ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC
Legal Entity Identifier (LEI): 2138003QINEGCHYGW702
Information disclosed in accordance with Section 4.1.3 of the FCA's Disclosure Guidance and Transparency Rules ("DTR")
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2017
COMPANY OVERVIEW - FINANCIAL HIGHLIGHTS
Aberdeen Diversified Income and Growth Trust plc (the "Company") is an investment trust with its Ordinary shares listed on the premium segment of the London Stock Exchange. The Company targets a total portfolio return of LIBOR (London Interbank Offered Rate) plus 5.5% per annum (net of fees) over rolling five-year periods.
The Company is governed by a board of directors, all of whom are independent, and has no employees. Like most other investment companies, the Company outsources its investment management and administration to an investment management group, the Aberdeen Group, and other third party providers. The Company does not have a fixed life.
Net asset value total return {AB} |
|
Share price total return {A} |
|
|
2017 |
+7.6% |
|
2017 |
+14.6% |
2016 |
-0.4% |
|
2016 |
-10.2% |
Revenue return per share |
|
|
Dividend per share |
|
2017 |
5.31p |
|
2017 |
5.89p |
2016 |
7.56p |
|
2016 |
6.54p |
Ongoing charges {C} |
|
|
Discount to net asset value (capital basis) {AB} |
|
2017 |
0.58% |
|
2017 |
3.1% |
2016 |
0.62% |
|
2016 |
6.9% |
{A} Alternative Performance Measures (see note 16 and note 22 for more information). |
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{B} Debt at fair value. |
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{C} Lower than would normally be expected due to management fee waiver in place during the year (see note 4 and note 19 for details). |
COMPANY OVERVIEW - CHAIRMAN'S STATEMENT
A Year of Significant Change
On 11 February 2017, Aberdeen Fund Managers Limited was appointed Manager in place of BlackRock and the Company was renamed Aberdeen Diversified Income and Growth Trust plc. A discount control policy was announced on 13 February 2017 and shareholders approved a new investment objective and policy at the General Meeting held on 30 March 2017. In early April 2017, a 20% tender offer and merger with Aberdeen UK Tracker Trust plc resulted in an enlargement of your company with a 24% net increase in shareholders' funds and changes to the Board of Directors.
It is still early days and, whilst our performance should be judged over the rolling five year cycles of our new investment objective, it is nevertheless heartening to report an encouraging set of performance outcomes, further details of which are covered in the sections below:
- Our net asset value ("NAV"), calculated with debt at fair value, is up by 7.6% over the year ended 30 September 2017 (the "Year") on a total return basis
- Our discount, calculated using an NAV with debt at fair value and excluding income, improved from 6.9% to 3.1% over the Year, and had narrowed further to 2.3% at the time of writing
- Our dividend, at an annualised rate based on the fourth interim dividend, would have equated to a dividend yield of 4.3% based on the year end share price
- Our total shareholder return was 14.6% for the Year
Net Asset Value and Shareholder Return
Over the year ended 30 September 2017, the Company's NAV per share, with debt at fair value, rose 7.6% on a total return basis. The Company's share price ended the year at 120.50p, compared to 111.0p at 30 September 2016, resulting in a total return to shareholders over the year of 14.6%, which compares to a total return of -10.2% for the previous year. The Company's performance during the year is split into two periods, before and after the appointment of Aberdeen Fund Managers Limited, and further information may be found in the Investment Manager's Report.
Earnings and Dividends
The Company's revenue return for the year ended 30 September 2017 was 5.31 pence per share, compared to 7.56 pence per share for the prior year.
First and second quarterly dividends of 1.635 pence per share were paid to shareholders on 24 March 2017 and 28 April 2017. A third interim dividend of 1.31 pence per share was paid to shareholders on 6 October 2017. This lower dividend was consistent with what was set out in the circular to shareholders published in March 2017 (the "Circular") which described the need to rebase the dividend to a more sustainable level and hence to declare quarterly dividends equivalent to an annualised rate of at least 5.2 pence per share (as compared to an annualised rate of 6.54 pence per share in the previous financial year).
On 19 December 2017, the Board declared a fourth interim dividend of 1.31 pence per share to be payable on 26 January 2018 to shareholders on the register on 29 December 2017. The ex dividend date was 28 December 2017. At an annualised rate, the fourth interim dividend would have equated to a dividend yield of 4.3%, based on a year end share price of 120.5 pence.
As in previous years, the Board intends to put to shareholders at the next Annual General Meeting ("AGM") in March 2018, a resolution in respect of its current policy to declare four interim dividends each year.
Discount Management Policy
The Board announced on 13 February 2017 that, in normal market conditions and subject to the prevailing gearing level and the composition of the Company's portfolio, it would implement a discount control policy to maintain the Company's share price discount to net asset value, calculated excluding income and with debt at fair value, at no wider than 5%. Over the period from 13 February 2017 to 30 September 2017, the average discount with debt at fair value and excluding income was 5.7%. The discount, calculated with debt at fair value and excluding income, narrowed from 6.9% to 3.1% over the year ended 30 September 2017. It is pleasing that the discount had narrowed further to 2.3% at the time of writing.
Other than in connection with the tender offer referred to below, 3,125,000 shares were bought back by the Company during the year ended 30 September 2017. This resulted in 329,066,705 shares in issue with voting rights and an additional 36,344,169 shares held in treasury at the year end. The Board continues to monitor closely the Company's discount and will undertake buybacks where it is in shareholders' interests to do so.
Tender Offer and Merger with Aberdeen UK Tracker Trust plc ("AUKT")
Following shareholder approval obtained at the General Meeting held on 30 March 2017, and further to the Circular, the Company announced on 6 April 2017 the repurchase of 53.4m shares, representing 20% of the Company's issued share capital. The Company also announced on 6 April 2017 the issue of 118.6m shares to those shareholders of AUKT electing to roll-over their shares, further to shareholder approval of the merger with AUKT. In aggregate, this equated to an increase in the Company's assets of £146m.
Appointment of Aberdeen Fund Managers Limited and New Investment Objective and Investment Policy
On 11 February 2017, the Company appointed Aberdeen Fund Managers Limited as Manager and changed its name to Aberdeen Diversified Income and Growth Trust plc.
As described in the Circular, the Manager contributed £849,000 to the Company in relation to the costs incurred in merging with AUKT. In addition, the Manager agreed to waive any entitlement to a management fee from the date of their appointment until 6 October 2017.
Following shareholder approval of the new investment objective and investment policy at the General Meeting on 30 March 2017, the Manager completed the realignment of the Company's investment portfolio during the second six months of the financial year. For up to date information on the portfolio, I would encourage shareholders to visit the Company's website (aberdeendiversified.co.uk) which includes a Manager's monthly factsheet containing commentary on the portfolio and performance.
Aberdeen Asset Management
The merger on 14 August 2017 between Aberdeen Asset Management PLC and Standard Life plc has resulted in a new investment division under the banner of Aberdeen Standard Investments. The Board will continue to monitor developments closely to ensure that consistent client service is maintained.
Gearing
The Company's net gearing fell to 12.8% at 30 September 2017, from 21.5% at 30 September 2016, reflecting the overall increase in net assets following the merger with AUKT and the cash outflow from the tender offer.
Board Composition
Lynn Ruddick and Jimmy West retired as Directors on 6 April 2017 following completion of the Company's merger with AUKT. Lynn served as a Director for over 11 years, including as Chairman from 2009 to 2015. The Board wishes to place on record its thanks to Lynn for her unstinting commitment as a Director, including her leadership of the Company. Jimmy retired after 21 years as a Director; the Board benefited from his wide investment company experience and from his steady guidance as Senior Independent Director.
At the same time, following the completion of the merger, I was delighted to welcome from AUKT Kevin Ingram, Tom Challenor and Paul Yates as Directors of the Company; Kevin succeeded Jimmy as the Company's Senior Independent Director.
Savings Planholders
Since April 2017, it has been possible to acquire shares in the Company via Aberdeen's Investment Plan for Children, Investment Trust Share Plan or Investment Trust ISA (the "Aberdeen Products"). Further information may be found under Investor Information in the published Annual Report.
With effect from May 2017, planholders in the BlackRock NISA and Share Plan were no longer permitted to own the Company's shares in BlackRock's wrapper products and were offered the opportunity to transfer to the equivalent Aberdeen Products. I am pleased to report that 10m shares transferred, whose owners maintained their shareholding, with Aberdeen planholders now representing 10% of the Company's share register. The Board is supporting the Manager's promotional activities, as part of the Aberdeen Investment Trust pooled programme, which are designed to attract new and retain current shareholders, with the aim of sustaining demand for the Company's shares among retail investors in particular.
AGM
The AGM, which will be held at The Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ from 11.30am on 2 March 2018, provides shareholders with an opportunity to hear a presentation from the Manager and to ask any questions that they may have of both the Board and the Manager. The Notice of AGM may be found in the published Annual Report. I look forward to meeting shareholders and Aberdeen Savings Planholders at the AGM.
Outlook
Against a background of global stock markets trading near-record highs and rising geopolitical tension across the world, there are reasons for caution as 2018 progresses. However, our new Manager has brought a simple and transparent investment process to deliver the new investment objective, which fully utilises the advantages of the closed ended structure. I believe that the Company continues to be well positioned to offer a diversified multi-asset approach which is attractive to current and potential investors.
James M Long
Chairman
16 January 2018
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Business Model
The Company is an investment trust with a premium listing on the London Stock Exchange.
Investment Objective
With effect from 11 February 2017, the Company's investment objective was changed to target a total portfolio return of LIBOR (London Interbank Offered Rate) plus 5.5% per annum (net of fees) over rolling five-year periods.
Up until 10 February 2017, the Company's investment objective was, over the medium term (five to seven years), to aim to preserve capital in real terms and to grow the dividend at least in line with inflation and to target a total portfolio return of UK Consumer Prices Index plus 4% per annum (before ongoing charges) over a five to seven year cycle.
Investment Policy
The Company invests globally using a flexible multi-asset approach via quoted and unquoted investments. The Company has not set maximum or minimum exposures for any geographical regions or sectors and will achieve an appropriate spread of risk by investing in a diversified portfolio of securities and other assets. Further details of the new investment policy may be found in the Directors' Report.
Risk Diversification
It is the policy of the Company to invest no more than 15% of its gross assets in other listed investment companies and no more than 15% of its gross assets in any one company.
Gearing
The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Manager within the remit set by the Board. The Board has set its gearing limit at a maximum of 20% of the net asset value at the time of draw down. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent considered appropriate.
Management and Delivering the Investment Objective
The Directors are responsible for determining the Company's investment objective and investment policy.
Day-to-day management of the Company's assets has been delegated to Aberdeen Fund Managers Limited ("AFML", the "AIFM" or the "Manager"). In turn, the investment management of the Company has been delegated by AFML to Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager"). Both companies are wholly owned subsidiaries of Aberdeen Asset Management PLC (the "Aberdeen Group") which is itself a subsidiary of Standard Life Aberdeen plc.
Investment Process
The Investment Manager believes that many investors could dramatically improve their long-run returns and / or reduce risk by having a more diversified portfolio. The Investment Manager's aim is to build a genuinely diversified portfolio consisting of a wide range of assets, each with clear, fundamental performance drivers that will deliver an attractive return for the Company's shareholders. The Investment Manager engages all of its research capabilities, including specialist macro and asset class researchers, to identify appropriate investments. The approach, which incorporates a robust risk framework, is not constrained by a benchmark mix of assets. This flexibility ensures that the Investment Manager does not feel compelled to invest shareholders' capital in investments which they believe to be unattractive.
The Company's portfolio consists of investments from the widest range of asset classes. The portfolio may include equity-focussed investments, alternative diversifying assets (including, but not limited to, high yield bonds and loans, emerging market debt, asset backed securities, property, infrastructure, commodities, absolute return investments, insurance linked, farmland, royalty-based investments and aircraft leasing) and low return assets such as gold, investment grade credit, tail risk hedging and government bonds. Detailed investment research (including operational due diligence for unquoted funds managed by third parties) is carried out on each potential opportunity by specialist teams within the Investment Manager.
The weighting ascribed to each investment in the portfolio reflects the perceived attractiveness of the investment case, including the contribution to portfolio diversification. The Investment Manager also ensures that the weighting is in keeping with their overall strategic framework for the portfolio based on the return and valuation analysis of the Investment Manager's Economic and Thematic Research team. The fundamental and valuation drivers of each investment are reviewed on an ongoing basis. A schematic of the investment process is included in the published Annual Report along with a description of the Investment Manager's risk control process.
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 its progress in pursuing its investment policy. The primary KPIs are shown in the table below.
KPI |
Description |
Investment performance |
The Board reviews the performance of the portfolio as well as the net asset value and share price for the Company over a range of time periods and compares this to the return on the Company's target of LIBOR plus 5.5% per annum (net of fees) over rolling five-year periods. The Board also reviews NAV and share price performance in comparison to the performance of competitors in the Company's peer group, the Association of Investment Companies' Flexible Investment sector, to assess how the Company's performance compares in the shorter term, given the limited relevance of the target index over shorter periods.
The Board also monitors the Company's yield and compares this to the yield generated by competitors in the Company's peer group. The Board reviews the sustainability of the Company's dividend policy and regularly reviews revenue forecasts and analysis provided by the Investment Manager on the sources of portfolio income in order to monitor the extent to which dividends are covered by revenue. The Company's performance returns may be found in Performance, below.
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Premium/discount to net asset value ("NAV")
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The Board monitors the level of the Company's premium or discount to NAV and considers strategies for managing this.
Up until 12 February 2017 the Board had been implementing a policy whereby share buybacks were pursued in order to maintain the discount to NAV at close to nil. On 13 February 2017, the Company announced a discount control mechanism for the Company which was effective following the implementation of the proposals on 30 March 2017, published on 6 March 2017, for the Company to merge with Aberdeen UK Tracker Trust plc. Subject to normal market conditions, the prevailing gearing level and the composition of the Company's portfolio, the Company has implemented a discount control mechanism to maintain the Company's share price discount to net asset value (ex income, debt at fair value) at no wider than 5%, by repurchasing Ordinary shares in the market. The Board has also resolved to put forward a continuation vote to shareholders at the AGM in 2020 and at every AGM thereafter.
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Ongoing charges
|
The ongoing charges ratio reflects those expenses which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the Company as a collective investment fund, excluding the costs of acquisition or disposal of investments, financing charges and gains or losses arising on investments. The ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs. The Board reviews the ongoing charges and monitors the expenses incurred by the Company. The Company's ongoing charges for the year, and the previous year, are disclosed in Financial Highlights, noting that the figure of 0.58% reflects a reduction in net management fees following the Manager's agreement to waive its entitlement to a management fee for part of the year under review. |
Principal Risks and Uncertainties
The key risks faced by the Company are set out below. The Board has in place a robust process to assess and monitor the principal risks of the Company. A core element of this is the Company's risk controls self-assessment ("RCSA"), which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk, and the quality of the controls operating to mitigate the risk. A residual risk rating is then calculated for each risk based on the outcome of this assessment and plotted on a risk heat-map. This approach allows the effect of any mitigating procedures to be reflected in the final assessment which is within the risk appetite set by the Board.
The RCSA, its method of preparation and the operation of the key controls in the Manager's and third party service providers systems of internal control are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive understanding of the Manager's and other third party service providers' risk management processes, and how these apply to the Company's business, the Manager's internal audit department presents to the Audit Committee setting out the results of testing performed in relation to the Manager's internal control processes. The Audit Committee also periodically receives presentations from the Manager's compliance, internal audit and business risk teams, and reviews ISAE3402 reports from the Manager and from the Company's custodian (Bank of New York Mellon (International) Limited). The custodian is appointed by the Company's Depositary and does not have a direct contractual relationship with the Company.
The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The Board is confident that the procedures which the Company has in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the year ended 30 September 2017.
The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet and they can also be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website
Risk |
Mitigating Action |
Performance risk The Board is responsible for determining the investment policy to fulfil the Company's objectives and for monitoring the performance of the Company's Investment Manager and the strategy adopted. An inappropriate policy or strategy may lead to poor performance, dissatisfied shareholders and a widening discount. The Company may invest in unlisted alternative investments (such as agricultural land, development property, infrastructure, private equity and trade finance). These types of investments are expected to have a different risk and return profile to the rest of the Company's investment portfolio. They may be relatively illiquid and it may be difficult for the Company to realise these investments over a short time period, which may have a negative impact on performance. |
To manage these risks the Board regularly reviews the Company's investment mandate and long term strategy, and has put in place appropriate limits over levels of unlisted alternative assets and gearing. No more than 40% of the Company's total assets, at the time of investment, may be invested in aggregate in unlisted alternative assets.
The Investment Manager provides an explanation of significant investment decisions, the rationale for the composition of the investment portfolio and movements in the level of gearing. The Board monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the Company's investment policy.
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Portfolio risk Risk analysis for a multi-asset portfolio is more complex due to the need to ensure that correlation of risk is appropriate across the various portfolio strategies. |
The Board reviews portfolio risk to ensure that the risks being taken within the portfolio are appropriately diversified and relevant to the Company's portfolio objective and market conditions. The Board also reviews portfolio attribution data to understand the impact on the Company's relative performance of the various components such as asset allocation, stock selection and gearing. |
Gearing risk The Company has the authority to borrow money or increase levels of market exposure through the use of derivatives (gearing) and does so when the Investment Manager is confident that market conditions and opportunities exist to enhance investment returns. However, if the investments fall in value, any borrowings will magnify the extent of this loss. In addition, the Company has in place fixed borrowings in the form of a £60 million 6.25% Bond 2031 (the "Bond").
