Half-year Report

RNS Number : 2740Y

Edinburgh Dragon Trust plc

08 May 2019

 

8 May 2019

EDINBURGH DRAGON TRUST PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 28 FEBRUARY 2019

Edinburgh Dragon Trust's objective is long-term capital growth through investment in Asia, with the exception of Japan and Australasia.   Investments are made primarily in stock markets in the region, principally in large companies.  When appropriate, the Company will utilise gearing to maximise long term returns.

The Company's benchmark index is the MSCI All Country Asia (ex Japan).

·      Against a background of market volatility during the six month period to 28 February 2019,  the continuing improvement in the Company's relative investment performance was encouraging. 

·      The Company outperformed its benchmark index over the review period by 2.4%; the NAV fell by 1.1% on a total return basis compared with a fall in the index of 3.5%.  The Manager's focus on selecting companies that are industry leaders with clear growth drivers, particularly within China, proved resilient amid turbulent markets.

·      The Company undertook a Tender Offer during the period whereby 30% of the Company's shares were repurchased for cancellation at a 2% discount to its net asset value less the costs of the transaction. 

·      The shorter term outlook for the Asian market remains volatile against a background of geopolitical uncertainty and economic challenges facing China.  The importance of company fundamentals continues to be a key focus - many of the Company's underlying holdings, with their sound financials and healthy balance sheets, should deliver reasonable profit growth and better capital returns in these more testing times.

·      Over the longer term, Asia's vast potential is undiminished.  Structural trends, such as the greater affluence, growing workforces combined with the advent of new technologies will drive the region's future growth.  The Manager's focus on quality companies with clear competitive edges, growth drivers and solid balance sheets can tap into these promising dynamics placing the Trust into a good position to gain from the region's rich potential. 

For further information please contact:-

Adrian Lim, Investment Director, Aberdeen Standard Investments (Asia) Limited                       0065 6395 2700

INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT

Background

The six month period under review was one of great volatility in global stock markets. While the Company's net asset value (NAV) fell by 1.1% on a total return basis, this compares with a fall in the Company's benchmark, the MSCI AC Asia ex Japan Index of 3.5% over the same period. It is encouraging to see the recent improvement in relative investment performance continuing. The share price finished unchanged at 370.0p, reflecting a tightening in the discount, from 12.2% to 10.3%. 

The Company's investment performance has benefitted from  the more conservative approach of your Manager focussing on quality companies with solid fundamentals and robust balance sheets. These characteristics served the portfolio well as defensive stocks returned to favour amid the market turbulence from the autumn. The Trust's increased exposure to China via selective investments also paid off, as many of these positions outperformed the broader Chinese market and boosted the Company's overall performance.

Overview

A torrid final quarter of 2018 dragged Asian equities lower over the six months. Shrinking global liquidity impacted markets negatively and the US Federal Reserve's (Fed) interest rate increases lifted the US dollar.  This in turn triggered policy tightening by various Asian central banks to maintain stability. Meanwhile, trade tensions between the US and China continued to ratchet higher. These worries combined to create a broadly based sell-off in Asian stockmarkets. Regional pressure points, including China's slowing economy, and a liquidity crunch afflicting India's non-bank financial sector, added to risk aversion.

However, the tide turned in the New Year. With macro risks rising and signs of growth momentum faltering, the Fed unexpectedly changed tack. It signalled a possible pause in further rate hikes, shifting away from its previous hawkish stance. The US and China also appeared to reach a detente in their trade dispute, with President Trump deferring a planned tariff hike in March. Investors grew more hopeful that both sides could strike a deal. As a result stockmarkets rallied, recouping some of 2018's losses.

Portfolio

Chinese markets were volatile during the period, but your Manager sought to mitigate volatility and risk by selecting industry leaders with clear growth drivers. This approach has given the  portfolio resilience  in the period under review.

Stocks worth highlighting were several domestically-oriented consumer holdings, such as high end liquor maker Kweichow Moutai. Early in the half, its shares sold off after it posted weaker than expected earnings. Your Manager used this opportunity to increase the Company's exposure to the distiller, noting that its structural advantages remained intact, including its dominant brand and good pricing power. The decision proved prescient as the company's subsequent growth forecasts and plans to increase direct sales were well received. Another notable contributor was China International Travel Services (CITS), which runs duty free shops. The company's earnings have been consistently robust, underpinned by the growing appetite for international travel amongst Chinese consumers. Both Moutai and CITS' prospects remain positive, with wealthier consumers likely to underpin demand for premium products and services.

