Half-Yearly Results
21 April 2020
ASIA DRAGON TRUST PLC
Capturing growth from world-class Asian companies
HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 29 FEBRUARY 2020
Highlights
- The worsening spread of the COVID-19 pandemic during 2020 has impacted the global landscape completely and the situation remains highly fluid
- Over the six months to 29 February 2020, the Company's Net Asset Value (NAV) and share price declined by 2.6% and 1.9% respectively, on a total return basis, trailing the 0.6% increase in the benchmark, MSCI AC Asia Pacific ex Japan Index
- Despite this, the Company still outperformed over the 12 months to 29 February 2020. The NAV and share price, on a total return basis, increased 8.1% and 6.7% respectively versus 4.6% from the benchmark
- Longer-term performance remains robust. Over ten years to 29 February 2020, on a total return basis, the NAV and share price have increased by 128.1% and 126.2% respectively compared a return of 116.2% from the benchmark
- Ultimately, the best way to mitigate risk in a climate dominated by fear and volatility is a continued focus on the fundamentals. Here, the Manager's quality and value style is as relevant as ever
- The Manager's on the ground presence and emphasis on regular engagement with the boards and management of companies is a particular virtue as it affords them a deeper understanding of the opportunities and risks facing companies and sectors
- The Trust is committed to its approach of seeking best-in-class companies in Asia which are strongly positioned with clear competitive advantages and defensive earnings streams
- The Board and Manager remain optimistic that the Company's portfolio can navigate the present challenges and thrive once the current pandemic comes under control
Investment Objective
Asia 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.
For further information please contact:-
Adrian Lim, Investment Director, Aberdeen Standard Investments (Asia) Limited 0065 6395 2700
Pruksa Iamthongthong, Investment Director, Aberdeen Standard Investments (Asia) Limited 0065 6395 2700
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
Overview
I am writing primarily to cover the Company's first half-year to 29 February 2020. Events since then, however, due to the COVID-19 pandemic, have obviously changed the landscape completely, not just in investment terms. Accordingly my report is split into two parts, one reporting on the period and the other comprising the Outlook. We have endeavoured in the latter part to address some of the issues facing the Company, albeit this is very much speculation as it appears likely that the full impact of this virus will be felt for some time to come.
The first half-year was a testing period for Asian stocks. Equity markets reacted to the ebb and flow of the US-China trade dispute, which culminated in both sides reaching a "Phase One" accord. Sterling strength, on the back of the Conservatives' decisive UK election win, dampened your Company's returns. Against this backdrop, the Trust's net asset value (NAV) declined by 2.6% on a total return basis (in sterling terms), trailing the 0.6% increase in our benchmark (the MSCI All Country Asia (ex Japan) Index). The share price slipped a little less by 1.9%, slightly tightening the discount to NAV.
The final quarter of 2019 accounted for the bulk of the Trust's underperformance over the review period. Signals that the US and China would reach an agreement propelled stockmarkets higher. Loose monetary policy worldwide and a brightening outlook for the technology sector lifted the mood too. Amid such exuberance, your Company struggled to keep pace with rallying markets, particularly in China, as fundamentals took a back seat. While the US and China did roll back some tariffs, a significant number remained in place. Moreover, the next stage of talks will centre on more complex issues, making a full resolution unlikely to be reached quickly, if at all.
In contrast, the start of 2020 saw a swift reversal of fortunes as the COVID-19 outbreak became a full-blown global pandemic. As infections and deaths rose, fears grew that the damage to the global economy would be more severe than first thought. This, coupled with the collapse in oil prices caused by a disagreement between Russia and Saudi Arabia, triggered the widespread sell-off across equity markets.
Portfolio
The Trust's performance, and the positioning of your Company's underlying portfolio, reflected your Manager's continued focus on quality amid volatile markets.
China was a good example, as several holdings there made meaningful contributions. One of these was Tencent, now the Trust's largest position, which provides diversified exposure to the fast-growing Chinese IT and consumer segments. The internet giant emerged from a difficult period in which regulatory hurdles had buffeted its key mobile-game business and its shares rebounded on growing recognition that its efforts to build up its advertising, payments and cloud businesses had created a more sustainable business model. As COVID-19 spread, quarantine measures to contain the outbreak forced people to stay indoors. This drove up demand for indoor entertainment and online games, further supporting Tencent's stock.
The heightened volatility also created opportunities to introduce some additional mainland China companies at attractive valuations. Your Manager continues to screen prospective holdings for their financial strength, prospects and corporate governance standards and favours industry leaders with strong and sustainable competitive positions in areas of structural growth. Among the additions was Beijing Sinnet Technology, a leading internet data-centre provider that also offers broadband, cloud and other value-added services. China will be a key pillar of growth in the global data-centre segment, driven by trends such as 5G networks and "the internet of things." All these are expected to increase demand for Beijing Sinnet's services. In addition, the company's first-mover status has enabled it to secure spaces in prime locations, something that its rivals cannot easily replicate.
