Annual Financial Report

RNS Number : 6814I
Dunedin Income Growth Inv Tst PLC
30 March 2015
 

DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2015

 

The objective of Dunedin Income Growth Investment Trust PLC is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom.

 

 

 

 

Highlights

 

·    Net asset value per share up by 11.1% in total return terms outperforming the Company's benchmark, the FTSE All-Share Index which increased by 7.1% in total return terms. 

 

·    The Board is recommending a final dividend of 3.525p, which will make for a total of 11.25p for the full year (2014 - 11.10p).

 

·     Company's dividend, subject to approval of final dividend, will have increased in 31 of the last 35 years, being maintained in the remaining four.

 

 

 

 

 

 

For further information, please contact:-

 

Jeremy Whitley

Aberdeen Asset Managers Limited                                   0131 528 4000

 

Andrew Leigh

Aberdeen Asset Managers Limited                                   0207 463 6312

 

 

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise.  Investors may not get back the amount they originally invested.

 

 

STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS

 

Financial Highlights

Net asset value total return A

+11.1%

+8.7%

Share price total return

+6.8%

+8.6%

Earnings per share (revenue)

11.90p

11.89p

Dividend per share B

11.25p

11.10p


A              With debt at market value (dividends reinvested).

B              Relating to the financial year.

 

 

STRATEGIC REPORT - OVERVIEW OF STRATEGY

Introduction

The purpose of this report is to provide shareholders with details of the Company's strategy and business model as well as the principal risks and challenges it faces.

 

The business of the Company is that of an investment trust and the Directors do not envisage any change in this activity in the foreseeable future. 

 

Objective

The Company's objective is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom. 

 

Business Model

Investment Policy

In pursuit of its objective, the Company's investment policy is to invest in high quality companies with strong income potential, while at the same time providing an above-average portfolio yield. 

 

The Company maintains a diversified portfolio consisting, substantially, of equity or equity-related securities, and it can invest in other financial instruments. Whilst the Company is invested mainly in companies listed or quoted in the United Kingdom it has the freedom to invest up to 20% of its gross assets overseas.

 

The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Manager within the remit set by the Board. The Board has set its gearing limit at a maximum of 30% of the net asset value at the time of draw down. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent considered appropriate.

 

It is the policy of the Company to invest no more than 15% of its gross assets in other listed investment companies.

 

It is the policy of the Company to invest no more than 15% of its gross assets in any one company.

 

Investment Process

Day-to-day management of the Company's assets has been delegated to Aberdeen Asset Managers Limited. The Manager believes that, over the long-term, share prices reflect the underlying business fundamentals of companies and hence investments are made based on research undertaken on individual companies. This is known as a "bottom up" investment process. This process involves a disciplined evaluation of potential investments through meeting investee companies. New investments are not made without the Manager having first met the management of the investee company, undertaken further analysis and written detailed notes to outline the underlying investment merits. A company's value is estimated in two stages, quality then price. Quality is defined by reference to management, business focus, balance sheet and corporate governance. Price is assessed relative to key financial ratios and business prospects. 

 

The Manager's portfolios are generally run conservatively, with an emphasis on traditional buy-and-hold and top-slicing/topping up.  This approach usually results in low turnover within portfolios. 

 

Portfolios are managed by the Manager on a team basis, with individual investment managers carrying out their own research and analysis.  All ideas are shared via formal committees and common databases, with desk heads and the Chief Investment Officer ensuring consistency.

 

Principal Risks and Uncertainties

The Board has adopted a matrix of the key risks that affect its business. The principal risks facing the Company relate to the Company's investment activities and include market risk (comprising foreign currency risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 19 to the financial statements. 

 

Performance risk:  A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds.  The NAV performance relative to the FTSE All-Share Index ("the Index") and the underlying stock weightings in the portfolio against the Index weightings are monitored closely by the Board.

 

Investment risk: Investment risk within the portfolio is managed in three ways:

•           Adherence to the Investment Process in order to minimise investments in poor quality companies and/or overpaying.

•           Diversification of investment - seeking to invest in a wide variety of companies with strong balance sheets and the earnings power to pay increasing dividends. In addition investments are diversified by sector in order to reduce the risk of a single large exposure. The Manager believes that diversification should be looked at in absolute terms rather than relative to a benchmark. At the year end the Company's portfolio consisted of 43 holdings.

•           The Board has laid down absolute limits on maximum holdings and exposures in the portfolio at the time of acquisition. These can only be over-ridden with Board approval.  These include the following:

 

a)          Not more than 10% of gross assets to be invested in any single stock;

b)         Top five holdings should not account for more than 40% of gross assets; and

c)          Holdings other than equities and cash (or cash equivalents) should not exceed 10% of gross assets.

 

Share price discount to net asset value (NAV) risk: The Company's shares may trade at a discount to the underlying NAV per share. The discount (or premium) at which the Company's shares may trade is influenced by the supply of shares and the number of buyers and sellers of the Company's shares in the market. Therefore, the Board seeks to influence the level of discount and, where appropriate, premium by operating a share buyback programme and also issuing further shares where possible. Any shares which are bought back are either cancelled or held in treasury. The Board keeps its share buyback policy under review.

 

Income/dividend risk: The level of the Company's dividends and future dividend growth will depend on the performance of the underlying portfolio. Any change in the tax treatment of the dividends or interest received by the Company (including as a result of withholding taxes or exchange controls) may reduce the level of dividends received by shareholders. The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting.

 

Regulatory risk:  The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Chapter 4 of Part 24 of the Corporation Tax Act 2010, the UK Listing Rules, the Disclosure and Transparency Rules, the Companies Act 2006 and Alternative Investment Fund Managers Directive, could lead to a number of detrimental outcomes and reputational damage including additional tax obligations. The Board and Manager monitor changes in government policy and legislation which may have an impact on the Company and the Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

 

Gearing risk: The Company has the ability to utilise gearing in the form of a two year multi-currency revolving credit facility of £30.0 million. The Company also has long-term borrowing in the form of a £28.6 million 7 ⅞% Debenture Stock 2019.  Gearing has the effect of accentuating market falls and market gains. The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Manager within the remit set by the Board. Gearing is used selectively to leverage the Company's portfolio in order to enhance long term returns. Borrowings, other than the debenture stock, are short term and particular care is taken to ensure that covenants permit maximum flexibility of investment policy. The Board monitors gearing with debt measured both at par and market value and has agreed various gearing restrictions which are incorporated in guidelines for the Manager and in the Articles of Association of the Company.

 

These gearing restrictions are set out below:

 

a)          Gearing should not exceed 30% of the net asset value at the time of draw down (with debt at market value).

b)         Per the Articles of Association, total amounts borrowed shall not at any time exceed the aggregate amount of the issued and paid up share capital and reserves (as per the last published balance sheet of the Company).

 

Operational risk: In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Manager, BNY Mellon Trust & Depositary (UK) Limited (the Depositary), Equiniti Limited (the registrar) and BNP Paribas, who maintain the Company's accounting records. The security of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These are reported on by their reporting accountants and regularly tested and monitored throughout the year. This is evidenced by the Board through regular reporting by the Manager.

 

The overall performance of the Manager in particular, to whom responsibility for the management of the Company has been delegated under a management agreement  is regularly reviewed by the Board and its compliance with the management agreement formally on an annual basis.

 

Performance and Outlook

The strategic direction and development of the Company is regularly discussed as part of Board meeting agendas.  At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives.  The Board also considers the efficacy of the promotional activities of the Company, including communications with shareholders.

 

A review of the Company's activities and performance during the year to 31 January 2015 and future developments is detailed in the Chairman's Statement and the Manager's Review. This covers market background, investment activity, portfolio strategy, dividend and gearing policy and investment outlook.

 

Key Performance Indicators (KPIs)

The Directors consider net asset value total return, share price total return and dividend levels when reviewing KPIs.

 

The main KPIs used by the Board in assessing the Company's performance include:

 

•           Net Asset Value

•           Revenue Return per Ordinary Share

•           Share Price

•           Discount

•           Performance relative to FTSE All-Share Index

•           Performance relative to peer group

•           Ongoing Charges

 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge in order to allow it to fulfill its obligations. At 31 January 2015, there were three male and two female Directors. The Company has no employees.

