Annual Financial Report

RNS Number : 8696O

Shires Income PLC

04 June 2020

 

SHIRES INCOME PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2020

Legal Entity Identifier (LEI):  549300HVCIHNQNZAYA89

The Company

Shires Income 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 investment objective is to provide shareholders with a high level of income, together with the potential for growth of both income and capital from a diversified portfolio substantially invested in UK equities but also in preference shares, convertibles and other fixed income securities.

Benchmark

The Company's benchmark is the FTSE All-Share Index (total return).

Website

Up to date information can be found on the Company's website: www.shiresincome.co.uk

COMPANY OVERVIEW - FINANCIAL HIGHLIGHTS

Net asset total returnA			Share price total returnA			Benchmark index total return
2020	-18.0%		2020	-21.2%		2020	-18.5%
2019	+4.0%		2019	+8.0%		2019	+6.4%
Earnings per share (revenue)			Dividends per Ordinary share			Dividend yieldA
2020	12.98p		2020	13.20p		2020	6.6%
2019	13.06p		2019	13.20p		2019	4.9%
A Alternative Performance Measure

For further information, please contact:

Scott Anderson

Aberdeen Standard Fund Managers Limited 

0131 222 1863

COMPANY OVERVIEW - CHAIRMAN'S STATEMENT

This Annual Report is written against a backdrop of significant market falls towards the end of the Company's financial year caused by the global spread of the COVID-19 virus, and considerable volatility in markets that has continued since the end of the year.

As a consequence of these events, in the year to 31 March 2020 the Company's net asset value ("NAV") per share decreased by 18.0% on a total return basis, compared to a total return decrease of 18.5% from our benchmark, the FTSE All Share Index. The share price fell by 21.2% on a total return basis during the year.

To put some perspective on the impact the COVID-19 pandemic has had on returns, when looking back at the Company's performance for the nine month period to 31 December 2019, the NAV total return was 13.9%, outperforming the benchmark by approximately 5%. The FTSE All Share Index then fell by more than 25% during the final quarter of the year, almost entirely during the final six weeks of the period, as the implications of the virus became clearer.

For most of the year under review, the global economic outlook was dominated by the US-China trade dispute and concerns generally over slowing economic growth. In the UK, the main focus for investors was the process of our exit from the EU. The large majority secured by the Conservative Party in the General Election in December provided an end of year boost to investor sentiment with domestically exposed companies leading the equity market higher. This concluded months of economic and political uncertainty, with a withdrawal agreement put in place which saw the UK exit the EU on 31 January 2020.

However, the spread of the COVID-19 virus during February and March of this year had a significant impact on markets due to the likely disruption to the domestic and global economies as governments around the world started to enforce lockdown measures to protect their countries' health services and slow the spread of the virus. As yet, there has been no significant progress made on containment, far less resolution, of the health crisis for the longer term. The resulting uncertainty over the extent of the economic recession, the speed and degree of the recovery and the long-term public health effects is significant and likely to persist for an extended period of time. Not surprisingly, world markets for all traded securities are trying to price this uncertainty and are very volatile. This is despite an unprecedented degree of monetary and fiscal policy support provided by central banks and governments.

More detail on markets and the Company's performance for the year are covered in the Investment Manager's Review.

Earnings

The Company's revenue return for the year was 12.98p per share, compared to 13.06p per share for the previous year. The fall in earnings per share reflects the share issuance which took place in the year as a slightly higher level of income generated from investments during the year has been spread over a greater number of shares.

Towards the end of the financial year, in light of the deteriorating economic developments with the resulting uncertainties over corporate earnings prospects, a number of companies announced cuts or suspension of their dividends. In the case of the UK banking sector, the Bank of England mandated a zero divided policy. The global oil sector suffered from record low oil prices due to the combination of plummeting demand and a disagreement between Russia and Saudi Arabia on restricting supply. However, as companies seek to address the full impact of the disruption caused by the virus, we expect there to be a more significant impact upon how corporate cash is deployed in the current year. Furthermore, it is likely that the overall level of dividend income generated by UK equities in 2019 will not be returned to for a number of years. This is addressed in greater detail in the Investment Manager's Review.

Dividend

The Board is proposing a final dividend of 4.20p per Ordinary share (2019 - 4.20p), which will be paid on 24 July 2020 to shareholders on the register on 3 July 2020. This final dividend brings total Ordinary share dividends for the year to 13.20p per share, unchanged from the previous year. The dividend is uncovered by current year earnings, however, the Company has a healthy level of revenue reserves which, following the payment of the final dividend, will represent 1.1 times the current annual Ordinary share dividend cost.

The Board takes the view that Shires Income, despite the uncertainties over the economic and corporate outlook, with its diversified sources of income and a good level of reserves, reasonable liquidity in its portfolio and manageable and flexible debt level, is in a relatively good position. Therefore, subject to unforeseen circumstances, it is proposed to continue during this financial year to pay three quarterly interim dividends of 3.00p each per Ordinary share and, as in previous years, the Board will decide on next year's final dividend having reviewed the full year results and taking into account the general outlook for the portfolio's investment income at that time.

Discount/Premium

At the end of the year the Company's Ordinary shares were trading at a discount of 3.3% to the NAV per share (including income) compared to a premium of 0.6% at the end of the previous year. During the course of the year, with the shares trading at a premium to the NAV and in response to investor demand, the Company was able to issue a total of 615,000 new Ordinary shares on a non-dilutive basis (2.0% of the opening Ordinary share capital).

The Board and Manager monitor the discount/premium of the Company's shares on an ongoing basis and the Board will seek to renew the appropriate share issuance and share buy back authorities at the Annual General Meeting. 

Gearing

The Company's gearing level (net of cash) was 23.7% as at 31 March 2020 compared to 19.6% at the end of the previous year.

The Board continually monitors the level of gearing and, although the absolute level may look high relative to some other investment trusts, strategically we take the view that it is deployed notionally into fixed interest securities which bring diversification to the Company's total revenue stream and have lower volatility than would be expected from a portfolio invested exclusively in equities. The Board takes the view that the enhanced balance of assets arising from a combination of fixed income securities and equities allows for an appropriate level of risk within the portfolio in order to achieve the overall investment objective.

The Company has a £20 million loan facility, of which £19 million was drawn down at the year end. £9 million of this amount is drawn down on a short-term basis through a revolving credit facility and can be repaid without incurring any financial penalties giving the Company considerable flexibility if it were to be required. The facility matures in September 2022. Further details are set out in note 13 to the financial statements.

Board Composition

As previously announced, Jane Pearce was appointed as an independent non-executive Director on 1 January 2020. Jane, who is a Chartered Accountant, had an executive career as an Equity Analyst at leading investment banks and latterly was an Equity Strategist at Lehman Brothers and Nomura International. Jane will stand for appointment at the AGM.

We have also previously announced that Andrew Robson will retire from the Board at the AGM. Andrew was appointed as a Director in 2008 and served as Chairman of the Audit Committee until July 2019. I would like to thank Andrew for his significant contribution to the Company during his time on the Board. As in the previous year and in accordance with the new AIC Code of Corporate Governance, all of the other Directors are standing for re-appointment this year.

Annual General Meeting

The Annual General Meeting ("AGM") will be held at 12 noon on Tuesday 14 July 2020 at 1 George Street, Edinburgh EH2 2LL.

The Board has been considering how best to deal with the potential impact of the COVID-19 pandemic on arrangements for the Company's AGM, taking account of developing Government guidance, and including evolving rules on staying at home, social distancing and avoiding public gatherings ("COVID-19 Measures"). Given the possibility that some level of restriction on public gatherings and maintaining social distancing will remain in place in July, the Board has also resolved to amend the format of the AGM for this year. Therefore, whilst the formal business of the AGM will be considered, the meeting will be functional only, and will follow the minimum legal requirements for an AGM. There will be no presentation from the portfolio managers, Iain Pyle and Charles Luke, and no refreshments will be offered. If COVID-19 Measures remain in place in July, shareholders are strongly discouraged from attending the meeting and indeed, pursuant to the Company's Articles of Association, entry may be refused if the law and/or Government guidance so requires. In such circumstances, arrangements will be made by the Company to ensure that the minimum number of shareholders required to form a quorum will attend the meeting in order that the meeting may proceed and the business concluded.

The Board considers these revised arrangements to be in the best interests of shareholders in the current circumstances. In light of the outbreak and evolving Government guidance, the Company will continue to keep arrangements for the AGM under review and it is possible the arrangements will need to change. We will keep shareholders updated of any changes through the Company's website (shiresincome.co.uk) and announcements to the London Stock Exchange. We trust that shareholders will be understanding of this approach and we hope that 'normal service' can be resumed next year.

A presentation from the Investment Manager, along with the AGM results, will be made available to shareholders on the Company's website shortly after the AGM.

In light of the developing situation and the revised format of this year's meeting, shareholders are encouraged to raise any questions in advance of the AGM with the Company Secretary at [e-mail] (please include 'SHIRES AGM' in the subject heading). Questions must be received by 5.00pm on 10 July 2020. Any questions received will be replied to by either the Manager or Board via the Company Secretary either before or after the AGM.

In taking these steps, the Board is trying to balance the requirement under company law to hold an AGM so that the matters that it needs to seek shareholder approval for can be considered, whilst operating in a rapidly changing environment where public gatherings are restricted. The Board strongly encourages all shareholders to exercise their votes in respect of the meeting in advance by completing the enclosed form of proxy, or letter of direction for those who hold shares through the Aberdeen Standard Investments savings plans. This should ensure that your votes are registered in the event that physical attendance at the AGM is not possible or restricted.

Amendments to the Articles of Association

The Board will propose changes to the Articles of Association at the AGM to permit the Company to pay dividends out of realised capital profits and to make other minor changes. The new Articles of Association as proposed to be adopted will take effect from the conclusion of the AGM. Given the size of the Company's revenue reserves, the Board does not have any current intention to pay dividends out of realised capital profits. However, this change, which has been adopted by many other investment trusts, will provide flexibility to do so in the future. As at 31 March 2020, the Company's realised capital reserve was £27.0 million.

Outlook

The impact of the COVID-19 virus has had a significant impact on global markets and it seems clear that the economic road to recovery will be a long one. Our Investment Manager's current view is that a return to the level of company profitability prevalent at the end of 2019 may not occur until at least the end of 2022. In addition, resolving the public health issues needed to allow a full return to normal everyday life are an interconnected uncertainty. These issues will affect all investors whether they are focused upon capital growth, income or, like Shires, a combination of both.

In such an environment, the Company is also faced with the impact of the large number of dividend cuts made by companies since February and uncertainty over both the extent and pace of future increases and the wider question over the future sustainable level of dividend payouts from equities in general.  Within the UK, there is also likely to be an increase in uncertainty as the Brexit negotiations reach their climax in the second half of this year.

In this highly uncertain environment, your Investment Manager has been focusing on ensuring that your Company's portfolio remains well positioned to weather the impact of the pandemic. As the Investment Manager points out, there remain within the financial markets many good sources of relatively reliable income with which to generate returns for our shareholders. The Board is encouraged by the quality of the portfolio, where most of the companies have healthy balance sheets and either good current dividend yields or the prospect for returning to dividend payments where cuts have been made.

Overall, there are many challenges ahead from the perspectives of public health, economic recovery and corporate profitability. However, despite the current extreme difficulties being faced we should expect that businesses will adapt and will ultimately recover and that new ways of working and new businesses will be found that will reward patient investors. The Board remains confident in your Manager's investment process and that over the medium and longer term, and notwithstanding the current uncertainties, they can uncover attractive investment opportunities, and that therefore the Company remains well placed to meet its income and growth objective.

Robert Talbut

Chairman

3 June 2020

STRATEGIC REPORT - OVERVIEW OF STRATEGY

Business Model

The business of the Company is that of an investment company which qualifies as an investment trust for tax purposes.  The Directors do not envisage any change in this activity in the foreseeable future.

Investment Objective

The Company's investment objective is to provide shareholders with a high level of income, together with the potential for growth of both income and capital from a diversified portfolio substantially invested in UK equities but also in preference shares, convertibles and other fixed income securities.

Investment Policy

In pursuit of its objective, the Company's policy is to invest principally in the ordinary shares of UK quoted companies, and in preference shares, convertibles and other fixed income securities with above average yields.

The Company generates income primarily from ordinary shares, preference shares, convertibles and other fixed income securities. It also achieves income by writing call and put options on shares owned, or shares the Company would like to own. By doing so, the Company generates premium income.

Risk Diversification

In order to ensure adequate diversification, the Board sets absolute limits on maximum holdings and exposures in the portfolio from time to time. These limits do not form part of the investment policy and can be changed or over-ridden with Board approval. The current limits are disclosed under the heading "Board Investment Limits" below. 

Gearing

The Directors are responsible for determining the gearing strategy of the Company.  Gearing is used with the intention of enhancing long-term returns. Gearing is subject to a maximum equity gearing level of 35% of net assets at the time of draw down.  Any borrowing, except for short-term liquidity purposes, is used for investment purposes. 

Delivering the Investment Policy

The Directors are responsible for determining the investment objective and investment policy of the Company, although any significant changes are required to be approved by shareholders at a general meeting. Day-to-day management of the Company's assets has been delegated, via the Alternative Investment Fund Manager (the "AIFM"), to the Investment Manager.

Board Investment Limits

In order to ensure adequate diversification, the Board has set absolute limits on maximum holdings and exposures in the portfolio at the time of acquisition. These can only be over-ridden with Board approval. The current limits include the following:

-  Maximum 10% of total assets invested in the equity securities of overseas companies;

-  Maximum 7.5% of total assets invested in the securities of one company (excluding Aberdeen Smaller Companies Income Trust PLC);

-  Maximum 5% of quoted investee company's ordinary shares (excluding Aberdeen Smaller Companies Income Trust PLC); and 

-  Maximum 10% of total assets invested directly in AIM holdings.

- 

The Board assesses on a regular basis with the Manager the applicability of these investment limits, the use of gearing and risk diversification, whilst aiming to meet the overall investment objectives of the Company.

