Annual Financial Report
DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2017
The Company
Dunedin Income Growth Investment Trust PLC ("the Company") is an investment trust. Its Ordinary shares are listed on the premium segment of the London Stock Exchange.
Investment 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.
Benchmark
The Company's benchmark is the FTSE All-Share Index (total return). Performance is measured on a net asset value total return basis over the long-term.
Management
The investment management of the Company has been delegated by Aberdeen Fund Managers Limited ("AFML", the "AIFM" or the "Manager") to Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager"). Both companies are wholly owned subsidiaries of Aberdeen Asset Management PLC (the "Aberdeen Group").
Website
Up-to-date information can be found on the Company's website: www.dunedinincomegrowth.co.uk.
COMPANY OVERVIEW - FINANCIAL HIGHLIGHTS
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Net asset value total returnA |
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Earnings per share (revenue) |
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2017 |
+19.2% |
|
2017 |
12.55p |
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2016 |
-11.5% |
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2016 |
12.11p |
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A With debt at market value, dividends reinvested |
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Share price total returnB |
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Ongoing charges |
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2017 |
+16.5% |
|
2017 |
0.63% |
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2016 |
-13.5% |
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2016 |
0.62% |
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B Dividends reinvested |
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Discount to net asset valueC |
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Dividends per Ordinary share |
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2017 |
7.4% |
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2017 |
11.70p |
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2016 |
4.6% |
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2016 |
11.40p |
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C With debt at market value. |
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For further information, please contact:
Ben Ritchie/Louise Kernohan
Aberdeen Asset Managers Limited 0207 463 6000
Andrew Leigh
Aberdeen Asset Managers Limited 0207 463 6000
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.
COMPANY OVERVIEW - CHAIRMAN'S STATEMENT
I would like to begin by paying tribute to our late Chairman, Rory Macnamara, who very sadly passed away in December after a period of illness. Rory was a Director of your Company for eleven years, for the latter four years serving as Chairman, during which time he made a major contribution to its development. We will all miss his knowledge and good judgement and those of us who had the fortune to work closely with him are already missing a much valued friend.
Summary
I am pleased to be reporting a better set of results for the Company in the year ended 31 January 2017 with shareholders having enjoyed a share price total return of 16.5%. Although the net asset value total return of 19.2% lagged the FTSE All-Share Index total return of 20.1%, it significantly outperformed many of the Company's sector peers. In addition, the Company generated a record level of earnings per share allowing us to propose an increase in the dividend and add to revenue reserves.
Earnings and Dividend
The revenue return per share for the year was 12.55p, compared with 12.11p for the previous year. Three interim dividends of 2.575p per share have already been paid and the Board is proposing a final dividend of 3.975p per share, payable on 26 May 2017 to shareholders on the register on 5 May 2017. This will make a total dividend of 11.7p per share for the year, an increase of 2.6% on last year. This will be the 33rd year out of the past 37 that the Company has grown its dividend, with the distribution maintained in the other four years.
Following payment of the final dividend, revenue reserves of 10.51p per share will be available to support future distributions, representing 90% of the current annual dividend cost.
Background
2016/17 was an eventful year for investors as a series of political and economic events served to generate turbulent market conditions. Despite this, the FTSE All-Share Index recorded its best year since 2009, buoyed by greater optimism for economic prospects and a significant fall in the value of Sterling.
The early part of the period saw equity markets weaken on concerns over the health of the Chinese economy and the implications for emerging markets of rapidly declining commodity prices. However, as signs of stabilisation in China developed, confidence returned and oil, alongside many metals and basic materials, staged a significant rally with, for example, the oil price recovering from its lows of less than $30 per barrel to around the $50 mark, and the iron ore price more than doubling.
Currencies were also volatile and Sterling declined quite sharply against other major currencies in the lead up to the EU referendum in June. The result of the referendum, which defied the expectations of most commentators and investors, significantly roiled financial markets. The pound dropped to its lowest level against the US Dollar since the early 1980s, while UK 10 year government bond yields hit record lows and the FTSE All-Share Index also demonstrated significant volatility.
UK equities, however, staged a significant recovery over the second half of the financial year, driven principally by three factors. Firstly, a global economy that continued to improve ahead of expectations, driven by China and the US. Secondly, the translational benefits of weaker Sterling and, thirdly, a UK economy that proved to be much more resilient than had been feared in the wake of the referendum, with unemployment declining to its lowest rate since 2005. As a result of the positive data, the Monetary Policy Committee recently revised their forecast for domestic GDP upwards to 2% marking a very different tone from that struck immediately after the vote.
The election of Donald Trump as US President in November provided a further shock to markets, but one which was quickly shrugged off as investors looked through the tone and content of many of his social policies and instead focused on the potential benefits of lower taxes and higher infrastructure spending and the more market-friendly policies likely to emerge from a Republican-dominated Washington. However, with little detail available, it remains uncertain to what extent these positives will be counterbalanced by potential negative impacts from trade protectionism.
Expectations of fiscal easing in the United States combined with strong infrastructure and real estate investment in China further fuelled the recovery in the share prices of mining companies with the sector posting triple digit returns for the year, whilst the prospects for oil companies improved, following an agreement amongst major producers to cut supply. Resultant rising bond yields and inflation expectations led to a sharp rotation out of more defensive companies into banks and more cyclical sectors.
Performance
As I have noted above, the Company's net asset value total return of 19.2% slightly lagged the total return of 20.1% from the FTSE All-Share Index. The under-performance was largely due to our not owning a number of companies, including several very strongly-performing mining companies which staged spectacular recoveries from the troubles that afflicted them in 2016.
On the positive side, the Company's significant exposure to more international businesses, including companies listed overseas, proved beneficial as Sterling's weakness helped to boost the value of income earned out-with the UK. In addition, many of the holdings that troubled us in 2015/16 turned out to be helpful contributors to performance this year, especially those exposed to commodities and emerging markets. These positions helped us to significantly outperform many of our competitor investment trusts within the UK Equity Income sector.
Revenue Account
The management of equity income funds involves tensions between the level of income earned and distributed to shareholders and opportunities to invest in order to optimise overall returns. Your Board regularly consults with shareholders as to their priorities, recognises the importance attached to the level of dividend and seeks to continue to grow it in real terms. We are proud of the Company's record of long term dividend growth and it remains our firm intention to maintain this.
In recent years, however, we have increasingly felt that the focus on owning higher yielding businesses in order to generate income and to support a high level of dividend has been constraining the Investment Manager's ability to generate competitive total returns. We have therefore been looking with the Manager at opportunities which would allow greater flexibility to invest in faster growing companies without compromising our ability to meet our dividend objectives.
As you will note from this Report and Accounts, the process of reducing our dependence on high yielding, low growth companies has already started. The income benefit that has arisen from the recent weakness of Sterling has allowed us to accelerate the re-investment of capital from high-yielding, low-growth holdings into companies with lower dividend yields, which the Manager believes have stronger prospects for long term growth.
The process of steadily switching out of higher yielding companies will be continued as the Manager deems appropriate. In recent years, we have built up our revenue reserve and it is our intention to make modest use of the flexibility this provides to pay uncovered dividends where we believe it to be in the long term interests of our shareholders.
Gearing
Your Board believes that the 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. We also recognise the benefit that having a reasonable proportion of long-term fixed rate funding provides to managing the Revenue Account, through greater certainty over financing costs.
The Company currently employs three sources of gearing. The £28.6 million debenture maturing in April 2019 with a coupon of 7.875%, the recently issued £30.0 million loan notes maturing in 2045 with a coupon of 3.99%, and a multi-currency revolving credit facility with Scotiabank that expires in 2018 of which a Sterling equivalent of £11.3 million was drawn down at the year end.
The proceeds of the loan note issuance remain invested in a portfolio of investment grade bonds which broadly matches the duration of the 2019 debenture and the income from which largely offsets the interest cost of the new issue. Our equity gearing is therefore very much lower than the headline gearing figure would suggest.
With debt valued at par, the Company's potential gearing decreased from 18.6% to 14.6% during the year, due to the increase in the value of investments and a higher than usual cash balance being held at the year end. On a pure equity basis, after netting off our cash and bonds, gearing fell from 10.7% to 6.1%.
Your Board believes this remains a relatively conservative level of equity gearing and provides the Company with financial flexibility should opportunities to deploy additional capital arise.
Discount
The discount at which the price of the Company's shares trade relative to the net asset value widened from 4.6% at the beginning of the year to 7.4% as at 31 January 2017 (on an ex-income basis with borrowings stated at fair value).
Over the course of the year the Company traded at a wider discount than it has done for much of the recent past, in line with a general widening of discounts within the investment trust sector. During the year the Company purchased 493,500 shares to hold in treasury, at a cost of £1.1 million, providing a small accretion to the net asset value. We have continued to buy back shares since the year end. We will again seek shareholders' permission to buy back shares at the forthcoming Annual General Meeting and are prepared to continue to use this measure in the light of both the Company's absolute level of discount and that relative to those of our peer group.
Board Composition
As the Company's Senior Independent Director, I stood in as Acting Chairman when Rory passed away in December and have continued in this role since then. I am delighted to report that, following a review, the Board has decided to appoint David Barron as Chairman with effect from the Annual General Meeting. We also decided that Jasper Judd would replace me as Chairman of the Audit Committee, a change that took effect prior to the end of the financial year. David and Jasper both joined the Board on 1 February 2016 and have made significant contributions during the first year of their tenures.
Following David's appointment as Chairman, it is envisaged that I will remain on the Board as the Senior Independent Director for one more year and, together with Catherine Claydon, will be standing for re-election at the Annual General Meeting.
Change of Auditor
The Company undertook an audit tender process during the year and, following consideration of the tenders received, the Board decided to appoint Deloitte LLP as the Company's auditor for the year ending 31 January 2018. KPMG LLP will therefore not be seeking re-appointment at the Annual General Meeting. A resolution to appoint Deloitte LLP as the Company's auditor will be proposed at the Annual General Meeting.
On behalf of the Board, I would like to thank KPMG for their service to the Company over a large number of years and for the high degree of professionalism they have always shown.
