Annual Financial Report

RNS Number : 1811O
Edinburgh Dragon Trust plc
03 November 2016
 

3 November 2016

 

EDINBURGH DRAGON TRUST plc

ANNUAL FINANCIAL REPORT FOR THE YEAR TO 31 AUGUST 2016

 

·     For the year to 31 August 2016, the Company delivered healthy returns, with the NAV rising by 31.9% on a total return basis. This was slightly less than the benchmark's increase of 33.0% in sterling terms.

·     The Manager's focus on investing in quality holdings with robust fundamentals and keen competitive edge underpinned stock selection which contributed positively.  Over the second half of the reporting period the NAV outperformed the benchmark by 3.7%.

·     After a difficult start to the financial year, Asia swung back into favour in the second half of the year as emerging markets stabilised.  The gathering pace of structural reform across Asia boosted sentiment as well as improving economic fundamentals. This encouraging spate of growth not only reaffirms Asia's position as the world's most dynamic economic region, but also suggests that the region and the broader emerging economies, could outpace the developed world.

·     Against global uncertainties, Asia offers investors value and stability, backed by improving fundamentals. Equities remain attractively valued, compared to historical levels and to markets elsewhere. The region's demographics, urbanisation and a growing middle class remain supportive. The Company's holdings are well-positioned for a recovery, with the quality to deliver good returns over the long term.

 

For further information please contact:-

Adrian Lim, Senior Investment Manager,

Aberdeen Asset Management Asia                                                                     0065 6395 2700

 

Kenny Harper, Manager - Investment Trust Investor Relations,                              0131 528 4000

Aberdeen Asset Management

 

 

STRATEGIC REPORT

CHAIRMAN'S STATEMENT

Performance

Renewed enthusiasm for Asia helped regional equities bounce back from their early losses to end sharply higher over the year to 31 August 2016. The rally marked a reversal from the previous year, when the US dollar's appreciation, the slump in commodity prices and concerns about Chinese growth prompted foreign capital to flee Asia and the broader emerging markets. There was a significant improvement in investor sentiment in the second half of the Company's year as fears of a collapse in China's economy, rife at the start of 2016, receded. Commodity prices also appeared to be recovering. At the same time as structural reforms gathered pace across Asia, a wave of interest rate cuts and central bank bond buying in Europe and Japan dragged yields in many developed markets into negative territory. Unsurprisingly, liquidity migrated towards higher-yielding emerging markets, helped by the heightened political and economic uncertainties in Europe, particularly over post-Brexit contagion risks, and expectations that US interest rates may stay lower, for longer.

 

Since I reported at the half yearly stage the Company's net asset value (NAV) has risen by 32.7% in total return terms, outperforming the benchmark MSCI AC Asia ex Japan Index in sterling terms, which rose by 29% over the same period.  Over the year as a whole your Company delivered healthy returns, with the NAV rising by 31.9% on a total return basis. This was slightly less than the benchmark's increase of 33% in sterling terms, but an outperformance against the MSCI World Index's return of 25% - the first time that Asia has outperformed the World Index in five years. Your Board is pleased to observe improved NAV returns after a sustained period of underperformance and continues to monitor performance closely.

 

The share price rose by 29.7% to 302.0p, with the discount to NAV widening marginally, from 11.8% at the start of the period to 13.4% as at 31 August 2016. Since the year end this discount has tightened again slightly to 11.9% at 1 November 2016.

 

Currency gains drove much of the Company's absolute returns. Sterling's sharp depreciation against the US dollar and most Asian currencies in the wake of the referendum on European Union membership proved beneficial for UK investors.  Your Manager's focus on investing in quality holdings with robust fundamentals and keen competitive edge also underpinned stock selection - notably in India, Taiwan and Korea - which contributed positively. A more detailed analysis of your Company's performance is contained in the Investment Manager's Review.

 

Background/Overview

As I have mentioned above, Asian equity markets appear to have found a firmer footing after a difficult start to the year under review. The first six months of the year were notable for the global market rout, soft commodity prices and significant declines in sovereign bond yields. Market turbulence was largely attributable to two key factors. First, nervousness over China's economic health and its consequent impact upon global growth: Beijing's string of policy missteps, especially in the stock and currency markets, stoked concerns over the Chinese government's ability to manage the economic slowdown and raised fears that a falling yuan would trigger currency wars. Secondly, uncertainty over the implications of negative interest rates in Japan and Europe further tested investors' nerves. Earlier in the economic cycle, central banks in the developed world had increasingly turned to unprecedented levels of quantitative easing to calm markets and jumpstart economic activity. However, such unconventional measures, including the use of sub-zero interest rates, have had hardly any impact: recoveries were feeble and inflation remained low. Negative rates also cast doubts over the banking sector's profitability, sending share prices of financials sharply lower. While the sector subsequently rebounded, the gains were insufficient to compensate for earlier losses. That hurt your Company's performance, given the underlying portfolio's heavy exposure to financials.

 

However, as highlighted earlier, Asia swung back into favour in the second half of our year as emerging markets stabilised. In China, the authorities prevented the yuan from falling too sharply, while tighter capital controls stemmed the outflows from the mainland. Recent data suggest that the economy, fuelled by a surge in lending and hefty government spending, is on track to hit its 6.5% to 7% growth target. Commodity prices, such as iron ore, also recovered from their lows in 2015, partly because of the prospect of Beijing's sustained spending on infrastructure, and partly owing to tightening supply across much of the industry. Meanwhile, renewed speculation of an agreement among Opec members to cap oil production pushed crude prices back towards US$50 a barrel at the period-end.

 

The US Federal Reserve, too, played a major role in turning around market performance. In December when it raised the key interest rate for the first time in a decade, it suggested four further hikes were likely in 2016; it has since backed down from these hawkish forecasts. At the time of writing, no further increases have been made. Besides patchy domestic economic data, external risks - among them uncertainties over Chinese foreign- exchange policies and the Brexit referendum - have prompted more caution among the Fed's policymakers. The central bank's inaction has fuelled inflows into Asia as investors continued to search for yield amid an era of historically low interest rates.

 

The gathering pace of structural reform across Asia also boosted sentiment. Beijing's recent approval of the Shenzhen-Hong Kong Stock Connect scheme marked another milestone of its capital market liberalisation and the internationalisation of the yuan. Simultaneously, the authorities have renewed their clampdown on the shadow banking sector, although more is needed to fix other structural flaws across the banking sector generally. In India, the recent passage of the goods and services tax bill is expected to improve tax efficiency significantly and support growth recovery. The appointment of the deputy governor, Urjit Patel, as the new central bank chief has been well-received; it underscored the government's commitment to inflation-targeting and continued adherence to monetary policy discipline. Elsewhere, Indonesia's cabinet reshuffle has provided hopes for accelerated reforms (and possibly more revenue with the tax amnesty programme). In Thailand, investors look forward to the prospect of an eventual return to democratic rule, following the draft constitution's approval.