Preference Shares

The Company also invests in preference shares, primarily to enhance the income generation of the Company. The majority of these investments are in large financial institutions. Issue sizes are normally relatively small and the underlying securities are relatively illiquid by comparison with the equity component of the portfolio. A maximum of 7.5% of total assets may be invested in the preference shares of any one company. In addition, the Company cannot hold more than 10% of any investee company's preference shares.

Traded Options Contracts

The Company enters into traded option contracts, also primarily to enhance the income generation of the Company. The risks associated with these option contracts are managed through the principal guidelines below, which operated in the year under review:

-  Call options written to be covered by stock;

-  Put options written to be covered by net current  assets/borrowing facilities;

-  Call options not to be written on more than 100% of a holding of stock;

-  Call options not to be written on more than 30% of the equity portfolio; and

-  Put options not to be written on more than 30% of the equity portfolio.

Benchmark

In assessing its performance, the Company compares its returns with the returns of the FTSE All-Share Index (total return).

Promoting the Success of the Company

The Board's statement below describes how the Directors have discharged their duties and responsibilities over the course of the financial year under section 172 (1) of the Companies Act 2006 and how they have promoted the success of the Company. That statement forms part of the Strategic Report. 

Key Performance Indicators ("KPIs")

The Board uses a number of 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 identified by the Board in relation to the Company, which are considered at each Board meeting, are shown in the table below:

KPI	Description
Performance of NAV	The Board considers the Company's NAV total return figures to be the best indicator of performance over time and this is therefore the main indicator of performance used by the Board.
Revenue return per Ordinary share	The Board monitors the Company's net revenue return (earnings per share).
Dividend per share	The Board monitors the Company's annual dividends per Ordinary share and the extent to which dividends are covered by current net revenue and revenue reserves.
Performance against benchmark index	The Board measures performance over the medium to long-term, on a total return basis against the benchmark index - the FTSE All-Share Index (total return).
Share price performance	The Board monitors the performance of the Company's share price on a total return basis.
Discount/premium to NAV	The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board. The Board also monitors trading activity in the Company's shares on a regular basis.
Ongoing charges	The Board monitors the Company's operating costs carefully. Some of the operating costs are fixed whilst the most significant cost, being the investment management fee, is variable depending on the net asset value of the Company.

 

Principal and Emerging Risks and Uncertainties

The Board carries out a regular review of the risk environment in which the Company operates, changes to that environment and to individual risks. The Board also identifies emerging risks which might impact on the Company. During the year, the most important emerging risk was the effect of the COVID-19 virus which developed into a principal risk towards the end of the financial year. The COVID-19 pandemic has not only impacted dramatically on public health across the world, but it has also delivered a severe shock to the global economy and had a significant adverse impact on global stock markets and the future economic outlook, the effect of which, by its nature, is likely to be uncertain for some time.

There are a number of other risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has carried out a robust assessment of the Company's principal and emerging risks, which include those that would threaten its business model, future performance, solvency, liquidity or reputation and has endeavoured to find means of mitigating those risks, wherever practical.

The principal risks and uncertainties faced by the Company are reviewed by the Audit Committee in the form of a risk matrix and the Committee also gives consideration to the emerging risks facing the Company. The assessment of risks and their mitigation continues to be an area of significant focus for the Audit Committee.

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 included the exogenous risks, which include the COVID-19 pandemic, over which the Company has little control.

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.

Description	Mitigating Action
Strategic objectives and investment policy - a lack of demand for the Company's shares due to its objectives becoming unattractive to investors, or a negative perception of investment trusts, could result in a widening of the discount of the share price to its underlying NAV and a fall in the value of its shares.	The Board formally reviews the Company's objectives and strategies for achieving them on an annual basis, or more regularly if appropriate. The Board is cognisant of the importance of regular communication with shareholders. Directors attend meetings with the Company's largest shareholders and meet other shareholders at the Annual General Meeting. The Board reviews shareholder correspondence and reports provided by the Manager's investor relations team and also receives feedback from the Company's broker. The Board and Manager keep the level of discount under constant review, as well as changes to the Company's shareholder register.
Investment performance   - performance of the portfolio when measured against the benchmark.	The Board meets the Manager on a regular basis and keeps investment performance under close review. This includes performance attribution by sector and stock, and liquidity analysis, as well as the degree of diversification in the portfolio and income sustainability. Representatives of the Investment Manager attend all Board meetings and a detailed formal appraisal of the Standard Life Aberdeen Group is carried out annually by the Management Engagement Committee. The Board sets, and monitors, the investment restrictions and guidelines, and receives regular reports which include performance reporting on the implementation of the investment policy, the investment process, risk management and application of the guidelines. Investment risk within the portfolio is managed in three ways: -  Adherence by the Investment Manager to the investment process in order to minimise investments in poor quality companies and/or overpaying for investments. -  Diversification of investment - seeking to invest in a wide variety of companies with strong balance sheets and the earnings power to pay increasing dividends. In addition, investments are diversified by sector in order to reduce the risk of a single large exposure. The Company invests mainly in equities, preference shares and convertibles. -  Adherence by the Investment Manager to the investment limits set by the Board. Investment in UK smaller companies Rather than holding a number of smaller companies' shares, the Company invests indirectly into this part of the equity market through one holding in Aberdeen Smaller Companies Income Trust PLC, which is also managed by the Manager. Given its size (representing 8.5% of the Company's portfolio) the Directors regularly review this holding, including its liquidity.  All of the directors of Aberdeen Smaller Companies Income Trust PLC are independent of Shires Income PLC. The Manager does not charge any management fee in respect of the amount of the Company's assets attributable to this holding. Investment in preference shares The Company has longstanding holdings in a number of preference shares with no fixed redemption dates (representing 26.1% of the Company's portfolio). The Directors regularly review these investments, which are held primarily to enhance the income generation of the Company. By their nature, their price movements will be subject to a number of factors and, in normal market conditions, will tend to respond less to pricing movements in equity markets. Issue sizes of these preference shares are normally relatively small and with associated low secondary market liquidity by comparison with the equity component of the portfolio. The Board also considers the long-term nature of these investments and the impact of any potential changes on duration on the portfolio and its returns, as well as the sustainability of the dividends paid.
Failure to maintain and grow the dividend over the longer term   - the level of the Company's dividends and future dividend growth will depend on the performance of the underlying portfolio.	The Directors review detailed income forecasts at each Board meeting. The Company has revenue reserves which it can draw upon should there be a shortfall in revenue returns in a year. As explained in the Chairman's Statement, the Board will propose a change to the Articles of Association at the Annual General Meeting to permit the Company to pay dividends out of realised capital profits. The Board does not have any current intention to pay dividends out of realised capital profits but this change will provide flexibility to do so in the future.
Widening of discount - a number of factors including the setting of an unattractive strategic investment proposition, changing investor sentiment and investment underperformance may lead to a decrease in demand for the Company's shares and a widening of the difference between the share price and the net asset value per share.	The Board monitors the Company's Ordinary share price relative to the net asset value per share and keeps the level of discount or premium at which the Company's shares trade under review. The Board also keeps the investment objective and policy under review and holds an annual strategy meeting where it reviews investor relations reports and updates from the Manager and the Company's Broker. The Directors are updated at each Board meeting on the composition of, and any movements in, the shareholder register, which is retail investor dominated. The Board annually agrees a marketing programme and budget with the Manager, and receives updates regularly on both marketing and investor relations.
Gearing - a fall in the value of the Company's investment portfolio could be exacerbated by the impact of gearing. It could also result in a breach of loan covenants and the forced sale of investments.	The Board sets the gearing limits within which the Investment Manager can operate. Gearing levels and compliance with loan covenants are monitored on an ongoing basis by the Manager and at regular Board meetings, or between scheduled Board meetings if required. In the event of a possible impending covenant breach, appropriate action would be taken to reduce borrowing levels. The financial covenants attached to the Company's borrowings currently provide for significant headroom. The maximum equity gearing level is 35% of net assets at the time of draw down, which constrains the amount of gearing that can be invested in equities which are more volatile than the fixed interest part of the portfolio. The use of gearing has been an important facilitator of the income returns from the portfolio, particularly in financing the high yield preference share proportion of the portfolio which has historically provided significant dividend income for the Company. The Company's gearing includes a revolving credit facility can be reduced without any significant financial penalties for early repayment and at relatively short notice. The Board and the Investment Manager keep under review options available to protect a portion of the portfolio from a sudden decline in markets.
Regulatory obligations - failure to comply with relevant laws and regulations could result in fines, loss of reputation and potentially loss of an advantageous tax regime.	The Board and Manager monitor changes in government policy and legislation which may have an impact on the Company and the Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager. The Board is kept aware of proposed changes to laws and regulations, considers the changes and applies them as appropriate, if they are not already being met. This includes recent government changes made to laws and regulations which are designed to offset some of the severe negative consequences during the COVID-19 pandemic (for example, in relation to deadlines for the production of annual financial statements and arrangements for annual general meetings). From time to time the Board employs external advisers to advise on specific matters.
Operational - the Company is dependent on third parties for the provision of all systems and services (in particular, those of the Standard Life Aberdeen Group) and any control failures and gaps in their systems and services, including in relation to cyber security, could result in a loss or damage to the Company.	The Board receives reports from the Manager on its internal controls and risk management processes and receives assurances from all its other significant service providers on at least an annual basis, including on matters relating to cyber security. Written agreements are in place with all 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, through service level agreements, regular meetings and key performance indicators. The operational requirements of the Company, including its service providers, have been subject to rigorous testing during the COVID-19 pandemic, including increased use of online communication and out of office working and reporting, which to date have proven robust. The Board reviews management accounts and forecast revenue and expense statements at each Board meeting and is closely involved in the financial reporting of the Company. Financial records are subject to an annual audit, including examination of record keeping and adequacy of controls.  The Board receives reports from the Manager on internal controls and is advised of any control breaches or reporting errors.
Exogenous risks such as health, social, financial, economic and geo-political - the financial impact of such risks, associated with the portfolio or the Company itself, could result in losses to the Company.	At any given time, the Company has sufficient cash resources to meet its operating requirements. In common with most commercial operations, exogenous risks over which the Company has no control are always a risk. The Company does what it can to address these risks where possible, not least operationally, and to try and meet the Company's investment objectives. Political and economic risks includes the response to the COVID-19 pandemic, the UK's impending exit from the European Union, any regulatory changes resulting from a different political environment, and wider geo-political issues. In addition, the Board is conscious of the recent impact on financial markets caused by the outbreak of the COVID-19 virus around the world. The Board considers that this is a risk that could have further and persistent implications for financial markets, economies and on the operating environment of the Company, the impact of which is difficult to predict at the current juncture. The financial and economic risks associated with the Company include market risk, liquidity risk and credit risk, all of which the Investment Manager seeks to mitigate. Further details of the steps taken to mitigate the financial risks associated with the portfolio are set out in note 18 to the financial statements.

 

External Agencies

In addition to the services provided to the Company by the Standard Life Aberdeen Group, the Board has contractually delegated to external agencies certain services, including: depositary services (which include the safekeeping of the Company's assets) (BNP Paribas Securities Services, London Branch) and share registration services (Equiniti Limited). Each of these services was entered into after full and proper consideration by the Board of the quality and cost of services offered. In addition, day-to-day accounting and administration services are provided, through delegation by the Manager, by BNP Paribas Securities Services.

Promotional Activities

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 Standard Life 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 Standard Life Aberdeen Group.  The Manager's marketing and investor relations teams report 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. A significant proportion of the Company's Ordinary shares is owned through the Aberdeen Standard Investments savings plans.

The purpose of the promotional 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 Manager's investor relations programme which involves regional roadshows, promotional and public relations campaigns. 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow it to fulfil its obligations. The Board also recognises the benefits of and is supportive of the principle of diversity in its recruitment of new Board members. The Board will not display any bias for age, gender, race, sexual orientation, religion, ethnic or national origins, or disability in considering the appointment of its Directors. In view of its size, the Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment, with the aim of retaining a small, cohesive board with the requisite skills and experience to acquit the Board's responsibilities well.

At 31 March 2020, there were three male Directors and two female Directors.

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.

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.

Environmental, Social and Governance ("ESG") Investing

Whilst the management of the Company's investments is not undertaken with any specific instructions to exclude or include certain asset types or classes, the Investment Manager embeds ESG considerations into the research and analysis of each asset class as part of the investment decision-making process.  Where applicable, active engagement and other stewardship activities such as voting in line with best practices, with the goal of improving the performance of assets held around the world, is also an important part of the Investment Manager's approach.

The Investment Manager aims to make the best possible investments for the Company, by understanding the whole picture of the investments - before, during and after an investment is made. That includes understanding the ESG risks and opportunities they present, and how these could affect longer-term performance.  ESG considerations underpin all investment activities. With more than 1,000 investment professionals, the Investment Manager is able to take account of ESG factors in its company research, stock selection and portfolio construction, supported by more than 50 asset class specific ESG specialists around the world.

Active Engagement

Through engagement and exercising voting rights, the Investment Manager actively works with companies to improve corporate standards, transparency and accountability. By making ESG central to its investment capabilities, the Manager looks to deliver robust outcomes as well as actively contributing to a fairer, more sustainable world.

The primary goal of the Investment Manager is to generate the best long-term outcomes for the Company in order to fulfil fiduciary responsibilities to the Company and this fits with one of the Manager's core principles as a business in how it evaluates investments. The Investment Manager sees ESG factors as being financially material and impacting corporate performance. The Investment Manager focuses on understanding the ESG risks and opportunities of investments alongside other financial metrics to make better investment decisions.

The Investment Manager aims for better risk-adjusted returns by actively undertaking informed and constructive engagement and asset management to generate better performance from its investments. This helps to enhance the value of clients' assets. Comprehensive assessment of ESG factors, combined with constructive company engagement, should lead to better client outcomes.

Responsible Investment  

The Board is aware of its duty to act in the interests of the Company.  The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and has noted the Investment Manager's policy on social responsibility. The Investment Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments as part of its investment process.  In particular, the Investment Manager encourages companies in which investments are made to adhere to best practice in the areas of ESG stewardship. The Investment Manager believes that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in this area.

