Annual Report • Dec 8, 2022
Annual Report
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Contents Financial summary example A specialist alternative equity Trust with a concentrated smaller companies portfolio Strategic Equity Capital plc Report & Financial Statements for the year ended 30 June 2022 Investment Objective The investment objective of Strategic Equity Capital plc (“the Company”) is to achieve absolute returns (i.e. growth in the value of investments) rather than relative returns (i.e. attempting to outperform selected indices) over a medium-term period, principally through capital growth. The Company’s investment policy can be found on page 16. Investment Manager Gresham House is a specialist alternative asset management group, dedicated to sustainable investments across a range of strategies, with expertise across forestry, housing, infrastructure, renewable energy and battery storage, public and private equity. Its origins stretch back to 1857, while its focus is on the future and the long term. Quoted on the London Stock Exchange (GHE:LN) Gresham House actively manage c.£7.3bn of assets on behalf of institutions, family oces, charities and endowments, private individuals and their advisers. It acts responsibly within a culture of empowerment that encourages individual air and entrepreneurial thinking. As a signatory to the UN-supported Principles for Responsible Investment (PRI), its vision is to always make a positive social or environmental impact, while delivering on its commitments to shareholders, employees and investors. It is a member of UK Sustainable Investment and Finance Association (UKSIF), a signatory to the UK Stewardship Code, and have also been awarded the LSE Green Economy Mark. Gresham House is an active investor and acts as a long- term steward of the assets across their portfolio. It believes that active ownership, including engagement and voting, are effective mechanisms designed to minimise risk and maximise returns. Across all their asset classes, it believes that understanding and, wherever possible, improving on environmental, social, economic and governance (ESG) performance drives long-term value, and aim to work proactively with management teams and key stakeholders to make a positive change over time. Within their Strategic Equity division its investment philosophy applies a private equity approach to investing in both public and private companies. Through rigorous due diligence, its team aims to achieve superior returns for long-term investors, and it shares a fundamentals- based, high-conviction approach to nding and investing in opportunities in both public and private equity markets. The investment team is highly experienced in this strategy with a track record stretching back over 20 years. A more detailed explanation of the Investment Strategy can be found in the Investment Manager’s Report on page 7. Contents Financial Summary 2 01 Strategic Report Chairman’s Statement 4 Investment Manager’s Report 7 Top 10 Investee Company Review 12 Other Information 16 02 Governance Reports Directors 27 Report of the Directors 28 Statement on Corporate Governance 32 Audit Committee Report 38 Directors’ Remuneration Report 40 Statement of Directors’ Responsibilities 43 Independent Auditor’s Report 44 03 Financial Statements Statement of Comprehensive Income 50 Statement of Changes in Equity 51 Balance Sheet 52 Statement of Cash Flows 53 Notes to the Financial Statements 54 04 Other Information Shareholder Information 69 Alternative Performance Measures 71 Corporate Information 73 Notice of Annual General Meeting 74 Form of Proxy Loose leaf 1SEC plc - Report and Financial Statements Financial Summary 316.21 pence -9.7% -9.2% 280.00 pence -10.0% -9.5% Net Asset Value (“NAV”) per ordinary Share NAV Total Return Ordinary Share Price Share Price Total Return June 2021 350.05 pence June 2021 +46.8% June 2021 311.00 pence June 2021 +59.9% Information disclaimer This report is produced for members of the Company with the purpose of providing them with information relating to the Company and its nancial results for the period under review. If you are in any doubt as to the action you may need to take, please seek advice from your stockbroker, solicitor, accountant or other nancial advisor authorised under the Financial Services and Markets Act 2020. This report contains subjective opinion, analysis and forward looking statements which, by their very nature involve uncertainty. Past performance is no guarantee of future performance. Investments are not guaranteed and you may not get back the amount you originally invested. Neither the Directors nor the Company take responsibility for matters outside of their control. The Board and its advisers have endeavoured to produce these audited accounts in good faith and in accordance with legislation, regulations, reporting standards and to be useful to stakeholders in the Company, including its shareholders. -11.5% 2.00 pence +25.0% Discount of Ordinary Share Price to NAV Proposed Final Dividend for the year June 2021 -11.2% June 2021 1.60 pence SEC plc - Report and Financial Statements2 SEC plc - Report and Financial Statements 3 Financial Summary At 30 June 2022 At 30 June 2021 % change Capital return Net asset value (“NAV”) per Ordinary share † 316.21p 350.05p (9.7)% Ordinary share price 280.00p 311.00p (10.0)% Comparative index ‡ 5,164.05 6,213.89 (16.9)% Discount 1 of Ordinary share price to NAV (11.5)% (11.2)% Average discount of Ordinary share price to NAV for the year 1 (12.6)% (17.7)% Total assets (£’000) 17 7,198 223,759 (20.8)% Equity shareholders’ funds (£’000) 175,030 221,569 (21.0)% Ordinary shares in issue with voting rights 55,352,088 63,296,844 – Year ended 30 June 2022 Year ended 30 June 2021 Performance NAV total return for the year 1 (9.2)% 46.8% Share price total return for the year 1 (9.5)% 59.9% Comparative index ‡ total return for the year 1 (14.6)% 65.2% Ongoing charges 1 1.08% 1.07% Ongoing charges (including performance fee) 1 1.08% 1.07% Revenue return per Ordinary share 2.43p 1.34p Dividend yield 1 0.7% 0.5% Proposed nal dividend for the year 2.00p 1.60p Year’s Highs/Lows High Low NAV per Ordinary share 362.5p 312.3p Ordinary share price 322.0p 267.0p † Net asset value or NAV, the value of total assets less current liabilities. The net asset value divided by the number of shares in issue produces the net asset value per share. ‡ FTSE Small Cap (ex Investment Trusts) Index. Alternative Performance Measures 1. Please refer to pages 71 and 72 for denitions and a reconciliation of the Alternative Performance Measures to the year-end results. Chairman’s Statement Introduction Over the course of the Company’s nancial year the broad economic recovery from the Covid-19 pandemic, which had driven strong equity market performance during 2021, gave way to aftershocks from the unwinding of government stimulus and support measures, uncovering damage to the real economy and driving increasing macroeconomic and geopolitical uncertainty. The spectre of sustained high ination at levels not experienced in developed economies for many decades has in turn led to a dramatic shift in the outlook for interest rates which have rapidly increased to levels not seen since before the Global Financial Crisis of 2008. The shocking reality of war in Europe following Russia’s invasion of Ukraine has heightened uncertainty, destabilised commodity markets and led to unprecedented increases in energy prices which have added further fuel to ination. This challenging backdrop has inevitably negatively impacted market sentiment and led to a sharp sell-off in most mainstream asset classes including global equities. The effect has been particularly acute within the area of UK Smaller Companies, where your Company focuses, driving signicant volatility. This volatile market environment can be a double edged sword for the Company. On the one hand our portfolio companies face economic headwinds and a more uncertain outlook. On the other hand weaker share prices and the market’s tendency to over-discount shorter term issues and under appreciate the longer term prospects of fundamentally sound businesses can be a fertile hunting ground and plays to the strengths of the Manager’s established and proven investment process. Weaker equity markets, particularly in the area of UK Smaller Companies, has increasingly been attracting the attention of well funded private equity funds seeking to take advantage of the relative valuation discount being applied to publicly listed companies compared to prevailing private market transaction valuation multiples. The Company’s portfolio has been a beneciary of this phenomenon with takeover approaches for a number of companies over the past two years. During the period we made full realisations through takeover offers for Clinigen, Proactis and Equiniti all from private equity buyers. River & Mercantile was also fully exited post period end to a trade consolidator. The Company is positioned as a high conviction concentrated portfolio of high quality businesses that have the potential to be strategically valuable. As such it remains susceptible to further approaches while valuation multiples remain depressed. This, together with the underlying nancial health of the portfolio despite the weaker economic environment, provides the Board with condence that our investment management team will be able to generate good long term returns for shareholders in the Company. Performance During the twelve months to 30 June 2022, the Company’s share price decreased by 9.5% on a total return basis, while its NAV per share (on a total return basis) decreased by 9.2%. In contrast to the FTSE Small Cap (ex Investment Trusts) Total Return Index (“FTSE Small Cap Index”), which we use for comparison purposes only, fell by 14.6%. In the year to date up to 30September 2022 these latter gures are even more dramatic with the Company’s NAV decreasing by 17.6% while the FTSE Small Cap Index has fallen by a much larger amount of 26.6%. This is particularly encouraging as those sectors in which the Company does not invest such as Oil & Gas, Mining and Banks were those which performed best during the year. Returns, on both an absolute and relative basis, have been encouraging over the medium term which the Board considers to be a more meaningful measure of performance; over the ve years ending 30 June 2022, the NAV total return was 4.8% on an annualised basis, against the annualised comparator return of 3.7%. Over the ve years ending 30 June 2022, the share price total return was 5.2% on an annualised basis. Absolute NAV performance has inevitably been weaker during the year as a result of the broad market sell-off. However, the relatively defensive positioning of the portfolio, focused on higher quality companies exposed to areas of structural growth where they have a degree of pricing power and operate largely in businesses with resilient fundamentals and strong balance sheets has enabled the Company to outperform its comparator and many of its peers during the period. It should also be noted that the Company has a deliberate policy of not investing into the natural resources sector where earnings are more dependent on the price of commodities which are outside of managements’ direct control. During the Company’s year commodity prices have been generally strong leading to outperformance by natural resources stocks. This performance is discussed more fully in the Investment Manager’s Report on page 7. Development of the Company Ken Wotton (Managing Director, Public Equity at Gresham House) has been Lead Manager of the Company since September 2020. Since then Ken and his team have gradually repositioned the portfolio into a high conviction set of businesses, many of which the Company now holds strategic and inuential equity stakes in. These form the platform from which the Manager implements its highly differentiated and engaged Strategic Public Equity strategy (summarised in the Investment Manager’s Report on page 7). Gresham House plc, directly and indirectly through its in-house funds, has continued to purchase shares in the Company. SEC plc - Report and Financial Statements4 01 Strategic Report Just before Christmas, we received an unsolicited approach from the Board of Odyssean Investment Trust plc to merge your trust with theirs. After thorough consideration of the proposals with our advisers and detailed discussions with some of our largest shareholders, the Board decided to back a counter-proposal developed in conjunction with our current manager and to continue to support Ken Wotton our lead portfolio manager and the Gresham House Strategic Equity team. Discount and Discount Management The average discount to NAV of the Company’s shares during the period was 12.6%, compared to the equivalent 17.7% gure from the prior year. The discount range was 4.2% to 16.7%. The share price discount to NAV ended the period at 11.5%. At the date of this statement the discount was 8.3%. The Board has announced a series of proposals which it believes will address the persistent discount. These include: the implementation of a tender offer for up to 10 per cent. of the Company’s share capital. The tender offer was approved by shareholders on 23 March 2022 and a total of 6,329,685 shares were repurchased at a cost of 322 .8748 pence per share. following the completion of the initial tender offer, the implementation of a share buyback programme for up to an additional approximate 9 per cent. of NAV with shares repurchased during the 2022 calendar year at a discount to NAV of greater than 5 per cent; a new buyback policy to return 50 per cent. of proceeds from protable realisations, at greater than a 5 per cent. discount on an ongoing basis, in each nancial year, commencing in the nancial year ending 30 June 2023; a commitment by Gresham House plc to use £5 million of its cash resources to purchase shares by June 2023 at greater than a 5 per cent. discount; an ongoing commitment by Gresham House Asset Management to reinvest 50 per cent. of its management fee per quarter in shares if the Company’s shares trade at an average discount of greater than 5 per cent. for the quarter; and the deferral of the continuation resolutions that would otherwise be proposed at the Company’s Annual General Meetings in 2022, 2023 and 2024 in favour of the implementation of a 100 per cent. realisation opportunity for shareholders in 2025, the structure and timing of which will be communicated by the Board in due course. The Board I am delighted to welcome Annie Coleman to your board as a new non-executive director. Annie was appointed as a director on 14 February 2022 and brings a wealth of nancial services and strategic marketing experience at blue chip organisations including Goldman Sachs, UBS and Unicredit. She has already made a positive impact supporting the Company’s distribution and marketing strategy. As I have already announced I shall be retiring from the Board at the AGM in November 2022. The Board is undertaking a rigorous selection process for the new Chairman and expect to announce the appointment of my successor in the near future. I would like to thank my Board colleagues for their support throughout my period as Chairman. It has been a great pleasure working with such a dedicated, able and hard working team. SEC plc - Report and Financial Statements 5 01 Strategic Report - Chairman’s Statement Gearing and Cash Management The Company has maintained its policy of operating without a banking loan facility. This policy is reviewed annually by the Board in conjunction with the Investment Manager. The Board, together with the Investment Manager, has a conservative approach to gearing because of the concentrated nature of the portfolio. No gearing has been in place at any point during the period. Cash balances are generally maintained to take advantage of suitable investment opportunities as they arise. Dividend For the year ended 30 June 2022 the basic revenue return per share was 2.43p (2021: 1.34p; 2020: 0.38p). Although the Company is predominantly focused on delivering long term capital growth, due to the strongly cash generative nature of the majority of the portfolio companies and low capital intensity, many pay an attractive dividend. Accordingly, the Board is proposing a nal dividend of 2.00p per share for the year ending 30 June 2022 (2021: 1.60p per share; 2020: 1.25p per share; 2019: 1.5p per share), payable on 16 November 2022 to shareholders on the register as at 14 October 2022. Outlook With no sign of a de-escalation of the war in Ukraine and with central banks and policy makers scrambling to tackle soaring ination it is hard to be optimistic about the near term prospects for the UK or global economies. Inevitably this uncertain environment will lead to ongoing periods of market volatility over the coming year and potentially beyond. The relatively low valuation of the UK equity market compared to other international markets, particularly the USA, as well as the material discount being applied to UK Smaller Companies should provide some degree of downside protection. This, combined with a wealth of high quality UK listed companies with strong longer term prospects and the ongoing elevated level of takeover activity, all give some cause for optimism when it comes to the Company’s portfolio and the potential to deploy capital into attractive new opportunities. The resilient positioning of the Company’s portfolio should enable it to outperform in the current challenging environment and deliver attractive long-term capital growth when markets stabilise. Allied with the new and enhanced marketing programme, ongoing share buybacks and purchases by Gresham House we expect to see the discount narrow further over the coming year. I step down in the knowledge that the Company’s portfolio is managed by a highly talented and well led investment team complemented in all areas by rst class service providers. I wish them the best of good fortune in the years ahead. The Board, once again, thanks you for your continued support. Richard Hills Chairman 5 October 2022 SEC plc - Report and Financial Statements6 01 Strategic Report - Chairman’s Statement Investment Manager’s Report Investment Strategy In the following section, we remind shareholders of our strategy and investment process. Our Strategic Public Equity strategy The appointment of Gresham House as Manager in May 2020 and the subsequent appointment of Ken Wotton as Lead Fund Manager in September 2020 resulted in a refocus of the investment strategy ensuring that it is strictly applied and is able to effectively leverage the experienced resource of the Gresham House Strategic Equity team, the wider Group platform and its extensive network. We set out this strategy in detail in the Company’s 2021 Annual Report which we summarise again below. Investment focus Our investment focus is to invest into high quality, publicly quoted companies which we believe can materially increase their value over the medium to long term through strategic, operational or management change. To select suitable investments and to assist in this process we apply our prop rietary Strategic Public Equity (“SPE”) investment strategy. This includes a much higher level of engagement with management than most investment managers adopt and is closer in this respect to a private equity approach to investing in public companies. Our path to achieving this involves constructing a high conviction, concentrated portfolio; focusing on quality business fundamentals; undertaking deep due diligence including engaging our proprietary network of experts and assessing ESG risks and opportunities through the completion of the ESG decision tool; and maintaining active stewardship of our investments. Through constructive, active engagement with the management teams and boards of directors, we seek to ensure alignment with shareholder objectives and to provide support and access to other resource and expertise to augment a company’s value creation strategy. We are long-term investors and typically aim to hold companies for three to ve years to back a thesis that includes an entry and exit strategy and a clearly identied route to value creation. We have clear parameters for what we will invest in and areas which we will deliberately avoid. Smaller company focus We believe that UK Smaller Companies represent a structurally attractive part of the public markets. Academic research demonstrates that smaller companies in the UK have delivered substantial outperformance over the long term with the Numis Smaller Companies Index delivering a 3.1 percentage point compound premium return per annum since 1955 relative to the UK stock market as a whole. This is partially because there is a large number of under-researched and under-owned businesses that typically trade at a valuation discount to larger companies (see Figure 1 on page 8) and relative to their prospects. A highly selective investor with the resources and experience to navigate successfully this part of the market can nd exceptional long-term investmentopportunities. The key attractions of smaller companies are: Inecient markets – Smaller companies remain under- researched and below the radar for most investors thus creating an opportunity for those willing to devote time and resource to this area. A large universe – Most UK listed companies are in the smaller companies category and are listed on the main market or AIM. Two-thirds of UK listed companies have a market capitalisation below £500m, offering a large opportunity set for smaller company specialists. Valuation discounts – Such discounts, arising for whatever reason, present attractive entry points at which the intrinsic worth of a company’s long-term prospects are undervalued. M&A activity – Smaller companies often offer strategic opportunities within their niche markets and can become attractive, potential acquisition targets for both trade and private equity buyers. These buyers provide an additional source of liquidity and realisation of value for smaller company investors. SEC plc - Report and Financial Statements 7 01 Strategic Report Figure 1: ‘Small-cap discount’ Median SC P/E – FTSE -7x -6x -5x -4x -3x -2x -1x 0x 1x 2x Median PE-discount Small Cap vs. FTSE 250 median PE Average Small cap cheap Small cap expensive '96'97 '98'99 '00'01 '02'03 '04'05 '06'07 '09'10 '11'12 '13'14 '15'16 '17'18 '19'20 '21 '22 Source: Liberum, Datastream, 30 June 2022 Portfolio construction We will maintain a concentrated portfolio of 15-25 high conviction holdings with prospects for attractive absolute returns over our investment holding period. The majority of portfolio value is likely to be concentrated in the top 10-15 holdings with other positions representing potential “springboard” investments where we are still undertaking due diligence or awaiting a catalyst to increase our stake to an inuential, strategic level. Bottom-up stock picking determines SEC’s sector weightings which are not explicitly managed relative to a target comparator weighting. The absence of certain sectors such as Oil & Gas, Mining, and Banks, as well as limited exposure to overtly cyclical parts of the market, and the absence of early stage or pre-prot businesses typically result in a portfolio weighted towards, but not exclusively, protable cash generative service sector businesses particularly in technology, healthcare, business services, nancials and industrials. The underlying value drivers are typically company specic and exhibit limited correlation even within the same broad sectors. Figure 2 sets out the sector exposure of the Fund as at 30 June 2022. Our smaller company focus and specialist expertise leads us to prioritise companies with a market capitalisation between £100m and £300m at the point of investment. This focus, in combination with the size of the Trust and its concentrated portfolio approach, provides the potential to build a strategic and inuential stake in the highest conviction holdings. In turn this provides a platform to maximise the likelihood that our constructive active engagement approach will be effective and ultimately successfully contribute to shareholder value creation. Once purchased there is no upper limit restriction on the market capitalisation of an individual investment. We will run active positions regardless of market capitalisation provided they continue to deliver the expected contribution to overall portfolio returns and subject to exposure limits and portfolio construction considerations. Figure 2: Sector exposure by value Financial Services 25.2% Healthcare 16.2% Technology 12.2% Travel & Leisure 9.0% Net cash 8.6% Construction & Materials 8.4% Industrial Goods & Services 7.7% Media 6.8% Real Estate 5.9% Figure 3: Value by market cap band £300m – £500m 22.4% £100m – £300m 67.1% Less than £100m 1.9% Net cash 8.6% The average market capitalisation of portfolio holdings decreased to £231m as at 30 June 2022 compared to £367m as at 30 June 2021 reecting a combination of weaker share prices as equity markets sold off during 2022 and the Manager’s strategy of focusing on smaller market capitalisation companies where SEC has the potential to take a meaningful equity stake as a platform to effectively apply its active engagement strategy. We set out a description of the Top 10 holdings as at 30June 2022 in the Investment Manager’s Report on page12 together with a high level summary of the investment case and recent developments for each position. SEC plc - Report and Financial Statements8 01 Strategic Report - Investment Manager’s Report Constructive Active Engagement Approach As far as possible, SEC aims to build consensus with other stakeholders. We want to unlock value for shareholders, but also create stronger businesses over the long term. The objective is to develop a dialogue with management so that the GHAM team and its network are seen as trusted advisors. Operating with a highly-focused portfolio, SEC’s management team can build and maintain a deep understanding of its portfolio companies and their potential. The team engages with company management teams and boards in a number of areas including: Strategy – Working with boards to ensure business strategy and operations are effectively aligned with long term value creation and focused on building strategic value within a company’s market. Corporate activity – Support for acquisition and divestment activity through advice, network introductions and provision of cornerstone capital. Capital allocation – Seeking to work with boards to optimise capital allocation by prioritising the highest return and value added projects and areas of focus for investment of both capital and resource. Board composition – Ensuring that boards are appropriately balanced between executive and non- executive