SC137448031 December 202101 January 2021The 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 they have elected to prepare the financial statements in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: · select suitable accounting policies and then apply them consistently; · make judgements and estimates that are reasonable and prudent; · state whether they have been prepared in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006; 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 the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies 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. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.Basis of accounting. The financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards. The Company’s assets consist substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company has a £10 million credit facility comprised of a fixed rate £5 million loan which expires in 2023 and a revolving £5 million loan which expires in April 2022. A replacement option for the revolving element of the facility is currently being sought but, should the Board decide not to renew this facility, any outstanding borrowing would be repaid through the proceeds of investment sales as required. The Company undertakes a continuation vote every five years. The last continuation vote was passed at the AGM held in June 2020 with 99.7% of votes in favour. Having taken these factors into account as well as the impact of Covid-19 and having assessed the principal risks set out in the Strategy Report on pages 19 to 21, the Directors believe that, after making enquiries, the Company has adequate financial resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period until at least 31 December 2023. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements. In preparing these financial statements the Directors have considered the impact of climate change risk as an emerging risk as set out on page 20, and have concluded that it does not have a material impact on the Company’s investments. In line with IFRS investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the Balance Sheet date and therefore reflect market participants view of climate change risk. The financial statements have also been prepared in accordance with the Statement of Recommended Practice (SORP), “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in April 2021 to the extent that it is consistent with IASs.Investments. The Company has adopted the classification and measurement provisions of IFRS 9 ‘Financial Instruments’. The Company classifies its equity investments and debt instruments based on their contractual cash flow characteristics and the Company’s business model for managing the assets. Equity investments fail the contractual cash flows test so are measured at fair value. For debt instruments, the business model is the determining feature and they are managed, performance monitored and risk evaluated, on a fair value basis. The Manager is also compensated based on the fair value of the Company’s assets. Consequently, all investments are measured at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured at fair value. For listed investments, the valuation of investments at the year end is deemed to be bid market prices or closing prices for SETS (London Stock Exchange’s electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from the changes in fair value are included in net profit or loss for the period as a capital item. Transaction costs are treated as a capital cost.Dividend income from equity investments, including preference shares which have a discretionary dividend is recognised when the shareholders’ rights to receive payment have been established, normally the ex-dividend date. Special dividends are allocated to revenue or capital based on their individual merits. Dividends payable. Interim dividends are recognised in the financial statements in the period in which they are paid.Interest from debt securities, and income from preference shares which do not have a discretionary dividend are accounted for on an accruals basis. Any write-off of the premium or discount on acquisition as a result of using this basis is allocated against the revenue reserve in accordance with the SORP. Interest receivable on AAA rated money market funds and short term deposits are accounted for on an accruals basis. All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the management fee and finance costs have been allocated 30% to revenue and 70% to capital (2020 – same), in order to reflect the Directors’ expected long-term view of the nature of the investment returns of the Company. This allocation is reviewed on a regular basis.The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the Balance Sheet date.Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound.The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the Balance Sheet date. Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound.Factors that might affect future tax charges. No provision for deferred tax has been made in the current or prior accounting year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company. At the year end, the Company has for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £16,503,000 (2020 – £15,534,000). It is unlikely that the fund will generate sufficient taxable profits in the future to utilise these amounts and therefore no deferred tax asset has been recognised.11055Liquidity risk. This is the risk that the Company will encounter difficulty raising funds to meet its cash commitments as they fall due. Liquidity risk may result from either the inability to sell financial instruments quickly at their fair value or from the inability to generate cash inflows as required. Management of the risk. Liquidity risk is not considered to be significant as the Company’s assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan facilities (note 12).Credit risk. This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. Management of the risk. The Company considers credit risk not to be significant as it is actively managed as follows: – where the Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default; – investments in quoted bonds are made across a variety of industry sectors so as to avoid concentrations of credit risk; – investment transactions are carried out on a delivery versus payment basis with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker; – the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the custodian’s records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Manager’s compliance department carries out periodic reviews of the custodian’s operations and reports its finding to the Manager’s risk management committee. – cash is held only with reputable banks with high quality external credit ratings. None of the Company’s financial assets are secured by collateral or other credit enhancements.111n/aSC1374482021-12-31SC1374482020-12-31SC1374482019-12-31SC1374482021-01-012021-12-31SC1374482020-01-012020-12-31SC137448ns1:Chairman2021-01-012021-12-31SC137448ns1:Director12021-01-012021-12-31SC137448ns1:Director22021-01-012021-12-31SC137448ns1:Director42021-01-012021-12-31SC137448ns1:Director32021-01-012021-12-31SC137448ns1:CompanySecretary12021-01-012021-12-31SC137448ns1:RegistrarInformation2021-01-012021-12-31SC137448ns1:RegisteredOffice2021-01-012021-12-31SC137448ns1:Director12021-12-31SC137448ns2:Non-currentFinancialInstruments2021-12-31SC137448ns2:CurrentFinancialInstruments2020-12-31SC137448ns2:Non-currentFinancialInstruments2020-12-31SC137448ns2:SharePremium2021-12-31SC137448ns2:ShareCapital2021-12-31SC137448ns2:SharePremium2020-12-31SC137448ns2:CurrentFinancialInstruments2021-12-31SC137448ns2:ShareCapital2020-12-31SC137448ns2:CapitalRedemptionReserve2020-12-31SC137448ns2:CapitalReserve2021-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2020-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2021-12-31SC137448ns2:CapitalReserve2020-12-31SC137448ns2:ShareCapital2019-12-31SC137448ns2:SharePremium2019-12-31SC137448ns2:CapitalReserve2019-12-31SC137448ns2:CapitalRedemptionReserve2019-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2019-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2021-01-012021-12-31SC137448ns2:CapitalRedemptionReserve2021-12-31SC137448ns2:UKTax2021-01-012021-12-31SC137448ns2:CapitalReserve2021-01-012021-12-31SC137448ns1:AllOrdinaryShares2020-12-31SC137448ns2:RevenueReservesInvestmentFundsOnly2020-01-012020-12-31SC137448ns2:UKTax2020-01-012020-12-31SC137448ns2:CapitalReserve2020-01-012020-12-31SC137448ns2:SharePremium2021-01-012021-12-31SC137448ns2:InterestRateRiskns2:FixedRateInterestBearingFinancialInstruments2021-12-31SC137448ns2:InterestRateRisk2021-01-012021-12-31SC137448ns2:InterestRateRiskns2:VariableRateInterestBearingFinancialInstruments2021-12-31SC137448ns1:AllOrdinaryShares2021-01-012021-12-31SC137448ns2:CapitalRedemptionReserve2021-01-012021-12-31SC137448ns1:AllOrdinaryShares2021-12-31SC137448ns2:OtherMarketRisk2021-01-012021-12-31SC137448ns2:InterestRateRiskns2:FixedRateInterestBearingFinancialInstruments2020-12-31SC137448ns2:MaximumCreditRiskExposure2021-12-31SC137448ns2:LiquidFinancialInstrumentsns2:WithinOneYear2020-12-31SC137448ns2:InterestRateRiskns2:VariableRateInterestBearingFinancialInstruments2020-12-31SC137448ns2:MaximumCreditRiskExposure2020-12-31SC137448ns2:LiquidFinancialInstrumentsns2:WithinOneYear2021-12-31SC137448ns2:FairValuens2:Level12021-12-31SC137448ns2:FairValue2021-12-31SC137448ns2:LiquidFinancialInstrumentsns2:BetweenOneTwoYears2020-12-31SC137448ns2:LiquidFinancialInstrumentsns2:BetweenOneTwoYears2021-12-31SC137448ns2:FairValuens2:Level12020-12-31SC13744812021-01-012021-12-31SC137448ns2:FairValue2020-12-31SC137448ns2:LiquidFinancialInstrumentsns2:BetweenTwoThreeYears2020-12-31SC137448ns2:FairValuens2:Level22020-12-31SC137448ns5:PoundSterling2021-01-012021-12-31SC137448ns2:FairValuens2:Level22021-12-31SC137448ns1:PublicLimitedCompanyPLC2021-01-012021-12-31SC137448ns1:FullAccounts2021-01-012021-12-31SC137448ns1:FullIFRS2021-01-012021-12-31SC137448ns1:Audited2021-01-012021-12-31iso4217:GBPxbrli:shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

Annual Report 31 December 2021

 

Hunting smaller companies for a stronger income

 

 

 

abrdnsmallercompaniesincome.co.uk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“It was pleasing to see the Company’s revenue return for the year ended 31 December 2021 of 9.69p (2020: 5.60p) recover to similar levels to those seen before the start of the pandemic.”

 

Robert Lister, Chairman

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“The portfolio has delivered a NAV total return of 30.4%, outperforming the Numis Smaller Companies (ex Investment Trusts) Index return of 21.9% for the year ended 31 December 2021. Effective company engagement remains key to identification of the Quality Growth Momentum businesses that the Company invests in.”

 

Abby Glennie, Aberdeen Asset Managers Limited

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc1

Performance Highlights

 

 

 

 

 

 

 

 

 

 

Net asset value total returnANumis Smaller Companies ex Inv Trust Index

2021:

+30.4% 2020: -4.1%

2021:

+21.9% 2020: -4.3%

 

 

Share price total returnAEarnings per Ordinary share (revenue)

2021:

+22.9% 2020: -5.1%

2021:

9.69p 2020: 5.60p

 

 

Dividend per shareDiscount to net asset valueA

2021:

8.85p 2020: 8.24p

2021:

15.3% 2020: 10.3%

 

A Considered to be an Alternative Performance Measure. Further details can be found on pages 85 to 87.

 

 

 

 

A

 

Net t 31

 

 

 

341

 

asse Decem

 

 

 

.1

285

 

t val ber – p

 

 

373

 

ue pe ence

 

 

.9

348

 

r sha

 

 

442

 

re

 

 

.5

 

 

.9

 

 

.2

 

 

 

 

 

 

 

1718192021

Dividends per share

Year ended 31 December – pence

 

8.258.248.85

7.057.35

 

 

 

 

 

 

 

 

1718192021

 

 

 

A

 

Mid t 31

 

 

 

288

 

-mar Decem

 

 

 

.0

 

224

 

ket p ber – p

 

 

343.

 

rice p ence

 

 

0

313

 

er sh

 

 

375

 

a

 

 

.0

 

re

.0

 

 

 

.0

 

 

 

 

 

 

 

1718192021

 

 

 

 

 

 

 

 

 

2abrdn Smaller Companies Income Trust plc

Contents

 

 

 

 

 

 

 

 

 

 

Overview

Performance Highlights                                                                     2 Financial Calendar, Dividends and Highlights                          4

 

 

 

 

 

“Your Company’s performance against its benchmark, the Numis Smaller Companies (ex Investment Trusts) Index, has been strong this year, with the Company returning +30.4% versus a benchmark return of +21.9%.”

 

Robert Lister, Chairman

Strategic Report

Chairman’s Statement8 Investment Manager’s Review                                                      10 ESG Engagement by the Manager                                             15 Overview of Strategy                                                                        18 Performance                                                                                        25

 

Portfolio

Ten Largest Investments30 Equity Investments31 Other Investments33 Distribution of Assets and Liabilities              34 Investment Case Studies              35

 

Governance

Your Board of Directors40 Directors’ Report              42 Corporate Governance Report              45 Report of the Audit Committee              48 Directors’ Remuneration Report              51 Statement of Directors’ Responsibilities              54 Independent Auditor’s Report to the Members of abrdn Smaller Companies Income Trust plc only              55

 

Financial Statements

Statement of Comprehensive Income64 Balance Sheet              65 Statement of Changes in Equity              66 Cash Flow Statement              67 Notes to the Financial Statements              68 Alternative Performance Measures              85

 

Corporate Information

Information about the Manager89 Investor Information              91 Glossary of Terms              94

 

General

Alternative Investment Fund Managers Directive Disclosures (unaudited)              97 Notice of Annual General Meeting              98 Contact Addresses                                                                         105 Important Information                                                                   106

 

 

 

abrdn Smaller Companies Income Trust plc3

Financial Calendar, Dividends and Highlights

 

 

 

 

 

 

 

 

Payment dates of quarterly dividends

 

 

 

 

 

 

Annual General Meeting (London)

 

 

Half year end

 

 

Expected announcement of results for the six months ending 30 June 2022

 

Financial year end

 

 

Expected announcement of results for the year ending 31 December 2022

January 2022, April 2022, July 2022, October 2022

 

5 May 2022

 

30 June 2022

 

September 2022

 

 

31 December 2022

 

March 2023

 

 

 

 

 

 

Dividends

 

 

First interim dividend

 

Second interim dividend

 

Third interim dividend

 

Fourth interim dividend

 

2021

 

First interim dividend

 

Second interim dividend

 

Third interim dividend

 

Fourth interim dividend

 

2020

Rate per share

 

2.15p

 

2.15p

 

2.15p

 

2.40p

 

8.85p

 

2.06p

 

2.06p

 

2.06p

 

2.06p

 

8.24p

xd date

 

1 April 2021

 

1 July 2021

 

7 October 2021

 

6 January 2022

 

 

2 April 2020

 

2 July 2020

 

8 October 2020

 

31 December 2020

Record date

 

6 April 2021

 

2 July 2021

 

8 October 2021

 

7 January 2022

 

 

3 April 2020

 

3 July 2020

 

9 October 2020

 

4 January 2021

Payment date

 

23 April 2021

 

23 July 2021

 

29 October 2021

 

28 January 2022

 

 

24 April 2020

 

24 July 2020

 

30 October 2020

 

29 January 2021

 

 

 

 

 

4abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

 

 

 

 

 

Total investments

 

Shareholders’ funds

 

Market capitalisation

 

Net asset value per Ordinary share

 

Share price (mid market)

 

Discount to net asset value per Ordinary shareA

 

Net gearingA

 

Ongoing charges ratioA

 

 

Dividends and earnings

 

Earnings per Ordinary share (revenue)B

 

Dividends per Ordinary shareC

 

Dividend coverA

 

Revenue reservesD

31 December 2021

 

£102,183,000

 

£97,840,000

 

£82,912,000

 

442.52p

 

375.00p

 

15.3%

 

4.5%

 

1.20%

 

 

 

 

9.69p

 

8.85p

 

1.09

 

£3,200,000

31 December 2020

 

£82,454,000

 

£77,144,000

 

£69,204,000

 

348.91p

 

313.00p

 

10.3%

 

7.0%

 

1.35%

 

 

 

 

5.60p

 

8.24p

 

0.68

 

£2,937,000

% change

 

+23.9

 

+26.8

 

+19.8

 

+26.8

 

+19.8

 

 

 

 

 

 

 

 

+73.0

 

+7.4

 

+61.1

 

+9.0

 

A Considered to be an Alternative Performance Measure. Further details can be found on pages 85 and 86.

B Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income). C The figures for dividends per share reflect the years in which they were earned (see note 8 on pages 73 and 74).

D The revenue reserve figure does not take account of the fourth interim dividend amounting to £531,000 (2020 – £455,000).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc5

Strategic Report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6abrdn Smaller Companies Income Trust plc

 

 

 

 

The objective of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc7

Chairman’s Statement

 

 

 

 

Performance

In another year in which the Covid-19 pandemic has dominated the headlines, your Company has delivered strong absolute and relative performance, with a net asset value (“NAV”) total return of +30.4% compared to the benchmark, the Numis Smaller Companies (ex Investment Trusts) Index, which returned +21.9%.

 

Share price performance was also ahead of the benchmark, with a total return (including dividends reinvested) of +22.9% over the period.

 

Three and five year NAV performance against the benchmark has been equally strong, with returns of +68.2% and +91.0% respectively, versus composite benchmark returns of +37.3% and +36.8%.

 

The Company’s one year performance is measured against the Numis Smaller Companies (ex Investment Trusts) Index, which was introduced by the Company on 1 January 2020. Prior to that date, the Company’s benchmark was the FTSE Small Cap (ex Investment Trusts) Index. Performance over three and five year periods is therefore measured against a composite of both indices.

 

Dividend

It was pleasing to see the Company’s revenue return for the year ended 31 December 2021 of 9.69p (2020: 5.60p) recover to similar levels to those seen before the start of the pandemic. This was a reflection of a robust year for UK equity markets, which saw a normalisation of earnings and a return of confidence to companies in the distribution of cash. This resulted in a more positive outlook for investors, boosted by the introduction of a vaccine

rollout programme and some lifting of Government restrictions. More information on this can be found in the Manager’s Review.

 

The Company was also able to return to paying a covered dividend this year and to increase the dividend to its highest level in ten years, with the total dividend for the year being 8.85p (2020: 8.24p).

 

With the year-end share price at 375p, this imputes a dividend yield of 2.4%. Over three and five years, the dividend has increased by 20.4% and 29.2% respectively, compared to rises in Consumer Prices Index (“CPI”) of 7.5% and 13.0%.

 

The undistributed balance of the revenue account will be added to the Company’s revenue reserve. The revenue reserve account continues to remain at a healthy level and will represent 12.1p per share following payment of the Company’s fourth interim dividend.

 

 

 

 

8

Ongoing Charges

The Company’s ongoing charges, which are regularly monitored by the Board, decreased during the year to 31 December 2021, to 1.20% from 1.35%.

 

Discount

At 31 December 2021, the Company’s discount stood at -15.3% (2020: -10.3%). While this was disappointing, the widening of the discount was representative of a general trend in the smaller companies sector as a whole.

 

Gearing/Debt

The Company’s use of its £10 million credit facility (£5 million of which is at a fixed interest rate and £5 million at a floating interest rate) has remained unchanged, with £7 million of the facility drawn down at the year end. The £5 million floating element of the facility expires in April 2022 and the Company is already seeking terms for its renewal. The £5 million fixed rate facility expires in April 2023.

 

The Company’s net gearing position as at 31 December 2021 was 4.5%, compared to 7.0% at the end of 2020. This is lower due to short term cash balances held at the year end date.

 

Board Composition

Further to my update on the Board’s composition in the Company’s Half-Yearly Report, in which I referred to the retirement of Barry Rose and the appointment of Christopher Metcalfe, I am delighted to advise that on 5 January 2022, we welcomed Rosalyn Breedy to the Board as an independent Non-Executive Director.

 

Rosalyn is a corporate, funds and financial services lawyer and brings with her a wealth of experience of regulated funds, as well as a unique and diverse background which will complement the Board’s skills and experience as a whole. Rosalyn’s biography can be found on page 41 of the Annual Report and both Rosalyn and Christopher, who was appointed to the Board on 7 June 2021, will stand for election at the Company’s Annual General Meeting (“AGM”) in May 2022.

 

Having served on the Board of your Company for 10 years, with 7 years as Chairman, I shall be retiring as a Director at the forthcoming AGM and am happy to announce that Dagmar Kent Kershaw, who has served on the Board since 2017, has agreed to be my successor.

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Environmental, Social and Corporate Governance (“ESG”)

ESG has been embedded in your Manager’s investment process for a number of years and the Board is pleased to see that they continue to actively engage with portfolio companies on ESG matters on a regular basis.

More information on this and the Manager’s ESG investment process can be found in the Manager’s Review.

 

The Manager

In July 2021, Standard Life Aberdeen plc changed its name to abrdn plc as part of a rebranding exercise. Following this change, and as advised in the Company’s Half-Yearly Report, it is anticipated that the Company’s Manager, Investment Manager and Company Secretary (Aberdeen Standard Fund Managers Limited, Aberdeen Asset Managers Limited and Aberdeen Asset Management PLC respectively) will also to change their names in the future.

 

Change of Name

Following the abrdn name change, the Board made the decision to align itself with the Manager’s new brand by changing the Company’s name to abrdn Smaller Companies Income Trust plc. This change came into effect on 7 January 2022.

 

Annual General Meeting

The Company’s AGM will take place on Thursday 5 May 2022 at 12 noon and is currently scheduled to be held at the offices of abrdn, Bow Bells House, 1 Bread Street, London EC4M 9HH.

 

As you will be aware, for the last two years, in order to adhere to Government guidelines, we were unable to hold a physical meeting. This year, we are pleased to advise that we do intend to hold a physical meeting, but would encourage shareholders, in the event of any change to Government guidelines or a change of venue, to continue to check for updates from the Company on its website abrdnsmallercompaniesincome.co.uk or via Company announcements to the London Stock Exchange.

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

As in previous physical meetings, shareholders will have the opportunity to hear an update from the Manager and to ask questions of the Manager and the Board and we very much look forward to seeing you. I would encourage shareholders (whether or not they intend to attend the AGM in person) to lodge their proxy votes in advance of the meeting. Shareholders are also encouraged to send any questions in advance, by email, to smallercompaniesincome@abrdn.com.

 

Outlook

Your Manager’s investment process has delivered good results for the Company and we are pleased to see the return of a more positive outlook for markets and to see dividend payments resume.

 

The continuation of a focus on stock selection in line with your Manager’s disciplined Quality Growth and Momentum investment process with an income bias, will continue to guide them towards a portfolio of quality growth businesses, which can prove resilient in a

variety of environments.

 

 

 

 

 

 

 

 

 

 

 

Robert Lister Chairman

14 March 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

Investment Manager’s Review

 

Yield

 

Overview

The Company delivered a NAV total return of 30.4% for the year ended 31 December 2021, outperforming the Numis Smaller Companies (ex- Investment Trusts) Index return of 21.9% by 8.5%. This continues the solid long term track record of the Company which, over three and five years, has delivered a NAV total return of 68.2% and 91.0% respectively, outperforming its composite benchmark by 30.9% and 54.2% respectively.

 

Our investment process of Quality Growth Momentum (“QGM”) with an income support performed well over the course of 2021. Following an extraordinary 2020, this year has again proved our ability to identify high quality resilient businesses with levers for growth whilst maintaining the ability to pay dividends.

 

2021 was a strong year for global equities, including UK stocks. The Covid-19 pandemic (the “Pandemic”) continued to put strain on the economy, particularly with the discovery of new variants, while investors grappled with the economic fallout. However, markets had largely adapted to this constrained environment, and were also underpinned by ongoing government and central

bank support. Investor sentiment also improved on the back of a highly successful domestic vaccine rollout, positive economic data and robust corporate earnings.

 

At the end of December 2020, more than three-quarters of the UK’s population were under the most severe restrictions yet markets were optimistic over the vaccine success as roll outs began around the world. The positive momentum took a brief pause in January 2021, and UK equities dipped slightly, before picking up in February and again thereafter. Supportive government policy, with Chancellor Rishi Sunak pledging an additional £65 billion in emergency support measures for workers and businesses, drove markets upwards. Easing lockdown restrictions, positive earnings results and an impressive vaccine rollout also benefited UK equities.

 

Equities were supported in the second half of the year by the continued easing of the Pandemic restrictions. Although the Government delayed ‘freedom day’ by four weeks, due to an uptick in infections caused by the Delta variant, all lockdown restrictions were eventually lifted at the end of July. This brought a welcome recovery in economic activity in August, however, this also put

strain on supply chains. Supply chain pressure continued to build in September and proved one of the market’s biggest challenges in the second half of the year while the

 

 

 

 

 

 

 

10

disruption caused by a fuel shortage also dented sentiment. In October, equities were weighed down by soaring energy prices, with several small UK energy firms going bust as a result. Stocks fell back dramatically at the end of November after the discovery of a new variant of Covid-19 in South Africa, sparking fears around vaccine efficacy and the return of restrictions. Unlike some European countries, the UK has not seen a dramatic rise in hospitalisations. Concerns about rising inflation and less-supportive monetary policy were also reflected in investor sentiment at the end of the year.

 

In UK economic news, third-quarter growth figures showed that the UK has lagged behind other rich economies. The Bank of England held its benchmark interest rate at the all-time low of 0.1%, while maintaining the current rate of its asset-purchasing programme. Meanwhile, UK CPI continued to rise through the year, reaching 5.4% year on year in December – its highest level for many years.

 

The new issues market remained buoyant. As smaller companies investors it has been pleasing to see the UK market hosting vibrant new growth businesses. abrdn has enjoyed meeting prospective listed businesses, but has remained selective and true to our QGM investment process with an income bias.

 

Performance

Your Manager has run its QGM investment process for over 20 years and adheres to this process in all environments. The Company’s portfolio is positioned to deliver outperformance over the cycle. Value rallies are the most challenging time for this process and it is believed that the extreme market volatility experienced last year, and the value rally of late 2020 into early 2021, is now behind us. The portfolio has delivered a NAV total return of 30.4%, outperforming the Numis Smaller Companies (ex-Investment Trusts) return of 21.9% for the year ended 31 December 2021. Effective company engagement remains key to identification of the QGM businesses that the Company invests in. In particular, your Manager looks for businesses that have many angles to their growth opportunities, giving them a greater ability to continue to grow, whether it be through areas like complimentary products and services, new geographies, or investments funded by the strength of their quality balance sheets.

