Annual Financial Report
ABERDEEN ASIAN SMALLER COMPANIES INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2016
STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
Financial Highlights
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Share price total return |
Discount to net asset value (diluted) |
Earnings per share (revenue) |
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+19.4% |
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11.4% |
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-49.4% |
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2015 |
-15.4% |
2015 |
11.9% |
2015 |
+59.3% |
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Net asset value capital return (diluted) |
MSCI AC Asia Pacific ex Japan Index capital return{A} |
Ordinary dividend per share{B} |
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+16.4% |
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+13.8% |
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10.50p |
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2015 |
-5.9% |
2015 |
-4.2% |
2015 |
10.50p |
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Net asset value total return (diluted) |
MSCI AC Asia Pacific ex Japan Small Cap Index capital return{A} |
Special dividend per share{B} |
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+18.4% |
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+16.1% |
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Nil |
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2015 |
-4.7% |
2015 |
-3.5% |
2015 |
4.50p |
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{A} Currency adjusted, capital gains basis |
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{B} Dividends are subject to shareholder approval at the Annual General Meeting. |
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STRATEGIC REPORT - CHAIRMAN'S STATEMENT
Results
I am pleased to report a good set of results for the year ended 31 July 2016. The net asset value ("NAV") total return was 18.4%, while the share price increased by 19.4% reflecting a slight narrowing in the discount from 11.9% to 11.4%. In comparison, the MSCI AC Asia Pacific ex Japan Index returned 17.6% and the MSCI AC Asia Pacific ex Japan Small Cap Index gained 19.1% (in total return terms).
The principal driver behind this performance was the decline in value of sterling caused by the referendum result in which the United Kingdom unexpectedly voted to leave the European Union. However, the underlying performance of the portfolio ended the year slightly ahead, which reflects an improvement in sentiment towards Asia.
Overview
After a very shaky start to the year which was influenced by global growth concerns, falling oil prices, and uncertainty over the implications of negative interest rates in Europe and Japan, Asian equities proved resilient in the latter half of the year. Markets rebounded after the US Federal Reserve hinted that it will proceed more cautiously in lifting interest rates. Risk appetite also increased buoyed by better news from emerging economies, steadier commodity prices and signs of reforms being implemented across the region. Towards the end of the year, local markets further benefited from post-Brexit flows looking for more defensive assets with higher yields supported by stronger fundamentals. Asian currencies also rose against sterling's sharp depreciation.
We highlighted three areas of concern in the Half Yearly Report where sentiment has subsequently improved.
These were, firstly, China's domination of the region. In January, a sell-off in the mainland A-share market reverberated across other Asian stock markets on concerns surrounding the health of China's financial system and economy, declining foreign reserves and heightened capital outflows. The Chinese Government moved to alleviate concerns with a combination of economic stimulus and improved policy communication which has had a positive impact on markets across the region.
The second was commodity prices. After a period of sharp commodity price declines, the rebound triggered in February caught many observers by surprise. Oil prices closed the year back above US$40 a barrel, while iron ore prices rose more than 50% in US dollar terms from their lows in mid-December. This dramatic reversal of fortunes provided a substantial tailwind to Australia, which is a commodity-driven economy.
The third was US monetary policy, as the Federal Reserve raised rates in December for the first time in almost a decade. This, however, came at a time when both Europe and Japan let rates fall below zero and the divergence between these global policies had repercussions on Asian markets. Since then, the Fed has hinted that it will proceed more cautiously in lifting rates, while Brexit has stoked expectations that interest rates will stay lower for longer, spurring renewed flows into Asia and the broader emerging markets.
In addition, structural changes have made Asia stronger since the global financial crisis. Governments and central banks across Asia have been fiscally prudent and many Asian countries still have the capacity to lower interest rates to support growth.
There has been a lot of speculation about the prospect of reforms across Asian economies over the past few years, and we are now starting to see these come through, which will have a positive impact over the longer term. The most notable was in India, where a nationwide goods and services tax legislation was finally voted through after many years of indecision. The Reserve Bank of India also confirmed that India's economy will remain in safe hands, as the current deputy governor, Urjit Patel, has been named as the successor to the outgoing Raghuram Rajan. Elsewhere, Indonesia approved a tax amnesty scheme to help fund its infrastructure programme, while President Joko Widodo reshuffled his cabinet, bringing in a well-respected Finance Minister which has added further credibility to his Parliament. In Thailand, Prime Minister Prayuth Chan-ocha has reiterated his commitment to elections next year as part of his roadmap to democracy although the recent death of the much respected and revered King Bhumibol Adulyadej may affect or delay this process and the Philippines voted for change with a new President Rodrigo Duterte.
Against this backdrop, the prospects for smaller companies in Asia continue to look bright, especially when compared with the problems surrounding both the economies and the politics of Europe. Demographic trends remain favourable, especially in South Asian countries where there is a thriving youth population as well as increasing levels of wealth and technology penetration.
As we discussed in detail in our 20th Anniversary booklet which accompanied last year's Annual Report, the portfolio is well positioned to benefit from this growing middle class and rising consumption. The 10 nation Association of Southeast Asian Nations, ASEAN, has 625 million consumers excluding China and their purchasing power will continue as a driver for growth in years to come.
Reduction in Management Fee
I am pleased to report that an amendment to the management fee has been agreed with Aberdeen Fund Managers Limited (the "Manager") that became effective on 1 August 2016. From that date the Manager is entitled to a management fee payable monthly in arrears based on an annual amount of 1.0% (previously 1.2%) of the average net asset value of the Company's net assets (gross assets less liabilities excluding the amount of any loan facilities or overdraft drawn down) over a 24 month period, valued monthly.
Investment Policy
The cornerstone of your Company's impressive track record over the last 21 years has been based on the detailed research undertaken by Hugh Young and his team based in 14 offices across the Asia Pacific region.
Every company in which the Company invests is subject to a rigorous vetting procedure before any investment decision is made. In the succeeding years, a process of constant monitoring and contact is implemented to ensure that expectations are fulfilled with progress reviewed and logged. This disciplined investment process has resulted in a portfolio where the turnover is low. As I have repeated on an almost bi-annual basis, the search for new and the retention of existing investments is based on the criteria of good management, strong balance sheets and excellent prospects.
As a broad generalisation, a common theme has been to invest in a number of strong regional companies, in some cases with a major investor whose brand the company develops. This policy continues to serve us well. However, markets, companies and opportunities have moved on in the period since the launch of the Company in 1995.
The Board has recently carried out a review with Hugh Young and his senior managers to see if there are any opportunities that would yield additional returns in the years ahead. We consider that the investment mandate to invest in quoted companies with market capitalisations of US$1 billion or less needs no change with one exception. We have seen over the years, a number of requests to invest in unquoted companies in the period leading up to an IPO. While these opportunities only occur from time to time; they do give the Manager the ability to achieve good returns over a reasonably short time frame.
It is therefore intended to seek a change to the investment objective and policy to provide this flexibility by allowing investment in unquoted equities provided that such investment be limited to 10% of the Company's net assets at the time an investment is made.
Accordingly, an Ordinary Resolution to approve the change to the investment objective and policy will be proposed at the Annual General Meeting.
At the same time we will amend the investment objective and policy to clarify that future investments may be made in Cambodia, Laos, Myanmar and Vietnam (which is already permitted at the Directors' discretion and by the investment objective and policy) although there are no current intentions to invest directly into any of these countries.
Dividend
As advised in previous years and subject to market conditions, it is your Company's aim to maintain or increase the Ordinary dividend so that shareholders can rely on a consistent stream of income.
In the current year, we have seen a decline in both the ordinary income and the income that we receive as special dividends. This reflects the recent challenging environment as well as the prudence of Asian management who generally favour the strengthening of balance sheets and conserving cash rather maintaining dividends at any cost.
In view of the above, the Board is recommending a final dividend of 10.5p, unchanged from 2015. The payment will necessitate a small transfer from the brought forward revenue reserves. If approved by shareholders at the Annual General Meeting of the Company on 29 November 2016, the final dividend will be paid on 2 December 2016 to shareholders on the register on 4 November 2016.
Gearing and Share Capital Management
The Company's year-end net gearing was 7.9%. The majority of the gearing is provided by the Convertible Unsecured Loan Stock of which approximately £33 million remains outstanding. The Company also has a £20 million multi currency loan facility with State Street and £11.8 million (£5.0 million and $9.0 million) was drawn down under that facility at the year end. The Directors monitor the Company's gearing on a regular basis in accordance with the Company's investment policy and under advice from the Manager.
During the year the Company purchased for treasury 2,059,834 Ordinary shares at a discount to the prevailing NAV (exclusive of income). Subsequent to the period end a further 298,500 Ordinary shares have been purchased into treasury. Share buy backs can reduce the volatility of any discount as well as modestly enhancing the NAV for shareholders.
Annual General Meeting
The Annual General Meeting is scheduled to be held on 29 November 2016 at 11.30 a.m. In addition to the usual ordinary business, as special business the Board is seeking to amend the investment policy and objective, renew the authority to issue new shares and sell treasury shares for cash at a premium without pre-emption rules applying and to renew the authority to buy back shares and either hold them in treasury for future resale (at a premium to the prevailing net asset value per share) or cancel them.
The Board is happy to take general questions on the Annual Report and financial statements at the meeting but would advise that questions of a technical nature should be addressed in writing to the Company Secretary, in advance.
We look forward to seeing as many shareholders as possible and very much hope that any, who wish, will stay for lunch afterwards.
Directorate
Mr Hadsley-Chaplin has decided to retire from the Board at the conclusion of the forthcoming Annual General Meeting due to other commitments. I would like to take this opportunity to thank Mark sincerely on behalf of the Board for his contribution to the Company over the three year period since his appointment in 2013.
Outlook
While Asian markets and economies appear more stable compared to a year ago, daily headlines constantly remind us of the many dangers that face the world economy. In the US, there is uncertainty over the presidential election and what the outcome could mean for trade policy and engagement with Asia. Policymakers at the Federal Reserve are sending conflicting signals over future US interest rate policy and in Europe, the post Brexit world seems far from certain both for the United Kingdom and for the other countries of the EU.
As I have stated previously, we cannot influence market volatility but we can ensure that the quality of the portfolio is maintained through regular visits and constant contact. This has been evident over this financial year. The portfolio has an average return on equity of 16.1% and return on assets of 7.5%, while valuations remain reasonable at around 15 times earnings. While the average dividend yield of the underlying holdings has dropped from 3.5% to 3.3%, this remains a reasonable return, given the low interest rate environment.
While it is difficult to make any firm predictions for the future, the case for Asia remains strong and the prospects for well managed small companies compelling.
Nigel Cayzer
Chairman
25 October 2016
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Business Model
The business of the Company is that of an investment company which seeks to qualify as an investment trust for UK capital gains tax purposes.
Investment Objective
The Company aims to maximise total return to shareholders over the long term from a portfolio of smaller quoted companies (with a market capitalisation of up to approximately US$1 billion at the time of investment) in the economies of Asia and Australasia, excluding Japan by following the investment policy described below. When it is in shareholders' interests to do so, the Company reserves the right to participate in the rights issue of an investee company notwithstanding that the market capitalisation of that investee may exceed the stated ceiling. The Directors do not envisage any change in this activity in the foreseeable future.
Investment Policy
The Company's assets are invested in a diversified portfolio of securities (including equity shares, preference shares, convertible securities, warrants and other equity-related securities) in quoted smaller companies spread across a range of industries and economies in the investment region including Australia, Bangladesh, China, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Pakistan, The Philippines, Singapore, Sri Lanka, Taiwan and Thailand, together with such other countries in Asia as the Directors may from time to time determine, (collectively, the "Investment Region").
Investments may also be made through collective investment schemes and in companies traded on stock markets outside the Investment Region provided that over 75% of their consolidated revenue is earned from trading in the Investment Region or they hold more than 75% of their consolidated net assets in the Investment Region.
Shareholders' attention is drawn to the proposed amendments to the Company's investment objective and policy detailed in the Chairman's Statement and contained in the Appendix below.
Risk Diversification
The Company does not invest more than 15% of its gross assets at the time of investment either in other listed investment companies (including listed investment trusts), or in the shares of any one company. The Manager is authorised to invest up to 15% of the Company's gross assets in any single stock.
Gearing
The Board is responsible for determining the gearing strategy for the Company. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. Gearing is subject to a maximum gearing level of up to 25% of adjusted NAV at the time of draw down.
Delivering the Investment Policy
The Directors are responsible for determining the investment policy and the investment objective of the Company. Day to day management of the Company's assets has been delegated, via the AIFM, to the Investment Manager, AAM Asia. AAM Asia invests in a diversified range of companies throughout the Investment Region in accordance with the investment policy. AAM Asia follows a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value. No stock is bought without the fund managers having first met management. The Investment Manager estimates a company's worth in two stages, quality then price. Quality is defined by reference to management, business focus, the balance sheet and corporate governance. Price is calculated by reference to key financial ratios, the market, the peer group and business prospects. Top-down investment factors are secondary in the Investment Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights. Except for the maximum market capitalisation limit, little regard is paid to market capitalisation.
A detailed description of the investment process and risk controls employed by the Investment Manager is disclosed in the Annual Report. A comprehensive analysis of the Company's portfolio is disclosed in the Annual Report and below including a description of the ten largest investments, the portfolio investments by value, sector/geographical analysis and currency/market performance. At the year end the Company's portfolio consisted of 74 holdings.
Comparative Indices
The Company does not have a benchmark. The Investment Manager utilises two general regional indices, the MSCI AC Asia Pacific ex Japan Index (currency adjusted) and the MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted), as well as peer group comparisons for Board reporting. It is likely that performance will diverge, possibly quite dramatically in either direction, from these or any other indices. The Investment Manager seeks to minimise risk by using in depth research and does not see divergence from an index as risk.
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determine the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:
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KPI |
Description |
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NAV Return (per share) |
The Board considers the Company's NAV total return figures to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. The figures for this year and for the past 1, 3, 5 and 10 years are set out in the Annual Report. |
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Performance against comparative indices |
The Board also measures performance against a combination of two regional indices - the MSCI AC Asia Pacific ex Japan Index (currency adjusted) and the MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted) together with comparison against its peers. Graphs showing performance are shown in the Annual Report. The Board also monitors share price performance relative to competitor investment trusts over a range of time periods, taking into consideration the differing investment policies and objectives employed by those companies.