 

Employee and Socially Responsible Policies

As the Company has delegated the management of the portfolio, it has no employees and therefore has no requirement for disclosures in this area. The Company's socially responsible investment policy is set out in the Statement of Corporate Governance.

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

 

The Aberdeen Group's corporate socially responsible investment policy including environmental policy can be found on http://www.aberdeen-asset.com/aam.nsf/groupCsr/home

 

Rory Macnamara

Chairman

27 March 2015

 

 

STRATEGIC REPORT - CHAIRMAN'S STATEMENT

I am pleased to report that 2014/15 was a successful year for your Company as we met all three of our main objectives: maintaining a relatively attractive yield, growing the dividend in real terms and outperforming the FTSE All-Share Index ("the Index").

 

Particularly pleasing was the net asset value total return of 11.1% that exceeded the increase in the benchmark by 4%. This marks a welcome return to outperformance and also represents a solid absolute return in challenging market conditions. In total return terms, we have outperformed our benchmark in five of the past six years and delivered a positive absolute return in each of those reporting periods.

 

The Company continues to offer an attractive yield of over 4% at the date of this report, a premium of in excess of 10% of the Index. Earnings were just ahead year on year and, once again, we have increased the dividend modestly ahead of inflation, while also making a healthy contribution to revenue reserves. Your Company has now increased its dividend in 31 of the last 35 years and maintained it in the remaining four.

 

While your Company remains very much focused on investing in UK listed companies, over 70% of the revenues of those companies comes from overseas, making global economic developments an important driver behind our financial performance. The Company's performance in 2014/15 was achieved against a global economic backdrop that was very mixed. Although the United States remained the driving force of much of the growth, there was more inconsistent economic performance from other parts of the world. In continental Europe, the high hopes of recovery somewhat petered out over the course of the year, while in Japan, despite the best efforts of Abenomics, growth has yet to reach targeted levels. Amongst emerging markets China and Brazil continued to slow, while Russia was heavily impacted by sanctions. Indeed among the big four BRIC nations only India has positively surprised under the leadership of Narendra Modi.

 

The UK economy has continued to be strong, recording 2.7% growth in 2014. While employment data has been improving over the past few years, real income growth has been stubbornly elusive as wage inflation has consistently lagged increases in the cost of living. With the collapse in the oil price, relative strength of sterling and consequent decline in inflation, we have finally started to see a welcome return to real growth in earnings. Set against this more optimistic picture for domestic consumption sits the very challenging state of government finances which remain in poor shape despite nearly five years of the coalition's efforts to rein in spending and increase revenues.

 

It was an eventful year for global financial markets with the oil price more than halving, some significant swings in currencies and a continuing precipitous decline in bond yields across much of the world. Volatility levels in the later part of our financial year reached levels not seen since the Eurozone crisis as conflict in the Ukraine, the election of the radical Syriza party in Greece, the breaking of the linkage between the Swiss Franc and the Euro by the Swiss National Bank and rapidly falling energy prices all helped to raise tensions.

 

Amidst that somewhat patchy economic performance and those geopolitical issues, the Index made modest progress with a total return of 7.1%, delivering a more balanced spread of returns between large and small companies than we saw in 2013/14 with the FTSE 100 slightly outperforming the FTSE 250, while smaller companies lagged somewhat.

 

Equity market returns have been greater than expected over the past several years, largely driven by the continuing decline in interest rates across the maturity structure pushing valuations upwards as corporate cash flows look increasingly attractive. Companies offering steady returns such as real estate and infrastructure businesses have benefitted most from rising share prices and increasingly companies that are deemed to be stable generators of profits, such as those in the consumer staples sector, have started to see their share prices gain. With interest rates at already historically low levels in many countries around the world and absent sustained growth in earnings, this is a dynamic that cannot be sustained indefinitely. While the prospect of meaningful increases in interest rates seem some way off, we do worry about the potential impact when equity markets continue to treat certain sectors and companies as bond proxies.

 

Gearing

The Company believes that sensible use of modest financial gearing, whilst amplifying market movements in the short term, will enhance returns of both capital and income to shareholders over the long term. To this end we employ two sources of financial leverage, a core long term fixed rate debenture (repayable in 2019) with a nominal value of £28.6 million and a variable rate bank loan facility of £30 million.

 

During the financial year we switched £5 million of our drawn facility into euros in order to better match our underlying exposure and so your Company suffered less than it otherwise might as the Euro fell in value against sterling. In the second half we elected to draw down a further £6 million of our variable rate bank facility to take advantage of a number of investment opportunities. This means that, with debt valued at par, potential gearing has increased year on year from 8.0% to 9.1%, while on a pure equity basis, netting off our cash, it has increased from 6.7% to 7.8%.

 

Over the course of 2015 we will look to renegotiate our bank facilities when they expire in July. We are also maintaining a close eye on longer term funding markets for any opportunity that may arise.

 

Alternative Investment Fund Managers Directive

The Company reported the changes made to its arrangements with Aberdeen in July last year as a result of the implementation of the AIFMD in the UK. This resulted in the appointments of a new alternative investment fund manager, Aberdeen Fund Managers Limited (AFML), and a depositary, BNY Mellon Trust & Depositary (UK) Limited. These regulatory changes have also placed additional periodic disclosure requirements on the Company's AIFM, AFML. As a result, your Annual Report for 2015 contains an additional un-audited disclosure page.

 

Corporate Governance and Regulation

The Board fully endorses the UK Corporate Governance Code and takes action to ensure that we meet all aspects relevant to Investment Companies by complying with the AIC's Code of Corporate Governance. The Directors (each of us being non-executive) are independent of the Company and of the AIFM and the Manager and any other significant service provider. Notwithstanding that the Code provision relating to external evaluation of the Directors does not apply to the Company, we have decided to implement this aspect and a review was last carried out in 2013. The next externally facilitated Board evaluation will be carried out in 2016. We believe that the existing Audit, Management Engagement and Nomination & Remuneration Committees are operating effectively with appropriate Terms of Reference, the latter including active consideration of succession planning.

 

We make sure that at appropriate intervals we make time to consider strategic issues, for example the appropriateness of the Company's performance benchmark, Board guidelines on diversification of investments and income, gearing and other issues relating to the way the portfolio is managed and risks controlled.

 

In each of our regular Board meetings we review any issues raised by shareholders and seek to ensure that these have been satisfactorily dealt with through the Company's administrative procedures. I believe we have an effective system for resolving any problems but if any shareholder does have further concerns, administrative or otherwise, both I and John Carson, the Senior Independent Director, can be contacted through the Company Secretary.

 

One of the Board's most important duties is to consider whether the appointment of the AIFM (and therefore the Manager) is appropriate in terms of experience, breadth and depth of resources and consistency of investment process and to ensure that its services are provided to the Company on a competitive basis.  We review these through the Management Engagement Committee as well as an extensive range of absolute and relative performance statistics and look at these indicators over a range of time periods to ensure that the Company adopts a long-term rather than short-term view.

 

A significant proportion of the Company's costs are represented by the fees paid to the AIFM. We consider that our overall costs are reasonable compared with the Company's peer group and equivalent Open Ended Equity Income Funds and that, within the total, the services provided by the AIFM and the Manager (which cover not only portfolio management but also administrative and company secretarial matters) are currently provided at a competitive rate. We do not consider that we should seek to amend the fee basis to include a performance related element as this would introduce complexity and the evidence indicates that such arrangements tend, in general, to operate against shareholder interests.

 

Much has been written about the revolutionary changes taking place in the Defined Contributions pensions market, when from April 2015, individuals will no longer be forced to buy an annuity and will be granted the flexibility to keep assets invested. Many analysts have highlighted the arguments for use of investments trusts as vehicles for pension savers.  We believe that the Company is well positioned to benefit from these changes and this may lead to additional demand for the Company's shares. 

 

Premium/Discount

Over the past year the price relative to the Net Asset Value at which the shares of your Company trade has been relatively stable although it moved from a small premium, of 1.6%, to a discount of 2.5%. 

