Half-year Report

RNS Number : 2413J

Aberdeen Smaller Co's Inc Tst PLC

08 September 2016

 

Aberdeen Smaller Companies Income Trust PLC

Half Yearly Financial Report for the six months to 30 June 2016

Objective

Aberdeen Smaller Companies Income Trust PLC aims to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.

Benchmark

FTSE SmallCap Index - excluding Investment Companies (total return).

Management

The Company's alternative investment fund manager is Aberdeen Fund Managers Limited ("AFML" or "the Manager") (authorised and regulated by the Financial Conduct Authority).  The Company's portfolio is managed on a day-to-day basis by Aberdeen Asset Managers Limited ("AAML" or "the Investment Manager") by way of a delegation agreement in place between AFML and AAML.

Highlights	30 June 2016	31 December 2015	% change
Equity shareholders' funds (£'000)	51,050	55,263	-7.6
Net asset value per share	230.89p	249.95p	-7.6
Share price (mid-market)	181.50p	214.50p	-15.4
Discount to adjusted net asset value{A}	20.8%	13.6%
Dividend yield	3.7%	3.1%
{A} Based on IFRS net asset value above reduced by dividend adjustment of 1.70p (31 December 2015 - 1.70p).

Performance (total return)	Six months ended	1 year ended	3 years ended	5 years ended
	30 June 2016	30 June 2016	30 June 2016	30 June 2016
Share price	- 14.0%	- 14.9%	+ 7.3%	+ 63.4%
Net asset value per share	- 6.3%	- 8.3%	+ 31.8%	+ 67.1%
FTSE SmallCap Index (ex IC's)	- 4.6%	- 3.7%	+ 30.9%	+ 69.8%
FTSE All-Share Index	+ 4.3%	+ 2.2%	+ 18.6%	+ 35.5%
Markit iBoxx Sterling Non-Gilts 1-15 Years Index{A}	+ 5.3%	+ 6.6%	+ 18.9%	+ 35.8%
{A} Source: Aberdeen Asset Management, Markit iBoxx, Morningstar & Factset.
All figures are for total return and assume re-investment of net dividends excluding transaction costs.

CHAIRMAN'S STATEMENT

Performance

After a strong performance over the previous few years, the first half of 2016 has seen a more challenging period, during which we witnessed investors moving money out of the shares of UK small and mid cap stocks and re-investing into the shares of larger companies, as well as into perceptively "safer" assets like corporate bonds and gilts. The Company's NAV was down 6.3% on a total return basis, underperforming its benchmark, the FTSE Small Cap ex-IT index, which was down 4.6% on the same basis.  

Disaggregating the performance by asset class, the equity portfolio contributed a return, relative to the index, of -1.0%, offset slightly by a positive return from our fixed income portfolio of corporate bonds, preference shares and convertibles. The split of assets at the end of June 2016 remains broadly unchanged since June 2015 with 85.6% in equities and 11.7% in fixed income assets, the remainder being held in cash.

The first half of 2016 has been one of the more eventful periods in markets in recent years and more detail about developments during this period is provided in the Manager's Review.

Corporate Governance

As a Board we have been encouraged by the increasing emphasis the Manager has placed on company stewardship. At its heart, the aim of this is to engender an active and engaged dialogue between the shareholders and the company boards as well as strengthen relationships so that when problems do arise they can be addressed rapidly and effectively. A recent example would be Stock Spirits Group where the Manager backed largest shareholder Luis Amaral in his successful attempt to appoint two new non-executive members to the board. It is hoped this will refresh and refocus both the board and management on the immediate job of fixing its main business in Poland and recent progress has been encouraging on this front.

Gearing/Debt

Last year the Board refinanced the Trust's debt, entering into new 3 and 5-year facilities at attractive terms. The staggered maturities were chosen to provide flexibility should we find ourselves in a less desirable lending environment. Half of the new facility was fixed and half floating and we have seen rates on the floating portion of the borrowing reduce marginally over the period.

£7m of the total £10m facility is currently deployed which marks no change from the position at year end. With a few of our fixed income investments maturing over the period the Manager has been able to redeploy that capital into a mixture of new fixed income and equity holdings. In the latter part of the reporting period, bond yields continued to move to unexpectedly low levels and are now unattractively valued.  We continue to run a strategy of investing in the defensive part of the bond market by buying short dated bonds of quality well financed companies.  There is no desire to increase the Company's exposure to this asset class unless yields move to more attractive levels.