Another area of vast potential is China's burgeoning middle class and the shift in consumer tastes in favour of more premium products and services. To that end, your Manager bought Meituan Dianping, which is uniquely placed to tap consumption growth stemming from e-commerce. Meituan operates a "super app" that caters to a wide range of consumer needs. With over 400 million users, it offers services such as food delivery and travel bookings, as well as wedding and funeral services.
Your Company's core technology holdings, Samsung Electronics and Taiwan Semiconductor Manufacturing Co (TSMC), stood out as well. The pair are global leaders with proven track records of delivering solid returns over the business cycle, again highlighting the advantage of the quality-led approach. More recently, they rallied in tandem with the wider semiconductor sector on the back of an anticipated turnaround in memory chip demand. Looking forward, your Manager believes that the outlook for Samsung and TSMC remains bright, given their scale and commitment to investing for the future. While COVID-19 is disrupting both supply and demand for the sector over the short term, longer-term sources of growth appear intact. Notably, emergent technologies such as 5G networks, cloud computing and AI, should lift demand for more-advanced memory chips. Meanwhile, both companies' healthy cash flow and robust balance sheets support steady shareholder returns, a valuable buffer against near and medium term shocks.
Elsewhere, the Trust's heavy exposure to India dented returns as market-specific issues further weighed on stocks there. These included large-scale protests against controversial changes to a citizenship law, persistent stress in the financial system and a disappointing Budget. In line with efforts to maintain the portfolio's quality, your Manager sold several Indian holdings due to waning conviction in their prospects. Motorcycle maker Hero Motocorp, for instance, faced stiffer competition, declining margins, and expectations of lower sales due to higher vehicle ownership costs. Another exit was Grasim Industries, as weakening demand in its core chemicals business clouded its outlook.
Revenue Account
For the six months to 28 February 2020, the revenue account recorded a return on ordinary activities after taxation of £353,000, representing 0.28p per share, compared with a return of £613,000 for the six months to 28 February 2019. 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 12 December 2019, all resolutions were passed.
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. During the six month period to 29 February 2020, 996,000 shares were bought back and held in treasury.
Since the outbreak of COVID-19, market dislocation is such that closed end fund discounts of most investment trusts have widened substantially, including the Asian-Pacific sector. As at 17 April 2020, the Company's discount stood at 10.8%, with the sector average at 8.4%.
Gearing
The Board continues to believe that the sensible use of modest financial gearing should enhance returns to shareholders over the longer term. The Company has in place a £50 million three-year loan facility, of which £25 million is fixed and fully drawn down and £25 million is revolving.
At 29 February 2020, £6 million of the revolving facility was drawn and the Trust's net gearing position was 3.6%, compared to 3.5% at the end of August 2019.
The Manager is closely monitoring gearing levels and bank covenants. As at 17 April 2020 the Company's net assets stood at £521.39 million and net gearing was 1.8%, and the Company is pleased to report that these levels remain comfortably within the covenant limits.
The Board
As part of the Board's succession planning, Gaynor Coley assumed the chair of the audit committee following the AGM in December 2019. Iain McLaren, who has assisted with the audit chair transition, will retire from the Board at the end of April 2020, following the publication of our interim results. On behalf of the Board, I should like to thank Iain for his outstanding contribution, particularly in his role as Audit Committee Chairman. Charlie Ricketts will assume the role of Senior Independent Director from 1 May 2020.
Outlook
As I mention above, since the end of January 2020, almost all issues have been overtaken by the worsening spread of the COVID-19 virus.
At the time of writing, the situation remains highly fluid. Financial markets, after their initial heavy falls, are seeing wild swings as optimism about stimulus is tempered by the worrying COVID-19 newsflow and gloomy economic data. With virus cases still rising, notably in the US and Europe, the widespread travel curbs, border closures and lockdowns of entire cities should help to stem the virus' spread, but the economic impact will be considerable. Sectors such as manufacturing, tourism and retail are likely to bear the brunt. Governments' policy support, including stimulus packages, tax relief and interest rate cuts, should help soften the blow but with the duration and magnitude of the downturn still unknown, the volatile conditions are likely to persist for some time.
It seems likely, therefore, that Shareholders should be prepared for further tough times ahead. The economic toll of the pandemic, both in Asia and worldwide, will be substantial. All sectors will be affected in this downturn. China's initial manufacturing shock was already beginning to spill over across the region, but with the expected rapid fall in consumption, especially on discretionary items and services, this is likely to weigh heavily upon corporate earnings.