Aberdeen Asset Management
The Board has noted the recent announcement of a proposed recommended merger between the parent company of the Company's Manager, Aberdeen Asset Management PLC, and Standard Life PLC. The transaction is subject to shareholder and regulatory approvals, but both companies have committed to set up a dedicated integration team which should ensure that the existing management team remains focused on looking after the interests of the Company and, you, its shareholders. The Board will monitor developments closely to ensure that this remains the case and that excellent client service is maintained.
Annual General Meeting
The Annual General Meeting will be held at the offices of Aberdeen Asset Management PLC, 40 Princes Street, Edinburgh EH2 2BY on Tuesday 23 May 2017 at 12 noon.
Outlook
The Company's dividend is well supported at current levels by earnings, its strong balance sheet and significant revenue reserves. While the Investment Manager's continued focus on recycling capital out of lower growth, higher yielding companies may restrict growth in earnings per share this year, the dividend growth prospects of the constituent companies within the portfolio look favourable and this, together with our ability to make use of revenue reserves, should help support the Board's intention to increase the dividend in real terms over the medium term.
With the FTSE All-Share Index trading close to its all-time high and aggregate valuations markedly above long term averages, your Manager remains cautious on the outlook for capital growth. Alongside this, the UK economy faces a period of uncertainty as the decision to leave the European Union is implemented and forthcoming elections in continental Europe are being viewed with concern by many investors. However, the holdings in the Company's portfolio are in good financial shape and many of them possess both potential capital upside and the ability to sustain and grow their dividends at attractive rates, all of which should support the delivery of sound total return performance over the longer term.
John Carson
Director
30 March 2017
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Business Model
The Company is an investment trust with a premium listing on the London Stock Exchange.
Investment 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.
Investment Policy
In pursuit of its objective, the Company's investment policy is to invest in high quality companies with strong income potential and providing an above-average portfolio yield.
Risk Diversification
The Company maintains a diversified portfolio consisting, substantially, of equity or equity-related securities, and it can invest in other financial instruments. The Company is invested mainly in companies listed or quoted in the United Kingdom and can invest up to 20% of its gross assets overseas.
It is the policy of the Company to invest no more than 15% of its gross assets in other listed investment companies and no more than 15% of its gross assets in any one company.
Gearing
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.
Delivering the Investment Objective
The Directors are responsible for determining the Company's investment objective and investment policy. Day-to-day management of the Company's assets has been delegated, via the AIFM, to the Investment Manager.
Investment Process
The Investment 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 which includes meeting investee companies. New investments are not made without the Investment 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 Investment Manager's portfolios are generally run conservatively, with an emphasis on buy-and-hold and top-slicing/topping up. This approach usually results in low turnover within portfolios.
Portfolios are managed by the Investment Manager on a team basis, with individual fund managers carrying out their own research and analysis. All ideas are shared via formal committees and common databases, with desk heads ensuring consistency.
Benchmark
The Company's benchmark is the FTSE All-Share Index (total return). Performance is measured on a net asset value total return basis over the long-term.
Key Performance Indicators ("KPIs")
The Board uses a number of other financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy. The main KPIs are shown in the table below:
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KPI |
Description |
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Performance |
The Board considers the Company's NAV total return figures to be the best single indicator of performance over time. |
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Performance of NAV against benchmark index and comparable investment trusts |
The Board measures the Company's NAV total return performance against the benchmark index - the FTSE All-Share Index. The Board also monitors performance relative to a peer group of investment trusts which have similar objectives, policies and yield characteristics. |
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Revenue return per Ordinary share |
The Board monitors the Company's net revenue return. |
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Dividend per Ordinary share |
The Board monitors the Company's annual dividends per Ordinary share. |
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Share price performance |
The Board monitors the performance of the Company's share price on a total return basis. |
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Discount/premium to NAV |
The discount/premium of the share price relative to the NAV per share is closely monitored by the Board. |
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Ongoing charges |
The Board monitors the Company's operating costs carefully. |
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The risks and uncertainties faced by the Company are reviewed by the Audit Committee in the form of a risk matrix, and the principal risks and uncertainties facing the Company at the current time, together with a description of the mitigating actions the Board has taken, are set out in the table below. The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet and they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website.
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Risk |
Mitigating Action |
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Investment objectives - a lack of demand for the Company's shares due to its objectives becoming unattractive to investors could result in a widening of the discount of the share price to its underlying net asset value and a fall in the value of its shares. |
Board review. The Board formally reviews the Company's objectives and strategies for achieving them on an annual basis.
Shareholder communication. The Board is cognisant of the importance of regular communication with shareholders. Directors attend the Manager's annual meetings with the Company's largest shareholders and meet shareholders at the Annual General Meeting. The Board reviews shareholder correspondence and investor relations reports and also receives feedback from the Company's broker.
Discount monitoring. The Board, through the Manager, keeps the level of discount under constant review. The Board is responsible for the Company's share buy back policy and, if considered appropriate, would authorise the use of share buy backs to provide liquidity to the market at times when the discount has widened.
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Investment strategies - the Company adopts inappropriate investment strategies in pursuit of its objectives which could result in investors avoiding the Company's shares, leading to a widening of the discount and poor investment performance.
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Adherence to investment guidelines. The Board sets investment guidelines and restrictions which the Manager follows, covering matters such as asset allocation, diversification, gearing, currency exposure, use of derivatives etc. These guidelines are reviewed regularly and the Manager reports on compliance with them at Board meetings.
In order to ensure adequate diversification, the Board has set absolute limits on maximum holdings and exposures in the portfolio at the time of investment, which are in addition to the limits contained in the Company's investment policy, including the following:
- No more than 10% of gross assets to be invested in any single stock; and - The top five holdings should not account for more than 40% of gross assets.
Regular shareholder communication and discount monitoring, as above.
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Investment Manager - the appointment or continuing appointment of a manager with inadequate resources, skills or expertise could result in poor investment performance. |
Monitoring of the Manager. The Board meets the Manager on a regular basis and keeps under close review (inter alia) its resources, adherence to investment processes, the adequacy of risk controls, and investment performance. A detailed formal appraisal of the Manager is carried out annually by the Management Engagement Committee. |
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Income/dividends - the level of income falls and/or levels of expenditure/taxation rise, resulting in cuts to or suspension of dividends to shareholders. |
Revenue forecasting and monitoring. The Manager presents detailed forecasts of income and expenditure covering both the current and subsequent financial years at Board meetings. Dividend income received is compared to forecasts and variances analysed.
Use of reserves. The Company has built up significant revenue reserves which are available to smooth dividend distributions to shareholders should there be a shortfall in revenue returns.
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Gearing - gearing has the effect of accentuating market gains and market falls and an inappropriate level of gearing at a time of falling markets could result in a significant fall in the value of the Company's shares. Lenders set various conditions on the continuing availability of funding. A fall in the value of the Company's investment portfolio could result in a breach of such covenants and trigger demands for early repayment. This could result in further losses. |
Gearing restrictions. The Board sets gearing limits within which the Manager can operate.
Monitoring. Both the limits and actual levels of gearing are monitored on an ongoing basis by the Manager and at regular Board meetings. In the event of a possible impending covenant breach, appropriate action would be taken to reduce borrowing levels.
Scrutiny of loan agreements. The Board takes advice from the Manager and the Company's lawyers before approving details of loan agreements. Care is taken to ensure that covenants are appropriate and unlikely to be breached.
Limits on derivative exposure. The Board has set limits on derivative exposures and positions are monitored at regular Board meetings.
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Regulatory - changes to, or failure to comply with, relevant regulations (including the Companies Act, The Financial Services and Markets Act, The Alternative Investment Fund Managers Directive, accounting standards, Investment Trust regulations, the Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules) could result in fines, loss of reputation, reduced demand for the Company's shares and potentially loss of an advantageous tax regime.
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Management expertise. Directors have an awareness of the more important regulations and are provided with information on changes by The Association of Investment Companies. In terms of day to day compliance with regulations, the Board is reliant on the knowledge and expertise of the Manager. The Manager's Company Secretariat and accounting teams use checklists to aid compliance and these are backed by a compliance monitoring programme and risk based internal audit investigations.
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Operational - the Company is reliant on services provided by third parties (in particular those of the Manager and the Depositary) and any control gaps and failures in their operations could expose the Company to loss or damage.
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Agreements. Written agreements are in place defining the roles and responsibilities of all third party service providers.
Internal control systems of the Manager. The Board receives reports on the operation and efficacy of the Manager's IT and control systems, including those relating to cyber crime, and its internal audit and compliance functions.
Safekeeping of assets. The Depositary is ultimately responsible for the safekeeping of the Company's assets and its records are reconciled to those of the Manager on a regular basis. Through a delegation by the Depositary, the Company's investments and cash balances are held in segregated accounts by the Custodian.
Monitoring of other third party service providers. The Manager monitors closely the control environments and quality of services provided by third parties, including those of the Depositary and Custodian. This includes controls relating to cyber crime and is conducted through service level agreements, regular meetings and key performance indicators.
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Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Aberdeen Group. The Aberdeen Group Head of Brand reports to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.
The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Board Diversity
The Board has not set any measurable objectives in relation to its diversity but recognises the benefits, and is supportive, of diversity and the importance of having a range of skilled, experienced individuals with relevant knowledge in order to allow it to fulfill its obligations. In making new appointments, the Board's overriding priority is to appoint the most appropriate candidates, regardless of gender or other forms of diversity.
At 31 January 2017, there were three male and two female Directors on the Board.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated the day to day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is set out below.
Socially Responsible Investment Policy
The Directors, through the Manager, encourage companies in which investments are made to adhere to best practice in the area of corporate governance and socially responsible investing. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in both areas.
The Manager's ultimate objective, however, is to deliver superior investment returns for its clients. Accordingly, whilst the Manager will seek to favour companies which pursue best practice in these areas, this must not be to the detriment of the return on the investment portfolio.
UK Stewardship Code and Proxy Voting as an Institutional Shareholder
Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager.
The full text of the Company's response to the Stewardship Code may be found on its website.
Modern Slavery Act
Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
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.
Viability Statement
The Board considers that the Company, which does not have a fixed life, is a long term investment vehicle and, for the purposes of this statement, has decided that five years is an appropriate period over which to consider its viability. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than five years.
In assessing the viability of the Company over the review period, the Directors have focused upon the following factors:
- The principal risks and uncertainties detailed above and the steps taken to mitigate these risks.
