles which the Board considers will be of most interest to shareholders is set out in the appendix to the Notice of AGM.

Directorate

The Board progressed its succession plans during the year resulting in the decision to appoint Liz Airey as an independent non-executive Director on 21 August 2019 and Chairman with effect from 31 March 2020. Further details are provided in the Directors' Report. The Board considers that shareholders' interests are best served by ensuring a smooth and orderly refreshment of the Board which serves to provide continuity and maintain the Board's open and collegiate style.

STRATEGIC REPORT - RESULTS

Financial Highlights

STRATEGIC REPORT - PERFORMANCE

Performance (total return)

Ten Year Financial Record

STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW

The Company generated a net asset value total return ("NAV TR") for the year to 30 June 2020 of -0.5%, while the share price fell by 0.1% on a total return basis. By comparison, the UK smaller companies sector as represented by the Numis Smaller Companies plus AIM (ex Investment Companies) Index fell by 10.7% on a total return basis. Over the same period, the FTSE 100 Index of the UK's largest listed companies fell by 13.8% on a total return basis. Since the appointment of Aberdeen Standard Investments to manage the Company at the end of August 2003, the share price total return of the Company has been 1,199%, while the reference index has returned 347% and the FTSE 100 Index has returned 177%.

Equity Markets

Equities, and more especially smaller companies equities, were extremely volatile during the year in question. Although the Company's share price remained almost unchanged from the start of the financial year, it fell by just over 50% in the month following 20 February 2020 when the impact of the COVID-19 pandemic took hold in investors' minds. In a few short weeks, euphoria turned to the depths of despair, reaching its nadir on 19 March. Thankfully, a semblance of stability has since returned to markets.

During 2019, markets fell from June to August as concern about a recession in the USA took hold, with a yield inversion occurring in August, whereby short interest rates were higher than long rates; normally a sure sign of impending recession. In addition, a trade war between the USA and China loomed large. It also felt like a disorderly Brexit was on the cards. Then the Federal Reserve reversed its policy and cut rates and a stage one trade treaty was signed. It then became less likely that a potential disastrous "no deal" Brexit would happen. An emphatic Conservative victory at the General Election in December 2019 provided enough constitutional clarity to afford the promise that consumers and businesses in the UK would be happier to spend and invest. Top-down global macro investors took this as a signal to increase their exposure to UK mid-cap companies, in particular, as an investable way of accessing the recovery in the UK economy. This led to a euphoric bounce in UK mid-cap markets in the last three weeks of the calendar year.

2020, however, brought the advent of COVID-19. By late February, particularly once Italy was impacted, governments across the world introduced radical containment measures. Unprecedented "lock down" measures and "social distancing" resulted in an immediate economic slump across the world of unprecedented proportions. Markets, particularly UK smaller companies, fell dramatically over the next month. The FTSE 250 Mid-Cap Index collapsed by 41% while the FTSE 100 Index fell by 33% between mid-February and mid-March. This is the swiftest monthly fall in UK markets that we have ever seen. National Monetary authorities were quick to introduce wide-ranging financial support ranging from interest rate cuts, furloughing, loan support for businesses and the deferral of taxes. Markets responded quickly and have made significant recoveries with the FTSE 250 Index rising 33% by 30 June 2020 but it is still 21% below its level at the start of the crisis. It is notable that the technology-heavy Nasdaq Index rose dramatically, led by the so called FAANG stocks that are actual beneficiaries of "working from home". It is also relevant that the Alternative Investment Market ("AIM") stocks have performed well during the recovery. The FTSE AIM Index is only 9% below the level it was at on 21 February 2020.

The tone of company trading statements was generally negative during the six months to 31 December 2019. This was particularly the case for building, construction and retail sectors. Industrials were also generally weak, as were financial services, oil services, personal goods and healthcare. Auto dealers were a particularly negative feature. Media and real estate strengthened while software weakened, particularly data services related companies that were seen as potentially impacted by Brexit concerns. This latter group were to see a dramatic recovery in the post-election closing weeks of the year. In the two days after the election the FTSE 250 Index rose by 6%.