 

While we have not as yet undertaken any share re-purchases, and we would not intend to do so at these levels, we are once again seeking shareholders' permission to do so at the upcoming Annual General Meeting and we are prepared to use this measure in the light of both the Company's absolute level of discount and relative to those of our peer group.

 

Dividend

The Board seeks to provide a well underpinned dividend that can grow in real terms and at the same time allow the pursuit of capital gains. When it comes to setting dividend distributions, alongside the requirement for a maximum retention of 15% of the Company's income, we take a long-term view of the income generating capability of the portfolio, the level of earnings cover and of revenue reserves, and also keep watch on the potential for capital growth amongst our holdings. We believe that it is important that our policy of providing an investment in high quality companies that provide above average yield should not overly constrain the Manager's ability to grow portfolio income and generate total return.  Shareholders will also be aware that, after provision for the third interim and proposed final dividends, reserves of 8.89p per share are available to support future distributions. 

 

As a result we are proposing a final dividend of 3.525p which will make a total of 11.25p for the full year, an increase of 1.4% on last year, slightly ahead of the rate of inflation as measured by the Retail Price Index.  This is well supported by earnings and reflects our caution that the special dividends from which we have benefitted in each of the past three years may not recur.

 

Outlook

We remain reasonably cautious on the outlook for both income and capital generation.  2015/16 is likely to be challenging from an earnings perspective amidst a sluggish global economic backdrop and specific challenges facing a number of our larger holdings such as those in the oil and gas industry. From a total return perspective, equity valuations remain reasonably full and corporate earnings growth looks likely to be modest which, we suspect, will constrain the potential for capital gains. It seems that investors are increasingly seeing equities as an attractive home given the pitiful yield available on cash and bonds and these factors may continue to positively influence market prices.

 

There are, though, three positives for income generation; firstly, currencies are likely to have a more neutral effect, having been an income headwind in 2014/15; secondly, the balance sheets of many of our investee companies remain in excellent shape and could potentially support more substantial distributions to shareholders and, finally, your Manager will look to take advantage of opportunities that can enhance our earnings.

 

From a capital perspective, with our focus on companies with strong business models, robust balance sheets and the ability to generate cash flow to support consistent and growing dividend distributions, we would expect our portfolio to be relatively more resilient in tougher market conditions.  This combined with your Manager's bottom-up stock picking style should enable us to make the most of any good long term opportunities that may emerge from difficult market conditions. Likewise, if conditions do prove to be more buoyant than we expect and investors continue to chase yield, given our relatively higher yielding portfolio we would expect to participate in those higher returns.

 

 

Annual General Meeting

The Company's Annual General Meeting will take place in a new venue in Dundee this year (Apex City Quay Hotel, 1 West Victoria Dock Road, Dundee, DD1 3JP) on 27 May 2015, and I look forward to seeing as many of you there as possible.

 

 

 

Rory Macnamara

Chairman

27 March 2015

 

 

STRATEGIC REPORT - MANAGER'S REVIEW

 

In last year's Annual Report we wrote that after a difficult period for relative returns in 2013/14 the portfolio had plenty of latent potential within it and it is pleasing that significantly better returns have indeed been experienced in 2014/15. Nonetheless despite the positive relative performance this was still a year with its fair share of difficult situations. Tesco and GDF Suez both announced cuts to their dividend payments, while Centrica, Standard Chartered, Rolls Royce, Wood Group and Weir Group continued to face tough trading conditions for a variety of reasons. Yet these were more than offset elsewhere as we benefited from strong share price performances from some of our largest holdings such as Zurich Insurance Group, Unibail-Rodamco, Cobham, Sage and Prudential.

 

The collapse in oil prices during the second half of the year posed one of the biggest challenges. We have substantial exposure to the sector through both the large vertically integrated companies such as Royal Dutch Shell and the services providers like Wood Group. Clearly the decline in the oil price has put pressure on these companies' revenues and profits. However, all of our holdings within the sector entered this period with strong balance sheets and relatively modest valuations and so far have maintained their dividends. While clearly under revenue pressure there is also an opportunity to reduce their cost bases which have been highly inflationary over recent years. We will monitor the area closely and remain aware that these circumstances can provide both opportunities as well as threats.

 

Equity markets have risen strongly over the past six years but largely due to the collapse in the discount rate rather than any sustained growth in earnings. The actual operating environment for companies remains tough but because of the overall increase in equity prices this has perhaps been overlooked. Nonetheless, for those of us who spend our days analysing the financial performance of companies, top line growth remains hard to come by. Cost cutting and acquisitions can only take companies so far and ultimately over the long term it is revenue growth that delivers earnings advancement and increasing dividends. Finding companies that have exposure to growth markets, that meet our quality criteria and which can be purchased at sensible valuations is increasingly a difficult exercise. 

 

With the income account now relatively stable we are seeking to put more money to work into mid sized companies. These often offer lower starting yields and consequently higher valuations but much better dividend and capital growth prospects. This may mean restricting a little the pace of income generation for a period as we reduce higher yielding but lower growth investments but we believe that investors will be well rewarded over the longer term from this process.

 

We thought that it might be worthwhile to illustrate our longer term approach and thinking with regards to a specific holding in the portfolio. Why is it that we are happy to own companies where the near term prognosis is tough, and why do we still hold the names we listed above as underperformers in 2014/15 when in all likelihood the operating environment for them is likely to remain tough for some time? Firstly, we always want to make sure that the long term outlook for the companies we own is robust, very simply asking does this business have the potential to be substantially larger in ten years' time? Secondly we then check that they have the balance sheet in place to support themselves on that journey. Then finally and absolutely vital is to recognise that good management can make a key difference in driving corporate performance even amid tricky operating periods.

 

One interesting case study is Cobham, a UK headquartered aerospace and defence company. Back in 2011 after a significant profit warning, the prospects for the company looked bleak with their defence end markets, accounting for over 70% of sales, under sustained pressure from the seemingly permanent cycle of government budget cuts exacerbated by the political gridlock in Washington DC. Who on earth would want to invest in a company that operates in such a challenged environment? This view of course overlooks the importance of valuation in driving future returns, but more than that, it ignores the role that management can play, especially when the hand they are dealt is a reasonably strong one.

 

In Cobham's case the company had support from their diversity of earnings, (around thirty percent of the business was in commercial markets), the ability to cut costs and strong finances that could facilitate the reallocation of capital to other adjacent but faster growing markets.  Over the next four years management played a key role in this process; there was no need for wonder inventions or reinventing the business model. Instead they undertook a series of sensible steps that helped support the process of corporate renewal. Some of the most difficult units were sold, acquisitions were made that supported the commercial businesses and a sustained focus on cash generation and cost control yielded real benefits.  Ultimately over the next four years management were able to stabilise underlying earnings per share, increase the dividend by close to 100% and see the share price nearly double.

 

Two of the companies that have most negatively impacted our performance in recent times have acquired impressive new CEOs in recent months. Dave Lewis has joined Tesco and Iain Conn has arrived at Centrica. These are both companies that while under pressure for a number of reasons have fundamentally strong capabilities. The diagnosis and treatment of root causes will of course be different in each case but good management brings the ability to make clear strategic choices and execute effectively.  While market conditions for these businesses are likely to remain difficult, self-help and good delivery may well set them back on the path to both long term profit growth and consequently higher share prices. While it may be a bold statement given recent difficulties with a longer term view, we suspect that both these companies may be rather more positive contributors in future years.

 

Performance

As we have noted, income growth was somewhat slower in 2014/15 than the previous year. At a headline level income was up 1.2% year on year; within this there were a number of moving parts. Dividend income from our investments was up 3.4% aided by a special dividend from Compass Group, higher payments from our investee companies and an additional distribution gained through the switch of Shell A shares into Shell B shares. Notable was the 17% increase in revenues from our overseas holdings which increased their contribution to our income from foreign equities to close to a quarter. In contrast option income was down around 20% driven by fewer opportunities than in the previous year. Operating costs were higher reflecting some of the additional regulatory burden from the Alternative Investment Fund Managers Directive that your Company faces while finance costs were also slightly higher reflecting the additional bank borrowing that was drawn down in the second half of the year. All of this left revenue income per share up 0.01p at 11.90p. Given that last year saw a record level of option income generated as well as an additional special dividend from Sage Group, we feel that matching this is a relatively respectable performance.