- The relevance of the Company's investment objective, especially in the current low yield environment.
- The Company is invested in readily-realisable listed securities.
- Share buy backs carried out in the past have not resulted in significant reductions to the capital of the Company.
- Although the Company's stated investment policy contains a gearing limit of 30% of the net asset value at the time of draw down, the Board's policy is to have a relatively modest level of equity gearing and the financial covenants attached to the Company's borrowings provide for significant headroom.
- The repayment of the Company's £28.6 million 7 7/8% Debenture Stock on 30 April 2019 has been pre-financed through the issue of £30 million 3.99% Loan Notes which are repayable in December 2045, the proceeds of which are invested in a portfolio of fixed interest securities which broadly match the duration of the Debenture.
In making its assessment, the Board is also aware that there are other matters that could have an impact on the Company's prospects or viability in the future, including a large economic shock or significant stock market volatility, and changes in regulation or investor sentiment.
Taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report.
Outlook
The Board's view on the general outlook for the Company can be found in the Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included within its review statement.
On behalf of the Board
John Carson
Director
30 March 2017
STRATEGIC REPORT - RESULTS
FINANCIAL HIGHLIGHTS
|
|
31 January 2017 |
31 January 2016 |
% change |
|
Total assets |
£485,339,000 |
£436,965,000 |
+11.1 |
|
Equity shareholders' fundsA |
£406,902,000 |
£358,602,000 |
+13.5 |
|
Equity shareholders' funds with debt valued at par |
£415,810,000 |
£368,041,000 |
+13.0 |
|
Market capitalisation |
£366,498,000 |
£332,214,000 |
+10.3 |
|
Share price (mid) |
243.50p |
220.00p |
+10.7 |
|
Net asset value per shareA |
270.34p |
237.48p |
+13.8 |
|
FTSE All-Share Index |
3,858.26 |
3,335.90 |
+15.7 |
|
|
|
|
|
|
DiscountB (difference between share price and net asset value) |
|
|
|
|
Discount where borrowings are deducted at market value |
(7.4%) |
(4.6%) |
|
|
|
|
|
|
|
Gearing |
|
|
|
|
Net gearingC |
14.64% |
18.57% |
|
|
Equity gearingD |
6.11% |
10.65% |
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|
|
|
|
|
|
Dividends and earnings |
|
|
|
|
Total return per share |
43.83p |
(28.94p) |
|
|
Revenue return per share |
12.55p |
12.11p |
+3.6 |
|
Total dividend per share for the year |
11.70p |
11.40p |
+2.6 |
|
Dividend cover |
1.07 |
1.06 |
|
|
|
|
|
|
|
Revenue reserves |
|
|
|
|
Prior to payment of third interim dividend declared and proposed final dividend |
17.06p |
15.87p |
|
|
After payment of third interim dividend declared and proposed final dividend |
10.51p |
9.63p |
|
|
|
|
|
|
|
Operating costs |
|
|
|
|
Ongoing chargesE |
0.63% |
0.62% |
|
|
A Calculated by valuing the Company's debt at its market value. |
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B These discounts are based on capital only NAVs, calculated in accordance with AIC guidelines. |
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C Calculated in accordance with AIC guidance "Gearing Disclosures post RDR". |
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D Calculated by dividing the total value of equity securities held by shareholders' funds, expressed as a percentage. |
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E 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. |
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PERFORMANCE
|
|
1 year |
3 year |
5 year |
|
|
% return |
% return |
% return |
|
Capital return |
|
|
|
|
Net asset value |
+13.8% |
+3.0% |
+21.3% |
|
FTSE All-Share Index |
+15.7% |
+10.3% |
+31.6% |
|
Share price |
+10.7% |
- 6.3% |
+18.2% |
|
|
|
|
|
|
Total return (Capital return plus net dividends reinvested) |
|
|
|
|
Net asset value |
+19.2% |
+17.2% |
+51.4% |
|
FTSE All-Share Index |
+20.1% |
+22.6% |
+57.0% |
|
Share price |
+16.5% |
+7.6% |
+49.0% |
|
Source: Aberdeen, Factset & Morningstar |
|
|
|
TEN YEAR FINANCIAL RECORD
|
Year ended 31 January |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Total revenue (£'000) |
18,717 |
19,998 |
14,251 |
16,904 |
19,173 |
18,866 |
20,750 |
20,994 |
20,359 |
21,963 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Per share (p) |
|
|
|
|
|
|
|
|
|
|
|
Revenue return |
10.58 |
11.72 |
7.99 |
10.15 |
11.00 |
10.77 |
11.89 |
11.90 |
12.11 |
12.55 |
|
Dividends paid/proposed |
10.00 |
10.25 |
10.25 |
10.25 |
10.65 |
10.75 |
11.10 |
11.25 |
11.40 |
11.70 |
|
Revenue reserveA |
7.85 |
9.41 |
7.16 |
7.06 |
7.42 |
7.45 |
8.22 |
8.89 |
9.63 |
10.51 |
|
Net asset valueB |
251.35 |
156.89 |
198.8 |
226.81 |
222.88 |
251.48 |
262.34 |
279.66 |
237.48 |
270.34 |
|
Total return |
(32.16) |
(84.12) |
51.15 |
39.00 |
6.50 |
41.30 |
22.24 |
27.76 |
(28.94) |
43.83 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
Shareholders' funds (£'000) |
386,680 |
241,944 |
303,603 |
346,927 |
341,280 |
385,605 |
403,526 |
428,702 |
368,041 |
415,810 |
|
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
|
|
A After payment of third interim and final dividends. |
||||||||||
|
B With debt at market value. |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV par |
254.84 |
160.54 |
201.45 |
230.2 |
226.45 |
255.87 |
267.22 |
283.9 |
243.73 |
276.26 |
|
NAV MV |
251.35 |
156.89 |
198.8 |
226.81 |
222.88 |
251.48 |
262.34 |
279.66 |
237.48 |
270.34 |
DIVIDENDS
|
Dividend per share |
Rate |
xd date |
Record date |
Payment date |
|
Proposed final dividend 2017 |
3.975p |
4 May 2017 |
5 May 2017 |
26 May 2017 |
|
Third interim dividend 2017 |
2.575p |
2 February 2017 |
3 February 2017 |
24 February 2017 |
|
Second interim dividend 2017 |
2.575p |
3 November 2016 |
4 November 2016 |
25 November 2016 |
|
First interim dividend 2017 |
2.575p |
4 August 2016 |
5 August 2016 |
26 August 2016 |
|
|
_____ |
|
|
|
|
Total dividend 2017 |
11.70p |
|
|
|
|
|
_____ |
|
|
|
|
|
|
|
|
|
|
Dividend per share |
Rate |
xd date |
Record date |
Payment date |
|
Proposed final dividend 2016 |
3.675p |
5 May 2016 |
6 May 2016 |
27 May 2016 |
|
Third interim dividend 2016 |
2.575p |
4 February 2016 |
5 February 2016 |
26 February 2016 |
|
Second interim dividend 2016 |
2.575p |
5 November 2015 |
6 November 2015 |
27 November 2015 |
|
First interim dividend 2016 |
2.575p |
6 August 2015 |
7 August 2015 |
28 August 2015 |
|
|
_____ |
|
|
|
|
Total dividend 2016 |
11.40p |
|
|
|
|
|
_____ |
|
|
|
STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW
Introduction
The year ended 31 January 2017 will undoubtedly be remembered as a year of political shocks and associated market turmoil. It was pleasing that during the most pronounced of these, following the UK referendum on leaving the EU, the portfolio proved resilient and, despite all the volatility, investors have seen double digit returns and the best annual stock market performance since 2013.
Having been involved in the management of the portfolio for some years I am excited to have the opportunity to take on the lead position as explained in the Half Yearly Report, and I am pleased that Louise Kernohan will be assisting me in that task alongside the substantial combined resources that we can draw on from Aberdeen's equity teams. There is a significant opportunity to build a portfolio that can not only deliver the current level of dividend but also grow it in real terms and deliver attractive total returns.
Performance
In assessing income performance it was a year of progress, with revenues up 7.9% aided by a full year of contribution from the bond portfolio. Income from equities was up 2.3% helped by special dividends from Croda and Prudential. Operating costs were down year on year, while finance costs increased, reflecting the £30 million loan notes issued in December 2015. In terms of taxation we received some benefit from rebated withholding tax but not as much as in the previous year. Overall revenue earnings per share increased by 3.6%. The impact of foreign exchange was beneficial but muted due to over 60% of our dividend income and, in particular, 85% of our overseas listed income being earned in the first half of the year before the significant depreciation in Sterling. At current exchange rates this should provide a useful support to earnings in 2017/18.
From a relative return perspective this was a year of turbulent equity market conditions. We experienced strong outperformance over the first half of the year as we benefitted from the impact of the EU referendum and the recovery of a number of companies that had proved challenging in the previous twelve months. In the second half of the year, continued strength in some of the mining companies that we did not own and banks to which we were underweight, alongside some difficult trading at Berendsen and Capita, proved detrimental, leading the portfolio to underperform the FTSE All-Share Index for the year.
Over the year as a whole the weakness of Sterling boosted the value of a number of our overseas holdings such as Total and Zurich Insurance Group. This currency effect also drove up the share prices of UK listed companies with substantial overseas exposure, of which we have a significant number, such as Unilever and Compass Group. In the second half this was somewhat offset by the prospect of rising interest rates which negatively impacted investors' perception of more "bond like" investments like regulated utilities and real estate companies such as National Grid and Unibail-Rodamco.
While our exposure to the Mining and Oil & Gas sectors proved a headwind to relative performance, it was pleasing that commodity and emerging market related holdings such as Weir Group, John Wood Group, Rotork, Standard Chartered and BHP Billiton, all of which had suffered in the previous couple of years, staged substantial recoveries in absolute value. While we underperformed the wider market we did do substantially better than many of our peer group trusts largely because we retained these kinds of exposure in contrast to many others. We also remained committed to owning some higher yielding companies such as HSBC, Royal Dutch Shell and BP. Given our focus on income and the lowly valuations and high yields that these companies were trading on twelve months ago, they seemed a natural home for a portion of our capital and, in general, performed strongly. While it is not currently fashionable, we do believe that income funds need to provide income and that offering an overall yield above that of the wider market is an important part of our proposition.