Following the outbreak of the COVID-19 pandemic, smaller companies responded quickly to the emergency, where necessary furloughing staff, shoring up balance sheets, cutting dividends, taking pay cuts, working from home where possible and keeping investors in touch by conference calls. Some sectors were effectively closed down, such as transport, restaurants, leisure and retailers. Others saw substantial declines in activity, including industrials, construction, oil & gas, some real estate and some media. Others were unchanged, such as some media, asset managers, speciality financials and other real estate. Certain sectors actually benefitted from working from home, such as leisure goods, on-line retailing and food manufacturing.

Unlike during the banking crisis, the Company saw significant numbers of holdings cut or suspend their dividends, perhaps as much as 40%. Although latterly a number have reinstated dividend payments as the outlook has generally improved from the extreme pessimism of late March.

The weakest part of smaller companies was the cyclical heavy FTSE SmallCap Index while the growth rich AIM market recovered strongly in the April to June period.

The oil price as measured by Brent oscillated between $82 per barrel in January 2020 and $19 in March. Indeed the West Texas Intermediate version fell into negative territory for a brief period as storage in the US ran out and demand collapsed. Copper started the year at $285, fell to $218 in March 2020 before rising to $291 by the year end. The gold price rose steadily by 35% from $1,409 per oz to $1,901, representing a flight to safety.

Acquisition & Merger activity in smaller company markets was subdued, with no holdings in the portfolio bid for. However, in the post COVID rally, fund raising by the issue of new equity was very buoyant. Listed companies were either shoring up their balance sheets to see them through what is expected to be a tough time, economically, or raising war chests in anticipation of good value purchases in the economic fallout to come. Not surprisingly, the hard hit travel and leisure sector was at the forefront of fund raising activity with fully 17 members of this sector raising money. This included travel companies Dart Group (Jet2), On the Beach, National Express and Air Partner and pub companies, Whitbread, JD Wetherspoon, Revolution Bars, Loungers and City Pub Co.

Performance

The portfolio out-performed its benchmark in five of the six months of the second half of calendar 2019 with October and November being particularly strong. July was the only month of underperformance. Performance either tended to be driven by stock-specific events or where there was a perception about exposure to Brexit. For example, data service companies such as Kainos and FDM were weak on Brexit concerns, only to recover sharply after the General Election.

In uncertain economic and geopolitical times our focus on Quality, Growth and Momentum has been beneficial pretty much throughout the year. The removal of uncertainty with the General Election also led to a very strong finish to the calendar year both in relative and absolute terms. While the absolute value of the portfolio fell almost 22% during March 2020, the month of COVID panic, the NAV total return in the month outperformed the index by over 3%. The matrix factor "Altman Z Scores", a composite measure of balance sheet and cash flow strength, came into its own with a dramatic flight to quality in the market. Our view that our investment process provides resilience in difficult market conditions was vindicated.

In 2020, the best sector performers were either defensive or actual beneficiaries of the impact of COVID, notably working from home. These were leisure goods, food manufacturers and telecoms. Lock down helped Games Workshop, Team 17 and Focusrite as young people required their attention to be diverted during the long hours stuck indoors. Cranswick (pork) and Hilton Foods (beef, fish) benefited from increased supermarket shopping. Gamma Communications was a major beneficiary of working at home. Interestingly, a couple of media stocks performed strongly. They both have adapted well to the provision of advertising and market research in the digital world; Future, in special interest verticals, and GlobalData in online sector specific market research. Asset managers performed reasonably well. In general they adapted well to working from home and benefited from rising equity values from April onwards. An example of this included AJ Bell. Electronics stocks also performed well (XP Power & discoverIE); the semiconductor cycle turning up and the early start to manufacturing recovery in China was helpful. Software was mixed; those with recurring revenues did well (Aveva, GB Group) while those without (FDM) did less well. First Derivatives struggled following the unexpected death of the CEO and founder, Brian Conlan, while the other Ulster business, Kainos, benefited strongly from digitalisation trends hastened by COVID-19. The real estate companies did surprisingly well, particular Safestore and Big Yellow in self-storage. Both of them managed a dividend increase.