The Company's ultimate objective is to deliver long-term growth on its investments for its shareholders which the Board and Investment Manager believe will be produced on a sustainable basis by investing in companies which adhere to best practice in ESG. Accordingly, the Investment Manager will seek to favour companies which pursue best practice in the above area.

The UK Stewardship Code and Proxy Voting

The Company supports the UK's Stewardship Code, and seeks to play its role in supporting good stewardship of the companies in which it invests. 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.

Further information on stewardship and ESG matters may be found on the Company's website.

The Board has also given discretionary powers to the Manager to exercise voting rights on resolutions proposed by the investee companies within the Company's portfolio.  The Manager reports on a quarterly basis on stewardship (including voting) issues. 

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 the Company, with no fixed life, to be a long-term investment vehicle but, for the purposes of this viability statement, has decided that three years is an appropriate period over which to report, irrespective of the exogenous risks that the Company is facing. The Board considers that this period reflects a balance between a longer-term investment horizon and the inherent uncertainties within equity markets, exacerbated by current market circumstances which are impacted by the COVID-19 pandemic. 

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 ongoing relevance of the Company's investment objective.

-  The liquidity of the Company's portfolio. The majority of the portfolio is invested in readily realisable listed securities.

-  The level of ongoing expenses. The Company's annual expenses, excluding the cost of the dividend, are expected to continue to be more than covered by annual investment income. 

-  The level of gearing. This is closely monitored and the financial covenants attached to the Company's borrowings provide for significant headroom. The Company has a £20 million loan facility which matures in September 2022. £9 million of this amount is drawn down on a short-term basis through a revolving credit facility and can be repaid without incurring any financial penalties.

-  Regulatory or market changes.

-  The robustness of the operations of the Company's third party suppliers, which have been subject to rigorous testing during the COVID-19 pandemic.

-  Exogenous risks such as those currently impacting global economies and stock markets.

In making its assessment, the Board has considered that there are other matters that could have an impact on the Company's prospects or viability in the future, including the unknown economic impact of the COVID-19 pandemic, economic shocks, significant stock market volatility, and changes in regulation or investor sentiment, including on income propensities.

Taking into account the Company's current position and the potential impact of its principal risks and uncertainties and emerging risks, 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 three years from the date of approval 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 in its statement.

On behalf of the Board

Robert Talbut

Chairman

3 June 2020

STRATEGIC REPORT - PROMOTING THE SUCCESS OF THE COMPANY

 

How the Board Meets its Obligations Under Section 172 of the Companies Act

The Board is required to describe to the Company's shareholders how the Directors have discharged their duties and responsibilities over the course of the financial year under section 172 (1) of the Companies Act 2006 (the "Section 172 Statement").  The Board provides below an explanation of how the Directors have promoted the success of the Company for the benefit of its members as a whole, taking into account, amongst other things, the likely long-term consequences of decisions, the need to foster business relationships with all stakeholders and the impact of the Company's operations on the environment.

 

The Purpose of the Company and Role of the Board

The purpose of the Company is to act as an investment vehicle to provide, over time, financial returns (both income and capital) to its shareholders. Investment trusts, such as the Company, are long-term investment vehicles and are typically externally managed, have no employees, and are overseen by an independent non-executive board of directors.

The Board, which, at the year end, comprised five independent non-executive Directors with a broad range of skills and experience across all major functions that affect the Company, retains responsibility for taking all decisions relating to the Company's investment objective and policy, gearing, corporate governance and

strategy, and for monitoring the performance of the Company's service providers.

The Board's philosophy is that the Company should operate in a transparent culture where all parties are treated with respect and provided with the opportunity to offer practical challenge and participate in positive debate which is focused on the aim of achieving the expectations of shareholders and other stakeholders alike.  The Board reviews the culture and manner in which the Manager operates at its regular meetings and receives regular reporting and feedback from the other key service providers. The Board is very conscious of the ways it promotes the Company's culture and ensures as part of its regular oversight that the integrity of the Company's affairs is foremost in the way that the activities are managed and promoted.  The Board works very closely with the Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company's affairs, as well as visibility and openness in how the affairs are conducted.

The Company's main stakeholders have been identified as its shareholders, the Manager/Investment Manager, service providers, investee companies, debt providers and, more broadly, the community at large and the environment. 

 

How the Board Engages with Stakeholders

The Board considers its stakeholders at Board meetings and receives feedback on the Manager's interactions with them.

Stakeholder	How We Engage
Shareholders	Shareholders are key stakeholders and the Board places great importance on communication with them. The Board welcomes all shareholders' views and aims to act fairly between all shareholders. The Company's shareholder register is retail dominated and the Manager and Company's broker regularly meet with current and prospective shareholders to discuss performance. Shareholder feedback is discussed by the Directors at each Board meeting. Regular updates are provided to shareholders through the Annual Report, Half Yearly Report, monthly factsheets, company announcements, including daily net asset value announcements, and through the Company's website. The Company's Annual General Meeting provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and Manager. The Board encourages as many shareholders as possible to attend the Company's Annual General Meeting and to provide feedback on the Company (see comments in Chairman's Statement regarding arrangements for the Annual General Meeting this year).
Manager/Investment Manager	The Investment Manager's Review details the key investment decisions taken during the year. The Investment Manager has continued to manage the Company's assets in accordance with the mandate provided by shareholders, with the oversight of the Board. The Board regularly reviews the Company's performance against its investment objective and the Board undertakes an annual strategy review meeting to ensure that the Company is positioned well for the future delivery of its objective for its shareholders. The Board receives presentations from the Investment Manager at every Board meeting to help it to exercise effective oversight of the Investment Manager and the Company's strategy. The Board, through the Management Engagement Committee, formally reviews the performance of the Manager at least annually.
Service Providers	The Board seeks to maintain constructive relationships with the Company's suppliers either directly or through the Manager with regular communications and meetings. The Management Engagement Committee conducts an annual review of the performance, terms and conditions of the Company's main service providers to ensure they are performing in line with Board expectations, performing their responsibilities and providing value for money.
Investee Companies	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 Board has also given discretionary powers to the Manager to exercise voting rights on resolutions proposed by the investee companies within the Company's portfolio. The Manager reports on a quarterly basis on stewardship (including voting) issues.  Through engagement and exercising voting rights, the Investment Manager actively works with companies to improve corporate standards, transparency and accountability. The Board monitors investments made and divested and questions the rationale for investment and voting decisions made.
Debt Providers	On behalf of the Board, the Manager maintains a positive working relationship with Scotiabank, the provider of the Company's loan facility, and provides regular updates on business activity and compliance with its loan covenants.
Environment and Community	The Board and Manager are committed to investing in a responsible manner and the Investment Manager embeds Environmental, Social and Governance ("ESG") considerations into its research and analysis as part of the investment decision-making process.

Specific Examples of Stakeholder Consideration During the Year

The Board is fully engaged in both oversight and the general strategic direction of the Company. During the year, the Board's main strategic discussions focussed around income management, with a portfolio consisting of various parts, including equities, fixed interest securities, options and exposure to UK smaller companies through Aberdeen Smaller Companies Income Trust PLC, a closed-ended investment company. Time was also spent in ensuring the Board met corporate governance requirements which continue to evolve, including the introduction of the new AIC Code of Corporate Governance.

Factored into this have been the implications of the COVID-19 virus since it first emerged earlier in the year as a significant medical, social, economic and financial threat, and where protection of stakeholders' interests has been prominent in the Board trying to fulfil obligations to them.

While the importance of giving due consideration to the Company's stakeholders is not a new requirement, and is considered during every Board decision, the Directors were particularly mindful of stakeholder considerations during the following decisions undertaken during the year ended 31 March 2020.

 

Management of the Portfolio

The Investment Manager's Review details the key investment decisions taken during the year. The overall shape and structure of the investment portfolio is an important factor in delivering the Company's stated investment objective.  The Management Engagement Committee decided that the continuing appointment of the Manager was in the best interests of shareholders.

In recent months, the focus has been in trying to ensure that the Company operates as best as it could in testing conditions where the portfolio value has been subject to significant fluctuations and there has been a threat to the income level that the Company might receive in the future.

 

Dividend

Following the payment of the final dividend for the year, of 4.2p per Ordinary share, total dividends for the year will amount to 13.2p per Ordinary share, representing a dividend yield of 6.6% based on the share price of 200.5p at the end of the financial year. This is in accordance with the Company's objective to provide shareholders with a high level of income. 

In deciding on the level of dividend for the year, the Board took into account the revenue earnings per Ordinary share for the year, forecast revenues for subsequent years and the level of revenue reserves.

 

Share Issuance

During the year the Company issued 615,000 Ordinary shares for an aggregate consideration of £1.7 million. The shares were issued to satisfy investor demand and were issued at a premium to the NAV thereby providing a small accretion to the NAV per share for shareholders.

 

Amendments to the Articles of Association

The Board will propose changes to the Articles of Association at the Annual General Meeting to permit the Company to pay dividends out of realised capital profits. Given the size of the Company's revenue reserves, the Board does not have any current intention to pay dividends out of realised capital profits. However, this change, which has been adopted by many other investment trusts, will provide flexibility to do so in the future.

 

Directorate

The Board has continued to progress its succession plans during the year resulting in the decision to appoint Jane Pearce as an independent non-executive Director on 1 January 2020. Further details are provided in the Chairman's Statement. Shareholders' interests are best served by ensuring a smooth and orderly succession for the Board which serves to provide continuity and maintain the Board's open and collegiate style.

STRATEGIC REPORT - RESULTS

Financial Summary

	31 March 2020	31 March 2019	% change
Total assets	£82,862,000	£99,055,000	-16.3
Shareholders' funds	£63,864,000	£80,057,000	-20.2
Market capitalisationA	£61,694,000	£80,513,000	-23.4
Net asset value per shareB	207.39p	265.49p	-21.9
Share price	200.50p	267.00p	-24.9
(Discount)/premium to NAV (cum-income)C	(3.3%)	0.6%
Net gearingC	23.7%	19.6%
Dividend and earnings
Revenue return per shareD	12.98p	13.06p	-0.6
Dividend per shareE	13.20p	13.20p	-
Dividend coverC	0.98	0.99
Revenue reservesF	£6,770,000	£6,819,000
Operating costs
Ongoing charges ratioC	0.96%	0.98%
A   Represents the number of Ordinary shares in issue in the Company multiplied by the Company's share price.
B   Net asset value per share is calculated after the repayment of the capital paid up on Cumulative Preference shares (see note 16).
C   Considered to be an Alternative Performance Measure.
D   Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income).
E   The figures for dividend per share reflect the years in which they were earned.
F   The revenue reserve figure does not take account of payment of the third interim or final dividend amounting to £2,215,000 (2019 - £2,184,000) combined.

PERFORMANCE (TOTAL RETURN)

	1 year	3 year	5 year
	% return	% return	% return
Net asset valueA	-18.0	-11.9	+2.0
Share priceA (based on mid-market)	-21.2	-4.5	+2.9
FTSE All-Share Index	-18.5	-12.2	+2.9
A   Considered to be an Alternative Performance Measure.
All figures are for total return and assume re-investment of net dividends excluding transaction costs.
Source: Aberdeen Standard Fund Managers, Morningstar & Factset

DIVIDENDS

	Rate per share	XD date	Record date	Payment date
First interim dividend	3.00p	3 October 2019	4 October 2019	25 October 2019
Second interim dividend	3.00p	2 January 2020	3 January 2020	24 January 2020
Third interim dividend	3.00p	2 April 2020	3 April 2020	24 April 2020
Proposed final dividend	4.20p	2 July 2020	3 July 2020	24 July 2020
	_______
2019/20	13.20p
	_______
First interim dividend	3.00p	4 October 2018	5 October 2018	26 October 2018
Second interim dividend	3.00p	3 January 2019	4 January 2019	25 January 2019
Third interim dividend	3.00p	4 April 2019	5 April 2019	26 April 2019
Proposed final dividend	4.20p	4 July 2019	5 July 2019	26 July 2019
	_______
2018/19	13.20p
	_______

TEN YEAR FINANCIAL RECORD

Year to 31 March	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020*
Revenue available for ordinary dividends (£'000)	3,292	3,615	3,556	3,789	3,877	3,617	3,925	4,106	3,920	3,961
	____	_____	____	_____	____	____	____	____	____	_____
Per share (p)
Net revenue earnings	11.1	12.2	11.9	12.6	12.9	12.1	13.1	13.7	13.1	13.0
Net dividends paid/proposed	12.00	12.00	12.00	12.00	12.25	12.25	12.75	13.00	13.20	13.20
Net total earnings	22.6	7.4	53.5	26.0	23.1	(17.8)	54.5	9.4	10.3	(45.4)
Net asset value	197.5	192.9	234.4	248.4	259.5	229.4	271.6	268.2	265.5	207.4
Share price (mid-market)	190.0	194.5	233.0	252.3	252.0	202.0	243.3	260.0	267.0	200.5
	____	_____	____	_____	____	____	____	____	____	_____
Shareholders' funds (£m)	58.6	57.3	70.3	78.7	77.8	68.8	81.5	80.5	80.1	63.9
	____	_____	____	_____	____	____	____	____	____	_____
* Net asset value per share is calculated after the repayment of the capital paid up on Cumulative Preference shares (see note 16).

CUMULATIVE PERFORMANCE ^A

Rebased to 100 at 31 March 2006

As at 31 March	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Net asset value	100.0	105.7	103.3	125.5	132.9	138.9	122.8	145.4	143.6	142.1	111.0
Net asset value total returnA	100.0	112.7	117.4	151.5	169.0	185.3	172.4	214.6	221.8	230.6	189.0
Share price performance	100.0	103.3	105.7	126.6	137.1	137.0	109.8	132.2	141.3	145.1	109.0
Share price total returnA	100.0	110.1	120.4	153.1	174.5	183.0	154.8	197.3	221.4	239.1	188.4
Benchmark performance	100.0	105.4	103.2	116.2	122.2	125.9	116.7	137.1	133.8	136.7	106.8
Benchmark total returnA	100.0	108.7	110.2	128.7	140.1	149.3	143.4	174.9	177.1	188.3	153.6
NAV figures are based on Company only values following the dissolution of the subsidiaries in May 2011.
A   Total return figures are based on reinvestment of net income.

STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW

-  NAV total return of -18.0% compared to the benchmark total return of -18.5%

-  Equity portfolio and the preference share portfolio both outperformed the benchmark

-  Revenue return per share fell by 0.6% to 12.98p per Ordinary share 

Portfolio Strategy

We take a long-term approach to investing, believing that whilst there may be volatility in the short and even medium term, share prices will ultimately reflect the fundamental value of a company. Consequently, there has been no change to our approach to the construction of the portfolio during the year under review. The Company's investment portfolio is invested in equities, preference shares and convertible preference shares. At the year end 73.3% of the portfolio was invested in equities, 26.1% was invested in preference shares and 0.6% was invested in convertible preference shares.

Equity Market Review

For most of the 12 months to 31 March 2020 it seemed as though the major discussion points impacting the UK equity market would be Brexit, UK politics and the state of US-China trade relations, but in reality it was the last six weeks of the period and the impact of the COVID-19 virus that framed the year under review.  In these six weeks the market took significant fright at the potential for the COVID-19 virus to deliver an unprecedented threat to global growth through a combination of a supply and demand shock, leading to elevated credit and liquidity concerns. This manifested itself in a collapse in share prices representing one of the fastest bear markets in history and precipitated a similarly sharp fall in oil prices.

The first ten months of the period saw stock markets move gently higher with the domestic and global economies performing anaemically despite a backdrop of very modest levels of unemployment and low interest rates with the latter boosting investor sentiment. The ongoing trade dispute between the US and China provided the main area of international focus with signs of progress and delay impacting sentiment. Concerns over the impact on the global economy, and in particular manufacturing, led the US Federal Reserve and the European Central Bank to reduce interest rates. Towards the end of the calendar year, a sense that a lasting trade agreement would be possible buoyed markets. 

In the UK, in the first half of the financial year, concerns regarding Brexit and the potential market-unfriendly nature of a Labour government were important factors in prompting Sterling to weaken and consequently helped to buoy those companies with overseas earnings. The failure of Parliament to agree on a withdrawal agreement resulted in the resignation of Theresa May as Prime Minister. Her successor, Boris Johnson, was more successful and with the prospect of a no-deal Brexit removed, domestic assets responded positively.  The Conservative Party majority in the General Election provided a further fillip to domestically exposed UK companies.  Although we entered 2020 with valuations at high levels, investors took comfort from the prospect of easier fiscal and monetary policy, an improving trade backdrop and an environment in the UK seemingly set fair for domestically-focused companies to benefit.

Nobody could have predicted the COVID-19 virus and its impact on the global economy. The slow realisation of the potential impact on health and economies caused some weakness in markets during the first six weeks of 2020, but as the virus spread outside China to South Korea, Iran and to Italy in particular, the dawning of the consequences resulted in a collapse in share prices in the last week of February and first three weeks of March.  Volatility soared together with safe-haven assets such as US Treasury bonds and gold, while shares and the price of oil plummeted, the latter compounded by the initial inability of Saudi Arabia and Russia to reach an agreement to cut production.  There is an apophthegm that "markets stop panicking when governments start panicking" and we have seen a very significant fiscal and monetary response from governments and central banks around the world. This, together with an acknowledgement that social distancing halts the spread of the virus, has brought some calm to markets but the longer-term effect of the virus on the global economy is as yet unknown.

Investment Performance

The net asset value ("NAV") total return for the year was -18.0% which compared to the FTSE All-Share Index benchmark return of -18.5%.

The Company's preference share holdings, which are an important differentiator in the portfolio, performed relatively well, significantly outperforming the FTSE All-Share Index and continuing to offer a premium yield.

The equity portfolio delivered a return of -15.4% for the year, outperforming the benchmark by 3.1%. By sector, the greatest positive relative contributions came from Utilities and Banks, reflecting the overweight position in the former and the underweight position in the latter.  Conversely, the holdings in the General Retail sector provided the largest negative relative contribution. 

A number of large index constituents that were not held in the portfolio helped performance. In particular, avoiding Lloyds Bank, Glencore and Barclays stood out as material positive contributors. Similarly, the underweight positions in HSBC and Royal Dutch Shell also helped relative performance given the weakness in these companies' share prices over the year.  The holding in Assura performed strongly as the market revalued the company's asset-backing and quasi-governmental secure income stream for its GP properties.  The market responded positively to London Stock Exchange's strong earnings growth as well as the potential acquisition of Refinitiv leading to a strong share price performance.

The largest negative contributor was the holding in Aberdeen Smaller Companies Income Trust.  Despite a robust performance from the company's portfolio for most of the year under review, its discount widened considerably at the end of the period in the wake of concerns around the COVID-19 virus.  The impact of the COVID-19 virus also impacted Cineworld, with concerns that cinemas would remain closed for a protracted period weighing on the shares.  Finally, the holding in Saga performed poorly given its profit warning during the period.

Gearing and Preference Share Portfolio

Gearing increased during the year from 19.6% to 23.7%. The gearing is notionally invested in the preference share portfolio. At the year end these securities had a value of £20.9 million, in excess of net indebtedness which stood at £15.2 million. This part of the portfolio provides a core level of high income and has been more resilient than equities as the market has fallen, but has still generated a negative return.  The preference share portfolio declined by 7.3% in total return terms over the 12 month period. The issuers of preference shares have come predominantly from the financial sector and the Company's holdings reflect this.  Amongst the preference shares held, Royal & Sun Alliance, Standard Chartered, Santander, Aviva and Ecclesiastical Insurance are all in the banking or insurance sector and these areas of the market performed poorly, particularly in the final quarter of the period.

 

Revenue Account

The Company's revenue earnings per share for the period were 12.98p, which compares to 13.06p for the prior year. The fall in earnings per share reflects a slightly higher level of income generated from investments during the year but which has been spread over a greater number of shares reflecting the share issuance which took place in the year.

The Company aims to invest in companies with the ability to grow their dividends over time and many companies delivered dividend growth during the period. However, the impact of the COVID-19 virus led to a number of companies cutting or cancelling their dividends towards the end of the financial year.  In some cases, although there was an ability to pay dividends, intervention by authorities or a very prudent view on the outlook led to dividend reductions or cancellations.

Income from the Company's preference share holdings has been stable, with the exception of the position in R.E.A. Holdings. After a period of low palm oil prices, the company was forced to suspend payment of dividends on its preference shares. The other preference shares held in the portfolio have continued to pay a high level of income and their dividends appear secure, unaffected by cuts in some cases to ordinary dividends.

The following table details the Company's main sources of income over the last five years.

	2020	2019	2018	2017	2016
	%	%	%	%	%
Ordinary dividends	60.0	58.5	59.1	54.0	53.0
Preference dividends	31.0	34.4	33.0	35.8	37.7
Aberdeen Smaller Companies	5.4	4.9	4.4	4.6	4.8
Fixed interest and bank interest	0.3	0.2	0.1	0.1	0.2
Traded option premiums	3.3	2.0	3.4	5.5	4.3
	____	_____	____	_____	____
Total	100.0	100.0	100.0	100.0	100.0
	____	_____	____	_____	____
Total income (£'000s)	4,807	4,712	4,916	4,695	4,361
	____	_____	____	_____	____

 

Portfolio Activity

Reflecting the outperformance of growth stocks in the market, the trend has been to take profits on those companies that have performed well and where valuations looked stretched. Reinvestment has been into names with either more attractive valuations, higher yields or more defensive characteristics given the ongoing economic uncertainty.

In total there were thirteen new holdings added to the portfolio during the year. Rentokil was purchased for the portfolio given its exposure to the pest control market which should provide significant growth opportunities over the long-term. Energean Oil & Gas, a gas producer focused on the Eastern Mediterranean, has limited commodity price risk and a number of interesting development opportunities.  SSE was purchased given its attractive dividend yield and under appreciated growth potential, particularly from its wind farm assets.  Fortum is a European power generator which should deliver decent earnings growth together with an attractive dividend yield.  Sirius Real Estate is a property company focused on flexible workspace for the German real estate market with a strong track record of purchasing underinvested assets and improving them. AXA, the French insurance company, was purchased for the portfolio given its attractive dividend yield and valuation, with its disposal process improving the overall quality of the company.

Telenor, the international telecoms operator with its home market in Norway, offers a resilient dividend yield and attractive growth prospects in emerging markets.  A position in share administrator Equiniti was also purchased as the company has an attractive valuation and scope for growth in the US market that is not reflected in the share price. Wood Group was purchased given the reduction in its debt and diversified exposure to a number of structurally growing markets. A holding in paper producer Mondi was bought as the company has an attractive dividend yield and a strong competitive advantage in its assets at the low end of the cost curve. Avast, which provides internet protection software was also added to the portfolio.  The company provides attractive exposure in a sector where it is difficult to find companies with an appealing dividend yield. Towards the end of the period, we purchased a small holding in WH Smith which had seen its share price severely impacted by the COVID-19 pandemic but in the long-term has attractive exposure to growing travel markets. Finally, a holding in Cineworld was purchased as we believed that the company had significant opportunities to improve profitability of its relatively recently acquired US cinema estate.

Conversely, nine holdings were sold over the period.  The holding in Saga was sold following a profit warning that demonstrated that the company was unable to overcome the highly competitive nature of the UK car and home insurance sector. Nordea Bank was exited given a more challenging environment for the bank due to low interest rates and money laundering concerns.  The holding in Weir Group was sold given the deteriorating environment for the company's pressure pumping business in North America. Unibail-Rodamco was sold given an uncertain outlook for shopping malls and as we expected significant pressure on the company's dividend. There was a small holding remaining in the portfolio at the end of the year that has since been sold. Following a strong share price performance, the holding in Rentokil was sold as it had priced in the long-term growth potential in short shrift. The holding in Signature Aviation was exited given concerns around the company's cyclical exposure. Finally, Inmarsat was sold following a bid for the company.

Stewardship

We believe that, as long-term owners of the businesses in which we are invested, it is not sufficient merely to seek out assets that we think are undervalued, it is also incumbent upon us to take a proactive approach to our stewardship of these companies. Therefore, we engage extensively with investee companies. We have attended a range of meetings with chairmen, directors and other stakeholders. Topics covered have included the composition of the board, environmental and social issues, and remuneration. Risk is a very broad subject that is interpreted in varying manners by different companies. However, by engaging on this subject we secure a deeper understanding of how the boards of our investee companies perceive and seek to manage these issues. Such interactions also enable us to push for improved disclosure and better management practices and on occasion different decisions where appropriate. Such activity is by its nature time consuming but we regard it as an integral aspect of our role as long-term investors.

Outlook

There is no denying that we face a challenging period for income investing. A significant proportion of companies within the FTSE 350 Index have cut or suspended dividends in response to the impact of the COVID-19 virus.  That breadth of income reduction is unprecedented and it has happened in a relatively short period since the first effects of the virus were felt.  For example, the collapse of the oil price has resulted in Royal Dutch Shell, a company that has been viewed as a touchstone for dividend security, significantly reducing its pay-out to shareholders. Nor have the cuts been focused on those industries directly impacted.  While we would expect companies in the travel, leisure and retail sectors to be feeling the full force of the UK's lockdown, the impact is felt much more widely. As well as those companies that have had to cut dividend payments, we have seen as many who could continue to pay, but have chosen to conserve cash ahead of a period of great uncertainty.

In this environment, it is certainly hard to find reliable sources of income, but they do exist. In the UK market the miners, pharmaceuticals, telecoms and tobacco stocks continue to offer healthy yields. As managers of the portfolio we need to strike a balance between owning these stocks and protecting income, versus crowding into sectors. We also need to be careful not to sell stocks that have good long-term prospects and will likely return to paying dividends in the not too distant future. For the majority of positions held in the portfolio, balance sheets are in good shape and earnings are expected to cover dividends from 2021 onwards. How quickly dividends return will depend on the duration of the current measures and the need for companies to rebuild balance sheets once the worst is over, together with greater clarity around the UK's post-Brexit trade deals.

In the meantime, the Company remains relatively well positioned. The preference shares continue to offer a stable source of income and the Company has healthy revenue reserves, currently equivalent to more than one year's dividend. The current market offers opportunities for capital gains, with many high quality companies at historically low valuations. Uncertainty is high, but with a long-term view there are still reasons for optimism.