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Share price (on a total return basis) |
The Board also monitors the price at which the Company's shares trade relative to the MSCI Asia Pacific ex Japan Index (sterling adjusted) on a total return basis over time. A graph showing the total NAV return and the share price performance against the comparative index is shown in the Annual Report. |
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Discount/Premium to NAV |
The discount/premium relative to the net asset value per share represented by the share price is closely monitored by the Board. The objective is to avoid large fluctuations in the discount relative to similar investment companies investing in the region by the use of share buy backs subject to market conditions. A graph showing the share price premium/(discount) relative to the NAV is also shown in the Annual Report.
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Dividend |
The Board's aim is to maintain or increase the Ordinary dividend so that shareholders can rely on a consistent stream of income. Dividends paid over the past 10 years are set out below. |
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Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has carried out a robust assessment of these risks, in the table below together with a description of the mitigating actions taken by the Board. The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document published by the Manager, both of which are on the Company's website. The Board reviews the risks and uncertainties faced by the Company in the form of a risk matrix and heat map at its annual Audit Committee and a summary of the principal risks are set out below.
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Description |
Mitigating Action |
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Investment strategy and objectives - the setting of an unattractive strategic proposition to the market and the failure to adapt to changes in investor demand may lead to the Company becoming unattractive to investors, a decreased demand for shares and a widening discount. |
The Board keeps the level of discount at which the Company's shares trade as well as the investment objective and policy under review and in particular holds an annual strategy meeting where the Board reviews updates from the Investment Manager, investor relations reports and the Broker on the market. In particular, the Board is updated at each board meeting on the make up of and any movements in the shareholder register. |
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Investment portfolio, investment management - investing outside of the investment restrictions and guidelines set by the Board could result in poor performance and inability to meet the Company's objectives, as well as a weakening discount. |
The Board sets, and monitors, its investment restrictions and guidelines, and receives regular board reports which include performance reporting on the implementation of the investment policy, the investment process and application of the guidelines. The Investment Manager attends all Board meetings. The Board also monitors the Company's share price relative to the NAV.
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Financial obligations - the ability of the Company to meet its financial obligations, or increasing the level of gearing, could result in the Company becoming over-geared or unable to take advantage of potential opportunities and result in a loss of value to the Company's shares. It could also result in the Company being unable to meet the interest repayments due on the CULS. |
The Board sets a gearing limit and receives regular updates on the actual gearing levels the Company has reached from the Investment Manager together with the assets and liabilities of the Company and reviews these at each Board meeting. In addition, Aberdeen Fund Managers Limited, as alternative investment fund manager, has set an overall leverage limit of 2x on a commitment basis (2.5x on a gross notional basis) and includes updates in its reports to the Board.
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Financial and Regulatory - the financial risks associated with the portfolio could result in losses to the Company. In addition, failure to comply with relevant regulation (including the Companies Act, the Financial Services and Markets Act, the Alternative Investment Fund Managers Directive, Accounting Standards and the listing rules, disclosure and prospectus rules) may have an impact on the Company.
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The financial risks associated with the Company include market risk, liquidity risk and credit risk, all of which are mitigated by the Investment Manager. Further details of the steps taken to mitigate the financial risks associated with the portfolio are set out in note 17 to the financial statements. The Board relies upon the Aberdeen Group to ensure the Company's compliance with applicable regulations and from time to time employs external advisers to advise on specific concerns. |
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Operational - the Company is dependent on third parties for the provision of all systems and services (in particular, those of Aberdeen Asset Management) and any control failures and gaps in these systems and services could result in a loss or damage to the Company. |
The Board receives reports from the Manager on internal controls and risk management at each board meeting. It receives assurances from all its significant service providers, as well as back to back assurances where activities are themselves sub-delegated to other third party providers with which the Company has no direct contractual relationship. Further details of the internal controls which are in place are set out in the Directors' Report.
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Investing in unlisted securities - Shareholders will see that the Board is proposing an amendment to the Investment Policy that will allow the Manager to invest in securities not listed on a stock exchange. |
The Board recognises that investing in unlisted securities carries a higher risk/reward profile. Accordingly, if approved by Shareholders it will seek to mitigate this risk by limiting investment into such securities to 10% at the time of investment. |
Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Aberdeen Group. The Aberdeen Group Head of Brand reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.
The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of your Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfill its obligations. The Board also recognises the benefits, and is supportive, of the principle of diversity in its recruitment of new board members. At 31 July 2016, there were six male Directors and one female Director on the Board.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated day to day management and administrative functions to Aberdeen Fund Managers Limited. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined below.
Socially Responsible Investment Policy
The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and has noted the Aberdeen Group's policy on social responsibility. The Investment Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments as part of its investment process. In particular, the Investment Manager encourages companies in which investments are made to adhere to best practice in the area of Corporate Governance. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in this area. The Company's ultimate objective, however, is to deliver superior investment return for its shareholders. Accordingly, whilst the Investment Manager will seek to favour companies which pursue best practice in the above areas, this must not be to the detriment of the return on the investment portfolio.
Modern Slavery Act
Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.
In assessing the viability of the Company over the review period the Directors have focussed upon the following factors:
- The principal risks detailed in the Strategic Report;
- The ongoing relevance of the Company's investment objective in the current environment;
- The demand for the Company's Shares evidenced by the historical level of premium and or discount;
- The level of income generated by the Company;
- The liquidity of the Company's portfolio; and,
- The flexibility of the Company's multi currency loan facility which matures in June 2017.
Accordingly, taking into account the Company's current position, the fact that the Company's investments are mostly liquid and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.
Future
Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles, the impact of regulatory changes (including MiFID II and Packaged Retail Investment and Insurance Products) and the recent changes to the pensions and savings market in the UK. These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in my Chairman's statement whilst the Investment Manager's views on the outlook for the portfolio are in the Investment Manager's Review.
Nigel Cayzer
Chairman
25 October 2016
STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW
Overview
Asian small-cap equities rallied over the review period, bolstered by currency effects towards the period-end as the Brexit vote sent sterling crashing against most Asian currencies. Initially, Asian markets weakened with investor caution stemming from China, falling energy and commodity prices, as well as the Federal Reserve's impending rate hike. However, a subsequent rebound in most commodities and continued policy easing around the world spurred a reversal of fortune.
In China, concerns over currency depreciation and capital outflows were compounded by policy missteps, such as the abrupt suspension of the newly-implemented circuit breakers in January. Regulators then sought to soothe investors by improving its communication, while the country's economic data also showed some signs of stabilisation. Over the review period, mainland shares still lagged the broader region, vindicating our decision to maintain a low exposure to the market despite the liquidity-fuelled rally in early 2015.
The snap back in raw materials in the second half supported resources-heavy markets, such as Australia. On the monetary policy front, the Fed raised rates in December while most central banks elsewhere maintained policy easing into 2016. Meanwhile, reforms gained momentum in countries such as Indonesia, which introduced a tax amnesty bill, and India, which passed a long-awaited goods-and-services tax to support the country's finances.
Portfolio Review
Over the period, the portfolio's performance matched the MSCI AC Asia Pacific ex Japan Small Cap Index and was slightly better than the MSCI AC Asia Pacific ex Japan Index. From a country standpoint, our positioning in Australia, Taiwan and Sri Lanka detracted, although this was counterbalanced by contributions from China, Korea and a few Southeast Asian markets.
Our low exposure to Australia and the commodity-related companies there proved costly because of the sharp rebound in the sector. However, our holdings still did reasonably well, with ARB Corp being one of the main contributors. The maker of four-wheel-drive accessories benefited from unprecedented levels of new car models being introduced into the market. The portfolio's lack of exposure to Taiwan also hurt performance, where the market beat the wider region as electronics component manufacturers benefited along with the strength in the technology sector.
In Sri Lanka, our holdings faced a surprise one-off retrospective tax on prior-year earnings as the government looked to reduce the budget deficit. Financial holdings, such as Commercial Bank of Ceylon and DFCC Bank, were among the laggards, highlighting the difficult operating environment as the banking sector coped with rising incidence of non-performing loans. For our holdings, however, margins were largely stable and asset quality remained better than their peers.
Against this, our low exposure to China and Korea helped make up lost ground as both markets lagged the broader region. Meanwhile, most Southeast Asian markets were resilient as investors returned to the region. A series of rate cuts and progress with reforms buoyed Indonesian stocks, while sentiment towards Thailand also brightened on improving macroeconomic data.
At the stock level, four of the top five performers came from Southeast Asia, led by Indonesian brewer Multi Bintang. The company's share price was supported by news that the local authorities eased restrictions on the sale of alcohol, and its non-alcoholic business continued to gain traction. The company's recent results showed better profitability, while cash generation further strengthened its balance sheet. Yoma Strategic, a Singapore-listed company with operations in Myanmar, also did well. It reported robust full-year earnings backed by its real estate and tourism divisions, while other business units at the investment phase appeared reasonably on track. Another solid performer was Tisco Financial, which focuses on niche segments in Thailand. The company was buoyed by an expansion of net-interest margins and lower operating expenses, while its asset quality also improved. Philippine fast-food chain operator Jollibee rounded off the list. With a nationwide franchise of almost 1,000 stores, it successfully maintained its market-leading position over McDonald's and KFC as the favourite among the locals.
Another highlight over the review period was the outperformance of our consumer holdings over their peers. As a result of our bottom-up approach to identify well-run companies, attractive consumer names now make up almost one-third of the portfolio. One key example is Hong Kong-listed shoe manufacturer Kingmaker Footwear, which has proven its excellence in cost management and balance sheet prudence. Over the past few years, it has been moving its production facilities out of China to Vietnam and Cambodia to ensure it remains cost-competitive, while adding new customer relationships and expanding into the manufacturing of athletic shoes. The company has also positioned itself well should the Trans-Pacific Partnership come into effect.
Portfolio Activity
Increased market volatility over the period meant there were more opportunities to invest in good quality companies and trim others that seem overvalued. To this end, we introduced Concepcion Industrial Corp, a Philippine maker of home appliances such as air-conditioners and refrigerators. Apart from a solid track record, the company should benefit from its partnership with international brands, such as Otis and Carrier, as consumers' taste evolves. Other new additions included Malaysia-based Oriental Holdings, a regional conglomerate with diverse interests in sectors from plantations to property; and City Union Bank, a conservatively run regional bank with good asset quality operating in the southern Indian state of Tamil Nadu. The Indian lender did reasonably well over the review period.
Elsewhere, we topped up Pacific Basin by participating in its rights issue to shore up the company's balance sheet. Pacific Basin provides dry-bulk shipping services to commodity companies, a sector that was facing headwinds for most of the year, and this was reflected in its weak share price. But we chose to take a long-term view and our decision to bolster the company's capital reflects our confidence in management's ability to turn things around.
Against this, a notable sale over the period was Godrej Consumer Products, a long-time holding in the portfolio that has been delivering solid returns over the years. The decision was made on valuation grounds, as the company's success saw its market value exceed US$7 billion and by definition was no longer a small-cap company.
We also sold several other holdings. Among them were gas producer Linde India, which was poor in its strategy execution, as well as compatriot Jammu and Kashmir, a mid-sized public sector bank, as concerns lingered over its deteriorating asset quality. We exited the small position in Greka Engineering, which was an in-specie distribution from its parent Green Dragon Gas, a portfolio holding. Similarly, we exited TCS, one of India's largest IT companies, which was received via a share-swap arrangement from a merger with our holding CMC. Separately, we sold Malaysian plantation group Riverview Rubber Estates following a change in management.
Outlook
While we see some signs of stabilisation following a positive year, the operating environment remains challenging in the year ahead. On a brighter note, some of our holdings have been diligent in reshaping their businesses, either by selling non-core assets or raising capital to strengthen their balance sheets. Examples include Hong Kong-listed Dah Sing Financial, which will be selling its life insurance business upon receipt of regulatory approval and Pacific Basin, which raised capital through a rights issue. While we are not likely to see a dramatic jump in earnings in the short term, solid financials should help act as a buffer and a robust balance sheet is especially crucial for small-cap companies. Despite market volatility, we continue to hold good-quality stocks at a reasonable price, an approach that has helped the portfolio outperform the benchmark on a longer timeframe over five years or more. With a diversified selection of good-quality companies, the portfolio is well-placed to benefit from the region's undeniable growth potential.