On the negative side, transport and leisure, restaurants and food to go, traditional retailers and more cyclical sectors like construction, building materials and resources were savaged. The story of Dart Group is of note. This high-quality value-for-money, customer-focused airline soared from £8 per share when Thomas Cook went into administration to £20 per share at the end of 2019, only to collapse to £3 per share in the teeth of the COVID panic. The shares were 835p per share on 30 June 2019 and 842p per share on 30 June 2020; a roller coaster of a year. The company raised equity in May and is in good shape to see out the crisis.

One theme that did not work well was that of buying standout companies in difficult sectors. The COVID emergency put paid to that. Stocks held that fitted that category included Dart Group, Morgan Sindall (construction), Robert Walters (recruitment), Greggs (food to go) and Motorpoint (used car retailing).

The five leading performers for the period were as follows:-

Games Workshop (closing weight: 4.6%), the table-top hobby games (Warhammer) company traded strongly post COVID. Prodigious operating margins of 36% helped along with their growing world market position.

Hilton Foods (closing weight 4.1%) saw healthy demand as supermarkets saw a surge in demand as COVID struck.

Future (closing weight 3.8%), the special interest magazine and on-line title operator led by the redoubtable Zillah Byng-Thorne, continued to make strong progress.

Cranswick (closing weight 3.4%) saw strong growth in demand as restaurants remained closed with supermarkets soaking up the demand. Pork prices were robust as African swine flu caused havoc in Chinese pigsties where more than half the world's pigs live.

XP Power (closing weight 3.2%) has recovered strongly to new highs as the semiconductor cycle turned up and factories in China and Vietnam opened up quickly.

On the negative side, Fevertree Drinks lost its fizz as it struggled to make progress in the USA. Next15 Communications was seen as risky as a media stock exposed to the advertising cycle. Robert Walters in recruitment lost momentum as the economy turned down. Midwich, the audio-visual display company, suffered from a loss of capital investment amongst its customer base. Retail brand Joules saw demand sag. James Fisher, the diversified marine engineering company, has a modicum of exposure to offshore oil and gas which was negative. Finally, Ricardo, the diversified auto engineering consultant, saw a post COVID slump in demand.

Dealing and Activity

The five largest additions to the portfolio were as follows:-

Greggs. We bought back into Greggs. The company continues to trade ahead of expectations following some particularly effective PR with the launch of the vegan sausage roll and steak bake, alerting potential customers to changes at the company that made it worthwhile giving the baker turned "food-to-go" company another try. However, Greggs now faces serious post-COVID challenges as it grapples with social distancing and quiet high streets, shopping centres and travel hubs.

Boohoo Group. A new holding was added as the company thrives in the post COVID world of fast fashion, test and repeat and the rejuvenation of high street names in an online world. However, accusations of sweat shop conditions amongst some of their suppliers and of the initial tardy response of management to the institution of an external investigation suggested that ESG concerns were not being taken as seriously as they should. Aggressive share price led senior management bonus plans were also of concern. The shares have been sold since the year end.

Trainline is a recent new issue. It is the train and bus booking website and app that is very popular in the UK but also performing strongly on the continent. Post COVID, however, means that demand will be sluggish until confidence in rail travel returns.

Focusrite is a worldwide leader in the manufacture and marketing of electronic and techno music equipment that can be used at home and professionally. Increasingly, high quality electronic music is being made at home. The COVID-19 emergency has given Focusrite a demand boost. Focusrite is a new holding.

GlobalData. More was added to this holding. It is the research company with the chief executive we know well from his days at Datamonitor. GlobalData is just the same except it is enabled for on-line delivery.

Apart from those mentioned above, five other new holdings were added to the portfolio. They were Liontrust Asset Management, Avon Rubber, a gasmasks and body-armour company for the US military, AB Dynamics, a specialist advanced auto testing equipment company, Sumo, a developer of video games software, and Alpha FX, a currency trading platform for small and medium sized businesses. The latter has been sold. A number of other significant additions were made, including Games Workshop, Alpha Financial Markets, the consultant to the asset management industry, AJ Bell, the wealth management platform, and Cranswick, the pork products company.

The key sales were as follows:-

Five holdings that had become too large to be described as smaller companies were substantially sold down. They were Intermediate Capital Group, Dechra Pharmaceuticals, JD Sports Fashion, Abcam and Fevertree Drinks. The latter four have returned more than three times their original book values.

