Half-Yearly Results

RNS Number : 5374G

Shires Income PLC

26 November 2020

 

SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2020

Legal Entity Identifier (LEI):  549300HVCIHNQNZAYA89

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 fixed income securities.

BENCHMARK

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

DIVIDENDS

The Company pays dividends to Ordinary shareholders on a quarterly basis.

HIGHLIGHTS

Net asset value total return per Ordinary share A			Share price total return per Ordinary share A			Benchmark index total return
Six months ended 30 September 2020	+13.8%		Six months ended 30 September 2020	+10.1%		Six months ended 30 September 2020	+7.0%
Year ended 31 March 2020	-18.0%		Year ended 31 March 2020	-21.2%		Year ended 31 March 2020	-18.5%
Revenue return per Ordinary share			Dividend yieldA			Discount to net asset valueA
Six months ended 30 September 2020	6.18p		As at 30 September 2020	6.2%		As at 30 September 2020	6.6%
Six months ended 30 September 2019	7.15p		As at 31 March 2020	6.6%		As at 31 March 2020	3.3%
A  Considered to be an Alternative Performance Measure.

	30 September 2020	31 March 2020	% change
Total assets (£'000) A	89,406	82,862	+7.9
Shareholders' funds (£'000)	70,408	63,864	+10.2
Net asset value per share	228.48p	207.39p	+10.2
Share price (mid-market)	213.50p	200.50p	+6.5
Discount to net asset value (cum-income) B	6.6%	3.3%
Dividend yield B	6.2%	6.6%
Net gearing B	20.1%	23.7%
Ongoing charges ratio B	1.06%	0.96%
A   Less current liabilities excluding bank loans of £9,000,000.
B   Considered to be an Alternative Performance Measure.

PERFORMANCE (TOTAL RETURN)

	Six months ended	12 months   ended	Three years ended	Five years ended
	30 September	30 September	30 September	30 September
	2020	2020	2020	2020
Net asset value A	+13.8%	-10.9%	-6.0%	+25.7%
Share price A	+10.1%	-14.2%	-6.8%	+23.8%
FTSE All-Share Index	+7.0%	-16.6%	-9.3%	+18.6%
A   Considered to be an Alternative Performance Measure.
All figures are for total return and assume reinvestment of net dividends excluding transaction costs.

For further information, please contact:

Scott Anderson

Aberdeen Asset Managers Limited

0131 222 1863

CHAIRMAN'S STATEMENT

Market Background

The backdrop for the stock market in the last six months has been dominated by the COVID-19 pandemic. The fact that the FTSE All-Share Index produced a total return of 7.0% over the six-month period reflects that there has been some equity market recovery from the Company's year end at the end of March, which was hopefully the lowest point the market will fall to as a result of the pandemic. Hospitalisations and the loss of life have slowed globally, albeit there are some countries where these are on the increase. This had allowed governments to reduce restrictions on mobility and hence to set economic activity on an upward trend.

However, the number of COVID-19 cases in most countries has increased significantly in the last few months and, as we enter the winter period, further restrictions, although not as severe as earlier in the year, are being implemented in order to try and control the spread of the disease. Approval of at least one vaccine over the next few months remains likely, particularly following the positive trial data recently issued by Pfizer and BioNTech, with good prospects of more vaccines to follow, boosting the chances that there can be a mass immunisation program in the first half of 2021. This will certainly help personal and business confidence and aid economic recovery, but the production and distribution of any  vaccine will present significant challenges and it is unlikely to be 100% effective, meaning the world will still need to live with COVID for some time to come and its impact upon the way we live and work.

The effect on economies globally has been an unprecedented recession in terms of its sharpness and depth. In the second quarter of 2020, UK GDP was still 20% below the prior year. While figures for the third quarter will show a strong recovery, albeit one which will now have stalled to some extent by new restrictions as we move into the fourth quarter. Overall however, it is likely that the UK economy will still be around 10% smaller at the end of 2020 than where it started the year. Throughout this period, monetary policy has become even more loose with the likelihood that interest rates will remain negligible for a considerable period into the future. It remains uncertain as to whether the unprecedentedly loose monetary policy will at some stage herald higher inflation.