Meanwhile, the positions in the Chinese internet sector also boosted the Company's returns. The lack of exposure to Baidu helped, as the search-engine company's shares fell on worries that its advertising business faced a squeeze from both larger rivals and smaller upstarts. Instead, the Trust has exposure to the sector via Autohome and Tencent. These were beneficial to performance, and your Manager added to both positions during the period. While regulatory uncertainty continued to hinder Tencent's core online games business its efforts to grow other revenue streams bore fruit, as its digital payments, online advertising and cloud services businesses continued to generate good cash flow. Its corporate governance standards are also superior to most of its peers. All this offset the negative impact from not holding Alibaba, whose solid results supported the internet giant's share price, but your Manager currently harbours governance-related concerns.

Outside China, your Company's higher-than-benchmark exposure to Indonesia proved rewarding, amid favourable shifts in the macro environment. Softer oil prices and a stable US dollar eased pressure on the local currency and lifted domestic equities. Bank Central Asia (BCA) was a key beneficiary, while it also gained from rising rates given its robust deposit franchise and lower funding costs. Its quality also shone through with robust loan growth, expanding margins and healthy asset quality. Meanwhile, cement company Holcim Indonesia rallied on news that it would be acquired at a premium. Your Manager took advantage of the run-up in Holcim's share price to divest the Trust's position.

India and Korea detracted from performance. The Company's overweight to India was costly amid broad based weakness in the market. Ongoing stress in the credit system weighed on financial linked stocks, including Piramal Enterprises. While not new, the problem was amplified by the default of infrastructure leasing firm IL&FS last year. The liquidity squeeze also hurt consumer companies such as Hero Motocorp, due to worries that a slowdown in financing would dampen auto sales growth.

In Korea, Samsung Electronics declined after its fourth quarter profits disappointed, along with renewed concerns of a weakening semiconductor cycle. Nonetheless, Samsung remains a core holding due to its solid long-term prospects. It is developing more diverse sources of demand for its memory chips amid the expansion of nascent technologies such as high powered computing, artificial intelligence and electric vehicles. Moreover, its cash flow has remained positive despite increasing investment, which supports its commitment to improving dividends. Over the period, your Manager also made minor adjustments to the portfolio's exposure to other Korean holdings.  They added to the holding in chemicals company LG Chem, given that robust cash generation from its core business provides a steady platform to extend its leadership in the electric vehicle battery market. Conversely, your Manager trimmed positions in internet company Naver and cosmetics group AmorePacific.

Apart from the portfolio adjustments mentioned, your Manager also reduced most of the holdings in the portfolio to help fund the recent tender for the Company's shares.

Revenue Account

For the six months to 28 February 2019, the revenue account recorded a return on ordinary activities after taxation of £613,000, representing 0.35p per share, compared with a deficit of £687,000 for the six months to 28 February 2018.  The majority of the Company's portfolio income, as is typical with Asian equities, is accounted for in the second half of the Company's financial year. 

Events during the Period

At the Company's Annual General Meeting on 17 December 2018, all resolutions were passed, including the continuation vote. Subsequent to the AGM, the Company announced proposals for a tender offer for 30% of the Company's issued shares at a discount of 2% to formula asset value (being net asset value less the costs of the tender offer) and these proposals were approved by shareholders in January 2019.  This resulted in 112.29 million shares (60.5% of the Company's shares excluding treasury) being validly tendered under the tender offer. As the tender offer was oversubscribed, the basic entitlement of all shareholders was accepted in full and excess tenders were satisfied to the extent of approximately 17.6% of the excess shares tendered.  A total of 55.7 million shares (30% of the issued share capital) were repurchased by the Company under the tender offer and cancelled and the appropriate payments were made to shareholders. 

Discounts and Share Buybacks

The Board seeks to manage the Company's discount in line with its peer group.  The discount level of the Company's shares is closely monitored by the Board and Manager and share buybacks are undertaken when appropriate.  Since the Tender offer a number of share buybacks have been undertaken. 

Gearing

The Company extended its one year unsecured revolving loan facility of £50 million which was due to mature on 30 January 2019 for a further six months.  As at 28 February 2019, the amount drawn down was £25.5 million and net gearing represented 3.8% of net assets.

Following the tender offer, the Board has undertaken a review of the Company's gearing strategy.   The Board is supportive of gearing and continues to believe that sensible use of modest financial gearing should enhance returns to shareholders.  Gearing options, including longer term facilities, are currently under consideration by the Board.