Dividend

The Board has already announced increased first and second quarter dividends, each of 1.70p per share (2015 - both 1.65p).  The Trust's revenue will continue to be driven primarily by the equity portfolio but, despite now being a small part of the total assets, the fixed income portfolio is also very useful to the revenue generation of the Trust and provides a healthy yield pickup on our attractively priced debt. Should yields eventually rise we would expect to increase our corporate bond exposure.

Board Composition

As part of the Board refreshment process, I am pleased to report the appointment of David Fletcher as a non-executive Director on 1 August 2016.  David is a chartered accountant with over 20 years' experience of investment banking with particular focus on the financial services sector.  He is currently the Group Finance Director of Stonehage Fleming Family & Partners.  David will take over the chairmanship of the Audit Committee following the retirement of Jimmy West on 5 September 2016.  The Board joins me in thanking Jimmy for his significant contribution to the Company, particularly in his role of chairman of the Audit Committee, and we wish him all the very best for the future.  

The Board will shortly commence a search for a further Director appointment as I intend to stand down from the Board at the next AGM in April 2017.  Robert Lister will take over the chairmanship at that point. 

Outlook

At this stage, it is not possible to accurately assess what the mid to long-term impacts of Brexit might be. As a Board we are encouraged that the Manager continues to follow a strategy of building a diversified portfolio of companies with strong balance sheets and who also generate a significant proportion of revenues from overseas markets. We also know that more testing times can open the door to new opportunities and we have been encouraged by the performance of some of our recent introductions. Managing the revenue account and protecting the capital downside whilst keeping a focus on the types of companies that can deliver long term capital growth are, as ever, our main priorities. 

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 identified the principal risks and uncertainties facing the Company together with a description of the mitigating actions it has taken.  They can be summarised under the following headings:

-     Investment portfolio

-     Gearing

-     Income and dividend

Details of these risks are provided in detail on pages 5 to 6 of the 2015 Annual Report.   The principal risks have not changed nor are they expected to change in the second half of the financial year ended 31 December 2016.

The impact on the risks of the Company following the 'Leave' decision of the EU Referendum is difficult to assess at this stage although it may affect the Company's risk profile by introducing potentially significant new uncertainties and instability in financial markets as the United Kingdom negotiates its exit terms.

Going Concern

In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued in September 2014, the Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate. The Company's assets consist principally of equity shares in companies listed on the London Stock Exchange which are, in most circumstances, realisable within a short timescale.

The Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future and at least 12 months from the date of approval of this Half-Yearly Report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Carolan Dobson

Chairman

7 September 2016

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-        the condensed set of Financial Statements has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'

-        the Chairman's Statement includes a fair review of the information required by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year)

-        the Chairman's Statement includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).

The Half Yearly Financial Report for the six months to 30 June 2016 comprises the Chairman's Statement, the Directors' Responsibility Statement and a condensed set of financial statements.

For and on behalf of the Board of Aberdeen Smaller Companies Income Trust PLC

Carolan Dobson

Chairman

7 September 2016

MANAGER'S REVIEW

Equity portfolio

January and February were characterised by low risk appetite and a general sense of unease amongst investors around a number of issues: the deteriorating global growth picture, weak commodity prices and further skepticism on the effectiveness of central bank policy action.  As we moved through March, April and May, and accompanied by a gradually improving oil price, sentiment started to gently improve, translating into an uptick in asset prices. Early in the year the Bank of England (BoE) had already started talking about the UK's referendum on EU membership as being the "most significant risk" to the UK's financial stability.  Sterling then started to weaken through May as markets contemplated the prospect of an "out" vote, but along with UK equity markets it rallied in the week leading up to the event as most electoral polls and bookmakers' odds suggested that a vote to leave the EU was looking increasingly unlikely.  Unsurprisingly, there was a fairly dramatic sell off post the result, but, more surprisingly, markets then went on to recover much of that lost ground the following week. The FTSE 100 index even rose above pre-Brexit levels as the week progressed.  It is worth remembering the low domestic exposure in that part of the market, with an estimated 70% of revenues generated from outside of the UK, as well as the positive currency benefit for many of these companies as stronger foreign currencies, especially the dollar, are translated back into pounds.

The Governor of the BoE's statement immediately following the referendum outcome, managed to provide some comfort. He reminded market participants of the robustness of the UK's financial system and the ability of the central bank to provide liquidity to fragile markets. However, it is worth pondering the difficulty that the BoE now faces, with lower growth pointing to additional policy stimulus, but the potential for higher inflation conventionally a trigger for tighter policy. More recent commentary from the BoE has suggested that it would be prepared to "look through" any inflation overshoots and continue to provide stimulus if necessary. Monetary policy is not a panacea, arguably less and less so, and consumers and businesses will therefore look to new Chancellor, Philip Hammond, to deliver some meaningful fiscal stimulus in his Autumn Statement.

