North Atlantic Smaller Companies Investment Trust plc

Half-Yearly Report for the six months ended 31 July 2022

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.

* 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 month period under review, the net asset value of the Company fell 12.7% (with Oryx under the equity method of accounting). This compares favourably with the fall in the UK small cap indices although worse than the Sterling adjusted Standard and Poor composite index (increase of 1.0%).

The Company incurred a reduced revenue loss for the period of £462,000 (31 July 2021 (loss of £847,000)). I am hopeful that results for the year, as a whole, will show a modest profit.

quoted portfolio

Healthcare stocks were very hard hit on both sides of the Atlantic so that the value of our healthcare investments fell by circa 40% which reduced the NAV by approximately £4.40 per share. Not surprisingly fund managers were also hard hit as markets tumbled and this had the impact of reducing the net asset value by a further £1.60 per share.

Finally, the share price of Gleeson fell following the imposition of taxes and fines to resolve the cladding crisis and cost the Company a further £0.65 per share.

Oryx and particularly Odyssean both outperformed their benchmarks falling by 11% on average which reduced the NAV by a £1.20 per share. The balance of the portfolio rose modestly in value assisted by the strength of the United States dollar which benefitted our large holdings in US Treasury Bills.

Over the course of calendar year 2022 the Company has invested approximately £40 million into new equity positions with large new holdings being R&Q Insurance (£9.9 million), TP ICAP (£9.0 million), Palace Capital (£7.2 million), Tate & Lyle (£6.3 million), Circle properties (£4.0 million) and Conduit Holdings (£3.5 million). Taken as a whole these investments have made a modest profit since purchase. A position in Clinigen was also bought and sold during the period, realising a profit of approximately £1.0 million.

US portfolio

The relatively small US portfolio outperformed the market with Mountain Commerce continuing to announce record earnings and increased its dividend twice during the period.

unquoted portfolio

Trident Private Equity 3 has agreed the sale of its last investment (Utitec) at an uplift to the July valuation with the proceeds expected to be received mid October. It is also pleasing to see good progress in the investments held in Harwood Private Equity IV and even better performance in Harwood Private Equity V, where one investment has been sold at nearly three times cost in less than a year and another is currently under offer at over three times cost in less than two years. Most investments are either in line with or ahead of budget with further sales expected over the next
12 months at good premiums to current valuations.

outlook

As at 31 July 2022, the Company had cash of £35 million (although this has been reduced by £8.0 million following a recent cash call from Harwood Private Equity V) and a further £102 million invested in short dated US Treasury bills.

Assuming Utitec is sold by the end of October 2022, in line with expectations, it is probable that the Company will restart its share buyback programme.

There is no question that the value is, once again, opening up in equity markets and it is therefore expected that further new investments will be made over the coming months. It will be important to emphasise industries which will be unaffected by rising interest and inflation rates. We do expect the market, as a whole, to weaken further but we would hope to outperform this trend given our conservative balance sheet and the likelihood of further uplifts from our private equity portfolio.

C H B Mills

Chief Executive

16 September 2022

top ten investments as at 31 July 2022

* 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.

By Order of the Board

Sir Charles Wake
Chairman

16 September 2022

responsibility statement

The Directors confirm to the best of their knowledge that:

·      The condensed set of financial statements contained within this half yearly financial report have been prepared in accordance with International Accounting Standard ("IAS") 34 'Interim Financial Reporting' in conformity with the requirement of the Companies Act 2006 and gives a true and fair view of the assets, liabilities, financial position and profit of the Company; and

·      The half yearly financial report includes a fair review of the information required by the FCA's Dis-closure and Transparency Rule 4.2.7R being disclosure of important events that have occurred during the first six months of the financial year, their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

·      The half yearly financial report includes a fair review of the information required by the Disclosure and Transparency Rule 4.2.8R being disclosure of related party transactions during the first six months of the financial year, how they have materially affected the financial position of the Company during the period and any changes therein.

The half yearly financial report was approved by the Board on 16 September 2022 and the above responsibility statement was signed on its behalf by:

Sir Charles Wake

Chairman

16 September 2022

condensed statement of comprehensive income (unaudited)

The total column of the statement is the Statement of Comprehensive Income of the Company prepared in accordance with International Financial Reporting Standards ("IFRS") in conformity with the requirement of the Companies Act 2006.

