Half-year Report

RNS Number : 6538W

Murray Income Trust PLC

10 February 2017

 

Murray Income Trust PLC

LEGAL ENTITY IDENTIFIER (LEI): 549300IRNFGVQIQHUI

Half-Yearly Report for the 6 months ended 31 December 2016

The Directors of Murray Income Trust PLC report the unaudited results for the six months ended 31 December 2016.

Financial Highlights

	31 December 2016	30 June 2016	% Change
Total assets{A} (£'000)	602,952	570,036	+5.8
Equity shareholders' interests (£'000)	545,790	515,036	+6.0
Net asset value per Ordinary share	814.3p	766.5p	+6.2
Share price of Ordinary share (mid)	724.0p	672.0p	+7.7
(Discount)/premium to net asset value on Ordinary shares	(11.1)%	(12.3)%
{A}Total assets as per the balance sheet less current liabilities (excluding prior charges such as bank loans).

Performance (total return)

	Six months ended	Year ended
	31 December 2016	30 June 2016
Net asset value per Ordinary share	+8.7%	+5.9%
Share price per Ordinary share	+10.5%	+0.1%
FTSE All-Share Index	+12.0%	+2.2%

Financial Calendar

13 January 2017	First interim dividend (7.0p per share) paid for year ending 30 June 2017
10 February 2017	Announcement of Half-Yearly Results for 6 months ended 31 December 2016
March 2017	Half-Yearly Report posted to shareholders
31 March 2017	Second interim dividend (7.0p per share) payable for year ending 30 June 2017
30 June 2017	Third interim dividend (7.0p per share) payable for year ending 30 June 2017
September 2017	Announcement of Annual Results for year ending 30 June 2017 Annual Report posted to shareholders
6 November 2017	Annual General Meeting in Glasgow
8 November 2017	Final dividend payable for year ending 30 June 2017

CHAIRMAN'S STATEMENT

Review of the Period

Over the six months ended 31 December 2016, the Company's net asset value ("NAV") per share rose 8.7% on a total return basis which was behind the FTSE All-Share Index ("the Index") which increased by 12.0%. Further detail on the performance in the period may be found in the Manager's Portfolio Review. The Company's share price ended the period at a discount to NAV of 11.1%, compared to 12.3% at 30 June 2016, resulting in a total return to shareholders over the period of 10.5%. As at the date of this Report, the discount to NAV had narrowed further to 9.0%.

Revenue and Dividends

The net return on ordinary activities before tax rose to £7.7m, an increase of 9.6% year on year, primarily due to the higher level of investment income. This is partly explained by improving option writing premium and stock dividend income.

Following the decision in the June 2016 Referendum for the UK to exit the EU, the marked depreciation of Sterling against major currencies over the period has helped the income account, reflecting in particular the approximately one-third of the Company's investment income which is denominated in US dollars.

Current consensus forecasts suggest dividend growth for the market of 10.6% for calendar year 2017.  However, some caution is warranted with dividend cover forecast to decline to around 1.5 times for the FTSE100 suggesting less room for manoeuvre should profits fall short of expectations.

However, the portfolio is configured across a range of different sectors to mitigate any unexpected dividend shortfalls and the income from option-writing continues to provide an additional fillip to earnings per share. Finally, the Company remains able to draw on its revenue reserves if required.

Following shareholder approval at the Annual General Meeting on 1 November 2016, a final dividend per share of 11.25p (2015 - 11.00p) was paid on 3 November 2016 to shareholders on the register as at 30 September 2016.

In relation to the year ending 30 June 2017, a first interim dividend of 7.0p per share was paid on 13 January 2017 to shareholders on the register at the close of business on 16 December 2016. A second interim dividend of 7.0p per share will be paid on 31 March 2017 to shareholders on the register at the close of business on 3 March 2017. A third interim dividend of 7.0p per share will be paid on 30 June 2017 to shareholders on the register at the close of business on 2 June 2017.

Economic and Market Background

The UK equity market returned 12% over the six month period. This completed a very good year for the market with the index returning 16.8% and reaching a new peak (in capital terms) on the last trading day of 2016.  Given the results of the European Union referendum and the US presidential election this performance might have come as a surprise. However, the weakness of Sterling and the robust performance of the UK economy together with the reflationary and potentially business-friendly aspirations of the new president and higher commodity prices have bolstered the domestic equity market which has notable overseas earnings and commodity exposure.