Aberdeen Asset Management Asia Limited
Investment Manager
25 October 2016
STRATEGIC REPORT - RESULTS
FINANCIAL HIGHLIGHTS
|
|
31 July 2016 |
31 July 2015 |
% change |
|
Total assets |
£427,725,000 |
£380,911,000 |
+12.3 |
|
Total equity shareholders' funds (net assets) |
£383,735,000 |
£343,967,000 |
+11.6 |
|
Net asset value per share (basic) |
1,068.92p |
906.16p |
+18.0 |
|
Net asset value per share (diluted) |
1,042.99p |
896.31p |
+16.4 |
|
Share price (mid market) |
924.00p |
790.00p |
+17.0 |
|
Market capitalisation |
£331,710,000 |
£299,875,000 |
+10.6 |
|
Discount to net asset value (diluted) |
11.4% |
11.9% |
|
|
MSCI AC Asia Pacific ex Japan Index (currency adjusted, capital gains basis) |
615.34 |
540.72 |
+13.8 |
|
MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted, capital gains basis) |
1,321.89 |
1,138.98 |
+16.1 |
|
Net gearing{A} |
7.9% |
8.8% |
|
|
|
|
|
|
|
Dividends and earnings |
|
|
|
|
Total return per share (basic){B} |
165.38p |
(50.13)p |
|
|
Revenue return per share (basic) |
9.22p |
18.21p |
-49.4 |
|
Dividends per share{C} |
10.50p |
15.00p |
-30.0 |
|
Dividend cover |
0.88 |
1.21 |
-27.4 |
|
Revenue reserves{D} |
£8,347,000 |
£10,553,000 |
-20.9 |
|
|
|
|
|
|
Operating costs |
|
|
|
|
Ongoing charges ratio{E} |
1.69% |
1.46% |
|
|
|
|||
|
{A} Calculated in accordance with AIC guidance "Gearing Disclosures post RDR". |
|||
|
{B} Measures the total earnings for the year divided by the weighted average number of Ordinary shares in issue (see note 8). |
|||
|
{C} The figures for dividends per share reflect the dividends for the year in which they were earned. |
|||
|
{D} Prior to payment of final and special dividends. |
|||
|
{E} Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year. Management fees are charged on the basis of the average net asset value of the Company over a rolling 24 month period. |
|||
PERFORMANCE (TOTAL RETURN)
|
|
1 year |
3 year |
5 year |
10 year |
Since |
|
|
% return |
% return |
% return |
% return |
inception |
|
Share price |
+19.4 |
-3.2 |
+48.9 |
+316.3 |
+1274.3 |
|
Net asset value per Ordinary share - diluted |
+18.4 |
+9.8 |
+64.6 |
+344.6 |
+1324.8 |
|
MSCI AC Asia Pacific ex Japan Index (currency adjusted) |
+17.6 |
+24.6 |
+31.7 |
+258.1 |
+156.1 |
|
MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted) |
+19.1 |
+23.6 |
+19.8 |
+150.5 |
n/a |
|
Source: Aberdeen Asset Management PLC, Fundamental Data, Factset & Russell Mellon |
|||||
DIVIDENDS
|
|
Rate |
xd date |
Record date |
Payment date |
|
Proposed final 2016 |
10.50p |
3 November 2016 |
4 November 2016 |
2 December 2016 |
|
|
______ |
|
|
|
|
Final 2015 |
10.50p |
5 November 2015 |
6 November 2015 |
4 December 2015 |
|
Special 2015 |
4.50p |
5 November 2015 |
6 November 2015 |
4 December 2015 |
|
|
______ |
|
|
|
|
|
15.00p |
|
|
|
|
|
______ |
|
|
|
Ten Year Financial Record
|
Year to 31 July |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
|
Total revenue (£'000) |
5,485 |
5,021 |
4,954 |
6,103 |
8,380 |
9,168 |
11,512 |
11,427 |
14,746 |
10,992 |
|
|
____ |
____ |
____ |
____ |
____ |
____ |
____ |
_____ |
_____ |
____ |
|
Per share (p) |
|
|
|
|
|
|
|
|
|
|
|
Net revenue return |
6.98 |
5.88 |
6.75 |
12.85 |
15.42 |
13.18 |
13.84 |
11.43 |
18.21 |
9.22 |
|
Total return |
108.38 |
(50.80) |
48.21 |
236.82 |
137.91 |
68.56 |
275.43 |
(31.46) |
(50.13) |
165.38 |
|
Net ordinary dividends paid/proposed |
3.45 |
4.00 |
5.00 |
8.20 |
9.50 |
9.50 |
10.00 |
10.00 |
10.50 |
10.50 |
|
Net special dividends paid/proposed |
2.70 |
1.00 |
- |
1.90 |
2.80 |
3.00 |
3.00 |
3.00 |
4.50 |
- |
|
|
____ |
____ |
____ |
____ |
____ |
____ |
____ |
_____ |
_____ |
____ |
|
Net asset value per share (p) |
|
|
|
|
|
|
|
|
|
|
|
Basic |
404.18 |
347.24 |
390.96 |
619.37 |
686.39 |
746.55 |
1013.82 |
968.89 |
906.16 |
1,068.92 |
|
Diluted |
364.77 |
316.46 |
355.95 |
562.57 |
n/a |
n/a |
992.81 |
952.52 |
896.31 |
1,042.99 |
|
|
____ |
____ |
____ |
____ |
____ |
____ |
____ |
_____ |
_____ |
____ |
|
Shareholders' funds (£'000) |
131,679 |
109,829 |
121,963 |
192,851 |
239,965 |
260,994 |
382,932 |
369,118 |
343,967 |
383,735 |
|
|
____ |
____ |
____ |
____ |
____ |
____ |
____ |
_____ |
_____ |
____ |
INVESTMENT PORTFOLIO
As at 31 July 2016
Investment Portfolio - Ten Largest Investments
|
|
|
|
Valuation |
Total |
Valuation |
|
|
|
|
2016 |
assets |
2015 |
|
Company |
Industry |
Country |
£'000 |
% |
£'000 |
|
LPI Capital Berhad |
|
|
|
|
|
|
Malaysia-based insurance company involved in underwriting fire, motor, marine, aviation, transit and miscellaneous insurance. |
Insurance |
Malaysia |
14,228 |
3.3 |
11,372 |
|
Dah Sing Financial Holdings |
|
|
|
|
|
|
A conservative medium-sized Hong Kong based bank with exposure to both Hong Kong and China. The bank offers appealing valuation and strong asset quality. |
Banks |
Hong Kong |
12,547 |
2.9 |
10,409 |
|
Tisco Financial Group{A} |
|
|
|
|
|
|
A diversified financial services provider, the Thai company specialises in auto hire-purchase lending and is a prominent securities broker and asset manager. |
Banks |
Thailand |
12,075 |
2.8 |
7,943 |
|
Bank OCBC NISP |
|
|
|
|
|
|
Indonesian subsidiary of Singapore-based OCBC Bank. |
Banks |
Indonesia |
11,988 |
2.8 |
9,384 |
|
Multi Bintang Indonesia |
|
|
|
|
|
|
A well-run Indonesian brewery which has good long-term prospects and steady cash flow. |
Beverages |
Indonesia |
11,890 |
2.8 |
6,150 |
|
AEON Co (M) |
|
|
|
|
|
|
Operator of general merchandise stores, supermarkets and convenience stores. |
Multiline Retail |
Malaysia |
11,654 |
2.7 |
10,865 |
|
Bukit Sembawang Estates |
|
|
|
|
|
|
Singapore-based residential property developer with a large land bank. |
Real Estate Management & Development |
Singapore |
10,979 |
2.6 |
8,968 |
|
Yoma Strategic Holdings |
|
|
|
|
|
|
Singapore-listed conglomerate with businesses in property, agriculture and tourism in Myanmar. |
Real Estate Management & Development |
Singapore |
10,961 |
2.6 |
7,265 |
|
Ramco Cements |
|
|
|
|
|
|
A mid-sized cement manufacturer in India with a leading market share in the southern region. |
Construction Materials |
India |
10,745 |
2.5 |
6,943 |
|
AEON Thana Sinsap (Thailand){B} |
|
|
|
|
|
|
Consumer financial services provider offering hire-purchase lending. |
Consumer Finance |
Thailand |
10,437 |
2.4 |
7,742 |
|
Top ten investments |
|
|
117,504 |
27.4 |
|
|
{A} Holding includes investment in both common and non-voting depositary receipt lines. |
|
|
|
|
|
|
{B} Holding includes investment in both common and non-voting depositary receipt lines. |
|
|
|
|
|
Investment Portfolio - Other Investments
|
|
|
|
Valuation |
Total |
Valuation |
|
|
|
|
2016 |
assets |
2015 |
|
Company |
Industry |
Country |
£'000 |
% |
£'000 |
|
Jollibee Foods Corporation |
Hotels, Restaurants & Leisure |
Philippines |
10,437 |
2.4 |
6,812 |
|
Hana Microelectronics (Foreign) |
Electronic Equipment, Instruments & Components |
Thailand |
10,299 |
2.4 |
8,776 |
|
Cebu Holdings |
Real Estate Management & Development |
Philippines |
10,100 |
2.4 |
8,219 |
|
First Sponsor |
Real Estate Management & Development |
Singapore |
9,915 |
2.2 |
8,545 |
|
Shangri-La Hotels Malaysia |
Hotels, Restaurants & Leisure |
Malaysia |
9,126 |
2.1 |
9,444 |
|
Asian Terminals |
Transportation Infrastructure |
Philippines |
8,890 |
2.1 |
9,155 |
|
Millennium & Copthorne Hotels New Zealand{C} |
Hotels, Restaurants & Leisure |
New Zealand |
8,550 |
2.0 |
5,360 |
|
ARB Corporation |
Auto Components |
Australia |
8,445 |
2.0 |
6,132 |
|
Eastern Water Resources Development and Management (Foreign) |
Water Utilities |
Thailand |
8,316 |
1.9 |
6,233 |
|
Gujarat Gas Co |
Gas Utilities |
India |
8,103 |
1.9 |
9,086 |
|
Top twenty investments |
|
|
209,685 |
48.8 |
|
|
Sanofi India |
Pharmaceuticals |
India |
8,074 |
1.9 |
6,767 |
|
Kansai Nerolac Paints |
Chemicals |
India |
7,569 |
1.8 |
5,761 |
|
Heineken Malaysia |
Beverages |
Malaysia |
7,494 |
1.8 |
- |
|
United International Enterprises |
Food Products |
Denmark |
7,457 |
1.7 |
4,308 |
|
AEON Credit Service (M) |
Consumer Finance |
Malaysia |
7,401 |
1.7 |
6,503 |
|
Public Financial Holdings |
Banks |
Hong Kong |
7,101 |
1.7 |
7,213 |
|
Thai Stanley Electric (Foreign) |
Auto Components |
Thailand |
6,713 |
1.6 |
5,940 |
|
United Plantations |
Food Products |
Malaysia |
6,642 |
1.6 |
6,788 |
|
Hong Kong Economic Times Holdings |
Media |
Hong Kong |
6,629 |
1.5 |
6,293 |
|
Giordano International |
Specialty Retail |
Hong Kong |
6,426 |
1.5 |
6,514 |
|
Top thirty investments |
|
|
281,191 |
65.6 |
|
|
M.P. Evans Group |
Food Products |
United Kingdom |
6,387 |
1.5 |
5,987 |
|
YHN Property |
Real Estate Management & Development |
Malaysia |
6,229 |
1.5 |
4,977 |
|
Cabcharge Australia |
Commercial Services & Supplies |
Australia |
6,134 |
1.4 |
4,439 |
|
City Union Bank |
Banks |
India |
6,101 |
1.4 |
- |
|
Castrol India |
Chemicals |
India |
6,042 |
1.4 |
5,936 |
|
Kingmaker Footwear Holdings |
Textiles, Apparel & Luxury Goods |
Hong Kong |
6,001 |
1.4 |
3,886 |
|
Straits Trading Company |
Metals & Mining |
Singapore |
5,107 |
1.2 |
5,672 |
|
Thaire Life Assurance (Foreign) |
Insurance |
Thailand |
4,992 |
1.2 |
4,794 |
|
Tasek Corporation |
Construction Materials |
Malaysia |
4,975 |
1.2 |
4,757 |
|
Convenience Retail Asia |
Food & Staples Retailing |
Hong Kong |
4,957 |
1.2 |
5,080 |
|
Top forty investments |
|
|
338,116 |
79.0 |
|
|
AEON Stores Hong Kong |
Multiline Retail |
Hong Kong |
4,723 |
1.1 |
3,275 |
|
AEON Credit Service (Asia) |
Consumer Finance |
Hong Kong |
4,709 |
1.1 |
4,299 |
|
Commercial Bank of Ceylon |
Banks |
Sri Lanka |
4,609 |
1.1 |
5,607 |
|
Wheelock Properties (S) |
Real Estate Management & Development |
Singapore |
4,094 |
1.0 |
4,051 |
|
Pacific Basin Shipping |
Marine |
Hong Kong |
3,658 |
0.9 |
3,398 |
|
John Keells Holdings{D} |
Industrial Conglomerates |
Sri Lanka |
3,458 |
0.8 |
3,815 |
|
Green Dragon Gas |
Oil, Gas & Consumable Fuels |
China |
3,406 |
0.8 |
3,936 |
|
SBS Transit |
Road & Rail |
Singapore |
3,397 |
0.8 |
2,098 |
|
Holcim Indonesia |
Construction Materials |
Indonesia |
3,393 |
0.8 |
3,592 |
|
United Malacca |
Food Products |
Malaysia |
3,239 |
0.8 |
3,122 |
|
Top fifty investments |
|
|
376,802 |
88.2 |
|
|
The Hong Kong & Shanghai Hotels |
Hotels, Restaurants & Leisure |
Hong Kong |
2,906 |
0.7 |
3,057 |
|
DFCC Vardhana Bank |
Banks |
Sri Lanka |
2,622 |
0.6 |
3,693 |
|
Asia Satellite Telecommunications Holdings |
Diversified Telecommunication Services |
Hong Kong |
2,600 |
0.6 |
3,449 |
|
Concepcion Industrial |
Building Products |
Philippines |
2,482 |
0.6 |
- |
|
Cafe de Coral Holdings |
Hotels, Restaurants & Leisure |
Hong Kong |
2,398 |
0.6 |
2,136 |
|
Hong Leong Finance |
Consumer Finance |
Singapore |
2,290 |
0.5 |
2,141 |
|
Haad Thip (Foreign) |
Beverages |
Thailand |
2,275 |
0.5 |
1,778 |
|
Goodyear (Foreign) |
Auto Components |
Thailand |
2,126 |
0.5 |
1,653 |
|
Riverstone Holdings |
Commercial Services & Supplies |
Singapore |
2,090 |
0.5 |
1,760 |
|
DGB Financial Group |
Banks |
South Korea |
2,047 |
0.5 |
2,214 |
|
Top sixty investments |
|
|
400,638 |
93.8 |
|
|
CDL Hospitality Trusts |
Real Estate Investment Trusts |
Singapore |
2,020 |
0.5 |
1,790 |
|
Oriental Holdings |
Automobiles |
Malaysia |
2,015 |
0.5 |
- |
|
ORIX Leasing Pakistan |
Consumer Finance |
Pakistan |
1,448 |
0.3 |
1,868 |
|
National Development Bank |
Banks |
Sri Lanka |
1,418 |
0.3 |
2,178 |
|
Aitken Spence & Co |
Industrial Conglomerates |
Sri Lanka |
1,265 |
0.3 |
1,620 |
|
Pos Malaysia |
Air Freight & Logistics |
Malaysia |
1,091 |
0.3 |
3,390 |
|
Manulife Holdings |
Insurance |
Malaysia |
1,032 |
0.2 |
59 |
|
Chevron Lubricants Lanka |
Chemicals |
Sri Lanka |
983 |
0.2 |
2,700 |
|
Hung Hing Printing |
Containers & Packaging |
Hong Kong |
738 |
0.2 |
698 |
|
CDL Investments |
Real Estate Management & Development |
New Zealand |
574 |
0.1 |
413 |
|
Top seventy investments |
|
|
413,222 |
96.7 |
|
|
Wintermar Offshore Marine |
Marine |
Indonesia |
538 |
0.1 |
479 |
|
Mayfair Group |
Machinery |
United Kingdom |
484 |
0.1 |
1,350 |
|
FJ Benjamin Holdings |
Specialty Retail |
Singapore |
314 |
0.1 |
482 |
|
Mustika Ratu |
Personal Products |
Indonesia |
254 |
0.1 |
203 |
|
Total investments |
|
|
414,812 |
97.1 |
|
|
Net current assets (before deducting prior charges{E}) |
|
|
12,913 |
2.9 |
|
|
Total assets{E} |
|
|
427,725 |
100.0 |
|
|
{C} Holding includes investment in both common and preference lines. |
|||||
|
{D} Holding includes investment in both common and convertible warrant lines. |
|||||
|
{E} Total assets less current liabilities (before deducting prior charges). |
|||||
|
All investments are in equities. |
|||||
DIRECTORS' REPORT EXTRACTS
The Directors present their Report and the audited financial statements for the year ended 31 July 2016.