Portfolio Activity
For us this was a busy year in terms of name changes within the portfolio. Since my appointment in September to lead manager we have looked to accelerate the focus on diversity and growth of both capital and income. To this end we have been exiting some of our higher yielding investments with lower growth prospects to reinvest into a number of more interesting opportunities from a capital and income growth perspective.
The majority of our new additions were at the small and mid-cap end of the market, in companies that have strong positions in their respective industries but which have good scope to grow from a lower base. They also have potential to deliver either sustainable higher yields or faster dividend growth. In addition, these companies lend themselves well to our investment process, where we do not rely on external research but rather invest the time ourselves to uncover and research companies that are often overlooked by others.
As an example, we initiated a position in BBA Aviation which owns a network of terminals servicing private jets in North America. They took the opportunity to buy out their largest competitor in a deal that significantly enhances their strategic position, but which was initially not received so well by the market and presented an interesting opportunity for us to build a position in the company, which has subsequently performed well.
Another new introduction was Assura, a real estate investment trust that owns and develops primary care facilities. Here we see solid potential for rental growth alongside further acquisitions and the expansion of their development capabilities as the requirement for new fit-for-purpose health facilities grows. Additionally, we added RPC, a plastic packaging manufacturer that is successfully consolidating many of the markets it operates in; Chesnara, a consolidator of closed books of life assurance policies; and Manx Telecom, which provides telecommunication services predominantly on the Isle of Man with opportunities to expand elsewhere.
From the large-cap sphere we introduced Diageo, where through their leading stable of beverage brands they can command strong pricing power and, as a result, generate attractive margins and returns. Their CEO, Ivan Menezes, has been focusing on internal improvements in marketing and operational efficiency which is starting to bear fruit, with organic growth and improvement in the US being notable features in their results of late.
Our focus has not been limited to companies listed in the UK and we initiated positions in a number of overseas holdings; these were Temenos, Brunello Cucinelli, Amadeus and Novo-Nordisk. All have the capacity to grow dividends at high rates over coming years.
Temenos is a Swiss listed vendor of software for the banking industry. The pressure on banks to improve inefficient legacy IT systems is increasing due to regulation and the arrival of young, technology focused competition, and the company has the best-in-class products to capture increasing share of this large and fast growing market.
Brunello Cucinelli is an Italian ultra-luxury apparel company. We like the lack of branded product, low levels of fashion risk, pricing power and loyal customer cohort. The emphasis on long term stewardship is another high quality characteristic, particularly given that the company is still in a relatively early stage of its life cycle with plenty of scope for revenues, margins, cash flow and dividends to grow over the long term.
Amadeus is a Spanish listed IT company providing ticketing and pricing solutions to travel agencies and airlines, as well as mission critical technology solutions. We see scope for continued organic growth, coupled with choice M&A activity that is supported by strong cash flow characteristics and a sound balance sheet.
Novo-Nordisk is a Danish listed pharmaceutical company that specialises in diabetes treatments. It has had a tough year due to industry pressures, however the long term drivers remain intact and the recent share price weakness has made the valuation more attractive than it has been for a number of years.
As well as initiating new holdings, we also took advantage of some of the considerable market movements during the year to opportunistically add to our positions. For example we topped up our holding of Schroders which, being dependent on the financial markets, saw its share price fall following the EU referendum result, and Berendsen, following its share price weakness on the back of internal issues that we believe are temporary.
To fund these investments we exited Associated British Foods on valuation grounds, which proved to be a fortunate sale as the share price suffered later in the period on lowered expectations for its retailer Primark. In addition, we exited Cobham, which also proved to be a wise move as the company subsequently saw a sharp deterioration in trading and has just launched its second rights issue in a little under twelve months having opted to pass their dividend. We had concerns that management had overstretched the balance sheet for an acquisition at a time when trading was challenging, and our concerns have since proved to be founded.
We sold our position in Tesco, which was a difficult decision but we felt that we had captured a reasonable degree of recovery and wanted to continue to focus capital towards higher quality companies. We also exited Centrica, GKN, Linde and Engie; each which have been longstanding holdings in the portfolio but are relatively cyclical and low returning businesses and we consider that there are more compelling investment opportunities.
Corporate Engagement
One of the most critical elements to investing at Aberdeen is thinking like owners of businesses. While we carry out hundreds of visits every year with executive management teams we also work very hard on addressing the overall governance of our companies and this goes hand in hand with our long term investment approach. Although we retain expert advisers within the firm, the investment team takes responsibility for all issues of governance with our investee companies. For us this is not something to be outsourced to others but an integral part of the responsibility of ownership and important to fulfilling our obligations to our investors. Our full voting records are available on our website. By way of example, this year saw an important intervention in support of Royal Dutch Shell's bid for BG at a time when many others were unsure, and this helped to cement a deal which has created significant value for shareholders in both companies. We also regularly attend the AGMs of our investee companies. seeing this as an excellent opportunity to meet the full board. As many private shareholders will know, the attendance of institutions at such occasions is uncommon.
One important development in 2016 was to directly incorporate our Environmental and Social analysis into the fabric of our day to day investment process and bring our responsible investing analysts into the heart of the team as opposed to sitting in a central unit. This will add a similar focus on these issues to that which we have long applied to governance. This does not mean that Dunedin Income Growth will be becoming an ethical fund. But it does mean that we will be paying much more attention to how our companies do business and identify environmental and social risks to their long term prospects. In our experience, well run companies also tend to manage these risks well and those that act responsibly with regard to their customers, employees, suppliers and shareholders tend to be those that prosper most over the long run.
Outlook
There are reasons for caution. Political and economic uncertainty is likely to remain high both here at home in the UK and across much of the developed world. A sharp appreciation of either Sterling or global interest rates would also likely be negative for our positions. At the same time, the UK equity market is close to record high levels. However, looking forward, your Company faces this environment with low levels of equity gearing, healthy dividend cover, substantial revenue reserves and a positive outlook for underlying earnings growth. Alongside this, we remain committed to a long-term focus on high quality businesses which should help further to underpin the performance of the portfolio. While there are few bargains to be had, we still see a number of interesting investment opportunities open to us. These will help improve the portfolio's income growth and capital return prospects while we continue to deliver a high and growing dividend to our investors.
Ben Ritchie and Louise Kernohan
Aberdeen Asset Managers Limited
30 March 2017
DIRECTORS' REPORT (EXTRACT)
The Directors present their report and the audited financial statements for the year ended 31 January 2017.
Results and Dividends
The financial statements for the year ended 31 January 2017 are contained below. First, second and third interim dividends, each of 2.575p per Ordinary share, were paid on 26 August 2016, 25 November 2016 and 24 February 2017 respectively. The Directors now recommend a final dividend of 3.975p per Ordinary share payable on 26 May 2017 to shareholders on the register on 5 May 2017. The ex-dividend date is 4 May 2017. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting.
Investment Trust Status
The Company is registered as a public limited company (registered in Scotland No. SC000881) and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust subject to it 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 2017 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs 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.
Capital Structure
The issued Ordinary share capital at 31 January 2017 consisted of 150,512,687 Ordinary shares of 25p and 3,165,248 Ordinary shares held in treasury. Since the end of the year, the Company has purchased 280,010 Ordinary shares to be held in treasury and at the date of approval of this Report there were 150,232,677 Ordinary shares of 25p in issue and 3,445,258 Ordinary shares held in treasury.
Voting Rights
Each Ordinary share holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.
There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law.
Management Agreement
The Company has appointed Aberdeen Fund Managers Limited, a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager. AFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities. The Company's portfolio is managed by Aberdeen Asset Managers Limited by way of a group delegation agreement in place between AFML and AAML. In addition, AFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to AAML. Fees payable for promotional activities are shown in note 5 to the financial statements.
The management fee, details of which are shown in note 4 to the financial statements, is calculated and charged on a monthly basis at 0.45% per annum on the first £225 million, 0.35% per annum on the next £200 million and 0.25% per annum on amounts over £425 million of the net assets of the Company calculated with debt at par and excluding commonly managed funds. The total management fee for the year ended 31 January 2017 amounted to 0.39% of average monthly net assets.
The management agreement is terminable on not less than six months' notice. In the event of termination by the Company on less than the agreed notice period, compensation is payable to the Manager in lieu of the unexpired notice period.
Substantial Interests
As at 31 January 2017, the following interests in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure Guidance and Transparency Rules:
|
Shareholder |
Number of shares held |
% heldB |
|
Aberdeen Asset Managers Limited Retail PlansA |
36,191,205 |
24.0 |
|
1607 Capital Partners LLC |
7,619,495 |
5.0 |
|
Brewin Dolphin |
7,512,454 |
4.9 |
|
D C Thomson & Company Ltd |
5,900,000 |
3.9 |
A Non-beneficial interest
B Based on 150,512,687 Ordinary shares in issue as at 31 January 2017
There have been no changes notified to the Company as at the date of approval of this Report.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code (the "UK Code"), as published in September 2014 and effective for financial years commencing on or after 1 October 2014, which is available on the Financial Reporting Council's website: frc.org.uk.
The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance (the "AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to investment trusts. The AIC Code and AIC Guide are available on the AIC's website: theaic.co.uk.
The Board considers that reporting in accordance with the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide better information to shareholders.
The Board confirms that, during the year, the Company complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below.
The UK Code includes provisions relating to:
- the role of the chief executive (A.1.2);
- executive directors' remuneration (D.1.1 and D.1.2);
- the need for an internal audit function (C.3.6).
For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions.
The full text of the Company's Corporate Governance Statement can be found on its website.
Directors
At the year end the Board comprised five non-executive Directors. David Barron and Jasper Judd were appointed on 1 February 2016. Peter Wolton retired on 25 May 2016 and, as explained in the Chairman's Statement, Rory Macnamara passed away on 17 December 2016.
All Directors are considered by the Board to be independent of the Company and the Manager. Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company.