Over the period in question at a sector level, reversing the trends of the prior year, the more defensive areas of the market such as tobacco and pharmaceuticals underperformed while the banks, mining and oil sectors outperformed. In addition, companies exposed to the domestic economy recovered strongly after their share prices suffered following the vote to leave the European Union. Although the FTSE 100 Index performed strongly rising by 11.7%, it underperformed the Mid and Small Cap Indices which increased by 12.6% and 16.6% respectively.

The domestic economy performed ahead of expectations during the period with preliminary estimates of fourth quarter Gross Domestic Product ("GDP") suggesting 0.6% growth following the same level of expansion in the third quarter.  This would represent 2.0% GDP growth during calendar 2016 as a whole compared to 2.2% in 2015.  Growth was supported by the services sector maintaining its robust performance. Following the European Union referendum result, the Monetary Policy Committee decided to reduce interest rates by 25 basis points as well as agreeing to purchase up to £10bn of corporate bonds and £60bn of UK government bonds. Sterling continued to weaken during the period, falling against the dollar for example, from $1.32 at the start of the period to $1.23 by the end of it. And as a sign of inflation gradually picking up, the Consumer Price Index measure of inflation rose by 1.6% in the year to December compared to 0.6% in the year to July driven by the impact of the weakness of Sterling on transport and utility costs. The performance of the domestic economy this year is likely to depend on the resilience of consumer spending as higher inflation weighs down on real incomes. Personal sector debt is already rising at rates well above nominal GDP.

Overseas, despite concern otherwise, there was virtually no evidence of the European Union referendum result impacting the global economy. Indeed, shorter term activity indicators such as the global composite purchasing managers' index improved steadily over the period. In the US, the data suggested that the economy had been relatively robust in the run up to the election leading the Federal Reserve to raise interest rates in December.  However, future activity will likely depend on the new administration's fiscal stimulus response and broader policy actions.  Emerging market currencies and economies generally suffered in the aftermath of the US election result given a stronger dollar and higher US interest rates although the full consequences should be offset by increased export demand and higher commodity prices. For some countries the specific impact might be more significant depending on US trade policy developments. Data over the period from the euro area suggests that the region's weak recovery remains on track helped by the European Central Bank's policy support for which it announced an extension to its asset purchase programme until the end of 2017. The Bank of Japan overhauled its monetary policy framework during the period with a commitment to overshoot its 2% inflation target and to maintain a 10 year government bond yield of 0% helping to sustain government infrastructure spending.

Gearing

The Company maintained its borrowings but, beginning in September 2016, has opted to draw down its bank loan in a mixture of US dollars, euros, Swedish krona and Swiss francs, broadly matching the mix of non-UK-listed portfolio holdings.

Outlook

Equity markets have performed strongly over the past six months as global GDP growth seems set to accelerate helped by an expansive fiscal policy in the US, strengthening labour markets in the US, UK, Europe and Japan, coupled with the emergence of Russia and Brazil from recession. That said, many uncertainties remain including the outcome of negotiations to leave the European Union, the potential impact of the new US administration coupled with a busy European political calendar. As such, we will continue to exercise investment rigour in identifying those companies that possess the best balance of diversified earnings streams, strong balance sheets and superior business models with attractive valuations and dividends as we believe this will position the portfolio most appropriately for an uncertain and potentially volatile period ahead.

Share Capital

The Company bought back into treasury 170,000 shares during the six months under review resulting in issued share capital at 31 December 2016 consisting of 67,022,458 Ordinary shares of 25p, with voting rights, and 1,571,000 Ordinary shares of 25p held in treasury.

Board

By the time of the next Annual General Meeting ("AGM") in November 2017, I shall have served as a Director of the Company for over twelve years and as Chairman for three years. After a process overseen by David Woods as Senior Independent Director, I am pleased to report that Neil Rogan will take over as Chairman following my retirement from the Board at the conclusion of the AGM.