 

Having paid a dividend of 8.85p per share for the year, the Company is pleased to report a Dividend Yield of 2.4%, higher than its benchmark which yielded 2.1%.

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Equity Portfolio

Stock selection was a significant contributor to the outperformance of the Company over 2021. Earnings seasons have brought positive updates from the names held in the Company’s portfolio and share prices have responded accordingly. Encouragingly, balance sheets are healthy and there is dividend growth coming through. Accordingly, your Manager believes that the dividend situation across the portfolio is now normalising.

 

Financials Liontrust and Tatton Asset Management were top contributors over the year having enjoyed sustained net inflows throughout 2021. Both companies are focused on the UK intermediary community as their core audience (IFAs, wealth managers) but the real point of differentiation is the simplicity and consistency of their investment management processes. Specifically, Liontrust delivered sustained net inflows in the period, with 21% growth in headline Assets under Management (“AuM”). The fund management process is clear and well-articulated, giving advisers confidence in the fundamental strength of stock selection and portfolio management discipline. It finished the year with the acquisition of institutional asset manager Majedie which boosted AuM further, and provides institutional growth opportunities. Liontrust’s AuM is now in excess of £40 billion having delivered consistent organic growth on a diverse range of funds (equities, fixed income, multi-asset) and is increasingly diversified, having completed selective and accretive bolt-on acquisitions.

 

Tatton Asset Management has maintained impressive net inflows, benefiting from reduced social distancing restrictions which has allowed them to resume more meaningful face-to-face marketing, including the return of its annual conference. It has a clear portfolio asset allocation, with a number of variants (both risk rated and specialist – like ethical) which allows the solution to be tailored, aided by an attractive pricing position. The company’s AuM has now broken the £11 billion mark driven by sustained monthly inflows. This has been complemented by the acquisition of the Verbatim funds, adding further AuM and also bringing a strategic partnership with Fintel. Tatton Asset Management has a broad reach providing discretionary fund management services to over 700 firms acting for in excess of 80,000 underlying investment accounts, a number which is continually growing.

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

Morgan Sindall added value following a number of upgrades to earnings guidance for the year in spite of widespread inflation in the supply chain and shortages of materials and labour. The UK construction business is benefiting from structural growth in infrastructure from increased investment, and heightened demand to help companies adapt offices to future ways of working. Forward visibility continues to strengthen and recent margin improvement reflected the continued focus on long-term relationships, operational delivery, and strong risk management. Your Manager remains confident in the growth potential on offer alongside the company’s attractive yield.

 

It is unusual to be writing about Games Workshop as a detractor from performance for the year. In fact the company had an exceptional year in terms of sales demand, demonstrating excellent performance given that the comparative period last year included the successful launch of Warhammer 40,000 and pent-up demand after the Pandemic. Although all these numbers are promising, there were a number of headwinds in relation to pressures on freight costs and currency exchange rates. Supply chain constraints meant the company had to delay releases of new products. The company’s stores and those of the trade accounts were impacted by government restrictions on opening and operating. This materially impacted sales in the channel as well as the ability to offer introductory games. Sales to Europe were impacted by the UK leaving the EU (“Brexit”) and the company had to give refunds when delivery was impacted. Nevertheless the company made a confident outlook statement, with the focus on growing sales, given the planned increases in manufacturing and distribution capacity. This provided some insight into the company’s thoughts on the sustainability of potential demand. Despite the share price weakness, your Manager believes that there has been no change in the long term investment case, namely that the niche category Games Workshop operates in will continue to thrive, their competitive position within this category remains strong and multiple longer term opportunities are available to the group. Without global supply issues your Manager is confident that the quality of the business and the top line growth opportunity will continue to provide strong earnings growth in coming years, which in turn will drive dividend growth.

 

 

 

 

 

 

 

 

 

 

11

Investment Manager’s Review

 

Continued

 

 

There was a disappointing update from Seraphine shortly after its flotation, namely a warning on supply chain challenges. During their second quarter, supply constraints impacted availability which, in turn, weighed on new customer acquisition. This diluted marketing spend and led to fewer new customers which subsequently challenged revenues. The shares responded negatively to the downgrades to earnings. The update was reflective of some of the post-Pandemic supply chain difficulties facing the sector during the middle of the year; these were more challenging for smaller brands and retailers to mitigate. The company’s update in December was encouraging, indicating that revenue growth had re-accelerated due to stock levels recovering and marketing spend being redirected (with customer acquisition costs returning to historic levels). There was also progress in the US with the Zalando partnership progressing well and a new agreement in place with Next. This encouraging update, suggested that the second quarter was abnormal and

the business is getting back on track to delivering on its growth agenda.

 

Synthomer is a chemicals business that had a super normal year thanks to the Pandemic-related increase in demand for nitrile which is used in the production of latex gloves. Towards the end of the year there were some management changes and the unknown around the normalisation of demand for nitrile following the peak-of-cycle profitability, which weighed on the shares. Looking forward, the business is in a strong position. Management are confident that the benefits of the recent acquisitions of Eastman Chemical, an adhesive technology business, together with investment in new capacity, further efficiency measures and a proven strategy will underpin future growth. The balance sheet remains strong and flexible to support the group’s dividend.

 

Fixed Income Portfolio

Fixed income markets endured a more challenging period in 2021 as government bond yields rose in response to stronger inflation data in many jurisdictions. Having expected to be more transitory in nature the prolonged impact of the Pandemic and the support being provided to economies have ultimately had a dramatic impact on prices and the data is now forcing policymakers into a more hawkish response. Policy rates did rise modestly in the UK at the end of 2021 and are expected to be raised again in the coming months, both in the UK and further afield. The impact of policy action, despite the recognition that inflation is largely caused by supply side issues, has pushed yields higher. Credit spreads remain relatively tight when compared to historical levels although further moves from government bonds could easily lead to a re-pricing of these markets and some volatility was noted in markets during the final quarter of the year.

 

 

12

Yield

 

Throughout most of the year, demand for investment grade credit was robust with investors being attracted by the positive yields on offer. As a result, the asset class outperformed government markets despite some volatility. Lower quality areas of the market performed better than higher quality credit, largely as a result of the higher yields on offer although weakness was notable in sectors such as energy, basic materials and technology.

 

The Company’s exposure to fixed income is largely in shorter dated BBB rated areas of the market. Outcomes over the year were mixed, with a perpetual issue from Barclays being the stand out performer with a positive return of +3.7%, while a corporate hybrid issue from National Grid performed relatively poorly, driven by the challenges facing the domestic gas industry. This bond delivered a small negative return of approximately -1.5%. Bonds issued by Heathrow, the UK airport operator delivered a positive return of +0.64% and continues to look good value.

 

As yields rise in the UK your Manager anticipate that more opportunities will arise for the Company to take advantage of. Credit spreads have remained reasonably firm and any weakness in that market will be considered a buying opportunity. The Company’s exposure to Scottish and Southern energy via a corporate hybrid will be replaced during 2022 as the bond is expected to be called by the issuer.

 

Portfolio activity

As ever, your Manager’s QGM with an income bias investment process has driven stock selection. New positions in Mortgage Advice Bureau, Clipper Logistics, Hill & Smith, Greggs, CMC Markets, Procook, Seraphine, Synthomer and Robert Walters were added during the year.

 

Positions in 4imprint, James Fisher, Dechra Pharmaceutical, Aveva , Primary Healthcare Properties, Target Healthcare, Ultra Electronics and Stock Spirits were sold during

the year.

 

Mortgage Advice Bureau is one of the UK’s leading consumer intermediary brands and specialist appointed representative networks for mortgage intermediaries. The fast growing platform model allows customers to choose how and when they want to research, receive advice and transact. Technology is at the heart of both face to face and telephone advice, helping provide greater speed, ease, and convenience, and by doing so delivering an increasingly more compelling customer proposition. Having demonstrated resilience in poor market environments since flotation in 2014 it is believed that the momentum is set to build sharply while they convert a strong pipeline of advisers and a number of long standing

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

technology initiatives come to fruition. Management's lead generation tool, network management and adviser productivity agendas have the potential to be transformational to market share gains.

 

A new position was initiated in Hill & Smith, a decentralised group of companies focused on the design, manufacture and supply of infrastructure products and galvanising services. With the arrival of a new Chief Executive Officer, the business now has the opportunity to leverage a package of internal and external drivers that should enable the company to deliver higher sales growth, improved profitability, better portfolio management and a stronger ESG story in the coming years. The company’s end markets are strengthening, even before the US infrastructure bill in the US starts to filter through to forecasts. Your Manager conducted an ESG-specific engagement with the management of Hill and Smith in the last quarter of 2021, covering a wide range of topics such as Sustainable Products, CO2 Emissions, Health and Safety, Talent Development and Diversity & Inclusion. The company going through a transition in terms of its ESG credntials and, whilst initial findings were positive, the Manager expects to track further progress and developments, with a stronger ESG story in the

coming years.

 

Greggs was added to the portfolio in view of abrdn’s increased conviction on the stock following improved clarity on the company’s direction. Management also outlined plans to develop the company’s multichannel sales by extending evening trading, building on the success of the delivery channel and improving customer loyalty via the new Greggs app. Whilst the company’s focus on ESG is not new, your Manager was encouraged by its ESG credentials with the launch of ‘The Greggs Pledge” in February 2021. This pledge is a full sustainability agenda, focusing on all aspects of the company; Stronger, Healthier Communities; Safer Planet; Better Business. Please refer to the Case Study on page 35 of this Annual Report for further details.

 

The Company participated in the public listing of Seraphine, a leading maternity and nursing-wear brand. This market niche is poorly served by incumbent retailers. Seraphine’s specialist focus, aspirational, yet affordable, positioning and digital-first approach enables it to offer a broad, innovative and relevant product offering. This has supported a long record of profitable growth, yet the brand still has headroom to grow in the UK, its most mature market and recent investments should unlock a greater international opportunity.

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

The Company also took part in the new listing of kitchenware brand retailer ProCook. This business is vertically-integrated and run by the founder, with no debt or external private investors. ProCook has an opportunity to significantly grow its market share given it is selling quality products at affordable prices.

 

Synthomer is a specialist chemical company and one of the world's leading suppliers of aqueous polymers. The company produces innovative formulations to support customers in a range of industries, from construction through paints and coatings to healthcare. Synthomer works closely with its customers and targets market leadership positions in its core markets. Its understanding of customer product and process requirements combined with their technology and process know-how are key to the business’ success. The strategy is to establish Synthomer as a growing global speciality chemical business through organic growth, investing in innovation to support growth, and M&A. This high quality business offers strong earnings growth and strong cash returns to support the dividend yield of around 3%.

 

Clipper Logistics has a highly differentiated business model, focusing on delivering the value added components of logistics and advising customers on carrier selection for haulage. Growth has been rapid, boosted by the pandemic and despite a tough comparative period, revenue and profits are expected to rise at a double-digit rate for the next four years. Barriers to entry and change are high, giving excellent customer retention, market leading margins and revenue visibility. Management do things ‘The Clipper Way’, to drive their success and that of their customers through innovation and collaboration with all retail partners. ESG is central to Clipper’s way of working and driving environmental and social change is one of its four key strategic pillars. Your Manager has been encouraged by the strength of the company’s ESG credentials.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

Investment Manager’s Review

 

Continued

 

 

CMC Markets is primarily a provider of leveraged financial products (contracts for difference (CFDs), and spread betting) to the retail market; other revenue streams come from stockbroking and white label contracts. There is a focus on diversifying the business beyond the leveraged product offering. Management recently announced the planned launch of a share dealing platform in the UK to diversify further and the company’s ambitions are significant. Management have an unwavering strategic focus on high quality clients and there has been record trading performance and profitability in the first half of the year, driven by increased client trading as a result of higher market volatility and an increased client base. CMC Markets continue to deliver on strategic initiatives and maintain a healthy pipeline of projects that create new revenue streams through further product, channel and geographic diversification. These initiatives are all supported by technology and through a wider application of this, the company can extend the offer and deliver further profitable growth. The Chief Executive Officer owns 60% of the company and is well aligned with investors’ interests. The shares yield around 4% and the dividend policy is to pay out 50% of profit after tax.

 

Having sold Robert Walters in the prior year, due to lack of visibility in the shape or speed of their post- Pandemic recovery a new position has been added in the professional recruitment consultancy following a return in momentum. Your Manager believes that this momentum is more than just a temporary flushing out of pent-up demand, rather the start of something more sustained, as technology and flexible working changes longer-term dynamics. The global business historically has always gained share after a downturn. With the shares yielding over 3% it is believed that the company’s prospects now look promising.

 

A position in James Fisher was sold as the balance sheet remains troubled and there were expected earnings downgrades in view of market conditions. Positions were also exited in 4imprint, where visibility of recovery remains low. It is not yet clear whether the lasting implications of the Pandemic will result in structural problems for the business. There were also divestments from Dechra and Aveva given they are now large cap companies, following many years of strong performance for the Company, and property companies Target Healthcare and Primary Healthcare Properties, where the growth prospects were considered to be lacklustre near term. Lastly, there were divestments from bid targets Ultra Electronics and Stock Spirits, having received the final dividends.

Yield

 

Outlook

Your Manager is positive about the outlook and the long-term discipline that the investment process provides. While there will have been lasting impacts associated with the UK pandemic, particularly around supply chain and inflation issues, the QGM process will continue to identify businesses that can drive up earnings in difficult macro environments. Concerns around supply chain issues remain a key concern for some sectors, and inflation overall, and how transitory that is, remains a question. There have been pleasing messages to customers across the portfolio on the ability to pass through inflation and protect margins. Also much of the portfolio has limited exposure to logistics and supply chain concerns, which insulates those names from some market headwinds. The dividend outlook looks encouraging, with the market broadly and the Company’s portfolio back to strong dividend payments. Dividend growth could be expected to grow roughly in line with earnings growth, and with supportive balance sheet strength.

 

It has been encouraging to see that the number of new issues coming to the market continues to grow, bringing further diversity and investment opportunities to the small and mid capital company arena. The start of the year can traditionally see some reversal in market trends, so it might be expected to see different aspects dominate markets and the first quarter reporting season will be key, with earnings results coming through, which is where

the companies in the portfolio are expected to prove themselves.

 

2021 was characterised by a more stable environment post-Pandemic, driven by the reopening of the global economy. However, the Pandemic created a unique period for markets and has driven various headwinds and volatility in the global environment, namely the supply chain challenges and inflationary pressures. This, combined with the conflict with Russia and Ukraine creates market uncertainty for the year ahead. Your Manager will continue to identify companies in line with our bottom-up QGM process.

 

Abby Glennie

Aberdeen Asset Managers Limited 14 March 2022

 

 

14abrdn Smaller Companies Income Trust plc

ESG Engagement by the Manager

 

 

 

 

Introduction

Whilst ESG factors are not the over-riding criteria in relation to the investment decisions taken by the Manager for the Company, significant prominence is given to ESG throughout the Manager’s investment process. The following pages highlight the way that ESG factors are considered by the Manager. These processes are reviewed regularly and liable to change. The latest information is available on the Company’s website.

 

Responsible investing – integration of ESG into the Manager's investment process

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

 

Core beliefs: assessing risk, enhancing value

Whilst the management of the Company’s investments is not undertaken with any specific instructions to exclude certain asset types or classes, the consideration of ESG factors is a fundamental part of the Manager’s investment process and has been for over 30 years. It is one of the key dimensions on which the Manager assesses the investment case for any company in which it invests for three key reasons:

 

 

Financial returns

 

 

 

 

Fuller insight

 

 

Corporate advancement

ESG factors can be financially material – the level of consideration they are given in a company will ultimately have an impact on corporate performance, either positively or negatively. Those companies that take their ESG responsibilities seriously tend to outperform those that do not.

 

Systematically assessing a company’s ESG risks and opportunities alongside other financial metrics allows the Manager to make far better investment decisions.

 

Informed and constructive engagement helps foster better companies, protecting and enhancing the value of the Company’s investments.

 

“We believe that the market systematically undervalues the importance of ESG factors. We believe that in-depth ESG analysis is part of both fundamental company research and portfolio construction and will lead to better client outcomes.” abrdn

 

Researching companies: deeper company insights for better investor outcomes

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

 

The Manager’s global ESG infrastructure

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

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc15

ESG Engagement by the Manager

 

Continued

 

 

 

Investment Managers

 

 

 

ESG Equity Analysts

 

 

 

 

 

 

ESG Investment Team

Yield

 

 

All abrdn equity investment managers seek to engage actively with companies to gain insight into their specific risks and opportunities and provide a positive ongoing influence on their corporate strategy for governance and environmental and social impact.

 

abrdn has dedicated and highly experienced ESG equity analysts located across the UK, US, Asia and Australia. Working as part of individual investment desks – rather than as a separate department – these specialists are integral to pre-investment due diligence and post-investment ongoing company engagement. They are also responsible for taking thematic research produced by the central ESG Investment Team (see below), interpreting and translating it into actionable insights and engagement programmes for our regional investment strategies.

 

This central team of more than 20 experienced specialists based in Edinburgh and London, and provides ESG consultancy and insight for all asset classes. Taking a global approach both identifies regions, industries and sectors that are most vulnerable to ESG risks and identifies those that can take advantage of the opportunities presented. Working with investment managers, the team is key to the Manager’s active stewardship approach of using shareholder voting and corporate

engagement to drive positive change.

 

 

From laggards to best in class: rating company ESG credentials

A systematic and globally-applied approach to evaluating stocks allows the Manager to compare companies consistently on their ESG credentials – both regionally and against their peer group. The Manager captures the findings from its research and company engagement meetings in formal research notes. Some of the key questions include:

 

· Which ESG issues are relevant for this company, how material are they, and how are they being addressed?

· What is abrdn’s assessment of the quality of this company’s governance, ownership structure and management?

· Are incentives and key performance indicators aligned with the company’s strategy and the interests of shareholders?

 

Having considered the regional universe and peer group in which the company operates, the Manager’s equity team then allocates it an ESG Quality score (“ESG Q Score”) between one and five (see below) which will be applied across every stock that the Manager covers globally.

 

 

1. Best in class

 

ESG considerations are material part of the company’s core business strategy

 

Excellent disclosure

 

Makes opportunities from strong ESG risk

management

2. Leader

 

ESG considerations not market leading

 

Disclosure is good, but not best in class

 

Governance is

generally very good

3. Average

 

ESG risks are considered as a part of principal business

 

Disclosure in line with regulatory requirements

 

Governance is generally good but some minor

concerns

4. Below average

 

Evidence of some financially material controversies

 

Poor governance or limited oversight of key ESG issues

 

Some issues in treating minority shareholders

poorly

5. Laggard

 

Many financially material controversies

 

Severe governance concerns

 

Poor treatment of

minority shareholders

 

 

The Manager also uses a combination of external and proprietary in-house quantitative scoring techniques to complement and cross-check analyst-driven ESG assessments. ESG analysis is peer-reviewed within the equities team, and ESG factors impacting both sectors and stocks are discussed as part of the formal sector reviews. To be considered ‘best in class’, the management of ESG factors must be a material part of the company’s core business strategy. It must provide excellent disclosure of data on key risks. It must also have clear policies and strong governance structures, among other criteria.

 

 

 

16abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Working with companies: staying engaged, driving change

Once abrdn invests in a company, it is committed to helping that company maintain or raise their ESG standards further, using the Manager’s position as a shareholder to press for action as needed. abrdn actively engages with the companies in which it invests to help them stay good companies and become even better businesses.

 

The Manager sees this programme of regular engagement as a necessary fulfilment of its duty as a responsible steward of clients’ assets. It is also an opportunity to share examples of best practice seen in other companies and to use the Manager’s influence to effect positive change. The Manager’s engagement is not limited to the company’s management team. It can include many other stakeholders such as non-government agencies, industry and regulatory bodies, as well as activists and the company’s clients. What gets measured gets managed – so the Manager strongly encourages companies to set clear targets or key performance indicators on all material ESG risks where appropriate.

 

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

 

 

Monitor

 

Ongoing due diligence

· Business performance

· Company financials

· Corporate governance

· Company’s key risks and

opportunities

Contact

 

Frequent dialogue

· Senior executives

· Board members

· Heads of departments and specialists

· Site visits

Engage

 

Exercise rights

· Attend AGM/EGMs

· Always vote

· Explain voting decisions

· Maximise influence to drive

positive outcomes

Act

 

Consider all options

· Increase or decrease our shareholding

· Collaborate with other investors

· Take legal action if

necessary

 

 

ESG considerations within abrdn’s Smaller Companies team investment process

abrdn’s Smaller Companies team (the “Team”) considers ESG risks and opportunities for all of its investments and thus, ESG considerations are inextricably embedded into the investment process in order to achieve a successful and sustainable performance for the longer term. There is a broad understanding within abrdn and the Team that a full and thorough assessment of ESG factors allows better investment decisions to be made that lead to better outcomes for clients; with ESG aspects considered alongside other financial and fundamental factors in order to make the best possible investment decisions at a stock picking and at a portfolio construction level.

 

ESG analysis is a core constituent in the “Quality” analysis of the Team’s fundamental research. Especially for smaller companies, both risks and opportunities matter, and thus the research approach and analysis reviews this accordingly. As stated above, all of the analysts are required to undertake an ESG quality assessment (ESG Q Score analysis) which will be reflected in the research note provided for each of the companies under coverage. The ESG Q Score of a company is one of the core considerations in ensuring that the traditionally lower risk investment approach continues and portfolios will be weighted towards companies with higher scores.

 

The Team has a very close relationship with the ESG specialists within abrdn, while at the same time having an on-desk ESG analyst to assist in the above research process and ESG engagements with companies. Tzoulianna Leventi is the on-desk ESG analyst for the Smaller Companies team, having joined the team in 2020. Through the utilisation of third party provided research such as MSCI and, more recently abrdn’s in-house ESG rating tools, the Team is able to identify, where appropriate, leaders and laggards, areas of weakness and areas of strength. Ratings processes for smaller companies can be less accurate given data availability and coverage, and therefore the engagement and fundamental research the Managers and ESG Equity Analyst do with the investee companies is critical in adding value and ensuring the most important ESG risks and opportunities are well identified. Given the importance of ESG matters these factors are reviewed on an ongoing basis in addition to monitoring the actions of companies to assess the need for further engagement and/or changes to the internal investment view. Finally, as part of broader stewardship activities, the team participates actively in the voting process of the holdings, in line with best practice.

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc17

Overview of Strategy

 

Yield

 

Business Model

The business of the Company is that of an investment company which conducts its affairs in order to qualify as an investment trust for UK capital gains tax purposes.

 

The Company aims to attract long term private and institutional investors looking to benefit from the income and capital growth prospects of UK smaller companies. The Directors do not envisage any change in this activity in the foreseeable future.

 

Investment Objective and Purpose

The objective and purpose of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of UK smaller companies and UK fixed income securities.

 

Investment Policy

The Company invests in equities, corporate bonds and preference shares. The primary aim of the Company is to invest in the equity shares of smaller companies listed on a regulated UK stock market in order to gain growth in dividends and capital. The Company employs gearing with the primary intention of enhancing income and to a lesser extent, long-term total returns. The majority of the additional funds raised by gearing are invested in investment grade corporate bonds and preference shares.

 

Gearing

The level of gearing varies with opportunities in the market and the Board adopts a prudent approach to the use of gearing. The total level of gearing will not exceed 25% of the Company’s net assets, at the time it is instigated, and within that gearing limit, the equity portfolio gearing will not exceed 10%, at the time it is instigated.

 

Risk diversification

The investment risk within the portfolio is managed through a diversified portfolio of equities, corporate bonds and preference shares. The Company does not invest in securities that are unquoted at the time of investment. A maximum of 5% of the Company’s total assets can be invested in the securities of one company at the time of purchase. Although the Company is not permitted to invest more than 15% of its total assets in other listed investment companies (including investment trusts), the Board currently does not intend to invest in other listed investment companies.

 

Benchmark index

Numis Smaller Companies (excluding Investment Trusts) Index (total return) – effective from 1 January 2020; FTSE Small Cap Index (excluding Investment Trusts) Index (total return) – up to 31 December 2019.

 

 

18

Management

The Board has appointed ASFML (the “Manager”) to act as the alternative investment fund manager (“AIFM”). The Company’s portfolio is managed on a day-to-day basis by Aberdeen Asset Managers Limited (“AAML” or the “Investment Manager”) by way of a delegation agreement between ASFML and AAML. AAML and ASFML are both wholly owned subsidiaries of abrdn plc.

 

Delivering the Investment Policy Equity Investment Process

The equity investment process is active and bottom-up, based on a disciplined evaluation of companies through company meetings with the Investment Manager. Stock selection is the major source of added value, concentrating on quality, growth and momentum characteristics.