The Directors attended scheduled Board and Committee meetings during the year ended 31 January 2017 as follows (with their eligibility to attend the relevant meetings in brackets):
|
|
Board Meetings |
|
Management |
Nomination and Remuneration Committee |
|
David Barron |
6 (6) |
3 (3) |
1 (1) |
2 (2) |
|
John Carson |
6 (6) |
3 (3) |
1 (1) |
2 (2) |
|
Catherine Claydon |
6 (6) |
3 (3) |
1 (1) |
2 (2) |
|
Jasper Judd |
5 (6) |
3 (3) |
1 (1) |
2 (2) |
|
Rory Macnamara |
2 (5) |
2 (3) |
- (-) |
- (1) |
|
Elisabeth Scott |
6 (6) |
3 (3) |
1 (1) |
2 (2) |
|
Peter Wolton |
2 (2) |
2 (2) |
- (-) |
- (-) |
The Board meets more frequently when business needs require.
Catherine Claydon retires by rotation at the Annual General Meeting and John Carson, having served for more than nine years, will also retire at the Annual General Meeting. Being eligible, both Directors offer themselves for re-election. The Board believes that Catherine Claydon and John Carson remain independent of the Manager and free from any relationship which could materially interfere with the exercise of their judgement on issues of strategy, performance, resources and standards of conduct. In addition, the Board confirms that, following a formal performance evaluation, the performance of both Directors continues to be effective and demonstrates commitment to the role. The Board therefore recommends the re-election of Catherine Claydon and John Carson at the Annual General Meeting.
Directors' and Officers' 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 is 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 or her in the execution of his or her duties in relation to the affairs of the Company. These rights are included in the Articles of Association of the Company.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, each Director prepares a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.
The Board takes a zero-tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Manager also takes a zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.
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 loan covenants. The current bank loan expires in July 2018. The Directors believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future and for at least twelve months from the date of this Report. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.
Accountability and Audit
Each Director confirms that, so far as he or she is aware, there is no relevant audit information of which the Company's auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Independent Auditor
Following a formal tender process conducted during the year, the Board decided to appoint Deloitte LLP as the Company's auditor, in place of KPMG LLP, for the audit of the financial statements for the year ending 31 January 2018. The Board will therefore propose resolutions at the Annual General Meeting to appoint Deloitte LLP as auditor for the ensuing year and to authorise the Directors to determine its remuneration.
Relations with Shareholders
The Directors place a great deal of importance on communication with shareholders. Shareholders and investors may obtain up to date information on the Company through its website and the Manager's information service.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (including the Company Secretary or the Manager) in situations where direct communication is required, and representatives from the Board meet with major shareholders on an annual basis in order to gauge their views. In addition, the Company Secretary only acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds personally as appropriate.
The notice of the Annual General Meeting is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board and Manager at the meeting .
Annual General Meeting
The Annual General Meeting will be held at the offices of Aberdeen Asset Management PLC, 40 Princes Street, Edinburgh EH2 2BY on Tuesday 23 May 2017 at 12 noon.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
40 Princes Street
Edinburgh EH2 2BY
30 March 2017
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, including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland'.
Under Company law the Directors must not approve the financial statements unless they are satisfied that they 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 the 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 have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- 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 position and 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.
On behalf of the Board
John Carson
Director
30 March 2017
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended 31 January 2017 |
Year ended 31 January 2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains/(losses) on investments |
10 |
- |
50,712 |
50,712 |
- |
(59,180) |
(59,180) |
|
Currency losses |
|
- |
(494) |
(494) |
- |
(278) |
(278) |
|
Income |
3 |
21,963 |
- |
21,963 |
20,359 |
- |
20,359 |
|
Investment management fee |
4 |
(630) |
(945) |
(1,575) |
(643) |
(966) |
(1,609) |
|
Administrative expenses |
5 |
(932) |
- |
(932) |
(935) |
- |
(935) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Net return before finance costs and taxation |
|
20,401 |
49,273 |
69,674 |
18,781 |
(60,424) |
(41,643) |
|
|
|
|
|
|
|
|
|
|
Finance costs |
6 |
(1,445) |
(2,165) |
(3,610) |
(1,046) |
(1,566) |
(2,612) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Return on ordinary activities before taxation |
|
18,956 |
47,108 |
66,064 |
17,735 |
(61,990) |
(44,255) |
|
|
|
|
|
|
|
|
|
|
Taxation |
7 |
(57) |
- |
(57) |
558 |
- |
558 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Return on ordinary activities after taxation |
|
18,899 |
47,108 |
66,007 |
18,293 |
(61,990) |
(43,697) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
Return per Ordinary share (pence) |
9 |
12.55 |
31.28 |
43.83 |
12.11 |
(41.05) |
(28.94) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
The column of this statement headed "Total" represents the profit and loss account of the Company. |
|||||||
|
All revenue and capital items in the above statement derive from continuing operations. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
STATEMENT OF FINANCIAL POSITION
|
|
|
As at |
As at |
|
|
|
31 January 2017 |
31 January 2016 |
|
|
Notes |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Equity securities |
|
441,202 |
407,235 |
|
Fixed interest securities |
|
29,462 |
28,777 |
|
|
|
_________ |
_________ |
|
Investments at fair value through profit or loss |
10 |
470,664 |
436,012 |
|
|
|
_________ |
_________ |
|
Current assets |
|
|
|
|
Debtors |
11 |
7,030 |
1,513 |
|
Cash and short term deposits |
|
8,648 |
568 |
|
|
|
_________ |
_________ |
|
|
|
15,678 |
2,081 |
|
|
|
_________ |
_________ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Bank loan |
12 |
(11,253) |
(10,653) |
|
Other creditors |
12 |
(1,003) |
(1,128) |
|
|
|
_________ |
_________ |
|
|
|
(12,256) |
(11,781) |
|
|
|
_________ |
_________ |
|
Net current assets/(liabilities) |
|
3,422 |
(9,700) |
|
|
|
_________ |
_________ |
|
Total assets less current liabilities |
|
474,086 |
426,312 |
|
|
|
|
|
|
Creditors: amounts falling due after more than one year |
13 |
(58,276) |
(58,271) |
|
|
|
_________ |
_________ |
|
Net assets |
|
415,810 |
368,041 |
|
|
|
_________ |
_________ |
|
Capital and reserves |
|
|
|
|
Called-up share capital |
14 |
38,419 |
38,419 |
|
Share premium account |
|
4,619 |
4,619 |
|
Capital redemption reserve |
|
1,606 |
1,606 |
|
Capital reserve |
|
345,486 |
299,437 |
|
Revenue reserve |
|
25,680 |
23,960 |
|
|
|
_________ |
_________ |
|
Equity shareholders' funds |
|
415,810 |
368,041 |
|
|
|
_________ |
_________ |
|
|
|
|
|
|
Net asset value per Ordinary share (pence) |
16 |
276.26 |
243.73 |
|
|
|
_________ |
_________ |
|
The accompanying notes are an integral part of the financial statements. |
|||
STATEMENT OF CHANGES IN EQUITY
|
For the year ended 31 January 2017 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 January 2016 |
|
38,419 |
4,619 |
1,606 |
299,437 |
23,960 |
368,041 |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
47,108 |
18,899 |
66,007 |
|
Dividends paid |
8 |
- |
- |
- |
- |
(17,179) |
(17,179) |
|
Buyback of Ordinary shares for treasury |
|
- |
- |
- |
(1,059) |
- |
(1,059) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 31 January 2017 |
|
38,419 |
4,619 |
1,606 |
345,486 |
25,680 |
415,810 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
For the year ended 31 January 2016 |
|
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 January 2015 |
|
38,419 |
4,619 |
1,606 |
361,427 |
22,631 |
428,702 |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
(61,990) |
18,293 |
(43,697) |
|
Dividends paid |
8 |
- |
- |
- |
- |
(16,964) |
(16,964) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 31 January 2016 |
|
38,419 |
4,619 |
1,606 |
299,437 |
23,960 |
368,041 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|||||||
|
The accompanying notes are an integral part of the financial statements. |
|||||||
STATEMENT OF CASH FLOWS
|
|
|
Year ended |
Year ended |
|
|
|
31 January 2017 |
31 January 2016 |
|
|
Notes |
£'000 |
£'000 |
|
Operating activities |
|
|
|
|
Net return on ordinary activities before finance costs and taxation |
69,674 |
(41,643) |
|
|
Adjustment for: |
|
|
|
|
(Gains)/losses on investments |
|
(50,712) |
59,180 |
|
Currency losses |
|
494 |
278 |
|
(Increase)/decrease in accrued dividend income |
|
(88) |
14 |
|
Decrease/(increase) in accrued interest income |
|
138 |
(707) |
|
Stock dividends included in dividend income |
|
(2,424) |
(2,105) |
|
Amortisation of fixed income book cost |
|
352 |
44 |
|
Decrease in other debtors |
|
6 |
- |
|
Decrease in other creditors |
|
(125) |
(36) |
|
Net tax (paid)/received |
|
(91) |
340 |
|
|
|
______ |
______ |
|
Net cash flow from operating activities |
|
17,224 |
15,365 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Purchases of investments |
|
(66,492) |
(69,807) |
|
Sales of investments |
|
79,097 |
39,121 |
|
|
|
______ |
______ |
|
Net cash used in investing activities |
|
12,605 |
(30,686) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Interest paid |
|
(3,587) |
(2,433) |
|
Dividends paid |
8 |
(17,179) |
(16,964) |
|
Buyback of Ordinary shares for treasury |
|
(1,059) |
- |
|
Repayment of loan |
|
(6,000) |
- |
|
Drawdown of loan |
|
5,878 |
- |
|
Issue of Loan Notes |
|
(18) |
29,711 |
|
|
|
______ |
______ |
|
Net cash flow (used in)/from financing activities |
|
(21,965) |
10,314 |
|
|
|
______ |
______ |
|
Increase/(decrease) in cash and cash equivalents |
|
7,864 |
(5,007) |
|
|
|
______ |
______ |
|
|
|
|
|
|
Analysis of changes in cash and cash equivalents during the year |
|
||
|
Opening balance |