 

Improving economic fundamentals were another positive, with Asia's growth looking better than six months ago; second-quarter GDP growth in countries such as India, Indonesia and the Philippines, surpassed expectations. Exports also appeared to turn around after a sustained decline. This encouraging spate of growth not only reaffirms Asia's position as the world's most dynamic economic region, but also suggests that the region and the broader emerging economies, could outpace the developed world. In its July forecast, the IMF predicted that emerging-market GDP growth this year would rise by 4.1% (from 4% in 2015) and a more vigorous rebound in 2017 to 4.6%. In comparison, developed markets are forecast to grow by 1.8% in both this year and the next.

 

Gearing

The Company has no bank borrowings and its gearing is provided by the 3.5% Convertible Unsecured Loan Stock 2018 (CULS) of £59.8 million nominal at the year end, representing gearing of 6.9%.  The CULS provides the Company with long-term structural gearing at an acceptable cost, which is in line with the Manager's long-term investment philosophy.  The Board monitors the Company's gearing level on a regular basis. 

 

Revenue Account and Dividend

I am pleased to report that the Company's revenue return per share increased to 4.50p for the year to 31 August 2016 (2015 - 4.13p).  It remains the Board's policy to pay a final dividend marginally in excess of the minimum required to maintain investment trust status, which may, of course, lead to some volatility in the level of dividend paid.  The Board, therefore, recommends the payment of a final dividend of 3.2p per Ordinary share (2015 - 3.0p) which, if approved by shareholders at the Annual General Meeting, will be paid on 16 December 2016.

 

Discounts and Share Buybacks

During the period discount volatility continued to be a feature for investment trust companies and Dragon was not alone in this respect. The Board continues to monitor closely the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares at certain levels.  The Board remains committed to share buybacks where to do so would be in the interests of all shareholders.  During the year ended 31 August 2016, 3.58 million shares were bought back into treasury at a cost of £8.8 million.  The Company's discount at the year end was 13.4%.  Since the period end, a further 509,300 shares have been bought back into treasury at a cost of £1.6 million. 

 

Shareholder authority will again be sought at the Annual General Meeting to purchase the Company's shares to provide the Company with the flexibility to hold any shares that have been repurchased in treasury before either cancelling those shares or selling them back to the market at a later date.  Repurchased shares would only be resold at a price above the NAV at the relevant date.   The share buyback authority would only be exercised if to do so would increase the net asset value per Ordinary share for the remaining shareholders and would be in the best interests of shareholders generally.

 

The Board

As reported in the half yearly results, Charlie Ricketts was appointed as a non-executive Director on 19 April 2016.  The Board remains committed to its corporate governance responsibilities and ensuring succession planning measures are implemented.

 

Annual General Meeting

The Annual General Meeting will be held at the Manager's London office on Thursday 15 December 2016 at 12.00 noon, followed by a lunch for shareholders.  This will give shareholders the opportunity to meet the Directors and Manager after the formal AGM business has concluded and we welcome all shareholders to attend. The AGM will continue to be alternated between Edinburgh and London.

 

Outlook

Asia may have regained its poise, yet recent optimism is tinged with unease that the rally could be short-lived. This stems from worries that existing headwinds could persist into 2017. Of continued concern is the prospect of a tighter US monetary policy. While Asia will not be immune from renewed volatility when the Fed eventually lifts rates, the central bank has indicated that the pace of rate hikes will be gradual and controlled. Hence, a repeat of the 'taper tantrum' in 2013 seems highly unlikely. The result of the US presidential elections in November, however, could test markets.

 

In Europe, repercussions of the Brexit referendum are still unfolding, as governments in the Euro bloc grapple with a groundswell of anger over the migration crisis and the growing chorus of discontent over the European Central Bank's unconventional monetary policy.

 

Against this environment, Asia offers investors value and relative stability, backed by improving fundamentals. Equities remain attractively valued, compared to historical levels and to markets elsewhere. Most governments have opted to stay prudent, keeping their powder dry and standing ready with fiscal policy expansion to support growth. Central banks have capacity to supplement their governments` policies with more monetary easing. The region's demographics, urbanisation and a growing middle class remain supportive. At the corporate level, while revenues have yet to see a significant resurgence given weak demand, managements have been cutting costs and conserving cash to strengthen balance sheets. This provides assurance that your Company's holdings are well-positioned for recovery, with the quality to deliver good returns over the long term.

 

For Edinburgh Dragon Trust plc

Allan McKenzie

Chairman

2 November 2016

 

 

OVERVIEW OF STRATEGY

Business Model

Investment Policy

Company Benchmark

Alternative Investment Fund Manager ("AIFM")

Achieving the Investment Policy and Objective

Principal Risks and Uncertainties

Risk

Mitigating Action

Concentration Risk - Trading volumes in certain securities of emerging markets can be low. The Investment Manager may accumulate investment positions across all its managed funds that represent a significant multiple of the normal trading volumes of an investment which may result in a lack of liquidity and price volatility. Accordingly, the Company will not necessarily be able to realise, within a short period of time, an illiquid investment and any such realisation that may be achieved may be at considerably lower prices than the Company's valuation of that investment for the purpose of calculating the net asset value ("NAV") per Ordinary share.

The Board monitors, on a regular basis, Aberdeen's total holdings for each stock within the Company's portfolio and the liquidity of these stocks. 

Resource - The Company is an investment trust and has no employees. The responsibility for the provision of investment management, marketing and administration services for the Company has been delegated to the AIFM, Aberdeen Fund Managers Limited under the management agreement. The terms of the management agreement cover the necessary duties and conditions expected of the Manager.  As a result, the Company is dependent on the performance of the AIFM.

The Board reviews the performance of the Manager on a regular basis and their compliance with the management contract formally on an annual basis. As part of that review, the Board assesses the Manager's succession plans, risk management framework and marketing activities.  In addition, the Board visits the Manager's Singapore office, where the day-to-day investment management is undertaken, when they are in the region.  

Investment and Market -The Company is exposed to the effect of variations in share prices due to the nature of its business. Investment in Asian equities involves a greater degree of risk than that usually associated with investment in the major securities markets, including the risk of social, political and economic instability including changes in government which may restrict investment opportunities and have an adverse effect on economic reform. Changes in legal, regulatory and accounting policies, currency fluctuations and high interest rates may affect the value of the Company's investments and the income derived therefrom.

The Board continually monitors the investment policy of the Company, taking account of stockmarket factors, and reviews the Company's performance compared to its benchmark index and peer group. Further details on other risks relating to the Company's investment activities, including market price, liquidity and foreign currency risks, are provided in note 16 to the financial statements.

 

Gearing - As at 31 August 2016 the Company had £59.8 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS) in issue. Gearing has the effect of exacerbating market falls and gains.

 

In order to manage the level of gearing, the Board has set a maximum gearing ratio of 20% of net assets and receives regular updates on the actual gearing levels the Company has reached from the Manager together with the assets and liabilities of the Company and reviews these at each Board meeting.

Regulatory - The Company operates in a complex regulatory environment and faces a number of regulatory risks. Serious breaches of regulations, such as the tax rules for investment companies, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage.

The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

 

Discount Volatility - The Company's share price can trade at a discount to its underlying net asset value.

The Board monitors the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares within certain limits.

Reliance on Third Party Service Providers -The Company has entered into a number of contracts with third party providers including share registrar and depositary services.  Failure by any service provider to carry out its contractual obligations could have a detrimental impact on the Company operations. 

The performance of third party providers is reviewed on an annual basis. 