 

At the capital level the Company's net asset value total return of 11.1% exceeded the 7.1% increase in the FTSE All-Share by four percent. This was driven by a number of strong share price increases as companies such as Provident Financial, Prudential, Sage and Unibail-Rodamco were rewarded for continuing strong operational performance. It was also pleasing to see improved returns from a number of holdings that had been weak in prior periods particularly Pearson, British American Tobacco and Unilever. Pearson had announced a substantial profit warning in January 2014 but over the next twelve months has managed to stabilise trading and is now looking forward to a return to growth in 2015. Meanwhile both British American Tobacco and Unilever continued to deliver steady trading which was rewarded with something of a catch up in share price terms after lacklustre returns in 2013/14.

 

Portfolio Activity

Portfolio activity remained typically modest. However, we added four new holdings over the course of the year which included Ultra Electronics, Inchcape, Schroders and Aveva.

 

Ultra is a niche player in providing technology solutions in both defence and commercial markets; this combined with a strong balance sheet, high levels of intellectual property and decent long term growth prospects all attracted us to the business, especially at the current modest valuation. Inchcape in contrast is a company that we feel is often misunderstood. While its business does revolve around retailing cars, its ownership of exclusive distribution arrangements for strong automotive brands in fast growing emerging markets leave it well positioned to deliver much better quality earnings growth than might be expected. This is supported by good cash generation, a hefty proportion of revenues that are generated from spares and servicing and a very strong balance sheet.

 

In contrast the purchase of holdings in Schroders and Aveva were more opportunistic. Schroders was very weak during the recurrence of market jitters in October which allowed us to buy a position at an attractive entry multiple. It is an excellent business with a broad based product portfolio, good distribution and a very robust balance sheet. Given the Company's expansion in its pay-out ratio in recent years the prospective dividend yield of over four percent was also welcome. Aveva specialises in providing software for Computer-aided Design (CAD) systems employed in the design and construction of large bespoke engineering projects, particularly oil and gas infrastructure, ships and power stations. A profit warning in 2014 had caused the shares to decline quite sharply and that combined with concerns over the company's exposure to falling oil prices gave the opportunity to buy an initial holding at a significant discount to historic valuation multiples. Once again the business is backstopped by a very strong balance sheet. Over the course of the year we made more modest additions on relative weakness to Croda, BHP Billiton, HSBC and Standard Chartered as challenges at these four companies permitted us to add to our holdings at what we consider to be attractive long term prices.

 

In terms of sales we reduced our holding in ENI, assessing it to be the weakest of our oil company holdings. Early in 2014 we also trimmed our holding in Tesco but since the appointment of Dave Lewis as CEO we have left our position unchanged. Profits were also taken on strength from Nestle and Linde, while the Verizon Communications shares that we received as part of Vodafone's disposal of its stake in Verizon Wireless were sold. The one full sale of a main holding was that of Amec following their acquisition of Foster Wheeler. We were concerned that leveraging the balance sheet at a time when trading in their end markets was generally getting harder was an unwise move and something that substantially raised the risk profile of the business.

 

Outlook

While stock markets have produced strong returns in the first few weeks of our new financial year we remain relatively cautious and would be surprised if returns were much higher than that experienced in the year to January 2015. Against a reasonably tough global economic backdrop revenue growth remains a prized asset and stocks continue to be largely driven upwards by increases in valuation rather than improvement in profits. Early signs of sustained recovery in economies in continental Europe may perhaps be one additional positive that could emerge over the course of the year with consequent benefits for both the UK and wider markets. 

 

At the company level we will continue to focus our capital on stronger businesses with the potential to prosper in challenging market conditions, while seeking further opportunities in the mid cap area and keeping a close watch on developments within the oil and gas sector. From a revenue perspective, depending on special distributions, this will most likely be a year of limited income growth, however, we will look to offset those impacts where possible and our current reasonable dividend cover and healthy reserves leave us well positioned to continue to grow our dividend in real terms.

 

Jeremy Whitley

and Ben Ritchie

Aberdeen Asset Managers Limited

27 March 2015

 

 

STRATEGIC REPORT - RESULTS

Financial Highlights

Total assets  

£467,830,000

£437,058,000

+7.0

Equity shareholders' funds A

£422,300,000

£396,154,000

+6.6

Equity shareholders' funds with debt valued at par

£428,702,000

£403,526,000

+6.2

Market capitalisation

£401,676,000

£392,239,000

+2.4

Share price (mid)

266.00p

259.75p

+2.4

Net asset value per share A

279.66p

262.34p

+6.6

Net asset value per share with debt valued at par

283.86p

267.17p

+6.2

FTSE All-Share Index

3,621.81

3,496.51

+3.6





(Discount)/premium B (difference between share price and net asset value)

(Discount)/premium where borrowings are deducted at market value

(2.5)%

1.6%






Gearing  




Net gearing C

7.78%

6.73%






Dividends and earnings




Total return per share

27.76p

22.24p


Revenue return per share

11.90p

11.89p


Total dividend per share for the year

11.25p

11.10p


Dividend cover

1.06

1.07


Revenue reserves




Prior to payment of third interim dividend declared and proposed final dividend

14.99p

14.17p


After payment of third interim dividend declared and proposed final dividend

8.89p

8.22p






Operating costs




Ongoing charges D

0.62%

0.59%



A           Calculated by valuing the Company's debt at its market value.

B           These premiums are based on capital only NAVs, calculated in accordance with AIC guidelines. Using the NAVs that derive from figures in the statutory accounts would generate a discount.

C           Calculated in accordance with AIC guidance "Gearing Disclosures post RDR"  

D           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 divided by the average cum income net asset value throughout the year.

 

 

Performance



Capital return




Net asset value

+6.6%

+25.5%

+40.7%

FTSE All-Share Index

+3.6%

+23.5%

+36.1%

Share price

+2.4%

+29.1%

+50.3%





Total return (Capital return plus net dividends reinvested)




Net asset value

+11.1%

+43.4%

+76.5%

FTSE All-Share Index

+7.1%

+37.2%

+61.5%

Share price

+6.8%

+47.9%

+89.9%

Source: Aberdeen, Factset & Morningstar




 

 

Ten Year Financial Record

Year ended 31 January

Total revenue (£'000)

17,314

17,988

18,717

19,998

14,251

16,904

19,173

18,866

20,750

20,994

Per share (p)











Revenue return A

9.20

10.04

10.58

11.72

7.99

10.15

11.00

10.77

11.89

11.90

Dividends paid/proposed

8.20

9.00

10.00

10.25

10.25

10.25

10.65

10.75

11.10

11.25

Revenue reserve B

5.82

7.09

7.85

9.41

7.16

7.06

7.42

7.45

8.22

8.89

Net asset value C

253.24

296.10

254.74

160.45

201.37

230.13

226.39

255.82

267.17

283.86

Total return

27.63

50.75

(32.16)

(84.12)

51.15

39.00

6.50

41.30

22.24

27.76


_____

_____

_____

_____

_____

_____

_____

_____

_____

_____

Shareholders' funds (£'000)

398,267

456,067

386,680

241,944

303,603

346,927

341,280

385,605

403,526

428,702


_____

_____

_____

_____

_____

_____

_____

_____

_____

_____


A           The revenue return for 2011 includes 0.47p attributable to a refund of VAT in respect of the periods 1 January 1990 - 4 December 1996 and 1 January 2001 to 31 December 2003  and 0.74p attributable to interest due on all VAT recovered.

A           The revenue return for 2010 includes 0.11p attributable to a refund of VAT in respect of the period 1 January 2001 - 31 December 2003.

A           The revenue return for 2009 includes 0.20p attributable to a refund of VAT in respect of the period 1 January 2004 - 31 October 2007.

B           After payment of third interim and final dividends

C           With debt at par.

