## Strategic Equity ## Capital plc ## A specialist alternative equity ## Trust with a concentrated ## smaller companies portfolio ## 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 oces, 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 ### Net Asset Value (“NAV”) Ordinary Share Price ### per ordinary Share | | June 2021 | | June 2021 | | --- | --- | --- | --- | | 316.21 pence | 350.05 pence | 280.00 pence | 311.00 pence | | -9.7% | | -10.0% | | ### NAV Total Return Share Price Total Return June 2021 June 2021 ## -9.2% +46.8% -9.5% +59.9% ### Discount of Ordinary Proposed Final Dividend for the year ### Share Price to NAV June 2021 June 2021 ## -11.5% 2.00 pence -11.2% 1.60 pence ## +25.0% ### Information disclaimer This report is produced for members of the Company with uncertainty. Past performance is no guarantee of future the purpose of providing them with information relating to performance. Investments are not guaranteed and you the Company and its nancial results for the period under may not get back the amount you originally invested. review. If you are in any doubt as to the action you may Neither the Directors nor the Company take responsibility need to take, please seek advice from your stockbroker, for matters outside of their control. The Board and its solicitor, accountant or other nancial advisor authorised advisers have endeavoured to produce these audited under the Financial Services and Markets Act 2020. This accounts in good faith and in accordance with legislation, report contains subjective opinion, analysis and forward regulations, reporting standards and to be useful to looking statements which, by their very nature involve stakeholders in the Company, including its shareholders. SEC plc - Report and Financial Statements2 Financial Summary | | | At | | | At | | --- | --- | --- | --- | --- | --- | | 30 June | | | 30 June | | | | | 2022 | | | 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)% 1 Discount of Ordinary share price to NAV (11.5)% (11.2)% 1 Average discount of Ordinary share price to NAV for the year (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 | | | Year ended | | | | --- | --- | --- | --- | --- | --- | | | 30 June | | | 30 June | | | | | 2022 | | | 2021 | Performance 1 NAV total return for the year (9.2)% 46.8% 1 | Share price total return for the year | | | (9.5)% 59.9% | | --- | --- | --- | --- | | | ‡ | 1 | | | Comparative index | total return for the year | | (14.6)% 65.2% | 1 Ongoing charges 1.08% 1.07% 1 Ongoing charges (including performance fee) 1.08% 1.07% Revenue return per Ordinary share 2.43p 1.34p 1 Dividend yield 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 denitions and a reconciliation of the Alternative Performance Measures to the year-end results. SEC plc - Report and Financial Statements 3 01 Strategic Report # Chairman's Statement ## Introduction Over the course of the Company's financial 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 inflation 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 inflation. 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 significant 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 beneficiary 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 financial health of the portfolio despite the weaker economic environment, provides the Board with confidence 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 30 September 2022 these latter figures 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 five 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 five 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 influential 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. 4 SEC plc - Report and Financial Statements 01 Strategic Report - Chairman's Statement 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% figure 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 profitable realisations, at greater than a 5 per cent. discount on an ongoing basis, in each financial year, commencing in the financial 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 financial 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. ![img-0.jpeg](img-0.jpeg) 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 final 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 inflation 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 first 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** 5 October 2022 6 SEC plc - Report and Financial Statements 01 Strategic Report ## Investment Manager’s Report Smaller company focus ### Investment Strategy We believe that UK Smaller Companies represent a In the following section, we remind shareholders of our structurally attractive part of the public markets. strategy and investment process. Academic research demonstrates that smaller companies in the UK have delivered substantial outperformance over the long term with the Numis Smaller Companies Index Our Strategic Public Equity strategy delivering a 3.1 percentage point compound premium The appointment of Gresham House as Manager in May 2020 return per annum since 1955 relative to the UK stock and the subsequent appointment of Ken Wotton as Lead market as a whole. This is partially because there is a Fund Manager in September 2020 resulted in a refocus of the large number of under-researched and under-owned investment strategy ensuring that it is strictly applied and businesses that typically trade at a valuation discount is able to effectively leverage the experienced resource of to larger companies (see Figure 1 on page 8) and relative the Gresham House Strategic Equity team, the wider Group to their prospects. A highly selective investor with the platform and its extensive network. We set out this strategy resources and experience to navigate successfully in detail in the Company’s 2021 Annual Report which we this part of the market can nd exceptional long-term summarise again below. investmentopportunities. The key attractions of smaller companies are: Investment focus  Inecient markets – Smaller companies remain under- Our investment focus is to invest into high quality, publicly researched and below the radar for most investors thus quoted companies which we believe can materially creating an opportunity for those willing to devote time increase their value over the medium to long term through and resource to this area. strategic, operational or management change. To select  A large universe – Most UK listed companies are in the suitable investments and to assist in this process we apply smaller companies category and are listed on the main our prop rietary Strategic Public Equity (“SPE”) investment market or AIM. Two-thirds of UK listed companies have strategy. This includes a much higher level of engagement a market capitalisation below £500m, offering a large with management than most investment managers adopt opportunity set for smaller company specialists. and is closer in this respect to a private equity approach  Valuation discounts – Such discounts, arising for to investing in public companies. Our path to achieving whatever reason, present attractive entry points at this involves constructing a high conviction, concentrated which the intrinsic worth of a company’s long-term portfolio; focusing on quality business fundamentals; prospects are undervalued. undertaking deep due diligence including engaging our proprietary network of experts and assessing ESG risks  M&A activity – Smaller companies often offer strategic and opportunities through the completion of the ESG opportunities within their niche markets and can decision tool; and maintaining active stewardship of our become attractive, potential acquisition targets for both investments. Through constructive, active engagement trade and private equity buyers. These buyers provide an with the management teams and boards of directors, we additional source of liquidity and realisation of value for seek to ensure alignment with shareholder objectives smaller company investors. 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 identied route to value creation. We have clear parameters for what we will invest in and areas which we will deliberately avoid. SEC plc - Report and Financial Statements 7 01 Strategic Report - Investment Manager’s Report Figure 1: ‘Small-cap discount’ Once purchased there is no upper limit restriction on the market capitalisation of an individual investment. We will Median SC P/E – FTSE run active positions regardless of market capitalisation provided they continue to deliver the expected 1x 0x contribution to overall portfolio returns and subject to -1x exposure limits and portfolio construction considerations. -2x -3x -4x Figure 2: Sector exposure by value -5x -6x -7x  Financial Services 25.2% '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  Healthcare 16.2% Small Cap vs. FTSE 250 median PE Average  Technology 12.2% Small cap cheap Small cap expensive  Travel & Leisure 9.0%  Net cash 8.6% Source: Liberum, Datastream, 30 June 2022  Construction & Materials 8.4%  Industrial Goods & Services 7.7%  Media 6.8%  Real Estate 5.9% Portfolio construction We will maintain a concentrated portfolio of 15-25 high conviction holdings with prospects for attractive absolute Figure 3: Value by market cap band 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  £300m – £500m 22.4%  £100m – £300m 67.1% an inuential, strategic level.  Less than £100m 1.9%  Net cash 8.6% 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-prot businesses The average market capitalisation of portfolio holdings typically result in a portfolio weighted towards, but not decreased to £231m as at 30 June 2022 compared to exclusively, protable cash generative service sector £367m as at 30 June 2021 reecting a combination of businesses particularly in technology, healthcare, weaker share prices as equity markets sold off during 2022 business services, nancials and industrials. The and the Manager’s strategy of focusing on smaller market underlying value drivers are typically company specic capitalisation companies where SEC has the potential to and exhibit limited correlation even within the same broad take a meaningful equity stake as a platform to effectively sectors. Figure 2 sets out the sector exposure of the Fund apply its active engagement strategy. as at 30 June 2022. We set out a description of the Top 10 holdings as at Our smaller company focus and specialist expertise leads 30June 2022 in the Investment Manager’s Report us to prioritise companies with a market capitalisation on page12 together with a high level summary of between £100m and £300m at the point of investment. the investment case and recent developments This focus, in combination with the size of the Trust and its for each position. concentrated portfolio approach, provides the potential to build a strategic and inuential 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. 2x Median PE-discount SEC plc - Report and Financial Statements8 01 Strategic Report - Investment Manager’s Report Constructive Active Engagement Approach Engagement is undertaken privately, as far as possible. The team will also work to leverage its extensive network As far as possible, SEC aims to build consensus with other to the benet of portfolio companies. We seek to make stakeholders. We want to unlock value for shareholders, introductions to our network in as collaborative way as but also create stronger businesses over the long term. The appropriate where we believe there is an opportunity to objective is to develop a dialogue with management so that support initiatives to create shareholder value. the GHAM team and its network are seen as trusted advisors. In summary, we follow a practice of constructive corporate Operating with a highly-focused portfolio, SEC’s engagement and aim to work with management teams in management team can build and maintain a deep order to support and enhance shareholder value creation. understanding of its portfolio companies and their potential. We attempt to build a consensus with other stakeholders The team engages with company management teams and and prefer to work collaboratively alongside like- boards in a number of areas including: minded co-investors.  Strategy – Working with boards to ensure business strategy and operations are effectively aligned with long ### Portfolio review for the twelve months term value creation and focused on building strategic value within a company’s market. ### to 30June 2022  Corporate activity – Support for acquisition and Over the course of the nancial year we have made good divestment activity through advice, network progress with the transition of the portfolio: purchasing introductions and provision of cornerstone capital. ve new holdings which represented 8% of NAV at the end  Capital allocation – Seeking to work with boards to of the period, fully exiting six positions (including two post optimise capital allocation by prioritising the highest period end) which represented 23% of NAV at the start of return and value added projects and areas of focus for the period, and adding to a number of core positions. At the investment of both capital and resource. end of the period the number of inuential equity stakes  Board composition – Ensuring that boards are where GHAM funds, in aggregate, hold a 5% or more equity appropriately balanced between executive and non- stake now stands at nine, and represented 62% of the executive directors and contain the right balance of skills portfolio by value at 30 June 2022. and experience; we actively use our talent network to introduce high quality candidates to enhance the quality of investee company boards as appropriate. ### Market Background  Management incentivisation – Ensuring that key management are appropriately retained and incentivised Over the twelve months to the end of June, the FTSE to deliver long term shareholder value with schemes Smaller Companies (ex Investment Trusts) Index fell by that t with GHAM’s principles and are well aligned to our 14.6% on a total return basis underperforming the FTSE All objectives as shareholders. Share (+1.6%) but outperforming the FTSE AIM (29.8%). The market witnessed a substantial style shift from growth  ESG – Leveraging the Gresham House sustainable to value as expectations of increasing interest rates took investing framework and central resource to hold. This led to certain more value orientated sectors help to identify, understand and monitor key ESG outperforming such as Oil & Gas, Mining and Banks, all risks and opportunities as well as seeking to drive areas where the Fund does not invest. enhancements to a company’s approach where there are critical material issues with a particular focus on Signicant geopolitical and macroeconomic uncertainty corporate governance. dominated the market tone and resulted in overall weaker  Investor Relations – Helping management teams to hone risk appetite, falling share prices particularly in smaller their equity story, select appropriate advisors and target companies and heightened market volatility. This was their investor relations activities in the most effective exacerbated during the second half of the Trust’s nancial way to ensure that value creation activity is understood year after the Russian invasion of Ukraine increased and reected by the market. geopolitical instability and disrupted commodity markets with global ramications. SEC plc - Report and Financial Statements 9 01 Strategic Report - Investment Manager’s Report of restructuring and a refocused strategy supported ### Performance Review by the Gresham House team. River & Mercantile was The net asset value (“NAV”) decreased 9.2%, on a total also the recipient of a takeover approach from AssetCo, return basis, over the twelve months to the end of June, another listed asset management sector consolidator. It closing at 280p per share. This reduction in NAV reected had previously sold its investment solutions and duciary the volatile equity market conditions over the period management division to Schroders unlocking the value we as sentiment deteriorated due to increasing concerns believed was present in the sum of the constituent parts around persistently high ination, rising interest rates, at the point of the Fund’s initial investment. Iomart, a supply chain disruption, and the ongoing aftereffects of datacentre and cloud services provider, is a recent smaller the Covid-19 pandemic, heightened further by the Russia/ addition to the portfolio during the year and delivered Ukraine conict during the second half of the nancial results ahead of depressed market expectations following year. Although NAV per share fell on an absolute basis, a protracted period of underperformance which drove a the Fund outperformed the FTSE Smaller Companies (ex positive re-rating. Harworth, delivered results ahead of Investment Trusts) Index which fell by 14.6%. This reected expectations and narrowed its valuation discount relative the relatively defensive positioning of the portfolio to the NAV of its asset portfolio after which we made a full compared to the wider market – focused on high quality exit from the position. businesses in less cyclical parts of the market and with resilient business models and robust balance sheets. Bottom Five Absolute Contributors to Performance This outperformance was achieved without exposure to | sectors such as Oil & Gas, Mining or Banks which were | Valuation | | | | Period | | --- | --- | --- | --- | --- | --- | | strong relative performers during the year. | 30 June | | Contribution | | | | | | 2022 | | to return | | Despite the market volatility experienced