 

Performance

Key Performance Indicators

KPI

Description

Net asset value and share price (total return)

The Board monitors the NAV and share price performance of the Company over different time periods.  Performance figures for one, three and five years are provided in the Results section.   

Performance against benchmark

Performance is measured against the Company's benchmark, the MSCI All Country Asia (ex Japan) Index (in sterling terms). 

 

The Board also considers peer group comparative performance over a range of time periods, taking into consideration the differing investment policies and objectives employed by those companies.

Discount/Premium to net asset value

The discount/premium relative to the NAV 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 on page 13 of the published 2016 Annual Report.

Promoting the Company

Board Diversity

Environmental, Social and Human Rights Issues

Viability Statement

-      the principal risks set out in the strategic report above and the steps available to mitigate these risks;

-      the liquidity and diversity (in both sector and geography) of the Company's investment portfolio ;

       the demand for the Company's shares as evidenced by the level of discount at which the shares trade; and

-      the level of gearing and revenue surplus generated by the Company.

Future

Chairman

INVESTMENT MANAGER'S REVIEW

Background/Portfolio review

Portfolio activity

Outlook

Investment Manager

 

 

FINANCIAL HIGHLIGHTS AND RESULTS

Net asset value total return* 2016

 +31.9%

Share price total return* 2016

+29.7%

2015

(12.4%)

2015

(12.8%)

Benchmark total return* (in sterling terms) 2016

+33.0%

Ongoing charges 2016


1.14%

2015

(9.1%)

2015

1.15%

Earnings per share (revenue) 2016

4.50p

Dividend per share 2016


3.20p

2015


4.13p

2015


3.00p



* Capital return plus dividends reinvested.


 

 

31 August 2016

31 August 2015

% change

Performance




Equity shareholders' funds (£'000)

664,159

518,635

+28.1

Net asset value per share (including net revenue) (p)

348.62

267.22

+30.5

Share price (p)

302.00

235.75

+28.1

Market capitalisation (£'000)

575,338

457,554

+25.7

MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis)

776.06

599.97

+29.3

Revenue return per share (p)

4.50

4.13


Total return per share (p)

83.36

(37.68)






Gearing




Net gearing (%){A}

6.9

9.4






Discount




Level of discount at which the shares traded (%)

13.4

11.8






Operating costs




Ongoing charges ratio{B}

1.14

1.15


{A}       Calculated in accordance with AIC guidance "Gearing Disclosures post RDR".

{B}       Ongoing charges ratio is calculated in accordance with guidance issued by the AIC as the total of the investment management fee and ongoing administrative expenses divided by the average undiluted net asset value in the year.

 

PERFORMANCE (TOTAL RETURN)

6 months return

1 year
return

3 year
return

5 year
return


%

%

%

%

Share price

+33.0

+29.7

+22.0

+38.3

Net asset value

+32.7

+31.9

+27.7

+45.3

MSCI AC Asia (ex Japan) Index (in sterling terms)

+29.0

+33.0

+36.9

+50.3


{A} Capital return plus dividends reinvested.

 

 

PORTFOLIO

CHANGES IN ASSET DISTRIBUTION

YEAR ENDED 31 AUGUST 2016

Value at




Value at


31 August 2015


Purchases

Sales
proceeds

Gains/
(losses)

31 August 2016

Country

£'000

£'000

£'000

£'000

£'000

China

42,188

982

6,324

5,540

42,386

Hong Kong

142,738

13,458

10,272

22,561

168,485

India

93,969

19,987

30,388

35,364

118,932

Indonesia

10,349

9,705

-

8,470

28,524

Malaysia

22,390

267

-

4,111

26,768

Philippines

22,910

6

-

8,223

31,139

Singapore

116,204

3,109

9,558

21,320

131,075

South Korea

43,180

13,304

7,636

23,266

72,114

Sri Lanka

17,877

478

-

(808)

17,547

Taiwan

35,619

-

5,730

16,803

46,692

Thailand

19,010

-

2,260

5,392

22,142

Vietnam

-

2,745

-

1,585

4,330


_________

_________

_________

_________

_________

Total investments

566,434

64,041

72,168

151,827

710,134

Net current assets

10,453

-

-

2,454

12,907


_________

_________

_________

_________

_________

Total assets less current liabilities

576,887

64,041

72,168

154,281

723,041


_________

_________

_________

_________

_________

 

INVESTMENT PORTFOLIO - TEN LARGEST INVESTMENTS

As at 31 August 2016 



Valuation

Total

Valuation




2016

assets

2015

Company

Industry

Country

£'000

%

£'000

Samsung Electronics Pref



43,420

6.0

26,274

A leading semiconductor company which is also a major player in mobile phones and consumer electronics.

Technology Hardware, Storage & Peripherals

South Korea




Jardine Strategic Holdings



31,463

4.4

25,032

A Singapore-listed conglomerate with interests across the region spanning property, hotels and consumer-related businesses.

Industrial Conglomerates

Hong Kong




Taiwan Semiconductor Manufacturing Company



29,669

4.1

22,535

The leading semiconductor foundry in Taiwan.

Semiconductors & Semiconductor Equipment

Taiwan




Housing Development Finance Corp



28,918

4.0

22,834

Leading domestic mortgage provider with a leading distribution network, cost structure and balance sheet quality.

Thrifts & Mortgage Finance

India




Oversea-Chinese Banking Corporation



28,414

3.9

27,584

A leading, well-run Singaporean banking group with assets and operations in South East Asia and China.

Banks

Singapore




AIA Group



26,885

3.7

20,647

The Group offers life insurance, accident insurance, health insurance and wealth management solutions to individuals and businesses in the Asia Pacific region.

Insurance

Hong Kong




Singapore Telecommunications



23,035

3.2

17,636

A telecom operator that has steady operations in Singapore and Australia, coupled with growth from Asia's emerging markets via its regional franchises. The company offers a healthy dividend yield, with a robust balance sheet and cash flow.  

Diversified Telecommunication Services

Singapore




Siam Cement (Alien)



22,142

3.1

16,422

One of Thailand's largest conglomerates with key interests in cement, petrochemicals, paper and building materials. It has a sound financial position and offers a good dividend yield.

Construction Materials

Thailand




China Mobile



21,321

2.9

20,275

The number one mobile operator in China.

Wireless Telecommunication Services

China




United Overseas Bank



21,130

2.9

18,721

Singapore's second largest bank, primarily focused on SMEs and consumers, with its core market in Singapore and the balance predominantly in South East Asia.