directors and contain the right balance of skills and experience; we actively use our talent network to introduce high quality candidates to enhance the quality of investee company boards as appropriate. Management incentivisation – Ensuring that key management are appropriately retained and incentivised to deliver long term shareholder value with schemes that t with GHAM’s principles and are well aligned to our objectives as shareholders. ESG – Leveraging the Gresham House sustainable investing framework and central resource to help to identify, understand and monitor key ESG risks and opportunities as well as seeking to drive enhancements to a company’s approach where there are critical material issues with a particular focus on corporate governance. Investor Relations – Helping management teams to hone their equity story, select appropriate advisors and target their investor relations activities in the most effective way to ensure that value creation activity is understood and reected by the market. Engagement is undertaken privately, as far as possible. The team will also work to leverage its extensive network to the benet of portfolio companies. We seek to make introductions to our network in as collaborative way as appropriate where we believe there is an opportunity to support initiatives to create shareholder value. In summary, we follow a practice of constructive corporate engagement and aim to work with management teams in order to support and enhance shareholder value creation. We attempt to build a consensus with other stakeholders and prefer to work collaboratively alongside like- minded co-investors. Portfolio review for the twelve months to 30June 2022 Over the course of the nancial year we have made good progress with the transition of the portfolio: purchasing ve new holdings which represented 8% of NAV at the end of the period, fully exiting six positions (including two post period end) which represented 23% of NAV at the start of the period, and adding to a number of core positions. At the end of the period the number of inuential equity stakes where GHAM funds, in aggregate, hold a 5% or more equity stake now stands at nine, and represented 62% of the portfolio by value at 30 June 2022. Market Background Over the twelve months to the end of June, the FTSE Smaller Companies (ex Investment Trusts) Index fell by 14.6% on a total return basis underperforming the FTSE All Share (+1.6%) but outperforming the FTSE AIM (29.8%). The market witnessed a substantial style shift from growth to value as expectations of increasing interest rates took hold. This led to certain more value orientated sectors outperforming such as Oil & Gas, Mining and Banks, all areas where the Fund does not invest. Signicant geopolitical and macroeconomic uncertainty dominated the market tone and resulted in overall weaker risk appetite, falling share prices particularly in smaller companies and heightened market volatility. This was exacerbated during the second half of the Trust’s nancial year after the Russian invasion of Ukraine increased geopolitical instability and disrupted commodity markets with global ramications. SEC plc - Report and Financial Statements 9 01 Strategic Report - Investment Manager’s Report Performance Review The net asset value (“NAV”) decreased 9.2%, on a total return basis, over the twelve months to the end of June, closing at 280p per share. This reduction in NAV reected the volatile equity market conditions over the period as sentiment deteriorated due to increasing concerns around persistently high ination, rising interest rates, supply chain disruption, and the ongoing aftereffects of the Covid-19 pandemic, heightened further by the Russia/ Ukraine conict during the second half of the nancial year. Although NAV per share fell on an absolute basis, the Fund outperformed the FTSE Smaller Companies (ex Investment Trusts) Index which fell by 14.6%. This reected the relatively defensive positioning of the portfolio compared to the wider market – focused on high quality businesses in less cyclical parts of the market and with resilient business models and robust balance sheets. This outperformance was achieved without exposure to sectors such as Oil & Gas, Mining or Banks which were strong relative performers during the year. Despite the market volatility experienced over the year, we remain condent about the resilient underlying fundamentals of the portfolio companies and their ability to withstand the macroeconomic headwinds that look set to persist through the current nancial year. Top Five Absolute Contributors to Performance Security Valuation 30 June 2022 £’000 Period Contribution to return (basis points) Clinigen – 450 Wilmington 11,807 66 River & Mercantile - 52 Iomart 4,736 22 Harworth – 14 * Fully realised during the period Clinigen, a specialist pharmaceutical services provider and the largest portfolio holding during the year, was the largest positive contributor during the period after receiving a takeover approach from European private equity rm Triton at a substantial premium to the undisturbed market price and delivering a full exit for the Fund. Wilmington, a professional media provider, delivered strong operational performance and upgraded nancial forecasts benetting from a substantial period of restructuring and a refocused strategy supported by the Gresham House team. River & Mercantile was also the recipient of a takeover approach from AssetCo, another listed asset management sector consolidator. It had previously sold its investment solutions and duciary management division to Schroders unlocking the value we believed was present in the sum of the constituent parts at the point of the Fund’s initial investment. Iomart, a datacentre and cloud services provider, is a recent smaller addition to the portfolio during the year and delivered results ahead of depressed market expectations following a protracted period of underperformance which drove a positive re-rating. Harworth, delivered results ahead of expectations and narrowed its valuation discount relative to the NAV of its asset portfolio after which we made a full exit from the position. Bottom Five Absolute Contributors to Performance Security Valuation 30 June 2022 £’000 Period Contribution to return (basis points) Tyman 7,348 (282) Hyve – (256) Inspired 13,480 (211) Medica 21,324 (133) LSL Property Services 10,343 (129) * Fully realised during the period In challenging equity market conditions a number of the portfolio holdings suffered from share price weakness during the period, reversing the very positive trend during the prior year. The largest detractors included Tyman, a global supplier of building hardware which was de-rated on concerns about supply chain disruption and inationary cost pressures despite delivering numbers in line with market expectations and demonstrating it has managed these issues effectively; Hyve, an events business was forced to exit its key Russian operations due to the Ukraine conict; Inspired, an energy consultancy, was de-rated on negative sentiment due to the disruption to the UK energy market; Medica, a provider of outsourced teleradiology services was de-rated on no specic news which we used as an opportunity to increase the Fund’s position; and LSL Property Services, which de-rated on a weaker outlook for the UK housing market despite strong progress against its strategy to reposition the group as a nancial services focussed business. SEC plc - Report and Financial Statements10 01 Strategic Report - Investment Manager’s Report Portfolio Review The portfolio remained highly focused with a total of 18 holdings. The top 10 accounted for 73% of the NAV at the end of the period, with 9% of the NAV held in cash at the period end. Over the period positions in Alliance Pharma (IRR of 32%); Clinigen (IRR of 19%); Equiniti (IRR of 8%); Harworth (IRR of 18%); Hyve (IRR of -26%); and Proactis (IRR of -20%) were fully exited, with River & Mercantile (IRR of 37%) also exited post period end. The elevated level of takeover activity in the UK equity market impacted the Fund during the year with Clinigen, Equiniti and Proactis receiving private equity approaches; River & Mercantile a trade approach; and Idox also receiving a potential offer from a trade buyer that was ultimately rejected. Given the current valuation discount being applied to UK smaller listed companies relative to their larger peers and overseas and private market comparables we expect takeover activity to remain buoyant. We believe the Fund currently has a number of key holdings which currently trade at material valuation discounts to comparable private market transaction values which provides a strong margin of safety on the long term upside potential of the portfolio. We also took some prots from Wilmington following a strong share price performance during the period, delivering an IRR of 3.5% on the tranche divested. New investments were initiated in Iomart, a datacentre and cloud services provider; Nexus Infrastructure, a specialist electrical engineering services provider; R&Q Investment Holdings, a specialist niche insurance services provider; Ricardo, a leading global environmental and automotive consultancy; and River & Mercantile, an independent fund manager and investment services rm (since exited). Changes in sector weightings have seen exposure to Healthcare decrease from 26.2% to 16.2%following the exit from Clinigen, whilst Financial Services has increased from 23.1% to 25.2% largely due to increases to the position in XPS. Real Estate has reduced to a 5.9% weighting following the exit from Harworth. Other sector weightings have changed less materially. SEC plc - Report and Financial Statements 11 01 Strategic Report - Investment Manager’s Report Top 10 Investee Company Review (as at 30 June 2022) Company Investment Thesis Developments during the year Medica 12.2% of NAV Healthcare A niche market leader in the UK teleradiology sector which is acyclical and is growing rapidly driven by increasing healthcare requirements and a structural shortage of radiologists Above market organic growth and underappreciated cash generation characteristics Discounted valuation relative to comparable private market transaction multiples Rad MD and Irish acquisitions performing strongly Covid recovery and backlog in routine procedures supporting core business demand Future Tech investment progressing well XPS 10.8% of NAV Financial Services Leading ‘challenger’ brand in the pensions administration and advice market with organic market share opportunity following industry consolidation Highly defensive – high degree of revenue visibility and largely non-discretionary, regulation driven client activity with ination protected contracts Below market rating despite favourable cash ow characteristics Ination protected contracts driving acceleration in revenue growth Strong visibility of regulatory changes driving sector demand Strong cash generation supporting growing dividend Tribal 8.2% of NAV Technology International provider of student administration software with market leading positions in the UK, Australia and NZ Strong defensive characteristics with high visibility of earnings Transition to cloud-based platform has potential to drive growth, margins and rating Low valuation relative to software sector averages and sector transaction multiples Tribal Edge contract wins accelerating transition to SaaS Bolt on acquisitions expanding product portfolio and cross selling opportunities into existing base Prospects for improving cash generation as development investment moderates Inspired Energy 7.7% of NAV Industrial Goods & Services UK B2B corporate energy services and procurement specialist with strong ESG credentials Leading player in a fragmented industry; signicant opportunity to gain market share through client wins, proposition extension and M&A Valued at a substantial discount to comparable private market transaction multiples UK energy market disruption has reduced short term revenue visibility in procurement High energy costs have driven accelerated growth in optimisation services ESG revenues accelerating from a low base Brooks Macdonald 6.8% of NAV Financial Services UK focused wealth management platform; structural growth given continuing transition to self-investment Opportunity to leverage operational investments to grow margin and continue strong cash ow generation A consolidating market; opportunity for Brooks as both consolidator and potential target with recent takeover interest for sector peers Return to organic net inows despite market weakness Strategic technology partnership with SS&C underpins future scalability Sector takeover activity for Charles Stanley and Brewin Dolphin highlights margin of safety on valuation SEC plc - Report and Financial Statements12 01 Strategic Report Company Investment Thesis Developments during the year Wilmington 6.8% of NAV Media International provider of B2B data and training in the compliance, insurance, nancial and healthcare sectors New top team have reshaped the strategy and portfolio of businesses Operational momentum driving revenue and margin growth with potential for a valuation re-rating Prot and cash generation ahead of expectations driving forecast upgrades Recovery in live events underpinning growth and margin recovery Sector consolidation underlines valuation opportunity LSL Property Services 5.9% of NAV Financial Services Leading provider of services to the UK residential property sector with activities spanning mortgage broking, surveying and real estate agencies Signicant opportunity to reallocate capital to the Financial Services division which is strategically valuable, high growth and underappreciated by the market Potential for a material re-rating as business mix shifts to higher quality less cyclical divisions Uncertain housing market driving volatility into Estate Agency division Strong progress in nancial services Improved proposition and growth opportunity in Surveying Fintel 5.3% of NAV Financial Services Leading UK provider of technology enabled regulatory solutions and services to IFAs, nancial institutions and other intermediaries Strategically valuable technology platform with opportunity to drive material growth in revenues and margins through supporting customers’ digitisation journeys Departure of non-executive Chairman has created founder succession uncertainty Digital transition progressing with non-core divestment activity Cash generation strong resulting in signicant balance sheet de-geaaring Hostelworld 4.8% of NAV Travel & Leisure Leading online travel agent serving the global niche segment of hostelling Business rationalised and optimised during Covid with enhanced customer value proposition Recovery from Covid market dynamics well advanced with strong margin recovery potential Revenues have recovered to pre-Covid levels with further volume recovery still to come Average order value and customer lifetime values improving Technology and app investment starting to deliver a positive impact Ten Entertainment 4.2% of NAV Travel & Leisure Leading UK operator of ten pin bowling centres High ROCE operating model with strong cash characteristics Improving competitive and property dynamics post Covid driving a long term growth opportunity Strong like-for-like trading performance relative to pre-Covid levels demonstrating demand resilience Accelerated site expansion ongoing Balance sheet de-gearing will support a return to dividends SEC plc - Report and Financial Statements 13 01 Strategic Report - Top 10 investee Company Review Outlook The Manager’s core planning assumption is that continued geopolitical and macroeconomic uncertainty will drive market volatility throughout the remainder of the calendar year and well into 2023. Markets have not had to deal with rising interest rates and elevated ination for a considerable period of time and the medium-to-long term ramications of this for share prices is highly uncertain. The Manager does not seek to make major macroeconomic predictions or to tilt portfolio construction materially in any direction to mitigate or benet from macro trends. Rather the core focus remains building a portfolio bottom up by investing in high-quality, resilient companies exposed to structural growth, key competitive advantages or self- help opportunities and maintain valuation discipline such that they could drive attractive investment returns over the medium-to-long term regardless of the economic environment and where the Manager’s constructive active engagement approach can help to support or unlock that potential. The Manager continues to believe that stock-level volatility across the market, while creating some challenges, will provide an attractive environment for investors to back quality companies with attractive long-term structural capital growth at reasonable valuations across the market cap spectrum. The economic environment and market discontinuity will provide agile smaller businesses with strong management teams the opportunity to take market share and build strong, enduring franchises. The elevated levels of corporate activity within the UK equity space continue to play out. The investment process and private equity lens across public markets position enables identication of investment opportunities with potential strategic value that could be attractive acquisitions for both, corporate and nancial buyers. We continue to believe that our fundamental focused investment style has the potential to outperform over the long term. We see signicant opportunities for long term investors to back quality growth companies at attractive valuations in an environment where agile smaller businesses with strong management teams can take market share and build strong long-term franchises. We will maintain our focus on building a high conviction portfolio of less cyclical, high quality, strategically valuable businesses which we believe can deliver strong returns through the market cycle regardless of the performance of the wider economy. SEC plc - Report and Financial Statements14 01 Strategic Report - Top 10 investee Company Review Portfolio as at 30 June 2022 Company Sector Classication Date of rst Investment Cost £’000 Valuation £’000 % of invested portfolio at 30 June 2022 % of invested portfolio at 30 June 2021 % of net assets Medica Healthcare Mar 2017 19,120 21,324 13.3% 11.6% 12.2% XPS Financial Services Jul 2019 16,851 18,894 11.8% 9.2% 10.8% Tribal Technology Dec 2014 11,742 14,340 9.0% 7.8% 8.2% Inspired Energy Industrial Goods & Services Jul 2020 13,325 13,480 8.4% 6.3% 7.7% Brooks Macdonald Financial Services Jun 2016 9,810 11,908 7.4% 5.0% 6.8% Wilmington Media Oct 2010 10,113 11,807 7.4% 6.3% 6.8% LSL Property Services Real Estate Mar 2021 13,256 10,343 6.5% 4.8% 5.9% Fintel Financial Services Oct 2020 8,573 9,221 5.8% 5.1% 5.3% Hostelworld Travel & Leisure Oct 2019 9,137 8,478 5.3% 4.5% 4.8% Ten Entertainment Travel & Leisure Oct 2020 6,372 7,387 4.6% 3.8% 4.2% Tyman Construction & Materials Apr 2007 7,318 7,348 4.6% 6.1% 4.2% Benchmark Healthcare Jun 2019 6,734 6,937 4.3% 4.5% 4.0% Iomart Technology Mar 2022 4,346 4,736 3.0% - 2.7% Ricardo Construction & Materials Sep 2021 4,713 4,026 2.5% - 2.3% Nexus Infrastructure Construction & Materials Jul 2021 4,523 3,412 2.1% - 1.9% Randall & Quilter Financial Services Jun 2022 2,665 2,697 1.7% - 1.6% Idox Technology Mar 2021 2,486 2,349 1.5% 1.2% 1.3% AssetCo Financial Services Jun 2022 – 1,263 0.8% - 0.7% Total Investments 159,950 91.4% Cash 16,363 9.3% Net current liabilities (1,283) (0.7%) Total shareholders' funds 175,030 100.0% * AssetCo completed their purchase of River & Mercantile in August 2022. Ken Wotton Gresham House Asset Management 5 October 2022 SEC plc - Report and Financial Statements 15 01 Strategic Report - Top 10 investee Company Review Other Information Business and Status of the Company The Company is quoted on the London Stock Exchange and is a member of the Association of Investment Companies. The principal activity of the Company is to conduct business as an investment trust. The Company is currently an investment company in accordance with the provisions of Section 833 of the Companies Act 2006. The Directors do not envisage any change in the Company’s activity in the future. The Company is registered in England and Wales with number 05448627. The Company has received written approval from HM Revenue and Customs as an authorised investment trust under Section 1158 of the Corporation Tax 2010 (“CTA”) and the ongoing requirements for approved companies in Chapter 3 Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011 (Statutory Instruments 2011/2999). The Company will continue to be treated as an investment trust company subject to the Company continuing to meet the eligibility conditions for approval. In the opinion of the Directors, the Company’s affairs have been conducted in a manner to satisfy these conditions to enable it to continue to qualify as an investment trust company for the year ended 30 June 2022. Investment Objective The investment objective of the Company is to achieve absolute returns (i.e. growth in the value of investments) rather than relative returns (i.e. attempting to outperform selected indices) over a medium-term period, principally through capital growth. Investment Policy The Company invests primarily in equities quoted on markets operated by the London Stock Exchange where the Investment Manager believes the securities are undervalued and could benet from strategic, operational or management initiatives. The Company also has the exibility to invest up to 20% of the Company’s gross assets at the time of investment in securities quoted on other recognised exchanges. The Company may invest up to 20% of its gross assets at the time of investment in unquoted securities, provided that, for the purpose of calculating this limit, any undrawn commitments which may still be called shall be deemed to be an unquoted security. The maximum investment in any single investee company will be no more than 15% of the Company’s investments at the time of investment. The Company will not invest more than 10%, in aggregate, of the value of its total assets at the time the investment is made in other listed closed-end investment funds. Other than as set out above, there are no specic restrictions on concentration and diversication. The Board does expect the portfolio to be relatively concentrated, with the majority of the value of investments typically in the securities of 10 to 15 issuers across a range of industries. There is also no specic restriction on the market capitalisation of securities into which the Company will invest, although it is expected that the majority of the investments by value will be invested in companies too small to be considered for inclusion in the FTSE 250 Index. The Company’s Articles of Association permit the Board to take on borrowings of up to 25% of the NAV at the time the borrowings are incurred for investment purposes. SEC plc - Report and Financial Statements16 01 Strategic Report Performance Analysis Using KPIs In order to measure the success of the Company in meeting its objectives and to evaluate the performance of the Investment Manager, the Directors take into account the following key performance indicators (“KPIs”): NAV per Ordinary share The NAV per Ordinary share, including revenue reserves, as at 30 June 2022 was 316.21p, representing a fall of 9.7% from the 30 June 2021 NAV of 350.05p (year to 30 June 2021: rise of 46.0% from 239.74p to 350.05p). Movement in the Company’s share price In the year to 30 June 2022, the Company’s share price fell by 10.0% from 311.00p to 280.00p (year to 30 June 2021: rise of 58.9% from 195.75p to 311.00p). The share price total return, taking account of the 1.60p dividend paid in the year, was minus 9.5% (year to 30 June 2021: positive 59.9%). Discount of the share price in relation to the NAV Over the year, the discount of the Ordinary share price in relation to the NAV ranged from 4.2% to 16.7% with the average being 12.6%. As at 30 June 2022, the Company’s shares traded at a discount of 11.5% (30 June 2021: discount of 11.2%). Ongoing charges The ongoing charges ratio was 1.08% in the year to 30 June 2022 (30June 2021: 1.07%). The ongoing charges ratio (including the performance fee) was 1.08% in the year to 30June 2022 (30 June 2021: 1.07%). SEC plc - Report and Financial Statements 17 01 Strategic Report - Other Information Principal and Emerging Risks The Board believes that the overriding risks to shareholders are events and developments which can affect the general level of share prices, including, for instance, ination or deation, economic recessions and movements in interest rates and currencies which are outside of the control of the Board. The principal ongoing risks and uncertainties currently faced by the Company, which may vary in signicance from time to time, are outlined below, together with the controls and actions taken to mitigate those risks. The Directors continue to work with the agents and advisers to the Company to try and manage the risks, including emerging risks. The central aims remain to preserve value in the Company’s portfolio and liquidity in the Company’s shares. The Directors aim to ensure that the Company maintains its investment strategy, has operational resilience, meets its regulatory requirements as an investment trust (and in particular in the provision of regular information to the market) and tries to navigate the nancial and economic circumstances in these very uncertain times. Principal Risk Mitigation Action taken in the year Investment Performance The unconstrained long-term philosophy and concentrated portfolios resulting from the investment strategy can lead to periods of signicant short-term variation in performance. The underlying investments are in companies which, due to their smaller size, may have limited product lines, limited nancial resources with dependence on a few key individuals and less liquid shares. These risks are more signicant than in largercompanies. Risk remains relatively unchanged The Board maintains a close review of how the Investment Manager invests to implement the investment strategy and regularly reviews adherence to the investment policy. The Board maintains a longer- term perspective in relation to monitoring performance of the Investment Manager in achieving the investmentobjective. The Board relies on the Investment Manager to engage actively with the investee companies in order to support long-term value enhancement and the actions taken are reported and reviewed regularly by the Board. The Board, through its review process, did not identify any specic new action required either with the portfolio as a whole or with any one specic investment to mitigate performance risk