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All borrowings require the approval of the Board and gearing levels are reviewed regularly by the Board and the Investment Manager. Borrowings (including the Bond) would not normally be expected to exceed 20% of shareholders' funds. Total gearing, including net derivative exposure, would not normally be expected to result in net economic equity exposure in excess of 120%. |
Income/dividend risk The amount of dividends will depend on the Company's underlying portfolio. Any change in the tax treatment of the dividends or interest received by the Company (including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests) may reduce the level of dividends received by shareholders.
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The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting.
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Regulatory risk The Company operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. |
The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the results are reported to the Board at each meeting. Following authorisation under the Alternative Investment Fund Managers Directive (AIFMD), the Company and its appointed AIFM are subject to the risk that the requirements of this Directive are not correctly complied with. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company. |
Operational risk In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Manager and BNY Mellon Trust & Depositary (UK) Limited (the Depositary).
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The security of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems in place with third parties. These have been regularly tested and monitored throughout the year which is evidenced through their SOC 1 reports to provide assurance regarding the effective operation of internal controls which are reported on by their reporting accountants and give assurance regarding the effective operation of controls. The Board also considers succession arrangements for key employees of the Investment Manager and the business continuity arrangements for the Company's key service providers.
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Market risk Market risk arises from volatility in the prices of the Company's investments. It represents the potential loss the Company might suffer through holding investments in the face of negative market movements. The Company invests in global equities across a range of countries, and changes in general economic and market conditions in certain countries, such as interest rates, exchange rates, rates of inflation, industry conditions, competition, political events and trends, tax laws, national and international conflicts, economic sanctions and other factors can also substantially and adversely affect the securities and, as a consequence, the Company's prospects and share price.
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The Board considers the diversification of the portfolio, the portfolio risk and portfolio beta, asset allocation, stock selection, unquoted investments and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager. |
Financial risks The Company's investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk. |
Further details are disclosed in note 17 to the financial statements, together with a summary of the policies for managing these risks. |
Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme (the "Programme") run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the Programme is matched by the Aberdeen Group. The Aberdeen Group regularly reports to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the composition of that register.
The purpose of the Programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Board Diversity
The Board has not set any measurable objectives in relation to its diversity but recognises the benefits, and is supportive, of diversity and the importance of having a range of skilled, experienced individuals with relevant knowledge in order to allow it to fulfill its obligations. In making new appointments, the Board's overriding priority is to appoint the most appropriate candidates, regardless of gender or other forms of diversity. At 30 September 2017, there were seven male Directors following the merger with Aberdeen UK Tracker Trust PLC on 6 April 2017.
Environmental, Social and Human Rights Issues
The Company has no employees as the Board has delegated the day to day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is set out below.
Socially Responsible Investment Policy
The Directors, through the Manager, encourage companies in which investments are made to adhere to best practice in the area of corporate governance and socially responsible investing. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in both areas. The Manager's ultimate objective, however, is to deliver superior investment returns for its clients. Accordingly, whilst the Manager will seek to favour companies which pursue best practice in these areas, this must not be to the detriment of the return on the investment portfolio.
UK Stewardship Code and Proxy Voting as an Institutional Shareholder
Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager.
The full text of the Company's response to the Stewardship Code may be found on its website.
Modern Slavery Act
Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Viability Statement
In accordance with the provisions of the UKLA's Listing Rules and the FRC's UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the "Going Concern" provision. The Board conducted this review for the period up to the AGM in 2023, being a five year period from the date that this Annual Report is due to be approved by shareholders. The five year review period was selected because it is aligned with the medium term performance period of five years over which the Company is assessed in its objective of target returns of LIBOR +5.5% per annum (net of fees) over rolling five-year periods. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than five years.
In assessing the viability of the Company over the review period, the Directors have focused upon the following factors:
- the principal risks and uncertainties detailed above and the steps taken to mitigate these risks;
- the relevance of the Company's investment objective and investment policy, especially in the current low yield environment, which targets a truly diversified multi-asset approach to generate highly attractive long-term income and capital returns;
- the majority of the Company's investment portfolio is invested in securities which are realisable within a short timescale;
- the level of share buy backs carried out in the past have not resulted in significant reductions to the capital of the Company;
- although the Company's stated investment policy contains a gearing limit of 20% of the net asset value at the time of draw down, the Board's policy is to have a relatively modest level of equity gearing and the financial covenants attached to the Company's borrowings provide for significant headroom;
- the continuation vote to be put to shareholders at the AGM in 2020 and at each subsequent AGM;
- the level of demand for the Company's shares.
In making its assessment, the Board is also aware that there are other matters that could have an impact on the Company's prospects or viability in the future, including a large economic shock or significant stock market volatility, and changes in regulation or investor sentiment.
The Board has also considered a number of financial metrics, including:
- the level of current and historic ongoing charges incurred by the Company;
- the share price premium or discount to NAV;
- the level of income generated by the Company;
- future income forecasts; and
- the liquidity of the Company's portfolio.
As an investment Company with a relatively liquid portfolio and largely fixed overheads which comprise a very small percentage of net assets, the Board has concluded that, even in exceptionally stressed operating conditions, the
Company would be able to meet its ongoing operating costs as they fall due.
Taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report, subject to shareholders' approval of the continuation vote at the AGM in 2020, and at each AGM thereafter.
Outlook
The Board's view on the general outlook for the Company can be found in the Chairman's Statement while the Investment Manager's views on the outlook for the portfolio are included in their report.
On behalf of the Board
James M Long
Chairman
16 January 2018
STRATEGIC REPORT - RESULTS
FINANCIAL HIGHLIGHTS
|
2017 |
2016 |
% change |
Total assets less current liabilities (before deducting prior charges) |
£496,399,000 |
£429,211,000 |
+15.7 |
Equity shareholders' funds (Net Assets) |
£436,767,000 |
£351,521,000 |
+24.3 |
Market capitalisation |
£396,525,000 |
£296,411,000 |
+33.8 |
Ordinary share price (mid market) |
120.50p |
111.00p |
+8.6 |
Net asset value per Ordinary share (debt at par) |
132.73p |
131.64p |
+0.8 |
Net asset value per Ordinary share (debt at fair value){A} |
126.44p |
123.62p |
+2.3 |
Net asset value per Ordinary share (debt at par)(capital basis){A} |
130.59p |
127.26p |
+2.6 |
Net asset value per Ordinary share (debt at fair value)(capital basis){A} |
124.30p |
119.25p |
+4.2 |
Discount to net asset value on Ordinary shares (debt at par) |
9.21% |
15.68% |
|
Discount to net asset value on Ordinary shares (debt at fair value){A} |
4.70% |
10.21% |
|
Discount to net asset value on Ordinary shares (debt at par)(capital basis){A} |
7.72% |
12.78% |
|
Discount to net asset value on Ordinary shares (debt at fair value)(capital basis){A} |
3.06% |
6.92% |
|
|
|
|
|
Gearing (ratio of borrowings less cash to shareholders' funds) |
|
|
|
Net gearing{B} |
12.8% |
21.5% |
|
|
|
|
|
Dividends and earnings per Ordinary share |
|
|
|
Revenue return per share |
5.31p |
7.56p |
-29.8 |
Dividends per share{C} |
5.89p |
6.54p |
-9.9 |
Dividend cover (including proposed fourth interim dividend) |
0.90 |
1.16 |
|
Revenue reserves{D} |
£37,424,000 |
£39,109,000 |
-4.3 |
|
|
|
|
Ongoing charges{E} |
0.58% |
0.62% |
|
|
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{A} Considered to be an Alternative Performance Measure. Details of the calculation can be found in note 16. |
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{B} Calculated in accordance with AIC guidance "Gearing Disclosures post RDR". |
|||
{C} The figure for dividends per share reflects the years to which their declaration relates (see note 8). |
|||
{D} The revenue reserve figure does not take account of the third and fourth interim dividends amounting to £4,317,000 and £4,304,000 respectively (2016 - £4,366,000 and £4,366,000). |
|||
{E} Ongoing charges are calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year. The decrease in the 2017 ongoing charges figure reflects in part the saving from Aberdeen's agreement to waive its entitlement to a management fee during the period, which was offset by the inclusion for the first time of any additional charges incurred through holding other investment funds which amounted to 0.21%. |
PERFORMANCE Total Return {A} |
|
|
|
|
|
|
|
|
|
|
|
|
11 February 2017 - |
1 October 2016 - |
|
|
|
|
30 September 2017 |
10 February 2017 |
1 year |
3 years |
5 years |
|
% return |
% return |
% return |
% return |
% return |
Net asset value - debt at par |
+5.6 |
+0.1 |
+5.7 |
+3.9 |
+27.2 |
Net asset value - debt at fair value |
+7.2 |
+0.4 |
+7.6 |
+2.6 |
+22.3 |
Share price |
+12.8 |
+1.8 |
+14.6 |
+5.4 |
+29.5 |
{A}Total return represents the capital return plus dividends reinvested. |
|
|
|
TEN YEAR FINANCIAL RECORD
Year to 30 September |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
Total revenue (£'000) |
21,414 |
18,369 |
17,156 |
19,166 |
21,887 |
22,382 |
23,608 |
23,120 |
23,265 |
17,961 |
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
Per Ordinary share (p) |
||||||||||
Net revenue return |
6.2p |
5.8p |
5.0p |
5.7p |
6.6p |
6.6p |
7.0p |
7.1p |
7.6p |
5.3p |
Total return |
(41.8p) |
13.8p |
14.0p |
(5.8p) |
19.6p |
19.3p |
9.3p |
(4.5p) |
1.3p |
8.0p |
Net dividends payable |
5.934p |
6.112p |
6.112p |
6.112p |
6.112p |
6.252p |
6.440p |
6.540p |
6.540p |
5.890p |
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
|
|
|
|
|
|
|
|
|
|
|
Net asset value per Ordinary share (p) |
||||||||||
Debt at par value |
114.0p |
121.9p |
129.8p |
117.9p |
131.4p |
144.5p |
147.5p |
136.6p |
131.6p |
132.7p |
Debt at fair value |
111.3p |
119.0p |
127.0p |
114.8p |
125.1p |
139.3p |
143.3p |
131.0p |
123.6p |
126.4p |
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
Equity shareholders' funds (£'000) |
333,516 |
354,742 |
377,793 |
343,293 |
382,535 |
418,345 |
426,865 |
374,832 |
351,521 |
436,767 |
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
DIVIDENDS
|
Rate |
xd date |
Record date |
Payment date |
First interim 2017 |
1.635p |
2 March 2017 |
3 March 2017 |
24 March 2017 |
Second interim 2017 |
1.635p |
6 April 2017 |
7 April 2017 |
28 April 2017 |
Third interim 2017 |
1.310p |
31 August 2017 |
1 September 2017 |
6 October 2017 |
Fourth interim 2017 |
1.310p |
28 December 2017 |
29 December 2017 |
26 January 2018 |
|
_____ |
|
|
|
2017 |
5.890p |
|
|
|
|
_____ |
|
|
|
|
|
|
|
|
First interim 2016 |
1.635p |
10 March 2016 |
11 March 2016 |
8 April 2016 |
Second interim 2016 |
1.635p |
23 June 2016 |
24 June 2016 |
22 July 2016 |
Third interim 2016 |
1.635p |
15 September 2016 |
16 September 2016 |
10 October 2016 |
Fourth interim 2016 |
1.635p |
5 January 2017 |
6 January 2017 |
27 January 2017 |
|
_____ |
|
|
|
2016 |
6.540p |
|
|
|
|
_____ |
|
|
|
STRATEGIC REPORT - INVESTMENT MANAGER'S REPORT
The end of an investment company's financial year marks a useful point to think about the aims of the Company and also to take stock of the progress it has made over the past twelve months towards meeting its objectives. About a third of the way through this financial year, we were appointed as managers of Aberdeen Diversified Income and Growth Trust plc. In writing this report, we are mindful that most of the Company's shareholders ended the year travelling in a different direction compared to the journey they started on. Other shareholders, including both of us and members of our families, have joined the journey along the way. The Board has set us a clear objective: to target a total portfolio return of LIBOR plus 5.5% per annum (net of fees) over rolling five year periods. This is our direction of travel. Our mode of travel - the Company's investment policy - is to invest globally using a flexible multi-asset approach. The first stage of our journey - the realignment of the portfolio - is complete. In our first Annual Report to shareholders, we review the progress we have made so far and outline the key components and characteristics of your Company's portfolio.
Aberdeen Diversified Income and Growth Trust plc
By definition, all investment portfolios are diversified. But, rather like the animals in George Orwell's famous novella, some portfolios are more diversified than others. The Company's new investment policy has been designed to give shareholders access to the widest range of asset classes. This enables us to take full advantage of the benefits of diversification: reduced volatility and potentially enhanced returns compared to a portfolio based on a single asset class. In addition, as a closed ended investment company, the Company can access less liquid asset classes. The portfolio includes several such investments, described below, which are longer term in nature and are not otherwise readily available to private investors.
We draw upon the full resources of the investment teams at Aberdeen Standard Investments to identify specific opportunities for the Company's portfolio. In areas such as equities, corporate loans or emerging market debt, teams manage funds or sub-portfolios on our behalf. In alternative asset classes, other teams, along with our colleagues in the Diversified Assets Team, conduct extensive research on third party fund managers in areas such as property, private equity, real assets, absolute return and structured credit investments. Our process ensures that the Company's shareholders have access to the very best investment talent. At the end of the year, 40% of the portfolio consisted of investments managed by third party managers.
For each investment in the portfolio, we have a clear understanding of its unique return drivers and risk characteristics. We make sure that the portfolio is not over-exposed to particular types of risk. We pay close attention to valuation when determining whether we are being appropriately rewarded for the risks we are bearing. We also take other factors into account, such as balance sheet structure and environmental, social and governance issues. Where appropriate, a specialist team within Aberdeen Standard Investments conducts operational due diligence on the manager of a third party fund.
The strategic framework for the portfolio - in terms of our broad allocations to the major asset classes, such as equities, emerging market debt etc - is based upon our medium term return forecasts for different asset classes. These are regularly updated by our colleagues who specialise in economic and thematic research. Using these insights, our portfolio construction process combines assets which we believe will deliver the most favourable combination of medium term return and risk. We also seek out opportunities to rotate out of expensive assets into cheap ones.
Today, after nearly ten years of monetary easing from the world's central banks after the onset of the global financial crisis, valuations in traditional asset classes such as equities and developed market government bonds are mostly at high levels compared to historic standards. This means that future returns from these asset classes are likely to be significantly lower than investors have been used to. Because we are not constrained by a benchmark mix of assets, we are not compelled to invest shareholders' capital in investments which we believe to be unattractive.
Against this background, over the first few months after our appointment, we sold down the existing positions in UK and global equities, various equity funds, corporate bonds and a property fund. We also sold out of investments in gold, UK gilts and an unlisted investment, MAS Mortgages, which was sold at a premium to the 31st March carrying value. In addition, as part of the portfolio transfer arrangements, the previous investment manager closed out the derivatives positions that were part of its strategy at the time.
We retained a small number of investments in alternatives asset classes which amounted to 11% of the Company's portfolio at the start of the financial year. In the next two sections, we outline how we reinvested the proceeds from the sale of assets and also the injection of £84m of new capital received by way of the merger with Aberdeen UK Tracker Trust plc in April 2017.
Aberdeen Diversified Income and Growth Trust plc
Equities usually form a core part of any growth portfolio. We expect our equity exposure to typically account for 20% - 35% of the overall portfolio. We ended the period towards the lower end of that range in reflection of our cautious view on equity valuations, which are generally high with profit margins close to cyclical peaks.
Your portfolio achieves its equity exposure via a fund, Aberdeen Global Smart Beta Low Volatility Global Equity Income Fund, which is actively managed by our Quantitative Equities team. The fund aims to outperform the MSCI AC World Index while targeting around 85% of the volatility and 140% of the dividend yield of the index. The portfolio consists of around 200 global equities, with stock selection based on a range of quantitative factors including valuation and financial strength. The portfolio, which currently yields around 2.9%, is regularly rebalanced in favour of those companies which rank highly on the preferred measures. It is well diversified by country, sector and position size. The table below shows the Company's top ten holdings and its country and sector allocation as at 30 September 2017.
Aberdeen Smart Beta Low Volatility Global Equity Income Fund
|
|
|
% of |
|
|
|
Portfolio |
Top 10 positions |
Country |
Sector |
at 30 September 2017 |
Valero Energy Corporation |
United States |
Energy |
0.4% |
HP Inc. |
United States |
Information Technology |
0.4% |
Itochu Corporation |
Japan |
Industrials |
0.4% |
Rio Tinto plc |
United Kingdom |
Materials |
0.4% |
Consolidated Edison Inc. |
United States |
Utilities |
0.4% |
CVS Health Corporation |
United States |
Consumer Staples |
0.4% |
Humana Inc. |
United States |
Healthcare |
0.4% |
Anthem Inc. |
United States |
Healthcare |
0.3% |
Kla-Tencor Corporation |
United States |
Information Technology |
0.3% |
Sumitomo Corporation |
Japan |
Industrials |
0.3% |
|
|
|
|
|
% of |
|
% of |
|
Portfolio |
|
Portfolio |
Top 5 sectors |
at 30 September 2017 |
Top 5 countries |
at 30 September 2017 |
Information Technology |
3.8% |
United States |
9.3% |
Industrials |
3.3% |
Japan |
3.1% |
Consumer Discretionary |
3.1% |
Hong Kong |
1.7% |
Financials |
2.8% |
United Kingdom |
1.1% |
Utilities |
2.3% |
Taiwan |
1.0% |
Two of our property investments have a focus on capital growth rather than income. Aberdeen European Residential Opportunities Fund uses our extensive property investment management resources to identify and purchase commercial properties which are suitable for re-development as residential properties. The fund, which aims to deliver a return in excess of 10% per annum, is not open to retail investors. It has a three year initial investment period, followed by a further 3 - 5 years when properties will be developed and sold. Our total commitment to the fund of €15m will be invested progressively as suitable opportunities are identified by the fund managers. So far, initial investments have been made in Frankfurt, Aarhus in Denmark, Henley-on-Thames and Bath.