Iain Pyle and Charles Luke

Aberdeen Asset Managers Limited

3 June 2020

INVESTMENT PORTFOLIO - EQUITIES

AS AT 31 MARCH 2020

		Valuation	Total	Valuation
		2020	portfolio	2019
Company	FTSE All-Share Index Sector	£'000	%	£'000
Aberdeen Smaller Companies Income Trust	Equity Investment Instruments	6,647	8.5	8,301
Royal Dutch Shell 'B'	Oil & Gas Producers	2,595	3.3	3,229
AstraZeneca	Pharmaceuticals & Biotechnology	2,431	3.1	2,216
GlaxoSmithKline	Pharmaceuticals & Biotechnology	2,209	2.8	1,755
BP	Oil & Gas Producers	2,141	2.7	3,481
Prudential	Life Insurance	2,093	2.7	2,695
British American Tobacco	Tobacco	1,913	2.4	2,444
Chesnara	Life Insurance	1,866	2.4	2,066
National Grid	Gas Water & Multiutilities	1,791	2.3	1,520
John Laing	Financial Services	1,761	2.2	1,663
Ten largest investments		25,447	32.4
SSE	Electricity	1,702	2.2	-
Unilever	Personal Goods	1,506	1.9	1,604
Vodafone	Mobile Telecommunications	1,500	1.9	1,983
Assura	Real Estate Investment Trusts	1,500	1.9	1,091
Novo-Nordisk	Pharmaceuticals & Biotechnology	1,407	1.8	1,170
Rio Tinto	Mining	1,315	1.7	-
Telecom Plus	Fixed Line Telecommunications	1,301	1.7	1,087
GVC Holdings	Travel & Leisure	1,276	1.6	1,533
Diversified Gas & Oil	Oil & Gas Producers	1,162	1.5	1,218
Countryside Properties	Household Goods & Home Construction	1,137	1.5	989
Twenty largest investments		39,253	50.1
Close Brothers	Banks	1,134	1.4	1,315
BHP Billiton	Mining	1,093	1.4	1,459
Imperial Brands	Tobacco	1,084	1.4	1,902
HSBC Holdings	Banks	986	1.3	1,789
Standard Chartered	Banks	980	1.2	1,300
Diageo	Beverages	946	1.2	1,682
Associated British Foods	Food Producers	869	1.1	1,170
Bodycote	Industrial Engineering	740	0.9	1,080
Inchcape	General Retailers	686	0.9	904
Mondi	Forestry & Paper	666	0.9	-
Thirty largest investments		48,437	61.8
Howden Joinery	Support Services	660	0.8	627
Sirius Real Estate	Real Estate Investment Services	653	0.8	-
London Stock Exchange	Financial Services	635	0.8	1,584
Energean Oil & Gas	Oil & Gas Producers	589	0.8	-
Abcam	Pharmaceuticals & Biotechnology	551	0.7	547
Experian	Support Services	535	0.7	1,087
Equiniti	Support Services	529	0.7	-
St. James Place	Life Insurance	506	0.6	1,865
Avast	Software & Computer Services	454	0.6	-
M&G	Life Insurance	425	0.5	-
Forty largest investments		53,974	68.8
Telenor	Mobile Telecommunications	418	0.5	-
AXA	Nonlife Insurance	392	0.5	-
Ashmore	Financial Services	382	0.5	458
IWG	Support Services	377	0.5	-
Coca-Cola	Beverages	375	0.5	-
Fortum	Electricity	355	0.5	-
Euromoney Institutional Investor	Media	283	0.4	440
WH Smith	General Retailers	278	0.3	-
Wood Group	Oil Equipment Services & Distribution	248	0.3	-
Cineworld	Travel & Leisure	236	0.3	-
Fifty largest investments		57,318	73.1
Unibail-Rodamco	Real Estate Investment Trusts	181	0.2	1,545
Total equity investments		57,499	73.3
Purchases and/or sales of portfolio holdings effected during the year result in 2020 and 2019 values not being directly comparable. ​ ​ ​ ​

INVESTMENT PORTFOLIO - OTHER INVESTMENTS

AS AT 31 MARCH 2020

	Valuation	Total	Valuation
	2020	portfolio	2019
Company	£'000	%	£'000
Convertibles
Balfour Beatty Cum Conv 10.75p 01/07/2020	490	0.6	530
Total Convertibles	490	0.6
Preference sharesA
Ecclesiastical Insurance Office 8 5/8%	5,342	6.8	6,106
Royal & Sun Alliance 7 3/8%	4,481	5.7	5,220
General Accident 7.875%	3,619	4.6	4,329
Santander 10.375%	3,505	4.5	4,209
Standard Chartered 8.25%	2,936	3.8	3,348
R.E.A. Holdings 9%	529	0.7	829
Total Preference shares	20,412	26.1
Total Other Investments	20,902	26.7
Total Investments	78, 401	100.0
A None of the preference shares listed above have a fixed redemption date.
Purchases and/or sales of portfolio holdings effected during the year result in 2020 and 2019 values not being directly comparable. ​ ​ ​

DISTRIBUTION OF ASSETS AND LIABILITIES

			Movement during the year
	Valuation at				Gains/	Valuation at
	31 March 2019		Purchases	Sales	(losses)	31 March 2020
	£'000	%	£'000	£'000	£'000	£'000	%
Listed investments
Equities	70,400	87.9	16,989	(16,111)	(13,779)	57,499	90.0
Convertibles	530	0.7	-	-	(40)	490	0.8
Preference shares	24,041	30.0	-	-	(3,629)	20,412	32.0
	______	______	______	______	______	______	______
Total investments	94,971	118.6	16,989	(16,111)	(17,448)	78,401	122.8
Current assets	4,323	5.4				4,744	7.4
Current liabilities	(9,239)	(11.5)				(9,283)	(14.5)
Non current liabilities	(9,998)	(12.5)				(9,998)	(15.7)
	______	______				______	______
Net assets	80,057	100.0				63,864	100.0
	______	______				______	______
Net asset value per Ordinary share	265.3p					207.4p
	______					______

DIRECTORS' REPORT (EXTRACT)

The Directors present their report and audited financial statements for the year ended 31 March 2020.

Results and Dividends

The financial statements for the year ended 31 March 2020 are contained below. Dividends paid and proposed for the year amounted to 13.2p per Ordinary share.

First, second and third interim dividends for the year, each of 3.0p per Ordinary share, were paid on 25 October 2019, 24 January 2020 and 24 April 2020 respectively. The Directors recommend a final dividend of 4.2p per Ordinary share, payable on 24 July 2020 to shareholders on the register on 3 July 2020. The ex-dividend date is 2 July 2020. Under International Financial Reporting Standards ("IFRS") the third interim and final dividends will be accounted for in the financial year ended 31 March 2021. 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 England and Wales No. 00386561) 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 April 2012.  The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 March 2020 so as to enable it to comply with the ongoing requirements for investment trust status.

Individual Savings Accounts

The Company satisfies 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

During the year the Company issued 615,000 Ordinary shares of 50p each under its non pre-emptive allotment authority, raising £1.7 million in aggregate on a non-dilutive basis. The issued Ordinary share capital at 31 March 2020 consisted of 30,769,580 Ordinary shares of 50p each and 50,000 3.5% Cumulative Preference Shares of £1 each. A further • Ordinary shares have been issued since the year end and up to the date of this Report.

Voting Rights

Each Ordinary and Cumulative Preference share carries one vote at general meetings of the Company. The Cumulative Preference shares carry a right to receive a fixed rate of dividend and, on a winding up of the Company, to the payment of such fixed cumulative preferential dividends to the date of such winding up and to the repayment of the capital paid up on such shares in priority to any payment to the holders of the Ordinary shares.

The Ordinary shares, excluding any treasury shares, carry a right to receive dividends and, 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 or Cumulative Preference 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 Standard Fund Managers Limited ("ASFML"), a wholly owned subsidiary of Standard Life Aberdeen plc, as its alternative investment fund manager. ASFML has been appointed to provide investment management, risk management, administration and company secretarial services and promotional activities to the Company. The Company's portfolio is managed by Aberdeen Asset Managers Limited ("AAML") by way of a group delegation agreement in place between ASFML and AAML. In addition, ASFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to AAML. Details of the management fee and fees payable for promotional activities are shown in notes 4 and 5 to the financial statements.

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 March 2020, 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 Ordinary shares held	% of Ordinary shares held
Aberdeen Asset Managers Limited Retail PlansA	5,662,936,	18.4

^A Non-beneficial interest

There have been no changes notified to the Company between the year end and the date of approval of this Report.

Directors

At the end of the year the Board comprised five non-executive Directors, each of whom is considered by the Board to be independent of the Company and the Manager.

Ms Pearce was appointed as an independent non-executive Director on 1 January 2020. For the appointment of Ms Pearce as a Director, the Board used the services of an independent external search consultant, Fletcher Jones Limited. Fletcher Jones Limited does not have any other connections with the Company or individual Directors. Ms Pearce will stand for appointment at the Annual General Meeting. 

Mr Robson is a non-executive director of Witan Pacific Investment Trust PLC ("WPC"). WPC operates a multi-manager structure and Aberdeen Standard Investments (Asia) Limited, part of the Standard Life Aberdeen Group, manages a part of WPC's assets. Notwithstanding this relationship and the fact that Mr Robson has served as a Director of the Company for 12 years, the remainder of the Board is unanimous in its opinion that Mr Robson remains independent in his role as a Director of the Company. 

The Directors attended scheduled Board and Committee meetings during the year ended 31 March 2020 as follows (relevant meetings in brackets):

Director	Board	Audit Committee	Management  Engagement  Committee	Remuneration Committee
Robert Talbut	5 (5)	2 (2)	1 (1)	1 (1)
Robin Archibald	5 (5)	2 (2)	1 (1)	1 (1)
Marian Glen	5 (5)	2 (2)	1 (1)	1 (1)
Jane Pearce	1 (1)	- (-)	1 (1)	1 (1)
Andrew Robson	5 (5)	2 (2)	1 (1)	1 (1)

The Board meets more frequently when business needs require and has regular dialogue between formal board meetings, including with the Manager. Since the outbreak of the COVID-19 pandemic the Board has held additional meetings and been in close contact with the Manager to receive updates on performance and the operation of its business and those of external suppliers.

Under the terms of the Company's Articles of Association, Directors must retire and be subject to appointment at the first Annual General Meeting after their appointment by the Board, and be subject to re-appointment every three years thereafter. Directors with more than nine years' service are subject to annual re-appointment. However, the Board has decided that all Directors will seek annual re-appointment. Accordingly, Messrs Archibald and Talbut and Ms Glen will seek re-appointment at the Annual General Meeting. As explained in more detail in the Chairman's Statement, Mr Robson will retire at the Annual General Meeting and will not seek re-appointment.

The Board believes that all the Directors seeking re-appointment 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. The Board believes that each Director has the requisite high level and range of business, investment and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company. 

Following formal performance evaluations, the performance of each of the Directors seeking re-appointment continues to be effective. Each Director has demonstrated commitment to the role and the Board is satisfied that their individual performances contribute to the long-term sustainable success of the Company. All of the Directors have demonstrated that they have sufficient time and commitment to fulfil their directorial roles with the Company. The Board therefore recommends the re-appointment of each of the Directors at the Annual General Meeting.

Board's Policy on Tenure

In normal circumstances, it is the Board's expectation that Directors will not serve beyond the Annual General Meeting following the ninth anniversary of their appointment. However, the Board takes the view that independence of individual Directors is not necessarily compromised by length of tenure on the Board and that continuity and experience can add significantly to the Board's strength. The Board believes that recommendation for re-election should be on an individual basis following a rigorous review which assesses the contribution made by the Director concerned, but also taking into account the need for regular refreshment and diversity. 

It is the Board's policy that the Chairman of the Board will not normally serve as a Director beyond the Annual General Meeting following the ninth anniversary of his appointment to the Board. However, this may be extended in certain circumstances including the facilitation of effective succession planning and the development of a diverse Board. In such a situation the reasons for the extension will be fully explained to shareholders and a timetable for the departure of the Chairman clearly set out.

The Role of the Chairman and Senior Independent Director

The Chairman is responsible for providing effective leadership to the Board, by setting the tone of the Company, demonstrating objective judgement and promoting a culture of openness and debate. The Chairman facilitates the effective contribution and encourages active engagement by each Director. In conjunction with the Company Secretary, the Chairman ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chairman acts upon the results of the Board evaluation process by recognising strengths and addressing any weaknesses and also ensures that the Board engages with major shareholders and that all Directors understand shareholder views.

The Senior Independent Director acts as a sounding board for the Chairman and acts as an intermediary for other directors, when necessary. Working closely with the other Directors, the Senior Independent Director takes responsibility for an orderly succession process for the Chairman, and leads the annual appraisal of the Chairman's performance. The Senior Independent Director is also available to shareholders to discuss any concerns they may have.

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. In addition, the Company has entered into a separate deed of indemnity with each of the Directors reflecting the scope of the indemnity in the Articles of Association. Under the Articles of Association, 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. 

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, which may be amended from time to time to reflect regulatory and other changes. Other than the deeds of indemnity referred to above and the Directors' letters of appointment, there were no contracts during, or at the end of the year, in which any Director was interested.

The Company has a policy of conducting its business in an honest and ethical manner. The Company takes a zero-tolerance approach to bribery and corruption and has procedures in place that are proportionate to the Company's circumstances to prevent them. The Manager also adopts a group-wide zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption. Copies of the Manager's anti-bribery and corruption policies are available on its website.

In relation to the corporate offence of failing to prevent tax evasion, it is the Company's policy to conduct all business in an honest and ethical manner. The Company takes a zero-tolerance approach to facilitation of tax evasion whether under UK law or under the law of any foreign country and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships.

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 as published in July 2018 (the "UK Code"),  which is available on the Financial Reporting Council's (the "FRC") website: frc.org.uk.

The Board has also considered the principles and provisions of the AIC Code of Corporate Governance as published in February 2019 (the "AIC Code").  The AIC Code addresses the principles and provisions set out in the UK Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.

The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC, provides more relevant information to shareholders.

The Board confirms that, during the year, the Company complied with the principles and provisions of the AIC Code.  The Company has also complied with the relevant provisions of the UK Code, except as follows:

The UK Code includes provisions relating to:

-  interaction with the workforce (provisions 2, 5 and 6); 

-  the role and responsibility of the chief executive (provisions 9 and 14);

-  previous experience of the chairman of a remuneration committee (provision 32); and

-  executive directors' remuneration (provisions 33 and 36 to 40).

- 

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.

The Board and its Committees

Mr Talbut is the Chairman of the Board and Mr Robson is the Senior Independent Director, with Ms Glen to become the Senior Independent Director following Mr Robson's retirement as a Director at the Annual General Meeting.

The Board has appointed committees with specific responsibilities as set out below. Copies of the terms of reference of each committee are available on the Company's website, or upon request from the Company.

Given the size of the Board and because all of the Directors are non-executive, the Board does not consider it appropriate for the Company to have a nominations committee. The business of nominations and succession planning, and Board evaluations, is covered by the full Board.

Audit Committee

The Audit Committee comprises all Directors of the Company and is chaired by Mr Archibald.

Management Engagement Committee

The Management Engagement Committee comprises all Directors of the Company and is chaired by Mr Talbut. The purpose of the Committee is to review the terms of the agreements with the Manager including, but not limited to, the management fee, and also to review the performance of the Manager in relation to the achievement of the Company's objectives. These reviews were conducted during the year and the outcomes are noted below. In addition, the Committee conducts an annual review of the performance, terms and conditions of the Company's other main third party suppliers.

