LONDON STOCK EXCHANGE ANNOUNCEMENT

The Global Smaller Companies Trust PLC

Unaudited Statement of Results

for the half year ended 31 October 2023

Legal Entity Identifier: 2138008RRULYQP8VP386

Information disclosed in accordance with Disclosure Guidance and Transparency Rule 4.1

SUMMARY OF UNAUDITED RESULTS FOR THE HALF YEAR ENDED 31 OCTOBER 2023

·    Net Asset Value with debt at fair value ("NAV") decreased to 153.67p per share, giving a total return of -6.3% compared to the Benchmark total return of -3.6%

·    The share price ended the period at 130.6p, delivering a total return to shareholders of -8.6%

·    Interim dividend increased by 7.9% to 0.68p per ordinary share

Date:                15 December 2023

Contact:          Peter Ewins                                                   

                        Columbia Threadneedle Investment Business Limited     

                        020 7464 5000

Chairman's Review

The first half of the 2023/24 financial year saw a continuation of some of the trends from the previous twelve months. In particular, the dominant talking point has been how long the period of heightened inflationary pressures will last, and consequently for how long interest rates need to remain at present or even higher levels. Very sadly too, geopolitical developments have remained in focus, with the outbreak of conflict in the Middle East a further complicating factor alongside the Ukraine war and the strained political and trading relationship between the US and China.

It was, therefore, perhaps unsurprisingly a challenging period for equities. With a risk averse mood in markets, smaller companies lagged in most parts of the world. Although many of our holdings continued to navigate the tricky environment well and produced solid results, there were exceptions to this and our investment portfolio in overall terms had a difficult six months in comparison to the Company's Benchmark (20% Numis UK Smaller Companies excluding investment companies Index/80% MSCI World All Countries ex UK Small Cap Index (net)). Taking the Company's long term liabilities at fair value, the NAV fell to 153.67p, a -6.3% total return for the six months, compared to a return of -3.6% from the Benchmark.

The negative market environment put more pressure on investment trust discounts and the Company's share price fell by 9.7% in the six months to 130.6p, or by 8.6% in total return terms. As a result, the discount ended the period at 15.0%. The Board continued to use its buyback powers actively, repurchasing 10.7m shares over the six months. In parallel the Board has worked with the Manager to increase its efforts to bring the advantages of investing in the Company to a wider audience of institutional and retail investors.

Dividends

While capital returns have been pressured, we can take some comfort from another strong period in terms of income from the portfolio. Revenue returns per share rose by 23.1% to a new high at the interim stage. As a consequence, the Board decided to increase the interim dividend by 7.9% to 0.68p per share. Shareholders on the register on 30 December 2023 will receive this dividend on 26 January 2024.

Board Changes

Having followed a formal recruitment process, the Company appointed two new Directors, Bulbul Barrett and Randeep Grewal, on 1 December 2023.  On 11 December 2023, David Stileman retired as a Director. From the date of his appointment in 2015, David has contributed significantly to the Company, bringing wide-ranging international experience to the Board.  We record our appreciation and gratitude to David for his dedicated service to the Company.

Lead Manager Change

Having been involved in the management of the Company for more than 26 years and Lead Manager since August 2005, Peter Ewins has indicated his intention to step down from his role and retire from Columbia Threadneedle Investments in June 2024. The Board has been fully engaged with Columbia Threadneedle Investments in ensuring a smooth handover of Peter's responsibilities and we are pleased to announce that Nish Patel will become joint Lead Fund Manager of the Company, alongside Peter, with effect from 1 January 2024 and Lead Fund Manager with effect from 1 May 2024. Nish has worked closely with Peter for a long period of time, managing assets for the Company for more than 15 years.

Peter has made an important contribution in continuing the Company's strong record of delivering long-term growth in capital and income and we are confident that Nish, supported by the wider investment resources within Columbia Threadneedle Investments, will build on Peter's achievements.