 

Great emphasis is placed on understanding a company’s business and understanding how it should be valued. New investments are not made without the Investment Manager having first met management of the investee company and undertaken further analysis to outline the underlying investment merits. Top-down investment factors are secondary in the equity portfolio construction, with diversification and formal controls guiding stock and sector weights.

 

Fixed Income Investment Process

The fixed income investment process is an active investment style which identifies value between individual securities. This is achieved by combining bottom-up security selection with a top-down investment approach. Investments in corporate bonds and preference shares are also managed by investment guidelines drawn up by the Board in conjunction with the Investment Manager which include:

 

· No holding in a single fixed interest security to exceed 5% of the total bond issue of the investee company; and

· Maximum acquisition cost of an investment grade bond is £1 million and of a non-investment grade bond is £500,000.

 

Key Performance Indicators (“KPIs”) The Board uses a number of financial performance

measures to assess the Company’s success in achieving its objective and determining the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

KPI

 

Performance of net asset value against the benchmark index

 

 

 

 

Revenue return and dividend growth

 

 

 

 

Share price performance

 

 

 

Share Price Discount/ Premium to NAV

 

 

Ongoing Charges Ratio (OCR)

Description

 

The Board considers the Company’s net asset value total return figures to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. The Board measures performance against the benchmark index. The returns over one, three and five years are provided on page 25 and a graph showing performance against the benchmark index is shown on page 27.

 

The Board monitors the Company’s net revenue return and dividend growth through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company aims to grow the dividend at a level above CPI when taken over a number of years. A graph showing the dividends and yields over five years is provided on page 26.

 

 

The Board monitors the performance of the Company’s share price on a total return basis. A graph showing the share price total return performance against the benchmark index is shown on page 27.

 

The discount/premium relative to the net asset value per share represented by the share price is monitored by the Board. A graph showing the share price discount/premium relative to the net asset value is shown on page 27.

 

The Company’s OCR is provided on page 5. The Board reviews the OCR, taking account of its

total assets.

 

 

Principal Risks and Uncertainties

There are a number of risks which, if realised, could have a material adverse effect on the Company and its business model, financial position, future performance, solvency or liquidity and prospects. The Board has in place a robust process to identify, assess and monitor the principal risks and uncertainties facing the Company. A summary of the principal risks together with their mitigating action is set out below.

 

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

 

The Board has adopted a risk matrix which identifies the key risks for the Company and covers strategy, investment management, operations, shareholders, regulatory and financial obligations and third party service providers. This risk matrix is reviewed formally every six months but risks, including emerging risks, are, if appropriate, discussed by the Board at, or between, formal Board quarterly meetings.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc19

Overview of Strategy Continued

 

 

Description

 

 

Yield

 

 

Mitigating Action

 

Investment and Market risk

The Company is exposed to fluctuations in share prices and a fall in the value of its investment portfolio will have an adverse effect on the value of shareholders’ funds. The Company invests in smaller companies which may be subject to greater volatility than similar larger companies.

 

Investment portfolio management

Investing outside of the investment restrictions and guidelines set by the Board could result in poor performance and inability to meet the Company’s objectives.

 

 

 

 

Major market event or geo-political risk

The Company is exposed to stockmarket volatility or illiquidity as a result of a major market shock due to a national or global crisis. The impact of such risks, associated with the portfolio or the Company itself, could result in disruption on the operations of the Company and losses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

The Board has appointed ASFML to manage the portfolio within the remit of the investment policy. The Board monitors the results and implementation of the Manager’s investment process and reviews the investment portfolio, including diversification and performance, at each meeting.

 

 

The Board is responsible for ensuring that the investment policy is met. The day-to-day management of the Company's assets has been delegated to the Manager under investment guidelines determined by the Board. The Board regularly reviews these guidelines to ensure they remain appropriate and monitors compliance with the guidelines through regular reports from the Manager, including performance reporting.

 

External risks over which the Company has no control are always a risk. The Company does what it can to address these risks where possible, not least operationally and to try and meet the Company’s investment objectives.

 

The Board is cognisant of the risks arising from the outbreak and spread of the Coronavirus around the world, including stockmarket instability and longer term economic effects, and the impact on the operations of the third-party suppliers, including the Manager. The Manager has undertaken an assessment of the Company’s portfolio and is in close communication with the underlying investee companies in order to navigate and guide the Company through the current challenges. The Manager assesses and reviews the investment risks arising from the Covid-19 pandemic on companies in the portfolio, including but not limited to: employee absence, reduced demand, supply chain breakdown, balance sheet strength, ability to pay dividends, and takes the necessary investment decisions.

 

The Manager has extensive business continuity procedures and contingency arrangements to ensure they are able to service their clients, including investment trusts. The services from third parties, including the Manager, have continued to be supplied effectively and the Board will continue to monitor arrangements through regular updates from the Manager.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Description

 

Gearing risk

Gearing has the effect of accentuating market falls and market gains. The inability of the Company to meet its financial obligations, or an increase in the level of gearing, could result in the Company becoming over-geared or unable to take advantage of potential opportunities and result in a loss of value to the Company’s shares.

 

 

 

Income and dividend risk

The ability of the Company to pay dividends and any future dividend growth will depend over the longer term on the level of income generated from its investments and the timing of receipt of such income by the Company. In the shorter term the size of the Company's revenue reserves will determine the extent that shareholder dividend payments can be less volatile than the dividends actually paid by the companies in which the Company invests. Accordingly there is no guarantee that the Company's dividend objective will continue to be met.

 

Operational risk

The Company is dependent on third parties for the provision of services and systems, in particular those of the Manager and the Depositary. Failure by a third party provider to carry out its contractual obligations could result in loss or damage to the Company. Disruption, including that caused by information technology breakdown or other cyber-related issue, could prevent the functioning of the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

Mitigating Action

 

The Board monitors the Company’s actual gearing levels (including equity gearing) in relation to its assets and liabilities and reviews the Company’s compliance with the principal loan covenants.

 

The Company's gearing consists of a £10 million facility comprised of a £5 million five year fixed rate loan and a

£5 million three year variable rate loan. As at 31 December 2021, £7 million was drawn down (£5 million fixed rate and £2 million variable rate).

 

The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each Board meeting and the Manager has developed detailed and sophisticated models for forecasting and monitoring dividend payments.

 

 

 

 

 

 

Written agreements are in place defining the roles and responsibilities of third party providers and their performance is reviewed on an annual basis. The Board reviews regular reports from the Manager on its internal controls and risk management systems, including internal audit and compliance monitoring functions. The Manager reports to the Board on the control environment and quality of service provided by third parties, including business continuity plans and policies to address cyber crime. Further details of internal controls are set out in the Audit Committee’s Report on page 48.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

Overview of Strategy Continued

 

 

Promoting the Success of the Company

The Board is required to report on how it has discharged its duties and responsibilities under section 172 of the Companies Act 2006 (the “s172 Statement”). Under section 172, the Directors have a duty to promote 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 the Company’s stakeholders and the impact of the Company’s operations on the environment.

 

The Company currently consists of five Directors and has no employees or customers in the traditional sense. Without a variety of external stakeholders, the Company can neither exist nor flourish. Our shareholders own us and the Company’s Manager, ASFML, provides investment management services. A number of other stakeholders support us by providing regulatory and other services, including secretarial, administration, depositary, custodial, banking and audit services. For example, BNP Paribas is the Company’s Depository and Ernst & Young LLP is the Company’s external auditor.

 

The Board’s relationship with each stakeholder is different. We meet the Manager on a quarterly basis but might meet our investors, both institutional and retail, only once a year. We often need to balance the interests of different stakeholders, for example, in agreeing their fees.

 

The Board’s principal concern has been, and continues to be, the interests of the Company’s shareholders and potential investors. The Manager undertakes an annual programme of meetings with the largest shareholders and reports back to the Board on issues raised at these meetings. In normal circumstances, the Board encourage all shareholders to attend and participate in the Company’s AGM and note that they can contact the Directors via the Company Secretary. Shareholders and investors can obtain up-to-date information on the Company through its website and the Manager’s information services and have direct access to the Company through the Manager’s customer services team or the Company Secretary. As the normal format of the 2021 AGM was not able to take place due to the government’s social distancing restrictions in place, a number of presentations and podcasts by the Manager were made available on the Company’s website for shareholders to access.

 

 

 

 

 

 

 

 

 

 

22

 

 

Yield

 

The Board believes that one of the key strategies of the Company, for its long-term stability and sustainability, is to develop share ownership among the growing retail and self-directed investors. Approximately 49% of the shares are currently held by such investors. In order to raise and maintain awareness of the Company, the Board participates in the promotional programme run by the Manager on behalf of a number of investment trusts under its management. The purpose of the programme is both to communicate effectively with existing shareholders and to reach more new shareholders, thus improving liquidity and enhancing the value and rating of the Company’s shares. Regular reports are provided to the Board on promotional activities as well as analysis of the shareholder register.

 

As the Company has no employees, the culture of the Company is embodied in the Board of Directors. In seeking to deliver the Company’s investment objective for shareholders, our values are trust and fairness while challenging constructively, and in a respectful way, our advisers and other stakeholders.

 

The Board undertakes a robust evaluation of the Manager, including investment performance and responsible stewardship, to ensure that the Company’s objective of providing sustainable income and capital growth for its investors is met. The portfolio activities undertaken by the Manager on behalf of the Company can be found in the Manager’s Review and details of the Board’s relationship with the Manager and other third party providers, including oversight, is provided in the Statement of Corporate Governance.

 

Key decisions and actions during the year to 31 December 2021, which required the Directors to have greater focus on stakeholders included:

 

Directorate and Succession Planning

The Board has continued to progress its succession plans during the year and, as explained in the Chairman’s statement, in light of the retirement of Barry Rose in June 2021 and the retirement of the Chairman in May 2022, has successfully recruited two new Directors in the year, Christopher Metcalfe and Rosalyn Breedy. Dagmar Kent Kershaw has agreed to take the role of Chairman of the Board from May 2022. 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.

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Change of Company Name

In light of the Manager’s rebrand to ‘abrdn’ in September 2021, the Board considered the opportunity to leverage the significant promotional activity and agreed that it was in the best interests of the Company to align the Company name with that of its Manager. Accordingly, the name change was effected in January 2022 at the earliest opportunity after the year end.

 

Renewal of Debt Facility

During the year, the Board approved the renewal of the Company’s loan agreement with RBSI to provide it with a £10 million credit facility, £5 million of which is at a fixed interest rate and £5 million at a floating interest rate. The £5 million floating element of the facility expires in April 2022 and the Company is already seeking terms for its renewal. The £5 million fixed rate facility expires in April 2023. The Board believes that the modest use of gearing by the Company is of long term benefit to shareholders.

 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the appropriate knowledge represented on the Board in order to allow the Board to fulfill its obligations. Each Director brings different skills and experience to the Board. The Board takes the benefits of diversity into account in its recruitment of new Board members and this is evidenced in recent Board changes. At 31 December 2021, the Board consisted of three males and one female.

 

Employee, 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 outlined in the Statement of Corporate Governance.

 

Modern Slavery Act

Due to the nature of the Company’s business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover or employees. 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.

 

 

 

abrdn Smaller Companies Income Trust plc

Global Greenhouse Gas Emissions

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

 

The Company qualifies as a "low energy user" under the Streamlined Energy and Carbon Reporting Requirements (SECR), and its energy and carbon information is not disclosed for that reason.

 

Viability Statement

The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. 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 three years.

 

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

 

· The principal risks detailed in the Strategic Report on pages 19 to 21 and the steps taken to mitigate these risks. In particular, the Board has considered the operational ability of the Company to continue in the current environment, which continues to be impacted by the global Pandemic, and the ability of the key third-party suppliers to continue to provide essential services to the Company. Third party services have continued to be provided effectively;

· The investment objective in the current environment remains attractive. A resolution for the continuation of the Company was passed at the AGM in June 2020 demonstrating ongoing support for the Company’s mandate. The Company has continued to deliver sustained dividend growth as well as good capital growth over the longer term;

· The outlook for the Company and its portfolio detailed in the Chairman’s Statement and the Investment Manager’s Review;

· The Company is invested in readily realisable listed securities;

 

 

 

 

 

 

 

 

23

Overview of Strategy

 

ContinuedYield

 

· The level of revenue surplus generated by the Company over a number of years and its ability to achieve its dividend objective;

· The level of gearing is closely monitored. Covenants are actively monitored and there is adequate headroom in place. The Company has the ability to renew its gearing or repay its borrowings through proceeds from sales of investments. Initial discussions with banks have commenced with a view to renewing the facility; and

· The impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values.

 

When considering the risk of under-performance, the Board reviewed the impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values. The Board also considered that matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, the emerging risk of climate change or changes in investor sentiment could have an impact on its assessment of the Company’s prospects and viability in the future and the period over which the performance of the Company is monitored. The results of the stress tests have given the Board comfort over the viability of

the Company.

 

Accordingly, taking into account all of these factors, the Company’s current position and the potential impact of its principal risks and uncertainties, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report.

 

 

Robert Lister, Chairman

14 March 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24abrdn Smaller Companies Income Trust plc

Performance

 

 

 

 

 

 

 

 

 

 

 

 

Performance (total return)

 

 

 

Net asset valueA

 

Share price (based on mid price)A

 

Composite IndexB

 

Numis Smaller Companies ex Inv Trust Index

1 year % return

+30.4

 

+22.9

 

+21.9

 

+21.9

3 year % return

+68.2

 

+84.0

 

+37.3

 

+46.1

5 year % return

+91.0

 

+114.2

 

+36.8

 

+47.8

 

A Considered to be an Alternative Performance Measure. Further details can be found on page 87.

B FTSE Small Cap ex Inv Trust Index up to 31 December 2019 and Numis Smaller Companies ex Inv Trust Index from 1 January 2020.

 

 

Cumulative PerformanceA Rebased to 100 at 31 December 2011

 

As at 31 December

 

NAV performance

 

NAV total returnA

 

Share price performance

 

Share price total returnA

 

Composite Index performanceB

 

Composite Index total returnB

 

Numis Smaller Companies ex Inv Trust performance

Numis Smaller Companies ex

Inv Trust total return

20112012

 

100.0126.9

 

100.0132.2

 

100.0143.3

 

100.0150.7

 

 

100.0132.3

 

100.0136.3

 

 

100.0126.2

 

 

100.0129.9

201320142015

 

178.2169.7187.2

 

191.7187.7212.8

 

210.9174.0202.8

 

229.2195.0234.8

 

 

185.5176.5194.0

 

196.1190.8215.6

 

 

168.0160.3172.2

 

 

177.9174.6193.2

201620172018

 

196.9255.4213.6

 

230.2305.9261.3

 

192.4272.3211.8

 

230.6336.5268.5

 

 

211.8238.1198.5

 

242.6280.5241.8

 

 

186.0216.2177.5

 

 

214.6256.4217.0

201920202021

 

280.0258.9331.0

 

351.3336.0436.5

 

324.3296.0354.6

 

423.4401.7490.6

 

 

225.9212.4253.4

 

284.5272.3332.0

 

 

215.1202.2241.3

 

 

271.7260.0317.0

 

A Total return figures are considered to be an Alternative Performance Measure and based on reinvestment of net income.

B FTSE Small Cap ex Inv Trust Index up to 31 December 2019 and Numis Smaller Companies ex Inv Trust Index from 1 January 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc25

Performance

 

ContinuedYield

 

 

 

 

 

 

 

 

 

Ten Year Financial Record

 

Year to 31 December20122013

 

Revenue available for

Ordinary dividends (£’000)1,2571,496

 

Per share (p)

 

Net revenue return5.696.77

 

Net dividends paid/proposed6.056.25

 

Total return41.9274.73

 

Net asset value per share169.5238.0

 

Shareholders’ funds (£m)37.552.6

201420152016

 

 

1,5791,6661,622

 

 

7.147.547.34

 

6.456.656.85

 

(5.00)29.9619.79

 

226.6249.9262.9

 

50.155.358.1

201720182019

 

 

1,7161,9972,206

 

 

7.769.039.98

 

7.057.358.25

 

85.19(48.74)96.49

 

341.1285.2373.9

 

75.463.182.7

20202021

 

 

1,2382,143

 

 

5.609.69

 

8.248.85

 

(16.37)102.11

 

348.9442.5

 

77.197.8

 

 

 

Dividend (p) and Company and Benchmark Yield (%) Five years to 31 December 2021

 

 

10%

 

8%

7.05

 

6%

8.85

8.258.24

7.35

 

Dividends (p)

 

Company

 

4%Composite Index

 

2%

 

0%

20172018201920202021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26abrdn Smaller Companies Income Trust plc

Dividend

 

8.85p

 

 

 

 

 

 

 

 

 

Total Return of NAV and Share Price vs Composite Index Figures are total return and have been rebased to 100 at 31 December 2016

 

 

220Share Price

 

200NAV

 

180Composite Index

160

 

140

 

120

 

100

 

80

 

60

31/12/1631/12/1731/12/1831/12/1931/12/2031/12/21

 

 

Share Price Discount to Net Asset Value Five years to 31 December 2021

 

0%

 

 

-5%

 

 

-10%

 

 

-15%

 

 

-20%

 

 

-25%

31/12/1631/12/1731/12/1831/12/1931/12/2031/12/21

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc27

 

 

 

 

Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

The Company delivered a NAV total return of 30.4% for the year ended 31 December 2021, outperforming the Numis Smaller Companies

(ex- Investment Trusts) Index return of 21.9% by 8.5%. This continues the solid long term track record of the Company, which over three and five years has delivered a NAV total return of 68.2% and 91.0% respectively, outperforming its composite benchmark by 30.9% and

54.2% respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc29

Ten Largest Investments

 

 

 

 

As at 31 December 2021

 

Sirius Real Estate

Leading owner and operator of business parks, offices and industrial complexes in Germany.

 

 

 

 

Liontrust Asset Management

UK based asset manager, managing assets across a range of asset classes.

 

 

 

 

 

Telecom Plus

Reseller of telecom and utilities services, under the Utility Warehouse brand.

 

 

 

 

 

Intermediate Capital Group

Global alternative asset manager in private debt, credit and equity.

 

 

 

 

 

Tatton Asset Management

UK discretionary fund manager providing services to UK’s financial advisers enabling them to provide a

better service to their clients.

Morgan Sindall

UK leading business in construction and regeneration work.

 

 

 

 

 

DiscoverIE Group

International group of businesses that designs, manufactures and supplies highly differentiated components for electronic applications.

 

 

 

Safestore

Safestore is the UK’s largest and Europe’s second largest provider of self-storage.

 

 

 

 

 

Softcat

Value added technology reseller in UK.

 

 

 

 

 

 

Games Workshop

Global retailer of hobbyist products, selling through own retail stores, online, and through trade partners. Owner of the

IP of Warhammer.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30abrdn Smaller Companies Income Trust plc

Equity Investments

 

 

 

 

At 31 December 2021

 

Valuation            Total            Valuation 2021             portfolio             2020

CompanySector classification£’000%£’000

 

Sirius Real EstateReal Estate Investment & Services4,6084.52,778

 

Morgan SindallConstruction & Materials4,2844.22,604

 

Liontrust Asset ManagementInvestment Banking & Brokerage Services4,0584.02,905

 

DiscoverIE GroupTechnology Hardware & Equipment3,9093.82,996

 

Telecom PlusTelecommunications Service Providers3,3473.32,436

 

SafestoreReal Estate Investment Trusts3,2433.21,795

 

Intermediate Capital GroupInvestment Banking & Brokerage Services3,2133.13,025

 

SoftcatSoftware & Computer Services3,1473.12,632

 

Tatton Asset ManagementInvestment Banking & Brokerage Services3,0313.01,434

 

Games WorkshopLeisure Goods2,8762.83,232

 

Ten largest investments35,71635.0

 

Bytes TechnologySoftware & Computer Services2,8572.81,688

 

Robert WaltersIndustrial Support Services2,8532.8–

 

HalfordsRetailers2,7612.71,148

 

Alpha Financial Markets ConsultingIndustrial Support Services2,6972.61,248

 

Somero EnterprisesIndustrial Engineering2,5962.51,218

 

Strix GroupElectronic & Electrical Equipment2,5822.51,867

 

KeskoAPersonal Care, Drug & Grocery Stores2,3262.31,783

 

GreggsPersonal Care, Drug & Grocery Stores2,2192.2–

 

Unite GroupReal Estate Investment Trusts2,2162.22,297

 

DunelmRetailers2,1552.11,122

 

Twenty largest investments60,97859.7

 

SynthomerChemicals2,0702.0–

 

AssuraReal Estate Investment Trusts2,0512.02,956

 

Hollywood BowlTravel & Leisure2,0502.02,372

 

FDMIndustrial Support Services2,0442.01,806

 

Hilton Food GroupFood Producers2,0332.02,181

 

AJ BellInvestment Banking & Brokerage Services2,0162.02,303

 

Mortgage Advice BureauFinance & Credit Services1,9571.9–

 

Impax Asset ManagementInvestment Banking & Brokerage Services1,9091.9905

 

Polar Capital HoldingsInvestment Banking & Brokerage Services1,9051.91,006

 

XP PowerElectronic & Electrical Equipment1,8381.83,075

 

Thirty largest investments80,85179.2

 

 

abrdn Smaller Companies Income Trust plc31

Equity Investments Continued

 

 

At 31 December 2021

 

Valuation            Total            Valuation 2021             portfolio             2020

CompanySector classification£’000%£’000

 

Close BrothersBanks1,7961.81,769

 

ChesnaraLife Insurance1,6531.61,730

 

VictrexChemicals1,6081.61,545

 

SeraphinePersonal Goods1,5221.5–

 

ForterraConstruction & Materials1,5111.5965

 

MJ GleesonHousehold Goods & Home Construction1,4191.41,456

 

Rathbone BrothersInvestment Banking & Brokerage Services1,2061.2478

 

MidwichIndustrial Support Services1,1611.11,273

 

MarshallsConstruction & Materials1,1461.11,237

 

ProCookHousehold Goods & Home Construction1,0811.1–

 

Forty largest investments94,95493.1

 

Gateley HoldingsIndustrial Support Services1,0581.0606

 

Hill & Smith HoldingsIndustrial Metals and Mining1,0151.0–

 

SeverfieldConstruction & Materials1,0141.0825

 

RWS HoldingsIndustrial Support Services8730.9717

 

MoneysupermarketSoftware & Computer Services8250.81,316

 

CMC MarketsInvestment Banking & Brokerage Services6400.6–

 

Clipper LogisticsIndustrial Support Services1870.2–

 

Total Equity investments100,56698.6

A All equity investments are listed on the London Stock Exchange (sterling based), except those marked, which are listed on overseas exchanges based in sterling.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32abrdn Smaller Companies Income Trust plc

Other Investments

 

 

 

 

 

At 31 December 2021

 

 

 

Company

 

Corporate BondsA

 

NGG Finance 5.625%

 

Barclays Bank 9% Perp

 

Heathrow Funding 5.225%

 

SSE 3.625% Var

 

HSBC Holdings 6.5%

 

Total Corporate Bonds

 

Total Investments

 

A All investments are listed on the London Stock Exchange (Sterling based).

 

Valuation 2021 £’000

 

 

433

 

346

 

312

 

302

 

224

 

1,617

 

102,183

 

Total portfolio %

 

 

0.3

 

0.3

 

0.3

 

0.3

 

0.2

 

1.4

 

100.0

 

Valuation 2020 £’000

 

 

458

 

364

 

326

 

308

 

238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc33

Distribution of Assets and Liabilities

 

 

 

 

At 31 December 2021

 

Valuation at

31 December

 

Movement during the year

Gains/

 

Valuation at

31 December

2020PurchasesSales(losses)2021

 

Listed investments

 

Equity investments

 

Corporate bonds

 

 

Current assets

 

Other current liabilities

 

Loans

 

Net assets

 

Net asset value per Ordinary share

£’000%£’000

 

 

80,354104.235,740

 

2,1002.7–

 

82,454106.935,740

 

1,9352.5

 

(254)(0.3)

 

(6,991)(9.1)

 

77,144100.0

 

348.91p

£’000£’000

 

 

(34,223)18,695

 

(400)(83)

 

(34,623)18,612

£’000%

 

 

100,566102.8

 

1,6171.7

 

102,183104.5

 

2,9683.0

 

(316)(0.3)

 

(6,995)(7.2)

 

97,840100.0

 

442.52p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34abrdn Smaller Companies Income Trust plc

Investment Case Studies

 

 

 

 

Greggs plc

Whilst Greggs started over 80 years ago, the business has transformed significantly in the last decade, with the strategy in 2013 to shift from a predominantly bakery business, to food-on-the-go. The company is led by the very impressive management team of Roger Whiteside and Richard Hutton. The strategic plan focused on four key pillars: great fresh food, the best customer service, competitive supply chain, and first class support teams. This has resulted in a resilient brand, with multiple service channels to its customers, ownership of their supply chain, and over 2000 shops nationwide. Greggs’ mantra is good, honest food that customers can trust, at affordable prices.