over and above that already taken by the InvestmentManager. The Board also recognises the signicant contribution made by the Investment Manager in maximising engagement opportunities with investee companies. This was achieved with the Company's focus on investments with a market value in the region of £100 million and £300 million at the point of entry. Operational Risk The Company appoints and relies on a number of third parties, including the Investment Manager, to provide it with the necessary services, such as registrar, depository, custodian, administrator, company secretary, lawyers, external auditors and brokers. Risk remains relatively unchanged The Board has a detailed risk matrix which is reviewed by the Audit Committee and the Board twice yearly and is used as a tool to consider the principal risks of the Company and the controls that are in place in relation to those risks where appropriate. Key appointments of third party service providers are taken after a formal process ensuring the required skills and experience are satised. An annual review of service providers is carried out by the Management Engagement Committee. Internal control reports, where available, on the systems and processes of the Company’s service providers are reviewed at least annually and as appropriate and any ndings discussed where appropriate. The Management Engagement Committee performed a review of all service providers in May 2022. All were assessed to provide a satisfactory service to the Company. Internal controls reports were reviewed, no signicant controls weaknesses were identied. SEC plc - Report and Financial Statements18 01 Strategic Report - Other Information Principal Risk Mitigation Action taken in the year Regulatory Compliance and Legislation Breach of regulatory rules could lead to the suspension of the Company’s Stock Exchange listing, nancial penalties, or a qualied audit report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on realised capital gains. Risk remains relatively unchanged The Board is comprised of individuals whose background, qualications and experience ensure that the increasing volume and complexity of relevant regulatory and legislative requirements are understood. Where appropriate, advice and training are sought from service providers. Board selection and performance review processes support this approach. At its quarterly meetings, the Board reviewed regulatory and technical updates. No signicant actions were required in the year. The Board reviews the Section 1158 compliance schedule, prepared by the Company Secretary, at each quarterly Board Meeting. Discount/Premium A signicant 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 condence. The impact of this risk was increased during the year The Board has established share issuance and share buy-back processes to assist in the moderation of share price premium and discount to NAV. Shareholders are kept informed of developments as far as practicable and are encouraged to attend briengs, such as the Company’s Annual General Meeting, to understand the implementation of the investment strategy to achieve the Company’s objectives. During the year under review, the Company’s shares traded at a discount to NAV of between 4.2% and 16.7%. During the year 6,329,685 shares were bought back for cancellation via a tender offer and 1,615,071 shares were bought back to be held in Treasury. During the year the Board announced various measures which are intended to reduce the Company’s discount to NAV. Details of these measures are noted on page 5. Economic, Political and External Factors The Company invests predominantly in UK shares and therefore performance may be impacted by economic, political and other factors which affect either the operation of the markets that portfolio companies trade in, the UK stock market or currency movements. In particular small changes can have a larger impact on small companies. Risk has been heightened by inationary increases and geopolitical events, including the invasion of Ukraine The exposure to these external factors is considered largely outside of the Company’s control so regular monitoring is carried out with regards to the likely effects should any potential mitigation be possible. Limits are set for investment in overseas based investments. The Board monitors and reviews the position of the Company, ensuring that adequate liquidity exists to allow exibility. Investment performance and the portfolio composition has been monitored specically in the light of the increased risks. The Board continues to closely monitor the Environmental, Social and Governance (“ESG”) risk to the Company. Investment Manager The loss of key individuals at the Investment Manager could have, or be perceived to have, a material effect on the Company’s performance. Risk remains relatively unchanged In order to reduce this risk the Investment Manager operates a team based approach to fund management. The team consists of a number of investment professionals who combine a number of complementary skill sets, including corporate nance, traditional fund management, research and private equity disciplines. The team is also supported by its Investment Committeewhich is comprised of a number of experienced internal and external members. The Board keeps the performance of the key personnel at the Investment Manager under frequent review. SEC plc - Report and Financial Statements 19 01 Strategic Report - Other Information Viability Statement The Board has assessed the prospects of the Company over the three nancial years to 30 June 2025. This assessment period has been chosen as the Board believes it represents an appropriate period given the long-term investment objectives of the Company, the low working capital and the simplicity of the business model. In making this three year assessment, the Board has taken the following factors into account: The nature of the Company’s portfolio The Company’s investment strategy The potential impact of the Principal Risks and Uncertainties 2025 realisation opportunity Share buy-backs The liquidity of the Company’s portfolio Market falls and gains The level of existing and potential long-term liabilities The Company’s portfolio currently includes a large position in cash or liquid money market funds. Over the last ve years, cash and liquid money market funds have averaged c.7.6% of the NAV and was 9.3% of the 30 June 2022 NAV. Cash balances can be varied due to changes in market conditions, but positive cash levels are expected to be maintained over the period. The Company has not been geared for many years and the current policy of the Board is not to have a gearing facility. The Directors have also carried out a robust assessment of the principal and emerging risks, as noted on pages 18 and 19, that are facing the Company over the period of the review, including those that would threaten its business model, future performance, solvency or liquidity. Based on this assessment, the Directors are condent that the Company’s investment approach, portfolio management and balance sheet approach will ensure that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 30 June 2025. Going Concern In assessing the Company’s ability to continue as a going concern the Directors have also considered the Company’s investment objective, detailed on the inside front cover, risk management policies, detailed on pages 18 and 19, capital management (see note 16 to the nancial statements), the nature of its portfolio and expenditure projections and believe that the Company has adequate resources, an appropriate nancial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and for at least 12 months from the date of this Report. In addition, the Board has had regard to the Company’s investment performance (see page 3) and the price at which the Company’s shares trade relative to their NAV (see page 3). The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration: cash and cash equivalents balances and, from a liquidity perspective, the portfolio of readily realisable securities which can be used to meet short-term funding commitments; the ability of the Company to meet all of its liabilities and ongoing expenses from its assets; revenue and operating cost forecasts for the forthcoming year; the ability of third-party service providers to continue to provide services; and potential downside scenarios including stress testing the Company’s portfolio for a 25% fall in the value of the investment portfolio; a 50% fall in dividend income and the remainder of the share buy-backs for the 2022 calendar year under the current share buy- back programme, the impact of which would leave the Company with a positive cash position. The Directors also considered the effect of the “mini budget” announced by the UK Government on 23 September 2022. The consequences are not considered to affect the Company’s ability to continue as a going concern. Based on this assessment, the Directors are condent that the Company will have sucient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the nancial statements, and therefore have prepared the nancial statements on a going concern basis. SEC plc - Report and Financial Statements20 01 Strategic Report - Other Information Environmental, Social and Governance Issues Commitment to Sustainable Investment The Board is comprised entirely of non-executive Directors and the day-to-day management of the Company’s business is delegated to the Investment Manager (details of the Investment Management Agreement are set out on pages 28 and 29). Therefore, the Directors do not consider it necessary for the Company to have environmental, human rights or community policies in place. However, in carrying out its activities and in its relationships with service providers, the Company aims to conduct itself responsibly, ethically and fairly. The Investment Manager has a clear commitment to sustainable investment as an integral part of its business strategy. The rm recognises that the integration of sustainable investment considerations, including environmental, social and governance (ESG) factors into its business processes can protect nancial performance and consistency of returns. Investment Teams across the Investment Manager proactively manage ESG factors across investment strategies and the underlying holdings to help both build and protect value in the stocks invested in. The Investment Manager’s sustainable investment policies and beliefs can be found on its website and in its Sustainable Investment Report. The Investment Manager believes in playing an industry leadership role in supporting and promoting sustainable investment. The Investment Manager is a signatory to the UN-supported Principles of Responsible Investment and was awarded four or ve stars, out of a maximum of ve stars, for all modules submitted in its PRI Report 2021. It is also a signatory of the UK Stewardship Code and aims to comply its recommendations. In September 2022, it was announced that Gresham House had met the expected standard of reporting for 2021 and will remain a signatory to the UK Stewardship Code 2020 for the second year in a row. Public Equity Sustainable Investment Policy and Processes The Investment Manager has a Sustainable Investment Policy specic to public equity investments. The Public Equity Sustainable Investment Policy details the commitments of the Investment Manager with regards to sustainable investment, as applied by the Company’s management team. The Policy includes: The Investment Manager’s sustainable investment commitments. How its public equity investment approach meets these commitments; and The application of our Sustainable Investment Framework to public equities Sustainable Investment Approach The ‘G’ (Governance) of ESG is the most important factor in the investment processes for UK public equity. Board composition, governance, control, company culture, alignment of interests, shareholder ownership structure, remuneration policy etc. are important elements that will feed into the manager’s analysis and company valuation. E and S (Environmental and Social) factors are assessed as risk factors during due diligence to eliminate companies that face environmental and social risks that cannot be mitigated through engagement and governance changes. ESG considerations are integrated into the lifecycle of each investment as follows: 01 Initial appraisal Identify material ESG matters requiring further investigation during the due diligence stage. If certain risks are unlikely to be suciently managed or mitigated, then the Manager may choose not to proceed at this stage. 02 Due diligence The ESG Decision Tool and, where possible, meetings with management are used to assess material ESG risks that need to be mitigated and ESG opportunities that could drive value. Specialised consultants may be used to provide additional information. 03 Investment appraisal A summary of the ESG analysis is included in nal Investment Committee submissions. Appropriate risk mitigation approaches will be referenced and assurance that the business is open to making improvements is sought. 04 Holding period During the holding period of an investment, the Management Team engage regularly with boards and management teams, focusing on strategic, nancial and operational matters, including ESG factors, and consistently use voting rights. SEC plc - Report and Financial Statements 21 01 Strategic Report - Other Information Sustainable Investment Framework Across Gresham House investment teams, an active focus is given to environmental, social and governance (ESG) factors, as shown in the gure below. These factors are used by the Management Team to identify a broad range of ESG risks which may materially impact proposed transactions. Natural capital Environment SocialGovernance Community care and engagement Governance and ethics Waste management Marketplace responsibility Supply chain sustainability Employment, health, safety andwellbeing Climate change and pollution Commitment to sustainability Risk and compliance The themes shown in the gure above are used as the basis for the Management Team’s application of sustainable investment during the Research stage. SEC plc - Report and Financial Statements22 01 Strategic Report - Other Information ESG Decision Tool The Management Team is responsible for implementing the commitments made in the Public Equity Sustainable Investment Policy. The themes from the Sustainable Investment Framework are used as the basis for the Management Team’s ESG Decision Tool and several sub- factors are considered under each broader theme. The purpose of the Tool is to support the Management Team in identifying potential, material ESG risks that need to be managed and mitigated, and to help shape the due diligence process for individual companies prior to investment. The Tool also provides a way of summarising material ESG issues, which can then be tracked and monitored over time, and include actions that can be taken to mitigate those risks throughout the holding period. The most important ESG factors the Management Team will use to assess an investment before purchase are set out in the table below. Environmental Social Governance Carbon, emissions and pollution GHG emissions and climate change impacts, energy management, pollution prevention and control, air quality management Employment, health, safety and well-being Employee H&S and well-being, sustainable employment practice, engagement, diversity and inclusion Governance and ethics Governance good practice; sound business ethics management and culture Natural resources management Water use, biodiversity and natural resources management Marketplace responsibility Product impacts, safety and labelling in use and disposal, quality and value, customer care, data protection Risk and compliance Robust risk and compliance management Waste management Waste reduction; sustainable management of waste Supply chain sustainability Managing environmental, social and economic impacts of sourcing Commitment to sustainability Awareness, capability and commitment to run a resilient, sustainable business Community care and engagement Understanding and managing impacts on communities, including human rights; community investment Where material ESG risks are identied, these are reviewed by the Management Team and a decision on how to proceed is documented. In the majority of cases, we would proactively follow up with the investee company management team and ensure appropriate corrective and preventative action is taken and any material issues or incidents are recorded by the Management Team. ESG Data Following an assessment of several data providers, the Management Team selected Inspired PLC as an ESG data provider to support the assessment of ESG risks. Inspired PLC was selected for its ability to provide a product bespoke to the Management Team that supports coverage of small and micro-cap companies in the UK. Given Inspired PLC is an investee company, the Management Team ensured the Conicts Committee were made aware of the potential conict and the Sustainable Investment Team was brought in to provide independent input to the provider selection process. The Management Team expects to receive ESG data from the provider for all holdings from 2023 and will work to fully integrate this data into the investment process. Stewardship Responsibilities As an active investor, the Manager is committed to acting as a long-term steward of the assets invested in on behalf of clients. The Management team use active ownership responsibilities, including engagement and voting, to protect and create value. The Investment Manager’s Engagement and Voting Policy sets out the approach and explains how integrated these activities are to business practices and investment processes. Both activities are viewed as a key part of the investment approach and not considered stand-alone objectives. UK Public Equity team * 37 Governance-focused engagements * Based on UK Public Equity team holdings as of 31 December 2021. 5.1 years Weighted average holding period 96% Met with nearly all holdings’ management teams SEC plc - Report and Financial Statements 23 01 Strategic Report - Chairman’s Statement Engagement The Company’s investment philosophy means that it aims to act, by default, as an actively engaged shareholder. The Management Team’s assessment of management, Board and governance forms a critical part of the investment case, which necessitates that Management work with companies on matters such as strategy, M&A and remuneration, both from the outset of our holding period and on an on-going basis. The Management Team encourages an open and honest dialogue with the companies which we believe is an essential part of being an effective steward of our clients’ assets. The Management Team will meet face-to-face with the management team of an investee company at least twice a year, and up to quarterly for this strategy . These meetings form the basis for the ongoing monitoring of a company strategy, nancial performance and ESG considerations. Dening engagement objectives Dependent upon factors such as materiality and level of control, the Management Team may identify and agree strategic milestones that they expect a company to deliver on over the holding period. Strategic milestones will typically be bespoke to the organisation and important to the development of the business, aiming to keep the directors focused and ensure continued progress. Objectives may change over time depending on several factors, including business priorities, market forces and stakeholder considerations. Example of engagement objectives include: Improvements to reporting, including ESG factors Board composition Improvements to governance arrangements Product or geographic expansion or variance, including due to ESG related market forces Staff retention and reduction of absence rates Implementing compliance programmes with forthcoming ESG legislation. The identied objectives provide a form the basis of discussions with companies during regular scheduled engagements. Voting Voting is an important part of the investment strategy. The Management Team devotes the necessary research, management time and resources to ensuring we make good voting decisions. Voting decisions are based on views of which course of action will be in the best interests of the Company’s investors. Votes are informed by various sources including: research, engagement with the company, discussions with other stakeholders and advisers, internal discussions and consultations, and other relevant information. Voting decisions The Investment Manager does not have a set policy dening how voting decisions should be made on specic items, but it has dened the following requirements: 1. Authority to allot shares – it is our policy to vote against anything over 33%. 2. Disapplication of pre-emption rights – it is our policy to vote against anything over 10%. 3. Authorise Company to purchase own shares – it is our policy to vote against anything over 10%. 4. Political donations – it is our policy to vote against all political donations. Proxy voting providers The Management Team does not use any proxy voting advisory services, but uses proxy voting services to deliver voting decisions to the companies invested in. Voting against management If the Manager plans to vote against the company decision, it will engage with the company in advance, explain why its plans to vote against the decision and look for ways to avoid that if possible. If a satisfactory outcome is not reached through this active dialogue with the company, the Manager will typically tell the company in advance of its intention to abstain or vote against management and clarify the reasons grounding such intention. UK Public Equity voting in 2021 96.2% For 3.4% Against 0.4% Abstai n SEC plc - Report and Financial Statements24 01 Strategic Report - Chairman’s Statement Climate-related Financial Disclosures As an investment trust, the Company has no employees, property or activities other than investment. The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emission-producing sources under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. The Company is an investment trust and investment trust companies are currently exempt from reporting against the Task Force on Climate Related Finance Disclosures (‘TCFD’) but the Board will continue to monitor the situation. Streamlined Energy and Carbon Reporting also applies to all large companies. However, as the Company does not consume more than 40,000 kWh of energy during the past year, it qualies as a low energy user and is exempt from reporting under these regulations. Duty to promote the success of the Company The Directors are required to include a report explaining how they have discharged their duty to promote the success of the Company under Section 172(1) of the Companies Act 2006 and how they have considered the views of the Company’s key stakeholders in regard to any key decisions taken. The Company being an investment trust, the key stakeholders comprise its shareholders, the Investment Manager and its third-party service providers (including the Company Secretary and Administrator, the Registrar, the Depositary and the Custodian). The Manager also engages extensively with the investee companies, particularly on performance and corporate governance issues. The Board welcomes the views of shareholders and places considerable importance on communications with them. The Investment Manager reports back to the Board on meetings with shareholders and the Chairman and other Directors are available to meet shareholders if required. The Annual General Meeting of the Company and presentations held in London in the normal course provide a forum, both formal and informal, for shareholders to meet and discuss issues with the Board. The importance of stakeholder considerations in particular in the context of decision making is taken into account at every Board meeting. The Board considers the impact that any material decision will have on all relevant stakeholders to ensure that it is making a decision that promotes the long-term success of the Company. Examples of the principal decisions taken by the Board during the year under review (and post year-end) are as follows: Proposed merger – As previously noted in the Chairman’s Statement on page 5, in December 2021 the Board received an unsolicited approached from the board of directors of Odyssean Investment Trust plc (‘Odyssean’) to merge the Company with Odyssean. After due consideration and having discussed the proposal with the Company’s key advisers and major shareholders, the Board agreed that the merger was not in the best interest of shareholders and rejected the proposed merger. In considering whether the proposed merger was in the best interest of shareholders, the Board considered a number of factors including the result of the continuation vote which had been put to shareholders at the Annual General Meeting (‘AGM’) held on 10 November 2021 (92 per cent. of votes received were in favour of the continuation of the Company as an investment trust), the Company had implemented a strategy to maximise engagement opportunities and was now focused on investment that have a market capitalisation in the region of £100 million to £300 million at the point of entry, and the performance of Ken Wotton since his appointment as Lead Manager in September 2020. As part of its discussions at the time of the proposed merger, the Board considered ways with the Company’s Investment Manager, Gresham House Asset Management (‘GHAM’), to address shareholders’ frustrations that the Company’s share price discount to NAV remained wide. A number of proposals (as reported in the Chairman’s Statement) were put to shareholders at a General Meeting of the Company on 23 March 2022 and received support from 99.7 per cent. of the votes received. Gearing – During the year under review, the Board in conjunction with the Investment Manager discussed the use of loan facilities with the Investment Manager. After discussion, it was agreed that the Company maintain its policy of operating without a banking loan facility. Cash balances continue to be maintained to take advantage of suitable investment opportunities as they arise. Marketing – During the year under review, the Board approved a marketing proposal put forward by the Company’s Investment Manager to raise the level of marketing and awareness of the Company across the investor community. The Board anticipates that this will generate additional demand for the Company’s shares and further contribute to a narrowing of the share price discount to NAV. SEC plc - Report and Financial Statements 25 01 Strategic Report - Chairman’s Statement Covid-19 – The Board continues to review emerging risks