Banks

Singapore




Top ten investments



276,397

38.2


 

INVESTMENT PORTFOLIO - OTHER INVESTMENTS

As at 31 August 2016




Valuation

Total

Valuation




2016

assets

2015

Company

Industry

Country

£'000

%

£'000

HSBC Holdings

Banks

Hong Kong

20,557

2.9

20,858

Swire Pacific 'B'

Real Estate Management & Development

Hong Kong

20,520

2.8

17,855

City Developments

Real Estate Management & Development

Singapore

20,450

2.8

17,285

Standard Chartered{A}

Banks

United Kingdom

18,125

2.5

17,982

Taiwan Mobile

Wireless Telecommunication Services

Taiwan

17,022

2.4

13,083

ITC

Tobacco

India

16,726

2.3

11,423

Grasim Industries

Construction Materials

India

15,682

2.2

13,114

Bank of Philippine Islands

Banks

Philippines

15,673

2.2

10,674

Ayala Land

Real Estate Management & Development

Philippines

15,466

2.1

12,235

Singapore Technologies Engineering

Aerospace & Defence

Singapore

15,252

2.1

14,367

Top twenty investments



451,870

62.5


John Keells Holdings{B}

Industrial Conglomerates

Sri Lanka

13,712

1.9

12,719

Tata Consultancy Services

IT Services

India

11,789

1.6

1,509

Hero Motocorp

Automobiles

India

11,755

1.6

10,797

Dairy Farm International

Food & Staples Retailing

Hong Kong

11,277

1.6

8,718

Piramal Enterprises

Pharmaceuticals

India

10,727

1.5

5,540

Keppel Corp

Industrial Conglomerates

Singapore

10,121

1.4

9,047

ICICI Bank

Banks

India

9,684

1.3

7,614

DBS Group

Banks

Singapore

8,645

1.2

8,263

Hang Lung Properties

Real Estate Management & Development

Hong Kong

8,146

1.1

6,648

Public Bank

Banks

Malaysia

7,914

1.1

5,909

Top thirty investments



555,640

76.8


Hang Lung Group

Real Estate Management & Development

Hong Kong

7,880

1.1

7,310

Bank Central Asia

Banks

Indonesia

7,632

1.1

592

Astra International

Automobiles

Indonesia

7,483

1.0

1,092

Unilever Indonesia

Household Products

Indonesia

7,351

1.0

5,192

Amorepacific Corp

Consumer Products

South Korea

7,106

1.0

-

Naver Corp

Internet Software & Services

South Korea

7,065

1.0

-

Hong Kong Exchanges & Clearing

Capital Markets

Hong Kong

6,627

0.9

-

Infosys Ltd

IT Services

India

6,534

0.9

17,387

CNOOC

Oil, Gas & Consumable Fuels

China

6,439

0.9

10,062

CIMB Group Holdings

Banks

Malaysia

6,376

0.9

5,307

Top forty investments



626,133

86.6


PetroChina 'H'

Oil, Gas & Consumable Fuels

China

6,161

0.9

6,518

E-Mart Co

Food & Staples Retailing

South Korea

6,105

0.9

7,846

Holcim Indonesia

Construction Materials

Indonesia

6,058

0.8

3,474

British American Tobacco Malaysia

Tobacco

Malaysia

5,681

0.8

5,738

MTR Corp

Road & Rail

Hong Kong

5,555

0.8

1,876

Kerry Logistics Network

Air Freight & Logistics

Hong Kong

5,388

0.7

2,562

Swire Properties

Real Estate Management & Development

Hong Kong

5,330

0.7

4,918

Oriental Holdings

Automobiles

Malaysia

4,582

0.6

3,706

Vietnam Dairy Products

Food Products

Vietnam

4,330

0.6

-

ASM Pacific Technology

Semiconductors & Semiconductor Equipment

Hong Kong

4,276

0.6

3,638

Top fifty investments



679,599

94.0


Yoma Strategic Holdings

Real Estate Management & Development

Singapore

4,027

0.6

2,455

DFCC Bank

Banks

Sri Lanka

3,835

0.5

5,158

HDFC Bank

Banks

India

3,677

0.5

-

Ultratech Cement

Construction Materials

India

3,442

0.5

3,752

BNK Financial Group

Banks

South Korea

3,115

0.4

3,211

China Conch Venture Holdings

Machinery

China

3,078

0.4

1,983

Shinsegae Company

Multiline Retail

South Korea

2,959

0.4

2,918

DGB Financial Group

Banks

South Korea

2,344

0.3

2,930

Batu Kawan

Chemicals

Malaysia

2,215

0.3

1,730

Global Brands Group

Textiles, Apparel & Luxury Goods

Hong Kong

1,843

0.3

3,185

Total investments



710,134

98.2


Net current assets



12,907

1.8


Total assets{C}



723,041

100.0



{A}      Valuation amalgamates both UK (£14,875,000; 2015 - £14,976,000) and Hong Kong (£3,250,000; 2015 - £3,006,000) listed equity holdings.

{B}       Valuation amalgamates both warrants (£23,000; 2015 - £186,000) and listed equity holdings (£13,689,000; 2015 - £12,533,000).

{C}       See definition on page 64 of the published 2016 Annual Report.

Note: Unless otherwise stated, foreign stock is held and all investments are equity holdings.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

-      select suitable accounting policies and then apply them consistently; 

-      make judgments and estimates that are reasonable and prudent;

-      state whether applicable UK Accounting Standards, including FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements; and 

-      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.  

· 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;

· the Annual Report and Accounts 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; 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.

Chairman

 

 

GOING CONCERN

 

The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale.

 

The Directors believe that it is appropriate to continue to adopt the going concern basis in the preparation of the financial statements, and they consider that the Company has adequate resources to continue in operational existence for the foreseeable future.

 

 

FINANCIAL STATEMENTS

 

STATEMENT OF COMPREHENSIVE INCOME (audited)


Year ended 31 August 2016

Year ended 31 August 2015



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Gains/(losses) on investments held at fair value through profit or loss

9

-

151,827

151,827

-

(81,793)

(81,793)

Currency losses


-

(272)

(272)

-

(53)

(53)

Income

2

18,144

-

18,144

18,372

-

18,372

Investment management fee

3

(5,107)

-

(5,107)

(5,955)

-

(5,955)

Administrative expenses

4

(997)

-

(997)

(1,023)

-

(1,023)



_______

______

______

_______

______

______

Net return/(loss) before finance costs and taxation


12,040

151,555

163,595

11,394

(81,846)

(70,452)









Interest payable and similar charges

5

(2,730)

-

(2,730)

(2,740)

-

(2,740)



_______

______

______

_______

______

______

Return on ordinary activities before taxation


9,310

151,555

160,865

8,654

(81,846)

(73,192)









Taxation on ordinary activities

6

(655)

- 

(655)

(564)

- 

(564)



_______

______

______

_______

______

______

Return on ordinary activities after taxation


8,655

151,555

160,210

8,090

(81,846)

(73,756)



_______

______

______

_______

______

______

Return per share (pence)








Basic

8

4.50

78.86

83.36

4.13

(41.81)

(37.68)



_______

______

______

_______

______

______

Diluted

8

n/a

71.67

n/a

n/a

n/a

n/a



_______

______

______

_______

______

______









The total column of this statement represents the profit and loss account of the Company.

