The Global
Smaller
Companies
Trust PLC
Company Number: 28264
Report and Accounts
for the year ended
30 April 2023
Report and Accounts 2023 | 1
Strategic Report Governance Report Financial Report Notice of Meeting
Other Information
Chairman’s StatementOverview Auditor’s Report
Strategic Report
Company Overview 2
Financial Highlights 3
Chairman’s Statement 4
Lead Manager’s Review 8
Investment Manager’s Investment Philosophy
and Process 17
Investment Case Studies 19
Responsible Investment 22
Thirty Largest Holdings 26
List of Investments 28
Ten Year Record 31
Purpose, Strategy and Business Model 33
Promoting Success 36
Principal Policies 37
Key Performance Indicators 39
Principal and Emerging Risks 40
Governance Report
Directors 42
Directors’ Report 43
Chairman’s Statement on Corporate Governance 49
Applying the principles of the AIC Code 50
Report of the Audit and
Management Engagement Committee 52
Report of the Nomination Committee 56
Directors' Remuneration Report 57
Statement of Directors’ Responsibilities 60
Independent Auditor’s Report 61
Contents
Financial Report
Income Statement 66
Statement of Changes in Equity 67
Balance Sheet 68
Statement of Cashflows 69
Notes to the Accounts 70
Notice of Annual General Meeting 86
Other Information
Management and Advisers 90
Additional Information for Shareholders 91
How to Invest 92
25 Year Historical Information 93
Alternative Performance Measures 95
Glossary of Terms 97
Analysis of Ordinary Shareholders 99
2023-24 Financial year events
Annual General Meeting 28 July 2023
Final dividend payable 4 August 2023
Half-yearly results for 2023 announced December 2023
Interim dividend payable January 2024
Final Results for 2024 announced June 2024
2 | The Global Smaller Companies Trust PLC
The Global Smaller Companies Trust PLC (the ‘Company’) was founded in 1889 with an initial capital of
£1m. The Company’s net assets had a value of more than £859m as at 30 April 2023.
Objective
To invest in smaller companies worldwide in order to secure a high total return.
Investment team
A well resourced and experienced investment management team at Columbia Threadneedle Investments
aims to identify the best smaller company opportunities listed on global stock markets.
Investment approach
A focus on quality. We look for high quality, well managed companies delivering strong returns with a
track record of profitability.
Price matters. Portfolio holdings should be attractively valued both in absolute terms and compared to
peers.
The benefits of diversification. We seek to create a well spread and balanced portfolio avoiding over
exposure to any one company, sector or market.
A dividend hero
By investing in a portfolio of growing, high quality listed companies, the Company’s own dividend has risen
for 53 consecutive years.
The Company is suitable for retail investors in the UK, professionally advised private clients and
institutional investors who seek growth over the long term and who understand and are willing to accept
the risks, as well as the rewards, of exposure to smaller companies.
Visit our website at globalsmallercompanies.co.uk
The Company is registered in England and Wales with company registration number 28264
Legal Entity Identifier: 2138008RRULYQP8VP386
Company Overview
Forward-looking statements
This document may contain forward-looking statements with respect to the financial condition, results of operations and business of the Company. Such statements
involve risk and uncertainty because they relate to future events and circumstances that could cause actual results to differ materially from those expressed or
implied by forward-looking statements. The forward-looking statements are based on the Directors’ current view and on information known to them at the date of this
document. Nothing should be construed as a profit forecast.
DIVIDEND
HERO
Report and Accounts 2023 | 3
Overview
Strategic Report Governance Report Financial Report Notice of Meeting
Other Information
Chairman’s StatementOverview Auditor’s Report
(1) See Alternative Performance Measures on pages 95 and 96.
(2) See Glossary of terms on page 97 for explanation of ‘Benchmark’.
(3) Total dividend comprises an interim dividend (paid on 6 January 2023) of 0.63 pence and a final dividend for 2023 of 1.67 pence (payable on 4 August 2023), subject to shareholder
approval at the forthcoming AGM.
(4) Comparative figures for the years prior to 2020 have been restated due to the sub-division of each existing ordinary share of 25p into ten new ordinary shares of 2.5p each on
31 October 2019.
Financial Highlights year to 30 April 2023
Dividend
(3)
of 2.30
pence (2022: 1.84p),
the 53rd consecutive
annual increase,
up by 25.0% (2022:
up by 5.1%).