The key terms of the management agreement and fees payable to the Manager are set out above and in notes 4 and 5 to the financial statements. The Board believes the fee arrangements are competitive with reference to other investment trusts with a similar investment mandate and are priced appropriately given the level of service provided by the Standard Life Aberdeen Group. As stated above, the Committee reviews the performance of the Manager annually. The Board is satisfied with the Company's performance since the appointment of the Standard Life Aberdeen Group as Manager in 2008 and believes that the Investment Manager has positioned the portfolio well in order to seek to achieve good medium-term and long-term performance in line with the Company's investment objective. It therefore considers the continuing appointment of the Manager on the terms agreed to be in the best interests of shareholders. 

Remuneration Committee

The Remuneration Committee comprises all Directors and is chaired by Ms Glen who has relevant experience and understanding of the Company. The Committee's duties include reviewing the Company's remuneration policy and determining Directors' remuneration, including for the Chairman. The Committee also considers the need to appoint an external remuneration consultant.

Going Concern

The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange and in most circumstances, including in the current market environment, are considered to be realisable within a short timescale . The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants, including the headroom available. The Company has a £20 million loan facility which matures in September 2022. £9 million of this amount is drawn down on a short-term basis through a revolving credit facility and can be repaid without incurring any financial penalties.

Having taken these factors into account, as well as the impact on the Company of the spread of the COVID-19 virus, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report. For these reasons, 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

The Company's Auditor, Ernst & Young LLP, has indicated its willingness to remain in office. The Board will place resolutions before the Annual General Meeting to re-appoint Ernst & Young 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 Customer Services Department. 

All shareholders have the opportunity to put questions to the Board at the Annual General Meeting and a presentation from the Investment Manager covers the investment performance and strategy during the financial year and the outlook for the year ahead.

Representatives from the Board make themselves available to meet with institutional shareholders in order to gauge their views. 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. 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.

It is the Company's aim to give at least 20 working days' notice to shareholders of the Annual General Meeting, where practicable. As recommended by the AIC Code, the Company makes available the proxy votes cast at general meetings.

Annual General Meeting

The Annual General Meeting will be held at the offices of Standard Life Aberdeen plc, 1 George Street, Edinburgh EH2 2LL on Tuesday 14 July 2020 at 12 noon.

Given the risks posed by the spread of the COVID-19 virus and in accordance with the provisions of the Articles of Association and Government guidance, physical attendance at the Annual General Meeting may not be possible. If the law or Government guidance so requires at the time of the meeting, the Chairman will limit, in his sole discretion, the number of individuals in attendance at the meeting. Should Government measures be relaxed by the time of the meeting, the Company may still, pursuant to its Articles of Association, impose entry restrictions on certain persons wishing to attend the Annual General Meeting in order to ensure the safety of those attending the meeting.

By order of the Board

Aberdeen Asset Management PLC

Company Secretary

1 George Street

Edinburgh EH2 2LL

3 June 2020

STATEMENT OF COMPREHENSIVE INCOME

		Year ended			Year ended
		31 March 2020			31 March 2019
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments at fair value	11	-	(17,449)	(17,449)	-	(466)	(466)
Currency gains		-	9	9	-	14	14
Income	3
Dividend income		4,428	-	4,428	4,536	-	4,536
Interest income		15	-	15	5	-	5
Stock dividends		206	-	206	74	-	74
Traded option premiums		158	-	158	94	-	94
Money market interest		-	-	-	3	-	3
		_______	_______	______	_______	_______	_______
		4,807	(17,440)	(12,633)	4,712	(452)	4,260
		_______	_______	______	_______	_______	_______
Expenses
Management fee	4	(206)	(206)	(412)	(203)	(203)	(406)
Administrative expenses	5	(420)	-	(420)	(372)	-	(372)
Finance costs	7	(185)	(185)	(370)	(173)	(173)	(346)
		_______	_______	______	_______	_______	_______
		(811)	(391)	(1,202)	(748)	(376)	(1,124)
		_______	_______	______	_______	_______	_______
Profit/(loss) before taxation		3,996	(17,831)	(13,835)	3,964	(828)	3,136
Taxation	8	(35)	-	(35)	(44)	-	(44)
		_______	_______	______	_______	_______	_______
Profit/(loss) attributable to equity holders of the Company		3,961	(17,831)	(13,870)	3,920	(828)	3,092
		_______	_______	______	_______	_______	_______
Earnings per Ordinary share (pence)	10	12.98	(58.42)	(45.44)	13.06	(2.76)	10.30
		_______	_______	______	_______	_______	_______
The Company does not have any income or expense that is not included in profit for the year, and therefore the "Profit for the year" is also the "Total comprehensive income for the year", as defined in IAS 1 (revised).
The total column of this statement represents the Statement of Comprehensive Income of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of these financial statements.

BALANCE SHEET

		As at	As at
		31 March 2020	31 March 2019
	Notes	£'000	£'000
Non-current assets
Ordinary shares		57,499	70,400
Convertibles		490	530
Preference shares		20,412	24,041
		__________	__________
Securities at fair value	11	78,401	94,971
		__________	__________
Current assets
Other receivables	12	953	1,410
Cash at bank		3,791	2,913
		__________	__________
		4,744	4,323
		__________	__________
Creditors: amounts falling due within one year
Other payables		(283)	(239)
Short-term borrowings		(9,000)	(9,000)
		__________	__________
	13	(9,283)	(9,239)
		__________	__________
Net current liabilities		(4,539)	(4,916)
		__________	__________
Total assets less current liabilities		73,862	90,055
Non-current liabilities
Long-term borrowings	13	(9,998)	(9,998)
		__________	__________
Net assets		63,864	80,057
		__________	__________
Share capital and reserves
Called-up share capital	14	15,435	15,127
Share premium account		21,005	19,626
Capital reserve	15	20,654	38,485
Revenue reserve		6,770	6,819
		__________	__________
Equity shareholders' funds		63,864	80,057
		__________	__________
Net asset value per Ordinary share (pence)	16	207.39	265.49
		__________	__________
The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2020
		Share
	Share	premium	Capital	Revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2019	15,127	19,626	38,485	6,819	80,057
Issue of Ordinary shares	308	1,379	-	-	1,687
(Loss)/profit for the year	-	-	(17,831)	3,961	(13,870)
Equity dividends (see note 9)	-	-	-	(4,010)	(4,010)
	_______	_______	_______	_______	_______
As at 31 March 2020	15,435	21,005	20,654	6,770	63,864
	_______	_______	_______	_______	_______
Year ended 31 March 2019
		Share
	Share	premium	Capital	Revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2018	15,049	19,308	39,313	6,795	80,465
Issue of Ordinary shares	78	318	-	-	396
(Loss)/profit for the year	-	-	(828)	3,920	3,092
Equity dividends (see note 9)	-	-	-	(3,896)	(3,896)
	_______	_______	_______	_______	_______
As at 31 March 2019	15,127	19,626	38,485	6,819	80,057
	_______	_______	_______	_______	_______
The Company has aggregate realised and distributable reserves of £33,805,000 as at 31 March 2020 (2019 - £31,875,000), comprising capital reserve - realised of £27,035,000 (2019 - £25,056,000) and a revenue reserve of £6,770,000 (2019 - £6,819,000). The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
The accompanying notes are an integral part of these financial statements.

CASH FLOW STATEMENT

	Year ended	Year ended
	31 March 2020	31 March 2019
	£'000	£'000
Net cash inflow from operating activities
Dividend income receivedA	4,643	4,440
Interest income received	16	5
Options premium received	162	67
Money market interest received	-	3
Management fee paid	(413)	(413)
Other cash expenses	(400)	(363)
	_______	_______
Cash generated from operations	4,008	3,739
Interest paid	(367)	(342)
Loan breakage costs paid	(32)	-
Overseas tax paid	(59)	(45)
	_______	_______
Net cash inflows from operating activities	3,550	3,352
	_______	_______
Cash flows from investing activities
Purchases of investmentsA	(16,722)	(22,672)
Sales of investments	16,370	23,457
	_______	_______
Net cash (outflow)/inflow from investing activities	(352)	785
	_______	_______
Cash flows from financing activities
Equity dividends paid	(4,010)	(3,896)
Issue of Ordinary shares	1,687	396
Loan arrangement fees	(6)	-
	_______	_______
Net cash outflow from financing activities	(2,329)	(3,500)
	_______	_______
Increase in cash and cash equivalents	869	637
	_______	_______
Reconciliation of net cash flow to movements in cash and cash equivalents
Increase in cash and cash equivalents as above	869	637
Net cash and cash equivalents at start of year	2,913	2,262
Effect of foreign exchange rate changes	9	14
	_______	_______
Net cash and cash equivalents at end of year	3,791	2,913
	_______	_______
A   Non-cash dividends during the year comprised stock dividends of £219,000 (2019 - £74,000).
The accompanying notes are an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2020

1.	Principal activity. The Company is a closed-end investment company, registered in England and Wales No. 00386561, with its Ordinary shares listed on the London Stock Exchange.

2.	Accounting policies
	(a)	Basis of accounting. The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRSs") which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and International Financial Reporting Interpretations Committee interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, and to the extent that they have been adopted by the European Union.
		The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange and in most circumstances, including in the current market environment, are considered to be realisable within a short timescale. The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants, including the headroom available. The Company has a £20 million loan facility which matures in September 2022. £9 million of this amount is drawn down on a short-term basis through a revolving credit facility and can be repaid without incurring any financial penalties. Having taken these factors into account, as well as the impact on the Company of the spread of the COVID-19 virus, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report. For these reasons, they continue to adopt the going concern basis of accounting in preparing the financial statements.
		The Company's financial statements are presented in sterling, which is also the functional currency as it is the currency in which shares are issued and expenses are generally paid. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.
		Where presentational guidance set out in the Statement of Recommended Practice ("SORP"): 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies ("AIC"), is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP issued in October 2019.
		Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires management to exercise its judgement in the process of applying the accounting policies and are continually evaluated. The area requiring most significant judgement and assumption in the financial statements is the determination of the fair value hierarchy classification of traded options which have been assessed as being Level 2 due to them not being considered to trade in active markets. The Directors do not consider there to be any significant estimates within the financial statements. Special dividends are assessed and credited to capital or revenue according to their circumstances.
		New and amended accounting standards and interpretations . At the date of authorisation of these financial statements, the following amendments to Standards and Interpretations were assessed to be relevant and are all effective for annual periods beginning on or after 1 January 2019:
		- IAS 12 Amendment - Income tax consequences of payments on financial instruments classifies as equity
		- IAS 19 Amendment Plan amendment, curtailment or settlement
		- IAS 23 Amendment Borrowing costs eligible for capitalisation
		- IFRS  9 Amendment Prepayment Features with Negative Compensation
		- IFRIC 23 Uncertainty over Income Tax Treatments
		Future amendments to standards and interpretations. At the date of authorisation of these financial statements, the following amendments to Standards and Interpretations were assessed to be relevant and are all effective for annual periods beginning on or after 1 January 2020:
		-   IAS 1 Amendments Classification of Liabilities as current or non-current
		-   IAS 1 and IAS 8 Amendments Definition of Material
		-   IAS 1, 8, 34, 37, 38 and IFRS 2, 3, 6, 14 Amendment to references to the conceptual framework
		-   IFRS 3 Amendment Definition of a Business
		-   IFRS 9, IAS 39 and IFRS 7 Amendments Interest Rate Benchmark Reform
		-   IFRIC 12, 19, 20, 22 and SIC 32 Amendment to references to the conceptual framework
		The Company intends to adopt the Standards and Interpretations in the reporting period when they become effective and the Board does not anticipate that the adoption of these Standards and Interpretations in future periods will materially impact the Company's financial results in the period of initial application although there may be revised presentations to the Financial Statements and additional disclosures.
	(b)	Investments. The Company classifies its investments based on their contractual cash flow characteristics and the Company's business model for managing the assets. The business model, which is the determining feature for debt instruments, is such that the portfolio of investments is managed, and performance is evaluated, on a fair value basis. The Manager is also compensated based on the fair value of the Company's assets. Equity instruments are classified as FVTPL ("Fair Value Through Profit or Loss") because cash flows resulting from such instruments do not represent payments of principal and interest on the principal outstanding, and therefore they fail the contractual cash flows test. Consequently, all investments are measured at FVTPL.
		Investments are recognised and de-recognised at the 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 at fair value. For listed investments, this is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange.
		Gains and losses arising from the changes in fair value are included in net profit or loss for the period as a capital item. Transaction costs are treated as a capital cost.
	(c)	Income. Dividend income from equity investments, which have a discretionary dividend, is recognised when the shareholders' rights to receive payment have been established, normally the ex-dividend date.
		If a scrip dividend is taken in lieu of a cash dividend, the net amount of the cash dividend declared is credited to the revenue account. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised as capital.
		Interest from deposits is dealt with on an accruals basis.
	(d)	Expenses. All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly, the management fee and finance costs have been allocated 50% to revenue and 50% to capital, in order to reflect the Directors' expected long-term view of the nature of the future investment returns of the Company.
	(e)	Borrowings. Short-term borrowings, which comprise interest bearing bank loans are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. The finance costs, being the difference between the net proceeds of borrowings and the total amount of payments that require to be made in respect of those borrowings, are amortised over the life of the borrowings.
		Long-term borrowings are measured initially at the fair value of the consideration received, net of any issue expenses, and subsequently at amortised cost using the effective interest method.
	(f)	Taxation. The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company has no liability for current tax.
		Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound.
	(g)	Foreign currencies. Monetary assets and liabilities, comprising current assets, current liabilities and non-current liabilities and non-monetary assets comprising non-current assets held at fair value which are denominated in foreign currencies are converted into sterling at the rate of exchange ruling at the reporting date. Transactions during the year in foreign currencies are converted at the rate of exchange ruling at the transaction date. Gains or losses on monetary assets and liabilities arising from a change in exchange rates subsequent to the date of a transaction are included as a currency gain or loss in revenue or capital column of the Statement of Comprehensive Income, depending on whether the gain or loss is of a revenue or capital nature. Gains or losses on non-monetary assets arising from a change in exchange rates subsequent to the date of a transaction are included as a gain or loss on investments in the capital column of the Statement of Comprehensive Income.
	(h)	Derivatives. The Company may enter into certain derivatives (e.g. traded options). Traded option contracts are restricted to writing out-of-the-money options with a view to generating income. Premiums received on traded option contracts are recognised as income evenly over the period from the date they are written to the date when they expire or are exercised or assigned. Losses on any movement in the fair value of open contracts at the year end and on the exercise of the contracts are recorded in the capital column of the Statement of Comprehensive Income as they arise.
	(i)	Cash and cash equivalents. Cash and cash equivalents comprise cash in hand and at banks and short-term deposits.
	(j)	Other receivables. Financial assets classified as loans and receivables are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. As such they are measured at amortised cost. Other receivables do not carry any interest, they have assessed for any expected credit losses over their lifetime due to their short-term nature.
	(k)	Other payables. Payables are non-interest bearing and are stated at their undiscounted cash flows.
	(l)	Dividends payable. Final dividends are recognised from the date on which they are approved by shareholders. Interim dividends are recognised when paid.
	(m)	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 50p per share.
		Capital reserve. This reserve reflects any realised gains or losses in the period together with any unrealised increases and decreases that have been recognised in the Statement of Comprehensive Income. These include gains and losses from foreign currency exchange differences.
		Additionally, expenses, including finance costs, are charged to this reserve in accordance with (d) above.
		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.
	(n)	Segmental reporting. The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided.