Ultimately, the best way to mitigate risk in a climate dominated by fear and volatility is a continued focus on the fundamentals. Here, your Manager's quality and value style is as relevant as ever. The Company is committed to its approach, seeking best-in-class companies in Asia which are strongly positioned, with clear competitive advantages and defensive earnings streams. Their robust balance sheets, with healthy cash positions and low debt levels, should also help their relative positioning in the event of any potential liquidity constraints. At the same time, these companies are exposed to long-term growth drivers arising from structural trends. These include rising discretionary spending, growing adoption of nascent technologies and demand for infrastructure. Your Manager's on the ground presence and emphasis on regular engagement with the boards and management of investee companies is a particular virtue as it affords them a deeper understanding of the opportunities and risks facing companies and sectors at this difficult time. Thus, I remain optimistic that your Company's portfolio can navigate the present challenges and thrive once the current pandemic comes under control.
For Asia Dragon Trust plc,
James Will,
Chairman
20 April 2020
INTERIM BOARD REPORT
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 in place a robust process to identify, assess and monitor the principal risks and uncertainties facing the Company and to identify and evaluate newly emerging risks. A summary of the principal risks and uncertainties facing the Company is summarised below under the following headings:
- Investment Performance
- Concentration Risk
- Resource
- Reliance on Third Party Service Providers
- Discount volatility
- Gearing
- Regulatory
Details of these risks and a description of the mitigating action which the Company has taken are provided in detail on pages 9 to 10 of the 2019 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 2020.
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 outbreak of the recent global COVID-19 virus has resulted in business disruption and stockmarket volatility across the world. The extent of the effect of the virus, including its long term impact, remains uncertain. The Manager has undertaken a detailed review of the investee companies in the Company's portfolio to assess the impact of COVID-19 on their operations such as employee absence, reduced demand, reduced turnover and supply chain breakdowns and will review carefully the composition of the Company's portfolio and will be pro-active where necessary. In addition the Manager has implemented extensive business continuity procedures and contingency arrangements to ensure that they are able to continue to service their clients, including investment trusts.
The outcome and potential impact of Brexit 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. The uncertainty surrounding Brexit could impact investor sentiment and could lead to increased or reduced demand for the Company's shares, which would be reflected in a narrowing or widening of the discount at which the Company's shares trade relative to their net asset value.
The Board will continue to monitor developments as they occur.
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.
Post the end of the half-year, and as referred to in the Chairman's Statement, the investment landscape has changed completely due to the COVID-19 pandemic. Given that the Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate.
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:
a) 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
b) 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 Asia Dragon Trust plc,
James Will,
Chairman
20 April 2020
FINANCIAL HIGHLIGHTS
| 29 February 2020 | 31 August 2019 | % change |
Equity shareholders' funds (£'000) | 563,885 | 589,708 | -4.4 |
Net asset value per share | 441.39p | 458.03p | -3.6 |
Share price (mid) | 390.00p | 402.50p | -3.1 |
Discount to net asset value per Ordinary share{A} | 11.6% | 12.1% |
|
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return) | 935.12 | 935.63 | -0.1 |
Net gearing{A} | 3.6% | 3.5% |
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Ongoing charges ratio{A} | 0.89% | 0.83% |
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{A} Considered to be an Alternative Performance Measure as defined below. | |||
Net asset value total return per Ordinary share{A} | Share price total return per Ordinary share{A} | MSCI AC Asia Pacific ex Japan Index total return | |||
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Six months ended | -2.6% | Six months ended | -1.9% | Six months ended | 0.6% |
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Year ended | +9.8% | Year ended | +10.0% | Year ended | +0.3% |