2.30p
The Company's
shares ended the
year at a discount
(1)
to NAV of 12.7%
(2022: 9.6%).
-12.7%
Net Asset Value with
debt at fair value
(1)
(‘NAV’)
total return
(1)
of -2.9%
(2022: -0.2%) versus
-2.1% from the
Benchmark (2022: -3.2%).
The NAV fell to 165.7p from 172.8p.
-2.9%
Share price total
return
(1)
of -6.2%
(2022: -6.4%).
The share price ended the year
at 144.6p (2022: 156.2p).
-6.2%
NAV
(1),(4)
per share at 30 April – pence
Mid-market price
(4)
per share at 30 April – pence
Source: Columbia Threadneedle Investments
0p
20p
40p
60p
80p
100p
120p
140p
160p
180p
200p
2023202220212020201920182017201620152014
0p
20p
40p
60p
80p
100p
120p
140p
160p
180p
2023202220212020201920182017201620152014
Source: Columbia Threadneedle Investments
Share price premium/(discount)
(1)
at 30 April – %
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
2023202220212020201920182017201620152014
Source: Columbia Threadneedle Investments
Dividends
(3),(4)
– pence per share
0.0p
0.2p
0.4p
0.6p
0.8p
1.0p
1.2p
1.4p
1.6p
1.8p
2.0p
2.2p
2.4p
2023202220212020201920182017201620152014
Source: Columbia Threadneedle Investments
Delivering high total returns over the long term
The dividend has increased every year for the past 53 years and over the last ten years is up 13.5%
compound per annum, compared with inflation (RPI) of 4.1% compound per annum.
Potential investors are reminded that the value of investments and the income from dividends may go down as well as up and investors
may not receive back the full amount invested. Tax benefits may vary as a result of statutory changes and their value will depend on
individual circumstances.
In the last ten years the Company has turned a £1,000 investment, with dividends reinvested, into £2,108,
a compound annual total return of 7.7%.
4 | The Global Smaller Companies Trust PLC
Dear Shareholder,
For equity investors, the year under review has been challenging.
Inflation and the consequent need for monetary policy tightening were
dominant influences through the year, with the devastating war in Ukraine
continuing to cast a heavy shadow, adding to the already tense geo-
political climate.
The World Health Organisation's declaration of the COVID pandemic as
“no longer a global public health concern” and the easing of pandemic
restrictions in China in early 2023 lifted investor sentiment somewhat,
before this was to be shaken once again by the emergence of problems
across the banking sector in March.
The interest rate environment has been unhelpful for stock market
sentiment and, given their greater economic sensitivity, higher rates
are especially bad for smaller companies. Unsurprisingly, small caps
struggled relative to larger counterparts in most parts of the world, with
the main exception being within Asia, where they held up better.
Performance and the discount
Against a difficult global market backdrop, especially for more growth
orientated stocks, the Company’s Net Asset Value (‘NAV’) total return
(with long-term borrowings at fair value) over the twelve months was
-2.9% ending the year at 165.7p per share. While negative returns are
never welcome, the second six months of the year actually delivered a
modest recovery, helped by hopes that the period of rising interest rates
might be coming to an end.
In the Company's Half Year Report, the Manager highlighted that
investment trust discounts had widened out given increased caution
around the economic outlook and that smaller company funds in
particular had been impacted by this trend. Starting 2022/23 at 9.6%,
the Company’s discount reached 14.1% at the end of October 2022 and
closed the financial year at 12.7%, significantly wider than the Board’s
sub 5% target. The wider discount meant that the share price fell by 7.4%
over the year to 144.6p, or by 6.2% on a total return basis.
While recognising that share buybacks may not have much impact on
our discount in an environment where other investment trust discounts
are widening, the Board continues to believe that a consistently applied
buyback approach is in shareholders’ best interests, providing liquidity
for those in need of an exit along with NAV accretion to remaining
holders. Over the year, some 24.6m shares which represented 4.5%
of the starting share capital (2022: 26.2m), were repurchased across
some 196 trading days, enhancing the NAV by 0.4% in the process.
The chart on the next page illustrates the Company’s discount (and
premium) over the last 10 years and that of the wider investment trust
sector, providing a reminder that discounts/premiums in the investment
trust space are cyclical.