Outlook

The last six months have been challenging for Asian equities. While the late 2018 market weakness seemed overdone, the opposite has been true for the market's recent rebound. Volatility seems a constant, especially if the US-China trade truce dissipates. It is clear that the trade dispute is part of a larger and more complex tussle for geopolitical supremacy. With both sides still holding deep-seated differences, a solution that fully resolves the conflict may prove hard to attain. Your Manager remains watchful over these developments.

Beijing continues to grapple with the challenge of trying to boost its economy while reducing its still substantial debt pile. Elsewhere political risks will also intensify amid ongoing elections in Indonesia and India.

In such uncertain times, it is imperative to focus on company fundamentals.  Many of the portfolio's underlying holdings are expected to deliver reasonable profit growth. Their sound financials, including healthy cash generation and balance sheets, also remain supportive of better capital returns.

More broadly, Asia's vast potential is undiminished despite the near-term gyrations. Emerging trends, such as vehicle electrification, automation and e-commerce are changing the way people live and work. Innovative companies in the region are at the forefront of the development and adoption of these new technologies. Meanwhile, more affluent populations will spur demand for premium products and infrastructure, as well as financial, healthcare and communication services. Your Manager's focus on quality ensures that the portfolio's holdings can tap into these promising dynamics, given their competitive edge and growth drivers. Hence, the Board feels confident that your Company is well positioned to deliver good long term returns.

The Board

I have been privileged to serve as a Director of the Company since 2006 and as Chairman from 2009.  In line with the Board's succession plan, I will retire from the Board on 3 July 2019.  James Will, who was appointed to the Board on 1 October 2018, will take over the chairmanship at that time.  James has a wealth of experience within financial services and, in particular, investment trusts. 

I have greatly enjoyed being both Chairman and a Director of our Company over these past 13 years and we have seen the Company through both exciting and demanding times. I believe that I am leaving the Company in highly capable hands and I wish the shareholders, the Board and the Manager the very best for the future.

For Edinburgh Dragon Trust plc

Allan McKenzie

Chairman

7 May 2019

INTERIM BOARD REPORT - OTHER MATTERS

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 position, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company which can be summarised under the following headings:

-           Investment Performance

-           Concentration Risk

-           Resource

-           Gearing

-           Regulatory

-           Discount volatility

-           Reliance on Third Party Service Providers

Details of these risks and a description of the mitigating action which the Company has taken are provided in detail on pages 8 to 9 of the 2018 Annual Report.  The principal risks have not changed nor are they expected to change in the second half of the financial year ended 31 August 2019.

In addition to these risks, there are also a large number of international political and economic uncertainties which could have an impact on the performance of Asian markets.  The outcome and potential impact of the UK Government's negotiations with the European Union on Brexit is still unclear at the date of this report.  This remains an economic risk for the Company, principally in relation to the potential impact of Brexit on currency volatility.  As an investment trust with an Asian mandate, the Company's portfolio is unlikely to be adversely impacted as a direct result of Brexit although some currency volatility could arise.

Going Concern

In accordance with the FRC's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, 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 substantially of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. The Company has adequate resources to continue in operational existence for the foreseeable future and the ability to meet all its liabilities and ongoing expenses from its assets.

Responsibility Statement of the Directors in respect of the Half Yearly Financial Report

We confirm that to the best of our knowledge:

-           the condensed set of financial statements has been prepared in accordance with FRS 104 Interim Financial Reporting;

-           the Interim Board Report (constituting the interim management report) includes a fair review of the information required by:

-           DTR 4.2.7R of the Disclosure Guidance 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 year; and

-           DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

For Edinburgh Dragon Trust plc

Allan McKenzie

Chairman

7 May 2019

FINANCIAL HIGHLIGHTS

	28 February 2019	31 August 2018	% change
Equity shareholders' funds (£'000)	535,869	788,019	-32.0
Net asset value per share	412.62p	421.54p	-2.1
Share price (mid)	370.00p	370.00p	-
Discount to net asset value{A}	10.3%	12.2%
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return)	918.78	958.84	-4.2
Net gearing{A}	3.8%	2.2%
Ongoing charges ratio{A}	0.84%	0.80%
{A} Considered to be an Alternative Performance Measure as defined below.

PERFORMANCE (TOTAL RETURN {A})

	Six months ended	Year ended
	28 February 2019	31 August 2018
Net asset value per share{A}	-1.1%	+2.3%
Share price{A}	+1.2%	+3.4%
MSCI AC Asia (ex Japan) Index (in sterling terms)	-3.5%	+2.2%
{A} Considered to be an Alternative Performance Measure as defined below.