Similarly, Aberdeen Property Secondaries Partners II (APSP II) is managed by our Property Multi-Manager team. They use their wide ranging industry contacts to identify attractive funds managed by third-parties that are trading at sizeable discounts to their fundamental value. We have made a €23m commitment to this fund. An initial investment has been made in a Nordic retail fund. APSP II targets returns in excess of 10% per annum and has an investment period of five years.
Elsewhere, we have made initial investments in two opportunities identified by our private equity team. The first is a co-investment in TrueNoord, an aircraft leasing business based in the Netherlands, which focuses on short haul regional aircraft used by airlines such as Air France / KLM's subsidiary, Hop!, Aero Mexico and Tui. We invested via an equity capital-raising which will enable TrueNoord's experienced management team to continue to expand the business. The second is an investment in two private equity funds managed by Maj Invest, a Danish investor in small and medium-sized businesses. Fund 4 launched in 2012 and has investments in eight businesses. We have also made a commitment to Fund 5, a more recent vintage (2016) with four investments made so far. Our expectation is that we will reinvest the proceeds received from the sale of maturing businesses in Maj 4 into new businesses in fund 5.
In addition, we hold a stake in a venture capital fund, Forward Partners I, which makes early stage investments in technology-led start-up companies in service-related areas. The private equity segment of the portfolio is expected to deliver very attractive returns, well in excess of our target portfolio return, over the next 3-5 years. By their nature, these equity investments are held for their growth characteristics; their contribution to portfolio diversification is of secondary importance.
Aberdeen Diversified Income and Growth Trust plc
Income is widely acknowledged to be an important component of long term investment returns. For example, over the ten years prior to 30 September 2017, a period which takes in a full market cycle, UK equities, as measured by the FTSE All-Share Index, delivered a total return of +5.8% per annum. Our analysis shows that more than half of the return from UK equities over that period can be attributed to the reinvestment of dividends.
At the end of the Company's financial year, ten year gilts were trading on a gross redemption yield of only 1.2% per annum. For UK investors, this is one measure of the risk-free return. However, compared to the current rate of inflation or the previous ten year period, when the iBoxx 7-10 year gilt index returned +6.3% per annum, it is a return which is likely to satisfy very few.
Compared to gilts and most developed market government bonds, emerging market bonds, in many cases offering yields in excess of 6%, appear compelling to us. We gain exposure via a well-diversified portfolio of local currency bonds with a broad balance of exposures to countries in Africa, Asia, Latin America and Eastern Europe. Colleagues in our emerging markets debt (EMD) team manage this sub-portfolio on our behalf. The team also manage the Aberdeen Indian Bond Fund - where we take a particularly positive view of the reforms being enacted by Prime Minister Modi - and the Aberdeen Frontier Markets Bond Fund which invests predominantly in US dollar bonds.
Over the year, we have seen a favourable combination of improving growth prospects and benign inflation develop for several emerging markets, with Russia and Brazil being to the fore. It is also worth highlighting that many emerging market countries have much lower debt to GDP ratios than developed countries. Although we do not have an investment there, China is closely watched as a barometer of the economic health of emerging market asset classes (and, indeed, the global economy). Our economists currently forecast a 'soft landing' for China with GDP growth of 6.8% in 2017 falling to around 6% in 2018 and 2019.
Currency returns can have a heavy influence on returns from emerging market investments. We view the currencies as being undervalued and fund our EMD exposure via a basket of major currencies (AUD, EUR, GBP and JPY. Shareholders may be surprised to see that the returns from EMD are more stable than those from global equities. Strikingly, over the year to Q1 2009, the EMD index actually rose by 7% when the MSCI World Index fell by 39%.
Strategic Report
In a range of asset classes, an attractive level of income - often around 5% per annum or more - is a common feature of many of the opportunities that the Aberdeen Standard Investment teams seek out for us. Your capital earns this level of income return by supporting a wide range of economic and commercial activities. A number of these opportunities have opened up since the global financial crisis in areas where governments and banks have pulled back from providing finance because of budget or regulatory capital constraints.
For example, housing associations and other registered providers of social housing have seen their government grants, which funded the development of new properties, cut back. Funds such as Triple Point Social Housing have been launched to buy purpose-built developments of residential flats which are being leased to registered providers of social housing on long term leases. The rents, which are inflation-linked, are funded by local authorities. Residential Secure Income REIT and PRS REIT also provide housing finance in the fields of shared ownership social housing and private rental homes respectively. All three funds target a dividend yield of around 5%.
Similarly, specialist funds have benefited from the reduced availability of bank finance in areas such as small business lending (Funding Circle SME Income Fund and P2P Global), trade finance (MRTCP I LP - a fund with a six year life) and aircraft leasing (Doric Nimrod Air Two). We also have investments in funds which specialise in secured loans made to corporate borrowers, both directly - via Aberdeen Alpha Global Loans - and via asset-backed securities (TwentyFour Asset Backed Opportunities, Fair Oaks Income and Blackstone / GSO Loan Financing). These funds offer a better risk-return trade-off when compared to unsecured corporate high yield bonds.
Two of these investments feature in the top three portfolio positions. TwentyFour Asset Backed Opportunities is a dedicated pooled fund managed on our behalf by a specialist manager, TwentyFour Asset Management. It targets a return of LIBOR + 5-8% p.a. after fees with income of around 6% p.a. investing in a diversified portfolio of the medium-risk structured credit products focussing on European mortgages and corporate loans. Aberdeen Alpha Global Loans Fund provides diversified exposure to secured loans and similar instruments mainly issued by corporate borrowers. At 30 September, the fund held positions in over 80 loans and fixed rate bonds with an average yield of around 4.4%. The fund, which is managed by our specialist loans team supported by colleagues in global credit research, is a Luxembourg-registered UCITS fund which values on a quarterly basis.
Investments in other areas such as renewable infrastructure (where we added to the portfolio's exposure via Renewables Infrastructure, Greencoat Renewables and BlackRock Renewable Income UK) and social infrastructure (International Public Partnerships) offer particularly attractive income returns which are largely independent of the economic cycle. The same is true of our investments in insurance-linked securities ("ILS") and BioPharma Credit, a specialist fund which makes loans to pharmaceutical and biotechnology companies secured against royalties on product sales.
Our investments in ILS - CATCo Reinsurance Opportunities and two Blue Capital vehicles - are worthy of more detailed comment. Insurance losses resulting from hurricanes Harvey and Irma, which struck Texas and Florida respectively at the end of the summer, caused sharp falls in the net asset values of all three funds. CATCo, for example, suffered a share price decline of 18% over three months to September 2017 but, even after this loss, it has returned +7% per annum to investors, predominantly via income, since it launched in 2010. CATCo has announced that it intends to raise additional capital to take advantage of a very sharp increase in the premium rates that will be charged to its clients when its policies are renewed at the end of this year. This underpins our view that insurance-linked securities offer attractive returns for the long term investor. In addition, being driven by factors unique to the asset class - premium rates and the incidence of major catastrophes - they add considerably to portfolio diversification.
A number of the closed ended funds highlighted above have attractive income characteristics and diversification benefits but, over time, some of these will be sold down in order to fund our preferred investments in longer term, less liquid asset classes. In the property and private equity funds mentioned earlier, initial investments have been established and further capital will be invested by us, up to an agreed limit in each case, as managers identify appropriate opportunities. Similarly, our agricultural fund, ACM II, which is managed by a specialist manager in the United States, has made investments in two blueberry farms, a citrus ranch and a fruit packing facility in California. The aim is to deliver very high cash yields after farms are converted into organic production. Importantly, ACM II's investments should show little correlation to other asset classes. At the end of the period, 6% of the portfolio was invested in longer term investments of this kind. Details of the outstanding commitments are listed in note 21 to the financial statements.
The change in investment policy approved by shareholders included a rebasing of the Company's dividend. As we noted in the Half-Yearly Report, timing effects (relating to the accounting treatment of income earned by investments held within funds in the portfolio) required the Company to use a small amount of its revenue reserves in order to pay the dividend in the transitional year under review. We expect the dividend to be fully covered by earnings in the years ahead and, importantly, have constructed the portfolio to ensure that income is generated from the widest range of sources.
Performance and Outlook
As the Chairman has noted in his Statement the year ended 30 September 2017 produced a positive total return for shareholders of +14.6%. The NAV return (including dividend reinvestment) for the period was +7.6%. During this period most asset classes performed well but developed market government bonds were the notable exception as investors anticipated monetary tightening by the major central banks. Global equities were the standout performer - the MSCI World Index returned +15% in sterling terms with the bulk of gains being generated in the first six months - in reaction to the improving outlook for economic growth in most regions. The UK equity market returned +11.9% and, despite marking time over the summer in the face of uncertainties over Westminster politics and Brexit, the FTSE All Share Index ended the period close to an all-time high.
The focus of the remainder of our performance commentary is on the six month period following the change in investment policy at the AGM on 30 March 2017. Over that period, the shares delivered a total return of +7.0% comprising of an NAV increase (including reinvested dividends) of +3.7% and the benefit of an improved rating. (The shares ended the period on a 3.1% discount to NAV, calculated excluding income and with debt at fair value, compared to 6.9% at 30 September 2016.) The main contributors to portfolio performance were low volatility equities (+1.6% contribution to portfolio return), asset backed securities (+0.6%), UK equities (+0.4%) and infrastructure (+0.4%). As noted above, insurance linked securities were the most notable laggard (-0.6%).
Emerging market debt made a small positive contribution to portfolio performance (+0.2%) when measured in terms of our currency funding basket. Similarly, portfolio gearing - via the 2031 debenture - had a positive effect on performance during the period when the impact of the gilt hedge is taken into account. (As we highlighted in the Half-Yearly Report, a position in the UK 10 year gilt future neutralises the impact of movements in gilt yields on the value of the debenture. We also use forward contracts to hedge developed market currency exposures back to sterling. We do this in order to minimise the impact on the Company's NAV of fluctuations caused by interest rate and currency movements.)
Our view on the global economic outlook has not changed to any great extent: global GDP growth of 3.6% is expected in 2017 followed by 3.8% and 3.6% in 2018 and 2019. Our forecasts are closely in line with those recently published by the IMF. We expect global inflation to be around 3% p.a. over the next three years. Employment markets are tight but wage pressures remain low. Taking account of recent changes in guidance from central banks, we anticipate that UK interest rates will hit 1% in 2018 and our forecast is for US interest rates to rise to 2.25% in 2018 and to 3.0% in 2019.
Against this fairly benign background and, with market volatility at historically low levels, our view is that many mainstream asset classes appear expensive. Over the medium term, we see little value in supposedly safe assets such as developed market government bonds or investment grade corporate bonds and so do not currently include these in the portfolio. Instead, we continue to see attractions in a range of asset classes and, at the year end, we were close to being fully invested.
The Company's website, aberdeendiversified.co.uk, contains a compilation of comments on each asset class from the factsheets which we post on the site each month (along with the month-end portfolio listing). We have also republished the description of our investment philosophy and process which appeared in the Company's Prospectus published earlier this year and expands on the summary given earlier in our report.
In the Half-Yearly Report - also available on the website - we drew shareholders' attention to various clouds on the investment horizon. Six months on, little has changed: Brexit is looming; politics remains a feature with President Donald Trump finding it easier to threaten North Korea than to enact many of his campaign promises; and, many financial market commentators seem to predict stormy weather on almost a daily basis. We do not profess to be financial market meteorologists. Instead, our approach ensures that your Company's investment portfolio is built from a wide range of asset classes to give us the best chance of delivering an attractive return for shareholders over the medium term whatever the financial weather.
Mike Brooks
Tony Foster
Aberdeen Asset Managers Limited
Investment Manager
16 January 2018
Ten Largest Equity & Alternative Investments |
|
|
|
|
|
|
At |
At |
|
30 September |
30 September |
|
2017 |
2016 |
|
% |
% |
Aberdeen Smart Beta Low Volatility Global Equity Income Fund{A} |
23.8 |
- |
Diversified equity fund |
|
|
TwentyFour Asset Backed Opportunities Fund |
13.0 |
- |
Investments in mortgages, SME loans etc originated in Europe |
|
|
Aberdeen Alpha Global Loans Fund{A} |
9.1 |
- |
Portfolio of senior secured loans and corporate bonds |
|
|
Alternative Risk Premia |
2.9 |
- |
Fund investing in risk factor indices for a variety of asset classes |
|
|
Blackstone GSO Loan Financing |
2.5 |
2.7 |
Diversified exposure to senior secured loans via CLO securities |
|
|
AQR Managed Futures |
2.1 |
- |
Trend-following investment strategy |
|
|
Funding Circle SME Income Fund |
2.0 |
2.2 |
Smaller company lending fund |
|
|
CATCo Reinsurance Opportunities Fund |
2.0 |
- |
Investments linked to catastrophe reinsurance risks |
|
|
BlackRock Infrastructure Renewable Income Fund |
1.8 |
- |
Renewable infrastructure investments - UK wind and solar |
|
|
P2P Global Investments |
1.5 |
- |
Range of investments sourced via market-place lending platforms |
|
|
{A} Denotes Aberdeen managed products. |
|
|
Largest Fixed Income Investments (included within top 10 overall portfolio holdings) |
|
|
|
|
|
|
At |
At |
|
30 September |
30 September |
|
2017 |
2016 |
|
% |
% |
Aberdeen Global Indian Bond Fund{A} |
4.1 |
- |
Diverse portfolio of Indian bonds |
|
|
Aberdeen Global Frontier Markets Bond Fund{A} |
2.1 |
- |
Diverse portfolio of bonds issued by companies, governments or other bodies in frontier market countries. |
|
|
All percentages in the tables "Ten Largest Equity & Alternative Investments" and "Largest Fixed Income Investments (included within top 10 overall portfolio holdings)" reflect the value of the holding as a percentage of total investments at 30 September 2017 and 30 September 2016. Together, the ten largest equity and alternative investments represent 60.7% of the Company's portfolio (30 September 2016 - 26.0%). |
||
{A} Denotes Aberdeen managed products. |
Investment Portfolio - Equities & Alternatives |
|
|
As at 30 September 2017 |
|
|
|
|
|
|
Valuation |
Net assets |
|
2017 |
2017 |
Company |
£'000 |
% |
Low Volatility Income Strategy Equities |
|
|
Aberdeen Global Smart Beta Low Volatility Global Equity Income Fund{A} |
113,511 |
26.0 |
|
________ |
________ |
Total Low Volatility Income Strategy Equities |
113,511 |
26.0 |
|
|
|
Private Equity |
|
|
Forward Partners 1 LP |
4,896 |
1.1 |
Maj Equity Fund 4 |
4,792 |
1.1 |
TrueNoord Co-Investment II LP |
2,236 |
0.5 |
Maj Equity Fund V |
569 |
0.1 |
|
________ |
________ |
Total Private Equity |
12,493 |
2.8 |
Property |
|
|
PRS REIT |
4,457 |
1.0 |
Triple Point Social Housing |
4,159 |
1.0 |
Residential Secure Income |
3,740 |
0.9 |
Aberdeen European Residential Opportunities Fund{A} |
3,100 |
0.7 |
Aberdeen Property Secondaries Partners II{A} |
2,545 |
0.6 |
|
________ |
________ |
Total Property |
18,001 |
4.2 |
Infrastructure |
|
|
BlackRock Infrastructure Renewable Income Fund |
8,592 |
2.0 |
Renewables Infrastructure |
6,528 |
1.5 |
Foresight Solar Fund |
5,985 |
1.4 |
International Public Partnerships |
5,063 |
1.1 |
John Laing |
4,086 |
0.9 |
Greencoat Renewables |
2,681 |
0.6 |
|
________ |
________ |
Total Infrastructure |
32,935 |
7.5 |
Loans |
|
|
Aberdeen Alpha Global Loans Fund{A} |
43,293 |
9.9 |
|
________ |
________ |
Total Loans |
43,293 |
9.9 |
Asset Backed Securities |
|
|
TwentyFour Asset Backed Opportunities Fund |
62,110 |
14.2 |
Blackstone GSO Loan Financing |
12,040 |
2.8 |
Fair Oaks Income |
3,016 |
0.7 |
|
________ |
________ |
Total Asset Backed Securities |
77,166 |
17.7 |
Insurance-Linked Securities |
|
|
CATCo Reinsurance Opportunities Fund |
9,343 |
2.1 |
Blue Capital Alternative Income |
5,378 |
1.2 |
Blue Capital Reinsurance Holdings |
1,202 |
0.3 |
|
________ |
________ |
Total Insurance-Linked Securities |
15,923 |
3.6 |
Special Opportunities |
|
|
Funding Circle SME Income Fund |
9,625 |
2.2 |
P2P Global Investments |
7,221 |
1.7 |
Doric Nimrod Air Two |
5,135 |
1.2 |
BioPharma Credit |
4,782 |
1.1 |
MRTCP I LP |
223 |
- |
|
________ |
________ |
Total Special Opportunities |
26,986 |