Principal Risks and Uncertainties

The Board regularly reviews the principal risks and uncertainties which it has identified, together with the delegated controls it has established to manage the risks and address the uncertainties, and these are set out in detail on pages 8 and 9 of the Company's Annual Report for the year ended 30 June 2016 ("Annual Report 2016") which is available on the Company's website. The Annual Report 2016 also contains, in note 15 to the Financial Statements, an explanation of other risks relating to the Company's investment activities, specifically market price, interest rate, liquidity and credit risk, and a note of how these risks are managed.

Related Party Transactions

Any related party transactions during the period are disclosed in the Notes to the Financial Statements. There have been no related party transactions that have had a material effect on the financial position of the Company during the period.

Going Concern

The factors which have an impact on the Company's status as a going concern are set out in the Going Concern section of the Directors' Report in the Company's Annual Report 2016. As at 31 December 2016, there had been no significant changes to these factors.

The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking covenants. On 23 September 2015, the Company entered into a two-year multi-currency revolving loan facility ("the Facility") with the Royal Bank of Scotland PLC for up to £80m. As at 31 December 2016, £57.2m of the Facility had been drawn down.

The Directors are mindful of the principal risks and uncertainties disclosed above, and, having reviewed forecasts detailing revenue and liabilities, they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis of accounting in preparing the Financial Statements.

Dividend Tax Allowance

Shareholders may be aware of changes to the taxation of dividends which took effect on 6 April 2016 and further information may be found in Investor Information on page 17 of this Report.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-           the condensed set of Financial Statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting);

-           the Half-Yearly Board Report includes a fair review of the information required by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

-           the Half-Yearly Board Report includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).

The Half-Yearly Financial Report for the six months ended 31 December 2016 comprises the Half-Yearly Board Report, the Directors' Responsibility Statement and a condensed set of Financial Statements.

For and on behalf of the Board

N A Honebon

Chairman

10 February 2017

MANAGER'S PORTFOLIO REVIEW

Despite a healthy absolute return, the portfolio underperformed the benchmark during the period.  Indeed, calendar 2016 as a whole has been a difficult period for the relative performance of many companies within the UK Equity Income sector. The portfolio is mostly populated by holdings that combine attractive dividend yields and a relatively high degree of income security through diversified geographical earnings streams. Unfortunately, these characteristics did not position the portfolio well in relative terms for the trends that influenced performance during the period. Firstly, oil and mining companies performed strongly as commodity prices recovered. Secondly, the domestic economy failed to suffer the collapse that some had predicted and as a result the share prices of those companies reliant on the strength of the UK economy rebounded from an oversold position in the immediate aftermath of the European Union referendum result. Thirdly, companies with defensive growth characteristics, which some people describe as 'bond proxies', underperformed and more cyclically exposed companies outperformed as interest rate and inflation expectations rose over the period.  In addition, Capita issued a disappointing trading update in September citing delays in client decision-making, one-off costs on a contract and a weaker performance in a couple of the company's trading businesses. The company later announced changes to its management and business structure coupled with a small disposal programme to provide greater focus.

We added five new holdings during the period. The first was Diageo, the global spirits company, with an unrivalled portfolio of brands across geographies and price points.  The company enjoys a particularly strong position in Scotch whisky where, through their stable of brands including Johnnie Walker, they can command strong pricing power and as a result generate good margins and returns.  CEO Ivan Menezes has been implementing a strategy over the past couple of years of moving away from large acquisitions and instead focusing on internal improvements in marketing and operational efficiency and this is starting to bear fruit, with organic growth and improvement in the US being notable features of recent reports.  The second purchase was Aveva, a £1.2bn market capitalisation software company providing engineering design and information management systems for process industries. Attractions of the business include significant recurring revenues, long term customer relationships, a global footprint and a net cash balance sheet. The next new holding was Manx Telecom, the incumbent telecoms operator on the Isle of Man, which benefits from a relatively benign regulatory backdrop. The company's strategy is to focus on its core business which includes mobile, fixed line and data centres but also leverage its expertise to grow off-island revenues in its 'global solutions' division. We also purchased a holding in Essentra which supplies packaging and specialist components, and cigarette filters. Weakness in the share price given some contract difficulties in its filters business and integration problems following an acquisition provided an opportunity to introduce the company. Finally, a holding in Croda the specialty chemicals company, was purchased. The company benefits from long-standing customer relationships, attractive intellectual property and a robust balance sheet. The company's products tend to be the active ingredient in an end-product and although relatively small in terms of cost makes up a more significant share of the value-add allowing good pricing power.

