Performance

In the six months ended 31 March 2024, the Company delivered an NAV total return of 1.6% compared to the total return of the FTSE All-Share Index of 6.9%. Over the period, the share price total return was -8.2%.

Source: abrdn, total returns. The percentage growth figures are calculated over periods on a mid to mid basis. NAV total returns are calculated on a cum-income basis. Past performance is not a guide to future results.

As an asset class, UK equities struggled to keep up with other major equity markets, notably US equities. Whilst performance has been disappointing, the portfolio continues to deliver a dependable income and the Investment Manager has re-focused current positioning in the portfolio to stocks where he sees the potential for a combination of dividend yield, dividend growth and valuation re-rating. The Investment Manager's Review provides a more detailed explanation of the drivers of this performance.

Revenue

Total income for the six months ended 31 March 2024 increased by 13.9% to £5.4 million, compared to £4.7 million for the same period last year. Management fees decreased by 21.9% compared to the same time last year. This was in part attributable to the reduction in the management fee to a flat fee of 0.55% per annum on net assets which the Board negotiated with the Manager and took effect on 1 October 2023 at the beginning of the period. Administrative expenses were largely unchanged, meaning that overall costs charged to revenue were down 9.4% at £368k compared to £406k in 2023. The tax charge, which increased significantly from £57k last year to £447k in this reporting period, reflects an increase in withholding tax on overseas dividends, primarily in relation to South African-listed Thungela Resources. After interest costs and tax, net earnings increased by 6% to £4.3 million with revenue per share of 9.05 pence compared to 8.60 pence in 2023 for the same period. Typically, the Company earns between 30% and 40% of its total income for the year in the first six months and this year we are in the top half of that range. As a result, given the outlook for the balance of the financial year, the Board expects that the full year earnings will be sufficient to cover the proposed dividend.

Dividends

The Board declared its plans for the dividend for the current financial year in last year's annual report and the proposed schedule is unchanged at this time. The Company currently intends to pay three interim dividends for the current year of 5.70 pence per share. The first interim dividend was paid to Shareholders on 28 March 2024. The Board is declaring that the second interim dividend of 5.70 pence per share will be paid on 27 June 2024 to shareholders on the register on 24 May 2024 with an associated ex-dividend date of 23 May 2024. The fourth interim dividend will be determined towards the end of the Company's financial year. The Board's current expectation remains for a fourth interim dividend of at least 5.80 pence per share, making a total payment for the year of a minimum of 22.90 pence per share. Based on the share price of 277.0p at 31 March 2024, this puts the Company on a dividend yield of 8.3%, amongst the highest of any investment trust invested in equities.

Gearing

At 31 March 2024, £21 million of the £30 million facility provided by the Royal Bank of Scotland International was drawn down and net gearing, allowing for cash held, amounted to 12.5% of net assets which compared to 11.3% at the Company's 30 September 2023 year end. The borrowing facility is in the form of a revolving credit facility which in aggregate cost 6.5% per annum at the end of the period. Given market volatility the Board carefully monitors the leverage.

Discount / Share Buybacks The underperformance of the share price relative to the NAV resulted in a widening of the discount, which ended the period at 10.0%. The Board constantly monitors the level of the share price discount to NAV and the Company buys back shares when market conditions suggest that this may reduce discount volatility and the discount is considered wide over a period of time in absolute and relative terms. Discounts have widened across the whole investment trust sector over the last couple of years and in October 2023 the average of all investment trusts reached the widest level since the Global Financial Crisis in 2008. It is encouraging to note that the wider level of the Company's discount has not been sustained and since the period end the discount has narrowed steadily with the shares currently trading at around a 6% discount to NAV, as at the date of this Report. There have been no changes to the Company's share capital structure during the six months under review other than the sale from treasury of 135,000 shares at a premium to the prevailing net asset value per share. Accordingly, as at 31 March 2024, there were 47,781,522 Ordinary 25p shares in issue with voting rights and an additional 1,397,245 shares held in treasury.

Outlook

The geopolitical and macroeconomic backdrop has led to a period of volatile performance for UK equities. Although expectations are growing for an interest rate cut in June, we expect any decreases to be slower than analysts originally forecast. Against this backdrop, the Investment Manager remains focused on companies that have the ability to generate growth and strong cash flows which can then be used to pay sustainable dividends. Since the beginning of 2024 there has been significant press commentary highlighting how undervalued the UK is relative to other markets and, within the UK, how mid- and small-cap companies are undervalued relative to large-caps. The Company's index-agnostic investment approach, coupled with the manager's focus on valuation, means that the portfolio is well positioned to benefit from any resurgent interest in the UK equity market, either via increased investor allocations or merger activity. Since February, three of our holdings have received bid approaches at substantial premiums to the then existing share prices, underlining the fact that the UK's low valuations are being noticed overseas.

Over time, dividends have tended to represent a high proportion of total return from UK equities. Income stocks have been out of favour in recent years as investors have favoured growth. This remained true during the period as a whole, although the Investment Manager observed a pronounced shift towards value stocks towards the end of the period, which coincided with a recovery in our relative performance. Having weathered recent crises, our Investment Manager believes that our holdings have demonstrated a level of resilience not reflected in their valuations. This implies low expectations, which provides the potential for share prices to respond favourably to further evidence of solid cash flows and dividends in the months ahead. The portfolio is well diversified, providing a range of earnings drivers and limiting the dependence on an economic recovery. Company earnings remain solid across the majority of our holdings, supporting confidence in the dependable nature of the dividend and income and capital growth during 2024.

Important information

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