|
568 |
5,783 |
|
Effect of exchange rate fluctations on cash held |
|
216 |
(208) |
|
Increase/(decrease) in cash as above |
|
7,864 |
(5,007) |
|
|
|
______ |
______ |
|
Closing balance |
|
8,648 |
568 |
|
|
|
______ |
______ |
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements. |
|||
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 JANUARY 2017
|
1. |
Principal activity |
|
|
The Company is a closed-end investment company, registered in Scotland No SC000881, with its Ordinary shares being listed on the London Stock Exchange. |
|
2. |
Accounting policies |
|
|
|
(a) |
Basis of preparation and going concern |
|
|
|
The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. The financial statements are prepared in sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. |
|
|
|
|
|
|
|
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the Directors' Report. |
|
|
|
|
|
|
(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 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. |
|
|
|
|
|
|
|
The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities. |
|
|
|
|
|
|
|
Underwriting commission is taken to revenue, unless any shares underwritten are required to be taken up, in which case the proportionate commission received is deducted from the cost of the investment. |
|
|
|
|
|
|
|
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 and loan note placement 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 4). |
|
|
|
|
|
|
|
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 Statement of Comprehensive Income. |
|
|
|
|
|
|
(d) |
Dividends payable |
|
|
|
Interim and final dividends are recognised in the period in which they are paid. |
|
|
|
|
|
|
(e) |
Nature and purpose of reserves |
|
|
|
Share premium account |
|
|
|
The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising ordinary shares of 25p. |
|
|
|
|
|
|
|
Capital redemption reserve |
|
|
|
The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital. |
|
|
|
|
|
|
|
Capital reserve |
|
|
|
Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve. |
|
|
|
|
|
|
|
The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. |
|
|
|
|
|
|
|
The costs of share buybacks to be held in treasury are also deducted from this reserve as the special reserve has been extinguished |
|
|
|
|
|
|
|
Revenue reserve |
|
|
|
This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
|
|
|
|
|
|
(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 Statement of Financial Position 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 Statement of Comprehensive Income. |
|
|
|
|
|
|
|
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 Statement of Comprehensive Income. |
|
|
|
|
|
|
(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. |
|
|
|
2017 |
2016 |
|
3. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
UK dividend income |
13,417 |
12,902 |
|
|
Overseas dividends |
2,952 |
3,370 |
|
|
Fixed income |
1,388 |
162 |
|
|
Stock dividends |
2,424 |
2,105 |
|
|
|
______ |
______ |
|
|
|
20,181 |
18,539 |
|
|
|
______ |
______ |
|
|
Other income |
|
|
|
|
Deposit interest |
50 |
55 |
|
|
Income on derivatives |
1,720 |
1,751 |
|
|
Underwriting commission |
- |
14 |
|
|
Income from stock lending |
12 |
- |
|
|
|
______ |
______ |
|
|
|
1,782 |
1,820 |
|
|
|
______ |
______ |
|
|
Total income |
21,963 |
20,359 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
During the year, the Company earned premiums totaling £1,720,000 (2016 - £1,751,000) in exchange for entering into derivative transactions. The Company had no open positions in derivative contracts at 31 January 2017 (2016 - no open positions). Losses realised on the exercise of derivative transactions are disclosed in note 10. |
||
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
4. |
Management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fee |
630 |
945 |
1,575 |
643 |
966 |
1,609 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
||||||
|
|
The Company has appointed Aberdeen Fund Managers Limited ("AFML") as its alternative investment fund manager. Under the terms of the management agreement, AFML provides investment management, risk management, accounting, administrative and secretarial services. The management fee is calculated and charged, on a monthly basis, at 0.45% per annum on the first £225 million, 0.35% per annum on the next £200 million and 0.25% per annum 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 £139,000 (2016 - £126,000). The management fee is allocated 40% to revenue and 60% to capital. There were no commonly managed funds held in the portfolio during the year to 31 January 2017 (2016 - none). |
||||||
|
|
|
||||||
|
|
AFML has also been appointed to provide promotional activities, and has sub-delegated this service to Aberdeen Asset Managers Limited ("AAML"). Fees payable for promotional activities are shown in note 5. |
||||||
|
|
|
2017 |
2016 |
|
5. |
Administrative expenses |
£'000 |
£'000 |
|
|
Directors' fees |
148 |
120 |
|
|
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 |
6 |
|
|
other services |
1 |
1 |
|
|
Promotional activities |
372 |
372 |
|
|
Registrar's fees |
45 |
45 |
|
|
Share plan fees |
68 |
72 |
|
|
Printing and postage |
50 |
49 |
|
|
Other expenses |
225 |
253 |
|
|
|
______ |
______ |
|
|
|
932 |
935 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
Expenses of £372,000 (2016 - £372,000) were paid to AAML in respect of the promotion of the Company. The balance outstanding at the year end was £31,000 (2016 - £124,000). |
||
|
|
|
||
|
|
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 |
||
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
6. |
Finance costs |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Bank loan |
54 |
81 |
135 |
68 |
102 |
170 |
|
|
Debenture Stock |
901 |
1,352 |
2,253 |
901 |
1,352 |
2,253 |
|
|
Amortised Debenture Stock premium and issue expenses |
5 |
8 |
13 |
5 |
8 |
13 |
|
|
Loan Notes - repayable after more than 5 years |
479 |
718 |
1,197 |
69 |
103 |
172 |
|
|
Amortised Loan Notes issue expenses |
4 |
6 |
10 |
1 |
1 |
2 |
|
|
Bank overdraft |
2 |
- |
2 |
2 |
- |
2 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
1,445 |
2,165 |
3,610 |
1,046 |
1,566 |
2,612 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
Finance costs (excluding bank overdraft interest) are allocated 40% to revenue and 60% to capital. |
||||||
|
|
|
2017 |
2016 |
|||||||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|||||
|
7. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
|
(a) |
Analysis of charge/(credit) for the year |
|
|
|
|
|
|
||||
|
|
|
Overseas tax suffered/(recovered) |
224 |
- |
224 |
(371) |
- |
(371) |
||||
|
|
|
Overseas tax reclaimable |
(167) |
- |
(167) |
(187) |
- |
(187) |
||||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||||
|
|
|
Total tax charge/(credit) for the year |
57 |
- |
57 |
(558) |
- |
(558) |
||||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
(b) |
Factors affecting the tax charge for the year
|
||||||||||
|
|
|
The UK corporation tax rate was 20% from 1 April 2016, giving an effective rate for the year of 20% (2016 - effective rate of 20.17%). The tax assessed for the year is higher than the rate of corporation tax. The differences are explained below: |
||||||||||
|
|
|
|
||||||||||
|
|
|
|
2017 |
2016 |
||||||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
|
|
Return on ordinary activities before taxation |
18,956 |
47,108 |
66,064 |
17,735 |
(61,990) |
(44,255) |
||||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||||
|
|
|
Corporation tax at 20% (2016 - 20.17%) |
3,791 |
9,422 |
13,213 |
3,577 |
(12,503) |
(8,926) |
||||
|
|
|
Effects of: |
|
|
|
|
|
|
||||
|
|
|
Non-taxable UK dividend income |
(2,683) |
- |
(2,683) |
(2,602) |
- |
(2,602) |
||||
|
|
|
Non-taxable stock dividends |
(485) |
- |
(485) |
(425) |
- |
(425) |
||||
|
|
|
Capital gains on investments not taxable |
- |
(10,143) |
(10,143) |
- |
11,936 |
11,936 |
||||
|
|
|
Currency gains not taxable |
- |
99 |
99 |
- |
56 |
56 |
||||
|
|
|
Overseas taxes |
57 |
- |
57 |
(558) |
- |
(558) |
||||
|
|
|
Non-taxable overseas dividends |
(560) |
- |
(560) |
(674) |
- |
(674) |
||||
|
|
|
Expenses not deductible for tax purposes |
- |
- |
- |
1 |
- |
1 |
||||
|
|
|
Excess management expenses |
(61) |
622 |
561 |
123 |
511 |
634 |
||||
|
|
|
Prior year adjustment |
(2) |
- |
(2) |
- |
- |
- |
||||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||||
|
|
|
Total tax charge/(credit) |
57 |
- |
57 |
(558) |
- |
(558) |
||||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
(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 £119,957,000 (2016 - £117,155,000). A deferred tax asset in respect of this has not been recognised and these unrelieved expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. |
||||||||||
|
|
|
2017 |
2016 |
|
8. |
Dividends |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
|
|
|
|
Third interim dividend for the year ended 31 January 2016 - 2.575p (2015 - 2.575p) paid 26 February 2016 |
3,888 |
3,888 |
|
|
Final dividend for the year ended 31 January 2016 - 3.675p (2015 - 3.525p) paid 27 May 2016 |
5,539 |
5,323 |
|
|
First interim dividend for the year ended 31 January 2017 - 2.575p (2016 - 2.575p) paid 26 August 2016 |
3,876 |
3,888 |
|
|
Second interim dividend for the year ended 31 January 2017 - 2.575p (2016 - 2.575p) paid 25 November 2016 |
3,876 |
3,888 |
|
|
Return of unclaimed dividends |
- |
(23) |
|
|
|
______ |
______ |
|
|
Dividends paid in the period |
17,179 |
16,964 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
A third interim dividend of 2.575p per Ordinary share was declared on 23 January 2017, payable on 24 February 2017 to shareholders on the register on 3 February 2017 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 £18,899,000 (2016 - £18,293,000). |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
First interim dividend for the year ended 31 January 2017 - 2.575p (2016 - 2.575p) |
3,876 |
3,888 |
|
|
Second interim dividend for the year ended 31 January 2017 - 2.575p (2016 - 2.575p) |
3,876 |
3,888 |
|
|
Third interim dividend for the year ended 31 January 2017 - 2.575p (2016 - 2.575p) |
3,876 |
3,888 |
|
|
Proposed final dividend for the year ended 31 January 2017 - 3.975p (2016 - 3.675p) |
5,972 |
5,543 |
|
|
|
______ |
______ |
|
|
|
17,600 |
17,207 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
280,010 Ordinary shares have been bought back since the year end and the proposed final dividend is based on the latest share capital of 150,232,677 Ordinary shares. |
||
|
|
|
2017 |
2016 |
||
|
9. |
Return per Ordinary share |
£'000 |
p |
£'000 |
p |
|
|
Revenue return |
18,899 |
12.55 |
18,293 |
12.11 |
|
|
Capital return |
47,108 |
31.28 |
(61,990) |
(41.05) |
|
|
|