Most of the talk now is over the future role that fiscal policy can play in supporting recovery, irrespective of the size of government deficits that already exist in the UK and overseas. Notwithstanding this monetary and fiscal largess, we expect it will take a number of years before global economic output returns to pre-COVID levels and there will be significant structural change in the economy. Some sectors and companies will be winners but there will be many losers including some who will never recover to their previous economic state. The real challenge in the UK and elsewhere will be how to sustainably boost economic productivity and underlying growth rates over many years in order to fundamentally address some of the key issues faced by the UK and many other developed economies.

Since the end of March, the market has rewarded companies with resilient and defensive earnings. In the UK, the best performing sectors in 2020 have been technology, materials and consumer staples. More cyclical sectors like energy, financials and industrials have struggled. The timing of the Company's half year means there has been a reversal in market direction since the end of March with a strong rally, but the relative performance of different sectors has remained consistent - investors are understandably cautious and have been avoiding the higher risk sectors that face structural challenge from the pandemic. However, the euphoric equity market reaction to positive news on the vaccine saw a massive spike in unloved "value "sectors. Whilst there has subsequently been some correction to this move, it does highlight that the divergence between "growth" and "value" is at an extreme and even a slight unwinding of this may lead to significant swings towards the very unloved value segments of the market.

Investment Performance

The Company's Net Asset Value ("NAV") outperformed its benchmark, the FTSE All-Share Index over the six-month period ended 30 September 2020, returning 13.8% compared to the benchmark at 7.0%. The equity portfolio returned 7.8% and the preference share portfolio had a strong recovery, delivering a return of 20.0% during the period. The Company also benefited from the use of gearing in a rising market.

Within the equity portfolio, the need to deliver a high level of income has created a challenge for investment returns. Typical high yield sectors, such as utilities, telecoms and energy were the worst performing sectors over the period. As such, sector allocation detracted from performance - but this was more than offset by stock selection and the focus on higher quality positions which have continued to benefit performance. We have also seen strong performance from a number of companies heavily exposed to the effects of the virus that have recovered since the lows of March. For example, office provider IWG increased in value by 54%, gaming company GVC by 69% and oil services company Wood Group by 37%.  Maintaining these positions despite significant short-term headwinds has helped during a period of equity market recovery.

While the Company has benefited from underweight positions in banks and oil companies, we have still been exposed to some underperforming names. The greatest performance detractors during the period included John Laing, Equiniti and Close Brothers. Underweight positions in consumer staples and technology also weighed on relative performance, but given the low yield of these sectors they are not natural holdings in a portfolio designed to deliver stable income.

Portfolio Activity

During the period, the Manager initiated new positions in three companies and exited four. The predominant reason for portfolio changes has been to support sustainable income from the portfolio. Re-investment has been into names which are likely to offer more secure dividends, while exits have been from companies where the businesses are more structurally challenged or where there is a reduced prospect of a meaningful dividend.

The first new addition was French oil company Total. Although the oil majors face a number of challenges, they remain cash generative at relatively low oil prices. Total pays a high yield which is covered with the oil price below $40 per barrel and also has one of the best positions in renewable energy - a position the Manager feels is not reflected in the current valuation. Given the yield premium and better growth prospects than for the UK listed oil companies, the Manager switched some Royal Dutch Shell into Total.

The next new addition was LondonMetric Property, a property company focused on logistics assets across the UK. While many property companies exposed to office or retail space may face an uncertain outlook, demand for high quality logistics space is high due to the increase in online shopping. The company offers an attractive yield and is well managed.

Finally, the Manager initiated a position in Dechra Pharmaceuticals. The company develops and manufactures animal pharmaceuticals drugs for use in pets and livestock. It has grown rapidly through organic growth and acquisitions and has a highly defensive position in a growing sector. Although the headline yield is not high, the company has a strong track record of dividend growth.