over the year, Security £’000 (basis points) we remain condent about the resilient underlying fundamentals of the portfolio companies and their ability Tyman 7,348 (282) to withstand the macroeconomic headwinds that look set Hyve* – (256) to persist through the current nancial year. Inspired 13,480 (211) Top Five Absolute Contributors to Performance Medica 21,324 (133) Valuation Period LSL Property Services 10,343 (129) 30 June Contribution * Fully realised during the period 2022 to return Security £’000 (basis points) In challenging equity market conditions a number of the portfolio holdings suffered from share price weakness Clinigen* – 450 during the period, reversing the very positive trend during Wilmington 11,807 66 the prior year. The largest detractors included Tyman, a global supplier of building hardware which was de-rated River & Mercantile* - 52 on concerns about supply chain disruption and inationary Iomart 4,736 22 cost pressures despite delivering numbers in line with market expectations and demonstrating it has managed Harworth* – 14 these issues effectively; Hyve, an events business was * Fully realised during the period forced to exit its key Russian operations due to the Ukraine conict; Inspired, an energy consultancy, was de-rated on Clinigen, a specialist pharmaceutical services provider negative sentiment due to the disruption to the UK energy and the largest portfolio holding during the year, was market; Medica, a provider of outsourced teleradiology the largest positive contributor during the period after services was de-rated on no specic news which we used receiving a takeover approach from European private as an opportunity to increase the Fund’s position; and LSL equity rm Triton at a substantial premium to the Property Services, which de-rated on a weaker outlook undisturbed market price and delivering a full exit for for the UK housing market despite strong progress against the Fund. Wilmington, a professional media provider, its strategy to reposition the group as a nancial services delivered strong operational performance and upgraded focussed business. nancial forecasts benetting from a substantial period SEC plc - Report and Financial Statements10 01 Strategic Report - Investment Manager’s Report We also took some prots from Wilmington following ### Portfolio Review a strong share price performance during the period, The portfolio remained highly focused with a total of 18 delivering an IRR of 3.5% on the tranche divested. holdings. The top 10 accounted for 73% of the NAV at New investments were initiated in Iomart, a datacentre and the end of the period, with 9% of the NAV held in cash at cloud services provider; Nexus Infrastructure, a specialist the period end. electrical engineering services provider; R&Q Investment Over the period positions in Alliance Pharma (IRR of 32%); Holdings, a specialist niche insurance services provider; Clinigen (IRR of 19%); Equiniti (IRR of 8%); Harworth (IRR of Ricardo, a leading global environmental and automotive 18%); Hyve (IRR of -26%); and Proactis (IRR of -20%) were consultancy; and River & Mercantile, an independent fund fully exited, with River & Mercantile (IRR of 37%) also exited manager and investment services rm (since exited). post period end. Changes in sector weightings have seen exposure to The elevated level of takeover activity in the UK equity Healthcare decrease from 26.2% to 16.2%following the exit market impacted the Fund during the year with Clinigen, from Clinigen, whilst Financial Services has increased from Equiniti and Proactis receiving private equity approaches; 23.1% to 25.2% largely due to increases to the position in River & Mercantile a trade approach; and Idox also XPS. Real Estate has reduced to a 5.9% weighting following receiving a potential offer from a trade buyer that was the exit from Harworth. Other sector weightings have ultimately rejected. Given the current valuation discount changed less materially. 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. SEC plc - Report and Financial Statements 11 01 Strategic Report ## Top 10 Investee Company Review ### (as at 30 June 2022) | Company | Investment Thesis Developments during the year | | | --- | --- | --- | | Medica |  A niche market leader in the UK teleradiology |  Rad MD and Irish acquisitions | | 12.2% of NAV | sector which is acyclical and is growing rapidly | performing strongly | driven by increasing healthcare requirements Healthcare  Covid recovery and backlog in routine and a structural shortage of radiologists procedures supporting core business demand  Above market organic growth and  Future Tech investment progressing well underappreciated cash generation characteristics  Discounted valuation relative to comparable private market transaction multiples XPS  Leading ‘challenger’ brand in the pensions  Ination protected contracts driving 10.8% of NAV administration and advice market with acceleration in revenue growth organic market share opportunity following Financial Services  Strong visibility of regulatory changes industry consolidation driving sector demand  Highly defensive – high degree of revenue  Strong cash generation supporting visibility and largely non-discretionary, growing dividend regulation driven client activity with ination protected contracts  Below market rating despite favourable cash ow characteristics Tribal  International provider of student  Tribal Edge contract wins accelerating 8.2% of NAV administration software with market leading transition to SaaS positions in the UK, Australia and NZ Technology  Bolt on acquisitions expanding product  Strong defensive characteristics with high portfolio and cross selling opportunities visibility of earnings into existing base  Transition to cloud-based platform has  Prospects for improving cash generation as potential to drive growth, margins and rating development investment moderates  Low valuation relative to software sector averages and sector transaction multiples Inspired Energy  UK B2B corporate energy services and  UK energy market disruption has reduced 7.7% of NAV procurement specialist with strong short term revenue visibility in procurement ESG credentials Industrial Goods & Services  High energy costs have driven accelerated  Leading player in a fragmented industry; growth in optimisation services signicant opportunity to gain market  ESG revenues accelerating from a low base share through client wins, proposition extension and M&A  Valued at a substantial discount to comparable private market transaction multiples Brooks Macdonald  UK focused wealth management platform;  Return to organic net inows despite 6.8% of NAV structural growth given continuing transition market weakness to self-investment Financial Services  Strategic technology partnership with SS&C  Opportunity to leverage operational underpins future scalability investments to grow margin and continue  Sector takeover activity for Charles Stanley strong cash ow generation and Brewin Dolphin highlights margin of  A consolidating market; opportunity for safety on valuation Brooks as both consolidator and potential target with recent takeover interest for sector peers SEC plc - Report and Financial Statements12 01 Strategic Report - Top 10 investee Company Review | Company | Investment Thesis Developments during the year | | | --- | --- | --- | | Wilmington |  International provider of B2B data and training |  Prot and cash generation ahead of | | 6.8% of NAV | in the compliance, insurance, nancial and | expectations driving forecast upgrades | healthcare sectors Media  Recovery in live events underpinning growth  New top team have reshaped the strategy and and margin recovery portfolio of businesses  Sector consolidation underlines  Operational momentum driving revenue valuation opportunity and margin growth with potential for a valuation re-rating LSL Property Services  Leading provider of services to the UK  Uncertain housing market driving volatility 5.9% of NAV residential property sector with activities into Estate Agency division spanning mortgage broking, surveying and Financial Services  Strong progress in nancial services real estate agencies  Improved proposition and growth  Signicant opportunity to reallocate capital opportunity in Surveying 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 Fintel  Leading UK provider of technology enabled  Departure of non-executive Chairman has 5.3% of NAV regulatory solutions and services to IFAs, created founder succession uncertainty nancial institutions and other intermediaries Financial Services  Digital transition progressing with non-core  Strategically valuable technology platform divestment activity with opportunity to drive material growth in  Cash generation strong resulting in signicant revenues and margins through supporting balance sheet de-geaaring customers’ digitisation journeys | Hostelworld |  Leading online travel agent serving the global |  Revenues have recovered to pre-Covid levels | | --- | --- | --- | | 4.8% of NAV | niche segment of hostelling | with further volume recovery still to come | | Travel & Leisure |  Business rationalised and optimised |  Average order value and customer lifetime | | | during Covid with enhanced customer | values improving | value proposition  Technology and app investment starting to  Recovery from Covid market dynamics deliver a positive impact well advanced with strong margin recovery potential Ten Entertainment  Leading UK operator of ten pin bowling centres  Strong like-for-like trading performance 4.2% of NAV relative to pre-Covid levels demonstrating  High ROCE operating model with strong cash demand resilience Travel & Leisure characteristics  Accelerated site expansion ongoing  Improving competitive and property dynamics post Covid driving a long term  Balance sheet de-gearing will support a growth opportunity return to dividends SEC plc - Report and Financial Statements 13 01 Strategic Report - Top 10 investee Company Review quality companies with attractive long-term structural ### Outlook capital growth at reasonable valuations across the market The Manager’s core planning assumption is that continued cap spectrum. The economic environment and market geopolitical and macroeconomic uncertainty will drive discontinuity will provide agile smaller businesses with market volatility throughout the remainder of the calendar strong management teams the opportunity to take market year and well into 2023. Markets have not had to deal share and build strong, enduring franchises. with rising interest rates and elevated ination for a The elevated levels of corporate activity within the UK considerable period of time and the medium-to-long term equity space continue to play out. The investment process ramications of this for share prices is highly uncertain. and private equity lens across public markets position The Manager does not seek to make major macroeconomic enables identication of investment opportunities predictions or to tilt portfolio construction materially in any with potential strategic value that could be attractive direction to mitigate or benet from macro trends. Rather acquisitions for both, corporate and nancial buyers. the core focus remains building a portfolio bottom up by We continue to believe that our fundamental focused investing in high-quality, resilient companies exposed to investment style has the potential to outperform over structural growth, key competitive advantages or self- the long term. We see signicant opportunities for help opportunities and maintain valuation discipline such long term investors to back quality growth companies that they could drive attractive investment returns over at attractive valuations in an environment where agile the medium-to-long term regardless of the economic smaller businesses with strong management teams can environment and where the Manager’s constructive active take market share and build strong long-term franchises. engagement approach can help to support or unlock We will maintain our focus on building a high conviction that potential. portfolio of less cyclical, high quality, strategically valuable The Manager continues to believe that stock-level volatility businesses which we believe can deliver strong returns across the market, while creating some challenges, will through the market cycle regardless of the performance of provide an attractive environment for investors to back the wider economy. SEC plc - Report and Financial Statements14 01 Strategic Report - Top 10 investee Company Review ### Portfolio as at 30 June 2022 | | | | | | | | % of | | | % of | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | invested | | | invested | | | | | | | | | | portfolio at | | | portfolio at | | | | % of | | | Date of rst | Cost | Valuation | | | 30 June | | | 30 June | | | net | | Company Sector Classication | Investment | £’000 | | £’000 | | | 2022 | | | 2021 | 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 ## Other Information ### Business and Status of the Company Investment Policy The Company is quoted on the London Stock Exchange and The Company invests primarily in equities quoted on is a member of the Association of Investment Companies. markets operated by the London Stock Exchange where the Investment Manager believes the securities are The principal activity of the Company is to conduct undervalued and could benet from strategic, operational business as an investment trust. The Company is or management initiatives. The Company also has the currently an investment company in accordance with the exibility to invest up to 20% of the Company’s gross provisions of Section 833 of the Companies Act 2006. The assets at the time of investment in securities quoted on Directors do not envisage any change in the Company’s other recognised exchanges. activity in the future. The Company may invest up to 20% of its gross assets at The Company is registered in England and Wales with the time of investment in unquoted securities, provided number 05448627. that, for the purpose of calculating this limit, any undrawn commitments which may still be called shall be deemed to The Company has received written approval from HM be an unquoted security. Revenue and Customs as an authorised investment trust under Section 1158 of the Corporation Tax 2010 (“CTA”) The maximum investment in any single investee company and the ongoing requirements for approved companies will be no more than 15% of the Company’s investments at in Chapter 3 Part 2 of the Investment Trust (Approved the time of investment. Company) (Tax) Regulations 2011 (Statutory Instruments 2011/2999). The Company will continue to be treated as The Company will not invest more than 10%, in aggregate, an investment trust company subject to the Company of the value of its total assets at the time the investment is continuing to meet the eligibility conditions for approval. made in other listed closed-end investment funds. In the opinion of the Directors, the Company’s affairs have Other than as set out above, there are no specic been conducted in a manner to satisfy these conditions restrictions on concentration and diversication. The Board to enable it to continue to qualify as an investment trust does expect the portfolio to be relatively concentrated, company for the year ended 30 June 2022. 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 specic restriction on the ### Investment Objective market capitalisation of securities into which the Company will invest, although it is expected that the majority of the The investment objective of the Company is to achieve investments by value will be invested in companies too small absolute returns (i.e. growth in the value of investments) to be considered for inclusion in the FTSE 250 Index. rather than relative returns (i.e. attempting to outperform selected indices) over a medium-term period, principally The Company’s Articles of Association permit the Board to through capital growth. 