______ |
______ |
______ |
______ |
|
|
Total return |
66,007 |
43.83 |
(43,697) |
(28.94) |
|
|
|
______ |
______ |
______ |
______ |
|
|
Weighted average number of Ordinary shares in issue |
|
150,619,769 |
|
151,006,187 |
|
|
|
|
_________ |
|
_________ |
|
|
|
Listed |
Listed |
|
|
|
2017 |
2016 |
|
10. |
Investments: listed at fair value through profit or loss |
£'000 |
£'000 |
|
|
Opening fair value |
436,012 |
462,444 |
|
|
Opening investment holding gains |
(58,984) |
(123,861) |
|
|
|
______ |
______ |
|
|
Opening book cost |
377,028 |
338,583 |
|
|
Purchases at cost |
68,564 |
71,868 |
|
|
Sales - proceeds |
(84,624) |
(39,121) |
|
|
Sales - realised gainsA |
8,305 |
5,698 |
|
|
|
______ |
______ |
|
|
Closing book cost |
369,273 |
377,028 |
|
|
Closing investment holdings gains |
101,391 |
58,984 |
|
|
|
______ |
______ |
|
|
Closing fair value |
470,664 |
436,012 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Gains/(losses) on investments |
£'000 |
£'000 |
|
|
Realised gains on salesA |
8,305 |
5,698 |
|
|
Change in investment holdings gains |
42,407 |
(64,878) |
|
|
|
______ |
______ |
|
|
|
50,712 |
(59,180) |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
A Includes losses realised on the exercise of traded options of £669,000 (2016 - £1,633,000). Premiums received of £1,720,000 (2016 - £1,751,000) are included within income per note 3. |
||
|
|
|
||
|
|
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 Statement of Comprehensive Income. The total costs were as follows: |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Purchases |
271 |
169 |
|
|
Sales |
55 |
27 |
|
|
|
______ |
______ |
|
|
|
326 |
196 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Stock lending |
£'000 |
£'000 |
|
|
Aggregate value of securities on loan at the year end |
4,165 |
- |
|
|
Maximum aggregate value of securities on loan during the year |
54,048 |
- |
|
|
Fee income from stock lending |
12 |
- |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
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 of holding the investments, namely the market movements in share prices and dividend income, are retained by the Company. In all cases the securities lent continue to be recognised on the Statement of Financial Position. |
||
|
|
|
||
|
|
All stocks lent under these arrangements are fully secured by collateral. The value of the collateral held at 31 January 2017 was £4,712,000 (2016 - £nil). |
||
|
|
|
2017 |
2016 |
|
11. |
Debtors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Net dividends and interest receivable |
1,037 |
1,087 |
|
|
Tax recoverable |
445 |
399 |
|
|
Amounts due from stockbrokers |
5,527 |
- |
|
|
Other loans and receivables |
21 |
27 |
|
|
|
______ |
______ |
|
|
|
7,030 |
1,513 |
|
|
|
______ |
______ |
|
12. |
Creditors: amounts falling due within one year |
2017 |
2016 |
|
|
|
(a) |
Bank loan |
£'000 |
£'000 |
|
|
|
EUR 6,100,000 - 15 February 2016 |
- |
4,653 |
|
|
|
GBP 6,000,000 - 15 February 2016 |
- |
6,000 |
|
|
|
EUR 13,100,000 - 13 February 2017 |
11,253 |
- |
|
|
|
|
______ |
______ |
|
|
|
|
11,253 |
10,653 |
|
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
|
The Company has a multi-currency revolving facility agreement (which expires 15 July 2018) with Scotiabank for up to £25,000,000. At 31 January 2017 €13,100,000 had been drawn down at a rate of 0.8% (2016 - €6,100,000 at a rate of 0.8% and £6,000,000 at a rate of 1.31069%), which matured on 13 February 2017. At the date this Report was approved €13,100,000 had been drawn down at a rate of 0.8%, maturing on 13 April 2017. The terms of the loan facility contain covenants that the adjusted asset coverage is not be less than 4.00 to 1.00 and that the minimum net assets of the Company are £200 million. |
||
|
|
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
(b) |
Other creditors |
£'000 |
£'000 |
|
|
|
Debenture Stock, Loan Notes and bank loan interest |
750 |
750 |
|
|
|
Sundry creditors |
253 |
378 |
|
|
|
|
______ |
______ |
|
|
|
|
1,003 |
1,128 |
|
|
|
|
______ |
______ |
|
|
|
2017 |
2016 |
|
13. |
Creditors: amounts falling due after more than one year |
£'000 |
£'000 |
|
|
7⅞% Debenture Stock 2019 (issued in 1997) |
28,600 |
28,600 |
|
|
Unamortised Debenture Stock premium and issue expenses |
(29) |
(42) |
|
|
|
______ |
______ |
|
|
Amortised cost of Debenture Stock |
28,571 |
28,558 |
|
|
|
______ |
______ |
|
|
3.99% Loan Notes 2045 (issued in 2015) |
30,000 |
30,000 |
|
|
Unamortised Loan Note issue expenses |
(295) |
(287) |
|
|
|
______ |
______ |
|
|
Amortised cost of Loan Notes |
29,705 |
29,713 |
|
|
|
______ |
______ |
|
|
Total |
58,276 |
58,271 |
|
|
|
______ |
______ |
|
|
|
||
|
|
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 3.99% Loan Notes are due to be redeemed at par on 8 December 2045 and interest is payable in half-yearly instalments in June and December. The Loan Notes are secured by a floating charge over the whole of the assets of the Company. The Company has complied with the Loan Note Trust Deed that total net borrowings (ie. after the deduction of cash balances) should not exceed 33% of the Net Asset Value and that the Net Asset Value should not be less than £200 million. |
||
|
|
|
||
|
|
The fair value of the Debenture Stock as at 31 January 2017 was £32,547,000 (2016 - £33,578,000), the value being calculated per the disclosure in note 17. The effect on the net asset value of deducting the Debenture Stock at fair value rather than at par is disclosed in note 16. |
||
|
|
|
||
|
|
The fair value of the Loan Notes as at 31 January 2017 was £34,637,000 (2016 - £34,132,000), the value being calculated per the disclosure in note 17. The effect on the net asset value of deducting the Loan Notes at fair value rather than at par is disclosed in note 16. |
||
|
|
|
2017 |
2016 |
|
14. |
Called-up share capital |
£'000 |
£'000 |
|
|
Allotted, called up and fully paid: |
|
|
|
|
150,512,687 (2016 - 151,006,187) Ordinary shares of 25p each - equity |
37,628 |
37,751 |
|
|
Treasury shares: |
|
|
|
|
3,165,248 (2016 - 2,671,748) Ordinary shares of 25p each - equity |
791 |
668 |
|
|
|
______ |
______ |
|
|
|
38,419 |
38,419 |
|
|
|
______ |
______ |
|
|
|
||
|
|
The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. |
||
|
|
|
||
|
|
During the year the Company repurchased 493,500 Ordinary shares (2016 - nil) at a cost of £1,059,000 including expenses (2016 - nil). All of these shares were placed in treasury. No treasury shares were cancelled during the year (2016 - nil). |
||
|
|
|
||
|
|
Since the year end 280,010 Ordinary shares of 25p each have been purchased by the Company at a total cost of £701.000. These are held in treasury. |
||
|
|
|
2017 |
2016 |
||||
|
|
|
Equity |
|
|
Equity |
|
|
|
|
|
share capital |
|
|
share capital |
|
|
|
|
|
(including |
Loan |
Debenture |
(including |
Loan |
Debenture |
|
|
|
premium) |
Notes |
stock |
premium) |
Notes |
stock |
|
15. |
Analysis of changes in financing |
2017 |
2017 |
2017 |
2016 |
2016 |
2016 |
|
|
during the year |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Opening balance at 31 January 2016 |
43,038 |
29,713 |
28,558 |
43,038 |
- |
28,545 |
|
|
Loan Notes issue expenses |
- |
(18) |
- |
- |
- |
- |
|
|
Loan Notes issued in the period |
- |
- |
- |
- |
29,711 |
- |
|
|
Movement in unamortised Debenture Stock discount and issue expenses |
- |
- |
13 |
- |
- |
13 |
|
|
Movement in unamortised Loan Notes issue expenses |
- |
10 |
- |
- |
2 |
- |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
Closing balance at 31 January 2017 |
43,038 |
29,705 |
28,571 |
43,038 |
29,713 |
28,558 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
16. |
Net asset value per share |
|||
|
|
Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 102. The analysis of equity shareholders' funds on the face of the Statement of Financial Position 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 and Loan Notes at par. A reconciliation between the two sets of figures is as follows: |
|
||
|
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
Net assets attributable (£'000) |
415,810 |
368,041 |
|
|
|
Number of Ordinary shares in issue at year endA |
150,512,687 |
151,006,187 |
|
|
|
Net asset value per Ordinary share |
276.26p |
243.73p |
|
|
|
A Excluding shares held in treasury. |
|
|
|
|
|
|
|
|
|
|
|
Adjusted net assets |
2017 |
2016 |
|
|
|
Net assets attributable (£'000) as above |
415,810 |
368,041 |
|
|
|
Unamortised Debenture Stock premium and issue expenses (note 13) |
(29) |
(42) |
|
|
|
Unamortised Loan Note issue expenses (note 13) |
(295) |
(287) |
|
|
|
|
______ |
______ |
|
|
|
Adjusted net assets attributable (£'000) |
415,486 |
367,712 |
|
|
|
|
______ |
______ |
|
|
|
Number of Ordinary shares in issue at year endA |
150,512,687 |
151,006,187 |
|
|
|
Adjusted net asset value per Ordinary share |
276.05p |
243.51p |
|
|
|
A Excluding shares held in treasury. |
|
|
|
|
|
|
|
|
|
|
|
The movements during the year of the adjusted net assets attributable to the Ordinary shares were as follows: |
|
||
|
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
|
£'000 |
£'000 |
|
|
|
Opening adjusted net assets |
367,712 |
428,647 |
|
|
|
Capital return for the year |
47,108 |
(61,990) |
|
|
|
Revenue on ordinary activities after taxation |
18,899 |
18,293 |
|
|
|
Dividends appropriated in the year |
(17,179) |
(16,964) |
|
|
|
Movement in unamortised Loan Notes issue expenses |
(8) |
(287) |
|
|
|
Movement in unamortised Debenture Stock premium and issue expenses |
13 |
13 |
|
|
|
Buyback of Ordinary shares for treasury |
(1,059) |
- |
|
|
|
|
______ |
______ |
|
|
|
Closing adjusted net assets |
415,486 |
367,712 |
|
|
|
|
______ |
______ |
|
|
17. |
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 option contracts for the purpose of generating income and futures/options for hedging market exposures. |
||||||||||||
|
|
|
||||||||||||
|
|
During the year, the Company entered into certain options contracts for the purpose of generating income. Positions closed during the year realised a loss of £669,000 (2016 - £1,633,000). As disclosed in note 3, the premium received and fair value changes in respect of options written in the year was £1,720,000 (2016 - £1,751,000). The largest position in derivative contracts held during the year at any given time was £900,000 (2016 - £611,000). The Company had no open positions in derivative contracts at 31 January 2017 (2016 - none). |
||||||||||||
|
|
|
||||||||||||
|
|
The Board relies on Aberdeen Fund Managers Limited ("AFML" or the "Manager") for the provision of risk management activities 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 on the grounds that they are not considered to be material. |
||||||||||||
|
|
|
||||||||||||
|
|