 

Whilst the Pandemic has been a challenging period for the business, the Manager is impressed with how the business has emerged from that environment. The company adapted well, increased delivery offerings, flexed its offering where needed, and used its strong balance sheet to guide it through those difficult environments.

 

Before the Pandemic, Greggs was showing strong momentum across the business, with very impressive like-for-like growth rates. The company continued to expand store locations; increasingly in residential areas, retail parks, office parks, industrial estates; rather than typical high streets. The way people shop and their eating habits have changed over the past ten years, and Greggs has adapted to suit that. This positioned the company well during the Pandemic, with less exposure to travel or main high street footfall than many investors were aware. The company is also underpenetrated in areas such as central London, which provides future growth opportunities. Greggs have 361 franchise stores currently, mostly at service stations, and believe this can grow to over 600 shops in five years.

 

Greggs has strong product innovation, with the most celebrated being the vegan sausage roll. The impact of this across the business was far broader than sales of this product; it attracted a range of new customers as well as those who hadn’t visited a Greggs store for some time, and increased their awareness of the broad product range that the business now offers. Sales picked up across a selection of food and drink categories, not just the vegan or healthy eating choices.

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc35

Investment Case Studies Continued

 

 

Greggs plc continued

One area that Greggs excels in has been social media and marketing. Through creative and attention grabbing campaigns, it has increased its brand awareness, and is seen as a brand for everyone. Greggs has a loyal customer base and the development of the loyalty app, Greggs Rewards, has helped provide data and insights which the company uses to evolve. The business is now benefitting from the investment made in recent years on core IT aspects.

 

The investment in all of these aspects has been possible through the strong net cash balance sheet and good cash generation of the business, whilst also paying a dividend and historically special dividends. Whilst this was challenged in the short term during the Pandemic, the business is on track to re-establish its ordinary dividend being twice covered by earnings.

 

Greggs has an ambition to grow to over 3000 stores in the UK, and building out their supply chain to support that. They also have a focus on constant operational efficiencies especially in manufacturing and logistics, which help drive margin expansion. The business constantly addresses the quality of the estate, and relationships of stores. Greggs has also invested in stretching their asset base more widely, through delivery service via Just Eat, click and collect, and also evening service. The range of growth innovations across the business supports the ambitious target to double turnover over the next five years (2021-2026).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36

This business plan also allows for increased investment of up to 1% margin each year to support the sustainability of the customer offering. The business launched “The Greggs Pledge” in February 2021 which is a full sustainability agenda focusing on all aspects of the company; Stronger, Healthier Communities; Safer Planet; Better Business. Greggs Pledge is also linked to the UN Sustainable Development Goals, and sets out ten stretching targets by 2025. These relate to aspects including food waste, packaging, animal welfare, diversity, heathier choices, carbon reduction, supporting communities. The company’s focus on ESG is not new, and the Greggs Foundation has existed since 1987- a charitable trust supporting aspects like breakfast clubs, awarding local grants, and donating unsold food.

 

Whilst Greggs faced a challenging period over the Pandemic, it is the Manager’s view that they navigated this very well, led by a strong management team. The business was on a strong momentum pathway pre-Pandemic and the Manager is confident that, as the restrictions ease, they will continue on their successful pathway of revenue and earnings growth. Greggs evidenced real strength in 2021 with upgrades to

earnings expectations, the launch of Greggs Pledge, and a formidable business strategy with ambitious growth targets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Somero Enterprises Inc

Somero is an equipment manufacturer that designs and manufactures a range of patented, laser-screed machinery for the construction industry. These products automate the process of spreading, levelling and contouring volumes of concrete, particularly in areas of large surface volume or where precise levels are critical. The rights to the products are protected with 91 patents, and Somero is truly a global leader in what they do, with few relevant competitors. Somero has a strong reputation for customer service: the company can’t afford any shutdowns in machinery and lost productivity on site, so customer service is an integral part of the business proposition. Somero is heavily US exposed, and is based in Florida, however, it also has exposure to Europe, the Middle East, Australia and China.

 

Much of the concrete laying industry globally is still done by hand, which involves a lot of expensive labour, and often inaccurate results. Somero plays to the automation being seen across the construction market; their products allow all jobs to be completed faster, using less manpower, and with a higher quality output. Whilst their products can be used across a wide range of areas such as car parks, hospitals and schools, they are particularly useful in areas such as logistics centres, distribution warehouses, manufacturing facilities- where a level floor is essential. Somero has a loyal and engaged customer base, and products across a range of price points and purposes. The use of Somero machinery can significantly improve the profitability of a contractors business, through the efficiencies gained and the pricing for a quality flooring solution. The building owners and users also benefit from lower maintenance costs, lower forklift repair costs, an improved appearance, and operational efficiencies.

 

The business performed well and evidenced its resilience throughout the Pandemic. The company has a degree of cost flexibility which they can adjust if there are any downturns, and can help protect margins in that environment. The business provides strong and sustainable margins, with EBITDA margins of 35% this year, and even during the challenging environment of the Pandemic in 2020 the company only fell 2% on prior years numbers. The secular strength of the US construction market has been a strong support to the business, and the messaging and pipeline of work Somero’s customer base has well into 2022 supports confidence over the outlook.

 

Somero is highly cash generative, and returns cash to shareholders through ordinary dividends, supplementary dividends and special dividends; in 2021 providing a yield of 7%. The company is able to do this whilst continuing to invest in the business, through product development and innovation, and capacity expansion where necessary.

 

 

 

abrdn Smaller Companies Income Trust plc

Somero has a new cash balance sheet, and no debt. This positions it very strongly to continue investing in the business from the strong cash generation.

 

Product innovation is key in driving growth, both in existing applications with new solutions achieving higher prices, but also in opening up new markets for the business. The company’s SkyScreed product is a good example of this, giving them growth opportunities in the high rise

building sector.

 

Somero has proven itself to have strong earnings momentum, meeting and beating expectations. After exceeding full year 2020 expectations, the company has provided four earnings upgrades so far for 2021, with earnings expectations 70% higher than they were going into the year.

 

In terms of ESG, Somero has a very active training programme not just internally, but supporting and educating their customers and the industry across over 90 countries. It operates the Somero Concrete College and Institute, and has in person, on demand and virtual offerings. In less developed markets Somero works with trade bodies to help accelerate the technology adoption in the industry. The company has also made progress on emissions reductions, particularly across their factories. Somero assemble equipment, which is less energy intensive than many areas of industrial markets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37

 

 

 

 

Governance

 

 

 

 

 

 

 

 

 

 

 

 

The Company is committed to high standards of corporate governance and applies the principles identified in the UK Corporate Governance Code and the AIC Code of Corporate Governance.

 

All Directors are considered by the Board to be independent of the Company and the Manager and free of any material relationship of the Manager.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc39

Your Board of Directors

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert Lister Independent Chairman

 

Experience:

Over 20 years’ experience of investment management and formerly global head of equities at Dresdner Kleinwort and head of European equities at Barclays de Zoete Wedd. He is the non-executive Chairman of finnCap and Credit Suisse Asset Management UK and a non-executive director of IntegraFin Holdings.

 

Length of service:

10 years, appointed in March 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dagmar Kent Kershaw Independent Non-Executive Director

 

Experience:

Dagmar has over 25 years’ investment experience specialising in fixed income, debt and alternative assets. She was head of Intermediate Capital Group’s debt business in Europe and Australia from 2008 until 2016, and prior to that the head of structured credit products at Prudential M&G. She began her career in credit markets with Scotiabank and NatWest. She is a non-executive director of Brooks MacDonald Group plc, a non-executive director and Risk Chair at Volta Finance Limited and a senior advisor at Strategic Value Partners.

David Fletcher

Independent Non-Executive Director

 

Experience:

A chartered accountant, with over 20 years’ experience of investment banking with JPMorgan, Robert Fleming & Co. and Baring Brothers & Co Limited. He was the group finance director of Stonehage Fleming Family & Partners, a leading independently owned multi-family office, until September 2019. He is a non-executive director of JP Morgan Claverhouse Investment Trust and Ecofin US Renewables Infrastructure Trust .

 

Length of service:

5 years, appointed in August 2016

 

 

 

 

 

 

 

 

 

 

 

 

Christopher Metcalfe Independent Non-Executive Director

 

Experience:

Christopher, has over 30 years’ experience in investment management, having been an investment manager at Newton Investment Management from 2006-2017, and prior to that at Schroder Investment Management and Henderson Administration Group. He is a non-executive director of JP Morgan US Smaller Companies Trust plc and Martin Currie Global Portfolio Trust plc.

 

Length of service:

9 months, appointed in June 2021

 

Length of service:

4 years, appointed in May 2017

 

 

40abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rosalyn Breedy

Independent Non-Executive Director

 

Experience:

 

Rosalyn is a corporate, funds and financial services lawyer. She is a partner at Simons Muirhead Burton and is head of funds and private wealth, with 30 years' experience working in private practice, investment banking and at a multi-family office. She is a non-executive director of Lanware Limited, Greengage Global Holding Limited and Global Fund Media Limited.

 

Length of service:

2 months, appointed on 05 January 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc41

Directors’ Report

 

 

 

 

The Directors present their report and the audited financial statements for the year ended

31 December 2021.

 

Results and Dividends

The financial statements for the year ended 31 December 2021 are contained on pages 54 to 88.

 

A fourth interim dividend of 2.40p per share was declared by the Board in December 2021 with a record date of 7 January 2022 and ex dividend date of 6 January 2022. It was paid on 28 January 2022. Under accounting standards this dividend will be accounted for in the financial year ended 31 December 2022.

 

Investment Trust Status

The Company is registered as a public limited company and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company’s registration number is SC137448. The Company has been approved by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the on-going requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 January 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 December 2021 so as to enable it to comply with the on-going requirements for investment trust status.

 

Individual Savings Accounts (“ISAs”)

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for ISAs. The Directors intend that the Company will continue to conduct its affairs in this manner in the future.

 

Corporate Governance

The Statement of Corporate Governance, which forms part of the Directors’ Report is provided on pages 45 to 47.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42

Capital Structure

At 31 December 2021, the Company had 22,109,765 fully paid Ordinary shares of 50p each (2020– 22,109,765 Ordinary shares). There have been no changes in the Company’s issued share capital subsequent to the year end, up to the date of this Report. Each Ordinary share holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings. There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may be applied from time to time by law.

 

Management Agreement

The Company has appointed Aberdeen Standard Fund Managers Limited ("ASFML" or the “Manager”), a wholly owned subsidiary of abrdn plc, as its alternative investment fund manager (“AIFM”). ASFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities. The Company's portfolio is managed by Aberdeen Asset Managers Limited (“AAML” or the “Investment Manager”) by way of a group delegation agreement in place between ASFML and AAML. In addition, ASFML has sub-delegated promotional activities to AAML and administrative and secretarial services to Aberdeen Asset Management PLC. The management fee, details of which are shown in note 4 to the financial statements, is 0.75% per annum of net assets. The contract may be terminated by either the Company or the Manager on the expiry of six months' written notice.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Substantial Interests

The Board has been advised that the following shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 December 2021:

The Company undertakes a continuation vote every five years. The last continuation vote was passed at the AGM held in June 2020 with 99.7% of votes in favour.

 

The Company’s portfolio comprises primarily “Level One”

 

 

 

Shareholder

 

abrdn Trust Savings Plans

 

abrdn

 

Interactive Investor

 

Hargreaves Lansdown

 

Philip J Milton

 

Charles Stanley

 

AJ Bell

Number of

shares held% held

 

4,507,45420.4

 

3,103,72614.0

 

2,699,88812.2

 

2,255,08810.2

 

1,285,7315.8

 

880,0944.0

 

827,5573.7

assets (listed on a recognisable exchange and realisable within a short timescale) and the Company has a relatively low level of gearing. As such, the Company has the ability to raise sufficient funds in order to remain within its debt covenants and pay expenses.

 

Taking the above factors into consideration, the Directors reasonably believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period until at least 31 December 2023. Accordingly the Board continues to adopt the going concern basis in preparing the

financial statements.

 

As at the date of approval of this Annual Report, no changes to the above interests had been notified to the Company.

 

Going Concern

The Directors believe that it is appropriate to continue to adopt the going concern basis in the preparation of the financial statements.

 

The Company’s assets consist substantially of securities in companies listed on recognised stock exchanges and in normal circumstances are realisable within a

short timescale.

 

The Company’s assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary.

 

The Board has set gearing limits and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company has a £10 million credit facility comprised of a fixed rate £5 million loan which expires in 2023 and a variable rate £5 million loan which expires in April 2022. A replacement option for the variable rate loan is currently being sought. Should the Board decide not to renew this facility, any outstanding borrowing would be repaid through the proceeds of the sale of investments as required. £2 million of the variable rate loan was drawn down at the date of this report.

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

Accountability and Audit

The respective responsibilities of the Directors and the auditor in connection with the financial statements appear on page 60. In accordance with Section 418 (2) of the Companies Act 2006, the Directors confirm that, so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Additionally there have been no important events since the year end.

 

Annual General Meeting

The Annual General Meeting (“AGM”) will be held on

5 May 2022 at 12.00 pm and the following resolutions will be proposed:

 

Section 551 authority to allot shares

Resolution 9, which is an ordinary resolution, will, if approved, give the Directors a general authority to allot new securities up to an aggregate nominal value of £3,684,960, representing approximately one third of the total Ordinary share capital of the Company in issue as at the date of this document, such authority to expire on 30 June 2023 or, if earlier, at the conclusion of the next AGM of the Company (unless previously revoked, varied or extended by the Company in general meeting).

 

 

 

 

 

 

 

 

43

Director’s Report Continued

 

 

Disapplication of Pre-emption Provisions

Resolution 10 is to enable the Directors to issue new shares and to resell shares held in treasury up to an aggregate nominal amount of £1,105,488 (representing approximately 10 per cent of the total Ordinary share capital in issue). Resolution 12, which is a special resolution, will, if approved, give the Directors power to allot Ordinary shares (including Ordinary shares held in treasury) for cash, otherwise than pro rata to existing shareholders, up to a maximum aggregate nominal amount of £1,105,488. Ordinary shares would only be issued for cash at a price not less than the net asset value per share. This authority will expire on 30 June 2023 or, if earlier, at the conclusion of the next AGM of the Company (unless previously revoked, varied or extended by the Company in general meeting). As noted, this disapplication of pre-emption rights also applies in respect of treasury shares which the Company may sell. The Company has no shares held in treasury as at the date of this report.

 

Purchase of the Company's own Ordinary Shares

Resolution 11, which is a special resolution, will be proposed to renew the Company’s authorisation to make market purchases of its own shares. The maximum number of Ordinary shares which may be purchased pursuant to the authority shall be 14.99% of the issued share capital of the Company as at the date of the passing of the resolution (3,314,253 Ordinary shares). The minimum price which may be paid for an Ordinary share (exclusive of expenses) shall be 50p. The maximum price for an Ordinary share (again exclusive of expenses) shall be an amount not more than the higher of (i) 105% of the average of the middle market quotations for the Company’s Ordinary shares for the five business days immediately preceding the date of purchase and (ii) the higher of the price of the last independent trade and the highest current independent bid relating to an Ordinary share on the trading venue where the purchase is

carried out.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44

This authority, if conferred, will only be exercised if to do so would enhance the net asset value per share and is in the best interests of shareholders generally. Shares so repurchased will be held in treasury. No dividends will be paid on treasury shares and no voting rights attach to them. Any purchase of shares will be made within guidelines established from time to time by the Board. This authority will expire on 30 June 2023 or, if earlier, at the conclusion of the next AGM of the Company (unless previously revoked, varied or extended by the Company in general meeting.

 

Recommendation

The Directors believe that the resolutions to be proposed at the AGM are in the best interests of the Company and its shareholders as a whole, and recommend that shareholders vote in favour of the resolutions, as the Directors intend to do in respect of their own beneficial shareholdings totalling 36,474 Ordinary shares, representing 0.2% of the issued Ordinary share capital of the Company.

 

By order of the Board Robert Lister, Chairman

14 March 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

Corporate Governance Report

 

 

 

 

Compliance

The Company is committed to high standards of corporate governance and has in place arrangements which it believes are appropriate for an investment trust company. The Board is accountable to the Company’s shareholders for good governance and this statement describes how the Company applies the principles set out in the UK Corporate Governance Code (the “UK Code”) published in 2018 which is available on the Financial Reporting Council’s website: frc.org.uk.

 

Additionally, the Company is a member of the Association of Investment Companies (“AIC”) which has its own Code of Corporate Governance, published in 2019 (the “AIC Code”), that seeks to codify best practice of particular relevance to investment trusts. The AIC Code is available on the AIC’s website: theaic.co.uk.

 

The Board confirms that, during the year to 31 December 2021, the Company complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below:

 

1.the role of the chief executive (UK Code provision 14);

The Board has no executive Directors as it has contractually delegated responsibility for the management of its investment portfolio, the arrangement of custodial and depositary services and the provision of accounting and company secretarial relationships. Following consideration, the Board concluded that, given the size of the Board and the fact that it is comprised entirely of Non-Executive Directors, the position of Senior Independent Director was not required.

 

Biographies of the Directors appear on pages 40 and 41. These demonstrate the wide range of skills and experience each Director brings to the Board. No Director has a service contract with the Company. Each Director has a signed letter of appointment to formalise the terms of their engagement as a Non-Executive Director. There were no contracts during, or at the end of the year, in which any Director was interested.

 

The Board has a formal schedule of matters specifically reserved to it for decision including strategy, dividend policy, gearing policy, review of the Manager and corporate governance matters. The Company’s investment portfolio is managed within guidelines

2.the role of the Senior Independent Director (UK Code provision 12)

 

3.executive Directors’ remuneration

(UK Code provision 40).

set by the Board as detailed on page 18.

 

There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company’s expense. This is in addition to the access which every Director has to the advice of the

For the reasons set out in the AIC Code, and as explained in the UK Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. The full text of the Company’s Corporate Governance Statement can be found on the Company’s website: abrdnsmallercompaniesincome.co.uk.

 

The Board

As at the year ended 31 December 2021, the Board comprised four independent Non-Executive Directors. During the year, Barry Rose retired after ten years’ service, and Christopher Metcalfe was appointed. An additional independent Non-Executive Director, Rosalyn Breedy, was appointed on 5 January 2022 in view of the upcoming retirement of the Chairman and as part of a carefully considered succession plan. Dagmar Kent Kershaw will succeed Robert Lister as Chairman at the conclusion of the AGM on 5 May 2022.

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

Company Secretary.

 

Meetings

The Board normally meets at least five times a year, and more frequently where business requires. At each meeting the Board reviews the following:

 

· Reports from the Manager covering stockmarket environment, portfolio activities, performance and investment outlook;

· Company financial information including revenue forecasts, balance sheet and gearing position;

· Shareholder analysis and relations;

· Regulatory issues and industry matters;

· Reports from other service providers such as brokers and registrars.

 

The following table sets out the number of formal Board and Committee meetings attended by each Director during the year ended 31 December 2021 (with their eligibility to attend the relevant meeting in brackets).

 

 

 

 

 

 

45

Corporate Governance Report Continued

 

 

 

 

 

Director

 

D. Fletcher

 

D. Kent Kershaw

 

R. Lister¹

 

B. Rose2

 

Board Meetings

 

5 (5)

 

5 (5)

 

5 (5)

 

2 (2)

Audit Committee Meetings

2 (2)

 

2 (2)

 

2 (2)

 

1 (1)

Nomination Committee Meetings

1 (1)

 

1 (1)

 

1 (1)

 

-

Management Engagement Committee Meetings

 

1 (1)

 

1 (1)

 

1 (1)

 

-

Audit Committee

The Audit Committee’s Report is contained on pages 48 to 50.

 

Management Engagement Committee

The Board has a good working relationship with the Manager and continually reviews the policies and performance of the Manager. The Management Engagement Committee, which comprises all Directors,

C. Metcalfe33 (3)1 (1)1 (1)1 (1)

 

¹ The position of Chairman allowed this Director to be present at the Audit Committee meeting as attendee only

2.Retired on 7 June 2021

3 Appointed on 7 June 2021

 

Director’s Interests

The Board regularly monitors the interests of each Director and a register of Directors’ interests, including potential conflicts of interest, is maintained by the Company. External appointments require prior approval by the Chairman. Directors who have potential or actual conflicts of interest will not take part in any discussions which relate to that particular conflict. The Board continually monitors potential conflicts of interests on a regular basis.

 

The Board adopts a zero tolerance approach to bribery and corruption and the Board and the Manager have implemented appropriate procedures designed to prevent bribery.

 

It is the Company’s policy to conduct all of its business in an honest and ethical manner. The Board takes a zero-tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.

 

The Company maintains insurance in respect of Directors’ & Officers’ liabilities in relation to their acts on behalf of the Company. Under the Company’s articles of association, each Director is entitled to be indemnified out of the assets of the Company to the extent permitted by law.

 

Board Committees

The Board has appointed three Committees with specific operations as set out below. The terms of reference, which clearly define the responsibilities and duties of each Committee, are available on the Company’s website.

 

The terms of reference of each of the Committees are reviewed by the Board for their adequacy on an ongoing basis.

 

 

 

 

 

 

 

46

undertakes a formal annual review of the performance of the Manager, which encompasses the investment management of the Company’s portfolio and provision of administration and other services. The terms of the management agreement, including the level of the fee and notice period, are covered within this review.

 

The Board considers the continuing appointment of the Manager, on the terms agreed, to be in the interests of shareholders and is satisfied with the current terms of that appointment.

 

Nomination Committee

The Nomination Committee, which comprises all Directors, reviews Director appraisals, succession planning, new appointments and training. Appointments of new Directors are undertaken following a thorough and open process involving professional recruitment consultants and interviews with the candidates identified. New appointments are identified against the requirements of the Company’s business and the need to have a balanced Board with the best range of experience, skills, length of service and backgrounds, including gender.

 

Appointments are made on merit, taking into account the benefits of diversity, including gender. The Board’s overriding priority is to appoint the most appropriate candidates, regardless of gender or other forms of diversity. The Board, therefore, has not set any measurable targets in relation to the diversity of the Board.

 

The Board takes the view that independence is not compromised by length of service and that the Company benefits from a balance of Board members with different tenures. The Board is, however, mindful of the importance of having a suitable mapped board succession and renewal process and continues to review its succession plan for changes to the Board. During 2021, the Board completed the search for two new Board appointments in anticipation of the retirement of Barry Rose and Robert Lister. An independent search agency was used for each appointment, using a specific criteria agreed in advance by the Nomination Committee. The two search agencies were independent from the Board and the Manager.

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

The Board conforms to the AIC code on tenure. Directors serve broadly for up to three three-year terms but are subject to re-election at the AGM annually. The Chairman may serve for longer than nine years on the Board, should the Directors believe that this is in the interest of the Company. The reasons for extension beyond nine

years will be explained both in the Annual Report and at the AGM.

 

Performance Evaluation

The Board undertakes a formal and rigorous annual evaluation of its own performance and that of its Committees and individual Directors. In order to review its effectiveness, the Board carries out a process of formal self-appraisal. This process encompasses quantitative and qualitative measures of performance implemented by way of an evaluation survey questionnaire and Board discussion. The appraisal of the Chairman is undertaken by other Directors.

 

The review process carried out in respect of the year ended 31 December 2021 concluded that the Board is functioning well and operates in an efficient and effective manner with each Director making a significant contribution to the performance of the Company. There were no issues of concern.

 

The Board regularly reviews the independence of its members and, having due regard to the definitions and current AIC guidelines on independence, considers each Director to be independent of the Company’s Manager.

 

The Board has implemented the provisions of the UK Code whereby all Directors of the Company will stand for re-election on an annual basis. The Board believes that each Director continues to be effective, bringing a wealth of knowledge and experience to the Board and recommends the re-election of each Director standing for re-election. In March 2022, Robert Lister will have served on the Board for ten years and, whilst the Board still considers him to be independent of mind, it has been agreed that he will stand down at the conclusion of the 2022 AGM, when Dagmar Kent Kershaw will succeed

him. The Board believes that Dagmar Kent Kershaw is independent.

 

New Directors are given an appropriate induction from the Manager covering legal responsibilities, the Manager’s operations and investment trust industry matters. All Directors are entitled to receive appropriate and

relevant training.

