Principal and emerging risks
Investing, by its nature, carries
inherent risk. The Board, with the assistance of the investment
manager, carries out a robust assessment of the principal and
emerging risks and uncertainties facing the Company which could
threaten the business model and future performance, solvency and
liquidity of the portfolio. A matrix of these risks, along with the
steps taken to mitigate them, is maintained and is kept under
regular review. The mitigating measures include a schedule of
investment limits and restrictions within which the Fund Manager
must operate.
The principal risks which have been
identified and the steps we have taken to mitigate these are set
out below. We do not consider these risks to
have changed during the period.
Investment strategy and objective
The investment objective or policy
is not appropriate in the prevailing market or sought by investors,
leading to a wide discount and hostile shareholders.
Investment mandate limits
established by the Board are inappropriate leading to out-of-scope
investments which may negatively impact shareholder
value.
Poor investment performance over an
extended period leading to shareholders voting to wind up the
Company. This may be the result of:
· External factors such as geopolitical instability, including
financial shock, pandemic, climate change, changes in the
regulatory environment, etc.
· internal factors such as poor stock selection, poor management
of gearing, loss of key members of the fund management team,
etc.
Mitigating
measures: The investment manager
periodically reviews the investment objective and policy in line
with best practice and taking account of investor appetites. The
Board receives regular updates on professional and retail investor
activity from the investment manager, and reports from the
corporate broker, both of whom remain in contact with professional
investors throughout the year, to inform themselves of investor
sentiment and how the Company is perceived in the market. From time
to time, research may be undertaken by a third-party consultant to
specifically ascertain the views of retail investors. The level of
discount and share register are are reviewed by the Board at each
meeting.
The Board reviews compliance with
the investment limits at each meeting.
The Fund Manager maintains a diverse
portfolio (sector, country, business life cycle) with buy/sell
disciplines and employs suitable quantitative and qualitative
metrics, which incorporates environmental, social and governance
('ESG') considerations, for assessing stocks for inclusion or held
within the portfolio. The Board reviews the Key Performance
Indicators ('KPI's), portfolio composition and levels of gearing at
each meeting. The Board furthermore maintains an understanding
of the fund management team's investment process and considers the
potential for climate change to impact the value of the portfolio,
alongside other factors which may have the same effect.
Operational
Failure of, disruption to or
inadequate service levels provided by principal third-party
service providers leading to a loss of shareholder value or
reputational damage. This includes cyber security risks which may
compromise the integrity of data and the effective operation of
third-party service providers.
Mitigating
measures: The Board engages
reputable third-party service providers and formally evaluates
their performance, and terms of engagement, at least
annually.
The Audit Committee assesses the
effectiveness of internal controls in place at the Company's key
third-party service providers through review of their ISAE 3402
reports, quarterly internal control reports from the investment
manager and monthly reporting on compliance with the investment
limits established by the Board.
Legal and regulatory
Loss of investment trust status,
breach of the Companies Act 2006, Listing Rules, Prospectus and/or
Disclosure Guidance and Transparency Rules or the Alternative
Fund Managers Directive and/or legal action brought against the
Company and/or directors and/or the investment manager leading to a
decrease in shareholder value and reputational
damage.
Mitigating
measures: The Board engages
reputable third-party service providers and formally evaluates
their performance, and terms of appointment, at least
annually.
The Audit Committee assesses the
effectiveness of internal controls in place at the Company's key
third-party service providers through review of their ISAE 3402
reports and, in respect of the investment manager's investment
trust operations, reporting from the investment manager's internal
audit function. The investment manager's Compliance function has
reporting obligations under AIFMD, with any non-compliance being
captured in the investment manager's quarterly internal control
reporting to the Board.
Financial
Market, liquidity and/or credit
risk, inappropriate valuation of assets or poor capital
management leading to a loss of shareholder value.
Mitigating
measures: The Board determines the
investment limits and monitors compliance with these at each
meeting. The directors review the portfolio liquidity at each
meeting and periodically consider the appropriateness of hedging
the portfolio against currency risk.