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 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 its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. |
||||||||||||
|
|
|
||||||||||||
|
|
The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD"). |
||||||||||||
|
|
|
||||||||||||
|
|
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. |
||||||||||||
|
|
|
||||||||||||
|
|
The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference. |
||||||||||||
|
|
|
||||||||||||
|
|
Risk Management |
||||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and 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 2017 are shown in notes 12 and 13. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
Interest risk profile |
|||||||||||
|
|
|
The interest rate risk profile of the portfolio of financial assets and liabilities at the Statement of Financial Position date was as follows: |
|||||||||||
|
|
|
|
Weighted |
|
|
|
|||||||
|
|
|
|
average |
Weighted |
|
|
|||||||
|
|
|
|
period for |
average |
|
|
|||||||
|
|
|
|
which |
interest |
Fixed |
Floating |
|||||||
|
|
|
|
rate is fixed |
rate |
rate |
rate |
|||||||
|
|
|
At 31 January 2017 |
Years |
% |
£'000 |
£'000 |
|||||||
|
|
|
Assets |
|
|
|
|
|||||||
|
|
|
Sterling |
14.57 |
6.54 |
29,462 |
8,648 |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
Total assets |
- |
- |
29,462 |
8,648 |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
Liabilities |
|
|
|
|
|||||||
|
|
|
Bank loans |
0.08 |
0.80 |
(11,253) |
- |
|||||||
|
|
|
Loan Notes |
28.83 |
3.99 |
(29,705) |
- |
|||||||
|
|
|
Debenture Stock |
2.25 |
7.87 |
(28,571) |
- |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
Total liabilities |
- |
- |
(69,529) |
- |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
|
|
|
|
|
|||||||
|
|
|
The weighted average period for which interest rates are fixed in relation to the Company's fixed interest portfolio, at 14.57 years, extends significantly beyond the maturity date of the 7⅞% Debenture Stock, which matures on 30 April 2019. This is due to the large number of perpetual holdings within that portfolio which have call dates around the time of the maturity of the Debenture. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
|
Weighted |
|
|
|
|||||||
|
|
|
|
average |
Weighted |
|
|
|||||||
|
|
|
|
period for |
average |
|
|
|||||||
|
|
|
|
which |
interest |
Fixed |
Floating |
|||||||
|
|
|
|
rate is fixed |
rate |
rate |
rate |
|||||||
|
|
|
At 31 January 2016 |
Years |
% |
£'000 |
£'000 |
|||||||
|
|
|
Assets |
|
|
|
|
|||||||
|
|
|
Sterling |
22.50 |
6.58 |
28,777 |
568 |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
Total assets |
- |
- |
28,777 |
568 |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
Liabilities |
|
|
|
|
|||||||
|
|
|
Bank loans |
0.08 |
1.09 |
(10,653) |
- |
|||||||
|
|
|
Loan Notes |
29.85 |
3.99 |
(29,713) |
- |
|||||||
|
|
|
Debenture Stock |
3.25 |
7.87 |
(28,558) |
- |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
Total liabilities |
- |
- |
(68,924) |
- |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
|
|||||||||||
|
|
|
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 12 and 13 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 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 Statement of Financial Position 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 proportion of the Company's borrowings, as detailed in note 12, is in foreign currency as at 31 January 2017. 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 2017 |
31 January 2016 |
|||||||||
|
|
|
|
|
Net |
Total |
|
Net |
Total |
|||||
|
|
|
|
|
monetary |
currency |
|
monetary |
currency |
|||||
|
|
|
|
Investments |
assets |
exposure |
Investments |
assets |
exposure |
|||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
|
|
Euro |
33,656 |
(5,526) |
28,130 |
33,637 |
(4,373) |
29,264 |
|||||
|
|
|
Swiss Francs |
27,535 |
260 |
27,795 |
29,462 |
139 |
29,601 |
|||||
|
|
|
Danish Krone |
2,514 |
- |
2,514 |
- |
- |
- |
|||||
|
|
|
Sterling |
406,959 |
(49,588) |
357,371 |
372,913 |
(63,737) |
309,176 |
|||||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|||||
|
|
|
Total |
470,664 |
(54,854) |
415,810 |
436,012 |
(67,971) |
368,041 |
|||||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|||||
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
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 company or 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 Statement of Financial Position date had been 10% higher while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 January 2017 would have increased by £47,066,000 (2016 - increase of £43,601,000) 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, Loan Notes and a revolving facility. The Debenture Stock and Loan Notes provide 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 2017 are shown in notes 12 and 13. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
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 12. 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 2017 and 31 January 2016 the amortised cost of the Company's Debenture Stock was £28,571,000 and £28,558,000 respectively. This is due to be redeemed at par on 30 April 2019. At 31 January 2017 and 31 January 2016 the amortised cost of the Company's Loan Notes was £29,705,000 and £29,713,000 respectively. At 31 January 2017 and 31 January 2016 the Company's bank loans amounted to £11,253,000 and £10,653,000 respectively. The facility is committed until 15 July 2018. |
|||||||||||
|
|
|
|
|||||||||||
|
|
(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. 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. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
There are internal exposure limits to cash balances placed with counterparties. The credit worthiness of counterparties is also reviewed on a regular basis. |
|||||||||||
|
|
|
|
|||||||||||
|
|
|
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 Statement of Financial Position, the maximum exposure to credit risk at 31 January was as follows: |
|||||||||||
|
|
|
|
2017 |
2016 |
|||||||||
|
|
|
|
Balance |
Maximum |
Balance |
Maximum |
|||||||
|
|
|
|
Sheet |
exposure |
Sheet |
exposure |
|||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|||||||
|
|
|
Non-current assets |
|
|
|
|
|||||||
|
|
|
Investments at fair value through profit or loss |
470,664 |
29,462 |
436,012 |
28,777 |
|||||||
|
|
|
|
|
|
|
|
|||||||
|
|
|
Current assets |
|
|
|
|
|||||||
|
|
|
Cash and short term deposits |
8,648 |
8,648 |
568 |
568 |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
|
479,312 |
38,110 |
436,580 |
29,345 |
|||||||
|
|
|
|
______ |
______ |
______ |
______ |
|||||||
|
|
|
|
|||||||||||
|
|
|
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 £78,437,000 as at 31 January 2017 (2016 - £78,363,000) compared to an accounts value in the financial statements of £69,853,000 (2016 - £69,253,000) (notes 12 and 13). 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 Statement of Financial Position at fair value. |
|||||||||||
|
18. |
Fair value hierarchy |
||||||
|
|
FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following classifications: |
||||||
|
|
|
||||||
|
|
Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date. |
||||||
|
|
Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. |
||||||
|
|
Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability. |
||||||
|
|
The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows: |
||||||
|
|
|
||||||
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
As at 31 January 2017 |
Note |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
|
Quoted equities |
a) |
441,202 |
- |
- |
441,202 |
|
|
|
Quoted bonds |
b) |
- |
29,462 |
- |
29,462 |
|
|
|
|
|
______ |
______ |
______ |
______ |
|
|
|
Total |
|
441,202 |
29,462 |
- |
470,664 |
|
|
|
|
|
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
|
As at 31 January 2016 |
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
|
Quoted equities |
a) |
407,235 |
- |
- |
407,235 |
|
|
|
Quoted bonds |
b) |
- |
28,777 |
- |
28,777 |
|
|
|
|
|
______ |
______ |
______ |
______ |
|
|
|
Total |
|
407,235 |
28,777 |
- |
436,012 |
|
|
|
|
|
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
|
a) |
Quoted equities |
|||||
|
|
|
The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. |
|||||
|
|
b) |
Quoted bonds |
|||||
|
|
|
The fair value of the Company's investments in quoted bonds has been determined by reference to their quoted bid prices at the reporting date. Bonds included in Fair Value Levels 2 are Corporate Bonds. Investments categorised as Level 2 are not considered to trade in active markets. |
|||||
|
19. |
Capital management policies and procedures |
|
|
The Company's capital management objectives are: |
|
|
to ensure that the Company will be able to continue as a going concern; and |
|
|
to maximise the 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 future expected returns 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. |
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20. |
Related party transactions and transactions with the Manager |
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Directors' fees and interests |
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Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors' Remuneration Report. |
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Transactions with the Manager |
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The Company has an agreement with the Aberdeen Group for the provision of management, secretarial, accounting and administration services and also for the provision of promotional activities. Details of transactions during the year and balances outstanding at the year end are disclosed in notes 4 and 5. |
Additional Notes to Annual Financial Report
The Annual General Meeting will be held on 23 May 2017 at 12 noon at Aberdeen Asset Management PLC, 40 Princes Street, Edinburgh EH2 2BY.
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 January 2017 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2016 and 2017 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 S498 of the Companies Act 2006. The financial information for 2016 is derived from the statutory accounts for the year ended 31 January 2016 which have been delivered to the Registrar of Companies. The accounts for the year ended 31 January 2017 will be filed with the Registrar of Companies in due course.
The Annual Report and Accounts will be posted to shareholders in April 2017 and copies will be available from the registered office of the Company 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.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
30 March 2017
* 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
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