I would like to express our warmest thanks to Peter for his commitment and contribution to the Company.

Graham Oldroyd

Interim Chairman

14 December 2023

Lead Manager's Review

Market background

Throughout the period under review, economic data was closely monitored particularly in relation to inflation and what signals this was sending concerning the outlook for interest rates. While headline inflation rates have moderated considerably over the period in the US, Europe, the UK and elsewhere over the last six months, they mostly remain above targeted levels, which prompted further interest rate increases. Labour markets remained generally tight reflecting demographics and the impact of the pandemic in many developed countries. This has driven elevated wage inflation impacting upon the corporate profit margin outlook.

Tighter monetary policy has been unhelpful for equity market sentiment and valuations. There is more competition for investors' capital with higher investment yields now available on government and corporate bonds and more satisfactory returns also available from deposit accounts. Higher interest rates have acted as planned by central banks to slow their local economies. With fiscal policy providing more support plus the benefit of better momentum heading into 2023, the US economy remained more resilient than those in Europe and the UK, where the impact of higher energy and food prices has been more significant on the cost of living. Within Asia, the Chinese economy failed to pick up as much as had been expected following the easing of pandemic restrictions early in 2023 with the property market still suffering from over supply. Japan has remained something of an outlier, with no move up in interest rates driving further weakness in the yen and helping to deliver a relatively steady stock market performance.

Regional portfolio performance

The chart below shows how the different geographical regional portfolios performed over the period versus the local smaller companies comparator indices, with all total return numbers measured in sterling.

North America

Small cap stocks, as measured by the MSCI North American Small Cap index (net), delivered a modest negative sterling total return in the period, albeit this would have been worse had it not been for a strengthening of the dollar. Our portfolio's -3% return was worse than this with positive stock selection in Healthcare more than offset by underperformance from our Financial and Basic Materials holdings.

In aggregate, our Healthcare holdings did well and we benefitted from not holding individual biotechnology stocks which were under pressure. Managed care provider Molina Healthcare announced encouraging results and rose by 11.8% with medical claims costs lower than anticipated. Syneos Health, the clinical services company was taken over during the period, lifting its shares, while our holding in care services company The Ensign Group once again delivered a resilient operational performance despite cost pressures. In contrast, diagnostic testing services company QuidelOrtho saw a fall off in business activity, partly due to a slowdown in Covid-19 related business.

Within Financials, PRA Group, a purchaser and servicer of consumer loans was a weak performer, falling 66.1% as the market became cautious around credit card delinquencies on its balance sheet. This more than offset a positive contribution from insurance broking company Brown & Brown, which continues to execute its acquisition strategy successfully, also benefiting from higher insurance pricing.

In Basic Materials, a weaker gold and general commodity pricing backdrop led to falls in the shares of Wheaton Precious Metals and Lundin Mining, with graphite electrode supplier GrafTech International suffering from a cyclical downturn in the steel industry and concern about its borrowings. Our holdings in construction related businesses Eagle Materials and Martin Marietta Materials in contrast, performed well again, helped by signs that spending in the infrastructure market was rising on the back of government investment, with their earnings growth also benefiting from higher product selling prices. Another strong performer which we bought into in the last financial year was Curtiss-Wright. This is a manufacturer of niche, mission-critical components for the aerospace, industrial, defence and power sectors. The company is seeing good growth in most of its businesses because of favourable long-term trends and it also benefitted from an easing in supply chain related constraints.

In the strongly performing Energy sector, three of our holdings did well as the oil price rallied. Bristow Group, a provider of helicopter transportation services to offshore energy locations saw an improvement in pricing as industry spending continues to recover. Vitesse Energy which has interests mainly in North Dakotan oil and gas assets rose 28.9% as it delivered solid numbers following its listing in the previous year. Kosmos Energy, an oil and gas exploration and production company, also did well as it advanced its major West African LNG project, bringing a significant improvement in cashflow into sight.