 

 

DIRECTORS' REPORT

Introduction

The Board of Directors, Rory Macnamara (Chairman), John Carson, Catherine Claydon, Elisabeth Scott and Peter Wolton held office throughout the year under review.  The Directors present their report and the audited financial statements for the year ended 31 January 2015.

 

The Company and its Objective

The Company is an investment trust and its Ordinary shares are listed on the premium segment of the Official List of the UK Listing Authority and traded on the London Stock Exchange. The Company's objective is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom.  In pursuit of the Company's objective, the Company's investment policy is to invest in high quality companies with strong income potential, while at the same time providing an above-average portfolio yield.  A review of the Company's activities is given in the Strategic Report. This includes the overall strategy of the business of the Company and its principal activities, main risks faced by the Company, likely future developments of the business and the recommended dividend.

 

Status

The Company is an investment company, within the terms of Section 833 of the Companies Act 2006 and carries on business as an investment trust.  The Company is registered as a public limited company.  The Company's registration number is SC000881. The Company has no employees and the Company makes no political donations.

 

The Company has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 February 2012.  The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 January 2015 so as to enable it to comply with the ongoing requirements for investment trust status.

 

The affairs of the Company were conducted in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner in the future.

 

Results and Dividends

The first, second and third interim dividends for the year ended 31 January 2015 of 2.575p per Ordinary share each were paid on 29 August 2014, 28 November 2014 and 27 February 2015 respectively. 

 

The Directors now recommend a final dividend of 3.525p per Ordinary share payable on 29 May 2015 to holders of Ordinary shares on the register on 8 May 2015. The relevant ex-dividend date is 7 May 2015. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting ("AGM").

 

Management Agreement

To comply with the Alternative Investment Fund Managers Directive, the Company's investment management arrangements with the Aberdeen Asset Management Group have been reorganised.  The Company has appointed Aberdeen Fund Managers Limited ("AFML"), a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager ("AIFM") with effect from 15 July 2014. In order to facilitate this appointment, the Company terminated its existing investment management agreement with Aberdeen Asset Managers Limited ("AAM") and entered into a new management agreement with AFML. The new management agreement with AFML is on the same commercial terms as the previous agreement with AAM and complies with the new AIFMD regulatory regime. Under the new arrangements, AFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities.  The Company's portfolio will continue to be managed by AAM by way of a group delegation agreement in place between AFML and AAM.  In addition, AFML has sub-delegated promotional activities to AAM and administrative and secretarial services to Aberdeen Asset Management PLC.  Fees payable are shown in note 4 to the financial statements.

 

The management fee, details of which are shown in note 3 to the financial statements was calculated, on a monthly basis, at 0.45% on the first £225 million, 0.35% on the next £200 million and 0.25% on amounts over £425 million per annum of the net assets of the Company calculated with debt at par and excluding commonly managed funds ("net assets"). The fee for the year ended 31 January 2015 amounted to 0.40% of average monthly net assets. The management agreement is terminable on not less than six months' notice. The terms and conditions of the AIFM's appointment and its performance are reviewed by the Management Engagement Committee on an annual basis. The Committee's conclusions regarding the continued appointment of the AIFM are dealt with in detail in the Chairman's Statement.

 

Directors' Liability Insurance

The Company maintains insurance in respect of directors' and officers' liabilities in relation to their acts on behalf of the Company. Each Director of the Company shall be entitled to be indemnified out of the assets of the Company to the extent permitted by law against any loss or liability incurred by him in the execution of his duties in relation to the affairs of the Company.  These rights are included in the Articles of Association of the Company.

 

Going Concern

The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange and in most circumstances are realisable within a short timescale.  The Board has set limits for borrowing and derivative contract positions and regularly reviews actual exposures, cash flow projections and compliance with covenants.  The current bank loan expires in July 2015 and the Company will enter negotiations with its bankers in advance of this renewal. The Company's Directors believe that the Company has adequate resources to continue its operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts.

 

Accountability and Audit

Each Director confirms that, so far as he or she (hereinafter referred to as "he") is aware, there is no relevant audit information of which the Company's auditor is unaware, and he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.  Additionally there are no important events affecting the Company since the year end.

 

By order of the Board

Aberdeen Asset Management PLC

Company Secretary, Edinburgh

27 March 2015

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations. 

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards. 

 

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. 

 

In preparing these financial statements, the Directors are required to: 

 

•           select suitable accounting policies and then apply them consistently; 

•           make judgments and estimates that are reasonable and prudent;

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

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

 

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations. 

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

We confirm that to the best of our knowledge:

 

•           the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

•           that in the opinion of the Directors, the Annual Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and

•           the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

 

For and on behalf of Dunedin Income Growth Investment Trust PLC

 

John Carson

Audit Committee Chairman

27 March 2015

 

 

INCOME STATEMENT

 


Year ended 31 January 2015

Year ended 31 January 2014




Gains on investments

9

-

25,888

25,888

-

18,040

18,040

Currency gains


-

510

510

-

-

-

Income

2

20,994

-

20,994

20,750

-

20,750

Investment management fee

3

(665)

(998)

(1,663)

(647)

(971)

(1,618)

Administrative expenses

4

(932)

-

(932)

(787)

-

(787)



______

______

______

______

______

______

Net return before finance costs and taxation


19,397

25,400

44,797

19,316

17,069

36,385









Finance costs

5

(975)

(1,464)

(2,439)

(972)

(1,457)

(2,429)



______

______

______

______

______

______

Return on ordinary activities before taxation


18,422

23,936

42,358

18,344

15,612

33,956









Taxation

6

(446)

-

(446)

(411)

-

(411)


______

______

______

______

______

______

Return on ordinary activities after taxation



______

______

______

______

______

______









Return per Ordinary share (pence)

8



______

______

______

______

______

______









The column of this statement headed "Total" represents the profit and loss account of the Company.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

All revenue and capital items in the above statement derive from continuing operations.

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

 

 

BALANCE SHEET

 





Non-current assets




Investments at fair value through profit or loss

9

462,444

431,223



_________

_________

Current assets




Loans and receivables

10

603

763

Cash and short term deposits

17

5,783

6,377



_________

_________



6,386

7,140



_________

_________

Creditors: amounts falling due within one year




Bank loan

11

(10,583)

(5,000)

Other creditors

11

(1,000)

(1,305)



_________

_________



(11,583)

(6,305)



_________

_________

Net current (liabilities)/assets


(5,197)

835



_________

_________

Total assets less current liabilities


457,247

432,058





Creditors: amounts falling due after more than one year

12

(28,545)

(28,532)



_________

_________

Net assets




_________

_________

Capital and reserves




Called-up share capital

13

38,419

38,419

Share premium account


4,619

4,619

Capital redemption reserve


1,606

1,606

Capital reserve

14

361,427

337,491

Revenue reserve


22,631

21,391



_________

_________

Equity shareholders' funds




_________

_________





Adjusted net asset value per Ordinary share (pence)

18



_________

_________

 

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

 

For the year ended 31 January 2015


















Balance at 31 January 2014


38,419

4,619

1,606

337,491

21,391

403,526

Return on ordinary activities after taxation


-

-

-

23,936

17,976

41,912

Dividends paid

7

-

-

-

-

(16,736)

(16,736)



Balance at 31 January 2015












For the year ended 31 January 2014


















Balance at 31 January 2013


38,419

4,543

1,606

321,142

19,895

385,605

Return on ordinary activities after taxation


-

-

-

15,612

17,933

33,545

Issue of Ordinary shares


-

76

-

737

-

813

Dividends paid

7

-

-

-

-

(16,437)

(16,437)



Balance at 31 January 2014












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

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

 

 

CASH FLOW STATEMENT

 


Year ended

Year ended



31 January 2015

31 January 2014


Net cash inflow from operating activities

15


18,257


18,054







Servicing of finance






Interest paid



(2,429)


(2,429)







Taxation






Overseas withholding tax paid



(446)


(411)







Financial investment






Purchases of investments


(62,120)


(31,472)


Sales of investments


56,787


35,157




_______


_______


Net cash (outflow)/inflow from financial investment



(5,333)


3,685







Equity dividends paid

7


(16,736)


(16,437)




_______


_______

Net cash (outflow)/inflow before financing



(6,687)


2,462







Financing






Issue of Ordinary shares



-


813

Repayment of loan



(5,000)



Drawdown of loan



11,021


-




_______


_______

Net cash inflow from financing



6,021


813




_______


_______

(Decrease)/increase in cash







_______


_______







Reconciliation of net cash flow to movements in net debt






(Decrease)/increase in cash as above



(666)


3,275

Repayment of loan



5,000


-

Drawdown of loan



(11,021)


-

Exchange movements



510


-

Non-cash movements



(13)


(13)




_______


_______

Movement in net debt in the period



(6,190)


3,262

Opening net debt



(27,155)


(30,417)




_______


_______

Closing net debt







_______


_______

 

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 JANUARY 2015

 

1.