Eight holdings have been sold completely. These are Ted Baker, Accesso, the theme park software company, ECO Animal Health, the animal antibiotics company, Nucleus Financial, the wealth management platform, Hostelworld, the hostel booking platform and Joules, the branded retailer. These holdings failed to comply with our investment process. Fevertree Drinks and Alpha FX were also sold completely.

Other significant holdings sold down included Morgan Sindall, the diversified construction company, Robert Walters, Greggs (post the start of COVID), FDM, the IT training company, and RWS, the high level language translation and localisation company.

Sector Exposures

The key sector exposures include software, support services, speciality financials, leisure goods, media, real estate, food manufactures, telecoms and electronics. Specialty financials, real estate, leisure goods and media showed significant increases. For the Company, the sectors that increased in weighting were generally the most resilient in the COVID emergency, such as wealth management platforms (AJ Bell) and fund administration platforms (JTC, Sanne), leisure goods (Games Workshop, Focusrite, Team17), self storage (Safestore, Big Yellow) and media (Future, GlobalData).

There are no holdings in the mining, or oil & gas sectors. There are also no materials stocks such as paper & packaging, industrial minerals or chemicals sectors. The Company remains light in the more cyclical sectors such as house building, building materials, transport and leisure.

Outlook

It is disappointing to see that this is the second year of negative net asset value total returns for the Company, albeit only by 1.1% last year and 0.5% this year. Given the turmoil of the last couple of years we would say that this is actually a good result. The chaos over Brexit and the political instability of the post-election May government has been almost forgotten in contrast to the real and immediate dangers of COVID-19.

Our view is that we have passed the worst in stock market terms and that 19 March 2020 might have been the low point. However, with the potential for further spikes in COVID outbreaks, a vaccine some way off, and a difficult negotiation on Brexit ahead, the recovery may be punctuated by setbacks.

We are of the view that the COVID emergency has accelerated change in what has always been a dynamic business environment. This means that the internet of things, cloud computing and all the other technological breakthroughs will continue to increase the level of Corporate Darwinism evident in the world. This encourages our thinking that growth, along with quality and momentum, must remain central to the process. There is the possibility that we will see a "dash for trash" rally at some point as we adapt to the new world order. Were this to occur, there may be a period where we see significant outperformance for cyclical, slow growth industries where companies are on low traditional valuations. They, however, can be traps for the unwary.

Last year we introduced the strong companies in difficult sectors theme. This theme failed to deliver as sector leaders like Dart Group and Motorpoint were dragged down by circumstance. These companies, however, are the ones with the balance sheets and market presence to see it through to the other side and prosper at the expense of weaker competitors.

We actually feel more confident about smaller companies now. The downturn that we have been predicting for at least five years now has arrived. The sector as a whole has under-performed for the last couple of years in anticipation of the downturn, as in 2007 and 2008 in the lead up to the banking crisis. The first half of the next upturn is normally positive for the smaller companies sector relative to larger companies. The AIM market has come of age with a preponderance of profitable growth businesses and wide sector dispersion. We feel the pipeline of new listings will improve from current low levels as markets recover. There are still a wide range of UK companies coming through that match our investment criteria, with a number of new smaller names having been added in the recent past.

As we have said before, our process remains unchanged. Our emphasis on risk aversion, resilience, growth and momentum still feels right for the future. Caution should be the watch-word however.

Investing in smaller companies should be viewed as a long-term investment and we have no doubt that patient investors will be rewarded in the longer term. Our stable process has been seasoned by four full economic cycles. We remain very optimistic about the prospects for the portfolio and the Company in the long term.

Harry Nimmo, Abby Glennie and Amanda Yeaman

Aberdeen Standard Investments

8 September 2020

PORTFOLIO - TEN LARGEST INVESTMENTS

As at 30 June 2020

INVESTMENT PORTFOLIO

As at 30 June 2020

PORTFOLIO - SECTOR DISTRIBUTION OF INVESTMENTS

DIRECTORS' REPORT (EXTRACT)

The Directors present their report and the audited financial statements of the Company for the year ended 30 June 2020.