The Company disposed of its holding in Unibail Rodamco, an operator of high-end shopping malls in Europe and the UK. The outlook for the company's assets has deteriorated significantly and with a stretched balance sheet, the Manager saw little prospect for a dividend in the near term. Another company facing structural change and carrying too much debt is Cineworld, which the Manager also exited. While the business offered attractive growth and high yield ahead of the virus, the outlook has changed significantly and, with uncertainty around when film studios will release films, it is hard to have clarity on future cash generation from the business. The Company also exited Abcam. Although the company has continued to perform well, management have highlighted the need to invest more rapidly over the next few years, meaning the dividend is not likely to be re-instated soon. Finally, the Company exited St James Place, which has been a good performer but which the Manager now sees as more fairly valued, with fund flows likely to slow in the second half of 2020.

Investment Income

The revenue earnings per share for the period were 6.18p, which compares to 7.15p for the equivalent period last year.

Within the portfolio, there have been a number of companies that have cut or suspended dividends. In some cases, this is due to regulatory pressure, with the large UK banks such as Standard Chartered and HSBC barred from distributing capital by the PRA. In other cases, the companies face a short-term impact on their cashflow which means suspension of dividends is prudent: Howden Joinery and Mondi would be examples of this. Finally, some companies have no choice due to a significant change in the outlook, with Cineworld an example. Overall, however, income from the portfolio has remained resilient compared to the benchmark and wider market.

Income from the preference shares has been very stable. In this sense, the preference shares have delivered as we would expect, providing a high level of consistent, defensive income through even an extreme cycle. Overall, the income forecast for the current financial year has recovered in recent months as companies resume dividend payments and the Manager makes some adjustments to enhance income. With a healthy level of revenue reserves, the Company remains in a good position to continue delivering a high level of income to shareholders.

Dividends

A first interim dividend of 3.0p per share in respect of the year ending 31 March 2021 was paid on 23 October 2020. The Board declares a second interim dividend of 3.0p per share, payable on 29 January 2021 to shareholders on the register at close of business on 8 January 2021. The current annual rate of dividend is 13.20p per share, representing a dividend yield of 6.2% based on the share price of 213.50p at 30 September 2020.

The Board considers that one of the key attractions of the Company is its high level of income and recognises that, in the current economic environment, there is likely to be a continuing demand for an attractive and reliable level of income. Whilst the Company aims to cover its annual dividend cost with net income, the Board is conscious of the Company's significant revenue reserves, which amounted to 1.1 times the annual dividend cost as at 31 March 2020, hence providing added security on the sustainability of the dividend.

The Board takes the view that, despite the uncertainties over the economic and corporate outlook, the Company is in a relatively good position, with its diversified sources of income and a good level of reserves. Therefore, subject to unforeseen circumstances, it is proposed to pay a further interim dividend of 3.0p per share prior to the Board deciding on the rate of final dividend at the time of reviewing the full year results, also taking into account the general outlook for the economy in 2021 and beyond and the portfolio's investment income and future forecasts at that time.

Gearing

The Company's gearing level (net of cash) was 20.1% as at 30 September 2020 compared to 23.7% as at 31 March 2020. The Company has a £20 million loan facility, of which £19 million was drawn down at the period 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.

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 income 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 believes 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.  

Outlook

The outlook over the next six to 12 months remains primarily driven by how the pandemic develops and how governments and economies react. We should expect some continuation of uncertainty and volatility, with the US Presidential election and its aftermath and the UK's exit from the European Union further complicating the outlook. However, the Manager has always tried to invest for the long term so that the Company owns high quality companies that should perform well in most scenarios. As we look further out, the chances of effective vaccines for COVID-19 appear high and we should expect much of the world's economic activity to normalise.

The sharp shock to the global economy has also reset the economic cycle. Prior to the health crisis, many investors were waiting for the next recession. That has now come and there is a chance of a period of sustained recovery and growth as businesses restock, initiate new investment plans, and consumers spend savings that many have been able to build up over the past year. Many businesses have found ways to be more efficient in the last six months and productivity gains should be consolidated. Such a period should also lead to changes in market leadership, with economic growth driven by additional government spending, likely to benefit value and income stocks to a greater degree than has been the case for some time where growth companies have dominated equity market returns. However, it may take some time to get to this environment, and hence more growth-oriented businesses are likely to remain attractive to investors. Overall therefore, the Manager aims to invest in a range of companies that will both survive any short-term volatility and participate as growth resumes, and this should allow the Company to continue to deliver both a high level of income to shareholders combined with the potential for capital growth.