The first half of the year is traditionally rich in news with many companies releasing their full year results. Our meetings with companies post these results have exhibited high levels of caution on the part of their management, particularly highlighting a lack of visibility on future trading.

Despite this uncertainty, a number of the Company's holdings released encouraging results over the period including BBA Aviation, Berendsen, Dechra Pharmaceuticals and Abcam. All have demonstrated resilient levels of growth and their strong market positions and pricing power have served them well. Unfortunately there were also disappointments and signs that slowing growth, increasing competition and fiercer pricing are beginning to bite for some. To pick out a few common themes, holdings with secondary and tertiary exposures to oil & gas continued to find life quite tough and elsewhere, some of the domestic UK retailers and services businesses have found trading somewhat more challenging.  Restaurant Group and Mothercare were two holdings that released weaker results in the period. The former was exited in early April, noting the unfavourable outlook for sales and profitability in an increasingly competitive market. Mothercare had a difficult trading statement in early May, with a material drop off in the fourth quarter driven by weakness in its International business. The issues here appear to be more transitory in nature, the group has a sensible programme to restructure its UK operations and its international business still offers exciting long term growth opportunities. Interserve was another weak performer. The company's support services, equipment services and international construction are all trading in line but a contract in the UK construction business, specifically in the energy from waste sector, has been problematic. The rest of its UK construction division is dominated by building and fit out work, as opposed to infrastructure, and therefore tends to be less complex and lower risk. Post period end, the company said it would be exiting the energy from waste sector completely. This together with strong cash flow, reduced net debt and a small increase in the dividend saw the shares respond favourably.

A few of our UK property and financials stocks fared poorly in the week following Brexit - although most have gone on to recover much of that lost performance. There are undoubtedly concerns over future levels of demand for UK real estate assets and, in the financial sector, lower foreign direct investment, higher risk premia and question marks over London's future status as Europe's premier financial services hub have all led to heightened investor angst. As we know, the market can also be quite undiscerning at times of uncertainty. A good example would be the weak performance of property company Savills post the vote. Ostensibly a heavily London exposed real estate agent, it has developed into far more of a global business in recent years with 700 offices worldwide and the majority of its revenues coming from outside the UK mostly in Asia Pacific and the United States. We believe the opportunities for this business are strong.

It is pleasing to report that some of our recent investments are making good progress in their respective end markets and their share prices have responded favourably. Smart Metering Systems, which develops and rents smart meters for UK utilities, has been successful in signing up new utility clients this year and Burford Capital, the litigation financing company, saw both its income and cash generation rise significantly from the prior year period. Both of these businesses were introduced in January.

The most recent introduction to the portfolio is Assura, a primary healthcare property group, with the vast majority of its surgeries let to GPs thereby creating an implicitly NHS/Government backed rental stream. It delivered a steady set of numbers in its most recent results with consistent rental growth and a pleasing increase in the dividend.

Fixed income portfolio

At the portfolio level we continue to run a strategy of investing in the short dated bonds of high quality well financed companies.

Bond markets started the year with concerns over China's economy, the knock on effect for global growth and whether this would stop the US from raising interest rates. Brexit dominated the latter half with uncertainty over the outlook for UK growth and the fall in sterling leading to concerns over an increase in inflation expectations.

Total returns from fixed income markets have been strong. Over the 6 months to 30 June 2016, 10 year gilt yields declined by 110 bps to 0.9% and longer dated bonds performed stronger still as the yield curve flattened significantly.  Sterling corporate bonds spreads widened as risk sold off, with the result that credit underperformed UK gilts. Euro bond prices on the other hand have been supported by the European Central Bank's corporate bond buying program.

During the first half, we reinvested the maturing Stagecoach bond into Society of Lloyds 7.241% 2017. As credit spreads widened significantly in February, cash in the fund was used to purchase the HBOS 6.461% 2018/Perp. These investments were made at yields of 4.3% and 5.7% respectively.

Going forward, record low government bond yields could fall further still if loose monetary conditions prevail. We would also expect corporate bond spreads to tighten over the course of the second half, assuming conditions do not deteriorate and that monetary policy remains supportive.