that could have a potential impact on the operational capability of the Investment Manager and the Company’s other key service providers. During the year under review, the Board received updates from GHAM and its other key service providers conrming that they continued to service the Company in line with their agreements and had suitable arrangements in place to ensure that they can continue to provide their services to the Company during the ongoing pandemic. Market volatility & ination – As noted in the Chairman’s Statement on page 4, the Russia/ Ukraine war has destabilised commodity markets and led to unprecedented increases in energy prices which have added further fuel to ination. The Board continues to receive updates from the Investment Manager on general market volatility and inationary pressures with particular focus on the UK Smaller Companies sector. Succession planning – During the year the Board undertook a search for an additional non-executive Director who would enhance the overall skills and experience of the Board and its Committees. Annie Coleman was subsequently appointed as a non-executive Director of the Company on 14February 2022. Further details of the search can be found in the succession planning section on page 35. The Company’s primary business relationships are with its Investment Manager and AIFM, Gresham House Asset Management (“GHAM”), and its Company Secretary and Administrator, Juniper Partners Limited. The Board has been mindful of the challenges that active asset managers, and boutique UK asset managers in particular, have faced in recent years and the resource required to implement effectively the Company’s particular investment strategy. Furthermore, the Board recognises the importance of a strong sales and marketing capability to attract new investors. GHAM has a strong and well-developed platform with a strong net cash balance sheet and well-developed operational resources. It has an established pedigree of investing on a strategic public equity basis in UK equity markets. The Board will work closely with GHAM to achieve long-term success for the Company and its stakeholders. Juniper Partners Limited provides company secretarial and administration services to the Company. Juniper Partners Limited also seeks to maintain constructive relationships with the Company’s other third-party suppliers, for example the Registrar, the Depositary and the Custodian, on behalf of the Board typically through regular communication and provision of information. On behalf of the Board Richard Hills Chairman 5 October 2022 SEC plc - Report and Financial Statements26 01 Strategic Report - Chairman’s Statement Directors The Directors in oce at the date of this report, all of whom are non-executive, were as follows: Richard Hills (Chairman) Independent Director Richard has substantial experience of the investment management industry and has held senior executive and non-executive positions within the elds of both conventional and alternative assets. He is currently a board member of Henderson International Income Trust plc and EQT Services (UK) Limited. Richard was appointed to the Board on 5 March 2014 and will retire at the forthcoming AGM. Annie Coleman Independent Director Annie’s early career included British Petroleum, Head of the London Stock Exchange Press Oce; press ocer roles in the Prime Minister’s Press Oce and the Ministry of Defence. In 1999 she moved to Goldman Sachs in London and then GAM Investments in 2006. Annie became Global Head of Organisational Culture and Client Marketing at UBS Investment Bank in 2011, before moving to Unicredit as Group People and Culture Oce. She now runs her own organisation culture and leadership consultancy rm Cerebellum Partners Ltd. Annie was appointed to the Board on 14 February 2022. William Barlow Independent Director William is currently chief executive ocer of Majedie Investments PLC, having been a director since 1999. He previously was a non-executive director of Majedie Asset Management Limited and chief operating ocer at Javelin Capital LLP. William joined Skandia Asset Management Limited as an equity portfolio manager in 1991 and was managing director of DNB Nor Asset Management (UK) Limited. He is also the Chairman of Racing Welfare. William was appointed to the Board on 1 February 2016. Josephine Dixon (Audit Committee Chairman) Independent Director Jo, a Chartered Accountant, has a career that spans a number of nancial and commercial roles in a variety of sectors from nancial services to football. She has substantial investment trust board experience and is currently on the boards of Bellevue Healthcare Trust PLC, The Global Smaller Companies Trust PLC, Alliance Trust plc, and Ventus VCT PLC (in liquidation). Jo was appointed to the Board on 14 July 2014. Richard Locke (Deputy Chairman) Independent Director Richard is Vice Chairman of Fenchurch Advisory Partners LLP, an independent corporate nance advisory rm that specialises in the nancial services sector. Previously he was a partner of Cazenove & Co. and then a director at its successor rm, JPMorgan Cazenove. Richard was appointed to the Board on 10 February 2015. SEC plc - Report and Financial Statements 27 02 Governance Reports Report of the Directors Directors The Directors in oce at the date of this report and their biographical details are shown on page 27. Corporate governance The Company’s corporate governance statement is set out on pages 32 to 37 and forms part of the Report of the Directors. Performance and Dividend Over the year to 30 June 2022, net assets have fallen by £46.5 million representing a decrease of 21.0%. On a per share basis net assets have fallen by 33.84 pence which represents a decrease of 9.7%. Further information on the performance of the Company’s portfolio is contained in the Investment Manager’s Report on pages 7 to 15. The Company’s investment objective is one of capital growth and it is anticipated that returns for Shareholders will derive primarily from capital gains. The board is governed by the rules for investment trusts that require that the Company must not retain more than 15% of its income from any one year. The Board recommends a nal dividend of 2.00p (2021: 1.60p) per Ordinary share, amounting to £1,066,000 (2021: £1,013,000) based on the Ordinary share capital at the date of this report. The Company’s dividend policy remains unchanged, and it may be that next year, the dividend will be lower. Share Capital and Voting Rights The Company’s issued share capital at 30 June 2022 consisted of 55,352,088 Ordinary shares of 10p each and there were 8,177,118 Ordinary shares held in Treasury. At 4October 2022 (being the latest practicable date prior to the publication of this document) the issued share capital consisted of 53,308,547 Ordinary shares of 10p each and 10,220,659 Ordinary shares were held in Treasury. Shares held in Treasury do not have voting rights. The maximum number of Ordinary shares in issue during the year was63,296,844. The Company bought back 6,329,685 Ordinary shares for cancellation and 1,615,071 Ordinary shares to be held in Treasury during the year. Substantial shareholdings The Company has been informed of the following notiable interests in the voting rights of the Company as at 30 June 2022: Number of shares held % of total voting rights City of London Investment Management 15,822,230 29.0 1607 Capital Partners 8,330,218 13.2 Arbuthnot Fund Managers 3,314,774 5.2 Brewin Dolphin 3,278,841 5.2 Sir Clive Thompson 2,679,102 4.2 On 1 September 2022, City of London Investment Management notied the Company their shareholding had fallen to 28.9% of the Company’s total voting rights. On 9 September 2022, 1607 Capital Partners notied the Company their shareholding was now 13.9% of the Company’s total voting rights after having notied the Company on 6 September 2022, that their shareholding had increased to 14.01%. There have been no other changes notied in respect of the above holdings, and no new holdings notied, since the end of the year. Investment Management Agreement The Company’s investments are managed by GHAM under an agreement dated 14 May 2020. The Investment Manager’s appointment is subject to termination on 6 months’ notice given at any time by either party. There are no specic provisions contained within the Investment Management Agreement relating to compensation payable in the event of termination of the agreement other than entitlement to fees, including performance fees, which would be payable within any notice period. However, in the event that a continuation resolution proposed at any Annual General Meeting is not passed, the Investment Management Agreement expressly permits the Company to give notice terminating the Investment Manager’s appointment without any compensation being payable to the Investment Manager in lieu of any period of notice otherwise required under the Investment Management Agreement. SEC plc - Report and Financial Statements28 02 Governance Reports The Board keeps the performance of the Investment Manager under continual review, and the Management Engagement Committee, comprising all Directors, conducts an annual appraisal of the Investment Manager’s performance, and makes a recommendation to the Board about the continuing appointment of the Investment Manager. During the year the Board reviewed the continuing appointment of the Investment Manager and agreed that the Investment Manager had executed the Investment Strategy according to the Board’s expectations. Therefore, it is the opinion of the Directors that the continuing appointment of GHAM is in the interests of shareholders as a whole. Investment Manager’s Fees The Investment Manager is entitled to receive from the Company a basic fee together with, where applicable, a performance fee. Basic Fee A basic management fee is payable to the Investment Manager at the annual rate of 0.75% of the NAV of the Company. The basic management fee accrues daily and is payable quarterly in arrears. Performance Fee Arrangements The Company’s performance is measured over rolling three-year periods ending on 30 June each year, by comparing the NAV total return per share over a performance period against the total return performance of the FTSE Small Cap (ex Investment Trusts) Index. A performance fee is payable if the NAV total return per share (calculated before any accrual for any performance fee to be paid in respect of the relevant performance period) at the end of the relevant performance period exceeds both: (i) the NAV per share at the beginning of the relevant performance period as adjusted by the aggregate amount of (a) the total return on the FTSE Small Cap (ex Investment Trusts) Index (expressed as a percentage) and (b) 2.0% per annum over the relevant performance period (“Benchmark NAV”); and (ii) the high watermark (which is the highest NAV per share by reference to which a performance fee was previously paid). The Investment Manager is entitled to 10% of any excess of the NAV total return over the higher of the Benchmark NAV per share and the high watermark. The aggregate amount of the Management Fee and the Performance Fee in respect of each nancial year of the Company shall not exceed an amount equal to 1.4% per annum of the NAV of the Company as at the end of the relevant nancial period. A performance fee of £nil is payable in respect of the rolling three-year period ended 30 June 2022 (2021: £nil). Information About Securities Carrying Voting Rights The following information is disclosed in accordance with the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 and DTR 7.2.6 of the FCA’s Disclosure Guidance and Transparency Rules: The Company’s capital structure and voting rights are summarised above. Details of the substantial shareholders in the Company are listed above. The rules concerning the appointment and replacement of Directors are contained in the Company’s Articles of Association and are discussed on page 33. Details of the powers of the Directors to issue or buy-back the Company’s shares are disclosed on pages 30 and 31. There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a takeover bid. There are no agreements between the Company and its Directors concerning compensation for loss of oce. Accountability and Audit The responsibilities of the Directors and the Auditor in connection with the nancial statements is included on page 49. The Directors who held oce at the date of approval of this Directors’ Report conrm that, so far as they are each aware, there is no relevant audit information of which the Company’s Auditor is unaware; and each Director has taken all the steps that he/ she ought to have taken as a Director to make himself/ herself aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information. SEC plc - Report and Financial Statements 29 02 Governance Reports - Report of the Directors Financial Risk Management Information about the Company’s nancial risk management objectives and policies is set out in note 16 of the nancial statements on pages 65 to 68. Requirements of the Listing Rules Listing Rule 9.8.4 requires the Company to include specied information in a single identiable section of the Annual Report or a cross reference table indicating where the information is set out. The Directors conrm that no disclosures are required in relation to Listing Rule 9.8.4. Modern Slavery The Company is not within the scope of the Modern Slavery Act 2015 because it has insucient turnover and is therefore not obliged to make a human tracking statement. The Directors are satised that, to the best of their knowledge, the Company’s principal suppliers, which are listed on page 73, comply with the provisions of the UK Modern Slavery Act 2015. These are principally professional advisers and service providers in the nancial services industry, consequently the Board considers the Company to be low risk in relation to this matter. Criminal Finances Act 2017 The Company has a commitment to zero tolerance towards the criminal facilitation of tax evasion. Annual General Meeting The Notice of the Annual General Meeting to be held on 9November 2022, is set out on pages 74 to 76. Full details of all resolutions can be found in the Notice. The resolutions to be proposed as items of special business are set out below. To authorise the allotment of shares (Resolution 10) Section 551 of the Companies Act 2006 provides that the Directors may not allot new shares without Shareholder approval. The purpose of Resolution 10, which is proposed as an ordinary resolution, is to empower the Directors to allot shares with an aggregate nominal value of up to £533,085, being approximately 10% of the Company’s issued Ordinary share capital (excluding Treasury shares) as at the latest practicable date prior to the publication of this document. The authority granted to the Directors if this Resolution 10 is passed would last until the earlier of the Annual General Meeting in 2023 or 9 February 2024. The number of Treasury shares held as at 4 October 2022 (being the latest practicable date prior to the publication of this document) is 10,220,659 10p shares which represents 19.2% of the Company’s issued Ordinary share capital of 53,308,547 10p shares at that date. The Directors intend to use the authority to issue Ordinary shares only if and when they believe it to be advantageous to the Company’s existing shareholders to do so. In no circumstances would such issue of new shares or re-issue of shares from Treasury result in a dilution of net asset value per share. To disapply Section 561 of the Companies Act 2006 (Resolution 11) Under Section 561 of the Companies Act 2006, if the Directors wish to allot any equity securities, or sell any Treasury shares (should they elect to hold any), for cash, they must rst offer them to existing shareholders in proportion to their shareholdings. The purpose of Resolution 11, which is proposed as a special resolution, is to allow the Directors to allot shares, or sell any Treasury shares, for cash other than in accordance with Section 561 up to a maximum aggregate nominal amount of £533,085, representing approximately 10% of the Company’s issued Ordinary share capital of 53,308,547 10p shares as at 4October 2022 (being the latest practicable date prior to publication of this document). Shares issued pursuant to this authority will be issued at a price of not less than the prevailing NAV per share, including current period revenue. This authority will last until the earlier of the Annual General Meeting in 2023 or 9 February 2024. To authorise the Company to purchase its own Ordinary shares (Resolution 12) The purpose of Resolution 12, which is proposed as a special resolution, is to renew the authority of the Company to purchase its own shares. The Company may purchase shares in the market in order to address any imbalance between the supply of and demand for shares and to increase the net asset value per share. SEC plc - Report and Financial Statements30 02 Governance Reports - Report of the Directors The Company will make such purchases pursuant to this authority only where the Directors believe that to do so will result in an increase in the NAV per share for remaining Shareholders and is in the best interests of shareholders generally. The authority is limited to 7,990,951 Ordinary shares, representing approximately 14.99% of the Company’s shares in issue as at 4 October 2022 (being the latest practicable date prior to publication of this document). The Company will only purchase Ordinary shares at prices which are below the last published NAV per Ordinary share. The maximum price (exclusive of expenses) payable per Ordinary share under this authority is the higher of (a) 5% over the average of the middle market prices of the Ordinary shares according to the Daily Ocial List of the London Stock Exchange for the ve business days immediately before the date on which the Company buys the shares and (b) the higher of the price of the last independent trade and the highest current independent purchase bid on the trading venue where the purchase is carried out. The minimum price payable per Ordinary share under this authority is the nominal value of that Ordinary share. Any purchases of Ordinary shares made pursuant to this authority will be market purchases. Any such purchases will be made during the period commencing at the close of the Annual General Meeting and ending on the earlier of the date of the Company’s Annual General Meeting in 2023 or 9 February 2024. At the Annual General Meeting held on 10 November 2021 the Company was authorised to purchase approximately 14.99% of its own shares for cancellation or to be held in Treasury. The number of Ordinary shares remaining under that authority as at 4 October 2022 (being the latest practicable date prior to publication of this document) was 5,829,585 Ordinary shares. The Company may purchase its own shares either for holding in Treasury, or for subsequent cancellation. Shares held in Treasury will have no voting, dividend or other rights. The Directors consider that the purchase of shares into Treasury could be benecial to shareholders in the long-term, in that, subject to the authority granted by Resolution 11, they may be re-sold at NAV or above to further the investment objectives of the Company. The Company has purchased 2,043,541 Ordinary shares since 30 June 2022. As at 4 October 2022 (being the latest practicable date prior to publication of this document), the Company held 10,220,659 Ordinary shares in Treasury. Directors’ Recommendation The Directors consider that all the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and its members as a whole. The Directors unanimously recommend that shareholders vote in favour of all the resolutions, as they intend to do in respect of their own benecial holdings. On behalf of the Board Richard Hills Chairman 5 October 2022 SEC plc - Report and Financial Statements 31 02 Governance Reports - Report of the Directors Statement on Corporate Governance This Corporate Governance Statement forms part of the Directors’ Report. Statement of Compliance with the AIC Code of Corporate Governance The Board has considered the principles and provisions of the Association of Investment Companies’ Code of Corporate Governance (“AIC Code”). The AIC Code is endorsed by the Financial Reporting Council and adapts the principles and provisions set out in the UK Corporate Governance Code to make them relevant to investment companies as well as incorporating the relevant provisions of the UK Corporate Governance Code. The Board believes that the AIC Code provides the most appropriate governance framework for the Company. Accordingly, the Company reports against the principles and provisions of the AIC Code. The February 2019 edition of the AIC Code is applicable to the year under review and can be found at www.theaic.co.uk. By reporting against the AIC Code, the Board is meeting its obligations in relation to the UK Corporate Governance Code. The Board conrms that, during the year, the Company complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code (the “UK Code”), except as set out below: Provision 17 and 32 of the UK Code (Provision 22 and 37 of the AIC Code): the requirements to have a Nomination Committee and Remuneration Committee – owing to the nature of the Company, the activities of these committees are undertaken by the Board. Provision 24 of the UK Code: the requirement for the Chairman to not sit on the Audit Committee – the Board believes that all Directors, including the Chairman, should sit on all the Committees. Articles of Association The Company’s Articles of Association may only be amended by special resolution at a general meeting of shareholders. Board of Directors Under the leadership of the Chairman, the Board is responsible for all matters of control and direction of the Company, including its investment policy. As at the date of this Report, the Board consists of ve non- executive Directors. Biographical details of the Directors in oce at the year end can be found on page 27. The terms and conditions of the appointment of the non-executive Directors are formalised in letters of appointment, copies of which are available for inspection from the registered oce of the Company and will be available at the Annual General Meeting. The Board has agreed arrangements whereby Directors may take independent professional advice in the furtherance of their duties and the Company has Directors’ and Ocers’ Liability Insurance to cover legal defence costs. Under the Company’s Articles of Association, the Directors are provided, subject to the provisions of UK legislation, with an indemnity in respect of liabilities which they may sustain or incur in connection with their appointment. Apart from this, there are no third party indemnity provisions in place. Board Operation At the Board meetings, the Directors follow a formal agenda to review the Company’s investments and all other important issues to ensure that control is maintained over the Company’s affairs. The Board is responsible for adherence to the investment policy and strategic and operational decisions of the Company. The Company’s main functions are delegated to a number of service providers, each engaged under separate legal contracts. The management of the Company’s portfolio is delegated to the Investment Manager, which has discretion to manage the assets in accordance with the Company’s objectives and policies. A representative of the Investment Manager attends each Board meeting to present written and verbal reports on its activities and portfolio performance. At each Board meeting, the Directors review the Company’s investments and all other important issues to ensure that control is maintained over the Company’s affairs. The Board has adopted a formal schedule of matters specically reserved for approval. These reserved matters include the following: Investment and business strategy of the Company. Annual and interim reports and accounts and accounting policies, prospectuses, circulars and other shareholder communications. Acquisitions and disposals of interests of more than 29.9% in the voting shares of any investee company. Dividend policy. Board appointments and removals. Appointment and removal of the Company’s service providers including the Investment Manager/AIFM, Depository and Auditor. SEC plc - Report and Financial Statements32 02 Governance Reports Board Balance and Independence All of the Directors of the Company are non-executive and, independent of the Investment Manager. The Directors possess a wide range of nancial, business and legal expertise relevant to the direction of the Company and consider that they commit sucient time to the Company’s affairs. Chairman The Chairman, Mr Hills, is deemed by his fellow independent Board members to be independent and to have no conicting relationships. He considers himself to have sucient time to commit to the Company’s affairs. As reported in the Chairman’s Statement, Mr Hills shall be retiring from the Board at the AGM in November 2022. The Board is undertaking a rigorous selection process for the new Chairman and expect to announce the appointment of his successor in the near future. Re-election and Retirement of Directors In accordance with the AIC Code all Directors are subject to annual re-election. Board support for re-election is based on the outcome of an annual performance evaluation. The Chair also speaks with each Director individually. The performance of each Director and nominations for re-election are then discussed by the Board as a whole. The Board’s policy on tenure is that the maximum period that any Director shall serve as a director of the Company shall be limited and no Director shall be eligible to serve beyond the ninth Annual General Meeting following his or her appointment. In the event that a Director is appointed at an Annual General Meeting, for these purposes that Annual General Meeting will not count towards the nine. Directors’ Induction, Training and Development Upon appointment to the Board, a new Director is provided with a detailed induction pack containing relevant information about the Company and their duties and responsibilities as a Director. Directors’ training and development needs are reviewed by the Board on an annual basis as part of the performance evaluation process. The Board is committed to keeping up to date on matters which are directly relevant to their duties and responsibilities to the Company. The Directors receive regular briengs and updates from the Company’s Investment Manager and other advisers on regulatory matters that may affect the Company. Diversity The Board is focused on having an effective Board which consists of experienced non-executive Directors who can function well together and have a good operational knowledge