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 - Other Information ## 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 (30 June 2021: 1.07%). The ongoing charges ratio (including the performance fee) was 1.08% in the year to 30 June 2022 (30 June 2021: 1.07%). ![img-1.jpeg](img-1.jpeg) SEC plc - Report and Financial Statements 17 01 Strategic Report - Other Information ### Principal and Emerging Risks The Board believes that the overriding risks to The Directors continue to work with the agents and shareholders are events and developments which can advisers to the Company to try and manage the risks, affect the general level of share prices, including, for including emerging risks. The central aims remain to instance, ination or deation, economic recessions and preserve value in the Company’s portfolio and liquidity movements in interest rates and currencies which are in the Company’s shares. The Directors aim to ensure outside of the control of the Board. that the Company maintains its investment strategy, has operational resilience, meets its regulatory requirements The principal ongoing risks and uncertainties currently as an investment trust (and in particular in the provision faced by the Company, which may vary in signicance from of regular information to the market) and tries to navigate time to time, are outlined below, together with the controls the nancial and economic circumstances in these very and actions taken to mitigate those risks. uncertain times. Principal Risk Mitigation Action taken in the year Investment Performance The unconstrained long-term The Board maintains a close review of The Board, through its review philosophy and concentrated how the Investment Manager invests process, did not identify any specic portfolios resulting from the to implement the investment strategy new action required either with investment strategy can lead to and regularly reviews adherence to the portfolio as a whole or with periods of signicant short-term the investment policy. any one specic investment to variation in performance. The mitigate performance risk over The Board maintains a longer- underlying investments are in and above that already taken by the term perspective in relation to companies which, due to their smaller InvestmentManager. monitoring performance of the size, may have limited product lines, Investment Manager in achieving the The Board also recognises the limited nancial resources with investmentobjective. signicant contribution made by the dependence on a few key individuals Investment Manager in maximising The Board relies on the Investment and less liquid shares. These engagement opportunities with Manager to engage actively risks are more signicant than in investee companies. This was with the investee companies in largercompanies. achieved with the Company's focus on order to support long-term value investments with a market value in the enhancement and the actions taken Risk remains relatively unchanged region of £100 million and £300 million are reported and reviewed regularly by at the point of entry. the Board. Operational Risk | The Company appoints and relies on | The Board has a detailed risk matrix | The Management Engagement | | --- | --- | --- | | a number of third parties, including | which is reviewed by the Audit | Committee performed a review of | | the Investment Manager, to provide | Committee and the Board twice yearly | all service providers in May 2022. | | it with the necessary services, such | and is used as a tool to consider the | All were assessed to provide a | | as registrar, depository, custodian, | principal risks of the Company and the | satisfactory service to the Company. | | administrator, company secretary, | controls that are in place in relation to | | Internal controls reports were lawyers, external auditors and brokers. those risks where appropriate. reviewed, no signicant controls Key appointments of third party weaknesses were identied. Risk remains relatively unchanged service providers are taken after a formal process ensuring the required skills and experience are satised. 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. 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 | The Board is comprised of individuals | At its quarterly meetings, the Board | | --- | --- | --- | | Stock Exchange listing, nancial | whose background, qualications | reviewed regulatory and technical | | penalties, or a qualied audit | and experience ensure that the | updates. No signicant actions were | | report. Breach of Section 1158 of the | increasing volume and complexity | required in the year. | | Corporation Tax Act 2010 could lead to | of relevant regulatory and legislative | | The Board reviews the Section 1158 the Company being subject to tax on requirements are understood. Where compliance schedule, prepared by the realised capital gains. appropriate, advice and training are Company Secretary, at each quarterly sought from service providers. Board Board Meeting. Risk remains relatively unchanged selection and performance review processes support this approach. Discount/Premium | A signicant share price discount | The Board has established share | During the year under review, the | | --- | --- | --- | | or premium to the Company’s NAV | issuance and share buy-back | Company’s shares traded at a | | per share, or related volatility, could | processes to assist in the moderation | discount to NAV of between 4.2% | | lead to high levels of uncertainty | of share price premium and discount | and 16.7%. | | or speculation and the potential to | to NAV. | | During the year 6,329,685 shares were reduce investor condence. Shareholders are kept informed of bought back for cancellation via a developments as far as practicable tender offer and 1,615,071 shares were The impact of this risk was and are encouraged to attend bought back to be held in Treasury. increased during the year briengs, such as the Company’s During the year the Board announced Annual General Meeting, to various measures which are intended understand the implementation of the to reduce the Company’s discount to investment strategy to achieve the NAV. Details of these measures are Company’s objectives. noted on page 5. Economic, Political and External Factors The Company invests predominantly in The exposure to these external The Board monitors and reviews the UK shares and therefore performance factors is considered largely outside position of the Company, ensuring may be impacted by economic, political of the Company’s control so regular that adequate liquidity exists to allow and other factors which affect either the monitoring is carried out with regards exibility. Investment performance operation of the markets that portfolio to the likely effects should any and the portfolio composition has companies trade in, the UK stock market potential mitigation be possible. been monitored specically in the or currency movements. In particular light of the increased risks. Limits are set for investment in small changes can have a larger impact overseas based investments. The Board continues to closely on small companies. monitor the Environmental, Social and Governance (“ESG”) risk to the Company. Risk has been heightened by inationary increases and geopolitical events, including the invasion of Ukraine Investment Manager The loss of key individuals at the In order to reduce this risk the The Board keeps the performance of Investment Manager could have, or be Investment Manager operates a team the key personnel at the Investment perceived to have, a material effect on based approach to fund management. Manager under frequent review. the Company’s performance. The team consists of a number of investment professionals who combine Risk remains relatively unchanged 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 Committeewhich is comprised of a number of experienced internal and external members. SEC plc - Report and Financial Statements 19 01 Strategic Report - Other Information ### Viability Statement Going Concern The Board has assessed the prospects of the Company In assessing the Company’s ability to continue as a over the three nancial years to 30 June 2025. This going concern the Directors have also considered the assessment period has been chosen as the Board believes Company’s investment objective, detailed on the inside it represents an appropriate period given the long-term front cover, risk management policies, detailed on pages investment objectives of the Company, the low working 18 and 19, capital management (see note 16 to the nancial capital and the simplicity of the business model. statements), the nature of its portfolio and expenditure projections and believe that the Company has adequate In making this three year assessment, the Board has taken resources, an appropriate nancial structure and suitable the following factors into account: management arrangements in place to continue in operational existence for the foreseeable future and for at  The nature of the Company’s portfolio least 12 months from the date of this Report. In addition,  The Company’s investment strategy the Board has had regard to the Company’s investment performance (see page 3) and the price at which the  The potential impact of the Principal Risks Company’s shares trade relative to their NAV (see page 3). and Uncertainties  2025 realisation opportunity The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing  Share buy-backs this assessment, the Directors took into consideration:  The liquidity of the Company’s portfolio  Market falls and gains  cash and cash equivalents balances and, from a liquidity perspective, the portfolio of readily realisable  The level of existing and potential long-term liabilities securities which can be used to meet short-term funding commitments; The Company’s portfolio currently includes a large position in cash or liquid money market funds. Over the last ve  the ability of the Company to meet all of its liabilities and years, cash and liquid money market funds have averaged ongoing expenses from its assets; c.7.6% of the NAV and was 9.3% of the 30 June 2022 NAV.  revenue and operating cost forecasts for the Cash balances can be varied due to changes in market forthcoming year; conditions, but positive cash levels are expected to be  the ability of third-party service providers to continue to maintained over the period. provide services; and The Company has not been geared for many years and the  potential downside scenarios including stress testing current policy of the Board is not to have a gearing facility. the Company’s portfolio for a 25% fall in the value of the investment portfolio; a 50% fall in dividend The Directors have also carried out a robust assessment income and the remainder of the share buy-backs for of the principal and emerging risks, as noted on pages 18 the 2022 calendar year under the current share buy- and 19, that are facing the Company over the period of the back programme, the impact of which would leave the review, including those that would threaten its business Company with a positive cash position. model, future performance, solvency or liquidity. Based on this assessment, the Directors are condent The Directors also considered the effect of the “mini that the Company’s investment approach, portfolio budget” announced by the UK Government on 23 September management and balance sheet approach will ensure 2022. The consequences are not considered to affect the that the Company will be able to continue in operation Company’s ability to continue as a going concern. and meet its liabilities as they fall due over the period Based on this assessment, the Directors are condent to 30 June 2025. that the Company will have sucient 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 Sustainable Investment Approach ### Environmental, Social and ### Governance Issues The ‘G’ (Governance) of ESG is the most important factor in the investment processes for UK public equity. Board Commitment to Sustainable Investment composition, governance, control, company culture, alignment of interests, shareholder ownership structure, The Board is comprised entirely of non-executive Directors remuneration policy etc. are important elements that will and the day-to-day management of the Company’s business feed into the manager’s analysis and company valuation. is delegated to the Investment Manager (details of the Investment Management Agreement are set out on pages E and S (Environmental and Social) factors are assessed as 28 and 29). Therefore, the Directors do not consider it risk factors during due diligence to eliminate companies necessary for the Company to have environmental, human that face environmental and social risks that cannot be rights or community policies in place. mitigated through engagement and governance changes. However, in carrying out its activities and in its relationships ESG considerations are integrated into the lifecycle of each with service providers, the Company aims to conduct itself investment as follows: responsibly, ethically and fairly. The Investment Manager has a clear commitment to sustainable investment as an 01 Initial appraisal integral part of its business strategy. The rm recognises that the integration of sustainable investment considerations, Identify material ESG matters requiring further including environmental, social and governance (ESG) factors investigation during the due diligence stage. If certain into its business processes can protect nancial performance risks are unlikely to be suciently managed or and consistency of returns. Investment Teams across the mitigated, then the Manager may choose not to proceed Investment Manager proactively manage ESG factors across at this stage. investment strategies and the underlying holdings to help both build and protect value in the stocks invested in. 02 Due diligence The Investment Manager’s sustainable investment policies and beliefs can be found on its website and in its The ESG Decision Tool and, where possible, meetings Sustainable Investment Report. with management are used to assess material ESG risks that need to be mitigated and ESG opportunities that The Investment Manager believes in playing an industry could drive value. Specialised consultants may be used leadership role in supporting and promoting sustainable to provide additional information. investment. The Investment Manager is a signatory to the UN-supported Principles of Responsible Investment and 03 Investment appraisal was awarded four or ve stars, out of a maximum of ve stars, for all modules submitted in its PRI Report 2021. It is A summary of the ESG analysis is included in nal also a signatory of the UK Stewardship Code and aims to Investment Committee submissions. Appropriate comply its recommendations. In September 2022, it was risk mitigation approaches will be referenced and announced that Gresham House had met the expected assurance that the business is open to making standard of reporting for 2021 and will remain a signatory to improvements is sought. the UK Stewardship Code 2020 for the second year in a row. 04 Holding period Public Equity Sustainable Investment Policy During the holding period of an investment, the and Processes Management Team engage regularly with boards and The Investment Manager has a Sustainable Investment management teams, focusing on strategic, nancial Policy specic to public equity investments. The Public and operational matters, including ESG factors, and Equity Sustainable Investment Policy details the consistently use voting rights. 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 SEC plc - Report and Financial Statements 21 01 Strategic Report - Other Information Sustainable Investment Framework Across Gresham House investment teams, an active focus is Management Team to identify a broad range of ESG risks given to environmental, social and governance (ESG) factors, which may materially impact proposed transactions. as shown in the gure below. These factors are used by the Climate change Waste management and pollution Environment Commitment Marketplace to sustainability responsibility Supply chain SocialGovernance sustainability Risk and Employment, health, safety andwellbeing Natural capital Governance and ethics Community care and engagement 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. compliance SEC plc - Report and Financial Statements22 01 Strategic Report - Chairman’s Statement ESG Decision Tool The Management Team is responsible for implementing process for individual companies prior to investment. The the commitments made in the Public Equity Sustainable Tool also provides a way of summarising material ESG Investment Policy. The themes from the Sustainable issues, which can then be tracked and monitored over time, Investment Framework are used as the basis for the and include actions that can be taken to mitigate those risks Management Team’s ESG Decision Tool and several sub- throughout the holding period. factors are considered under each broader theme. The most important ESG factors the Management Team will The purpose of the Tool is to support the Management Team use to assess an investment before purchase are set out in in identifying potential, material ESG risks that need to be the table below. managed and mitigated, and to help shape the due diligence Environmental Social Governance GHG emissions and climate Employee H&S and Carbon, change impacts, energy Employment, well-being, sustainable Governance good practice; Governance and emissions and management, pollution health, safety and employment practice, sound business ethics ethics pollution prevention and control, air well-being engagement, diversity and management and culture quality management inclusion Product impacts, safety and Natural Water use, biodiversity Marketplace labelling in use and disposal, Risk and Robust risk and compliance resources and natural resources responsibility quality and value, customer compliance management management management care, data protection Awareness, capability Managing environmental, Waste Waste reduction; sustainable Supply chain Commitment to and commitment to run social and economic impacts management management of waste sustainability sustainability a resilient, sustainable of sourcing business Understanding and managing Community care impacts on communities, and engagement including human rights; community investment Where material ESG risks are identied, these are Stewardship Responsibilities reviewed by the Management Team and a decision on how to proceed is documented. In the majority of cases, we As an active investor, the Manager is committed to acting would proactively follow up with the investee company as a long-term steward of the assets invested in on behalf management team and ensure appropriate corrective and of clients. The Management team use active ownership preventative action is taken and any material issues or responsibilities, including engagement and voting, to incidents are recorded by the Management Team. 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 ESG Data practices and investment processes. Both activities are viewed as a key part of the investment approach and not Following an assessment of several data providers, the considered stand-alone objectives. 