Results and Dividends

The financial statements for the year ended 30 June 2020 are contained below. An interim dividend of 2.70p per Ordinary share was paid on 10 April 2020 and the Directors recommend a final dividend of 5.00p per Ordinary share, payable on 30 October 2020 to shareholders on the register on 2 October 2020. The ex-dividend date is 1 October 2020.

Principal Activity and Status

The Company is registered as a public limited company in Scotland under company number SC145455, is an investment company within the meaning of Section 833 of the Companies Act 2006 and carries on business as an investment trust.

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

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

Capital Structure and Voting Rights

The Company's issued share capital at 30 June 2020 consisted of 100,065,198 (2019: 100,585,411) Ordinary shares of 25 pence each and there were 4,099,224 (2019: 3,579,011) Ordinary shares held in treasury, representing 4.1% of the issued share capital as at that date (excluding treasury shares).

During the year, 520,213 Ordinary shares were bought back into treasury.

Since the year end, the Company has bought back a further 20,355 Ordinary shares into treasury. Accordingly, as at the date of this Report, the Company's issued share capital consisted of 100,044,843 Ordinary shares of 25 pence each and 4,119,579 Ordinary shares held in treasury.

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

Management Agreement

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

Administration and company secretarial services have been provided by Aberdeen Asset Management PLC since 6 September 2019. Prior to that date these services were provided by Maven Capital Partners UK LLP.

The management fee is calculated as 0.85% per annum applying to the first £250 million of the Company's net assets, 0.65% per annum applying to net assets above this threshold until £550 million, and 0.55% applying to net assets above this threshold. In addition, the Manager is entitled to a secretarial and administration fee of £110,000 per annum, as uprated by movements in RPI. A fee of 0.02% of the net asset value of the Company in excess of £70 million is also payable. Such secretarial and administration fees are not to exceed £150,000 plus VAT in total per annum. The Manager also receives a separate fee for the provision of promotional activities to the Company, amounting to £100,000 plus VAT for the year ended 30 June 2020.

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

The management agreement is terminable on not less than six months' notice. In the event of termination by the Company on less than the agreed notice period, compensation is payable to the Manager in lieu of the unexpired notice period.

External Agencies

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

Substantial Interests

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

The table below sets out the interests in 3% or more of the issued share capital of the Company, of which the Board was aware as at 30 June 2020.

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

Directors

Liz Airey was appointed to the Board on 21 August 2019 and stood for election at the Annual General Meeting on 23 October 2019. Allister Langlands retired as a Director on 31 March 2020. In accordance with stewardship guidelines, Allister Langlands was not involved in the process for appointing his successor.

Each of the Directors is considered by the Board to be independent of the Company and the Manager and free of any relationship which could materially interfere with the exercise of their independent judgement on issues of strategy, performance, resources and standards of conduct. Liz Airey is the Chairman and Tim Scholefield is the Senior Independent Director.

The Board has carried out an annual review of its own performance and effectiveness which it undertook through individually completed questionnaires and follow up discussion. It concluded that the Board continues to operate well and effectively and is focussing on the right issues in its work to promote the success of the Company and that each Director makes a significant contribution to the Board.

The Directors attended scheduled Board and Committee meetings during the year ended 30 June 2020 as follows (with their eligibility to attend the relevant meetings in brackets):

A Was unable to attend Board meeting due to a conflict with an arrangement made prior to appointment to the Board.

B Was unable to attend Board meeting for personal reasons.

The Board meets more frequently when business needs require. During the year ended 30 June 2020 this included two Nomination Committee meetings and a Board meeting to approve the appointment of a new Director, and Board Committee meetings to approve the annual and half yearly financial statements. All Directors attended the Annual General Meeting held on 23 October 2019.

All of the Directors will retire and, being eligible, will offer themselves for re-election at the Annual General Meeting.

The Board believes that all the Directors seeking re-election remain independent of the Manager and free from any relationship which could materially interfere with the exercise of their judgement on issues of strategy, performance, resources and standards of conduct. The Board believes that 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 and proper governance of the Company. Following formal performance evaluations, each Director's performance continues to be effective and demonstrates commitment to the role, and their individual performances contribute to the long-term sustainable success of the Company. In addition, all Directors have demonstrated that they have sufficient time to fulfil their directorial roles with the Company. The Board therefore recommends the re-election of each of the Directors at the Annual General Meeting.