Outlook

This time last year we were becoming acutely aware of the strong returns smaller companies had delivered over a number of years and were cautious as to how long this could be sustained. In the twelve months since then we have seen a continuation of more difficult end markets and perhaps an acceptance from investors that growth will simply be more challenging to come by and this has precipitated some profit taking in richly valued companies. Those sectors exposed to the domestic economy have also fallen out of favour owing to challenging trading conditions and downgrades to UK growth. 

Our view is that the fall-out from Brexit should be largely concentrated within the UK itself, with some ramifications for the Eurozone, but unlikely to have a material impact on global economic activity. With that in mind, emphasis will continue to be placed on identifying and investing in those companies with the most diversified revenues both geographically and by end market. This should provide the Trust with the best blend of growth as well as a more resilient stream of company earnings. Valuations have retreated in places and we will selectively look to take advantage of those opportunities as they arise. Finally, the importance of strong balance sheets comes to the fore in more challenging times. They give businesses both the ability to invest counter cyclically - and thereby position themselves strongly for when growth returns - and also the optionality to target selective acquisitions and consolidate and strengthen their market share.

Aberdeen Asset Managers Limited

7 September 2016

Distribution of Assets and Liabilities

	Valuation at		Movement during the period				Valuation at
	31 December					Gains/	30 June
	2015		Purchases	Sales	Other{A}	(losses)	2016
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	52,741	95.4	4,988	(3,925)	-	(4,108)	49,696	97.3
Convertibles	1,003	1.8	-	-	-	(23)	980	1.9
Corporate Bonds	2,067	3.7	979	(500)	(14)	8	2,540	5.0
Other fixed interest	3,346	6.1	-	-	-	(97)	3,249	6.4
	_______	_______	_______	_______	_______	_______	_______	_______
	59,157	107.0	5,967	(4,425)	(14)	(4,220)	56,465	110.6
	_______	_______	_______	_______	_______	_______	_______	_______
Current assets	3,271	5.9					1,738	3.4
Other current liabilities	(165)	(0.3)					(153)	(0.3)
Short-term Loan	(2,000)	(3.6)					(2,000)	(3.9)
Long-term loan	(5,000)	(9.0)					(5,000)	(9.8)
	_______	_______					_______	_______
Net assets	55,263	100.0					51,050	100.0
	_______	_______					_______	_______
Net asset value per share	249.9p						230.9p
	_______						_______
{A}Represents amortisation costs on debt securities of £14,000.

Condensed Statement of Comprehensive Income  

		Six months ended
		30 June 2016
		(unaudited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
(Losses)/gains on investments held at fair value		-	(4,220)	(4,220)
Dividend income	2	1,120	-	1,120
Interest income from investments	2	133	(14)	119
Other income	2	5	-	5
		_________	_________	_________
Total income		1,258	(4,234)	(2,976)
		_________	_________	_________
Expenses
Investment management fees		(67)	(156)	(223)
Other administrative expenses		(176)	-	(176)
Finance costs of borrowing		(26)	(60)	(86)
		_________	_________	_________
Profit/(loss) before taxation		989	(4,450)	(3,461)
		_________	_________	_________
Taxation	3	-	-	-
		_________	_________	_________
Profit/(loss) attributable to equity holders	4	989	(4,450)	(3,461)
		_________	_________	_________
Return per Ordinary share (pence)	5	4.47	(20.12)	(15.65)
		_________	_________	_________
The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.
The Company does not have any income or expense that is not included in profit for the period, and therefore the "Profit/(loss) attributable to equity holders" is also the "Total comprehensive income attributable to equity holders".
All items in the above statement derive from continuing operations.

Condensed Statement of Comprehensive Income 

(Continued)

		Six months ended			Year ended
		30 June 2015			31 December 2015
		(unaudited)			(audited)
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value		-	7,077	7,077	-	5,464	5,464
Dividend income	2	1,159	-	1,159	1,963	-	1,963
Interest income from investments	2	122	(29)	93	236	(47)	189
Other income	2	1	-	1	14	-	14
		_______	_______	_______	_______	_______	_______
Total income		1,282	7,048	8,330	2,213	5,417	7,630
		_______	_______	_______	_______	_______	_______
Expenses
Investment management fees		(71)	(166)	(237)	(141)	(330)	(471)
Other administrative expenses		(186)	-	(186)	(351)	-	(351)
Finance costs of borrowing		(26)	(60)	(86)	(55)	(129)	(184)
		_______	_______	_______	_______	_______	_______
Profit/(loss) before taxation		999	6,822	7,821	1,666	4,958	6,624
		_______	_______	_______	_______	_______	_______
Taxation	3	-	-	-	-	-	-
		_______	_______	_______	_______	_______	_______
Profit/(loss) attributable to equity holders	4	999	6,822	7,821	1,666	4,958	6,624
		_______	_______	_______	_______	_______	_______
Return per Ordinary share (pence)	5	4.52	30.85	35.37	7.54	22.42	29.96
		_______	_______	_______	_______	_______	_______
The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.
The Company does not have any income or expense that is not included in profit for the period, and therefore the "Profit/(loss) attributable to equity holders" is also the "Total comprehensive income attributable to equity holders".
All items in the above statement derive from continuing operations.