Results and Dividends
Details of the Company's results and proposed dividends are shown above.
Investment Trust Status
The Company (registered in England & Wales No. 03106339) has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 August 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 July 2016 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Capital Structure, Buybacks and Issuance
The Company's capital structure is summarised in note 13 to the financial statements. At 31 July 2016, there were 35,899,334 fully paid Ordinary shares of 25p each (2015 - 37,958,890 Ordinary shares) in issue with a further 3,278,124 Ordinary shares of 25p held in treasury (2015 - 1,218,290 treasury shares). During the year 2,059,834 Ordinary shares were purchased in the market for treasury. Subsequent to the period a further 298,500 Ordinary shares have been purchased in the market for treasury. During the period and up to the date of this report no new Ordinary shares were issued for cash at a premium to the prevailing NAV per share and no shares were sold from treasury.
On 14 December 2015, 1,153 units of Convertible Unsecured Loan Stock were converted into 137 new Ordinary shares and on 12 June 2016, 1,176 units of CULS were converted into 141 new Ordinary shares. In accordance with the terms of the CULS Issue, the conversion price of the CULS was determined at 830.0 pence nominal of CULS for one Ordinary share.
Voting Rights
Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The ordinary shares carry a right to receive dividends. On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.
CULS holders have the right to attend but not vote at general meetings of the Company. A separate resolution of CULS holders would be required to be passed before any modification or compromise of the rights attaching to the CULS can be made.
Borrowings
At the year end £5.0 million and $9.0 million had been drawn down under the Company's £20 million multi currency loan facility with State Street Bank and Trust Company.
Management Agreement
The Company has appointed Aberdeen Fund Managers Limited, a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager. Under the management arrangements with AFML, management of the Company's portfolio has been delegated to Aberdeen Asset Management Asia Limited by way of a group delegation agreement in place between AFML and AAM Asia.
Similarly, company secretarial services are provided by Aberdeen and accounting and administrative services are delegated to Aberdeen Asset Managers Limited, which then outsources those arrangements to BNP Paribas Securities Services Limited. Aberdeen Asset Managers also operates the Aberdeen Group's promotional programme.
The management agreement may be terminated by either the Company or the Manager on the expiry of twelve months' written notice. On termination, the Manager would be entitled to receive fees which would otherwise have been due to that date. Details of the fees payable by the Company to the Aberdeen Group companies for the provision of management, secretarial and promotional services are shown in notes 3 and 4 to the financial statements.
The management engagement committee review the terms of the management agreement on a regular basis and have confirmed that, due to the long-term relative performance, investment skills, experience and commitment of the investment management team, in their opinion the continuing appointment of AFML and AAM Asia is in the interests of shareholders as a whole.
Political and Charitable Donations
The Company does not make political donations (2015 - nil) and has not made any charitable donations during the year (2015 - nil).
Risk Management
Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 17 to the financial statements.
The Board
The current Directors, Messrs N K Cayzer, Randal McDonnell (Viscount Dunluce), M J Gilbert (alternate H Young), M Hadsley-Chaplin, C S Maude, P Yea and Ms H Fukuda were the only Directors who served during the year. Messrs Cayzer, Maude and Ms Fukuda have each served on the Board for more than nine years and, in accordance with corporate governance best practice, will retire at the Annual General Meeting on 29 November 2016 and, being eligible, offer themselves for re-election. Mr Gilbert has served on the Board for more than nine years and is also deemed not to be independent as he is a representative of the Manager, and therefore, in accordance with corporate governance best practice, Mr Gilbert will also retire at the Annual General Meeting on 29 November 2016 and, being eligible, offer himself for re-election. Viscount Dunluce retires by rotation at the AGM and, being eligible, offers himself for re-election. Mr Hadsley-Chaplin will be retiring from the Board at the conclusion of the AGM on 29 November 2016 and will not be seeking re-election.
The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all the Directors contribute effectively
In common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and, as required by the Listing Rules of the UK Listing Authority, has applied the principles identified in the UK Corporate Governance Code (published in September 2014). The UK Corporate Governance Code is available on the Financial Reporting Council's website: frc.org.uk.
The Board has considered the principles and recommendations of the AIC Code of Corporate Governance (AIC Code) by reference to the AIC Corporate Governance Guide for Investment Companies (AIC Guide). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues which are of specific relevance to the Company. Both the AIC Code and the AIC Guide are available on the AIC's website: theaic.co.uk.
The Company has complied throughout the accounting period with the relevant provisions contained within the AIC Code and the relevant provisions of the UK Corporate Governance Code except as set out below.
The UK Corporate Governance Code includes provisions relating to:
- the role of the chief executive (A.1.2);
- executive directors' remuneration (D.2.1 and D.2.2);
- and the need for an internal audit function (C.3.5).
For the reasons set out in the AIC Code, and as explained in the UK Corporate Governance Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally-managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. The full text of the Company's Corporate Governance Statement can be found on the Company's website: asian-smaller.co.uk.
During the year ended 31 July 2016, the Board met six times. In addition, the Audit Committee and Management Engagement Committee met jointly twice. Between meetings the Board maintains regular contact with the Manager. Directors have attended Board and Committee meetings during the year ended 31 July 2016 as follows (with their eligibility to attend the relevant meeting in brackets):
|
Director |
Board Meetings |
Audit and Management Engagement Committee Meetings |
Nomination Committee Meetings |
|
NK CayzerA |
6 (6) |
n/a |
1 (1) |
|
Viscount DunluceA |
6 (6) |
n/a |
1 (1) |
|
H Fukuda |
6 (6) |
2 (2) |
1 (1) |
|
MJ GilbertAB |
6 (6) |
n/a |
1 (1) |
|
M Hadsley-Chaplin |
6 (6) |
2 (2) |
1 (1) |
|
CS Maude |
6 (6) |
2 (2) |
1 (1) |
|
P Yea |
5 (6) |
2 (2) |
1 (1) |
A Mr Cayzer, Mr Gilbert and Viscount Dunluce are not members of the Audit and Management Engagement Committees.
B Including attendance by Mr Young as Alternate Director to Mr Gilbert.
Policy on Tenure
The Board's policy on tenure is that Directors need not serve on the Board for a limited period of time only. The Board does not consider that the length of service of a Director is as important as the contribution he or she has to make, and therefore the length of service will be determined on a case-by-case basis. In accordance with corporate governance best practice, Directors who have served for more than nine years or who are non-independent voluntarily offer themselves for re-election on an annual basis.
Board Committees
- Audit Committee
The Audit Committee Report is contained in the Annual Report.
- Nomination Committee
All appointments to the Board of Directors are considered by the Nomination Committee which comprises the entire Board and is chaired by Nigel Cayzer. The Board's overriding priority in appointing new Directors to the Board is to identify the candidate with the best range of skills and experience to complement existing Directors. The Board also recognises the benefits of diversity and its policy on diversity is referred to in the Strategic Report.
- Management Engagement Committee
The Board has separated out the Management Engagement Committee responsibilities previously undertaken as part of the Audit Committee and established a new Management Engagement Committee.
The Management Engagement Committee comprises all of the Directors except Mr Gilbert and his Alternate Mr Young and is chaired by Mr Maude. The Committee reviews the performance of the Investment Manager and its compliance with the terms of the management and secretarial agreement. The terms and conditions of the Investment Manager's appointment, including an evaluation of fees, are reviewed by the Committee on an annual basis. The Committee believes that the continuing appointment of the Manager on the terms agreed is in the interests of shareholders as a whole.
- Remuneration Committee
Under the UK Listing Authority rules, where an investment trust has only non-executive directors, the Code principles relating to directors' remuneration do not apply. Accordingly, matters relating to remuneration are dealt with by the full Board, which acts as the Remuneration Committee, and is chaired by Mr Cayzer.
The Company's remuneration policy is to set remuneration at a level to attract individuals of a calibre appropriate to the Company's future development. Further information on remuneration is disclosed in the Directors' Remuneration Report in the Annual Report.
Terms of Reference
The terms of reference of all the Board Committees may be found on the Company's website asian-smaller.co.uk and copies are available from the Company Secretary upon request. The terms of reference are reviewed and re-assessed by the Board for their adequacy on an annual basis.
Going Concern
In accordance with the Financial Reporting Council's guidance the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking covenants.
The Directors are mindful of the principal risks and uncertainties and the Viability Statement disclosed in the Strategic Report and have reviewed forecasts detailing revenue and liabilities and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors prepare a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although Directors are issued with letters of appointment upon appointment. The Directors' interests in contractual arrangements with the Company are as shown in note 16 to the financial statements. No other Directors had any interest in contracts with the Company during the period or subsequently.
The Board has adopted appropriate procedures designed to prevent bribery. The Company receives periodic reports from its service providers on the anti-bribery policies of these third parties. It also receives regular compliance reports from the Manager.
Accountability and Audit
The respective responsibilities of the Directors and the auditor in connection with the financial statements are set out in the Annual Report.
Each Director confirms that:
- so far as he or she is aware, there is no relevant audit information of which the Company's auditor is unaware; and,
- each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Additionally there have been no important events since the year end that impact the audit of this Annual Report.
The Directors have reviewed the level of non-audit services provided by the independent auditor during the year, together with the independent auditor's procedures in connection with the provision of such services, and remain satisfied that the auditor's objectivity and independence is being safeguarded.
Independent Auditor
The auditor, Ernst & Young LLP, has indicated its willingness to remain in office. The Directors will place a resolution before the Annual General Meeting to re-appoint Ernst & Young LLP as auditor for the ensuing year, and to authorise the Directors to determine its remuneration.
Internal Control
The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness and confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the year under review and up to the date of approval of this Annual Report and Accounts. It is regularly reviewed by the Board and accords with the FRC Guidance.
The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed.
The Directors have delegated the investment management of the Company's assets to the Aberdeen Group within overall guidelines, and this embraces implementation of the system of internal control, including financial, operational and compliance controls and risk management. Internal control systems are monitored and supported by the Aberdeen Group's internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented.
Risks are identified and documented through a risk management framework by each function within the Aberdeen Group's activities. Risk includes financial, regulatory, market, operational and reputational risk. This helps the internal audit risk assessment model identify those functions for review. Any weaknesses identified are reported to the Board, and timetables are agreed for implementing improvements to systems. The implementation of any remedial action required is monitored and feedback provided to the Board.
The significant risks faced by the Company have been identified as being financial; operational; and compliance-related.
The key components of the process designed by the Directors to provide effective internal control are outlined below:
- the Aberdeen Group prepares forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;
- the Board and Investment Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with the Manager and Investment Manager as appropriate;
- as a matter of course the Aberdeen Group's compliance department continually reviews the Aberdeen Group's operations and reports to the Board on a six monthly basis;
- written agreements are in place which specifically define the roles and responsibilities of the Manager and other third party service providers and, where relevant, ISAE3402 Reports, a global assurance standard for reporting on internal controls for service organisations, or their equivalents are reviewed;
- the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place within the Aberdeen Group, has decided to place reliance on the Aberdeen Group's systems and internal audit procedures; and
- at its September 2016 meeting, the Audit Committee carried out an annual assessment of internal controls for the year ended 31 July 2016 by considering documentation from the Manager, Investment Manager and the Depositary, including the internal audit and compliance functions and taking account of events since 31 July 2016. The results of the assessment, that internal controls are satisfactory, were then reported to the Board at the next Board meeting.
Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against mis-statement and loss.
Substantial Interests
The Board has been advised that the following shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 July 2016:
|
Shareholder |
No. of Ordinary shares held |
% held |
|
Aberdeen Asset Managers Savings Scheme (non-beneficial) |
3,534,621 |
9.8 |
|
Hargreaves Lansdown |
2,682,726 |
7.5 |
|
Funds managed by Aberdeen Asset Management PLC |
2,283,486 |
6.4 |
|
Alliance Trust Savings |
2,177,424 |
6.1 |
|
Investec Wealth Management |
1,679,748 |
4.7 |
|
Charles Stanley, Stockbrokers |
1,320,371 |
3.7 |
The UK Stewardship Code and Proxy Voting
Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the AIFM which has sub-delegated that authority to the Investment Manager.
The full text of the Company's response to the Stewardship Code may be found on the Company's website.
Relations with Shareholders
The Directors place a great deal of importance on communication with shareholders. The Annual Report is widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service and the Company's website (asian-smaller.co.uk). The Company responds to letters from shareholders on a wide range of issues.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the Aberdeen Group (either the Company Secretary or the Manager) in situations where direct communication is required and usually a representative from the Board meets with major shareholders on an annual basis in order to gauge their views.
The Notice of the Annual General Meeting, included within the Annual Report and Accounts, is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board or the Aberdeen Group, either formally at the Company's Annual General Meeting or at the subsequent buffet luncheon for shareholders. The Company Secretary is available to answer general shareholder queries at any time throughout the year.
Special Business at the Annual General Meeting
- Directors' Authority to Allot Relevant Securities
Approval is sought in Resolution 10, an ordinary resolution, to renew the Directors' existing general power to allot securities but will also, provide a further authority (subject to certain limits), to allot shares under a fully pre-emptive rights issue. The effect of Resolution 10 is to authorise the Directors to allot up to a maximum of 23,733,889 shares in total (representing approximately 2/3 of the existing issued capital of the Company, of which a maximum of 11,866,944 shares (approximately 1/3 of the existing issued share capital) may only be applied to fully pre-emptive rights issues. This authority is renewable annually and will expire at the conclusion of the next Annual General Meeting in 2017. The Board has no present intention to utilise this authority.