We increased the exposure to a number of companies with attractive valuations including BBA Aviation, as it continues to make good progress with its acquisition of its competitor Landmark Aviation, and Scandinavian Tobacco Group where the company is pursuing its efficiency drive.  In addition, weakness in the share prices of Schroders and Provident Financial at the start of the period caused by the European Union referendum result provided an opportunity to top up these two holdings. Furthermore, the assignment of put options resulted in small increases to the holdings in Capita and Inmarsat.

We sold two holdings: Centrica and Schneider Electric.  We exited the position in Centrica due to worries about the likelihood of the success of the company's strategy to focus on the 'connected home', the high degree of competition in the downstream supply market and potential political interference. Schneider Electric had performed well and we believed that the valuation no longer reflected an attractive future return.

We reduced the weight in Royal Dutch Shell and recycled the proceeds into BP in order to manage the stock-specific income risk of Shell, which was the portfolio's largest income producer. Other reductions included taking profits in Unilever and British American Tobacco after their strong performance post the European Union referendum and we substantially lowered the exposure to GKN which we believe had fully rebuilt its margins following the financial crisis and offered limited upside. The assignment of call options also led to the marginal reductions of a number of holdings including AstraZeneca, Sage and HSBC.

As indicated above, in order to increase and diversify the income available to the Company, we continued our judicious option-writing programme, selling both puts and calls on a variety of companies where we have sought to reduce or add to holdings at particular price levels.

Charles Luke

Aberdeen Asset Managers Limited

Investment Manager

10 February 2017

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

		Six months ended
		31 December 2016
			(unaudited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Gains/(losses) on investments		-	39,631	39,631
Currency losses		-	(2,196)	(2,196)
Income	3	9,083	-	9,083
Investment management fees		(694)	(694)	(1,388)
Administrative expenses		(567)	-	(567)
		_________	_________	_________
Net return before finance costs and taxation		7,822	36,741	44,563
Finance costs of borrowing		(122)	(122)	(244)
		_________	_________	_________
Net return on ordinary activities before taxation		7,700	36,619	44,319
Taxation on ordinary activities	4	(85)	-	(85)
		_________	_________	_________
Net return on ordinary activities after taxation		7,615	36,619	44,234
		_________	_________	_________
Return per Ordinary share (pence)	5	11.3	54.6	65.9
		_________	_________	_________
The total column of the Condensed Statement of Comprehensive Income is the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains or losses are recognised in the Condensed Statement of Comprehensive Income.
All revenue and capital items in the above statement derive from continuing operations.

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		Six months ended
		31 December 2015
			(unaudited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Gains/(losses) on investments		-	(12,054)	(12,054)
Currency losses		-	(9)	(9)
Income	3	8,451	-	8,451
Investment management fees		(657)	(657)	(1,314)
Administrative expenses		(590)	-	(590)
		_________	_________	_________
Net return before finance costs and taxation		7,204	(12,720)	(5,516)
Finance costs of borrowing		(176)	(176)	(352)
		_________	_________	_________
Net return on ordinary activities before taxation		7,028	(12,896)	(5,868)
Taxation on ordinary activities	4	(51)	-	(51)
		_________	_________	_________
Net return on ordinary activities after taxation		6,977	(12,896)	(5,919)
		_________	_________	_________
Return per Ordinary share (pence)	5	10.2	(18.9)	(8.7)
		_________	_________	_________

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF FINANCIAL POSITION 

		As at	As at
		31 December 2016	30 June 2016
		(unaudited)	(audited)
	Notes	£'000	£'000
Non-current assets
Investments at fair value through profit or loss		593,863	553,527
Current assets
Other debtors and receivables		1,451	7,203
Cash and short term deposits		8,619	10,270
		_________	_________
		10,070	17,473
		_________	_________
Creditors: amounts falling due within one year
Other payables		(981)	(964)
Bank loans		(57,162)	(55,000)
		_________	_________
Net current liabilities		(48,073)	(38,491)
		_________	_________
Net assets		545,790	515,036
		_________	_________
Share capital and reserves
Called-up share capital		17,148	17,148
Share premium account		24,020	24,020
Capital redemption reserve		4,997	4,997
Capital reserve	6	475,993	440,595
Revenue reserve		23,632	28,276
		_________	_________
Equity shareholders' funds		545,790	515,036
		_________	_________
Net asset value per Ordinary share (pence)	7	814.3	766.5
		_________	_________