Condensed Balance Sheet

		As at	As at	As at
		30 June 2016	30 June 2015	31 December 2015
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Ordinary shares		49,696	57,361	52,741
Convertibles		980	1,053	1,003
Corporate bonds		2,540	2,733	2,067
Preference shares		3,249	3,274	3,346
		____________	____________	____________
Securities at fair value		56,465	64,421	59,157
		____________	____________	____________
Current assets
Cash and cash equivalents		1,410	679	3,014
Other receivables		328	324	257
		____________	____________	____________
Total current assets		1,738	1,003	3,271
		____________	____________	____________
Total assets		58,203	65,424	62,428
Current liabilities
Short-term loan		(2,000)	(3,000)	(2,000)
Trade and other payables		(153)	(235)	(165)
		____________	____________	____________
Total current liabilities		(2,153)	(3,235)	(2,165)
		____________	____________	____________
Non-current liabilities
Long-term loan		(5,000)	(5,000)	(5,000)
		____________	____________	____________
Total liabilities		(7,153)	(8,235)	(7,165)
		____________	____________	____________
Net assets		51,050	57,189	55,263
		____________	____________	____________
Issued capital and reserves attributable to equity holders
Called-up share capital		11,055	11,055	11,055
Share premium account		11,892	11,892	11,892
Capital redemption reserve		2,032	2,032	2,032
Capital reserve	6	23,411	29,725	27,861
Revenue reserve		2,660	2,485	2,423
		____________	____________	____________
Equity shareholders' funds		51,050	57,189	55,263
		____________	____________	____________
Net asset value per Ordinary share (pence)	5	230.89	258.66	249.95
		____________	____________	____________

Condensed Statement of Changes in Equity

Six months ended 30 June 2016 (unaudited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2015		11,055	11,892	2,032	27,861	2,423	55,263
Revenue profit for the period		-	-	-	-	989	989
Capital loss for the period		-	-	-	(4,450)	-	(4,450)
Equity dividends	4	-	-	-	-	(752)	(752)
		______	______	______	______	______	______
Balance at 30 June 2016		11,055	11,892	2,032	23,411	2,660	51,050
		______	______	______	______	______	______
Six months ended 30 June 2015 (unaudited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2014		11,055	11,892	2,032	22,903	2,216	50,098
Revenue profit for the period		-	-	-	-	999	999
Capital loss for the period		-	-	-	6,822	-	6,822
Equity dividends	4	-	-	-	-	(730)	(730)
		______	______	______	______	______	______
Balance at 30 June 2015		11,055	11,892	2,032	29,725	2,485	57,189
		______	______	______	______	______	______
Year ended 31 December 2015 (audited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2014		11,055	11,892	2,032	22,903	2,216	50,098
Revenue profit for the year		-	-	-	-	1,666	1,666
Capital profit for the year		-	-	-	4,958	-	4,958
Equity dividends	4	-	-	-	-	(1,459)	(1,459)
		______	______	______	______	______	______
Balance at 31 December 2015		11,055	11,892	2,032	27,861	2,423	55,263
		______	______	______	______	______	______

Condensed Cash Flow Statement

	Six months ended	Six months ended	Year ended
	30 June 2016	30 June 2015	31 December 2015
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	1,191	1,274	2,275
Deposit interest received	2	1	-
Investment management fees paid	(226)	(307)	(543)
Other cash expenses	(180)	(177)	(360)
	___________	___________	___________
Cash generated from operations	787	791	1,372
Interest paid	(88)	(83)	(173)
	___________	___________	___________
Net cash inflows from operating activities	699	708	1,199
	___________	___________	___________
Cash flows from investing activities
Purchases of investments	(5,967)	(5,153)	(9,999)
Sales of investments	4,416	6,107	14,526
	___________	___________	___________
Net cash (outflows)/inflows from investing activities	(1,551)	954	4,527
	___________	___________	___________
Cash flows from financing activities
Loan repaid	-	(7,000)	(10,000)
Loan drawdown	-	5,000	7,000
Equity dividends paid	(752)	(730)	(1,459)
	___________	___________	___________
Net cash outflows from financing activities	(752)	(2,730)	(4,459)
	___________	___________	___________
Net (decrease)/increase in cash and cash equivalents	(1,604)	(1,068)	1,267
Cash and cash equivalents at the start of the period	3,014	1,747	1,747
	___________	___________	___________
Cash and cash equivalents at the end of the period	1,410	679	3,014
	___________	___________	___________
Cash and cash equivalents comprise:
Cash held at bank	1,410	679	3,014
	___________	___________	___________