- Disapplication of Pre-emption Rights
Resolution 11 is a special resolution that seeks to renew the Directors' existing authority until the conclusion of the next Annual General Meeting to make limited allotments of shares for cash of up to 10% of the issued share capital other than according to the statutory pre-emption rights which require all shares issued for cash to be offered first to all existing shareholders.
This authority includes the ability to sell shares that have been held in treasury (if any), having previously been bought back by the Company. The Board has established guidelines for treasury shares and will only consider buying in shares for treasury at a discount to their prevailing NAV and selling them from treasury at or above the then prevailing NAV.
New shares issued in accordance with the authority sought in Resolution 11 will always be issued at a premium to the NAV per Ordinary share at the time of issue. The Board will issue new Ordinary shares or sell Ordinary shares from treasury for cash when it is appropriate to do so, in accordance with its current policy. It is therefore possible that the issued share capital of the Company may change between the date of this document and the Annual General Meeting and therefore the authority sought will be in respect of 10% of the issued share capital as at the date of the Annual General Meeting rather than the date of this document.
- Purchase of the Company's Shares
Resolution 12 is a special resolution proposing to renew the Directors' authority to make market purchases of the Company's shares in accordance with the provisions contained in the Companies Act 2006 and the Listing Rules of the Financial Conduct Authority. The minimum price to be paid per Ordinary share by the Company will not be less than 25p per share (being the nominal value) and the maximum price should not be more than the higher of (i) 5% above the average of the middle market quotations for the shares for the preceding five business days; and (ii) the higher of the last independent trade and the current highest independent bid on the trading venue where the purchase is carried out.
The Directors do not intend to use this authority to purchase the Company's Ordinary shares unless to do so would result in an increase in NAV per share and would be in the interests of shareholders generally.
The authority sought will be in respect of 14.99% of the issued share capital as at the date of the Annual General Meeting rather than the date of this document.
The authority being sought in Resolution 12 will expire at the conclusion of the Annual General Meeting in 2017 unless it is renewed before that date. Any Ordinary shares purchased in this way will either be cancelled and the number of Ordinary shares will be reduced accordingly or under the authority granted in Resolution 11 above, may be held in treasury.
If Resolutions 11 and 12 are passed then an announcement will be made on the date of the Annual General Meeting which will detail the exact number of Ordinary shares to which each of these authorities relate.
These powers will give the Directors additional flexibility going forward and the Board considers that it will be in the interests of the Company that such powers be available. Such powers will only be implemented when, in the view of the Directors, to do so will be to the benefit of shareholders as a whole.
- Notice of Meetings
Resolution 13 is a special resolution seeking to authorise the Directors to call general meetings of the Company (other than Annual General Meetings) on 14 days' notice. This approval will be effective until the Company's next Annual General Meeting in 2017. In order to utilise this shorter notice period, the Company is required to ensure that shareholders are able to vote electronically at the general meeting called on such short notice. The Directors confirm that, in the event that a general meeting is called, they will give as much notice as practicable and will only utilise the authority granted by Resolution 13 in limited and time sensitive circumstances.
- Amendment to Investment Objective and Policy
Resolution 14 is an ordinary resolution proposing an amendment to the Company's investment policy and objective. Further details of the proposed changes are contained in the Chairman's Statement and the Appendix below.
Recommendation
Your Board considers Resolutions 10 to 14 to be in the best interests of the Company and its members as a whole and most likely to promote the success of the Company for the benefit of its members as a whole. Accordingly, your Board unanimously recommends that shareholders should vote in favour of Resolutions 10 to 14 to be proposed at the AGM, as they intend to do in respect of their own beneficial shareholdings amounting to 283,892 Ordinary shares.
By order of the Board
Aberdeen Asset Management PLC - Secretaries
Bow Bells House
1 Bread Street
London EC4M 9HH
25 October 2016
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and financial statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent; and
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report including Business Review, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.
The financial statements are published on asian-smaller.co.uk which is a website maintained by the Company's Manager. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors listed in the Annual Report, being the persons responsible, hereby confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
- that in the opinion of the Directors, the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy. In reaching this conclusion the Board has assumed that the reader of the Annual Report and financial statements would have a reasonable level of general investment knowledge, and in particular, of investment trusts; and
- the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
For Aberdeen Asian Smaller Companies Investment Trust PLC
Nigel Cayzer
Chairman
25 October 2016
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended 31 July 2016 |
Year ended 31 July 2015 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains/(losses) on investments |
9 |
- |
58,314 |
58,314 |
- |
(26,196) |
(26,196) |
|
Income |
2 |
10,992 |
- |
10,992 |
14,746 |
- |
14,746 |
|
Exchange losses |
|
- |
(817) |
(817) |
- |
(131) |
(131) |
|
Investment management fees |
3 |
(4,335) |
- |
(4,335) |
(4,381) |
- |
(4,381) |
|
Administrative expenses |
4 |
(1,135) |
- |
(1,135) |
(1,108) |
- |
(1,108) |
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
Net return on ordinary activities before finance costs and taxation |
5,522 |
57,497 |
63,019 |
9,257 |
(26,327) |
(17,070) |
|
|
Finance costs |
5 |
(1,592) |
- |
(1,592) |
(1,522) |
- |
(1,522) |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
Return on ordinary activities before taxation |
|
3,930 |
57,497 |
61,427 |
7,735 |
(26,327) |
(18,592) |
|
Taxation |
6 |
(534) |
- |
(534) |
(797) |
294 |
(503) |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
Return on ordinary activities after taxation |
|
3,396 |
57,497 |
60,893 |
6,938 |
(26,033) |
(19,095) |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
Return per share (pence): |
|
|
|
|
|
|
|
|
Basic |
8 |
9.22 |
156.16 |
165.38 |
18.21 |
(68.34) |
(50.13) |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
Diluted |
8 |
n/a |
140.93 |
152.04 |
n/a |
n/a |
n/a |
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
For the year ended 31 July 2016 the conversion option for potential Ordinary shares within the Convertible Unsecured Loan Stock was non-dilutive to the revenue return per Ordinary share but dilutive to the capital return per Ordinary share. |
|||||||
|
For the year ended 31 July 2015 the conversion option for potential Ordinary shares within the Convertible Unsecured Loan Stock was non-dilutive to both the revenue and capital return per Ordinary share. |
|||||||
|
The total column of this statement represents the profit and loss account of the Company. There is no other comprehensive income and therefore the return on ordinary activities after taxation is also the total comprehensive income for the year. |
|||||||
|
All revenue and capital items in the above statement derive from continuing operations. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
STATEMENT OF FINANCIAL POSITION
|
|
|
As at |
As at |
|
|
|
31 July 2016 |
31 July 2015 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
9 |
414,812 |
374,460 |
|
|
|
_______ |
_______ |
|
Current assets |
|
|
|
|
Debtors and prepayments |
10 |
600 |
1,010 |
|
Cash and short term deposits |
|
13,623 |
6,678 |
|
|
|
_______ |
_______ |
|
|
|
14,223 |
7,688 |
|
|
|
_______ |
_______ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Bank loans |
|
(11,779) |
(5,000) |
|
Other creditors |
|
(1,310) |
(1,237) |
|
|
|
_______ |
_______ |
|
|
11 |
(13,089) |
(6,237) |
|
|
|
_______ |
_______ |
|
Net current assets |
|
1,134 |
1,451 |
|
|
|
_______ |
_______ |
|
Total assets less current liabilities |
|
415,946 |
375,911 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
3.5% Convertible Unsecured Loan Stock 2019 |
12 |
(32,211) |
(31,944) |
|
|
|
_______ |
_______ |
|
Net assets |
|
383,735 |
343,967 |
|
|
|
_______ |
_______ |
|
Capital and reserves |
|
|
|
|
Called-up share capital |
13 |
9,794 |
9,794 |
|
Capital redemption reserve |
|
2,062 |
2,062 |
|
Share premium account |
|
39,646 |
39,644 |
|
Special reserve |
|
- |
10,578 |
|
Equity component of 3.5% Convertible Unsecured Loan Stock 2019 |
12 |
1,361 |
1,361 |
|
Capital reserve |
14 |
322,525 |
269,975 |
|
Revenue reserve |
14 |
8,347 |
10,553 |
|
|
|
_______ |
_______ |
|
Equity shareholders' funds |
|
383,735 |
343,967 |
|
|
|
_______ |
_______ |
|
Net asset value per share (pence): |
|
|
|
|
Basic |
15 |
1,068.92 |
906.16 |
|
|
|
_______ |
_______ |
|
Diluted |
15 |
1,042.99 |
896.31 |
|
|
|
_______ |
_______ |
STATEMENT OF CHANGES IN EQUITY
|
For the year ended 31 July 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
Share |
|
Equity |
|
|
|
|
|
|
Share |
redemption |
premium |
Special |
Component |
Capital |
Revenue |
|
|
|
|
capital |
reserve |
account |
reserve |
CULS 2019 |
reserve |
reserve |
Total |
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 1 August 2015 |
|
9,794 |
2,062 |
39,644 |
10,578 |
1,361 |
269,975 |
10,553 |
343,967 |
|
Conversion of 3.5% Convertible Unsecured Loan Stock 2019 |
12 |
- |
- |
2 |
- |
- |
- |
- |
2 |
|
Purchase of own shares to treasury |
14 |
- |
- |
- |
(10,578) |
- |
(4,947) |
- |
(15,525) |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
- |
- |
57,497 |
3,396 |
60,893 |
|
Dividends paid |
7 |
- |
- |
- |
- |
- |
- |
(5,602) |
(5,602) |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Balance at 31 July 2016 |
|
9,794 |
2,062 |
39,646 |
- |
1,361 |
322,525 |
8,347 |
383,735 |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended 31 July 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
Share |
|
Equity |
|
|
|
|
|
|
Share |
redemption |
premium |
Special |
Component |
Capital |
Revenue |
|
|
|
|
capital |
reserve |
account |
reserve |
CULS 2019 |
reserve |
reserve |
Total |
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 1 August 2014 |
|
9,793 |
2,062 |
39,611 |
11,715 |
1,361 |
296,008 |
8,568 |
369,118 |
|
Conversion of 3.5% Convertible Unsecured Loan Stock 2019 |
12 |
1 |
- |
33 |
- |
- |
- |
- |
34 |
|
Purchase of own shares to treasury |
13 |
- |
- |
- |
(1,137) |
- |
- |
- |
(1,137) |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
- |
- |
(26,033) |
6,938 |
(19,095) |
|
Dividends paid |
7 |
- |
- |
- |
- |
- |
- |
(4,953) |
(4,953) |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Balance at 31 July 2015 |
|
9,794 |
2,062 |
39,644 |
10,578 |
1,361 |
269,975 |
10,553 |
343,967 |
|
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements. |
|||||||||
CASH FLOW STATEMENT
|
|
|
Year ended |
Year ended |
|
|
|
31 July 2016 |
31 July 2015 |
|
|
|
|
as re-presented (note 1) |
|
|
Notes |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
Net return on ordinary activities before finance costs and taxation |
63,019 |
(17,070) |
|
|
Adjustments for: |
|
|
|
|
Dividend income |
2 |
(10,822) |
(14,060) |
|
Interest income |
2 |
(10) |
(9) |
|
Dividends received |
|
11,466 |
13,267 |
|
Interest received |
|
9 |
9 |
|
Interest paid |
|
(1,321) |
(1,266) |
|
(Gains)/losses on investments |
9 |
(58,314) |
26,196 |
|
Foreign exchange movements |
|
817 |
131 |
|
Decrease/(increase) in prepayments |
|
3 |
(1) |
|
(Increase)/decrease in other debtors |
|
(10) |
19 |
|
Increase in accruals |
|
358 |
45 |
|
Stock dividends included in investment income |
|
(160) |
(677) |
|
Overseas withholding tax suffered |
6 |
(534) |
(503) |
|
|
|
_______ |
_______ |
|
Net cash inflow from operating activities |
|
4,501 |
6,081 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Purchase of investments |
|
(15,504) |
(18,074) |
|
Sales of investments |
|
33,404 |
18,794 |
|
|
|
_______ |
_______ |
|
Net cash inflow from investing activities |
|
17,900 |
720 |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Purchase of own shares to treasury |
|
(15,816) |
(724) |
|
Drawdown of loan |
|
6,868 |
- |
|
Equity dividends paid |
7 |
(5,602) |
(4,953) |
|
|
|
_______ |
_______ |
|
Net cash outflow from financing activities |
|
(14,550) |
(5,677) |
|
|
|
_______ |
_______ |
|
Increase in cash and cash equivalents |
|
7,851 |
1,124 |
|
|
|
_______ |
_______ |
|
Analysis of changes in cash and cash equivalents |
|
|
|
|
Opening balance |
|
6,678 |
5,685 |
|
Increase in cash and cash equivalents |
|
7,851 |
1,124 |
|
Foreign exchange movements |
|
(906) |
(131) |
|
|
|
_______ |
_______ |
|
Closing balance |
|
13,623 |
6,678 |
|
|
|
_______ |
_______ |
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended 31 July 2015
|
Notes to the Financial statements |
||
|
For the year ended 31 July 2016 |
||
|
|
|
|
|
1. |
Accounting policies |
|
|
|
(a) |
Basis of preparation and going concern |
|
|
|
The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. The financial statements are prepared in Sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. |
|
|
|
|
|
|
|
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the Directors' Report (unaudited). |
|
|
|
|
|
|
|
These financial statements are the first since FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland) came into effect for accounting periods beginning on or after 1 January 2015. An assessment of the impact of adopting FRS 102 has been carried out and found that no restatement of balances as at the transition date, 1 August 2014, or comparative figures in the Statement of Financial Position or the Statement of Comprehensive Income is considered necessary. The presentation of items in the statement of cash flows for the comparative period has been changed to comply with the requirements of FRS 102. The Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by the Financial Reporting Council in March 2016. |
|
|
|
|
|
|
(b) |
Valuation of investments |
|
|
|
The Company has chosen to apply the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement (as adopted for use in the EU) and investments have been designated upon initial recognition at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at cost. Subsequent to initial recognition, investments are measured at fair value. For listed investments, this is deemed to be bid market prices. Gains and losses arising from changes in fair value and disposals are included as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve. |