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 (audited)


As at

As at



31 August 2016

31 August 2015


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss

9

710,134

566,434



____________

____________

Current assets




Debtors and prepayments

10

2,610

3,163

Money market funds


7,700

4,800

Cash and short term deposits


4,603

4,376



____________

____________



14,913

12,339



____________

____________

Creditors: amounts falling due within one year




Other creditors

11

(2,006)

(1,886)



____________

____________

Net current assets


12,907

10,453



____________

____________

Total assets less current liabilities


723,041

576,887





Non-current liabilities




3.5% Convertible Unsecured Loan Stock 2018

12

(58,882)

(58,252)



____________

____________

Net assets


664,159

518,635



____________

____________





Share capital and reserves




Called-up share capital

13

39,207

39,206

Share premium account


4,492

4,484

Special reserve


-

351

Equity component of 3.5% Convertible Unsecured Loan Stock 2018

12

812

1,392

Capital redemption reserve


17,015

17,015

Capital reserve

14

572,266

429,266

Revenue reserve


30,367

26,921



____________

____________

Equity shareholders' funds

15

664,159

518,635



____________

____________

Net asset value per Ordinary share (pence)




Basic

15

348.62

267.22



____________

____________

Diluted

15

344.66

n/a



____________

____________

 

 

STATEMENT OF CHANGES IN EQUITY (audited)

 


Share


Equity

Capital





Share

premium

Special

component

redemption

Capital

Revenue



capital

account

reserve

CULS 2018

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 August 2015

39,206

4,484

351

1,392

17,015

429,266

26,921

518,635

Return on ordinary activities after taxation

-

-

-

-

-

151,555

8,655

160,210

Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018

1

8

-

(1)

-

-

-

8

Buyback of Ordinary shares for treasury

-

-

(351)

-

-

(8,555)

-

(8,906)

Dividend paid

-

-

-

-

-

-

(5,788)

(5,788)

Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018

-

-

-

(579)

-

-

579

-


_____

_____

_____

_____

_____

_____

_____

_____

Balance at 31 August 2016

39,207

4,492

-

812

17,015

572,266

30,367

664,159


_____

_____

_____

_____

_____

_____

_____

_____










For the year ended 31 August 2015











Share


Equity

Capital





Share

premium

Special

component

redemption

Capital

Revenue



capital

account

reserve

CULS 2018

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 August 2014

39,275

4,475

6,726

1,981

16,945

511,112

22,563

603,077

Return on ordinary activities after taxation

-

-

-

-

-

(81,846)

8,090

(73,756)

Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018

1

9

-

(1)

-

-

-

9

Buyback of Ordinary shares for cancellation

(70)

-

(1,011)

-

70

-

-

(1,011)

Buyback of Ordinary shares for treasury

-

-

(5,364)

-

-

-

-

(5,364)

Dividend paid

-

-

-

-

-

-

(4,320)

(4,320)

Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018

-

-

-

(588)

-

-

588

-


_____

_____

_____

_____

_____

_____

_____

_____

Balance at 31 August 2015

39,206

4,484

351

1,392

17,015

429,266

26,921

518,635


_____

_____

_____

_____

_____

_____

_____

_____










The capital reserve includes investment holding gains amounting to £288,730,000 (2015 - £157,395,000), as disclosed in note 9.

The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.

The accompanying notes are an integral part of the financial statements. 

 

STATEMENT OF CASHFLOWS (audited)


Year ended

Year ended



31 August 2016

31 August 2015


Notes

£'000

£'000

Operating activities




Net return on ordinary activities before finance costs and taxation


163,595

(70,452)

Adjustment for:




(Gains)/losses on investments


(151,827)

81,793

Currency losses


272

53

Decrease/(increase) in accrued dividend income


610

(284)

Increase in other debtors


(11)

(25)

Increase/(decrease) in other creditors


201

(246)

Stock dividends included in investment income


(1,029)

(2,056)

Overseas withholding tax


(730)

(578)



_______

_______

Net cash flow from operating activities


11,081

8,205





Investing activities

9



Purchases of investments


(63,159)

(71,462)

Sales of investments


72,198

72,095

Net cash from investing activities


9,039

633





Financing activities




Equity dividends paid

7

(5,788)

(4,320)

Interest paid


(2,092)

(2,093)

Buyback of Ordinary shares

13

(8,841)

(6,405)



_______

_______

Net cash used in financing activities


(16,721)

(12,818)



_______

_______

Increase/(decrease) in cash and cash equivalents


3,399

(3,980)



_______

_______

Analysis of changes in cash and cash equivalents during the year




Opening balance


9,176

13,209

Effect of exchange rate fluctuations on cash held


(272)

(53)

Increase/(decrease) in cash and cash equivalents as above


3,399

(3,980)



_______

_______

Closing balances


12,303

9,176



_______

_______

 

 

NOTES TO THE ACCOUNTS (audited)

 

1.

Accounting policies


(a)

Basis of accounting



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 Statement of Corporate Governance (unaudited) on page 31 of the published 2016 Annual Report.



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 September 2014, or comparative figures in the Statement of Financial Position or the Statement of Comprehensive Income is considered necessary. The Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by the Financial Reporting Council in March 2016.


(b)

Investments



Listed investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised on the trade date at fair value, which is generally deemed to be the cost of the investment at that point. Subsequent to initial recognition, investments are valued at fair value, which for listed investments is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from changes in fair value are included as a capital item in the Income Statement and are ultimately recognised in the capital reserve.


(c)

Income



Dividends (other than special 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 foregone cash dividend is recognised as income. Any excess in the value of the shares received over the amount of cash dividend foregone is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis.


(d)

Expenses



All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Statement of Comprehensive Income with the exception of expenses directly relating to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds. Such transaction costs are disclosed in accordance with the SORP. These expenses are charged to the capital column of the Statement of Comprehensive Income and are separately identified and disclosed in note 9.


(e)

Taxation



The charge for taxation is based on the profit for the year and the effective rate of taxation can vary from year to year depending upon rate of corporation tax ruling at the time.



Deferred taxation



Deferred taxation is provided on 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 or a right to pay less tax in future have occurred at the Statement of Financial Position date, measured on an undiscounted basis and based on enacted tax rates. 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 accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.


(f)

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.


(g)

Dividends payable



Final dividends are dealt with in the period in which they are paid.


(h)

3.5% Convertible Unsecured Loan Stock 2018



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 notional uplift in interest from 3.5% to 4.662% is shown in note 5. 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.






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.






The interest expense on the CULS is calculated according to the effective interest rate method by applying the assumed rate of 4.662% at initial recognition to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying liability of the CULS.



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 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.



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.


(i)

Treasury shares



When the Company purchases its Ordinary shares to be held in treasury, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effect, and is recognised as a deduction from the special reserve. When these shares are sold 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 special reserve.


(j)

Nature and purpose of reserves



Called up share capital



The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve.



Share premium account



The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising ordinary shares of 20p.



Special reserve



The special reserve arose following Court approval in 1999 to transfer £50m from the share premium account. This reserve is distributable and its function is to fund any share buy backs to be held in treasury by the Company.



Capital redemption reserve



The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital.



Capital reserve



Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve. The costs of share buybacks to be held in treasury are also deducted from this reserve as the special reserve is extinguished.



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.


(k)

Accounting judgements



The Company's investments and borrowings are made in a number of currencies, however the Board considers the Company's functional currency to be Sterling. In arriving at this conclusion, the Board considered that the shares of the Company are listed on the London Stock Exchange, it is regulated in the United Kingdom, principally having its shareholder base in the United Kingdom, pays dividends and expenses in Sterling. Consequently, the Board also considers the Company's presentational currency to be Sterling.


(l)

Cash and cash equivalents



Cash and cash equivalents comprises cash at banks and money market funds.

 


2016

2015

2.