of the Company and the closed ended investment company sector more generally. Accordingly, the Board consists of ve independent Directors in Richard Hills, William Barlow, Annie Coleman, Josephine Dixon and Richard Locke. The Board supports the principle of boardroom diversity in its broadest sense, in terms of gender, expertise, geographic background, age and race. The Company is specialised and the Board’s priority is to have a relatively small and effective independent Board of non-executive Directors with the requisite abilities and experience to oversee the Company, its investments and its corporate structure, including its third-party advisers. Any new appointee would make an appropriate contribution to those skills. It is the Board’s policy to review its composition regularly and, when appropriate, to refresh the Board through recruitment, with the aim of having the blend of skills and attributes that will best serve shareholders in the future. In achieving gender diversity, the Board consists of ve non-executive Directors of whom two are female, including the Chairman of the Audit Committee, thereby constituting 40% female representation. The Board does not consider it appropriate to establish diversity targets or quotas at this time. However, it is mindful of the new Listing Rules on diversity and inclusion and the Company’s aim is to have an appropriate level of diversity on the Board. SEC plc - Report and Financial Statements 33 02 Governance Reports - Statement on Corporate Governance Meetings The Directors meet at regular Board meetings, at least once every quarter, with additional meetings arranged as necessary. The number of scheduled Board, Audit and Management Engagement Committee meetings held during the year ended 30June 2022 and the attendance of the individual Directors is shown below: Quarterly Board meetings Ad-hoc Board meetings Audit Committee meetings Management Engagement Committee meetings Number of meetings Number attended Number of meetings Number attended Number of meetings Number attended Number of meetings Number attended Richard Hills 4 4 12 12 2 2 1 1 William Barlow 4 4 12 11 2 2 1 1 Josephine Dixon 4 4 12 10 2 2 1 1 Richard Locke 4 4 12 12 2 2 1 1 Annie Coleman 1 1 2 2 – – 1 1 Members of the Board also meet with representatives of the Investment Manager on an informal and regular basis. The Board normally meets on four occasions during the year. There were an additional 12 meetings this year for strategic discussions. Two Committee meetings were also held during the year to consider the approval of the Company’s Annual and Interim Reports. Performance Evaluation The Board’s decision to recommend the re-election of each of the Directors is informed by a formal assessment of each Director’s independence and contribution, and the balance of skills, experience, length of service and knowledge of the Company across the Board as a whole. This assessment is made annually as part of the Board’s appraisal of its collective performance and that of the Chairman, the Directors and the Committees, and the independent status of each individual Director and the Board as a whole. The evaluation of the Chairman is led by the Deputy Chairman. In 2022, the evaluation of the Board was carried out by way of a questionnaire. Having considered and discussed the points raised by the Directors in response to the questionnaire, the Board has concluded that it has an appropriate balance of skills, experience and length of service and that each Director demonstrates effectiveness, a high level of commitment to the Company, and considerable experience, expertise and knowledge. In addition, the Board believes that each Director is independent of judgement and that there are no relationships or circumstances which are likely to affect the judgement of any Director. Accordingly, the Board recommends the election/re-election of each Director (as appropriate). Committees of the Board The Board has appointed three committees, to assist its operations. Each committee’s delegated responsibilities are clearly dened in formal terms of reference. These are reviewed and assessed annually for adequecy and copies are available from the Company’s Registered Oce. Miss Dixon chairs the Audit Committee and Mr Hills chairs the Management Engagement Committee and the Disclosure Committee. Each committee comprises all Directors of the Company. Following Mr Hills retirement at the forthcoming AGM, MrBarlow will chair the Management Engagement Committee and the Disclosure Committee. Audit Committee The main responsibilities of the Audit Committee and the matters addressed by the Committee during the year under review are detailed in the Audit Committee Report on pages 38 and 39. The Chairman of the Board is a member of the Committee to enable him to be kept fully informed of any issues which may arise. The Chair of the Audit Committee is a Chartered Accountant and the other Committee members have a combination of nancial, investment and other relevant experience. The Board is therefore satised that the Audit Committee has adequate skills to perform its role. SEC plc - Report and Financial Statements34 02 Governance Reports - Statement on Corporate Governance Management Engagement Committee The Management Engagement Committee is responsible for reviewing the performance of the Investment Manager and making recommendations to the Board about the continuing appointment of the Investment Manager on an annual basis. The Committee also reviews the Company’s other service providers and meets periodically. The Management Engagement Committee met once over the course of the year. Disclosure Committee Following the implementation of the Market Abuse Regulation (“MAR”) in July 2016 (which now forms part of the domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018, as amended from time to time), the Board agreed to form a Disclosure Committee, comprising all Directors and chaired by Mr Hills, to ensure the identication of inside information and the Company’s ongoing compliance with MAR. The Committee meets on an ad hoc basis. Remuneration Matters The Board has resolved that, in view of the size of the Board, it is most appropriate for matters of remuneration to be dealt with by the Board as a whole. Full details of the remuneration arrangements for Directors can be found in the Directors’ Remuneration Report on pages 40 to 42. Nomination Matters The Board as a whole undertakes the role of the Nomination Committee and oversees the annual appraisal of the Board members, including the Chairman, to assess whether individual Board members should be nominated for re-election each year, evaluates the overall composition of the Board from time to time, taking into account the existing balance of skills and knowledge on the Board and considers succession planning accordingly. This process is led by Richard Hills. The Board, when assessing the performance of Directors and for making recommendations as to whether they should remain in oce and be put forward for election or re-election at the AGM, uses extensive questionnaires and reviews by the Chairman. The Senior Independent Director is responsible for the appraisal of the Chairman. The 2022 review did not identify any causes for concern. The Board may seek assistance in identifying suitable candidates by appointing an external recruitment rm. During the year the Company engaged Stephenson Executive Search as its external recruitment rm as part of the recruitment of Annie Coleman. Stephenson Executive Search does not have any other connections with the Company. Company Secretary The Board has direct access to the advice and services of the Company Secretary which is responsible for ensuring that Board and Committee procedures are followed and that applicable regulations are complied with. The Company Secretary is also responsible to the Board for ensuring timely delivery of nancial and other relevant information and reports and that statutory obligations of the Company are met. Dialogue with shareholders Communication with shareholders is given a high priority by both the Board and the Investment Manager. Shareholders can communicate with the Board by writing to the Company Secretary at the address disclosed on page 73. Major shareholders of the Company are offered the opportunity to meet with the Investment Manager and the Directors in order to ensure that their views are understood. During the year under review, the Chairman communicated with a number of major shareholders. All shareholders are encouraged to attend and vote at the Annual General Meeting, during which the Board and the Investment Manager are available to discuss issues affecting the Company and shareholders have the opportunity to address questions to the Investment Manager, the Board and the Chairman. The half-yearly and annual reports are designed to present a full and readily understandable review of the Company’s activities and performance. Copies are available from www.greshamhouse.com. Directors’ indemnity The Company maintains Directors’ and ocers’ liability insurance which provides against costs which they may incur relating to the defence of any proceedings brought against them arising out of their positions as Directors, in which they are acquitted or judgment is given in their favour by the courts. The qualifying third-party indemnity provision was in force throughout the nancial year and at the date of approval of the annual report. No claims have been brought against the Company or the Directors. The insurance is reviewed periodically. SEC plc - Report and Financial Statements 35 02 Governance Reports - Statement on Corporate Governance Conicts of Interest It is the responsibility of each individual Director to avoid an unauthorised conict of interest situation arising. He or she must request authorisation from the Board as soon as he or she becomes aware of the possibility of an interest that conicts or might possibly conict with the interests of the Company (a “situational conict”). The Company’s Articles of Association authorise the Board to approve such situations, where deemed appropriate. The Board is responsible for considering Directors’ requests for authorisation of situational conicts and for deciding whether or not the situational conict should be authorised. The factors to be considered will include: whether the situational conict could prevent the Director from properly performing his or her duties; whether it has, or could have, any impact on the Company; and whether it could be regarded as likely to affect the judgement and/ or actions of the Director in question. When the Board is deciding whether to authorise a conict or potential conict, only Directors who have no interest in the matter being considered are able to take the relevant decision, and in taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. The Directors are able to impose limits or conditions when giving authorisation if they think this is appropriate in the circumstances. A register of conicts is maintained by the Company Secretary and is reviewed at every Board meeting to ensure that it is kept up to date and the Board, on an individual basis, conrmed there were no conicts of interest during the year ended 30June 2022. Internal Control Review The Directors acknowledge that they are responsible for the Company’s systems of internal control and for reviewing their effectiveness. An ongoing process, in accordance with the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, has been established for identifying, evaluating and managing the risks faced by the Company. This process is regularly reviewed by the Board. The risk management process and systems of internal control are designed to manage rather than eliminate the risk of failure to achieve the Company’s objectives. It should be recognised that such systems can provide only reasonable, not absolute, assurance against material misstatement or loss. Internal control assessment process Risk assessment and the review of internal controls are undertaken by the Board in the context of the Company’s overall investment objective. The review process, which has been in place for the year ended 30 June 2022 and up to the date of this report, covers the key business, operational, compliance and nancial risks facing the Company. In arriving at its judgement of what risks the Company faces, the Board considers the Company’s objectives in light of the following factors: the nature and extent of risks which it regards as acceptable for the Company to bear within its overall business objective; the threat of such risks becoming reality; the Company’s ability to reduce the incidence and impact of risk on its performance; and the cost to the Company and benets related to the Company and third parties of operating the relevant controls. Against this backdrop, the Board has split the review into four sections reecting the nature of the risks being addressed. The sections are as follows: corporate strategy; investment and business activities; published information and compliance with laws and regulations; and relationship with service providers. Given the nature of the Company’s activities and the fact that most functions are subcontracted, the Board has concluded that there is no need for the Company to have an internal audit function. Instead, the Directors obtain information from key third party suppliers regarding the controls operated by them. To enable the Board to make an appropriate risk and control assessment, the information and assurances sought from third parties include the following: details of the control environment; identication and evaluation of risks and control objectives; assessment of the communication procedures; and assessment of the control procedures. SEC plc - Report and Financial Statements36 02 Governance Reports - Statement on Corporate Governance The key procedures which have been established to provide effective internal controls are as follows: investment management is provided by Gresham House Asset Management. The Board is responsible for the implementation of the overall investment policy and monitors the action of the Investment Manager at regular meetings. The Audit Committee reviews compliance reports from the Investment Manager on a twice-yearly basis, and the Investment Manager’s compliance ocer is available to attend the meeting if required; the provision of administration, accounting and company secretarial duties are the responsibility of Juniper Partners Limited. The Audit Committee reviews the report on controls from Juniper Partners Limited on an annual basis; J.P. Morgan Europe Limited act as depository and J.P. Morgan Chase Bank N.A. act as custodian to the Company. The Audit Committee reviews J.P. Morgan’s internal controls report on an annual basis; the duties of investment management, accounting and custody of assets are segregated. The procedures of the individual parties are designed to complement one another; the Directors of the Company clearly dene the duties and responsibilities of their agents and advisers in the terms of their contracts. The appointment of agents and advisers is conducted by the Board after consideration of the quality of the parties involved; the Board monitors their ongoing performance and contractual agreements; mandates for authorisation of investment transactions and expense payments are set by the Board; and the Board reviews detailed nancial information produced by the Investment Manager and the Company Secretary on a regular basis. The Directors have carried out a review of the effectiveness of the systems of internal control as they have operated over the period and up to the date of approval of the report and nancial statements. There were no matters arising from this review that required further investigation and no signicant failings or weaknesses were identied. SEC plc - Report and Financial Statements 37 02 Governance Reports - Statement on Corporate Governance Audit Committee Report I am pleased to present the Committee’s report to shareholders for the year ended 30 June 2022. The Committee comprises all directors of the Company, including the Chairman of the Company to enable him to remain fully informed of any issues that may arise. The Committee met twice during the year. Attendance by each Director is shown in the table on page 34. The Committee’s main responsibilities are: 1. To review the half year and annual nancial statements The Committee considers whether the nancial statements are fair, balanced and understandable. In addition, consistency of accounting policies, key areas of judgement, the clarity of disclosure and compliance with accounting and listing requirements, the going concern assumption, the viability statement, and the results of the audit are all covered in the work of the Committee. 2. To review the risk management and effectiveness of internal control policies and procedures of the Company and its service providers The Committee reviews and considers the Company’s statement on risk management and internal control systems included in the nancial statements prior to endorsement by the Board. 3. In relation to the external auditor: to review and approve terms of the external auditor; meet with the external auditor to discuss the outcomes of their audit work; liaise with the auditor in respect of their planning of their work and engagement terms, including fees; review auditor independence; assess the effectiveness of the Auditor and the audit process; consider appropriateness and terms of any auditor appointment in respect of any non-audit work; monitor the requirements for rotation of the Auditor; and make recommendations to the Board relating to appointment and re-appointment. 4. Consider the need for an internal audit function The Board has concluded that there is no need for an internal audit function owing to the nature of the Company’s activities and the fact that most functions are subcontracted. The following matters were addressed by the Committee during the period under review. Risk Management and Effectiveness of Internal Controls The Committee conducted a robust review of the effectiveness of the Company’s risk management and internal control systems in February 2022, as part of its consideration of the Annual Report and Financial Statements for the year ended 30 June 2022. The review included considering those risks that might threaten the Company’s business model, future performance, solvency or liquidity. During the year the Committee has considered thefollowing: the appropriateness of the risk matrix of the Company; the reports on the effectiveness of internal controls and risk management systems of the principal service providers to the Company; and the quarterly reports from the Depository. Following that process, the Committee then recommended to the Board the endorsement of the statement on internal control, as included in this Report on page 36. SEC plc - Report and Financial Statements38 02 Governance Reports Half Year and Annual Financial Statements Both the Half-yearly Report for the period ended 31December 2021 and the Annual Report for the year ended 30 June 2022 were reviewed in detail and in line with the Committee’s responsibilities and formal recommendations were made to the Board for approval. The Committee considered the basis and reasonableness of the valuation of the Company’s quoted investments, as a signicant matter. The Committee also considered the following other matters: in discussion with the Auditor and the Investment Manager, the calculation of the investment management and performance fees payable to the Investment Manager; the prospects of the Company over the three year period agreed by the Board when assessing the long-term viability of the Company, and the appropriateness of the statement from the Directors, as included in this Annual Report; and the use of the going concern principle in the preparation of the nancial statements for the year ended 30 June 2022. The Committee considered evidence supporting this principle and reviewed the statement on going concern for endorsement by the Board. Auditor Under EU legislation (as it forms part of the domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018, as amended from time to time) quoted companies are required to tender the external audit at least every ten years, and change auditor at least every twenty years. The Committee last undertook an audit tender process in December 2015 following which KPMG LLP was appointed as auditor with effect from 17 February 2016 in respect of the nancial year ended 30 June 2016. Current audit regulations require the Company to tender the external audit no later than for the year ending 30 June 2026. In accordance with professional and regulatory standards, the audit director responsible for the audit is rotated at least every ve years in order to protect independence and objectivity and to provide fresh challenge to the business. The year ended 30 June 2022 is the fourth year for which the present audit director from KPMG, Gary Fensom, has served as the senior statutory auditor. KPMG LLP have conrmed their willingness to continue in their oce as Auditor and a resolution proposing their re- appointment will be submitted at the forthcoming Annual General Meeting. Independence, Objectivity and Effectiveness of the Auditor The Committee reviewed the independence and objectivity of KPMG LLP as the Auditor in September 2022. The Committee had no grounds to question the independence or objectivity of the audit rm, their director or management. The Committee also considered the performance of the Auditor by discussing separately amongst themselves the appropriateness of KPMG LLP’s approach to the audit, by detailed discussion with the Audit Director at the Audit Committee meeting in September 2022 of the quality of their report to the Company, and from their ability to assist the Committee in questions raised. The Committee was satised with the performance of the Auditor. Audit Fees The Audit Committee reviewed the audit plan and fees presented by the Auditor and considered their report on the annual nancial statements at a meeting of the Committee attended by the Auditor. The fee for the audit of the Annual Report and Financial Statements for the year ended 30 June 2022 of £42,500 (excluding VAT) was considered and approved by the Committee for recommendation to the Board. Non-audit Services Any proposed non-audit services must be approved in advance by the Audit Committee and will be reviewed in light of statutory requirements to maintain the Auditor’s independence. No non-audit services were provided to the Company in the year ending 30June 2022. The only fees paid to KPMG LLP were in relation to the statutory audit as referred to above. Re-appointment of the Auditor Following this review, the Committee has no hesitation in recommending KPMG LLP’s re-appointment as statutory Auditor to the Company. A resolution to this effect will therefore be put to shareholders at the forthcoming Annual General Meeting to be held on 9 November 2022. Josephine Dixon Audit Committee Chairman 5 October 2022 SEC plc - Report and Financial Statements 39 02 Governance Reports - Audit Committee Report Directors’ Remuneration Report The Board has prepared this report in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. An Ordinary resolution for the approval of this report will be put to shareholders at the forthcoming Annual General Meeting. The law requires the Company’s Auditor to audit certain disclosures provided. Where disclosures have been audited, they are indicated as such. The Auditor’s opinion is included in its report on pages 44 to 49. Directors’ Remuneration Report Statement from the Chairman The Board presents the Directors’ Remuneration Report for the year ended 30 June 2022, which has been prepared in accordance with the Companies Act 2006. The Board has resolved that, in view of the size of the Board, it is most appropriate for matters of remuneration to be dealt with by the Board as a whole. The Remuneration Policy is set out on page 41. During the year ended 30 June 2022, Directors’ annual fees were set at a rate of £40,000 for the Chairman, £31,500 for the Chairman of the Audit Committee and £27,500 for a non-executive Director of the Company. Mr Locke received an additional £3,000 for his work as the Company’s Deputy Chairman. Following a review of the level of Directors’ fees for the forthcoming year the Board concluded that the amounts should remain the same. There will be no change to the way the current approved Remuneration Policy will be implemented in the course of the next nancial year. Your Company’s performance The Company is required to include a performance graph in this report comparing the Company’s total shareholder return performance against that of a broad equity market index. The Company is legally required to present a performance comparison. However, comparison against an index is not the objective of the Company. The following graph compares the total shareholder return to the total return on the FTSE Small Cap (ex investment Trusts) Total Return Index. This index has been selected for comparison of the Company’s performance for its generic qualities as no listed index directly comparable to the Company’s portfolio exists. Change 2012 2014 2015201620172018 2019 2020 202120222013 Strategic Equity Capital - Share Price Total Return Index FTSE Small Cap (ex Investment Trusts) - Total Return Index Source: Refinitiv Datastream 0 50 100 150 200 250 300 350 400 450 Directors’ emoluments for the year ended 30June 2022 (audited) The Directors who served in the year were paid the following emoluments in the form of fees: Year ended 30 June 2022 £ Year ended 30 June 2021 £ % change Average annual change in employees’ pay Richard Hills 40,000 36,800 8.7 N/A William Barlow 27,500 25,250 8.9 N/A Annie Coleman 10,154 – N/A N/A Josephine Dixon 31,500 29,000 8.6 N/A Richard Locke 30,500 25,250 20.8 N/A David Morrison † – 19,132 N/A N/A Total 139,654 135,432 3.1 N/A † David Morrison retired from the Board on 30 March 2021. * Annie Coleman was appointed to the Board on 14February 2022. The above emoluments are of a xed nature with no variable elements. SEC plc - Report and Financial Statements40 02 Governance Reports The table below contains the annual percentage change in remuneration in the three nancial years prior to the current year in respect of each Director: Fee Rates Year to 30 April 2020 Year to 30 April 2021 Year to 30 April 2022 Chair £36,800 £36,800 £40,000 +3.1% +0% +8.7% Audit Chair £29,000 £29,000 £31,500 +3.2% +0% +8.6% Deputy Chairman – – £30,500 – – +20.8% Other directors £25,250 £25,250 £27,500 +3.1% +0% +8.9% Relative importance of spend on pay The table below, which is a statutory requirement, sets out, in