Half-Yearly Report for the six months ended 31 July 2023
Registered in England and Wales number 1091347
objective of the company and financial highlights
North Atlantic Smaller Companies Investment Trust plc is a company incorporated and registered in England and Wales.
The objective of the Company is to provide capital appreciation through investment in a portfolio of smaller companies principally based in countries bordering the North Atlantic Ocean.
| 31 July2023(unaudited) | 31 January2023(audited) | %Change | |
| Net asset value (“NAV”) per 5p Ordinary Share*: | |||
| Basic and diluted | 4,929p | 5,097p | (3.3) |
| Basic and diluted adjusted# | 5,174p | 5,236p | (1.2) |
| Mid-market price of the 5p Ordinary Shares | 3,900p | 3,900p | – |
| Discount to net asset value | 20.9% | 23.5% | |
| Discount to adjusted net asset value | 24.6% | 25.5% | |
| Standard & Poor’s 500 Composite Index† | 3,569.00 | 3,307.30 | 7.9 |
| Russell 2000 Index† | 1,557.90 | 1,567.40 | (0.6) |
| Ongoing charges (annualised) | 1.2% | 1.4% |
* Includes current period.
# Adjusted to reflect Oryx International Growth Fund plc (“Oryx”) under the equity method of accounting, which is how the Company previously accounted for its share of Oryx, prior to the adoption of IFRS 10. This is useful to the shareholder as it shows the NAV based on valuing Oryx at NAV. See note 6.
† Sterling adjusted.
chief executive’s review
During the six months under review the net asset value fell by 1.2% due entirely to the fall in the dollar relative to sterling of 4.4%. The Standard & Poors Dollar Adjusted Index rose almost entirely due to seven large megacaps to which the portfolio had no exposure.
Performance compared against appropriate UK indices where the majority of the portfolio is invested remains favourable.
The Trust reported net income for the period of £4,615,000 (2022 £462,000 loss). Consistent with prior years, no dividend is being declared at this stage although the Board intends to declare an interim dividend in February when the results for the year become clearer. Based on current expectations, it is anticipated that dividends in respect of the financial year ending January 2024 will comfortably exceed that paid in respect of fiscal 2023.
During the six month period the Trust purchased approximately 95,000 shares for cancellation at a discount to NAV of approximately 25%. This policy which is ongoing increased the net asset value for all long term shareholders and helped to modestly reduce the discount compared to the end January 2023 net asset value at a time when many other trusts, particularly those with unquoted holdings, have seen a significant widening.
Quoted Portfolio
The market for quoted investments has been particularly tough over the past six months as evidenced by the weakness in the various small cap indices. The reasons for this are numerous but can be summed up as follows: weak economic growth, rising interest rates and very significant redemptions in small cap funds with negligible retail demand. It is therefore pleasing to note that the quoted portfolio significantly outperformed falling by about 3%.
Oryx and Odyssean taken together rose modestly, helped in particular by encouraging performance in Oryx. The Trust’s stand out success stories were NIOX which rose by 75% following multiple earnings upgrades and Sureserve rising over 40% following a successful takeover.
The principal disappointment was EKF which fell 30% as the business repositions itself post COVID. Fund management stocks were also disappointing with Assetco in particular notably weak. In the United States Mountain Commerce fell 35% following turmoil in the banking industry. Despite the fall the bank continues to perform well with negligible bad debt.
Unquoted Portfolio
Despite industry wide concerns relating to unquoted investments, the portfolio continued to perform well during the period mainly due to our zero exposure to technology stocks. Taken as a whole, the unquoted portfolio added approximately £7m to the value of the Fund with the standout performance coming from Spring (following outstandingly good results) +80% and Harwood Private Equity V +8%.
Taken as a whole, the private equity funds continue to perform well and should create further uplifts combined with significant cash inflow into the Trust during the balance of the year.
Conclusion
At the end of June 2023 the Trust had approximately £107m in cash broadly in line with the January 2023 position despite the weakness in the dollar. We continue to believe that there is significant value in our portfolio which should be well placed to weather the very difficult economic environment facing the UK.
A number of our unquoteds are in a sale process which should support increases in both net asset value per share and liquidity as the year progresses.
Finally, the Trust’s substantial cash reserves will enable it to benefit from a more benign investing environment in the future.
C H B Mills
Chief Executive
14 September 2023
top ten investments as at 31 July 2023
| Fairvalue£’000 | % ofnet assets | ||
| Oryx International Growth Fund Limited* | UK Listed | 81,494 | 12.2 |
| US Treasury Bills | US Treasury Stock | 80,612 | 12.1 |
| Harwood Private Equity Fund V LP | UK Unquoted | 49,015 | 7.4 |
| Polar Capital Holdings plc | UK Quoted on AIM | 33,950 | 5.1 |
| Hargreaves Services Plc | UK Quoted on AIM | 29,903 | 4.5 |
| Ten Entertainment Group plc | UK Listed | 29,500 | 4.4 |
| EKF Diagnostics Holdings plc | UK Quoted on AIM | 25,680 | 3.9 |
| Odyssean Investment Trust Plc | UK Listed | 25,440 | 3.8 |
| Niox Group | UK Listed | 25,350 | 3.8 |
| MJ Gleeson Group plc | UK Listed | 23,045 | 3.5 |
| 403,989 | 60.7 |
* Traded price under IFRS 10, incorporated in Guernsey.
All investments are valued at fair value.
interim management report
Investment Objective
The objective of North Atlantic Smaller Companies Investment Trust PLC is to provide capital appreciation to its shareholders through investing in a portfolio of smaller companies which are principally based in countries bordering the North Atlantic Ocean.
Material Events
The decline in COVID testing has had a material impact on some of the Company’s investments, and the war in Russia has created inflation which has impacted markets in the UK and elsewhere.
Material Transactions
There were no material transactions during the period.
Risk Profile
The principal risks and uncertainties for the remaining six months of the year continue to be as described in the Annual Report for the year ended 31 January 2022. The principal risks arising from the Company’s financial instruments are market price risk, including currency risk, interest rate risk and other price risk, liquidity risk and credit risk. The Directors review and agree policies with the Manager, Harwood Capital LLP, for managing these risks. The policies have remained substantially unchanged in the six months since the year end.
The Company does not have any significant exposure to credit risk arising from any one individual party. Credit risk is spread across a number of counterparties, each having an immaterial effect on the Company’s cash flows, should a default happen. The Company assesses the credit worthiness of its debtors from time to time to ensure that they are neither past due or impaired.
To support its investment in unquoted companies, the Company may periodically agree to guarantee all or part of the borrowings of investee companies. Provision is made for any costs that may be incurred when the Directors consider it likely that the guarantee will crystallise.
The Company’s exposure to market price risk comprises mainly movements in the value of the Company’s investments. It should be noted that the prices of options tend to be more volatile than the prices of the underlying securities. The Manager assesses the exposure to market risk when making each investment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.
The functional and presentational currency of the Company is Sterling, and therefore, the Company’s principal exposure to foreign currency risk comprises investments priced in other currencies, principally US Dollars.
The Company invests in equities and other investments that are realisable.
Related Party Transactions
These are listed in note 9 to the half yearly condensed financial statements on page •.
By Order of the Board
Sir Charles Wake
Chairman