Income

£'000

£'000


Income from investments




UK dividend income

1,456

1,009


Overseas dividend income

15,625

15,274


Scrip dividends

1,029

2,056



_______

_______



18,110

18,339



_______

_______


Other income




Deposit interest

5

4


Interest from money market funds

29

29



_______

_______



34

33


_______

_______


18,144

18,372



_______

_______







2016

2015



£'000

£'000


Income from investments




Listed UK

1

912


Listed overseas

18,109

17,427


_______

_______


18,110

18,339


_______

_______

 


2016

2015



Revenue

Capital

Total

Revenue

Capital

Total

3.

Management fee

£'000

£'000

£'000

£'000

£'000

£'000


Management fee

5,107

- 

5,107

5,955

- 

5,955



_______

_______

_______

_______

_______

_______










Management fees paid to Aberdeen Fund Managers Limited ("AFML" or "Manager") are calculated at 0.85% on net assets from 1 April 2016. Management fees are calculated and billed on a quarterly basis.  Prior to 1 April 2016 management fees were calculated at 1% on net assets from 1 April 2016.up to £600,000,000, 0.9% on net assets between £600,000,000 and £1,000,000,000 and 0.8% on net assets over £1,000,000,000.


Net assets exclude long term borrowings less (i) the value of any investment funds managed by the Manager and (ii) 50% of the value of any investment funds managed or advised by investment managers other than the Manager. There were no commonly managed funds held in the portfolio during the year to 31 August 2016 (2015 - none). The balance due to the Manager at the year end was £1,479,000 (2015 - £1,300,000).


The management agreement is terminable by the Company on three months' notice or in the event of a change of control in the ownership of the Manager. The notice period required by the Manager is six months.

 


2016

2015

4.

Administrative expenses

£'000

£'000


Promotional activities

204

203


Directors' fees

142

148


Custody fees

263

239


Auditor's remuneration: Fees payable to the Company's auditor for




audit of the Company's annual accounts

17

17


review of the Company's half yearly accounts

5

5


Other expenses

366

411



_______

_______



997

1,023



_______

_______




The Company has an agreement with AFML for the provision of promotional activities in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement were £204,000 (2015 - £203,000) and the sum due to AFML at the year end was £34,000 (2015 - £34,000).




No pension contributions were made in respect of any of the Directors.




The Company does not have any employees.

 


2016

2015

5.

Interest payable and similar charges

£'000

£'000


Interest on 3.5% Convertible Unsecured Loan Stock 2018

2,092

2,093


Notional interest on 3.5% Convertible Unsecured Loan Stock 2018

579

588


Amortisation of 3.5% Convertible Unsecured Loan Stock 2018 issue expenses

59

59



_______

_______



2,730

2,740



_______

_______

 


2016

2015

 



Revenue

Capital

Total

Revenue

Capital

Total

 

6.

Taxation

£'000

£'000

£'000

£'000

£'000

£'000

 


(a)

Analysis of charge for the year







 



Overseas tax suffered

655

-

655

564

-

564

 




_______

______

______

_______

______

_______

 



Total tax charge for the year

655

-

655

564

-

564

 




_______

______

______

_______

______

_______

 










 


(b)

Factors affecting the tax charge for the year

 



The tax assessed for the year is lower than the effective rate of corporation tax in the UK. 

 




 




2016

2015

 




Revenue

Capital

Total

Revenue

Capital

Total

 




£'000

£'000

£'000

£'000

£'000

£'000

 



Return on ordinary activities before taxation

9,310

151,555

160,865

8,654

(81,846)

(73,192)

 




_______

______

______

_______

______

_______

 



Effective rate of corporation tax at 20.00% (2015 - 20.58%)

1,862

30,311

32,173

1,781

(16,844)

(15,063)

 



Effects of:







 



UK dividend income

(291)

-

(291)

(208)

-

(208)

 



Losses/(gains) on investments not taxable

-

(30,365)

(30,365)

-

16,833

16,833

 



Currency losses not taxable

-

54

54

-

11

11

 



Other non-taxable income

(3,331)

-

(3,331)

(3,567)

-

(3,567)

 



Increase in excess expenses and loan relationship deficit

1,760

-

1,760

1,993

-

1,993

 



Prior year adjustment in respect of overseas tax

-

-

-

(134)

-

(134)

 



Net overseas tax suffered

655

-

655

699

-

699

 




_______

______

______

_______

______

_______

 



Total tax charge

655

-

655

564

-

564

 




_______

______

______

_______

______

_______

 










 


(c)

Provision for deferred taxation 

 



No provision for deferred taxation has been made in the current year or in the prior year.

 




 



The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.

 





(d)

Factors that may affect future tax charges



The Company has not recognised a deferred tax asset £12,145,000 (2015 - £10,369,000) arising as a result of excess management expenses CULS interest (non-trading loan relationship deficits). These expenses will only be utilised if the Company has profits chargeable to corporation tax in the future.

 

 

7.

Dividends


In order to comply with the requirements of Sections 1158 -1159 of the Corporation Tax Act 2010 and with company law, the Company is required to make a final dividend distribution.




The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.




The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 - 1159 are considered. The revenue available for distribution by way of dividend for the year is £8,655,000 (2015 - £8,090,000).







2016

2015



£'000

£'000


Proposed final dividend for 2016 - 3.20p per Ordinary share (2015 - paid - 3.00p)

6,081

5,788



_______

______






The amounts reflected above for the cost of the proposed final dividend for 2016 is based on 190,038,902 Ordinary shares in issue, being the number of Ordinary shares in issue at the date of this Report.




The final dividend will be paid on 16 December 2016 to shareholders on the register at the close of business on 18 November 2016.

 


2016

2015

8.

Return per Ordinary share

£'000

pence

£'000

pence


Basic






Revenue return

8,655

4.50

8,090

4.13


Capital return

151,555

78.86

(81,846)

(41.81)



_______

______

______

_______


Total return

160,210

83.36

(73,756)

(37.68)



_______

______

______

_______


Weighted average Ordinary shares in issue


192,195,250


195,773,845




__________


__________







2016

2015


Diluted

£'000

pence

£'000

pence


Revenue return

11,243

n/a

10,626

n/a


Capital return

151,555

71.67

(81,846)

n/a



_______

_______

_______

_______


Total return

162,798

n/a

(71,220)

n/a



_______

_______

_______

_______


Weighted average Ordinary shares in issue{A}


211,470,625


215,052,963




__________


__________








{A} The calculation of the diluted total, revenue and capital returns per Ordinary share are carried out in accordance with IAS 33, "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 2018 (CULS). The calculations indicate that the exercise of CULS would result in an increase in the weighted average number of Ordinary shares of 19,275,375 (2015 - 19,279,118) to 211,470,625 (2015 - 215,052,963) Ordinary shares.




For the years ended 31 August 2016 and 31 August 2015 there was no dilution to the revenue return per Ordinary share. Additionally, for the year ended 31 August 2015 there was no dilution to the capital return per Ordinary share due to a loss being reported. Where dilution does occur, the net returns are adjusted for items relating to the CULS. Total earnings for the period are tested for dilution. Once dilution has been determined individual revenue and capital earnings are adjusted. Accrued CULS finance costs for the period and unamortised issues expenses are reversed.