In terms of other winners and losers in the period, in the former camp was Spectrum Brands which rose as the company completed the long-awaited sale of its hardware business to a larger peer. Also doing well were Avnet and CDW, both distributors of technology products, with the former seeing an improvement in profitability largely driven by better operational execution while the latter benefitted from resilient spending by its customer base. MaxLinear, on the other hand, saw its shares fall 37.8% as the consumer related semiconductor market turned down and the company was forced to abort a planned acquisition. Our holding in recycled car parts business LKQ also fell by 23.9%, with margins weaker as a result of a worse business mix, lower metal prices and strike activity. Agricultural chemicals producer American Vanguard fell in common with peers as destocking took hold in this sector. Real estate was a weak sector in the face of the higher interest rates, and medical office buildings company Healthcare Realty Trust underperformed, as the gains from its merger with a peer in 2022 were slow to emerge and further acquisitions were paused in light of relatively high leverage. Finally, Nomad Foods, the European orientated branded frozen foods company, lagged as volumes were pressured by a move by hard pressed consumers into private label products.

UK

The UK small cap market underperformed other markets, excluding Europe, in the six months. Higher interest rates and the phased rolling off of fixed rate mortgage deals at the low rates from a few years ago, hurt the housing market. This, in combination with general inflationary pressures, dented consumer sentiment, while UK company management teams have also had to recognise higher inflation than elsewhere in wage settlements placing pressure on margins.

Our portfolio was behind the local small cap market performance. As with other markets, a number of holdings have faced individual challenges or business issues as the period progressed. Within Financials, shares in buy to let mortgage lender OSB Group fell 39.6% in the period, undermined by the consequences of higher interest rates, which was changing the behaviour of its landlords at the time of loan renewals and, thereby, reducing the company's anticipated profit margins. While this was disappointing, more recent updates from the company have been more encouraging. Another casualty was an IPO in which we participated in the period, CAB Payment Systems, a payments services company serving customers across a number of emerging markets, shocked the market by shortly after the float flagging an effective ceasing of business in two markets.

The slowdown in the housing market prompted large downgrades to profit expectations among housebuilders, with our holding in Crest Nicholson unable to buck the trend. Specialist natural ingredients supplier Treatt fell, with demand from some of its food and beverages customers impacted by destocking. Watches of Switzerland shares had been weak on fears of a demand downturn but they fell again after its most important supplier Rolex announced the acquisition of a European based peer retailer, raising fears around product availability looking forward.

Other poor performers on the UK portfolio included Next 15 Group, Energean and XP Power. Media services companies have generally been weak in 2023 so far, as fears have grown that more discretionary services could be cut back by companies seeking to make economies to save costs, but Next 15 has delivered a resilient performance so far, despite its share price sell-off. Energean shares fell sharply after the attack on Israel; the company is an offshore supplier of gas into the Israeli market and the risk profile of the company has clearly gone up. XP Power, a provider of power control components to the electronics industry fell after a profit warning flagged up a sudden slowdown in business, especially in the Chinese market.

More positively, a number of our holdings surprised to the upside despite the macro backdrop. Ashtead Technology Holdings, which rents equipment out to operators in the offshore energy and renewables sectors rose 40.8% as it guided up its expectations given an uptick in activity in these areas. In software and services, Bytes Technology also beat expectations with its strong relationship with Microsoft continuing to help it to gain market share. Shares in leasing software business Alfa Financial Software were also up over the period as two bid approaches were made for the company, albeit no firm offer emerged. Ascential rose strongly late in the period as it announced the sale of its digital marketing and product design units, leaving it focused on its events business and opening the path to a material return of capital to shareholders.