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

Relations with Shareholders

The Board regularly monitors the shareholder profile of the Company and the Company reports formally to shareholders twice a year by way of the annual and half yearly reports. All shareholders have the opportunity to attend and vote at AGMs of the Company at which the Board and the Manager are available to discuss key issues affecting the Company. In addition, the Manager conducts meetings with major shareholders throughout the year to discuss issues relating to the Company which are also attended by the Chairman if appropriate. Shareholders and investors may obtain up-to-date information on the Company through its website and the Manager’s information services.

 

The Board’s policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (either the Company Secretary or the Manager) in situations where direct communication is required.

 

As recommended by the AIC Code, the Company makes available the proxy votes cast at general meetings. In addition the Company aims to give at least twenty working days’ notice to shareholders of the AGM.

 

ESG Investing

Details of the Manager’s ESG engagement is provided on pages 15 to 17.

 

The UK Stewardship Code and Proxy Voting 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.

 

The full text of the Company’s response to the 2021 Stewardship Code may be found on its website.

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

47

Report of the Audit Committee

 

 

 

 

The Audit Committee (the “Committee”) presents its Report for the year ended 31 December 2021.

 

Committee Composition

The Committee is chaired by David Fletcher, who is a chartered accountant, and comprises all Directors of the Company with the exception of the Chairman, who attends but is a non-voting member. In addition the Board is satisfied that the Committee as a whole has competence relevant to the investment trust sector. The main responsibilities of the Committee, as set out in its terms of reference include:

 

· to review the annual and half yearly financial statements, the accounting policies applied therein and to ensure compliance with financial and regulatory reporting requirements;

· to assess whether the annual report and financial statements, taken as a whole, is fair, balanced and understandable and to provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy;

· to review the effectiveness of the internal control and risk management systems on which the Company is reliant and to consider annually the need for the Company to have its own internal audit function;

· to review the arrangements in place within the Manager whereby staff may, in confidence, raise concerns about possible wrong-doings in matters of financial reporting or other matters;

· to consider the appointment, reappointment, remuneration and terms of engagement of the external auditor;

· to review annually the external auditor’s independence, objectivity, effectiveness, resources and qualification; and

· to develop and implement a policy on the engagement of the external auditor to supply non-audit services. There were no non-audit fees paid to the Auditor during the year ended 31 December 2021.

 

Activities During the Year

The Committee meets twice per year when it reviews the annual and half yearly financial reports in detail. Reports from the Manager’s internal audit, risk and compliance departments are also considered by the Committee which cover internal control systems, risk and the conduct of the business in the context of its

regulatory environment.

 

 

 

 

 

 

48

Review of Risks and Internal Control Systems The Board is responsible for the Company’s system of internal control and has reviewed the effectiveness of the Company’s risk management and internal control systems. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company which include financial, operational, compliance and reputational risks.

 

The Board has delegated the management of the Company’s assets to the Manager within overall guidelines. Risks are identified and documented through a risk management framework by each function within the Manager’s activities. The internal control systems operated by the Manager are monitored and supported by its internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented. Any weaknesses identified by the Committee are reported to the Board, and timetables are agreed for implementing improvements to systems. The implementation of any remedial action required is monitored and feedback provided to the Board.

 

This process has been in place for the year under review and up to the date of approval of this annual report. It is regularly reviewed by the Board and accords with the Financial Reporting Council’s Guidance.

 

In addition, the Board has adopted its own risk matrix which identifies the key risks for the Company and covers strategy, investment management, operations, shareholders, regulatory and financial obligations and third party service providers (see pages 19 to 21). A monitoring system is undertaken whereby the controls to mitigate these risks, and the impact of the residual risks, are assessed on a regular basis. The risk matrix is reviewed formally on a six monthly basis in order to identify emerging risks which may arise.

 

Note 17 to the financial statements provides further information on financial risks. The key components designed to provide effective internal control are outlined below:

 

· the Manager prepares monthly forecasts and management accounts, covering investment activities and financial matters, which allow the Board to assess the Company’s activities and review its performance;

· The Board and Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board;

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

· The Board has considered the need for an internal audit function however, because of the compliance and internal control systems in place within the Manager, to whom it has delegated the Trust’s day to day operations, has decided to place reliance on the Manager’s risk management systems and internal

audit procedures;

· written agreements are in place which specifically define the roles and responsibilities of the Manager and other third party service providers and assurance reports on internal controls for service organisations are provided to the Committee. In addition the Manager’s internal audit, risk and compliance departments undertake regular reviews of the Manager’s operations and provide reports to the Committee on a six-monthly basis. The Committee has meetings, at least annually, with a senior member of the Manager’s internal audit team; and

· an independent depositary, BNP Paribas Securities Services, London Branch, has been appointed to safeguard the Company’s investments, which

are registered in the name of the depositary’s nominee company.

 

The system of internal control and risk management is designed to meet the Company’s particular needs and the risks to which it is exposed. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss.

 

Significant Accounting Issues

The significant accounting issue considered by the Committee during the year in relation to the Company’s financial statements was the valuation, existence and ownership of investments. The valuation of investments is undertaken in accordance with the accounting policies, disclosed in note 1 to the financial statements. All investments are in quoted securities, mostly in active markets, are considered to be liquid and have largely been categorised as Level 1 within IFRS 13 fair value hierarchy. The portfolio holdings and their pricing is reviewed and verified by the Manager on a regular basis and management accounts, including a full portfolio listing, are prepared for each Board meeting. The Company used the services of an independent depositary (BNP Paribas Securities Services) during the year under review to hold the assets of the Company. The investment portfolio is reconciled regularly by the Manager and the audit includes independent confirmation of the valuation and existence of all investments.

 

 

 

 

abrdn Smaller Companies Income Trust plc

Other Accounting Issues

Other accounting issues considered by the Committee included:

 

· Recognition of Investment Income. The recognition of investment income is undertaken in accordance with the stated accounting policies. The Board reviews the Company’s income, including the treatment of special dividends, and revenue forecasts.

· Investment Trust Status. Approval of the Company as an investment trust under Sections 1158 and 1159 for financial years commencing on or after 1 January 2012 has been obtained and on-going compliance with the eligibility criteria is monitored on a regular basis.

· Consideration of the Company to continue as a going concern is provided on page 40.

 

Review of Auditor

Ernst & Young LLP (“EY”) were appointed as the Company’s external auditor with effect from 28 April 2017. The Committee has reviewed and is satisfied with the independence and the effectiveness of EY as follows:

 

· The auditor reports on an annual basis the steps it takes to ensure its independence and objectivity and confirms that it has complied with the relevant UK independence guidelines. The level of non-audit services provided by the auditor is assessed by the Committee to take account of the requirement to maintain the independence of auditors.

· The Committee considers the experience, continuity and tenure of the audit team, including the audit partner. The audit team consists of suitably experienced staff with knowledge of the investment trust sector and there is a process in place for the rotation of the audit partner. The current senior statutory auditor,

Caroline Mercer, has served five years (including the 2021 year end).

· The Committee assesses the level of audit service annually. The audit plan is reviewed well in advance and subsequent audit findings are reported comprehensively in a timely manner and are resolved satisfactorily. The auditor has a constructive working relationship with both the Board and the Manager.

 

 

 

 

 

 

 

 

 

 

 

 

49

Report of the Audit Committee Continued

 

 

Due to the increase in regulations and statutory disclosures required by listed companies, the level of audit fees within the investment trust industry has risen significantly over recent years. In recent years, the Committee has engaged with EY to review the level of their fees, taking into account these factors, and following several transitional years have reached a proposed fee for the year to 31 December 2022 of £45,000. Further discussions on fees for future years will be undertaken.

 

The Committee considers EY to be independent of the Company and therefore has recommended that a resolution to re-appoint EY should be proposed for approval by shareholders at the AGM.

 

For and on behalf of abrdn Smaller Companies Income Trust plc David Fletcher,

Chairman of the Audit Committee, 14 March 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50abrdn Smaller Companies Income Trust plc

Directors’ Remuneration Report

 

 

 

 

This Directors’ Remuneration Report comprises three parts:

Subject to this overall limit, the Board’s policy is that the remuneration of Non-Executive Directors should be

 

 

1.     a Remuneration Policy which is subject to a binding shareholder vote every three years (or sooner if varied during this interval) – most recently voted on at the Annual General Meeting in June 2020;

 

2.     an Implementation Report which is subject to an advisory vote on the level of remuneration paid during the year; and

 

3.     an Annual Statement.

sufficient to attract Directors of the quality required to run the Company successfully. The remuneration should also reflect the nature of their duties, responsibilities, the value of their time spent and be fair and comparable to that of other investment trusts that are similar in size, have a similar capital structure and a similar investment objective.

 

Appointments

· The Company only intends to appoint Non-Executive Directors.

 

The law requires the Company’s auditor to audit certain of the disclosures provided in the Remuneration Report. Where disclosures have been audited, they are indicated as such. The auditor’s opinion is included on pages

55 to 61.

 

Remuneration Policy

This Directors’ Remuneration Policy takes into consideration the principles of UK Corporate Governance and the AIC’s recommendations regarding the application of those principles to investment companies. There have been no changes to the policy during the period of this Report nor are there any proposals for changes in the foreseeable future.

 

As the Company has no employees and the Board is comprised wholly of Non-Executive Directors and, given the size and nature of the Company, the Board has not established a separate Remuneration Committee. Directors’ remuneration is determined by the Board

as a whole.

 

Aggregate Fees

The Company’s articles of association currently limit the aggregate fees payable to the Board of Directors to a total of £150,000 per annum subject to any changes to the Retail Prices Index, with the first increase applying from

1 January 2012 (or such other amount as may from time to time be determined by ordinary resolution of the Company).

 

The current level of Directors fees is set out in the table below. Fees are annually reviewed and, if considered appropriate, increased accordingly.

· All Non-Executive Directors are appointed under the terms of letters of appointment.

· Directors must retire and be subject to election at the first Annual General Meeting after their appointment, and to re-election annually thereafter.

· New appointments to the Board will be placed on the fee applicable to all Directors at the time of appointment (currently £26,500).

· No incentive or introductory fees will be paid to encourage a directorship.

· The Directors are not eligible for bonuses, pension benefits, share options, long term incentive schemes or other benefits.

· The Company indemnifies its Directors for all costs, charges, losses, expenses and liabilities which may be incurred in the discharge of duties, as a Director of the Company.

· The Directors are entitled to be re-imbursed for out of pocket expenses incurred in connection with performing their duties including travel expenses.

 

Performance, Service Contracts, Compensation and Loss of Office

· The Directors’ remuneration is not subject to any performance related fee.

· No Director has a service contract.

· No Director was interested in contracts with the Company during the period or subsequently.

· The terms of appointment provide that a Director may be removed without notice.

· Compensation will not be due upon leaving office.

 

 

 

 

 

Chairman

 

Chairman of Audit Committee

 

Director

1 January 2022 £

37,500

 

31,250

 

26,500

1 January 2021 £

36,000

 

30,000

 

25,500

· No Director is entitled to any other monetary payment or any assets of the Company.

 

Directors’ & Officers’ liability insurance cover is maintained by the Company on behalf of the Directors.

 

 

abrdn Smaller Companies Income Trust plc51

Directors’ Remuneration Report Continued

 

 

Implementation Report Directors’ Fees

The Board carried out a review of the level of Directors’ fees during the year and concluded that they should be increased, as shown in the table on page 51, with effect from 1 January 2022. The increase is considered by the Board to be commensurate with the time commitment required of Directors of the Company to adequately discharge their responsibilities, taking into account increasingly complex and onerous legal and regulatory requirements. The last increase in fees was effective from 1 January 2020. There are no further fees to disclose as the Company has no employees, chief executive or executive directors.

Spend on Pay

As the Company has no employees, the Directors do not consider it appropriate to present a table comparing remuneration paid to employees with distributions to shareholders. The total fees paid to Directors are below.

 

Fees payable (audited)

The Directors who served in the year received the following fees which exclude employers’ NI and any VAT payable.

 

Fees are pro-rated where a change takes place during a financial year. There were no payments to third parties from the fees referred to in the table below and none of the Directors received taxable benefits.

 

Fee rates are established by taking advice from external sources as to current market levels.

 

Company Performance

The graph below shows the share price and NAV total return (assuming all dividends are reinvested) to Ordinary shareholders compared to the total return from the Composite Index for the ten year period to 31 December 2021 (rebased to 100 at 31 December 2011). This index was chosen for comparison purposes, as it is the benchmark used for investment performance measurement purposes.

 

500

 

 

Robert Lister

 

David Fletcher

 

Dagmar Kent Kershaw

 

Barry Rose1

 

Christopher Metcalfe2

 

Total

 

1 Retired on 7 June 2021

2 Appointed on 7 June 2021

2021 £

36,000

 

30,000

 

25,500

 

11,121

 

14,379

 

117,000

2020 £

36,000

 

30,000

 

25,500

 

25,500

 

-

 

107,000

 

 

400

 

 

300

 

 

200

Expenditure by the Company on Remuneration and Distributions to Shareholders

 

20212020

££

 

100Remuneration paid to all Directors117,000117,000

11        12        13        14 Share Price

15 161718192021 Composite Index

Distribution to shareholders - by way1,956,0001,820,000

of dividend¹

 

 

Statement of Voting at AGM

At the Company’s last AGM, held on 28 April 2021, shareholders approved the Directors’ Remuneration Report (excluding the Directors’ Remuneration Policy) in respect of the year ended 31 December 2020. 94.6% of proxy votes were in favour of the resolution, 4.1% were against, and 1.3% abstained.

 

A resolution to receive and adopt the Director’s Remuneration Report (excluding the Directors’ Remuneration Policy) in respect of the year ended 31 December 2021 will be proposed at the next AGM.

 

 

 

52

¹ See note 8 on page 73 for further details

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Annual Percentage Change in Directors’ Remuneration

The following table sets out the annual percentage change in Directors’ fees for the year ended

31 December 2021.

Annual Statement

On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, I confirm that the above Report on Remuneration Policy and Policy Implementation

 

Robert Lister0.0%

 

David Fletcher0.0%

 

Dagmar Kent Kershaw0.0%

 

Barry Rose¹n/a

 

Christopher Metcalfe2n/a

 

1 Retired on 7 June 2021

2 Appointed on 7 June 2021

summarises, as applicable, for the year ended 31 December 2021:

 

· the major decisions on Directors’ remuneration;

· any substantial changes relating to Directors’ remuneration made during the year; and

· the context in which the changes occurred and decisions have been taken.

 

Robert Lister

 

Directors’ Interests in the Company (audited)

The Directors are not required to have a shareholding in the Company. The Directors (including their connected persons) at 31 December 2021 and 31 December 2020 had no interest in the share capital of the Company other than those interests, all of which are beneficial interests, shown in the table provided.

Chairman

14 March 2022

 

 

 

 

Robert Lister

 

David Fletcher

 

Dagmar Kent Kershaw

 

Barry Rose1

 

Christopher Metcalfe2

 

1 Retired on 7 June 2021

2 Appointed on 7 June 2021

31 Dec              31 Dec 2021                  2020 Ord 50p            Ord 50p

5,2005,200

 

11,90111,612

 

9,2449,102

 

n/a5,000

 

10,000n/a

 

Since 31 December 2021, David Fletcher and Dagmar Kent Kershaw purchased 83 and 46 shares respectively through dividend re-investment schemes. Rosalyn Breedy was appointed on 5 January 2022 and at the date of this Report she does not hold any shares. There have been no other changes to the Directors’ interests in the share capital of the Company since the year end and up

to the date of this Report. No Director had an interest in any contracts with the Company during the period or subsequently.

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc53

Statement of Directors’ Responsibilities

 

 

 

 

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

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006.

 

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

 

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006; and

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

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

 

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and

· the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.

· We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

 

For and on behalf of abrdn Smaller Companies Income Trust plc Robert Lister,

Chairman

14 March 2022

 

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 the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and

other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies 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. Legislation in

the UK governing the preparation and dissemination of financial statements may differ from legislation

in other jurisdictions.

 

 

 

 

 

 

 

54abrdn Smaller Companies Income Trust plc

Independent Auditor’s Report to the Members of abrdn Smaller Companies Income Trust plc only

 

 

 

 

Opinion

We have audited the financial statements of abrdn Smaller Companies Income Trust plc for the year ended 31 December 2021 which comprise the Balance Sheet, Statement of cash flows, the Statement of comprehensive income, the Statement of changes in equity and the related notes 1 to 21, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards.

 

In our opinion, the financial statements:

· give a true and fair view of the Company’s affairs as at 31 December 2021 and of its profit for the year then ended; · have been properly prepared in accordance with UK adopted international accounting standards; and

· have been prepared in accordance with the requirements of the Companies Act 2006.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Independence

We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

 

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the company and we remain independent of the company in conducting the audit.

 

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of accounting included:

· Confirming our understanding of the Company’s going concern assessment process by engaging with the Directors and the Company Secretary to determine if all key factors were considered in their assessment.

· Inspecting the Directors’ assessment of going concern, including the forecast, for the period to 31 December 2023 which is at least 12 months from the date the financial statements were authorised for issue. In preparing the forecast, the Company has concluded that it is able to continue to meet its ongoing costs as they fall due.

· Reviewing the factors and assumptions, including the impact of the Covid-19 pandemic, as applied to the forecast and the liquidity assessment of the investments. We considered the appropriateness of the methods used to calculate the forecast and the liquidity assessment and determined, through testing of the methodology and calculations, that the methods, inputs and assumptions utilised were appropriate to be able to make an assessment for the Company.

· In relation to the Company’s borrowing arrangements, our inspection of the Directors’ assessment of the risk of breaching the debt covenants as a result of a reduction in the value of the Company’s portfolio. We recalculated the Company’s compliance with debt covenants in the scenarios assessed by the Directors and reviewed the Directors’ reverse stress testing in order to identify what factors would lead to the Company breaching the financial covenants.

· Considering the mitigating factors included in the revenue forecast and covenant calculations that are within the control of the Company. We reviewed the Company’s assessment of the liquidity of investments held and evaluated the Company’s ability to sell those investments to cover the working capital requirements should revenue decline significantly.

· Reviewing the Company’s going concern disclosures included in the annual report in order to assess that the disclosures were appropriate and in conformity with the reporting standards.

 

 

abrdn Smaller Companies Income Trust plc55

Independent Auditor’s Report to the Members of abrdn Smaller Companies Income Trust plc only

 

Continued

 

 

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for the period assessed by the Directors, being the period to 31 December 2023, which is at least 12 months from when the financial statements are authorised for issue.

In relation to the company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.

 

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company’s ability to continue as a going concern.

 

Overview of our audit approach

 

Key audit matters

 

 

 

 

Materiality

Risk of incomplete or inaccurate revenue recognition, including the classification of special dividends as revenue or capital in the Statement of Comprehensive Income.

 

Risk of incorrect valuation or ownership of the investment portfolio.

 

Overall materiality of £0.98m which represents 1% of net asset value.

 

 

An overview of the scope of our audit Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the company and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed. All audit work was performed directly by the audit engagement team.

 

Climate change

 

There has been increasing interest from stakeholders as to how climate change will impact companies. The Company has determined that the impact of climate change could affect the Company’s investments and their valuations, and potentially shareholder returns. This is explained in the emerging risks and uncertainties section on page 19, which forms part of the “Other information,” rather than the audited financial statements. Our procedures on these disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated.

 

Our audit effort in considering climate change was focused on the adequacy of the Company’s disclosures in the financial statements as set out in note 2 and conclusion that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing as required by IFRS. We also challenged the Directors’ considerations of climate change in their assessment of viability and associated disclosures.

 

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

 

 

 

 

56abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

 

 

Risk

 

Incomplete or inaccurate revenue recognition, including the classification of special dividends as revenue or capital in the Statement of Comprehensive Income (as described on pages 48 to 50 in the Audit Committee’s Report and as per the accounting policy set out on pages 68 to 70).

 

The total income for the year to 31 December 2021 was £2.82m (2020: £1.84m), consisting of dividend income and interest income from investments.

 

The total amount of special dividends received by the Company during the year was £0.21m (2020: £0.09 million), of which £0.21m was classified as revenue (2020: 0.09m) and nil as capital (2020: nil).

 

There is a risk of incomplete or inaccurate recognition of revenue through the failure to recognise proper income entitlements or to apply an appropriate accounting treatment.

 

In addition to the above, judgement is required when determining whether income receivable in the form of special dividends should be classified as ‘revenue’ or ‘capital’ in the Statement of

Comprehensive Income.

Our response to the risk

 

We have performed the following procedures:

 

We obtained an understanding of the processes and controls surrounding revenue recognition and classification of special dividends by performing walkthrough procedures.

 

For all dividends received and accrued we recalculated the dividend income by multiplying the investment holdings at the ex-dividend date, traced from the accounting records, by the dividend per share, which was agreed to an independent data vendor. For a sample of dividends received and all dividends accrued, we agreed amounts to bank statements and where applicable, agreed the exchange rates to an external source.

 

For dividends accrued, we reviewed the investee Company announcements to assess whether the dividend obligations arose prior to

31 December 2021.

 

For 100% of fixed interest income on corporate bonds, we recalculated the coupon receipts based on the holding at the coupon date and the coupon rate obtained from an external source. We recalculated the fixed interest income accrual, ensured that interest accrued evenly throughout the year and that coupon payments were received within the payment terms of each bond.

 

To test completeness of recorded income, we tested that expected dividends for each investee company held during the year had been recorded as income with reference to investee company announcements obtained from an independent data vendor.

 

For all equity investments held during the year, we reviewed the type of dividends paid with reference to an external data source to identify those which were ‘special’. We confirmed five special dividends, amounting to £0.21m, were received during the year. We have tested two special dividends, above our testing threshold, amounting to £0.14m, by recalculating the amount received and accrued and assessing the appropriateness of classification as revenue or capital by reviewing the underlying

circumstances of the special dividends received.

Key observations communicated to the Audit Committee

 

The results of our procedures identified no material misstatement in relation to the risk of incorrect valuation or ownership of the investment

portfolio.

 

 

 

 

 

abrdn Smaller Companies Income Trust plc57

Independent Auditor’s Report to the Members of abrdn Smaller Companies Income Trust plc only

 

Continued

 

 

 

 

Risk

 

Incorrect valuation or ownership of the investment portfolio (as described on pages 48 to 50 in the Report of the Audit Committee and as per the accounting policy set out on pages 68 to 70).

 

The valuation of the investment portfolio at 31 December 2021 was £102.18m (2020: £82.45m) consisting of listed equity and fixed income investments..

 

The valuation of the assets held in the investment portfolio is the key driver of the Company’s net asset value and total return. Incorrect investment pricing, or a failure to maintain proper legal title to the investments held by the Company could have a significant impact on the portfolio valuation and return generated for shareholders.

The fair value of listed investments is determined by reference to stock exchange listed market bid prices at

close of business on the reporting date.

Our response to the risk

 

We performed the following procedures:

 

We obtained an understanding of the processes and controls surrounding investment title and the pricing of listed securities by performing our walkthrough procedures.

 

For all investments in the portfolio, we compared the market prices to an independent pricing vendor and recalculated the investment valuations as at the year-end.

 

We inspected the stale pricing reports produced by the Administrator to identify prices that have not changed and verified whether the listed price is a valid fair value through review of trading activity. No stale prices were identified.

 

We agreed the Company’s investment holdings to the independent confirmations received from the

Company’s Depositary at 31 December 2021.

Key observations communicated to the Audit Committee

 

The results of our procedures identified no material misstatement in relation to the risk of incorrect valuation or ownership of the investment

portfolio.

 

 

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

 

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

 

We determined materiality for the company to be £0.98 million (2020: £0.77 million), which is 1% (2020: 1%) of net asset value. We believe that net asset value provides us with materiality aligned to the key measurement of the Company’s performance.

 

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

 

We determined materiality for the company to be £0.98 million (2020: £0.77 million), which is 1% (2020: 1%) of net asset value. We believe that net asset value provides us with materiality aligned to the key measurement of the Company’s performance.

 

 

 

 

58abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

 

On the basis of our risk assessments, together with our assessment of the company’s overall control environment, our judgement was that performance materiality was 75% (2020: 75%) of our planning materiality, namely £0.74m (2020: £0.58m). We have set performance materiality at this percentage due to our past experience of the audit that indicates a lower risk of misstatements, both corrected and uncorrected.

 

Given the importance of the distinction between revenue and capital for the Company, we also applied a separate testing threshold for the revenue column of the Statement of Comprehensive Income of £0.11 million (2020: £0.06 million), being 5% of the revenue column profit before taxation.

 

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

 

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.05m (2020: £0.04m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

 

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

 

Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report.