The Board reviews the portfolio
valuation at each meeting and considers the effectiveness of
controls in place at its principal third-party service providers,
including the fund accountants, at least annually.
Investment transactions are carried
out by a large number of approved brokers whose credit standard is
periodically reviewed and limits are set on the amount that may be
due from any one broker, cash is only held with the
custodian/depositary or reputable banks.
The Board monitors the broad
structure of the Company's capital including the need to buy back
or allot ordinary shares and the extent to which revenue in excess
of that which is required to be distributed, should be
retained.
Going concern and viability
In keeping with provisions of the
Code of Corporate Governance issued by the Association of
Investment Companies (the 'AIC Code'), the Board has assessed the
prospects of the Company for a period of at
least twelve months from the date of this report, being 9 October
2025 period (our assessment of going
concern) and also over the longer period of three years (our
assessment of viability).
We consider the Company's viability
over a three-year period as we believe this is a reasonable
timeframe reflecting the longer term investment horizon for the
portfolio, but acknowledges the inherent shorter term uncertainties
in equity markets.
As part of the assessment, we have
considered the Company's financial position, as well as its ability
to liquidate the portfolio and meet expenses as they fall due. The
following aspects formed part of our assessment:
· the
closed-end nature of the Company which does not need to account for
redemptions;
· an
assessment of the principal and emerging risks, as well as the
uncertainties facing the Company, including the potential impact of
climate change on the value of investee companies;
· the
diverse nature of the portfolio and its anticipated liquidity in
normal and stressed market conditions;
· the
level of the Company's revenue reserves and the size of the bank
overdraft facility; and
· the
expenses incurred by the Company, which are predictable and modest
in comparison with the assets and the fact that there are no
capital commitments currently foreseen which would alter that
position.
Also of relevance in contemplating
the duration of the Company, is the three-year cycle for its
continuation vote. Shareholders were last asked at the annual
general meeting in 2022 if they wished the Company to continue in
operation. The resolution was passed with the overwhelming
support of 84.4% shareholders who voted. The next
continuation vote will be put to shareholders at the annual general
meeting in 2025. Based on the voting record since 2000 for
such resolutions, the Board is confident that shareholders will
continue to support the Company. In the event this is not the
case, the Company will be wound up in keeping with the provisions
of the articles.
As well as considering the principal
risks and financial position of the Company, along with the
continuation vote, the Board has made the following
assumptions:
· investors will continue to wish to have exposure to investing
in European small cap companies;
· investors will continue to invest in closed-end
funds;
· the
Company's performance will continue to be satisfactory;
and
· the
Company will continue to have access to adequate capital when
required.
Based on the results of the
assessment, we have concluded that:
· the
Company has adequate resources to meet its liabilities
for a period of at least twelve months from the
date of this report, being 9 October 2025, meaning it is therefore appropriate to prepare these financial
statements on a going concern basis; and
· we
have a reasonable expectation that the Company will be able to
continue operations over the coming three-year period, as well as
meeting its expenses and liabilities for that period.
Related party transactions
The Company's transactions with
related parties in the year were with the directors and the
investment manager.
There have been no material
transactions between the Company and its directors during the year.
The only amounts paid to them were in respect of remuneration and
expenses for which there were no outstanding amounts payable at the
year-end.
In relation to the provision of
services by the investment manager, other than fees payable by the
Company in the ordinary course of business and the provision of
marketing activities, there have been no material transactions
affecting the financial position of the Company during the year
under review.
Directors' responsibility statements
Each of the directors in office at
the date of this report confirm that, to the best of their
knowledge:
· the
financial statements prepared in accordance with UK Adopted
International Accounting Standards give a true and fair view of the
assets, liabilities, financial position and profit and loss of the
issuer and the undertakings included in the financial statements as
a whole; and
· the
Strategic Report includes a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
For and on behalf of the
Board
Daniel Burgess
Chairman of the Audit
Committee
9 October 2024
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