6.2 |
Absolute Return |
|
|
Alternative Risk Premia |
13,915 |
3.2 |
AQR Managed Futures |
9,939 |
2.3 |
36 South Funds Kohinoor Core Fund |
3,255 |
0.7 |
|
________ |
________ |
Total Absolute Return |
27,109 |
6.2 |
Real Assets |
|
|
Agriculture Capital ACM Fund II |
764 |
0.2 |
|
________ |
________ |
Total Real Assets |
764 |
0.2 |
|
________ |
________ |
Total Alternatives |
254,670 |
58.3 |
|
________ |
________ |
|
|
|
{A} Denotes Aberdeen managed products. |
|
|
Investment Portfolio - Bonds |
|
|
As at 30 September 2017 |
|
|
|
|
|
|
Valuation |
Net assets |
|
2017 |
2017 |
Company |
£'000 |
% |
Emerging Market Bonds |
|
|
Aberdeen Global Indian Bond Fund{A} |
19,497 |
4.5 |
Aberdeen Global Frontier Markets Bond Fund{A} |
9,812 |
2.2 |
South Africa (Rep of) 10.5% 21/12/26 |
7,546 |
1.7 |
Poland (Rep of) 1.5% 25/04/20 |
6,633 |
1.5 |
Turkey (Rep of) 10.7% 17/02/21 |
6,346 |
1.5 |
Russian Federation 7.05% 19/01/28 |
6,048 |
1.4 |
Brazil (Fed Rep of) 10% 01/01/25 |
5,660 |
1.3 |
Indonesia (Rep of) 9% 15/03/29 |
5,370 |
1.2 |
Brazil (Fed Rep of) 10% 01/01/27 |
4,774 |
1.1 |
Colombia (Rep of) 7% 30/06/32 |
3,311 |
0.8 |
|
________ |
________ |
Top ten investments |
74,997 |
17.2 |
|
________ |
________ |
Malaysian (Govt of) 4.048% 30/09/21 |
3,139 |
0.7 |
Mexico Bonos Desarr Fix Rt 8% 11/06/20 |
2,722 |
0.6 |
Turkey (Rep of) 10.6% 11/02/26 |
2,159 |
0.5 |
Peru (Rep of) 6.95% 12/08/31 |
1,935 |
0.4 |
Petroleos Mexicanos 7.19% 12/09/24 |
1,726 |
0.4 |
Mexico (United Mexican States) 7.75% 13/11/42 |
1,622 |
0.4 |
Mexico (United Mexican States) 6.5% 09/06/22 |
1,573 |
0.4 |
Colombia (Rep of) 7% 04/05/22 |
1,555 |
0.4 |
Indonesia (Rep of) 8.375% 15/03/34 |
1,439 |
0.3 |
Russian Federation 7.5% 27/02/19 |
1,386 |
0.3 |
|
________ |
________ |
Top twenty investments |
94,253 |
21.6 |
|
________ |
________ |
Indonesia (Rep of) 9% 15/09/18 |
1,365 |
0.3 |
Malaysia (Govt of) 4.498% 15/04/30 |
1,291 |
0.3 |
Argentina (Rep of) FRN 21/06/20 |
1,184 |
0.3 |
Mexico Bonos Desarr Fix Rt 10% 05/12/24 |
1,058 |
0.2 |
Indonesia (Rep of) 7.875% 15/04/19 |
995 |
0.2 |
Argentina (Rep of) 16% 17/10/23 |
819 |
0.2 |
Poland (Rep of) 5.75% 25/04/29 |
818 |
0.2 |
Republic Orient Uruguay 8.5% 15/03/28 |
803 |
0.2 |
Uruguay (Rep of) 9.875% 20/06/22 |
781 |
0.2 |
Ghana (Rep of) 24.75% 19/07/21 |
701 |
0.2 |
|
________ |
________ |
Top thirty investments |
104,068 |
23.9 |
|
________ |
________ |
Indonesia (Rep of) 8.25% 15/05/36 |
662 |
0.1 |
Malaysia (Govt of) 4.378% 29/11/19 |
559 |
0.1 |
Poland (Rep of) 2.5% 25/07/26 |
505 |
0.1 |
Peru (Rep of) 6.15% 12/08/32 |
309 |
0.1 |
Malaysia (Govt of) 3.9% 30/11/26 |
249 |
0.1 |
|
________ |
________ |
Total Emerging Markets Bonds |
106,352 |
24.4 |
|
________ |
________ |
High Yield Bonds |
|
|
NB Distressed Debt Extended Life |
2,431 |
0.5 |
Banco Espirito Santo 4.75% 15/01/18 |
106 |
- |
Banco Espirito Santo 4% 21/01/19 |
80 |
- |
|
________ |
________ |
Total High Yield Bonds |
2,617 |
0.5 |
|
________ |
________ |
Total Fixed Income |
108,969 |
24.9 |
|
________ |
________ |
{A} Denotes Aberdeen managed products. |
|
|
Investment Portfolio |
|
|
Net Assets Summary and Asset Allocation |
|
|
As at 30 September 2017 |
|
|
|
Valuation |
Net assets |
|
2017 |
2017 |
|
£'000 |
% |
Total investments |
477,150 |
109.2 |
|
________ |
________ |
Cash and cash equivalents |
3,627 |
0.8 |
Forward contracts |
13,431 |
3.1 |
6.25% Bonds 2031 |
(59,632) |
(13.6) |
Other net assets |
2,191 |
0.5 |
|
________ |
________ |
Net assets |
436,767 |
100.0 |
|
________ |
________ |
DIRECTORS' REPORT
The Directors present their report and the audited financial statements for the year ended 30 September 2017 which was a year of significant change for the Company.
On 11 February 2017, Aberdeen Fund Managers Limited was appointed Manager in place of BlackRock and the Company was renamed Aberdeen Diversified Income and Growth Trust plc. A discount control policy was announced on 13 February 2017 with shareholders approving a new investment objective and policy at the General Meeting held on 30 March 2017. A tender offer and merger with Aberdeen UK Tracker Trust plc ("AUKT") was undertaken on 6 April 2017.
Appointment of Aberdeen Fund Managers Limited and Change of Name of the Company
On 11 February 2017, the Company appointed Aberdeen Fund Managers Limited and changed its name to Aberdeen Diversified Income and Growth Trust plc.
Discount Management Policy and Share Buybacks
The Board announced on 13 February 2017 that, in normal market conditions and subject to the prevailing gearing level and the composition of the Company's portfolio, it would implement a discount control policy to maintain the Company's share price discount to net asset value, calculated excluding income and with debt at fair value, at no wider than 5%. As at 30 September 2017 the Company's discount, with debt at fair value and excluding income, was 3.1%, as compared to 6.9% as at 30 September 2016. Other than in connection with the tender offer referred to below, 3,125,000 shares were bought back by the Company. The Board continues to monitor closely the Company's discount and will undertake buybacks where it is in shareholders' interests to do so. The discount had narrowed further to 2.3% as at the date of this Report.
New Investment Objective and Investment Policy
At a General Meeting on 30 March 2017, shareholders approved a new investment objective, as set out above in the Strategic Report - Overview of Strategy, and a new investment policy, as follows -
The Company invests globally using a flexible multi-asset approach via quoted and unquoted investments. The Company has not set maximum or minimum exposures for any geographical regions or sectors and will achieve an appropriate spread of risk by investing in a diversified portfolio of securities and other assets. This includes, but is not limited to, achieving exposure to the following securities and asset classes:
- equity driven assets, comprising developed equity, emerging market equity and private equity;
- alternative diversifying assets including, but not limited to, high yield bonds and loans, emerging market debt, alternative financing, asset backed securities, property, social, economic, regulated and renewable infrastructure, commodities, absolute return investments, insurance linked, farmland and aircraft leasing; and
- low return assets such as gold, government bonds, investment grade credit and tail risk hedging.
Asset allocation is flexible allowing investment in the most attractive investment opportunities at any point in time whilst always maintaining a diversified portfolio.
The Company complies with the following investment restrictions, at the time of investment:
- no individual quoted company or transferable security exposure in the portfolio may exceed 15% of the Company's total assets, other than in treasuries and gilts;
- no other individual asset in the portfolio (including property, infrastructure, private equity, commodities and other alternative assets) may exceed 5% of the Company's total assets;
- the Company will not normally invest more than 5% of its total assets in the unquoted securities issued by any individual company; and
- no more than 15% of the Company's total assets may be invested in an individual regulated pooled investment fund, with the exception of a global equity UCITS pooled fund which may be no more than 35% of the Company's total assets. In aggregate the largest three investments in regulated pooled funds will not comprise more than 60% of the Company's total assets.
The Company may invest in exchange-traded funds provided they are quoted on a recognised investment exchange. The Company may invest in cash and cash equivalents including money market funds, treasuries and gilts.
No more than 10% of the Company's total assets may be invested in other listed closed-ended investment companies, provided that this restriction does not apply to investments in any such listed closed-ended investment companies which themselves have published investment policies to invest no more than 15% of their total assets in other closed-ended investment companies.
The Company may use derivatives to enhance portfolio returns (of a capital or income nature) and for efficient portfolio management, that is, to reduce, transfer or eliminate risk in its investments, including protection against currency risks, or to gain exposure to a specific market.
The Company may use gearing, in the form of borrowings and derivatives, to enhance income and capital returns over the long term. The borrowings may be in sterling or other currencies. The Company's articles of association contain a borrowing limit equal to the value of its adjusted total of capital and reserves. However, borrowings would not normally be expected to exceed 20% of shareholders' funds. Total gearing, including net derivative exposure, would not normally be expected to result in a net economic equity exposure in excess of 120%.
The Company may invest from time to time in funds managed by the Manager.
Following shareholder approval of the new investment objective and investment policy at the General Meeting on 30 March 2017, the Manager realigned the Company's investment portfolio and further information may be found in the Investment Manager's Report.
Details of the Company's investment policy prior to 30 March 2017 may be found on page 6 of the Company's Annual Report for the year ended 30 September 2016.
Tender Offer and Merger with Aberdeen UK Tracker Trust plc
Following shareholder approval obtained at the General Meeting held on 30 March 2017, and further to the circular published on 6 March 2017 (the "Circular") which is available from the Company's website, the Company announced on 6 April 2017 the repurchase of 53.4m shares, representing 20% of the Company's issued share capital.
The Company also announced on 6 April 2017 the issue of 118.6m shares to those shareholders of AUKT electing to roll-over their shares, further to shareholder approval of the merger with AUKT. This equated to an increase in the Company's assets of £146m.
Results and Dividends
The financial statements for the year ended 30 September 2017 are contained below. The Company's revenue return for the year ended 30 September 2017 was 5.31p per share compared to 7.56p per share in the previous year.
First and second interim dividends, each of 1.635p per Ordinary share, and a third interim dividend of 1.31p per Ordinary share, were paid on 24 March 2017, 28 April 2017 and 6 October 2017 respectively. On 19 December 2017, the Directors declared a fourth interim dividend of 1.31p per Ordinary share payable on 26 January 2018 to shareholders on the register on 29 December 2017. The ex-dividend date is 28 December 2017. The third and fourth interim dividends were reduced by 20% as explained in the Circular. The Company intends to continue to declare and pay four interim dividends each year and, in line with corporate governance best practice, a resolution in respect of this dividend policy will be put to shareholders at each Annual General Meeting.
Investment Trust Status
The Company is registered as a public limited company (registered in Scotland No. SC3721) 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. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 September 2017 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Capital Structure and Voting rights
The issued Ordinary share capital at 30 September 2017 consisted of 329,066,705 Ordinary shares of 25p each and
36,344,169 Ordinary shares held in treasury. An additional 515,000 Ordinary shares were bought back between 1 October 2017 and the date of approval of this Annual Report resulting in 328,551,705 Ordinary shares in issue, with voting rights, and 36,859,169 Ordinary shares in treasury.
Each Ordinary share holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings. There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law.
Management Agreement
The Company appointed Aberdeen Fund Managers Limited ("AFML"), a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager with effect from 11 February 2017, replacing BlackRock.
AFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities. The Company's portfolio is managed by Aberdeen Asset Managers Limited ("AAML") by way of a group delegation agreement in place between AFML and AAML. In addition, AFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to AAML.
The Manager charges a monthly fee at the rate of one-twelfth of 0.50% on the first £300 million of NAV and 0.45% of NAV in excess of £300 million. In calculating the NAV, the 6.25% bonds due 2031 are valued at fair value. The value of any investments in ETFs, unit trusts, open ended and closed ended investment companies and investment trusts of which the Manager, or another company within the Standard Life Aberdeen plc group is the operator, manager or investment adviser, is deducted from net assets. Details of the management fee charged during the year are included in note 4 to the financial statements.
The management agreement is terminable on not less than six months' notice subject to a minimum notice period which expires no earlier than 11 February 2019. 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.
The Manager agreed to waive any entitlement to management fees from 11 February 2017 until 30 September 2017; additionally, this waiver was in place until 6 October 2017, being the date six months subsequent to the Company's merger with Aberdeen UK Tracker Trust plc. Accordingly, as detailed in note 4 to the financial statements, no investment management fees were charged by the Manager during the year under review.
For the period to 10 February 2017, the investment management fee paid to BlackRock was levied at a rate of 0.4% per annum of the Company's total assets less current liabilities (excluding loans). The Manager also agreed to pay to the Company an amount equal to six months' management fees payable to BlackRock (in line with the notice period clause) calculated at the rate of 0.4% per annum of the gross assets of the Company as at 10 February 2017 (being the date of termination of the BlackRock Investment Management Agreement).
Corporate Governance
The Statement of Corporate Governance, which forms part of the Directors' Report, may be found in the Annual Report.
Directors
At the year end the Board comprised seven non-executive Directors. Lynn Ruddick and Jimmy West retired from the Board on 6 April 2017 while Kevin Ingram, Tom Challenor and Paul Yates were appointed non-executive Directors on 6 April 2017. The names and biographies of each of the current Directors are shown on the Company's website on in the published Annual Report and indicate their range of skills and experience as well as length of service.
Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company.
Kevin Ingram, Tom Challenor and Paul Yates, as Directors appointed during the year, retire and seek election at the AGM. The Board has adopted a policy, in line with best practice in corporate governance, that all Directors offer themselves for re-election at each AGM and, accordingly, James Long, Ian Russell, Jim Grover and Julian Sinclair retire and, being eligible, each submit themselves for re-election at the AGM. The Board believes that all seven Directors remain independent of the Manager and free from any relationship which could materially interfere with the exercise of their judgement on issues of strategy, performance, resources and standards of conduct. In addition, the Board confirms that, following a formal performance evaluation, the performance of all Directors continues to be effective and demonstrates commitment to the role. The Board therefore recommends to shareholders the individual elections of Kevin Ingram, Tom Challenor and Paul Yates and individual re-elections of James Long, Ian Russell, Jim Grover and Julian Sinclair at the AGM.
The Directors attended scheduled Board, Audit Committee and Nomination Committee meetings during the year ended 30 September 2017 as follows (with their eligibility to attend the relevant meetings in brackets):
Director |
Scheduled Board Meetings |
Audit Committee |
Nomination Committee Meetings |
James Long |
5 (5) |
- |
1 (1) |
Kevin Ingram A |
2 (2) |
1 (1) |
1 (1) |
Ian Russell |
4 (5) |
2 (2) |
1 (1) |
Tom Challenor A |
2 (2) |
1 (1) |
1 (1) |
Jim Grover |
5 (5) |
2 (2) |
1 (1) |
Julian Sinclair |
4 (5) |
2 (2) |
1 (1) |
Paul Yates A |
2 (2) |
1 (1) |
1 (1) |
Lynn Ruddick B |
3 (3) |
- |
- |
Jimmy West B |
2 (3) |
- |
- |
A Appointed a Director on 6 April 2017
B Retired as a Director on 6 April 2017
The Directors meet more regularly when business needs require. During the year ended 30 September 2017, in addition to the scheduled meetings, the Board met more frequently in relation to the strategic review, tender offer and merger with Aberdeen UK Tracker Trust plc.
Board Committees
The Board has appointed a number of Committees, as set out below. Copies of their terms of reference, which define the responsibilities and duties of each Committee, are available on the Company's website, or upon request from the Company. The terms of reference of each of the Committees are reviewed and re-assessed by the Board for their adequacy on an ongoing basis.
Audit Committee
The Audit Committee's Report is contained in the Annual Report.
Management Engagement Committee
The Management Engagement Committee consists of all the Directors and was chaired by James Long throughout the year. The terms and conditions of the Manager's appointment, including an evaluation of performance and fees, are reviewed by the Committee on an annual basis. The Committee also keeps the resources of the Aberdeen Group under review, together with its commitment to the Company and its investment trust business. In addition, the Committee conducts an annual review of the performance, terms and conditions of the Company's main third party suppliers. The Management Engagement Committee did not meet formally during the year ended 30 September 2017 as the functions of the Committee, including in particular the strategic review which resulted in the subsequent appointment of Aberdeen Fund Managers Limited as Manager, were undertaken by the Board as a whole.
The Board remains satisfied with the capability of the Aberdeen Group to deliver satisfactory investment performance, that its investment screening processes are thorough and robust and that it employs a well-resourced team of skilled and experienced fund managers. In addition, the Board is satisfied that the Aberdeen Group has the secretarial, administrative and promotional skills required for the effective operation and administration of the Company. Accordingly, the Board believes that the continuing appointment of the Manager on the terms agreed is in the interests of shareholders as a whole.
Nomination Committee
The Nomination Committee consists of all the Directors and was chaired by James Long throughout the year. The Committee reviews the effectiveness of the Board, succession planning, Board appointments, appraisals, training and the remuneration policy. As stated in the Directors' Remuneration Report, contained in the published Annual Report, the full Board determines the level of Directors' fees and there is no separate Remuneration Committee.