 

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

 

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

 

We have nothing to report in this regard.

 

Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

 

In our opinion, based on the work undertaken in the course of the audit:

 

· the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

· the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc59

Independent Auditor’s Report to the Members of abrdn Smaller Companies Income Trust plc only

 

Continued

 

 

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or directors’ report.

 

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

 

· adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

· the financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or

· certain disclosures of directors’ remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit

 

Corporate Governance Statement

We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:

· Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 43;

· Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on pages 23 to 24;

· Directors’ statement on fair, balanced and understandable set out on page 54;

· Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 19;

· The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 48 and 49; and;

· The section describing the work of the audit committee set out on page 48.

 

Responsibilities of Directors

As explained more fully in the directors’ responsibilities statement set out on page 54, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

 

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

 

 

60abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

 

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management.

· We obtained an understanding of the legal and regulatory frameworks that are applicable to the Company and determined that the most significant are International Accounting Standards (IAS) in conformity with the Companies Act, the Companies Act 2006, the Listing Rules, the UK Corporate Governance Code and Section 1158 of the Corporation Tax Act 2010.

· We understood how the Company is complying with those frameworks through discussions with the Audit Committee and Company Secretary, and review of Board minutes and the Company's documented policies and procedures related to controls over the financial reporting process.

· We assessed the susceptibility of the Company’s financial statements to material misstatement, including how fraud might occur by considering the key risks impacting the financial statements. We identified a fraud risk with respect to the incomplete or inaccurate revenue recognition, through incorrect classification of special dividends as revenue or capital in the Statement of Comprehensive Income. Further discussion of our approach is set out in the section on key audit matters above.

· Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved review of the reporting to the Directors with respect to the application of the documented policies and procedures and review of the financial statements to ensure compliance with the reporting requirements of the Company.

· The Company operates in the wealth and asset management industry which is a highly regulated environment. As such, the Senior Statutory Auditor considered the experience and expertise of the engagement team to ensure that the team had the appropriate competence and capabilities to identify non-compliance with the applicable laws and regulations.

 

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

 

Other matters we are required to address

· Following the recommendation from the audit committee, we were appointed by the company on 28 April 2017 to audit the financial statements for the year ending 31 December 2017 and subsequent financial periods.

The period of total uninterrupted engagement including previous renewals and reappointments is five years, covering the years ending 31 December 2017 to 31 December 2021.

· The audit opinion is consistent with the additional report to the audit committee.

 

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Caroline Mercer (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor Edinburgh

14 March 2022

 

 

abrdn Smaller Companies Income Trust plc61

 

 

 

 

Financial Statements

 

 

 

 

 

 

After reviewing the Company’s revenue forecasts and the general investment outlook with the Manager, the Board declared four quarterly dividends totalling 8.85p, which was a 7.4% increase on the 2020 dividend level of 8.24p.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc63

Statement of Comprehensive Income

 

 

 

 

Year ended

31 December 2021

Year ended

31 December 2020

 

 

Notes

 

Gains/(losses) on investments at fair value10

 

 

Income3

 

Dividend income

 

Interest income from investments

 

Other income

 

 

Expenses

 

Investment management fee4

 

Other administrative expenses5

 

Finance costs6

 

Profit/(loss) before tax

 

Taxation7

 

Profit/(loss) attributable to equity holders9

 

 

Return per Ordinary share (pence)9

Revenue £’000

–

 

 

 

 

2,741

 

80

 

1

 

2,822

 

 

(203)

 

(394)

 

(56)

 

2,169

 

(26)

 

2,143

 

 

9.69

Capital £’000

21,035

 

 

 

 

–

 

–

 

–

 

21,035

 

 

(472)

 

–

 

(130)

 

20,433

 

–

 

20,433

 

 

92.42

TotalRevenue £’000                  £’000

21,035–

 

 

 

 

2,7411,766

 

8073

 

12

 

23,8571,841

 

 

(675)(158)

 

(394)(382)

 

(186)(55)

 

22,6021,246

 

(26)(8)

 

22,5761,238

 

 

102.115.60

Capital £’000

(4,361)

 

 

 

 

–

 

–

 

–

 

(4,361)

 

 

(369)

 

–

 

(128)

 

(4,858)

 

–

 

(4,858)

 

 

(21.97)

Total £’000

(4,361)

 

 

 

 

1,766

 

73

 

2

 

(2,520)

 

 

(527)

 

(382)

 

(183)

 

(3,612)

 

(8)

 

(3,620)

 

 

(16.37)

 

 

The total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

 

The Company does not have any income or expense that is not included in profit for the year, and therefore the “Profit attributable to equity holders “ is also the “Total comprehensive income attributable to equity holders” as defined in IAS 1 (revised).

 

All of the profit and comprehensive income are attributable to the equity holders of the Company.

 

All items in the above statement derive from continuing operations.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64abrdn Smaller Companies Income Trust plc

Balance Sheet

 

 

 

 

 

 

 

 

Non-current assets

 

Equities

 

Corporate bonds

 

Securities at fair value

 

Current assets

 

Cash and cash equivalents

 

Other receivables

 

 

 

Current liabilities

 

Bank loan

 

Trade and other payables

 

 

Net current assets/(liabilities)

 

Total assets less current liabilities

 

Non-current liabilities

 

Bank loan

 

Net assets

 

Share capital and reserves

 

Called-up share capital

 

Share premium account

 

Capital redemption reserve

 

Capital reserve

 

Revenue reserve

 

Equity shareholders’ funds

 

Net asset value per Ordinary share (pence)

As at

31 December 2021

Notes£’000

 

 

100,566

 

1,617

 

10102,183

 

 

 

2,592

 

11376

 

2,968

 

 

 

12(2,000)

 

12(316)

 

(2,316)

 

652

 

102,835

 

 

 

13(4,995)

 

97,840

 

 

 

1511,055

 

11,892

 

2,032

 

69,661

 

3,200

 

97,840

 

16442.52

As at

31 December 2020 £’000

 

 

80,354

 

2,100

 

82,454

 

 

 

1,615

 

320

 

1,935

 

 

 

(2,000)

 

(254)

 

(2,254)

 

(319)

 

82,135

 

 

 

(4,991)

 

77,144

 

 

 

11,055

 

11,892

 

2,032

 

49,228

 

2,937

 

77,144

 

348.91

 

 

The financial statements were approved by the Board of Directors and authorised for issue on 14 March 2022 and were signed on its behalf by:

 

Robert Lister Chairman

 

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

 

 

 

 

abrdn Smaller Companies Income Trust plc65

Statement of Changes in Equity

 

 

 

 

Year ended 31 December 2021

 

 

 

 

 

As at 31 December 2020

 

Profit for the year

 

Dividends paid in the year

 

As at 31 December 2021

Share capital

Notes£’000

 

11,055

 

–

 

8–

 

11,055

Share premium account £’000

11,892

 

–

 

–

 

11,892

Capital redemption reserve £’000

2,032

 

–

 

–

 

2,032

Capital reserve £’000

49,228

 

20,433

 

–

 

69,661

Revenue reserve £’000

2,937

 

2,143

 

(1,880)

 

3,200

 

Total £’000

77,144

 

22,576

 

(1,880)

 

97,840

 

 

 

 

Year ended 31 December 2020

 

 

 

 

 

As at 31 December 2019

 

(Loss)/profit for the year

 

Dividends paid in the year

 

As at 31 December 2020

Share capital

Notes£’000

 

11,055

 

–

 

8–

 

11,055

Share premium account £’000

11,892

 

–

 

–

 

11,892

Capital redemption reserve £’000

2,032

 

–

 

–

 

2,032

Capital reserve £’000

54,086

 

(4,858)

 

–

 

49,228

Revenue reserve £’000

3,595

 

1,238

 

(1,896)

 

2,937

 

Total £’000

82,660

 

(3,620)

 

(1,896)

 

77,144

 

 

The revenue reserve represents the amount of the Company’s reserves distributable by way of dividend.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66abrdn Smaller Companies Income Trust plc

Cash Flow Statement

 

 

 

 

 

 

 

Cash flows from operating activities

 

Dividend income received

 

Interest income received

 

Other income received

 

Investment management fee paid

 

Other cash expenses

 

Cash generated from operations

Year ended

31 December 2021 Notes£’000

 

 

2,699

 

98

 

1

 

(650)

 

(379)

 

1,769

Year ended

31 December 2020 £’000

 

 

1,757

 

73

 

2

 

(533)

 

(358)

 

941

 

 

Interest paid

 

Overseas taxation suffered

 

Net cash inflows from operating activities

 

 

Cash flows from investing activities

 

Purchases of investments

 

Sales of investments

 

Net cash inflow from investing activities

(166)

 

(38)

 

1,565

 

 

 

 

(20,109)

 

21,401

 

1,292

(177)

 

(26)

 

738

 

 

 

 

(21,204)

 

23,197

 

1,993

 

 

Cash flows from financing activities

 

Equity dividends paid

 

Net cash outflow from financing activities

 

Net increase in cash and cash equivalents

8(1,880)

 

(1,880)

 

977

(1,896)

 

(1,896)

 

835

 

 

Analysis of changes in cash and cash equivalents during the year

 

Opening balance

 

(Decrease)/increase in cash and cash equivalents as above

 

Closing balances

1,615780

 

977835

 

2,5921,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc67

Notes to the Financial Statements For the year ended 31 December 2021

 

 

1.Principal activity

 

The Company is a closed-end investment company, registered in Scotland No SC137448, with its Ordinary shares being listed on the London Stock Exchange.

 

 

2.Accounting policies

 

(a) Basis of accounting. The financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards.

 

The Company’s assets consist substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company has a £10 million credit facility comprised of a fixed rate £5 million loan which expires in 2023 and a revolving £5 million loan which expires in April 2022. A replacement option for the revolving element of the facility is currently being sought but, should the Board decide not to renew this facility, any outstanding borrowing would be repaid through the proceeds of investment sales as required. The Company undertakes a continuation vote every five years. The last continuation vote was passed at the AGM held in June 2020 with 99.7% of votes in favour. Having taken these factors into account as well as the impact of Covid-19 and having assessed the principal risks set out in the Strategy Report on pages 19 to 21, the Directors believe that, after making enquiries, the Company has adequate financial resources to continue in operational existence

for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period until at least 31 December 2023. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.

 

In preparing these financial statements the Directors have considered the impact of climate change risk as an emerging risk as set out on page 20, and have concluded that it does not have a material impact on the Company’s investments. In line with IFRS investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the Balance Sheet date and therefore reflect market participants view of climate change risk.

 

The financial statements have also been prepared in accordance with the Statement of Recommended Practice (SORP), “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in April 2021 to the extent that it is consistent with IASs.

 

Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires the Board to exercise its judgement in the process of applying the accounting policies and are continually evaluated. One area of judgement includes the assessment of whether special dividends should be allocated to revenue or capital based on their individual merits. The Directors do not consider there to be any significant estimates within the financial statements.

 

New and amended accounting standards and interpretations. The Company applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2021. The adoption of these standards and amendments did not have a material impact on the financial statements:

 

Standards

 

IAS 39, IFRS 4, 7, 9 and 16 Amendments – Interest Benchmark Reform Phase 2

 

Future amendments to standards and interpretations. At the date of authorisation of these financial statements, the following amendments to Standards and Interpretations were assessed to be relevant and are all effective for annual periods beginning on or after 1 January 2022 and are not expected to have a material impact on the financial statements:

 

 

 

 

 

68abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Standards

 

IAS 1 Amendments – Classification of Liabilities as Current or Non-Current (effective from 1 January 2023)

 

IAS 1 Amendments – Disclosure of Accounting Policies (effective from 1 January 2023)

 

IAS 8 Amendments – Definition of Accounting Estimates (effective from 1 January 2023)

 

(b) Investments. The Company has adopted the classification and measurement provisions of IFRS 9 ‘Financial Instruments’.

 

The Company classifies its equity investments and debt instruments based on their contractual cash flow characteristics and the Company’s business model for managing the assets. Equity investments fail the contractual cash flows test so are measured at fair value. For debt instruments, the business model is the determining feature and they are managed, performance monitored and risk evaluated, on a fair value basis. The Manager is also compensated based on the fair value of the Company’s assets. Consequently, all investments are measured at fair value through profit or loss.

 

Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured at fair value. For listed investments, the valuation of investments at the year end is deemed to be bid market prices or closing prices for SETS (London Stock Exchange’s electronic trading service) stocks sourced from the London Stock Exchange.

 

Gains and losses arising from the changes in fair value are included in net profit or loss for the period as a capital item. Transaction costs are treated as a capital cost.

 

(c) Income. Dividend income from equity investments, including preference shares which have a discretionary dividend is recognised when the shareholders’ rights to receive payment have been established, normally the ex-dividend date. Special dividends are allocated to revenue or capital based on their individual merits.

 

Interest from debt securities, and income from preference shares which do not have a discretionary dividend are accounted for on an accruals basis. Any write-off of the premium or discount on acquisition as a result of using this basis is allocated against the revenue reserve in accordance with the SORP.

 

Interest receivable on AAA rated money market funds and short term deposits are accounted for on an accruals basis.

 

(d) Expenses. All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the management fee and finance costs have been allocated 30% to revenue and 70% to capital (2020 – same), in order to reflect the Directors’ expected long-term view of the nature of the investment returns of the Company. This allocation is reviewed on a regular basis.

 

(e) Cash and cash equivalents. Cash comprises cash in hand and demand deposits. Cash equivalents includes bank overdrafts repayable on demand and short term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value. Cash equivalents are held to meet short term cash commitments.

 

(f)     Borrowings. At and after initial measurement, bank borrowings are measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on issue, and costs that are an integral part of the effective interest rate. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and are charged 30% to revenue and 70% to capital in the Statement of Comprehensive Income to reflect the Company’s investment policy and prospective income and capital growth.

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc69

Notes to the Financial Statements Continued

 

 

(g) Taxation. The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the Balance Sheet date.

 

Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound.

 

(h) Foreign currencies. Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies are converted into sterling at the rate of exchange ruling at the reporting date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Gains or losses arising from a change in exchange rates subsequent to the date of a transaction are included as a currency gain or loss in revenue or capital in the Statement of Comprehensive Income, depending on whether the gain or loss is of a revenue or capital nature.

 

(i)      Nature and purpose of reserves

 

Share premium account. The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising ordinary shares of 50p per share. This reserve is not distributable.

 

Capital redemption reserve. The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company’s own shares purchased and cancelled in order to maintain the Company’s capital. This reserve is not distributable.

 

Capital reserve. This reserve reflects any gains or losses on investments realised in the period along with any increases and decreases in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. These include gains and losses from foreign currency exchange differences. Additionally, expenses, including finance costs, are charged to this reserve in accordance with (e) above. This reserve is not distributable except for the purpose of funding share buybacks to the extent that gains are deemed realised.

 

Revenue reserve. This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company’s reserves distributable by way of dividend.

 

(j)      Dividends payable. Interim dividends are recognised in the financial statements in the period in which they are paid.

 

(k)     Segmental reporting. The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided.

 

 

 

 

 

 

 

 

 

 

 

 

 

70abrdn Smaller Companies Income Trust plc

 

 

 

 

 

3.Income

 

 

 

Income from investments

 

Dividend income from UK equity securities

 

Dividend income from overseas equity securities

 

Property income distributions

 

 

Interest income from investments

 

 

Other income

 

Bank interest

 

Interest from AAA-rated money market funds

 

Total revenue income

 

2021                                         2020 £’000                                        £’000

 

 

2,1361,295

 

403271

 

202200

 

2,7411,766

 

8073

 

2,8211,839

 

 

–2

 

1–

 

2,8221,841

 

 

4.Management fee

 

 

 

 

 

Management fee

 

 

Revenue £’000

203

 

2021

 

Capital £’000

472

 

 

TotalRevenue £’000               £’000

675158

 

2020

 

Capital             Total £’000               £’000

369527

 

 

For the year ended 31 December 2021 management services were provided by Aberdeen Standard Fund Managers Limited (“ASFML”). The management fee was calculated at an annual rate of 0.75% of the net assets of the Company, calculated and paid monthly. The balance due to ASFML at the year end was £119,000 (2020 – £94,000). The fee is allocated 30% (2020 – 30%) to revenue and 70% (2020 – 70%) to capital.

 

The agreement is terminable on twelve months’ written notice from the Company or the Manager, however, the Company may terminate the agreement on immediate notice on the payment to the Manager of six months’ fees in lieu of notice.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc71

Notes to the Financial Statements Continued

 

 

5.Other administrative expenses

 

 

 

Directors’ fees

 

Auditor’s remuneration:

 

– fees payable for the audit of the annual accounts

 

Promotional activities

 

Legal and professional fees

 

Registrars’ fees

 

Printing and postage

 

Broker fees

 

Directors’ & Officers’ liability insurance

 

Trade subscriptions

 

Other expenses

 

2021                                         2020 £’000                                        £’000

117117

 

 

3632

 

4944

 

3823

 

1721

 

2222

 

3636

 

87

 

3127

 

4053

 

394382

 

 

Expenses of £49,000 (2020 – £44,000) were paid to ASFML in respect of the promotion of the Company. The balance outstanding at the year end was £37,000 (2020 – £22,000).

 

All of the expenses above, with the exception of the auditor’s remuneration, include irrecoverable VAT where applicable. The VAT charged on the auditor’s remuneration is included within other expenses.

 

 

6.Finance costs

 

 

 

 

 

Bank loans

 

 

Revenue £’000

56

 

2021

 

Capital £’000

130

 

 

TotalRevenue £’000               £’000

18655

 

2020

 

Capital             Total £’000               £’000

128183

 

 

7.Taxation

 

(a)      Analysis of charge for the year

 

 

 

Overseas withholding tax

 

Total tax charge for the year

Revenue £’000

26

 

26

2021

 

Capital £’000

–

 

–

TotalRevenue £’000               £’000

268

 

268

2020

 

Capital             Total £’000               £’000

–8

 

–8

 

 

 

 

 

 

 

 

72abrdn Smaller Companies Income Trust plc

 

 

 

 

 

(b)      Factors affecting tax charge for the year

 

The UK corporation tax rate was 19% throughout the year (2020 – same). The tax assessed for the year is lower than the corporation tax rate. The differences are explained below:

 

 

 

 

 

 

Profit/(loss) before tax

 

 

Taxation of profit/(loss) at the effective standard rate of corporation tax

Effects of:

 

Non taxable UK dividend income

 

Capital (gains)/losses disallowed for the purposes of corporation tax

Non taxable overseas income not subject to tax

Excess management expenses not utilised

 

Irrecoverable overseas withholding tax

 

Total tax charge for the year

Revenue £’000

2,169

 

 

 

412

 

 

(406)

 

–

 

 

 

(77)

 

71

 

26

 

26

2021

 

Capital £’000

20,433

 

 

 

3,882

 

 

–

 

(3,997)

 

 

 

–

 

115

 

–

 

–

Total £’000

22,602

 

 

 

4,294

 

 

(406)

 

(3,997)

 

 

 

(77)

 

186

 

26

 

26

Revenue £’000

1,246

 

 

 

237

 

 

(246)

 

–

 

 

 

(51)

 

60

 

8

 

8

2020

 

Capital £’000

(4,858)

 

 

 

(923)

 

 

–

 

829

 

 

 

–

 

94

 

–

 

–

Total £’000

(3,612)

 

 

 

(686)

 

 

(246)

 

829

 

 

 

(51)

 

154

 

8

 

8

 

 

(c)Factors that might affect future tax charges. No provision for deferred tax has been made in the current or prior accounting year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.

 

At the year end, the Company has for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £16,503,000 (2020 – £15,534,000). It is unlikely that the fund will generate sufficient taxable profits in the future to utilise these amounts and therefore no deferred tax asset has been recognised.

 

 

8.Dividends

 

2021                                         2020 £’000                                        £’000

Amounts recognised as distributions to equity holders in the period:

 

Fourth interim dividend for 2020 of 2.06p (2019 – 2.40p) per Ordinary share455531

 

First interim dividend for 2021 of 2.15p (2020 – 2.06 p) per Ordinary share475455

 

Second interim dividend for 2021 of 2.15p (2020 – 2.06p) per Ordinary share475455

 

Third interim dividend for 2021 of 2.15p (2020 – 2.06p) per Ordinary share475455

 

1,8801,896

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc73

Notes to the Financial Statements Continu

 

 

The fourth interim dividend of 2021 of 2.40p (2020 – 2.06p) per share has not been included as a liability in these financial statements.

 

The following table sets out the total dividends payable in respect of the financial year, which is the basis on which the requirements of Sections 1158–1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £2,143,000 (2020 – £1,238,000).

 

 

2021                                         2020 £’000                                        £’000

First interim dividend for 2021 of 2.15p (2020 – 2.06p) per Ordinary share475455

 

Second interim dividend for 2021 of 2.15p (2020 – 2.06p) per Ordinary share475455

 

Third interim dividend for 2021 of 2.15p (2020 – 2.06p) per Ordinary share475455

 

Fourth interim dividend for 2021 of 2.40p (2020 – 2.06p) per Ordinary share531455

 

1,9561,820

 

 

9.Earnings per Ordinary share

 

 

 

Revenue return

 

Capital return

 

Total return

 

2021                                         2020 p                                                 p

9.695.60

 

92.42(21.97)

 

102.11(16.37)

 

 

The returns per share are based on the following figures:

 

 

 

 

Revenue return

 

Capital return

 

Total return

 

 

Weighted average number of shares in issue

2021 £’000

2,143

 

20,433

 

22,576

 

 

22,109,765

2020 £’000

1,238

 

(4,858)

 

(3,620)

 

 

22,109,765

 

 

During the year there were no (2020 – same) dilutive shares in issue.

 

 

 

 

 

 

 

 

 

 

 

74abrdn Smaller Companies Income Trust pl

 

 

 

 

 

10.Non–current assets – securities at fair value

 

 

 

Listed on recognised stock exchanges:

 

United Kingdom

 

Overseas

 

2021                                        2020 £’000                                       £’000

 

 

95,24880,671

 

6,9351,783

 

102,18382,454

 

 

 

 

Opening book cost

 

Investment holdings gains

 

Opening fair value

 

Analysis of transactions made during the year

 

Purchases

 

Sales – proceeds

 

Gains/(losses) on investments

 

Closing fair value

 

 

Closing book cost

 

Closing investment holdings gains

 

Closing fair value

2021 £’000

60,215

 

22,239

 

82,454

 

 

 

20,095

 

(21,401)

 

21,035

 

102,183

 

 

69,027

 

33,156

 

102,183

2020 £’000

56,436

 

32,372

 

88,808

 

 

 

21,204

 

(23,197)

 

(4,361)

 

82,454

 

 

60,215

 

22,239

 

82,454

 

The Company received £21,401,000 (2020 – £23,197,000) from investments sold in the year. The book cost of these investments when they were purchased were £11,283,000 (2020 – £17,425,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

 

Transaction costs. During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains/(losses) on investments in the Statement of Comprehensive Income. The total costs were as follows:

 

 

 

 

Purchases

 

Sales

2021                                        2020 £’000                                       £’000

7674

 

1615

 

9289

 

 

The above transaction costs are calculated and disclosed in line with the AIC SORP. The transaction costs in the Company’s Key Information Document are calculated on a different basis and in line with the PRIIPs regulations.

 

 

 

 

abrdn Smaller Companies Income Trust plc75

Notes to the Financial Statements Continued

 

 

11.Other receivables

 

 

 

Accrued income & prepayments

 

2021                                         2020 £’000                                        £’000

376320

 

376320

 

 

None of the above amounts are overdue.

 

 

12.Current liabilities

 

2021                                         2020 £’000                                        £’000

(a)      Short-term loan2,0002,000

 

 

The Company has in place a £10 million loan facility with Royal Bank of Scotland International, London Branch (RBSI) which is comprised of two £5 million tranches. Tranche A is a one year £5 million multi-currency revolving credit facility which expires in April 2022 and £2 million was drawn down at 31 December 2021 at a rate of 0.98713% until

26 January 2022.

 

The Directors are of the opinion that the fair value of the short term bank loan at 31 December 2021 is not materially different from the book value.

 

 

 

(b)      Trade and other payables

 

Investment management fee

 

Interest payable

 

Amounts due to brokers

 

Sundry creditors

2021                                         2020 £’000                                        £’000

11994

 

4429

 

5–

 

148131

 

316254

 

 

13.Non-current liabilities

 

 

 

Fixed rate loan

 

2021                                         2020 £’000                                        £’000

4,9954,991

 

 

The Company has in place a £10 million loan facility with Royal Bank of Scotland International, London Branch (RBSI) which is comprised of two £5 million tranches. Tranche B is a five year £5 million fixed rate loan facility and was fully drawn down on 28 April 2018. The interest on Tranche B is fixed at 2.825% per annum payable quarterly in arrears.