respect of the nancial year ended 30 June 2022 and the preceding year: a) the remuneration paid to Directors; and b) the cash returned to shareholders by way of dividend. Year ended 30 June 2022 £ Year ended 30 June 2021 £ Change Total remuneration 139,654 135,432 +3.1% Dividend paid 1,013,000 791,000 +28.1% Directors’ interests (audited) There is no requirement under the Company’s Articles of Association, or their terms of appointment, for Directors to hold shares in the Company. The interests of the Directors and any connected persons in the Ordinary shares of the Company are set out below: 30 June 2022 30 June 2021 Richard Hills 42,500 75,000 William Barlow 10,000 10,000 Annie Coleman 5,462 – Josephine Dixon 20,000 20,000 Richard Locke 30,000 30,000 * This interest is held jointly by Mr Locke and Mrs Mary Locke. There have been no changes to any of the above holdings between 30 June 2022 and the date of this report. None of the Directors or any persons connected with them had a material interest in the Company’s transactions, arrangements or agreements during the year. Directors’ service contracts None of the Directors has a contract of service with the Company, nor has there been any contract or arrangement between the Company and any Director at any time during the year. The terms of their appointment provide that a Director shall retire and be subject to election at the rst Annual General Meeting after their appointment, and every year thereafter. Directors are not entitled to any termination payments in relation to their appointment. The Directors have committed to standing for annual re- election in the interests of good corporate governance. SEC plc - Report and Financial Statements 41 02 Governance Reports - Directors’ Remuneration Report Directors’ Remuneration Policy An ordinary resolution to approve this Remuneration Policy is put to a shareholders’ vote at least once every three years and in any year if there is to be a change in the Directors’ Remuneration Policy. The Company follows the recommendation of the AIC Code that Directors’ remuneration should reect their duties, responsibilities and the value of their time spent on the Company’s affairs. The Board’s policy is that the remuneration of non-executive Directors should reect the experience of the Board as a whole, be fair and comparable to that of other investment trusts that are similar in size, have a similar capital structure and have a similar investment objective. Any views expressed by shareholders on the fees being paid to Directors will be taken into consideration by the Board when reviewing the Directors’ Remuneration Policy and in the annual review of Directors’ fees. The fees of the non-executive Directors are determined within the limits set out in the Company’s Articles of Association. The Articles provide that the aggregate limit for Director’s fees in any one year is £200,000. Approval by shareholders would be required to increase that limit. The Directors are not eligible for bonuses, pension benets, share options, long-term incentive schemes or other benets as the Board does not consider it to be appropriate at this time. There are no performance conditions attached to the remuneration of the Directors as the Board does not consider such arrangements or benets necessary or appropriate for non-executive directors. It is intended that the Company’s policy when determining the duration of notice periods and termination payments under the Directors’ letters of appointment will be based on prevailing best practice guidelines. Under the Directors’ letters of appointment, there is no notice period and no compensation is payable to a Director on leaving oce. Statement of voting at the last Annual General Meeting The Directors’ Remuneration Report for the year ended 30 June 2021 was approved by shareholders at the Annual General Meeting held on 10 November 2021. The votes cast by proxy were as follows: Directors’ Remuneration Report Number of votes % of votes cast For 43,864,576 99.51 Against 217,032 0.49 At Chairman’s discretion – – Total votes cast 44,081,608 100.00 Number of votes withheld 33,191 The Directors’ Remuneration Policy was approved by shareholders at the Annual General Meeting held on 10November 2021, and will next be put to shareholders at the Annual General Meeting in 2024. The votes cast by proxy on 10 November 2021 were as follows: Directors’ Remuneration Policy Number of votes % of votes cast For 41,795,276 99.97 Against 12,032 0.03 At Chairman’s discretion – – Total votes cast 41,807,308 100.00 Number of votes withheld 33,191 Approval The Directors’ Remuneration Report was approved by the Board of Directors on 5 October 2022 and signed on its behalf by the Chairman. Richard Hills Chairman 5 October 2022 SEC plc - Report and Financial Statements42 02 Governance Reports - Directors’ Remuneration Report Statement of Directors’ Responsibilities in respect of the Report and Financial Statements The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare nancial statements for each nancial year. Under that law they are required to prepare the nancial statements in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006. Under company law the Directors must not approve the nancial statements unless they are satised that they give a true and fair view of the state of affairs of the Company and of its prot or loss for that period. In preparing these nancial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable, relevant and reliable; state whether they have been prepared in accordance with UK-adopted international accounting standards; assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting records that are sucient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the nancial position of the Company and enable them to ensure that its nancial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of nancial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and otherirregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and nancial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of nancial statements may differ from legislation in other jurisdictions. Responsibility statement of the Directors in respect of the Annual Financial Report We conrm that to the best of our knowledge: the nancial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, nancial position and prot or loss of the Company; and the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that it faces. We consider the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. For and on behalf of the Board Richard Hills Chairman 5 October 2022 SEC plc - Report and Financial Statements 43 02 Governance Reports Independent auditor’s report to the members of Strategic Equity Capital plc 1. Our opinion is unmodied We have audited the nancial statements of Strategic Equity Capital plc. (“the Company”) for the year ended 30 June 2022 which comprise the Statement of Comprehensive Income, Balance Sheet, Statement of Changes in Equity, Statement of Cash Flows and the related notes, including the accounting policies in note 1. In our opinion the nancial statements: give a true and fair view of the state of the Company’s affairs as at 30 June 2022 and of its return for the year then ended; have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sucient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were rst appointed as auditor by the Directors on 17 February 2016. The period of total uninterrupted engagement is for the seven nancial periods ended 30 June 2022. We have fullled our ethical responsibilities under, and we remain independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. Overview Materiality: £1.7m (2021: £2.2m) Financial statements as a whole 1% (2021: 1%) of Total Assets Key audit matters vs 2021 Recurring risks Carrying amount of quoted investments 2. Key audit matters: including our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most signicance in the audit of the nancial statements and include the most signicant assessed risks of material misstatement (whether or not due to fraud) identied by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matter, (unchanged from 2021), in arriving at our audit opinion above, together with our key audit procedures to address this matter and, as required for public interest entities, our results from those procedures. This matter was addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the nancial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on this matter. SEC plc - Report and Financial Statements44 02 Governance Reports The risk Our response Carrying amount of quoted investments (£160.0 million; 2021: £215.8 million) Refer to pages 38 and 39 (Audit Committee Report), page 55 (accounting policy) and note 8 on pages 60 to 62 disclosures). Low risk, high value: The Company’s portfolio of level 1 quoted investments makes up 90.3% (2021: 96.4%) of the Company’s total assets (by value) and is one of the key drivers of results. We do not consider these investments to be at a high risk of signicant misstatement, or to be subject to a signicant level of judgement because they comprise liquid, quoted investments. However, due to their materiality in the context of the nancial statements as a whole, they are considered to be one of the areas which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our audit. We performed the tests below rather than seeking to rely on the Company’s controls, because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described below. Our procedures included: Tests of detail: Agreeing the valuation of 100% of level 1 quoted investments in the portfolio to externally quoted prices; and Enquiry of custodians: Agreeing 100% of level 1 quoted investment holdings in the portfolio to independently received third party conrmations from investment custodians. Our results We found the carrying amount of level 1 quoted investments to be acceptable (2021: acceptable). 3. Our application of materiality and an overview of the scope of our audit Materiality for the nancial statements as a whole was set at £1.7m (2021: £2.2m), determined with reference to a benchmark of total assets, of which it represents 1% (2021: 1%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the nancial statements as a whole. Performance materiality was set at 75% (2021: 75%) of materiality for the nancial statements as a whole, which equates to £1.3m (2021: £1.7m). We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. We agreed to report to the Audit Committee any corrected or uncorrected identied misstatements exceeding £88k (2021: £110k), in addition to other identied misstatements that warranted reporting on qualitative grounds. Our audit of the Company was undertaken to the materiality level specied above and was performed by a single audit team. The scope of the audit work performed was fully substantive as we did not rely upon the Company’s internal control over nancial reporting. Total Assets £177.2m (2021: £223.8m) Materiality £1.7m (2021: £2.2m) £1.7m (2021: £2.2m) £1.3m £88k statements materiality Whole nancial Performance materiality (2021: £1.7m) Misstatements reported to the audi committee (2021: £110k) Total assets Materiality SEC plc - Report and Financial Statements 45 02 Governance Reports - Independent Auditor’s Report 4. Going concern The Directors have prepared the nancial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company’s nancial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast signicant doubt over its ability to continue as a going concern for at least a year from the date of approval of the nancial statements (“the going concern period”). We used our knowledge of the Company, its industry, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Company’s nancial resources or ability to continue operations over the going concern period. The risks that we considered most likely to adversely affect the Company’s available nancial resources and its ability to operate over this period were: the impact of a signicant reduction in the valuation of investments; the liquidity of the investment portfolio and its ability to meet the liabilities of the Company as and when they fall due; and the operational resilience of key service organisations. We considered whether these risks could plausibly affect the liquidity in the going concern period by assessing the degree of downside assumption that, individually and collectively, could result in a liquidity issue, taking into account the Company’s liquid investment position. We considered whether the going concern disclosure in note 1 to the nancial statements gives a full and accurate description of the Directors’ assessment of going concern, including the identied risks and related sensitivities. Our conclusions based on this work: We consider that the Directors’ use of the going concern basis of accounting in the preparation of the nancial statements is appropriate; We have not identied, and concur with the Directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast signicant doubt on the Company’s ability to continue as a going concern for the going concern period; We have nothing material to add or draw attention to in relation to the Directors’ statement in note 1 to the nancial statements on the use of the going concern basis of accounting with no material uncertainties that may cast signicant doubt over the Company’s use of that basis for the going concern period, and we found the going concern disclosure in note 1 to be acceptable; and The related statement under the Listing Rules set out on page 20 is materially consistent with the nancial statements and our audit knowledge. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Company will continue in operation. 5. Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: enquiring of Directors as to the Company’s high-level policies and procedures to prevent and detect fraud, as well as whether they have knowledge of any actual, suspected or alleged fraud; assessing the segregation of duties in place between the Directors, the Administrator and the Company’s Investment Manager; and reading Board and Audit Committee minutes. We communicated identied fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. As required by auditing standards, we perform procedures to address the risk of management override of controls, in particular to the risk that management may be in a position to make inappropriate accounting entries. We evaluated the design and implementation of the controls over journal entries and other adjustments and made inquiries of the Administrator about inappropriate or unusual activity relating to the processing of journal entries and other adjustments. Based on the results of our risk assessment procedures and understanding of the process, including the segregation of duties between the Directors and the Administrator, no high-risk journals or other adjustments were identied On this audit we do not believe there is a fraud risk related to revenue recognition because the revenue is non- judgemental and straightforward, with limited opportunity for manipulation. We did not identify any additional fraud risks. SEC plc - Report and Financial Statements46 02 Governance Reports - Independent Auditor’s Report Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identied areas of laws and regulations that could reasonably be expected to have a material effect on the nancial statements from our general commercial and sector experience and through discussion with the Directors, the Investment Manager and the Administrator (as required by auditing standards) and discussed with the Directors the policies and procedures regarding compliance with laws and regulations. As the Company is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements. The potential effect of these laws and regulations on the nancial statements varies considerably. Firstly, the Company is subject to laws and regulations that directly affect the nancial statements including nancial reporting legislation (including related companies legislation), distributable prots legislation, and its qualication as an Investment Trust under UK taxation legislation, any breach of which could lead to the Company losing various deductions and exemptions from UK corporation tax, and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related nancial statement items. We assessed the legality of the distributions made by the Company in the period based on comparing the dividends paid to the distributable reserves prior to each distribution, including consideration of accounts led during the year. Secondly, the Company is subject to many other laws and regulations where the consequences of non- compliance could have a material effect on amounts or disclosures in the nancial statements, for instance through the imposition of nes or litigation. We identied the following areas as those most likely to have such an effect: money laundering, data protection, bribery and corruption legislation and certain aspects of company legislation recognising the nancial and regulated nature of the Company’s activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and the Administrator and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the nancial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non- compliance with laws and regulations is from the events and transactions reected in the nancial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non- compliance with all laws and regulations. 6. We have nothing to report on the other information in the Annual Report The Directors are responsible for the other information presented in the Annual Report together with the nancial statements. Our opinion on the nancial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our nancial statements audit work, the information therein is materially misstated or inconsistent with the nancial statements or our audit knowledge. Based solely on that work we have not identied material misstatements in the other information. Strategic report and Directors’ report Based solely on our work on the other information: we have not identied material misstatements in the strategic report and the Directors’ report; in our opinion the information given in those reports for the nancial year is consistent with the nancial statements; and in our opinion those reports have been prepared in accordance with the Companies Act 2006. SEC plc - Report and Financial Statements 47 02 Governance Reports - Independent Auditor’s Report Directors’ Remuneration Report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Disclosures of emerging and principal risks and longer-term viability We are required to perform procedures to identify whether there is a material inconsistency between the Directors’ disclosures in respect of emerging and principal risks and the viability statement, and the nancial statements and our audit knowledge. Based on those procedures, we have nothing material to add or draw attention to in relation to: the Directors’ conrmation within the Viability Statement on page 20 that they have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity; the Principal and Emerging Risks disclosures describing these risks and how emerging risks are identied, and explaining how they are being managed and mitigated; and the Directors’ explanation in the Viability Statement of how they have assessed the prospects of the Company, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualications or assumptions. We are also required to review the Viability Statement, set out on page 20 under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the nancial statements and our audit knowledge. Our work is limited to assessing these matters in the context of only the knowledge acquired during our nancial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Company’s longer-term viability. Corporate governance disclosures We are required to perform procedures to identify whether there is a material inconsistency between the Directors’ corporate governance disclosures and the nancial statements and our audit knowledge. Based on those procedures, we have concluded that each of the following is materially consistent with the nancial statements and our audit knowledge: the Directors’ statement that they consider that the annual report and nancial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy; the section of the annual report describing the work of the Audit Committee, including the signicant issues that the audit committee considered in relation to the nancial statements, and how these issues were addressed; and the section of the annual report that describes the review of the effectiveness of the Company’s risk management and internal control systems. We are required to review the part of Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specied by the Listing Rules for our review. We have nothing to report in this respect. 7. We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the nancial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specied by law are not made; or we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. SEC plc - Report and Financial Statements48 02 Governance Reports - Independent Auditor’s Report 8. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page43, the Directors are responsible for: the preparation of the nancial statements including being satised that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of nancial statements that are free from material misstatement, whether due to fraud or error; assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to inuence the economic decisions of users taken on the basis of the nancial statements. A fuller description of our responsibilities is provided on the FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. 9. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Gary Fensom (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Saltire Court 20 Castle Terrace Edinburgh EH1 2EG 5 October 2022 SEC plc - Report and Financial Statements 49 02 Governance Reports - Independent Auditor’s Report Statement of Comprehensive Income for the year ended 30 June 2022 Year ended 30 June 2022 Year ended 30 June 2021 Note Revenue return £’000 Capital return £’000 Total £’000 Revenue return £’000 Capital return £’000 Total £’000 Investments (Losses)/gains on investments held at fair value through prot or loss 8 – (21,776) (21,776) – 69,767 69,767 – (21,776) (21,776) – 69,767 69,767 Income Dividends 2 4,173 – 4,173 2,382 – 2,382 Interest 2 6 – 6 1 – 1 Total income 4,179 – 4,179 2,383 – 2,383 Expenses Investment Manager’s fee 3 (1,564) – (1,564) (894) – (894) Other expenses 4 (1,128) – (1,128) (643) – (643) Total expenses (2,692) – (2,692) (1,537) – (1,537) Net return before taxation 1,487 (21,776) (20,289) 846 69,767 70,613 Taxation 5 – – – – – – Net return and total comprehensive income for the year 1,487 (21,776) (20,289) 846 69,767 70,613 pence pence pence pence pence pence Return per Ordinary share 7 2.43 (35.53) (33.10) 1.34 110.22 111.56 The total column of this statement represents the Statement of Comprehensive Income prepared in accordance with IFRS. The supplementary revenue and capital return columns are both prepared under guidance published by the AIC. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The notes on pages 54 to 68 form part of these nancial statements. SEC plc - Report and Financial Statements50 03 Financial Statements Statement of Changes in Equity for the year ended 30 June 2022 Note Share capital £’000 Share premium account £’000 Special reserve £’000 Capital reserve £’000 Capital redemption reserve £’000 Revenue reserve £’000 Total £’000 For the year ended 30 June 2022 1 July 2021 6,986 31,737 24,567 154,126 2,264 1,889 221,569 Net return and total comprehensive income for the year – – – (21,776) – 1,487 (20,289) Dividends paid 6 – – – – – (1,013) (1,013) Share buy-backs (633) (20,437) (4,800) – 633 – (25,237) 30 June 2022 6,353 11,300 19,767 132,350 2,897 2,363 175,030 For the year ended 30 June 2021 1 July 2020 6,986 31,737 24,567 84,359 2,264 1,834 151,747 Net return and total comprehensive income for the year – – – 69,767 – 846 70,613 Dividends paid 6 – – – – – (791) (791) 30 June 2021 6,986 31,737 24,567 154,126 2,264 1,889 221,569 All prots are attributable to the equity owners of the Company and there are no minority interests. The notes on pages 54 to 68 form part of these nancial statements. SEC plc - Report and Financial Statements 51 03 Financial Statements Balance Sheet as at 30 June 2022 Note 30 June 2022 £’000 30 June 2021 £’000 Non-current assets Investments held at fair value through prot or loss 8 159,950 215,756 Current assets Trade and other receivables 10 885 423 Cash and cash equivalents 14 16,363 7,580 17,248 8,003 Total assets 17 7,198 223,759 Current liabilities Trade and other payables 11 (2,168) (2,190) Net assets 175,030 221,569 Capital and reserves Share capital 12 6,353 6,986 Share premium account 13 11,300 31,737 Special reserve 13 19,767 24,567 Capital reserve 13 132,350 154,126 Capital redemption reserve 13 2,897 2,264 Revenue reserve 13 2,363 1,889 Total shareholders’ equity 175,030 221,569 pence pence Net asset value per share 15 316.21 350.05 number number Ordinary shares in issue 12 55,352,088 63,296,844 The nancial statements were approved by the Board of Directors of Strategic Equity Capital plc on 5 October 2022. They were signed on its behalf by Richard Hills Chairman 5 October 2022 Company Number: 05448627 The notes on pages 54 to 68 form part of these nancial statements. SEC plc - Report and Financial Statements52 03 Financial Statements Statement of Cash Flows for the year ended 30 June 2022 Note Year ended 30 June 2022 £’000 Year ended 30 June 2021 £’000 Operating activities Net return before taxation (20,289) 70,613 Adjustment for losses/(gains) on investments 21,776 (69,767) Operating cash ows before movements in working capital 1,487 846 Increase in receivables (219) (368) (Decrease)/increase in payables (19) 366 Purchases of portfolio investments (36,443) (61,324) Sales of portfolio investments 70,129 54,950 Net cash ow from operating activities 34,935 (5,530) Financing activities Equity dividend paid 6 (1,013) (791) Shares bought back in the year (25,139) – Net cash ow from nancing activities (26,152) (791) Increase/(decrease) in cash and cash equivalents for year 8,783 (6,321) Cash and cash equivalents at start of year 7,580 13,901 Cash and cash equivalents at 30 June 14 16,363 7,580 The notes on pages 54 to 68 form part of these nancial statements. SEC plc - Report and Financial Statements 53 03 Financial Statements Notes to the Financial Statements 1.1 Corporate information Strategic Equity Capital plc is a public limited company incorporated and domiciled in the United Kingdom and registered in England and Wales under the Companies Act 2006 whose shares are publicly traded. The Company is an investment company as dened by Section 833 of the Companies Act 2006. The Company carries on business as an investment trust within the meaning of Sections 1158/1159 of the UK Corporation Tax Act 2010. The nancial statements of Strategic Equity Capital plc for the year ended 30 June 2022 were authorised for issue in accordance with a resolution of the Directors on 5 October 2022. 