Led by the Chairman, the Committee undertakes an annual appraisal of each Director and the performance of the Board as a whole. An appraisal of the Chairman is led by the Senior Independent Director. The intention is that the evaluation is externally facilitated every three years, the last such review being in 2015/16.
Potential new Directors are identified against the requirements of the Company's business and the need to have a balance of skills, experience, independence, diversity and knowledge of the Company within the Board.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company. Each Director is entitled to be indemnified out of the assets of the Company to the extent permitted by law against any loss or liability incurred by him in the execution of his duties in relation to the affairs of the Company. These rights are included in the Articles of Association of the Company.
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 their duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.
The Board takes a zero-tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Manager also takes a zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.
Going Concern
The Financial Statements of the Company have been prepared on a going concern basis. The forecast projections and actual performance are reviewed on a regular basis throughout the period and the Directors believe that this is the appropriate basis and that the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of twelve months from the date that these financial statements were approved) and is financially sound. The Company is able to meet all of its liabilities from its assets including its ongoing charges. The Company's longer term viability is considered in the viability statement in the Strategic Report - Overview of Strategy.
Accountability and Audit
The respective responsibilities of the Directors and the auditor in connection with the financial statements appear in the published Annual Report.
Each Director confirms that, so far as he 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.
Substantial Interests
As at 30 September 2017, the following interests in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure Guidance and Transparency Rules:
Shareholder |
Number of shares held |
% held B |
Aberdeen Asset Managers Limited Retail Plans A |
33,228,578 |
10.1 |
Aberdeen Standard Investments |
29,709,435 |
9.0 |
Alliance Trust Savings |
20,845,897 |
6.3 |
Hargreaves Lansdown A |
15,308,371 |
4.7 |
Charles Stanley |
12,487,801 |
3.8 |
Investec Wealth & Investment |
10,414,455 |
3.2 |
A Non-beneficial interest
B Based on 329,066,705 Ordinary shares in issue as at 30 September 2017
There have been no changes advised to the Company in relation to the above information, as at the date of approval of this Report, other than notification by Schroders plc of a holding of 20,995,284 Ordinary shares, equivalent to 6.4% of the Company's issued share capital.
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.
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.
The notice of the Annual General Meeting is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board and Manager at the meeting.
Annual General Meeting
The Annual General Meeting will be held at The Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ on Friday 2 March 2018 at 11.30am. The Notice of the Meeting is included in the published Annual Report. Resolutions including the following business will be proposed:
Allotment of Shares
Resolution 13 will be proposed as an ordinary resolution to confer an authority on the Directors, in substitution for any existing authority, to allot up to 10% of the issued Ordinary share capital of the Company (excluding treasury shares) as at the date of the passing of the resolution (up to a maximum aggregate nominal amount of £8.2m based on the number of Ordinary shares in issue as at the date of this Report) in accordance with Section 551 of the Companies Act 2006. The authority conferred by this resolution will expire at the next Annual General Meeting of the Company or, if earlier, 31 March 2019 (unless previously revoked, varied or extended by the Company in general meeting).
The Directors consider that the authority proposed to be granted by resolution 13 is necessary to retain flexibility.
Limited Disapplication of Pre-emption Provisions
Resolution 14 will be proposed as a special resolution and seeks to give the Directors power to allot Ordinary shares or to sell Ordinary shares held in treasury (see below) (i) by way of a rights issue (subject to certain exclusions); (ii) by way of an open offer or other offer of securities (not being a rights issue) in favour of existing shareholders in proportion to their shareholdings (subject to certain exclusions); and (iii) to persons other than existing shareholders for cash up to a maximum aggregate nominal amount representing 5% of the Company's issued Ordinary share capital as at the date of the passing of the resolution (up to an aggregate nominal amount of £4.1m based on the number of Ordinary shares in issue as at the date of this Report), without first being required to offer such shares to existing shareholders pro rata to their existing shareholding.
This power will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, 31 March 2019 (unless previously revoked, varied or extended by the Company in general meeting).
The Company may buy back and hold shares in treasury and then sell them at a later date for cash rather than cancelling them. Such sales are required to be on a pre-emptive, pro rata basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly, in addition to giving the Directors power to allot unissued Ordinary share capital on a non pre-emptive basis, resolution 14 will also give the Directors power to sell Ordinary shares held in treasury on a non pre-emptive basis, subject always in both cases to the limitations noted above. Pursuant to this power, Ordinary shares would only be issued for cash, and treasury shares would only be sold for cash, at a premium to the net asset value per share (calculated after the deduction of prior charges at market value). Treasury shares are explained in more detail under the heading "Market Purchase of the Company's own Ordinary Shares" below.
Market Purchase of the Company's own Ordinary Shares
Resolution 15 will be proposed as a special resolution to authorise the Company to make market purchases of its own Ordinary shares. The Company may do either of the following things in respect of its own Ordinary shares which it buys back and does not immediately cancel but, instead, holds in treasury:
- sell such shares (or any of them) for cash (or its equivalent); or
- ultimately cancel the shares (or any of them).
Treasury shares may be resold quickly and cost effectively. The Directors therefore intend to continue to take advantage of this flexibility as they deem appropriate. Treasury shares also enhance the Directors' ability to manage the Company's capital base.
No dividends will be paid on treasury shares and no voting rights attach to them.
The maximum aggregate number of Ordinary shares which may be purchased pursuant to the authority is 14.99% of the issued Ordinary share capital of the Company as at the date of the passing of the resolution (approximately 49 million Ordinary shares). The minimum price which may be paid for an Ordinary share is 25p (exclusive of expenses). The maximum price (exclusive of expenses) which may be paid for the shares is the higher of a) 5% above the average of the middle market quotations of the Ordinary shares (as derived from the Daily Official List of the London Stock Exchange) for the shares for the five business days immediately preceding the date of purchase; and b) the higher of the price of the last independent trade and the highest current independent bid on the main market for the Ordinary shares.
This authority, if conferred, will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, on 31 March 2019 (unless previously revoked, varied or extended by the Company in general meeting) and will be exercised only if it would result in an increase in net asset value per Ordinary share for the remaining shareholders and if it is in the best interests of shareholders as a whole.
Holding General Meetings on less than 14 days' clear notice
Under the Companies Act 2006, the notice period for all general meetings of the Company is 21 clear days' notice. Annual general meetings will always be held on at least 21 clear days' notice but shareholders can approve a shorter notice period for other general meetings. Resolution 16 seeks the authority from shareholders for the Company to be able to hold general meetings (other than Annual General Meetings) on not less than 14 clear days' notice. The approval will be effective until the Company's next annual general meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Companies Act 2006 (as amended by the Shareholders' Rights Regulations) before it can call a general meeting on 14 days' notice.
The Board believes that it is in the best interests of Shareholders to have the ability to call meetings on no less than 14 clear days' notice should an urgent matter arise. The Directors do not intend to hold a general meeting on less than 21 clear days' notice unless immediate action is required.
Recommendation
The Directors consider that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders and recommend that shareholders vote in favour of the resolutions as they intend to do in respect of their own beneficial shareholdings, amounting to 412,465 Ordinary shares, representing 0.13% of the issued share capital.
By order of the Board
Aberdeen Asset Management PLC
Company Secretary
7th Floor, 40 Princes Street
Edinburgh EH2 2BY
16 January 2018
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland'.
Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website but not for any information on the website that has been prepared or issued by third parties. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
- the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- in the opinion of the Directors, the Annual Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and
- the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
On behalf of the Board
James M Long
Director
16 January 2018
STATEMENT OF COMPREHENSIVE INCOME
|
|
Year ended |
Year ended |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Gains on investments |
10 |
- |
6,160 |
6,160 |
- |
11,623 |
11,623 |
Foreign exchange gains/(losses) |
|
- |
4,544 |
4,544 |
- |
(25,019) |
(25,019) |
Income |
3 |
17,961 |
- |
17,961 |
23,265 |
- |
23,265 |
Investment management fees |
4 |
56 |
104 |
160 |
(486) |
(902) |
(1,388) |
Administrative expenses |
5 |
(726) |
(281) |
(1,007) |
(758) |
(209) |
(967) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
Net return before finance costs and taxation |
|
17,291 |
10,527 |
27,818 |
22,021 |
(14,507) |
7,514 |
|
|
|
|
|
|
|
|
Finance costs |
6 |
(1,333) |
(2,475) |
(3,808) |
(1,346) |
(2,492) |
(3,838) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
Net return before taxation |
|
15,958 |
8,052 |
24,010 |
20,675 |
(16,999) |
3,676 |
|
|
|
|
|
|
|
|
Taxation |
7 |
(179) |
- |
(179) |
(73) |
- |
(73) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
Return attributable to equity shareholders |
|
15,779 |
8,052 |
23,831 |
20,602 |
(16,999) |
3,603 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
Return per Ordinary share (pence) |
9 |
5.31 |
2.71 |
8.02 |
7.56 |
(6.24) |
1.32 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
The total column of this statement represents the profit and loss account of the Company. The 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. |
|||||||
There has been no other comprehensive income during the year, accordingly, the return attributable to equity shareholders is equivalent to the total comprehensive income for the year. |
|||||||
All revenue and capital items in the above statement derive from continuing operations. |
|||||||
No operations were acquired or discontinued in the year. |
|||||||
The accompanying notes are an integral part of these financial statements. |
STATEMENT OF FINANCIAL POSITION
|
|
As at |
As at |
|
|
30 September 2017 |
30 September 2016 |
|
Note |
£'000 |
£'000 |
Non-current assets |
|
|
|
Investments at fair value through profit or loss |
10 |
477,150 |
420,128 |
|
|
_________ |
_________ |
Current assets |
|
|
|
Debtors |
11 |
2,613 |
6,347 |
Derivative financial instruments |
|
13,449 |
2,652 |
Collateral pledged with brokers |
|
- |
11,497 |
Cash and cash equivalents |
|
3,627 |
2,203 |
|
|
_________ |
_________ |
|
|
19,689 |
22,699 |
|
|
_________ |
_________ |
Creditors: amounts falling due within one year |
|
|
|
Bank overdraft |
|
- |
(18,084) |
Collateral received from brokers |
|
- |
(770) |
Derivative financial instruments |
|
(18) |
(9,758) |
Other creditors |
12 |
(422) |
(3,088) |
|
|
_________ |
_________ |
|
|
(440) |
(31,700) |
|
|
_________ |
_________ |
Net current assets/(liabilities) |
|
19,249 |
(9,001) |
|
|
_________ |
_________ |
Total assets less current liabilities |
|
496,399 |
411,127 |
|
|
|
|
Non-current liabilities |
|
|
|
6.25% Bonds 2031 |
13 |
(59,632) |
(59,606) |
|
|
_________ |
_________ |
Net assets |
|
436,767 |
351,521 |
|
|
_________ |
_________ |
Capital and reserves |
|
|
|
Called-up share capital |
14 |
91,352 |
72,778 |
Share premium account |
|
116,556 |
- |
Capital redemption reserve |
|
26,629 |
15,563 |
Capital reserve |
15 |
164,806 |
224,071 |
Revenue reserve |
|
37,424 |
39,109 |
|
|
_________ |
_________ |
Equity shareholders' funds |
|
436,767 |
351,521 |
|
|
_________ |
_________ |
|
|
|
|
Net asset value per Ordinary share (pence) |
16 |
|
|
Bonds at par value |
|
132.73 |
131.64 |
|
|
_________ |
_________ |
Bonds at fair value |
|
126.44 |
123.62 |
|
|
_________ |
_________ |
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2017 |
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Balance at 1 October 2016 |
|
72,778 |
- |
15,563 |
224,071 |
39,109 |
351,521 |
Return after taxation |
|
- |
- |
- |
8,052 |
15,779 |
23,831 |
Ordinary shares issued |
14 |
29,640 |
116,556 |
- |
- |
- |
146,196 |
Ordinary shares purchased for treasury |
15 |
- |
- |
- |
(3,998) |
- |
(3,998) |
Ordinary shares purchased for cancellation |
14, 15 |
(11,066) |
- |
11,066 |
(62,038) |
- |
(62,038) |
Tender offer costs |
|
- |
- |
- |
(1,281) |
- |
(1,281) |
Dividends paid |
8 |
- |
- |
- |
- |
(17,464) |
(17,464) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
Balance at 30 September 2017 |
|
91,352 |
116,556 |
26,629 |
164,806 |
37,424 |
436,767 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
For the year ended 30 September 2016 |
|
|
|
|
|
|
|
|
|
|
Share |
Capital |
|
|
|
|
|
Share |
premium |
redemption |
Capital |
Revenue |
|
|
|
capital |
account |
reserve |
reserve |
reserve |
Total |
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Balance at 1 October 2015 |
|
72,778 |
- |
15,563 |
249,811 |
36,680 |
374,832 |
Return after taxation |
|
- |
- |
- |
(16,999) |
20,602 |
3,603 |
Ordinary shares issued from treasury |
|
- |
- |
- |
270 |
- |
270 |
Ordinary shares purchased for treasury |
15 |
- |
- |
- |
(9,003) |
- |
(9,003) |
Tender offer costs |
|
- |
- |
- |
(8) |
- |
(8) |
Dividends paid |
8 |
- |
- |
- |
- |
(18,173) |
(18,173) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
Balance at 30 September 2016 |
|
72,778 |
- |
15,563 |
224,071 |
39,109 |
351,521 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CASH FLOWS
|
|
Year ended |
Year ended |
|
|
30 September 2017 |
30 September 2016 |
|
|
|
as re-presented (note 2a) |
|
Note |
£'000 |
£'000 |
Operating activities |
|
|
|
Net return before finance costs and taxation |
|
27,818 |
7,514 |
Adjustments for: |
|
|
|
Dividend income |
|
(9,686) |
(10,372) |
Fixed interest income |
|
(5,941) |
(2,871) |
Interest income |
|
4 |
(25) |
Other income |
|
(2,338) |
(9,997) |
Other income received |
|
2,338 |
9,997 |
Dividends received |
|
9,246 |
9,893 |
Fixed interest income received |
|
5,952 |
2,871 |
Interest received |
|
(4) |
25 |
Foreign exchange |
|
(4,544) |
(1,860) |
Gains on investments |
|
(6,160) |
(11,623) |
Increase in other debtors |
|
- |
(434) |
(Decrease)/increase in accruals |
|
(996) |
814 |
Stock dividends included in investment income |
|
(1,058) |
(52) |
Amortisation of fixed income book cost |
|
659 |
531 |
Forward contracts |
|
(13,796) |
(1,802) |
Net movement in collateral balances |
|
10,727 |
5,913 |
Taxation withheld |
|
(222) |
(62) |
|
|
________ |
________ |
Net cash flow from/(used in) operating activities |
|
11,999 |
(1,540) |
|
|
|
|
Investing activities{A} |
|
|
|
Purchases of investments |
|
(643,322) |
(408,381) |
Sales of investments |
|
588,685 |
408,256 |
|
|
________ |
________ |
Net cash flow used in investing activities |
|
(54,637) |
(125) |
|
|
|
|
Financing activities{B} |
|
|
|
Shares issued |
|
146,196 |
- |
Purchase of own shares to treasury |
|
(3,998) |
(9,003) |
Shares issued from treasury |
|
- |
270 |
Purchase of own shares for cancellation |
|
(62,038) |
- |
Interest paid |
|
(3,813) |
(3,840) |
Tender offer costs |
|
(1,281) |
(8) |
Equity dividends paid |
8 |
(17,464) |
(18,173) |
|
|
________ |
________ |
Net cash flow from/(used in) financing activities |
|
57,602 |
(30,754) |
|
|
________ |
________ |
Increase/(decrease) in cash and cash equivalents |
|
14,964 |
(32,419) |
|
|
________ |
________ |
Analysis of changes in cash and cash equivalents during the year |
|
|
|
Opening balance |
|
(15,881) |
14,678 |
Foreign exchange |
|
4,544 |
1,860 |
Increase/(decrease) in cash and cash equivalents as above |
14,964 |
(32,419) |
|
|
|
________ |
________ |
Closing balance |
|
3,627 |
(15,881) |
|
|
________ |
________ |
|
|
|
|
{A} In a change to presentation, the purchases and sales of investments are now being classified as investing activities as part of the investment policy of the Company. Previously these had been classified as operating activities. |
|||
{B} In another change to presentation, interest paid is now being classified as a financing activity. Previously this had been classified as an operating activity. These reclassifications in the above Statement of Cashflows have no impact on net assets, the Statement of Comprehensive Income or the Statement of Financial Position. |
The accompanying notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2017
1. |
Principal activity |
|
The Company is a closed-end investment company, registered in Scotland No SC003721, with its Ordinary shares being listed on the London Stock Exchange. |
2. |
Accounting policies |
|
|
(a) |
Basis of preparation |
|
|
The financial statements have been prepared in accordance with FRS 102 and with the AIC's Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2017. The financial statements are prepared in sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. |