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 * UK Public Equity team to the Management Team that supports coverage of small and micro-cap companies in the UK. Given Inspired PLC ### 37 5.1 years is an investee company, the Management Team ensured Governance-focused engagements Weighted average holding period the Conicts Committee were made aware of the potential ### conict and the Sustainable Investment Team was brought 96% in to provide independent input to the provider selection Met with nearly all holdings’ * Based on UK Public Equity team holdings as of 31 December 2021. management teams 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. SEC plc - Report and Financial Statements 23 01 Strategic Report - Chairman’s Statement Engagement Voting The Company’s investment philosophy means that it aims Voting is an important part of the investment strategy. to act, by default, as an actively engaged shareholder. The The Management Team devotes the necessary research, Management Team’s assessment of management, Board management time and resources to ensuring we make good and governance forms a critical part of the investment case, voting decisions. which necessitates that Management work with companies on Voting decisions are based on views of which course matters such as strategy, M&A and remuneration, both from of action will be in the best interests of the Company’s the outset of our holding period and on an on-going basis. The investors. Votes are informed by various sources including: Management Team encourages an open and honest dialogue research, engagement with the company, discussions with with the companies which we believe is an essential part of other stakeholders and advisers, internal discussions and being an effective steward of our clients’ assets. consultations, and other relevant information. The Management Team will meet face-to-face with the management team of an investee company at least twice a Voting decisions year, and up to quarterly for this strategy . These meetings form the basis for the ongoing monitoring of a company The Investment Manager does not have a set policy dening strategy, nancial performance and ESG considerations. how voting decisions should be made on specic items, but it has dened the following requirements: Dening engagement objectives 1. Authority to allot shares – it is our policy to vote against anything over 33%. Dependent upon factors such as materiality and level of control, the Management Team may identify and agree 2. Disapplication of pre-emption rights – it is our policy to strategic milestones that they expect a company to deliver vote against anything over 10%. on over the holding period. Strategic milestones will typically 3. Authorise Company to purchase own shares – it is our be bespoke to the organisation and important to the policy to vote against anything over 10%. development of the business, aiming to keep the directors focused and ensure continued progress. 4. Political donations – it is our policy to vote against all political donations. Objectives may change over time depending on several factors, including business priorities, market forces and stakeholder considerations. Example of engagement Proxy voting providers objectives include: The Management Team does not use any proxy voting  Improvements to reporting, including ESG factors advisory services, but uses proxy voting services to deliver voting decisions to the companies invested in.  Board composition  Improvements to governance arrangements Voting against management  Product or geographic expansion or variance, including due to ESG related market forces If the Manager plans to vote against the company decision, it will engage with the company in advance, explain why its  Staff retention and reduction of absence rates plans to vote against the decision and look for ways to avoid  Implementing compliance programmes with that if possible. If a satisfactory outcome is not reached forthcoming ESG legislation. through this active dialogue with the company, the Manager will typically tell the company in advance of its intention to The identied objectives provide a form the basis abstain or vote against management and clarify the reasons of discussions with companies during regular grounding such intention. scheduled engagements. UK Public Equity voting in 2021 96.2% For 3.4% Against 0.4% Abstai SEC plc - Report and Financial Statements24 n 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 qualifies 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 approach 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 The Company’s primary business relationships are with that could have a potential impact on the operational its Investment Manager and AIFM, Gresham House Asset capability of the Investment Manager and the Company’s Management (“GHAM”), and its Company Secretary and other key service providers. During the year under review, Administrator, Juniper Partners Limited. The Board has the Board received updates from GHAM and its other been mindful of the challenges that active asset managers, key service providers conrming that they continued to and boutique UK asset managers in particular, have faced service the Company in line with their agreements and had in recent years and the resource required to implement suitable arrangements in place to ensure that they can effectively the Company’s particular investment strategy. continue to provide their services to the Company during the Furthermore, the Board recognises the importance of ongoing pandemic. a strong sales and marketing capability to attract new investors. GHAM has a strong and well-developed platform Market volatility & ination – As noted in the Chairman’s with a strong net cash balance sheet and well-developed Statement on page 4, the Russia/ Ukraine war has operational resources. It has an established pedigree of destabilised commodity markets and led to unprecedented investing on a strategic public equity basis in UK equity increases in energy prices which have added further fuel markets. The Board will work closely with GHAM to achieve to ination. The Board continues to receive updates from long-term success for the Company and its stakeholders. the Investment Manager on general market volatility and inationary pressures with particular focus on the UK Juniper Partners Limited provides company secretarial and Smaller Companies sector. administration services to the Company. Juniper Partners Limited also seeks to maintain constructive relationships Succession planning – During the year the Board undertook with the Company’s other third-party suppliers, for example a search for an additional non-executive Director who would the Registrar, the Depositary and the Custodian, on behalf enhance the overall skills and experience of the Board of the Board typically through regular communication and and its Committees. Annie Coleman was subsequently provision of information. appointed as a non-executive Director of the Company on 14February 2022. Further details of the search can be found On behalf of the Board in the succession planning section on page 35. Richard Hills Chairman 5 October 2022 SEC plc - Report and Financial Statements26 02 Governance Reports ## Directors The Directors in oce at the date of this report, all of whom are non-executive, were as follows: ### Josephine Dixon ### Richard Hills (Chairman) (Audit Committee Chairman) Independent Director Independent Director Jo, a Chartered Accountant, has a career that spans a Richard has substantial experience of the investment number of nancial and commercial roles in a variety management industry and has held senior executive of sectors from nancial services to football. She has and non-executive positions within the elds of both substantial investment trust board experience and is conventional and alternative assets. He is currently a currently on the boards of Bellevue Healthcare Trust PLC, board member of Henderson International Income Trust The Global Smaller Companies Trust PLC, Alliance Trust plc and EQT Services (UK) Limited. Richard was appointed plc, and Ventus VCT PLC (in liquidation). Jo was appointed to the Board on 5 March 2014 and will retire at the to the Board on 14 July 2014. forthcoming AGM. ### Richard Locke ### (Deputy Chairman) ### Annie Coleman Independent Director Independent Director Richard is Vice Chairman of Fenchurch Advisory Partners Annie’s early career included British Petroleum, Head of LLP, an independent corporate nance advisory rm that the London Stock Exchange Press Oce; press ocer specialises in the nancial services sector. Previously roles in the Prime Minister’s Press Oce and the Ministry he was a partner of Cazenove & Co. and then a director of Defence. In 1999 she moved to Goldman Sachs in London at its successor rm, JPMorgan Cazenove. Richard was and then GAM Investments in 2006. Annie became Global appointed to the Board on 10 February 2015. Head of Organisational Culture and Client Marketing at UBS Investment Bank in 2011, before moving to Unicredit as Group People and Culture Oce. 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 ocer 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 ocer 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. SEC plc - Report and Financial Statements 27 02 Governance Reports # Report of the Directors ## Directors The Directors in office 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 final 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 4 October 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 was 63,296,844. 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 notifiable 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 notified the Company their shareholding had fallen to 28.9% of the Company's total voting rights. On 9 September 2022, 1607 Capital Partners notified the Company their shareholding was now 13.9% of the Company's total voting rights after having notified the Company on 6 September 2022, that their shareholding had increased to 14.01%. There have been no other changes notified in respect of the above holdings, and no new holdings notified, 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 specific 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. 28 SEC plc - Report and Financial Statements 02 Governance Reports - Report of the Directors The Board keeps the performance of the Investment The Investment Manager is entitled to 10% of any excess Manager under continual review, and the Management of the NAV total return over the higher of the Benchmark Engagement Committee, comprising all Directors, NAV per share and the high watermark. The aggregate conducts an annual appraisal of the Investment amount of the Management Fee and the Performance Fee Manager’s performance, and makes a recommendation in respect of each nancial year of the Company shall not to the Board about the continuing appointment of the exceed an amount equal to 1.4% per annum of the NAV of Investment Manager. During the year the Board reviewed the Company as at the end of the relevant nancial period. the continuing appointment of the Investment Manager A performance fee of £nil is payable in respect of the and agreed that the Investment Manager had executed rolling three-year period ended 30 June 2022 (2021: £nil). 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. ### Information About Securities ### Carrying Voting Rights ### Investment Manager’s Fees The following information is disclosed in accordance with the Large and Medium sized Companies and Groups The Investment Manager is entitled to receive from the (Accounts and Reports) Regulations 2008 and DTR 7.2.6 of Company a basic fee together with, where applicable, a the FCA’s Disclosure Guidance and Transparency Rules: performance fee.  The Company’s capital structure and voting rights are summarised above. Basic Fee  Details of the substantial shareholders in the Company are listed above. A basic management fee is payable to the Investment Manager at the annual rate of 0.75% of the NAV of the  The rules concerning the appointment and replacement Company. The basic management fee accrues daily and is of Directors are contained in the Company’s Articles of payable quarterly in arrears. 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 Performance Fee Arrangements pages 30 and 31. The Company’s performance is measured over rolling  There are no restrictions concerning the transfer three-year periods ending on 30 June each year, of securities in the Company; no special rights with by comparing the NAV total return per share over a regard to control attached to securities; no agreements performance period against the total return performance between holders of securities regarding their transfer of the FTSE Small Cap (ex Investment Trusts) Index. A known to the Company; and no agreements which performance fee is payable if the NAV total return per the Company is party to that might affect its control share (calculated before any accrual for any performance following a takeover bid. fee to be paid in respect of the relevant performance  There are no agreements between the Company and its period) at the end of the relevant performance Directors concerning compensation for loss of oce. period exceeds both: (i) the NAV per share at the beginning of the relevant performance period as adjusted by the aggregate ### Accountability and Audit amount of (a) the total return on the FTSE Small Cap (ex Investment Trusts) Index (expressed as a percentage) The responsibilities of the Directors and the Auditor and (b) 2.0% per annum over the relevant performance in connection with the nancial statements is period (“Benchmark NAV”); and included on page 49. (ii) the high watermark (which is the highest NAV per The Directors who held oce at the date of approval of share by reference to which a performance fee was this Directors’ Report conrm that, so far as they are each previously paid). 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 financial risk management objectives and policies is set out in note 16 of the financial statements on pages 65 to 68. ## Requirements of the Listing Rules Listing Rule 9.8.4 requires the Company to include specified information in a single identifiable section of the Annual Report or a cross reference table indicating where the information is set out. The Directors confirm 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 insufficient turnover and is therefore not obliged to make a human trafficking statement. The Directors are satisfied 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 financial 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 9 November 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 first 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 4 October 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. 30 SEC plc - Report and Financial Statements 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 Official List of the London Stock Exchange for the five 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 beneficial 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 beneficial holdings. On behalf of the Board **Richard Hills** Chairman 5 October 2022 SEC plc - Report and Financial Statements 31 02 Governance Reports ## Statement on Corporate Governance This Corporate Governance Statement forms part of the As at the date of this Report, the Board consists of ve non- Directors’ Report. executive Directors. Biographical details of the Directors in oce at the year end can be found on page 27. The terms and conditions of the appointment of the ### Statement of Compliance with the AIC non-executive Directors are formalised in letters of appointment, copies of which are available for inspection ### Code of Corporate Governance from the registered oce of the Company and will be The Board has considered the principles and provisions available at the Annual General Meeting. of the Association of Investment Companies’ Code of The Board has agreed arrangements whereby Directors may Corporate Governance (“AIC Code”). The AIC Code is take independent professional advice in the furtherance of endorsed by the Financial Reporting Council and adapts their duties and the Company has Directors’ and Ocers’ the principles and provisions set out in the UK Corporate Liability Insurance to cover legal defence costs. Under the Governance Code to make them relevant to investment Company’s Articles of Association, the Directors are provided, companies as well as incorporating the relevant provisions subject to the provisions of UK legislation, with an indemnity of the UK Corporate Governance Code. in respect of liabilities which they may sustain or incur in The Board believes that the AIC Code provides the most connection with their appointment. Apart from this, there are appropriate governance framework for the Company. no third party indemnity provisions in place. 