           MURRAY INCOME TRUST PLC

           CONDENSED STATEMENT OF CHANGES IN EQUITY

Six months ended 31 December 2016 (unaudited)
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2016	17,148	24,020	4,997	440,595	28,276	515,036
Return on ordinary activities after taxation	-	-	-	36,619	7,615	44,234
Buyback of Ordinary shares for Treasury	-	-	-	(1,221)	-	(1,221)
Dividends paid	-	-	-	-	(12,259)	(12,259)
	_______	_______	_______	_______	_______	_______
Balance at 31 December 2016	17,148	24,020	4,997	475,993	23,632	545,790
	_______	_______	_______	_______	_______	_______
Six months ended 31 December 2015 (unaudited)
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2015	17,148	24,020	4,997	441,383	28,340	515,888
Return on ordinary activities after taxation	-	-	-	(12,896)	6,977	(5,919)
Dividends paid	-	-	-	-	(12,266)	(12,266)
	_______	_______	_______	_______	_______	_______
Balance at 31 December 2015	17,148	24,020	4,997	428,487	23,051	497,703
	_______	_______	_______	_______	_______	_______

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF CASH FLOWS

	Six months ended	Six months ended
	31 December 2016	31 December 2015
	(unaudited)	(unaudited)
		As re-presented (note 1)
	£'000	£'000
Net return before finance costs and taxation	44,563	(5,516)
Increase in accrued expenses	452	174
Overseas withholding tax	117	118
Dividend income	(8,120)	(7,786)
Dividends received	8,987	8,650
Interest income	(5)	(30)
Interest received	1	30
Interest paid	(217)	(338)
(Gains)/losses on investments	(39,631)	12,054
Foreign exchange losses on loans	2,162	-
Decrease in other debtors	4,687	4,752
Stock dividends included in investment income	(1,107)	(407)
	_______	_______
Net cash inflow from operating activities	11,889	11,701
Investing activities
Purchases of investments	(44,484)	(26,095)
Sales of investments	44,424	19,254
	_______	_______
Net cash outflow from investing activities	(60)	(6,841)
Financing activities
Dividends paid	(12,259)	(12,266)
Buyback of Ordinary shares	(1,221)	-
	_______	_______
Net cash outflow from financing activities	(13,480)	(12,266)
	_______	_______
Decrease in cash	(1,651)	(7,406)
	_______	_______
Analysis of changes in cash during the period
Opening balance	10,270	17,874
Decrease in cash as above	(1,651)	(7,406)
	_______	_______
Closing balance	8,619	10,468
	_______	_______

Notes to the Financial Statements

1.	Accounting policies
	Basis of preparation
	The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted.
	The Condensed Statement of Cash Flows for the six months ended 31 December 2015 has been re-presented to comply with the requirements of FRS 102.
	The interim financial statements have been prepared using the same accounting policies as the preceding annual financial statements.

2.	Ordinary dividends
	Ordinary dividends paid on equity shares deducted from reserves:
			Six months ended	Six months ended
			31 December 2016	31 December 2015
			£'000	£'000
	2015 third interim dividend - 7.00p		-	4,770
	2015 final dividend - 11.00p		-	7,496
	2016 third interim dividend - 7.00p		4,705	-
	2016 final dividend - 11.25p		7,554	-
			_______	_______
			12,259	12,266
			_______	_______
	A first interim dividend for 2017 of 7.00p (2016 - 7.00p) was paid on 13 January 2017 to shareholders on the register on 16 December 2016. The ex-dividend date was 15 December 2016.
	A second interim dividend for 2017 of 7.00p (2016 - 7.00p) will be paid on 31 March 2017 to shareholders on the register on 3 March 2017. The ex-dividend date is 2 March 2017.
	A third interim dividend for 2017 of 7.00p (2016 - 7.00p) will be paid on 30 June 2017 to shareholders on the register on 2 June 2017. The ex-dividend date is 1 June 2017.