1.2 Basis of preparation and statement of compliance The nancial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, and reect the following policies which have been adopted and applied consistently. Where presentational guidance set out in the Statement of Recommended Practice (“SORP”) for investment trusts issued by the AIC in February 2019 is consistent with the requirements of IFRS, the Directors have sought to prepare nancial statements on a basis compliant with the recommendations of the SORP. The nancial statements of the Company have been prepared on a going concern basis. The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration: cash and cash equivalents balances and the portfolio of readily realisable securities which can be used to meet short- term funding commitments; the ability of the Company to meet all of its liabilities and ongoing expenses from its assets; revenue and operating cost forecasts for the forthcoming year; the ability of third-party service providers to continue to provide services; and potential downside scenarios including stress testing the Company’s portfolio for a 25% fall in the value of the investment portfolio; a 50% fall in dividend income and a buy-back of 9% of the Company’s Ordinary share capital, the impact of which would leave the Company with a positive cash position. Based on this assessment, the Directors are condent that the Company will have sucient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the nancial statements, and therefore have prepared the nancial statements on a going concern basis. Convention The nancial statements are presented in Sterling, being the currency of the Primary Economic Environment in which the Company operates, rounded to the nearest thousand, unless otherwise stated to the nearest one pound. Segmental reporting The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. As such, no segmental reporting disclosure has been included in the nancial statements. SEC plc - Report and Financial Statements54 03 Financial Statements 1.3 Accounting policies Investments All investments held by the Company are classied as “fair value through prot or loss”. As the Company’s business is investing in nancial assets with a view to proting from their total return in the form of interest, dividends or increase in fair value, quoted equities, unquoted equities and xed income securities are designated as fair value through prot or loss on initial recognition. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy. Investments are initially recognised at cost, being the fair value of the consideration. After initial recognition, investments are measured at fair value, with movements in fair value of investments and impairment of investments recognised in the Statement of Comprehensive Income and allocated to the capital column. For investments actively traded in organised nancial 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. Trade date accounting All “regular way” purchases and sales of nancial assets are recognised on the “trade date” i.e. the day that the Company commits to purchase or sell the asset. Regular way purchases, or sales, are purchases or sales of nancial assets that require delivery of the asset within a time frame generally established by regulation or convention in the market place. Income Dividends receivable on quoted equity shares are taken into account on the ex-dividend date. Where no ex-dividend date is quoted, they are brought into account when the Company’s right to receive payment is established. Other investment income and interest receivable are included in the nancial statements on an accruals basis. Dividends receivable from UK and overseas registered companies are accounted for on a gross basis. Where withholding tax is paid, the amount will be recognised in the revenue column of the Statement of Comprehensive Income as part of the tax expense and deemed as irrecoverable. For dividends which are of a capital nature, they are recognised in the capital column of the Statement of Comprehensive Income. Income on xed income securities is recognised on a time apportionment basis, using the effective interest rate method, from the date of purchase. Expenses All expenses are accounted for on an accruals basis. The Company’s investment management, administration fees, and all other expenses are charged through the Statement of Comprehensive Income. These expenses are allocated 100% to the revenue column of the Statement of Comprehensive Income. The Investment Manager’s performance fee is allocated 100% to the capital column of the Statement of Comprehensive Income. In the opinion of the Directors the fee is awarded entirely for the capital performance of the portfolio. Cash and cash equivalents Cash and cash equivalents which are held to maturity are carried at fair value. Cash and cash equivalents are dened as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignicant risk of changes in value. SEC plc - Report and Financial Statements 55 03 Financial Statements - Notes to the Financial Statements Taxation Income tax on the prot or loss for the year comprises current and deferred tax. Income tax is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the Balance Sheet date, and any adjustment to tax payable in respect of previous years. The tax effect of different items of expenditure is allocated between the revenue and capital columns of the Statement of Comprehensive Income on the same basis as the particular item to which it relates, using the Company’s effective rate of tax. Deferred income tax is provided on all temporary differences at the Balance Sheet date between the tax basis of assets and liabilities and their carrying amount for nancial reporting purposes. Deferred income tax liabilities are measured on an undiscounted basis at the tax rates that are expected to apply to the year when the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are recognised to the extent that it is probable that taxable prots will be available against which deductible temporary differences can be utilised. Dividends payable to shareholders Dividends to shareholders are recognised as a deduction from equity in the year in which they have been declared and approved by the shareholders. The nal dividend is proposed by the Board and is not declared until approved by the shareholders at the Annual General Meeting following the year end. Dividends are charged to the Statement of Changes in Equity. Share issues and related accounts Incremental costs directly attributable to the issuance of shares are recognised as a deduction from share premium arising from the transactions. Share buy-backs Shares which are repurchased are recognised as a deduction from special reserve and are either classied as Treasury shares or are cancelled. Foreign currency transactions The currency of the Primary Economic Environment in which the Company operates is Sterling which is also the presentational currency. Transactions denominated in foreign currencies are translated into Sterling at the rates of exchange ruling at the date of the transaction. Investments and other monetary assets and liabilities are converted to Sterling at the rates of exchange ruling at the Balance Sheet date. Exchange gains and losses relating to investments and other monetary assets and liabilities are taken to the capital column of the Statement of Comprehensive Income. Accounting estimates and judgements The preparation of nancial statements requires the Company to make estimates and judgements that affect items reported in the Balance Sheet and Statement of Comprehensive Income at the date of the nancial statements. Although the estimates are based on best knowledge of current facts, circumstances, and, to some extent, future events and actions, the Company’s actual results may ultimately differ from those estimates, possibly signicantly. The Directors do not believe that any accounting judgements or estimates have been applied to these nancial statements that have a signicant risk of causing material adjustment to the carrying amount of assets and liabilities within the next nancial year. SEC plc - Report and Financial Statements56 03 Financial Statements - Notes to the Financial Statements Reserves Share premium account. The share premium represents the difference between the nominal value of new Ordinary shares issued and the consideration the Company receives for these shares. Special reserve. Created from the Court cancellation of the share premium account which had arisen from premiums paid on the Ordinary shares. The reserve is distributable and its function is to fund any share buy-backs by the Company. Capital reserve. Gains and losses on the realisation of investments, realised exchange differences of a capital nature and returns of capital are accounted for in this reserve. Increases and decreases in the valuation of investments held at the year end, and unrealised exchange differences of a capital nature are also accounted for in this reserve. Capital redemption reserve. The nominal value of Ordinary shares bought back and cancelled are transferred to the capital redemption reserve. Revenue reserve. Any surplus/decit arising from the revenue prot/loss for the year is taken to/from this reserve. The Special reserve and Revenue reserve represent the amount of the Company’s distributable reserves. 1.4 Adoption of New and Revised accounting standards The Directors conrm that none of the following newly effective standards have materially affected the Company’s nancial statements:- Standard Effective date Amendments to IAS 16 – Proceeds before Intended Use 1 January 2022 Amendments to IAS 37 – Onerous Contracts 1 January 2022 Amendments to IAS 39, IFRS 4, 7, 9 and 16 – Interest Rate Benchmark Reform (Phase 2) 1 January 2021 Amendments to IAS 41, IFRS 1, 9 and 16 – Annual Improvements 2018-20 Cycle 1 January 2022 Amendments to IFRS 3 – Reference to Conceptual Framework 1 January 2022 Amendments to IFRS 16 – Covid-19 Related Rent 1 April 2021 The Directors do not anticipate the adoption of the following standards will have a material impact on the Company’s nancial statements: Standard Effective date Amendments to IAS 1 – Disclosure of Accounting Policies 1 January 2023 Amendments to IAS 8- Denition of Accounting Estimates 1 January 2023 Amendments to IFRS 4 – Extension of IFRS 9 Deferral 1 January 2023 Amendments to IFRS 17 – Insurance Contracts 1 January 2023 SEC plc - Report and Financial Statements 57 03 Financial Statements - Notes to the Financial Statements 2 Income Year ended 30 June 2022 Year ended 30 June 2021 Revenue return £’000 Capital return £’000 Total £’000 Revenue return £’000 Capital return £’000 Total £’000 Income from investments UK dividend income 4,173 – 4,173 2,382 – 2,382 4,173 – 4,173 2,382 – 2,382 Other operating income Liquidity interest 6 – 6 1 – 1 4,179 – 4,179 2,383 – 2,383 3 Investment Manager’s fee Year ended 30 June 2022 Year ended 30 June 2021 Revenue return £’000 Capital return £’000 Total £’000 Revenue return £’000 Capital return £’000 Total £’000 Management fee 1,564 – 1,564 894 – 894 1,564 – 1,564 894 – 894 A basic management fee was payable to the Investment Manager at an annual rate of 0.75% of the NAV of the Company. The basic management fee accrues daily and is payable quarterly in arrears. The Investment Manager is also entitled to a performance fee, details of which are given in the Report of the Directors on page 29. There was no performance fee due for the year ended 30 June 2022 (2021: none). 4 Other expenses Year ended 30 June 2022 Year ended 30 June 2021 Revenue return £’000 Capital return £’000 Total £’000 Revenue return £’000 Capital return £’000 Total £’000 Secretarial services 153 – 153 148 – 148 Auditors’ remuneration for: Audit services 43 – 43 35 – 35 Directors’ remuneration 140 – 140 135 – 135 Other expenses † 792 – 792 325 – 325 1,128 – 1,128 643 – 643 All expenses include VAT where applicable, apart from audit services which is shown net. * No non-audit fees were incurred during the year. † Other expenses include £412,000 of costs in relation to the Company’s General Meeting and Circular to approve the various proposals outlined in the 9February 2022 Stock Exchange announcement (2021: £63,000 in relation to the Company’s General Meeting requisition). SEC plc - Report and Financial Statements58 03 Financial Statements - Notes to the Financial Statements 5 Taxation Year ended 30 June 2022 Year ended 30 June 2021 Revenue return £’000 Capital return £’000 Total £’000 Revenue return £’000 Capital return £’000 Total £’000 Corporation tax at 19.00% (2021: 19.00%) – – – – – – The Company is subject to corporation tax at 19.00%. As at 30 June 2022 the total current taxation charge in the Company’s revenue account is lower than the standard rate of corporation tax in the UK. The differences are explained below: Year ended 30 June 2022 Year ended 30 June 2021 Revenue return £’000 Capital return £’000 Total £’000 Revenue return £’000 Capital return £’000 Total £’000 Net return on ordinary activities before taxation 1,487 (21,776) (20,289) 846 69,767 70,613 Theoretical tax at UK corporation tax rate of 19.00% (2021: 19.00%) 283 (4,137) (3,854) 161 13,256 13,417 Effects of: – UK dividends that are not taxable (793) – (793) (453) – (453) – Unrelieved expenses 510 – 510 292 – 292 – Non-taxable investment losses/(gains) – 4,137 4,137 – (13,256) (13,256) – – – – – – Factors that may affect future tax charges At 30 June 2022, the Company had no unprovided deferred tax liabilities (2021: £nil). At that date, based on current estimates and including the accumulation of net allowable losses, the Company had unrelieved losses of £28,560,000 (2021: £25,873,000) that are available to offset future taxable revenue. A deferred tax asset of £7,141,000 (2021: £6,468,342) has not been recognised because the Company is not expected to generate sucient taxable income in future periods in excess of the available deductible expenses and accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses. The potential deferred tax asset has been calculated using a corporation tax rate of 25% (2021: 25%). Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust company. On 23 September 2022, the Chancellor of the Exchequer announced that the UK corporation tax rate will remain at 19% from 1 April 2023, reversing the previously enacted measure to increase the rate to 25%. This reversal in the tax rate from 1 April 2023 has not been enacted or substantively enacted and, accordingly, has no impact on the tax balances at 30 June 2022. As explained above, no deferred tax asset is recognised in respect of unrelieved losses and therefore the potential impact of this change on deferred tax is not expected to be material. SEC plc - Report and Financial Statements 59 03 Financial Statements - Notes to the Financial Statements 6 Dividends Under the requirements of Sections 1158/1159 of the Corporation Tax Act 2010 no more than 15% of total income may be retained by the Company. These requirements are considered on the basis of dividends declared in respect of the nancial year as shown below. 30 June 2022 £’000 30 June 2021 £’000 Final dividend proposed of 2.00p (2021: 1.60p) per share 1,066 1,013 The following dividends were declared and paid by the Company in the nancial year: 30 June 2022 £’000 30 June 2021 £’000 Final dividend: 1.60p per share (2021: 1.25p) 1,013 791 Dividends have been solely paid out of the Revenue reserve. 7 Return per Ordinary share Year ended 30 June 2022 Year ended 30 June 2021 Net return £’000 Weighted average number of Ordinary shares Per share pence Net return £’000 Weighted average number of Ordinary shares Per share pence Total Return per share (20,289) 61,286,517 (33.10) 70,613 63,296,844 111.56 Revenue Return per share 1,487 61,286,517 2.43 846 63,296,844 1.34 Capital Return per share (21,776) 61,286,517 (35.53) 69,767 63,296,844 110.22 8 Investments 30 June 2022 £’000 30 June 2021 £’000 Investment portfolio summary Quoted investments at fair value through prot or loss 159,950 215,756 159,950 215,756 SEC plc - Report and Financial Statements60 03 Financial Statements - Notes to the Financial Statements 30 June 2022 Total £’000 Analysis of investment portfolio movements Opening book cost 178,033 Opening investment holding (losses)/gains 37,723 Opening valuation 215,756 Movements in the year: Purchases at cost 36,342 Sales – proceeds (70,372) Sales – realised gains on sales 7,081 Decrease in unrealised appreciation (28,857) Closing valuation 159,950 Closing book cost 151,084 Closing investment holding gains 8,866 159,950 The Company received £70,372,000 (2021: £54,950,000) from investments sold in the year. The book cost of these investments when they were purchased was £63,291,000 (2021: £34,447,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of these investments. A list of the portfolio holdings by their aggregate market values is given in the Investment Manager’s report on page15. Transaction costs incidental to the acquisitions of investments totalled £137,000 (2021: £292,000) and disposals of investments totalled £95,000 (2021: £110,000) respectively for the year. 30 June 2022 £’000 30 June 2021 £’000 Analysis of capital (losses)/gains Gains on sale of investments 7,081 20,503 Movement in investment holding (losses)/gains (28,857) 49,264 (21,776) 69,767 Under IFRS 13, the Company is required to classify fair value measurements using a fair value hierarchy that reects the subjectivity of the inputs used in measuring the fair value of each asset. The fair value hierarchy has the following levels: Investments whose values are based on quoted market prices in active markets are classied within level 1 and include active quoted equities. The denition of level 1 inputs refers to ‘active markets’, which is a market in which transactions take place with sucient frequency and volume for pricing information to be provided on an ongoing basis. Due to the liquidity levels of the markets in which the Company trades, whether transactions take place with sucient frequency and volume is a matter of judgement, and depends on the specic facts and circumstances. The Investment Manager has analysed trading volumes and frequency of the Company’s portfolio and has determined these investments as level 1 of the hierarchy. SEC plc - Report and Financial Statements 61 03 Financial Statements - Notes to the Financial Statements Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classied within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reect illiquidity and/or non-transferability, which are generally based on available market information. Level 3 instruments include private equity, as observable prices are not available for these securities the Company has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a nancial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines. The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is signicant to the fair value of the investment. The following table analyses within the fair value hierarchy the Company’s nancial assets and liabilities (by class) measured at fair value at 30 June 2022. Financial instruments at fair value through prot or loss Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 30 June 2022 Equity investments 159,950 – – 159,950 Liquidity funds – 2,463 – 2,463 Total 159,950 2,463 – 162,413 30 June 2021 Equity investments 215,756 – – 215,756 Liquidity funds – 2,457 – 2,457 Total 215,756 2,457 – 218,213 There were no transfers between levels for the year ended 30 June 2022 (2021: none). 9 Signicant interests The Company had holdings of 3% or more in the following companies: Name of investment Class of Share 30 June 2022 Percentage held Medica Ordinary 11.85% Inspired Energy Ordinary 10.02% Tribal Ordinary 7.98% Hostelworld Ordinary 7.76% XPS Ordinary 7.11% Wilmington Ordinary 5.85% Ten Entertainment Ordinary 5.31% Fintel Ordinary 4.65% Nexus Ordinary 4.54% Brooks MacDonald Ordinary 3.34% SEC plc - Report and Financial Statements62 03 Financial Statements - Notes to the Financial Statements 10 Trade and other receivables 30 June 2022 £’000 30 June 2021 £’000 UK dividends receivable 627 402 Amounts due from brokers in relation to sales of investments 243 – Other receivables and prepayments 15 21 885 423 11 Trade and other payables 30 June 2022 £’000 30 June 2021 £’000 Amounts due to brokers in relation to purchases of investments 1,564 1,665 Amounts due to brokers in relation to share buy backs 98 – Other payables and accruals 506 525 2,168 2,190 12 Nominal share capital Number £’000 Allotted, called up and fully paid Ordinary shares of 10p each: Ordinary shares in circulation at 30 June 2021 69,858,891 6,986 Shares held in Treasury at 30 June 2021 (6,562,047) (656) Ordinary shares in issue per Balance Sheet at 30 June 2021 63,296,844 6,330 Shares bought back and cancelled during the year (6,329,685) (633) Shares bought back during the year to be held in Treasury (1,615,071) (162) Ordinary shares in issue per Balance Sheet at 30 June 2022 55,352,088 5,535 Shares held in Treasury at 30 June 2022 8,177,118 818 Ordinary shares in circulation at 30 June 2022 63,529,206 6,353 SEC plc - Report and Financial Statements 63 03 Financial Statements - Notes to the Financial Statements 13 Reserves For the period ended 30 June 2022 Share premium account £’000 Special reserve £’000 Capital reserve realised £’000 Capital reserve unrealised £’000 Capital redemption reserve £’000 Revenue reserve £’000 At beginning of year 31,737 24,597 116,403 37,723 2,264 1,889 Realised gains on investments – – 7,081 – – – Unrealised losses on investments – – – (28,857) – – Share buy-backs (20,437) (4,800) – – 633 – Net return for the year – – – – – 1,487 Dividends paid – – – – – (1,013) As at 30 June 2022 11,300 19,767 123,484 8,866 2,897 2,363 The Special reserve and Revenue reserve represent the amount of the Company’s distributable reserves. For the year ended 30 June 2021 Share premium account £’000 Special reserve £’000 Capital reserve arising on investments sold £’000 Capital reserve arising on investments held £’000 Capital redemption reserve £’000 Revenue reserve £’000 Opening balance 31,737 24,567 95,900 (11,541) 2,264 1,834 Net gain on realisation of investments – – 20,503 – – – Increase in unrealised appreciation – – – 49,264 – – Net return for the year – – – – – 846 Dividends paid – – – – – (791) As at 30 June 2021 31,737 24,567 116,403 37,723 2,264 1,889 14 Reconciliation of net cash ow to net funds 30 June 2022 £’000 30 June 2021 £’000 Opening net funds 7,580 13,901 Increase/(decrease) in cash and cash equivalents in year 8,783 (6,321) Closing net funds 16,363 7,580 SEC plc - Report and Financial Statements64 03 Financial Statements - Notes to the Financial Statements At 30 June 2021 £’000 Net cash ow £’000 At 30 June 2022 £’000 Cash at bank 5,123 8,777 13,900 Liquidity funds 2,457 6 2,463 7,580 8,783 16,363 15 Net asset value per Ordinary share The net asset value per Ordinary share is based on net assets of £175,030,000 (2021: £221,569,000) and on 55,352,088 (2021: 63,296,844) Ordinary shares, being the number of shares in issue at the year end. 16 Analysis of nancial assets and liabilities The Company’s nancial instruments comprise securities, cash balances (including amounts held in liquidity funds) and debtors and creditors that arise from its operations, for example, in respect of sales and purchases awaiting settlement and debtors for accrued income. The Company has little exposure to credit and cash ow risk. Credit risk is due to uncertainty in a counterparty’s ability to meet its obligations. The Company has no exposure to debt purchases and ensures that cash at bank is held only with reputable banks with high quality external credit ratings. All the assets of the Company which are traded on listed exchanges are held by J.P.Morgan Chase Bank N.A., the Company’s Custodian. Bankruptcy or insolvency of the Custodian may cause the Company’s rights with respect to securities held by the Custodian to be delayed or limited. The Board reviews the Custodian’s annual controls report and the Investment Manager’s management of the relationship with the Custodian. The Company invests in markets that operate DVP (Delivery versus Payment) settlement. The process of DVP mitigates the risk of losing the principal of a trade during the settlement process. The Investment Manager continuously monitors dealing activity to ensure best execution, a process that involves measuring various indicators including the quality of trade settlement and incidence of failed trades. Counterparty lists are maintained and adjusted accordingly. Due to timings of investment and distributions, at any one time the Company may hold signicant amounts of surplus cash. Any funds in excess of those required to meet daily operational requirements are invested in Institutional Liquidity Funds. These are highly liquid assets that are redeemable on less than 24 hours notice. The Company only invests in funds that have an AAA rating and the funds’ performance is monitored by the Investment Manager. The maximum exposure to credit risk is £17,248,000 (2021: £8,003,000). There are no assets past due or impaired (2021: none). The Company nances its operations through its issued capital and existing reserves. The principal risks the Company faces in its investment portfolio management activities are: market price risk, i.e. the movements in value of investment holdings caused by factors other than interest rate movement; interest rate risk; liquidity risk; and foreign currency risk. SEC plc - Report and Financial Statements 65 03 Financial Statements - Notes to the Financial Statements The Investment Manager’s policies for managing these risks are summarised below and have been applied throughout the year: Policy (i) Market price risk The Company’s investment portfolio is exposed to market price uctuations which are monitored by the Investment Manager. Adherence to the investment objectives and the limits on investment set by the Company mitigates the risk of excessive exposure to any one particular type of security or issuer. If the investment portfolio valuation fell by 30% from the 30 June 2022 valuation (2021: 30%), with all other variables held constant, there would have been a reduction of £47,985,000 (2021: £64,727,000) in the return after taxation and