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 ### Board Operation can be found at www.theaic.co.uk. At the Board meetings, the Directors follow a formal By reporting against the AIC Code, the Board is agenda to review the Company’s investments and all other meeting its obligations in relation to the UK Corporate important issues to ensure that control is maintained over Governance Code. the Company’s affairs. The Board conrms that, during the year, the Company The Board is responsible for adherence to the investment complied with the recommendations of the AIC Code and policy and strategic and operational decisions of the the relevant provisions of the UK Corporate Governance Company. The Company’s main functions are delegated to a Code (the “UK Code”), except as set out below: number of service providers, each engaged under separate legal contracts. The management of the Company’s  Provision 17 and 32 of the UK Code (Provision 22 and 37 portfolio is delegated to the Investment Manager, which of the AIC Code): the requirements to have a Nomination has discretion to manage the assets in accordance with the Committee and Remuneration Committee – owing Company’s objectives and policies. A representative of the to the nature of the Company, the activities of these Investment Manager attends each Board meeting to present committees are undertaken by the Board. written and verbal reports on its activities and portfolio  Provision 24 of the UK Code: the requirement for the performance. At each Board meeting, the Directors review Chairman to not sit on the Audit Committee – the Board the Company’s investments and all other important issues believes that all Directors, including the Chairman, to ensure that control is maintained over the Company’s should sit on all the Committees. affairs. The Board has adopted a formal schedule of matters specically reserved for approval. These reserved matters include the following: ### Articles of Association  Investment and business strategy of the Company. The Company’s Articles of Association may only be  Annual and interim reports and accounts and accounting amended by special resolution at a general meeting policies, prospectuses, circulars and other shareholder of shareholders. communications.  Acquisitions and disposals of interests of more than 29.9% in the voting shares of any investee company. ### Board of Directors  Dividend policy. Under the leadership of the Chairman, the Board is  Board appointments and removals. responsible for all matters of control and direction of the  Appointment and removal of the Company’s service Company, including its investment policy. providers including the Investment Manager/AIFM, Depository and Auditor. SEC plc - Report and Financial Statements32 02 Governance Reports - Statement on Corporate Governance Directors’ training and development needs are reviewed by ### Board Balance and Independence the Board on an annual basis as part of the performance All of the Directors of the Company are non-executive and, evaluation process. The Board is committed to keeping independent of the Investment Manager. up to date on matters which are directly relevant to their duties and responsibilities to the Company. The Directors The Directors possess a wide range of nancial, business receive regular briengs and updates from the Company’s and legal expertise relevant to the direction of the Investment Manager and other advisers on regulatory Company and consider that they commit sucient time to matters that may affect the Company. the Company’s affairs. ### Diversity ### Chairman The Board is focused on having an effective Board which The Chairman, Mr Hills, is deemed by his fellow consists of experienced non-executive Directors who independent Board members to be independent and to can function well together and have a good operational have no conicting relationships. He considers himself to knowledge of the Company and the closed ended have sucient time to commit to the Company’s affairs. investment company sector more generally. Accordingly, the Board consists of ve independent Directors in Richard As reported in the Chairman’s Statement, Mr Hills shall be Hills, William Barlow, Annie Coleman, Josephine Dixon retiring from the Board at the AGM in November 2022. The and Richard Locke. The Board supports the principle of Board is undertaking a rigorous selection process for the boardroom diversity in its broadest sense, in terms of new Chairman and expect to announce the appointment of gender, expertise, geographic background, age and race. his successor in the near future. 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 ### Re-election and Retirement of Directors and experience to oversee the Company, its investments and its corporate structure, including its third-party In accordance with the AIC Code all Directors are subject to advisers. Any new appointee would make an appropriate annual re-election. Board support for re-election is based contribution to those skills. It is the Board’s policy to on the outcome of an annual performance evaluation. review its composition regularly and, when appropriate, The Chair also speaks with each Director individually. to refresh the Board through recruitment, with the aim of The performance of each Director and nominations for having the blend of skills and attributes that will best serve re-election are then discussed by the Board as a whole. shareholders in the future. The Board’s policy on tenure is that the maximum period In achieving gender diversity, the Board consists of ve that any Director shall serve as a director of the Company non-executive Directors of whom two are female, including shall be limited and no Director shall be eligible to serve the Chairman of the Audit Committee, thereby constituting beyond the ninth Annual General Meeting following his or 40% female representation. her appointment. In the event that a Director is appointed at an Annual General Meeting, for these purposes that The Board does not consider it appropriate to establish Annual General Meeting will not count towards the nine. 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. ### 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. 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 30June 2022 and the attendance of the individual Directors is shown below: Management Quarterly Ad-hoc Audit Committee Engagement Board meetings Board meetings meetings Committee meetings Number of Number Number of Number Number of Number Number of Number meetings attended meetings attended meetings attended meetings 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 Committees of the Board The Board’s decision to recommend the re-election of The Board has appointed three committees, to assist its each of the Directors is informed by a formal assessment operations. Each committee’s delegated responsibilities of each Director’s independence and contribution, and are clearly dened in formal terms of reference. These are the balance of skills, experience, length of service and reviewed and assessed annually for adequecy and copies knowledge of the Company across the Board as a whole. are available from the Company’s Registered Oce. Miss This assessment is made annually as part of the Board’s Dixon chairs the Audit Committee and Mr Hills chairs the appraisal of its collective performance and that of the Management Engagement Committee and the Disclosure Chairman, the Directors and the Committees, and the Committee. Each committee comprises all Directors of the independent status of each individual Director and the Company. Following Mr Hills retirement at the forthcoming Board as a whole. The evaluation of the Chairman is led by AGM, MrBarlow will chair the Management Engagement the Deputy Chairman. Committee and the Disclosure Committee. In 2022, the evaluation of the Board was carried out by way of a questionnaire. Having considered and ### Audit Committee discussed the points raised by the Directors in response to the questionnaire, the Board has concluded that it The main responsibilities of the Audit Committee and has an appropriate balance of skills, experience and the matters addressed by the Committee during the year length of service and that each Director demonstrates under review are detailed in the Audit Committee Report effectiveness, a high level of commitment to the on pages 38 and 39. Company, and considerable experience, expertise and knowledge. In addition, the Board believes that each The Chairman of the Board is a member of the Committee Director is independent of judgement and that there are no to enable him to be kept fully informed of any issues relationships or circumstances which are likely to affect which may arise. the judgement of any Director. The Chair of the Audit Committee is a Chartered Accordingly, the Board recommends the election/re-election Accountant and the other Committee members have a of each Director (as appropriate). combination of nancial, investment and other relevant experience. The Board is therefore satised that the Audit Committee has adequate skills to perform its role. SEC plc - Report and Financial Statements34 02 Governance Reports - Statement on Corporate Governance The Board may seek assistance in identifying suitable ### Management Engagement Committee candidates by appointing an external recruitment rm. The Management Engagement Committee is responsible During the year the Company engaged Stephenson for reviewing the performance of the Investment Manager Executive Search as its external recruitment rm as and making recommendations to the Board about the part of the recruitment of Annie Coleman. Stephenson continuing appointment of the Investment Manager on an Executive Search does not have any other connections annual basis. The Committee also reviews the Company’s with the Company. other service providers and meets periodically. The Management Engagement Committee met once over ### Company Secretary the course of the year. The Board has direct access to the advice and services of the Company Secretary which is responsible for ensuring ### Disclosure Committee that Board and Committee procedures are followed and that applicable regulations are complied with. The Following the implementation of the Market Abuse Company Secretary is also responsible to the Board for Regulation (“MAR”) in July 2016 (which now forms part ensuring timely delivery of nancial and other relevant of the domestic law of the United Kingdom by virtue of information and reports and that statutory obligations of the European Union (Withdrawal) Act 2018, as amended the Company are met. from time to time), the Board agreed to form a Disclosure Committee, comprising all Directors and chaired by Mr Hills, to ensure the identication of inside information ### Dialogue with shareholders and the Company’s ongoing compliance with MAR. The Committee meets on an ad hoc basis. Communication with shareholders is given a high priority by both the Board and the Investment Manager. Shareholders can communicate with the Board by writing ### Remuneration Matters to the Company Secretary at the address disclosed on page 73. Major shareholders of the Company are offered The Board has resolved that, in view of the size of the the opportunity to meet with the Investment Manager Board, it is most appropriate for matters of remuneration and the Directors in order to ensure that their views are to be dealt with by the Board as a whole. understood. During the year under review, the Chairman communicated with a number of major shareholders. Full details of the remuneration arrangements for All shareholders are encouraged to attend and vote at Directors can be found in the Directors’ Remuneration the Annual General Meeting, during which the Board Report on pages 40 to 42. and the Investment Manager are available to discuss issues affecting the Company and shareholders have the opportunity to address questions to the Investment ### Nomination Matters Manager, the Board and the Chairman. The Board as a whole undertakes the role of the The half-yearly and annual reports are designed to present Nomination Committee and oversees the annual appraisal a full and readily understandable review of the Company’s of the Board members, including the Chairman, to activities and performance. Copies are available from assess whether individual Board members should be www.greshamhouse.com. 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 ### Directors’ indemnity Board and considers succession planning accordingly. This process is led by Richard Hills. The Company maintains Directors’ and ocers’ liability insurance which provides against costs which they may The Board, when assessing the performance of Directors incur relating to the defence of any proceedings brought and for making recommendations as to whether they against them arising out of their positions as Directors, should remain in oce and be put forward for election or in which they are acquitted or judgment is given in their re-election at the AGM, uses extensive questionnaires and favour by the courts. The qualifying third-party indemnity reviews by the Chairman. The Senior Independent Director provision was in force throughout the nancial year and at is responsible for the appraisal of the Chairman. The 2022 the date of approval of the annual report. No claims have review did not identify any causes for concern. 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 Internal control assessment process ### Conicts of Interest Risk assessment and the review of internal controls are It is the responsibility of each individual Director to avoid undertaken by the Board in the context of the Company’s an unauthorised conict of interest situation arising. He or overall investment objective. The review process, which she must request authorisation from the Board as soon as has been in place for the year ended 30 June 2022 and he or she becomes aware of the possibility of an interest up to the date of this report, covers the key business, that conicts or might possibly conict with the interests operational, compliance and nancial risks facing the of the Company (a “situational conict”). The Company’s Company. In arriving at its judgement of what risks the Articles of Association authorise the Board to approve Company faces, the Board considers the Company’s such situations, where deemed appropriate. objectives in light of the following factors: The Board is responsible for considering Directors’ requests for authorisation of situational conicts and for  the nature and extent of risks which it regards as deciding whether or not the situational conict should acceptable for the Company to bear within its overall be authorised. The factors to be considered will include: business objective; whether the situational conict could prevent the Director  the threat of such risks becoming reality; from properly performing his or her duties; whether it has,  the Company’s ability to reduce the incidence and impact or could have, any impact on the Company; and whether of risk on its performance; and it could be regarded as likely to affect the judgement and/ or actions of the Director in question. When the Board  the cost to the Company and benets related to is deciding whether to authorise a conict or potential the Company and third parties of operating the conict, only Directors who have no interest in the matter relevant controls. being considered are able to take the relevant decision, Against this backdrop, the Board has split the review and in taking the decision the Directors must act in a way into four sections reecting the nature of the risks being they consider, in good faith, will be most likely to promote addressed. The sections are as follows: the Company’s success. The Directors are able to impose limits or conditions when giving authorisation if they think  corporate strategy; this is appropriate in the circumstances.  investment and business activities; A register of conicts is maintained by the Company  published information and compliance with laws and Secretary and is reviewed at every Board meeting to regulations; and ensure that it is kept up to date and the Board, on an individual basis, conrmed there were no conicts of  relationship with service providers. interest during the year ended 30June 2022. 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 ### Internal Control Review an internal audit function. Instead, the Directors obtain information from key third party suppliers regarding The Directors acknowledge that they are responsible the controls operated by them. To enable the Board to for the Company’s systems of internal control and for make an appropriate risk and control assessment, the reviewing their effectiveness. An ongoing process, information and assurances sought from third parties in accordance with the Financial Reporting Council’s include the following: Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, has been  details of the control environment; established for identifying, evaluating and managing the  identication and evaluation of risks and risks faced by the Company. This process is regularly control objectives; reviewed by the Board. The risk management process and systems of internal control are designed to manage rather  assessment of the communication procedures; and than eliminate the risk of failure to achieve the Company’s  assessment of the control procedures. objectives. It should be recognised that such systems can provide only reasonable, not absolute, assurance against material misstatement or loss. SEC plc - Report and Financial Statements36 02 Governance Reports - Statement on Corporate Governance The key procedures which have been established to  the Directors of the Company clearly dene the duties provide effective internal controls are as follows: and responsibilities of their agents and advisers in the terms of their contracts. The appointment of agents and  investment management is provided by Gresham House advisers is conducted by the Board after consideration Asset Management. The Board is responsible for the of the quality of the parties involved; the Board monitors implementation of the overall investment policy and their ongoing performance and contractual agreements; monitors the action of the Investment Manager at regular  mandates for authorisation of investment transactions meetings. The Audit Committee reviews compliance and expense payments are set by the Board; and reports from the Investment Manager on a twice-yearly basis, and the Investment Manager’s compliance ocer  the Board reviews detailed nancial information is available to attend the meeting if required; produced by the Investment Manager and the Company Secretary on a regular basis.  