The supplementary revenue and capital columns are presented for information purposes as recommended by the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC").

All items in the above Statement derive from continuing operations. No operations were acquired or discontinued in the period.

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

condensed statement of changes in equity (unaudited)

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

condensed balance sheet (unaudited)

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

condensed cash flow statement (unaudited)

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

notes to the financial statements (unaudited)

1. a) basis of accounting

North Atlantic Smaller Companies Investment Trust plc is a company incorporated and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010.

The condensed financial statements of the Company have been prepared in accordance with International Accounting Standard ("IAS") 34 - "Interim Financial Reporting" in conformity with the requirement of the Companies Act 2006. The accounting policies and methods of computation followed in these half-yearly condensed financial statements are consistent with the most recent annual financial statements for the year ended 31 January 2022 included in the Annual Report.

The financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS.

The financial information contained in this Half-Yearly Report does not constitute statutory accounts as defined in the Companies Act 2006. The financial information for the periods ended 31 July 2022 and 31 July 2021 have not been audited or reviewed by the Company's Auditor. The figure and financial information for the year ended 31 January 2022 are an extract from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the Auditor on those financial statements was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

b) functional currency

The functional currency of the Company is Pounds Sterling because this is the primary economic currency in which the Company operates. The financial statements are presented in Pounds Sterling rounded to the nearest thousand, except where otherwise indicated.

c) significant accounting policies

The accounting policies applied are consistent with those of the Annual Financial Report for the year ended 31 January 2022. Since the year end no new standards have been adopted.

d) accounting developments

In the current period, the Company has applied a number of amendments to IFRS, issued by the IASB mandatorily effective for an accounting period that begins on or after 1 January 2022. These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. The adoption of these has not had any material impact on these condensed financial statements.

e) segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The Company invests in smaller companies principally based in countries bordering the North Atlantic Ocean.

f) going concern

The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met. The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, being a period of 12 months from the date when these financial statements were approved. The longer-term economic effects of the pandemic are very difficult to predict but in considering preparing the accounts on a going concern basis the Directors noted the Company holds a portfolio of liquid investments whose value is a multiple of liabilities. The Directors are of the view that the Company can meet its obligations as and when they fall due. The cash and US treasury bills available enables the Company to meet any funding requirements and finance future additional investments. The Company is a closed-end fund, where assets are not required to be liquidated to meet day-to-day redemptions.

2. investment management and performance fees

A Performance Fee is only payable if the investment portfolio, including Oryx at the adjusted price, outperforms the Sterling adjusted Standard & Poor's 500 Composite Index at the end of each financial year and is limited to a maximum payment of 0.5% of Shareholders' Funds, and is allocated 100% to capital.

An amount would be included in these financial statements for the Performance Fee that could be payable based on investment performance to 31 July 2022. At that date, no Performance Fee, inclusive of VAT, has been accrued for in the accounts (31 July 2021: £nil; 31 January 2022: £nil).

Further details of fees paid to the investment manager can be found in Note 9, Related Party transactions.

3. taxation

The Company has an effective tax rate of 0%. The estimated effective tax rate is 0% as investment gains are exempt from tax owing to the Company's status as an Investment Trust and there is expected to be an excess of management expenses over taxable income and thus there is no charge for corporation tax.

During the half year to 31 July 2022, the Company recognised a total charge of £17,000 (half year to 31 July 2021: £12,000, year ended 31 January 2022: £28,000), representing irrecoverable withholding tax paid on overseas investment income.

4. dividends

For the year ended 31 January 2022, there was no final dividend proposed by the Board (31 January 2021; nil).

5. earnings per ordinary share

Basic return per Ordinary Share has been calculated using the weighted average number of Ordinary Shares in issue during the period.

6. net asset value per ordinary share

The basic net asset value per Ordinary Share is based on net assets of £680,254,000 (31 July 2021: £879,203,000; 31 January 2022: £789,466,000) and on 13,661,000 Ordinary Shares (31 July 2021: 14,000,000; 31 January 2022: 13,661,000) being the number of Ordinary Shares in issue at the period end.

During the period to 31 July 2022, no shares were bought back for cancellation.

adjustment for Oryx

The Company has also reported an adjusted net asset value per share using equity accounting, in accordance with its previous method of valuing its investment in Oryx. The Company has chosen to report this net asset value per share to show the difference derived if equity accounting were to be used. Equity accounting permits the use of net asset value pricing for listed assets which in the case of Oryx is higher than its fair value.