NOTES TO THE ACCOUNTS

1.	Accounting policies
	Basis of preparation
	The condensed financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') 34 - 'Interim Financial Reporting', as adopted by the International Accounting Standards Board ('IASB'), and interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC') of the IASB. They have also been prepared using the same accounting policies applied for the year ended 31 December 2015 financial statements, which received an unqualified audit report.
	The financial statements have been prepared on a going concern basis. In accordance with the Financial Reporting Council's guidance on 'Going Concern and Liquidity Risk' the Directors have undertaken a review of the Company's assets which principally consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale.
	During the period the Company adopted the following amendments to standards;
	- IAS 1 Presentation of Financial Statements - Amendment for Disclosure Initiative (effective for annual periods beginning on or after 1 January 2016) covering (i) clarification on materiality (ii) permitting disaggregation of certain items in statements of profit or loss, other comprehensive income and balance sheet (iii) structure of the notes to the financial statements (iv) accounting policies disclosure that are significant and (v) equity accounted items in other comprehensive income.
	- Annual Improvements to IFRSs 2012 - 2014 Cycle (effective for annual periods beginning on or after 1 January 2016) covering (i) IAS 34 Interim Financial Reporting clarifying what is disclosed in the notes if not disclosed elsewhere in the interim report and (ii) IFRS 7 Financial instruments: Disclosures regarding the applicability of the amendments to condensed interim financial statements.

		Six months ended	Six months ended	Year ended
		30 June 2016	30 June 2015	31 December 2015
2.	Income	£'000	£'000	£'000
	Income from investments
	Dividend income from UK equity securities	959	969	1,675
	Dividend income from overseas equity securities	142	171	248
	Property income distribution	19	19	40
	Interest income from investments	133	122	236
		___________	___________	___________
		1,253	1,281	2,199
		___________	___________	___________
		Six months ended	Six months ended	Year ended
		30 June 2016	30 June 2015	31 December 2015
	Other income	£'000	£'000	£'000
	Bank interest	1	1	3
	Underwriting commission	4	-	11
		___________	___________	___________
		5	1	14
		___________	___________	___________
	The Company amortises the premium or discount on acquisition on debt securities against the capital reserve. For the six months to 30 June 2016 this represented £14,000 (30 June 2015 - £29,000; 31 December 2015 - £47,000) which has been reflected in the capital column of the Condensed Statement of Comprehensive Income.

3.	Taxation
	The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on the Manager's best estimate of the weighted average annual corporation tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 December 2016 is 20%.

4.	Dividends
	The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended	Six months ended	Year ended
		30 June 2016	30 June 2015	31 December 2015
		£'000	£'000	£'000
	Revenue	989	999	1,666
	Dividends declared	(752){A}	(730){B}	(1,470){C}
		___________	___________	___________
		237	269	196
		___________	___________	___________
	{A}        Dividends declared relate to first two interim dividends (both 1.70p each) declared in respect of the financial year 2016.
	{B}        Dividends declared relate to first two interim dividends (both 1.65p each) declared in respect of the financial year 2015.
	{C}        Dividends declared relate to the four interim dividends declared in respect of the financial year 2015 totalling 6.65p.

		Six months ended	Six months ended	Year ended
		30 June 2016	30 June 2015	31 December 2015
5.	Return and net asset value per share	p	p	p
	Revenue return	4.47	4.52	7.54
	Capital return	(20.12)	30.85	22.42
		___________	___________	___________
	Total return	(15.65)	35.37	29.96
		___________	___________	___________
	The returns per share are based on the following figures:
		Six months ended	Six months ended	Year ended
		30 June 2016	30 June 2015	31 December 2015
		£'000	£'000	£'000
	Revenue return	989	999	1,666
	Capital return	(4,450)	6,822	4,958
		___________	___________	___________
	Total return	(3,461)	7,821	6,624
	Weighted average number of Ordinary shares in issue	22,109,765	22,109,765	22,109,765
		___________	___________	___________
	The net asset value per share is based on net assets attributable to shareholders of £51,050,000 (30 June 2015 - £57,189,000; 31 December 2015 - £55,263,000) and on 22,109,765 (30 June 2015 - 22,109,765; 31 December 2015 - 22,109,765) Ordinary shares in issue at each period end.