the provision of administration, accounting and company secretarial duties are the responsibility of Juniper The Directors have carried out a review of the Partners Limited. The Audit Committee reviews the effectiveness of the systems of internal control as they report on controls from Juniper Partners Limited on have operated over the period and up to the date of an annual basis; approval of the report and nancial statements. There  J.P. Morgan Europe Limited act as depository and were no matters arising from this review that required J.P. Morgan Chase Bank N.A. act as custodian to the further investigation and no signicant failings or Company. The Audit Committee reviews J.P. Morgan’s weaknesses were identied. 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; SEC plc - Report and Financial Statements 37 02 Governance Reports ## Audit Committee Report I am pleased to present the Committee’s report to 4. Consider the need for an internal audit shareholders for the year ended 30 June 2022. The function Committee comprises all directors of the Company, including the Chairman of the Company to enable him to The Board has concluded that there is no need for remain fully informed of any issues that may arise. The an internal audit function owing to the nature of the Committee met twice during the year. Attendance by each Company’s activities and the fact that most functions Director is shown in the table on page 34. are subcontracted. The following matters were addressed by the Committee The Committee’s main responsibilities are: during the period under review. 1. To review the half year and annual nancial ### Risk Management and Effectiveness of statements ### Internal Controls The Committee considers whether the nancial statements are fair, balanced and understandable. The Committee conducted a robust review of the effectiveness of the Company’s risk management and In addition, consistency of accounting policies, key areas internal control systems in February 2022, as part of of judgement, the clarity of disclosure and compliance with its consideration of the Annual Report and Financial accounting and listing requirements, the going concern Statements for the year ended 30 June 2022. The review assumption, the viability statement, and the results of the included considering those risks that might threaten audit are all covered in the work of the Committee. the Company’s business model, future performance, solvency or liquidity. 2. To review the risk management and During the year the Committee has considered effectiveness of internal control policies thefollowing: and procedures of the Company and its  the appropriateness of the risk matrix of the Company; service providers  the reports on the effectiveness of internal controls The Committee reviews and considers the Company’s and risk management systems of the principal service statement on risk management and internal control providers to the Company; and systems included in the nancial statements prior to  the quarterly reports from the Depository. endorsement by the Board. Following that process, the Committee then recommended to the Board the endorsement of the statement on internal 3. In relation to the external auditor: control, as included in this Report on page 36.  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. SEC plc - Report and Financial Statements38 02 Governance Reports - Audit Committee Report ## Half Year and Annual Financial Statements Both the Half-yearly Report for the period ended 31 December 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 significant 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 financial 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 financial 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 five 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 confirmed their willingness to continue in their office 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 firm, 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 satisfied 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 financial 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 30 June 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 ## Directors’ Remuneration Report The Board has prepared this report in accordance with 450 Schedule 8 of The Large and Medium-sized Companies and 400 Groups (Accounts and Reports) Regulations 2008. 350 An Ordinary resolution for the approval of this report 300 will be put to shareholders at the forthcoming Annual 250 General Meeting. 200 The law requires the Company’s Auditor to audit certain 150 disclosures provided. Where disclosures have been 100 audited, they are indicated as such. The Auditor’s opinion is 50 included in its report on pages 44 to 49. 0 2012 2014 2015201620172018 2019 2020 202120222013 Strategic Equity Capital - Share Price Total Return Index ### Directors’ Remuneration Report FTSE Small Cap (ex Investment Trusts) - Total Return Index Statement from the Chairman The Board presents the Directors’ Remuneration Report Directors’ emoluments for the year ended for the year ended 30 June 2022, which has been prepared 30June 2022 (audited) in accordance with the Companies Act 2006. The Directors who served in the year were paid the The Board has resolved that, in view of the size of the following emoluments in the form of fees: Board, it is most appropriate for matters of remuneration | to be dealt with by the Board as a whole. The Remuneration | | Year | | Year | Average | | --- | --- | --- | --- | --- | --- | | Policy is set out on page 41. | ended | | ended | | annual | | | 30 June | | 30 June | | change in | During the year ended 30 June 2022, Directors’ annual fees 2022 2021 % employees’ were set at a rate of £40,000 for the Chairman, £31,500 for £ £ change pay the Chairman of the Audit Committee and £27,500 for a non-executive Director of the Company. Mr Locke received Richard Hills 40,000 36,800 8.7 N/A an additional £3,000 for his work as the Company’s Deputy William Barlow 27,500 25,250 8.9 N/A Chairman. Following a review of the level of Directors’ fees for the forthcoming year the Board concluded that the Annie Coleman* 10,154 – N/A N/A amounts should remain the same. Josephine Dixon 31,500 29,000 8.6 N/A There will be no change to the way the current approved Richard Locke 30,500 25,250 20.8 N/A Remuneration Policy will be implemented in the course of the next nancial year. † David Morrison – 19,132 N/A N/A Total 139,654 135,432 3.1 N/A Your Company’s performance † David Morrison retired from the Board on 30 March 2021. The Company is required to include a performance graph * Annie Coleman was appointed to the Board on 14February 2022. in this report comparing the Company’s total shareholder return performance against that of a broad equity market The above emoluments are of a xed nature with no index. The Company is legally required to present a variable elements. Change 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. SEC plc - Report and Financial Statements40 Source: Refinitiv Datastream 02 Governance Reports - Directors’ Remuneration Report The table below contains the annual percentage change Directors’ interests (audited) in remuneration in the three nancial years prior to the current year in respect of each Director: There is no requirement under the Company’s Articles of Association, or their terms of appointment, for Directors to hold shares in the Company. | | Year to | Year to | | Year to | | | --- | --- | --- | --- | --- | --- | | | 30 April | 30 April | | 30 April | The interests of the Directors and any connected persons | | Fee Rates | 2020 | | 2021 | 2022 | in the Ordinary shares of the Company are set out below: | Chair £36,800 £36,800 £40,000 | | | | | 30 June | | 30 June | | | --- | --- | --- | --- | --- | --- | --- | --- | | | +3.1% +0% +8.7% | | | | 2022 | | 2021 | | Audit Chair £29,000 £29,000 £31,500 | | | Richard Hills 42,500 75,000 | | | | | | | +3.2% +0% +8.6% | | William Barlow 10,000 10,000 | | | | | | Deputy Chairman – – £30,500 | | | Annie Coleman 5,462 – | | | | | | | | – – +20.8% | Josephine Dixon 20,000 20,000 | | | | | | Other directors £25,250 £25,250 £27,500 | | | Richard Locke* 30,000 30,000 | | | | | | | +3.1% +0% +8.9% | | * This interest is held jointly by Mr Locke and Mrs Mary Locke. | | | | | There have been no changes to any of the above holdings Relative importance of spend on pay between 30 June 2022 and the date of this report. The table below, which is a statutory requirement, sets out, None of the Directors or any persons connected with them in respect of the nancial year ended 30 June 2022 and the had a material interest in the Company’s transactions, preceding year: arrangements or agreements during the year. a) the remuneration paid to Directors; and Directors’ service contracts b) the cash returned to shareholders by way of dividend. None of the Directors has a contract of service with the | | Year | | | Year | | Company, nor has there been any contract or arrangement | | --- | --- | --- | --- | --- | --- | --- | | ended | | | ended | | | between the Company and any Director at any time during | | 30 June | | | 30 June | | | the year. The terms of their appointment provide that a | | | 2022 | | | 2021 | | Director shall retire and be subject to election at the rst | | | | £ | | | £ Change | Annual General Meeting after their appointment, and | every year thereafter. Directors are not entitled to any Total remuneration 139,654 135,432 +3.1% termination payments in relation to their appointment. Dividend paid 1,013,000 791,000 +28.1% 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 reflect 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 reflect 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 benefits, share options, long-term incentive schemes or other benefits 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 benefits 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 office. ## 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 10 November 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 42 SEC plc - Report and Financial Statements 02 Governance Reports ## Statement of Directors’ Responsibilities in respect of ## the Report and Financial Statements The Directors are responsible for preparing the Annual Under applicable law and regulations, the Directors Report and Financial Statements in accordance with are also responsible for preparing a Strategic Report, applicable law and regulations. Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that Company law requires the Directors to prepare nancial law and those regulations. statements for each nancial year. Under that law they are required to prepare the nancial statements in The Directors are responsible for the maintenance and accordance with UK-adopted international accounting integrity of the corporate and nancial information standards in conformity with the requirements of the included on the company’s website. Legislation in Companies Act 2006. the UK governing the preparation and dissemination of nancial statements may differ from legislation in Under company law the Directors must not approve other jurisdictions. the nancial statements unless they are satised that they give a true and fair view of the state of affairs of the Company and of its prot or loss for that period. ### Responsibility statement of the In preparing these nancial statements, the Directors are required to: ### Directors in respect of the Annual ###  select suitable accounting policies and then apply Financial Report them consistently; We conrm that to the best of our knowledge:  make judgements and estimates that are reasonable, relevant and reliable;  the nancial statements, prepared in accordance with the applicable set of accounting standards, give a true  state whether they have been prepared in accordance and fair view of the assets, liabilities, nancial position with UK-adopted international accounting standards; and prot or loss of the Company; and  assess the Company’s ability to continue as a going  the Strategic Report includes a fair review of the concern, disclosing, as applicable, matters related to development and performance of the business and the going concern; and position of the issuer, together with a description of the  use the going concern basis of accounting unless they principal risks and uncertainties that it faces. either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. We consider the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides The Directors are responsible for keeping adequate the information necessary for shareholders to assess accounting records that are sucient to show and explain the Company’s position and performance, business the Company’s transactions and disclose with reasonable model and strategy. accuracy at any time the nancial position of the Company and enable them to ensure that its nancial statements For and on behalf of the Board 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 Richard Hills or error, and have general responsibility for taking such Chairman steps as are reasonably open to them to safeguard the 5 October 2022 assets of the Company and to prevent and detect fraud and otherirregularities. 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 unmodified We have audited the financial 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 financial 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 sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were first appointed as auditor by the Directors on 17 February 2016. The period of total uninterrupted engagement is for the seven financial periods ended 30 June 2022. We have fulfilled 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 significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified 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 financial 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. 44 SEC plc - Report and Financial Statements 02 Governance Reports - Independent Auditor’s Report The risk Our response Carrying amount of quoted Low risk, high value: We performed the tests below rather than investments seeking to rely on the Company’s controls, The Company’s portfolio of level 1 quoted because the nature of the balance is (£160.0 million; 2021: £215.8 investments makes up 90.3% (2021: 96.4%) such that we would expect to obtain audit million) of the Company’s total assets (by value) and evidence primarily through the detailed is one of the key drivers of results. Refer to pages 38 and 39 (Audit procedures described below. Committee Report), page 55 We do not consider these investments to be Our procedures included: | (accounting policy) and note | at a high risk of signicant misstatement, | | | --- | --- | --- | | 8 on pages 60 to 62 | or to be subject to a signicant level of |  Tests of detail: Agreeing the valuation of | | disclosures). | judgement because they comprise liquid, | 100% of level 1 quoted investments in the | | | quoted investments. | portfolio to externally quoted prices; and | However, due to their materiality in the  Enquiry of custodians: Agreeing 100% context of the nancial statements as a whole, of level 1 quoted investment holdings they are considered to be one of the areas in the portfolio to independently which had the greatest effect on our overall received third party conrmations from audit strategy and allocation of resources in investment custodians. planning and completing our audit. Our results  We found the carrying amount of level 1 quoted investments to be acceptable (2021: acceptable). Our audit of the Company was undertaken to the ### 3. Our application of materiality and an materiality level specied above and was performed by a ### overview of the scope of our audit single audit team. Materiality for the nancial statements as a whole The scope of the audit work performed was fully was set at £1.7m (2021: £2.2m), determined with substantive as we did not rely upon the Company’s internal reference to a benchmark of total assets, of which it control over nancial reporting. represents 1% (2021: 1%). £177.2m (2021: £223.8m) £1.7m (2021: £2.2m) In line with our audit methodology, our procedures on individual account balances and disclosures were £1.7m performed to a lower threshold, performance materiality, Whole nancial so as to reduce to an acceptable level the risk that statements materiality individually immaterial misstatements in individual (2021: £2.2m) account balances add up to a material amount across the nancial statements as a whole. Performance materiality £1.3m was set at 75% (2021: 75%) of materiality for the nancial Performance materiality statements as a whole, which equates to £1.3m (2021: (2021: £1.7m) £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. | | | £88k | | --- | --- | --- | --- | | We agreed to report to the Audit Committee any corrected | | | the audi committee (2021: | | or uncorrected identied misstatements exceeding £88k | | Total assets | £110k) | | Total Assets | Materiality | | | | (2021: £110k), in addition to other identied misstatements | | Materiality | | that warranted reporting on qualitative grounds. Misstatements reported to SEC plc - Report and Financial Statements 45 02 Governance Reports - Independent Auditor’s Report  The related statement under the Listing Rules set out ### 4. Going concern on page 20 is materially consistent with the nancial The Directors have prepared the nancial statements on statements and our audit knowledge. the going concern basis as they do not intend to liquidate However, as we cannot predict all future events or the Company or to cease its operations, and as they conditions and as subsequent events may result in have concluded that the Company’s nancial position outcomes that are inconsistent with judgements that means that this is realistic. They have also concluded that were reasonable at the time they were made, the above there are no material uncertainties that could have cast conclusions are not a guarantee that the Company will signicant doubt over its ability to continue as a going continue in operation. 