		Six months ended	Six months ended
		31 December 2016	31 December 2015
3.	Income	£'000	£'000
	Investment income
	UK dividends	6,236	6,555
	Overseas dividends	777	824
	Stock dividends	1,107	407
		_______	_______
		8,120	7,786
		_______	_______
		Six months ended	Six months ended
		31 December 2016	31 December 2015
		£'000	£'000
	Other income
	Deposit interest	5	30
	Underwriting commission	-	30
	Traded option premiums	958	605
		_______	_______
		963	665
		_______	_______
	Total income	9,083	8,451
		_______	_______

4.	Taxation
	The taxation charge for the period represents withholding tax suffered on overseas dividend income.

		Six months ended	Six months ended
		31 December 2016	31 December 2015
5.	Return per share	p	p
	Revenue return	11.3	10.2
	Capital return	54.6	(18.9)
		_______	_______
	Total return	65.9	(8.7)
		_______	_______
	The figures are based on the following:
		Six months ended	Six months ended
		31 December 2016	31 December 2015
		£'000	£'000
	Revenue return	7,615	6,977
	Capital return	36,619	(12,896)
		_______	_______
	Total return	44,234	(5,919)
		_______	_______
	Weighted average number of Ordinary shares in issue	67,101,132	68,142,458
		__________	__________
	During the six months ended to 31 December 2016, 170,000 Ordinary shares (31 December 2015 - nil) were repurchased to be held in Treasury at a cost of £1,221,000 (31 December 2015 - £nil).
	As at 31 December 2016, 1,571,000 (31 December 2015 - 451,000) Ordinary shares were held in treasury.

6.	Capital reserve
	The capital reserve reflected in the Balance Sheet at 31 December 2016 includes gains of £181,644,000 (30 June 2016 - £148,930,000) which relate to the revaluation of investments held at the reporting date.

		As at	As at
7.	Net asset value	31 December 2016	30 June 2016
	Attributable net assets (£'000)	545,790	515,036
	Number of Ordinary shares in issue	67,022,458	67,192,458
	Net asset value per Ordinary share (p)	814.3	766.5

8.	Transaction costs
	During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains/(losses) on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended
		31 December 2016	31 December 2015
		£'000	£'000
	Purchases	208	109
	Sales	33	19
		_______	_______
		241	128
		_______	_______

9.	Fair value hierarchy
	FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by the Financial Reporting Council in March 2016. This has not resulted in any reclassifications in levelling and the prior year comparative has been disclosed under the new hierarchy. The fair value hierarchy has the following levels:
	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; and
	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 Condensed 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 December 2016		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities		a)	593,863	-	-	593,863
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	(241)	-	-	(241)
				_______	_______	_______	_______
	Net fair value			593,622	-	-	593,622
				_______	_______	_______	_______
				Level 1	Level 2	Level 3	Total
	As at 30 June 2016		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities		a)	553,527	-	-	553,527
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	-	-	-
				_______	_______	_______	_______
	Net fair value			553,527	-	-	553,527
				_______	_______	_______	_______
	a)	Quoted equities
		The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.
	b)	Derivatives
		The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis and therefore has been included in Fair Value Level 1.

10.	Transactions with the Manager
	The Company has agreements with Aberdeen Fund Managers Limited ("AFML" or the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional services.
	The management fee for the six months ended 31 December 2016 is calculated, on a monthly basis, at 0.55% on the first £400 million, 0.45% on the next £150 million and 0.25% on amounts over £550 million per annum of the net assets of the Company, with debt at par and excluding commonly managed funds. The management fee is chargeable 50% to revenue and 50% to capital. During the period £1,388,000 (31 December 2015 - £1,314,000) of investment management fees were earned by the Manager, with a balance of £461,000 (31 December 2015 - £217,000) being payable to AFML at the period end. There was one commonly managed fund held in the portfolio during the 6 months to 31 December 2016 (2015 - one).
	No fees are charged in the case of investment managed or advised by the Aberdeen Asset Management Group. The management agreement may be terminated by either party on the expiry of 3 months written notice. On termination the Manager would be entitled to receive fees which would otherwise have been due up to that date.
	The promotional activities fee is based on a current annual amount of £480,000, payable quarterly in arrears. During the period £240,000 (31 December 2015 - £243,000) of fees were due, with a balance of £120,000 (31 December 2015 - £121,000) being payable to AFML at the period end.
	The secretarial activities fee is based on a current annual amount of £90,000, payable quarterly in arrears. During the period £45,000 (31 December 2015 - £45,000) of fees were due, with a balance of £23,000 (31 December 2015 - £23,000) being payable to AFML at the period end.