Board's Policy on Tenure

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

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 or her appointment to the Board. However, this may be extended in certain circumstances or to facilitate effective succession planning and the development of a diverse Board. In such a situation the reasons for the extension will be fully explained to shareholders and a timetable for the departure of the 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 Nomination Committee, the Senior Independent Director takes responsibility for an orderly succession process for the Chairman, and leads the annual appraisal of the Chairman's performance. The Senior Independent Director is also available to shareholders to discuss any concerns they may have.

Directors' and Officers' Liability Insurance

The Company's Articles of Association provide for each of the Directors to be indemnified out of the assets of the Company against any liabilities incurred by them as a Director of the Company in defending proceedings, or in connection with any application to the Court in which relief is granted. Directors' and Officers' liability insurance cover has been maintained throughout the financial year at the expense of the Company.

Management of Conflicts of Interest

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, each Director prepares a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.

The Company has a policy of conducting its business in an honest and ethical manner. The Company takes a zero-tolerance approach to bribery and corruption and has procedures in place that are proportionate to the Company's circumstances to prevent them. The Manager also adopts a group-wide zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption. Copies of the Manager's anti-bribery and corruption policies are available on its website.

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

Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code as published in July 2018 (the "UK Code"), which is available on the Financial Reporting Council's (the "FRC") website: frc.org.uk.

The Board has also considered the principles and provisions of the AIC Code of Corporate Governance as published in February 2019 (the "AIC Code"). The AIC Code addresses the principles and provisions set out in the UK Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. The AIC Code is available on the AIC's website: theaic.co.uk. It includes an explanation of how the AIC Code adapts the principles and provisions set out in the UK Code to make them relevant for investment companies.

The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC, provides more relevant information to shareholders.

The Board confirms that, during the year, the Company complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except as set out below.

The UK Code includes provisions relating to:

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

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

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

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

The Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions.

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

Matters Reserved for the Board

The Board sets the Company's objectives and ensures that its obligations to its shareholders are met. It has formally adopted a schedule of matters which are required to be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, operational and compliance issues.

These matters include:

- the maintenance of clear investment objectives and risk management policies;

- the monitoring of the business activities of the Company ranging from analysis of investment performance through to review of quarterly management accounts;

- monitoring requirements such as approval of the Half-Yearly Report and Annual Report and financial statements and approval and recommendation of any dividend;

- setting the range of gearing in which the Manager may operate;

- major changes relating to the Company's structure including share buy-backs and share issuance;

- Board appointments and removals and the related terms;

- authorisation of Directors' conflicts or possible conflicts of interest;

- terms of reference and membership of Board Committees;

- appointment and removal of the Manager and the terms and conditions of the Management Agreement relating thereto; and

- London Stock Exchange/Financial Conduct Authority - responsibility for approval of all circulars, listing particulars and other releases concerning matters decided by the Board.

Full and timely information is provided to the Board to enable it to function effectively and to allow the Directors to discharge their responsibilities.

Board Committees

The Board has appointed a number of Committees, as set out below. Copies of their terms of reference, which clearly define the responsibilities and duties of each Committee, are available on the Company's website, or upon request from the Company. The terms of reference of each of the Committees are reviewed and re-assessed by the Board for their adequacy on an ongoing basis.

Management Engagement Committee

The Management Engagement Committee comprises the full Board and is chaired by Tim Scholefield. The main responsibilities of the Committee include:

- monitoring and evaluating the performance of the Manager;

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

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

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

The Committee met twice during the year to 30 June 2020 and, following a review of performance and the terms of appointment of the Manager, recommended to the Board that the continuing appointment of the Manager was in the best interests of the shareholders and the Company as a whole. In reaching this decision, the Committee considered the Company's long-term performance record and concluded that it remained satisfied with the capability of the Standard Life Aberdeen Group to deliver satisfactory investment performance, that its investment screening processes are thorough and robust and that it employs a well-resourced team of skilled and experienced fund managers. In addition, the Committee is satisfied that the Standard Life Aberdeen Group has the secretarial, administrative and promotional skills required for the effective operation and administration of the Company.