3.	Income
		2020	2019
		£'000	£'000
	Income from listed investments
	UK dividend income	4,115	4,176
	Overseas dividend income	313	360
	Money market interest	-	3
	Stock dividends	206	74
		_______	_______
		4,634	4,613
		_______	_______
	Other income from investment activity
	Deposit interest	15	5
	Traded option premiums	158	94
		_______	_______
		173	99
		_______	_______
	Total income	4,807	4,712
		_______	_______

4.	Management fees
		2020			2019
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Management fees	206	206	412	203	203	406
		_______	_______	_______	_______	_______	_______
	The management fee is based on 0.45% per annum up to £100 million and 0.40% over £100 million, by reference to the net assets of the Company and including any borrowings up to a maximum of £30 million, and excluding commonly managed funds, calculated monthly and paid quarterly. The fee is allocated 50% to revenue and 50% to capital. The management agreement is terminable on not less than six months' notice. The total of the fees paid and payable during the year to 31 March 2020 was £412,000 (2019 - £406,000) and the balance due to Aberdeen Standard Fund Managers Limited ("ASFML") at the year end was £97,000 (2019 - £99,000). The Company held an interest in a commonly managed investment trust, Aberdeen Smaller Companies Income Trust PLC, in the portfolio during the year to 31 March 2020 (2019 - same). The value attributable to this holding is excluded from the calculation of the management fee payable by the Company.

5.	Administrative expenses
		2020	2019
		£'000	£'000
	Directors' remuneration	121	110
	Auditor's remuneration:
	Fees payable to the Company's Auditor for the audit of the Company's annual accounts	31	21
	Non-audit services
	- fees payable to the Company's Auditor for iXBRL tagging services	-	2
	Promotional activities	49	58
	Professional fees	42	3
	Directors' & Officers' liability insurance	8	11
	Trade subscriptions	43	39
	Share plan costs	19	22
	Registrar's fees	36	40
	Printing, postage and stationery	28	26
	Other administrative expenses	43	40
		_______	_______
		420	372
		_______	_______
	The management agreement with ASFML also provides for the provision of promotional activities, which ASFML has delegated to Aberdeen Asset Managers Limited. The total fees paid and payable under the management agreement in relation to promotional activities were £49,000 (2019 - £58,000) inclusive of VAT. The Company's management agreement with ASFML also provides for the provision of company secretarial and administration services to the Company; no separate fee is charged to the Company in respect of these services, which have been delegated to Aberdeen Asset Management PLC.
	With the exception of Directors' remuneration and Auditor's remuneration for the statutory audit, all of the expenses above, including fees for non-audit services, include irrecoverable VAT where applicable.

6.	Directors' remuneration. The Company had no employees during the year (2019 - nil). No pension contributions were paid for Directors (2019 - £nil).

7.	Finance costs
		2020			2019
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	On bank loans	185	185	370	173	173	346
		_______	_______	_______	_______	_______	_______

8.	Taxation
			2020			2019
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of the charge for the year
		Overseas tax	35	-	35	44	-	44
			_______	_______	_______	_______	_______	_______
		Total tax charge	35	-	35	44	-	44
			_______	_______	_______	_______	_______	_______
	(b)	Factors affecting the tax charge for the year. The tax assessed for the year is lower than the effective rate of corporation tax in the UK. The differences are explained in the reconciliation below:
			2020			2019
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Profit before taxation	3,996	(17,831)	(13,835)	3,964	(828)	3,136
		Corporation tax at an effective rate of 19% (2019 - 19%)	759	(3,388)	(2,629)	753	(157)	596
		Effects of:
		Non-taxable UK dividend income	(809)	-	(809)	(776)	-	(776)
		Excess management expenses not utilised	112	74	186	91	72	163
		Overseas withholding tax	35	-	35	44	-	44
		Non-taxable overseas dividends	(62)	-	(62)	(68)	-	(68)
		Losses on investments not taxable	-	3,315	3,315	-	88	88
		Gains on currency movements	-	(1)	(1)	-	(3)	(3)
			_______	_______	_______	_______	_______	_______
		Total tax charge	35	-	35	44	-	44
			_______	_______	_______	_______	_______	_______
		At 31 March 2020 the Company had surplus management expenses and loan relationship debits with a tax value of £5,140,000 (2019 - £4,432,000) in respect of which a deferred tax asset has not been recognised. This is because the Company is not expected to generate taxable income in a future period in excess of the deductible expenses of that future period and, accordingly, it is unlikely that the Company will be able to reduce future tax liabilities through the use of existing surplus expenses.

9.	Dividends
		2020	2019
		£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	Third interim dividend for 2019 of 3.00p (2018 - 3.00p) per share	905	900
	Final dividend for 2019 of 4.20p (2018 - 4.00p) per share	1,279	1,200
	First two interim dividends for 2020 totalling 6.00p (2019 - 6.00p) per share	1,836	1,800
	Refund of unclaimed dividends from previous periods	(12)	(6)
		_______	_______
		4,008	3,894
		_______	_______
	3.5% Cumulative Preference shares	2	2
		_______	_______
	Total	4,010	3,896
		_______	_______
	The third interim dividend of 3.00p for the year to 31 March 2020, which was paid on 24 April 2020, and the proposed final dividend of 4.20p for the year to 31 March 2020, payable on 24 July 2020, have not been included as liabilities in these financial statements.
	Set out below are the total ordinary dividends payable in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered:
		2020	2019
		£'000	£'000
	Three interim dividends for 2020 totalling 9.00p (2019 - 9.00p) per share	2,759	2,705
	Proposed final dividend for 2020 of 4.20p (2019 - 4.20p) per share	1292	1,279
		_______	_______
		4,051	3,984
		_______	_______
	The amount reflected above for the cost of the proposed final dividend for 2020 is based on 30,769,580 Ordinary shares, being the number of Ordinary shares in issue at the date of this Report.

10.	Returns per share
		2020	2019
		£'000	£'000
	Returns per Ordinary share are based on the following figures:
	Revenue return	3,961	3,920
	Capital return	(17,831)	(828)
		_______	_______
	Total return	(13,870)	3,092
		_______	_______
	Weighted average number of Ordinary shares	30,521,561	30,021,438
		_______	_______

11.	Non-current assets - Securities at fair value
					2020	2019
					Listed	Listed
					investments	investments
					£'000	£'000
	Opening book cost				81,542	76,033
	Opening investment holdings gains				13,429	20,508
					_______	_______
	Opening valuation				94,971	96,541
	Purchases				16,989	22,743
	Sales - proceeds				(16,111)	(23,842)
	Losses on investments				(17,448)	(471)
					_______	_______
	Total investments held at fair value through profit or loss				78,401	94,971
					_______	_______
					2020	2019
					Listed	Listed
					investments	investments
					£'000	£'000
	Closing book cost				84,782	81,542
	Closing investment holdings (losses)/gains				(6,381)	13,429
					_______	_______
	Total investments held at fair value through profit or loss				78,401	94,971
					_______	_______
					2020	2019
	(Losses)/gains on investments				£'000	£'000
	Net realised gains on sales of investmentsA				2,531	6,615
	Cost of call options exercised				(169)	(7)
					_______	_______
	Net realised gains on sales				2,362	6,608
	Movement in fair value of investments				(19,751)	(7,003)
	Cost of put options assigned				(59)	(76)
	Movement in appreciation of traded options held				(1)	5
					_______	_______
					(17,449)	(466)
					_______	_______
	A   Includes losses realised on the exercise of traded options of £228,000 (2019 - £83,000) which are reflected in the capital column of the Statement of Comprehensive Income.
	The cost of the exercising of call options and the assigning of put options is the difference between the market price of the underlying shares and the strike price of the options. The premiums earned on options expired, exercised or assigned of £158,000 (2019 - £94,000) have been dealt with in the revenue account.
	The movement in the fair value of traded option contracts has been calculated in accordance with the accounting policy stated in note 2(h) and has been charged to the capital reserve.
	The Company received £16,111,000 (31 March 2019: £23,842,000) from investments sold in the period. The book cost of these investments when they were purchased was £13,749,000 (31 March 2019: £17,234,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
	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 losses on investments in the Statement of Comprehensive Income. The total costs on purchases of investments in the year was £70,000 (2019 - £97,000).  The total costs on sales of investments in the year was £6,000 (2019 - £9,000). The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations.
	At 31 March 2020 the Company held the following investments comprising more than 3% of the class of share capital held:
						Class
		Country of	Number of	Class of		held
	Company	Incorporation	shares held	shares held		%
	Aberdeen Smaller Companies Income Trust PLC	Scotland	3,120,476	Ordinary		14.1
	Ecclesiastical Insurance Office	England	4,240,000	8 5/8% Cum Pref		4.0
	Royal & Sun Alliance	England	4,350,000	7 3/8% Cum Pref		3.5
	General Accident	Scotland	3,548,000	7.875% Cum Pref		3.2

12.	Other receivables
		2020	2019
		£'000	£'000
	Amount due from brokers	136	395
	Accrued income and prepayments	813	1,015
	Option contract premium	4	-
		_______	_______
		953	1,410
		_______	_______
	None of the above amounts are overdue.

13.	Current liabilities
		2020	2019
		£'000	£'000
	Short-term bank loans	9,000	9,000
	Amount due to brokers	55	7
	Option contracts	10	-
	Other creditors	218	232
		_______	_______
		9,283	9,239
		_______	_______
	Included above are the following amounts owed to ASFML for management and saving scheme services and for the promotion of the Company.
		2020	2019
		£'000	£'000
	Other creditors	134	122
		_______	_______
		2020	2019
	Non-current liabilities	£'000	£'000
	Long-term bank loan	10,000	10,000
	Loan arrangement fees	(2)	(2)
		_______	_______
		9,998	9,998
		_______	_______
	The Company has an agreement with Scotiabank Europe PLC to provide a loan facility to 20 September 2022 for up to £20,000,000. A £10,000,000 fixed rate loan was drawn down on 20 September 2019 at a rate of 1.706%. This rate is fixed until maturity on 20 September 2022. On entering this agreement the Company incurred breakage costs of £32,000 from  terminating the existing agreement early. In addition, at the year end £9,000,000 had been drawn down at an all-in interest rate of 1.13688%, maturing on 20 April 2020. At the date of signing this Report the amount drawn down was unchanged at £9,000,000 with an all-in interest rate of 1.032%, maturing on 19 June 2020.
	The terms of the Scotiabank Europe facility contain covenants that gross borrowings may not exceed one-third of adjusted net assets and that adjusted net assets may not be less than £37 million. The Company met these covenants during the year and until the date of this Report.
	The arrangement expenses incurred on the draw down of the loan are being amortised over the three year term of the loan resulting in a reduction to the carrying value of the loan drawn down being reduced by £2,000 (2019 - £2,000).

14.	Called up share capital
		2020		2019
		Number	£'000	Number	£'000
	Authorised
	Ordinary shares of 50 pence each	39,800,000	19,900	39,800,000	19,900
	3.5% Cumulative Preference shares of £1 each	100,000	100	100,000	100
			_______		_______
			20,000		20,000
			_______		_______
	Allotted, called up and fully paid Ordinary shares of 50 pence each:
	Balance brought forward	30,154,580	15,077	29,997,580	14,999
	Ordinary shares issued	615,000	308	157,000	78
		_______	_______	_______	_______
	Balance carried forward	30,769,580	15,385	30,154,580	15,077
	Allotted, called up and fully paid 3.5% Cumulative Preference shares of £1 each:
	Balance brought forward and carried forward	50,000	50	50,000	50
			_______		_______
			15,435		15,127
			_______		_______
	During the year the Company issued 615,000 (2019 - 157,000) Ordinary shares of 50p each for proceeds of £1,687,000 (2019 - £396,000).
	Each Ordinary and Cumulative Preference share carries one vote at general meetings of the Company. The Cumulative Preference shares carry a right to receive a fixed rate of dividend and, on a winding up of the Company, to the payment of such fixed cumulative preferential dividends to the date of such winding up and to the repayment of the capital paid up on such shares in priority to any payment to the holders of the Ordinary shares.
	The Ordinary shares, excluding any treasury shares, carry a right to receive dividends and, 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 or Cumulative Preference shares in the Company other than certain restrictions which may from time to time be imposed by law.

15.	Capital reserve
		2020	2019
		£'000	£'000
	At 31 March 2019	38,485	39,313
	Net gains on sales of investments during year	2,362	6,608
	Movement in fair value decreases of investments	(19,810)	(7,079)
	Management fees	(206)	(203)
	Interest on bank loans	(185)	(173)
	Currency gains	9	14
	Capital (loss)/gains on traded options	(1)	5
		_______	_______
	At 31 March 2020	20,654	38,485
		_______	_______
	The capital reserve includes losses of £6,381,000 (31 March 2019 - gains of £13,429,000), which relate to the revaluation of investments held at the reporting date.