|
|
|
|
|
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the Directors' Report. |
|
|
|
|
|
The financial statements are presented in sterling, which is the Company's functional and presentation currency. The Company's performance is evaluated and its liquidity is managed in sterling. Therefore sterling is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. |
|
|
|
|
|
The presentation of items in the Statement of Cash Flows for the comparative 2016 period has been changed to comply with best accounting practice FRS 102. |
|
|
|
|
|
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. The area where estimates and assumptions have the most significant effect on the amounts recognised in the financial statements is the determination of the fair value of unquoted investments, as disclosed in note 2(e). |
|
|
|
|
(b) |
Income |
|
|
Dividend income receivable on equity shares is recognised on the ex-dividend date. Dividend income on equity shares where no ex-dividend date is quoted is brought into account when the Company's right to receive payment is established. Where the Company has elected to receive dividends in the form of additional shares rather than in cash the amount of the cash dividend foregone is recognised as income. Special dividends are credited to capital or revenue according to their circumstances. Dividend income is presented gross of any non-recoverable withholding taxes, which are disclosed separately in the Statement of Comprehensive Income. |
|
|
|
|
|
The fixed returns on debt securities and non-equity shares are recognised using the effective interest rate method. |
|
|
|
|
|
Interest income is accounted for on an accruals basis. |
|
|
|
|
|
Underwriting commission is recognised when the issue underwritten closes. |
|
|
|
|
|
Option premium is recognised as revenue evenly over the life of the option contract and included in the revenue column of the Statement of Comprehensive Income unless the option has been written for the maintenance and enhancement of the Company's investment portfolio and represents an incidental part of a larger capital transaction, in which case any premia arising are allocated to the capital column of the Statement of Comprehensive Income. Where the premium is taken to revenue, an appropriate amount is shown as a capital return such that the total return reflects the overall change in the fair value of the option. When an option is closed out or exercised the gain or loss is accounted for as capital and any unamortised premium is also retained in capital. |
|
|
|
|
|
CDS premium income is recognised as revenue evenly over the life of the CDS contract and included in the revenue column of the Statement of Comprehensive Income unless the CDS has been written for the maintenance and enhancement of the Company's investment portfolio, in which case any premia arising are allocated to the capital column of the Statement of Comprehensive Income. When a CDS is closed out the gain or loss is accounted for as capital. |
|
|
|
|
|
Total Return Swaps ("TRS") may be held in the portfolio for generating or protecting capital returns, or potentially for generating or maintaining revenue returns. Where the purpose of the TRS is the generation of income, the premium received is treated as a revenue item. Where the purpose of the TRS is the maintenance of capital, the premium paid is treated as a capital item. The value of the TRS is subsequently marked to market to reflect the fair value of the TRS based on traded prices. |
|
|
|
|
(c) |
Expenses |
|
|
All expenses, with the exception of interest expenses, which are recognised using the effective interest method, are accounted for on an accruals basis. Expenses are charged through the revenue column of the Statement of Comprehensive Income except as follows: |
|
|
- expenses which are incidental to the acquisition or disposal of an investment are treated as capital and separately identified and disclosed in note 10; |
|
|
- the Company charges 65% of investment management fees and finance costs to capital, in accordance with the Board's expected long term return in the form of capital gains and income respectively from the investment portfolio of the Company. |
|
|
|
|
(d) |
Taxation |
|
|
The tax expense represents the sum of tax currently payable and deferred tax. Any 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 expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the Statement of Financial Position date. |
|
|
|
|
|
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position 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 Statement of Financial Position 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 underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Statement of Financial Position date. |
|
|
|
|
|
Due to the Company's status as an investment trust company and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. |
|
|
|
|
|
The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue within the Statement of Comprehensive Income on the same basis as the particular item to which it relates using the Company's effective rate of tax for the year. The Company does not apply the marginal method of allocation of tax relief. |
|
|
|
|
(e) |
Investments |
|
|
The Company has chosen to apply the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement (as adopted for use in the EU) and investments have been designated upon initial recognition at fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis. |
|
|
|
|
|
Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are valued at fair value through profit or loss. 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. |
|
|
|
|
|
Unquoted investments, including those in Limited Partnerships ("LPs") are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines. |
|
|
|
|
|
The Company's investments in LPs are subject to the terms and conditions of the respective investee's offering documentation. The investments in LPs are valued based on the reported Net Asset Value ("NAV") of such assets as determined by the administrator or General Partner of the LPs and adjusted by the Directors in consultation with the Manager to take account of concerns such as liquidity so as to ensure that investments held at fair value through profit or loss are carried at fair value. The reported NAV is net of applicable fees and expenses including carried interest amounts of the investees and the underlying investments held by each LP are accounted for, as defined in the respective investee's offering documentation. While the underlying fund managers may utilise various model-based approaches to value their investment portfolios, on which the Company's valuations are based, no such models are used directly in the preparation of fair values of the investments. The NAV of LPs reported by the administrators may subsequently be adjusted when such results are subject to audit and audit adjustments may be material to the Company. |
|
|
|
|
|
Gains and losses arising from changes in fair value are treated in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve. |
|
|
|
|
(f) |
Borrowings |
|
|
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. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and are charged 35% to revenue and 65% to capital in the Statement of Comprehensive Income to reflect the Company's investment policy and prospective income and capital growth. |
|
|
|
|
(g) |
Nature and purpose of reserves |
|
|
Called up share capital |
|
|
The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. |
|
|
|
|
|
Capital redemption reserve |
|
|
The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital. |
|
|
|
|
|
Capital reserve |
|
|
This reserve reflects any gains or losses on investments realised in the period along with any movement in the fair value of investments held 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 (c) and (f) 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. |
|
|
|
|
(h) |
Valuation of derivative financial instruments |
|
|
Derivatives are classified as fair value through profit or loss - held for trading. Derivatives are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value. The gain or loss on re-measurement is taken to the Statement of Comprehensive Income. The sources of the return under the derivative contract are allocated to the revenue and capital column of the Statement of Comprehensive Income in alignment with the nature of the underlying source of income and in accordance with guidance in the AIC SORP. |
|
|
|
|
(i) |
Dividends payable |
|
|
Dividends payable to equity shareholders are recognised in the financial statements when they have been approved by Shareholders and become a liability of the Company. Interim dividends are recognised in the financial statements in the period in which they are paid. |
|
|
|
|
(j) |
Foreign currency |
|
|
Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies are converted into sterling at the rate of exchange ruling at the reporting date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Gains or losses 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 in the Statement of Comprehensive Income, depending on whether the gain or loss is of a revenue or capital nature. |
|
|
|
|
(k) |
Treasury shares |
|
|
When the Company purchases the Company's equity share capital as treasury shares, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. When these shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus on the transaction is transferred to the share premium account or where a deficit on the transaction then it is transferred from the capital reserve. |
|
|
|
|
(l) |
Cash and cash equivalents |
|
|
Cash comprises cash in hand and demand deposits. Cash equivalents includes bank overdrafts repayable on demand and short term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value. |
|
|
|
|
(m) |
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. |
|
|
2017 |
2016 |
3. |
Income |
£'000 |
£'000 |
|
Income from investments |
|
|
|
UK listed dividends |
3,031 |
6,461 |
|
Overseas listed dividends |
5,597 |
3,911 |
|
Stock dividends |
1,058 |
- |
|
Fixed interest income |
5,941 |
2,871 |
|
|
______ |
______ |
|
|
15,627 |
13,243 |
|
|
______ |
______ |
|
|
|
|
|
|
2017 |
2016 |
|
|
£'000 |
£'000 |
|
Other income |
|
|
|
Interest |
(4) |
25 |
|
Derivative income |
2,304 |
9,955 |
|
Other income |
34 |
42 |
|
|
______ |
______ |
|
|
2,334 |
10,022 |
|
|
______ |
______ |
|
Total income |
17,961 |
23,265 |
|
|
______ |
______ |
|
|
2017 |
2016 |
|||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
4. |
Investment management fees |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Investment management fee - BlackRock |
241 |
448 |
689 |
486 |
902 |
1,388 |
|
|
Investment management fee - Aberdeen |
(297) |
(552) |
(849) |
- |
- |
- |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
(56) |
(104) |
(160) |
486 |
902 |
1,388 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
With effect from 11 February 2017, Aberdeen Fund Managers Limited has been appointed as the Company's Alternative Investment Fund Manager in place of BlackRock Fund Managers Limited. |
|||||||
|
|
|||||||
|
For the period to 10 February 2017 the investment management fee was levied at a rate of 0.4% per annum of the Company's total assets less current liabilities (excluding loans) and was allocated 35% to the revenue column and 65% to the capital column of the Statement of Comprehensive Income. |
|||||||
|
|
|
||||||
|
Following their appointment as Alternative Investment Fund Manager on 11 February 2017 through to the end of the year, Aberdeen agreed to waive any entitlement to management fees. Additionally, this waiver was in place until 6 October 2017, being the date six months subsequent to the Company's merger with Aberdeen UK Tracker Trust plc. The sums shown above for Aberdeen reflect sums paid to and retained by the Company, being the amount equal to six months management fees payable to BlackRock (in line with the notice period clause) calculated at the rate of 0.4% per annum of the Company's total assets less current liabilities (excluding loans) as at 10 February 2017 (being the date of termination of the BlackRock Investment Management Agreement). |
|||||||
|
|
|||||||
|
Following completion of the waiver period, the investment management fee to be levied by Aberdeen will be at the following tiered levels: |
|||||||
|
- 0.50% per annum in respect of the first £300 million of the net asset value (with the 6.25% Bonds 2031 at fair value); - 0.45% per annum in respect of the balance of the net asset value (with the 6.25% Bonds 2031 at fair value). |
|||||||
|
|
|||||||
|
The Company will also receive rebates in respect of underlying investments in other funds managed by the Manager (where an investment management fee is charged by the Manager on that fund) in the normal course of business to ensure that no double counting occurs. Any investments made in funds managed by the Manager which themselves invest directly into alternative investments including, but not limited to, infrastructure and property will be charged at the Manager's lowest institutional fee rate. To avoid double charging, such investments will be excluded from the overall management fee calculation. |
|||||||
|
|
2017 |
2016 |
||||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||
5. |
Administrative expenses |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
Directors' remuneration |
202 |
- |
202 |
182 |
- |
182 |
||
|
Custody fees |
54 |
- |
54 |
26 |
- |
26 |
||
|
Depositary fees |
57 |
- |
57 |
50 |
- |
50 |
||
|
Shareholders' services{A} |
36 |
- |
36 |
94 |
- |
94 |
||
|
Registrar's fees |
75 |
- |
75 |
82 |
- |
82 |
||
|
Transaction costs |
- |
17 |
17 |
- |
32 |
32 |
||
|
Auditor's remuneration: |
|
|
|
|
|
|
||
|
- statutory audit |
35 |
- |
35 |
44 |
- |
44 |
||
|
- taxation compliance services |
6 |
- |
6 |
6 |
- |
6 |
||
|
- other non-audit services |
|
|
|
|
|
|
||
|
|
- Review of Board compliance certificate |
1 |
- |
1 |
1 |
- |
1 |
|
|
|
- Review of transition |
7 |
- |
7 |
- |
- |
- |
|
|
|
- Review of Half-yearly Report |
7 |
- |
7 |
7 |
- |
7 |
|
|
Other expenses |
246 |
264 |
510 |
266 |
177 |
443 |
||
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
726 |
281 |
1,007 |
758 |
209 |
967 |
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
|
{A} Includes registration, savings scheme and other wrapper administration and promotion expenses, of which £36,000 (2016 - £94,000) was paid to BlackRock to cover promotional activities during the year. There was £nil (2016 - £86,000 due to BlackRock) due to Aberdeen Standard Investments in respect of these promotional activities at the year end. |
||||||||
|
|
2017 |
2016 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
6. |
Finance costs |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
6.25% Bonds 2031 |
1,320 |
2,450 |
3,770 |
1,325 |
2,461 |
3,786 |
|
Overdraft interest |
13 |
25 |
38 |
21 |
31 |
52 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
1,333 |
2,475 |
3,808 |
1,346 |
2,492 |
3,838 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
2017 |
2016 |
|||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
7. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
|
|
Overseas tax suffered |
350 |
- |
350 |
81 |
- |
81 |
|
|
Overseas tax reclaimable |
(171) |
- |
(171) |
(8) |
- |
(8) |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
Total tax charge for the year |
179 |
- |
179 |
73 |
- |
73 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
(b) |
Factors affecting the tax charge for the year |
||||||
|
|
The tax assessed for the year is lower than the standard rate of corporation tax of 19.5% (2016 - 20%). The differences are explained as follows: |
||||||
|
|
|
||||||
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Net return before taxation |
15,958 |
8,052 |
24,010 |
20,675 |
(16,999) |
3,676 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
Net return before taxation multiplied by the standard rate of corporation tax of 19.5% (2016 - 20%) |
3,112 |
1,570 |
4,682 |
4,135 |
(3,400) |
735 |
|
|
Effects of: |
|
|
|
|
|
|
|
|
Non taxable (gains)/losses on investments held at fair value through profit or loss |
- |
(4,192) |
(4,192) |
- |
(2,325) |
(2,325) |
|
|
Exchange gain not taxable |
- |
1,809 |
1,809 |
- |
5,005 |
5,005 |
|
|
Non taxable UK dividend income |
(562) |
- |
(562) |
(1,288) |
- |
(1,288) |
|
|
Non taxable overseas dividend income |
(1,077) |
- |
(1,077) |
(598) |
- |
(598) |
|
|
Disallowable expenses |
74 |
463 |
537 |
- |
42 |
42 |
|
|
Irrecoverable overseas tax |
350 |
- |
350 |
81 |
- |
81 |
|
|
Overseas tax recovered |
(171) |
- |
(171) |
(8) |
- |
(8) |
|
|
Utilisation of excess management expenses brought forward |
(1,538) |
350 |
(1,188) |
- |
(1,571) |
(1,571) |
|
|
Effect of not applying the marginal method of allocation of tax relief |
(9) |
- |
(9) |
(2,249) |
2,249 |
- |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
179 |
- |
179 |
73 |
- |
73 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
(c) |
Factors that may affect future tax charges |
||||||
|
|
No provision for deferred tax has been made in the current or prior accounting period. |
||||||
|
|
|
||||||
|
|
The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company. |
||||||
|
|
|
||||||
|
|
At the year end, the Company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £39,507,000 (2016 - £45,830,000). A deferred tax asset in respect of this has not been recognised and these expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. It is considered too uncertain that the Company will generate such profits and therefore no deferred tax asset has been recognised. |
|
|
2017 |
2016 |
8. |
Ordinary dividends on equity shares |
£'000 |
£'000 |
|
Third interim dividend for 2016 - 1.635p (2015 - 1.67p) |
4,366 |
4,583 |
|
Fourth interim dividend for 2016 - 1.635p (2015 - 1.70p) |
4,366 |
4,669 |
|
First interim dividend for 2017 - 1.635p (2016 - 1.635p) |
4,366 |
4,478 |
|
Second interim dividend for 2017 - 1.635p (2016 - 1.635p) |
4,366 |
4,443 |
|
|
______ |
______ |
|
|
17,464 |
18,173 |
|
|
______ |
______ |
|
|
|
|
|
Set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 and 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £15,779,000 (2016 - £20,602,000). |
||
|
|
|
|
|
|
2017 |
2016 |
|
|
£'000 |
£'000 |
|
First interim dividend for 2017 - 1.635p (2016 - 1.635p) |
4,366 |
4,478 |
|
Second interim dividend for 2017 - 1.635p (2016 - 1.635p) |
4,366 |
4,443 |
|
Third interim dividend for 2017 - 1.31p (2016 - 1.635p) |
4,317 |
4,366 |
|
Fourth interim dividend for 2017 - 1.31p{A} (2016 - 1.635p) |
4,304 |
4,366 |
|
|
______ |
______ |
|
|
17,353 |
17,653 |
|
|
______ |
______ |
|
|
|
|
|
{A} The amount reflected above for the cost of the fourth interim dividend for 2017 is based on 328,551,705 Ordinary shares, being the number of Ordinary shares in issue, excluding shares held in treasury, as at the date of this Report. |