All financial liabilities are measured at amortised cost. The fair value of the fixed rate loan has been calculated as £5,105,000 (2020 – £5,177,000) and would be classified as a Level 2 liability under Fair Value Hierarchy guidance of IFRS 13 ‘Fair

Value Measurement’.

 

 

 

76abrdn Smaller Companies Income Trust

 

 

 

 

 

14.Analysis of changes in financing liabilities during the year

 

The following table shows the movements during the year of financing liabilities in the Balance Sheet:

 

 

 

 

Opening balance at 1 January

 

Amortisation of arrangement costs

 

Closing balance at 31 December

2021                                          2020 £’000                                         £’000

6,9916,987

 

44

 

6,9956,991

 

 

15.Called-up share capital

 

 

 

 

Authorised

 

Allotted and fully paid

 

At 31 December 2021 and 31 December 2020

 

Ordinary shares of 50 pence each

Number£’000

 

35,000,00017,500

 

 

22,109,76511,055

 

 

16.Net asset value per share

 

The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end were as follows:

 

 

 

Net asset value attributable (£’000)

 

Number of Ordinary shares in issue

 

Net asset value per share (p)

2021

 

97,840

 

22,109,765

 

442.52

2020

 

77,144

 

22,109,765

 

348.91

 

 

At the year end there were no (2020 – same) dilutive shares in issue.

 

 

 

17.Financial instruments and risk management

 

The Company’s investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company’s financial instruments comprise UK and overseas listed equities and corporate fixed interest bonds, cash balances, debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company may enter into derivative transactions for the purpose of managing market risks arising from the Company’s activities though there was no exposure to derivative instruments during the year.

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc77

Notes to the Financial Statements Continued

 

 

The Board has delegated the risk management function to Aberdeen Standard Fund Managers Limited (“the AIFM” or “ASFML”) under the terms of its management agreement with ASFML (further details of which are included under note 3). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager’s approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period.

 

Risk management framework. The directors of ASFML collectively assume responsibility for ASFML’s obligations under the AIFMD including reviewing investment performance and monitoring the Company’s risk profile during the year.

 

ASFML is a fully integrated member of the abrdn plc group of companies (referred to as “the Group”), which provides a variety of services and support to ASFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in FUND 3.2.2R (details of which can be found on the Company’s website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.

 

The AIFM conducts its risk oversight function through the operation of the Group’s risk management processes and systems which are embedded within the Group’s operations. The Group’s Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group’s Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group’s operational risk management system (“SHIELD”).

 

The Group’s Internal Audit Department is independent of the Group’s Risk Division and reports directly to the Chief Executive Officer and to the Audit Committee of the Group’s Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group’s control environment.

 

The Group’s corporate governance structure is supported by several committees to assist the board of directors of the Group, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group’s Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees’ terms of reference.

 

Risk management. The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk and price risk), (ii) liquidity risk and (iii) credit risk.

 

(i) Market risk. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises two elements – interest rate risk and price risk.

 

Interest rate risk. Interest rate risk is the risk that interest rate movements will affect:

 

–the fair value of the investments in fixed interest rate securities;

 

–the level of income receivable on cash deposits;

 

–interest payable on the Company’s variable rate borrowings.

 

Management of the risk. The Board will monitor the effects of interest movements closely when making investment and borrowing decisions.

 

The Board reviews on a regular basis the values of the fixed interest rate securities.

 

Interest rate profile. The interest rate risk profile of the portfolio of financial assets and liabilities (excluding equity shares) at the Balance Sheet date was as follows:

 

 

 

 

78abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

 

 

 

As at 31 December 2021

 

Assets

 

Corporate bonds

 

Investments in AAA-rated money market funds

 

Cash

 

Total assets

 

Liabilities

 

Short-term bank loan

 

Fixed rate bank loan

 

Total liabilities

 

Total

 

 

 

 

 

 

As at 31 December 2020

 

Assets

 

Corporate bonds

 

Cash

 

Total assets

 

Liabilities

 

Short-term bank loan

 

Fixed rate bank loan

 

Total liabilities

 

Total

Weighted average period

rate is fixed Years

 

 

30.72

 

 

–

 

–

 

 

0.07

 

1.32

 

–

 

–

 

 

Weighted average period

rate is fixed Years

 

 

25.57

 

–

 

–

 

 

0.07

 

2.32

 

–

 

–

Weighted average interest rate %

 

 

5.56

 

0.19

 

–

 

–

 

 

0.85

 

2.83

 

–

 

–

 

 

Weighted average interest rate %

 

 

5.02

 

–

 

–

 

 

0.99

 

2.83

 

–

 

–

 

Fixed rate £’000

 

 

1,617

 

–

 

–

 

1,617

 

 

(2,000)

 

(5,000)

 

(7,000)

 

(5,383)

 

 

 

 

Fixed rate £’000

 

 

2,100

 

–

 

2,100

 

 

(2,000)

 

(5,000)

 

(7,000)

 

(4,900)

 

Floating rate £’000

 

 

–

 

2,406

 

186

 

2,592

 

 

–

 

–

 

–

 

2,592

 

 

 

 

Floating rate £’000

 

 

–

 

1,615

 

1,615

 

 

–

 

–

 

–

 

1,615

 

The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on the bank loan is based on the interest rate payable, weighted by the total value of the loan. The maturity date of the Company’s loan is shown in note 12 to the financial statements.

 

The cash assets consist of cash deposits on call earning interest at prevailing market rates.

 

Short-term debtors and creditors, with the exception of bank loans, have been excluded from the above tables.

 

All financial liabilities are measured at amortised cost.

 

 

 

 

 

abrdn Smaller Companies Income Trust plc79

Notes to the Financial Statements Continued

 

 

Interest rate sensitivity. The sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

 

If interest rates had been 25 basis points higher or lower (based on the current parameter used by the Manager’s Investment Risk Department on risk assessment) and all other variables were held constant, the Company’s;

 

– revenue return for the year ended 31 December 2021 would decrease/increase by approximately £11,000 (2020 – decrease/increase by £14,000). This is mainly attributable to the Company’s exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end.

– The capital return would decrease/increase by £105,000 (2020 – increase/decrease by £134,000) using VaR (“Value at Risk”) analysis based on 100 observations of weekly VaR computations of fixed interest portfolio positions at each year end.

 

Price risk. Price risks (i.e. changes in market prices other than those arising from interest rates) will affect the value of the quoted investments. The Company’s stated objective is to provide a high and growing dividend with capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.

 

Management of the risk. It is the Company’s policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets to specific sectors and the stock selection process, as detailed on pages 89 and 90, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. All of the investments held by the Company are listed on the London Stock Exchange, with the exception of its holding in Kesko, which is traded on the Helsinki exchange.

 

Price sensitivity. If market prices at the Balance Sheet date had been 10% higher while all other variables remained constant, net capital gains attributable to ordinary shareholders for the year ended 31 December 2021 would have increased by £10,057,000 (2020 – £8,035,000). If market prices at the Balance Sheet date had been 10% lower while all other variables remained constant, net capital gains attributable to ordinary shareholders for the year ended 31 December 2021 would have decreased by £10,057,000 (2020 – £8,035,000).This is based on the Company’s equity investments held at each year end.

 

(ii) Liquidity risk. This is the risk that the Company will encounter difficulty raising funds to meet its cash commitments as they fall due. Liquidity risk may result from either the inability to sell financial instruments quickly at their fair value or from the inability to generate cash inflows as required.

 

Management of the risk. Liquidity risk is not considered to be significant as the Company’s assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan facilities (note 12).

 

Maturity profile. The maturity profile of the Company’s financial liabilities at the Balance Sheet date was as follows:

 

 

 

 

 

At 31 December 2021

 

Trade and other payables

 

Bank loans

 

Interest on bank loans

Within 1 year £’000

(316)

 

(2,000)

 

(143)

 

(2,459)

Within 1-2 years

£’000

 

–

 

(5,000)

 

(70)

 

(5,070)

Within 2-3 years

£’000

 

–

 

–

 

–

 

–

Within 3-4 years

£’000

 

–

 

–

 

–

 

–

 

 

 

80abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

At 31 December 2020

 

Trade and other payables

 

Bank loans

 

Interest on bank loans

Within 1 year £’000

(254)

 

(2,000)

 

(143)

 

(2,397)

Within 1-2 years

£’000

 

–

 

–

 

(141)

 

(141)

Within 2-3 years

£’000

 

–

 

(5,000)

 

(70)

 

(5,070)

Within 3-4 years

£’000

 

–

 

–

 

–

 

–

 

 

(iii)      Credit risk. This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.

 

Management of the risk. The Company considers credit risk not to be significant as it is actively managed as follows:

 

– where the Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default;

– investments in quoted bonds are made across a variety of industry sectors so as to avoid concentrations of credit risk;

– investment transactions are carried out on a delivery versus payment basis with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;

–the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the custodian’s records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Manager’s compliance department carries out periodic reviews of the custodian’s operations and reports its finding to the Manager’s risk management committee.

–cash is held only with reputable banks with high quality external credit ratings.

 

None of the Company’s financial assets are secured by collateral or other credit enhancements.

 

Credit risk exposure. In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 December was as follows:

 

 

20212020

 

 

 

 

Non-current assets

 

Quoted convertibles, bonds and preference shares at fair value through profit or loss

 

 

Current assets

 

Accrued income

 

Cash and cash equivalents

Balance Sheet £’000

 

 

1,617

 

 

 

 

376

 

2,592

 

4,585

Maximum exposure £’000

 

 

1,617

 

 

 

 

376

 

2,592

 

4,585

Balance Sheet £’000

 

 

2,100

 

 

 

 

320

 

1,615

 

4,035

Maximum exposure £’000

 

 

2,100

 

 

 

 

320

 

1,615

 

4,035

 

 

 

abrdn Smaller Companies Income Trust plc81

Notes to the Financial Statements Continued

 

 

None of the Company’s financial assets are past due and the application of the expected credit loss model for impairment under IFRS 9 has not had a material impact on the Company.

 

Credit ratings. The table below provides a credit rating profile using Fitch’s credit ratings for the quoted bonds at 31 December 2021 and 31 December 2020:

 

 

2021                    2020 £’000                   £’000

A+224238

 

A–312732

 

BB+302308

 

BBB346364

 

BBB–433458

 

1,6172,100

 

 

Fair value of financial assets and liabilities. The book value of cash at bank and short–term bank loans and overdrafts included in these financial statements approximate to fair value because of their short–term maturity. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices and have been categorised as Level 1 and Level 2 within the Fair Value Hierarchy table on page 83. For details of bond maturities and interest rates, see page 33. For all other short–term debtors and creditors, their book values approximate to fair values because of their short–term maturity. The fair value of the long–term loan has been calculated at £5,105,000 as at 31 December 2021 (2020 – £5,177,000) compared to an accounts value in the financial statements of £4,995,000 (2020 – £4,991,000) (note 13). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower’s margin plus an average of market rates applicable to loans of a similar period of time and currency.

 

Gearing. The Company has in place a £10 million unsecured loan facility of which £7 million has been drawn down. Although this gearing increases the opportunity for gain, it also increases the risk of loss in falling markets. The risk of increased gearing is managed by retaining the flexibility to reduce short term borrowings as appropriate. Gearing levels are monitored so that they remain within guidelines set by the Board.

 

 

18.Fair value hierarchy

 

Under IFRS 13 ‘Fair Value Measurement’ an entity is required 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: quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

– Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (ie as prices) or indirectly (ie derived from prices); and

– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

 

 

 

 

 

 

 

 

82abrdn Smaller Companies Income Trust p

 

 

 

 

 

The financial assets and liabilities measured at fair value in the Balance Sheet are grouped into the fair value hierarchy at 31 December 2021 as follows:

 

 

 

 

Financial assets at fair value through profit or loss

 

Quoted equities

 

Quoted bonds

 

Total

 

 

As at 31 December 2020

 

 

 

Financial assets at fair value through profit or loss

 

Quoted equities

 

Quoted bonds

 

Total

Level 1Level 2 Note£’000               £’000

 

 

a)100,566–

 

b)–1,617

 

100,5661,617

 

 

 

 

Level 1Level 2 Note£’000               £’000

 

 

a)80,354–

 

b)–2,100

 

80,3542,100

Level 3              Total £’000               £’000

 

 

–100,566

 

–1,617

 

–102,183

 

 

 

 

Level 3              Total £’000               £’000

 

 

–80,354

 

–2,100

 

–82,454

 

 

a)Quoted equities. The fair value of the Company’s investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.

 

b) Quoted bonds. The fair value of the Company’s investments in quoted convertibles, bonds and preference shares has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets.

 

There have been no transfers of assets or liabilities between levels of the fair value hierarchy during any of the above periods.

 

 

19.Related party transactions

 

Directors fees and interests. Fees payable during the year to the Directors and their interests in the shares of the Company are disclosed within the Directors’ Remuneration Report on pages 52 and 53 and fees payable also within note 5 on page 72.

 

Transactions with the Manager. Management, promotional activities, secretarial and administration services are provided by ASFML with details of transactions during the year and balances outstanding at the year end disclosed in notes 4 and 5.

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc83

Notes to the Financial Statements Continued

 

 

20.Capital management policies and procedures

 

The objective of the Company is to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.

 

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

 

The Board monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes:

 

– the planned level of gearing, which takes account of the Investment Manager’s views on the market;

 

– the level of equity shares in issue; and

 

– the extent to which revenue in excess of that which is required to be distributed should be retained.

 

The Company’s objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

 

The Company does not have any externally imposed capital requirements.

 

 

21.Subsequent events

 

Subsequent to the year end, there has been significant market volatility relating mainly to geopolitical events and uncertainty remains as to their longer term implications. These events have the potential to affect adversely the fair value of the assets and income of the Company. As at 11 March 2022 the net asset value of the Company has decreased from 442.52p at the Balance Sheet date to 346.33p and the Company’s share price has decreased from 375p to 284p.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84abrdn Smaller Companies Income Trust plc

Alternative Performance Measures

 

 

 

 

 

Alternative performance measures are numerical measures of the Company’s current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company’s applicable financial framework includes IFRS and the AIC SORP. The Directors assess the Company’s performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.

 

 

Discount to Net Asset Value per Ordinary Share

 

Discount to Net Asset Value per Ordinary Share is the amount by which the market price per Ordinary share is lower than the net asset value per Ordinary share, expressed as a percentage of the net asset value per Ordinary share.

 

 

 

NAV per Ordinary share (p)

 

Share price (p)

 

Discount

20212020

 

a442.52348.91

 

b375.00313.00

 

(b-a)/a–15.3%–10.3%

 

 

 

Dividend cover

 

Dividend cover is the revenue return per share divided by total dividends per share, expressed as a ratio.

 

 

 

Revenue return per share

 

Dividends per share

 

Dividend cover

20212020

 

a9.69p5.60p

 

b8.85p8.24p

 

a/b1.090.68

 

 

 

Net gearing

 

Net gearing measures the total borrowings less cash and cash equivalents dividend by shareholders’ funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes amounts due to and from brokers at the year end as well as cash and cash equivalents.

 

 

 

Borrowings (£’000)

 

Cash (£’000)

 

Investments in AAA-rated money market funds

 

Amounts due to brokers (£’000)

 

Amounts due from brokers (£’000)

 

Shareholders’ funds (£’000)

 

Net gearing

20212020

 

a6,9956,991

 

b1861,615

 

c2,406–

 

d5–

 

e––

 

f97,84077,144

 

(a-b-c+d-e)/f4.5%7.0%

 

 

 

 

abrdn Smaller Companies Income Trust plc85

Alternative Performance Measures Continued

 

 

Ongoing charges

 

The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average daily net asset values with debt at fair value published throughout the year.

 

 

 

Investment management fees (£’000)

 

Administrative expenses (£’000)

 

Less: non-recurring chargesA (£’000)

 

Ongoing charges (£’000)

 

Average net assets (£’000)

 

Ongoing charges ratio (excluding look-through costs)

 

Look-through costsB

 

Ongoing charges ratio (including look-through costs)

 

A Professional services comprising new Director recruitment costs and legal fees considered unlikely to recur.

20212020

 

675528

 

393382

 

(25)(24)

 

1,043886

 

89,65970,608

 

1.16%1.25%

 

0.04%0.10%

 

1.20%1.35%

BCalculated in accordance with AIC guidance issued in October 2020 to include the Company’s share of costs of holdings in investment companies on a look-through basis.

 

 

The ongoing charges ratio provided in the Company’s Key Information Document is calculated in line with the PRIIPs regulations, which includes financing and transaction costs.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Total return

 

NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. Share price and NAV total returns are monitored against open-ended and closed-ended competitors, and the benchmark, respectively.

 

 

 

Year ended 31 December 2021

 

Opening at 1 January 2021

 

Closing at 31 December 2021

 

Price movements

 

Dividend reinvestmentA

 

Total return

 

 

 

 

Year ended 31 December 2020

 

Opening at 1 January 2020

 

Closing at 31 December 2020

 

Price movements

 

Dividend reinvestmentA

 

Total return

Share NAVPrice

a348.9p313.0p

 

b442.6p375.0p

 

c=(b/a)-126.8%19.8%

 

d3.6%3.1%

 

c+d+30.4%+22.9%

 

 

 

Share NAVPrice

a373.9p343.0p

 

b348.9p313.0p

 

c=(b/a)-1–6.7%–8.7%

 

d2.6%3.6%

 

c+d–4.1%–5.1%

 

A NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc87

 

 

 

 

Corporate Information

 

 

 

 

The Company’s Investment Manager is a subsidiary of abrdn plc, whose group of companies as at 31 December 2021 had approximately £542 billion of assets under management

and administration.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88abrdn Smaller Companies Income Trust plc

Information about the Manager

 

 

 

 

Aberdeen Standard Fund Managers Limited Aberdeen Standard Fund Managers Limited (“ASFML”), authorised and regulated by the Financial Conduct Authority, has been appointed as the alternative investment fund manager to the Company.

 

The day-to-day portfolio management has been delegated to Aberdeen Asset Managers Limited (AAML). Both ASFML and AAML are subsidiaries of abrdn plc.

 

The abrdn Smaller Companies team consists of ten investment professionals: six investment managers/analysts, three analysts, and one quantative analyst who controls the matrix. The team is also supported by an investment specialist who sits within the Equity department.

 

The team run Small and Mid Cap portfolios across UK, European and Global markets. All portfolios are managed under the same investment process and philosophy, driving consistency across the franchise.

 

Investment Process

In managing the investment portfolio of the Company, the Smaller Companies Quality Growth Momentum philosophy is enhanced by using abrdn’s proprietary screening tool, ‘The Matrix’, to focus research efforts and stock selection process. The Matrix is a quantitative screening tool assessing potential and current investments. It is a powerful tool in helping the Manager identify a shortlist of investable stocks for further analysis and monitor the performance and prospects of the portfolio on an ongoing basis. Stocks that are identified in this way are then subjected to further analysis and may be selected for the portfolio following discussions with the management team of the investee company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

The Investment Team Senior Managers Abby Glennie (MA Hons) CFA

Abby is Deputy Head of the Smaller Companies Team, with responsibility for research and analysis of UK listed stocks in the Small and Mid cap sectors, and portfolio management in these areas. She has over 14 years

of investment management experience and joined abrdn in 2013.

 

Amanda Yeaman (MA Hons) Investment Management Certificate

Amanda is an Investment Manager within abrdn Smaller Companies team with responsibility for research and portfolio management within the UK Small and Mid Cap portfolios. She has over twelve years of investment management experience and joined abrdn in 2019.

 

Tzoulianna Leventi (LLM, LLB, BA) Investment Management Certificate

Tzoulianna is an Investment Analyst within abrdn Smaller Companies team with the responsibility for the ESG research and analysis within the UK Small and Mid Cap portfolios. She has over four years of investment management experience and joined abrdn in 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89

Information about the Manager Continued

 

 

Investment characteristics

When building a portfolio of smaller companies, the Manager screens stocks using the Matrix and also considers a number of qualitative factors to help identify the best investment opportunities. Engaging with management teams is a core part of the investment process.

 

1. Quality

Investing in quality businesses is a key focus, and critical to investing in smaller companies in a lower risk manner. This includes analysing cash generation,

balance sheet strength, visibility of revenue, the quality of a management team, and ESG factors. We are cautious on many highly cyclical or high leverage companies, or blue sky investments.

 

2. Sustainable growth

Investing in businesses where we have conviction in earnings growth being sustained over a number of years, accompanied in most cases by strong dividend growth. Revenue growth is often a combination of end Market growth, with stock specific growth factors such as niche products or services, or entering adjacent geographies or end markets.

5. Invest for the long term

Buying tomorrow’s larger companies, today. Turnover levels in the portfolio remain low given the long term investment focus.

 

6. Management longevity

Founders retaining positions of authority within the companies after flotation, along with longevity of Chief Executive Officer tenure, are a positive signal.

 

7. Valuation aware

Invest in companies which demonstrate positive earnings momentum, which the manager believes is a predictor of future performance. Comfortable paying premium multiples for these quality, higher growth businesses, as value alone is not a driver of outperformance over the long term in Smaller Companies.

 

3. Momentum

Run your winners, Cut your losers. Momentum in earnings and price are drivers of outperformance in smaller companies.

 

4. Concentrate your efforts

The Matrix helps identify attractive candidates for inclusion in the portfolio, and reduces the risk that effort is spent on stocks that will not fulfil the criteria for inclusion within the portfolio. Focuses the managers research efforts on the most attractive and suitable investments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90abrdn Smaller Companies Income Trust plc

Investor Information

 

 

 

 

How to Invest

Investors can buy and sell shares in the Company directly through a stockbroker or indirectly through a lawyer, accountant or other professional adviser. Alternatively, for retail clients, shares can be bought directly through abrdn Trust Share Plan, Individual Savings Plan (“ISA”) and Investment Plan for Children.

 

abrdn Plan for Children

abrdn runs an Investment Plan for Children (the “Children’s Plan”) which covers a number of investment companies under its management including the Company. Anyone can invest in the Children’s Plan, including parents, grandparents and family friends (subject to the eligibility criteria as stated within the terms and conditions). All investments are free of dealing charges on the initial purchase of shares, although investors will suffer the bid-offer spread, which can, on some occasions, be a significant amount. Lump sum investments start at £150 per trust, while regular savers may invest from £30 per month. Investors simply pay Government Stamp Duty (currently 0.5%) where applicable. Selling costs are £10 + VAT. There is no restriction on how long an investor need invest in the Children’s Plan, and regular savers can stop or suspend participation by instructing abrdn in writing at any time. In common with other schemes of this type, all investments are held in nominee accounts. Investors have full voting and other rights of share ownership.

 

abrdn Trust Share Plan

abrdn runs a Share Plan (“the Plan”) through which shares in the Company can be purchased. There are no dealing charges on the initial purchase of shares, although investors will suffer the bid-offer spread, which can, on some occasions, be a significant amount. Lump sum investments start at £250, while regular savers may invest from £100 per month. Investors simply pay Government Stamp Duty (currently 0.5%). Selling costs are £10 + VAT. There is no restriction on how long an investor need invest in a Plan, and regular savers can stop or suspend participation by instructing abrdn in writing at any time. In common with other schemes of this type, all investments are held in nominee accounts. Investors have full voting and other rights of share ownership.

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

abrdn Trust ISA

An investment of up to £20,000 can be made in the tax year 2021/22.

 

There are no brokerage or initial charges for the ISA, although investors will suffer the bid-offer spread, which can be a significant amount. Investors only pay Government Stamp Duty (currently 0.5%) on purchases where applicable. Selling costs are £15 + VAT. The annual ISA administration charge is £24 + VAT, calculated annually and applied on 31 March (or the last business day in March) and collected soon thereafter either by direct debit or, if there is no valid direct debit mandate in place, from the available cash in the Plan prior to the distribution or reinvestment of any income, or, where there is insufficient cash in the Plan, from the sale of investments held in the Plan. Investors have full voting and other rights of share ownership. Under current legislation, investments in ISAs can grow free of capital gains tax and dividend income is tax free.

 

ISA Transfer

You can choose to transfer previous tax year investments to abrdn which can be invested in the Company while retaining your ISA wrapper. The minimum lump sum for an ISA transfer is £1,000 and is subject to a minimum per trust of £250.

 

Dividend Tax Allowance

The annual tax-free allowance on dividend income is £2,000 for the 2021/22 tax year. Above this amount, individuals will pay tax on their dividend income at a rate dependent on their income tax bracket and personal circumstances. The Company provides registered shareholders with a confirmation of dividends paid by the Company and this should be included with any other dividend income received when calculating and reporting to HMRC total dividend income received. It is the shareholder’s responsibility to include all dividend income when calculating any tax liability.