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 ### 5. Fraud and breaches of laws and the general economic environment to identify the inherent ### risks to its business model and analysed how those risks regulations – ability to detect might affect the Company’s nancial resources or ability to continue operations over the going concern period. The Identifying and responding to risks of material risks that we considered most likely to adversely affect the misstatement due to fraud Company’s available nancial resources and its ability to To identify risks of material misstatement due to fraud operate over this period were: (“fraud risks”) we assessed events or conditions that  the impact of a signicant reduction in the valuation could indicate an incentive or pressure to commit fraud of investments; or provide an opportunity to commit fraud. Our risk assessment procedures included:  the liquidity of the investment portfolio and its ability to meet the liabilities of the Company as and when  enquiring of Directors as to the Company’s high-level they fall due; and policies and procedures to prevent and detect fraud,  the operational resilience of key service organisations. as well as whether they have knowledge of any actual, suspected or alleged fraud; We considered whether these risks could plausibly affect  assessing the segregation of duties in place between the liquidity in the going concern period by assessing the the Directors, the Administrator and the Company’s degree of downside assumption that, individually and Investment Manager; and collectively, could result in a liquidity issue, taking into account the Company’s liquid investment position.  reading Board and Audit Committee minutes. We considered whether the going concern disclosure in We communicated identied fraud risks throughout the note 1 to the nancial statements gives a full and accurate audit team and remained alert to any indications of fraud description of the Directors’ assessment of going concern, throughout the audit. including the identied risks and related sensitivities. As required by auditing standards, we perform procedures Our conclusions based on this work: to address the risk of management override of controls, in particular to the risk that management may be in a position  We consider that the Directors’ use of the going concern to make inappropriate accounting entries. We evaluated basis of accounting in the preparation of the nancial the design and implementation of the controls over journal statements is appropriate; entries and other adjustments and made inquiries of the  We have not identied, and concur with the Directors’ Administrator about inappropriate or unusual activity assessment that there is not, a material uncertainty relating to the processing of journal entries and other related to events or conditions that, individually or adjustments. Based on the results of our risk assessment collectively, may cast signicant doubt on the Company’s procedures and understanding of the process, including ability to continue as a going concern for the going the segregation of duties between the Directors and the concern period; Administrator, no high-risk journals or other adjustments were identied  We have nothing material to add or draw attention to in relation to the Directors’ statement in note 1 to the On this audit we do not believe there is a fraud risk related nancial statements on the use of the going concern to revenue recognition because the revenue is non- basis of accounting with no material uncertainties that judgemental and straightforward, with limited opportunity may cast signicant doubt over the Company’s use of for manipulation. that basis for the going concern period, and we found the going concern disclosure in note 1 to be acceptable; and 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 Context of the ability of the audit to detect fraud misstatement due to non-compliance with laws or breaches of law or regulation and regulations Owing to the inherent limitations of an audit, there is an We identied areas of laws and regulations that could unavoidable risk that we may not have detected some reasonably be expected to have a material effect on material misstatements in the nancial statements, even the nancial statements from our general commercial though we have properly planned and performed our audit and sector experience and through discussion with in accordance with auditing standards. For example, the Directors, the Investment Manager and the the further removed non- compliance with laws and Administrator (as required by auditing standards) and regulations is from the events and transactions reected discussed with the Directors the policies and procedures in the nancial statements, the less likely the inherently regarding compliance with laws and regulations. As the limited procedures required by auditing standards Company is regulated, our assessment of risks involved would identify it. gaining an understanding of the control environment In addition, as with any audit, there remained a higher risk including the entity’s procedures for complying with of non-detection of fraud, as these may involve collusion, regulatory requirements. forgery, intentional omissions, misrepresentations, or the The potential effect of these laws and regulations on the override of internal controls. Our audit procedures are nancial statements varies considerably. designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and Firstly, the Company is subject to laws and regulations cannot be expected to detect non- compliance with all that directly affect the nancial statements including laws and regulations. nancial reporting legislation (including related companies legislation), distributable prots legislation, and its qualication as an Investment Trust under UK taxation ### 6. We have nothing to report legislation, any breach of which could lead to the Company ### losing various deductions and exemptions from UK on the other information in corporation tax, and we assessed the extent of compliance ### the Annual Report with these laws and regulations as part of our procedures on the related nancial statement items. The Directors are responsible for the other information presented in the Annual Report together with the nancial We assessed the legality of the distributions made by the statements. Our opinion on the nancial statements does Company in the period based on comparing the dividends not cover the other information and, accordingly, we do paid to the distributable reserves prior to each distribution, not express an audit opinion or, except as explicitly stated including consideration of accounts led during the year. below, any form of assurance conclusion thereon. Secondly, the Company is subject to many other laws Our responsibility is to read the other information and, and regulations where the consequences of non- in doing so, consider whether, based on our nancial compliance could have a material effect on amounts statements audit work, the information therein is or disclosures in the nancial statements, for instance materially misstated or inconsistent with the nancial through the imposition of nes or litigation. We identied statements or our audit knowledge. Based solely on that the following areas as those most likely to have such an work we have not identied material misstatements in the effect: money laundering, data protection, bribery and other information. corruption legislation and certain aspects of company legislation recognising the nancial and regulated nature of the Company’s activities and its legal form. Auditing Strategic report and Directors’ report standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry Based solely on our work on the other information: of the Directors and the Administrator and inspection of regulatory and legal correspondence, if any. Therefore if  we have not identied material misstatements in the a breach of operational regulations is not disclosed to us strategic report and the Directors’ report; or evident from relevant correspondence, an audit will not  in our opinion the information given in those reports detect that breach. 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 Corporate governance disclosures In our opinion the part of the Directors’ Remuneration We are required to perform procedures to identify whether Report to be audited has been properly prepared in there is a material inconsistency between the Directors’ accordance with the Companies Act 2006. corporate governance disclosures and the nancial statements and our audit knowledge. Based on those procedures, we have concluded that each Disclosures of emerging and principal risks and of the following is materially consistent with the nancial longer-term viability statements and our audit knowledge: We are required to perform procedures to identify whether  the Directors’ statement that they consider that the there is a material inconsistency between the Directors’ annual report and nancial statements taken as a whole disclosures in respect of emerging and principal risks and is fair, balanced and understandable, and provides the viability statement, and the nancial statements and the information necessary for shareholders to assess our audit knowledge. the Company’s position and performance, business Based on those procedures, we have nothing material to model and strategy; add or draw attention to in relation to:  the section of the annual report describing the work of the Audit Committee, including the signicant  the Directors’ conrmation within the Viability issues that the audit committee considered in relation Statement on page 20 that they have carried out a to the nancial statements, and how these issues robust assessment of the emerging and principal were addressed; and risks facing the Company, including those that would threaten its business model, future performance,  the section of the annual report that describes the solvency and liquidity; review of the effectiveness of the Company’s risk management and internal control systems.  the Principal and Emerging Risks disclosures describing these risks and how emerging risks are We are required to review the part of Corporate identied, and explaining how they are being managed Governance Statement relating to the Company’s and mitigated; and compliance with the provisions of the UK Corporate  the Directors’ explanation in the Viability Statement Governance Code specied by the Listing Rules for our of how they have assessed the prospects of the review. We have nothing to report in this respect. 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 ### 7. We have nothing to report on the expectation that the Company will be able to continue ### in operation and meet its liabilities as they fall due other matters on which we are over the period of their assessment, including any ### required to report by exception related disclosures drawing attention to any necessary qualications or assumptions. Under the Companies Act 2006, we are required to report to you if, in our opinion: We are also required to review the Viability Statement, set out on page 20 under the Listing Rules. Based on the above  adequate accounting records have not been kept, or procedures, we have concluded that the above disclosures returns adequate for our audit have not been received are materially consistent with the nancial statements and from branches not visited by us; or our audit knowledge.  the nancial statements and the part of the Directors’ Our work is limited to assessing these matters in the Remuneration Report to be audited are not in agreement context of only the knowledge acquired during our nancial with the accounting records and returns; or statements audit. As we cannot predict all future events  certain disclosures of Directors’ remuneration specied or conditions and as subsequent events may result in by law are not made; or outcomes that are inconsistent with judgements that were  we have not received all the information and reasonable at the time they were made, the absence of explanations we require for our audit. anything to report on these statements is not a guarantee as to the Company’s longer-term viability. We have nothing to report in these respects. SEC plc - Report and Financial Statements48 02 Governance Reports - Independent Auditor’s Report ### 8. Respective responsibilities 9. The purpose of our audit work and ### to whom we owe our responsibilities Directors’ responsibilities This report is made solely to the Company’s members, As explained more fully in their statement set out on as a body, in accordance with Chapter 3 of Part 16 of the page43, the Directors are responsible for: the preparation Companies Act 2006. Our audit work has been undertaken of the nancial statements including being satised that so that we might state to the Company’s members they give a true and fair view; such internal control as those matters we are required to state to them in an they determine is necessary to enable the preparation auditor’s report and for no other purpose. To the fullest of nancial statements that are free from material extent permitted by law, we do not accept or assume misstatement, whether due to fraud or error; assessing responsibility to anyone other than the Company and the the Company’s ability to continue as a going concern, Company’s members, as a body, for our audit work, for this disclosing, as applicable, matters related to going concern; report, or for the opinions we have formed. 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. Gary Fensom (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Auditor’s responsibilities Chartered Accountants Saltire Court Our objectives are to obtain reasonable assurance about 20 Castle Terrace whether the nancial statements as a whole are free from Edinburgh material misstatement, whether due to fraud or error, and EH1 2EG to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not 5 October 2022 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 inuence 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. SEC plc - Report and Financial Statements 49 03 Financial Statements ## Statement of Comprehensive Income for the year ended 30 June 2022 Year ended 30 June 2022 Year ended 30 June 2021 | | Revenue | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | return | return | Total | | return | return | Total | | Note | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | Investments (Losses)/gains on investments held at fair value through prot 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 | | | | Share | | | | Capital | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Share | premium | | Special | Capital | redemption | | Revenue | | | | | capital | account | | reserve | reserve | | reserve | reserve | | Total | | Note | £’000 | | £’000 | £’000 | £’000 | | £’000 | | £’000 | £’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 prots 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 | | 30 June | | 30 June | | | --- | --- | --- | --- | --- | | | | 2022 | | 2021 | | Note | | £’000 | | £’000 | Non-current assets Investments held at fair value through prot 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 | | Year ended | | | Year ended | | | | --- | --- | --- | --- | --- | --- | --- | | | | 30 June | | | 30 June | | | | | | 2022 | | | 2021 | | Note | | | £’000 | | | £’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 defined 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 financial 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 financial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, and reflect 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 financial statements on a basis compliant with the recommendations of the SORP. The financial 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 confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and therefore have prepared the financial statements on a going concern basis. ### Convention The financial 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 financial statements. 