|
|
|
|
|
|
(c) |
Borrowings |
|
|
|
Short-term bank loans are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. Subsequently, they are measured at amortised cost using the effective interest method. Finance charges are accounted for on an accruals basis using the effective interest rate method and are charged 100% to revenue. |
|
|
|
|
|
|
(d) |
Income |
|
|
|
Dividends, including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time apportioned basis so as to reflect the effective yield on shares. Other returns on non-equity shares are recognised when the right to return is established. The fixed return on a debt security, if material, is recognised on a time apportioned basis so as to reflect the effective yield on each security. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis. |
|
|
|
|
|
|
(e) |
Expenses |
|
|
|
All expenses are accounted for on an accruals basis. Expenses, including management fees and finance costs, are charged 100% through the revenue column of the Statement of Comprehensive Income with the exception of transaction costs incurred on the purchase and disposal of investments which are charged to the capital column of the Statement of Comprehensive Income and are separately identified and disclosed in note 9 within gains on investments. |
|
|
|
|
|
|
(f) |
Taxation |
|
|
|
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Statement of Financial Position date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Statement of Financial Position date. |
|
|
|
|
|
|
|
Due to the Company's status as an investment trust company and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. |
|
|
|
|
|
|
|
The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue within 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 for the year, based on the marginal basis. |
|
|
|
|
|
|
(g) |
Foreign currency |
|
|
|
Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Statement of Financial Position date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Statement of Comprehensive Income and are then transferred to the capital reserve. |
|
|
|
|
|
|
(h) |
3.5% Convertible Unsecured Loan Stock 2019 |
|
|
|
Convertible Unsecured Loan Stock ("CULS") issued by the Company is regarded as a compound instrument, comprising of a liability component and an equity component. At the date of issue, the fair value of the liability component was estimated by assuming that an equivalent non-convertible obligation of the Company would have a coupon rate of 4.662%. The fair value of the equity component, representing the option to convert liability into equity, is derived from the difference between the issue proceeds of the CULS and the fair value assigned to the liability. The liability component is subsequently measured at amortised cost using the effective interest rate and the equity component remains unchanged. |
|
|
|
|
|
|
|
Direct expenses associated with the CULS issue are allocated to the liability and equity components in proportion to the split of the proceeds of the issue. Expenses allocated to the liability component are amortised over the life of the instrument using the effective interest rate. |
|
|
|
|
|
|
|
The interest expense on the CULS is calculated according to the effective interest rate method. |
|
|
|
|
|
|
|
On conversion of CULS, equity is issued and the liability component is derecognised. The original equity component recognised at inception remains in equity. No gain or loss is recognised on conversion. |
|
|
|
|
|
|
|
When CULS is repurchased early for cancellation, the fair value of the liability at the redemption date is compared to its carrying amount, giving rise to a gain or loss on redemption that is recognised through profit or loss. The amount of consideration allocated to equity is recognised in equity with no gain or loss being recognised. |
|
|
|
|
|
|
(i) |
Nature and purpose of reserves |
|
|
|
Capital redemption reserve |
|
|
|
The capital redemption reserve arose when Ordinary shares were redeemed, at which point an amount equal to the par value of the Ordinary share capital was transferred from the Statement of Comprehensive Income to the capital redemption reserve. |
|
|
|
|
|
|
|
Special reserve |
|
|
|
The special reserve was created by a transfer from the share premium account and is used to fund the value of purchases in the market of the Company's own shares to be held in treasury. |
|
|
|
|
|
|
|
Capital reserve |
|
|
|
This reserve reflects any gains or losses on investments realised in the period along with any movement in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. These include gains and losses from foreign currency exchange differences. Additionally, the cost of share buybacks to be held in treasury is also deducted from this reserve. |
|
|
|
|
|
|
|
Revenue reserve |
|
|
|
This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|
|
|
|
|
|
(j) |
Treasury shares |
|
|
|
When the Company purchases the Company's equity share capital as treasury shares, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. When these shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from the capital reserve. |
|
|
|
|
|
|
(k) |
Dividends payable |
|
|
|
Dividends are recognised in the financial statements in the period in which they are paid. |
|
|
|
|
|
|
(l) |
Segmental reporting |
|
|
|
The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided however an analysis of the geographic exposure of the Company's investments is provided in the Annual Report. |
|
|
|
2016 |
2015 |
|
2. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
Overseas dividends |
10,822 |
14,060 |
|
|
Stock dividends |
160 |
677 |
|
|
|
_______ |
_______ |
|
|
|
10,982 |
14,737 |
|
|
|
_______ |
_______ |
|
|
Other income |
|
|
|
|
Deposit interest |
10 |
9 |
|
|
|
_______ |
_______ |
|
|
Total income |
10,992 |
14,746 |
|
|
|
_______ |
_______ |
|
|
|
2016 |
2015 |
|
3. |
Investment management fees |
£'000 |
£'000 |
|
|
Investment management fees |
4,335 |
4,381 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The Company has an agreement with AFML for the provision of management services, which has been delegated to AAM Asia. |
||
|
|
|
||
|
|
During the year the management fee was payable monthly in arrears and is based on an annual amount of 1.2%, calculated on the average net asset value of the Company over a 24 month period, valued monthly. The management fee is calculated by reference to the value of the Company's net assets (gross assets less liabilities excluding the amount of any loan facilities or overdraft facilities drawn down). The balance due to the Manager at the year end was £724,000 (2015 - £366,000) which represents two months' fees (2015 - one month). The agreement is terminable on one year's notice. |
||
|
|
|
2016 |
2015 |
|
|
4. |
Administrative expenses |
£'000 |
£'000 |
|
|
|
Administration fees |
87 |
86 |
|
|
|
Directors' fees |
171 |
171 |
|
|
|
Promotional activities |
250 |
230 |
|
|
|
Auditor's remuneration: |
|
|
|
|
|
fees payable to the auditor for the audit of the annual accounts |
26 |
25 |
|
|
|
fees payable to the auditor and its associates for other services: |
|
|
|
|
|
|
interim review |
7 |
7 |
|
|
|
taxation services (compliance) |
8 |
11 |
|
|
|
iXBRL tagging services |
2 |
2 |
|
|
Custodian charges |
235 |
260 |
|
|
|
Other expenses |
349 |
316 |
|
|
|
|
_______ |
_______ |
|
|
|
|
1,135 |
1,108 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
The Company has an agreement with AFML for the provision of administration services which is, in turn, delegated to Aberdeen group. The administration fee is payable quarterly in advance and based on an index-linked annual amount of £87,000 (2015 - £86,000). The balance due to AFML at the year end was £22,000 (2015 - £22,000). The agreement is terminable on six months' notice. |
|||
|
|
|
|||
|
|
Under the management agreement, the Company has also appointed AFML to provide promotional activities to the Company by way of its participation in the Aberdeen Investment Trust Share Plan and ISA. AFML has delegated this role to Aberdeen group. The total fee paid and payable under the agreement in relation to promotional activities was £250,000 (2015 - £230,000) and there was a £21,000 (2015 - £83,000) balance due to Aberdeen at the year end. |
|||
|
|
|
|||
|
|
No pension contributions were made in respect of any of the Directors. |
|||
|
|
|
2016 |
2015 |
|
5. |
Finance costs |
£'000 |
£'000 |
|
|
Loans repayable in less than 1 year |
167 |
109 |
|
|
Interest on 3.5% Convertible Unsecured Loan Stock 2019 |
1,156 |
1,157 |
|
|
Notional interest on 3.5% Convertible Unsecured Loan Stock 2019 |
194 |
181 |
|
|
Amortisation of 3.5% Convertible Unsecured Loan Stock 2019 issue expenses |
75 |
75 |
|
|
|
_______ |
_______ |
|
|
|
1,592 |
1,522 |
|
|
|
_______ |
_______ |
|
|
|
2016 |
2015 |
|||||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|||
|
6. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
||
|
|
|
Overseas taxation |
534 |
- |
534 |
503 |
- |
503 |
||
|
|
|
Current taxation |
534 |
- |
534 |
503 |
- |
503 |
||
|
|
|
Movement on deferred taxation |
- |
- |
- |
294 |
(294) |
- |
||
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
|
Total tax |
534 |
- |
534 |
797 |
(294) |
503 |
||
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
|
|
|
|
|
|
|
|
||
|
|
|
At 31 July 2016 the Company had surplus management expenses and loan relationship deficits with a tax value of £5,880,000 (2015 - £4,972,000) in respect of which a deferred tax asset has not been recognised. This is due to the Company having sufficient excess management expenses available to cover the potential liability and the Company is not expected to generate taxable income in the future in excess of deductible expenses. |
||||||||
|
|
|
|
||||||||
|
|
(b) |
Factors affecting the tax charge for the year |
||||||||
|
|
|
The tax assessed for the year is lower than the current standard rate of corporation tax in the UK for a large company of 20% (2015 - effective rate 20.67%). The differences are explained below: |
||||||||
|
|
|
|
||||||||
|
|
|
|
2016 |
2015 |
||||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
|
|
Return on ordinary activities before taxation |
3,930 |
57,497 |
61,427 |
7,735 |
(26,327) |
(18,592) |
||
|
|
|
|
|
|
|
|
|
|
||
|
|
|
Return on ordinary activities multiplied by the effective UK standard tax rate of corporation tax of 20% (2015 - 20.67%) |
786 |
11,499 |
12,285 |
1,599 |
(5,442) |
(3,843) |
||
|
|
|
Effects of: |
|
|
|
|
|
|
||
|
|
|
Losses on investments not taxable |
- |
(11,663) |
(11,663) |
- |
5,415 |
5,415 |
||
|
|
|
Exchange losses |
- |
164 |
164 |
- |
27 |
27 |
||
|
|
|
Overseas tax |
534 |
- |
534 |
503 |
- |
503 |
||
|
|
|
Non-taxable dividend income |
(2,167) |
- |
(2,167) |
(3,012) |
- |
(3,012) |
||
|
|
|
Movement in unutilised management expenses |
1,065 |
- |
1,065 |
1,101 |
- |
1,101 |
||
|
|
|
Movement in unutilised loan relationship deficits |
316 |
- |
316 |
312 |
- |
312 |
||
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
|
Total tax charge for the year |
534 |
- |
534 |
503 |
- |
503 |
||
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
|
2016 |
2015 |
|
7. |
Dividends |
£'000 |
£'000 |
|
|
Final dividend for 2015 - 10.50p (2014 - 10.00p) |
3,921 |
3,810 |
|
|
Special dividend for 2015 - 4.50p (2014 - 3.00p) |
1,681 |
1,143 |
|
|
|
_______ |
_______ |
|
|
|
5,602 |
4,953 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
Proposed final and special dividends are subject to approval by shareholders at the Annual General Meeting and are not included as a liability in the financial statements. |
||
|
|
|
||
|
|
We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the current year is £3,396,000 (2015 - £7,160,000). |
||
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
Proposed final dividend for 2016 - 10.50p (2015 - 10.50p) |
3,738 |
3,921 |
|
|
Proposed special dividend for 2016 - nil (2015 - 4.50p) |
- |
1,681 |
|
|
|
_______ |
_______ |
|
|
Total |
3,738 |
5,602 |
|
|
|
_______ |
_______ |
|
|
|
2016 |
2015 |
||||
|
8. |
Return per Ordinary share |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Basic |
|
|
|
|
|
|
|
|
Return on ordinary activities after taxation (£'000) |
3,396 |
57,497 |
60,893 |
6,938 |
(26,033) |
(19,095) |
|
|
Weighted average number of shares in issue{A} |
|
|
36,818,139 |
|
|
38,094,721 |
|
|
Return per Ordinary share (p) |
9.22 |
156.16 |
165.38 |
18.21 |
(68.34) |
(50.13) |
|
|
|
_______ |
______ |
_______ |
_______ |
______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
2015 |
|
|
|
Diluted |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Return on ordinary activities after taxation (£'000) |
4,534 |
57,497 |
62,031 |
7,990 |
(26,033) |
(18,043) |
|
|
Weighted average number of shares in issue{AB} |
|
|
40,799,154 |
|
|
42,077,584 |
|
|
Return per Ordinary share (p) |
n/a |
140.93 |
152.04 |
n/a |
n/a |
n/a |
|
|
|
_______ |
______ |
_______ |
_______ |
______ |
_______ |
|
|
|
|
|
|
|
|
|
|
|
{A} Calculated excluding shares held in treasury. |
||||||
|
|
{B} The calculation of the diluted total, revenue and capital returns per Ordinary share are carried out in accordance with IAS33, "Earnings per Share". For the purpose of calculating total, revenue and capital returns per Ordinary share, the number of Ordinary shares used is the weighted average number used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all 3.5% Convertible Unsecured Loan Stock 2019 (CULS). The calculations indicate that the exercise of CULS would result in an increase in the weighted average number of Ordinary shares of 3,981,015 (2015 - 3,982,863) to 40,799,154 (2015 - 42,077,584) Ordinary shares. |
||||||
|
|
|
||||||
|
|
For the year ended 31 July 2016 the assumed conversion for potential Ordinary shares was non-dilutive to the revenue return per Ordinary share but dilutive to the capital return per Ordinary share. For the year ended 31 July 2015 there was no dilution to both the revenue and capital return per Ordinary share. Where dilution occurs, the net returns are adjusted for items relating to the CULS. Accrued CULS finance costs for the period and unamortised issues expenses are reversed. Total earnings for the period are tested for dilution. Once dilution has been determined individual revenue and capital earnings are adjusted. |
||||||
|
|
|
Listed |
Listed |
|
|
|
|
in UK |
overseas |
Total |
|
9. |
Investments |
£'000 |
£'000 |
£'000 |
|
|
Fair value through profit or loss: |
|
|
|
|
|
Opening book cost |
7,637 |
227,008 |
234,645 |
|
|
Opening fair value gains on investments held |
3,663 |
136,152 |
139,815 |
|
|
|
_______ |
_______ |
_______ |
|
|
Opening fair value |
11,300 |
363,160 |
374,460 |
|
|
Movements in year: |
|
|
|
|
|
Purchases at cost |
191 |
15,444 |
15,635 |
|
|
Sales - proceeds |
(119) |
(33,478) |
(33,597) |
|
|
Sales - (losses)/ gains on sales |
(99) |
12,911 |
12,812 |
|
|
Movement in fair value gains on investments held |
2,666 |
42,836 |
45,502 |
|
|
|
_______ |
_______ |
_______ |
|
|
Closing fair value |
13,939 |
400,873 |
414,812 |
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
|
Listed |
Listed |
|
|
|
|
in UK |