Robert Talbut

Chairman

26 November 2020

OTHER MATTERS

Directors' Responsibility Statement

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

-  the condensed set of financial statements within the Half Yearly Financial Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'; and

-  the Interim Board Report (constituting the Interim Management Report) includes a fair review of the information required by rules 4.2.7R of the Disclosure Guidance and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year) and 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could so do).

Principal and Emerging Risks and Uncertainties

The Board regularly reviews the principal and emerging risks and uncertainties faced by the Company together with the mitigating actions it has established to manage the risks. These are set out within the Strategic Report contained within the Annual Report for the year ended 31 March 2020 and comprise the following risk headings:

-  Strategic objectives and investment policy

-  Investment performance

-  Failure to maintain and grow the dividend over the longer term

-  Widening of discount

-  Gearing

-  Regulatory obligations

-  Operational

-  Exogenous risks such as health, social, financial and geo-political

In particular, the Board is conscious of the continuing impact on the global economy and financial markets caused by the outbreak of the COVID-19 pandemic around the world. The Board is also conscious of the ongoing negotiations regarding the UK's departure from the EU. The Board considers that each of these issues are risks that could have further implications for financial markets and, in the case of COVID-19, the operating environment of the Company.

In all other respects, the Company's principal and emerging risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the remaining six months of the Company's financial year.

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 caused by the COVID-19 pandemic, 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.

On behalf of the Board

Robert Talbut

Chairman

26 November 2020

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the period			Valuation at
	31 March 2020		Purchases	Sales	Gains	30 September 2020
	£'000	%	£'000	£'000	£'000	£'000	%
Listed investments
Equities	57,499	90.0	7,014	(7,694)	3,095	59,914	85.1
Convertibles	490	0.8	-	(500)	10	-	-
Preference shares	20,412	32.0	-	-	3,831	24,243	34.4
	______	______	______	______	______	______	______
Total investments	78,401	122.8	7,014	(8,194)	6,936	84,157	119.5
Current assets	4,744	7.4				5,584	7.9
Current liabilities	(9,283)	(14.5)				(9,335)	(13.2)
Non-current liabilities	(9,998)	(15.7)				(9,998)	(14.2)
	______	______				______	______
Net assets	63,864	100.0				70,408	100.0
	______	______				______	______
Net asset value per Ordinary share	207.39p					228.48p
	______					______

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

		30 September 2020
		(unaudited)
		Revenue	Capital	Total
	Note	'000	'000	'000
Gains on investments at fair value		-	6,943	6,943
Currency gains		-	7	7
Investment income
Dividend income		2,153	-	2,153
Interest income		-	-	-
Stock dividends		49	-	49
Traded option premiums		88	-	88
		_______	_______	_______
		2,290	6,950	9,240
		_______	_______	_______
Expenses
Management fee		(92)	(92)	(184)
Administrative expenses		(201)	-	(201)
Finance costs		(68)	(67)	(135)
		_______	_______	_______
		(361)	(159)	(520)
		_______	_______	_______
Profit before taxation		1,929	6,791	8,720
Taxation	2	(26)	-	(26)
Profit attributable to equity holders		1,903	6,791	8,694
		_______	_______	_______
Return per Ordinary share (pence)	4	6.18	22.06	28.24
		_______	_______	_______
The Company does not have any income or expense that is not included in the profit for the period, and therefore the profit for the period is also the "Total comprehensive income for the period", as defined in IAS 1 (revised).
The total column of this statement represents the Condensed 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 the financial statements.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		30 September 2019
		(unaudited)
		Revenue	Capital	Total
	Note	'000	'000	'000
Gains on investments at fair value		-	1,843	1,843
Currency losses		-	(7)	(7)
Investment income
Dividend income		2,374	-	2,374
Interest income		8	-	8
Stock dividends		123	-	123
Traded option premiums		100	-	100
		_______	_______	_______
		2,605	1,836	4,441
		_______	_______	_______
Expenses
Management fee		(104)	(104)	(208)
Administrative expenses		(211)	-	(211)
Finance costs		(106)	(106)	(212)
		_______	_______	_______
		(421)	(210)	(631)
		_______	_______	_______
Profit before taxation		2,184	1,626	3,810
Taxation	2	(11)	-	(11)
		_______	_______	_______
Profit attributable to equity holders		2,173	1,626	3,799
		_______	_______	_______
Return per Ordinary share (pence)	4	7.15	5.35	12.50
		_______	_______	_______