|
|
2017 |
2016 |
9. |
Return per Ordinary share |
p |
p |
|
Revenue return |
5.31 |
7.56 |
|
Capital return |
2.71 |
(6.24) |
|
|
______ |
______ |
|
Total return |
8.02 |
1.32 |
|
|
______ |
______ |
|
The figures above are based on the following: |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
£'000 |
£'000 |
|
Revenue return |
15,779 |
20,602 |
|
Capital return |
8,052 |
(16,999) |
|
|
______ |
______ |
|
Total return |
23,831 |
3,603 |
|
|
______ |
______ |
|
Weighted average number of shares in issue{A} |
297,328,911 |
272,290,493 |
|
|
______ |
______ |
|
|
|
|
|
{A} Calculated excluding shares held in treasury. |
|
|
|
|
2017 |
2016 |
10. |
Investments |
£'000 |
£'000 |
|
Held at fair value through profit or loss: |
|
|
|
Opening valuation |
420,128 |
402,865 |
|
Opening investment holdings (gains)/losses |
(35,035) |
34,785 |
|
|
______ |
______ |
|
Opening book cost |
385,093 |
437,650 |
|
Movements during the year: |
|
|
|
Purchases at cost |
643,106 |
408,549 |
|
Sales - proceeds |
(584,479) |
(410,015) |
|
Sales - gains/(losses) |
39,158 |
(51,091) |
|
Accretion of fixed income book cost |
(659) |
- |
|
|
______ |
______ |
|
Closing book cost |
482,219 |
385,093 |
|
Closing investment holdings (losses)/gains |
(5,069) |
35,035 |
|
|
______ |
______ |
|
Closing valuation of investments |
477,150 |
420,128 |
|
|
______ |
______ |
|
|
|
|
|
|
2017 |
2016 |
|
The portfolio valuation |
£'000 |
£'000 |
|
UK equities |
131,977 |
185,758 |
|
Overseas equities |
179,431 |
88,321 |
|
Fixed interest |
108,969 |
131,680 |
|
Loan investments |
43,293 |
- |
|
Liquidity funds |
- |
1,248 |
|
Unquoted holdings |
13,480 |
13,121 |
|
|
477,150 |
420,128 |
|
Derivative financial instruments{A} |
13,431 |
(7,106) |
|
|
________ |
________ |
|
|
490,581 |
413,022 |
|
|
________ |
________ |
|
|
|
|
|
{A} Shown on the Statement of Financial Position under Current assets and Creditors: amounts falling due within one year. |
||
|
|
|
|
|
|
2017 |
2016 |
|
Gains/(losses) on investments |
£'000 |
£'000 |
|
Realised gains/(losses) on sales |
39,158 |
(51,091) |
|
Net movement in investment holdings gains |
(32,998) |
62,714 |
|
|
________ |
________ |
|
|
6,160 |
11,623 |
|
|
________ |
________ |
|
|
|
|
|
Transaction costs |
|
|
|
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows: |
||
|
|
|
|
|
|
2017 |
2016 |
|
|
£'000 |
£'000 |
|
Purchases |
187 |
486 |
|
Sales |
98 |
152 |
|
|
________ |
________ |
|
|
285 |
638 |
|
|
________ |
________ |
|
|
|
|
|
Substantial Holdings |
|
|
|
At the year end the Company held more than 3% of a share class in the following investees; |
||
|
|
|
|
|
|
|
% of |
|
Investee |
Class |
Class |
|
Aberdeen Global Smart Beta Low Volatility Global Equity Income Fund |
Z-1 |
99 |
|
Aberdeen Alpha Global Loans Fund |
Z-1 |
100 |
|
Aberdeen Global Indian Bond Fund |
Z-1 |
10 |
|
Aberdeen Global Frontier Markets Bond Fund |
I-1 |
38 |
|
Aberdeen European Residential Opportunities Fund |
B |
86 |
|
Aberdeen Property Secondaries Partners II |
A-1 |
43 |
|
TwentyFour Asset Backed Opportunities Fund |
I-1 |
81 |
|
|
2017 |
2016 |
11. |
Debtors |
£'000 |
£'000 |
|
Amounts due from brokers |
109 |
4,315 |
|
Prepayments and accrued income |
2,333 |
1,904 |
|
Taxation recoverable |
171 |
128 |
|
|
______ |
______ |
|
|
2,613 |
6,347 |
|
|
______ |
______ |
|
|
2017 |
2016 |
12. |
Creditors: amounts falling due within one year |
£'000 |
£'000 |
|
Amounts due to brokers |
- |
1,273 |
|
Interest on 6.25% Bonds 2031 |
209 |
214 |
|
Other creditors |
213 |
1,601 |
|
|
______ |
______ |
|
|
422 |
3,088 |
|
|
______ |
______ |
|
|
2017 |
2016 |
13. |
Creditors: amounts falling due after more than one year |
£'000 |
£'000 |
|
6.25% Bonds 2031{A} |
|
|
|
Balance at beginning of year |
59,606 |
59,579 |
|
Amortisation of discount and issue expenses |
26 |
27 |
|
|
______ |
______ |
|
Balance at end of year |
59,632 |
59,606 |
|
|
______ |
______ |
|
|
|
|
|
{A} The market value of the 6.25% Bonds using the last available quoted offer price from the London Stock Exchange as at 30 September 2017 was 133.88p, a total of £80,326,000 (2016 - 135.02p, total of £81,010,000). |
||
|
|
||
|
The Company has in issue £60 million Bonds 2031 which were issued at 99.343%. The bonds have been accounted for in accordance with accounting standards, which require any discount or issue costs to be amortised over the life of the bonds. The bonds are secured by a floating charge over all of the assets of the Company. |
||
|
|
||
|
Under the covenants relating to the bonds, the Company is to ensure that, at all times, the aggregate principal amount outstanding in respect of monies borrowed by the Company does not exceed an amount equal to its share capital and reserves. All covenants were met during the year and also during the period from the year end to the date of this report. |
|
|
Ordinary |
Treasury |
Total |
|
|
|
shares |
shares |
shares |
|
14. |
Called up share capital |
(number) |
(number) |
(number) |
£'000 |
|
Allotted, called up and fully paid |
|
|
|
|
|
Ordinary shares of 25p each |
|
|
|
|
|
At 30 September 2016 |
267,037,282 |
24,075,000 |
291,112,282 |
72,778 |
|
Shares issued |
118,561,879 |
- |
118,561,879 |
29,640 |
|
Shares purchased for cancellation |
(44,263,287) |
- |
(44,263,287) |
(11,066) |
|
Shares purchased for treasury |
(12,269,169) |
12,269,169 |
- |
- |
|
|
_________ |
_________ |
_________ |
______ |
|
At 30 September 2017 |
329,066,705 |
36,344,169 |
365,410,874 |
91,352 |
|
|
_________ |
_________ |
_________ |
______ |
|
|
|
|
|
|
|
Since the year end a further 515,000 Ordinary shares of 25p each have been purchased by the Company at a total cost of £601,000 all of which were held in treasury. |
|
|
2017 |
2016 |
15. |
Capital reserve |
£'000 |
£'000 |
|
At 1 October |
224,071 |
249,811 |
|
Movement in investment holding gains |
(32,998) |
62,714 |
|
Gains/(losses) on realisation of investments at fair value |
39,158 |
(51,091) |
|
Currency losses |
(9,279) |
(25,019) |
|
Forward currency contracts |
13,823 |
- |
|
Tender offer costs |
(1,281) |
(8) |
|
Transaction and other costs |
(281) |
(209) |
|
Finance costs |
(2,475) |
(2,492) |
|
Shares issued from treasury |
- |
270 |
|
Purchase of own shares to treasury |
(3,998) |
(9,003) |
|
Purchase of own shares for cancellation |
(62,038) |
- |
|
Investment management fees |
104 |
(902) |
|
|
______ |
______ |
|
At 30 September |
164,806 |
224,071 |
|
|
______ |
______ |
16. |
Net asset value per share |
||
|
The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end were as follows: |
||
|
|
|
|
|
Debt at par |
2017 |
2016 |
|
Net asset value attributable (£'000) |
436,767 |
351,521 |
|
Number of Ordinary shares in issue excluding treasury (note 14) |
329,066,705 |
267,037,282 |
|
Net asset value per share (p) |
132.73 |
131.64 |
|
|
|
|
|
Debt at fair value |
£'000 |
£'000 |
|
Net asset value attributable |
436,767 |
351,521 |
|
Add: Amortised cost of 6.25% Bonds 2031 |
59,632 |
59,606 |
|
Less: Market value of 6.25% Bonds 2031 |
(80,326) |
(81,010) |
|
|
______ |
______ |
|
|
416,073 |
330,117 |
|
|
______ |
______ |
|
Number of Ordinary shares in issue excluding treasury (note 14) |
329,066,705 |
267,037,282 |
|
Net asset value per share (p) |
126.44 |
123.62 |
|
|
|
|
|
Debt at par (capital basis) |
£'000 |
£'000 |
|
Net asset value attributable |
436,767 |
351,521 |
|
Less: revenue return for the year |
(15,779) |
(20,602) |
|
Add: interim dividends paid |
8,732 |
8,921 |
|
|
______ |
______ |
|
|
429,720 |
339,840 |
|
|
______ |
______ |
|
Number of Ordinary shares in issue excluding treasury (note 14) |
329,066,705 |
267,037,282 |
|
Net asset value per share (p) |
130.59 |
127.26 |
|
|
|
|
|
Debt at fair value (capital basis) |
£'000 |
£'000 |
|
Net asset value attributable |
436,767 |
351,521 |
|
Add: Amortised cost of 6.25% Bonds 2031 |
59,632 |
59,606 |
|
Less: Market value of 6.25% Bonds 2031 |
(80,326) |
(81,010) |
|
Less: revenue return for the year |
(15,779) |
(20,602) |
|
Add: interim dividends paid |
8,732 |
8,921 |
|
|
______ |
______ |
|
|
409,026 |
318,436 |
|
|
______ |
______ |
|
Number of Ordinary shares in issue excluding treasury (note 14) |
329,066,705 |
267,037,282 |
|
Net asset value per share (p) |
124.30 |
119.25 |
17. |
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, other than derivatives, comprise securities and other investments, cash balances, liquid resources, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, subject to Board approval, for the purpose of enhancing portfolio returns and for hedging purposes in a manner consistent with the Company's broader investment policy. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
As at 30 September 2017 there were 13 open positions in derivatives transactions (2016 - 103). |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Risk management framework |
|||||||||||||||||||||||
|
The directors of Aberdeen Fund Managers Limited collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
AFML is a fully integrated member of the Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD"). |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described in the committees' terms of reference. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Risk management |
|||||||||||||||||||||||
|
The main risks the Company faces from these financial instruments are (i) market risk (comprising interest rate, foreign currency and other price risk), (ii) liquidity risk and (iii) credit risk. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
In order to mitigate risk, the investment strategy is to select investments for their fundamental value. Stock selection is therefore based on disciplined accounting, market and sector analysis. 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 asset class. The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy. Current strategy is detailed in the Chairman's Statement and in the Investment Manager's Report. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
The Board has agreed the parameters for net gearing/cash, which was 12.8% of net assets as at 30 September 2017 (2016 - 21.5%). The Manager's policies for managing these risks are summarised below and have been applied throughout the current and previous year. The numerical disclosures in the tables listed below exclude short-term debtors and creditors. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Market risk |
|||||||||||||||||||||||
|
The Company's investment portfolio is exposed to market price fluctuations, which are monitored by the Manager in pursuance of the investment objective. Adherence to investment guidelines and to investment and borrowing powers set out in the management agreement mitigates the risk of exposure to any particular security or issuer. Further information on the investment portfolio is set out in the Investment Manager's Report. |
|||||||||||||||||||||||
|
Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's operations. It represents the potential loss the Company might suffer through holding market positions as a consequence of price movements. It is the Board's policy to hold equity investments in the portfolio in a broad spread of asset classes in order to reduce the risk arising from factors specific to a particular asset class.
|
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Interest rate risk |
|||||||||||||||||||||||
|
Interest rate movements may affect: |
|||||||||||||||||||||||
|
- the level of income receivable on cash deposits; |
|||||||||||||||||||||||
|
- interest payable on the Company's variable rate borrowings; and |
|||||||||||||||||||||||
|
- the fair value of any investments in fixed interest rate securities. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
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. Details of the 6.25% Bonds 2031 and interest rates applicable can be found in note 13. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Interest rate risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Financial assets |
|||||||||||||||||||||||
|
The interest rate risk of the portfolio of financial assets at the reporting date was as follows: |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
|
2017 |
2016 |
|||||||||||||||||||||
|
|
Within |
More than |
|
Within |
More than |
|
|||||||||||||||||
|
|
1 year |
1 year |
Total |
1 year |
1 year |
Total |
|||||||||||||||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||||||||||||||
|
Exposure to fixed interest rates |
|
|
|
|
|
|
|||||||||||||||||
|
Fixed interest investments |
1,471 |
75,764 |
77,235 |
30 |
128,928 |
128,958 |
|||||||||||||||||
|
Exposure to floating interest rates |
|
|
|
|
|
|
|||||||||||||||||
|
Fixed interest investments |
- |
31,734 |
31,734 |
- |
2,722 |
2,722 |
|||||||||||||||||
|
Loan investments |
- |
43,293 |
43,293 |
- |
- |
- |
|||||||||||||||||
|
Cash & cash equivalents |
3,627 |
- |
3,627 |
2,203 |
- |
2,203 |
|||||||||||||||||
|
Bank overdraft |
- |
- |
- |
(18,084) |
- |
(18,084) |
|||||||||||||||||
|
Net collateral pledged with brokers |
- |
- |
- |
10,727 |
- |
10,727 |
|||||||||||||||||
|
BlackRock's Institutional Sterling Liquidity Fund |
- |
- |
- |
1,248 |
- |
1,248 |
|||||||||||||||||
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||||||||||||||
|
|
5,098 |
150,791 |
155,889 |
(3,876) |
131,650 |
127,774 |
|||||||||||||||||
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Financial liabilities |
|||||||||||||||||||||||
|
The Company has borrowings by way of a bond issue, held at amortised cost of £59,632,000 (2016 - £59,606,000) details of which are in note 13. The fair value of this loan has been calculated at £80,326,000 as at 30 September 2017 (2016 - £81,010,000). |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Interest rate sensitivity |
|||||||||||||||||||||||
|
A sensitivity analysis demonstrates the sensitivity of the Company's results for the year to a reasonably possible change in interest rates, with all other variables held constant. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
The sensitivity of the profit/(loss) for the year is the effect of the assumed change in interest rates on: |
|||||||||||||||||||||||
|
- the net interest income for the year, based on the floating rate financial assets held at the Balance Sheet date; and |
|||||||||||||||||||||||
|
- changes in fair value of investments for the year, based on revaluing fixed rate financial assets and liabilities at the Statement of Financial Position date. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
If interest rates had been 50 basis points higher or lower and all other variables were held constant, the Company's net interest for the year ended 30 September 2017 would increase/decrease by £18,000 (2016 - decrease/increase £20,000). This is attributable to the Company's exposure to interest rates on its floating rate cash balances and the bank overdraft at 30 September 2016. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
If interest rates had been 50 basis points higher and all other variables were held constant, a change in fair value of the Company's fixed rate and loan financial assets at the year ended 30 September 2017 of £152,262,000 (2016 - £131,680,000) would result in a decrease of £2,025,000 (2016 - £1,988,000). If interest rates had been 50 basis points lower and all other variables were held constant, a change in fair value of the Company's fixed rate financial assets at the year ended 30 September 2017 would result in an increase of £2,116,000 (2016 - £1,988,000). |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Foreign currency risk |
|||||||||||||||||||||||
|
A proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Statement of Financial Position can be affected by movements in exchange rates. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Management of the risk |
|||||||||||||||||||||||
|
The revenue account is subject to currency fluctuations arising on dividends receivable in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. It is not the Company's policy to hedge this currency risk but the Board keeps under review the currency returns in both capital and income. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Foreign currency risk exposure by currency of denomination excluding other debtors and receivables and other payables falling due within one year: |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
|
30 September 2017 |
30 September 2016 |
|||||||||||||||||||||
|
|
|
Net |
Total |
|
Net |
Total |
|||||||||||||||||
|
|
|
monetary |
currency |
|
monetary |
currency |
|||||||||||||||||
|
|
Investments |
items |
exposure |
Investments |
items |
exposure |
|||||||||||||||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||||||||||||||||
|
US Dollar |
232,657 |
(140) |
232,517 |
93,723 |
552 |
94,275 |
|||||||||||||||||
|
Euro |
20,552 |
- |
20,552 |
25,997 |
2,754 |
28,751 |
|||||||||||||||||
|
Other |
82,405 |
170 |
82,575 |
29,827 |
- |
29,827 |
|||||||||||||||||
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|||||||||||||||||
|
|
335,614 |
30 |
335,644 |
149,547 |
3,306 |
152,853 |
|||||||||||||||||
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Foreign currency sensitivity |
|||||||||||||||||||||||
|
The following table details the impact on the Company's net assets to a 10% decrease (in the context of a 10% increase the figures below should all be read as negative) in Sterling against the foreign currencies in which the Company has exposure. The sensitivity analysis includes foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. |
|||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
|
|
2017 |
2016 |
|||||||||||||||||||||
|
|
£'000 |
£'000 |
|||||||||||||||||||||
|
US Dollar |
23,251 |
9,427 |
|||||||||||||||||||||
|
Euro |
2,055 |
2,875 |
|||||||||||||||||||||
|
Other |
8,258 |
2,983 |
|||||||||||||||||||||
|
|
______ |
______ |
|||||||||||||||||||||
|
|
33,564 |
15,285 |
|||||||||||||||||||||
|
|
______ |
______ |
|||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
|
Foreign exchange contracts |
|||||||||||||||||||||||
|
The following forward contracts were outstanding at the Statement of Financial Position date: |
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
Unrealised |
|||||||||||||||||
|
|
|
|
|
|
|
gain/(loss) |
|||||||||||||||||
|
|
|
|
|
|
|
30 September |
|||||||||||||||||
|
Date of |
Buy |
Sell |
Settlement |
Amount |
Contracted |
2017 |
|||||||||||||||||
|
contract |
Currency |
Currency |
date |
'000 |
rate |
£'000 |
|||||||||||||||||
|
30 August 2017 |
GBP |
EUR |
6 December 2017 |
2,360 |
1.1331 |
111 |
|||||||||||||||||
|
31 August 2017 |
GBP |
AUD |
6 December 2017 |
53,220 |
1.7146 |
2,361 |
|||||||||||||||||
|
31 August 2017 |
GBP |
EUR |
6 December 2017 |
57,635 |
1.1331 |
2,553 |
|||||||||||||||||
|
31 August 2017 |
GBP |
JPY |
6 December 2017 |
38,441 |
150.8571 |
2,147 |
|||||||||||||||||
|
31 August 2017 |