overseas |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
|
|
Closing book cost |
7,610 |
221,885 |
229,495 |
|
|
Closing fair value gains on investments held |
6,329 |
178,988 |
185,317 |
|
|
|
_______ |
_______ |
_______ |
|
|
|
13,939 |
400,873 |
414,812 |
|
|
|
_______ |
_______ |
_______ |
|
|
Gains/(losses) on investments |
|
|
|
|
|
(Losses)/ Gains on sales |
(99) |
12,911 |
12,812 |
|
|
Movement in fair value gains on investments held |
2,666 |
42,836 |
45,502 |
|
|
|
_______ |
_______ |
_______ |
|
|
|
2,567 |
55,747 |
58,314 |
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
Transaction costs |
|
|
|
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains/(losses) on investments in the Statement of Comprehensive Income. The total costs were as follows: |
|||
|
|
|
2016 |
2015 |
|
|
|
|
£'000 |
£'000 |
|
|
|
Purchases |
78 |
37 |
|
|
|
Sales |
83 |
77 |
|
|
|
|
_______ |
_______ |
|
|
|
|
161 |
114 |
|
|
|
|
_______ |
_______ |
|
|
|
|
2016 |
2015 |
|
10. |
Debtors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Amounts due from brokers |
200 |
8 |
|
|
Other debtors |
55 |
11 |
|
|
Prepayments and accrued income |
345 |
991 |
|
|
|
_______ |
_______ |
|
|
|
600 |
1,010 |
|
|
|
_______ |
_______ |
|
|
|
2016 |
2015 |
|
11. |
Creditors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Bank loans |
11,779 |
5,000 |
|
|
Amounts due to brokers |
- |
30 |
|
|
Amount due for the purchase of own shares to treasury |
157 |
413 |
|
|
Other creditors |
1,153 |
794 |
|
|
|
_______ |
_______ |
|
|
|
13,089 |
6,237 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
As at 31 July 2016, £5,000,000 (2015 - £5,000,000) had been drawn down at an all-in rate of 1.4% (2015 - 1.4%) which matured on 25 August 2016. At the date this Report was approved the principal amount was rolled over at an all-in interest rate of 1.2% until maturity on 26 October 2016. In addition, US$9,000,000 (2015 - nil) had been drawn down at an all-in rate of 1.4% (2015 - 1.4%) which matured on 25 August 2016. At the date this Report was approved the principal amount was rolled over at an all-in interest rate of 1.4% until maturity on 26 October 2016. |
||
|
|
|
||
|
|
Under the terms of the loan facilities the Borrower must not permit total debt to exceed 25% of the adjusted NAV. Adjusted NAV is defined as total net assets less, inter alia, without double counting, the market value of the Borrower's investments which are not quoted on an internationally recognised exchange, the aggregate market value of the Borrower's investments in Sub-Investment Grade Corporate Bonds and Unrated Corporate Bonds, the amount by which the market value of the Borrower's investments in a single issuer exceeds 5% of the value of the NAV, the amount by which the aggregate market value of the Borrower's investments in the issuers comprising the twenty largest holdings of the Borrower by issuer exceeds 65% of the value of the NAV, the amount by which the aggregate market value of the Borrower's investments in any one country exceeds 25% of the value of the NAV and the amount by which the aggregate market value of the Borrower's investments in issuers incorporated in any Sub-Investment Grade Country exceeds 30% of the value of the NAV. |
||
|
|
|
Number of |
Liability |
Equity |
|
|
|
units |
component |
component |
|
12. |
Non-current liabilities |
£'000 |
£'000 |
£'000 |
|
|
3.5% Convertible Loan Stock 2019 |
|
|
|
|
|
Balance at beginning of year |
33,043 |
31,944 |
1,361 |
|
|
Conversion of 3.5% Convertible Unsecured Loan Stock 2019 |
(2) |
(2) |
- |
|
|
Notional interest on CULS transferred to revenue reserve |
- |
194 |
- |
|
|
Amortisation and issue expenses |
- |
75 |
- |
|
|
|
_______ |
_______ |
_______ |
|
|
Balance at end of year |
33,041 |
32,211 |
1,361 |
|
|
|
_______ |
_______ |
_______ |
|
|
|
|||
|
|
The 3.5% Convertible Unsecured Loan Stock 2019 ("CULS") can be converted at the election of holders into Ordinary shares during the months of May and November each year throughout their life, commencing 30 November 2012 to 31 May 2019 at a rate of 1 Ordinary share for every 830.0p nominal of CULS. Interest is paid on the CULS on 31 May and 30 November each year, commencing 30 November 2012. 100% of the interest is charged to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company. |
|||
|
|
|
|||
|
|
The CULS has been constituted as an unsecured subordinated obligation of the Company by the Trust Deed between the Company and the Trustee, the Law Debenture Trust Corporation p.l.c., dated 17 May 2012. The Trust Deed details the CULS holders' rights and the Company's obligations to the CULS holders and the Trustee oversees the operation of the Trust Deed. In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed. |
|||
|
|
|
|||
|
|
During the year ended 31 July 2016 the Company converted 2,329 (31 July 2015 - 33,978) nominal amount of CULS into 278 (31 July 2015 - 4,083) Ordinary shares. |
|||
|
|
|
|||
|
|
As at 31 July 2016, there was £33,040,814 (2015 - £33,043,143) nominal amount of 3.5% Convertible Unsecured Loan Stock 2019 in issue. |
|||
|
|
|
2016 |
2015 |
|
|
13. |
Called up share capital |
£'000 |
£'000 |
|
|
|
Allotted, called-up and fully paid |
|
|
|
|
|
Ordinary shares of 25p |
8,975 |
9,490 |
|
|
|
Treasury shares |
819 |
304 |
|
|
|
|
_______ |
_______ |
|
|
|
|
9,794 |
9,794 |
|
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
Ordinary shares |
Treasury shares |
Total |
|
|
|
Number |
Number |
Number |
|
|
At 31 July 2015 |
37,958,890 |
1,218,290 |
39,177,180 |
|
|
Conversion of CULS |
278 |
- |
278 |
|
|
Buyback of own shares |
(2,059,834) |
2,059,834 |
- |
|
|
|
_______ |
_______ |
_______ |
|
|
At 31 July 2016 |
35,899,334 |
3,278,124 |
39,177,458 |
|
|
|
_______ |
_______ |
_______ |
|
|
|
|
|
|
|
|
During the year 2,059,834 Ordinary shares of 25p were purchased by the Company (2015 - 142,000 Ordinary shares purchased) at a total cost of £15,525,000 (2015 - total cost of £1,137,000), all of which were held in treasury (2015 - same). At the year end 3,278,124 (2015 - 1,218,290) shares were held in treasury, which represents 8.37% (2015 - 3.11%) of the Company's total issued share capital at 31 July 2016. During the year there were a further 278 Ordinary shares issued as a result of CULS conversion (2015 - 4,083). |
|||
|
|
|
|||
|
|
Since the year end a further 298,500 Ordinary shares of 25p have been purchased by the Company at a total cost of £2,815,000, all of which were held in treasury. |
|||
|
|
|
2016 |
2015 |
|
|
14. |
Reserves |
£'000 |
£'000 |
|
|
|
(a) |
Capital reserve |
|
|
|
|
|
At 31 July 2015 |
269,975 |
296,008 |
|
|
|
Movement in investment holdings fair value |
45,502 |
(42,300) |
|
|
|
Gains on realisation of investments at fair value |
12,812 |
16,104 |
|
|
|
Purchase of own shares to treasury |
(4,947) |
- |
|
|
|
Foreign exchange movement |
(817) |
(131) |
|
|
|
Capital tax charge |
- |
294 |
|
|
|
|
_______ |
_______ |
|
|
|
At 31 July 2016 |
322,525 |
269,975 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
The capital reserve includes investment holding gains amounting to £185,317,000 (2015 - £139,815,000) as disclosed in note 9. The above split in capital reserve is shown in accordance with provisions of the Statement of Recommended Practice 'Financial Statements Of Investment Trust Companies and Venture Capital Trusts'. |
||
|
|
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
(b) |
Revenue reserve |
£'000 |
£'000 |
|
|
|
At 31 July 2015 |
10,553 |
8,568 |
|
|
|
Revenue |
3,396 |
6,938 |
|
|
|
Dividends paid |
(5,602) |
(4,953) |
|
|
|
|
_______ |
_______ |
|
|
|
At 31 July 2016 |
8,347 |
10,553 |
|
|
|
|
_______ |
_______ |
|
15. |
Net asset value per equity share |
2016 |
2015 |
|
|
Basic |
|
|
|
|
Net assets attributable |
£383,735,000 |
£343,967,000 |
|
|
Number of Ordinary shares in issue{A} |
35,899,334 |
37,958,890 |
|
|
Net asset value per Ordinary share |
1,068.92p |
906.16p |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
Diluted |
|
|
|
|
Net assets attributable |
£415,946,000 |
£375,911,000 |
|
|
Number of Ordinary shares in issue {A} |
39,880,155 |
41,939,992 |
|
|
Net asset value per Ordinary share{B} |
1,042.99p |
896.31p |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
{A} Calculated excluding shares held in treasury |
||
|
|
{B} The diluted net asset value per Ordinary share has been calculated on the assumption that the 33,040,814 (2015 - 33,043,143) 3.5% Convertible Unsecured Loan Stock 2019 ("CULS") are converted at 830.00p per share, giving a total of 39,880,155 (2015 - 41,939,992) Ordinary shares. Where dilution occurs, the net assets are adjusted for items relating to the CULS. |
||
|
|
|
||
|
|
Net asset value per share - debt converted |
||
|
|
In accordance with the Company's understanding of the current methodology adopted by the AIC, convertible financial instruments are deemed to be 'in the money' if the cum income net asset value ("NAV") exceeds the conversion price of 830.00p per share. In such circumstances a net asset value is produced and disclosed assuming the convertible debt is fully converted. At 31 July 2016 the cum income NAV was 1068.92p (31 July 2015 - 906.16p) and thus the CULS were 'in the money'. |
||
|
16. |
Related party transactions and transactions with the Manager |
|
|
Fees payable during the year to the Directors and their interests in shares of the Company are considered to be related party transactions and are disclosed within the Directors' Remuneration Report in the Annual Report. The balance of fees due to Directors at the year end was £14,000 (2015 - £2,000). |
|
|
|
|
|
Mr Gilbert and his alternate Director, Mr Young are both directors of Aberdeen and its subsidiary AAM Asia which has been delegated, under an agreement with AFML, to provide management services to the Company, the terms of which are outlined in note 3 and 4 along with details of transactions during the year and balances outstanding at the year end. Neither Mr Gilbert nor Mr Young are directors of AFML. |
|
17. |
Financial instruments |
|||||||||||||||
|
|
Risk management |
|||||||||||||||
|
|
The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise equities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
The Board has delegated the risk management function to Aberdeen Fund Managers Limited ("AFML") under the terms of its management agreement with AFML (further details of which are included under note 3 and in the Directors' Report) however, it remains responsible for the risk and control framework and operation of third parties. The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Risk management framework |
|||||||||||||||
|
|
The directors of Aberdeen Fund Managers Limited collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
AFML is a fully integrated member of the Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Management Asia Ltd, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD"). |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described in the committees' terms of reference. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Risk management |
|||||||||||||||
|
|
The main risks the Company faces from these financial instruments are (i) market risk (comprising interest rate, foreign currency and other price risk), (ii) liquidity risk and (iii) credit risk. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Market risk |
|||||||||||||||
|
|
The fair value of or future cash flows from a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Interest rate risk |
|||||||||||||||
|
|
Interest rate movements may affect: |
|||||||||||||||
|
|
the level of income receivable on cash deposits; |
|||||||||||||||
|
|
interest payable on the Company's variable rate borrowings; |
|||||||||||||||
|
|
valuation of debt securities in the portfolio. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Management of the risk |
|||||||||||||||
|
|
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Interest rate risk profile |
|||||||||||||||
|
|
The interest rate risk profile of the Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the Balance Sheet date was as follows: |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
|
Weighted average |
|
|
|
|||||||||||
|
|
|
period for which |
average |
Fixed |
Floating |
|||||||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
|||||||||||
|
|
At 31 July 2016 |
Years |
% |
£'000 |
£'000 |
|||||||||||
|
|
Assets |
|
|
|
|
|||||||||||
|
|
Sterling |
- |
- |
- |
13,444 |
|||||||||||
|
|
Thailand Baht |
- |
- |
- |
179 |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
- |
- |
- |
13,623 |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
Liabilities |
|
|
|
|
|||||||||||
|
|
Bank loan |
0.08 |
1.4 |
11,779 |
- |
|||||||||||
|
|
3.5% Convertible Loan Stock 2019 |
2.83 |
3.5 |
32,211 |
- |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
- |
- |
43,990 |
- |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
|
|
Weighted average |
Weighted |
|
|
|||||||||||
|
|
|
period for which |
average |
Fixed |
Floating |
|||||||||||
|
|
|
rate is fixed |
interest rate |
rate |
rate |
|||||||||||
|
|
At 31 July 2015 |
Years |
% |
£'000 |
£'000 |
|||||||||||
|
|
Assets |
|
|
|
|
|||||||||||
|
|
Sterling |
- |
- |
- |
6,675 |
|||||||||||
|
|
Thailand Baht |
- |
- |
- |
3 |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
- |
- |
- |
6,678 |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
Liabilities |
|
|
|
|
|||||||||||
|
|
Bank loan |
0.08 |
1.4 |
5,000 |
- |
|||||||||||
|
|
3.5% Convertible Loan Stock 2019 |
3.83 |
3.5 |
31,944 |
- |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
- |
- |
36,944 |
- |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
|
The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on interest payable, weighted by the value of the loan. Details of the Company's loan are shown in note 11 to the financial statements. |
|||||||||||||||
|
|
The floating rate assets consist of cash deposits on call earning interest at prevailing market rates. |
|||||||||||||||
|
|
The Company's equity portfolio and short term debtors and creditors (excluding bank loans) have been excluded from the above tables. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Interest rate sensitivity |
|||||||||||||||
|
|
Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Foreign currency risk |
|||||||||||||||
|
|
All of the Company's investment portfolio is invested in overseas securities and the Statement of Financial Position, therefore, can be significantly affected by movements in foreign exchange rates. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Management of the risk |
|||||||||||||||
|
|
It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investment with foreign currency borrowings. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
The revenue account is subject to currency fluctuations arising on dividends receivable in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. It is not the Company's policy to hedge this currency risk but the Board keeps under review the currency returns in both capital and income. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Foreign currency risk exposure by currency of denomination: |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
|
31 July 2016 |
31 July 2015 |
|||||||||||||
|
|
|
|
|
|
|
Net monetary |
|
|||||||||
|
|
|
Overseas |
assets/ |