54 SEC plc - Report and Financial Statements 03 Financial Statements - Notes to the Financial Statements ### 1.3 Accounting policies Investments All investments held by the Company are classied as “fair value through prot or loss”. As the Company’s business is investing in nancial assets with a view to proting 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 prot 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 dened as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignicant 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 prot 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 prots 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 classied 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 signicantly. The Directors do not believe that any accounting judgements or estimates have been applied to these nancial statements that have a signicant 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/deficit arising from the revenue profit/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 confirm that none of the following newly effective standards have materially affected the Company's financial 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 financial statements: | Standard | Effective date | | --- | --- | | Amendments to IAS 1 – Disclosure of Accounting Policies | 1 January 2023 | | Amendments to IAS 8 – Definition 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 | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | | | return | return | Total | | return | return | Total | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’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 | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | | | return | return | Total | | return | return | Total | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’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 | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | | | return | return | Total | | return | return | Total | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’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 9February 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 | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | | | return | return | Total | | return | return | Total | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’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 | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | | | return | return | Total | | return | return | Total | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’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 sucient 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 | | 30 June | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £’000 | | £’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 | | 30 June | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £’000 | | £’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 | | | Weighted | | | | | | Weighted | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | average | | | | | | average | | | | | Net | number of | | | Per | | Net | number of | | | Per | | return | | Ordinary | | share | | return | | Ordinary | | share | | | £’000 | | | shares | pence | | £’000 | | | shares | 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 | | 30 June | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £’000 | | £’000 | Investment portfolio summary Quoted investments at fair value through prot 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 page15. 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 | | 30 June | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £’000 | | £’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 reects 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 classied within level 1 and include active quoted equities. The denition of level 1 inputs refers to ‘active markets’, which is a market in which transactions take place with sucient 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 sucient frequency and volume is a matter of judgement, and depends on the specic 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 classified 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 reflect 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 financial 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 significant to the fair value of the investment. The following table analyses within the fair value hierarchy the Company's financial assets and liabilities (by class) measured at fair value at 30 June 2022. #### Financial instruments at fair value through profit 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 Significant 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% | 62 SEC plc - Report and Financial Statements 03 Financial Statements - Notes to the Financial Statements ### 10 Trade and other receivables | 30 June | | 30 June | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £’000 | | £’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 | | 30 June | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £’000 | | £’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 | | | Share | | Capital | | Capital | | Capital | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | premium | | Special | reserve | | reserve | redemption | | Revenue | | | | account | | reserve | realised | unrealised | | | reserve | reserve | | | For the period ended 30 June 2022 | | £’000 | £’000 | £’000 | | £’000 | | £’000 | | £’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. | | | | | | | Capital | | | | Capital | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | reserve | | | | reserve | | | | | | | | | Share | | | arising on | | | | arising on | | | | Capital | | | | | premium | | Special | investments | | | | investments | | | | redemption | | Revenue | | | | account | | reserve | | | | sold | | | | held | | reserve | reserve | | | For the year ended 30 June 2021 | | £’000 | £’000 | | | £’000 | | | | £’000 | | | £’000 | | £’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 | | 30 June | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £’000 | | £’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 | | | | | | At | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 30 June | | | | | Net | 30 June | | | | | 2021 | | cash ow | | | | 2022 | | | | £’000 | | | £’000 | | | £’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 signicant 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 prole of the Company are shown in the following tables. The interest rate risk prole of the Company’s nancial assets at 30 June 2022 was: Cash ow | | No interest | | | interest | | | --- | --- | --- | --- | --- | --- | | | | rate risk | | rate risk | | | | | nancial | | nancial | | | Total | | | assets | | assets | | £’000 | | | £’000 | | £’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 prole of the Company’s nancial assets at 30 June 2021 was: Cash ow | | No interest | | | interest | | --- | --- | --- | --- | --- | | | | rate risk | | rate risk | | | | nancial | | nancial | | Total | | | assets | assets | | £’000 | | | £’000 | £’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 prole of the Company’s nancial liabilities at 30 June 2022 was: No interest rate risk nancial Total assets £’000 £’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 prole of the Company’s nancial liabilities at 30 June 2021 was: No interest rate risk nancial Total assets £’000 £’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 difficult 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 sufficient to meet any funding requirements that may arise. ### Fair values of financial assets and financial liabilities The carrying value of the financial 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 note 3 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. 68 SEC plc - Report and Financial Statements 04 Other Information ## Shareholder Information Leverage, for the purposes of the AIFM Directive, is any ### Financial calendar method which increases the company’s exposure to stockmarkets whether through borrowings, derivatives, Company’s year-end 30 June or any other means. It is expressed as a ratio of the company’s exposure to its NAV. In summary, the gross Annual results announced October method measures the company’s exposure before applying Annual General Meeting November hedging or netting arrangements. The commitment method allows certain hedging or netting arrangements Company’s half-year 31 December to be offset. As at 30 June 2022 and 2021, the company Half yearly results announced February had no hedging or netting arrangements. The Company’s maximum and actual leverage levels at 30 June 2022 are shown below: ### Share price Gross Commitment The Company’s Ordinary shares are premium listed on Leverage Exposure Method Method the main market of the London Stock Exchange plc (the Maximum limit 125% 125% “London Stock Exchange”). The share price is quoted daily in the Financial Times under ‘Investment Companies’. Actual 93% 101% The Company’s investor disclosure document was updated during the year following the change of ### Share dealing Investment Manager. Shares can be traded through your usual stockbroker. The investor disclosure document and all additional periodic disclosures required in accordance with the requirements of the FCA Rules implementing the AIFMD ### Share register enquiries in the UK are made available on the Company’s website (www.strategicequitycapital.com). The register for the Ordinary shares is maintained by Computershare Investor Services plc (“Registrar”). In the event of queries regarding your holding, please contact ### Beware of Share Fraud the Registrar on 0370 707 1285. Changes of name and/or address must be notied in writing to the Registrar, whose In recent years there has been an increase in the number of address is shown on page 73. 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 ### Net Asset Value phone calls or correspondence concerning investment matters that imply a connection to the Company. These The Company’s net asset value is announced daily to the are typically from overseas ‘brokers’ who target UK London Stock Exchange. 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 ### Alternative Investment Fund Managers imminent offer for the Company, and the caller may ### Directive (“AIFMD”) Disclosures offer to buy shares at signicantly above the market price if an administration fee is paid. This is known as The Company’s AIFM is GHAM. ‘boiler room fraud’. In accordance with the AIFMD, information in relation If you are contacted, we recommend that you do not to the Company’s leverage and the remuneration of respond with any personal information, including access the Company’s AIFM is required to be made available to to nancial information or bank accounts. If you are investors. In accordance with the Directive, the AIFM’s in any doubt you should seek nancial advice before remuneration policy and remuneration disclosures in taking any action. respect of the year ended 31 December 2021 are available from GHAM on request. SEC plc - Report and Financial Statements 69 04 Other Information - Shareholder Information You can nd more information about investment scams at ### Website the Financial Conduct Authority (FCA) website: www.fca. org.uk/consumer/protect-yourself-scams. You can also Further information on the Company can be accessed via call the FCA Consumer Helpline on 0800 111 6768. the Manager’s website www.greshamhouse.com. ### 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 suitabilityrequirements. SEC plc - Report and Financial Statements70 04 Other Information # Alternative Performance Measures Alternative Performance Measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial 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 - Alternative Performance Measures ## Ongoing charges (including performance 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% | 72 SEC plc - Report and Financial Statements 04 Other Information ## Corporate Information | Auditor | Registrar | | --- | --- | | KPMG LLP | Computershare Investor Services PLC | | Saltire Court | The Pavilions | | 20 Castle Terrace | Bridgwater Road | | Edinburgh EH1 2EG | Bristol BS99 6ZY | Tel: 0370 707 1285 Website: www.computershare.com ### Broker Liberum Capital Limited ### Solicitor Ropemaker Place 25 Ropemaker Street Stephenson Harwood LLP London EC2Y 9LY 1 Finsbury Circus London EC2M 7SH ### Custodian ### Company Secretary and Administrator J.P. Morgan Chase Bank N.A. | 25 Bank Street | Juniper Partners Limited | | --- | --- | | Canary Wharf | 28 Walker Street | | London E14 5JP | Edinburgh EH3 7HR | Tel: 0131 378 0500 ### Depositary ### Registered Oce J.P. Morgan Europe Limited | 25 Bank Street | c/o Stephenson Harwood LLP | | --- | --- | | Canary Wharf | 1 Finsbury Circus | | London E14 5JP | London EC2M 7SH | ### Investment Manager Gresham House Asset Management Limited Octagon Point 5 Cheapside London EC2V 6AA Tel: 020 3837 6270 An investment company as dened 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 immediate attention.** 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 offices of Liberum Capital Limited, Ropemaker Place, 25 Ropemaker Street, London, EC2Y 9LY on 9 November 2022 at 12 noon 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 final dividend of 2.00p per Ordinary share. 3. To receive and approve the Directors' Remuneration Report. 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 office from the conclusion of this Meeting until the next General Meeting at which financial 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 4 October 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. 74 SEC plc - Report and Financial Statements 04 Other Information - Notice of Annual General Meeting 12. THAT the Company be and is hereby authorised in This authority shall continue for the period ending accordance with Section 701 of the Act to make market on the earlier of: (i) the date on which the maximum purchases (within the meaning of Section 693 of the number of Ordinary shares authorised to be purchased Act) of its Ordinary shares provided that: pursuant to this resolution 14 have been purchased by the Company; (ii) the date of the next Annual General (i) the maximum number of Ordinary shares hereby Meeting of the Company after the passing of this authorised to be purchased shall not exceed resolution; and (iii) 9 February 2024 provided that if the 7,990,951 Ordinary shares (being 14.99% of the Company has agreed, before this authority expires, to Company’s issued ordinary share capital as at purchase Ordinary shares where the purchase will or 4October 2022 (being the latest practicable date may be executed after this authority expires (whether prior to the date of this notice) excluding any wholly or in part), the Company may complete such Ordinary shares held in Treasury); purchase as if this authority has not expired. (ii) the minimum price which may be paid for an Registered Oce: Ordinary share shall be not less than the nominal amount of such Ordinary share at the time c/o Stephenson Harwood LLP of purchase; and 1 Finsbury Circus London EC2M 7SH (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 By Order of the Board market prices of the Ordinary shares according to the Daily Ocial List of the London Stock Juniper Partners Limited Exchange for the ve business days immediately Company Secretary before the date on which the Company agrees to 5 October 2022 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. Notes to the Notice of the Annual General Meeting: 1. Attending the Annual General Meeting in person 2. Appointment of Proxy A member who is entitled to attend and vote at this A Form of Proxy for use by shareholders is enclosed. meeting is entitled to appoint one or more proxies to Completion of the Form of Proxy will not prevent attend, speak and vote on their behalf. Such a proxy need a Shareholder from attending the meeting and not also be a member of the Company. Shareholders are voting in person. encouraged to submit their votes by proxy in advance of You may appoint more than one proxy provided each the meeting in case it is not possible for shareholders proxy is appointed to exercise rights attached to different to attend in person. The Board will continue to carefully Shares. You may not appoint more than one proxy to consider the arrangements for the Annual General Meeting exercise rights attached to any one Share. To appoint in the light of the Government guidance and the Company more than one proxy, please contact the Registrars of will issue a regulatory news announcement which will also the Company. If you submit more than one valid proxy be posted on the Company’s website if the only attendees appointment, the appointment received last before the permitted will be those required to form the quorum and latest time for the receipt of proxies will take precedence. allow the business to be conducted. To be valid the proxy form must be completed and lodged, To be entitled to attend and vote at the Annual General together with the power of attorney or any authority under Meeting (and for the purpose of determining the votes they which it is signed, or a notarially certied copy of such may cast), members must be registered in the Company’s power of authority, with the Registrars of the Company no register of members at 6pm on 6 November 2022 (or, if the later than 48 hours (excluding non-working days) before the Annual General Meeting is adjourned, 6pm on the day two time set for the meeting, or any adjourned meeting. 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. 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 9 November 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 relation 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: cosec@junipartners.com 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 confidential 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 4 October 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. 76 SEC plc - Report and Financial Statements