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		31 March 2020
		(audited)
		Revenue	Capital	Total
	Note	'000	'000	'000
Losses on investments at fair value		-	(17,449)	(17,449)
Currency gains		-	9	9
Investment income
Dividend income		4,428	-	4,428
Interest income		15	-	15
Stock dividends		206	-	206
Traded option premiums		158	-	158
		_______	_______	_______
		4,807	(17,440)	(12,633)
		_______	_______	_______
Expenses
Management fee		(206)	(206)	(412)
Administrative expenses		(420)	-	(420)
Finance costs		(185)	(185)	(370)
		_______	_______	_______
		(811)	(391)	(1,202)
		_______	_______	_______
Profit/(loss) before taxation		3,996	(17,831)	(13,835)
Taxation	2	(35)	-	(35)
		_______	_______	_______
Profit/(loss) attributable to equity holders		3,961	(17,831)	(13,870)
		_______	_______	_______
Return per Ordinary share (pence)	4	12.98	(58.42)	(45.44)
		_______	_______	_______

CONDENSED BALANCE SHEET

		As at	As at	As at
		30 September 2020	30 September 2019	31 March 2020
		(unaudited)	(unaudited)	(audited)
	Note	£'000	£'000	£'000
Non-current assets
Equities		59,914	71,828	57,499
Convertibles		-	520	490
Preference shares		24,243	25,112	20,412
		_______	_______	_______
Securities at fair value		84,157	97,460	78,401
		_______	_______	_______
Current assets
Trade and other receivables		-	21	136
Accrued income and prepayments		721	763	817
Cash and cash equivalents		4,863	3,733	3,791
		_______	_______	_______
		5,584	4,517	4,744
		_______	_______	_______
Creditors: amounts falling due within one year
Trade and other payables		(335)	(292)	(283)
Short-term borrowings		(9,000)	(9,000)	(9,000)
		_______	_______	_______
		(9,335)	(9,292)	(9,283)
		_______	_______	_______
Net current liabilities		(3,751)	(4,775)	(4,539)
		_______	_______	_______
Total assets less current liabilities		80,406	92,685	73,862
Non-current liabilities
Long-term borrowings		(9,998)	(9,997)	(9,998)
		_______	_______	_______
Net assets		70,408	82,688	63,864
		_______	_______	_______
Share capital and reserves
Called-up share capital	6	15,447	15,312	15,435
Share premium account		21,052	20,446	21,005
Capital reserve	7	27,445	40,111	20,654
Revenue reserve		6,464	6,819	6,770
		_______	_______	_______
Equity shareholders' funds		70,408	82,688	63,864
		_______	_______	_______
Net asset value per Ordinary share (pence)	5	228.48	270.73	207.39
		_______	_______	_______
The accompanying notes are an integral part of the financial statements.

CONDENSED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2020 (unaudited)
		Share
	Share	premium	Capital	Revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2020	15,435	21,005	20,654	6,770	63,864
Issue of Ordinary shares	12	47	-	-	59
Profit for the period	-	-	6,791	1,903	8,694
Equity dividends	-	-	-	(2,209)	(2,209)
	_______	_______	_______	_______	_______
As at 30 September 2020	15,447	21,052	27,445	6,464	70,408
	_______	_______	_______	_______	_______
Six months ended 30 September 2019 (unaudited)
		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	185	820	-	-	1,005
Profit for the period	-	-	1,626	2,173	3,799
Equity dividends	-	-	-	(2,173)	(2,173)
	_______	_______	_______	_______	_______
As at 30 September 2019	15,312	20,446	40,111	6,819	82,688
	_______	_______	_______	_______	_______
Year ended 31 March 2020 (audited)
		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	-	-	-	(4,010)	(4,010)
	_______	_______	_______	_______	_______
As at 31 March 2020	15,435	21,005	20,654	6,770	63,864
	_______	_______	_______	_______	_______