While consumer activity has been impacted by higher interest rates, The Restaurant Group (company of Wagamama and other brands/pubs) also attracted attention from external parties and, late in the period, agreed to accept an offer from a private equity operator. Ten pin bowling company Hollywood Bowl was another good performer in the leisure arena, with trading remaining resilient and the company progressing its international expansion in Canada. Baltic Classifieds Group which operates a number of leading consumer facing portals in Eastern Europe reported an impressive 19% organic growth in its latest results and started a share buyback programme which helped its share price recover. 4imprint was strong again as its promotional products sales mainly focused in North America beat earlier projections.

Two other companies doing well were Kier Group and Workspace Group. Construction and infrastructure services company Kier has been executing its pipeline better in recent times and a much improved balance sheet position allowed the company to return to making dividend payments. While real estate in the UK as in other markets was a weak sector, Workspace Group announced strong results with rents continuing to grow in its flexible leased properties serving the dynamic SME business community in London and the South East.

Europe

European small caps struggled in the period with investor sentiment souring as interest rates were pushed up by the European Central Bank and corporate earnings came under pressure.

Destocking by customers undermined several holdings, with helmet technology company MIPS still suffering from an inventory correction in the bike channel which has taken longer than expected to work through. Chemicals distribution company IMCD also produced weaker results as its customers also reduced their stock levels amid the macro slowdown. In beverages markets, a number of companies are suffering from similar issues, with cognac company Remy Cointreau impacted by sluggish sales trends in both the US and China. Bottle manufacturer Vidrala fell in the summer as weaker beer consumption trends in Germany led to a drop-off in volumes.

Two of the weakest performers were medical equipment company Tecan Group and facility management business Coor Service Management. Tecan fell despite solid first half results, partly because the market is concerned about the demand outlook given funding pressures in the biotechnology sector despite the company having little exposure to this space. Coor lost a significant contract in the period prompting earnings downgrades and a derating. Niche construction equipment supplier Engcon fell as the outlook for its home Scandinavian market deteriorated, while Industrial stocks Indutrade and Interpump also declined despite reporting solid results to date.

While it has been a tough period, we still had a number of strong performers. Top of the list in terms of contribution was semiconductor equipment business ASM International, which jumped 18.4% as results held up better than feared amid a slowdown in the semiconductor market and investors took the view that the company was an AI winner. In the same area, a new position in Technoprobe also benefitted from enthusiasm in relation to AI. While higher interest rates have pressured ratings for many consumer staples, our holdings in Lotus Bakeries and Glanbia were up 11.8% and 8.2% respectively. The former reported excellent 21% organic sales growth and has managed cost pressures well, showing good pricing power with its core biscuit lines. Glanbia too has managed its cost base well and a more efficient supply chain plus more focused brand approach in performance nutrition led to upgrades to forecasts.

Three Financial stocks served us well, with Scandinavian pension, asset management and insurance company Storebrand benefiting from higher interest rates which, in combination with a disposal, have improved its solvency position allowing it to return more cash to shareholders. In Denmark, Ringkjoebing Landbobank was upgraded as the company announced better than expected loan growth, low credit losses and higher net interest income. Italian asset manager Azimut was also an outperformer as it continued to see inflows to its fund range, which is encouraging given a tough overall market for fund management companies.

Other European risers included Fluidra, CTS Eventim and Siegfried Holdings. Swimming pool supplies company Fluidra announced better than expected numbers despite destocking pressures in the sector, with cost savings coming through well. CTS Eventim, the leading ticketing business, produced excellent numbers as live music and events returned strongly post the pandemic ending. Siegfried Holdings, a supplier of medical technology rose after it was upgraded on the back of solid first half results, bucking this sector's trend.

Japan

The Bank of Japan maintained a more relaxed approach to monetary policy, with its core interest rate still slightly negative. Consequently, the yen depreciated further on the currency markets. This helped the performance of the equity market, supporting the outlook for exporters. Consumer spending, like elsewhere, has been underpinned by higher wage inflation and some recovery in travel. At the corporate level, share buybacks have picked up pace, with cash-rich companies becoming more willing to deploy this capital to enhance their return profiles. These factors plus evidence of more foreign interest in the market, meant that returns in Japan were better than most other markets, with the MSCI Japan Small Cap index (net) flat for the six months.