 

Keeping You Informed

The Company’s share price appears under the heading ‘Investment Companies’ in the Financial Times and information on the Company may be found on its website (abrdnsmallercompaniesincome.co.uk). This provides access to information on the Company’s share price performance, capital structure, London Stock Exchange announcements, current and historic annual and half yearly reports and the latest monthly factsheet on the Company issued by the Manager.

 

 

 

 

 

91

Investor Information Continued

 

 

Shareholder Enquiries

For information on the Company or literature and any administrative queries relating to abrdn trust products please contact:

 

abrdn Trusts, PO Box 11020 Chelmsford Essex CM99 2DB

 

Email: inv.trusts@abrdn.com Website: invtrusts.co.uk Telephone: 0808 500 0040

 

Terms and conditions for the abrdn trust products can be found under the literature section of this website.

 

Company’s Registrars

If you have an administrative query which relates to a direct holding in the Company please contact the Company’s registrars:

 

Equiniti Limited Aspect House Spencer Road Lancing

West Sussex BN99 6DA

 

Tel: 0371 384 2030.

(Lines open 8.30am to 5.30pm, Monday to Friday excluding public holidays in England and Wales. Charges for calling telephone numbers starting with ‘03’ are determined by the caller’s service provider).

 

Online Dealing providers and platforms

There are a number of online dealing platforms for private investors that offer share dealing, ISAs and other means to invest in the Company, such as self-invested personal pension (SIPP). Real-time execution-only stockbroking services allow you to trade online, manage your portfolio and buy UK listed shares. These sites do not give advice. Some comparison websites also look at dealing rates and terms. Some well-known online providers, which can be found through internet search engines.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92

Discretionary Private Client Stockbrokers

If you have a large sum to invest, you may wish to contact a discretionary private client stockbroker. They can manage your entire portfolio of shares and will advise you on your investments. To find a private client stockbroker visit The Personal Investment Management & Financial Advice Association at: pimfa.co.uk.

 

Financial Advisers

To find an adviser who recommends on investment trusts, visit: unbiased.co.uk

 

Regulation of Stockbrokers

Before approaching a stockbroker, always check that they are regulated by the Financial Conduct Authority:

 

Tel: 0800 111 6768 or

Website: fca.org.uk/firms/systems-reporting/register/search

Email: register@fca.org.uk

 

PRIIPS (Packaged Retail and Insurance-based Investment Products)

Investors should be aware that the PRIIPS Regulation requires the Manager, as PRIIP manufacturer, to prepare a key information document (“KID”) in respect of the Company. This KID must be made available by the Manager to retail investors prior to them making any investment decision and is available on the Manager’s website. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by the law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed.

 

Key Information Document (“KID”)

The KID relating to the Company and published by the Manager can be found on the Manager’s website at invtrusts.co.uk/en/investmenttrusts/literature-library.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Suitable for Retail/NMPI Status

The Company’s shares are intended for investors, primarily in the UK, including retail investors, professionally-advised private clients and institutional investors who are seeking exposure to smaller companies in the United Kingdom, and who understand and are willing to accept the risks of exposure to equities. Investors should consider consulting a financial adviser who specialises in advising on the acquisition of shares and other securities before acquiring shares. Investors should be capable of evaluating the risks and merits of such an investment

and should have sufficient resources to bear any loss that may result.

 

The Company currently conducts its affairs, and intends to continue to do so for the foreseeable future, in order that its shares can be recommended by a financial adviser to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream pooled investments (“NMPIs”).

 

The Company’s shares are excluded from the FCA’s restrictions which apply to non-mainstream pooled investment products because they are shares in an investment trust.

Note

Please remember that past performance is not a guide to the future. Stock market and currency movements may cause the value of shares and the income from them to fall as well as rise and investors may not get back the amount they originally invested.

 

As with all equity investments, the value of investment trusts purchased will immediately be reduced by the difference between the buying and selling prices of the shares, the market maker’s spread.

 

Investors should further bear in mind that the value of any tax relief will depend on the individual circumstances of the investor and that tax rates and reliefs, as well

as the tax treatment of ISAs, may be changed by future legislation.

 

The information on pages 92 to 94 has been approved for the purposes of Section 21 of the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) by Aberdeen Asset Managers Limited which is authorised and regulated by the FCA.

 

Investor Warning

The Board has been made aware by abrdn that some investors have received telephone calls from people purporting to work for abrdn, or third parties, who have offered to buy their investment trust shares. These may be scams which attempt to gain personal information with which to commit identity fraud or could be ‘boiler room’ scams where a payment from an investor is required to release the supposed payment for their shares. These callers do not work for abrdn and any third party making such offers has no link with abrdn. abrdn never makes these types of offers and does not ‘cold-call’ investors in this way. If investors have any doubt over the veracity of a caller, they should not offer any personal information, end the call and contact abrdn’s investor services centre using the details provided below.

 

The Financial Conduct Authority provides advice with respect to share fraud and boiler room scams: fca.org.uk/consumers/scams

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc93

Glossary of Terms

 

 

 

 

ASFML or AIFM or Manager

Aberdeen Standard Fund Managers Limited (ASFML) is a wholly owned subsidiary of abrdn plc and acts as the alternative investment fund manager (AIFM) for the Company. It is authorised and regulated by the Financial Conduct Authority.

 

AAML or Investment Manager

Aberdeen Asset Managers Limited (“AAML” or “Investment Manager”) is a subsidiary company of abrdn plc which has been delegated responsibility for the Company’s day-to-day investment management.

 

Alternative Performance Measures

An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.

 

AIC

The Association of Investment Companies.

 

AIFMD or the Directive

The Alternative Investment Fund Managers Directive (AIFMD) is European legislation which created a European-wide framework for regulating managers of ‘alternative investment funds’ (“AIFs”). It is designed to regulate any fund which is not a UCITS fund and which is managed and/or marketed in the EU. The Company has been designated as an AIF.

 

Asset Cover

The value of a company’s net assets available to repay a certain security. Asset cover is usually expressed as a multiple and calculated by dividing the net assets available by the amount required to repay the

specific security.

Benchmark

This is a measure against which an Investment Trust’s performance is compared. The Company’s benchmark is the Numis Smaller Companies excluding Investment Trusts Index (effective from 1 January 2020) and was the FTSE SmallCap (exc Investment Trusts) Index for the period up to 31 December 2019. The index averages the performance of a defined selection of listed companies over specific time periods. Performance is measured aganst the Composite Index which is comprised of:

 

Numis Smaller Companies excluding Investment Trusts Index from 1 January 2020

 

FTSE SmallCap (exc Investment Trusts) Index to 31 December 2019

 

Closed-End Fund

A collective investment scheme which has a fixed number of shares which are not redeemable from the fund itself. Unlike open-ended funds, new shares/units are not created by managers to meet demand from investors; instead, shares are purchased (or sold) only in the market. Closed-end funds are normally listed on a recognised stock exchange, such as the London Stock Exchange, and shares can be bought and sold on that exchange.

 

Discount

The amount by which the market price per share of an investment trust is lower than the net asset value per share. The discount is normally expressed as a percentage of the net asset value per share.

 

Dividend Cover

Earnings per share divided by dividends per share expressed as a ratio.

 

Dividend Yield

The annual dividend expressed as a percentage of the share price.

 

FCA

Financial Conduct Authority

 

Investment Trust

A type of Closed-End Fund which invests in other securities, allowing shareholders to share the risks, and returns, of collective investment.

 

 

 

 

 

 

 

 

94abrdn Smaller Companies Income Trust plc

 

 

 

 

 

Key Information Document or KID

The Packaged Retail and Insurance-based Investment Products (“PRIIPS”) Regulation requires the Manager, as the Company’s PRIIP ‘manufacturer’, to prepare a Key Information Document (“KID”) in respect of the Company. This KID must be made available by the Manager to retail investors prior to them making any investment decision and is available via the Company’s website. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed.

 

Leverage

For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’s exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company’s positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

 

Net Asset Value (“NAV”)

The value of total assets less liabilities. Liabilities for this purpose included current and long-term liabilities. The net asset value divided by the number of shares in issue produces the net asset value per share.

 

Net Gearing/Cash

Net gearing/cash is calculated by dividing total borrowings less cash or cash equivalents, by shareholders’ funds expressed as a percentage.

Premium

The amount by which the market price per share of an investment trust exceeds the net asset value per share. The premium is normally expressed as a percentage of the net asset value per share.

 

Price/Earnings (P/E) Ratio

The ratio is calculated by dividing the middle-market price per share by the earnings per share. The calculation assumes no change in earnings but in practice the multiple reflects the stock market’s view of a company’s prospects and profit growth potential.

 

Prior Charges

The name given to all borrowings including debentures, loan and short term loans and overdrafts that are to be used for investment purposes, reciprocal foreign currency loans, currency facilities to the extent that they are drawn down, index-linked securities, and all types of preference or preferred capital and the income shares of split capital trusts, irrespective of the time until repayment.

 

abrdn plc or the Group

The abrdn plc group of companies. abrdn plc was formed by the merger of Aberdeen Asset Management PLC and Standard Life plc on 14 August 2017.

 

Total Assets

Total Assets as per the balance sheet less current liabilities (before deducting prior charges as defined above).

 

Total Return

Total Return involves reinvesting the net dividend in the month that the share price goes ex-dividend. The NAV Total Return involves investing the same net dividend in the NAV of the Company on the date to which that dividend was earned.

 

Ongoing Charges

Ratio of expenses as percentage of average daily shareholders’ funds calculated as per the AIC’s industry standard method.

 

PIDD

The pre-investment disclosure document made available by the AIFM in relation to the Company.

 

 

 

 

 

abrdn Smaller Companies Income Trust plc95

 

 

 

 

General

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

96abrdn Smaller Companies Income Trust plc

Alternative Investment Fund Managers Directive Disclosures (unaudited)

 

 

ASFML and the Company are required to make certain disclosures available to investors in accordance with the Alternative Investment Fund Managers Directive (“AIFMD”). Those disclosures that are required to be made pre-investment are included within a pre-investment disclosure document (“PIDD”) which may be found on the Company’s website: abrdnsmallercompaniesincome.co.uk

 

There have been no material changes to the disclosures contained within the PIDD since its most recent update in January 2022.

 

The periodic disclosures as required under the AIFMD to investors are made below:

 

· information on the investment strategy, geographic and sector investment focus and principal stock exposures is included in the Strategic Report;

· none of the Company’s assets are subject to special arrangements arising from their illiquid nature;

· the Strategic Report on pages 19 to 21 , Note 17 to the Financial Statements and the PIDD, together set out the risk profile and risk management systems in place. There have been no changes to the risk management systems in place in the period under review and no breaches of any of the risk limits set, with no breach expected;

· there are no new arrangements for managing the liquidity of the Company or any material changes to the liquidity management systems and procedures employed by Aberdeen Standard Fund Managers Limited (“the AIFM”);

· all authorised Alternative Investment Fund Managers are required to comply with the AIFMD Remuneration Code. In accordance with the Remuneration Code, the AIFM’s remuneration policy is available from the Company

Secretaries, Aberdeen Asset Management PLC on request (see contact details on page 105) and the remuneration disclosures in respect of the AIFM’s reporting period for the period ended 31 December 2020 are available on the Company’s website.

 

Leverage

The table below sets out the current maximum permitted limit and actual level of leverage for the Company:

 

 

Maximum level of leverage

 

Actual level at 31 December 2021

Gross Method

 

2.50:1

 

1.12:1

Commitment Method

 

2.00:1

 

1.14:1

 

There have been no breaches of the maximum level during the period and no changes to the maximum level of leverage employed by the Company. There is no right of re-use of collateral or any guarantees granted under the leveraging arrangement. Changes to the information contained either within this annual report or the PIDD in relation to any special arrangements in place, the maximum level of leverage which the AIFM may employ on behalf of the Company; the right of use of collateral or any guarantee granted under any leveraging arrangement; or any change to the position in relation to any discharge of liability by the Depositary will be notified via a regulatory news service without undue delay in accordance with the AIFMD.

 

The information on this page has been approved for the purposes of Section 21 of the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) by Aberdeen Standard Fund Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc97

Notice of Annual General Meeting

 

 

 

 

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the shareholders of abrdn Smaller Companies Income Trust plc (the “Company”) will be held at the offices of abrdn, Bow Bells House, 1 Bread Street, London, EC4M 9HH on 5 May 2022 at 12.00 pm to transact the following business:

 

To consider and, if thought fit, pass the following resolutions, of which resolutions 1 to 9 inclusive will be proposed as ordinary resolutions and resolutions 10 to 11 will be proposed as special resolutions:

 

Ordinary Business

As ordinary business to consider and, if thought fit, pass the following resolutions as Ordinary Resolutions:

 

1.To receive the reports of the Directors and auditor and the audited financial statements for the year ended 31 December 2021.

 

2.     To receive and adopt the Directors’ Remuneration Report (except the Directors’ Remuneration Policy) for the year ended 31 December 2021.

3.     To re-elect David Fletcher as a Director of the Company.

 

4.     To re-elect Dagmar Kent Kershaw as a Director of the Company.

 

5.     To elect Christopher Metcalfe as a Director of the Company.

 

6.     To elect Rosalyn Breedy as a Director of the Company.

 

7.     To re-appoint Ernst & Young LLP as auditor of the Company to hold office until the conclusion of the next Annual General Meeting at which accounts are laid before the Company.

 

8.     To authorise the Directors to determine the remuneration of the auditor for the year ending 31 December 2022.

 

Special Business

9.     That, in substitution for any pre-existing power to allot or grant rights to subscribe for or to convert any security into shares in the Company, but without prejudice to the exercise of any such authority prior to the date of this resolution, the Directors be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company (“relevant securities”) up to an aggregate nominal amount of £3,684,960, being equal to approximately one third of the Ordinary shares in issue, such authority to expire on 30 June 2023 or, if earlier, at the conclusion of the next Annual General Meeting of the Company to be held after the passing of this resolution, unless previously revoked, varied or extended by the Company in general meeting, save that the Company may, at any time prior to the expiry of such authority, make an offer or enter into an agreement which would or might require relevant securities to be allotted after the expiry of such authority, and the Directors may allot relevant securities in pursuance of such an offer or agreement as if such authority had not expired.

 

10. That, subject to the passing of resolution 9 in the notice convening the meeting at which this resolution is to be proposed (the “notice of meeting”) and in substitution for all existing powers, the Directors be and are hereby generally empowered pursuant to Section 570 of the Companies Act 2006 (the “Act”) to allot equity securities (as defined in Section 560 (1) of the Act) for cash pursuant to the authority under Section 551 of the Act conferred by resolution 9 in the notice of meeting as if Section 561 of the Act did not apply to any such allotment, provided that this power: -

 

i.expires on 30 June 2023 or, if earlier, at the conclusion of the next Annual General Meeting of the Company, but the Company may make an offer or agreement which would or might require equity securities to be allotted after expiry of this power and the Directors may allot equity securities in pursuance of that offer or agreement as if that power had not expired; and;

 

ii.shall be limited to the allotment of equity securities for cash up to an aggregate nominal amount of £1,105,488 being equal to 10% of the Ordinary shares in issue.

 

 

 

 

98abrdn Smaller Companies Income Trust plc

 

 

 

 

 

This power applies in relation to the sale of shares which is an allotment of equity securities that immediately before the allotment are held by the Company as treasury shares as if in the opening paragraph of this resolution the words “subject to the passing of resolution 9 in the notice convening the meeting at which this resolution is to be proposed (“the notice of meeting”)” and “pursuant to the authority under Section 551 of the Act conferred by resolution 9 in the notice of meeting” were omitted.

 

11. That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date hereof, the Company be generally and unconditionally authorised, in accordance with Section 701 of the Companies Act 2006 (the “Act”), to make market purchases (within the meaning of Section 693(4) of the Act) of fully paid Ordinary shares of 50p each in the capital of the Company (“shares”) provided that:

 

i.the maximum aggregate nominal value of the Ordinary shares hereby authorised to be purchased shall be limited to £1,657,126 being equal to approximately 14.99% of the issued Ordinary share capital of the Company as at the date of the passing of this resolution;

 

ii.the minimum price which may be paid for a share shall be 50p (exclusive of expenses);

 

iii.the maximum price (exclusive of expenses) which may be paid for a share shall be an amount being not more than the higher of (i) 105% of the average of the middle market quotations (as derived from the Daily Official List of the London Stock Exchange) for the shares for the five business days immediately preceding the date of purchase and (ii) the higher of the price of the last independent trade and the highest current independent bid relating to a share on the trading venue where the purchase is carried out; and

 

iv.     unless previously varied, revoked or renewed, the authority hereby conferred shall expire on 30 June 2023 or, if earlier, at the conclusion of the next Annual General Meeting of the Company to be held after the passing of this resolution, save that the Company may, at any time prior to such expiry, enter into a contract or contracts to purchase shares under such authority which would or might be completed or executed wholly or partly after the expiration of such authority and may make a purchase of shares pursuant to any such contract or contracts as if the authority conferred hereby had not expired.

 

 

By order of the Board

Aberdeen Asset Management PLC Secretary

14 March 2022

 

Registered Office 1 George Street Edinburgh EH2 2LL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc99

Notice of Annual General Meeting Continued

 

 

Notes

i. A member entitled to attend and vote at the meeting may appoint a proxy or proxies to exercise all or any of his/her rights to attend, speak and vote on his/her behalf at the meeting. A proxy need not be a member of the Company. A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. A member may not appoint more than one proxy to exercise the rights attached to any one share.

 

ii.A form of proxy is enclosed. To be valid, any proxy form or other instrument of proxy and any power of attorney or other authority, if any, under which they are signed or a notarially certified copy of that power of attorney or authority should be sent to the Company’s Registrars, Freepost RTHJ-CLLL-KBKU, Equiniti Limited, Aspect House, Spencer Road, Lancing BN99 8LU so as to arrive not less than 48 hours (excluding non-working days) before the time fixed for the meeting.

 

iii.The return of a completed proxy form or other such instrument of proxy will not prevent a member attending the Annual General Meeting and voting in person if he/she wishes to do so.

 

iv.     CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual and by logging on to the website euroclear.com. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.

 

v.In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the Company’s Registrar (ID RA19) no later than 48 hours (excluding non-working days) before the time of the meeting or any adjournment. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the Company’s Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.

 

vi.     CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

 

vii. As an alternative to appointing a proxy using the form of proxy or CREST, members can appoint a proxy online at www.sharevote.co.uk. In order to appoint a proxy using this website, members will need their Voting ID, Task ID and Shareholder Reference Number, printed on the face of the accompanying form of proxy. Full details of the procedures are given on the website. Alternatively, shareholders who have already registered with Equiniti’s online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk using their user ID and password. Once logged in click “View” on the “My Investments” page, click on the link to vote and then follow the on screen instructions.

 

viii. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

 

 

 

 

 

 

 

100abrdn Smaller Companies Income Trust plc

 

 

 

 

 

ix.     The right to vote at a meeting is determined by reference to the Company’s register of members at 6.30pm two business days prior to the date of the adjourned meeting (excluding non-working days). Changes to entries on that register after that time shall be disregarded in determining the rights of any member to attend and vote

at the meeting.

 

x.As at close of business on 14 March 2022 (being the latest practicable date prior to publication of this notice), the Company’s issued share capital comprised 22,109,765 Ordinary shares of 50p each. The total number of voting rights in the Company as at 14 March 2022 is 22,109,765.

 

xi.     A person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. The statements of the rights of members in relation to the appointment of proxies in notes (i) to (iii) above do not apply to a Nominated Person. The rights described in those notes can only be exercised by registered members of the Company.

 

xii. Members who have general queries about the Annual General Meeting should contact the Company Secretary in writing. Members are advised that any telephone number, website or email address which may be set out in this notice of Annual General Meeting or in any related documents (including the proxy form) is not to be used for the purposes of serving information or documents on, or otherwise communicating with, the Company for any purposes other than those expressly stated.

 

xiii. It is possible that, pursuant to requests made by members of the Company under Section 527 of the Companies Act 2006, the Company may be required to publish on a website a statement setting out any matter relating to the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the meeting or any circumstances connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the Companies Act 2006. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company’s auditor no later than the time when it makes the statement available on the website. The business which may be dealt with at the meeting includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website.

 

xiv. No Director has a service contract with the Company. Copies of the Directors’ letters of appointment are available for inspection on any day (except Saturdays, Sundays and bank holidays) from the date of this notice until the date of the meeting during usual business hours at the Company’s registered office and for 15 minutes prior to, and at, the meeting.

 

xv. Information regarding the Annual General Meeting is available from the Company’s website; abrdnsmallercompaniesincome.co.uk

 

xvi. As a member, shareholders have the right to put questions at the meeting relating to business being dealt with at the meeting.

 

xvii. Under section 338 of the Companies Act 2006, members may require the Company to give, to members of the Company entitled to receive this notice of meeting, notice of a resolution which may properly be moved and is intended to be moved at the meeting. Under section 338A of that Act, members may request the Company to include in the business to be dealt with at the meeting any matter (other than a proposed resolution) which may properly be included in the business.

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc101

Notice of Annual General Meeting Continued

 

 

 

xviii. Given the evolving nature of the Covid-19 pandemic, should circumstances change significantly before the time of the Annual General Meeting, the Company will notify shareholders of any changes to the arrangements by updating the Company’s website and through an RIS announcement, where appropriate, as early as is possible before the date of the meeting. Shareholders should note that if law or Government guidance so requires at the time of the meeting, the Chairman of the meeting will limit, in his or her sole discretion, the number of individuals in attendance at the meeting and may be required to impose entry restrictions on certain persons wishing to attend the meeting in order to ensure the safety of those attending.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102abrdn Smaller Companies Income Trust plc

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

104abrdn Smaller Companies Income Trust plc

Contact Addresses

 

 

 

 

Directors

Robert Lister (Chairman) Rosalyn Breedy

David Fletcher Dagmar Kent Kershaw Christopher Metcalfe

 

Manager, Secretary and Registered Office Alternative Investment Fund Manager

Aberdeen Standard Fund Managers Limited Bow Bells House

1 Bread Street London EC4M 9HH

(Authorised and regulated by the Financial Conduct Authority)

 

Investment Manager

Aberdeen Asset Managers Limited (Authorised and regulated by the Financial Conduct Authority)

 

Secretary and Registered Office

Aberdeen Asset Management PLC 1 George Street

Edinburgh EH2 2LL

 

smallercompaniesincome@abrdn.com

 

Points of Contact

 

Manager - Customer Services Department

Telephone: 0808 500 0040

(Lines open 9.00 am to 5.00 pm, Monday to Friday)

 

Email: inv.trusts@abrdn.com

Depositary

BNP Paribas Securities Services, London Branch 10 Harewood Avenue

London NW1 6AA

 

Brokers Winterflood Securities The Atrium Building Cannon Bridge House 25 Dowgate Hill London EC4R 2GA

 

Auditor

Ernst & Young LLP Atria One

144 Morrison Street Edinburgh

EH3 8EX

 

United States Internal Revenue Service FATCA Registration Number (“GIIN”) DGR5S1.99999.SL.826

 

Legal Entity Identifier 213800J6D2TVHRGKBG24

 

Company Registration Number SC137448 (Scotland)

 

Website abrdnsmallercompaniesincome.co.uk

 

Registrar

Equiniti Limited Aspect House Spencer Road Lancing

West Sussex BN99 6DA

 

Shareholder Helpline: 0371 384 2030*

Overseas helpline number: +44 (0)121 415 7047 (*Lines open 8.30 am to 5.30 pm, Monday to Friday excluding bank holidays. Charges for calling telephone

numbers starting with ‘03’ are determined by the caller’s service provider.)

 

 

 

 

 

 

abrdn Smaller Companies Income Trust plc105

Important Information

 

 

 

 

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised financial adviser. If you have sold or otherwise transferred all your Ordinary shares in abrdn Smaller Companies Income Trust plc, please forward this document, together with the accompanying documents immediately to the purchaser or transferee,

or to the stockbroker, bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

 

Visit our Website

To find out more about abrdn Smaller Companies Income Trust plc, please visit: abrdnsmallercompaniesincome.co.uk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For more information visit abrdn.com/investment

 

 

abrdn.com

EndDateForPeriodCoveredByReport

StartDateForPeriodCoveredByReport

EntityDormantTruefalse

EntityTradingStatus

UKCompaniesHouseRegisteredNumber

PY_S2020-01-01

CY_S2021-01-01

PPY2019-12-31

PY2020-12-31

CY2021-12-31

CompanySC137448

 

 

 

 

 

 

 

 

 

 

 

 

 

Event After: 1

 

GC

DR

SR