Accounting policies


(a)

Basis of preparation and going concern



The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and traded options, and in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.






The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.






The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).





(b)

Revenue, expenses and interest payable



Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on AAA rated money market funds and short term deposits and expenses are accounted for on an accruals basis. Income from underwriting commission is recognised as earned. Interest payable is calculated on an effective yield basis.






Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs including the amortisation of expenses and premium related to the debenture issue are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long-term in the form of revenue and capital respectively (see note 3).






Stock lending income is recognised on an accruals basis.





(c)

Investments



Investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE All-Share and the most liquid AIM constituents. Gains or losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement.





(d)

Dividends payable



Interim and final dividends are recognised in the period in which they are paid.





(e)

Capital reserves



Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.






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





(f)

Taxation



The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.






Owing to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. 





(g)

Foreign currency



The Company receives a proportion of its investment income in foreign currency. These amounts are translated at the rate ruling on the date of receipt. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date.





(h)

Traded options



The Company may enter into certain derivatives (e.g. options). Option contracts are accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value. The initial fair value is based on the initial premium, which is recognised upfront. The premium received and fair value changes in the open position which occur due to the movement in underlying securities are recognised in the revenue column, losses realised on the exercise of the contracts are recorded in the capital column of the Income Statement.






In addition, the Company may enter into derivative contracts to manage market risk and gains or losses arising on such contracts are recorded in the capital column of the Income Statement.





(i)

Borrowings



Immediately after issue, debt is stated at the fair value of the consideration received on the issue of the capital instrument after deduction of issue costs. The finance cost of the debt is allocated to periods over the term of the debt at a constant rate on the carrying amount.

 


2.

Income


Income from investments




UK listed - franked

13,089

13,038


Overseas listed

4,847

4,146


Stock dividends

1,500

1,607



_________

_________



19,436

18,791



_________

_________


Other income


Deposit interest

6

1


Income on derivatives

1,546

1,934


Income from stock lending

6

24



1,558

1,959



_________

_________


Total income



_________

_________






During the year, the Company was entitled to premiums totalling £1,546,000 (2014 - £1,934,000) in exchange for entering into derivative transactions. This figure includes a mark to market on derivative contracts open at each year end. Derivatives utilised were based on individual FTSE 100 stocks and FT 500 World's largest companies. The Company had no open positions in derivative contracts at 31 January 2015 (2014 - 7 open positions with a  liability of £321,000) as disclosed in note 11. Losses realised on the exercise of derivative transactions are disclosed in note 9.

 


2015

2014



3.

Management fee


Management fee



_________

_________

_________

_________

_________

_________










For the year ended 31 January 2015 management and secretarial services were provided by Aberdeen Asset Managers Limited ("AAML") until 14 July 2014 and thereafter by Aberdeen Fund Managers Limited ("AFML"). There were no changes to the commercial arrangements. Under the terms of an agreement effective from 15 July 2014 (which replaced the existing arrangements with AAML), the Company has appointed AFML to provide management, accounting, administrative and secretarial duties. The management fee for the year ended 31 January 2015 is calculated, on a monthly basis, at 0.45% on the first £225 million, 0.35% on the next £200 million and 0.25% on amounts over £425 million per annum of the net assets of the Company, with debt at par and excluding commonly managed funds. The balance due at the year end was £136,000 (2014 - £139,000). The management fee is chargeable 40% to revenue and 60% to capital. There were no commonly managed funds held in the portfolio during the year to 31 January 2015 (2014 - none).

 


4.

Administrative expenses


Directors' fees

120

112


Auditor's remuneration (excluding irrecoverable VAT):




fees payable to the Company's auditor for the audit of the Company's annual accounts

17

17


fees payable to the Company's auditor for other services




interim review

6

5


other services

1

1


Promotional activities

378

346


Registrar's fees

44

42


Share plan fees

91

57


Printing and postage

52

47


Other expenses

223

160



_________

_________





_________

_________






Expenses of £378,000 (2014 - £346,000) were paid to AAML in respect of the promotion of the Company. The balance outstanding at the year end was £124,000 (2014 - £113,000).




All of the expenses above, with the exception of auditor's remuneration, include irrecoverable VAT where applicable. The VAT charged on the auditor's remuneration is disclosed within other expenses

 


2015

2014



5.

Finance costs


Bank loan interest

68

104

172

66

98

164


Debenture Stock - repayable after 5 years

901

1,352

2,253

901

1,351

2,252


Amortised Debenture Stock premium and issue expenses

5

8

13

5

8

13


Bank overdraft interest

1

-

1

-

-

-



_______

______

______

______

______

______





_______

______

______

______

______

______










Finance costs are chargeable 40% to revenue and 60% to capital.

 


2015

2014



Revenue

Capital

Total

Revenue

Capital

Total

6.

Taxation

£'000

£'000

£'000

£'000

£'000

£'000


(a)

Analysis of charge for the year









Overseas tax suffered

601

-

601

537

-

537



Overseas tax reclaimable

(155)

-

(155)

(126)

-

(126)




_______

______

______

______

______

_____



Current tax charge for the year




_______

______

______

______

______

_____











(b)

Factors affecting the tax charge for the year



The UK corporation tax rate was 23% until 31 March 2014 and 21% from 1 April 2014, giving an effective rate for the year of 21.33% (2014 - effective rate of 23.17%). The tax assessed for the year is lower than the rate of corporation tax. The differences are explained below:







2015

2014




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Return on ordinary activities before taxation

18,422

23,936

42,358

18,344

15,612

33,956




_______

______

______

______

______

______












Corporation tax at 21.33% (2014 - 23.17%)

3,929

5,106

9,035

4,250

3,617

7,867



Effects of:









Non-taxable UK dividends

(2,792)

-

(2,792)

(3,021)

-

(3,021)



Non-taxable stock dividends

(320)

-

(320)

(372)

-

(372)



Capital gains on investments not taxable

-

(5,522)

(5,522)

-

(4,180)

(4,180)



Currency gains not taxable

-

(109)

(109)

-

-

-



Overseas taxes

446

-

446

411

-

411



Non-taxable overseas dividends

(929)

-

(929)

(885)

-

(885)



Excess management expenses

112

525

637

28

563

591




_______

______

______

______

______

______



Current tax charge




_______

______

______

______

______

______











(c)

Factors that may affect future tax charges



At the year end, the Company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £113,482,000 (2014 - £110,499,000). A deferred tax asset in respect of this has not been recognised and these expenses will only be utilised if the Company has profits chargeable to corporation tax in the future.

 


7.

Dividends


Amounts recognised as distributions to equity holders in the period:


Third interim dividend for the year ended 31 January 2014 - 2.575p (2013 - 2.50p) paid 28 February 2014

3,888

3,767


Final dividend for the year ended 31 January 2014 - 3.375p (2013 - 2.50p) paid 30 May 2014

5,096

4,898


First interim dividend for the year ended 31 January 2015 - 2.575p (2014 - 2.575p) paid 29 August 2014

3,888

3,886


Second interim dividend for the year ended 31 January 2015 - 2.575p (2014 - 2.575p) paid 28 November 2014

3,888

3,886


Return of unclaimed dividends

(24)

-



_______

______


Dividends paid in the period



_______

______






A third interim dividend was declared on 14 January 2015 with an ex date of 5 February 2015. This dividend of 2.575p was paid on 27 February 2015 and has not been included as a liability in these financial statements.