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Discount to net asset value{A} |
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| |
As at 29 February 2020 | 11.6% |
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As at | 12.1% |
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{A} Considered to be an Alternative Performance Measure as defined below. | |||||
PERFORMANCE (TOTAL RETURN {A})
| 6 months ended | Year | 3 years ended | 5 years ended | 10 years ended |
| 29 February 2020 | 29 February 2020 | 29 February 2020 | 29 February 2020 | 29 February 2020 |
Net asset value per share{A} | -2.6% | +8.1% | +21.0% | +46.6% | +128.1% |
Share price{A} | -1.9% | +6.7% | +24.3% | +46.7% | +126.2% |
MSCI AC Asia (ex Japan) Index (in sterling terms) | +0.6% | +4.6% | +19.1% | +49.8% | +116.2% |
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{A} Considered to be an Alternative Performance Measure as defined below. | |||||
INVESTMENT PORTFOLIO
As at 29 February 2020
|
|
|
| Total |
|
|
| Valuation | assets |
Company | Industry | Country | £'000 | % |
Tencent Holdings | Interactive Media & Services | China | 51,327 | 8.6 |
Samsung Electronics (Pref) | Technology Hardware Storage & Peripherals | South Korea | 47,711 | 8.0 |
Taiwan Semiconductor Manufacturing Company | Semiconductors & Semiconductor Equipment | Taiwan | 44,321 | 7.4 |
Ping An Insurance 'H' | Insurance | China | 20,993 | 3.5 |
AIA Group | Insurance | Hong Kong | 18,454 | 3.1 |
Housing Development Finance Corp | Thrifts & Mortgage Finance | India | 18,085 | 3.0 |
Bank Central Asia | Banks | Indonesia | 17,295 | 2.9 |
China Resources Land | Real Estate Management & Development | China | 16,150 | 2.7 |
Oversea-Chinese Banking Corporation | Banks | Singapore | 14,768 | 2.5 |
Kweichow Moutai 'A' | Beverages | China | 13,406 | 2.2 |
Top ten investments |
|
| 262,510 | 43.9 |
Tata Consultancy | IT Services | India | 13,272 | 2.2 |
China International Travel Services 'A' | Hotels, Restaurants & Leisure | China | 12,299 | 2.1 |
Ayala Land | Real Estate Management & Development | Philippines | 10,685 | 1.8 |
Swire Properties | Real Estate Management & Development | Hong Kong | 10,008 | 1.7 |
Wuxi Biologics (Cayman) | Life Sciences Tools & Services | China | 9,592 | 1.6 |
ITC | Tobacco | India | 9,588 | 1.6 |
Keppel Corp | Industrial Conglomerates | Singapore | 8,727 | 1.5 |
HDFC Bank | Banks | India | 8,537 | 1.4 |
SBI Life Insurance | Insurance | India | 8,206 | 1.4 |
Midea Group 'A' | Household Durables | China | 7,986 | 1.3 |
Twenty largest investments |
|
| 361,410 | 60.5 |
CNOOC | Oil, Gas & Consumable Fuels | China | 7,969 | 1.3 |
Ultratech Cement | Construction Materials | India | 7,590 | 1.3 |
Astra International | Automobiles | Indonesia | 7,136 | 1.2 |
Kotak Mahindra Bank | Banks | India | 7,107 | 1.2 |
LG Chem | Chemicals | South Korea | 6,747 | 1.1 |
DBS Group | Banks | Singapore | 6,716 | 1.1 |
Hong Kong Exchanges & Clearing | Capital Markets | Hong Kong | 6,537 | 1.1 |
Jardine Strategic Holdings | Industrial Conglomerates | Hong Kong | 6,348 | 1.1 |
China Conch Venture Holdings | Machinery | China | 6,255 | 1.1 |
Bank Rakyat | Banks | Indonesia | 6,224 | 1.0 |
Thirty largest investments |
|
| 430,039 | 72.0 |
Hangzhou Hikvision Digital 'A' | Electronic Equipment, Instruments & Components | China | 6,063 | 1.0 |
Saic Motor Corp 'A' | Automobiles | China | 6,020 | 1.0 |
Siam Cement 'F' | Construction Materials | Thailand | 5,969 | 1.0 |
City Developments | Real Estate Management & Development | Singapore | 5,911 | 1.0 |
Shanghai International Airport 'A' | Transport Infrastructure | China | 5,779 | 1.0 |
ASM Pacific Technology | Semiconductors & Semiconductor Equipment | Hong Kong | 5,640 | 1.0 |
Vietnam Dairy Products | Food Products | Vietnam | 5,638 | 1.0 |
Kerry Logistics Network | Air Freight & Logistics | Hong Kong | 5,575 | 0.9 |
John Keells Holdings | Industrial Conglomerates | Sri Lanka | 5,532 | 0.9 |
58.com ADR | Interactive Media & Services | China | 5,312 | 0.9 |
Forty largest investments |
|
| 487,478 | 81.7 |
Bank of Philippine Islands | Banks | Philippines | 5,200 | 0.9 |
China Merchants Bank 'H' | Banks | India | 5,032 | 0.8 |
Taiwan Mobile | Wireless Telecommunication Services | Taiwan | 4,850 | 0.8 |
Huazhu Group ADR | Hotels, Restaurants & Leisure | China | 4,839 | 0.8 |
Singapore Telecommunications | Diversified Telecommunication Services | Singapore | 4,747 | 0.8 |
United Overseas Bank | Banks | Singapore | 4,513 | 0.8 |
Vietnam Technological & Commercial Bank | Banks | Vietnam | 4,497 | 0.8 |
Koh Young Technology | Semiconductors & Semiconductor Equipment | South Korea | 4,367 | 0.7 |
Budweiser Brewing | Beverages | Hong Kong | 4,297 | 0.7 |