CONDENSED CASH FLOW STATEMENT

	Six months ended	Six months ended	Year ended
	30 September 2020	30 September 2019	31 March 2020
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net cash inflow from operating activities
Dividend income received	2,302	2,626	4,643
Interest income received	-	8	16
Options premium received	106	109	162
Management fee paid	(97)	(203)	(413)
Other cash expenses	(189)	(181)	(400)
	__________	__________	__________
Cash generated from operations	2,122	2,359	4,008
Interest paid	(136)	(208)	(367)
Loan breakage costs	-	(32)	(32)
Overseas tax paid	(32)	(31)	(59)
	__________	__________	__________
Net cash inflows from operating activities	1,954	2,088	3,550
	__________	__________	__________
Cash flows from investing activities
Purchases of investments	(7,069)	(8,114)	(16,722)
Sales of investments	8,330	8,027	16,370
	__________	__________	__________
Net cash inflow/(outflow) from investing activities	1,261	(87)	(352)
	__________	__________	__________
Cash flows from financing activities
Equity dividends paid	(2,209)	(2,173)	(4,010)
Issue of Ordinary shares	59	1,005	1,687
Loan arrangement fees	-	(6)	(6)
	__________	__________	__________
Net cash outflow from financing activities	(2,150)	(1,174)	(2,329)
	__________	__________	__________
Net increase in cash and cash equivalents	1,065	827	869
	__________	__________	__________
Reconciliation of net cash flow to movements in cash and cash equivalents
Increase in cash and cash equivalents as above	1,065	827	869
Net cash and cash equivalents at start of period	3,791	2,913	2,913
Effect of foreign exchange rate changes	7	(7)	9
	__________	__________	__________
Cash and cash equivalents at end of period	4,863	3,733	3,791
	__________	__________	__________
Non-cash transactions during the period comprised stock dividends of £49,000 (30 September 2019 - £136,000; 31 March 2020 - £219,000).

Notes to the Financial Statements

For the six months ended 30 September 2020

1.

Accounting policies - Basis of accounting. The condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 34 'Interim Financial Reporting', as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). They have also been prepared using the same accounting policies applied for the year ended 31 March 2020 financial statements, which was prepared in accordance with International Financial Reporting Standards (IFRS) and received an unqualified audit report.

The financial statements have been prepared on a going concern basis. In accordance with the Financial Reporting Council's guidance on 'Going Concern and Liquidity Risk', the Directors have undertaken a review of the Company's assets which primarily consist of a diverse portfolio of listed equity shares and in most circumstances, are realisable within a very short timescale.

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

3.	Dividends. The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended	Six months ended	Year ended
		30 September 2020	30 September 2019	31 March 2020
		£'000	£'000	£'000
	Revenue	1,903	2,173	3,961
	Dividends declared	(1,848) A	(1,831) B	(4,051) C
		__________	__________	__________
		55	342	(90)
		__________	__________	__________
	A   Dividends declared relate to first two interim dividends (3.00p each) in respect of the financial year 2020/21.
	B   Dividends declared relate to first two interim dividends (3.00p each) in respect of the financial year 2019/20.
	C   First three interim dividends (3.00p each) and the final dividend (4.20p) declared in respect of the financial year 2019/20.