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




The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis upon which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £17,976,000 (2014 - £17,933,000).










First interim dividend for the year ended 31 January 2015 - 2.575p (2014 - 2.575p)

3,888

3,886


Second interim dividend for the year ended 31 January 2015 - 2.575p (2014 - 2.575p)

3,888

3,886


Third interim dividend for the year ended 31 January 2015 - 2.575p (2014 - 2.575p)

3,888

3,888


Proposed final dividend for the year ended 31 January 2015 - 3.525p (2014 - 3.375p)

5,323

5,096



_______

______





_______

______






There have been no shares issued or bought back since the year end and the proposed final dividend for 2015 is based on the latest share capital of 151,006,187 Ordinary shares.

 


2015

2014

8.

Return per Ordinary share


Revenue return

17,976

11.90

17,933

11.89


Capital return

23,936

15.86

15,612

10.35



_______

______

______

______


Total return



_______

______

______

______








Weighted average number of Ordinary shares in issue






_________


________

 




9.

Investments: listed at fair value through profit or loss


Opening fair value

431,223

416,868


Opening investment holding gains

(108,613)

(96,437)



_______

______


Opening book cost

322,610

320,431


Purchases at cost

62,120

31,472


Sales - proceeds

(56,787)

(35,157)


Sales - realised gains A

10,640

5,864



_______

______


Closing book cost

338,583

322,610


Closing investment holdings gains

123,861

108,613



_______

______


Closing fair value



_______

______






Gains on investments


Realised gains on sales A

10,640

5,864


Change in investment holdings gains

15,248

12,176



_______

______





_______

______




A              Includes losses realised on the exercise of traded options of £1,211,000 (2014 - £2,184,000). Premiums received of £1,546,000 (2014 - £1,934,000) are included within income per note 2.




Transaction costs


During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:








Purchases

313

137


Sales

42

34



_______

______





_______

______








Stock lending


Aggregate value of securities on loan at the year end

-

9,880


Maximum aggregate value of securities on loan during the year

5,071

16,032


Fee income from stock lending






Stock lending is the temporary transfer of securities by a lender to a borrower, with an agreement by the borrower to return equivalent securities to the lender at an agreed date. Fee income is received for making the investments available to the borrower. The principal risks and rewards, namely the market movements in share prices and associated dividend income are retained by the Company. In all cases the securities lent continue to be recognised on the Balance Sheet.




All stocks lent under these arrangements are fully secured against collateral. There was no collateral held at 31 January 2015 (2014 - £10,692,000).

 


10.

Debtors: amounts falling due within one year


Net dividends and interest receivable

394

589


Tax recoverable

182

153


Other loans and receivables

27

21



_______

______





_______

______

 

11.

Creditors: amounts falling due within one year


(a)

Bank loan



The Company has an agreement (which expires 17 July 2015) with Royal Bank of Scotland to provide a loan facility for up to £30,000,000 (2014 - £30,000,000). At 31 January 2015 €6,100,000 was drawn down at a rate of 0.93071% and £6,000,000 was also drawn down at a rate of 1.45163% (2014 - £5,000,000).  The terms of the loan facility contain covenants that gross borrowings should not exceed 30% of adjusted assets and that the minimum net assets of the Company are £200,000,000.








(b)

Other creditors



Debenture Stock and bank loan interest

586

589



Traded option contracts

-

321



Sundry creditors

414

395




_______

______







_______

______

 


12.

Creditors: amounts falling due after more than one year


7⅞% Debenture Stock 2019 (issued in 1997)

28,600

28,600


Unamortised Debenture Stock premium and issue expenses

(55)

(68)



_______

______


Amortised cost of Debenture Stock



_______

______






The 7⅞% Debenture Stock is due to be redeemed at par on 30 April 2019 and interest is payable in half-yearly instalments in April and October. The Debenture Stock is secured by a floating charge over the whole of the assets of the Company. The Company has complied with the Debenture Stock Trust Deed that total borrowings should not be greater than adjusted capital and reserves throughout the year and up to the date this report was signed.




The market value of the Debenture Stock as at 31 January 2015 was £34,946,000 (2014 - £35,904,000), the value being calculated per the disclosure in note 19. The effect on the net asset value of deducting the Debenture Stock at market value rather than at par is disclosed in note 18.

 


13.

Called-up share capital


Allotted, called up and fully paid:




151,006,187 (2014 - 151,006,187) Ordinary shares of 25p each - equity

37,751

37,751


Treasury shares:




2,671,748 (2014 - 2,671,748) Ordinary shares of 25p each - equity

668

668



_______

______





_______

______






No Ordinary shares were sold from Treasury account during the year. (2014 - 300,000).

 


14.

Capital reserve


At 31 January 2014

337,491

321,142


Net gains on sales of investments during the year

10,640

5,864


Movement in investment holdings gains during the year

15,248

12,176


Currency gains

510

-


Issue of Ordinary shares

-

737


Finance costs of borrowings (note 5)

(1,464)

(1,457)


Investment management fee

(998)

(971)



_______

______


At 31 January 2015



_______

______





Included in the total above are investment holdings gains at the year end of £123,861,000 (2014 - £108,613,000).

 

15.

Reconciliation of net return before finance costs and


taxation to net cash inflow from operating activities


Net return on ordinary activities before finance costs and taxation

44,797

36,385


Adjustment for:




Gains on investments

(25,888)

(18,040)


Currency gains

(510)

-


Decrease/(increase) in accrued income

195

(19)


(Increase)/decrease in other debtors

(35)

122


Decrease in other creditors

(302)

(394)



_______

______





_______

______

 












16.

Analysis of changes in financing during the year


Opening balance at 31 January 2014

43,038

42,962

28,519


Share premium on treasury share issues

-

76

-


Movement in unamortised Debenture Stock discount and issue expenses

-

-

13



_______

______

______

______


Closing balance at 31 January 2015



_______

______

______

______








The Ordinary share capital on the Balance Sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, should a transfer be made to the capital redemption reserve.

 













17.

Analysis of changes in net debt


Cash and short term deposits

6,377

(666)

72

-

5,783


Debt due within one year

(5,000)

(6,021)

438

-

(10,583)


Debt due after more than one year

(28,532)

-

-

(13)

(28,545)



_______

______

______

______

______


Net debt



_______

______

______

______

______

 

18.

Net asset value per share


Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 4 'Capital Instruments'. The analysis of equity shareholders' funds on the face of the Balance Sheet does not reflect the rights under the Articles of Association of the Ordinary shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary shareholders at the year end, adjusted to reflect the deduction of the Debenture Stock at par. A reconciliation between the two sets of figures is as follows:







Equity shareholders' funds

£428,702,000


Adjusted net assets

£428,647,000


Number of equity shares in issue at year end A

151,006,187


A Excluding shares held in treasury.








Equity shareholders' funds per share

283.90p


Less: unamortised Debenture Stock premium and issue expenses

(0.04p)



_______

______


Adjusted net asset value per share



_______





The net asset value per share at 31 January 2015, adjusted to include the Debenture Stock at market value rather than at par is 279.66p (2014 - 262.34p).




The movements during the year of the assets attributable to the Ordinary shares were as follows:









Opening adjusted net assets

403,458


Capital return for the year

23,936


Revenue on ordinary activities after taxation

17,976


Dividends appropriated in the year

(16,736)


Issue of Ordinary shares

-


Movement in unamortised Debenture Stock premium and issue expenses

13



_______

______


Closing adjusted net assets



_______

______

 

19.

Financial instruments and risk management


The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts and futures and options for the purpose of managing currency and market risks arising from the Company's activities.




During the year, the Company entered into certain derivative contracts. Positions closed during the year realised a loss of £1,211,000 (2014 - £2,184,000). As disclosed in note 2, the premium received and fair value changes in respect of options written in the year was £1,546,000 (2014 - £1,934,000). The largest position in derivative contracts held during the year at any given time was £946,000 (2014 - £993,000). The Company had no open positions in derivative contracts at 31 January 2015 (2014 - 7 open positions with a liability of £321,000) as disclosed in note 11.