16.	Net asset value per Ordinary share. The net asset value per share and the net assets attributable to the Ordinary shareholders at the year end were as follows:
		2020	2019
	Net assets per balance sheet	£63,864,000	£80,057,000
	3.5% Cumulative Preference shares of £1 each	£50,000	-
		_______	_______
	Attributable net assets	£63,814,000	£80,057,000
		_______	_______
	Number of Ordinary shares in issue	30,769,580	30,154,580
	Net asset value per share	207.39p	265.49p
	During the period the Company has adopted a policy of calculating the net asset value per Ordinary based on net assets less an amount due to holders of 3.5% Cumulative Preference shares of £1 each equating to £1 per share (£50,000), divided by the number of Ordinary shares in issue. This does not give rise to any material change in the net asset value per share figures.

17.	Analysis of changes in financial liabilities during the year
		At				At
		31 March	Currency	Cash	Other	31 March
		2019	differences	flows	movements{A}	2020
	Financing activities	£'000	£'000	£'000	£'000	£'000
	Amounts relating issue of Ordinary shares	-	-	(1,687)	1,687	-
	Debt due within one year	(9,000)	-	-	-	(9,000)
	Debt due after more than one year	(9,998)	-	3	(3)	(9,998)
		_______	_______	_______	_______	_______
		(18,998)	-	(1,684)	1,684	(18,998)
		_______	_______	_______	_______	_______
		At				At
		31 March	Currency	Cash	Other	31 March
		2018	differences	flows	movements{A}	2019
	Financing activities	£'000	£'000	£'000	£'000	£'000
	Amounts relating to issue of Ordinary shares	-	-	(396)	396	-
	Debt due within one year	(9,000)	-	-	-	(9,000)
	Debt due after more than one year	(9,997)	-	-	(1)	(9,998)
		_______	_______	_______	_______	_______
		(18,997)	-	(396)	395	(18,998)
		_______	_______	_______	_______	_______
	A   The other movements column represents the proceeds from the issue of ordinary shares and the amortisation of the loan arrangement fees.

18.

Financial instruments

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 may from time to time use FTSE options for protection of the loss of value to the portfolio.

Subject to Board approval, the Company also has the ability to enter into derivative transactions, in the form of traded options, for the purpose of enhancing income returns and portfolio management. During the year, the Company entered into certain derivative contracts. As disclosed in note 3, the premium received and fair value changes in respect of options written in the year were £158,000 (2019 - £94,000). Positions closed during the year realised a loss of £228,000 (2019 - £83,000). The largest position in derivative contracts held during the year at any given time was £108,000 (2019 - £44,000). The Company had open positions in derivative contracts at 31 March 2020 valued at a liability of £10,000 (2019 - no open positions) as disclosed in note 13.

The Board has delegated the risk management function in relation to financial instruments to Aberdeen Standard Fund Managers Limited ("ASFML") under the terms of its management agreement with ASFML (further details of which are included under note 4). 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 given their relatively low value.

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

ASFML is a fully integrated member of the Standard Life Aberdeen Group (the "Group"), which provides a variety of services and support to ASFML 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 Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group's CFO 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 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 Group's CEO. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SHIELD").

The Group's corporate governance structure is supported by several committees to assist the board of directors of Standard Life Aberdeen plc, 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 price risk), (ii) liquidity risk and (iii) credit risk.

(i)

Market risk. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.

Interest rate risk. Interest rate movements may affect:

-   the fair value of the investments in convertibles and preference shares;

-   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. The fixed rate facilities are used to finance opportunities at low rates and, the revolving and uncommitted facilities to provide flexibility in the short-term. Current bank covenant guidelines state that the gross borrowings will not exceed one-third of adjusted net assets.

The Board reviews on a regular basis the value of investments in convertibles and preference shares.

Interest rate profile. The interest rate risk profile of the portfolio of financial assets and liabilities (excluding ordinary shares and convertibles) at the Balance Sheet date was as follows:

Weighted

average

period

Weighted

for which

average

rate is

interest

Fixed

Floating

fixed

rate

rate

rate

As at 31 March 2020

Years

%

£'000

£'000

Assets

UK preference shares

-

8.47

20,412

-

Cash and cash equivalents

-

0.53

-

3,791

_______

_______

Total assets

20,412

3,791

_______

_______

Liabilities

Short-term bank loans

0.05

1.14

(9,000)

-

Long-term bank loans

2.47

1.71

(9,998)

-

_______

_______

Total liabilities

(18,998)

-

_______

_______

Weighted

average

period

Weighted

for which

average

rate is

interest

Fixed

Floating

fixed

rate

rate

rate

As at 31 March 2019

Years

%

£'000

£'000

Assets

UK preference shares

-

8.49

24,041

-

Cash and cash equivalents

-

0.50

-

2,913

_______

_______

Total assets

24,041

2,913

_______

_______

Liabilities

Short-term bank loans

0.01

1.69

(9,000)

-

Long-term bank loans

1.59

1.96

(9,998)

-

_______

_______

Total liabilities

(18,998)

-

_______

_______

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

The UK preference shares assets have no maturity date.

Short-term debtors and creditors (with the exception of bank loans) have been excluded from the above tables.

Interest rate sensitivity. The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's:

-   profit before tax for the year ended 31 March 2020 would increase/decrease by £38,000 (2019 - £29,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end.

-   profit before tax for the year ended 31 March 2020 would increase/decrease by £1,113,000 (2019 - increase/decrease by £1,015,000). This is mainly attributable to the Company's exposure to interest rates on its investments in convertibles and preference shares.

Currency risk. A small proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in exchange rates.

Management of the risk. 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. The Company does not have any exposure to foreign currency liabilities. No currency sensitivity analysis has been prepared as the Company considers any impact to be immaterial to the financial statements.

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

Management of the risk. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets to specific sectors and the stock selection process both 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 recognised stock exchanges.

Price sensitivity. If market prices at the Balance Sheet date had been 20% higher or lower while all other variables remained constant, the profit before tax attributable to Ordinary shareholders for the year ended 31 March 2020 would have increased/decreased by £11,500,000 (2019 - increase/decrease of £14,080,000). This is based on the Company's equity portfolio held at each year end.

(ii)

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

Management of the risk. Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary.

Short-term flexibility is achieved through the use of loan facilities, details of which can be found in note 13. 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.

The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise a revolving loan facility and a fixed term loan facility. The Board has imposed a maximum equity gearing of 35% which constrains the amount of gearing that can be invested in equities which, in normal market conditions, are more volatile than the convertibles and preference shares within the portfolio. Details of borrowings at 31 March 2020 are shown in note 13.

Maturity profile. The maturity profile of the Company's financial liabilities at the Balance Sheet date was as follows:

Within

Within

More than

1 year

1-5 years

5 years

At 31 March 2020

£'000

£'000

£'000

Trade and other payables

(265)

-

-

Short-term bank loans

(9,009)

-

-

Long-term bank loans

(172)

(10,255)

-

_______

_______

_______

(9,446)

(10,255)

-

_______

_______

_______

Within

Within

More than

1 year

1-5 years

5 years

At 31 March 2019

£'000

£'000

£'000

Trade and other payables

(197)

-

-

Short-term bank loans

(9,013)

-

-

Long-term bank loans

(196)

(10,113)

-

_______

_______

_______

(9,406)

(10,113)

-

_______

_______

_______

(iii)

Credit risk. This is the risk of 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 . The risk is managed as follows:

-   where the Investment Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default;

-   transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Company of default;

-   investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the investment 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 Custodian's records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Standard Life Aberdeen Group's Compliance department carries out periodic reviews of the Custodian's operations and reports its findings to the Standard Life Aberdeen Group's Risk Management Committee and to the Board of the Company. This review will also include checks on the maintenance and security of investments held;

-   transactions involving derivatives, structured notes and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest are subject to rigorous assessment by the Investment Manager of the credit worthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board; and

-   cash is held only with reputable banks with high quality external credit enhancements.

It is the Investment Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties.

None of the Company's financial assets is secured by collateral or other credit enhancements.

Credit risk exposure. In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 March 2019 was as follows:

2020

2019

Balance

Maximum

Balance

Maximum

Sheet

exposure

Sheet

exposure

£'000

£'000

£'000

£'000

Non-current assets

Quoted convertibles and preference shares at fair value through profit or loss

20,902

20,902

24,571

24,571

Current assets

Trade and other receivables

140

140

395

395

Accrued income

799

799

1,003

1,003

Cash and cash equivalents

3,791

3,791

2,913

2,913

_______

_______

_______

_______

25,632

25,632

28,882

28,882

_______

_______

_______

_______

None of the Company's financial assets is past its due date.

Fair value of financial assets and liabilities. The fair value of the long-term loan has been calculated at £10,003,000 as at 31 March 2020 (2019 - £10,034,000) compared to an accounts value in the financial statements of £9,998,000 (2019 - £9,998,000) (note 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. The loan is considered to be classed as a Level 2 liability under IFRS 13. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices. Traded options contracts are valued at fair value which have been determined with reference to quoted market values of the contracts. The contracts are tradeable on a recognised exchange. For all other short-term debtors and creditors, their book values approximate to fair values because of their short-term maturity.

19.	Fair value hierarchy. IFRS 13 'Financial Value Measurement' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
	Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy at 31 March 2020 as follows:
				Level 1	Level 2	Level 3	Total
			Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments		a)	78,401	-	-	78,401
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	(10)	-	(10)
				_______	_______	_______	_______
	Net fair value			78,401	(10)	-	78,391
				_______	_______	_______	_______
				Level 1	Level 2	Level 3	Total
	As at 31 March 2019		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments		a)	94,971	-	-	94,971
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	-	-	-
				_______	_______	_______	_______
	Net fair value			94,971	-	-	94,971
				_______	_______	_______	_______
	a)	Quoted investments. The fair value of the Company's quoted investments has been determined by reference to their quoted bid prices at the reporting date. Quoted investments 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 although not actively traded and therefore has been classed as Level 2.
		The fair value of the Company's investments in Over the Counter Options has been determined using observable market inputs other than quoted prices and included within Level 2.

20.	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 Investment Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company is not subject to any externally imposed capital requirements.

21.	Related party transactions
	Directors' fees and interests. Fees payable during the year to the Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report.
	Transactions with the Manager. The Company has an agreement with Aberdeen Standard Fund Managers Limited for the provision of management, secretarial, accounting and administration services and for the carrying out of promotional activities in relation to the Company. Details of transactions during the year and balances outstanding at the year end are disclosed in notes 4 and 5.

ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes IFRS and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.
Total Return . Total return is considered to be an alternative performance measure. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves a calculation that invests the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves a calculation that invests the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.
The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the year ended 31 March 2020 and 31 March 2019 and assumes reinvestment of net dividends excluding transaction costs (the "Adjustment factor").
	Dividend			Share
31 March 2020	rate	NAV		price
31 March 2019 (a)		265.49p		267.00p
4 April 2019	3.00p	264.94p		268.50p
4 July 2019	4.20p	273.51p		278.00p
3 October 2019	3.00p	260.40p		254.00p
2 January 2020	3.00p	290.26p		294.50p
31 March 2020 (b)		207.39p		200.50p
		_______		_______
Adjustment factor (c)		1.049466		1.049090
		_______		_______
31 March 2020 adjusted (d)=(b*c)		217.65p		210.34p
		_______		_______
Total return (d/a)		-18.0%		-21.2%
		_______		_______
	Dividend			Share
31 March 2019	rate	NAV		price
31 March 2018 (a)		268.24p		260.00p
5 April 2018	3.00p	267.78p		268.50p
5 July 2018	4.00p	276.85p		275.00p
4 October 2018	3.00p	265.61p		250.50p
3 January 2019	3.00p	238.46p		233.00p
31 March 2019 (b)		265.49p		267.00p
		_______		_______
Adjustment factor (c)		1.050469		1.051491
		_______		_______
31 March 2019 adjusted (d)=(b*c)		278.89p		280.75p
		_______		_______
Total return (d/a)		+4.0%		+8.0%
		_______		_______
Premium/(Discount) to net asset value per Ordinary share. T he premium/(discount) is the amount by which the share price of 200.50p (2019 - 267.00p) is higher/(lower) than the net asset value per share of 207.26p (2019 - 265.49p), expressed as a percentage of the net asset value.
Dividend Cover . Revenue return per share of 12.98p (2019 - 13.06p) divided by dividends declared for the year per share of 13.2p (2019 - 13.20p) expressed as a ratio.
Dividend Yield. The annual dividend of 13.2p per Ordinary share (31 March 2019 - 13.20p) divided by the share price of 200.50p (31 March 2019 - 267.00p), expressed as a percentage.
Net Gearing. Net gearing measures the total borrowings of £18,998,000 (31 March 2019 - £18,998,000) less cash and cash equivalents of £3,872,000 (31 March 2019 - £3,301,000) divided by shareholders' funds of £63,822,000 (31 March 2019 - £80,057,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due from brokers at the year end of £81,000 (2019 - £388,000) as well as cash at bank of £3,791,000 (2019 - £2,913,000).
Ongoing Charges. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values throughout the year.
			2020		2019
Investment management fees (£'000)			412		406
Administrative expenses (£'000)			420		372
Less: non-recurring chargesA (£'000)			(42)		(3)
			_______		_______
Ongoing charges (£'000)			790		775
			_______		_______
Average net assets (£'000)			81,866		79,445
			_______		_______
Ongoing charges ratio			0.96%		0.98%
			_______		_______
A   Comprises professional fees not expected to recur.
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which amongst other things, includes the cost of borrowings and transaction costs.

Additional Notes to Annual Financial Report

The Annual General Meeting will be held at the offices of Standard Life Aberdeen plc, 1 George Street, Edinburgh EH2 2LL on Tuesday 14 July 2020 at 12 noon

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 March 2020 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2019 and 2020 statutory accounts received unqualified reports from the Company's auditor and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under S.498 of the Companies Act 2006. The financial information for 2019 is derived from the statutory accounts for 2019 which have been delivered to the Registrar of Companies. The 2020 accounts will be filed with the Registrar of Companies in due course.

The Annual Report and Accounts will be posted to shareholders in June 2020 and copies will be available from the registered office of the Manager and on the Company's website, www.shiresincome.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

3 June 2020

* 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.

 

END

 

 

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