6.	Capital reserves
	The capital reserve reflected in the Condensed Balance Sheet at 30 June 2016 includes gains of £10,385,000 (30 June 2015 - gains of £20,798,000; 31 December 2015 - gains of £16,162,000) which relate to the revaluation of investments held at the reporting date.

7.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as fair value. These have been expensed through capital and are included within gains on investments held at fair value in the Condensed Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 June 2016	30 June 2015	31 December 2015
		£'000	£'000	£'000
	Purchases	22	21	42
	Sales	5	5	10
		___________	___________	___________
		27	26	52
		___________	___________	___________

8.	Fair value hierarchy
	IFRS 13 'Fair Value Measurement' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making measurements. The fair value hierarchy has the following levels:
	Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	The financial assets and liabilities measured at fair value in the Condensed Balance Sheet are grouped into the fair value hierarchy as follows:
			Level 1	Level 2	Level 3	Total
	At 30 June 2016 (unaudited)	Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	52,945	-	-	52,945
	Quoted bonds	b)	3,520	-	-	3,520
			_______	_______	_______	_______
			56,465	-	-	56,465
			_______	_______	_______	_______
			Level 1	Level 2	Level 3	Total
	At 30 June 2015 (unaudited)	Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	60,635	-	-	60,635
	Quoted bonds	b)	3,786	-	-	3,786
			_______	_______	_______	_______
			64,421	-	-	64,421
			_______	_______	_______	_______
			Level 1	Level 2	Level 3	Total
	At 31 December 2015 (audited)	Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	56,087	-	-	56,087
	Quoted bonds	b)	3,070	-	-	3,070
			_______	_______	_______	_______
			59,157	-	-	59,157
			_______	_______	_______	_______
	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) Quoted bonds
	The fair value of the Company's investments in quoted corporate bonds has been determined by reference to their quoted bid prices at the reporting date.
	There have been no transfers of assets or liabilities between levels of the fair value hierarchy during any of the above periods.

9.	Related party transactions
	There were no related party transactions during the period.

10.	Transactions with the Manager
	The Company has agreements with Aberdeen Fund Managers Limited ("AFML" or the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional activities.
	The management fee is at an annual rate of 0.75% of the net assets of the Company adding back bank debt, calculated and paid monthly. During the period £223,000 (30 June 2015 - £237,000 ; 31 December 2015 - £471,000) of investment management fees were payable to the Manager, with a balance of £36,000 (30 June 2015 - £41,000; 31 December 2015 - £39,000) being payable to AFML at the period end. There were no commonly managed funds held in the portfolio during the period to 30 June 2016 (30 June 2015 and 31 December 2015 - none). The management fee is chargeable 30% to revenue and 70% to capital.
	Expenses of £27,000 (30 June 2015 £27,000; 31 December 2015 - £54,000) were payable to the Manager in connection with the promotion of the Company. The balance outstanding at the period end was £14,000 (30 June 2015 - £27,000; 31 December 2015 - £14,000).

11.	Segmental information
	The Company is engaged in a single segment of business, which is to invest in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.

12.	Publication of non-statutory accounts
	The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 June 2016 and 30 June 2015 has not been audited.
	The information for the year ended 31 December 2015 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.

13.	This Half Yearly Financial Report was approved by the Board on 7 September 2016.

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.  Investors may not get back the amount they originally invested