CapitaLand | Real Estate Management & Development | Singapore | 4,244 | 0.7 |
Fifty largest investments |
|
| 534,064 | 89.5 |
Piramal Enterprises | Pharmaceuticals | India | 4,239 | 0.7 |
Autohome ADR | Interactive Media & Services | China | 4,227 | 0.7 |
IHH Healthcare Berhad | Health Care Providers & Services | Malaysia | 4,205 | 0.7 |
Beijing Sinnet Technology 'A' | IT Services | China | 4,131 | 0.7 |
Indocement Tunggal Prakarsa | Construction Materials | Indonesia | 3,903 | 0.7 |
Raffles Medical Group | Health Care Providers & Services | Singapore | 3,824 | 0.6 |
Hindustan Unilever | Household Products | India | 3,578 | 0.6 |
Yum China Holdings | Hotels, Restaurants & Leisure | China | 3,071 | 0.5 |
Hon Hai Precision Industry | Electronic Equipment, Instruments & Components | Taiwan | 3,057 | 0.5 |
Prestige Estate Projects | Real Estate Management & Development | India | 2,932 | 0.5 |
Sixty largest investments |
|
| 571,231 | 95.7 |
Central Pattana Public Co 'F' | Real Estate Management & Development | Thailand | 2,910 | 0.5 |
Bangkok Dusit Medical Services 'F' | Health Care Providers & Services | Thailand | 2,812 | 0.5 |
Unilever Indonesia | Household Products | Indonesia | 2,581 | 0.4 |
Yoma Strategic Holdings | Real Estate Management & Development | Myanmar | 2,289 | 0.4 |
DFCC Bank | Banks | Sri Lanka | 2,185 | 0.4 |
Meituan-Dianping Class B | Internet & Direct Marketing Retail | China | 1,856 | 0.3 |
|
|
| 585,864 | 98.2 |
Net current assets{A} |
|
| 10,966 | 1.8 |
Total assets less current liabilities{A} |
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| 596,830 | 100.0 |
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{A} Excluding bank loan of £6,000,000. | ||||
Note: Unless otherwise stated, foreign stock is held and all investments are equity holdings. | ||||
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
|
| Six months ended | ||
|
| 29 February 2020 | ||
|
| Revenue | Capital | Total |
| Note | £'000 | £'000 | £'000 |
Losses on investments |
| - | (15,496) | (15,496) |
Net currency losses |
| - | (299) | (299) |
Income | 2 | 3,639 | - | 3,639 |
Investment management fee |
| (2,027) | - | (2,027) |
Administrative expenses |
| (585) | 9 | (576) |
|
| _________ | _________ | _________ |
Net return/(loss) before finance costs and taxation |
| 1,027 | (15,786) | (14,759) |
|
|
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|
|
Interest payable and similar charges |
| (280) | - | (280) |
|
| _________ | _________ | _________ |
Net return/(loss) before taxation |
| 747 | (15,786) | (15,039) |
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Taxation | 3 | (394) | (216) | (610) |
| _________ | _________ | _________ | |
Net return/(loss) attributable to equity shareholders | 353 | (16,002) | (15,649) | |
|
| _________ | _________ | _________ |
Return per Ordinary share (pence) | 4 | 0.28 | (12.50) | (12.22) |
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| _________ | _________ | _________ |
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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 2019 | ||
|
| Revenue | Capital | Total |
| Note | £'000 | £'000 | £'000 |
Losses 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) |
|
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Interest payable and similar charges |
| (226) | - | (226) |
|
| _________ | _________ | _________ |
Net return/(loss) before taxation |
| 1,055 | (22,805) | (21,750) |
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Taxation | 3 | (442) | 393 | (49) |
| _________ | _________ | _________ | |
Net return/(loss) attributable to equity shareholders | 613 | (22,412) | (21,799) | |
|
| _________ | _________ | _________ |
Return per Ordinary share (pence) | 4 | 0.35 | (12.73) | (12.38) |
|
| _________ | _________ | _________ |
CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
|
| As at | As at |
|
| 29 February 2020 | 31 August 2019 |
| Notes | £'000 | £'000 |
Non-current assets |
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|
|
Investments at fair value through profit or loss |
| 585,864 | 611,829 |
|
| _________ | _________ |
Current assets |
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Debtors and prepayments |
| 2,944 | 1,818 |
Money market funds |
| 2,300 | 1,500 |
Cash and short term deposits |
| 9,443 | 8,670 |
|
| _________ | _________ |
|
| 14,687 | 11,988 |
|
| _________ | _________ |
Creditors: amounts falling due within one year |
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Other creditors |
| (3,721) | (1,332) |
Bank loan | 10 | (6,000) | (6,000) |
|
| _________ | _________ |
|
| (9,721) | (7,332) |
|
| _________ | _________ |
Net current assets |
| 4,966 | 4,656 |
| _________ | _________ | |
Creditors: amounts falling due after more than one year |
|
| |