During the course of the year, the Manager has stepped up marketing
activity over a number of channels and is working to enhance the
messaging around the core investment proposition, highlighting the
investment management team’s approach to stock selection, which
focuses on quality and valuation discipline across a diversified smaller
company portfolio. Generating more interest in the Company's shares
from both existing and new investors, together of course with good
investment performance, will be key in helping to address the discount in
the medium term.
The Benchmark
In April the Board announced a change to the Company’s Benchmark
with effect from 1 May 2023 for the new financial year. The Benchmark
return has been calculated from the blended returns from UK and
international small cap indices, with the former and latter having a
30% and 70% weighting respectively. Over the years, the share of
“The Manager is continuing to find opportunities in the markets, helped by
the pullback in valuations and by the increased depth of investment research
capabilities within the enlarged Columbia Threadneedle Investments business. Now
that the prolonged period of low interest rates and “easy money” has come to an
end, your Manager’s focus on quality companies with strong balance sheets is
starting to pay off. As a result of good operational performance from the portfolio,
the Board is pleased to recommend a 25% increase in the annual dividend
payment, marking a 53rd consecutive year of progression.”
Anja Balfour, Chairman
Chairman’s Statement
Report and Accounts 2023 | 5
Chairman’s Statement
Costs and management fee
Ongoing charges were up over the year, moving from 0.75% to 0.79%,
mainly reflecting the lower average daily net asset level. These remain
low compared to many smaller company funds in the market.
The Manager has been paid a management fee of 0.55% per annum of
the Company’s net asset value, which is reduced to 0.275% in respect
of the market value of investments held in third party collective funds.
Following constructive discussions with the Manager, the Board has
agreed to introduce a tiered element to the management fee. With
effect from 1 May 2023, net assets outside of collectives in excess
of £750m will be charged at a reduced rate of 0.5% per annum, with
any investments made in third party collective investment schemes
remaining subject to a charge of 0.275% per annum of the month end
market value of those investments.
Dividends
Although capital growth has been harder to come by in more recent
times, income returns have been much more positive. Revenue returns
per share for the year rose by no less than 28.6% as income from both
UK and overseas based holdings grew strongly, helped by a post-
pandemic profit bounce-back. Following on from the 10.5% increase in
the interim dividend, the Board has decided to recommend the payment
of a final dividend of 1.67p, meaning the full year payment will be up
by 25.0% to 2.30p. This will be paid to shareholders on 4 August and
will be the 53rd consecutive increase in the Company’s dividend. At
a time when inflation remains elevated, it is pleasing that the payout
is well up in real terms and this is also a good sign of the confidence
that investee company management teams have in the future of their
businesses.
the Company’s portfolio invested in domestically listed stocks has
been on the decline, reflecting the evolution of the global investment
universe. Essentially the UK market has become a smaller part of the
total world stock market capitalisation with other markets, particularly
in Asia, now offering a wider set of opportunities in the smaller quoted
arena than historically. The weighting in the Benchmark calculation
therefore has been adjusted, making the new Benchmark: 20% Numis
UK Smaller Companies (excluding investment companies) Index/80%
MSCI All Country World ex UK Small Cap Index. To take account of the
withholding taxes that the Company pays on some overseas dividends,
the calculation of the MSCI index returns will now be measured on a net
of tax basis (previously gross returns have been used).
The returns from the Benchmark used for 2022/23 were -2.1%. Longer-
term cumulative performance total returns from the NAV, Benchmark and
share price are shown in the table below. The compound annualised
NAV and share price returns over the last 25 years are 9.2% and 9.6%
respectively, well ahead of the 3.4% Retail Prices Index annual increase
over the same time-frame.
Performance: Total returns over the long-term
1 year
%
3 years
%
5 years
%
10 years
%
25 years
%
Company NAV
total return
-2.9 43.3 28.2 144.6 811.1
Benchmark
total return
-2.1 46.1 29.3 137.2 665.2
Company
share price
total return
-6.2 35.3 11.8 110.8 897.5
Source: Columbia Threadneedle Investments
Strategic Report Governance Report Financial Report Notice of Meeting
Other Information
Chairman’s StatementOverview Auditor’s Report
The Global Smaller Companies Trust
(period mean)
Premium/(Discount) to NAV (%)
-25
-20
-15
-10
-5
0
5
2023
2013 2014 2015 2016 2017 2018 202120202019
UK Investment Companies (Ex 3i)
(period mean)
The Global Smaller Companies TrustUK Investment Companies (Ex 3i)
2022
(Discount)/premium compared to UK Investment Companies (ex 3i) over 10 years
Source: Columbia Threadneedle Investments
6 | The Global Smaller Companies Trust PLC
Market and portfolio performance
The Manager’s review starting on page 8 covers the year's performance
in more detail. This year we have included another section which outlines
the core tenets of the Manager’s investment philosophy and approach,
illustrated with some individual case studies.