INVESTMENT PORTFOLIO

As at 28 February 2019

				Total
			Valuation	assets
Company	Industry	Country	£'000	%
Tencent Holdings	Interactive Media & Services	China	31,055	5.5
Samsung Electronics (Pref)	Technology Hardware Storage & Peripherals	South Korea	30,160	5.4
Taiwan Semiconductor Manufacturing Company	Semiconductors & Semiconductor Equipment	Taiwan	23,984	4.3
AIA Group	Insurance	Hong Kong	18,435	3.3
Oversea-Chinese Banking Corporation	Banks	Singapore	18,344	3.3
Jardine Strategic Holdings	Industrial Conglomerates	Hong Kong	16,971	3.0
Housing Development Finance Corp	Thrifts & Mortgage Finance	India	15,542	2.8
Ping An Insurance	Insurance	China	15,349	2.7
China International Travel Services 'A'	Hotels, Restaurants & Leisure	China	15,171	2.7
Bank Central Asia	Banks	Indonesia	14,852	2.6
Ten largest investments			199,863	35.6
Tata Consultancy	IT Services	India	11,663	2.1
Swire Properties	Real Estate Management & Development	Hong Kong	11,649	2.1
Siam Cement	Construction Materials	Thailand	11,438	2.0
Ayala Land	Real Estate Management & Development	Philippines	11,407	2.0
DBS Group	Banks	Singapore	11,186	2.0
ITC	Tobacco	India	11,023	2.0
China Resources Land	Real Estate Management & Development	China	10,883	1.9
HSBC Holdings	Banks	Hong Kong	10,668	1.9
Kweichow Moutai 'A'	Beverages	China	9,645	1.7
City Developments	Real Estate Management & Development	Singapore	9,542	1.7
Twenty largest investments			308,967	55.0
Keppel Corp	Industrial Conglomerates	Singapore	9,153	1.6
Yum China Holdings	Hotels, Restaurants & Leisure	China	9,133	1.6
Hong Kong Exchanges & Clearing	Capital Markets	Hong Kong	9,047	1.6
Astra International	Automobiles	Indonesia	9,045	1.6
LG Chem	Chemicals	South Korea	8,466	1.5
Bank of Philippine Islands	Banks	Philippines	8,154	1.5
Hangzhou Hikvision Digital 'A'	Electronic Equipment, Instruments & Components	China	7,754	1.4
John Keells Holdings	Industrial Conglomerates	Sri Lanka	7,571	1.4
Vietnam Dairy Products	Food Products	Vietnam	7,331	1.3
HDFC Bank	Banks	India	6,900	1.2
Thirty largest investments			391,521	69.7
Kotak Mahindra Bank	Banks	India	6,764	1.2
Piramal Enterprises	Pharmaceuticals	India	6,426	1.2
Grasim Industries	Construction Materials	India	6,407	1.1
Kerry Logistics Network	Air Freight & Logistics	Hong Kong	6,183	1.1
Midea Group 'A'	Household Durables	China	6,126	1.1
Autohome ADR	Interactive Media & Services	China	6,075	1.1
ASM Pacific Technology	Semiconductors & Semiconductor Equipment	Hong Kong	5,753	1.0
Huazhu Group	Hotels, Restaurants & Leisure	China	5,695	1.0
Shanghai International Airport 'A'	Transport Infrastructure	China	5,691	1.0
Ultratech Cement	Construction Materials	India	5,558	1.0
Forty largest investments			452,199	80.5
Bangkok Dusit Medical Services 'F'	Health Care Providers & Services	Thailand	5,349	1.0
Standard Chartered	Banks	United Kingdom	5,286	0.9
China Conch Venture	Machinery	China	5,222	0.9
Wuxi Biologics (Cayman)	Life Sciences Tools & Services	China	5,170	0.9
Vietnam Technological & Commercial Bank	Banks	Vietnam	5,143	0.9
Unilever Indonesia	Household Products	Indonesia	5,080	0.9
E-Mart Co	Food & Staples Retailing	South Korea	4,809	0.9
Public Bank	Banks	Malaysia	4,781	0.9
Taiwan Mobile	Wireless Telecommunication Services	Taiwan	4,779	0.9
Singapore Telecommunications	Diversified Telecommunication Services	Singapore	4,756	0.9
Fifty largest investments			502,574	89.6
Hero MotoCorp	Automobiles	India	4,748	0.8
China Merchants Bank	Banks	China	4,693	0.8
United Overseas Bank	Banks	Singapore	4,576	0.8
Indocement Tunggal Prakarsa	Construction Materials	Indonesia	4,110	0.7
Raffles Medical Group	Health Care Providers & Services	Singapore	4,050	0.7
Hans Laser Technology 'A'	Machinery	China	3,589	0.6
Sunny Optical Technology	Electronic Equipment, Instruments & Components	China	3,342	0.6
Naver Corp	Internet Software & Services	South Korea	3,237	0.6
Saic Motor Corp	Automobiles	China	2,981	0.5
Koh Young Technology	Semiconductors & Semiconductor Equipment	South Korea	2,960	0.5
Sixty largest investments			540,860	96.2
CNOOC	Oil, Gas & Consumable Fuels	China	2,749	0.5
Central Pattana Public Co	Real Estate Management & Development	Thailand	2,629	0.5
Amorepacific Corp (Pref)	Personal Products	South Korea	2,600	0.5
Hindustan Unilever	Household Products	India	2,551	0.5
Yoma Strategic Holdings	Real Estate Management & Development	Myanmar	2,454	0.4
Ayala Corp	Diversified Financial Services	Philippines	1,452	0.3
DFCC Bank	Banks	Sri Lanka	1,445	0.3
Total investments			556,740	99.2
Net current assets{A}			4,629	0.8
Total assets less current liabilities{A}			561,369	100.0
{A} Excluding bank loan of £25,500,000.
Note: Unless otherwise stated, foreign stock is held and all investments are equity holdings.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