4.	Returns per Ordinary share
		Six months ended	Six months ended	Year ended
		30 September 2020	30 September 2019	31 March 2020
		£'000	£'000	£'000
	Returns are based on the following figures:
	Revenue return	1,903	2,173	3,961
	Capital return	6,791	1,626	(17,831)
		__________	__________	__________
	Total return	8,694	3,799	(13,870)
		__________	__________	__________
	Weighted average number of Ordinary shares in issue	30,781,875	30,394,580	30,521,561
		__________	__________	__________

5.	Net asset value per Ordinary share. The net asset value per Ordinary share and the net asset values attributable to Ordinary shareholders at the period end were as follows:
		As at	As at	As at
		30 September 2020	30 September 2019	31 March 2020
		(unaudited)	(unaudited)	(audited)
	Net assets (£'000) per Condensed Balance Sheet	70,408	82,688	63,864
	3.5% Cumulative Preference shares of £1 each (£'000)	(50)	(50)	(50)
		__________	__________	__________
	Attributable net assets (£'000)	70,358	82,638	63,814
		__________	__________	__________
	Number of Ordinary shares in issue	30,794,580	30,524,580	30,769,580
		__________	__________	__________
	Net asset value per Ordinary share (p)	228.48	270.73	207.39
		__________	__________	__________
	The Company has a policy of calculating the net asset value per Ordinary share 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.

6.	Called up share capital
		30 September 2020		30 September 2019		31 March 2020
		Number	£'000	Number	£'000	Number	£'000
	Allotted, called up and fully paid Ordinary shares of 50 pence each:
	Balance brought forward	30,769,580	15,385	30,154,580	15,077	30,154,580	15,077
	Ordinary shares issued	25,000	12	370,000	185	615,000	308
		_________	______	_________	______	_________	______
	Balance carried forward	30,794,580	15,397	30,524,580	15,262	30,769,580	15,385
		_________	______	_________	______	________	______
	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	50,000	50
			______		______		______
			15,447		15,312		15,435
			______		______		______
	During the six months ended 30 September 2020 the Company issued 25,000 Ordinary shares of 50p each (six months ended 30 September 2019 - 370,000; year ended 31 March 2020 - 615,000) for proceeds of £59,000 (six months ended 30 September 2019 - £1,005,000; year ended 31 March 2020 - £1,687,000).

7.

Capital reserve. The capital reserve reflected in the Condensed Balance Sheet at 30 September 2020 includes unrealised gains of £2,742,000 (30 September 2019 - gains of £15,076,000; 31 March 2020 - losses of £6,381,000) which relate to the revaluation of investments held at the reporting date plus realised gains of £24,703,000 (30 September 2019 - £25,035,000: 31 March 2020 - £27,035,000).

8.	Analysis of changes in financial liabilities
		Six months ended	Six months ended	Year ended
		30 September 2020	30 September 2019	31 March 2020
		£'000	£'000	£'000
	Opening balance at 1 April	(18,998)	(18,998)	(18,998)
	Cashflow	(59)	3	(1,684)
	Other movements A	59	(2)	1,684
		______	______	______
	Closing balance	(18,998)	(18,997)	(18,998)
		______	______	______
	A  The other movements represent the proceeds from the issue of Ordinary shares and the amortisation of the loan arrangement fees.
	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. In addition, at the period end £9,000,000 had been drawn down on a revolving basis at an all-in interest rate of  0.949% maturing on 19 October 2020. At the date of this Report, £9,000,000 was drawn down on a revolving basis at an all-in interest rate of 0.945%.

9.	Transactions with the Manager. The Company has an agreement with Aberdeen Standard Fund Managers Limited ("ASFML") for the provision of management, secretarial, accounting and administration services and for the carrying out of promotional activities and saving scheme services in relation to the Company.
	The management fee is based on 0.45% per annum up to £100 million and 0.40% per annum 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 agreement is terminable on not less than six months' notice. The total of the fees paid and payable during the period to 30 September 2020 was £184,000 (30 September 2019 - £208,000; 31 March 2020 - £412,000) and the balance due to ASFML at the period end was £184,000 (30 September 2019 - £104,000; 31 March 2020 - £97,000). The Company held an interest in a commonly managed fund, Aberdeen Smaller Companies Income Trust PLC, in the portfolio during the period to 30 September 2020 (30 September 2019 and 31 March 2020  - same). The value attributable to this holding is excluded from the calculation of the management fee payable by the Company.
	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 in relation to promotional activities were £28,000 (30 September 2019 - £26,000; 31 March 2020 - £49,000) and the balance due to ASFML at the period end was £28,000 (30 September 2019 - £13,000; 31 March 2020 - £13,000). 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.