11.	Segmental Information
	The Company is engaged in a single segment of business, which is to invest in equity securities. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.

12.

The financial information in this Report does not comprise statutory accounts within the meaning of Section 434 - 436 of the Companies Act 2006. The financial information for the year ended 30 June 2016 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified and contained no statement under Section 498 (2), (3) or (4) of the Companies Act 2006. The interim financial statements have been prepared using the same accounting policies as contained within the preceding annual financial statements.

13.	This Half-Yearly Financial Report was approved by the Board on 10 February 2017.

INVESTMENT PORTFOLIO - AS AT 31 DECEMBER 2016

		Valuation	Total assets
Investment	Sector	£'000	%
British American Tobacco	Tobacco	27,498	4.5
Unilever	Personal Goods	26,406	4.4
GlaxoSmithKline	Pharmaceuticals & Biotechnology	26,398	4.4
AstraZeneca	Pharmaceuticals & Biotechnology	23,474	3.9
BP	Oil & Gas Producers	22,058	3.7
Royal Dutch Shell ('B' Shares)	Oil & Gas Producers	21,598	3.6
Prudential	Life Assurance	20,913	3.5
HSBC	Banks	20,807	3.5
Roche	Pharmaceuticals & Biotechnology	19,947	3.3
Compass	Travel & Leisure	18,481	3.1
Top ten investments		227,580	37.9
Nordea Bank	Banks	17,821	3.0
Imperial Brands	Tobacco	17,287	2.9
BHP Billiton	Mining	17,050	2.8
Vodafone	Mobile Telecommunications	16,192	2.7
Microsoft	Software & Computer Services	16,095	2.7
Aberforth Smaller Companies Trust	Equity Investment Instruments	15,859	2.6
Sage Group	Software & Computer Services	13,893	2.3
BBA Aviation	Industrial Transportation	13,853	2.3
Provident Financial	Financial Services	13,504	2.2
Pearson	Media	13,407	2.2
Top twenty investments		382,541	63.6
Inmarsat	Mobile Telecommunications	13,198	2.2
Close Brothers	Financial Services	12,615	2.1
National Grid	Gas, Water & Multi-utilities	11,962	2.0
Verizon Communications	Mobile Telecommunications	11,881	2.0
Elementis	Chemicals	10,458	1.7
Hiscox	Non-life Insurance	9,570	1.6
John Wood Group	Oil Equipment & Services	9,540	1.6
Schroder	Financial Services	8,773	1.5
Nestlé	Food Producers	8,725	1.4
Rotork	Industrial Engineering	8,584	1.4
Top thirty investments		487,847	81.1
Ultra Electronics	Aerospace & Defence	8,435	1.4
Standard Chartered	Banks	8,133	1.3
Essentra	Support Services	7,994	1.3
Diageo	Beverages	7,649	1.3
Rolls Royce	Aerospace & Defence	7,465	1.2
Linde	Chemicals	6,149	1.0
Scandinavian Tobacco	Tobacco	6,120	1.0
Associated British Foods	Food Producers	6,094	1.0
Land Securities	Real Estate Investment Trusts	6,091	1.0
Hansteen	Real Estate Investment Trusts	6,070	1.0
Top forty investments		558,047	92.6
Svenska Handelsbanken	Banks	6,037	1.0
Weir Group	Industrial Engineering	4,967	0.8
Capita	Support Services	4,498	0.7
Croda	Chemicals	4,267	0.7
GKN	Automobiles & Parts	3,960	0.7
Dunedin Smaller Companies Investment Trust	Equity Investment Instruments	3,640	0.6
XP Power	Electronic & Electrical Equipment	2,969	0.5
Manx Telecom	Fixed Line Telecommunications	2,909	0.5
Aveva	Software & Computer Services	2,569	0.4
Total investments		593,863	98.5
Net current assets{A}		9,089	1.5
Total assets		602,952	100.0
{A} excludes bank loan of £57,162,000

 

END

 

 

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