Bank loan | 10 | (24,994) | (24,993) |
Deferred tax liability on Indian capital gains | 3 | (1,951) | (1,784) |
|
| _________ | _________ |
|
| (26,945) | (26,777) |
|
| _________ | _________ |
Net assets |
| 563,885 | 589,708 |
|
| _________ | _________ |
Capital and reserves |
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|
Called-up share capital |
| 31,922 | 31,922 |
Share premium account |
| 60,416 | 60,416 |
Capital redemption reserve |
| 28,154 | 28,154 |
Capital reserve | 6 | 411,857 | 431,945 |
Revenue reserve |
| 31,536 | 37,271 |
|
| _________ | _________ |
Equity shareholders' funds |
| 563,885 | 589,708 |
|
| _________ | _________ |
Net asset value per Ordinary share (pence) | 7 | 441.39 | 458.03 |
|
| _________ | _________ |
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Six months ended 29 February 2020 |
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| Share | Capital |
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| Share | premium | redemption | Capital | Revenue |
|
| capital | account | reserve | reserve | reserve | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Balance at 31 August 2019 | 31,922 | 60,416 | 28,154 | 431,945 | 37,271 | 589,708 |
(Loss)/return after taxation | - | - | - | (16,002) | 353 | (15,649) |
Dividend paid (note 8) | - | - | - | - | (6,088) | (6,088) |
Buyback of Ordinary shares for treasury | - | - | - | (4,086) | - | (4,086) |
| _______ | _______ | _______ | _______ | _______ | _______ |
Balance at 29 February 2020 | 31,922 | 60,416 | 28,154 | 411,857 | 31,536 | 563,885 |
| _______ | _______ | _______ | _______ | _______ | _______ |
|
|
|
|
|
|
|
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 |
| _______ | _______ | _______ | _______ | _______ | _______ |
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
| Six months ended | Six months ended |
| 29 February 2020 | 28 February 2019 |
| £'000 | £'000 |
Operating activities |
|
|
Net return before taxation | (15,039) | (21,750) |
Adjustments for: |
|
|
Losses on investments | 15,496 | 20,918 |
Currency losses | 299 | 1,887 |
Decrease in accrued dividend income | 173 | 231 |
Decrease/(increase) in other debtors | 15 | (43) |
Decrease in other creditors | (42) | (367) |
Interest payable and similar charges | 280 | 226 |
Stock dividends included in investment income | - | (7) |
Overseas withholding tax | (307) | (249) |
| _________ | _________ |
Cash from operations | 875 | 846 |
|
|
|
Interest paid | (282) | (240) |
| _________ | _________ |
Net cash inflow from operating activities | 593 | 606 |
|
|
|
Investing activities |
|
|
Purchases of investments | (67,830) | (55,006) |
Sales of investments | 79,337 | 282,906 |
Capital gains tax on sales | (49) | - |
| _________ | _________ |
Net cash from investing activities | 11,458 | 227,900 |
| _________ | _________ |
Financing activities |
|
|
Equity dividend paid | (6,088) | (7,438) |
Buyback of Ordinary shares to treasury | (4,086) | (4,939) |
Tender Offer for Ordinary shares inclusive of expenses | (5) | (217,892) |
| _________ | _________ |
Net cash used in financing activities | (10,179) | (230,269) |
| _________ | _________ |
Increase/(decrease) in cash and cash equivalents | 1,872 | (1,763) |
| _________ | _________ |
Analysis of changes in cash and cash equivalents during the period |
|
|
Opening balance | 10,170 | 8,775 |
Effect of exchange rate fluctuations on cash held | (299) | (1,887) |
Increase/(decrease) in cash and cash equivalents as above | 1,872 | (1,763) |
| _________ | _________ |
Closing balance | 11,743 | 5,125 |
| _________ | _________ |
Represented by: |
|
|
Money market funds | 2,300 | 1,500 |
Cash and short term deposits | 9,443 | 3,625 |
| _________ | _________ |
| 11,743 | 5,125 |
| _________ | _________ |
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'. Given that the Company's portfolio comprises primarily "Level 1" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate. The condensed financial statements have also been prepared 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. |
2. | Income |
|
|
|
| Six months ended | Six months ended |
|
| 29 February 2020 | 28 February 2019 |
|
| £'000 | £'000 |
| Income from investments |
|
|
| UK dividend income | 38 | 447 |
| Overseas dividends | 3,582 | 3,537 |
|
| _________ | _________ |
|
| 3,620 | 3,984 |
|
| _________ | _________ |
| Other income |
|
|
| Deposit interest | 8 | 17 |
| Interest from money market funds | 9 | 27 |
| Other income | 2 | - |
|
| _________ | _________ |
|
| 19 | 44 |
|
| _________ | _________ |
| Total income | 3,639 | 4,028 |
|
| _________ | _________ |