The Board has delegated the risk management function to Aberdeen Fund Managers limited ("AFML" or "the Manager") under the terms of its management agreement with AFML (further details of which are included under note 3). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors.




The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of all core equity, fixed income and alternative asset classes on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models.




Risk management framework


The directors of AFML collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.




AFML is a fully integrated member of the Aberdeen Asset Management PLC ("Aberdeen") group of companies (referred to as "the Group"), which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in FUND 3.2.2R (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.




The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD").




The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.




The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference.




Risk Management


The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk.




The Board regularly reviews and agrees policies for managing each of these risks. The Aberdeen Group's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors, other than for currency disclosures.





(i)

Market risk



Market risk comprises three elements - interest rate risk, currency risk and price risk. 






Interest rate risk



Interest rate movements may affect:



the fair value of the investments in fixed interest rate securities;



the level of income receivable on cash deposits; and



interest payable on the Company's variable rate borrowings.






Management of the risk



The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.






The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise fixed rate, revolving, and uncommitted facilities. Details of borrowings at 31 January 2015 are shown in notes 11 and 12.






Interest risk profile



The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:






























At 31 January 2015



Assets




Sterling

-

-

-

5,783




_______

______

______

______



Total assets




_______

______

______

______



Liabilities







Bank loans

0.09

1.23

(10,583)

-



Debenture Stock

4.25

7.87

(28,545)

-




_______

______

______

______



Total liabilities

-




_______

______

______

______



























At 31 January 2014



Assets




Sterling

-

-

-

6,377




_______

______

______

______



Total assets

-




_______

______

______

______



Liabilities







Bank loans

0.08

1.43

(5,000)

-



Debenture Stock

5.25

7.87

(28,532)

-




_______

______

______

______



Total liabilities

-




_______

______

______

______










The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Company's borrowings are shown in notes 11 and 12 to the financial statements.



The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.



The Company's equity portfolio and short-term debtors and creditors (excluding bank loans) have been excluded from the above tables. All financial liabilities are measured at amortised cost.






Interest rate sensitivity



Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit.






Foreign currency risk



A proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Balance Sheet can be affected by movements in exchange rates.






Management of the risk



It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investment with foreign currency borrowings. A significant proportion of the Company's borrowings, as detailed in note 11, is in foreign currency as at 31 January 2015. The revenue account is subject to currency fluctuations arising on dividends received in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. The Company does not hedge this currency risk.






Foreign currency risk exposure by currency of denomination:







31 January 2015

31 January 2014















Euro

46,774

(4,483)

42,291

50,713

203

50,916



Swiss Francs

34,302

349

34,651

29,141

95

29,236



US Dollar

-

-

-

-

2

2



Sterling

381,368

(29,608)

351,760

351,369

(27,997)

323,372




_______

______

______

______

______

______



Total




_______

______

______

______

______

______












The asset allocation between specific markets can vary from time to time based on the Manager's opinion of the attractiveness of the individual stocks in these markets.






Foreign currency sensitivity



There is no sensitivity analysis included as the Board believes the amount exposed to foreign currency denominated monetary assets to be immaterial. Where the Company's equity investments (which are non-monetary items) are priced in a foreign currency, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.






Price risk



Price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments and traded options.






Management of the risk



It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. Both the allocation of assets and the stock selection process act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges in the UK and Europe.






Price risk sensitivity



If market prices at the Balance Sheet date had been 10% higher while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 January 2015 would have increased by £46,244,000 (2014 - increase of £43,122,000) and equity reserves would have increased by the same amount. Had market prices been 10% lower the converse would apply.





(ii)

Liquidity risk



This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. 






Management of the risk



The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise Debenture Stock and a revolving facility. The Debenture Stock provides secure long-term funding while short term flexibility is achieved through the borrowing facility. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of less than 30% at all times. Details of borrowings at 31 January 2015 are shown in notes 11 and 12.






Liquidity risk is not considered to be significant as the Company's assets comprise mainly cash and listed securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities, details of which can be found in note 11. Under the terms of the loan facility, the Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Manager will also review the credit rating of a lender on a regular basis. Details of the Board's policy on gearing are shown in the interest rate risk section of this note.






Liquidity risk exposure



At 31 January 2015 and 31 January 2014 the amortised cost of the Company's Debenture Stock was £28,545,000 and £28,532,000 respectively. This is due to be redeemed at par on 30 April 2019. At 31 January 2015 and 31 January 2014 the Company's bank loans amounted to £10,583,000 and £5,000,000 respectively. The facility is committed until 17 July 2015.





(iii)

Credit risk



This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.






Management of the risk



investment transactions are carried out with a large number of brokers, whose credit standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;



the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the custodians' records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Aberdeen Group's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Aberdeen Group's Risk Management Committee. This review will also include checks on the maintenance and security of investments held;



the risk of counterparty exposure due to stock lending is mitigated by the review of collateral positions provided daily by the various counterparties involved;



cash is held only with reputable banks whose credit ratings are monitored on a regular basis.






The Company participates in stock lending activities.






There are internal exposure limits to cash balances placed with counterparties. The credit worthiness of counterparties is also reviewed on a regular basis.






Under the terms of the stock lending agreement, all loans are backed by collateral (cash, near cash, government and public securities, certificates of deposit, letter of credit and UK equities) equal to or greater than 105% of the market value (as calculated daily on each business day) of the securities on loan.






With the exception of securities on loan referred to in note 9, none of the Company's financial assets are secured by collateral or other credit enhancements.






Credit risk exposure



In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 January was as follows:




2015

2014












Current assets




Debtors and prepayments

603

603

763

763



Cash and short term deposits

5,783

5,783

6,377

6,377




_______

______

______

______







_______

______

______

______










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






Fair values of financial assets and financial liabilities



The fair value of borrowings has been calculated at £45,530,000 as at 31 January 2015 (2014 - £40,904,000) compared to an accounts value in the financial statements of £39,183,000 (2014 - £33,600,000) (notes 11 and 12). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. All other assets and liabilities of the Company are included in the Balance Sheet at fair value.

 

20.

Fair value hierarchy 


FRS 29 'Financial Instruments: Disclosures' 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 levels:




Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;


Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and


Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).




The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows:







As at 31 January 2015


Financial assets at fair value through profit or loss







Quoted equities

a)

462,444

-

-

462,444









Financial liabilities at fair value through profit or loss







Derivatives

b)

-

-

-

-




_______

______

______

______







_______

______

______

______








As at 31 January 2014


Financial assets at fair value through profit or loss







Quoted equities

a)

431,223

-

-

431,223









Financial liabilities at fair value through profit or loss







Derivatives

b)

(288)

(33)

-

(321)




_______

______

______

______







_______

______

______

______





a)

Quoted equities








The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.





b)

Derivatives



The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis and therefore has been classed as Level 1.






The fair value of the Company's investments in Over the Counter Options (where the underlying equities are also held) has been determined using observable market inputs other than quoted prices of the underlying equities (which are included within Level 1) and therefore determined as Level 2.

 

Capital management policies and procedures


The Company's capital management objectives are:


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


to maximise the return to its equity shareholders through an appropriate balance of equity capital and debt.




The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings.




The Board monitors and reviews the broad structure of the Company's capital. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company is not subject to any externally imposed capital requirements.

 

22.

Related party transactions and transactions with the Manager


Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors' Remuneration Report in the Annual Report.




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

 

Additional Notes to Annual Financial Report

The Annual General Meeting will be held on 27 May 2015 at 12 noon at Apex City Quay Hotel, 1 West Victoria Dock Road, Dundee DD1 3JP.

 

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 January 2015 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2014 and 2015 statutory accounts received unqualified reports from the Company's auditor and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2014 is derived from the statutory accounts for 2013 which have been delivered to the Registrar of Companies. The 2015 accounts will be filed with the Registrar of Companies in due course.

 

The Annual Report and Accounts will be posted to shareholders mid April 2015 and copies will be available from the registered office of the Manager and on the Company's website, www.dunedinincomegrowth.co.uk.*

 

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise.  Investors may not get back the amount they originally invested.

 

* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 


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