It is fair to say that the environment for investing has changed
considerably in the last couple of years, with the period of ultra-low
interest rates seemingly behind us for a while. Inflationary pressures –
initially stemming from higher commodity prices, supply chain problems
in relation to the pandemic and the war – have been augmented as
a result of tight labour markets in much of the developed world. The
process of consequent interest rate normalisation is clearly creating
issues at both a sector and company level, as evidenced by the recent
collapse of a number of US banks. Highly leveraged businesses have
found themselves facing significantly more expensive finance costs and
loss-making or more speculative businesses are finding support from
both equity and debt markets less forthcoming. In essence, market
conditions are increasingly favouring higher quality and lower risk
businesses. Merger and takeover activity has slowed in the past year
in the face of the higher interest rates, but a number of the Company’s
holdings were still the subject of approaches this year.
The table above shows how our regional portfolios performed in the year
compared with the relevant local smaller company indices. As mentioned
above, smaller companies were not immune to the impact of higher
interest rates and slower global growth data. Relative to the local small
cap market returns, we were a little behind in North America though it
should be recalled that this followed a stellar year here in 2021/22 and
indeed during the second half of 2022/23, the portfolio outperformed
significantly after having had a more difficult period last summer. We
were more meaningfully behind in the UK and Europe as stock selection
proved challenging. The best returns by far came from our holdings in
Geographical performance (total return sterling adjusted) for the year ended 30 April 2023
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
Rest of
World*
JapanUSAEuropeUK
Source: Columbia Threadneedle Investments
Portfolio
Local smaller companies index (see Lead Manager’s Review)
-6.3%
-3.0%
-2.1%
0.3%
-4.2%
-3.8%
9.1%
7.7%
-2.1%
-7.4%
-1.5%
Latin
America
Pacific
ex Japan
*Performance of the Rest of World portfolio is shown here against both the Asian and Latin American smaller company indices.
Japan, where our largest fund holding managed by Eastspring performed
very well. In the Rest of World portfolio of collective funds, we were
pleasingly ahead of the Asian small cap index return which is where most
of our exposure in this part of the portfolio is orientated. The Manager’s
Review highlights some changes being made to the comparator smaller
company indices for North America and Europe with effect from the new
financial year.
Asset Allocation
Regional allocation made a small positive contribution towards the
overall relative performance of the Company in the year. Over the course
of the year, there were no dramatic changes to the geographic weightings
of the portfolio, though the exposure to North American listed stocks fell
back in the second half as the Manager became less optimistic on the
outlook there, in part due to the possibility for a pull-back in the US dollar.
North America 41.7% (43.4%)
UK 25.3% (26.8%)
Rest of World 12.4% (12.2%)
Europe 12.1% (10.8%)
Japan 8.5% (6.8%)
Geographical distribution of the investment portfolio
as at 30 April 2023
Source: Columbia Threadneedle Investments
The percentages in brackets are as at 30 April 2022
Report and Accounts 2023 | 7
Chairman’s Statement
The table below shows the weightings of the portfolio against the new
Benchmark.
Geographical weightings of the por tfolio and the revised Benchmark
Portfolio weight (%) Benchmark weight (%)
UK 25.3 20.0
Europe 12.1 10.5
North America 41.7 45.5
Japan 8.5 8.7
Rest of World 12.4 15.3
Source: Columbia Threadneedle Investments
Gearing Policy
Although equity market performance has been uninspiring more recently,
the Board remains of the view that making use of borrowing powers
over the long term will serve to enhance shareholder returns. At the
end of the year, effective gearing was 5.2% compared to 4.6% a year
earlier. Borrowings were made up of £35m of 2.26% sterling loan notes
maturing in 2039 and £17m equivalent drawings in US dollars, yen and
euros under our revolving credit facility. The fair value of the loan notes
fell by £10.4m in the year, reflecting the rise in market yields, with the
2.26% rate now looking highly attractive compared to prevailing market
rates.