During the latter part of the period, we decided to sell our holdings in the abrdn SICAV I - Japanese Smaller Companies Sustainable Equity Fund and the Baillie Gifford Japanese Smaller Companies Fund. These had not performed well for some time and underperformed again in this period. Following an extensive amount of due diligence, we have decided to use the proceeds from these sales to invest in a portfolio of around 30 individual Japanese small company equities and, henceforth, the investments in these regions will appear as individually named holdings in the Company's portfolio listing. These stocks will be selected by a team of fund managers focusing on Japanese equities within Columbia Threadneedle Investments, who have a strong record of performance in this market and will report directly to the Lead Manager. In addition to being a demonstration of the depth of the investment team within Columbia Threadneedle Investments, this change of approach will lower the cost of the management of the Company's exposure to Japan as the fee payable to Columbia Threadneedle Investments is lower than what was being incurred by holding the two funds which have been sold. We continue to hold our position in the Eastspring Investments Japan Smaller Companies Fund which represents just over half of our Japanese exposure now. This delivered an excellent result in the first half of the year, with a total sterling return of 4.3%, as value stocks continued to be the best performing part of the small cap market.

Rest of World

Our fund holdings here give us exposure to smaller companies listed on Asian and Latin American markets in the main, plus certain other global emerging markets. As a whole, these markets did better than the main developed markets, although performance was quite widely dispersed between markets, with China, for example, materially lagging India, within Asia. Latin American small caps tend to be more volatile, but markets like Brazil have been net beneficiaries of the Ukraine war situation given their commodity centric nature.

While our portfolio lagged the comparator small cap indices, a significant part of the underperformance in the period was down to a widening of the discounts of the investment trusts that we hold: The Scottish Oriental Smaller Companies Trust and the Utilico Emerging Markets Trust. These companies performed well in NAV terms but share price performance was hurt by the discount moves. The Pinebridge Asia ex Japan Small Cap Fund and the Schroder ISF Global Emerging Markets Smaller Companies Fund underperformed in the period. The former has suffered from an over-exposure to China at a time when this market has struggled, while the Schroder's fund had stock selection issues in India and Taiwan, lacking exposure to some of the AI names.

Asset allocation

The chart below shows the exposure of the portfolio across the different markets. Over the period, we modestly increased our exposure to Japan and the Rest of World, while trimming back exposure to Europe. While directionally these were the right moves, asset allocation made a negative contribution to performance relative to the Benchmark in the six months, as a result of being overweight to Europe and the UK and underweight in North America and the Rest of World.

Gearing

Gearing ended the six months at 4.6%, slightly down on the 5.2% at the end of April, as we continued to take a cautious approach to the use of leverage for now.

Outlook

As we move into the second half of the financial year, we are seeing some individual companies exposed to more discretionary areas of consumer and corporate spending reporting weaker trading as the impact of previous monetary policy tightening feeds through more broadly. However, since the end of October equity markets and smaller company shares in particular have rallied, helped by more encouraging inflation data and, as a consequence, the Company's share price and NAV have recovered strongly. Performance looking forward is likely to remain highly sensitive to perceptions around the path of interest rates. As usual, the investment team continues to monitor the near and medium term outlooks for the existing portfolio, while at the same time looking for opportunities to take advantage of lower valuations in the wider markets.

Peter Ewins

Lead Manager

14 December 2023

Unaudited Condensed Income Statement

The total column of this statement is the profit and loss account of the Company.