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 £394,000 of withholding tax was suffered in the six months to 29 February 2020 (28 February 2019 - £442,000). The Indian Capital Gains Tax accrual has increased by £167,000 (28 February 2019 - reduction of £393,000) since the year end with a balance outstanding at 29 February 2020 of £1,951,000 (28 February 2019 - £933,000). |
4. | Return per Ordinary share |
|
|
|
| Six months ended | Six months ended |
|
| 29 February 2020 | 28 February 2019 |
|
| p | p |
| Basic |
|
|
| Revenue return | 0.28 | 0.35 |
| Capital return | (12.50) | (12.73) |
|
| _________ | _________ |
| Total return | (12.22) | (12.38) |
|
| _________ | _________ |
| The figures above are based on the following: |
|
|
|
| £'000 | £'000 |
| Revenue return | 353 | 613 |
| Capital return | (16,002) | (22,412) |
|
| _________ | _________ |
| Total return | (15,649) | (21,799) |
|
| _________ | _________ |
| Weighted average number of Ordinary shares in issue | 128,111,741 | 176,131,021 |
|
| _________ | _________ |
|
|
|
|
| The Company has no securities in issue that could dilute the return per Ordinary share. Therefore, for the six months ended 29 February 2020 (28 February 2019 -same) no diluted calculation is provided. | ||
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 on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows: | ||
|
|
|
|
|
| Six months ended | Six months ended |
|
| 29 February 2020 | 28 February 2019 |
|
| £'000 | £'000 |
| Purchases | 113 | 85 |
| Sales | 127 | 502 |
|
| _________ | _________ |
|
| 240 | 587 |
|
| _________ | _________ |
|
|
|
|
| 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. | ||
6. | Capital reserves. The capital reserve reflected in the Condensed Statement of Financial Position at 29 February 2020 includes gains of £162,996,000 (31 August 2019 - £199,349,000) 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 |
|
| 29 February 2020 | 31 August 2019 |
| Net assets attributable (£'000) | 563,885 | 589,708 |
| Number of Ordinary shares in issue{A} | 127,753,054 | 128,748,848 |
| Net asset value per share (pence) | 441.39 | 458.03 |
|
| _________ | _________ |
| {A} Excluding shares held in treasury. |
|
|
8. | Dividends |
|
|
|
| Six months ended | Six months ended |
|
| 29 February 2020 | 28 February 2019 |
|
| £'000 | £'000 |
| 2018 final dividend - 4.00p | - | 7,438 |
| 2019 final dividend - 4.75p | 6,088 | - |
|
| _________ | _________ |
|
| 6,088 | 7,438 |
|
| _________ | _________ |
|
|
|
|
| There will be no interim dividend for the year to 31 August 2020 (2019 - 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 2019 - 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 29 February 2020 of £585,864,000 (31 August 2019 - £611,829,000) has therefore been deemed as Level 1. |
10. | Bank loans. The Company has a £25,000,000 multicurrency revolving facility with Scotiabank Europe Plc. This agreement was entered into on 30 July 2019 with a termination date of 29 July 2022. At 29 February 2020, £6,000,000 of this facility has been drawn down at a rate of 1.623% which matures on 28 May 2020. |
| The Company has a fixed loan facility agreement of £25,000,000 at an interest rate of 1.61% with Scotiabank Europe Plc, with a termination date of 29 July 2022. The agreement of this facility incurred an arrangement fee of £7,500, which is being amortised over the life of the loan. |
| The agreements contain 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. |
| All covenants have been complied with throughout the period. |
11. | Called-up share capital. In the six months to 29 February 2020, the Company bought back 995,794 (28 February 2019 - 1,375,330) Ordinary shares to be held in treasury, at a total cost of £4,086,000 (28 February 2019 - £4,939,000). |
| At the end of the period there were 159,611,677 (28 February 2019 - 159,611,677) Ordinary shares in issue, of which 31,858,623 (28 February 2019 - 29,741,274) were held in treasury. |
| Following the period end a further 35,279 Ordinary shares have been bought back for treasury at a cost of £142,430 including expenses, resulting in there being 159,611,677 Ordinary shares in issue, of which 31,893,902 Ordinary shares were held in treasury at the date this Report was approved. |
12. | Analysis of changes in net debt |
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|
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|
|
|
|
| At |
|
|
| At |
|
| 31 August 2019 | Currency | Cash | Non-cash | 29 February 2020 |
|
| £'000 | £'000 | £'000 | £'000 | £'000 |
| Cash and short term deposits | 10,170 | (299) | 1,872 | - | 11,743 |
| Debt due within one year | (6,000) | - | - | - | (6,000) |
| Debt due after more than one year | (24,993) | - | - | (1) | (24,994) |
|
| ________ | ________ | ________ | ________ | ________ |
|
| (20,823) | (299) | 1,872 | (1) | (19,251) |
|
| ________ | ________ | ________ | ________ | ________ |