Environmental, Social and Governance (‘ESG’)
While your Company is not an ESG badged fund, the fund management
team take close account of ESG factors in making their stock selections.
Over the course of the last year input in this regard from the Manager’s
Responsible Investment team has continued to be helpful, with regular
updates provided to the fund managers on specific topics of interest
and new ESG developments. Engagement with the management teams
of companies held in the portfolio is continuous and once again some
practical illustrations of this work are outlined in the Responsible
Investment report on pages 22 to 25.
Composition of the board and committees
The Board comprises five directors and maintains plans for orderly
succession, ensuring that the right balance of skills, experience,
knowledge, independence and diversity are in place for the Board to
operate effectively, as a whole. It currently meets the FCA diversity
requirements relating to gender diversity and is committed to meeting
the target of at least one director being from a minority ethnic
background in the course of 2023.
David Stileman will stand down from the Board in October this year. On
behalf of the Board I would like to thank him for his contribution since his
appointment in 2015 and we wish him well for the future. The process to
recruit his successor is underway.
Annual General Meeting
The Annual General Meeting will take place at The Chartered
Accountants Hall, 1 Moorgate Place, London EC2R 6EA on Friday,
28 July 2023 at 12.00 noon. We hope as many shareholders as
possible will attend. The Lead Manager will, as usual, give a review
of the year together with his view on the outlook. We will also be
streaming the meeting live on the internet so that those shareholders
who cannot attend in person will be able to view the proceedings.
The live stream can be accessed by registering here: https://www.
investormeetcompany.com/the-global-smaller-companies-trust-plc/
register-investor
Voting at this year’s AGM will be conducted by way of a poll and,
therefore, you are requested to lodge your votes ahead of the meeting
by completing your Form of Proxy or Form of Direction in accordance
with the instructions shown thereon. Their completion and return will
not preclude you from attending the meeting and voting in person.
Shareholders who are unable to attend the AGM are requested to submit
any questions they may have with regard to the resolutions proposed at
the AGM or the performance of the Company, in advance of the meeting
to gscagm@columbiathreadneedle.com. Following the AGM, the Lead
Manager’s presentation will be available on the Company’s website
globalsmallercompanies.co.uk.
Outlook
As always it’s hard to predict how markets will perform looking ahead,
but it seems likely that the path of inflation and interest rates in the next
few months will have a large bearing on equity market trends. The lagged
impact of previous rate hikes will be a headwind in the coming period
for the global economy. Having said this, the Manager is continuing to
find opportunities in the markets, helped by the pullback in valuations
and by the increased depth of investment research capabilities within
the enlarged Columbia Threadneedle Investments business. The
Board remains confident in the medium term returns prospects for
your Company given the underlying dynamism within the global smaller
company sphere. Now that the prolonged period of low interest rates
and “easy money” has come to an end, your Manager’s focus on quality
companies with strong balance sheets is starting to pay off.
Anja Balfour
Chairman
22 June 2023
Strategic Report Governance Report Financial Report Notice of Meeting
Other Information
Chairman’s StatementOverview Auditor’s Report
8 | The Global Smaller Companies Trust PLC
A year ago I expressed the hope that the conflict in Ukraine could
be short-lived, but very sadly this has turned into a protracted war
of attrition, so the global economy has had to adjust to this reality.
In fact, the speed with which Europe has moved to diversify its
supply-chain in relation to gas has been impressive and a fortunately
mild winter helped to prevent a more serious economic impact. The
progressive ending of restrictions on activity following the lengthy
pandemic also served to support the growth outlook. Ultimately,
however, the surging cost of food, energy and knock-on impact to
labour costs made for a challenging year on a global basis.
The performance of equity markets was somewhat disappointing,
with the Benchmark and NAV falling by 2.1% and 2.9% respectively,
the second year in a row that both have been in negative territory.
After beating the Benchmark last year, it is disappointing to be
reporting slight underperformance this time, but we take some
comfort from the fact that our performance was better than the
average global smaller company investment trust performance and
many open ended peers over the year. As was the case last year,
our investment income was strong, growing well past pre-pandemic
levels and allowing the Board to recommend an inflation beating
25.0% increase in the annual dividend.
The main debate in financial markets over the year was around the
likely longevity of the period of higher inflation and the consequent
outlook for interest rates. The speed and extent to which rates
have moved up in the US surpassed expectations from a year ago.