		Six months ended
		28 February 2019
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
(Losses)/gains on investments		-	(20,918)	(20,918)
Net currency losses		-	(1,887)	(1,887)
Income	2	4,028	-	4,028
Investment management fee		(2,220)	-	(2,220)
Administrative expenses		(527)	-	(527)
		_________	_________	_________
Net return/(loss) before finance costs and taxation		1,281	(22,805)	(21,524)
Interest payable and similar charges		(226)	-	(226)
		_________	_________	_________
Net return/(loss) before taxation		1,055	(22,805)	(21,750)
Taxation	3	(442)	393	(49)
		_________	_________	_________
Net return/(loss) attributable to equity shareholders		613	(22,412)	(21,799)
		_________	_________	_________
Return per Ordinary share (pence)	4
Basic		0.35	(12.73)	(12.38)
		_________	_________	_________
Diluted		n/a	n/a	n/a
		_________	_________	_________
The total columns of this statement represent the profit and loss account of the Company. There is no other comprehensive income and therefore the return attributable to equity shareholders is also the total comprehensive income for the period.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the condensed financial statements.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

		Six months ended
		28 February 2018
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
(Losses)/gains on investments		-	30,861	30,861
Net currency losses		-	(207)	(207)
Income	2	3,753	-	3,753
Investment management fee		(2,662)	-	(2,662)
Administrative expenses		(586)	-	(586)
		_________	_________	_________
Net return/(loss) before finance costs and taxation		505	30,654	31,159
Interest payable and similar charges		(955)	-	(955)
		_________	_________	_________
Net return/(loss) before taxation		(450)	30,654	30,204
Taxation	3	(237)	-	(237)
		_________	_________	_________
Net return/(loss) attributable to equity shareholders		(687)	30,654	29,967
		_________	_________	_________
Return per Ordinary share (pence)	4
Basic		(0.36)	16.18	15.82
		_________	_________	_________
Diluted		n/a	15.16	15.26
		_________	_________	_________

CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

		As at	As at
		28 February 2019	31 August 2018
	Notes	£'000	£'000
Non-current assets
Investments at fair value through profit or loss		556,740	805,757
		_________	_________
Current assets
Debtors and prepayments		2,404	2,185
Money market funds		1,500	-
Cash and short term deposits		3,625	8,775
		_________	_________
		7,529	10,960
		_________	_________
Creditors: amounts falling due within one year
Other creditors		(2,900)	(3,198)
Bank loan	10	(25,500)	(25,500)
		_________	_________
		(28,400)	(28,698)
		_________	_________
Net current liabilities		(20,871)	(17,738)
		_________	_________
Net assets		535,869	788,019
		_________	_________
Capital and reserves
Called-up share capital		31,922	43,061
Share premium account		60,416	60,416
Capital redemption reserve		28,154	17,015
Capital reserve	6	384,914	630,239
Revenue reserve		30,463	37,288
		_________	_________
Equity shareholders' funds		535,869	788,019
		_________	_________
Net asset value per Ordinary share (pence)	7	412.62	421.54
		_________	_________

CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

Six months ended 28 February 2019
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2018		43,061	60,416	17,015	630,239	37,288	788,019
(Loss)/return after taxation		-	-	-	(22,412)	613	(21,799)
Dividend paid (note 8)		-	-	-	-	(7,438)	(7,438)
Buyback of Ordinary shares for treasury		-	-	-	(4,939)	-	(4,939)
Buyback of Ordinary shares for cancellation as a result of the Tender Offer		(11,139)	-	11,139	(217,974)	-	(217,974)
		_____	_____	_____	_____	_____	_____
Balance at 28 February 2019		31,922	60,416	28,154	384,914	30,463	535,869
		_____	_____	_____	_____	_____	_____
Six months ended 28 February 2018
		Share	Equity	Capital
	Share	premium	component	redemption	Capital	Revenue
	capital	account	CULS 2018	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2017	40,180	18,618	238	17,015	697,550	33,729	807,330
Return/(loss) after taxation	-	-	-	-	30,654	(687)	29,967
Dividend paid (note 8)	-	-	-	-	-	(6,250)	(6,250)
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018	2,881	41,798	-	-	-	-	44,679
Buyback of Ordinary shares for treasury	-	-	-	-	(33,639)	-	(33,639)
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018	-	-	(238)	-	-	238	-
	_____	_____	_____	_____	_____	_____	_____
Balance at 28 February 2018	43,061	60,416	-	17,015	694,565	27,030	842,087
	_____	_____	_____	_____	_____	_____	_____

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

	Six months ended	Six months ended
	28 February 2019	28 February 2018
	£'000	£'000
Operating activities
Net return before taxation	(21,750)	30,204
Adjustments for:
Losses/(gains) on investments	20,918	(30,861)
Currency losses	1,887	207
Decrease in accrued dividend income	231	1,128
(Increase)/decrease in other debtors	(43)	6
Decrease in other creditors	(367)	(320)
Interest payable and similar charges	226	955
Stock dividends included in investment income	(7)	(421)
Overseas withholding tax	(249)	(14)
	_________	_________
Cash from operations	846	884
Interest paid	(240)	(803)
	_________	_________
Net cash inflow from operating activities	606	81
Investing activities
Purchases of investments	(55,006)	(99,657)
Sales of investments	282,906	120,737
	_________	_________
Net cash from investing activities	227,900	21,080
	_________	_________
Financing activities
Equity dividend paid	(7,438)	(6,250)
Buyback of Ordinary shares to treasury	(4,939)	(32,535)
Tender Offer for Ordinary shares inclusive of expenses	(217,892)	-
Drawdown of loan	-	25,500
	_________	_________
Net cash used in financing activities	(230,269)	(13,285)
	_________	_________
(Decrease)/increase in cash and cash equivalents	(1,763)	7,876
	_________	_________
Analysis of changes in cash and cash equivalents during the period
Opening balance	8,775	9,287
Effect of exchange rate fluctuations on cash held	(1,887)	(207)
(Decrease)/increase in cash and cash equivalents as above	(1,763)	7,876
	_________	_________
Closing balance	5,125	16,956
	_________	_________
Represented by:
Money market funds	1,500	15,500
Cash and short term deposits	3,625	1,456
	_________	_________
	5,125	16,956
	_________	_________

NOTES TO THE FINANCIAL STATEMENTS

1.	Accounting policies
	Basis of preparation
	The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the principles of the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. 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 by HMRC.
	The interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements.

		Six months ended	Six months ended
		28 February 2019	28 February 2018
2.	Income	£'000	£'000
	Income from investments
	UK dividend income	447	567
	Overseas dividends	3,537	3,165
		_________	_________
		3,984	3,732
		_________	_________
	Other income
	Deposit interest	17	2
	Interest from money market funds	27	19
		_________	_________
		44	21
		_________	_________
	Total income	4,028	3,753
		_________	_________

3.

Taxation The taxation for the period represents withholding tax suffered on overseas dividend income and a movement in provision for Indian Capital Gains Tax.  An amount of £442,000 of withholding tax was suffered in the six months to 28 February 2019 (28 February 2018 - £237,000). The Indian Capital Gains Tax accrual has reduced by £393,000 since the year end with a balance outstanding at 28 February 2019 of £933,000 (28 February 2018 - £nil).