 


Listed

Listed




overseas

 in UK

Total

9.

Investments

£'000

£'000

£'000


Fair value through profit or loss:





Opening book cost

383,348

25,691

409,039


Opening fair value gains/(losses) on investments held

168,110

(10,715)

157,395



_______

_______

_______


Opening fair value

551,458

14,976

566,434


Movements in year:





Purchases at cost

61,440

2,601

64,041


Sales - proceeds

(71,051)

(1,117)

(72,168)


Sales - gains/(losses) on sales{A}

21,623

(1,131)

20,492


Current year fair value gains/(losses) on investments held

131,789

(454)

131,335



_______

_______

_______


Closing fair value

695,259

14,875

710,134



_______

_______

_______


{A} Figure includes £510,000 Indian capital gains tax.











Listed

Listed




overseas

 in UK

Total



£'000

£'000

£'000


Closing book cost

395,360

26,044

421,404


Closing fair value gains/(losses) on investments held

299,899

(11,169)

288,730



_______

_______

_______


Closing fair value

695,259

14,875

710,134



_______

_______

_______








2016

2015



£'000

£'000


Listed on a recognised overseas investment exchange

695,259

551,458


Listed in the UK

14,875

14,976



_______

_______



710,134

566,434



_______

_______







2016

2015


Gains/(losses) on investments held at fair value through profit or loss

£'000

£'000


Realised gains on sales

20,492

31,058


Increase/(decrease) in fair value gains on investments held

131,335

(112,851)



_______

_______



151,827

(81,793)



_______

_______






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

102

170


Sales

189

193



_______

_______



291

363



_______

_______

 


2016

2015

10.

Debtors and prepayments

£'000

£'000


Accrued income

1,357

1,937


Overseas withholding tax recoverable

244

199


Amounts due from brokers

501

531


Other debtors and prepayments

508

496



_______

_______



2,610

3,163



_______

_______

 


2016

2015

11.

Creditors: amounts falling due within one year

£'000

£'000


Amounts due to brokers

32

179


Amounts due relating to purchase of own shares to treasury

94

30


Other creditors

1,880

1,677



_______

_______



2,006

1,886



_______

_______

 

12.

Non-current liabilities - 3.5% Convertible Unsecured Loan Stock 2018 








Number

Liability

Equity



of units

component

component


Year ended 31 August 2016

£'000

£'000

£'000


Balance at 31 August 2015

59,787

58,252

1,392


Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares

(8)

(9)

(1)


Notional interest on 3.5% Convertible Unsecured Loan Stock 2018

-

579

-


Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve

-

-

(579)


Amortisation of issue expenses (see note 1(h))

-

60

-



_______

_______

_______


Balance at 31 August 2016

59,779

58,882

812



_______

_______

_______





-



Number

Liability

Equity



of units

component

component


Year ended 31 August 2015

£'000

£'000

£'000


Balance at 31 August 2014

59,797

57,614

1,981


Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares

(10)

(9)

(1)


Notional interest on 3.5% Convertible Unsecured Loan Stock 2018

-

588

-


Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve

-

-

(588)


Amortisation of issue expenses (see note 1(h))

-

59

-



_______

_______

_______


Balance at 31 August 2015

59,787

58,252

1,392



_______

_______

_______







On 12, 26 and 27 January 2011, the Company issued a total of £60,000,000 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"). The CULS can be converted at the election of holders into Ordinary Shares during the months of January and July each year throughout their life, to January 2018 at a rate of 1 Ordinary share for every 310.1528p nominal of CULS. Once 80% of the CULS issued have been converted the Company is allowed to request that holders redeem or convert the remainder. Interest is paid on the CULS on 31 January and 31 July each year, of which 100% is charged to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company.




The Company was required to recognise the liability component and the equity component of the CULS at their date of issue. The liability component must be increased to the nominal value over the life of the CULS by crediting the liability and debiting the profit and loss account. In order to align the revenue reserves with the distributable reserves the Company has decided to make an annual transfer between the equity component of the CULS and the revenue reserve so that the revenue reserve reflects distributable reserves as defined by company law.




During the year ended 31 August 2016 £8,254 (2015 - £9,582) nominal amount of CULS were converted into 2,658 (2015 - 3,085) Ordinary shares.




As at 31 August 2016, there was £59,778,788 (2015 - £59,787,042) nominal amount of CULS in issue.

 


2016

2015

13.

Called-up share capital

£'000

£'000


Allotted, called-up and fully paid:




Ordinary shares of 20p




Opening balance of 196,027,844 (2015 - 196,376,759) shares

39,206

39,275


Issue of 2,658 (2015 - 3,085) Ordinary shares on conversion of £8,254 (2015 - £9,582) nominal 3.5% Convertible Unsecured Loan Stock 2018

1

1


Buyback of 3,577,800 (2015 - 2,295,500) Ordinary shares to be held in treasury with no shares (2015 - 352,000) being cancelled

 -

(70)



_______

_______


Closing balance of 190,509,202 (2015 - 196,027,844) shares

39,207

39,206



_______

_______






During the year there were a further 2,658 Ordinary shares issued as a result of CULS conversion (2015 - 3,085).




During the year no Ordinary shares of 20p purchased for cancellation by the Company (2015 - 352,000 shares at a cost of £1,011,000). 3,577,800 Ordinary shares of 20p each were purchased to be held in treasury by the Company (2015 - 1,943,500) at a cost of £8,906,000 (2015 - £5,364,000). At the year end 5,521,300 (2015 - 1,943,500) Ordinary shares of 20p each were held in treasury, which represents 2.9% (2015 - 1.0%) of the Company's total issued share capital at 31 August 2016.




Since the year end a further 509,300 Ordinary shares of 20p each have been purchased by the Company at a total cost of £1,580,000 all of which were held in treasury.

 


2016

2015

14.

Capital reserve

£'000

£'000


At 1 September 2015

429,266

511,112


Movement in fair value gains/(losses)

151,827

(81,793)


Foreign exchange movement

(272)

(53)


Buyback of Ordinary shares for treasury

(8,555)

-



_______

_______


At 31 August 2016

572,266

429,266



_______

_______






The capital reserve includes investment holding gains amounting to £288,730,000 (2015 - £157,395,000), as disclosed in note 9.

 

15.

Net asset value per share 


The net asset value per share and the net asset values attributable to the Ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:







2016

2015


Basic




Net assets attributable (£'000)

664,159

518,635


Number of Ordinary shares in issue{A}

190,509,202

194,084,344


Net asset value per share (p)

348.62

267.22







2016

2015


Diluted




Net assets attributable (£'000)

723,040

n/a


Number of Ordinary shares in issue{AB}

209,783,182

n/a


Net asset value per share (p)

344.66

n/a


{A}Excluding shares held in treasury.




{B}The calculations indicate that the exercise of CULS would result in an increase in the number of Ordinary shares of 19,273,980 (2015 - 19,276,641) to 209,783,182 (2015 - 213,360,985) Ordinary shares.




The impact of the 3.5% Convertible Unsecured Loan Stock 2018 on the net asset value per share was non-dilutive for the year ended 31 August 2015.

 

16.