This normalisation of monetary policy combined with a move to
quantitative tightening in the US has squeezed liquidity in financial
markets and forced other central banks to react in a similar fashion.
Rising interest rates pressured valuations of more speculative
stocks in the markets and companies with high leverage were also
out of favour as they faced more expensive debt servicing costs.
Takeover activity slowed in comparison to last year as private equity
companies faced higher financing costs and we saw less of our
holdings acquired in the year with just 6 taken over compared to 17
last year.
At the individual company level, it was a complicated year for
management teams to navigate. Uncertainty over consumer
behaviour, given cost of living strains, volatile ordering patterns as
distortions in relation to the pandemic fed through and rising costs
placing pressure on margins were all factors contributing to a more
uncertain corporate earnings picture. It is perhaps not surprising
therefore that we have seen more profit warnings come through in
recent months in the portfolio and across the markets as a whole.
The performance table on page 9 shows that this was a challenging
year for us in stock selection terms within the UK, European and North
American portfolios. In relation to North America, we did however
deliver a much stronger relative performance in the second half of the
year after a tough time in summer 2022. More positively, we posted
outperformance in Japan and more meaningfully so on the Rest of
Lead Manager’s Review
Industrials 21.0% (19.4%)
Collective investments 20.9% (19.0%)
Consumer discretionary 11.6% (11.2%)
Financials 9.4% (11.5%)
Technology 8.5% (8.2%)
Healthcare 7.3% (7.7%)
Basic materials 6.6% (7.6%)
Consumer staples 5.5% (6.1%)
Real estate 4.3% (3.8%)
Energy 3.7% (2.3%)
Telecommunications 0.8% (2.2%)
Utilities 0.4% (1.0%)
Source: Columbia Threadneedle Investments
The percentages in brackets are as at 30 April 2022
Industrial classification of the investment portfolio
as at 30 April 2023
“The last couple of years have taught us a lot about the fundamental resilience
and quality of individual company’s business models, which have been given
a proper examination by the pandemic and the re-emergence of meaningful
inflation. On the whole, we have been impressed by how the management teams
of our holdings have coped.”
Peter Ewins, Lead Manager
Report and Accounts 2023 | 9
Strategic Report Governance Report Financial Report Notice of Meeting
Other Information
Chairman’s StatementOverview Auditor’s Report
Strategic Report
World portfolio when compared to the Asian small cap index, the
region to which this portfolio is most exposed. More detail around
what drove the relative performance of all the portfolios in the year
appears in the coming pages, but taking a longer term view, it is good
to see that, over 15 years, all parts of the portfolio are ahead of the
local benchmarks.
In relation to benchmarking, the Chairman's statement covers the
change announced to the overall Benchmark index for the new
financial year. As part of our regular review of comparator indices, we
have also decided this year to change the benchmarks we use to
compare our North American and European portfolio performance.
In both cases we are moving to use MSCI indices, to bring the
sub-portfolios into line with the global element of the Company’s
Benchmark. For North America, we will now compare ourselves
against the MSCI North American Small Cap Index, while for Europe
it will be the MSCI Europe ex UK Small Cap Index. In all cases for the
international markets we will use net returns indices rather than gross
returns. Net returns indices incorporate the impact of withholding tax
on dividends from companies in the index.
Over the year, our exposure to Europe and Japan increased at
the expense of North America. Europe appears to have avoided a
deep recession and Japan is not facing the higher interest rates of
elsewhere. The US banking sector turmoil has hopefully ended, but
we think that it is possible that the protracted period of dollar strength
could have run its course while the risks of a US recession in late
2023 have risen.