The values of Oryx, as at each period end, are as follows:

7. reconciliation of total return before taxation to cash expended from operations

8. investments

financial assets at fair value through profit or loss

This requires the Company 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 consists of the following three 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 asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

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

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data from investments actively traded in organised financial markets; fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset.

The table below sets out fair value measurements as at the period end, by the level in the fair value hierarchy into which the fair value measurement is categorised.

reconciliation of level 3 movement - financial assets at 31 July 2022

unquoted at directors' estimate of fair value

Unquoted investments are valued in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") Guidelines. Their valuation incorporates all factors that market participants would consider in setting a price. The primary valuation techniques employed to value the unquoted investments are earnings multiples, recent transactions and net assets. Valuations in local currency are translated into Sterling at the exchange rate ruling on the Balance Sheet date.

Included within the Statement of Comprehensive Income as at 31 July 2022, is a gain of £9,523,000 relative to the movement in the fair value of the unquoted investments valued using IPEV valuation techniques.

the valuation techniques applied are based on the following assumptions:

Unquoted investments are usually valued by reference to the valuation multiples of similar listed companies or from transactions of similar businesses. Where appropriate discounts are then applied to those comparable multiples to reflect differences in size and liquidity. These enterprise values are then adjusted for net debt to arrive at an equity valuation. Where companies are in compliance with their loan note terms these loans are generally held at par plus accrued interest (where applicable) unless the enterprise value suggests that the debt cannot be recovered.

9. related party transactions

There have been no changes to the related party arrangements or transactions as reported in the Statutory Annual Financial Report for the year ended 31 January 2022.

The Administrator, Harwood Capital LLP, is regarded as a related party of the Company. The amounts due to Harwood Capital LLP and Growth Financial Services Limited in respect of investment management for the period were as follows:

At 31 July 2022, £376,000 was payable to Harwood Capital in respect of outstanding management fees (31 July 2021: £376,000, 31 January 2022: £376,000). At 31 July 2022, there was no fee payable to GFS in respect of outstanding performance fees (31 July 2021: £nil, 31 January 2022: £nil) net of VAT.

Fees paid to Directors, for the six months ended 31 July 2022 amounted to £79,000 (six months ended 31 July 2021: £65,000; year ended 31 January 2022: £144,000).

At 31 July 2022, £13,000 was payable to Directors in respect of outstanding fees (31 July 2021: £11,000, 31 January 2022 £13,000).

shareholder information

financial calendar

share price      

The Company's mid-market share price is quoted daily in the Financial Times appearing under "Investment Companies".

It also appears on:

SEAQ Ordinary Shares: NAS
Trustnet: www.trustnet.com

net asset value

The latest net asset value of the Company can be found on the Company's website: www.nascit.co.uk

share dealing

Investors wishing to purchase more Ordinary Shares or dispose of all or part of their holding may do so through a stockbroker. Many banks also offer this service.

The Company's registrars are Link Group. In the event of any queries regarding your holding of shares, please contact the registrars on: 0871 664 0300, or by email on enquiries@linkgroup.co.uk

Changes of name or address must be notified to the registrars in writing at:

Link Group

10^th Floor

Central Square

29 Wellington Street

Leeds LS1 4DL

Directors

Sir Charles Wake (Chairman)

Christopher Mills (Chief Executive)

Lord Howard of Rising

G Walter Loewenbaum

Peregrine Moncreiffe

Administrator

Harwood Capital LLP

(Authorised and regulated by the Financial Conduct Authority)

6 Stratton Street

Mayfair

London W1J 8LD

Telephone: 020 7640 3200

Financial Adviser and Stockbroker

Winterflood Investment Trusts

The Atrium Building

Cannon Bridge

25 Dowgate Hill

London EC4R 2GA 

Registered Office

6 Stratton Street

Mayfair

London W1J 8LD

Telephone: 020 7640 3200

Registrars

Link Group

10^th Floor

Central Square

29 Wellington Street

Leeds LS1 4DL

Auditors

RSM UK Audit LLP

25 Farringdon Street

London EC4A 4AB

Company Secretary

Kin Company Secretarial Limited

Hyde Park House

5 Manfred Road

London SW15 2RS