10.

Segmental information. For management purposes, the Company is organised into one main operating segment, which invests in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole.

11.	Fair value hierarchy. IFRS 13 'Fair 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 Condensed Balance Sheet are grouped into the fair value hierarchy as follows:
				Level 1	Level 2	Level 3	Total
	At 30 September 2020		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments		a)	84,157	-	-	84,157
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	(23)	-	(23)
				______	______	______	______
	Net fair value			84,157	(23)	-	84,134
				______	______	______	______
				Level 1	Level 2	Level 3	Total
	At 30 September 2019		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments		a)	97,460	-	-	97,460
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	(65)	-	(65)
				______	______	______	______
	Net fair value			97,460	(65)	-	97,395
				______	______	______	______
				Level 1	Level 2	Level 3	Total
	As at 31 March 2020		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
				______	______	______	______
	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 have 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 included within Level 2.

12.	The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2020 and 30 September 2019 has not been reviewed or audited by the Company's independent auditor.
	The information for the year ended 31 March 2020 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the independent auditor on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.

13.	This Half Yearly Financial Report was approved by the Board on 26 November 2020.

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. 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 six months ended 30 September 2020 and 30 September 2019 and assumes reinvestment of net dividends excluding transaction costs (the "Adjustment factor").
	Dividend				Share
30 September 2020	rate		NAV		price
31 March 2020 (a)			207.39p		200.50p
2 April 2020	3.00p		199.79p		188.75p
2 July 2020	4.20p		234.93p		236.00p
30 September 2020 (b)			228.48p		213.50p
			__________		__________
Adjustment factor (c)			1.032956		1.033960
			__________		__________
30 September 2020 adjusted (d)=(b*c)			236.01p		220.75p
			__________		__________
Total return (d/a)			+13.8%		+10.1%
			__________		__________
	Dividend				Share
30 September 2019	rate		NAV		price
31 March 2019 (a)			265.49p		267.00p
4 April 2019	3.00p		265.05p		268.50p
4 July 2019	4.20p		273.51p		278.00p
30 September 2019 (b)			270.73p		263.00p
			__________		__________
Adjustment factor (c)			1.026637		1.026478
			__________		__________
30 September 2019 adjusted (d)=(b*c)			277.94p		269.96p
			__________		__________
Total return (d/a)			+4.7%		+1.1%
			__________		__________
Discount to net asset value per Ordinary share. The discount is the amount by which the share price of 213.50p (31 March 2020 - 200.50p) is lower than the net asset value per share of 228.48p (31 March 2020 - 207.26p), expressed as a percentage of the net asset value.
Dividend yield. The annual dividend of 13.20p per Ordinary share (31 March 2020 - 13.20p) divided by the share price of 213.50p (31 March 2020 - 200.50p), expressed as a percentage.
Net gearing. Net gearing measures the total borrowings of £18,998,000 (31 March 2020 - £18,998,000) less cash and cash equivalents of £4,863,000 (31 March 2020 - £3,872,000) divided by shareholders' funds of £70,458,000 (31 March 2020 - £63,864,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and by brokers at the period end of £nil (31 March 2020 - due from brokers £81,000) as well as cash and short term deposits of £4,863,000 (31 March 2020 - £3,791,000).
Ongoing charges. Ongoing charges is considered to be an alternative performance measure. 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. The ratio for 30 September 2020 is based on forecast ongoing charges for the year ending 31 March 2021.
		30 September		31 March
		2020		2020
Investment management fees (£'000)		367		412
Administrative expenses (£'000)		380		420
Less: non-recurring charges A (£'000)		-		(42)
		__________		__________
Ongoing charges (£'000)		747		790
		__________		__________
Average net assets (£'000)		70,559		81,866
		__________		__________
Ongoing charges ratio		1.06%		0.96%
		__________		__________
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.

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

26 November 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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