The sector weightings in the pie chart on page 8 are essentially the
result of individual stock selections, but we have felt that valuations
of many industrials stocks have become attractive, notwithstanding
pressure on near-term earnings forecasts from the global slowdown
and de-stocking effects. We have added to energy related investments
Currency strengthening against Sterling
Currency weakening against Sterling
Apr
22
Aug
22
Dec
22
Apr
23
105
110
115
90
100
120
95
Japanese Yen EuroUS Dollar
Currency movements relative to sterling in the year ended 30 April 2023
Source: Columbia Threadneedle Investments
Table of total returns (sterling)
1 year 3 years 5 years 10 years 15 years
Fund Benchmark Fund Benchmark Fund Benchmark Fund Benchmark Fund Benchmark
UK -6.3% -3.0% 34.0% 40.0% 8.1% 8.0% 146.6% 87.7% 315.6% 208.3%
Europe -2.1% 0.3% 29.5% 43.6% 23.0% 28.6% 134.8% 169.8% 252.4% 216.5%
North America -4.2% -3.8% 51.0% 40.6% 54.6% 34.3% 199.3% 164.8% 569.3% 378.6%
Japan 9.1% 7.7% 16.8% 15.0% -1.3% 5.0% 104.2% 103.8% 246.0% 240.2%
Rest of World* -2.1% -7.4% 38.3% 52.1% 20.7% 26.1% 50.1% 78.4% 208.5% 135.9%
*Rest of World performance is compared against the MSCI All Countries Asia Pacific ex Japan Small Cap Index
Source Columbia Threadneedle Investments
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Chairman’s StatementOverview Auditor’s Report
in the year as we feel that there will be a period of higher investment
in that space to take account of the geopolitical situation and past
under-investment. We cut exposure to financials and materials stocks
in the year. Some of this was profit taking following strong relative
performance of a number of holdings.
Gearing was maintained during the year in line with the Board’s policy
to make use of borrowings through the cycle to enhance shareholder
returns. At the year end the effective gearing, taking account of short-
term liquidity, was 5.2% compared to 4.6% twelve months earlier. The
Company benefits from a competitive cost of borrowing as a result of
the 20 year £35m private placing undertaken in 2019 at 2.26%.
In the regional reviews that follow, performance numbers in relation to
the portfolio and indices are all expressed in sterling total return terms,
while individual company performance is shown in local currency terms.
10 | The Global Smaller Companies Trust PLC
UK Review One year
Portfolio Performance -6.3%
Numis UK Smaller Companies (excluding investment companies)
Index
-3.0%
FTSE All-Share Index 6.0%
This was a difficult period for our UK portfolio with domestic smaller
company shares falling in value for the second consecutive year and
we underperformed against the Numis index for only the second
time in the last 13 years. As in the previous year, larger stocks did
considerably better, helped by a greater exposure to international
markets at a time when the UK economy faced notable headwinds.
While higher inflationary pressures were not just a UK phenomenon,
the more material impact from higher energy and food prices and a
tight labour market have meant that UK consumers have felt more of
a cost of living squeeze. The need to address inflationary pressures
required the Bank of England to raise its base rate from 0.75% to
4.25% over the year.
While the year clearly had challenges, we had a lot of strong
performers on the portfolio. In support services we were helped
by bids at large premiums for consultancy business RPS Group
and waste management company Biffa, with the former being the
best overall contributor to performance in the year. A new holding
in Ashtead Technology, which provides specialist equipment and
services into the offshore energy and renewables sectors, did
excellently in its first year. This is a strong business in an attractive
niche area, with good visibility for the next couple of years as the
UK and other countries invest heavily in energy transition and the
company is further profiled on page 20. It was also pleasing to see
that the purchase in the previous year of a holding in Ricardo Group
paid off with a 64.8% share price rise. This company is also exposed
to the energy transition dynamic, alongside other environmental
consultancy areas.
In the media arena, we benefited from Euromoney Institutional
Investor’s takeover by private equity. Shares in promotional products
company 4Imprint Group had an outstanding year, up 65.2% as new
marketing initiatives paid off. Moneysupermarket.com shares rose
56.6% as consumers' use of the platform increased. Elsewhere,
Kitwave Group, a wholesale supplier of confectionery and other
food and beverages products into the independent convenience
store channel, rose 76.0% as it managed to beat expectations and
successfully executed a couple of bolt-on acquisitions, gaining
more investor attention as a result. In a tough market for industrial
companies given de-stocking and margin pressures Vesuvius, the
materials technology company serving the steel and foundries
sectors, delivered a robust profits performance due to its strong
management and pricing power.
Stock selection was disappointing in some of the consumer facing
sectors. While the cost of living pressures were bound to create
issues, a number of holdings produced results much worse than we
had expected. Revolution Beauty, which targets the mass market
beauty and personal care products market, slumped after revealing
accounting and trading issues and we exited but not before taking
a large loss. We also exited online fashion business In The Style
Group as its sales and margin performance significantly undershot
expectations. Hotel Chocolat shares fell steeply as the company
decided to pull back from international expansion and focus back
on its core UK operations. While this may be the right call, for us
it undermined a core part of the original investment case and we
decided to sell this holding too.