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

Unaudited Condensed Statement of Changes in Equity

Unaudited Condensed Balance Sheet

Unaudited Condensed Statement of Cash Flows

Unaudited Notes on the Condensed Accounts

1    Accounting policies

These condensed financial statements have been prepared on a going concern basis in accordance with the Companies Act 2006, FRS 102, Interim Financial Reporting (FRS 104) and the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (SORP) issued by the AIC.

The accounting policies applied for the condensed set of financial statements are set out in the Company's annual report for the year ended 30 April 2023.

2    Dividend

The Directors have declared an interim dividend in respect of the year ending 30 April 2024 of 0.68p per share, payable on 26 January 2024 to all shareholders on the register at close of business on 30 December 2023. The amount of this dividend will be £3,477,000 based on 511,354,485 shares in issue at 11 December 2023. This amount has not been accrued in the results for the half year ended 31 October 2023.

3    Going concern

In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council. They have also considered the Company's objective, strategy and policy, the current cash position of the Company, the availability of its loan facility, compliance with its covenants and the operational resilience of the Company and its service providers. It is recognised that the Company is mainly invested in readily realisable, globally listed securities that can be sold, if necessary, to repay indebtedness.

Based on this information, the Directors believe that the Company has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of these financial statements. Accordingly, these financial statements have been prepared on a going concern basis.

4    Results

The results for the half year ended 31 October 2023 and 31 October 2022, which are unaudited and which have not been reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information', constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 April 2023; the report of the auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The condensed financial statements shown above for the year ended 30 April 2023 are an extract from those accounts.

By order of the Board

Columbia Threadneedle Investment Business Limited, Company Secretary

Cannon Place, 78 Cannon Street, London EC2N 6AG

14 December 2023

Directors' Statement of Principal and Emerging Risks

The Company's principal and emerging risks are described in detail under the heading "Principal and Emerging Risks" within the strategic report in the Company's annual report for the year ended 30 April 2023. They include:

·      Errors, fraud or control failures at service providers or loss of data through business continuity failure or cyber-attacks could damage reputation or investors' interests or result in loss. Cyber risks remain heightened.

·      Inappropriate business strategy or policy, or ineffective implementation, could result in poor returns for shareholders. Failure to access the targeted market or meet investor needs or expectations, including ESG and climate change in particular, leading to significant pressure on the share price. Political risk factors could also impact performance as could market shocks such as those experienced in relation to Covid-19 and the war in Ukraine.

·      A significant share price discount or premium to the Company's NAV per share, or related volatility, could lead to high levels of uncertainty or speculation and the potential to reduce investor confidence. Increased uncertainty in markets could lead to further falls and volatility in the Company's NAV.

The Directors continue to review the key risk register for the Company which identifies the risks that the Company is exposed to, the controls in place and the actions being taken to mitigate them. This is set against a backdrop of continuing uncertainty as a result of the significant macro economic influences of higher inflation, and interest rates.

Following the acquisition of BMO GAM EMEA by Ameriprise, the integration of systems and legal entities with Columbia Threadneedle Investments is now almost complete. The residual risks from the integration are low and the Board will continue to monitor this area until full integration is achieved.

The Board believes that there have not been any material changes to the nature of the risks outlined above since the previous annual report and that the principal risks and uncertainties, as summarised, remain applicable to the remaining six months of the financial year. The Board has considered this in relation to going concern, as set out in note 3.

Directors' Statement of Responsibilities in Respect of the Half Year Financial Report

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

·      the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards on a going concern basis, and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;

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

·    the Directors' Statement of Principal and Emerging Risks shown above is a fair assessment of the principal and emerging risks for the remainder of the financial year; and

·     During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

On behalf of the Board

Graham Oldroyd

Interim Chairman

14 December 2023

ENDS

A copy of the Half Year Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism 

The Half Year Report for the six months ended 31 October 2023 will be posted to shareholders and made available shortly on the Company's website at globalsmallercompanies.co.uk, where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found. Copies may also be obtained from the Company's registered office, Cannon Place, 78 Cannon Street, London EC2N 6AG.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.