currency |
Overseas |
assets/ |
currency |
|||||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||||||
|
|
Australian Dollar |
14,579 |
- |
14,579 |
10,571 |
- |
10,571 |
|||||||||
|
|
Danish Krona |
7,457 |
- |
7,457 |
4,308 |
- |
4,308 |
|||||||||
|
|
Hong Kong Dollar |
65,392 |
- |
65,392 |
56,629 |
- |
56,629 |
|||||||||
|
|
Indian Rupee |
46,634 |
- |
46,634 |
56,967 |
- |
56,967 |
|||||||||
|
|
Indonesian Rupiah |
28,063 |
- |
28,063 |
19,808 |
- |
19,808 |
|||||||||
|
|
Korean Won |
2,047 |
- |
2,047 |
2,214 |
- |
2,214 |
|||||||||
|
|
Malaysian Ringgit |
75,126 |
- |
75,126 |
71,233 |
- |
71,233 |
|||||||||
|
|
New Zealand Dollar |
9,124 |
- |
9,124 |
5,772 |
- |
5,772 |
|||||||||
|
|
Pakistan Rupee |
1,448 |
- |
1,448 |
1,868 |
- |
1,868 |
|||||||||
|
|
Philippine Peso |
31,909 |
- |
31,909 |
24,186 |
- |
24,186 |
|||||||||
|
|
Singapore Dollar |
51,166 |
- |
51,166 |
45,131 |
- |
45,131 |
|||||||||
|
|
Sri Lankan Rupee |
14,355 |
- |
14,355 |
19,612 |
- |
19,612 |
|||||||||
|
|
Thailand Baht |
57,235 |
179 |
57,414 |
44,861 |
3 |
44,864 |
|||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||||||
|
|
United States Dollar |
- |
(6,779) |
(6,779) |
- |
- |
- |
|||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||||||
|
|
|
404,535 |
(6,600) |
397,935 |
363,160 |
3 |
363,163 |
|||||||||
|
|
Sterling |
10,277 |
(23,767) |
(13,490) |
11,300 |
(30,269) |
(18,969) |
|||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||||||
|
|
Total |
414,812 |
(30,367) |
384,445 |
374,460 |
(30,266) |
344,194 |
|||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Foreign currency sensitivity |
|||||||||||||||
|
|
There is no sensitivity analysis included as the Company's significant foreign currency financial instruments are in the form of equity investments, which have been included within other price risk sensitivity analysis so as to show the overall level of exposure. Due consideration is paid to foreign currency risk throughout the investment process. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Other price risk |
|||||||||||||||
|
|
Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Investment in Far East equities or those of companies that derive significant revenue or profit from the Far East involves a greater degree of risk than that usually associated with investment in the securities in major securities markets. The securities that the Company owns may be considered speculative because of this higher degree of risk. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. Both the allocation of assets and the stock selection process, as detailed in the Annual Report, act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Other price risk sensitivity |
|||||||||||||||
|
|
If market prices at the Balance Sheet date had been 10% (2015 - 10%) higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 July 2016 would have increased/(decreased) by £41,481,000 (2015 - increased/(decreased) by £37,446,000) and equity reserves would have increased/(decreased) by the same amount. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Liquidity risk |
|||||||||||||||
|
|
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Management of the risk |
|||||||||||||||
|
|
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Gearing comprises both bank loans and convertible unsecured loan stock. The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 25%. Details of borrowings at the 31 July 2016 are shown in notes 11 and 12. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of a loan facility, details of which can be found in note 11. Under the terms of the loan facility, the Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Manager will also review the credit rating of a lender on a regular basis. Details of the Board's policy on gearing are shown in the investment policy section of the Strategic Report. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Liquidity risk exposure |
|||||||||||||||
|
|
At 31 July 2016 the Company had borrowings in the form of the £33,040,814 (2015 - £33,043,143) nominal of 3.5% Convertible Unsecured Loan Stock 2019. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
At 31 July 2016 the Company's bank loan, amounting to £11,779,000 (2015 - £5,000,000), was due for repayment or roll-over within 1 month. The maximum exposure during the year was £11,999,806 (2015 - £5,000,000) and the minimum exposure during the year was £5,000,000 (2015 - £nil). |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
The maturity profile of the Company's existing borrowings is set out below. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
|
|
Due |
Due |
|
|||||||||||
|
|
|
|
Due |
between |
|
|||||||||||
|
|
|
cashflows |
3 months |
and 1 year |
1 year |
|||||||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|||||||||||
|
|
3.5% Convertible Unsecured Loan Stock 2019 |
36,510 |
- |
1,156 |
35,354 |
|||||||||||
|
|
Bank loans |
11,779 |
11,779 |
- |
- |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
48,289 |
11,779 |
1,156 |
35,354 |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
|
Credit risk |
|||||||||||||||
|
|
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Management of the risk |
|||||||||||||||
|
|
Investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Investment Manager, and limits are set on the amount that may be due from any one broker. Settlement of investment transactions are also done on a delivery versus payment basis; |
|||||||||||||||
|
|
the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, the third party administrator carries out a stock reconciliation to Custodian records on a monthly basis to ensure discrepancies are picked up on a timely basis. The Manager's compliance department carries out periodic reviews of the Custodian's operations and reports its finding to the Manager's risk management committee. This review will also include checks on the maintenance and security of investments held; and |
|||||||||||||||
|
|
cash is held only with reputable banks with high quality external credit ratings. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
None of the Company's financial assets is secured by collateral or other credit enhancements. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Credit risk exposure |
|||||||||||||||
|
|
In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 July was as follows: |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
|
2016 |
2015 |
|||||||||||||
|
|
|
Balance |
Maximum |
Balance |
Maximum |
|||||||||||
|
|
|
Sheet |
exposure |
Sheet |
exposure |
|||||||||||
|
|
Current assets |
£'000 |
£'000 |
£'000 |
£'000 |
|||||||||||
|
|
Debtors |
600 |
600 |
1,010 |
1,010 |
|||||||||||
|
|
Cash and short term deposits |
13,623 |
13,623 |
6,678 |
6,678 |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
14,223 |
14,223 |
7,688 |
7,688 |
|||||||||||
|
|
|
_______ |
_______ |
_______ |
_______ |
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
|
None of the Company's financial assets is past due or impaired. |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
Fair values of financial assets and financial liabilities |
|||||||||||||||
|
|
Investments held at fair value through profit or loss are valued at their quoted bid prices which equate to their fair values. The Directors are of the opinion that the other financial assets and liabilities, excluding CULS which are held at amortised cost, are stated at fair value in the Balance Sheet and considered that this approximates to the carrying amount. |
|||||||||||||||
|
18. |
Fair value hierarchy |
|||
|
|
FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by the Financial Reporting Council in March 2016. This has not resulted in any reclassifications in levelling and the prior year comparative has been disclosed under the new hierarchy. The fair value hierarchy shall have the following classifications:: |
|||
|
|
|
|||
|
|
Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date. |
|||
|
|
Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. |
|||
|
|
Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability. |
|||
|
|
|
|||
|
|
|
|||
|
|
|
|
Level 1 |
Level 2 |
|
|
As at 31 July 2016 |
Note |
£'000 |
£'000 |
|
|
Financial assets and liabilities at fair value through profit or loss |
|
|
|
|
|
Quoted equities |
a) |
414,812 |
- |
|
|
Unquoted equities |
b) |
- |
- |
|
|
CULS |
c) |
(38,080) |
- |
|
|
|
|
_______ |
_______ |
|
|
Net fair value |
|
376,732 |
- |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
|
|
As at 31 July 2015 |
Note |
£'000 |
£'000 |
|
|
Financial assets and liabilities at fair value through profit or loss |
|
|
|
|
|
Quoted equities |
a) |
365,374 |
- |
|
|
Unquoted equities |
b) |
- |
9,086 |
|
|
CULS |
c) |
(37,174) |
- |
|
|
|
|
_______ |
_______ |
|
|
Net fair value |
|
328,200 |
9,086 |
|
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
|
a) Quoted equities |
|
|
|
|
|
The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. |
|||
|
|
|
|||
|
|
b) Unquoted equities |
|||
|
|
Equities included in Fair Value Level 2 are assets that do not have regular market pricing, but whose fair value can be readily determined based on other data values or market prices. |
|||
|
|
|
|||
|
|
c) Convertible Unsecured Loan Stock ("CULS") |
|||
|
|
The Company's CULS are actively traded on a recognised stock exchange. The fair value of the CULS has therefore been deemed Level 1. The carrying value of the CULS is disclosed in note 12. |
|||
|
19. |
Capital management policies and procedures |
||
|
|
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt (comprising bank borrowings and CULS) and equity balance. |
||
|
|
|
||
|
|
The Company's capital comprises the following: |
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
Equity |
|
|
|
|
Equity share capital |
9,794 |
9,794 |
|
|
Reserves |
373,941 |
334,173 |
|
|
Liabilities |
|
|
|
|
CULS |
32,211 |
31,944 |
|
|
|
_______ |
_______ |
|
|
|
415,946 |
375,911 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The Board's policy is to utilise gearing when the Manager believes it appropriate to do so, up to a maximum of 25% geared at the time of drawdown. Gearing for this purpose is defined as the excess amount above shareholders' funds of total assets (including net current assets/liabilities) less cash/cash equivalents, expressed as a percentage of the shareholders' funds. If the amount so calculated is negative, this is shown as a 'net cash' position. |
||
|
|
|
|
|
|
|
|
2016 |
2015 |
|
|
|
£'000 |
£'000 |
|
|
Investments at fair value through profit or loss |
414,812 |
374,460 |
|
|
Current assets excluding cash |
600 |
1,010 |
|
|
Current liabilities excluding bank loans |
(1,310) |
(1,237) |
|
|
|
_______ |
_______ |
|
|
Total assets |
414,102 |
374,233 |
|
|
|
_______ |
_______ |
|
|
Net assets |
383,735 |
343,967 |
|
|
|
_______ |
_______ |
|
|
Gearing (%) |
7.9 |
8.8 |
|
|
|
_______ |
_______ |
|
|
|
|
|
|
|
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. The review includes: |
||
|
|
the planned level of gearing which takes account of the Manager's views on the market; |
||
|
|
the level of equity shares in issue; |
||
|
|
the extent to which revenue in excess of that which is required to be distributed should be retained. |
||
|
|
|
||
|
|
The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. |
||
|
|
|
||
|
|
The Company does not have any externally imposed capital requirements. |
||
The Annual General Meeting will be held at 11.30 a.m. on 29 November 2016 at Bow Bells House, 1 Bread Street, London EC4M 9HH.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 July 2016 are an abridged version of the Company's full financial statements, which have been approved and audited with an unqualified report. The 2015 and 2016 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498(2) or 498(3) of the Companies Act 2006. The financial information for 2015 is derived from the statutory accounts for 2015 which have been delivered to the Registrar of Companies. The 2016 financial statements will be filed with the Registrar of Companies in due course.
The audited Annual Report and financial statements will be posted to shareholders in early November. Copies may be obtained during normal business hours from the Company's Registered Office, Bow Bells House, 1 Bread Street, London EC4M 9HH or from the Company's website, asian-smaller.co.uk*
* Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
By Order of the Board
Aberdeen Asset Management PLC
Secretary
25 October 2016
Appendix
Proposed Investment Objective and Investment Policy
The Company's current Investment Objective and Investment Policy are disclosed in the Strategic Report.
It is proposed to adopt the investment objective and investment policy set out under the headings "Investment Objective" and "Investment Policy" below as the investment objective and investment policy of the Company. The proposed changes are underlined for ease of identification.
Investment Objective
The Company aims to maximise total return to shareholders over the long term from a portfolio made up predominantly of smaller quoted companies (with a market capitalisation of up to approximately US$1 billion at the time of investment) in the economies of Asia and Australasia, excluding Japan by following the investment policy described below. When it is in shareholders' interests to do so, the Company reserves the right to participate in the rights issue of an investee company notwithstanding that the market capitalisation of that investee may exceed the stated ceiling. The Directors do not envisage any change in this activity in the foreseeable future.
Investment Policy
The Company's assets are invested in a diversified portfolio of securities (including equity shares, preference shares, convertible securities, warrants and other equity-related securities) predominantly in quoted smaller companies spread across a range of industries and economies in the investment region including Australia, Bangladesh, Cambodia, China, Hong Kong, India, Indonesia, Korea, Laos, Malaysia, Myanmar, New Zealand, Pakistan, The Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam, together with such other countries in Asia as the Directors may from time to time determine, (collectively, the ''Investment Region'').
Investments may also be made through collective investment schemes, in unquoted equities (up to 10% of the net assets of the Company, calculated at the time of investment) and in companies traded on stock markets outside the Investment Region provided that over 75% of their consolidated revenue is earned from trading in the Investment Region or they hold more than 75% of their consolidated net assets in the Investment Region.
Risk Diversification
The Company does not invest more than 15% of its gross assets at the time of investment either in other listed investment companies (including listed investment trusts), or in the shares of any one company. The Manager is authorised to invest up to 15% of the Company's gross assets in any single stock.
Gearing
The Board is responsible for determining the gearing strategy for the Company. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. Gearing is subject to a maximum gearing level of up to 25% of adjusted NAV at the time of draw down.
This information is provided by RNS
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