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 securities and other investments, cash balances, Convertible Unsecured Loan Stock 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 AFML under the terms of its management agreement with AFML (further details of which are included under note 3). 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 Limited, 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 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 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 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 on the committees' terms of reference.




Risk management


The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and 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. The Company is exposed to gearing risk which has the effect of exacerbating market falls and gains. Long term gearing is represented by £59.8 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS).




Interest rate risk


Interest rate movements may affect the level of income receivable on cash deposits.




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 risk profile


The interest rate risk profile of the portfolio 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

Weighted





period for which

average

Fixed

Floating



rate is fixed

interest rate

rate

rate


At 31 August 2016

Years

%

£'000

£'000


Assets






Singapore Dollar

-

-

-

129


Sterling

-

0.10

-

12,078


Taiwanese Dollar

-

-

-

3


Vietnamese Dollar

-

-

-

93



_______

_______

_______

_______


Total assets

n/a

n/a

-

12,303



_______

_______

_______

_______


Liabilities






3.5% Convertible Unsecured Loan Stock 2018

1.42

3.50

58,882

-



_______

_______

_______

_______









Weighted average

 Weighted





period for which

average

Fixed

Floating



rate is fixed

interest rate

rate

rate


At 31 August 2015

Years

%

£'000

£'000


Assets






Korean Won

-

-

-

23


Singapore Dollar

-

-

-

233


Sterling

-

0.10

-

6,696


Taiwanese Dollar

-

-

-

3


Thailand Baht

-

-

-

2,221



_______

_______

_______

_______


Total assets

n/a

n/a

-

9,176



_______

_______

_______

_______


Liabilities






3.5% Convertible Unsecured Loan Stock 2018

2.42

3.50

58,252

-



_______

_______

_______

_______




The weighted average interest rate is based on the current yield of each asset, weighted by its market value.


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 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


The majority of the Company's investment portfolio is invested in overseas securities and the Balance Sheet, 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 investments with foreign currency borrowings.




The revenue account is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk.




Foreign currency risk exposure by currency of denomination:





31 August 2016

31 August 2015




Net

Total


Net

Total



Overseas

monetary

currency

Overseas

monetary

currency



investments

assets

exposure

investments

assets

exposure



£'000

£'000

£'000

£'000

£'000

£'000


Hong Kong Dollar

153,256

-

153,256

136,200

-

136,200


Indian Rupee

118,932

-

118,932

93,969

-

93,969


Indonesian Rupiah

28,524

-

28,524

10,349

(55)

10,294


Korean Won

72,114

419

72,533

43,180

23

43,203


Malaysian Ringgit

26,768

-

26,768

22,390

(124)

22,266


Philippine Peso

31,139

-

31,139

22,910

-

22,910


Singapore Dollar

131,075

179

131,254

116,204

764

116,968


Sri Lankan Rupee

17,547

-

17,547

17,877

-

17,877


Taiwanese Dollar

46,692

3

46,695

35,619

3

35,622


Thailand Baht

22,142

-

22,142

19,010

2,221

21,231


US Dollar

42,740

-

42,740

33,750

-

33,750


Vietnamese Dong

4,330

93

4,423

-

-

-



_______

_______

_______

_______

_______

_______



695,259

694

695,953

551,458

2,832

554,290


Sterling

14,875

11,984

26,859

14,976

6,665

21,641



_______

_______

_______

_______

_______

_______


Total

710,134

12,678

722,812

566,434

9,497

575,931



_______

_______

_______

_______

_______

_______










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 the other price risk sensitivity analysis, so as to show the overall level of exposure.




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.




Management of the 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 on page 59 of the published 2016 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% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 August 2016 would have increased/decreased by £71,013,000 (2015 - increased/decreased by £56,643,000) 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 Company's assets mainly comprise readily realisable securities which can be sold to meet funding requirements if necessary. In order to monitor the concentration of Dragon's investee companies with Aberdeen, the total percentage holdings of those securities owned by Aberdeen-managed funds is reviewed by the Board.




The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions, and reviews these on a regular basis. The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 20%. Short-term flexibility can be achieved through the use of loan and overdraft facilities. At 31 August 2015 and 2016 the Company had no loan or overdraft facility in place.




Liquidity risk exposure


At 31 August 2016 the Company had borrowings in the form of the £59,778,788 (2015 - £59,787,042) nominal of 3.5% Convertible Unsecured Loan Stock 2018.




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 Manager, and limits are set on the amount that may be due from any one broker;


the risk of counterparty, including the Depositary, exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, the administrator carries out a stock reconciliation to the Depositary's records on a daily basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Depositary'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;


cash is held only with reputable banks with high quality external credit enhancements.




None of the Company's financial assets are 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 August was as follows:





2016

2015



Balance

Maximum

Balance

Maximum



Sheet

exposure

Sheet

exposure


Current assets

£'000

£'000

£'000

£'000


Loans and receivables

2,610

2,610

3,163

3,163


Cash at bank and in hand

4,603

4,603

4,376

4,376



_______

_______

_______

_______



7,213

7,213

7,539

7,539



_______

_______

_______

_______








None of the Company's financial assets is past due or impaired.




Maturity of financial liabilities


The maturity profile of the Company's financial liabilities at 31 August was as follows:







2016

2015



£'000

£'000



_______

_______


In more than one year

58,882

58,252



_______

_______






At 31 August 2016 the full contractual liability for the CULS assuming no further conversions was £63,897,000 (2015 - £65,037,000).

 

17.

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 has 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.




All of the Company's investments are in quoted equities (2015 - same) actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments (2016 - £710,134,000; 2015 - £566,434,000) have therefore been deemed as Level 1.

 

18.

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 disclosed within the Directors' Remuneration Report on pages 32 and 33 of the published 2016 Annual Report.




The Company has an agreement in place with Aberdeen Fund Managers Limited ("AFML") for the provision of management and administration services, promotional activities and secretarial services. Details of transactions during the year and balances outstanding at the year end disclosed in notes 3 and 4.




At the year end the Company had £7,700,000 (31 August 2016 - £4,800,000) invested in Aberdeen Liquidity Fund (Lux) - Sterling Fund which is managed and administered by AAML. The Company pays a management fee of 0.85% per annum on the value of these holdings but no fee is chargeable at the underlying fund level.

 

19.

Capital management policies and procedures


The Company's capital management objectives are:


·     to ensure that the Company will be able to continue as a going concern; and


·     to maximise the capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board has imposed a maximum gearing level of 20% of net assets.




The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market, and the extent to which revenue in excess of that which is required to be distributed should be retained.




The Company has no externally imposed capital requirements.

 

20.     The Annual General Meeting will be held on 15 December 2016 at Bow Bells House, 1 Bread Street, London.

 

21.     The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2016 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2016 and 2015 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 either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2015 is derived from the statutory accounts for 2014 which have been delivered to the Registrar of Companies. The 2016 accounts will be filed with the Registrar of Companies in due course.

The annual results are circulated to shareholders in the form of an Annual Report, copies of which will be available at the Company's registered office, 40 Princes Street, Edinburgh EH2 2BY or on the Company's website www.edinburghdragon.co.uk.

 

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.

 

By Order of the Board

Aberdeen Asset Managers Limited, Secretary


This information is provided by RNS
The company news service from the London Stock Exchange
 
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