Investment Portfolio - Ordinary Shares

As at 30 June 2016

		Market	Total
		value	portfolio
Company	Sector	£'000	%
RPC Group		2,228	3.9
A global plastic and packaging company with industry leading product design capabilities. It manufactures a range of consumer products and components leveraging their significant scale in the fragmented UK and European markets.	General Industrials
XP Power		2,069	3.7
A power solutions business that designs and manufactures power convertors which allow customers' electronic equipment to function safely and efficiently. With over 5,000 different products, XP Power can provide a full value add capability to its customers.	Electronic & Electrical Equipment
Dechra Pharmaceuticals		1,906	3.4
An international specialist veterinary pharmaceuticals business that manufactures and distributes veterinary products in more than 50 countries around the world.	Pharmaceuticals & Biotechnology
Wilmington		1,700	3.0
Provider of business-to-business digital services in four key areas of Risk & Compliance, Finance, Legal and Insight. The services provide information, education and training and networking opportunities to clients in well-funded professional markets which creates a high proportion of subscription and repeatable revenues.	Media
Fisher (James) & Sons		1,595	2.8
Provider of marine solutions and specialist engineering services supporting customers worldwide operating in technically challenging environments in the maritime, defence and oil & gas end markets.	Industrial Transportation
Berendsen		1,547	2.7
Support services business specialising in the sourcing, leasing and maintenance of textiles for industry, commerce and public sector organisations. It provides a crucial service to its customers, keeping their operations running smoothly and cost effectively.	Support Services
Aveva Group		1,465	2.6
One of the world's leading engineering, design and information management software providers to the process, plant and marine industries. Aveva's world-leading technology was originally developed and spun out of Cambridge University and today the business operates in 46 countries around the world.	Software & Computer Services
Euromoney Institutional Investor		1,440	2.6
International business-to-business information company focusing on the global financial community. Euromoney's publications provide extensive financial and business information to its customers and are delivered largely in digital format on a yearly subscription basis which ensures a strong stream of recurring revenues.	Media
Oxford Instruments		1,437	2.6
Oxford Instruments produces advanced instrumentation for use in scientific research, chemical analysis, patient monitoring, semiconductor processing and diagnostic imaging.	Electronic & Electrical Equipment
Hansteen		1,433	2.5
A commercial real estate investment trust investing primarily in industrial properties in the United Kingdom and Europe. Hansteen adopts a value-add approach by utilising their low financing costs to invest in assets with high rental yields and the potential for asset value and rental income improvement.	Real Estate Investment Trusts
Ten largest investments		16,820	29.8

		Market	Total
		value	portfolio
Company	Sector	£'000	%
BBA Aviation	Industrial Transportation	1,428	2.5
Devro	Food Producers	1,369	2.4
Elementis	Chemicals	1,364	2.4
Abcam	Pharmaceuticals & Biotechnology	1,347	2.4
Chesnara	Life Insurance	1,345	2.4
Manx Telecom	Fixed Line Telecommunications	1,330	2.4
Victrex	Chemicals	1,330	2.4
Acal	Support Services	1,308	2.3
Rathbone Brothers	Financial Services	1,181	2.1
Close Brothers	Financial Services	1,156	2.0
Twenty largest investments		29,978	53.1
Dignity	General Retailers	1,154	2.0
Morgan Sindall	Construction & Materials	1,145	2.0
Fenner	Industrial Engineering	1,116	2.0
Hiscox	Non-life Insurance	1,115	2.0
Robert Walters	Support Services	975	1.7
Genus	Pharmaceuticals & Biotechnology	970	1.7
Exova	Support Services	970	1.7
Smart Metering Systems	Support Services	967	1.7
Barr (AG)	Beverages	925	1.6
Fuller Smith & Turner 'A'	Travel & Leisure	916	1.6
Thirty largest investments		40,231	71.1
Xaar	Electronic & Electrical Equipment	877	1.6
Savills	Real Estate Investment & Services	864	1.5
Interserve	Support Services	854	1.5
Intermediate Capital Group	Financial Services	832	1.5
Burford	Financial Services	796	1.4
Mothercare	General Retailers	778	1.4
Assura	Real Estate Investment Trusts	732	1.3
Helical Bar	Real Estate Investment & Services	726	1.3
TT Electronics	Electronic & Electrical Equipment	627	1.1
Stock Spirits	Beverages	606	1.1
Forty largest investments		47,923	84.8
Huntsworth	Media	532	0.9
Keller	Construction & Materials	480	0.9
Cairn Homes	Household Goods & Home Construction	432	0.8
Enquest	Oil & Gas Producers	329	0.6
Total Ordinary shares		49,696	88.0

Investment Portfolio - Other Investments

As at 30 June 2016

Company	£'000	%
Convertibles
Balfour Beatty Cum Conv 10.75%	980	1.7
Total Convertibles	980	1.7
Corporate Bonds
Anglian Water 4.5% 2026	571	1.0
Society of Lloyd's 7.421% 2019	557	1.0
Wales & West Utilities Finance 6.75% 2036	552	1.0
Electricite de France 6% 2026A	450	0.8
HBOS Capital Funding 6.461% 2018A	410	0.7
Total Corporate Bonds	2,540	4.5
Preference shares
Aviva 8.75%	1,252	2.2
General Accident 8.875%	1,220	2.2
Ecclesiastical Insurance 8.625%	777	1.4
Total Preference shares	3,249	5.8
Total Other Investments	6,769	12.0
Total Investments	56,465	100.0

 

END

 

 

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