equity. An increase of 30% in the investment portfolio valuation would have had an equal and opposite effect on the return after taxation and equity. The calculations are based on the fair value of investments at 30 June 2022 and these may not be representative of the year as a whole. (ii) Cash ow interest rate risk exposure The Company’s bank accounts earn interest at a variable rate which is subject to uctuations in interest rates. The Company holds cash in liquidity funds. Income from these funds is dependent on the performance of the funds, which is subject to uctuations in interest rates (along with other factors). If interest rates had reduced by 0.5% from those obtained at 30 June 2022 (2021: 0.5%), it would have the effect, with all other variables held constant, of reducing the net return after taxation and equity by £82,000 (2021: £38,000). If there had been an increase in interest rates of 0.5% there would have been an equal and opposite effect in the net return after taxation and equity. The calculations are based on the cash balances at 30 June 2022 and are not representative of the year as a whole. Non-interest rate risk exposure The remainder of the Company’s portfolio and current assets and liabilities are not subject directly to interest rate risk (2021: same). Details of the interest rate risk prole of the Company are shown in the following tables. The interest rate risk prole of the Company’s nancial assets at 30 June 2022 was: Total £’000 No interest rate risk nancial assets £’000 Cash ow interest rate risk nancial assets £’000 Sterling Quoted investments 159,950 159,950 – Liquidity funds 2,463 – 2,463 Cash 13,900 – 13,900 Receivables 627 627 – Total 176,940 160,577 16,363 * Receivables exclude prepayments which under IAS 32 are not classed as nancial assets. SEC plc - Report and Financial Statements66 03 Financial Statements - Notes to the Financial Statements The interest rate risk prole of the Company’s nancial assets at 30 June 2021 was: Total £’000 No interest rate risk nancial assets £’000 Cash ow interest rate risk nancial assets £’000 Sterling Quoted investments 215,756 215,756 – Liquidity funds 2,457 – 2,457 Cash 5,123 – 5,123 Receivables 401 401 – Total 223,737 216,157 7,580 * Receivables exclude prepayments which under IAS 32 are not classed as nancial assets. The interest rate risk prole of the Company’s nancial liabilities at 30 June 2022 was: Total £’000 No interest rate risk nancial assets £’000 Sterling Creditors 2,168 2,168 All amounts were due in three months or less for a consideration equal to the carrying value of the creditors shown above. The interest rate risk prole of the Company’s nancial liabilities at 30 June 2021 was: Total £’000 No interest rate risk nancial assets £’000 Sterling Creditors 2,190 2,190 All amounts were due in three months or less for a consideration equal to the carrying value of the creditors shown above. SEC plc - Report and Financial Statements 67 03 Financial Statements - Notes to the Financial Statements (iii) Liquidity risk The Investment Manager may invest on behalf of the Company in securities which are not readily tradable, which can lead to volatile share price movements. It may be dicult for the Company to sell such investments. Although the Company’s AIM quoted investments are less liquid than securities listed on the London Stock Exchange, the Board seeks to ensure that an appropriate proportion of the Company’s investment portfolio is invested in cash and readily realisable investments, which are sucient to meet any funding requirements that may arise. Fair values of nancial assets and nancial liabilities The carrying value of the nancial assets and liabilities (receivables and payables) of the Company is equivalent to their fair value (2021: same). Managing Capital Capital structure The Company is funded through shareholders’ equity and cash reserves. The Company’s Articles of Association permit the Board to borrow up to 25% of the Company’s net asset value at the time of borrowing. Capital is managed so as to maximise the return to shareholders while maintaining an appropriate capital base to allow the Company to operate effectively in the marketplace and to sustain future development of the business. The Company pays such dividends as are required to maintain its investment trust status, and may also from time to time return capital to shareholders through the purchase of its own shares at a discount to net asset value. Capital requirement The Company operates so as to qualify as a UK investment trust for UK tax purposes. Although no longer a requirement for obtaining and retaining investment trust status, it remains the Company’s investment policy that the maximum investment in any single investee company will be no more than 15% of the Company’s investments at the time of investment. The Company’s capital requirement is reviewed regularly by the Board. 17 Related party transactions and transactions with the Investment Manager Fees paid to Directors are disclosed in the Directors‘ Remuneration Report on page 40. Full details of Directors‘ interests are set out on page 41. City of London Investment Management is considered a related party by virtue of their holding of 28.9% of the Company’s total voting rights. Further details are noted on page 28. The amounts payable to the Investment Manager, which is not considered to be a related party, are disclosed in note3 on page 58. The amount due to the Investment Manager for management fees at 30 June 2022 was £349,000 (2021: £403,000). The amount due to the Investment Manager for performance fees at 30 June 2022 was £nil (2021: £nil). As detailed on page 5 the Investment Manager, directly and indirectly through its in-house funds, has continued to purchase shares in the Company. SEC plc - Report and Financial Statements68 03 Financial Statements - Notes to the Financial Statements Shareholder Information Financial calendar Company’s year-end 30 June Annual results announced October Annual General Meeting November Company’s half-year 31 December Half yearly results announced February Share price The Company’s Ordinary shares are premium listed on the main market of the London Stock Exchange plc (the “London Stock Exchange”). The share price is quoted daily in the Financial Times under ‘Investment Companies’. Share dealing Shares can be traded through your usual stockbroker. Share register enquiries The register for the Ordinary shares is maintained by Computershare Investor Services plc (“Registrar”). In the event of queries regarding your holding, please contact the Registrar on 0370 707 1285. Changes of name and/or address must be notied in writing to the Registrar, whose address is shown on page 73. Net Asset Value The Company’s net asset value is announced daily to the London Stock Exchange. Alternative Investment Fund Managers Directive (“AIFMD”) Disclosures The Company’s AIFM is GHAM. In accordance with the AIFMD, information in relation to the Company’s leverage and the remuneration of the Company’s AIFM is required to be made available to investors. In accordance with the Directive, the AIFM’s remuneration policy and remuneration disclosures in respect of the year ended 31 December 2021 are available from GHAM on request. Leverage, for the purposes of the AIFM Directive, is any method which increases the company’s exposure to stockmarkets whether through borrowings, derivatives, or any other means. It is expressed as a ratio of the company’s exposure to its NAV. In summary, the gross method measures the company’s exposure before applying hedging or netting arrangements. The commitment method allows certain hedging or netting arrangements to be offset. As at 30 June 2022 and 2021, the company had no hedging or netting arrangements. The Company’s maximum and actual leverage levels at 30 June 2022 are shown below: Leverage Exposure Gross Method Commitment Method Maximum limit 125% 125% Actual 93% 101% The Company’s investor disclosure document was updated during the year following the change of Investment Manager. The investor disclosure document and all additional periodic disclosures required in accordance with the requirements of the FCA Rules implementing the AIFMD in the UK are made available on the Company’s website (www.strategicequitycapital.com). Beware of Share Fraud In recent years there has been an increase in the number of increasingly sophisticated but fraudulent nancial scams. This is often by a phone call or email which can originate from outside UK. Shareholders may receive unsolicited phone calls or correspondence concerning investment matters that imply a connection to the Company. These are typically from overseas ‘brokers’ who target UK shareholders offering to sell them what often turn out to be worthless or high risk shares. Shareholders may also be advised that there is an imminent offer for the Company, and the caller may offer to buy shares at signicantly above the market price if an administration fee is paid. This is known as ‘boiler room fraud’. If you are contacted, we recommend that you do not respond with any personal information, including access to nancial information or bank accounts. If you are in any doubt you should seek nancial advice before taking any action. SEC plc - Report and Financial Statements 69 04 Other Information You can nd more information about investment scams at the Financial Conduct Authority (FCA) website: www.fca. org.uk/consumer/protect-yourself-scams. You can also call the FCA Consumer Helpline on 0800 111 6768. Non-Mainstream Pooled Investment Rules The Company’s shares are ‘excluded securities’ for the purposes of the rules relating to non-mainstream pooled investment products. This means they can be recommended by independent nancial advisors to their ordinary retail clients, subject to normal suitabilityrequirements. Website Further information on the Company can be accessed via the Manager’s website www.greshamhouse.com. SEC plc - Report and Financial Statements70 04 Other Information - Shareholder Information Alternative Performance Measures Alternative Performance Measures are numerical measures of the Company’s current, historical or future performance, nancial position or cash ows, other than nancial measures dened or specied in the applicable nancial framework. The Company’s applicable nancial framework includes IFRS and the AIC SORP. The Directors assess the Company’s performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. The Alternative Performance Measures chosen are widely used in the investment trust sector and thus provide information for users of the accounts to compare the results with other closed-end investment companies. Discount The amount by which the Ordinary share price is lower than the NAV per Ordinary share. The discount is normally expressed as a percentage of the NAV per share. 2022 2021 NAV per Ordinary share a 316.21p 350.05p Share Price b 280.00p 311.00p Discount c c=(b—a)/a 11.5% 11.2% Average discount The average discount is calculated by taking the average of each day’s share price discount to NAV over the course of the year. The discount range during the year was 4.2% to 16.7% (2021: 9.0% to 26.1%) and the average discount was 12.6% (2021: 17.7%). NAV Total return NAV Total return is the increase/(decrease) in NAV per Ordinary share plus dividends paid, which are assumed to be reinvested at the time the share price is quoted ex-dividend. 2022 2021 Opening NAV 350.50p 239.74p (Decrease)/increase in NAV per Ordinary share (33.84)p 110.31p Closing NAV 316.21p 350.05p % (Decrease)/increase in NAV (9.7)% 46.0% Impact of dividends reinvested 0.5% 0.8% NAV total return (9.2)% 46.8% * The impact of dividends reinvested assumes that the dividend of 1.60p (2021: 1.25p) paid by the Company was reinvested into shares of the Company at the ex-dividend date. Share price total return Share price total return is the increase/(decrease) in share price plus dividends paid, which are assumed to be reinvested at the time the share price is quoted ex-dividend. 2022 2021 Opening share price 311.00p 195.75p (Decrease)/increase in share price (31.00)p 115.25p Closing share price 280.00p 311.00p % (Decrease)/increase in share price (10.0)% 58.9% Impact of dividends reinvested 0.5% 1.0% Share price total return (9.5)% 59.9% * The impact of dividends reinvested assumes that the dividend of 1.60p (2021: 1.25p) paid by the Company was reinvested into shares of the Company at the ex-dividend date. Ongoing charges Ratio of expenses as a percentage of average daily shareholders’ funds calculated as per the Association of Investment Companies industry standard method. 2022 £’000 2021 £’000 Investment management fee 1,564 894 Administrative expenses 1,128 580 Non recurring costs in relation to 2022 General Meeting (412) – Effect of management fee holiday – 444 Ongoing charges a 2,280 1,918 Average net assets b 210,529 179,611 Ongoing charges ratio (%) c c=a/b 1.08% 1.07% SEC plc - Report and Financial Statements 71 04 Other Information Ongoing charges (including perfomance fee) As per above, with the addition of the performance fee. 2022 £’000 2021 £’000 Investment management fee 1,564 894 Administrative expenses 1,128 580 Non recurring costs in relation to 2022 General Meeting (412) – Effect of management fee holiday – 444 Performance fee – – Ongoing charges (including performance fee) a 2,280 1,918 Average net assets b 210,529 179,611 Ongoing charges ratio (including performance fee) (%) c c=a/b 1.08% 1.07% Dividend yield The proposed annual dividend expressed as a percentage of the Ordinary share price. 2022 2021 Proposed dividend a 2.00p 1.60p Ordinary share price b 280.0p 311.0p Dividend yield c c=a/b 0.7% 0.5% SEC plc - Report and Financial Statements72 04 Other Information - Alternative Performance Measures Corporate Information Auditor KPMG LLP Saltire Court 20 Castle Terrace Edinburgh EH1 2EG Broker Liberum Capital Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY Custodian J.P. Morgan Chase Bank N.A. 25 Bank Street Canary Wharf London E14 5JP Depositary J.P. Morgan Europe Limited 25 Bank Street Canary Wharf London E14 5JP Investment Manager Gresham House Asset Management Limited Octagon Point 5 Cheapside London EC2V 6AA Tel: 020 3837 6270 Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZY Tel: 0370 707 1285 Website: www.computershare.com Solicitor Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH Company Secretary and Administrator Juniper Partners Limited 28 Walker Street Edinburgh EH3 7HR Tel: 0131 378 0500 Registered Oce c/o Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH An investment company as dened under Section 833 of the Companies Act 2006. REGISTERED IN ENGLAND AND WALES No. 5448627 A member of the Association of Investment Companies SEC plc - Report and Financial Statements 73 04 Other Information Notice of Annual General Meeting This document is important and requires your immediateattention. If you are in any doubt as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000 (as amended) if you are resident in the United Kingdom or, if not, another appropriately authorised independent professional adviser, without delay. If you have sold or transferred all of your Ordinary shares in the capital of the Company and, as a result, no longer hold any Ordinary shares in the Company, please send this document and the accompanying form of proxy as soon as possible to the purchaser or transferee, or to the person through whom the sale or transfer was effected for transmission to the purchaser or transferee. If you have sold only part of your holding of Ordinary shares in the Company, you should retain the documents and consult the person through whom the sale was effected. Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Strategic Equity Capital plc will be held at the oces of Liberum Capital Limited, Ropemaker Place, 25 Ropemaker Street, London, EC2Y 9LY on 9November 2022 at 12noon for the following purposes: Ordinary Business Ordinary Resolutions 1. To receive and adopt the audited Financial Statements for the year ended 30 June 2022, together with the Strategic Report and Reports of the Directors and Auditor thereon. 2. To declare a nal dividend of 2.00p per Ordinary share. 3. To receive and approve the Directors’ RemunerationReport. 4 . To elect Annie Coleman as a Director. 5 . To re-elect Josephine Dixon as a Director. 6. To re-elect Richard Locke as a Director. 7. To re-elect William Barlow as a Director. 8. To appoint KPMG LLP as Auditor to the Company, to hold oce from the conclusion of this Meeting until the next General Meeting at which nancial statements are laid. 9 . To authorise the Directors to determine the remuneration of KPMG LLP. Special Business Ordinary Resolutions 10. THAT in substitution for any existing authority, the Board be and it is hereby generally and unconditionally authorised to exercise all powers of the Company to allot equity securities (within the meaning of Section 560 of the Companies Act 2006, (the “Act”) up to an aggregate nominal amount of£533,085 (equivalent to 10% of the Company’s issued Ordinary share capital of 53,308,547 Ordinary 10p shares at 4 October 2022), which authority shall expire on the earlier of the conclusion of the next Annual General Meeting of the Company after the passing of this resolution and 9 February 2024 (unless previously revoked or varied by the Company in General Meeting) save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Board may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. Special Resolutions 11. THAT, subject to the passing of resolution 10 above and in substitution for any existing authority, the Board be and it is hereby empowered, pursuant to Sections 570 and 573 of the Act, to allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authority conferred by resolution 10 above and/ or to sell equity securities from Treasury for cash, as if Section 561 of the Act did not apply to any such allotment or sales, provided that this power shall be limited to the allotment of equity securities or sale of shares out of Treasury up to an aggregate nominal value of £533,085 (equivalent to 10% of the Company’s issued Ordinary share capital of 53,308,547 Ordinary 10p shares at 4October 2022), and shall expire on the earlier of the conclusion of the next Annual General Meeting of the Company after the passing of this resolution and 9 February 2024, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted or sold after such expiry and the Board may allot or sell equity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired. SEC plc - Report and Financial Statements74 04 Other Information 12. THAT the Company be and is hereby authorised in accordance with Section 701 of the Act to make market purchases (within the meaning of Section 693 of the Act) of its Ordinary shares provided that: (i) the maximum number of Ordinary shares hereby authorised to be purchased shall not exceed 7,990,951 Ordinary shares (being 14.99% of the Company’s issued ordinary share capital as at 4October 2022 (being the latest practicable date prior to the date of this notice) excluding any Ordinary shares held in Treasury); (ii) the minimum price which may be paid for an Ordinary share shall be not less than the nominal amount of such Ordinary share at the time of purchase; and (iii) the maximum price (exclusive of expenses) which may be paid for an Ordinary share shall be the higher of (a) 5% above the average of the middle market prices of the Ordinary shares according to the Daily Ocial List of the London Stock Exchange for the ve business days immediately before the date on which the Company agrees to buy the Ordinary shares, and (b) the higher of the price of the last independent trade and the highest current independent purchase bid on the trading venue where the purchase is carried out. This authority shall continue for the period ending on the earlier of: (i) the date on which the maximum number of Ordinary shares authorised to be purchased pursuant to this resolution 14 have been purchased by the Company; (ii) the date of the next Annual General Meeting of the Company after the passing of this resolution; and (iii) 9 February 2024 provided that if the Company has agreed, before this authority expires, to purchase Ordinary shares where the purchase will or may be executed after this authority expires (whether wholly or in part), the Company may complete such purchase as if this authority has not expired. Registered Oce: c/o Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH By Order of the Board Juniper Partners Limited Company Secretary 5 October 2022 Notes to the Notice of the Annual General Meeting: 1. Attending the Annual General Meeting in person A member who is entitled to attend and vote at this meeting is entitled to appoint one or more proxies to attend, speak and vote on their behalf. Such a proxy need not also be a member of the Company. Shareholders are encouraged to submit their votes by proxy in advance of the meeting in case it is not possible for shareholders to attend in person. The Board will continue to carefully consider the arrangements for the Annual General Meeting in the light of the Government guidance and the Company will issue a regulatory news announcement which will also be posted on the Company’s website if the only attendees permitted will be those required to form the quorum and allow the business to be conducted. To be entitled to attend and vote at the Annual General Meeting (and for the purpose of determining the votes they may cast), members must be registered in the Company’s register of members at 6pm on 6 November 2022 (or, if the Annual General Meeting is adjourned, 6pm on the day two days (excluding non working days) prior to the adjourned meeting). Changes to the register of members after the relevant deadline will be disregarded in determining the rights of any person to attend and vote at the Annual General Meeting. 2. Appointment of Proxy A Form of Proxy for use by shareholders is enclosed. Completion of the Form of Proxy will not prevent a Shareholder from attending the meeting and voting in person. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different Shares. You may not appoint more than one proxy to exercise rights attached to any one Share. To appoint more than one proxy, please contact the Registrars of the Company. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. To be valid the proxy form must be completed and lodged, together with the power of attorney or any authority under which it is signed, or a notarially certied copy of such power of authority, with the Registrars of the Company no later than 48 hours (excluding non-working days) before the time set for the meeting, or any adjourned meeting. SEC plc - Report and Financial Statements 75 04 Other Information - Notice of Annual General Meeting CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the Annual General Meeting to be held on 9November 2022 and any adjournment(s) thereof by using the procedures described in the CREST Manual. The message must be transmitted so as to be received by the Company’s agent, CREST Participant ID 3RA50, no later than 48 hours (excluding non working days) before the time appointed for the meeting. A corporation that is a shareholder can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a shareholder provided that they do not do so in relatlion to the same shares. 3. Questions and Answers The Board continues to welcome questions from shareholders at the Annual General Meeting. However, it asks shareholders to please submit any questions to the Board by email, to the following address: [email protected] before 12 noon on 6 November 2022 in case attendance at the AGM has to be restricted due to the Covid-19 pandemic and the health and safety of shareholders. In the event the Annual General Meeting proceeds in its usual format as currently anticipated, pursuant to section 319A of the Companies Act 2006, the Company must provide an answer to any question that is put by a member attending the Annual General Meeting relating to the business being considered, except if a response would not be in the interest of the Company or for the good order of the meeting or if to do so would involve the disclosure of condential information. The Company may however elect to provide an answer to a question within a reasonable period of days after the conclusion of the Annual General Meeting. 4. Total Voting Rights As at 4October 2022 (being the last business day prior to the publication of this notice) the Company’s issued share capital amounted to 63,529,206 Ordinary shares carrying one vote each. After deducting 10,220,659 Ordinary shares held in treasury, which do not have voting rights, the total voting rights in the Company as at 4 October 2022 were 53,308,547. 5. Information on the Company’s website In accordance with section 311A of the Companies Act 2006, the contents of this notice of meeting, details of the total number of Shares in respect of which members are entitled to exercise voting rights at the Annual General Meeting and, if applicable, any members’ statements, members’ resolutions or members’ matters of business received by the Company after the date of this notice will be available on the Manager’s website at www.greshamhouse.com. 6. Nominated Persons Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights (a Nominated Person) may, under an agreement between such person and the Shareholder nominating such person, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise such right, the Nominated Person may, under any such agreement, have a right to give instructions to the registered Shareholder as to the exercise of voting rights. 7. Audit concerns The members of the Company may require the Company (without payment) to publish, on its website, a statement (which is also to be passed to the Auditor) setting out any matter relating to the audit of the Company’s Financial Statements, including the Auditor’s report and the conduct of the audit. The Company will be required to do so once it has received such requests from either members representing at least 5% of the total voting rights of the Company or at least 100 members who have a relevant right to vote and hold Shares in the Company on which there has been paid up an average sum per member of at least £100. Such requests must be made in writing, state full names and addresses, and be sent to the registered address of the Company. 8. Documents available for inspection The Directors’ letters of appointment and a copy of the Articles of Association of the Company will be available for inspection prior to the Annual General Meeting and during the meeting. SEC plc - Report and Financial Statements76 04 Other Information - Notice of Annual General Meeting
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