Nomination Committee

The Nomination Committee comprises the full Board and is chaired by Liz Airey. The main responsibilities of the Committee include:

- regularly reviewing the structure, size and composition (including the skills, knowledge, experience, diversity and gender) of the Board;

- undertaking succession planning, taking into account the challenges and opportunities facing the Company and identifying candidates to fill vacancies;

- recruiting new Directors, undertaking open advertising or engaging external advisers to facilitate the search, as appropriate, with a view to considering candidates from a wide range of backgrounds, on merit, and with due regard for the benefits of diversity on the Board, taking care to ensure that appointees have enough time available to devote to the position;

- ensuring that new appointees receive a formal letter of appointment and suitable induction and ongoing training;

- arranging for annual Board performance evaluations to ensure that Directors are able to commit the time required to properly discharge their duties;

- making recommendations to the Board as to the position of Chairman, Senior Independent Director and Chairmen of the Nomination, Audit and Management Engagement Committees;

- assessing, on an annual basis, the independence of each Director;

- approving the re-election of any Director, subject to the UK Code, the AIC Code, or the Articles of Association, at the Annual General Meeting, having due regard to their performance, ability to continue to contribute to the Board in the light of the knowledge, skills and experience required and the need for progressive refreshing of the Board; and

- determining the Directors' remuneration policy and level of remuneration, including for the Chairman.

During the year, an independent search consultancy firm, Fletcher Jones Limited, was used to assist in the selection of a new Director, resulting in the appointment of Liz Airey on 21 August 2019. Fletcher Jones Limited has no other relationship with the Company or with any of the Directors.

Going Concern

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

As at 30 June 2020, the Company had a £45 million unsecured loan facility agreement with The Royal Bank of Scotland International Limited which matures on 31 October 2022. This consists of a five year, fixed-rate term loan facility of £25 million and a five year revolving credit facility of £20 million.

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

Accountability and Audit

The respective responsibilities of the Directors and the Independent Auditor in connection with the financial statements appear below.

The Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Independent Auditor was unaware, and that each Director has taken all the steps that they might reasonably be expected to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Independent Auditor was aware of that information.

Independent Auditor

Shareholders approved the re-appointment of KPMG LLP as the Company's Independent Auditor at the AGM on 23 October 2019 and resolutions to approve its re-appointment for the year to 30 June 2021 and to authorise the Directors to determine its remuneration will be proposed at the AGM on 21 October 2020.

Financial Instruments

The financial risk management objectives and policies arising from financial instruments and the exposure of the Company to risk are disclosed in note 16 to the financial statements.

Relations with Shareholders

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

The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (including the Company Secretary or the Manager) in situations where direct communication is required, and representatives from the Manager meet with major shareholders on at least an annual basis in order to gauge their views, and report back to the Board on these meetings. In addition, the Company Secretary only acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds personally as appropriate.

The Company's Annual General Meeting usually provides a forum for communication primarily with private shareholders and is attended by the Board. The Manager makes a presentation to the meeting and all shareholders have the opportunity to put questions to both the Board and the Manager at the meeting. The Manager also hosts a regular 'Meet the Manager' session at which members of the Board are present and to which all shareholders are invited.

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

Additional Information

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

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

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

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

Annual General Meeting

The Annual General Meeting will be held on Wednesday, 21 October 2020.

This year, due to the uncertainties caused by the COVID-19 pandemic and, in particular, the restrictions on public gatherings and requirements to socially distance, it is likely that the Annual General Meeting will be held on a functional only basis, satisfying the minimum legal requirements. Instead, shareholders are encouraged to submit questions to the Board and the Manager. Further details can be found in the Chairman's Statement.

By order of the Board

Aberdeen Asset Management PLC

Company Secretary

1 George Street

Edinburgh EH2 2LL

8 September 2020

STRATEGIC REPORT - STATEMENT OF DIRECTORS' RESPONSIBILITEIS

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland'.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgments and estimates that are reasonable and prudent;

- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

- assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, but not for the content of any information included on the website that has been prepared or issued by third parties. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that to the best of their knowledge:

- the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

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

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

On behalf of the Board

Liz Airey

Chairman

8 September 2020

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

The accompanying notes are an integral part of the financial statements.

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASHFLOWS

NOTES TO THE FINANCIAL STATEMENTS:

For the year ended 30 June 2020