Within financials, Molten Ventures fell by 59.6% as concerns grew
around the valuation outlook for the company’s portfolio of unlisted
technology orientated businesses. Fellow venture capital and asset
management company Mercia Asset Management dropped 23.9%
for the same reason, despite reporting good results, with growth in
assets under management and some positive realisations achieved.
Our holdings in real estate were inevitably hurt by the impact of
higher interest rates on capital values, with CLS Holdings, Sirius
Real Estate and Warehouse REIT all falling by more than 20%. We
see value in the sector after its period of weakness and added a
new holding in Workspace Group; this company, which we have held
previously, provides flexible leasehold space for small businesses in
London and the South East and is presently delivering near double
digit underlying rental growth on the back of strong occupancy levels.
In terms of other stocks which struggled in the year, CMO Group,
the online business serving the building materials sector, was
impacted by slower than expected top line growth as building activity
moderated. Food and beverages ingredients business Treatt saw
sales growth slow last summer, hurting its share rating, although
more recent trading news has been better. Media consultancy
business Next 15 Group has been a strong performer for us in
recent periods but suffered a de-rating this year, in common with
many other growth stocks, despite producing good results. Shares
in consumer health products company Alliance Pharma dropped
44.1% as historic issues and more recent lacklustre trading
undermined sentiment.
The year saw us add quite a lot of new holdings to the portfolio. Our
general approach has been to look to increase the quality of the
portfolio given the relatively tough economic backdrop. A number
of the new holdings we have actually held before, including heat
treatment company Bodycote, specialist plastics supplier Victrex,
media business Ascential, pet products retailer Pets at Home and
Lancashire Holdings in insurance. Other new holdings offering what
we think is attractive medium term growth potential include accesso
Report and Accounts 2023 | 11
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Technology Group which sells specialist ticketing and queueing
software services into the global leisure sector and hospital group
Spire Healthcare, benefiting from the backlog of operations following
the pandemic. Shares in optical components supplier Gooch and
Housego and, within the building materials sector, Marshalls and
SIG Group offer scope for recovery as demand levels recover.
European Review One year
Portfolio Performance -2.1%
Euromoney Smaller Europe Ex UK Index 0.3%
FTSE All-World Developed Europe ex UK Index 13.1%
While performance improved later in the year, our European portfolio
underperformed the benchmark, principally due to the rotation
away from growth stocks. As in the UK, in aggregate terms smaller
companies underperformed their larger counterparts by a wide
margin as liquidity conditions tightened.
In addition to the style rotation headwind, some of our holdings that
had performed well through the COVID pandemic suffered from weak
demand. While we had expected a more difficult environment for
these companies, the challenging comparables ultimately proved
overwhelming. This was particularly the case for our consumer
related holdings, with our worst contributors being Thule Group,
which develops products for active lifestyles and MIPS, the helmet
technology business, which fell 14.8% and 21.8% respectively.
Trading has been disappointing because of high inventories at
cycling retailers, the main route to market for both companies.
Encouragingly, the first quarter of 2023 reports for both companies
pointed towards an improving situation in this regard and sales
should therefore recover over time. Fluidra, the swimming pool
equipment company, faced a similar problem. A booming pool market
in recent years, coupled with global supply chain problems, saw both
retailers and pool constructors over-order equipment. We are starting
to see a stabilisation in the end market and would therefore expect
to see better profit momentum from here.
One of our larger positions, Karnov Group, the legal information
provider also had a difficult year. While operational performance
was reasonable, share price weakness can be explained by the
market’s concern over the company’s relatively high financial
leverage, given higher interest rates. Other poor performers of note
were in industrials. Norma Group, the German auto parts supplier,
underperformed after another disappointment on profit margins.
We no longer believe that they will return to the previous profit
levels, so have sold our position. Sdiptech, the Swedish industrial
consolidator, also had a challenging time falling 31.8% in the year.
Operational performance was slightly weaker than expected with
one of their recently acquired companies, Rolec, an EV charging
business, undershooting expectations.
While, in aggregate, our technology and healthcare holdings
performed well, we also had some isolated disappointments. Of note
was STRATEC, the diagnostics equipment supplier, which released
very poor results demonstrating a lack of ability to pass on higher
Strategic Report
Theme parks around the world use accesso Technology Group's virtual queuing
technology, enhancing customer experience and driving increased spend.
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