GBP |
USD |
6 December 2017 |
80,353 |
1.3443 |
3,069 |
|||||||||||||||||
|
31 August 2017 |
GBP |
USD |
6 December 2017 |
80,274 |
1.3443 |
2,991 |
|||||||||||||||||
|
8 September 2017 |
GBP |
EUR |
6 December 2017 |
6,023 |
1.1331 |
212 |
|||||||||||||||||
|
11 September 2017 |
USD |
GBP |
6 December 2017 |
317 |
1.3443 |
(5) |
|||||||||||||||||
|
13 September 2017 |
USD |
GBP |
6 December 2017 |
509 |
1.3443 |
(6) |
|||||||||||||||||
|
18 September 2017 |
GBP |
USD |
6 December 2017 |
694 |
1.3443 |
(7) |
|||||||||||||||||
|
19 September 2017 |
USD |
GBP |
6 December 2017 |
465 |
1.3443 |
3 |
|||||||||||||||||
|
25 September 2017 |
USD |
GBP |
6 December 2017 |
296 |
1.3443 |
2 |
|||||||||||||||||
|
27 September 2017 |
USD |
GBP |
6 December 2017 |
459 |
1.3443 |
- |
|||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
|
The fair value of forward exchange contracts is based on forward exchange rates at the Statement of Financial Position date. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Other price risk |
|||||||||||||||||||||||
|
Other 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 international markets and the stock selection process, as detailed in the section "Investment Process" in the published Annual Report, 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. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Other price risk sensitivity |
|||||||||||||||||||||||
|
If market prices at the reporting date had been 10% higher or lower on investments held at fair value while all other variables remained constant, the return attributable to Ordinary shareholders and equity for the year ended 30 September 2017 would have increased/decreased by £47,715,000 (2016 - £42,013,000). |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Liquidity risk |
|||||||||||||||||||||||
|
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. |
|||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||
|
|
Within |
Within |
Within |
More than |
|
||||||||||||||||||
|
|
1 year |
1-3 years |
3-5 years |
5 years |
Total |
||||||||||||||||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||||||||||||||||
|
6.25% Bonds 2031 |
- |
- |
- |
60,000 |
60,000 |
||||||||||||||||||
|
Interest cash flows on 6.25% Bonds 2031 |
3,750 |
7,500 |
7,500 |
33,750 |
52,500 |
||||||||||||||||||
|
|
______ |
______ |
______ |
______ |
______ |
||||||||||||||||||
|
|
3,750 |
7,500 |
7,500 |
93,750 |
112,500 |
||||||||||||||||||
|
|
______ |
______ |
______ |
______ |
______ |
||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||
|
Management of the risk |
|||||||||||||||||||||||
|
The Company's assets mostly comprise readily realisable securities which can be sold to meet funding commitments if necessary. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Credit risk |
|||||||||||||||||||||||
|
This is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Management of the risk |
|||||||||||||||||||||||
|
- where the Manager makes an investment in a bond, corporate or otherwise, the credit ratings of the issuer are taken into account so as to manage the risk to the Company of default; |
|||||||||||||||||||||||
|
- investments in quoted bonds are made across a variety of industry sectors and geographic markets so as to avoid concentrations of credit risk; |
|||||||||||||||||||||||
|
- 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 number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker; |
|||||||||||||||||||||||
|
- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the daily review of failed trade reports. In addition, both stock and cash reconciliations to the custodian's records are performed daily to ensure discrepancies are investigated in a timely manner. The Manager's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's Risk Management Committee; |
|||||||||||||||||||||||
|
- cash is held only with reputable banks with acceptable credit quality. It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Credit risk exposure |
|||||||||||||||||||||||
|
In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 30 September 2017 was as follows: |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
|
2017 |
2016 |
|||||||||||||||||||||
|
|
Balance |
Maximum |
Balance |
Maximum |
|||||||||||||||||||
|
|
Sheet |
exposure |
Sheet |
exposure |
|||||||||||||||||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|||||||||||||||||||
|
Non-current assets |
|
|
|
|
|||||||||||||||||||
|
Securities at fair value through profit or loss |
477,150 |
152,262 |
420,128 |
131,680 |
|||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
|
Current assets |
|
|
|
|
|||||||||||||||||||
|
Other debtors |
280 |
280 |
4,443 |
4,443 |
|||||||||||||||||||
|
Accrued income |
2,333 |
2,333 |
1,904 |
1,904 |
|||||||||||||||||||
|
Derivatives |
13,449 |
13,449 |
2,652 |
2,652 |
|||||||||||||||||||
|
Cash and short term deposits |
3,627 |
3,627 |
2,203 |
2,203 |
|||||||||||||||||||
|
|
______ |
______ |
______ |
______ |
|||||||||||||||||||
|
|
496,839 |
171,951 |
431,330 |
142,882 |
|||||||||||||||||||
|
|
______ |
______ |
______ |
______ |
|||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
|
None of the Company's financial assets is secured by collateral or other credit enhancements and none of the Company's financial assets are past due or impaired (2016 - £10,727,000). |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
18. |
Fair value hierarchy |
|||||||||||||||||||||||
|
FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Level 1 - Quoted prices in active markets for identical instruments |
|||||||||||||||||||||||
|
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The Company does not adjust the quoted price for these instruments. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Level 2 - Valuation techniques using observable inputs |
|||||||||||||||||||||||
|
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Valuation techniques used for non-standardised financial instruments such as over-the-counter derivatives, include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Level 3 - Valuation techniques using significant unobservable inputs |
|||||||||||||||||||||||
|
This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact on the instrument's valuation. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The investment manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows: |
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
||||||||||||||||||
|
As at 30 September 2017 |
£'000 |
£'000 |
£'000 |
£'000 |
|
||||||||||||||||||
|
Financial assets/(liabilities) at fair value through profit or loss |
|
|
|
|
|
||||||||||||||||||
|
Equity investments |
94,441 |
216,967 |
13,480 |
324,888 |
|
||||||||||||||||||
|
Loan investments |
- |
43,293 |
- |
43,293 |
|
||||||||||||||||||
|
Fixed interest instruments |
- |
108,783 |
186 |
108,969 |
|
||||||||||||||||||
|
Forward currency contracts - financial assets |
- |
13,449 |
- |
13,449 |
|
||||||||||||||||||
|
Forward currency contracts - financial liabilities |
- |
(18) |
- |
(18) |
|
||||||||||||||||||
|
|
_______ |
_______ |
_______ |
_______ |
|
||||||||||||||||||
|
Net fair value |
94,441 |
382,474 |
13,666 |
490,581 |
|
||||||||||||||||||
|
|
_______ |
_______ |
_______ |
_______ |
|
||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
||||||||||||||||||
|
As at 30 September 2016 |
£'000 |
£'000 |
£'000 |
£'000 |
|
||||||||||||||||||
|
Financial assets/(liabilities) at fair value through profit or loss |
|
|
|
|
|
||||||||||||||||||
|
Equity investments |
274,079 |
- |
13,121 |
287,200 |
|
||||||||||||||||||
|
Fixed interest instruments |
28,895 |
102,785 |
- |
131,680 |
|
||||||||||||||||||
|
Option - financial assets |
- |
1,398 |
- |
1,398 |
|
||||||||||||||||||
|
Option - financial liabilities |
- |
(3,952) |
- |
(3,952) |
|
||||||||||||||||||
|
Forward currency contracts - financial assets |
- |
507 |
- |
507 |
|
||||||||||||||||||
|
Forward currency contracts - financial liabilities |
- |
(875) |
- |
(875) |
|
||||||||||||||||||
|
Futures - financial liabilities |
- |
(1,600) |
- |
(1,600) |
|
||||||||||||||||||
|
Total return swaps - financial assets |
- |
747 |
- |
747 |
|
||||||||||||||||||
|
Total return swaps - financial liabilities |
- |
(3,145) |
- |
(3,145) |
|
||||||||||||||||||
|
FX swaps - financial liabilities |
- |
(96) |
- |
(96) |
|
||||||||||||||||||
|
Credit default swap |
- |
- |
(90) |
(90) |
|
||||||||||||||||||
|
BlackRock's Institutional Cash Series plc - Sterling Liquidity Fund |
1,248 |
- |
- |
1,248 |
|
||||||||||||||||||
|
|
_______ |
_______ |
_______ |
_______ |
|
||||||||||||||||||
|
Net fair value |
304,222 |
95,769 |
13,031 |
413,022 |
|
||||||||||||||||||
|
|
_______ |
_______ |
_______ |
_______ |
|
||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||
|
|
As at |
As at |
|
||||||||||||||||||||
|
|
30 September 2017 |
30 September 2016 |
|
||||||||||||||||||||
|
Level 3 Financial assets at fair value through profit or loss |
£'000 |
£'000 |
|
||||||||||||||||||||
|
Opening fair value |
13,031 |
(321) |
|
||||||||||||||||||||
|
Purchases including calls (at cost) |
9,340 |
12,468 |
|
||||||||||||||||||||
|
Disposals and return of capital |
(9,202) |
2 |
|
||||||||||||||||||||
|
Total gains or losses included in gains/(losses) on investments in the Statement of Comprehensive Income: |
|
|
|
||||||||||||||||||||
|
- assets disposed of during the year |
571 |
25 |
|
||||||||||||||||||||
|
- assets held at the end of the year |
(74) |
857 |
|
||||||||||||||||||||
|
|
_______ |
_______ |
|
||||||||||||||||||||
|
Closing balance |
13,666 |
13,031 |
|
||||||||||||||||||||
|
|
_______ |
_______ |
|
||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
|
The fair value of Level 3 financial assets has been determined by reference to primary valuation techniques described in note 2(e) of these financial statements. The Level 3 equity investments comprise the following; |
|
||||||||||||||||||||||
|
MRTCP I LP |
|
||||||||||||||||||||||
|
Forward Partners 1 LP |
|
||||||||||||||||||||||
|
Maj Equity Fund 4 |
|
||||||||||||||||||||||
|
TrueNoord Co-Investment II LP |
|
||||||||||||||||||||||
|
Maj Equity Fund V |
|
||||||||||||||||||||||
|
Agriculture Capital ACM Fund II |
|
||||||||||||||||||||||
|
|
|
||||||||||||||||||||||
|
During the year fixed interest instruments valued at £186,000 (2016 - £133,000) were transferred from Level 2 to Level 3. There were no other transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 30 September 2017 and 30 September 2016. |
|
||||||||||||||||||||||
|
|
|
||||||||||||||||||||||
|
For all other assets and liabilities (i.e. those not included in the hierarchy table) carrying value approximates to fair value. |
|
||||||||||||||||||||||
19. |
Related party disclosures |
|
|
Directors' fees and interests |
|
|
Fees payable during the year to the Directors and their interests in shares of the Company are considered to be related party transactions and are disclosed within the Directors' Remuneration Report in the published Annual Report. The balance of fees due to Directors at the year end was £nil (2016 - £nil). |
|
|
|
|
|
Transactions with the Manager |
|
|
Up to 10 February 2017, BlackRock Fund Managers Limited ('BlackRock') were appointed as the Company's Alternative Investment Fund Manager ("AIFM"). During this period the investment management fee was levied at a rate of 0.4% per annum of the Company's total assets less current liabilities (excluding loans). |
|
|
|
|
|
With effect from 11 February 2017, Aberdeen Fund Managers Limited ("Aberdeen") was appointed as the Company's AIFM in place of BlackRock. |
|
|
|
|
|
The investment management fee to be levied by Aberdeen (post waiver) will be at the following tiered levels, payable monthly in arrears: |
|
|
- 0.50% per annum in respect of the first £300 million of the net asset value (with debt at fair value); |
|
|
- 0.45% per annum in respect of the balance of the net asset value (with debt at fair value). |
|
|
|
|
|
The Company will also receive rebates with regards to underlying investments in other funds managed by Aberdeen (where an investment management fee is charged by Aberdeen on that fund) in the normal course of business to ensure that no double counting occurs. Any investments made in funds managed by Aberdeen which themselves invest directly into alternative investments including, but not limited to, infrastructure and property will be charged at Aberdeen's lowest institutional fee rate. To avoid double charging, such investments will be excluded from the overall management fee calculation. |
|
|
|
|
|
The table below details all investments held at 30 September 2017 that were managed by Aberdeen. For the period to 30 September 2017 no fees were levied in respect of these funds. |
|
|
|
|
|
|
30 September 2017 |
|
|
£'000 |
|
Aberdeen Global - Smart Beta Low Volatility Global Equity Income Fund |
113,511 |
|
Aberdeen Alpha Global Loans Fund |
43,293 |
|
Aberdeen Global - Indian Bond Fund |
19,497 |
|
Aberdeen Global - Frontier Markets Bond Fund |
9,812 |
|
Aberdeen European Residential Opportunities Fund |
3,100 |
|
Aberdeen Property Secondaries Partners II |
2,545 |
|
|
______ |
|
|
191,758 |
|
|
______ |
|
|
|
|
As detailed in note 4, no investment management fees were charged by the Manager in the year due to a waiver being in place. The Manager also agreed to pay to the Company an amount equal to six months management fees payable to BlackRock (in line with notice period clause) calculated at the rate of 0.4% per annum of the gross assets of the Company as at 10 February 2017 (being the date of termination of the BlackRock Investment Management Agreement). At the year end, an amount of £nil (2016 - £656,000) was outstanding in respect of management fees. |
|
|
|
|
|
Subsequent to the year end, on 14 December 2017, the Company acquired an investment in Aberdeen Global Infrastructure Partners II LP from Aberdeen Asset Management PLC. Further details of the transaction can be found in note 23. Aberdeen Asset Management PLC is part of the same group as the Company's investment manager, Aberdeen Fund Managers Limited, and is therefore deemed a related party under the Listing Rules. The acquisition amounts to a smaller related party transaction under Listing Rule 11.1.10R. |
20. |
Capital management policies and procedures |
|
The investment objective of the Company is to target a total portfolio return of LIBOR (London Interbank Offered Rate) plus 5.5% per annum (net of fees) over rolling five-year periods. |
|
|
|
The capital of the Company consists of debt, comprising bonds, and equity, comprising issued capital, reserves and retained earnings. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. |
|
|
|
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: |
|
- the planned level of gearing which takes into account the Investment Manager's views on the market; |
|
- the level of equity shares in issue; |
|
- the extent to which revenue in excess of that which is required to be distributed should be retained. |
|
|
|
The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. |
|
|
|
At the year end a covenant relating to the bonds issue provide that the Company is to ensure that, at all times, the aggregate principal amount outstanding in respect of monies borrowed by the Company does not exceed an amount equal to its share capital and reserves. As noted in greater detail in note 13 this covenant was met during the year and also during the period from the year end to the date of this report. The Company is not subject to any other externally imposed capital requirements. |
21. |
Commitments and contingent liabilities |
|
|
At 30 September 2017 the Company had commitments of £90,855,000 of which £63,609,000 remained outstanding (2016 - £18,006,000). Further details are given below. There were no contingent liabilities as at 30 September 2017 (2016 - nil). |
|
|
|
|
|
|
Undrawn commitments |
|
|
30 September 2017 |
|
|
£'000 |
|
MRTCP I LP |
19,091 |
|
Aberdeen Property Secondaries Partners II |
14,712 |
|
Aberdeen European Residential Opportunities Fund |
10,614 |
|
Cheyne Social Housing |
8,500 |
|
Agriculture Capital ACM Fund II |
4,333 |
|
Maj Equity Fund V |
2,497 |
|
TrueNoord Co-Investment II LP |
2,325 |
|
Maj Equity Fund 4 |
1,028 |
|
Forward Partners 1 LP |
509 |
|
|
______ |
|
|
63,609 |
|
|
______ |
22. |
Alternative performance measures |
||||
|
The table below provides information relating to the underlying net asset values ("NAV") and share prices of the Company on the dividend reinvestment dates during the years ended 30 September 2017 and 30 September 2016. |
||||
|
|
|
|
|
|
|
|
Dividend |
NAV |
NAV |
Share |
|
|
rate |
(debt at par) |
(debt at fair value) |
price |
|
2017 |
p |
p |
p |
p |
|
5 January 2017 |
1.635 |
129.46 |
121.92 |
108.00 |
|
2 March 2017 |
1.635 |
130.44 |
122.82 |
113.88 |
|
6 April 2017 |
1.635 |
129.56 |
122.43 |
114.00 |
|
31 August 2017 |
1.310 |
132.33 |
125.33 |
118.50 |
|
|
|
|
|
|
|
|
Dividend |
NAV |
NAV |
Share |
|
|
rate |
(debt at par) |
(debt at fair value) |
price |
|
2016 |
p |
p |
p |
p |
|
31 December 2015 |
1.700 |
138.86 |
133.88 |
135.00 |
|
10 March 2016 |
1.635 |
129.48 |
123.47 |
120.50 |
|
23 June 2016 |
1.635 |
128.80 |
122.86 |
118.25 |
|
15 September 2016 |
1.635 |
128.90 |
121.37 |
112.50 |
23. |
Subsequent events |
|
The Company entered into a sale and purchase agreement on 14 December 2017 to acquire in its entirety the interest of Aberdeen Asset Management PLC in Aberdeen Global Infrastructure Partners II LP. This interest is being acquired for A$5.5 million (£3.1million) and includes further capital commitments to the Fund of A$17.3million and US$2.7million (£11.8million). |
|
|
|
In addition, on 1 November 2017, the Company made a commitment of US$33,000,000 to Markel CATCo Reinsurance Fund Ltd. |
Additional Notes to Annual Financial Report
The Annual General Meeting will be held at 11.30am on 2 March 2018 at The Drapers' Hall, Throgmorton Avenue, London EC2N 2DQ.
The Annual Financial Report announcement is not the Company's statutory accounts. The above results for the year ended 30 September 2017 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2016 and 2017 statutory accounts received unqualified reports from the Company's auditor and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under S498 of the Companies Act 2006. The financial information for 2016 is derived from the statutory accounts for the year ended 30 September 2016 which have been delivered to the Registrar of Companies. The accounts for the year ended 30 September 2017 will be filed with the Registrar of Companies in due course.
The Annual Report will be posted to shareholders in January 2018 and copies will be available from the registered office of the Company and on the Company's website at - www.aberdeendiversified.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
16 January 2018
* 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.