		Six months ended	Six months ended
		28 February 2019	28 February 2018
4.	Return per Ordinary share	p	p
	Basic
	Revenue return	0.35	(0.36)
	Capital return	(12.73)	16.18
		_________	_________
	Total return	(12.38)	15.82
		_________	_________
	The figures above are based on the following:
		£'000	£'000
	Revenue return	613	(687)
	Capital return	(22,412)	30,654
		_________	_________
	Total return	(21,799)	29,967
		_________	_________
	Weighted average number of Ordinary shares in issue	176,131,021	189,396,397
		_________	_________
	The Company has no securities in issue that could dilute the return per Ordinary share. Therefore, for the six months ended 28 February 2019, no diluted calculation is provided.
	For the six months ended 28 February 2018, the calculation of the diluted total, revenue and capital returns per Ordinary share were 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 was 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 indicated that the exercise of CULS would result in an increase in the weighted average number of Ordinary shares of 12,813,642 to 202,210,039 Ordinary shares.
	In the period ended 28 February 2018, there was no dilution to the revenue return per Ordinary share due to a loss being incurred. A positive capital return was achieved and therefore dilution occurred. Accordingly, the net returns were adjusted for items relating to the CULS. Total earnings for the period were tested for dilution. Once dilution has been determined individual revenue and capital earnings were adjusted. Accrued CULS finance costs for the period and unamortised issue expenses were reversed.
		Six months ended	Six months ended
		28 February 2019	28 February 2018
	Return per Ordinary share	p	p
	Diluted
	Revenue return	n/a	n/a
	Capital return	n/a	15.16
		_________	_________
	Total return	n/a	15.26
		_________	_________
	The figures above are based on the following:
		£'000	£'000
	Revenue return	n/a	200
	Capital return	n/a	30,654
		_________	_________
	Total return	n/a	30,854
		_________	_________
	Number of dilutive shares	n/a	12,813,642
		_________	_________
	Diluted shares in issue	n/a	202,210,039
		_________	_________

5.	Transaction costs
	During the period 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 (losses)/gains on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended
		28 February 2019	28 February 2018
		£'000	£'000
	Purchases	85	167
	Sales	502	233
		_________	_________
		587	400
		_________	_________
	In the six months ended 28 February 2019, the transaction costs were higher due to the increased volume of trading ahead of the Tender Offer, see note 11 for further details.

6.	Capital reserves
	The capital reserve reflected in the Condensed Statement of Financial Position at 28 February 2019 includes gains of £163,547,000 (31 August 2018 - £265,721,000) which relate to the revaluation of investments held at the reporting date.

7.	Net asset value
	The net asset value per share and the net assets attributable to the Ordinary shareholders at the period end were as follows:
		As at	As at
		28 February 2019	31 August 2018
	Net assets attributable (£'000)	535,869	788,019
	Number of Ordinary shares in issue{A}	129,870,403	186,938,409
	Net asset value per share (pence)	412.62	421.54
	{A} Excluding shares held in treasury.

		Six months ended	Six months ended
		28 February 2019	28 February 2018
8.	Dividends	£'000	£'000
	2017 final dividend - 3.3p	-	6,250
	2018 final dividend - 4.0p	7,438	-
		_________	_________
		7,438	6,250
		_________	_________
	There will be no interim dividend for the year to 31 August 2019 (2018 - nil) as the objective of the Company is long-term capital appreciation.

9.	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 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 (31 August 2018 - same) which are 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 as at 28 February 2019 of £556,740,000 (31 August 2018 - £805,757,000) has therefore been deemed as Level 1.

10.	Bank loans
	The Company currently has a £50 million Revolving Facility Agreement with Scotiabank (Ireland) Designated Activity Company ("the Lender") with the option to increase this facility to £75 million if required. This agreement was entered into on 31 January 2018 with a termination date of 31 January 2019. On 17 January 2019, an amendment was signed to extend the termination date to 30 July 2019.
	The agreement contains the following covenants:
	-         the net asset value of the Company shall not at any time be less than £385 million.
	-         the adjusted asset coverage of the Company, as defined in the loan facility agreement, shall not at any time be less than 4.00 to 1.00.
	On 30 January 2019, a revolving loan amount of £25,500,000 was drawn down at a rate of 1.567% and matured on 29 March 2019. At the date of this report, £25,500,000 has been rolled over at an interest rate of 1.54763% until maturity on 29 May 2019.