|
|
|
|
|
|
|
|
| At |
|
|
| At |
|
| 31 August 2018 | Currency | Ash | Non-cash | 28 February 2019 |
|
| £'000 | £'000 | £'000 | £'000 | £'000 |
| Cash and short term deposits | 8,775 | (1,887) | (1,763) | - | 5,125 |
| Debt due within one year | (25,500) | - | - | - | (25,500) |
|
| ________ | ________ | ________ | ________ | ________ |
|
| (16,725) | (1,887) | (1,763) | - | (20,375) |
|
| ________ | ________ | ________ | ________ | ________ |
|
|
|
|
|
|
|
| A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis. | |||||
13. | Related party transactions and transactions with the Manager. The Company has an agreement 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 29 February 2020 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 £2,027,000 (28 February 2019 - £2,220,000) of management fees were payable to the Manager, with a balance of £1,011,000 (28 February 2019 - £976,000) due 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 £2,300,000 (28 February 2019 - £1,500,000) 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. |
| Promotional activities costs are based on current annual amount of £200,000 (28 February 2019 - £200,000), payable quarterly in arrears. During the period £100,000 (28 February 2019 - £100,000) of fees were payable, with a balance of £33,000 (28 February 2019 - £33,000) being due at the period end. |
14. | 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. |
15. | Subsequent events. Subsequent to the year end, the Company's NAV has suffered as a result of a decline in stockmarket values, primarily due to the COVID-19 pandemic. This is considered to be a non-adjusting event for the financial statements. At the date of this Report the latest NAV per share was 408.24p as at the close of business on 17 April 2020, a decline of 7.5% compared to the NAV per share of 441.39p at the period end. |
16. | 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 29 February 2020 and 28 February 2019 has not been audited. The Company's external auditor, KPMG LLP, has not reviewed the financial information for the six months ended 29 February 2020. |
| The information for the year ended 31 August 2019 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. |
17. | This Half-Yearly Financial Report was approved by the Board on 20 April 2020. |
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. 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 net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend 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 29 February 2019 and 28 February 2018 and total return for the period. | |||||
|
|
|
| ||
| Dividend |
| Share | ||
2020 | rate | NAV | price | ||
31 August 2019 | N/A | 458.03p | 402.50p | ||
21 November 2019 | 4.75p | 445.34p | 396.50p | ||
29 February 2020 | N/A | 441.39p | 390.00p | ||
|
| ________ | ________ | ||
Total return |
| -2.6% | -1.9% | ||
|
| ________ | ________ | ||
|
|
|
| ||
| 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 | 402.50p | ||
|
| ________ | ________ | ||
Total return |
| +1.2% | -1.1% | ||
|
| ________ | ________ | ||
|
|
|
| ||
Discount to net asset value per Ordinary share. The difference between the share price of 390.00p (31 August 2019 - 402.50p) and the net asset value per Ordinary share of 441.39p (31 August 2019 - 458.03p) expressed as a percentage of the net asset value per Ordinary share. | |||||
Net gearing. Net gearing measures the total borrowings of £30,994,000 (31 August 2019 - £30,993,000) less cash and cash equivalents of £10,720,000 (31 August 2019 - £10,186,000) divided by shareholders' funds of £563,885,000 (31 August 2019 - £589,708,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to brokers at the period end of £1,023,000 (31 August 2019 - due from brokers - £16,000) as well as cash and cash equivalents of £11,743,000 (31 August 2019 - £10,170,000). | |||||
Ongoing charges. 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 2020 is based on forecast ongoing charges for the year ending 31 August 2020. | |||||
|
|
| |||
| 28 February | 31 August | |||
| 2020 | 2019 | |||
Investment management fees (£'000) | 4,049 | 4,272 | |||
Administrative expenses (£'000) | 1,122 | 1,040 | |||
Less: non-recurring charges (£'000) | (28) | (13) | |||
| ________ | ________ | |||
Ongoing charges (£'000) | 5,143 | 5,299 | |||
| ________ | ________ | |||
Average net assets (£'000) | 576,001 | 638,726 | |||
| ________ | ________ | |||
Ongoing charges ratio | 0.89% | 0.83% | |||
| ________ | ________ | |||
|
|
| |||
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which among other things, includes the cost of borrowings and transaction costs. | |||||
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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