11.	Called-up share capital
	During the six months to 28 February 2019, the Company announced a Tender Offer for up to 30% of the Company's Ordinary shares in issue. A total of 55,692,676 Ordinary shares (representing 30% of the issued share capital) were repurchased by the Company under the Tender Offer and cancelled at a cost of £217,974,000, which was taken to the Capital Reserve. The costs of the Tender Offer were wholly incurred by the exiting Ordinary shareholders.
	In the six months to 28 February 2019, the Company also bought back 1,375,330 (28 February 2018 - 9,019,827) Ordinary shares to be held in treasury, at a total cost of £4,939,000 (28 February 2018 - £33,639,000).
	In the six months to 28 February 2018, 14,405,297 Ordinary shares were issued as a result of the CULS 2018 conversion.
	At the end of the period there were 159,611,677 (28 February 2018 - 215,304,353) Ordinary shares in issue, of which 29,741,274 (28 February 2018 - 19,003,327) were held in treasury.
	Following the period end a further 781,772 Ordinary shares have been bought back for treasury at a cost of £3.04 million including expenses, resulting in there being 159,611,677 Ordinary shares in issue, of which 30,523,046 Ordinary shares were held in treasury at the date this Report was approved.

12.	Related party transactions and transactions with the Manager
	The Company has agreements with Aberdeen Standard Fund Managers Limited ("ASFML" or the "Manager") for the provision of management and administration services, promotional activities and secretarial services.
	The management fee for the six months ended 28 February 2019 is calculated at 0.85% per annum of net assets up to £350 million and 0.50% per annum of net assets over this threshold. Management fees are calculated and payable on a quarterly basis. The management fee is chargeable 100% to revenue. During the period £2,220,000 (28 February 2018 - £2,662,000) of management fees were earned by the Manager, with a balance of £976,000 (28 February 2018 - £1,359,000) being payable to ASFML at the period end.
	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 to be given by the Manager is six months.
	At the end of the period the Company had £1,500,000 (28 February 2018 - £15,500,000) invested in Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund which is managed and administered by Aberdeen Standard Investments. The Company pays a management fee on the value of these holdings but no fee is chargeable at the underlying fund level.

13.	Segmental information
	The Company is engaged in a single segment of business, which is to invest in equity securities. 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.

14.	Half-Yearly Financial Report
	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 28 February 2019 and 28 February 2018 has not been audited.
	The information for the year ended 31 August 2018 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.
	The auditor has reviewed the financial information for the six months ended 28 February 2019 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

15.	This Half-Yearly Financial Report was approved by the Board on 7 May 2019.

ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures ("APMs") are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.
Total return
Total return is considered to be an alternative performance measure. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the same net dividend in the NAV of the Company with debt at fair value on the date on which that dividend was earned. Share price total return involves reinvesting the net dividend in the month that the share price goes ex-dividend.
The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the six months ended 28 February 2019 and 28 February 2018 and total return for the period.
	Dividend			Share
2019	rate	NAV		price
31 August 2018	N/A	421.54p		370.00p
22 November 2018	4.00p	387.05p		347.00p
28 February 2019	N/A	412.62p		370.00p
Total return		+1.2%		-1.1%
	Dividend			Share
2018	rate	NAV		price
31 August 2017	N/A	423.26p		361.00p
23 November 2017	3.30p	432.67p		371.50p
28 February 2018	N/A	421.54p		370.00p
Total return		+4.2%		+3.4%
Discount to net asset value per Ordinary share
The difference between the share price of 370.00p (31 August 2018 - 370.00p) and the net asset value per Ordinary share of 412.62p (31 August 2018 - 421.54p) expressed as a percentage of the net asset value per Ordinary share.
Net gearing
Net gearing measures the total borrowings of £25,500,000 (31 August 2018 - £25,500,000) less cash and cash equivalents of £5,090,000 (31 August 2018 - £8,529,000) divided by shareholders' funds of £535,869,000 (31 August 2018 - £788,019,000), expressed as a percentage.
Ongoing charges
Ongoing charges is considered to be an alternative performance measure. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. The ratio for 28 February 2019 is based on forecast ongoing charges for the year ending 31 August 2019.
		28 February	31 August
		2019	2018
Investment management fees (£'000)		4,172	5,296
Administrative expenses (£'000)		1,017	1,211
Less: non-recurring charges (£'000)		-	(20)
		_________	_________
Ongoing charges (£'000)		5,189	6,487
		_________	_________
Average net assets (£'000)		617,589	808,836
		_________	_________
Ongoing charges ratio		0.84%	0.80%
		_________	_________
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations.

 

END

 

 

IR BUGDUXXGBGCR